A

CONTEMPORARY ISSUE REPORT

ON

“CHANGING ROLE OF FOREIGN DIRECT INVESTMENT”

the requirements for the
of
Master of Business Administration
Submitted in Partial
fulfillment of
Award of the degree

SUBMITTED TO: SUBMITTED TO:

Ms. Chitra Sharma Mr. Irfan Ali
(Asst. professor) MBA- II SEM

2009-2011
Maharshi Arvind International Institute Of Technology
{Affiliated to Rajasthan Technical University, Kota}
Kota, Rajasthan

1
 MAHARISHI ARVIND INTERNATIONAL INSTITUTE OF
TECHNOLOGY, KOTA
(Affiliated to Rajasthan Technical University, Kota, Approved by
All-India Council for Technical Education-Government of India)
CERTIFICATE

This is to certify that Mr.Irfan ali student of MBA I year at Maharishi Arvind
International Institute of Technology, Kota has submitted Contemporary Issue
Project Report entitled “CHANGING ROLE OF FOREIGN DIRECT
INVESTMENT”
The Contemporary Issue Project Report has been completed after studying for
one year in MBA course and for partially fulfilling the requirements for award
of degree of Master of Business Administration of Rajasthan Technical
University, Kota.
The Contemporary Issue Project Report has been completed under the
guidance Of Ms. CHITRA SHARMA faculty of MBA of MAIIT and is as per
norms and guidelines provided.

H.O.D (MAIIT) Academic Guide:

Mr. Sohan L. Sharma Ms.CHITRA SHARMA
KOTA
Date:

2
 MAHARISHI ARVIND INTERNATIONAL INSTITUTE OF
TECHNOLOGY, KOTA
(Affiliated to Rajasthan Technical University, kota, Approved by
All-India Council For Technical Education-Government Of India)
CERTIFICATE

This is to certify that Mr.Irfan Ali student of MBA I year at Maharishi Arvind
International Institute of Technology, kota has submitted Contemporary Issue
Project Report entitled “CHANGING ROLE OF FOREIGN DIRECT
INVESTMENT”
The Contemporary Issue Project Report has been completed after studying for
one year in MBA course and for partially fulfilling the requirements for award of
degree of Master of Business Administration of Rajasthan Technical University,
Kota.
The Contemporary Issue Project Report has been evaluated and viva-voce
conducted by the undersigned panel of examiners. The project has been found
satisfactory/ unsatisfactory and is recommended / not recommended for
acceptance.

Prof.: Prof.:

Internal examiner External examiner

KOTA
Date:

3
 DECLARATION

I IRFAN ALI S/O Mr.ASGAR ALI Student of MBA I Year here by declares
that for the purpose of Contemporary Issue Project Report.
I have conducted study on “CHANGING ROLE OF FOREIGN DIRECT
INVESTMENT”

for the partial fulfillment of M.B.A degree. It is my original work.

Place: IRFAN ALI

Date:

4
 ACKNOWLEDGEMENT

I express my sincere thanks to my report guide, Ms.CHITRA SHARMA, Asst.

professor of finance, for guiding me right form the inception till the successful
completion of the report. I am also thankful to Mr. Sohan Lal Sharma, HOD
MBA for providing me help and facilities in the campus for my project. I
sincerely acknowledge him/her/them for extending their valuable guidance,
support for literature, critical reviews of project and the report and above all the
moral support he/she/they had provided to me with all stages of this report.

I would also like to thank the supporting staff of finance Department, for their
help and cooperation throughout my report.

IRFAN ALI

MBA II SEM.

5
 Preface

In present scenario we are surviving in the age of Globalization and we are

facing cut throat competition. So practical knowledge is essential as well as
bookish knowledge for surviving in this competitive era.

