C.H.

M COLLEGE
TOPIC :- FDI ( foreign direct

Investment)

Name :- DHANASHREE CHAVAN.

CLASS :- T.Y.B.F.M

ROLL NO :- 43

SUB :- 5.7

GIDENCE BY :- PROF. MANJU

pathak .
 FDI
(FOREIGN DIRECT INVESTMENT)

INTRODUCTION AND OVERVIEW

Meaning:

These three letters stand for foreign direct investment. The simplest explanation
of FDI would be a direct investment by a corporation in a commercial
venture in another country. A key to separating this action from involvement in
other ventures in a foreign country is that the business enterprise operates
completely outside the economy of the corporations home country. The
investing corporation must control10 percent or more of the voting power of the
new venture.

According to history the United States was the leader in the FDI activity dating
backs far as the end of World War II. Businesses from other nations have taken up
the flag of FDI, including many who were not in a financial position to do so
just a few According to history the United States was the leader in the FDI activity
dating back years ago.

The practice has grown significantly in the last couple of decades, to the point
that FDI has generated quite a bit of opposition from groups such as labor unions.
These organizations have expressed concern that investing at such a level in
another country eliminates jobs. Legislation was introduced in the early
1970s that would have put an end to the tax incentives of FDI. But
members of the Nixon administration , Congress and business interests rallied to
make sure that this attack on their expansion plans was not successful. One key to
understanding FDI is to get a mental picture of the global scale of corporations
able to make such investment. A carefully planned FDI can provide a huge new
market for the company, perhaps introducing products and services to an area
where they have never been available. Not only that, but such an investment
may also be more profitable if construction costs and labor costs are less in the
host country.

The definition of FDI originally meant that the investing corporation gained a
significant number of shares (10 percent or more) of the new venture. In
recent years, however, companies have been able to make a foreign direct
investment that is actually long-term management control as opposed to
direct investment in buildings and equipment.

FDI growth has been a key factor in the ³international´ nature of business that
many are familiar with in the 21st century. This growth has been facilitated by
changes in regulations both in the originating country and in the country
where the new installation is to be built. Corp orations from some of the
countries that lead the worlds economy have found fertile soil for FDI in
nations where commercial development was limited, if it existed at all. The
dollars invested in such developing country projects increased 40 times over in less
than 30 years. The financial strength of the investing corporations has sometimes
meant failure for smaller competitors in the target country. One of the reasons is
that foreign direct investment in buildings and equipment still accounts for a
vast majority of FDI activity. Corporations from the originating country gain a
significant financial foothold in the host country. Even with this factor, host
countries may welcome FDI because of the positive impact it has on the smaller
economy.

Foreign direct investment (FDI) is a measure of foreign ownership of

productive assets , such as factories, mines and land. Increasing foreign
investment can be used as one measure of growing economic globalization.
Figure below shows net inflows of foreign direct investment as a percentage
of gross domestic product (GDP). The largest flows of foreign investment
occur between the industrialized countries ( North America ,Western Europe
and Japan).But flows to non- industrialized countries are increasing sharply.
Foreign direct investment (FDI) refers to long term participation by country A into
country B.
 HISTORY
In the years after the Second World War global FDI was dominated by the United
States, as much of the world recovered from the destruction brought by the
conflict. The US accounted for around three -quarters of new FDI (including
reinvested profits) between 1945 and 1960 Since that time FDI has spread to
become a truly global phenomenon, no longer the exclusive preserve of OECD
countries.

FDI has grown in importance in the global economy with FDI stocks now
constituting over 20 percent of global GDP. Foreign direct investment (FDI) is
a measure of foreign ownership of productive asset Increasing foreign
investment can be used as one measure of growing economic globalization .
Figure below shows net inflows of foreign dire ct investment as a percentage
of gross domestic product (GDP). The largest flows of foreign investment occur
between the industrialized countries (North America ,Western Europe and
Japan ). But flows to non-industrialized countries are increasing sharply.

FOREIGN DIRECT INVESTOR

A foreign direct investor is an individual, an incorporated or unincorporated public
or private enterprise, a government, a group of related individuals, or a group of
related incorporated and/or unincorporated enterprises which has a direct
investment enterprise that is, a subsidiary, associate or branch ± operating in a
country other than the country or countries of residence of the foreign direct
investor or investors.
BY DIRECTION
Inward :-

Inward foreign direct investment is when foreign capital is invested in local

recourses. Different economic factors encourage inward FDIs. These include
differential performance and limitations related with ownership patterns.
limitations. Factors detrimental to the growth of FDIs include necessities of
interest loans, tax breaks, grants, subsidies, and the removal of restrictions
and limitations related with ownership patterns.

