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Foreign Direct Foreign Direct Investment in India Investment in India

(FDI)(FDI)

DefinitionDefinition

Foreign direct investment (FDI) occurs Foreign direct investment (FDI) occurs when when

an investor based in one country (the an investor based in one country (the home home

country) acquires an asset in another country) acquires an asset in another

country ( the host country) country ( the host country) with the with the intent to manage the asset.intent to manage the asset.

Need of FDINeed of FDI

Need of FDINeed of FDI Improvement of Economical Improvement of Economical

infrastructure infrastructure Technological Up gradationTechnological Up gradation Managing Balance of PaymentsManaging Balance of Payments Exploitation of Natural ResourcesExploitation of Natural Resources Scope of EmploymentScope of Employment Improvement of export Improvement of export

competitivenesscompetitiveness Benefit to consumersBenefit to consumers

Why in Why in IndiaIndia??

Opportunities hereOpportunities here

Stabilized democratic governmentStabilized democratic government Low penetrated marketLow penetrated market Low labor costLow labor cost Skill populationSkill population Availability of resourcesAvailability of resources Supportive policies and rulesSupportive policies and rules

Glimpses on FDIGlimpses on FDI

Phases of Indian EconomyPhases of Indian Economy1947-19911947-1991

Command and Control EconomyCommand and Control Economy– Allocation of resources by the Government Allocation of resources by the Government

(budgetary grants)(budgetary grants)– Government took active part in setting Government took active part in setting

priorities for the economypriorities for the economy– Self-Reliance was the buzz wordSelf-Reliance was the buzz word– Nationalization of BanksNationalization of Banks– Limited scope for private participationLimited scope for private participation

Phases of Indian EconomyPhases of Indian Economy1991-20001991-2000

Liberalization and Globalization of Liberalization and Globalization of Indian EconomyIndian Economy– Increased emphasis on private sector Increased emphasis on private sector

participationparticipation– Limited extent of FDI participationLimited extent of FDI participation– Gradual improvement in the enabling Gradual improvement in the enabling

environmentenvironment

Phases of Indian EconomyPhases of Indian Economypost 2000post 2000

Political Coalitions have started Political Coalitions have started providing stable governmentproviding stable government

Government to get out of owning Government to get out of owning and managing businesses: and managing businesses: Disinvestment PolicyDisinvestment Policy

Gradual relaxation in the FDI PolicyGradual relaxation in the FDI Policy

Ways of EntranceWays of Entrance

ROUTES FOR FOREIGN DIRECT ROUTES FOR FOREIGN DIRECT INVESTMENTINVESTMENT

Routes available for FDI:Routes available for FDI:

Automatic RouteAutomatic Route - No prior Government approval is - No prior Government approval is required if the investment to be made falls within the required if the investment to be made falls within the sectoral caps specified for the listed activities. Only sectoral caps specified for the listed activities. Only filings have to be made by the Indian company with the filings have to be made by the Indian company with the concerned regional officeconcerned regional office of the Reserve Bank of India of the Reserve Bank of India (“RBI”) within 30 days of receipt of remittance and within (“RBI”) within 30 days of receipt of remittance and within 30 days of issuance of shares.30 days of issuance of shares.

Continued..Continued..FIPB RouteFIPB Route - - Investment proposals falling outside the Investment proposals falling outside the

automatic route would require prior Government automatic route would require prior Government approval. Foreign Investment requiring Government approval. Foreign Investment requiring Government approvals are considered and approved by the approvals are considered and approved by the Foreign Foreign InvestmentInvestment Promotion Board (“FIPB”)Promotion Board (“FIPB”). Decision of the . Decision of the FIPB usually conveyed in 4-6 weeks. Thereafter, filings FIPB usually conveyed in 4-6 weeks. Thereafter, filings have to be made by the Indian company with the RBIhave to be made by the Indian company with the RBI

