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FDI Policy And its Impact
on INDIA
What is FDI?
Difference between FDI and FII
1. Purpose of investment
2. Term of investment
3. Managerial control
4. Entry and exit
5. Involvements
Types of FDI1. By Directions• Inward FDI• Outward FDI2. By Target• Merger & Acquisition• Horizontal FDI• Vertical FDI
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000
4,029
6,130
5,035
4,332
6,051
8,961
22,826
34,843
41,873
37,745
34,847
46,556
36,860
FDI Inflows 2000-2013 (US $)
FDI Inflows 2000-2013
MAURITIUS
SINGAPORE
U.K.Jap
anU.S.
A.
Netherlands
Others0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
SHARE OF TOP INVESTING COUNTRIES FDI EQUITY INFLOWS (US $)
Cumilative Inflows 2000-2013
Servi
ce
Construcio
n Development
Telecommunica
tions
Computer Software
& Hardware
Drugs & Pharm
aceutical
s
Chemicals
AutomobileOthers
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
180,000
200,000Cumulative Inflows of FDI sector wise 2000-2013 (US $)
Cumilative Inflows 2000-2013
Policies 51% FDI in Multi Brand Retail Sector
Conditions to be fulfilled:- Minimum Amount of Investment-$10 million Atleast 50% of the amount to be invested in Backward Infrastruture Atleast 30% of the value towards Small Industries(India) Government’s first right-Agricultural products Retail outlets set up State government and union territories• Agreed to implement-Andhra Pradesh, Assam, Delhi, Haryana, Jammu and
Kashmir, Maharashtra, Manipur, Rajasthan, Uttarakand, Daman and Diu and Nagar Haveli
E-commerce not permissible
49% FDI in Civil Aviation Sector with Government approval
For friendly relations with Pakistan ,allows Pakistan Nationals and Companies to invest in the country with government approval
Single Brand RetailingNon resident EntityProcurement Requirement
Asset Reconstruction Companies the limit increased to 74% from 49% with government approval
49% (FDI& FII) in power exchanges registered under Central Electricity Regulatory Commission with government approval
In broadcasting sector FDI cap is raised to 74%from 49% in direct and home services and cable networks at national or state or district level
NBFC’s with foreign capital more than 75% and upto 100% and minimum capitalisation of US $50 million can set up subsidiaries for specific NBFC activities
NRI making investment in Indian company-Investments to be made on face value of the shares subject to eligibility criteria
Foreign Direct Investment Procedure
TO SET UP A BUSINESS IN INDIA, THE FOREIGN COMPANY HAS THE FOLLOWING OPTIONS:•AUTOMATIC ROUTE • GOVERNMENT ROUTE
Advantages and Disadvantages of FDI in INDIA
ADVANTAGES• Raising the Level of Investment• Upgradation of Technology• Benefits to Consumers• Good Quality Product• Revenue to Government
DISADVANTAGES• Increase Inflation• Create Unemployment• Upset the Balance of Payment• Retailer faces loss in business
Fdi Is Restricted In Both Routes For The Following Sectors
1.Retail Trading (except single brand product retailing)2. Atomic Energy3.Lottery Business4.Gambling and Betting5.Business of Chit Fund6.Agricultural (excluding some notified activities and allied sectors)
and Plantations activities (other than Tea Plantations).7.Housing and Real Estate business (except development of
townships, construction of residential/commercial premises, roads or bridges to the extent specified in the relevant notification).
8.Trading in Transferable Development Rights (TDRs)9.Manufacture of cigars, cheroots, cigarillos and cigarettes, of
tobacco or of tobacco substitutes.
Telecom Telecom industry is regulated by Telecom Regulatory Authority of India(TRAI)Growth drivers:
(1) Subsciber baseExpected to increase by 9%
(2)Mobile value added serviceIt includes games,music etc and estimated to grow to us$ 10.8 billion
(3)Handsets
total subscibers urban rural0
100
200
300
400
500
600
700
800
900
1000
897.02
544.549999999999
352.47
Total subscribers as per april-13
Total subscribers as per april-13
Key players
FDI Policy• Attracted FDI worth US $12889mn between
april’00-sept’13.
• Govt allowed FDI from 74% to 100% where 49% will be done through automatic route and remaining through foreign investment promotion board(FIPB)
Impact of FDI policy• Foreign investor need no partnership
with Indian companies.
• Lower the financial burden
• Enchanced the value for all stake holders
•More than US$ 500 billion.
•One of the top 5 Retail Markets in the world.
•Catchment of over 1.2 billion people.
•Contributes - 14% to 15% to GDP.
Indian Retail Market
60%
11%
8%
6%
5%
4%3% 3%
Indian Retail
Food and Grocery
Others
Consumer Electronics
Mobile and Telecom
Food Service
Jewellery
Consumer Electronics
Pharmacy
Division of Retail Industry
Retail
Organised Retailing
Eg: Corporate backed hypermarkets and retail chains, super markets.
Unorganised Retailing
Eg: Local Kirana Shops, mom& pop stores, paan/beedi shops,
convience stores, etc
FDI in Retaila) FDI up to 100% for cash and carry
wholesale trading and export trading allowed under the automatic route.
b) FDI up to 49% with prior Government approval (i.e. FIPB) for retail trade of ―Single Brand.
