Modified FDI & FII in India - A Comparative Analysis

FDI & FII In India _A Comparative Analysis
SECTION 1: INTRODUCTION AND RESEARCH METHODOLOGY

1.1 GENERAL INTRODUCTION OF THE PROJECT
The Government of India has recognized the key role of the foreign direct investment (FDI) and foreign institutional investment (FII) in its process of economic development, not only as an addition to its own domestic capital but also as an important source of technology and other global trade practices. In order to attract the required amount of FDI and FII, it has bought about a number of changes in its economic policies and has put in its practice a liberal and more transparent FDI and FII policy with a view to attract more foreign direct institutional investment inflows into its economy. These changes have heralded the liberalization era of the foreign investment policy regime into India and have brought about a structural breakthrough in the volume of FDI and FII inflows in the economy
The influx of FIIs has indeed influenced the secondary market segment of the Indian stock market. But the supposed linkage effects with the real economy have not worked in the way the mainstream model predicts. Instead there has been an increased uncertainty and skepticism about the stock market in this country. On the other hand, the surge in foreign portfolio investment in the Indian economy has introduced some serious problems of macroeconomic management for the policymakers like inflation, currency appreciation etc.
On the other hand FDI is what the government really needs to attract in various sectors like infrastructure, education etc. it is much more stable than the foreign institutional investment which comes via the stock market route, and has more accountability and brings fundamental and tangible benefits to the economy.
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FDI & FII In India _A Comparative Analysis In this context, this report is going to analyze the trends and patterns of foreign direct investment (FDI) and foreign institutional investment (FII) flows into India during the post liberalization period.
1.2

Objective of the Study

To examine the trends and patterns in the FDI and FIIs across different sectors and from different countries in India To understand the FII & FDI policy in India. To check Influence of FII on movement of Indian stock exchange To do comparative analysis on FDI & FII and its impact on Indian economy
1.3 Scope of Study

The study is confined to sector wise flow of FDI and FIIs in India and the impact of the same on Indian economy. As it is seen that FII is a volatile investment as compared to FDI the factors affecting the inflow of both types of investment are explored and their investment annually is compared on the basis of certain common parameters.
1.4 Significance of study

This study makes a humble effort to get an overview of both types investments first then study their trends and make a comparative analysis between the two to see which factors are they most sensitive to, whether the two types of investment are equally sensitive to the same factors, which is more stable and also which type of investment direct or portfolio is preferred by an emerging economy like India. Thus the study is beneficial for foreign investors to analysis the future prospects of FDI and FIIs in India.
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1.5 Research Methodology

1.5.1 Formation of problem
Should FDI and FII be strictly regulated? What impact it has on Indian economy? What are the areas or sectors that need more investment?
1.5.2 Methods of Collection of data
The research has been carried out by collection of secondary data with the use of primarily the internet, books on banking and finance, various business magazines, journals, newspapers.
1.5.3 Research Limitation It is mainly based on the data available in various websites &other secondary sources. The inference made is purely from the past years performance.
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CHAPTER 2: REVIEW OF LITERATURE

Foreign Direct Investment (FDI) as an important driver of growth. It is an important source of non debt financial resources for country for economic development. Besides it is a means of achieving technical knowhow and employment generation of employment. However, many are of the view that FDI is a big threat to sovereignty of host and domestic business houses. Faster exploitation of natural resources for profit may deprive host from such resources in long run. Midst of debate on pros and cons of FDI, world economy has observed a phenomenal change in volume and pattern of FDI. There is clearly an intense global competition of FDI. India is not behind this global race of attracting foreign investment. India emerged as an attractive A favorable business environment fostered Indian economy after 1991-92, when the government of India opened the door for foreign capital in the way of direct investment and through foreign institutional investors. Consequently, the international capital inflows have been increased tremendously during last two decades. The capital is being invested by foreign investor through mutual funs, investment trusts, banks, portfolio mangers, charitable trusts etc. and it has been boosting the growth of Indian economy since then. Moreover, the growth rates in GDP i.e. around 7 to 8 percent per year as compared to 2 to 4 percent in most of the developed economies and higher interest rate attracted the foreign capital the most. This paper is an attempt to analyze the relationship of FII investment with economic growth of India, in addition to comparative analysis of preferred investment stock of FII. FDI destination in services but has failed to evolve a manufacturing hub which has greater economic benefit. FDI though one of the important sources of financing the economic development, but not is not a solution for poverty eradication, unemployment and other economic ills. India needs a massive investment to achieve the goals of vision 20-20. Policy makers need to ensure transparency and consistency in policy making along with comprehensive long term development strategy. The report of the project Foreign direct investment (FDI) and foreign institutional investors(FII) in India mainly focused on the following areas:
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FDI & FII In India _A Comparative Analysis A) FOREIGN DIRECT INVESTMENT (FDI) Net foreign direct investment (FDI) flows into India reached 70630 crore in Indias 200607 fiscal year, means increase of 187% of the 24613 crore recorded during 2005 06, with the largest share of FDI flows from Mauritius, followed by the United States and the United Kingdom. This study examines FDI in India, in the context of the Indian economic and regulatory environment. This study present FDI trends in India, by country and by sectors during the post liberalization period that is 1991 to 2007 year, using official government data from Indian official government internet site like that of RBI, SEBI. To illustrate the driving forces behind these trends, the study also
discusses the
investment climate in India, Indian government incentives to foreign
investors, the Indian regulatory environment as it affects investment, and the effect of Indias global, regional, and bilateral trade agreements on investment from top 10 FDI investing countries. Finally, the study examines global FDI in Indias in top 10 sectors of industry. B) FOREIGN INSTITUTIONAL INVESTORS (FII) Institutional Investor is any investor or investment fund that is from or registered in a country outside of the one in which it is currently investing. Institutional investors include hedge funds, insurance companies, pension funds and mutual funds. The growing Indian market had attracted the foreign investors, which are called Foreign Institutional Investors (FII) to Indian equity market, and this study present try to explain the impact and extent of foreign institutional investors in Indian stock market and examining whether market movement can be explained by these investors. It is often hear that whenever there is a rise in market, it is explained that it is due to foreign investors' money and
a
decline in market is termed as withdrawal of money from FIIs. This study tries to examine influence of FII on movement of Indian stock exchange during the post liberalization
the
period that is 1991 to 2007.
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CHAPTER 3:
FDI - AN OVERVIEW
3.1 INTRODUCTION: FOREIGN INVESTMENT
Foreign Investments
Investments made by residents of a country in Financial assets and production processes of another country
Investment in Indian market India is believed to be a good investment despite political uncertainty, bureaucratic hassles, and shortages of power and infrastructure deficiencies. India presents a vast potential for overseas investment and is actively encouraging the entrance of foreign players into the market. No company, of any size, aspiring to be a global player can, for long ignores this country, which is expected to become one of the top three emerging economies.
Foreign Direct Investment (FDI)
Foreign Entity wants to enter in the Indian Market
But HOW?
Portfolio Investment Scheme ( PIS)FII

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FDI & FII In India _A Comparative Analysis TABLE 1: FOREIGN INVESTMENT INFLOWS Total (A+B) US$ million 6789 8151 6014 15699 15366 21453 29829 62106 23983 70139 61851
Year 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
A. Direct investment US $ million 4029 6130 5035 4322 6051 8961 22826 34835 37838 37763 30380
B. Portfolio investment US $ million 2760 2021 979 11377 9315 12492 7003 27271 -13855 32376 31471
SOURCE: Handbook of Statistics of Indian Economy 2011
Chart 1: FOREIGN INVESTMENT IN INDIA
FOREIGN INVESTMENT IN INDIA

50000 40000 30000 20000 10000 0 2000-012001-022002-032003-042004-052005-062006-072007-082008-092009-102010-11 -10000 -20000
US $ mn
Year Direct investment Portfolio investment
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3.2 FOREIGN DIRECT INVESTMENT