Outward :-

Outward foreign direct investment is when local capital is invested in foreign

recourses. types of associated risks. This form of FDI is subject to tax
incentives as well as An outward-bound FDI is backed by the government
against all which are also known as 'direct investments abroad. Industries and
subsidies granted to the local firms stand in the way of outward FDIs, disincentives
of various forms. Risk coverage provided to the domestic.

BY TARGET
Greenfield investment :-

Direct investment in new facilities or the expansion of existing facilities. It is

primary target of host nation’s promotional efforts because they create new
product capacity and jobs, transfer technology and can lead to the global
marketplace. The benefits of Greenfield investment for regional and national
economies to include increase employment, investment in research and
development and additional capital investment.

Horizontal FDI :-

Investment in the same industry abroad as a firm operates in at home.

Vertical FDI:-

Backward vertical FDI –

Where as industry abroad provides input for a firm ‘s domestic production

presses.

Forward vertical FDI–

Where an industry abroad sells the output of a firm’s domestic production.

BY MOTIVE
Recourse seeking :-

Investment which seek to acquire factors of production that are more efficient
than this obtainable in the home economy of the firm. In some case, these
recourses may not be available in home economy at all. This type of FDI into
developing countries, for example seeking natural recourses in the middle east
and Africa , or cheap labor in southeast Asia and eastern Europe.
Market seeking :-

Investment which aim at either penetrating new markets or maintaining existing

one’s. FDI of this kind may also be employed as defensive strategy. It is argued
that business are more likely to be pushed towards this type of investment out of
fear of losing a market rather than discovering a new one.

Benefits of Foreign Direct Investment

Attracting foreign direct investment has become an integral part of the economic
development strategies for India. FDI ensures a huge amount of domestic capital,
production level, and employment opportunities in the developing countries,
which is a major step towards the economic growth of the country. FDI has been
a booming factor that has bolstered the economic life of India, but on the other
hand it is also being blamed for ousting domestic inflows. Some of the biggest
advantages of FDI enjoyed by India have been listed as under:
Economic growth

This is one of the major sectors, which is enormously benefited from foreign
direct investment. A remarkable inflow of FDI in various industrial units in India
has boosted the economic life of country.
Trade

Foreign Direct Investments have opened a wide spectrum of opportunities in the

trading of goods and services in India both in terms of import and export
production. Products of superior quality are manufactured by various industries in
India due to greater amount of FDI inflows in the country.
Employment and skill levels

FDI has also ensured a number of employment opportunities by aiding the setting
up of industrial units in various corners of India.

Technology diffusion and knowledge transfer

FDI apparently helps in the outsourcing of knowledge from India especially in the
Information Technology sector. It helps in developing the know-how process in
India in terms of enhancing the technological advancement in India.
Linkages and spillover to domestic firms

Various foreign firms are now occupying a position in the Indian market through
Joint Ventures and collaboration concerns. The maximum amount of the profits
gained by the foreign firms through these joint ventures is spent on the Indian
market.
WHY IS FDI IMPORTANT FOR ANY CONSIDERATION
OF GOING GLOBAL?
The simple answer is that making a direct foreign investment allows companies
to accomplish several tasks:

1 .Avoiding foreign government pressure for local production.

2. Circumventing trade barriers, hidden and otherwise.

3. Making the move from domestic export sales to a locally -based national
sales office.

4. Capability to increase total production capacity.

5.Opportunities for co-production, joint venture s with local partners, joint

marketing arrangements, licensing, etc.

