UNIVERSITY OF MUMBAI

PROJECT ON:FDI IN INDIA

MASTER OF COMMERCE
(BANKING AND FINANCE)
SEMESTER I
2014-2015

In Partial Fulfillment of the Requirement under Semester Based Credit And

Grading System for Post Graduated (PG)Programme under Faculty of
Commerce
SUBMITTED BY:NIKITA.M.SHARMA
ROLL NO: 42
PROJECT GUIDE:PROF.

ACKNOWLEDGEMENT

With great pleasure I thank Ms. Mrunalini Ravalekar. Professor of

K.P.B.HINDUJA college of Commerce for being an inspiration in the completion
of this project. I thank for her invaluable help provided during the completion of
this project. I also thank her for providing me guidance and numerous suggestions
through out entire duration of the project. I am thankful for invaluable help without
which this project would not have materialized.
I express my deep gratitude to my entire college friend and my family members
whose efforts and creativity helped us in giving the final structure to the project
work.
I am also thankful to all those seen and unseen hands and hands, which have been
of help in the completion of this project work.

CERTIFICATE
This is certify that MISS.NIKITA.M.SHARMA of M.Com. Banking & Finance 1st
Semester (2014-2015) has successfully completed the Project on "FDI IN INDIA".
Under the guidance of Ms. Mrunalini Ravalekar

Project Guide

________________________

Course Coordinator

________________________

Internal Examiner

________________________

External Examiner

________________________

Principal

________________________

Date________________
Place: Mumbai

M.Com (Banking and Finance)

1st SEMESTER

"FDI IN INDIA"

SUBMITTED BY

NIKITA.M.SHARMA
ROLL NO: 42

DECLARATION
I Miss.Nikita.M.Sharma the student of M.com (Banking and Finance), 1st
Semester (2014-2015), hereby declares that I have completed the project on "FDI
IN INDIA"

The information submitted is true and original to the best of my knowledge.

Nikita.M.Sharma

(Signature)

INDEX

Sr No
CH 1
1.1
1.2
1.3
1.4
1.5
1.6
1.7
1.8
CH 2
2.1
CH 3

Chapter
INTRODUCTION
Introduction
Objectives of the study
Methods of Research
Significance of study
Chapter Scheme
List of Tables
List of Charts
Limitations
FDI IN INDIA
Types of FDI
IMPORTANCE OF FDI

Page no
9
9
10
10
10
11
11
11
12
13-14
15

CH 4

METHODS OF FDI

16

4.1

Entry Mode

16

CH 5

INVESTMENT RISK IN INDIA

17

5.1

Sovereign Risk

17

5.2

Political Risk

17

5.3
5.4
CH 6
6.1
6.2

Commercial Risk
Risk Due To Terrorism
FDI POLICY IN INDIA
FDI Policy
Government Approvals for Foreign Companies

17-18
18
19
19
20

6.3
6.4
6.5
6.6

Doing Business in India

Procedure Under Automatic route
Procedure Under Government Approval
Investment by way of share aquisition
New investment by an existing collaboration in

20
20
20
20-21

6.7
6.8

India
General Permission of RBI under FEMA
Participation by International Financial Institution

21
21

6.9
6.10
CH 7

FDI in small scale sector units

FDI Indian Scenario
SPECIAL FACILITIES AND RULES FOR

21
21
22

CH 8
8.1
8.2

NRIS &OCBS
FDI EQUITY FLOWS BY COUNTRIES
Foreign Investment Promotion Board
Following various industries attracting FDI from

23-24
25
25-26

CH 9

Netherlands to India
FOREIGN INSTITUTIONAL INVESTMENT

27

9.1

Introduction to FII

27

9.2

Market Design in India for foreign institutional

27-28

9.3
9.4

investor
Prohibitions on Investment
Trends of Foreign Institutional Investment in

28
29

9.5
CH 10
CH 11

India
FDI V/S FII
OBJECTIVE OF THE STUDY
RESEARCH METHODOLOGY

29-30
31
32

CH 12

BIBILOGRAPHY

33

CH 13

CASE STUDY

34

Chapter :-1
1.1 Introduction
These three letters stand for foreign direct investment. The simplest explanation of FDI would be
a direct investment by a corporation in a commercial venture in another country. A key to
separating this action from involvement in other ventures in a foreign country is that the business
enterprise operates completely outside the economy of the corporations home country. The
investing corporation must control 10 percent or more of the voting power of the new venture.

Foreign direct investment is that investment, which is made to serve the business interests of the
investor in a company, which is in a different nation distinct from the investor's country of origin.
A parent business enterprise and its foreign affiliate are the two sides of the FDI relationship.
Together they comprise an MNC.
FDI stands for Foreign Direct Investment, a component of a country's national financial
accounts. Foreign direct investment is investment of foreign assets into domestic structures,
equipment, and organizations. It does not include foreign investment into the stock markets.
Foreign direct investment is thought to be more useful to a country than investments in the equity
of its companies because equity investments are potentially "hot money" which can leave at the
first sign of trouble, whereas FDI is durable and generally useful whether things go well or badly.
FDI or Foreign Direct Investment is any form of investment that earns interest in enterprises
which function outside of the domestic territory of the investor. FDIs require a business
relationship between a parent company and its foreign subsidiary. Foreign direct business
relationships give rise to multinational corporations. For an investment to be regarded as an FDI,
the parent firm needs to have at least 10% of the ordinary shares of its foreign affiliates. The
investing firm may also qualify for an FDI if it owns voting power in a business enterprise
operating in a foreign country.
Foreign Direct Investment when a firm invests directly in production or other facilities, over
which it has effective control, in a foreign country.

