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IMPACT OF FDI AND FII ON INDIAN BUSINESS ENVIRONMENT

PRESENTED BY:
SRI VIDYA SUHAIL RISHIKA ARJUN TISON THARANEE 11

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DEFINITIO N OF FDI
Foreign direct investment (FDI) or foreign investment refers to long term participation by country A into country B. It usually involves participation in management, joint-venture, transfer of technology and expertise.

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Methods
The foreign direct investor may acquire 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
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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

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Why India (cont.)


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

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Government policies
Automatic

Route Prior Permission (FIPB)

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Investing in India Entry Routes


Investing in India

Automatic Route

Prior Permission (FIPB)


By exception Prior Government Approval needed Decision generally Within 4-6 weeks

General rule No prior permission required


Only information to the Reserve Bank of India within 30 days of inflow/ Issue of shares

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FDI IN DIFFERENT SECTORS

In June 2010, India's Telecom Regulatory Authority of India , which also regulates broadcasters, had recommended higher foreign direct investment in the broadcasting sector, particularly in direct-to-home (DTH) and cable network operators and FM radio. The $12 billion Indian media and entertainment industry is forecast to grow 13 percent for the next five years, according to a FICCI-KPMG report. FDI upto 26% in the Insurance sector is allowed on the automatic route subject to obtaining licence from Insurance Regulatory and Development Authority (IRDA) Petroleum Product Pipelines 100%, Subject to and under the Government Policy and
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Telecommunications In basic, Cellular, Value Added Services, and Global Mobile Personal Communications by Satellite, FDI is limited to 49% subject to licencing and security requirements and adherence by the companies (who are investing and the companies in which the investment is being made) to the license conditions for foreign equity cap and lock-in-period for transfer and addition of equity and other license provisions.

Air Transport Services (Domestic Airlines) (100% for NRIs 49% for others) No direct or indirect equity participation by foreign airlines is allowed.

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economic zone All manufacturing activities except (i) Arms and ammunition, explosives and allied items of defence equipments, defence aircrafts and warships; (ii) Atomic substances, Narcotics and Psychotropic Substances and Hazardous Chemicals; (iii) Distillation and brewing of Alcoholic drinks, and (iv) Cigarette/cigars and manufactured tobacco substitutes
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Special

Application Form Detailed information on the foreign investor or collaborators stating their parent enterprises and affiliated firms Copies of the memorandum of collaborations made by the foreign investors Detailed information on the Joint Venture firms or technical collaborators along with information on their parent enterprise, promoters, and affiliated firms Companies aiming at establishing multi sectoral activities must present their details on the already existent activities with four digit NIC code. In case of any investments being carried out in a holding company, information about downstream investments are to be presented 5/28/12 11

Documents Required for Foreign Direct Investments-

Copies of the earlier approved proposals by FIPB or SIA or RBI connected with the current one The board resolution of the investor company and the approval of transferred shareholder while transferring the existent equity Before and after investments, the detailed information on shareholders of the investor concern In case of indirect foreign investments, the details of the indirect route and the names of the foreign companies along with their shareholders Justification for higher payments in terms of payments for technology or trademark or brand name which require FIPB approval under automatic route Declaration from the investors stating their details Detailed information on the existing ventures or enterprises Remarks from Indian partners in case of the
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SECTORS IN WHICH FDI IS ALLOWED


n n n n n

Retail I.T Oil & Energy Power sector Pharmaceuticals & Chemicals

n n n n n

Real state Mining Mobile Sector Automobile Telecommunication

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FDI is not permitted in the following industrial sectors:


Arms

and ammunition. Atomic Energy. Railway Transport. Coal and lignite. Mining of iron, manganese, chrome, gypsum, sulphur, gold, diamonds, copper, zinc

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Major Investments
Companies
Walmart, Intel Corp. British & cairn Essar power Toyota Panasonic

Sector
Retail I.T Oil & Energy Power sector Automobile

Investment
US$ 10 Billion US$ 40 Billion US$ 2 Billion US$ 2 Billion US$ 10.51 Billion

Telecommunicatio US$ 200 million n 5/28/12 15

What is an FII??
Foreign Institutional investors are organizations which pool large sums of money and invest those sums in securities, real property and other investment assets. Their role in the economy is to act as highly specialized investors on behalf of others

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An institution established outside India, which invests in securities traded on the markets in India e.g.
Pension Funds Mutual Funds Investment Trust Insurance companies Endowment Funds University Funds Foundations or Charitable Trusts Asset Management Companies Power of Attorney Holders Bank
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FII

FII Vs FDI

is Foreign Institutional Investment: It is investment made by foreign Mutual Funds in the Indian Market. FDI is Foreign Direct Investment: It is the investment made by Foreign Multinational comapnies in India. 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.
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The

Both

FDI and FII is related to investment in a foreign country. FDI 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. FDI is more preferred to the FII as they are considered to be the most beneficial kind of foreign investment for the whole 19 5/28/12

Foreign

Institutional Investors (FII) FIIs may invest in:


securities in the primary and secondary

markets (shares, debentures, warrants of listed and unlisted companies) units issued by domestic mutual funds dated Government securities derivatives traded on a recognized stock exchange commercial paper debt instruments provided a 70/30 equity/debt ratio is maintained

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Foreign

Institutional Investors (FII) Limits on the type and amount of investments apply to FIIs
no more than 10% of the equity in any one

company no more than 10% in the equity in any one company on behalf of a fund sub-account no more than 5% in the equity in any one company on behalf of a corporate/individual sub-account no more than 24% in the aggregate of the total issued capital of a company to be held by FIIs
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Union Budget 2011


The budgetedit Master subtitle steps to simplify FII & FDI Click to proposes a number of style regime. Government is focusing on liberalizing FDI policy, and is looking at increasing the FDI inflow in insurance, pension and banking sectors, among others. Legislation related to insurance sector would increase the FDI limit to 49 per cent from the current 26 per cent

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As per the budget, FIIs are allowed to invest in mutual funds, unlisted bonds with minimum lock in period of 3 yrs.

To increase investments to infrastructure sector, the FM raised the cap on foreign investments into corporate bonds. FII limit for investment in corporate bonds with residual maturity of over 5 years issued by companies in the infrastructure sector has been is being raised to $25 5/28/12

The total limit for FIIs in corporate bonds has been increased to US $ 40 billion.

Also, portfolio investment would be permitted in SEBI registered mutual funds from foreign subscriptions

FM proposed to allocate Rs 6,000 cr for some PSU banks to ensure that they are able to attain a minimum of 8 per cent Tier-I capital.

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Thank You

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