A more complete response might address the issue of global business partnering
in very general terms. While it is nice that many business writers like the
expression, think globally, act locally´, this often used cliché does not really mean
very much to the average business executive in a small and medium sized
company. The phrase does have significant connotations for multinational
corporations. But for executives in SMEs, it is still just another buzzword. The
simple explanation for this is the difference in perspective between executives
of multinational corporations and small and medium sized companies.
Multinational corporations are almost always concerned with worldwide
manufacturing capacity and proximity to major markets. Small and medium
sized companies tend to be more concerned with selling their products in
overseas markets. The advent of the Internet has ushered in a new and very
different mindset that tends to focus more on access issues. SMEs in particular
are now focusing on access to markets, access to expertise and most of all access
to technology.
 FOREIGN DIRECT INVESTMENT IN INDIA
The economy of India is the third largest in the world as measured by
purchasing power parity (PPP), with a gross domestic product (GDP) of US $3.611
trillion. When measured in USD exchange-rate terms, it is the tenth largest in
the world, with a GDP of US $800.8 billion (2006). is the second fastest growing
major economy in the world, with a GDP growth rate of 8.9% at the end of the
first quarter of 2006 -2007 However, India's huge population results in a per
capita income of $3,300 at PPP and $714 at nominal.

The economy is diverse and encompasses agriculture, handicrafts, textile,

manufacturing, and a multitude of services. Although two -thirds of the
Indian workforce still earn their livelihood directly or indirectly through
agriculture, services are a growing sector and are playing an increasingly
important role of India's economy. The advent of the digital age, and the
large number of young and educated populace fluent in English, is gradually
transforming India as an important back office' destination for global companies
for the outsourcing of their customer services and technical support.
India is a major exporter of highly -skilled workers in software and financial
services, and software engineering. India followed a socialist -inspired approach
for most of its independent history, with strict government control over private
sector participation, foreign trade, and foreign direct investment. However, since
the early 1990s, India has gradually opened up its markets through economic
reforms by reducing government controls on foreign trade and investment.
The privatization of publicly owned industries and the opening up of certain
sectors to private and foreign interests has proceeded slowly amid political
debate. India faces a burgeoning population and the challenge of reducing
economic and social inequality. Poverty remains a serious problem, although
it has declined significantly since independence, mainly due to the green
revolution and economic reforms. FDI up to 100% is allowed under the
automatic route in all activities/sectors except the following which will require
approval of the Government: Activities/items that require an Industrial License;
Proposals in which the foreign collaborator ha s a previous/existing venture/tie
up in India.

FDI in India includes FDI inflows as well as FDI outflow from India. Also FDI foreign
direct investment and FII foreign institutional investors are a separate case
study while preparing a report on FDI and economic growth in India. FDI and FII in
India have registered growth in terms of both FDI flows in India and outflow
from India. The FDI statistics and data are evident of the emergence of India as
both a potential investment market and investing country. FDI has helped the
Indian economy grow, and the government continues to encourage more
investments of this sort - but with $5.3 billion in FDI . India gets less than 10%
of the FDI of China. Foreign direct investment (FDI) in India has played an
important role in the development of the Indian economy. FDI in India has -
in a lot of ways - enabled India to achieve a certain degree of financial
stability, growth and development. This money has allowed India to focus on
the areas that may have needed economic attention, and address the various
problems that continue to challenge the country. India has continually
sought to attract FDI from the worlds major investors.
 INVESTMENT RISKS IN INDIA
Sovereign Risk
India is an effervescent parliamentary democracy since its political freedom
from British rule more than 50 years ago. The country does not face any real
threat of a serious revolutionary movement which might lead to a collapse of
state machinery. Sovereign risk in India is hence nil for both "foreign direct
investment" and "foreign portfolio investment." Many Industrial and Business
houses have restrained themselves from investing in the North-Eastern part of
the country due to unstable conditions. Nonetheless investing in these parts is
lucrative due to the rich mineral reserves here and high level of literacy.
Kashmir on the northern tip is a militancy affected area and hence investment in
the state of Kashmir are restricted by law.

Political Risk

India has enjoyed successive years of elected representative government at

the Union as well as federal level. India suffered political instability for a few years
in the sense there was no single party which won clear majority and hence
it led to the formation of coalition governments. However, political stability
has firmly returned since the general elections in 1999, with strong and healthy
coalition governments emerging. Nonetheless, political instability did not
change India's bright economic course though it delayed certain decisions
relating to the economy. Economic liberalization which mostly interested
foreign investors has been accepted as essential by all political parties including
the Communist Party of India Though there are bleak chances of political
instability in the future, even if such a situation arises the economic policy of
India would hardly be affected.. Being a strong democratic nation the
chances of an army coup or foreign dictatorship are minimal. Hence, political
risk in India is practically absent.

