K.E.S.

SHROFF COLLEGE OF ARTS & COMMERCE

SEM: 5TH. TY B.FM. GROUP NO:

A.Y:2012-2013.

SUBJECT: GLOBAL CAPITAL MARKET. TOPIC: FOREIGN DIRECT INVESTMENT. SUBMITED TO:PROF. PALLAV SIR .

GROUP MEMBERS :-

What is FDI?

Investment is the flows of funds from one destination to another for any activity in including industrial development, infrastructure & manufacturing sector. When the investment goes from the home country to another country, it is define investment outflow. When foreign investment comes in from other county to the home country its define investment inflow.

Its usually involved in management, joint venture transfer of technology and expertise. Stock of foreign direct investment which is the cumulative number of given period. Foreign Direct Investment, or FDI, is a measure of foreign ownership of domestic productive assets such as factories, land and organizations. Foreign direct investments have become the major economic driver of globalization, accounting for over head of all cross-border investments.

Definition of 'Foreign Direct Investment FDI

An investment made by a company or entity based in one country, into a company or entity based in another country. Foreign direct investments differ substantially from indirect investments such as portfolio flows, wherein overseas institutions invest in equities listed on a nation's stock exchange. Open economies with skilled workforces and good growth prospects tend to attract larger amounts of foreign direct investment than closed, highly regulated economies.

History:-

The most profound effect has been seen in developing countries, where yearly foreign direct investment flows have increased from an average of less than $10 billion in the 1970s to a yearly average of less than $20 billion the 1980s. From 1998 to 1999 itself, FDI grew from $179 billion to $208 billion and now comprise a large portion of global FDI.

Given the high growth rates and changes to global investment patterns, the definition to FDI has evolved to include foreign mergers and acquisitions, investments in joint ventures or strategic alliances with local enterprises.

The 1990s brought considerable improvements in the investment climate, influenced in part by the recognition of the benefits of FDI. The change in attitudes, in turn, led to a removal of direct obstacles to FDI and to an increase in the use of FDI incentives. Continued removal of domestic impediments through deregulation and privatisation was also widespread.

Types Of FDI :-

Horizontal FDI : Investment in the same industry abroad as a firm operates in at home.

Vertical FDI :

Backward vertical FDI

- Investment in an industry abroad

that provides input for the firms domestic production processes e.g. Oil refining, British petroleum etc.)

Forward vertical FDI

- Investment in which industry

abroad sells the outputs of firms domestic production processes e.g. Volkswagen in U.S.

Advantage Of FDI Are :-

Domestic Investment : FDI encourage domestic investment by providing: 1) New markets 2) Demand for inputs 3) New technology

Labour is mobile and often moves from multinational firms to domestic firms. Increased competition makes markets more efficient. Investments in new sectors simulates the growth of new industry and new products.

Technology : Increased firm bring new technology. Upgrades overall stock of capital. Improved product standardization . More efficient in raising and using financial resources.

Disadvantages Of FDI Are :-

Domestic investment : Being a monopolistic competitor. Raises demand for money. Raises interest rates. Financial inflows raise the exchange rates, making exports unattractive.

Technology : Technology brought may be inappropriate. May be too capital intensive. Sometimes, external transactions allow foreign technology to be acquired more cheaply, especially if the technology is mature.

Global Trends Of FDI :-

Inflow :Global FDI inflows rose five per cent to $1.24 trillion in 2010, but were still 37
per cent below the 2007 peak and 15 per cent below the pre-crisis average. United States (Rank 1) FDI: $228 billion The United States received the highest foreign direct investment in the world. The US attracted $228 billion in 2010 compared to $153 dollars in 2009.

China (Rank 2) FDI: $106 billion

China received a higher FDI in 2010 compared to $95 billion a year ago. Despite
slowing of labour-intensive manufacturing, China drew high FDI in high-technology industries and services. China pipped Japan in terms of FDI outflows.

Hong Kong (Rank 3) FDI: $69 billion

Hong Kong, one of the world's most competitive financial and business centres,
Hong Kong's FDI rose to $69 billion from $52 billion in 2009. Hong Kong has been Asia's second largest destination for foreign direct investment after China.

Outflow :( 2009) United States China Hong Kong 248.1 56.5 64.0 (2010) 325.5 68.0 76.1

Top Five Host Countries :-

China Brazil Mexico Singapore Indonesia had 53% FDI inflows to developing countries in 2010.

Why India Gets Limited FDI?

Image & Attitude:Domestic Policy:-

There is a perception among investors that foreign

business are still treated with suspicion & distrust in India. While the FDI policy is quite straight forward &

getting increasing liberalized for most sector , once an investor established his presence, national treatment means that this investors is subject to domestic regulation.

