2. 2
An Overview
• What is FDI ????
• Why we need FDI ????
• What is the process of the
Inflow of FDI ????
• What are the benefits and
costs????
3. 3
Defination of FDI
Foreign direct investment (FDI)
occurs when an investor based
in one country (the home
country) acquires an asset in
another country ( the host
country) with the intent to
manage the asset.
4. 4
Types of FDI
• FDI Types
– Purchase of existing assets
• Quick entry, local market know-how, local financing
may be possible, eliminate competitor, buying
problems
– New investment
• No local entity exists or is available for sale, local
financial incentives may encourage, no inherited
problems, long lead time to generation of sales or
other desired outcome
– Participation in an international joint-venture
• Shared ownership with local and/or other non-local
partner
5. 5
Which factors
encourages FDI?
• Financial incentives (Funds from local
Government)
• Fiscal incentives (Exemption from
import duties)
• Indirect incentives (Provides land and
infrastructures at less commercial
prices)
7. 7
Don’t Be Confused Between
FDI & FII
• FII - is Foreign Institutional Investors, i.e, foreign
Investment Bankers like Goldman sachs, Merrill
lynch, Lehman bros etc...investing in indian
markets......in other words buying indian
stocks.....FII's generally buy in large volumes which
has an impact on the stock markets...
FDI - is Foreign Direct Investments i.e. a
foreign company having a stake in a public
sector undertaking in a country for a long
period and that company is called
Multinational Enterprise.
8. 8
The Direction of FDI
• Historically, most FDI has been directed at the
developed nations of the world as firms based in
advanced countries invested in other markets
– The US has been the favorite target for FDI inflows
• While developed nations still account for the
largest share of FDI inflows, FDI into developing
nations has increased
– Most recent inflows into developing nations have been
targeted at the emerging economies of South, East, and
Southeast Asia
10. 10
BY 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.
11. 11
BY MOTIVE
Resource-Seeking
This typifies FDI into developing countries, for example seeking natural
resources in the Middle East and Africa, or cheap labor in
Southeast Asia and Eastern Europe.
Market-Seeking
Investments which aim at either penetrating new markets or
maintaining existing ones..
Efficiency-Seeking
It is suggested that this type of FDI comes with the expectation that it
further increases the profitability of the firm. Typically, this type of
FDI is mostly widely practiced between developed economies;
especially those within closely integrated markets (e.g. the EU)..
Strategic-Asset-Seeking
A tactical investment to prevent the loss of resource to a competitor.
Easily compared to that of the oil producers, whom may not need
the oil at present, but look to prevent their competitors from having
it.
12. 12
INDIA
AN IDEAL INVESTMENT DESTINATION
World’s largest democracy
Second largest emerging market (US$ 2.4
trillion)
Liberal Foreign Investment Regime
Skilled and competitive labour force
Amongst the highest rates of return on
investment
Large domestic market
13. 13
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
15. 15
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.
17. 17
FDI Policy …. Prohibited activitiesFDI Policy …. Prohibited activities
• Retail except single brand retailing allowed upto 51% with
FIPB approval
• Atomic energy
• Lottery business
• Betting and Gambling
18. 18
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
19. 19
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
20. 20
FDI Policy for Service Sector…. Largely
permitted
FDI 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
21. 21
FDI Policy for Service Sector…. Largely
permitted
FDI 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%