Commercial Risk
Commercial risk exists in any business ventures of a country. Not each and
every product or service is profitably accepted in the market. Hence it is advisable
to study the demand / supply condition for a particular product or service before
making any major investment. In India one can avail the facilities of a large
number of market research firms in exchange for a professional t involves
some kind of gamble and hence involves commercial risk.

Risk Due To Terrorism

In the recent past, India has witnessed several terrorist attacks on its soil
which could have a negative impact on investor confidence. Not only business
environment and return on investment, but also the overall security conditions in
a nation have an effect on FDI's. Though some of the financial experts think
otherwise. They believe the negative impact of terrorist attacks would be a
short term phenomenon. In the long run, it is the micro and macro economic
conditions of the Indian economy that would decide the flow of foreign
investment and in this regard India would continue to be a favorable investment
destination.
 GOVERNMENT APPROVALS FOR FOREIGN
COMPANIES DOING BUSINESS IN INDIA
Government Approvals for Foreign Companies Doing Business in India or
Investment Routes for Investing in India, Entry Strategies for Foreign
Investors India's foreign trade policy has been formulated with a view to
invite and encourage FDI in India. The Reserve Bank of India has prescribed
the administrative and compliance aspects of FDI. A foreign company planning to
set up business operations in India has the following options.

Procedure under automatic route

FDI in sectors/activities to the extent permitted under automatic route does
not require any prior approval either by the Government or RBI. The investors are
only required to notify the Regional office concerned of RBI within 30 days of
receipt of inward remittances and file the required documents with that office
within 30 days of issue of shares to foreign investors.

List of activities or items for which automatic route for foreign investment
is not available, include the following:

 Banking
 NBFC's Activities in Financial Services Sector
 Civil Aviation
 Petroleum Including Exploration/Refinery/Marketing
 Housing & Real Estate Development Sector for Investment from
Persons other than NRIs/OCBs
 Venture Capital Fund and Venture Capital Company
  Investing Companies in Infrastructure & Service Sector
 Atomic Energy & Related Projects
 Defense and Strategic Industries
 Agriculture (Including Plantation)
 Print Media
 Broadcasting
 Postal Services

Procedure under Government approval

FDI in activities not covered under the automatic route, requires prior
Government approval and are considered by the Foreign Investment
Promotion Board (FIPB). Approvals of composite proposals involving foreign
investment/foreign technical collaboration are also granted on the
recommendations of the FIPB. Application for all FDI cases, except Non-
Resident Indian (NRI) investments and 100% Export Oriented Units (EOUs),
should be submitted to the FIPB Unit, Department of Economic Affairs (DEA),
Ministry of Finance. Application for NRI and 100% EOU cases should be
presented to SIA in Department of Industrial Policy & Promotion.

Investment by way of Share Acquisition

A foreign investing company is entitled to acquire the shares of an Indian
company without obtaining any prior permission of the FIPB subject to prescribed
parameters/ guidelines. If the acquisition of shares directly or indirectly results in
the acquisition of a company listed on the stock exchange, it would require the
approval of the Security Exchange Board of India.
New investment by an existing collaborator in India
A foreign investor with an existing venture or collaboration (technical and
financial) with an Indian partner in particular field proposes to invest in another
area, such type of additional investment is subject to a prior approval from the
FIPB, wherein both the parties are required to participate to demonstrate that the
new venture does not prejudice the old one.

General Permission of RBI under FEMA

Indian companies having foreign investment approval through FIPB route do

not require any further clearance from RBI for receiving inward remittance and
issue of shares to the foreign investors. The companies are required to notify the
concerned Regional office of the RBI of receipt o f inward remittances within
30 days of such receipt and within 30 days of issue of shares to the foreign
investors or NRIs. Equity participation by international financial institutions
such as ADB, IFC, CDC, DEG, etc., in domestic companies is permitted
through automatic route, subject to SEBI/RBI regulations and sector specific cap
on FDI.