Procedure:- Although approval for investment is given quite readily,

actual setting up requires a long series of further approvals from central, state & local authorities.

Quality Of Infrastructure:- Foreign investors are concerned about a

number of problems with the infrastructure sector in particular electricity & transport.

Delays in legal process:in India.

Despite a highly structured legal system,

dispute settlement & contract enforcement are time consuming activities

FDI Policy Initiatives :-

The FDI policies main initiatives under taken are mention below :1) Foreign technology agreement to pay royalties on the automatic route to a limit 8% on export & 5% on domestic sales without any restriction on the duration of the royalty payment. 2) The foreign investment in the banking sector by allowing an FDI limit in private sector banks up to 74%. 3) The Reserve Banks licensing criteria have been allowed to hold 100% paid up capital to set up a wholly-owned subsidiary in India. 4) An FDI 100% has been permitted on the automatic route in oil exploration in both small- medium scale industries. 5) All proposal relating to acquisition of shares in an existing Indian company by a foreign / NIR investor. 6) An FDI of 100% is permitted in any venture related to special economic zones. 7) An FDI 100% in export oriented unit has a developer unit holder & service provider & the same scheme is applicable to agriculture zones & technology. 8) FDI was allowed in a wide range of sectors such insurance 26% and defence industries 26%.

Prohibition on Investment in India :-

In addition to the above, investment in the form of FDI is also prohibited in certain sectors such as.. i. Retail Trading ii. Atomic Energy iii. Lottery Business iv. Gambling and Betting Agriculture (excluding Development of seeds, Animal Husbandry, and Cultivation of vegetables, mushrooms etc. under controlled conditions and services related to agro and allied sectors) and Plantation (Other than Tea plantations).

Foreign Direct Investment (FDI) Inflows by Sectors :-

Sector-wise FDI Inflows from August 1991 to December 2005.

Ranks Sector Amount of % age FDI inflows of total inflows Electrical Equipments(Including 4,885.88 16.5 computer software & electronics) Transportation Industry 3,143.09 10.34 Services Sector 2,971.66 9.64 Telecommunications 2,890.12 9.58 Fuel (Power & Oil Refinery) 2,521.49 8.41 Chemicals (Other than Fertilizers) 1,889.51 5.86 Food Processing Industries 1,173.18 3.67 Drugs and Pharmaceuticals 948.54 3.18 Textiles (Include Dyed, Printed) 430.07 1.32 Trading 374.23 1.16 Hotel Goods 308.51 1.04

1 2 3 4 5 6 7 8 9 10 11

Investment in Small Scale Industrial Units :A foreign investor can invest in an Indian company which is a smallscale industrial unit provided it is not engaged in any activity, which is prohibited under the FDI policy. Such investments are subject to a limit of 24% of paid up capital of the Indian company/SSI unit. An SSI Unit can issue equity shares / fully convertible preference shares /fully convertible debentures more than 24% of its paid up capital if. a. It has given up its small scale status, b. It is not engaged or does not propose to engage in manufacture of items reserved for small scale sector, and c. It complies with the sect oral caps specified in Annexure 2. It is clarified that the company /SSI Unit would be reckoned as having given up its SSI status, if the investment in plant and machinery exceeds the limits prescribed under the Micro, Small and Medium Enterprises Development Act, 2006.

SMEs in INDIA :-

In most economies, smaller enterprises are much greater in number than large companies. SMEs are often said to be responsible for driving innovation and competition in many economic sectors.

Small and medium enterprises or small and medium-sized enterprises are companies whose headcount or turnover falls below certain limits. In India :i. A micro enterprise is an enterprise where investment in plant and machinery [original cost excluding land and building and the items specified by the Ministry of Small Scale Industries does not exceed Rs. 25 lakh; ii. A small enterprise is an enterprise where the investment in plant and machinery [original cost excluding land and building and the items specified by the Ministry of Small Scale Industries is more than Rs.25 lakh but does not exceed Rs.5 crore; and iii. A medium enterprise is an enterprise where the investment in plant and machinery (original cost excluding land and building and the items specified by the Ministry of Small Scale Industries is more than Rs.5 crore but does not exceed Rs.10 crore.

The definition of MSMEs under the services sector is as follows :i. A micro enterprise is an enterprise where the investment in equipment does not exceed Rs.10 lakh; ii. A small enterprise is an enterprise where the investment in equipment is more than Rs.10 lakh but does not exceed Rs.2 crore; and iii. A medium enterprise is an enterprise where the investment in equipment is more than Rs.2 crore but does not exceed Rs.5 crore.

CONCLUSION

BIBLIOGRAPHY

www.google.com www.slideshare.com www.wikeipedia.com www.indiamarket.com The reference book of international business.