FDI is the process whereby residents of one country (the source country) acquire ownership of assets for the purpose of controlling the production, distribution, and other activities of a firm in another country (the host country). The international monetary funds balance of payment manual defines FDI as an investment that is made to acquire a lasting interest in an enterprise operating in an economy other than that of the investor. The investors purpose being to have an effective voice in the management of the enterprise. The united nations 1999 world investment report defines FDI as an investment involving a long term relationship and reflecting a lasting interest and control of a resident entity in one economy (foreign direct investor or parent enterprise) in an enterprise resident in an economy other than that of the foreign direct investor ( FDI enterprise, affiliate enterprise or foreign affiliate).
3.2.1 FDI AND ECONOMIC GROWTH The IMF definition of FDI includes as many as twelve different elements-equity capital, reinvested earnings of foreign companies, inter company debt transactions, short term and long-term loans, financial leasing, trade credits, grants, bonds, non-cash acquisition of equity, investment made by foreign venture capital investors, earnings data of indirectly-held FDI enterprises, control premium and non-competition fee. India, however, does not adopt any other element other than equity capital reported on the basis of issue or transfer of equity or preference shares to foreign direct investors. Figure - 01 exploring the process how FDI is important in utilizing of our economic resources and generating the employment in country as well as important for creating economic prosperity.
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Link Model: FDI and Economic Growth
FDI
Flow of Money in Economy
Employment Generation Skilled Unskilled
Processing of Economic Resource
Disposable Income Increased
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3.2.2 TYPES OF FOREIGN DIRECT INVESTMENT
TYPES OF FDI
BY DIRECTION
BY TARGET
BY MOTIVE
INWARD
GREENFIELD INVESTMENT
RESOURCE SEEKING
OUTWARD
HORIZONTAL FDI
MARKET SEEKING
VERTICAL FDI EFFICIENCY SEEKING
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FDIs can be broadly classified into two types: 1. Outward FDIs 2. Inward FDIs
This classification is based on the types of restrictions imposed, and the various prerequisites required for these investments.
Outward FDI: An outward-bound FDI is backed by the government against all types of associated risks. This form of FDI is subject to tax incentives as well as disincentives of various forms. Risk coverage provided to the domestic industries and subsidies granted to the local firms stand in the way of outward FDIs, which are also known as 'direct investments abroad.'
Inward FDIs: Different economic factors encourage inward FDIs. These include interest loans, tax breaks, grants, subsidies, and the removal of restrictions and limitations. Factors detrimental to the growth of FDIs include necessities of differential performance and limitations related with ownership patterns.
Other categorizations of FDI
Vertical Foreign Direct Investment takes place when a multinational corporation owns some shares of a foreign enterprise, which supplies input for it or uses the output produced by the MNC.
Horizontal foreign direct investments happen when a multinational company carries out a similar business operation in different nations. Horizontal FDI the MNC enters a foreign country to produce the same products product at home. Conglomerate FDI the MNC produces products not manufactured at home.
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FDI & FII In India _A Comparative Analysis Vertical FDI the MNC produces intermediate goods either forward or backward in the supply stream. Liability of foreignness the costs of doing business abroad resulting in a competitive disadvantage.
3.2.3 METHODS OF FOREIGN DIRECT INVESTMENTS
The foreign direct investor may acquire 10% or more of the voting power of an enterprise in an economy through any of the following methods: by incorporating a wholly owned subsidiary or company by acquiring shares in an associated enterprise through a merger or an acquisition of an unrelated enterprise participating in an equity joint venture with another investor or enterprise
Foreign direct investment incentives may take the following forms: low corporate tax and income tax rates tax holidays other types of tax concessions preferential tariffs special economic zones investment financial subsidies soft loan or loan guarantees free land or land subsidies relocation & expatriation subsidies job training & employment subsidies infrastructure subsidies R&D support derogation from regulations (usually for very large projects)
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FDI & FII In India _A Comparative Analysis 3.2.4 ENTRY MODE
The manner in which a firm chooses to enter a foreign market through FDI. International franchising Branches Contractual alliances Equity joint ventures Wholly foreign-owned subsidiaries Investment approaches: Greenfield investment (building a new facility) Cross-border mergers Cross-border acquisitions Sharing existing facilities
3.2.5 THE STRATEGIC LOGIC BEHIND FDI Resources seeking looking for resources at a lower real cost. Market seeking secure market share and sales growth in target foreign market. Efficiency seeking seeks to establish efficient structure through useful factors, cultures, policies, or markets. Strategic asset seeking seeks to acquire assets in foreign firms that promote corporate long term objectives.
Enhancing Efficiency from Location Advantages Location advantages - defined as the benefits arising from a host countrys comparative advantages. Better access to resources Lower real cost from operating in a host country Labor cost differentials Transportation costs, tariff and non-tariff barriers Governmental policies
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FDI & FII In India _A Comparative Analysis Improving Performance from Structural Discrepancies
Structural discrepancies are the differences in industry structure attributes between home and host countries. Examples include areas where:
Competition is less intense Products are in different stages of their life cycle Market demand is unsaturated There are differences in market sophistication
Increasing Return from Ownership Advantages
Ownership Advantages come from the application of proprietary tangible and intangible assets in the host country.
Reputation, brand image, distribution channels Technological expertise, organizational skills, experience Core competence skills within the firm that competitors cannot easily imitate or match.
Ensuring Growth from Organizational Learning
MNEs exposed to multiple stimuli, developing: Diversity capabilities Broader learning opportunities
Exposed to: New markets New practices New ideas New cultures New competition
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FDI & FII In India _A Comparative Analysis 3.2.6 THE IMPACT OF FDI ON THE HOST COUNTRY
Employment Firms attempt to capitalize on abundant and inexpensive labor. Host countries seek to have firms develop labor skills and sophistication. Host countries often feel like least desirable jobs are transplanted from home countries. Home countries often face the loss of employment as jobs move.
FDI Impact on Domestic Enterprises
Foreign invested companies are likely more productive than local competitors. The result is uneven competition in the short run, and competency building efforts in the longer term. It is likely that FDI developed enterprises will gradually develop local supporting industries, supplier relationships in the host country.
3.2.7 ADVANTAGES OF FDI
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. FDI is also claimed to have lowered few regulatory standards in terms of investment patterns. The effects of FDI are by and large transformative. The incorporation of a range of well- composed and relevant policies will boost up the profit ratio from Foreign Direct Investment higher. Some of the biggest advantages of FDI enjoyed by India have been listed as under:
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FDI & FII In India _A Comparative Analysis 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.
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FDI & FII In India _A Comparative Analysis 3.2.8 DISADVANTAGES OF FDI The disadvantages of foreign direct investment occur mostly in case of matters related to operation, distribution of the profits made on the investment and the personnel. One of the most indirect disadvantages of foreign direct investment is that the economically backward section of the host country is always inconvenienced when the stream of foreign direct investment is negatively affected. The situations in countries like Ireland, Singapore, Chile and China corroborate such an opinion. It is normally the responsibility of the host country to limit the extent of impact that may be made by the foreign direct investment. They should be making sure that the entities that are making the foreign direct investment in their country adhere to the environmental, governance and social regulations that have been laid down in the country. The various disadvantages of foreign direct investment are understood where the host country has some sort of national secret something that is not meant to be disclosed to the rest of the world. It has been observed that the defense of a country has faced risks as a result of the foreign direct investment in the country. At times it has been observed that certain foreign policies are adopted that are not appreciated by the workers of the recipient country. Foreign direct investment, at times, is also disadvantageous for the ones who are making the investment themselves. Foreign direct investment may entail high travel and communications expenses. The differences of language and culture that exist between the country of the investor and the host country could also pose problems in case of foreign direct investment. Yet another major disadvantage of foreign direct investment is that there is a chance that a company may lose out on its ownership to an overseas company. This has often caused many companies to approach foreign direct investment with a certain amount of caution. At times it has been observed that there is considerable instability in a particular geographical region. This causes a lot of inconvenience to the investor.
The size of the market, as well as, the condition of the host country could be important factors in the case of the foreign direct investment. In case the host country is not well connected with their more advanced neighbors, it poses a lot of challenge for the investors.
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FDI & FII In India _A Comparative Analysis At times it has been observed that the governments of the host country are facing problems with foreign direct investment. It has less control over the functioning of the company that is functioning as the wholly owned subsidiary of an overseas company.
This leads to serious issues. The investor does not have to be completely obedient to the economic policies of the country where they have invested the money. At times there have been adverse effects of foreign direct investment on the balance of payments of a country. Even in view of the various disadvantages of foreign direct investment it may be said that foreign direct investment has played an important role in shaping the economic fortunes of a number of countries around the world.
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3.3 FOREIGN DIRECT INVESTMENT IN INDIA

India is a country that has been able to restore investor confidence in its markets, even during the toughest of times. Increase in capital inflows, foreign direct investments (FDI) and overseas entities participation reflect the fact that Indian markets have fared well in recent times. Moreover, foreign companies are viewing the South-Asian nation as a strategic hub for their operations and investments owing to investor-friendly policy environment, positive eco-system and huge potential for growth. India Incs increasing presence over the global canvas and Indian governments consistent support to the FDI space have facilitated remarkable developments and investments from overseas partners
PRE-LIBERALIZATION PERIOD (19471991) Indian economic policy after independence was influenced by the colonial experience, which was seen by Indian leaders as exploitative, and by those leaders exposure to democratic socialism as well as the progress achieved by the economy of the Soviet Union. Domestic policy tended towards protectionism, with a strong emphasis on import substitution, industrialization, economic interventionism, a large public sector, business regulation, and central planning, while trade and foreign investment policies were relatively liberal. Five-Year Plans of India resembled central planning in the Soviet Union. Steel, mining, machine tools, water, telecommunications, insurance, and electrical plants, among other industries, were effectively nationalized in the mid-1950s.
POST-LIBERALIZATION PERIOD (SINCE 1991) In the late 1970s, the government led by Morarji Desai eased restrictions on capacity expansion for incumbent companies; removed price controls, reduced corporate taxes and promoted the creation of small scale industries in large numbers. However, the subsequent government policy of Fabian socialism hampered the benefits of the
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FDI & FII In India _A Comparative Analysis economy, leading to high fiscal deficits and a worsening current account. The collapse of the Soviet Union, which was India's major trading partner, and the first Gulf War, which caused a spike in oil prices, caused a major balance-of-payments crisis for India, which found it facing the prospect of defaulting on its loans. India asked for a $1.8 billion bailout loan from the International Monetary Fund (IMF), which in return demanded reforms. In response, Prime Minister Narasimha Rao, along with his finance minister Manmohan Singh, initiated the economic liberalization of 1991. The reforms did away with the License Raj (investment, industrial and import licensing), reduced tariffs and interest rates and ended many public monopolies, allowing automatic approval of foreign direct investment in many sectors. By the turn of the 20th century, India had progressed towards a free-market economy, with a substantial reduction in state control of the economy and increased financial liberalization. This has been accompanied by increases in life expectancy, literacy rates and food security, although the beneficiaries have largely been urban residents.
The economy of India is the third largest in the world as measured by purchasing power parity (PPP); the economy is diverse and encompasses agriculture, handicrafts, textile, manufacturing, and a multitude of services. Although two-thirds of the Indian workforce still earns 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
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FDI & FII In India _A Comparative Analysis 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 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
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.
Why does India, with a stable democracy and a smoother approval process, lag so far behind China in FDI amounts? Although the Chinese approval process is complex, it includes both national and regional approval in the same process. Federal democracy is perversely an impediment for India. Local authorities are not part of the approvals process and have their own rights, and this often leads to projects getting bogged down in red tape and bureaucracy. India actually receives less than half the FDI that the federal government approves.
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FDI & FII In India _A Comparative Analysis 3.3.1 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.
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FDI & FII In India _A Comparative Analysis 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 fee to study the state of demand / supply for any product. As it is, entering the consumer market 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.
3.3.2 In India, Foreign Direct Investment Policy allows for investment only in case of the following form of investments:

Through financial alliance Through joint schemes and technical alliance Through capital markets, via Euro issues Through private placements or preferential allotments
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FDI & FII In India _A Comparative Analysis 3.3.3 FOREIGN INVESTMENT THROUGH GDRS (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. This condition would be relaxed for infrastructure projects such as power generation, telecommunication, petroleum exploration and refining, ports, airports and roads. 1. 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. 2. 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/WOSs in India.
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FDI & FII In India _A Comparative Analysis 3.3.4 FOREIGN DIRECT INVESTMENTS IN INDIA ARE APPROVED THROUGH TWO ROUTES 1. 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 sector wise 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. 2. 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.
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3.4 FDI POLICY IN INDIA