FDI In Small Scale Sector (SSI) Units

A small-scale unit cannot have more than 24 per cent equity in its paid up
capital from any industrial undertaking, either foreign or domestic. If the equity
from another company (including foreign equity) exceeds 24 per cent, even if
the investment in plant and machinery in the unit does not exceed Rs 10
million, the unit loses its small-scale status and shall require an industrial license
to manufacture items reserved for small-scale sector.
 SECTOR SPECIFIC FOREIGN DIRECT
INVESTMENT IN INDIA
Hotel & Tourism: FDI in Hotel & Tourism sector in India
100% FDI is permissible in the sector on the automatic route, The term hotels
include restaurants, beach resorts, and other tourist complexes providing
accommodation and/or catering and food facilities to tourists. Tourism related
industry include travel agencies, tour operating agencies and tourist transport
operating agencies, units providing facilities for cultural, adventure and wild
life experience to tourists, surface, air and water transport facilities to
tourists, leisure, entertainment, amusement, sports, and health units for
tourists and Convention/Seminar units and organizations.

For foreign technology agreements, automatic approval is granted if:

 up to 3% of the capital cost of the project is proposed to be paid for

technical and consultancy services including fees for architects,
design, supervision, etc.
 up to 3% of net turnover is payable for franchising and
marketing/publicity support fee, and up to 10% of gross operating
profit is payable for management fee, including incentive fee.
Private Sector Banking: Non-Banking Financial Companies
(NBFC)
49% FDI is allowed from all sources on the automatic route subject to
guidelines issued from RBI from time to time.

 FDI/NRI/OCB investments allowed in the following 19 NBFC activities shall

be as per levels indicated below:

i. Merchant banking
ii. Underwriting
iii. Portfolio Management Services
iv. Financial Consultancy
v. Stock Broking
vi. Asset Management

 Minimum Capitalization Norms for fund based NBFCs:

i. For FDI up to 51% - US$ 0.5 million to be brought upfront
ii. For FDI above 51% and up to 75% - US $ 5 million to be
brought upfront.
iii. For FDI above 75% and up to 100% - US $ 50 million out of
which US $ 7.5 million to be brought up front and the balance
in 24 months

 Minimum capitalization norms for non-fund based activities: Minimum

capitalization norm of US $ 0.5 million is applicable in respect of all
permitted non-fund based NBFCs with foreign investment.
  Foreign investors can set up 100% operating subsidiaries without the
condition to disinvest a minimum of 25% of its equity to Indian entities,
subject to bringing in US$ 50 million as at b) (iii) above (without any
restriction on number of operating subsidiaries without bringing in
additional capital)
 Joint Venture operating NBFC's that have 75% or less than 75%
foreign investment will also be allowed to set up subsidiaries for
undertaking other NBFC activities, subject to the subsidiaries also
complying with the applicable minimum capital inflow i.e. (b)(i) and (b)(ii)
above.

 FDI in the NBFC sector is put on automatic route subject to

compliance with guidelines of the Reserve Bank of India. RBI would issue
appropriate guidelines in this regard.

Insurance Sector: FDI in Insurance sector in India

FDI up to 26% in the Insurance sector is allowed on the automatic route
subject to obtaining license from Insurance Regulatory & Development Authority
(IRDA)

Telecommunication: FDI in Telecommunication sector

 In basic, cellular, value added services and global mobile personal
communications by satellite, FDI is limited to 49% subject to licensing
and security requirements and adherence by the companies (who are
investing and the companies in which investment is being made) to the
 license conditions for foreign equity cap and lock - in period for transfer and
addition of equity and other license provisions.
 ISPs with gateways, radio-paging and end-to-end bandwidth, FDI is
permitted up to 74% with FDI, beyond 49% requiring Government
approval. These services would be subject to licensing and security
requirements.
 No equity cap is applicable to manufacturing activities.
 FDI up to 100% is allowed for the following activities in the telecom sector :
i. ISPs not providing gateways (both for satellite and
submarine cables);
ii. Infrastructure Providers providing dark fiber (IP Category 1);
iii. Electronic Mail; and
iv. Voice Mail

Trading: FDI in Trading Companies in India

Trading is permitted under automatic route with FDI up to 51% provided it is
primarily export activities, and the undertaking is an export house/trading
house/super trading house/star trading house. However, under the FIPB route.

