Foreign Investment In INDIA
Foreign Direct Investment (FDI)
 What is FDI
 Why we need FDI
 Process of the Inflow of FDI
 Benefits
 Types
 Advantages and disadvantages
 FII
 Diff between FII and FDI
Modes of FDI
1) By Direction
* Inward
*Outward
2) By Target
* Mergers and Acquisitions
* Horizontal FDI
* Vertical FDI
(a) Backward Vertical FDI
(b) Forward Vertical FDI
3 )By Motive
* Resource-Seeking
* Market-Seeking
* Efficiency-Seeking
Factors Affecting FDI
 Financial incentives (Funds from local Government)
 Fiscal incentives (Exemption from import duties)
 Indirect incentives (Provides land and
 Political stability
 Market potential & accessibility
 Large economy
 Market size
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)
Why India (cont.)
 World's fourth largest economy & second largest pharmaceutical
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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
Government policies
 Automatic Route
 Prior Permission (FIPB)
Investing in India – Entry Routes
Investing in India
Automatic Route
Prior Permission
(FIPB)
General rule
No prior permission
required
By exception
Prior Government
Approval needed
Only information to the
Reserve Bank of India
within 30 days of inflow/
Issue of shares
Decision generally
Within 4-6 weeks
FDI Investment Sectors
 Prohibited activities
 Atomic energy
 Arms and ammunition
 Lottery business
 Betting and Gambling
 Aircraft and warships
 Coal lignite
Fully permitted Activities
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Cigar and cigarettes of
tobacco
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Coal, Roads & Highways
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Diamond, Gold, Silver ,
Minerals
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Atomic minerals
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Electricity
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Hotel, hospitals
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Retail
I.T
Oil & Energy
Power sector
Pharmaceuticals & Chemicals
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Real state
Mining
Mobile Sector
Automobile
Telecommunication
FDI inflows In real estate US$ 5 Billion
FDI inflows Retail US$ 20 Billion by 2010
FDI inflows in Mining US$ 2,5 Billion per N.M.
FDI inflows in Telecommunication US$ 24 Billion
Major Investments
Companies
Sector
Investment
Wal mart,Marks
Retail
US$ 10 Billion
Intel Corp.
I.T
US$ 40 Billion
British & cairn
Oil & Energy
US$ 2 Billion
Essar power
Power sector
US$ 2 Billion
Toyota
Automobile
US$ 10.51 Billion
Panasonic
Telecommunicatio US$ 200 million
n
What is an FII??
 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
FII Vs FDI
 FII 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 companies in India.
 Foreign Institutional Investors (FII)
 Foreign investment banks are not permitted to directly
invest in shares on the Indian stock exchange
 Makes investments on behalf of foreign investors,
referred to as “sub-accounts”
 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
 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
Thank You……