Name

sagar vasant sonawane 48 M.F.M ( SEM II ) Batch 2011-2014 Managerial Economics M.S.Ajgaonkar

Roll No : Course : Subject : Prof :

Introduction :
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 investorfriendly 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
Foreign Direct Investment (FDI) is permited as under the following forms of investments

Through financial collaborations. Through joint ventures and technical collaborations. Through capital markets via Euro issues. Through private placements or preferential allotments.

What are the forms in which business can be conducted by a foreign company in India?

A foreign company planning to set up business operations in India may:

Incorporate a company under the Companies

Act, 1956, as a Joint Venture or a Wholly Owned Subsidiary. Set up a Liaison Office / Representative Office or a Project Office or a Branch Office of the foreign company which can undertake activities permitted under the Foreign Exchange Management (Establishment in India of Branch Office or Other Place of Business) Regulations, 2000.

FPI - Foreign Portfolio Investment

he Foreign Institutional Investors SEBI (FII), 1995, controls the portfolio investment. The investments carried out by Foreign Institutional Investors include, a wide spectrum of programs as listed below:
Pension Funds University Funds Mutual Funds Endowment Foundations, Charitable Trusts and Charitable Societies Incorporated or Institutional Portfolio Managers or their Power of Attorney holders Investment Trusts as Nominee Companies Asset Management Companies SEBI plays a pivotal role in the registration matters of FIIs. SEBI registered FIIs have been granted permission by RBI to carry out investment matters in India under the Portfolio Investment Scheme (PIS). As per the Portfolio Investment Scheme, individual investors cannot surpass 10 percent of paid up capital and the foreign registered sub accounts of FII are not allowed to cross 5 percent of the paid up capital as well. The Foreign Institutional Investors along with their sub accounts cannot occupy more than 24 percent of the paid up capital of an Indian firm.

The procedure for receiving Foreign Direct Investment in an Indian company

An Indian company may receive Foreign Direct Investment under the two routes as given under
I.

Automatic Route FDI up to 100 per cent is allowed under the automatic route in all activities/sectors except where the provisions of the consolidated FDI Policy, paragraph on 'Entry Routes for Investment' issued by the Government of India from time to time, are attracted. FDI in sectors /activities to the extent permitted under the automatic route does not require any prior approval either of the Government or the Reserve Bank of India.
Government Route FDI in activities not covered under the automatic route requires prior approval of the Government which are considered by the Foreign Investment Promotion Board (FIPB), Department of Economic Affairs, Ministry of Finance. Application can be made in Form FC-IL, which can be downloaded from http://www.dipp.gov.in. Plain paper applications carrying all relevant details are also accepted. No fee is payable. Indian companies having foreign investment approval through FIPB route do not require any further clearance from the Reserve Bank of India for receiving inward remittance and for the issue of shares to the non-resident investors.

ii.

Which are the sectors where FDI is prohibited under the Government Route as well as the Automatic Route in the following sectors:
Retail Trading (except single brand product retailing) Atomic Energy Lottery Business Gambling and Betting

Business of Chit Fund

Agricultural (excluding Floriculture, Horticulture, Development of seeds, Animal Husbandry, Pisciculture and cultivation of vegetables, mushrooms, etc. Housing and Real Estate business (except development of townships, construction of residential/commercial premises, roads or bridges to the extent specified in Notification No. FEMA 136/2005-RB dated July 19, 2005 etc

Advantages of Foreign Direct Investment

Integration into global economy - Developing countries, which invite FDI, can gain access to a wider global and better platform in the world economy. 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.

Technology diffusion and knowledge transfer FDI apparently helps in the outsourcing of knowledge from India especially in the Information Technology sector. Developing countries by inviting FDI can introduce world-class technology and technical expertise and processes to their existing working process. Foreign expertise can be an important factor in upgrading the existing technical processes. For example, the civilian nuclear deal led to transfer of nuclear energy know-how between the USA and India. Increased competition - FDI increases the level of competition in the host country. Other companies will also have to improve on their processes and services in order to stay in the market. FDI enhanced the quality of products, services and regulates a particular sector. 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.

Disadvantages of Foreign Direct Investment

FDI has and adverse effects on competition. FDI will be make the host country lost the control over domestic policy. 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. It has been observed that the defense of a country has faced risks as a result of the foreign direct investment in the country. Certain foreign policies are adopted that are not appreciated by the workers of the recipient country. Foreign direct investment disadvantageous for the ones who are making the investment themselves. Foreign direct investment may entail high travel and communications expenses. Another 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. There is considerable instability in a particular geographical region. This causes a lot of inconvenience to the investor. The host country is not well connected with their more advanced neighbors, it poses a lot of challenge for the investors. Inflation is increased. Local market is affected badly.