 100% FDI is permitted in case of trading companies for the following

activities:
i. exports
ii. bulk imports with ex -port/ex-bonded warehouse sales
iii. cash and carry wholesale trading
iv. other import of goods or services provided at least 75% is
 for procurement and sale of goods and services among the
companies of the same group and not for third party use or
onward transfer/distribution/sales.
 The following kinds of trading are also permitted, subject to provisions
of EXIM Policy:

i. Companies for providing after sales services (that is not

trading per se)
ii. Domestic trading of products of JVs is permitted at the
wholesale level for such trading companies who wish to
market manufactured products on behalf of their joint
ventures in which they have equity participation in India.
iii. Trading of hi -tech items/items requiring specialized after
sales service.
iv. Trading of items for social sector.
v. Trading of hi -tech, medical and diagnostic items.
vi. Trading of items sourced from the small scale sector under
which, based on technology provided and laid down
quality specifications, a company can market that item
under its brand name.
vii. Domestic sourcing of products for exports.
viii. Test marketing of such items for which a company has
approval for manufacture provided such test marketing
facility will be for a period of two years, and investment
in setting up manufacturing facilities commences
simultaneously with test marketing.
FDI up to 100% permitted for e-commerce activities subject to the condition
that such companies would divest 26% of their equity in favor of the Indian public
in five years, if these companies are listed in other parts of the world. Such
companies would engage only in business to business (B2B) e -commerce and
not in retail trading.

Power: FDI In Power Sector in India

Up to 100% FDI allowed in respect of projects relating to electricity
generation, transmission and distribution, other than atomic reactor power
plants. There is no limit on the project cost and quantum of foreign direct
investment.

Drugs & Pharmaceuticals

FDI up to 100% is permitted on the automatic route for manufacture of drugs
and pharmaceutical, provided the activity does not attract compulsory licensing or
involve use of recombinant DNA technology, and specific cell / tissue targeted
formulations.

FDI proposals for the manufacture of licensable drugs and pharmaceuticals and
bulk drugs produced by recombinant DNA technology , and specific cell / tissue
targeted formulations will require prior Government approval.

Roads, Highways, Ports and Harbors

FDI up to 100% under automatic route is permitted in projects for construction

and maintenance of roads, highways, vehicular bridges, toll roads, vehicular
tunnels, ports and harbors.
Pollution Control and Management
FDI up to 100% in both manufacture of pollution control equipment and
consultancy for integration of pollution control systems is permitted on the
automatic route.

Special Facilities and Rules for NRI's and OCB's

NRI's and OCB's are allowed the following special facilities:

 Direct investment in industry, trade, infrastructure etc.

 Up to 100% equity with full repatriation facility for capital and dividends in
the following sectors

i. 34 High Priority Industry Groups

ii. Export Trading Companies

iii. Hotels and Tourism-related Projects

iv. Hospitals, Diagnostic Centers

v. Shipping

vi. Deep Sea Fishing

 Up to 40% Equity with full repatriation: New Issues of Existing

Companies raising Capital through Public Issue up to 40% of the new Capital
Issue.
 On non-repatriation basis: Up to 100% Equity in any Proprietary or
Partnership engaged in Industrial, Commercial or Trading Activity.
 Portfolio Investment on repatriation basis: Up to 1% of the Paid up
 Value of the equity Capital or Convertible Debentures of the Company
by each NRI. Investment in Government Securities, Units of UTI,
National Pl an/Saving Certificates.
 On Non-Repatriation Basis: Acquisition of shares of an Indian Company,
through a General Body Resolution, up to 24% of the Paid Up Value of
the Company.
 Other Facilities: Income Tax is at a Flat Rate of 20% on Income arising from
Shares or Debentures of an Indian.

India Further Opens Up Key Sectors for Foreign Investment

India has liberalized foreign investment regulations in key sectors, opening
up commodity exchanges, credit information services and aircraft maintenance
operations. The foreign investment limit in Public Sector Units (PSU) refineries
has been raised from 26% to 49%.

An additional sweetener is that the mandatory disinvestment clause within five

years has been done away with. FDI in Civil aviation up to 74% will now be
allowed through the automatic route for non -scheduled and cargo airlines, as also
for ground handling activities. 100% FDI in aircraft maintenance and repair
operations has also been allowed.

But the big one, allowing foreign airlines to pick up a stake in domestic carriers has
been given a miss again. India has decided to allow 26% FDI and 2 3% FII
investments in commodity exchanges, subject to the proviso that no single entity
will hold more than 5% of the stake.
Sectors like credit information companies, industrial parks and construction
and development projects have also been opened up to more foreign
investment. Also keeping India's civilian nuclear ambitions in mind, India has also
allowed 100% FDI in mining of titanium, a mineral which is abundant in India.