Realizing that the practical experience is an academic for all around developing
of a personal, as a part of the course curriculum for (MBA) Master of Business
Administration, the student has to prepare a Contemporary Issue Project
Report.
The objective of Contemporary Issue Project Report is to provide the student
with insight to the practical aspect of organizational working conditions and
environment, and to gain practical knowledge and build confidence.
Indian industry is waking up to the challenges thrown in by market economy,
policies and globalization. To survive in this highly competitive scenario, heavy
emphasis is laid on getting to know the customer’s basic needs and keeping
abreast with the latest technology. The collective efforts of both assume
relevance in this context.
Knowledge of market is essential for the development of the product. The needs
of the consumers change very often and so the companies are forced to
incorporate these changes within themselves.
The objectives of this report are to provide the detailed study of the foreign
direct investment and the impact of the FDI over the economy as well as capital
market.

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 Executive summary

This project is based on the “CHANGING ROLE OF FOREIGN DIRECT

INVESTMENT”

Further, this project has been divided into 4 chapters.

Chapter 1 includes the project profile.

Chapter 2 includes research methodology in which objectives of the report,

Research design and modes of the data collection has been included.

Chapter 3 included findings & conclusions.

Chapter4 included recommendations.

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 Certificates
 Declaration
 Acknowledgement
 Preface
 Executive summary

Table of Contents

S.N Contents Page No.

1. Project Profile 6 - 12

2. Research Methodology 13 - 21

3. Findings & conclusion 22 - 32

4. Recommendation 33- 43

 Bibliography

 Appendix

8
Introduction

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Foreign direct investment (FDI) is defined as a long-term investment by a
foreign direct investor in an enterprise resident in an economy other than that in
which the foreign direct investor is based. Foreign direct investment (FDI) is
aiso defined as "investment made to acquire lasting interest in enterprises
operating outside of the economy of the investor. The FDI relationship consists
of a parent enterprise and a foreign affiliate which together form a Multinational
corporation (MNC). In order to qualify as FDI the investment must afford the
parent enterprise control over its foreign affiliate. The UN defines control in this
case as owning 10% or more of the ordinary shares or voting power of an
incorporated firm or its equivalent for an unincorporated firm; lower ownership
shares are known as portfolio investment.

Foreign Direct Investment (FDI) flows have increased dramatically in last few
decades. As developing countries, particularly in Asia, remove restrictions and
implement policies to attract FDI inflows, trade and investment have become
increasingly intertwined. As such, there have been growing calls for a
multilateral framework of foreign investment rules to be negotiated under the
auspices of the World Trade Organization (WTO). This paper reviews
developments in FDI flows and their impacts in developing Asia, and the
importance of the policy context in which those flows occur. It discusses
advantages and disadvantages of including FDI in WTO negotiations, and
related policy options for developing Asian economies.

History

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In the years after the Second World War global FDI was dominated by the
United States, as much of the world recovered from the destruction brought by
the conflict. The US accounted for around three-quarters of new FDI (including
reinvested profits) between 1945 and 1960. Since that time FDI has spread to
become a truly global phenomenon. FDI has grown in importance in the global
economy with FDI stocks now constituting over 20 percent of global GDP.

In the US, in the late 1960s and early 1970s, foreign direct investment became
increasingly politicized. Organized labor, convinced that foreign investment
exported jobs, undertook a major campaign to reform the tax provisions which
affected foreign direct investment. The Foreign Trade and Investment Act of
1973 (or the Burke-Hartke Bill) would have eliminated both the tax credit and
tax deferral. The Nixon Administration, influential members of Congress of both
parties, and well-financed lobbying organizations came to the defense of the
multinational. The massive counterattack of the multinational corporations and
their allies defeated this first major challenge to their interests.

Different Types of FDI

By Direction

Inward:

Inward foreign direct investment is a particular form of inward investment when

foreign capital is invested in local resources.

Inward FDI is encouraged by:

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 • Tax breaks, subsidies, low interest loans, grants, lifting of certain
restrictions
• The thought is that the long term gain is worth more than the short term
loss of income

Inward FDI is restricted by:

• Ownership restraints or limits

• Differential performance requirements

Outward:

Outward foreign direct investment, sometimes called "direct investment abroad",

is when local capital is invested in foreign resources. Yet it can also be used to
invest in imports and exports from a foreign commodity country.

