FDI and Its Impact in Indian Economy

8/3/2019 FDI and Its Impact in Indian Economy

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FDI and its impacton Indian Economy

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FDI

Foreign Direct Investment is anyform of investment that earnsinterest in enterprises whichfunction outside of the domesticterritory of the investor.

Foreign direct investment is aninvestment made by a foreignindividual or company in productivecapacity of another country. It is themovement of capital across nationalfrontiers in a way that grants theinvestor control over the acquiredasset.

Wiki : The net inflows of investmentto acquire a lasting managementinterest in an enterprise operating inan economy other than that of theinvestor.


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NEED FOR FDI

To gain access to resources and technical know-how.

Foreign capital brings with it additional productive factors like businessexperience and knowledge.

To gain access to market.

To get greater efficiency. ( cheap labour, resource etc).

Domestic capital is not enough for the level of economic development planned.

- Foreign investment is prohibited in following areas:Atomic Energy.

Agriculture (Except Floriculture, Horticulture, Seed development ).

Lottery Business/Gambling Betting.

Plantation ( Except tea Plantation ).


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Types of FDI

Inward and outward FDI.

Vertical and Horizontal FDI.

Greenfield investment and Mergers &Acquisitions.


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Foreign Investment Promotion Board (FIPB)

The Foreign Investment Promotion Board (FIPB), housed in the Department of EconomicAffairs, Ministry of Finance, is an inter-ministerial body, responsible for processing ofForeign Direct Investment (FDI) proposals in India. The Board offers a single-windowmechanism in respect of FDI proposals, which require government approval and are notpermissible under the automatic route as per the extant FDI Policy, as formulated byDepartment of Industrial Policy and Promotion (DIPP), Ministry of Commerce and Industry.

Approvals under PMO: FIPB was initially constituted under the Prime Ministers Office.

Transfer to DIPP in 1996: The Board was reconstituted in 1996 with the transfer of FIPBto DIPP.

Transfer to DEA in 2003: The FIPB was transferred to the Department of EconomicAffairs (DEA), Ministry of Finance in terms of the Presidential Order dated 30.01.2003.

Project-proposals involving a total investment of less than 600 crore were considered andapproved by the Finance Minister and those with a total investment beyond 600 crore weresubmitted to the CCEA for decision. The threshold limit for investment in proposals thatrequire approval of the CCEA (Cabinet Committee on Economic Affairs ) has beensubsequently raised to 1200 crore.


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Automatic Route and FIPB

AR

Under Delegated powers exercisedby RBI.

FDI upto 100%for new and existingcompanies, JVs,firms is permittedunder automatic route for all itemsexcept for those where approvalfrom SEBI or FIPB is required.

FIPB

Under Foreign InvestmentPromotion Board

Required for the projects that do notqualify for automatic approval route.

A proposal to be made to FIPBwhich studies the project and

conveys its decision within 30 daysof submitting application.

Preference is given to projects inhigh priority industries.


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Economic Liberalization

Step wise Economicreforms since 1991 as

given on the RBIwebsite:


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Effect of Economic liberalization on

FDI


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Year Wise FDI Inflow


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Sectoral Representation(From April 2000 to April 2011)


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TOP 10 COUNTRIES(From April 2000 to April 2011)


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Benefits of FDI

Plays a complimentary role in capital formation.

Employment generation and productivity enhancement.

Encourages the transfer of management skills, intellectualproperty, and technology.

Improves forex position of the country.

Promotion of the competition within the local input market.

Development of the human capital resources.

Increase in exports. Increase in tax revenue.


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THANK YOU

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FDI and Its Impact in Indian Economy