Foreign Direct investment

By:Mukka Sai Manish 13116044Nallagatla Manikanta 13116045

Guided by:Bharath Singh sir

What is FDI ?

• Foreign direct investment (FDI) is a controlling ownership in a business enterprise in one country by an entity based in another country.

• In layman language, FDI means a foreign company makes an active investment in local business.

• It is in contrast with portfolio investment which is passive investment in the securities of another country such as stocks and bonds

When was it introduced in India?

• Foreign direct Investment was introduced in 1991 under

Foreign Exchange Management Act(FEMA), driven by then finance minister, Mr.Manmohan Singh.

Who are investing ?

MAURITIUS SINGAPORE U.K JAPAN U.S.A NETHERLANDS CYPRUS GERMANY FRANCE U.A.E

Statistical view

State wise distribution

Sector wise distribution

Route of fdi

Foreign country has the following options to set up business operations in India :

By incorporating a company under the Companies Act, 1956• A wholly owned subsidiary • Joint venture company - existing company or new company with

domestic partner

As an unincorporated entity • Liaison Office• Project Office • Branch Office

LIAISON OFFICE

• Liaison office not permitted to undertake any commercial/trading/ industrial activity

The role of the liaison office is limited to:

• Collecting information about possible market opportunities and providing information about the company and its products to prospective Indian customers

LiaIson office cont…

• Acting as a communication channel between the parent company and Indian Companies.

• It can promote export/import from/to India and also facilitate technical/financial collaboration between parent company/Group companies and companies in India

• Approval for establishing a liaison office in India is granted by RBI

PROJECT OFFICE

• General permission to foreign entities to establish Project / Site Offices (temporary in nature).

• Such offices cannot undertake or carry on any activity other than the activity relating and incidental to execution of the project.

BRANCH OFFICE

• Foreign companies engaged in manufacturing and trading activities abroad are allowed to set up Branch Offices in India for specified purposes

• Branch Offices are established with the approval of RBI

• Permitted to transmit the profit of the branch outside India.

FOREIGN INVESTMENTS THROUGH GDRs (Euro Issues)

Foreign Investment through GDRs is treated as Foreign Direct Investment

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

CLEARANCE FROM (FIPB)Foreign Investment Promotion Board :

A company which is implementing a project would need to obtain prior FIPB clearance before seeking final approval from Ministry of Finance.

GDR means a bank certificate issued in more than one country for shares in a foreign company

USEs 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 Joint ventures in India.

ADVAntages

• Raising the Level of Investment• Up gradation of Technology• Improvement in Export

Competitiveness• Employment Generation• Benefits to Consumers• Revenue to Government• Low cost Products• Employment Opportunities• Economic growth• Better realization to farmers.

Disadvantages

• Fall in domestic savings• Contribution of foreign firms to public revenue through corporate taxes is comparatively less because of liberal tax concessions. • The technology is generally capital-intensive which does not suit the needs of a labor-surplus economy • Foreign firms may influence local political decisions.

Types of fdi

Indirect FDI:• Indirect foreign direct investments (indirect FDI) are foreign direct investments of a multinational enterprise (MNE) that are carried by a foreign subsidiary located in a third country

Direct FDI:• All investments directly by a non-resident entity into the Indian company would be counted towards direct foreign investment.

Indian government policy

Prohibited Sectors:

FDI is prohibited in: (a) Lottery Business including Government/private lottery, online lotteries, etc. (b) Gambling and Betting including casinos etc. (c) Chit funds (d) Trading in Transferable Development Rights (TDRs) (e) Real Estate Business or Construction of Farm Houses (f) Manufacturing of cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes (g) Activities/sectors not open to private sector investment e.g. Atomic Energy

Indian government policy cont…

Percentage of FDI in some sectors:

conclusion

• The future of the india lies in FDI and the government must take necessary steps in that direction if it wants to make the economy a developed economy.• As FDI helps in the growth of economy and development through introduction of foreign technology, it is beneficial to both consumer and producer.• MNC’s may also provide training of labour and management which may become available to the economy in general.• The increased flow of FDI will give a major boost to the country’s economy.• Hence measures must be taken to ensure that the flow of FDI in both countries should grow.

• Remove Disadvantages