Growth in Retail
2007-08 2008-09 2009-10 2010-11 2011-120
100
200
300
400
500
600
Retail Growth (USD Billion)
Retail Growth (USD Billion)
FDI in Retaila) FDI up to 100% for cash and carry wholesale
trading and export trading allowed under the automatic route in 2006.
b) FDI up to 100 % with prior Government approval (i.e. FIPB) for retail trade of ―Single Brand.
c) 51% FDI is permitted in Multi Brand Retailing in India under Government Route
Impact of FDIBenefits of FDI• Continuous inflow of funds.• Generating more and improved quality of
employment.• Increased local sourcing• Provide better value to end consumers.• Improved supply chain and ware housing.• Franchising opportunities for local entrepreneurs• Growth in infrastructure.• Implementation of IT in Retail.• Stimulate the other supporting industries.
Drawbacks of FDI
• Would give rise to cut throat competition rather than increase incremental business.
• Promoting cartels and increasing monopolies.
• Increase in real estate prices.
• Marginalize domestic entrepreneurs.
• Financial Strength of the foreign players would affect the unorganized players.
Key Investments• Reliance Retail plans to enter the e-commerce segment in 6 to
8 months.
• Swedish furniture retailer IKEA had proposed setting up 10 furnishing and homeware stores as well as allied infrastructure in India,.
• Myntra has entered into an exclusive partnership with UK-based apparel manufacturer
.• Shoemaker Johnston & Murphy plans to open 15 stores across
Indian metros.
• Tesco Plc, the UK’s largest supermarket company, plans to be the first foreign multi-brand chain to enter the Indian market
Pharmaceuticals
• The Indian Pharmaceutical Market Will Be The Sixth Largest In The World By 2020
• Its Steady Growth Is Positively Affecting The Indian Economy.
Key players
Ranbaxy Labs.15%
Cipla15%
Dr Reddy's Labs12%
Aurobindo Pharma9%
Piramal Health7%
Sun Pharma.Inds.7%
Wockhardt5%
Cadila Health.5%
Ipca Labs.4%
Torrent Pharma.4%
Glenmark Pharma.3%
Alembic3%
Unichem Labs.2%
J B Chem & Pharm2%
FDC2%
Others5%
Market Share
FDI policy in pharmaceuticals
• This sector has attracted FDI worth US$ 11,391.03 mn in the period April‘00–Sept ‘13
• Govt. Has allowed 100% FDI through automatic route for new projects but existing projects needs approval from FIPB
• The Government has made a weighted tax deduction of 150 per cent for any R&D expenditure incurred.
Key investment• GlaxoSmithKline Plc plans to invest Rs 864
crore to set up a new factory in India.
• Cipla has acquired a majority stake in Uganda-based Quality Chemical Industries Ltd (QCIL), with the acquisition of an additional 14.5 per cent stake for US$ 15 million through its subsidiary, Meditab Holdings Ltd (MHL).
Impact of FDI policy• Poses direct threat to the entire health in terms
of access and affordability of medicines.
• MNCs affected export of indian genetic drugs
• It also helped to expand its foreign relations with respect to the pharma and biotech industries.
IT & ITe’s• Transformed India’s image on the global platform.
• Fuelled economic growth by energizing higher education sector.
• Employee's almost 10 million Indians.
• Share in the global market - 7 %.
• Exports by 12-14 % in FY14.
.
2007-08 2008-09 2009-2010
2010-11 2011-12 2012-130
20
40
60
80
100
120
62.969.4
73.9
88.1 90.9
100
India's IT Sector Growth (USD Billion)
India's IT Sector Growth (USD Billion)
FDI Inflows in the Sector
2007-08 2008-09 2009-10 2010-11 2011-12 2012-13
0
1000
2000
3000
4000
5000
6000
7000
8000
5623
67287329
4350
3804 4230
IT
IT
Impact of FDI• Department of Industrial Policy and Promotion
(DIPP) - Rs 54,347.88 crore (US$ 8.77 billion).
• 100% FDI is permitted under the automatic route.
• Lead to increase in employeement.
• Higher GDP.
IT/ITes Industry Size (Rs. Crore)
2007-08 2008 - 09 2009 -10 2010 - 11 2011-120
100000
200000
300000
400000
500000
600000
Domestic IT/ITes
IT/ITesExport Revenue
IT/ITes Industry Size
Key Investments• Hitachi has acquired a foothold in India's
payment space with the acquisition of Prizm Payment Services.
• Dell has opened its India design centre for its storage technologies and has realigned its domestic research and development (R&D) unit.
Automobile• India to be among the world's top five auto-
producers by 2015.• By 2020, the overall passenger vehicle market
is expected to grow to 9 million units from 3.2 million units at present.
• By 2020, India is also forecast to become the world's third-largest auto market.
• The automobile industry in India is growing by 18 percent per year.
Key players
FDI policy• The Government of India allows 100 per cent FDI through automatic
route
• The cumulative FDI inflow into the Indian automobile industry during April 2000 to July 2013 was recorded at US$ 8,932 mn.
• Govt. has laid down minimum excise duty
• The automobile industry in India does not belong to the licensed agreement
• Import of components is allowed without any restrictions and also encouraged
Key investment• Hero MotoCorp plans to establish 20 manufacturing
and assembly facilities to expand its presence across 50 countries by 2020
• Nissan Motor India, has entered into an agreement with Ennore Port Ltd (EPL), to export at least 60,000 cars a years for the next 10 years
• Mahindra & Mahindra plans capital expenditure and investments worth Rs 10,000 cr over the next two years
Impact of FDI policy• Direct employment in manufacturing, auto
component suppliers and auto service segments
• Helped india in providing advanced technology, cost-effectiveness, and efficient manpower
Conclusion• Major boost to the country's economy.
• Better access to technologies for the local economy.
• Lead to indirect productivity gains.
• Increased the degree of competition in host-country.
• Potential to overtake China