1.2 OBJECTIVES OF THE STUDY

To study the role, significance of plastic money
To know the implications of plastic money

1.3 METHODS OF RESEARCH

The data is collected only from secondary data source. Such as Newspapers, Magazines, Books,
Journals, E-data, etc.

1.4 SIGNIFICANCE OF THE STUDY

FDI has grown in importance in the global economy with FDI stocks now constituting over 20
percent of global GDP. Foreign direct investment (FDI) is a measure of foreign ownership of
productive assets, such as factories, mines and land. Increasing foreign investment can be used as
one measure of growing economic globalization. The largest flows of foreign investment occur
between the industrialized countries (North America, Western Europe and Japan). But flows to
non-industrialized countries are increasing sharply.
1. Avoiding foreign government pressure for local production.
2. Circumventing trade barriers, hidden and otherwise.
3. Making the move from domestic export sales to a locally-based national sales office.
4. Capability to increase total production capacity.
5. Opportunities for co-production, joint ventures with local partners, joint marketing
arrangements, licensing, etc.

1.5 CHAPTER SCHEME

This study consists of following chapter:CHAPTER 1:- INTRODUCTION
CHAPTER 2:- FDI IN INDIA
CHAPTER 3:- IMPORTANCE OF FDI
CHAPTER 4:- METHODS OF FDI
CHAPTER 5:- INVESTMENT RISKS IN INDIA
CHAPTER 6:- FDI POLICY IN INDIA
CHAPTER 7:- SPECIAL FACILITIES AND RULES FOR NRIS AND OCBS
CHAPTER 8:- FDI EQUITY INFLOW BY COUNTRIES
9

CHAPTER 9:- FOREIGN INSTITUTIONAL INVESTMENT

CHAPTER 10:-OBJECTIVE OF THE STUDY
CHAPTER 11:-RESEARCH METHODOLOGY
CHAPTER 12:-BIBILOGRAPHY

1.6 LIST OF TABLES:-

1.7 LIST OF CHARTS: Type of FDI

1.8 LIMITATIONS:-

10

CHAPTER 2
Foreign Direct Investment in India
The economy of India is the third largest in the world as measured by purchasing power parity
(PPP), with a gross domestic product (GDP) of US $3.611 trillion. When measured in USD
exchange-rate terms, it is the tenth largest in the world, with a GDP of US $800.8 billion (2006).
is the second fastest growing major economy in the world, with a GDP growth rate of 8.9% at
the end of the first quarter of 2006-2007.
However, India's huge population results in a per capita income of $3,300 at PPP and $714 at
nominal.
The economy is diverse and encompasses agriculture, handicrafts, textile, manufacturing, and a
multitude of services. Although two-thirds of the Indian work force still earn their livelihood
directly or indirectly through agriculture, services are a growing sector and are playing an
increasingly important role of India's economy. The advent of the digital age, and the large
number of young and educated populace fluent in English, is gradually transforming India as an
important 'back office' destination for global companies for the outsourcing of their customer
services and technical support.
India is a major exporter of highly-skilled workers in software and financial services, and
software engineering. India followed a socialist-inspired approach for most of its independent
history, with strict government control over private sector participation, foreign trade, and
foreign direct investment.
However, since the early 1990s, India has gradually opened up its markets through economic
reforms by reducing government controls on foreign trade and investment. The privatization of
publicly owned industries and the opening up of certain sectors to private and foreign interests
has proceeded slowly amid political debate. India faces a burgeoning population and the
challenge of reducing economic and social inequality. Poverty remains a serious problem,
although it has declined significantly since independence, mainly due to green revolution and
economic reforms.
FDI in India includes FDI inflows as well as FDI outflow from India. Also FDI foreign direct
investment and FII foreign institutional investors are a separate case study while preparing a
report on FDI and economic growth in India. FDI and FII in India have registered growth in
terms of both FDI flows in India and outflow from India. The FDI statistics and data are evident
of the emergence of India as both a potential investment market and investing country. FDI has
helped the Indian economy grow, and the government continues to encourage more investments
of this sort - but with $5.3 billion in FDI. India gets less than 10% of the FDI of China. Foreign
direct investment (FDI) in India has played an important role in the development of the Indian
11

