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ForeignForeign Direct Direct InvestmentInvestment

PRESENTED BY :-PRESENTED BY :- CHINMAYA RANJAN RAYCHINMAYA RANJAN RAY

PRIYANSH ACHARYAPRIYANSH ACHARYA

SHIMONA SIWATCHSHIMONA SIWATCH

MAYANK SINHAMAYANK SINHA

ISHA GUPTAISHA GUPTA

ACHAL DUGARACHAL DUGAR

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An OverviewAn Overview

• What is FDI ????What is FDI ????• Why we need FDI ????Why we need FDI ????• What is the process of the Inflow of What is the process of the Inflow of

FDI ????FDI ????• What are the benefits and What are the benefits and

costs????costs????

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Defination of FDIDefination of FDI

Foreign direct investment (FDI) Foreign direct investment (FDI) occurs when an investor based in occurs when an investor based in one country (the home country) one country (the home country) acquires an asset in another acquires an asset in another country ( the host country) country ( the host country) with with the intent to manage the asset.the intent to manage the asset.

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Types of FDITypes of FDI

• FDI TypesFDI Types– Purchase of existing assetsPurchase of existing assets

• Quick entry, local market know-how, local Quick entry, local market know-how, local financing may be possible, eliminate financing may be possible, eliminate competitor, buying problemscompetitor, buying problems

– New investment New investment • No local entity exists or is available for sale, No local entity exists or is available for sale,

local financial incentives may encourage, no local financial incentives may encourage, no inherited problems, long lead time to generation inherited problems, long lead time to generation of sales or other desired outcomeof sales or other desired outcome

– Participation in an international joint-ventureParticipation in an international joint-venture• Shared ownership with local and/or other non-Shared ownership with local and/or other non-

local partnerlocal partner

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Which factors Which factors encourages FDI?encourages FDI?

• Financial incentives (Funds from local Financial incentives (Funds from local Government)Government)

• Fiscal incentives (Exemption from import Fiscal incentives (Exemption from import duties)duties)

• Indirect incentives (Provides land and Indirect incentives (Provides land and infrastructures at less commercial prices)infrastructures at less commercial prices)

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Which factors Which factors encourages FDI?encourages FDI?

•Political stabilityPolitical stability

•Market potential & accessibilityMarket potential & accessibility

•Large economyLarge economy

•Market sizeMarket size

•External debt discourages FDIExternal debt discourages FDI

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Don’t Be Confused BetweenDon’t Be Confused Between FDI & FIIFDI & FII

• FIIFII - is Foreign Institutional Investors, i.e, foreign - is Foreign Institutional Investors, i.e, foreign Investment Bankers like Goldman sachs, Merrill lynch, Investment Bankers like Goldman sachs, Merrill lynch, Lehman bros etc...investing in indian markets......in other Lehman bros etc...investing in indian markets......in other words buying indian stocks.....FII's generally buy in large words buying indian stocks.....FII's generally buy in large volumes which has an impact on the stock markets...volumes which has an impact on the stock markets...

FDIFDI - is Foreign Direct Investments i.e. a - is Foreign Direct Investments i.e. a foreign company having a stake in a public foreign company having a stake in a public sector undertaking in a country for a long sector undertaking in a country for a long period and that company is called Multinational period and that company is called Multinational Enterprise.Enterprise.

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The Direction of FDIThe Direction of FDI

• Historically, most FDI has been directed at the Historically, most FDI has been directed at the developed nations of the world as firms based in developed nations of the world as firms based in advanced countries invested in other marketsadvanced countries invested in other markets

– The US has been the favorite target for FDI inflowsThe US has been the favorite target for FDI inflows

• While developed nations still account for the While developed nations still account for the largest share of FDI inflows, FDI into developing largest share of FDI inflows, FDI into developing nations has increasednations has increased

– Most recent inflows into developing nations have been Most recent inflows into developing nations have been targeted at the emerging economies of South, East, and targeted at the emerging economies of South, East, and Southeast AsiaSoutheast Asia

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Modes of FDI

• 1) By Direction • * Inward• *Outward• 2) By Target • * Mergers and Acquisitions• * Horizontal FDI• * Vertical FDI • (a) Backward Vertical FDI• (b) Forward Vertical FDI• 3 )By Motive • * Resource-Seeking• * Market-Seeking• * Efficiency-Seeking• * Strategic-Asset-Seeking

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BY TARGETBY TARGET• Mergers and Acquisitions

• Transfers of existing assets from local firms to foreign firms takes place;

• Horizontal FDI• Investment in the same industry abroad as a firm

operates in at home.

• Vertical FDI• *Backward Vertical FDI• Where an industry abroad provides inputs for a

firm's domestic production process.• *Forward Vertical FDI• Where an industry abroad sells the outputs of a

firm's domestic production.

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BY MOTIVEBY MOTIVEResource-SeekingResource-SeekingThis typifies FDI into developing countries, for example This typifies FDI into developing countries, for example

seeking natural resources in the Middle East and Africa, seeking natural resources in the Middle East and Africa, or cheap labor in Southeast Asia and Eastern Europe.or cheap labor in Southeast Asia and Eastern Europe.

Market-SeekingMarket-Seeking Investments which aim at either penetrating new Investments which aim at either penetrating new

markets or maintaining existing ones..markets or maintaining existing ones..

