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FDI IN INDIA

What Is FDI?

Foreign direct investment (FDI) occurs when a firm invests directly in new
facilities to produce and/or market in a foreign country
the firm becomes a multinational enterprise

FDI can be in the form of

greenfield investments - the establishment of a wholly new operation in a


foreign country
acquisitions or mergers with existing firms in the foreign country

FDI can be minority stake (10-49% equity) or majority (50-99% equity) or full
outright stake (100%).

Let us look at the global and Indian FDI picture to understand where we are:

In 2015, Global foreign direct investment (FDI) flows jumped by 38 per cent
to $1.76 trillion, their highest level since the global economic and financial
crisis of 20082009. A surge in M&As to $721 billion, was the principal factor
behind the global rebound. While greenfield investment remained at a high level,
at $766 billion. Compare this to global trade of $20t and global GDP of $74t.
Inward FDI flows to developed economies almost doubled to $962 billion or 55
per cent of global FDI share.
Developing economies saw their FDI inflows reach a new high of $765 billion or
45% share. Developing Asia, with FDI inflows of $541b, remained the largest FDI
recipient region in the world.
Outward FDI flows from developed economies jumped by 33 per cent to $1.1
trillion. With flows of $576 billion, Europe became the worlds largest investing
region.
In 2015,USA received the largest FDI inflows of $380b, Hong Kong China
$175b, China $136b, India $44b
FDI Outflows top countries were USA at $317b (just 10% of MNE total
incomes), Japan at $114b, China $123b, Hong Kong China at $125b. FII outflows
from EU were $550b.
100 largest non-financial MNEs foreign assets as % of their own total
assets stood at 63%, sales stood at 66%, while employment as total employment
stood at 60%.
Top 10 investor economies by FDI stock 2009-14, were Hong Kong China
$819b, China $512b, ($1300b vs $430b) USA $430b (out of which $380b or 90%
was received in 2015), Japan $414b, Taiwan province of China $87b. Infact, 66%
of Chinese FDI comes from Hong Kong China. Services a/c for 60% of global FDI
stock.
Total FDI equity inflows during 2000-16 stood at $300b. 33% of FDI or $100b
came through the Mauritius route, apparently because the investors wanted to
take advantage of Indias double taxation avoidance treaty with the island
nation. Singapore stood at $50b. Total FDI inflows in 2015 were $55b. Services,
construction and IT received the largest share. Among states, Delhi received
32% while Maharashtra was 23%.
Interestingly, the investments of Indian firms (Tatas, Reliance, Birlas
etc) abroad are about 80 % of FDI-FII inflows into India!

The main benefits of FDI include: positive inflows will boost the capital account on
the BoP, increased employment, and learning valuable skills.

However, the challenges include: 1) adverse effect on competition in the home


market; 2) substantial FDI could result in large debits from current account of the
BoP; 3)perceived loss of national sovereignty and autonomy; 4)employment may be
negatively impacted if FDI is a substitute for domestic production in fact, this is
the main factor harped on by Donald Trump that China, India and Mexico are
stealing US jobs which ultimately led to his being elected as US President.

At a time, when globalization is under a threat more than ever, due to


Trumponomics, Brexit and weakening Euro zone, let us listen to our esteemed
speakers to understand how Indian can stay relevant and manage to attract FDI. Or
does it makes sense that we look inward and create favourable conditions to keep
Indian capital and human resources within India?