Outward FDI is encouraged by:

• Government-backed insurance to cover risk

Outward FDI is restricted by:

• Tax incentives or disincentives on firms that invest outside of the home

country or on repatriated profits
• Subsidies for local businesses
• Leftist government policies that support the nationalization of industries
(or at least a modicum of government control)
• Self-interested lobby groups and societal sectors who are supported by
inward FDI or state investment, for example labour markets and
agriculture.

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 • Security industries are often kept safe from outwards FDI to ensure
localised state control of the military industrial complex

By Target

Greenfield investment

Direct investment in new facilities or the expansion of existing facilities.

Greenfield investments are the primary target of a host nation’s promotional
efforts because they create new production capacity and jobs, transfer
technology and know-how, and can lead to linkages to the global marketplace.
The Organization for International Investment cites the benefits of greenfield
investment (or insourcing) for regional and national economies to include
increased employment (often at higher wages than domestic firms); investments
in research and development; and additional capital investments. Criticism of the
efficiencies obtained from greenfield investments include the loss of market
share for competing domestic firms. Another criticism of greenfield investment
is that profits are perceived to bypass local economies, and instead flow back
entirely to the multinational's home economy. Critics contrast this to local
industries whose profits are seen to flow back entirely into the domestic
economy.

Mergers and Acquisitions

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Transfers of existing assets from local firms to foreign firms takes place; the
primary type of FDI. Cross-border mergers occur when the assets and operation
of firms from different countries are combined to establish a new legal entity.
Cross-border acquisitions occur when the control of assets and operations is
transferred from a local to a foreign company, with the local company becoming
an affiliate of the foreign company. Unlike greenfield investment, acquisitions
provide no long term benefits to the local economy-- even in most deals the
owners of the local firm are paid in stock from the acquiring firm, meaning that
the money from the sale could never reach the local economy. Nevertheless,
mergers and acquisitions are a significant form of FDI and until around 1997,
accounted for nearly 90% of the FDI flow into the United States. Mergers are the
most common way for multinationals to do FDI.

Horizontal FDI

Horizontal FDI occurs when the multinational undertakes the same production to
activities in multiple countries.

Vertical FDI

Backward Vertical FDI

Where an industry abroad provides inputs for a firm's domestic productions.

Forward Vertical FDI

Where an industry abroad sells the outputs of a firm's domestic production.

By Motive

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FDI can also be categorized based on the motive behind the investment from the
perspective of the investing firm:

Resource-Seeking

Investments which seek to acquire factors of production that are more efficient
than those obtainable in the home economy of the firm. In some cases, these
resources may not be available in the home economy at all (e.g. cheap labor and
natural resources). This typifies FDI into developing countries, for example
seeking natural resources in the Middle East and Africa, or cheap labor in
Southeast Asia and Eastern Europe.

Market-Seeking

Investments which aim at either penetrating new markets or maintaining existing

ones. FDI of this kind may also be employed as defensive strategy; it is argued
that businesses are more likely to be pushed towards this type of investment out
of fear of losing a market rather than discovering a new one. This type of FDI
can be characterized by the foreign Mergers and Acquisitions in the 1980’s by
Accounting, Advertising and Law firms.

Efficiency-Seeking

Investments which firms hope will increase their efficiency by exploiting the
benefits of economies of scale and scope, and also those of common ownership.
It is suggested that this type of FDI comes after either resource or market
seeking investments have been realized, with the expectation that it further
increases the profitability of the firm.

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Strategic-Asset-Seeking

A tactical investment to prevent the gain of resource to a competitor. Easily

compared to that of the oil producers, whom may not need the oil at present, but
look to prevent their competitors from having it.

FOREIGN DIRECT INVESTMENT IN INDIA

Investment in Indian market

India, among the European investors, is believed to be a good investment despite

political uncertainty, bureaucratic hassles, shortages of power and infrastructural
deficiencies. India presents a vast potential for overseas investment and is
actively encouraging the entrance of foreign players into the market. No
company, of any size, aspiring to be a global player can, for long ignore this
country which is expected to become one of the top three emerging economies.

India has in the recent years emerged as a favored destination for investment in
various sectors like Power generation, Heavy Machinery, Infrastructure project,
Telecom, Communication, Software etc.