Sources say the government wants to send out a signal that it is not done
with reforms yet. At the same time, critics say contentious issues like FDI and multi
–brand retail are out of the policy radar because of political compulsions.
Sector-wise FDI Contribution…

4%3% Services
4% Computer
6% Telecomm
33%
6% Real Estate
Construction
9% Automobile
Power
10% Metallurgical
14% Petroleum
11% Chemicals
SECTOR WICE FDI INFLOW (APRIL 2006 – 07 TO
JUNE 2009 – 10)

FOREIGN INVESTMENT THROUGH GDR’S

 (EURO ISSUES)
Indian companies are allowed to raise equity capital in the international
market through the issue of Global Depository Receipt (GDRs). GDR
investments are treated as FDI and are designated in dollars and are not
subject to any ceilings on investment. An applicant company seeking
Government's approval in this regard should have consistent track record for
good performance (financial or otherwise) for a minimum period of 3 years.

Clearance from FIPB

There is no restriction on the number of Euro-issue to be floated by a company or
a group of companies in the financial year. A company engaged in the
manufacture of items covered under Annex -III of the New Industrial Policy
whose direct foreign investment after a proposed Euro issue is likely to
exceed 51% or which is implementing a project not contained in Annex -III,
would need to obtain prior FIPB clearance before seeking final approval from
Ministry of Finance.

Use of GDRs
The proceeds of the GDRs can be used for financing capital goods imports, capital
expenditure including domestic purchase/installation of plant, equipment and
building and investment in software development, prepayment or scheduled
repayment of earlier external borrowings, and equity investment in JV/W OSs in
India.

Foreign direct investments in India are

 approved through two routes
Automatic approval by RBI
The Reserve Bank of India accords automatic approval within a period of two
weeks (subject to compliance of norms) to all proposals and permits foreign
equity up to 24%; 50%; 51%; 74% and 100% is allowed depending on the category
of industries and the sectoral caps applicable. The lists are comprehensive
and cover most industries of interest to foreign companies. Investments in high
priority industries or for trading companies primarily engaged in exporting are
given almost automatic approval by the RBI.

The FIPB Route Processing of non - automatic approval cases

FIPB stands for Foreign Investment Promotion Board which approves all other
cases where the parameters of automatic approval are not met. Normal
processing time is 4 to 6 weeks. Its approach is liberal for all sectors and all
types of proposals, and rejections are few. It is not necessary for foreign
investors to have a local partner, even when the foreign investor wishes to
hold less than the entire equity of the company. The portion of the equity
not proposed to be held by the foreign investor can be offered to the public.
 Country-wise FDI Inflows
(%)

Mauritius
9
8 Singapor
e
6
USA
4
44 UK 3
3
NETHERL
3
ANDS
JAPAN
CYPRUS
20
GERMAN
Y
Others
Mauritius
Mauritius invested Rs.19,18,633 million in India Up to the January 2010,
equal to 44.01 percent of total FDI inflows. Many companies based outside
of India utilize Mauritian holding companies to take advantage of the India -
Mauritius Double Taxation Avoidance Agreement (DTAA). The DTAA allows
foreign firms to bypass Indian capital gains taxes, and may allow some India-
based firms to avoid paying certain taxes through a process known as ³round
tripping.´

The extent of round tripping by Indian companies through Mauritius is

unknown. However, the Indian government is concerned enough about this
problem to have asked the government of Mauritius to set up a joint monitoring
mechanism to study these investment flows. The potential loss of tax revenue is
of particular concern to the Indian government.

Singapore
Singapore continues to be the single largest investor in India amongst the
Singapore with FDI inflows into Rs. 3,80,142 corers up to January 2010 Sector-wise
distribution of FDI inflows received from Singapore the highest inflows have
been in the services sector (financial and non financial), which accounts for
about 30% of FDI inflows from Singapore. Petroleum and natural gas occupies
the second place followed by computer software and hardware, mining and
construction.
U.S.A.

The United States is the third largest source of FDI in India (7.64 % of the
total), valued at 732335 core in cumulative inflows up to January 2010.
According to the Indian government, the top sectors attracting FDI from the
United States to India are fuel, telecommunications, electrical equipment, food
processing, and services. According to the available M&A data, the two top
sectors attracting FDI inflows from the United States are computer systems
design and programming and manufacturing.

