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PRESENTED BY-ABHISHEK KUMAR AGRAHARIACCMAN INSTITUTE OF MANAGEMENT

PGDM (2014-2016)

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WHAT IS FDI ?

Foreign direct investment (FDI) in its classic form is defined as a company from one country making a physical investment into building a factory in another country.

Include investments made to acquire lasting interest in enterprises operating outside of the economy of the investor.

Generally speaking FDI refers to capital inflows from abroad that invest in the production capacity of the economy and are Usually preferred over other forms of external finance

FDI also facilitates international trade and transfer of knowledge, skills and technology.

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WHY FDI ?

1. Gain a foothold in a new geographic market.

2. Increase a firm’s global competitiveness and positioning.

3. Fill gaps in a company’s product lines in a global industry.

4. Reduce costs in areas such as R&D, production, and distribution.

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METHODS

The foreign direct investor may acquire voting power of an enterprise in an economy through any of the following methods:

by incorporating a wholly owned subsidiary or company anywhere

by acquiring shares in an associated enterprise through a merger or an acquisition of an

unrelated enterprise participating in an equity joint venture with

another investor or enterprise

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F D I - APPROVAL

Foreign direct investments in India are approved through three routes:

Automatic approval by RBI.

The FIPB Route.

CCFI Route

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AUTOMATIC ROUTE

No need of Prior Approval From FIPB,RBI,GOI.

BUT

The investors are only required to notify the Regional Office concerned of  the Reserve Bank of India within 30 days of receipt of inward remittances.

AND

File the required documents along with form FC-GPR with that Office within 30 days of issue of shares to the non-resident investors.

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AUTOMATIC ROUTE

The Reserve Bank of India accords automatic approval within a period of two weeks (provided certain parameters are met) to all proposals involving:

foreign equity up to 50% in 3 categories relating to mining activities .

foreign equity up to 51% in 48 specified industries.

foreign equity up to 74% in 9 categories .

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FIPB ROUTE

FDI in activities not covered under the automatic route require prior government approval.

Approvals of all such proposals including composite proposals involving foreign investment/foreign technical collaboration is granted on the recommendations of FIPB.

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Application for all FDI cases, except NRI investments and 100% EOUs, should be submitted to the FIPB Unit , DEA, Ministry of Finance.

Application for NRI and 100% EOU cases should be presented to SIA in Department of Industrial Policy and Promotion (DIPP).

Application can be made in Form FC-IL. Plain paper applications carrying all relevant details are also accepted.

No fee is payable.

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CCFI ROUTE

Investment proposals falling outside the automatic route.

And Having a project cost of Rs. 6,000 million or

more would require prior approval of Cabinet Committee of Foreign Investment (“CCFI”).

Decision of CCFI usually conveyed in 8-10 weeks. Thereafter, filings have to be made by the Indian company with the RBI.

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MAJOR BODIES CONSTITUTED FOR FDI

1991- Foreign Investment Promotion Board FIPB

1996- Foreign Investment Promotion Council FIPC

1999- Foreign Investment Implementation Authority FIIA

2004- Investment Commission

Secretariat for Industrial Assistance (SIA)

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FORBIDDEN TERRITORIES

FDI is not permitted in the following industrial sectors:

Arms and ammunition.

Atomic Energy.

Railway Transport.

Coal and lignite.

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Mining of iron, manganese, chrome, gypsum, sulphur, gold, diamonds, copper, zinc.

Lottery Business

Agricultural or plantation activities

Housing and Real Estate Business (except development of townships, construction of residen tial/commercial premises, roads or bridges to the extent specified in Notification No. FEMA 136/2005-RB dated July 19, 2005).

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FDI ADVANTAGES

Increase in Domestic Employment/Drop in unemployment

Investment in Needed Infrastructure.

Positive Influence on the Balance of Payments.

New Technology and “Know How” Transfer.

Increased Capital Investment.