economy. FDI in India has - in a lot of ways - enabled India to achieve a certain degree of
financial stability, growth and development. This money has allowed India to focus on the areas
that may have needed economic attention, and address the various problems that continue to
challenge the country. India has continually sought to attract FDI from the worlds major
investors.
In 1998 and 1999, the Indian national government announced a number of reforms designed to
encourage FDI and present a favorable scenario for investors. FDI investments are permitted
through financial collaborations, through private equity or preferential allotments, by way of
capital markets through Euro issues, and in joint ventures. FDI is not permitted in the arms,
nuclear, railway, coal & lignite or mining industries. A number of projects have been announced
in areas such as electricity generation, distribution and transmission, as well as the development
of roads and highways, with opportunities for foreign investors. The Indian national government
also provided permission to FDIs to provide up to 100% of the financing required for the
construction of bridges and tunnels, but with a limit on foreign equity of INR 1,500 crores,
approximately $352.5m. Currently, FDI is allowed in financial services, including the growing
credit card business.
These services include the non-banking financial services sector. Foreign investors can buy up to
40% of the equity in private banks, although there is condition that stipulates that these banks
must be multilateral financial organizations. Up to 45% of the shares of companies in the global
mobile personal communication by satellite services (GMPCSS) sector can also be purchased.
By 2004, India received $5.3 billion in FDI, big growth compared to previous years, but less than
10% of the $60.6 billion that flowed into China. Why does India, with a stable democracy and a
smoother approval process, lag so far behind China in FDI amounts? Although the Chinese
approval process is complex, it includes both national and regional approval in the same process.
Federal democracy is perversely an impediment for India.

2.1TYPES OF FDI
FDIs can be broadly classified into two types:
1) Outward FDI: An outward-bound FDI is backed by the government against all types of
associated risks. This form of FDI is subject to tax incentives as well as disincentives of various
forms. Risk coverage provided to the domestic industries and subsidies granted to the local firms
stand in the way of outward FDIs, which are also known as 'direct investments abroad.
2) Inward FDIs: Different economic factors encourage inward FDIs. These include interest loans,
tax breaks, grants, subsidies, and the removal of restrictions and limitations. Factors detrimental
to the growth of FDIs include necessities of differential performance and limitations related with
ownership patterns.

12

3) Other categorizations of FDI: Other categorizations of FDI exist as well. Vertical Foreign
Direct Investment takes place when a multinational corporation owns some shares of a foreign
enterprise, which supplies input for it or uses the output produced by the MNC.
4) Horizontal foreign direct investments happen when a multinational company carries out a
similar business operation in different nations.
a) Horizontal FDI the MNE enters a foreign country to produce the same products product at
home.
b) Conglomerate FDI the MNE produces products not manufactured at home.
c) Vertical FDI the MNE produces intermediate goods either forward or backward in the supply
stream.
d) Liability of foreignness the costs of doing business abroad resulting in a competitive

13

Chapter 3
Importance of FDI

The simple answer is that making a direct foreign investment allows companies to accomplish
several tasks:
1. Avoiding foreign government pressure for local production.
2. Circumventing trade barriers, hidden and otherwise.
3. Making the move from domestic export sales to a locally-based national sales office.
4. Capability to increase total production capacity.
5. Opportunities for co-production, joint ventures with local partners, joint marketing
arrangements, licensing, etc;
A more complete response might address the issue of global business partnering in very general
terms. While it is nice that many business writers like the expression, think globally, act
locally, this often used clich does not really mean very much to the average business executive
in a small and medium sized company. The phrase does have significant connotations for
multinational corporations. But for executives in SMEs, it is still just another buzzword. The
simple explanation for this is the difference in perspective between executives of multinational
corporations and small and medium sized companies. Multinational corporations are almost
always concerned with worldwide manufacturing capacity and proximity to major markets.
Small and medium sized companies tend to be more concerned with selling their products in
overseas markets. The advent of the Internet has ushered focusing on access to markets, access to
expertise and most of all in a new and very different mindset that tends to focus more on access
issues. SMEs in particular are now access to technology.

14

Chapter 4
4.1 Methods of Foreign Direct Investments
The foreign direct investor may acquire 10% or more of the voting power of an enterprise in an
economy through any of the following methods:
a) By incorporating a wholly owned subsidiary or company
b) By acquiring shares in an associated enterprise
c) Through a merger or an acquisition of an unrelated enterprise
d) Participating in an equity joint venture with another investor or enterprise
e) Foreign direct investment incentives may take the following forms:
f) Low corporate tax and income tax rates
g) Tax holidays
h) Other types of tax concessions
i) Preferential tariffs
j) Special economic zones
k) Investment financial subsidies
l) Soft loan or loan guarantees
m) Free land or land subsidies
n) Relocation & expatriation subsidies
o) Job training & employment subsidies
p) Infrastructure subsidies
q) R&D support
r) Derogation from regulations (usually for very large projects)
s) The manner in which a firm chooses to enter a foreign market through FDI.
4.2 Entry Mode
a. International franchising
b. Branches
c. Contractual alliances
d. Equity joint ventures
e. Wholly foreign-owned subsidiaries

15

CHAPTER 5
INVESTMENT RISKS IN INDIA

5.1 Sovereign Risk

India is an effervescent parliamentary democracy since its political freedom from British rule
more than 50 years ago. The country does not face any real threat of a serious revolutionary
movement which might bright economic course though it delayed certain decisions relating to
the economy. Economic liberalization which mostly interested foreign investors has been
accepted as essential by all political parties lead to a collapse of state machinery. Sovereign risk
in India is hence nil for both "foreign direct investment" and "foreign portfolio investment."
Many Industrial and Business houses have restrained themselves from investing in the NorthEastern part of the country due to unstable conditions. Nonetheless investing in these parts is
lucrative due to the rich mineral reserves here and high level of literacy.
Kashmir on the northern tip is a militancy affected area and hence investment in the state of
Kashmir are restricted by law.