3.4.1 FOREIGN DIRECT INVESTMENT POLICY
FDI policy is reviewed on an ongoing basis and measures for its further liberalization are taken. Change in sectoral policy/sectoral equity cap is notified from time to time through Press Notes by the Secretariat for Industrial Assistance (SIA) in the Department of Industrial Policy announcement by SIA are subsequently notified by RBI under FEMA. All Press Notes are available at the website of Department of Industrial Policy & Promotion. FDI Policy permits FDI up to 100 % from foreign/NRI investor without prior approval in most of the sectors including the services sector under automatic route. FDI in sectors/activities under automatic route does not require any prior approval either by the Government or the RBI. The investors are required to notify the Regional office concerned of RBI of receipt of inward remittances within 30 days of such receipt and will have to file the required documents with that office within 30 days after issue of shares to foreign investors.
The Foreign direct investment scheme and strategy depends on the respective FDI norms and policies in India. The FDI policy of India has imposed certain foreign direct investment regulations as per the FDI theory of the Government of India. These include FDI limits in India for example:
Foreign direct investment in India in infrastructure development projects excluding arms and ammunitions, atomic energy sector, railways system , extraction of coal and lignite and mining industry is allowed up to 100% equity participation with the capping amount as Rs. 1500 crores.FDI figures in equity contribution in the finance sector cannot exceed more than 40% in banking services including credit card operations and in insurance sector only in joint ventures with local insurance companies.FDI limit of maximum 49% in telecom industry especially in the GSM services
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FDI & FII In India _A Comparative Analysis 3.4.2 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: Investment under automatic route; and Investment through prior approval of Government.
I.
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
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FDI & FII In India _A Comparative Analysis Defense and Strategic Industries Agriculture (Including Plantation) Print Media Broadcasting Postal Services
II.
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.
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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 of inward remittances within 30 days of such receipt and within 30 days of issue of shares to the foreign investors or NRIs.
Participation by International Financial Institutions
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.
3.4.3 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. See also FDI in Small Scale Sector in India Further Liberalized
3.4.5 FOREIGN INVESTMENT PROMOTION BOARD
The FIPB (Foreign Investment Promotion Board) is a government body that offers a single window clearance for proposals on foreign direct investment in the country that is
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FDI & FII In India _A Comparative Analysis not allowed access through the automatic route. Consisting of Senior Secretaries drawn from different ministries with Secretary ,Economic Affairs in the chair, this high powered body discusses and examines proposals for foreign investment in the country for restricted sectors ( as laid out in the Press notes and extant foreign investment policy) on a regular basis. Currently proposals for investment beyond 600 crores require the concurrence of the CCEA (Cabinet Committee on Economic Affairs). The threshold limit is likely to be raised to 1200 crore soon. The Board thus plays an important role in the administration and implementation of the Governments FDI policy. In circumstances where there is ambiguity or a conflict of interpretation, the FIPB has stepped in to provide solutions. Through its fast track working it has established its reputation as a body that does not unreasonably delay and is objective in its decision making. It therefore has a strong record of actively encouraging the flow of FDI into the country. The FIPB is assisted in this task by a FIPB Secretariat. The launch of e- filing facility is an important initiative of the Secretariat to further the cause of enhanced accessibility and transparency
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
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FDI & FII In India _A Comparative Analysis 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 sector. 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
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FDI & FII In India _A Comparative Analysis 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.
About foreign direct investment In India.
It is the process whereby residents of one country (the source country) acquire ownership of assets for the purpose of controlling the production, distribution, and other activities of a firm in another country (the host country). The international monetary funds balance of payment manual defines FDI as an investment that is made to acquire a lasting interest in an enterprise operating in an economy other than that of the investor. The investors purpose being to have an effective voice in the management of the enterprise. The united nations 1999 world investment report defines FDI as an investment involving a long term relationship and reflecting a lasting interest and control of a resident entity in one economy (foreign direct investor or parent enterprise) in an enterprise resident in an economy other than that of the foreign direct investor ( FDI enterprise, affiliate enterprise or foreign affiliate).
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FDI & FII In India _A Comparative Analysis 3.4.5 PROHIBITED SECTORS
FDI is prohibited in: (a) Retail Trading (except single brand product retailing) (b) Lottery Business including Government /private lottery, online lotteries, etc. (c) Gambling and Betting including casinos etc. (d) Chit funds (e) Nidhi company (f) Trading in Transferable Development Rights (TDRs) (g) Real Estate Business or Construction of Farm Houses (h) Manufacturing of Cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes (i) Activities / sectors not open to private sector investment e.g. Atomic Energy and Railway Transport (other than Mass Rapid Transport Systems).
Foreign technology collaboration in any form including licensing for franchise, trademark, brand name, management contract is also prohibited for Lottery Business and Gambling and Betting activities.
3.4.6 PERMITTED SECTORS
In the following sectors/activities, FDI up to the limit indicated against each sector/activity is allowed, subject to applicable laws/ regulations; security and other conditionalities. In sectors/activities not listed below, FDI is permitted up to 100% on the automatic route, subject to applicable laws/ regulations; security and other conditionalities. Wherever there is a requirement of minimum capitalization, it shall include share premium received along with the face value of the share, only when it is received by the
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FDI & FII In India _A Comparative Analysis company upon issue of the shares to the non-resident investor. Amount paid by the transferee during post-issue transfer of shares beyond the issue price of the share, cannot be taken into account while calculating minimum capitalization requirement Table 2: FDI in Permitted Sectors to the limit indicated in % Sl.No. Sector/Activity % of FDI Entry Route Cap/Equity
1)AGRICULTURE 1.1 Agriculture & Animal Husbandry 1.2 Tea Plantation 2)MINING 2.1 Mining and Exploration of metal 2.2 Coal and Lignite Mining 2.3 Mining and mineral separation of titanium bearing minerals and ores 3)Petroleum & Natural Gas 3.1 Exploration activities of oil and natural gas fields 3.2 Petroleum refining by the Public Sector Undertakings 4)DEFENCE Defence Industry subject to Industrial license under the Industries Act 1951 5)Information Services 5.1 Broadcasting 5.2 Terrestrial Broadcasting FM (FM Radio) 5.3 Cable Network 5.4 ISPs with gateways, radiopaging
100% 100% 100% 100% 100%
Automatic Government Automatic Automatic Government
100% 49%
Automatic Government
26%
Government
26% 49% 74%
Government
Government Above 49% need Govt. license 5.5 FDI limit in (HITS) Broadcasting 74% Automatic up to Service 49% Government route beyond Headend-In-The-Sky (HITS) Broadcasting Service refers to the multichannel downlinking and distribution of television programme in C-Band or Ku Band wherein all the pay channels are downlinked at a central facility (Hub/teleport) and again uplinked to a satellite after encryption of channel. At the cable headend these encrypted pay channels are downlinked using a single satellite antenna, transmodulated and sent to the subscribers by using a land based transmission system comprising of infrastructure of cable/optical fibers network.
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FDI & FII In India _A Comparative Analysis 6)Print Media 6.1 Publishing of Newspaper and periodicals 6.2 Publication of Indian editions of foreign magazines 6.3 Publishing/printing of Scientific and Technical 6.4 Publication of facsimile edition of foreign newspapers 7)CIVIL AVIATION 7.1 Airports (a) Greenfield projects (b) Existing projects
26%
Government
26% 100% 100%
Government Government Government
100% 100%
Automatic Automatic up to 74% Government route beyond 74% Automatic Automatic up to 49% Government route beyond 49% and up to 74% Automatic
7.2 Air Transport Services (1) Scheduled Air Transport Service/ Domestic Scheduled Passenger Airline (2) Non-Scheduled Air Transport Service 49% FDI 74% FDI
(3) Helicopter services/seaplane services requiring DGCA approval 7.3 Other services under Civil Aviation sector (1) Ground Handling Services
100%
74% FDI
(2) Maintenance and Repair organizations 8) Courier services for carrying packages, parcels and other items 9) Construction Development: Townships, Housing, Built-up infrastructure 10) Industrial Parks new and existing Satellites Establishment and operation
100% 100% 100% 100% 74%
Automatic up to 49% Government route beyond 49% and up to 74% Automatic Government Automatic Automatic Government
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FDI & FII In India _A Comparative Analysis 11) Private Security Agencies 12) Telecom services 49 % 74% Government Automatic up to 49% Government route beyond 49% and up to 74% Automatic Government Automatic
13) TRADING 13.1 (i) Cash & Carry Wholesale Trading/ Wholesale Trading 13.2 Single Brand product trading 13.3 E-commerce activities
100% 51% 100%
14) FINANCIAL SERVICES Asset Reconstruction Company (ARC) 49% Banking Private sector 74%
Government Automatic up to 49% Government route beyond 49% and up to 74% Government Government Government Government Automatic Automatic Automatic Automatic Automatic
Banking- Public Sector 15) Commodity Exchanges 16) Credit Information Companies 17) Infrastructure Company in the Securities Market 18) Insurance 19) Non-Banking Finance Companies (NBFC) 20) Drugs & Pharmaceuticals 21) Power(other than atomic reactor power plants) 22) Hotel & Tourism
20% 49% 49% 49% 26% 100% 100% 100% 100%
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3.5 CAUSES AND REASONS FOR LOW FDI

1. Image and Attitude
Though economic reforms welcoming foreign capital were introduced in the nineties it does not seem so far to be really evident in our overall attitude. There is a lingering perception abroad that foreign investors are still looked at with some suspicion. There is also a view that some unhappy episodes in the past have a multiplier effect by adversely affecting the business environment in India. Besides the Made in India label is not conceived by the world as synonymous with quality. We do not get across effectively to the decision-making board room levels of corporate entities where a final decision is taken. Our promotional effort is quite often of a general nature and not corporate specific. India is, moreover, a multi-cultural society and a large number of multinational companies (MNC) do not understand the diversity and the Multi-plural nature of the society and the different stakeholders in this country. On the other hand China is viewed as more business oriented, its decision- making is faster and has more FDI friendly policies (ATK 2001). Despite a very similar historical mistrust of foreigners and foreign investment arising from colonial experience, modern (post 1980 China) differs fundamentally from India. Its official attitude to FDI, reflected from the highest level of government (PM, President) to the lowest level of government bureaucracy (provinces) is one of consciously enticing FDI with a warm welcome. They recognize the multifaceted and mutual benefits arising from FDI.
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FDI & FII In India _A Comparative Analysis 2. P olicy Frameworks
Foreign companies or investors that have set up an Indian company or Joint Venture have become indigenized and thus can operate more or less competitively with other Indian company. They adjust themselves to the milieu. This is not, however, true of foreign direct investors who are coming into India for the first time. To the uninitiated the hurdles look daunting and the complexity somewhat perplexing.
Among the policy problems that have been identified by surveys as acting as additional hurdles for FDI are laws, regulatory systems and Government monopolies that do not have contemporary relevance.
3. Procedures
According to Boston Consulting Group, investors find it frustrating to navigate through the tangles of bureaucratic controls and procedures.11 McKinsey (2001) found that, the time taken for application/bidding/approval of FDI projects was too long. Multiple approvals, excessive time taken (2-3years) such as in food processing and long lead times of up to six months for licenses for duty free exports, lead to loss of investors confidence despite promises of a considerable market size. Bureaucracy and red tape topped the list of investor concerns as they were cited by 39 per cent of respondents in the A T Kearney survey. According to a CII study, a typical power project requires 43 Central Government clearances and 57 State Government level (including the local administration) clearances. Similarly, the number of clearances for a typical mining project is 37 at the Central Government level and 47 at the State Government level. Though the number of approvals/clearances may not always be much lower in the OECD countries such as the USA and Japan the regulatory process is transparent with clear documentation requirements and decision rules based largely on self-certification, and generally implemented through the legal profession.
The FICCI (2001) study similarly cites centre-state duality as creating difficulties at both
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FDI & FII In India _A Comparative Analysis the approval and project implementation stages. These studies find that the bureaucracy in general is quite unhelpful in extending infra-structural facilities to any project that is being set up. This leads to time and cost overruns. At an operational level, multiple returns have to be filed every month. The precise reason for the low levels of realization is the post approval procedure, which has in the past played havoc with project implementation.
4. Quality of Infrastructure Poor infrastructure affects the productivity of the economy as a whole and hence its GDP/per capita.It also reduces the comparative advantage of industries that are more intensive in the use of such infrastructure. In the context of FDI, poor infrastructure has a greater effect on export production than on production for the domestic market. FDI directed at the domestic market suffers the same handicap and additional costs as domestic manufacturers that are competing for the domestic market. Inadequate and poor quality roads, railroads and ports, however raise export costs vis-a-vis global competitors having better quality and lower cost infrastructure.
5. State Obstacles
Taxes levied on transportation of goods from State to State (such as octroi and entry tax) adversely impact the economic environment for export production. Such taxes impose both cost and time delays on movement of inputs used in production of export products as well as in transport of the latter to the ports. Differential sale and excise taxes (States and Centre) on small and large companies are found to be a deterrent to FDI in sectors such as textiles (McKinsey 2001). Investments that could raise the productivity and quality of textiles and thus make them competitive in global markets remain unprofitable because they cannot overcome the tax advantage given to small producers in the domestic market.
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FDI & FII In India _A Comparative Analysis At the local level (sub-state) issues pertaining to land acquisition, land use change, power connection, building plan approval are sources of project implementation delay. The State level issues are also being considered by the Govindarajan committee with a view to seeing how they can be alleviated.
6. Legal Delays Though Indias Anglo Saxon legal system as codified is considered by many legal experts to be superior to that of many other emerging economies it is often found in practice to be an obstacle to investment. One of the reasons is the inordinate delay are the interlocutory procedures that characterize judicial procedures.
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3.6 ANALYSIS OF FDI INFLOW IN INDIA