U.K.
The United Kingdom is the fourth largest source of FDI in India (5.53 % of the
total), valued at 2,40,974 corers in cumulative inflows up to January 2010 Over 17
UK companies under the aegis of the Nuclear Industry Association of UK have
tied up with Ficci to identify joint venture and FDI possibilities in the civil nuclear
energy sector. UK companies and policy makers the focus sectors for joint
ventures, partnerships , and creative industries.

Netherlands
FDI from Netherlands to India has increased at a very fast pace over the last
few years. Netherlands ranks fifth among all the countries that make
investments in India. The total flow of FDI from Netherlands to India came to Rs.
1, 78,047 corers between 1991 and 2002. The total percentage of FDI from
Netherlands to India stood at 4.08% out of the total foreign direct investment in
the country up to August 2009.
 LOW INCOME COUNTRIES IN GLOBAL FDI
RACE
The situation of foreign direct investment has been relatively good in the recent
times with an increase of 38%. Normally, the foreign direct investment is made
mostly into the extractive industries. However, now the foreign direct investors
are also looking to pump money into the manufacturing industry that has
garnered 47% of the total foreign direct investment made in 1992. However,
the situation has not been the same in the countries with a middle income
range .

The middle income countries have not received a steady inflow of foreign
direct income coming their way. The situation is comparatively better in the
low income countries. They have had an uninterrupted and continually increasing
flow of foreign direct investment. It has been observed that the various debt
crises, as well as, other forms of economic crises have had less effect on these
countries.

These countries had lesser amounts of commercial bank obligations, which

again had been caused by the absence of proper financial markets, as well as the
fact that their economies were not open to foreign direct investment. During the
later phases of the decade of 70s the Asian countries started encouraging
foreign direct investments in their economies. China has received the most of
the foreign direct investment that was pumped into the countries with low
income. It accounted for as much as 86% of the total foreign direct
investment made in the lower income countries in with low income. It accounted
for as much as 86% of the total foreign direct investment made in the lower
income countries in 1995.

The economic liberalization in China started in 1979. This led to an increase in the
foreign direct investment in China. In the years between 1982 and 1991 the
average foreign direct investment in China was US$ 2.5 billion. This average
increased by seven times to become US$ 37.5 billion during 1995. A
significant amount of the foreign direct investment in China was provided in the
industrial sector.

It was as much as 68%. Around 20% of the foreign direct investment of China was
made in the real estate sec tor. During the same period Nigeria had been the
second best in terms of receiving foreign direct investment. In the recent times
India has Risen to be the third major foreign direct investment destination in the
recent years. Foreign direct investment started in India in 1991 with the initiation
of the economic liberation.

There were more initiatives that enabled India to garner foreign direct
investments worth US$ 2.9 billion from 1991 to 1995. This was a significant
increase from the previous twenty years when the total foreign direct
investment in India was US$1 billion. Most of the foreign direct investment
made in India has been in the infrastructural areas like telecommunications
and power. In the manufacturing industry the emphasis has been on petroleum
refining, vehicles and petrochemicals Vietnam is a low income country, which is
supposed to have the same potential as China to generate foreign direct
investment
The foreign direct investment laws were introduced in Vietnam in 1987 -88. This
led to an increase in the foreign direct investment made in the country. The
amount stood at US$ 25 million in 1993 compared to US$ 8 million in 1993.
This amount increased by 3 times after the USA removed its economic
sanctions in 1994. The gas and petroleum industries were the biggest
beneficiaries of the foreign direct investment. Bangladesh started receiving
increasing foreign direct investment after 1991, when the economic reforms
took place in the country.

After 1991 it was possible for foreign companies to set up companies in

Bangladesh without taking permission beforehand. The foreign direct investment
rose from US$ 11 million in 1994 to US$ 125 million in 1995. As per the
available statistics the manufacturing industry, comprising of clothing and
textiles took up 20% of the total approved foreign direct investment. Food
processing, chemicals and electric machinery were also important in this
regard. The increase in the foreign direct investment in Ghana was remarkable
as well. The figures increased from US$11.7 million, on an average, from 1986 to
1992 to US$ 201 million, on an average, from 1993 to 1995. This improvement
was brought about by the privatization of the Ashanti Goldfields.
FDI INFLOW ......

India
30 27.33
24.58
25

20
15.59 India
15

10
5.54
5 3.25

0
2004-05 2005-06 2006-07 2007-08 2008-09
Thank you……….