Targeted Regional and Sectoral Development.

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FDI DISADVANTAGE

Industrial Sector Dominance in the Domestic Market.

Technological Dependence on Foreign Technology Sources.

Disturbance of Domestic Economic Plans in Favor of FDI-Directed Activities.

“Cultural Change” Created by “Ethnocentric Staffing” The Infusion of Foreign Culture , and Foreign Business Practices

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INVESTMENTS

US-based Nike has made a proposal to the Department of Industrial Policy and Promotion (DIPP) to set up fully-owned stores in India. Nike is one of the world's largest suppliers of athletic shoes and apparel globally, with a market capitalisation of US$ 68 billion.

US-based Milacron LlC plans to invest US$ 30 million in the next three years in its India operations – Ferromatik Milacron India Pvt Ltd (FMI), as per president and CEO, Mr Thomas Goeke. FMI manufactures plastic moulding machines at its plants in Ahmadabad in Gujarat and Coimbatore in Tamil Nadu.

Bengal looks set for one of its biggest foreign investments. A large private equity firm which has exposure in social infrastructure and agriculture plans to invest over Rs 300 crore (US$ 49.02 million) in the proposed Dankuni food park promoted by Keventer Group.

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CONTINUES.....

The Foreign Investment Promotion Board (FIPB) has approved a proposal from Inter Globe Aviation, the company that runs Indigo, to reclassify shareholding of promoter Rakesh Gangwal as Non-Resident Indian (NRI) from FDI at present. This move enables the airline to have access to fresh FDI.

Norway's Telenor Group plans to invest an additional Rs 780 crore (US$ 127.47 million) to increase its ownership in Indian subsidiary Uninor to 100 per cent; Telenor currently owns a 74 per cent stake in Uninor.

Chinese telecom equipment maker ZTE Corporation plans to establish a Global Network Operating Centre (GNOC) in India. The centre will seek to manage the networks of multiple telecom carriers in Asia and Africa.

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CONTINUES.....

Japan's Suzuki Motor Corporation (SMC), the parent company of Maruti Suzuki, will spend Rs 18,500 crore (US$ 3.02 billion) to establish a new factory in Gujarat. SMC plans to establish a 100 per cent subsidiary, Suzuki Motor Gujarat (SMG), to manufacture cars on a strictly no-loss, no-profit basis for Maruti Suzuki.

US-based Leapfrog Investment has bought a minority stake in Chennai-based financial services provider IFMR Capital Finance for US$ 29 million. This marks Leapfrog's third investment in India, after having earlier backed insurance distribution firm Mahindra Insurance Brokers and Shriram CCL.

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GOVERNMENT INITIATIVES

India’s cabinet has cleared a proposal which allows 100 per cent FDI in railway infrastructure, excluding operations. Though the move does not allow foreign firms to operate trains, it allows them to do other things such as create the network and supply trains for bullet trains etc.

Based on the recommendations of the FIPB in its 207th meeting held on July 4, 2014, the government approved 14 proposals of FDI amounting to about Rs 1,528.38 crore (US$ 249.78 million).

Additionally, based on the recommendations of the FIPB in its meeting held on June 11, 2014, the government approved 19 proposals of FDI amounting to about Rs 2,326.72 crore (US$ 380.25 million).

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CONTINUES.....

The Union Cabinet has cleared a bill to raise the foreign investment ceiling in private insurance companies from 26 per cent to 49 per cent, with the proviso that the management and control of the companies must be with Indians.

The Reserve Bank of India (RBI) has allowed a number of foreign investors to invest, on repatriation basis, in non-convertible/ redeemable preference shares or debentures which are issued by Indian companies and are listed on established stock exchanges in the country.

In an effort to bring in more investments into debt and equity markets, the RBI has established a framework for investments which allows foreign portfolio investors (FPIs) to take part in open offers, buyback of securities and disinvestment of shares by the Central or state governments.