Table 3: FINANCIAL YEAR-WISE FDI INFLOWS DATA
(Amount US$ million)
FINANCIAL YEAR-WISE FDI INFLOWS DATA: Equity FIPB Route/ RBIs Automatic Route/ Acquisitio n Route 15,483 2,339 3,904 2,574 2,197 3,250 5,540 15,585 24,573 31,364 25,606 19,430 24,188 160,550 FDI FLOWS INTO INDIA %age growth over previou s year (in US$ terms)
S. No .
Financial Year (April-March) 1991A 2000 1 2000-01 2 2001-02 3 2002-03 4 2003-04 5 2004-05 6 2005-06 7 2006-07 8 2007-08 9 2008-09 10 2009-10 (P) (+) 11 2010-11 (P) (+) 12 2011-12 (P) B CUMULATIV E TOTAL A+B
Equity capital of unincorporate d bodies
Reinvested earning
Other capital +
Total FDI Flows 15483 4,029 6,130 5,035 4,322 6,051 8,961 22,826 34,835 41,874 37,745 32,901 35,347 240,05 6
61 191 190 32 528 435 896 2,291 702 1,540 874 765 8,505
1,350 1,645 1,833 1,460 1,904 2,760 5,828 7,679 9,032 8,668 11,939 8,190 62,288
279 390 438 633 369 226 517 292 776 1,931 658 2,204 8,713
(+) 52 % (-) 18 % (-) 14 % (+) 40 % (+) 48 % (+) 146 % (+) 53 % (+) 20 % (-) 10 % (-) 13 %
176033
Source: Department of Industrial Policy & Promotion

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3.6.1 FIPB Route has been the most important source of FDI inflow for India and has
been reported at cumulative 176033 Million US$ since 1991. For the period 1991-2000 and 2001-2009 FDI inflows though this FIPB route was 15,483 Million US$ and 1, 60,550 US Million $ respectively which is seven time than previous decade. However, due to liberalization in economic policy of the government other routes of FDI are also becoming popular. For the corresponding period FDI inflow of reinvested earning has been 62,288 Million US$, which is about one-fifth of the total FDI inflow so far. This may be attributed to government initiatives of providing special tax benefits and other facilities for reinvestment of earnings.
Despite the global financial credit squeeze brought by the recession India continues to be an attractive destination for investment as there is tremendous potential for growth in the vast and diverse markets of our country.
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FDI & FII In India _A Comparative Analysis Chart 2: FDI inflows in India from 2000-2012
TOTAL FDI INFLOWS IN INDIA

45,000 40,000 35,000 30,000 $ mn 25,000 20,000 15,000 10,000 5,000 0 Total FDI Flows
year
The graph from 2000-01 to 2004-05 have been almost hovering the same levels but importantly havent gone down which is because the foreign investors saw immense potential but were not getting enough incentives to enter with huge business propositions. The breakout came from the year 2005-06 when the investment nearly doubled as compared to 2000-01, after which there was no looking back as consistent economic growth, de-regulation, liberal investment rules, and operational flexibility helped increase the inflow of Foreign Direct Investment or FDI. So much so that even during the year 2008-09 when the recession had taken its toll on the western countries there was no indication of falling investment via the FDI route as can be seen from the chart. In percentage terms FDI inflow increased by 20% from 2007-08 to 2008-09.
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3.6.2 Table 4: SHARE OF TOP 10 INVESTING COUNTRIES IN FDI INFLOWS

FROM APRIL 2000 TO DECEMBER 2011
Amount of Foreign Direct Investment Sr.No Country Inflows In Rs crore 280,915.57 1 MAURITIUS 71,312.78 2 SINGAPORE 56,431.86 3 JAPAN 46,731.47 4 U.S.A. 41,025.66 5 U.K. 30,624.62 6 NETHERLANDS 26,831.30 7 CYPRUS 19,688.78 8 GERMANY 12,301.17 9 FRANCE 9,544.71 10 U.A.E. 11 Other
%age to total Inflows(in terms of US $) 40% 10% 8% 7% 6% 4% 4% 3% 2% 1% 15%
Source: Government of India (GOI) (2009). FDI Statistics, Ministry of Commerce & Industry, Department of Industrial Policy and Promotion.
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FDI & FII In India _A Comparative Analysis Mauritius Mauritius invested Rs 280,915.5 crore in India from April .00 - Dec.11, equal to 40 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 round 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. These are the sectors which attracting more FDI from Mauritius Electrical equipment Gypsum and cement products ,Telecommunications ,Services sector that includes both non- financial and financial.
Singapore Singapore continues to be the single largest investor in India amongst the Singapore with FDI inflows into Rs. 71312.78 crore April .00 - Dec.11.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.
Japan Japan ranked third in terms of cumulative foreign direct investment (FDI) in India; accounting for Rs 56431.86 crore came in the period April 2000-Dec 2011, according to the latest data released by the Department of Policy and Promotion (DIPP). Japanese firms increasingly prefer India as an investment destination over China. The number of Japanese companies in India has grown three fold over the last three years from approximately 100 companies in 2006-07 to 300 in 2009-10
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FDI & FII In India _A Comparative Analysis U.S.A. The United States is the fourth largest source of FDI in India (7 % of the total), valued at Rs 46731.47 crore in cumulative inflows from April.00 to Dec 11. 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 (6 % of the total), valued at Rs 41025.66 crore in cumulative inflows from April.00 to Dec 11.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 trade are non-conventional energy, IT, precision engineering, medical equipment, infrastructure equipment, 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 30624.62 crore inflows from April.00 to Dec 11. The total percentage of FDI from Netherlands to India stood at 4% out of the total foreign direct investment in the country up to August 2009.
Following Various industries attracting FDI from Netherlands to India are: Food processing industries Telecommunications that includes services of cellular mobile, basic telephone, and radio paging Horticulture Electrical equipment that includes computer software and electronics, service sector that includes non- financial and financial services.
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FDI & FII In India _A Comparative Analysis 3.6.3 Table 5: SECTORS ATTRACTING HIGHEST FDI EQUITY INFLOWS % age to total Inflows(In terms of US$)
S.NO
Sector SERVICES SECTOR (financial & nonfinancial) TELECOMMUNICATIONS (radio paging, cellular mobile, basic telephone services) COMPUTER SOFTWARE & HARDWARE
Amount of FDI Inflows In Rs crore 142,538.64
20% 57,035.16 8% 48,939.65
7% 48,818.51
5 6
HOUSING & REAL ESTATE CONSTRUCTION ACTIVITIES (including roads & highways) DRUGS & PHARMACEUTICALS
7% 46,215.77 6% 42,668.31 32,175.63 6%
POWER 29,223.99
4%
AUTOMOBILE INDUSTRY 25,468.79 METALLURGICAL INDUSTRIES 14,581.14 PETROLEUM & NATURAL GAS
4%
4%
10
2%
11
Others
32%
Source: FDI Statistics, Ministry of Commerce & Industry, Department of Industrial Policy and Promotion .
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FDI & FII In India _A Comparative Analysis Chart 4
The combined FDI share of financial and non-financial services, computer hardware and software, telecommunications and housing and real estate is 41.9% of the cumulative FDI equity inflows during the period April 2000-December 2011. With the inclusion of the construction sector (6.5%), the share of services in FDI inflows increases to 48.4%. The IT industry is one of the booming sectors in India. At present India is the leading country pertaining to the IT industry in the Asia -Pacific region. With more international companies entering the industry, the Foreign Direct Investments (FDI) has been phenomenon over the year. The rapid development of the telecommunication sector was due to the FDI inflows in form of international players entering the market and transfer of advanced technologies. The telecom industry is one of the fastest growing industries in
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FDI & FII In India _A Comparative Analysis India. With a growth rate of 45%, Indian telecom industry has the highest growth rate in the world. The FDI in Automobile Industry has experienced huge growth in the past few years. The increase in the demand for cars and other vehicles is powered by the increase in the levels of disposable income in India. The options have increased with quality products from foreign car manufacturers. The introduction of tailor made finance schemes, easy repayment schemes has also helped the growth of the automobile sector. For the past few years the Indian Pharmaceutical Industry is performing very well. The varied functions such as contract research and manufacturing, clinical research, research and development pertaining to vaccines are the strengths of the Pharma Industry in India. Multinational pharmaceutical corporations outsource these activities and help the growth of the sector. The Indian Pharmaceutical Industry has been experiencing a vast inflow of FDI. The FDI inflow in the Cement Industry in India has increased with some of the Indian cement giants merging with major cement manufacturers in the world such Holcim, Heidelberg, Italcementi, Lafarge, etc. The FDI in Semiconductor sector in India were crucial for the development of the IT and the ITES sector in India. Electronic hardware is the major component of several industries such as information technology
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FDI & FII In India _A Comparative Analysis 3.6.4 Key Statistics
FDI inflows rose by 36 per cent to US$ 23.69 billion during January-October 2011, while the cumulative amount of FDI equity inflows from April 2000 to October 2011 stood at US$ 226.05 billion, according to the latest data released by the Department of Industrial Policy and Promotion (DIPP).
The services (including financial and non-financial) sectors attracted highest FDI equity inflows during April-October 2011-12 at US$ 3.43 billion. India received maximum FDI from countries like Mauritius, Singapore, and the US at US$ 61.2 billion, US$ 15.2 billion and US$ 10 billion, respectively, during April 2000October 2011.
Global consultancy firm Ernst & Young (E&Y) has stated that the value of mergers and acquisition (M&A) deals involving Indian companies aggregated to US$ 34.4 billion in 2011 involving 806 transactions. There were 177 outbound deals with an aggregate disclosed value of US$ 8.8 billion in 2011; forming 25.6 per cent of the total M&A pie. Adani Enterprises acquisition of Abbot Point Coal Terminal in Australia (US$ 2 billion) and the GVK Groups purchase of Australia-based Hancock Coals Queensland coal assets (US$ 1.3 billion) were among the biggest outbound deals recorded in 2011.
According to data released by auditing and consultancy firm KPMG, India Inc witnessed a 31 per cent increment in private equity (PE) investment to US$ 7.89 billion during the first three quarters of 2011. PE firms like Blackstone India and Kohlberg Kravis Roberts & Co (KKR & Co) are betting high on Indian markets. The Blackstone India chief was reported to have said that he intends to close 5-6 deals a year in India whose financial valuations would revolve around roughly US$ 100 million to US$ 120 million each.
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FDI & FII In India _A Comparative Analysis Important Developments The government of India is continuously working towards increasing FDI flows into the country. FDI rose by an impressive 56 per cent to US$ 2.53 billion in November 2011. The cumulative flows of for April-November 2011 aggregated to US$ 22.83 billion, exceeding the total FDI of US$ 19.43 billion for 2010-11 fiscal. Recently, the Government has approved 20 FDI proposals worth Rs 1,935.24 crore (US$ 384.5 million). The approved major investments, that were consulted with Foreign Investment Promotion Board (FIPB) as well, are enlisted below:
Sterlite Grid had proposed to act as an investment company and invest Rs 1,150 crore (US$ 228.48 million) via FDI
Equitas Micro Finance would invest Rs 230.7 crore (US$ 45.83 million) for demerging its microfinance business with its wholly-owned subsidiary
TV Vision proposed to induce Rs 200 crore (US$ 39.81 million) of foreign investment through an issue of equity shares via an initial public offer (IPO). The deal is to undertake the business of broadcasting a non-news and current affairs TV channel
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CHAPTER 4:
FOREIGN INSTITUTIONAL INVESTMENT (FII)
FIIs
Who are they?
An investor or investment fund that is from or registered in a country outside of the one in which it is currently investing
Institutions like pension funds ,mutual funds, investment trusts, asset management companies, nominees companies and incorporated portfolio managers
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The term FII is used most commonly in India to refer to outside companies investing in the financial markets of India. International institutional investors must register with the Securities and Exchange Board of India to participate in the market. One of the major market regulations pertaining to FIIs involves placing limits on FII ownership in Indian companies
FIIs
Where they can invest?
Under securities such as shares, debentures and warrants issued by Indian companies which are listed /to be listed on the Stock exchange in India
The schemes floated by domestic mutual funds, traded on the primary and secondary markets
In government securities including treasury bills and debt securities of Indian companies.
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4.1 FOREIGN INSTITUTIONAL INVESTMENT IN INDIA