5.2 Political Risk

India has enjoyed successive years of elected representative government at the Union as well as
federal level. India suffered political instability for a few years in the sense there was no single
party which won clear majority and hence it led to the formation of coalition governments.
However, political stability has firmly returned since the general elections in 1999, with strong
and healthy coalition governments emerging. Nonetheless, political instability did not change
India's including the Communist Party of India Though there are bleak chances of political
instability in the future, even if such a situation arises the economic policy of India would hardly
be affected.. Being a strong democratic nation the chances of an army coup or foreign
dictatorship are minimal. Hence, political risk in India is practically absent.

5.3 Commercial Risk

Commercial risk exists in any business ventures of a country. Not each and every product or
service is profitably accepted in the market. Hence it is advisable to study the demand / supply
condition for a particular product or service before making any major investment. In India one
can avail the facilities of a large number of market research firms in exchange for a professional
16

fee to study the state of demand /supply for any product. As it is, entering the consumer market
involves some kind of gamble and hence involves commercial risk.

5.4 Risk Due To Terrorism

In the recent past, India has witnessed several terrorist attacks on its soil which could have a
negative impact on investor confidence. Not only business environment and return on
investment, but also the overall security conditions in a nation have an effect on FDI's. Though
some of the financial experts think otherwise. They believe the negative impact of terrorist
attacks would be a short term phenomenon. In the long run, it is the micro and macro economic
conditions concerned of RBI of receipt of inward remittances within 30 days of such receipt and
will have to file the of the Indian economy that would decide the flow of Foreign investment and
in this regard India would continue to be a favorable investment destination.

Chapter 6
17

FDI Policy in India

6.1 Foreign Direct Investment Policy
FDI policy is reviewed on an ongoing basis and measures for its further liberalization are taken.
Change in sector policy/sector equity cap is notified from time to time through Press Notes by
the Secretariat for Industrial Assistance (SIA) in the Department of Industrial Policy
announcement by SIA are subsequently notified by RBI under FEMA. All Press Notes are
available at the website of Department of Industrial Policy & Promotion. FDI Policy permits FDI
up to 100 % from foreign/NRI investor without prior approval in most of the sectors including
the services sector under automatic route. FDI in sectors/activities under automatic route does
not require any prior approval either by the Government or the RBI. The investors are required to
notify the Regional office required documents with that office within 30 days after issue of
shares to foreign investors.
The Foreign direct investment scheme and strategy depends on the respective FDI norms and
policies in India. The FDI policy of India has imposed certain foreign direct investment
regulations as per the FDI theory of the Government of India.
These include FDI limits in India for example:
a) Foreign direct investment in India in infrastructure development projects excluding arms and
ammunitions, atomic energy sector, railways system, extraction of coal and lignite and
mining industry is allowed upto 100% equity participation with the capping amount as Rs.
1500 crores.
b) FDI figures in equity contribution in the finance sector cannot exceed more than 40% in
banking services including credit card operations and in insurance sector only in joint
ventures with local insurance companies.
c) FDI limit of maximum 49% in telecom industry especially in the GSM services.

6.2 Government Approvals for Foreign Companies Doing Business in India

Government Approvals for Foreign Companies Doing Business in India or Investment Routes for
Investing in India, Entry Strategies for Foreign Investors India's foreign trade policy has been
formulated with a view to invite and encourage FDI in India. The Reserve Bank of India has
prescribed the administrative and compliance aspects of FDI. A foreign company planning to set
up business operations in India has the following options:
a) Investment under automatic route; and
b) Investment through prior approval of Government.

