Overview of FDI

• A simple definition of FDI would be –“An

investor based in one country acquires an
asset in another country with the intent to
manage that asset” (OECD, 2000).

• According to International Monetary Fund

(IMF), FDI is defined as “ an investment that is
made to acquire a lasting interest in an
enterprise operating in a economy other than
that of the investor”.
The FDI relationship consists of a parent enterprise
and a foreign affiliate which together form a
Multinational Corporation (MNC).

In order to qualify as FDI the Investment must afford the

parent Enterprise Control over its foreign affiliate.

The IMF defines control in this case as owning 10% or

more of the ordinary shares or voting power of an
incorporated firm or its equivalent for an unincorporated
firm.
 Horizontal FDI
Vertical FDI
Greenfield Investment
Direct investment in new Industry provides inputs for or Investment in the same
facilities/ expansion of existing sells output from a firm’s industry abroad as a firm
facilities. domestic production operates in at home.
Objective to create new processes.
production capacity and jobs
and to transfer technology.
Profits from production do not
feed back into local economy
but to the MNC’s
local economy.
 Why India?
• Liberal, largest democracy, Political
Stability.
• Second largest emerging market (US$ 2.4
trillion).
• Skilled and competitive labors force.
• Highest rates of return on investment.
• One hundred of the Fortune 500 have R &
D facilities in India.
• Second largest group of software
developers after the U.S.
• Lists 6,500 companies on the Bombay
Stock Exchange (only the NYSE has more).
 • World's fourth largest economy & second
largest pharmaceutical industry.
• Growth over the past few years averaging
8% has a middle class estimated at 300
million out of a total population of 1 billion.
• Destination for business process outsourcing,
Knowledge processing etc.
• Second largest English-speaking, scientific, technical
and executive manpower Low costs & Tax exemptions
in SEZ.
• Tax incentives for IT , business process outsourcing
and KPO companies.

Why India (cont.)

Risk due to Sovereign
Terrorism Risks

INVESTMEN
T RISK IN
INDIA
Commercial Political
Risks Risks
 Financial incentives (Funds from local Government)

Fiscal incentives (Exemption from import duties)

Indirect incentives (Provides land and labour)

Factors
Affecting Political stability

FDI Market potential & accessibility

Large economy

Market size
 In 1991 the government allowed FDI upto
51% wherein automatic permission was
granted in high technology and high
investment priority industries.

Liberalizatio The limit was raised from 51% to 74% and

n in FDI subsequently to 100%.

The 1991 policy invited foreign equity

holdings upto 51% by international trading
companies.
 Reforms in 2012

• On 14 September 2012, Government of India allowed FDI in aviation

u p to 49%, in the broadcast sector up to 74%, in multi-brand retail
u p to 51%, in single-brand retail u p to 100%.

• The choice of allowing FDI in multi-brand retail u p to 51% has been left
to each state. But the Government of India does not allow foreign e-
commerce companies to pick-up 51% stake in multi-brand retail sector
in business-to-consumer space citing regulatory issues, problems in
checking inter-state transactions in e-commerce activities.
• In its supply chain sector, the government of India had already
approved
• 100% FDI for developing cold chain.
FDI •Fully permitted Real state
•
Activities • Mobile Sector
• Cigar and cigarettes

Investme of tobacco
• Coal, Roads &
•

•
Automobile
Telecommunicatio
nt Highways
• Diamond, Gold,
n

Sectors Silver , Minerals

• Electricity

• Hotel, hospitals

• Retail

• I.T

• Oil & Energy

• Power sector

• Pharmaceuticals &

Chemicals
FDI in Power Sector
 Incentives for Investment in Power
Sector
• New Legal Regime: Electricity Act, 2003.

• The Act provides for: Multiple Buyer Model, Independent

Regulatory Body, Open Access, Power Trading as an
independent business, delicensing of generation.
• 100% FDI Automatic Route in:-
• Hydro-electric power plants;
• Coal/lignite based thermal power plants;
• Oil/gas based thermal power plants.
FDI IN RETAIL
 Low share of organized retailing

FDI in
Retail….W Increase in disposable income
and customer aspiration
HY INDIA?

Increase in expenditure for

luxury items
 Generate huge employment

Increased investment in technology

FDI in
Retail The huge tax revenue generated.

Benefits
The consumer gains from the wide variety of
choices and a more diversified basket.

The indirect benefits like better roads,

online marketing, expansion of telecom
sector etc. Will give a ‘big push’ to other
sectors like agriculture, small and medium
size enterprises.
 Foreign Players would displace
the unorganized retailers
because of their superior financial
strengths.

The entry of large global retailers

FDI in such as Wal-Mart would kill local
shops and millions of jobs.
Retail
Drawbacks Induce unfair trade practices like
predatory pricing, in the absence
of proper regulatory guidelines.