Since 1990-91, the Government of India embarked on liberalization and economic reforms with a view of bringing about rapid and substantial economic growth and move towards globalization of the economy. As a part of the reforms process, the Government under its New Industrial Policy revamped its foreign investment policy recognizing the growing importance of foreign direct investment as an instrument of technology transfer, augmentation of foreign exchange reserves and globalization of the Indian economy. Simultaneously, the Government, for the first time, permitted portfolio investments from abroad by foreign institutional investors in the Indian capital market. The entry of FIIs seems to be a follow up of the recommendation of the Narsimhan Committee Report on Financial System. While recommending their entry, the Committee, however did not elaborate on the objectives of the suggested policy. The committee only suggested that the capital market should be gradually opened up to foreign portfolio investments. From September 14, 1992 with suitable restrictions, FIIs were permitted to invest in all the securities traded on the primary and secondary markets, including shares, debentures and warrants issued by companies which were listed or were to be listed on the Stock Exchanges in India. While presenting the Budget for 1992-93, the then Finance Minister Dr. Manmohan Singh had announced a proposal to allow reputed foreign investors, such as Pension Funds etc., to invest in Indian capital market.
Portfolio Investment It refers to the purchase of stocks, bonds, debentures or other securities by an FII. FIIs include pension funds, mutual funds, investment trusts, asset management companies, nominee companies and incorporated/institutional portfolio managers. In contrast to FDI, FIIs do not invest with the intention of gaining controlling interest in a company. They typically make short-term investments. These investments are made-tobook profits. Compared to FDI, a portfolio investor can enter and exit countries with relative ease. This is a major contributing factor to the increasing volatility and instability
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FDI & FII In India _A Comparative Analysis of the global financial system. Because of the very nature of such investment, FII money is also called hot money. The rapid outflow of hot money, in the recent past, has created exchange-rate problems in Argentina and in Southeast Asia. Since FIIs are very sensitive, a mere change in perception about an economy can prompt them to pull out investments from a country.
The following factors contributed significantly to the FII flows to India Regulation and Trading Efficiencies: Indian stock markets have been well regulated by the stock exchanges, SEBI and RBI leading to high levels of efficiency in trading, settlements and transparent dealings enhancing the confidence level of FIIs in increasing allocations to India. F and O Segment: The highly successful derivatives market in India has provided additional depth to the markets with high traded volumes and multiple instruments by which investors can participate in the Indian equity markets. In fact the Single Stock Futures (SSF) market in India is one of the most successful SSF market in Asia after Korea. New Issuance: We have witnessed extremely high quality issuance during the year from companies such as NTPC, ONGC and TCS leading to strong FII participation with successful new issuance of over $ nine billion, yet another record for the year.
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4.1.1 MARKET DESIGN IN INDIA FOR FOREIGN INSTITUTIONAL INVESTORS Foreign Institutional Investors means an institution established or incorporated outside India which proposes to make investment in India in securities. A Working Group for Streamlining of the Procedures relating to FIIs, constituted in April, 2003, inter alia, recommended streamlining of SEBI registration procedure, and suggested that dual approval process of SEBI and RBI be changed to a single approval process of SEBI. This recommendation was implemented in December 2003.
Currently, entities eligible to invest under the FII route are as follows: I. As FII: Overseas pension funds, mutual funds, investment trust, asset management company, nominee company, bank, institutional portfolio manager, university funds, endowments, foundations, charitable trusts, charitable societies, a trustee or power of attorney holder incorporated or established outside India proposing to make proprietary investments or with no single investor holding more than 10 per cent of the shares or units of the fund.
II.
As Sub-accounts: The sub account is generally the underlying fund on whose behalf the FII invests. The following entities are eligible to be registered as subaccounts, viz. partnership firms, private company, public company, pension fund, investment trust, and individuals.
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FDI & FII In India _A Comparative Analysis 4.1.2 FIIS REGISTERED WITH SEBI FALL UNDER THE FOLLOWING CATEGORIES:
a) Regular FIIs- those who are required to invest not less than 70 % of their investment in equity-related instruments and 30 % in non-equity instruments.
b) 100 % debt-fund FIIs- those who are permitted to invest only in debt instruments.
The Government guidelines for FII of 1992 allowed, inter-alia, entities such as asset management companies, nominee companies and incorporated/institutional portfolio managers or their power of attorney holders (providing discretionary and nondiscretionary portfolio management services) to be registered as FIIs. While the guidelines did not have a specific provision regarding clients, in the application form the details of clients on whose behalf investments were being made were sought.
While granting registration to the FII, permission was also granted for making investments in the names of such clients. Asset management companies/portfolio managers are basically in the business of managing funds and investing them on behalf of their funds/clients. Hence, the intention of the guidelines was to allow these categories of investors to invest funds in India on behalf of their 'clients'. These 'clients' later came to be known as sub-accounts. The broad strategy consisted of having a wide variety of clients, including individuals, intermediated through institutional investors, who would be registered as FIIs in India. FIIs are eligible to purchase shares and convertible debentures issued by Indian companies under the Portfolio Investment Scheme.
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4.2 PROHIBITIONS ON INVESTMENTS:

FIIs are not permitted to invest in equity issued by an Asset Reconstruction Company. They are also not allowed to invest in any company which is engaged or proposes to engage in the following activities:
1) Business of chit fund 2) Nidhi Company 3) Agricultural or plantation activities 4) Real estate business or construction of farm houses (real estate business does not include development of townships, construction of residential/commercial premises, roads or bridges). 5) Trading in Transferable Development Rights (TDRs).
4.3 ACTS AND RULES

FII registration and investment are mainly governed by SEBI (FII) Regulations, 1995. ELIGIBILITY FOR REGISTRATION AS FII: Following entities / funds are eligible to get registered as FII: 1. Pension Funds 2. Mutual Funds 3. Insurance Companies 4. Investment Trusts 5. Banks 6. University Fund s 7. Endowments 8. Foundations 9. Charitable Trusts / Charitable Societies Further, following entities proposing to invest on behalf of broad based funds (a fund established or incorporated outside India, which has at least twenty investors with no
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FDI & FII In India _A Comparative Analysis single individual investor holding more than 10% shares or units of the fund), are also eligible to be registered as FIIs: 1. Asset Management Companies 2. Institutional Portfolio Managers 3. Trustees 4. Power of Attorney Holder
4.4 REGISTRATION PROCESS OF FIIS

FIIs are required to obtain a certificate by SEBI for dealing in securities. SEBI grants the certificate SEBI by taking into account the following criteria: i) The applicant's track record, professional competence, financial soundness, experience, general reputation of fairness and integrity. ii) Whether the applicant is regulated by an appropriate foreign regulatory authority. iii) Whether the applicant has been granted permission under the provisions of the Foreign Exchange Regulation Act, 1973 (46 of 1973) by the Reserve Bank of India for making investments in India as a Foreign Institutional Investor. iv) Whether the applicant is a) an institution established or incorporated outside India as a pension fund, mutual fund, investment trust, insurance company or reinsurance company. b) An International or Multilateral Organization or an agency thereof or a Foreign Governmental Agency or a Foreign Central Bank. c) an asset management company, investment manager or advisor, nominee company, bank or institutional portfolio manager, established or incorporated outside India and proposing to make investments in India on behalf of broad based funds and its proprietary funds in if any or d) university fund, endowments, foundations or charitable trusts or charitable societies. v) Whether the grant of certificate to the applicant is in the interest of the development of the securities market. vi) Whether the applicant is a fit and proper person.
The SEBIs initial registration is valid for a period of three years from the date of its grant of renewal.
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4.5 INVESTMENT CONDITIONS AND RESTRICTIONS FOR FIIS:

1. A Foreign Institutional Investor may invest only in the following:(a) Securities in the primary and secondary markets including shares, debentures and warrants of companies, unlisted, listed or to be listed on a recognized stock exchange in India. (b) Units of schemes floated by domestic mutual funds including Unit Trust of India, whether listed or not listed in a recognized stock exchange (c) Dated Government securities. (d) Derivatives traded on a recognized stock exchange. (e) Commercial paper. (f) Security receipts 2. The total investments in equity and equity related instruments (including fully convertible debentures, convertible portion of partially convertible debentures and tradable warrants) made by a Foreign Institutional Investor in India, whether on his own account or on account of his sub- accounts, should not be less than seventy per cent of the aggregate of all the investments of the Foreign Institutional Investor in India, made on his own account and on account of his sub-accounts. However, this is not applicable to any investment of the foreign institutional investor either on its own account or on behalf of its sub-accounts in debt securities which are unlisted or listed or to be listed on any stock exchange if the prior approval of the SEBI has been obtained for such investments. Further, SEBI while granting approval for the investments may impose conditions as are necessary with respect to the maximum amount which can be invested in the debt securities by the foreign institutional investor on its own account or through its subaccounts. A foreign corporate or individual is not eligible to invest through the hundred percent debt route. Even investments made by FIIs in security receipts issued by securitization companies or asset reconstruction companies under the Securitization and Reconstruction of Financial
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FDI & FII In India _A Comparative Analysis Assets and Enforcement of Security Interest Act, 2002 are not eligible for the investment limits mentioned above. No foreign institutional investor should invest in security receipts on behalf of its sub-account.
4.6 INCREASING TREND OF FIIS