6.3 Procedure under automatic route

18

FDI in sectors/activities to the extent permitted under automatic route does not require any prior
approval either by the Government or RBI. The investors are only required to notify the Regional
office concerned of RBI within 30 not available, include the following:
i.
Banking
ii. NBFC's Activities in Financial Services Sector
iii. Civil Aviation
iv. Petroleum Including Exploration/Refinery/Marketing
v. Housing & Real Estate Development Sector for Investment from Persons other than
NRIs/OCBs.
vi. Venture Capital Fund and Venture Capital Company
vii. Investing Companies in Infrastructure & Service Sector
viii. Atomic Energy & Related Projects
ix. Defense and Strategic Industries
x.
Agriculture (Including Plantation)
xi. Print Media
xii.
Broadcasting
xiii.
Postal Services
6.4 Procedure under Government approval
FDI in activities not covered under the automatic route, requires prior Government approval and
are considered by the Foreign Investment Promotion Board (FIPB). Approvals of composite
proposals involving foreign investment/foreign technical collaboration are also granted on the
recommendations of the FIPB. Application for all FDI cases, except Non-Resident Indian (NRI)
investments and 100% Export Oriented Units (EOUs), should be submitted to the FIPB Unit,
Department of Economic Affairs (DEA), Ministry of Finance. Application for NRI and 100%
EOU cases should be presented to SIA in Department of Industrial Policy & Promotion.
6.5 Investment by way of Share Acquisition
A foreign investing company is entitled to acquire the shares of an Indian company without
obtaining any prior permission of the FIPB subject to prescribed parameters/ guidelines. If the
acquisition of shares directly or indirectly results in the acquisition of a company listed on the
stock exchange, it would require the approval of the Security Exchange Board of India.
6.6 New investment by an existing collaborator in India
A foreign investor with an existing venture or collaboration (technical and financial) with an
Indian partner in particular field proposes to invest in another area, such type of additional
investment is subject to a prior approval from the FIPB, wherein both the parties are required to
participate to demonstrate that the new venture does not prejudice the old one.
19

6.7 General Permission of RBI under FEMA

Indian companies having foreign investment approval through FIPB route do not require any
further clearance from RBI for receiving inward remittance and issue of shares to the foreign
investors. The companies are required to notify the concerned Regional office of the RBI of
receipt of inward remittances within 30 days of such receipt and within 30 days of issue of shares
to the foreign investors or NRIs.

6.8 Participation by International Financial Institutions

Equity participation by international financial institutions such as ADB, IFC, CDC, DEG, etc., in
domestic companies is permitted through automatic route, subject to SEBI/RBI regulations and
sector specific cap on FDI.

6.9 FDI in Small Scale Sector Units

A small-scale unit cannot have more than 24 per cent equity in its paid up capital from any
industrial undertaking, either foreign or domestic.
If the equity from another company (including foreign equity) exceeds 24 per cent, even if the
investment in plant and machinery in the unit does not exceed Rs 10 million, the unit loses its
small-scale status and shall require an industrial license to manufacture items reserved for smallscale sector. See also FDI in
Small Scale Sector in India Further Liberalized.

6.10 Foreign Direct Investment Indian Scenario

FDI is permitted 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.

Chapter 7

20

Special Facilities and Rules for NRI's and OCB's

NRI's and OCB's are allowed the following special facilities:
1. Direct investment in industry, trade, infrastructure etc.
2. Up to 100% equity with full repatriation facility for capital and dividends in the following
sectors:I. High Priority Industry Groups
I. Export Trading Companies
iii. Hotels and Tourism-related Projects
iv. Hospitals, Diagnostic Centers
v. Shipping
vi. Deep Sea Fishing
vii. Oil Exploration
viii. Power
ix. Housing and Real Estate Development
x. Highways, Bridges and Ports
xi. Sick Industrial Units
xii. Industries Requiring Compulsory Licensing
3. Up to 40% Equity with full repatriation: New Issues of Existing Companies raising Capital
through Public Issue up to 40% of the new Capital Issue.
4. On non-repatriation basis: Up to 100% Equity in any Proprietary or Partnership engaged in
Industrial, Commercial or Trading Activity.
5. Portfolio Investment on repatriation basis: Up to 1% of the Paid up Value of the equity Capital
or Convertible Debentures of the Company by each NRI. Investment in Government Securities,
Units of UTI, National Plan/Saving Certificates.

CHAPTER 8

21

FDI Equity Inflow By Countries

FDI Inflows by Countries are as follows:

A. Mauritius
Mauritius invested Rs.19,18,633 million in India Up to the January 2010, equal to 44.01 percent
of total FDI inflows. Many companies based outside of India utilize Mauritian holding
companies to take advantage of the India- Mauritius Double Taxation Avoidance Agreement
(DTAA). The DTAA allows foreign firms to bypass Indian capital gains taxes, and may allow
some India-based firms to avoid paying certain taxes through a process known as round
tripping.
The extent of round tripping by Indian companies through Mauritius is unknown. However, the
Indian government is concerned enough about this problem to have asked the government of
Mauritius to set up a joint monitoring mechanism to study these investment flows. The potential
loss of tax revenue is of particular concern to the Indian government. These are the sectors which
attracting more FDI from Mauritius Electrical equipment Gypsum and cement products
Telecommunications Services sector that includes both non- financial and financial Fuels.
B) Singapore
Singapore continues to be the single largest investor in India amongst the Singapore with FDI
inflows into Rs. 3,80,142 crore up to January 2010
Sector-wise distribution of FDI inflows received from Singapore the highest inflows have been
in the services sector (financial and non financial), which accounts for about 30% of FDI inflows
from Singapore. Petroleum and natural gas occupies the second place followed by computer
software and hardware, mining and construction.
C) U.S.A.
The United States is the third largest source of FDI in India (7.64 % of the total), valued at
732335 crore in cumulative inflows up to January 2010. According to the Indian government, the
top sectors attracting FDI from the United States to India are fuel, telecommunications, electrical
equipment, food processing, and services. According to the available M&A data, the two top
sectors attracting FDI inflows from the United States are computer systems design and
programming and manufacturing.
D) U.K.
The United Kingdom is the fourth largest source of FDI in India (5.53 % of the total), valued at
2,40,974 crore in cumulative inflows up to January 2010
Over 17 UK companies under the aegis of the Nuclear Industry Association of UK have tied up
with Ficci to identify joint venture and FDI possibilities in the civil nuclear energy sector. UK
companies and policy makers the focus sectors for joint ventures, partnerships, and trade are
nonconventional energy, IT, precision engineering, medical equipment, infrastructure equipment,
and creative industries.