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ROAD AHEAD

Foreign investment inflows are expected to increase by more than two times and cross the US$ 60 billion mark in FY15 as foreign investors start gaining confidence in India’s new government, as per an industry study. "Riding on huge expectations from the incoming Modi government, global investors are gung ho on the Indian economy which is expected to witness over 100 per cent increase in foreign investment inflows – both FDI and FIIs – to above US$ 60 billion in the current financial year, as against US$ 29 billion during 2013-14," according to the study.

India will require around US $1 trillion in the 12th Five-Year Plan (2012–17), to fund infrastructure growth covering sectors such as highways, ports and airways. This requires support in terms of FDI. The year 2013 saw foreign investment pour into sectors such as automobiles, computer software and hardware, construction development, power, services, and telecommunications, among others.

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NEWS ON FDI

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SEE $8-9 BN CAP INFUSION IN 5 YEARS POST INSURANCE BILL NOD The Union Cabinet on Wednesday approved the insurance

amendment Bill with a composite foreign investment cap of 49 percent from current 26 percent for presenting it in Parliament, incorporating the changes suggested by a House panel.

Amitabh Chaudhry, Managing Director and CEO of HDFC Life believes FDI in insurance will be a catalyst for consolidation across the industry. According to him, the Bill will not be a deterrent for foreign investors, as they will either buy additional stake or infuse fresh capital.

On the flipside, large capital inflows may be delayed, as there is still some ambiguity in terms of management control, Foreign Investment Promotion Board (FIPB) approval and the route opted for foreign investment, he said in an interview to CNBC-TV18. Once there is more clarity, new players may enter market in 2015-16.

However, given the stricter norms and the extensive listing period, experts anticipate only serious players to come into the sector.

Meanwhile, Hitesh Jain, Partner at ALMT Legal is confident of the hike in overseas investment limit attracting USD 8-9 billion over the next 5 years. Going ahead, Standard Life may increase stake in HDFC Life while ERGO might also look to augment stake in HDFC ERGO.

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ALL INDIA RAILWAYMEN'S FEDERATION TO OPPOSE FDI IN RAILWAYS: 29 NOV 2014

LUCKNOW: All India Railwaymen's Federation today said it opposes 100 per cent FDI in railways as it will "demolish the existing framework" of the organisation. 

"During the national convention of AIRF, 100 per cent FDI in railway was taken as a challenge as it will demolish the existing frame work of the organisation," National General Secretary AIRF Shiv Gopal Mishra told reporters here. 

"It is being said that FDI is needed for railways. But when the government can invest in infrastructure, then why not in railways," he added. 

"The railways is not in loss. The railways could have saved Rs 1,56,000 crore if it was allowed to do fair pricing," he claimed. 

"When in opposition BJP opposed FDI during UPA regime and now it has taken a U-turn and is supporting it," he added. 

Mishra said other issues of merging dearness allowance into basic salary, to provide interim relief, abolish new pension scheme and to restore old one and anti-labour provisions in the labour law were also taken up.

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FIPB TO CONSIDER 26 FDI PROPOSALS ON OCTOBER 1

NEW DELHI: Inflows of foreign direct investment (FDI) into India have increased significantly in the current fiscal and the trend will continue in the coming quarters on account the country's pro-growth policy agenda, says a Moody's report. 

According to the global credit rating agency, FDI inflows are likely to remain buoyant in the coming months of the current financial year and beyond. 

"We believe that FDI will continue to perform well for the remainder of fiscal 2015 and  .. 

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"We expect India's economic growth to pick up materially next year. In contrast, China's economic slowdown is set to continue, while the growth outlooks for Brazil and Russia remain precarious," Moody's said. 

Rising FDI inflows will therefore help to plug India's current account shortfall, and such inflows are typically less volatile than portfolio capital. 

This in turn should help to reinforce the economy's resilience to external headwinds, such as monetary policy normalise .

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THE END