Portfolio investments in India include investments in American Depository Receipts (ADRs)/ Global Depository Receipts (GDRs), Foreign Institutional Investments and investments in offshore funds. Before 1992, only Non-Resident Indians (NRIs) and Overseas Corporate Bodies were allowed to undertake portfolio investments in India. Thereafter, the Indian stock markets were opened up for direct participation by FIIs. They were allowed to invest in all the securities traded on the primary and the secondary market including the equity and other securities/instruments of companies listed/to be listed on stock exchanges in India. It can be observed from the table below that India is one of the preferred investment destinations for FIIs over the years. As of March 2011, there were 1,722 FIIs registered with SEBI
Table 6: SEBI Registered FIIs in India Year 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 End of March 450 506 527 490 502 540 685 882 996 1279 1609 1,713 1,722
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4.7 INVESTMENT OPPORTUNITIES FOR FIIs

The following financial instruments are available for FII investments a) Securities in primary and secondary markets including shares, debentures and warrants of companies, unlisted, listed or to be listed on a recognized stock exchange in India; b) Units of mutual funds; c) Dated Government Securities; d) Derivatives traded on a recognized stock exchange; e) Commercial papers. Investment limits on equity investments a) FII, on its own behalf, shall not invest in equity more than 10% of total issued capital of an Indian company. b) Investment on behalf of each sub-account shall not exceed 10% of total issued capital of an India company. c) For the sub-account registered under Foreign Companies/Individual category, the investment limit is fixed at 5% of issued capital. These limits are within overall limit of 24% / 49 % / or the sectoral caps a prescribed by Government of India / Reserve Bank of India.
4.7.1 Investment limits on debt investments
The FII investments in debt securities are governed by the policy if the Government of India. Currently following limits are in effect: For FII investments in Government debt, currently following limits are applicable: For corporate debt the investment limit is fixed at US $ 500 million.
4.7.2 Taxation The taxation norms available to a FII are shown in the table below. Nature of Income Tax Rate Long-term capital gains 10% Short-term capital gains 30% Dividend Income Nil
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FDI & FII In India _A Comparative Analysis Interest Income 20% Long term capital gain: Capital gain on sale of securities held for a period of more than one year. Short term capital gain: Capital gain on sale of securities held for a period of less than one year.
4.7.3 Milestones India embarked on a programme of economic reforms in the early 1990s to tie over its balance of payment crisis and also as a step towards globalization. An important milestone in the history of Indian economic reforms happened on September 14, 1992, when the FIIs (Foreign Institutional Investors) were allowed to invest in all the securities traded on the primary and secondary markets, including shares, debentures and warrants issued by companies which were listed or were to be listed the stock exchanges in India and in the schemes floated by domestic mutual funds. Initially, the holding of a single FII and of all FIIs, NRIs (Non-Resident Indians) and OCBs (Overseas Corporate Bodies) in any company were subject to a limit of 5% and 24% of the company's total issued capital respectively. In order to broad base the FII investment and to ensure that such an investment would not become a camouflage for individual investment in the nature of FDI (Foreign Direct Investment, a condition was laid down that the funds invested by FIIs had to have at least 50 participants with no one holding more than 5%. Ever since this day, the regulations on FII investment have gone through enormous changes and have become more liberal over time. From November 1996, FIIs were allowed to make 100% investment in debt securities subject to specific approval from SEBI as a separate category of FIIs or sub-accounts as 100% debt funds. Such investments were, of course, subjected to the fund-specific ceiling prescribed by SEBI and had to be within an overall ceiling of US $ 1.5 billion. The investments were, however, restricted to the debt instruments of companies listed or to be listed on the stock exchanges. In 1997, the aggregate limit on investment by all FIIs was allowed to be raised from 24% to 30% by the Board of Directors of individual companies by passing a resolution in
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FDI & FII In India _A Comparative Analysis their meeting and by a special resolution to that effect in the company's General Body meeting.
From the year 1998, the FII investments were also allowed in the dated government securities, treasury bills and money market instruments. In 2000, the foreign corporates and high net worth individuals were also allowed to invest as sub-accounts of SEBI-registered FIIs. FIIs were also permitted to seek SEBI registration in respect of sub-accounts. This was made more liberal to include the domestic portfolio managers or domestic asset management companies. 40% became the ceiling on aggregate FII portfolio investment in March 2000.This was subsequently raised to 49% on March 8, 2001 and to the specific sectoral cap in September 2001. As a move towards further liberalization a committee was set up on March 13, 2002 to identify the sectors in which FIIs portfolio investments will not be subject to the sectoral limits for FDI. Later, on December 27, 2002 the committee was reconstituted and came out with recommendations in June 2004. The committee had proposed that,Ingeneral, FII investment ceilings, if any, may be reckoned over and above prescribed FDI sectoral caps. The 24 per cent limit on FII investment imposed in 1992 when allowing FII inflows was exclusive of the FDI limit. The suggested measure will be in conformity with this original stipulation.' The committee also has recommended that the special procedure for raising FII investments beyond 24 per cent up to the FDI limit in a company may be dispensed with by amending the relevant regulations. Meanwhile, the increase in investment ceiling for FIIs in debt funds from US $ 1 billion to US $ 1.75 billion has been notified in 2004. The SEBI also has reduced the turnaround time for processing of FII applications for registrations from 13 working days to 7 working days except in the case of banks and subsidiaries. All these are indications for the country's continuous efforts to mobilize more foreign investment through portfolio investment by FIIs. The FII portfolio flows have also been on the rise since September 1992. Their investments have always been net positive, but for 1998-99, when their sales were more than their purchase
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4.8 TRENDS IN FOREIGN INSTITUTIONAL INVESTMENT

Table 7 : FII Investment Details (Financial Year)
Financial Year 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 (till Aug31, 2011) Source: SEBI Annual Report
Equity 10,206.7 8,072.2 2,527.2 39,959.7 44,122.7 48,800.5 25,235.7 53,403.8 -47,706.2 110,220.6 110,120.8 2,367.6
Debt -273.3 690.4 162.1 5,805.0 1,758.6 -7,333.8 5,604.7 12,775.3 1,895.2 32,437.7 36,317.3 8,186.2
Total 9,933.4 8,762.6 2,689.3 45,764.7 45,881.3 41,466.7 30,840.4 66,179.1 -45,811.0 142,658.3 146,438.1 10,553.8
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FDI & FII In India _A Comparative Analysis Chart 5
FII INVESTMENT DETAILS (2000-2011)

120,000.00 100,000.00 80,000.00 60,000.00 INR Crores 40,000.00 20,000.00 0.00 -20,000.00 -40,000.00 -60,000.00
EQUITY
DEBT
During 2010-11, FIIs invested Rs 1,10,121 crore in equity and Rs 36,317 crore in debt as compared to an investment of Rs 1,10,220 crore in equity and Rs 32,438 crore in debt during 2009-10 respectively
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4.8.1 TRENDS IN FOREIGN INSTITUTIONAL INVESTMENT Table 8 FOREIGN INSTITUTIONAL INVESTMENT
Year 1 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
Gross Purchase(` crore) 2 18 5,593 7,631 9,694 15,554 18,695 16,116 56,857 74,051 50,071 47,062 1,44,855 2,16,951 3,46,976 5,20,506 9,48,018 6,14,576 8,46,438 9,92,599
Gross Net Sales(` Investment(` crore) crore) 3 4 4 13 467 5,127 2,835 4,796 2,752 6,942 6,980 8,575 12,737 5,958 17,699 -1,584 46,735 10,122 64,118 9,933 41,308 8,763 44,372 2,689 99,091 45,764 1,71,071 45,880 3,05,509 41,467 4,89,665 30,841 8,81,839 66,179 6,60,386 -45,811 7,03,780 1,42,658 8,46,161 1,46,438
Net Investment (US $ mn.) 5 4 1,634 1,528 2,036 2,432 1,650 -386 2,474 2,160 1,839 566 10,005 10,352 9,363 6,821 16,442 -9,837 30,253 32,226
Cumulative Investment (US $ mn.) 6 4 1,638 3,167 5,202 7,635 9,285 8,899 11,373 13,532 15,372 15,937 25,943 36,294 45,657 52,478 68,919 59,082 89,335 1,21,561
Source: SEBI Annual Report
CHART 6
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Trends in Foreign Institutional Investment

35000 30000 120000 25000 20000 15000 10000 5000 0 -5000 20000 -10000 -15000 Net Investment(US $ mn.) CumulativeInvestment (US $ mn.) 0 60000 40000 100000 80000 140000
The gross purchases of debt and equity by FIIs increased by 17.3 percent to Rs 9,92,599 crore in 2010-11 from Rs 8,46,438 crore in 2009-10. The combined gross sales by FIIs also increased by 20.2 percent to Rs 8,46,161 crore from Rs 7,03,780 crore during the same period in previous year. The total net investment of FII was Rs 1,46,438 crore as compared to of Rs 1,42,658 crore in 2009-10. This was the highest net FII investments into Indian securities market in financial year so far. Cumulative investment by FIIs at acquisition cost, which was US$ 89,335 million at the end of March, 2010, increased to US$ 1, 21,561 million at the end of March, 2011. Indian industry coupled with easy entry requirements has given an impetus to the FIIs who show an increasing trend. It was only in 2008 when the global recession broke out that the net investments declined sharply due to heavy selling pressure from the FIIs i.e. they pulled out virtually all the monies invested in the stock market thus causing a crash in the benchmark indices of the country.
4.9 IMPACT OF FIIs ON INDIAN STOCK MARKETS

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On the flip side the increase of foreign investors in particular brings a very welcome inflow of foreign capital, but there are always some dangers if certain limits are exceeded. Firstly, the foreign capital is free and unpredictable and is always on the look out of profits. Flls frequently move investments, and those swings can be expected to bring severe price fluctuations resulting in increasing volatility. Here we analyze the comparative trend of sensex and FII, how it affected the market, Here the grey curve shows sensex indeces and black curve shows the FII cash flow, Here we can see how FII cash inflows increases the market indices and cash outflows decreases the Indian stock market indices
FII's increased role had changed the face of Indian stock market. It had brought both quantitative and qualitataive change. It had also increased the market depth and breadth. The emphasize on fundamentals had caused efficient pricing of shares. Since there is no condition on FIIs that they should disclose in which company they are investing, those figures are not available. Many qualitative tests like regression tests had proved that there is direct relation between market movements and fund flows of FIIs. In this, we will analyze the investments in different months and years, and tries to find the impact of FIIs in stock market. We often hear the terms "FIIs Fuel the Market Run". If we analyze the impacts, then the major impacts are:
They increased depth and breadth of the market. They played major role in expanding securities business. Their policy on focusing on fundamentals of the shares had caused efficient pricing of shares.
These impacts made the Indian stock market more attractive to FIIs and also domestic investors, which involve the other major player MF (Mutual Funds). The impact of FIIs is
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FDI & FII In India _A Comparative Analysis so high that whenever FIIs tend to withdraw the money from market, the domestic investors become fearful and they also withdraw from market. Table 9: Net FII Equity Investment and Monthly Average BSE
Month Apr-2010 May-2010 Jun-2010 Jul-2010 Aug-2010 Sep-2010 Oct-2010 Nov-2010 Dec-2010 Jan-2011 Feb-2011 Mar-2011 FII NET EQUITY INVESTMENT NSE 9,361 -9,437 10,508 16,617 11,688 24,979 28,563 18,293 2,050 -4,813 -4,586 6,898
5295 5053 5188 5360 5457 5812 6096 6055 5971 5782 5400 5538
Chart 7: Net FII Equity Investment and Monthly Average NSE