Various hurdles that existed in the economy earlier have been removed as a
result of the winds of liberalization sweeping the country. India has now opened
its doors to foreign investment in a major way.

Non-Resident Indians and Multinational Companies have to follow certain rules

and regulations prior to investment.

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]

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Research:

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 In fact research is an art of scientific investigation. research can
be define as logical & systematized application of the fundamentals of science to
the general and overall questions of a study and scientific techniques which
provide precise tools; specific procedure and technical means rather than
philosophical means for ordering& gathering the data prior to their logical &
manipulation.

In short the search for knowledge through objectives & systematic method for
finding solution to a problem is research. Research is basic method to evaluate;
analyze and collecting the facts about the particular organization.

Research methodology-:

Research methodology is a way to systematically

solve the research problem. It includes the various steps that are generally
adopted by a researcher in studying of the research problem along with reason
behind them.

When we study research methodology concerning a research problem; a number

of questions are answered such as-:

1. Why a research study has been undertaken?

2. How the research problem has been defined?
3. In what way the hypothesis has been formulated?
4. What data have been collected and what particular method has been adopted?
5. What particular techniques of analysis of data have been used.

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 Research process

Problem Extensive Developing the

definition literature survey hypothesis

Preparing the
research design

Preparation of the
Report

Determining sample
design

Generalizations
&
Interpretation Execution of the
project

Hypothesis testing Analysis of data Collecting of data

Research objectives

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 “A problem well defined is half solved”
Poorly defined problems cause confusion and don’t allow the
researcher to develop a good research design. The purpose of research is to
discover answers to question through the application or scientific procedure. The
main aim of research is to find out the truth which is hidden and which has been
not discovering as yet.

The objectives of this project are following.

 To identify the actual status of FDI.

 What kind of changes has brought by the FDI in the world economy.
 In what condition FDI may be beneficial for a country.
 What type of FDI can bring what type of benefits.
 Which country has created the highest potentiality in FDI, which is the
leading country in respect of this.

Research design

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“A research design is simply the framework or plan for a study that is used as a
guide in collecting the data. It is blue print that is followed in completing a
study”
A research design is the arrangement of condition for collection
and analysis the data in a manner that aims to combine relevance to their
research purpose with economy in procedure
In fact research design is the conceptual structure within which
research is conducted. In constitutes the blue print for the collection;
measurement & analysis of data.
It is plan that specifies the sources & types of the information relevant to
the research problem. It also includes the time and cost budget. Since most
studies are done under these constraints.

Research may be the following types-;

1. Descriptive
2. Analytical
3. Conceptual

This project contains analytical research. The basic characteristics of

this method are that the researcher has no control over the variables. This
research is very helpful to find out the causes.

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DATA COLLECTION

Data collection is very necessary to find the approximate opinion of customers.

It provides a platform for taking the decision and very helpful in finding the
main problem. Through the data collection one can achieve his/her objectives.

The tool of data collection in this project is secondary data collection.

Secondary data may be described as those data that have been already collected
and researcher has to analyze those data.

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24
FINDINGS
1. FDI Policy
FDI upto 100% is allowed under the automatic route in all activities/sectors
except the following which will require approval of the Government:
• Activities/items that require an Industrial License;
• Proposals in which the foreign collaborator has a previous/existing
venture/ tie up in India in the same or allied field,
• All proposals relating to acquisition of shares in an existing Indian
company by a foreign/NRI investor.
• All proposals falling outside notified sectoral policy/caps or under sectors
in which FDI is not permitted.

FDI policy is reviewed on an ongoing basis and measures for its further
liberalization are taken. Change in sectoral policy/sectoral equity cap is notified
from time to time through Press Notes by the Secretariat for Industrial
Assistance (SIA) in the Department of Industrial Policy & Promotion. 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.

 Automatic Route

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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 concerned of RBI of receipt of inward remittances
within 30 days of such receipt and will have to file the required documents with
that office within 30 days after issue of shares to foreign investors.

 Government approval route

All activities which are not covered under the automatic route, prior Government
approval for FDI/NRI shall be necessary. Areas/sectors/activities hitherto not
open to FDI/NRI investment shall continue to be so unless otherwise decided
and notified by Government. An investor can make an application for prior
Government approval even when the proposed activity is under the automatic
route.