Efficiency-SeekingEfficiency-SeekingIt is suggested that this type of FDI comes with the It is suggested that this type of FDI comes with the

expectation that it further increases the profitability of expectation that it further increases the profitability of the firm. Typically, this type of FDI is mostly widely the firm. Typically, this type of FDI is mostly widely practiced between developed economies; especially practiced between developed economies; especially those within closely integrated markets (e.g. the EU)..those within closely integrated markets (e.g. the EU)..

Strategic-Asset-SeekingStrategic-Asset-SeekingA tactical investment to prevent the loss of resource to a A tactical investment to prevent the loss of resource to a

competitor. Easily compared to that of the oil producers, competitor. Easily compared to that of the oil producers, whom may not need the oil at present, but look to whom may not need the oil at present, but look to prevent their competitors from having it.prevent their competitors from having it.

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INDIAINDIA AN IDEAL INVESTMENT DESTINATIONAN IDEAL INVESTMENT DESTINATION

World’s largest democracyWorld’s largest democracy

Second largest emerging market (US$ 2.4 trillion)Second largest emerging market (US$ 2.4 trillion)

Liberal Foreign Investment RegimeLiberal Foreign Investment Regime

Skilled and competitive labour forceSkilled and competitive labour force

Amongst the highest rates of return Amongst the highest rates of return on investmenton investment

Large domestic marketLarge domestic market

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FDI Approval Procedure

Government Route for few sectors

Automatic Route in most Sector

RBI FIPB

No permission required, only to notify RBI within 30 days of issue of shares to foreign investors

Approval is granted generally in 30 days

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FDI Inflows….Robust GrowthFDI Inflows….Robust Growth

40294322

74047722

60515035

6130

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006 Apr - Nov

US

$ m

(Only Equity)

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0

500

1000

1500

2000

2500

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006 April Nov

US

$ m

Electrical Equipment (including Software) Telecommunications Transportation

Chemicals (other than Fert.) Services Sector Fuels (Power & Oil Refinery)

Construction Activities

FDI Inflows- Sector -wise

Electrical equipment including software moves to over all 2nd position in Nov 2006.Services sector shows spurt in growth and the top sector attracting FDI – moving up from the third position.

Spurt in FDI in Real Estate causes the construction sector to the third position in Nov 2006.

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FDI Policy …. Prohibited activitiesFDI Policy …. Prohibited activities

• Retail except single brand retailing allowed upto 51% withFIPB approval

• Atomic energy

• Lottery business

• Betting and Gambling

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Manufacturing• 100% FDI permitted in all activities under

automatic route except:

– Cigar and cigarettes of tobacco - FIPB

– Products reserved for Small Scale Sector• FDI less than 24% under automatic route• FDI beyond 24% - FIPB subject to export obligation

– Defence products • FDI upto 26% - FIPB subject to licensing of Arms and

Ammunitions

FDI Policy for Industry Sector…Fully permittedFDI Policy for Industry Sector…Fully permitted

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FDI Policy for Industry Sector…. Fully permittedFDI Policy for Industry Sector…. Fully permitted

Mining• Coal – FDI upto 100% as per Coal Mines (Nationalization) Act

1977• Diamond, Gold, Silver , Minerals – upto 100% under

automatic route as MMRD Act• Atomic minerals – upto 74% in JV with PSUs – FIPB

Electricity • FDI upto 100% under automatic route in Generation,

Transmission, Distribution and Power Trading as per Electricity Act 2003

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FDI Policy for Service Sector…. Largely permittedFDI Policy for Service Sector…. Largely permitted

• FM Broadcasting (20%) - FIPB• Uplinking News and CATV Channel - FIPB• Print Media – News Papers & Periodicals -

FIPB• Insurance - Automatic

Upto 26%

Upto 49%• Broadcasting - Cable Network, DTH,

Setting up hardware - FIPB• Stock Exchanges - FIPB• Air Transport Services -

Automatic

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FDI Policy for Service Sector…. Largely permittedFDI Policy for Service Sector…. Largely permitted

• Telecommunication - FIPB (Beyond 49%)

• Private sector banks - Automatic

• Development of existing airports - FIPB (Beyond 74%)

• Publishing scientific magazines - FIPB• Courier services - FIPB

Upto 74%

Upto 100%

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Political Ideology & FDIPolitical Ideology & FDI

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Advantages of Advantages of FDIFDI

• Infrastructure and technology Infrastructure and technology transfertransfer

• Increased Productive efficiency Increased Productive efficiency due to competition from due to competition from multinational subsidiariesmultinational subsidiaries

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Advantages of Advantages of FDIFDI

•Faster growth of output and Faster growth of output and employmentemployment

•Consumer BenefitsConsumer Benefits

PriceQuality

Varieties

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Advantages of Advantages of FDIFDI

• Increase in ExportsIncrease in Exports

• Increase in savings and Increase in savings and InvestmentInvestment

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Costs of FDICosts of FDI

•Detriment of the growth Detriment of the growth of domestic producer of domestic producer and the national and the national economyeconomy

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Costs of FDICosts of FDI

•Enviroment and natural Enviroment and natural resource costsresource costs

•Abuse of local culture Abuse of local culture and traditions Exand traditions Ex

FDI Tourism Abuse

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Costs of FDICosts of FDI

• Facilitate hegemony by the Facilitate hegemony by the dominant US and the dominant US and the western cultures.western cultures.

•Political Influence (News)Political Influence (News)

PrintPrint EntertainmentsEntertainments TVTV

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Wish u a merry x-mas and a happy new year!!!