35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 -5,000 -10,000 -15,000 FII NET EQUITY INVESTMENT NSE 4000 4500 5000 5500 6000 6500
Table 10: Net FII Equity Investment and Monthly Average BSE
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Month Apr-2010 May-2010 Jun-2010 Jul-2010 Aug-2010 Sep-2010 Oct-2010 Nov-2010 Dec-2010 Jan-2011 Feb-2011 Mar-2011
FII NET EQUITY INVESTMENT 9,361 -9,437 10,508 16,617 11,688 24,979 28,563 18,293 2,050 -4,813 -4,586 6,898
BSE 17679 16845 17300 17848 18177 19353 20242 20122 19928 18328 17823 19445
Chart 8: Net FII Equity Investment and Monthly Average BSE

35,000 30,000 25,000 20,000 15,000 18500 10,000 18000 5,000 0 -5,000 -10,000 -15,000 FII NET EQUITY INVESTMENT BSE 17500 17000 16500 16000 20500 20000 19500 19000
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From the above graph it is evident that FIIs have direct impact on the two important indices sensex and nifty. A more investments by FIIs indicate that they are confident in Indian market. Usually, the mode of operations of FIIs is taking loans from countries where interest is low (like Japan) and invests in booming markets like India
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CHAPTER: 5
FDI v/s FII A COMPARATIVE ANALYSIS

Both FDI and FII are related to investment in a foreign country. FDI or Foreign Direct Investment is an investment that a parent company makes in a foreign country. On the contrary, FII or Foreign Institutional Investor is an investment made by an investor in the markets of a foreign nation. In FII, the companies only need to get registered in the stock exchange to make investments. But FDI is quite different from it as they invest in a foreign nation. The Foreign Institutional Investor is also known as hot money as the investors have the liberty to sell it and take it back. But in Foreign Direct Investment, this is not possible. In simple words, FII can enter the stock market easily and also withdraw from it easily. But FDI cannot enter and exit that easily. This difference is what makes nations to choose FDIs more than then FIIs.
FDI is more preferred to the FII as they are considered to be the most beneficial kind of foreign investment for the whole economy. Specific enterprise. It aims to increase the enterprises capacity or productivity or change its management control. In an FDI, the capital inflow is translated into additional production. The FII investment flows only into the secondary market. It helps in increasing capital availability in general rather than enhancing the capital of a specific enterprise. The Foreign Direct Investment is considered to be more stable than Foreign Institutional Investor. FDI not only brings in capital but also helps in good governance practices and better management skills and even technology transfer. Though the Foreign Institutional Investor helps in promoting good governance and improving accounting, it does not come out with any other benefits of the FDI. While the FDI flows into the primary market, the FII flows into secondary market.
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While FIIs are short-term investments, the FDIs are long term. 1. FDI is an investment that a parent company makes in a foreign country. On the contrary, FII is an investment made by an investor in the markets of a foreign nation. 2. FII can enter the stock market easily and also withdraw from it easily. But FDI cannot enter and exit easily. 3. Foreign Direct Investment targets a specific enterprise. The FII increasing capital availability in general. 4. The Foreign Direct Investment is considered to be more stable than Foreign Institutional Investor
Table 11 : FDI & FII Inflows in the last 11 Years - A Comparison
Financial Year (April-March) 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 Total FDI Flows(US$ MN) 4,029 6,130 5,035 4,322 6,051 8,961 22,826 34,835 41,874 37,745 32,901
Net Investment by FII (US$ MN) 2160 1839 566 10005 10352 9363 6821 16442 -9837 30253 32226
Source: Department of Industrial Policy & Promotion (www.dipp.nic.in)
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Chart 9: FDI & FII Inflows in the last 11 Years - A Comparison
FDI AND FII's INFLOW

50,000 40,000 30,000 20,000 10,000 0 2000-012001-022002-032003-042004-052005-062006-072007-082008-09 2009-102010-11 -10,000 -20,000 Total FDI Flows(US$ MN) Net Investment by FII (US$ MN)
This presents an important picture from where a number of things can be gathered. The first three years i.e. from 2000-01 to 2002-03 the FDI was higher than FII but in the next three years the opposite case happened where the FII was greater than FDI from 2003-04 to 2005-06. But the difference between the FDI and FII was not much during the first three years but in the next three years when the FII went past FDI the difference between them were huge as can be seen from the blue and red bars in the chart. Now from the year 2006-07 to 2008-09 again FDI was greater than FII and this time by big margins. Also during the year 2008-09 net foreign institutional investment was in the negative indicating heavy selling and virtually no buying but the foreign direct investment on the other hand rose by 25% from the previous year. This is significant because as it proves that the effects of recession apparently did not affect the inflow of FDI at all whereas it totally sent the FII out of the country. But it can also be said that the policies governing
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FDI & FII In India _A Comparative Analysis the entry of FII were relaxed and made less complex which made investment via the FII route attractive for the foreign investors. Table 12: A Comparison between the Net FII, FDI & the Sensex Total FDI Net Investment by Financial Year Sensex Close Flows(US$ MN) FII (US$ MN) 2000-01 4,029 3262 2160 2001-02 6,130 3377 1839 2002-03 5,035 5839 566 2003-04 4,322 6603 10005 2004-05 6,051 9398 10352 2005-06 8,961 13787 9363 2006-07 22,826 20287 6821 2007-08 34,835 9647 16442 2008-09 41,874 17465 -9837 2009-10 37,745 20509 30253 2010-11 32,901 15,455 32226 Source: www.bseindia.com The Sensex has increased by 10525 points between 2000-01 and 2005-06, an increase of more than 320%. In the corresponding period net FII has increased by more than 315% and the FDI has gone up by 94%. From 2005-06 to 2009-10 the Sensex gained 6722 points, an increase of 49% and in the corresponding period the net FII went up by 244% and the FDI inflows went up by 401%. The Sensex fell down by 10640 points in early 2008 i.e. by 52% due to heavy selling by the FIIs who pulled out their money from the stock market due to the sub-prime crisis, credit crunch, bankruptcy, speculation etc. This turned the FIIs into net sellers and hence during 2008-09 the net FII figure is in negative. The FDI on the other hand surged ahead at 41,874 mn $, an increase of nearly 25%. This implies that FDI inflow did not get affected by the recession worldwide and even if it was it is not possible to pull out money invested through the FDI route as easily as it could be done in the case of FII.
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Chart 10: Diagram showing comparison between FDI Inflow & Sensex
45,000 40,000 35,000 30,000 US $ MN 25,000 20,000 15,000 10,000 5,000 0
25000
20000
15000
10000
5000
Total FDI Flows(US$ MN)
Sensex Close
The blue and red line depicting Sensex and FDI respectively have been tracked for the last 10 years and it can be seen that the Sensex peaked during 2006-07 whereas the FDI line has peaked during 2008-09 almost at the same time when the Sensex crashed as the blue line can be seen falling sharply going down and even below the 10,000 level which is the time when the recessionary effects took place. The blue line or the Sensex has a rapid rise from the years 2000-01 to 2006-07 after which it goes down in early 2008 i.e. in 2007-08 but recovers from 2008-09 and goes past the 15000 mark in 2008-09 and finally breaches the 20000 mark again in 2009-10. The red line or the FDI from 2000-01 to 2004-05 shows an even path with a slight decline but has taken off 2004-05 itself and shown a rapidly increasing trend as the red line can be seen rising sharply.
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Chart 11: Diagram showing comparison between net FII & Sensex
35000 30000 25000 20000 15000 10000 5000 0 -5000 -10000 -15000 Net Investment by FII (US$ MN) Sensex Close
25000
20000
15000
10000
5000
The red line denoting the net FII can be called a volatile line from the chart as there are sudden sharp drops and sharp rises. It has no fixed pattern. The net FII started declining from 2007-08 till the middle of 2008-09 which caused a sharp fall in Sensex also which went below the 10000 level in 2007-08 falling by almost 52% as compared to the previous year. But the FIIs started pouring in again from the end of 2009 after the governments abroad started providing bail-out packages, sops and various other incentives to the ailing companies. The Sensex also rises sharply from 2008-09 after the FIIs turned into net buyers and hence a similar pattern can be found between these two.
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Table 13: A Comparison between the GDP, Net FII & FDI of the last 11 Years GDP (at factor cost) 4.4 5.8 3.8 8.5 7.5 9.5 9.7 9.2 6.7 7.4 6.9
Financial Year 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
Total FDI Net Investment by Flows(US$ MN) FII (US$ MN) 4,029 2160 6,130 1839 5,035 566 4,322 10005 6,051 10352 8,961 9363 22,826 6821 34,835 16442 41,874 -9837 37,745 30253 32,901 32226
The GDP has increased from 4.4% to 7.4% from 2000-01 to 2009-10, peaking in 2006-07 at 9.7% when the net FII declined from US$ 9363 MN to US$ 6821 MN a fall of almost 26%., whereas the FDI grew by 187% and stood at US 22,826 $ MN. The GDP fell from 9.2% in 2007-08 to 6.7% in 2008-09 which can be attributed to very slow industrial growth specially the manufacturing sector, the exports dried up, inflationary pressure etc. India felt just the tip of the iceberg of the destructive economic recession, as it can be seen how the net FII turned into negative figures, which hit the western countries hard. The GDP remained above the 9% mark for three years from 2005-06 to 2007-08. In the corresponding period the FDI increased by 300% and the net FII increased by 60%. From the year 2008-09 the GDP has started declining due to global crisis however economy is recovering from the crisis and building confidence among the foreign markets which is leading to increase in FII.
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Chart 12: Diagram showing comparison between GDP & FDI