 Procedure for obtaining Government approval -FIPB

All proposals for foreign investment requiring Government approval are

considered for approval by the Foreign Investment Promotion Board (FIPB). The
FIPB also grants composite approvals involving foreign investment/foreign
technical collaboration.

26
For seeking the approval for FDI other than NRI Investments and 100% EOU,
applications in form FC-IL should be submitted to the Department of Economic
Affairs (DEA), Ministry of Finance.

 FDI from NRI & for 100% EOU

FDI applications with NRI Investments and 100% EOU should be submitted to
the Public Relation & Complaint (PR&C) Seetion of Secretariat of Industrial
Assistance (SIA), Department of Industrial Policy & Promotion.

 Proposals requiring Govt’s Approval

Application for proposals requiring prior Govt’s approval should be submitted to

FIPB in FC-IL form. Plain paper applications carrying all relevant details are
also accepted. No fee is payable. The following information should form part of
the proposals submitted to FIPB: -

(a) Whether the applicant has had or has any previous/existing financial
technical collaboration or trade mark agreement in India in the same or allied
field for which approval has been sought; and

(b) If so, details thereof and the justification for proposing the new venture/
technical collaboration (including trade marks).

27
(c) Applications can also be submitted with Indian Missions abroad who will
forward them to the Department of Economic Affairs for further processing.

(d) Foreign investment proposals received in the DEA are placed before the
Foreign Investment Promotion Board (FIPB) within 15 days of receipt. The
decision of the Government in all cases is usually conveyed by the DEA within
30 days.

 FDI Prohibited

FDI is not permissible in the following cases

i. Gambling and Betting, or

ii. Lottery Business, or
iii. Business of chit fund
iv. Nidhi Company
v. Housing and Real Estate business.
vi. Trading in Transferable Development Rights (TDRs)
vii. Retail Trading
viii. Atomic Energy
ix. Agricultural or plantation activities or Agriculture (excluding Floriculture,
Horticulture, Development of Seeds, Animal Husbandry, Pisiculture and
Cultivation of Vegetables, Mushrooms etc. under controlled conditions and
services related to agro and allied sectors) and Plantations(other than Tea
plantations)

28
  General Permission of RBI under FEMA

RBI has granted general permission under Foreign Exchange Management Act
(FEMA) in respect of proposals approved by the Government. Indian companies
getting foreign investment approval through FIPB route do not require any
further clearance from RBI for the purpose of receiving inward remittance and
issue of shares to the foreign investors. The companies are, however, required to
notify the Regional office concerned of the RBI of receipt of inward remittances
within 30 days of such receipt and to file the required documents with the
concerned Regional offices of the RBI within 30 days after issue of shares to the
foreign investors or NRIs.

 Investment by Existing companies

Besides new companies, automatic route for FDI/NRI investment is also

available to the existing companies proposing to induct foreign equity. For
existing companies with an expansion programme, the additional requirements
include
(i) The increase in equity level resulting from the expansion of the equity base of
the existing company without the acquisition of existing shares by NRI/foreign
investors,
(ii) The money to be remitted should be in foreign currency and
(iii) proposed expansion programme should be in the sector(s) under automatic
route. Otherwise, the proposal would need Government approval through the
FIPB. For this the proposal must be supported by a Board Resolution of the
existing Indian company.

29
For existing companies without an expansion programme, the additional
requirements for eligibility for automatic approval are
(i) that they are engaged in the industries under automatic route,
(ii) the increase in equity level must be from expansion of the equity base
and
(iii) The foreign equity must be in foreign currency.

The earlier SEBI requirement, applicable to public limited companies, that

shares allotted on preferential basis shall not be transferable in any manner for a
period of 5 years from the date of their allotment has now been modified to the
extent that not more than 20 per cent of the entire contribution brought in by
promoter cumulatively in public or preferential issue shall be locked-in.

 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.