22

E) Netherlands
FDI from Netherlands to India has increased at a very fast pace over the last few years.
Netherlands ranks fifth among all the countries that make investments in India. The total flow of
FDI from Netherlands to India came to Rs. 1, 78,047 crores between 1991 and 2002. The total
percentage of FDI from Netherlands to India stood at 4.08% out of the total foreign direct
investment in the country up to August 2009.

8.1 Foreign Investment Promotion Board

23

The FIPB (Foreign Investment Promotion Board) is a government body that offers a single
window clearance for proposals on foreign direct investment in the country that are not allowed
access through the automatic route. Consisting of Senior Secretaries drawn from different
ministries with Secretary ,Economic Affairs in the chair, this high powered body discusses and
examines proposals for foreign investment in the country for restricted sectors ( as laid out in the
Press notes and extant foreign investment policy) on a regular basis. Currently proposals for
investment beyond 600 crore require them concurrence of the CCEA (Cabinet Committee on
Economic Affairs). The threshold limit is likely to be
raised to 1200 crore soon. The Board thus plays an important role in the administration and
implementation of the Governments FDI policy. In circumstances where there is ambiguity or a
conflict of interpretation, the FIPB has stepped in to provide solutions. Through its fast track
working it has established its reputation as a body that does not unreasonably delay and is
objective in its decision making. It therefore has a strong record of actively encouraging the flow
of FDI into the country. The FIPB is assisted in this task by a FIPB Secretariat. The launch of efiling facility is an important initiative of the Secretariat to further the cause of enhanced
accessibility and transparency.

8.2 Following Various industries attracting FDI from Netherlands to India

are:
a) Food processing industries
b) Telecommunications that includes services of cellular mobile, basic telephone,
paging
c) Horticulture
d) Electrical equipment that includes computer software and electronics
e) Service sector that includes non- financial and financial services.

and radio

The sectors receiving the largest shares of total FDI inflows up to arch 2010 were the service
sector and computer software and hardware sector, each accounting for 22.14 and 9.48 percent
respectively. These were followed by the telecommunications, real estate, construction and
automobile sectors. The top sectors attracting FDI into India via M&A activity were
manufacturing; information; and professional, scientific, and technical services. These sectors
correspond closely with the sectors identified by the Indian government as attracting the largest
shares of FDI inflows overall.
The ASSOCHAM has revealed that FDI in Chemicals sector (other than fertilizers) registered
maximum growth of 227 per cent during April 2008 March 2009 as compared to 11.71 per cent
during the last fiscal. The sector attracted USD 749 million FDI in FY 09 as compared to USD
229 million in FY 08.
During the year 2009 government had raised the FDI limit in telecom sector from 49 per cent to
74 per, which has contributed to the robust growth of FDI. The telecom sector registered a
growth of 103 per cent during fiscal 2008-09 as compared to previous fiscal. The sector attracted
USD 2558 million FDI in FY 09 as compared to the USD 1261 million in FY 08, acquired 9.37
per cent share in total FDI inflow.
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India automobile sector has been able to record 70 per cent growth in foreign investment. The
FDI inflow in automobile sector has increased from USD 675 million to 1,152 million in FY 09
over FY 08. The other sectors which registered growth in highest FDI inflow during April
March 2009 were housing & real estate (28.55 per cent), computer software & hardware (18.94
per cent), construction activities including road & highways (16.35 per cent) and power (1.86 per
cent).

Chapter 9
Foreign Institutional Investment
25

9.1 Introduction to FII

Since 1990-91, the Government of India embarked on liberalization and economic reforms with
a view of bringing about rapid and substantial economic growth and move towards globalization
of the economy. As a part of the reforms process, the Government under its New Industrial
Policy revamped its foreign investment policy recognizing the growing importance of foreign
direct investment as an instrument of technology transfer, augmentation of foreign exchange
reserves and globalization of the Indian economy.
Simultaneously, the Government, for the first time, permitted portfolio investments from abroad
by foreign institutional investors in the Indian capital market. The entry of FIIs seems to be a
follow up of the recommendation of the Narsimhan Committee Report on Financial System.
While recommending their
entry, the Committee, however did not elaborate on the objectives of the suggested policy. The
committee only suggested that the capital market should be gradually opened up to foreign
portfolio investments.
From September 14, 1992 with suitable restrictions, FIIs were permitted to invest in all the
securities traded on the primary and secondary markets, including shares, debentures and
warrants issued by companies which were listed or were to be listed on the Stock Exchanges in
India. While presenting the
Budget for 1992-93, the then Finance Minister Dr. Manmohan Singh had announced a proposal
to allow reputed foreign investors, such as Pension Funds etc., to invest in Indian capital market.