Continued..Continued..CCFI RouteCCFI Route - - Investment proposals falling outside Investment proposals falling outside

the automatic route and having a project cost of Rs. the automatic route and having a project cost of Rs. 6,000 million or more would require prior approval of 6,000 million or more would require prior approval of Cabinet Committee of Foreign Investment (“CCFI”)Cabinet Committee of Foreign Investment (“CCFI”). . Decision of CCFI usually conveyed in 8-10 weeks. Decision of CCFI usually conveyed in 8-10 weeks. Thereafter, filings have to be made by the Indian Thereafter, filings have to be made by the Indian company with the RBIcompany with the RBI

- - Investment proposals falling within the automatic Investment proposals falling within the automatic route and having a project cost of Rs. 6,000 million or route and having a project cost of Rs. 6,000 million or more do not require to be approved by CCFImore do not require to be approved by CCFI

Types of FDITypes of FDIThere are two types of FDI: There are two types of FDI: Greenfield investment :Greenfield investment : It is the It is the

direct investment in new facilities or the direct investment in new facilities or the expansion of existing facilities. It is the expansion of existing facilities. It is the principal mode of investing in principal mode of investing in developing countries. developing countries.

Mergers and Acquisition :Mergers and Acquisition : It occurs It occurs when a transfer of existing assets from when a transfer of existing assets from local firms takes place. local firms takes place.

Fields of WorkingFields of Working

Sector Wise Limits of Sector Wise Limits of investmentsinvestments

Banking - 74% Banking - 74% Non-banking financial companies (stock Non-banking financial companies (stock

broking, credit cards, financial consulting, broking, credit cards, financial consulting, etc.) - 100% etc.) - 100%

Insurance - 26% Insurance - 26% Telecommunications - 74% Telecommunications - 74% Private petrol refining - 100% Private petrol refining - 100% Construction development - 100% Construction development - 100% Coal & lignite - 74% Coal & lignite - 74% Trading - 51% Trading - 51% Electricity - 100% Electricity - 100% Pharmaceuticals - 100% Pharmaceuticals - 100%

ContinuedContinued….…. Transportation infrastructure - 100 % Transportation infrastructure - 100 % Tourism - 100% Tourism - 100% Mining - 74% Mining - 74% Advertising - 100% Advertising - 100% Airports - 74% Airports - 74% Films - 100% Films - 100% Domestic airlines - 49% Domestic airlines - 49% Mass transit - 100% Mass transit - 100% Pollution control - 100% Pollution control - 100% Print media - 26% for newspapers and current Print media - 26% for newspapers and current

events, 100 % for scientific and technical events, 100 % for scientific and technical periodicals periodicals

FDI in major sectors in FDI in major sectors in IndiaIndia

The The majormajor sectors of the Indian economy sectors of the Indian economy that have benefited from FDI in India are - that have benefited from FDI in India are -

Financial sector (banking and non-Financial sector (banking and non-banking). banking).

Insurance Insurance Telecommunication Telecommunication Hospitality and tourism Hospitality and tourism Pharmaceuticals Pharmaceuticals Software and Information Technology.Software and Information Technology.

Forbidden TerritoriesFDI is not permitted in the following industrial

sectors: Arms and ammunition. Atomic Energy. Railway Transport. Coal and lignite. Mining of iron, manganese, chrome, gypsum, sulphur, gold,

diamonds, copper, zinc. Gambling and BettingGambling and Betting Lottery BusinessLottery Business Atomic EnergyAtomic Energy Agriculture (with certain exceptions) and Plantations (Other Agriculture (with certain exceptions) and Plantations (Other

than Tea plantationsthan Tea plantations

Impact of FDIImpact of FDI

Impacts of FDIImpacts of FDI

Availability of scared resourcesAvailability of scared resources SocialSocial Economical Economical Revenue to Government Revenue to Government Relationship with the worldRelationship with the world Positioning in global marketPositioning in global market

Global PerspectiveGlobal Perspective

Global PerspectiveGlobal Perspective

Open market, no restrictionsOpen market, no restrictions

Investment opportunities Investment opportunities

Technical know howTechnical know how

International recognition International recognition

SuggestionsSuggestions

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Questions and AnswerQuestions and Answer