Issue and valuation of shares in case of existing companies

In case of listed companies, according to RBI/SEBI guidelines, the issue price

shall be either at:

(a) The average of the weekly high and low of the closing prices of the related
shares quoted on the stock exchange during the six months preceding the
relevant date or

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(b) The average of the weekly high and low of the closing prices of the related
shares quoted on the stock exchange during the two weeks preceding the
relevant date.

The stock exchange referred to is the one at which the highest trading volume in
respect of the share of the company has been recorded during the preceding six
months prior to the relevant date.

The relevant date is the date thirty days prior to the date on which the meeting of
the General Body of the shareholder is convened.

In all other cases a company may issue shares as per the RBI regulation in
accordance with the guidelines issued by the erstwhile Controller of Capital
Issues.

Other relevant guidelines of Securities and Exchange Board of India (SEBI)/

RBI including the SEBI (Substantial Acquisition of Shares and Takeover)
Regulations, 1997, wherever applicable, would need to be followed. Further
information could be obtained at Security and Exchange Board of India’s (SEBI)
website : www.sebi.gov.in

 ADR/GDR

An Indian corporate can raise foreign currency resources abroad through the
issue of American Depository Receipts (ADRs) or Global Depository Receipts
(GDRs). Regulation 4 of Schedule I of FEMA Notification no. 20 allows an

31
Indian company to issue its Rupee denominated shares to a person resident
outside India being a depository for the purpose of issuing Global Depository
Receipts (GDRs) and/ or American Depository Receipts (ADRs), subject to the
conditions that:
• The ADRs/GDRs are issued in accordance with the Scheme for issue of
Foreign Currency Convertible Bonds and Ordinary Shares (Through
Depository Receipt Mechanism) Scheme, 1993 and guidelines issued by
the Central Government thereunder from time to time

• The Indian company issuing such shares has an approval from the
Ministry of Finance, Government of India to issue such ADRs and/or
GDRs or is eligible to issue ADRs/ GDRs in terms of the relevant scheme
in force or notification issued by the Ministry of Finance, and
• There are no end-use restrictions on GDR/ADR issue proceeds, except for
an express ban on investment in real estate and stock markets.
• The FCCB issue proceeds need to conform to external commercial
borrowing end use requirements; in addition, 25 per cent of the FCCB
proceeds can be used for general corporate restructuring
• Is not otherwise ineligible to issue shares to persons resident outside India
in terms of these Regulations.
• There is no limit upto which an Indian company can raise ADRs/GDRs.
However, the Indian company has to be otherwise eligible to raise foreign
equity under the extant FDI policy.

A company engaged in the manufacture of items covered under Automatic route,

whose direct foreign investment after a proposed GDRs/ADRs/FCCBs issue is
likely to exceed the percentage limits under the automatic route, or which is

32
implementing a project falling under Government approval route, would need to
obtain prior Government clearance through FIPB before seeking final approval
from the Ministry of Finance.

 Foreign currency convertible Bonds

FCCBs are issued in accordance with the scheme [the Scheme for issue of
Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository
Receipt Mechanism) Scheme, 1993] and subscribed by a non-resident in foreign
currency and convertible into ordinary shares of the issuing company in any
manner, either in whole, or in part, on the basis of any equity related warrants
attached to debt instruments;

Eligibility

The eligibility for issue of Convertible Bonds or Ordinary Shares of Issuing

Company is given as under:
(i) An issuing company desirous of raising foreign funds by issuing Foreign
Currency Convertible Bonds or ordinary shares for equity issues through Global
Depositary Receipt
(ii) Can issue FCCBs upto USD 50 Million under the Automatic route,
(iii) From USD 50 –100 Million, the companies have to take RBI approval,
(iv) From USD 100 Million and above, prior permission of the Department of
Economic Affairs is required.

 Preference shares

33
Foreign investment through preference shares is treated as foreign direct
investment. Proposals are processed either through the automatic route or FIPB
as the case may be, as per the following guidelines:-
(i) Foreign investment in preference share are considered as part of share capital
and fall outside the External Commercial Borrowing (ECB) guidelines/ cap.
(ii) Preference shares to be treated as foreign direct equity for purpose of sectoral
caps on foreign equity, where such caps are prescribed, provided they carry a
conversion option. Preference shares structured without such conversion option
fall outside the foreign direct equity cap.
(iii) Duration for conversion shall be as per the maximum limit prescribed under
the Companies Act or what has been agreed to in the shareholders agreement
whichever is less.
(iv) The dividend rate would not exceed the limit prescribed by the Ministry of
Finance.
(v) Issue of preference shares should conform to guidelines prescribed by the
SEBI and RBI and other statutory requirements.