45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 12 10 8 6 4 2 0
GDP (at factor cost)
The GDP growth rate was around the reasonably healthy levels of 4.4 and 5.8 percent during 2000-01 and 2001-02 but it declined to 3.8 percent in 2002-03 which happened due to the massive drought caused by the monsoon failure resulting in low production of agricultural products. Also in the industrial sectors barring the sub-sector of electricity, gas and water supply, growth in all industrial and service sub-sectors slowed in the third quarter of 2002-03 compared to what was recorded in the second quarter of the year. In some sectors (manufacturing is one) the slowdown was marginal; in others (financial services, for example), the deceleration was substantial. In the same year the FDI can be seen falling by 23%. After 2002-03 the GDP has shown an increasing trend as well as the FDI as can be seen from the blue and red lines in the chart
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Chart 13: Diagram showing comparison between GDP & Net FII
35000 30000 25000 20000 15000 10000 5000 0 -5000 -10000 -15000 Net Investment by FII (US$ MN) GDP (at factor cost) 0 4 2 6 10 8 12
The FII curve (red line) is one with many sharp fluctuations and presents at first an increasing trend from 2000-01 to 2003-04 and then becomes stable but has a very gradual declining slope from 2003-04 to 2006-07 going down from Rs. 45764 Crs to Rs. 30841 Crs, a decrease of 33% whereas in the corresponding the GDP increases from 8.5% to 9.7%. Both the net FII and GDP showed sharp declines in the year 2008-09 owing to various factors like the global recession, sluggish manufacturing industry, inflation, low demand for Indian goods abroad hurting exports, rising interest rates etc. in 2009-10 the FII shows again a very steep rise breaching the Rs. 1 lakh Crore mark. Similarly the GDP has also recovered but gradually from 6.7% to 7.4%.
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Table 14: Foreign Exchange Rate, Net FII & FDI Inflow of last 10 Years
USD in terms of Total FDI Net Investment by Indian Rupee Financial Year Flows(US$ MN) FII (US$ MN) 2000-01 4,029 47.22 2160 2001-02 6,130 48.63 1839 2002-03 5,035 46.59 566 2003-04 4,322 45.26 10005 2004-05 6,051 44 10352 2005-06 8,961 45.19 9363 2006-07 22,826 41.18 6821 2007-08 34,835 43.39 16442 2008-09 41,874 48.33 -9837 2009-10 37,745 45.65 30253 2010-11 32,901 32226 44.96 Source: www.ratesfx.com In the ten years from 2000-01 to 2009-10 the net effect has been a decline of Rs 1.57 or 3.3%. During the year 2008-09 the FIIs turned sellers and hence net FII went into negative figures while the FDI increased by 25%. The foreign exchange rate became the lowest in 2006-07 at Rs. 41.18.
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Chart 14: Graphical representation of Net FII & the Foreign Exchange Rate
35000 30000 48 25000 20000 15000 10000 5000 0 -5000 38 -10000 -15000 Net Investment by FII (US$ MN) USD in terms of Indian Rupee 36 42 46 50
44
40
The above diagram brings to light a very important occurrence regarding Net FII and the Foreign Exchange Rate. It can be seen that whenever the red line (foreign exchange rate) goes up the green line (Net FII) goes down. The exchange rate has steadily declined from Rs. 48.63 in 2001-02 to Rs. 41.18 in 2006-07 and correspondingly the Net FII has increased from 2160 mn $ in 2001-02 to 32226 mn $ in 2006-07. In 2008-09 when the Net FII has crashed and went into negative figures the exchange rate went from Rs.43.39 in 2007-08 to Rs. 48.33 in 2008-09.
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Chart 15: Graphical representation of FDI & the Foreign Exchange Rate
45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 38 36 46 44 42 40 50 48
USD in terms of Indian Rupee
Not much relationship can be gathered between these two variables from the chart. The green line denoting FDI has an overall increasing trend after being stable and rather gradually declining during the period 2000-01 to 2004-05. The foreign exchange rate sharply declines from around Rs. 45 to Rs.41 from 2005-06 to 2006-07 due to unrestricted inflow of dollars thus increasing its supply thereby reducing the exchange rate but in the same period the FDI has increased from 8,961 mn $ to 22,826 mn $. The exchange rate again recovers from 2006-07 and rises again till 2008-09 after which we can again see a sharp decline in 2009-10 but the FDI line remains stable.
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CHAPTER 6
FINDINGS
After the analysis following are the findings of the study: A large number of changes that were introduced in the countrys regulatory economic policies heralded the liberalization era of the FDI policy regime in India It brought about a structural breakthrough in the volume of the FDI inflows into the economy maintained a fluctuating and unsteady trend during the study period. It might be of interest to note that more than 50% of the total FDI inflows received by India, came from Mauritius, Singapore and the USA. The main reason for higher levels of investment from Mauritius was that the fact that India entered into a double taxation avoidance agreement (DTAA) with Mauritius were protected from taxation in India. Among the different sectors, the service sector had received the larger proportion followed by computer software and hardware sector and telecommunication sector. FIIs inflows are determined by stock market characteristics regarding risk-return, market capitalization, stock market turnover, macroeconomic factors like economic growth, interest rate, inflation and liberalization policies FIIs are directly proportional to foreign exchange rate, any inflow or outflow of FII has direct impact on foreign exchange. However FDI is not much affected by any change in rupee.
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CHAPTER 7
CONCLUSION
According to Data analysis and findings, it can be concluded that Mauritius contributes about 40% of FDI inflow in the country. Such a high level of FDI contributed by a low tax country like Mauritius indicates that all is not well. Mauritius has agreement with India on avoidance of double taxation. There are likely chances that many MNCs may be first dummy companies in Mauritius before investing in India. This is not good for financial stability of the country and is also a reason for loss to state exchequers. FDI usually is associated with export growth. It comes only when all the criteria to set up an export industry are met. That includes, reduced taxes, favorable labor law, freedom to move money in and out of country, government assistance to acquire land, full grown infrastructure, reduced bureaucratic involvement etc. IT, BPO, Auto Parts,
Pharmaceuticals, unexplored service sectors including accounting; drug testing, medical care etc are key sectors for foreign investment. Manufacturing is a brick and mortar investment. It is permanent and stays in the country for a very long time. Huge investments are needed to set this industry. It provides employment potential to semi skilled and skilled labor. On the other hand the service sector requires fewer but highly skilled workers. Both are needed in India. If India plays its cards right India may be the hub for the service sector. Still high end manufacturing in auto parts and pharmaceuticals should be Indias target. FDI is what the government really needs to attract in various sectors like infrastructure, education etc. it is much more stable than the foreign institutional investment which comes via the stock market route, and has more accountability and brings fundamental and tangible benefits to the economy
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FDI & FII In India _A Comparative Analysis The FII (Foreign Institutional Investor) is monies, which chases the stocks in the market place. It is not exactly brick and mortar money, but in the long run it may translate into brick and mortar. Sudden influx of this drives the stock market up as too much money chases too little stock. Where FDI is a bit of a permanent nature, the FII flies away at the shortest political or economical disturbance. The Global Recession of 2008 is a key example of the latter. Once this money leaves, it leaves ruined economy and ruined lives behind. Hence FII is to be welcomed with strict political and economical discipline. The global recession in 2008 proved how volatile the money pumped in by the FIIs into the secondary segment of the financial market is, leading to huge losses for the domestic investors who had to bear the brunt even though the economy as such was insulated from the adverse effects of the recession. Whereas the sectors where there was FDI didnt experience such knee-jerk reactions.
China receives mainly the FDI. They do not have instruments to receive the FII i.e. laws, institutions and political and judicial framework. On the contrary, India should welcome both and work hard to retain both.
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CHAPTER 8
RECOMMENDATION
After the analysis of the project study, following recommendations can be made: I. FDI
FDI can be instrumental in developing rural economy. There is immense scope in Greenfield Projects. But the issue of land acquisition and steps taken to protect local interests by the various state governments are not encouraging. MoU Arecelor-Mittal controversy is one of the best examples of such disputes. In order to improve technological competitiveness of India, FDI into R&D should be promoted. Various issues pending relating to Intellectual Property Rights, Copy Rights and Patents need to be addressed on priority. Special policy amendments can be also instrumental in mobilizing FDI in R&D. Indian economy is largely agriculture based. There is plenty of scope in food processing, agriculture services and agriculture machinery. FDI in this sector should be encouraged. Develop a strategic vision for FDI with focus on exports, technology, geographic specialization, and employment creation. Reduction in transaction costs, improvement of infrastructure and enabling trade facilitation The entire process of administration should be Decentralized FDI policy environment still remains in centered around Delhi and not the state capitals where they should be given the diversity of Indias economic geography.
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The overly bureaucratic FDI facilities needs to be drastically reduce. There needs to be a real single window that draws from the sectoral expertise of the different ministries, and more importantly the private sector. Government should facilitate FDI entry through B2B interventions by creating platform for the same. Globally the service sector received 43 per cent of total investment in emerging markets As this is a State subject, the States have to take the lead in simplifying and modernizing the policy and rules relating to this sector.
II.
FII
Simplifying procedures and relaxing entry barriers for business activities and providing investor friendly laws and tax system for foreign investors. Allowing foreign investment in more areas. In different industries indices the FIIs should be encouraged through different patterns like futures, options, etc. Somewhere, a restriction related to the track record of Sub- Accounts is also to be made on the investors who withdraw money out of the Indian stock market who have invested with the help of participatory notes. We have to modernize and also have to save our culture. Similarly the laws should be such that it protects domestic investors and also promote trade in country through FIIs.
Encourage industries to grow to make FIIs an attractive junction to invest.
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Modified FDI & FII in India - A Comparative Analysis

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FDI & FII In India _A Comparative Analysis

SECTION 1: INTRODUCTION AND RESEARCH METHODOLOGY

Objective of the Study

1.3 Scope of Study

1.4 Significance of study

FDI & FII In India _A Comparative Analysis

1.5 Research Methodology

1.5.2 Methods of Collection of data

FDI & FII In India _A Comparative Analysis

CHAPTER 2: REVIEW OF LITERATURE

investment climate in India, Indian government incentives to foreign

period that is 1991 to 2007.

FDI & FII In India _A Comparative Analysis

Foreign Direct Investment (FDI)

Foreign Entity wants to enter in the Indian Market

Portfolio Investment Scheme ( PIS)FII

SOURCE: Handbook of Statistics of Indian Economy 2011

Chart 1: FOREIGN INVESTMENT IN INDIA

FOREIGN INVESTMENT IN INDIA

Year Direct investment Portfolio investment

FDI & FII In India _A Comparative Analysis

3.2 FOREIGN DIRECT INVESTMENT

FDI & FII In India _A Comparative Analysis

Link Model: FDI and Economic Growth

Flow of Money in Economy

Employment Generation Skilled Unskilled

Processing of Economic Resource

Disposable Income Increased

FDI & FII In India _A Comparative Analysis

3.2.2 TYPES OF FOREIGN DIRECT INVESTMENT

VERTICAL FDI EFFICIENCY SEEKING

FDI & FII In India _A Comparative Analysis

Other categorizations of FDI

3.2.3 METHODS OF FOREIGN DIRECT INVESTMENTS

FDI & FII In India _A Comparative Analysis 3.2.4 ENTRY MODE

Increasing Return from Ownership Advantages

Ensuring Growth from Organizational Learning

FDI Impact on Domestic Enterprises

3.2.7 ADVANTAGES OF FDI

FDI & FII In India _A Comparative Analysis

3.3 FOREIGN DIRECT INVESTMENT IN INDIA

FDI & FII In India _A Comparative Analysis

3.4 FDI POLICY IN INDIA

Procedure under automatic route

Procedure under Government approval

FDI & FII In India _A Comparative Analysis

General Permission of RBI under FEMA

Participation by International Financial Institutions

3.4.3 FDI IN SMALL SCALE SECTOR (SSI) UNITS

3.4.5 FOREIGN INVESTMENT PROMOTION BOARD

Low Income Countries in Global FDI Race

About foreign direct investment In India.

FDI & FII In India _A Comparative Analysis 3.4.5 PROHIBITED SECTORS

3.4.6 PERMITTED SECTORS

100% 100% 100% 100% 100%

Automatic Government Automatic Automatic Government

26% 49% 74%

26% 100% 100%

Government Government Government

100% 100% 100% 100% 74%

100% 51% 100%

20% 49% 49% 49% 26% 100% 100% 100% 100%