9.2 Market design in India for foreign institutional investors

Foreign Institutional Investors means an institution established or incorporated outside India
which proposes to make investment in India in securities. A Working Group for Streamlining of
the Procedures relating to FIIs, constituted in April, 2003, inter alia, recommended streamlining
of SEBI registration procedure, and suggested that dual approval process of SEBI and RBI be
changed to a single approval process of SEBI. This recommendation was implemented in
December 2003.
Currently, entities eligible to invest under the FII route are as follows:
i) As FII: Overseas pension funds, mutual funds, investment trust, asset management company,
nominee company, bank, institutional portfolio manager, university funds, endowments,
foundations, charitable trusts, charitable societies, a trustee or power of attorney holder
incorporated or established outside India proposing to make proprietary investments or with no
single investor holding more than 10 per cent of the shares or units of the fund.
ii) As Sub-accounts: The sub account is generally the underlying fund on whose behalf the FII
invests. The following entities are eligible to be registered as sub-accounts, viz. partnership
firms, private company, public company, pension fund, investment trust, and individuals.
FIIs registered with SEBI fall under the following categories:
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a) Regular FIIs- those who are required to invest not less than 70 % of their investment in equityrelated instruments and 30 % in non-equity instruments.
b) 100 % debt-fund FIIs- those who are permitted to invest only in debt instruments.
The Government guidelines for FII of 1992 allowed, inter-alia, entities such as asset management
companies, nominee companies and incorporated/institutional portfolio managers or their power
of attorney holders (providing discretionary and non-discretionary portfolio management
services) to be registered as FIIs. While the guidelines did not have a specific provision
regarding clients, in the application form the details of clients on whose behalf investments were
being made were sought.
While granting registration to the FII, permission was also granted for making investments in the
names of such clients. Asset management companies/portfolio managers are basically in the
business of managing funds and investing them on behalf of their funds/clients. Hence, the
intention of the guidelines was to allow these categories of investors to invest funds in India on
behalf of their 'clients'. These 'clients' later came to be known as sub-accounts. The broad
strategy consisted of having a wide variety of clients, including individuals, intermediated
through institutional investors, who would be registered as FIIs in
India. FIIs are eligible to purchase shares and convertible debentures issued by Indian companies
under the Portfolio Investment Scheme.

9.3 Prohibitions on Investments:

FIIs are not permitted to invest in equity issued by an Asset Reconstruction Company. They are
also not allowed to invest in any company which is engaged or proposes to engage in the
following activities:
1) Business of chit fund
2) Nidhi Company
3) Agricultural or plantation activities
4) Real estate business or construction of farm houses (real estate business does not include
development
of townships, construction of residential/commercial premises, roads or bridges).
5) Trading in Transferable Development Rights (TDRs).

9.4 Trends of Foreign Institutional Investments in India.

Portfolio investments in India include investments in American Depository Receipts (ADRs)/
Global Depository Receipts (GDRs), Foreign Institutional Investments and investments in
offshore funds. Before 1992, only Non-Resident Indians (NRIs) and Overseas Corporate Bodies
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were allowed to undertake portfolio investments in India. Thereafter, the Indian stock markets
were opened up for direct participation by FIIs. They were allowed to invest in all the securities
traded on the primary and the secondary market including the equity and other
securities/instruments of companies listed/to be listed on stock exchanges in
India. It can be observed from the table below that India is one of the preferred investment
destinations for FIIs over the years. As of March 2009, there were 1609 FIIs registered with
SEBI.

9.5 FDI v/s FII

Both FDI and FII is related to investment in a foreign country. FDI or Foreign Direct Investment
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. The 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.
In simple words, FII can enter the stock market easily and also withdraw from it easily. But FDI
cannot enter and exit that easily. This difference is what makes nations to choose FDIs more
than then FIIs.
FDI is more preferred to the FII as they are considered to be the most beneficial kind of foreign
investment for the whole economy. specific enterprise. It aims to increase the enterprises
capacity or productivity or change its management control. In an FDI, the capital inflow is
translated into additional production. The FII investment flows only into the secondary market. It
helps in increasing capital availability in general rather than enhancing the capital of a specific
enterprise. The Foreign Direct Investment is considered to be more stable than Foreign
Institutional Investor. FDI not only brings in capital but also helps in good governance practices
and better management skills and even technology transfer. Though the Foreign Institutional
Investor helps in promoting good governance and improving accounting, it does not come out
with any other benefits of the FDI. While the FDI flows into the primary market, the FII flows
into secondary market. While FIIs are short-term investments, the FDIs are long term.
1. FDI is an investment that a parent company makes in a foreign country. On the contrary, FII is
an investment made by an investor in the markets of a foreign nation.
2. FII can enter the stock market easily and also withdraw from it easily. But FDI cannot enter
and exit easily.
3. Foreign Direct Investment targets a specific enterprise. The FII increasing capital availability
in general.
4. The Foreign Direct Investment is considered to be more stable than Foreign Institutional
Investor.