 FDI in EOUs/SEZs/Industrial Park/EHTP/STP

Special Economic Zones (SEZs)

100% FDI is permitted under automatic route for setting up of special Economic
Zone.
Units in SEZ qualify for approval through automatic route subject to sectoral
norms. Details about the type of activities permitted are available in the Foreign
Trade Policy issued by Department of Commerce. Proposals not covered under
the automatic route require approval by FIPB..

34
  100% Export Oriented Units (EOUs)

100% FDI is permitted under automatic route for setting up 100% EOU, subject
to sectoral norms. Proposals not covered under the automatic route would be
considered and approved by FIPB.

 Industrial Park

100% FDI is permitted under automatic route for setting up of Industrial Park

Electronic Hardware Technology Park (EHTP) Units

All proposals for FDI/NRI investment in EHTP Units are eligible for approval
under automatic route. For proposals not covered under automatic route, the
applicant should seek separate approval of the FIPB.

 Software Technology park Units

All proposals for FDI/NRI investment in STP Units are eligible for approval
under automatic route. For proposals not covered under automatic route, the
applicant should seek separate approval of the FIPB

 Capitalization of Import Payables

35
FDI inflows are required to be under the following modes;
I. By inward remittances through normal banking channels or
ii. By debit to the specified account of person concerned maintained in an
authorized dealer/authorized bank. Issue of equity to non-residents against other
modes of FDI inflows or in
kind is not permissible. However, Issue of equity shares against lump sum fee,
royalty payable and external commercial borrowings (ECBs) in convertible
foreign currency are permitted, subject to meeting all applicable tax liabilities
and sector specific guidelines.

Conclusion

Foreign direct investment (FDI) is an investment involving a long-term

relationship and reflecting a lasting interest and control by a resident entity in
one economy (foreign direct investor or parent enterprise) in an enterprise
resident in an economy other than that of the foreign direct investor (FDI
enterprise or affiliate enterprise or foreign affiliate). FDI implies that the investor
exerts a significant degree of influence on the management of the enterprise
resident in the other economy. Such investment involves both the initial
transaction between the two entities and all subsequent transactions between
them and among foreign affiliates, both incorporated and unincorporated. FDI
may be undertaken by individuals as well as business entities.

Foreign direct investment (FDI) continues to gain in importance as a form of

international economic transactions and as an instrument of international
economic integration. The rate of growth of worldwide FDI inflows in the past

36
two decades has substantially exceeded that of worldwide gross domestic
product (GDP), exports and domestic investment. Transnational corporations
(TNCs) account for an increasing share and, in some cases, a substantial part of
the assets, employment, domestic capital formation, research and development,
sales and trade of many countries and have become one of the driving forces of
integration in the world economy.

37
38
 International investment position

A country's international investment position (IIP) is a financial statement setting

out the value and composition of that country's external financial assets and
liabilities. The IIP is one component of the capital account of a country's balance
of payments, containing for example stock of companies, real estate, financial
instruments, and so on. By comparison, imports and exports of goods and
services are part of the current account.

The difference between a country's external financial assets and liabilities is the
net international investment position (NIIP).

International Investment Position = domestically owned foreign assets - foreign

owned domestic assets.

India:

39
China

So by the above facts, findings and conclusion it has recommended that foreign
direct investment is direct affects the growth of the economy of the country and
the ministry of the finance and the trade business houses should try to enhance it
by various promotional activities such as:-
1. reifies in foreign investment policy
2. subsidy should be given to the investors
3. Flexible foreign exchange management act.

