Various Functions of Foreign Investment Promotion Council To ensure that the foreign investment proposals are clearedquickly .

To communicate with the non- government, government, andIndustry Bodies in order to promote the flow of foreign directinvestment into the country . To identify the various sectors that require foreign directinvestment . To take up various other activities that help in bringing inmore foreign direct investment into the country . To give its recommendations to the Indian government inorder to encourage foreign direct investment into the country.

Trends in FDI Flow and stock increased in the last 20 years In spite of decline of trade barriers, FDI has grown more rapidly than world trade because Businesses fear protectionist pressures FDI is seen a a way of circumventing trade barriers Dramatic political and economic changes in many parts of the world Globalization of the world economy has raised the vision of firms who now see the entire world as their market

The Direction of FDI

Historically, most FDI has been directed at the developed nations of the world as firms based in advanced countries invested in other markets The US has been the favorite target for FDI inflows

While developed nations still account for the largest share of FDI inflows, FDI into developing nations has increased Most recent inflows into developing nations have been targeted at the emerging economies of South, East, and Southeast Asia

ADVANTAGES OF FDI Causes a flow of money into the economywhich stimulates economic activity. Employment will increase. Long run aggregate supply will shiftoutwards. Aggregate demand will also shift outwardsas investment is a component of aggregatedemand.

It may give domestic producers anincentive to become more efficient .

The government of the countryexperiencing increasing levels of FDI willhave a greater voice at internationalsummits as their country will have morestakeholders in it.

DIS-ADVANTAGES of FDI

Inflation may increase slightly

Domestic firms may suffer if theyare relatively uncompetitive

If there is a lot of FDI into oneindustry e.g. the automotiveindustry then a country canbecome too dependent on it and itmay turn into a risk that is whycountries like the Czech Republicare seeking to attract high value-added services such as researchand development (e.g.)biotechnology)

SOURCES OF FDI IN INDIA

Automatic route Foreign Investment Promotion Board(FIPB)

Prohibited sectors Gambling and betting Lottery Business Atomic Energy Retail Trading Agricultural or plantation activities of Agricult ure(excluding Floriculture, Horticulture, Development of Seeds, Animal Husbandry, Pisciculture and Cultivation of Vegetables, Mushrooms etc., under controlled conditionsand services related to agro and allied sectors) andPlantations (other than Tea Plantations)

FDI POLICIES IN INDIA History of fund flow in India Foreign exchange reserves crossedUS$137.55 BILLION. Foreign direct investment has become themajor economic driver of globalization. Nearly$1 trillion in Greenfield investment wasannounced by companies in 2007

In cases in which either the proposal is not cleared orfurther information is required, in order to obviatedelays presentation by applicant in the meeting of theFIPB should be resorted to. While considering cases and making recommendations,FIPB should keep in mind the sectoral requirements andthe sectoral policies vis-a-vis the proposal(s). In respect of activities to which equity caps apply, FIPBmay consider recommending higher levels of foreignequity as compared to the prescribed caps, keeping inview the special requirements and merits of each case.

FDI : CURRENT SCENARIO Case 1: Foreign company owns over 51% in investing company,stake picked up by investing company in target company will beFDI. Case 2: Foreign company owns less than 51% in investingcompany, stake picked up by investing company in targetcompany will not be treated as FDI. Case 3: Foreign company owns/controls investing company,latter sets up subsidiary; FDI in subsidiary will be % of investment in subsidiary multiplied by % of foreign ownership ininvesting company.Case 4: Foreign company invests in target company directly;entire investment is FDI.

Political Ideology and FDI

Radical View

Pragmatic Nationalism

Free Market

Political Ideology & FDI

The Radical View

Marxist view: MNEs exploit lessdeveloped host countries
Extract profits Give nothing of value in exchange Instrument of domination, not development Keep less-developed countries relatively backward and dependent on capitalist nations for investment, jobs, and technology

The Radical View

By the end of the 1980s radical view was in retreat
Collapse of communism Bad economic performance of countries that embraced the radical view Strong economic performance of countries who embraced capitalism rather than the radical view

The Free Market View

Nations specialize in goods and services that they can produce most efficiently Resource transfers benefit and strengthen the host country Positive changes in laws and growth of bilateral agreements attest to strength of free market view All countries impose some restrictions on FDI

 Trinidad and Tobago, a recipient of substantial FDI inflows in its natural gas
http://ideas.repec.org/p/dgr/unuint/200307.html Lou Anne A. Barclay
FDI inflows in its natural gas industry for the last decade
FDI-assisted development only occurs when governments in lessdeveloped economies pursue credible, selective intervention policies

Pragmatic Nationalism
FDI has benefits and costs Allow FDI if benefits outweigh costs
Block FDI that harms indigenous industry Court FDI that is in national interest
Tax breaks Subsidies

REGIONAL DEVELOPMENT IMPLICATIONS OF FDI

Post Communist Eastern Europe, e.g. Czech Automotive Components

Foreign direct investment (FDI) has been accorded a central role in the postcommunist economic transformation of Central and Eastern Europe.

Regional effects of FDI in Central Europe (Czech Republic, Hungary, Poland and Slovakia) in the 1990s.
Defining FDIs role in regional economic transformations
Intensification of Uneven Development Development of a Dual Economy Failure to Develop Linkages with Local and Regional Economies Contributionto Increased Regional Economic Instability

Petr Pavlnek
http://eur.sagepub.com/cgi/reprint/11/1/47.pdf#search=%22FDI-Economic%20Development%22

Legal Institutions and FDI

Debate over relationship between legal institutions and foreign investment flows
Traditional/orthodox view: legal institutions play a crucial role in the process of market-oriented development by protecting private rights, especially the property and contract rights of foreign investors By creating the legal foundations for market-oriented reform