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What Is FDI?
Foreign direct investment (FDI) occurs when a firm invests directly in new
facilities to produce and/or market in a foreign country
the firm becomes a multinational enterprise
FDI can be minority stake (10-49% equity) or majority (50-99% equity) or full
outright stake (100%).
Let us look at the global and Indian FDI picture to understand where we are:
In 2015, Global foreign direct investment (FDI) flows jumped by 38 per cent
to $1.76 trillion, their highest level since the global economic and financial
crisis of 20082009. A surge in M&As to $721 billion, was the principal factor
behind the global rebound. While greenfield investment remained at a high level,
at $766 billion. Compare this to global trade of $20t and global GDP of $74t.
Inward FDI flows to developed economies almost doubled to $962 billion or 55
per cent of global FDI share.
Developing economies saw their FDI inflows reach a new high of $765 billion or
45% share. Developing Asia, with FDI inflows of $541b, remained the largest FDI
recipient region in the world.
Outward FDI flows from developed economies jumped by 33 per cent to $1.1
trillion. With flows of $576 billion, Europe became the worlds largest investing
region.
In 2015,USA received the largest FDI inflows of $380b, Hong Kong China
$175b, China $136b, India $44b
FDI Outflows top countries were USA at $317b (just 10% of MNE total
incomes), Japan at $114b, China $123b, Hong Kong China at $125b. FII outflows
from EU were $550b.
100 largest non-financial MNEs foreign assets as % of their own total
assets stood at 63%, sales stood at 66%, while employment as total employment
stood at 60%.
Top 10 investor economies by FDI stock 2009-14, were Hong Kong China
$819b, China $512b, ($1300b vs $430b) USA $430b (out of which $380b or 90%
was received in 2015), Japan $414b, Taiwan province of China $87b. Infact, 66%
of Chinese FDI comes from Hong Kong China. Services a/c for 60% of global FDI
stock.
Total FDI equity inflows during 2000-16 stood at $300b. 33% of FDI or $100b
came through the Mauritius route, apparently because the investors wanted to
take advantage of Indias double taxation avoidance treaty with the island
nation. Singapore stood at $50b. Total FDI inflows in 2015 were $55b. Services,
construction and IT received the largest share. Among states, Delhi received
32% while Maharashtra was 23%.
Interestingly, the investments of Indian firms (Tatas, Reliance, Birlas
etc) abroad are about 80 % of FDI-FII inflows into India!
The main benefits of FDI include: positive inflows will boost the capital account on
the BoP, increased employment, and learning valuable skills.