40
41
BIBLIOGRAPHY
1. BOOKS
1. Anyahwu, J.C., Housing Finance in Nigeria: The Role of Financial Institutions,
Prajnan, Vol. XIX, No. 4, Oct-Dec. 1990.
2. Baltensperger, Ernst, Alternative Approaches to the Theory of the Banking
Firm, Monetary Economics, Vol. 6, 1980.

2.JOURNALS
1. Aai, K., The Optimal Insurance Against Consumption Price Risks, Hitotsubashi
Journal of Economics, Vol. 35, No. 1, June 1994.
2. Adams, T.F.M. and Hoshii, Iwao, A Financial History of the New Japan,
Kodansha
International Ltd., Lokyo 1972.

3.MAGAZINES & NEWS PAPERS

1.BusinessIndia
2.BUSINESS LINE Financial Daily from THE HINDU group of
publications
3.Saturday, Nov 09, 2002
4. Hindustan times
5. Marketing environment

4 WEBSITES
1. http://www.gnr2.org/html/2007/4-19.pdf

42
43
 List of countries by received FDI

This is a list of countries by FDI (Foreign direct investment) in 2006 mostly

based on CIA Factbook accessed in January 2008.

Rank by sovereign state Country/Region FDI (in US$)

1. United States 1,818,000,000,000
2. United Kingdom 1,135,000,000,000
3. Hong Kong 769,100,000,000
4. Germany 763,900,000,000
5. China 699,500,000,000
6. France 697,400,000,000
7. Belgium 633,500,000,000
8. Netherlands 450,900,000,000
9. Spain 439,400,000,000
10. Canada 398,400,000,000
11. Italy 294,800,000,000
12. Russia 271,600,000,000
13. Australia 246,200,000,000
14. Mexico 236,200,000,000
15. Switzerland 232,500,000,000
16. Brazil 214,300,000,000
17. Sweden 199,600,000,000
18. Singapore 189,700,000,000
19. Ireland 179,000,000,000
20. Denmark 138,400,000,000
21. South Korea 118,000,000,000
22. Poland 104,200,000,000
23. Hungary 96,610,000,000
24. Japan 88,620,000,000
25. Portugal 85,520,000,000
26. Turkey 84,530,000,000
27. Chile 84,070,000,000

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28. Malaysia 77,700,000,000
29. Czech Republic 77,460,000,000
30. South Africa 77,350,000,000
31. Thailand 69,060,000,000
32. India 67,720,000,000
33. Austria 66,320,000,000
34. Finland 64,180,000,000
35. New Zealand 63,120,000,000
36. Argentina 60,040,000,000
37. Norway 56,700,000,000
38. Israel 47,390,000,000
39. Venezuela 45,400,000,000
40. Colombia 45,010,000,000
41. Taiwan 44,880,000,000
42. UAE 42,580,000,000
43. Greece 41,320,000,000
44. Romania 40,690,000,000
45. Egypt 37,660,000,000
46. Nigeria 31,660,000,000
47. Kazakhstan 29,820,000,000
48. Vietnam 26,270,000,000
49. Morocco 23,500,000,000
50. Indonesia 21,910,000,000
51. Tunisia 21,220,000,000
52. Ukraine 21,190,000,000
53. Bulgaria 20,860,000,000
54. Peru 19,360,000,000
55. Slovakia 19,080,000,000
56. Croatia 18,330,000,000
57. Angola 17,600,000,000
58. Philippines 16,370,000,000
59. Estonia 16,320,000,000
60. Ecuador 14,670,000,000
61. Pakistan 14,670,000,000
62. Algeria 14,370,000,000
63. Azerbaijan 12,580,000,000
64. Bahrain 11,550,000,000
65. Cuba 11,240,000,000
66. Lithuania 10,940,000,000

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67. Dominican Republic 10,670,000,000
68. Qatar 10,630,000,000
69. Jordan 8,154,000,000
70. Slovenia 7,459,000,000
71. Costa Rica 6,897,000,000
72. Latvia 6,418,000,000
73. El Salvador 4,377,000,000
74. Iran 4,345,000,000
75. Libya 4,305,000,000
76. Bangladesh 4,208,000,000
77. Kenya 1,169,000,000
78. Bosnia and 833,482,000
Herzegovina
79. Kuwait 818,000,000

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