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Chapter 10
Objective of the study
Objective of the study:
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i. To know the flow of investment in India

ii.
To know how can India Grow by investment.
iii. To examine the trends and patterns in the FDI across different sectors and
from different countries
iv. in India.
v. To know in which sector we can get more foreign currency in terms of investment in
India
vi.
To know which country s safe to invest.
vii.
To know how much to invest in a developed country or in a developing.
viii.
To know Which sector is good for investment.
ix.
To know which country in investing in which country
x.
To know the reason for investment in India
xi.
Influence of FII on movement of Indian stock exchange
xii.
To understand the FII & FDI policy in India.

Chapter 11
Research methodology

Research methodology
In order to accomplish this project successfully we will take following steps.
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Data collection:
Internet, Books , newspapers, journals and books, other reports and projects, literatures

FDI:
The study is limited to a sample of investing countries e.g. Mauritius, Singapore, USA etc. and
sectors e.g. service sector, computer hardware and software, telecommunications etc. which had
attracted larger inflow of FDI from different countries.

FII:
Correlation: We have used the Correlation tool to determine whether two ranges of data move
together that is, how the Sensex, Bankex, IT, Power and Capital Goods are related to the FII
which may be positive relation, negative relation or no relation.
We will use this model for understanding the relationship between FII and stock indices returns.
FII is taken as independent variable. Stock indices are taken as dependent variable

Hypothesis Test:
If the hypothesis holds good then we can infer that FIIs have significant impact on the Indian
capital market. This will help the investors to decide on their investments in stocks and shares. If
the hypothesis is rejected, or in other words if the null hypothesis is accepted, then
FIIs will have no significant impact on the Indian bourses.

CHAPTER 12

BIBILOGRAPHY
A) Reference Books: AUTHOR'S NAME :- Dana Vachan
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 TITLE OF BOOK :- Foreign Investments

PUBLICATION:- 3rd Edition, 2010
B) JOURNALS:
E-DATA:

http://www.answers.com/topic/foreign-direct-investment#History
http://www.unctad.org/sections/dite_iiab/docs/diteiiab20041_en.pdf
http://www.economywatch.com/foreign-direct-investment/
http://www.legalserviceindia.com/articles/fdi_india.htm
www.coca-colacompany

CHAPTER 13
CASE STUDY COCA COLA

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Coca cola was the first international soft drinks brand to enter in 900 crore soft drink market of
India in early 1970s. Indian market was dominated by domestic brands, with Limca being the
largest selling brand. Cola was the largest selling flavour with market share of 40%, Lemon
drinks 31% and orange drinks only 19%. Up till 1977, Coca-cola was the leading soft drink
brand in India. But due to norms set by the Foreign Exchange Regulation Act (FERA), Coca-cola
left India and did not return till 1993.
RBI's move on Foreign Equity Regulation
In 1974, Multinationals operating in low priority areas like consumer goods were asked by RBI
(under FERA) to step down equity to 40% either through equity dilution or through equity sale
Non-strategic category of foreign companies
Coke, which operated in India through a branch office, submitted its plan for stepping down
equity to the RBI. It offered to hold 40% equity in its bottling and distribution units, but refused
to step down equity in its technical and administrative unit
Coke at Logger Heads with the Indian Government
Since this was not in line with FERA, which permitted not more than a 40 % holding in all
operations, Coke was asked to comply properly with the new norms. Coke decided to windup its
operations in India, but quit making allegations that the Indian Government was forcing it to
share its secret formula for making its concentrate
Blame game in a Bad Blood
The Indian Government slapped its counter charges and accused the parent of bleeding profits
and repatriating large sums of funds a road (as administrative
charges) even when the Indian operations were posting losses. Further, there were allegations of
Coke abusing48 import licenses- against which it imported the concentrate- all of which resulted
in bad blood between the two parties.
Coke Exists India

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In 1977, Coke left India and did not return for nearly two decades. By which time, the economic
situation had undergone a major transformation. More importantly, the particular provision in
FERA had been diluted completely
Coke re enters India
Coke factored in all these issues at the time of its re-entry. In its application to India's Foreign
Promotion Board (FIPB) in 1997, it voluntarily offered to divest 49% in favor of the Indian
public through an IPO at the end of three years. This was despite the fact that the FDI norms for
the soft drink sector did not require mandatory divestment of stake and noboby was forcing it to
do so.
A Healthy Growth to the Indian Economy
After re entry, Coca-cola India has made significant investment to build and continually
consolidate its business in the country, including new production facilities, waste water treatment
plants, distribution systems and marketing channels. Coca-cola India is among the countrys top
international investors, having invested more than USD 1 billion in India in the first decade, and
further pledged another USD 100million in 2003 for its operations. Coca-cola directly employs
approximately 6,000 people, and indirectly creates employment for more than 125,000 resulted
in competition in Indian soft drink market people in related industries through its vast
procurement, supply and distribution system. The success story of Coca-cola attracted other
investors to invest in India.

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