Increase in real estate prices and

marginalize domestic
entrepreneurs
TELECOMMUNICTION
FDI in telecommunication sector

• FDI inflow from 1991 to 2010 in

telecommunication sector amounted to
US$ 131,220 million.
• Third largest sector to attract FDI in
India.
• India has 100% FDI allowed in
networking components and 74% FDI in
telecommunication services.
 FDI in telecom services has
been raised to 74%.

Government Introduction of unified

Initiatives access licensing for
telecom services on a pan-
India basis.

Foreign telecom companies

can bid for 3G spectrum
without partnering with Indian
companies
 Targets set by the Government
•1.  aims for $100 billion investment by 2022.

•2.  create four million jobs .

•  boost sectoral contribution to 8% of GDP from 6% in

2017.
•3. Broadband
•  thegovernment plans to ensure universal broadband
connectivity at 50 Mbps to every citizen, provide 1 Gbps
connectivity to all gram panchayats by 2020 and 10 Gbps
by 2022 and ensure connectivity to all uncovered areas.
FDI in Real Estate
 Second-most favoured
destination for FDI in the
world

FDI in Real Norms to allow 100% FDI

Estate Mar 2005

100 acre criterion to 25

acre criterion
 India produces an
estimated 2 million new
graduates

FDI in Real
Estate Presence of a large
Why number of Fortune 500

Invest??
Real estate investments
in India yield huge
dividends
FDI IN TOURISM
 Raised to $120mn

Major source of employment

FDI in
Tourism Third largest earner of foreign
exchange

Private investments through

public private partnership
 Foreign tourist arrivals
are expected to grow to
10 million by 2012-14.
Need for
FDI in
Tourism Estimated that tourism in
India could contribute
Rs.8,50,000 crores to the
GDP by 2020.
 Multitude of taxes

High Taxes

Reasons Highest import duty on imported liquor

for low FDI used in hotels

Service Tax on Tour Operators

Inland Air Travel Tax

 FDI IN
AGRICULTURE
Allowed up to 100%
Pilot programme for
delivering subsidy FDI IN
directly to farmer AGRICULTURE
which Contributes
16% to the GDP.
 To connect 66,800 habitations

FDI IN
AGRICULTURE To construct 1,46,000Km of new
rural roads
DEVELOPMENT
To Upgrade and modernize
1,94,000Km of existing rural
roads

To provide corpus of Rs. 8000

crore RIDF
 AIRPORTS

• Foreign Investment up to 100% is

allowed in green field projects under
automatic route.
• Foreign Direct Investment is allowed
in existing projects up to 74% under
automatic route beyond 74% and up
to 100% subject to Government
approval.
 FDI up to 49% (40%) permitted under automatic route.

Automatic Route is not available.

However, a foreign airlines are not allowed to have any direct or

indirect equity participation.

100% investment by NRIs/OCB’s.

DOMESTIC AIRLINES
 FDI up to 100% is permitted under the automatic route for manufacture
of drugs and pharmaceuticals (The following is the current position)

FDI up to 74% in the case of bulk drugs, their intermediates

Pharmaceuticals and formulations would be covered under
automatic route.

FDI above 74% for manufacture of bulk drugs will be

considered by the Government on case to case basis

DRUGS & PHARMA

 FDI up to 26% allowed on the automatic route

However, license from the Insurance Regulatory &

Development Authority (IRDA) has to be obtained

There is a proposal to increase this limit to 49%

INSURANCE
MINING

Coal & Lignite mining for captive consumption by

power projects, and for iron & steel and cement
production - Automatic up to 100%

Mining covering exploration and mining of diamonds

and precious stones, gold, silver and minerals -
Automatic up to 100%
 PETROLEUM

• Petroleum and natural gas sector, other

than refining and including market study
and formulation; setting up infrastructure
for marketing - Automatic up to 100%

• For petroleum refining activity 100% FDI

is permitted in Indian Private Companies
under automatic route and up to 26%
FDI is permitted in Public Sector
Undertakings with Government approval
PRIVATE SECTOR BANKING

Foreign Investment up to 74%

is permitted from all sources
under the automatic route
subject to guidelines for
setting up of
branches/subsidiaries of
foreign banks issued by RBI
from time to time.
 Wholesale / Cash & carry trading-
Automatic up to 100%.

Trading for exports - Automatic up

to 100%.

TRADING
Trading of items sourced from
small scale sector -100% with
Government approval.

Single Brand product retailing

-51% with Government approval.
 FDI up to 100% in publishing/printing scientific & technical
magazines, periodicals & journals

FDI up to 26% in publishing news papers and

periodicals dealing in news and current affairs.

All investments are subject to the guidelines issued by

the Ministry of Information and Broadcasting

PRINT MEDIA
 FDI Investment Sectors

Prohibited
Activities Arms and Lottery Betting and
• Atomic energy
ammunition business Gambling

Aircraft and Atomic

Coal lignite Mining
warships minerals
 ANY
QUESTION
S?