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Flow of Presentation
What are foreign investors looking for.
Definition-FDI
Advantages and Disadvantages.
Green Field and Brown field investments.
FDI caps in different Industries.
Definition-FPI
Advantages and Disadvantages.
Difference between FDI and FPI
2
What are Foreign Factors affecting foreign
Investors looking for? investment
3
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
7-4
FDI can be in the form of
5
How Does FDI Benefit
The Host Country?
There are main benefits of inward FDI for a host country
1. Resource transfer effects - FDI brings capital, technology,
and management resources
2. Employment effects - FDI can bring jobs
3. Balance of payments effects - FDI can help a country to
achieve a current account surplus
4. Effects on competition and economic growth - greenfield
investments increase the level of competition in a market,
driving down prices and improving the welfare of
consumers
can lead to increased productivity growth, product and process
innovation, and greater economic growth
7-6
Contd…..
Inflows of foreign stable capital into the country
Helps in the transition to privatization (when state
owned firms are sold to foreign investors)
Improves the countries’infrastructures
Brings foreign executives into the country with
sufficient knowledge of macroeconomic global and
local situations
7
What Are The Costs Of
FDI To The Host Country?
Inward FDI has three main costs:
1. Adverse effects of FDI on competition within the host nation
subsidiaries of foreign MNEs may have greater economic power than
indigenous competitors because they may be part of a larger
international organization
2. Adverse effects on the balance of payments
when a foreign subsidiary imports a substantial number of its inputs
from abroad, there is a debit on the current account of the host
country’s balance of payments
3. Perceived loss of national sovereignty and autonomy
decisions that affect the host country will be made by a foreign
parent that has no real commitment to the host country, and over
which the host country’s government has no real control
7-8
How Does Government
Influence FDI?
Governments can encourage outward FDI
government-backed insurance programs to cover major types of foreign
investment risk
Governments can restrict outward FDI
limit capital outflows, manipulate tax rules, or outright prohibit FDI
Governments can encourage inward FDI
offer incentives to foreign firms to invest in their countries
gain from the resource-transfer and employment effects of FDI, and capture
FDI away from other potential host countries
Governments can restrict inward FDI
use ownership restraints and performance requirements
7-9
How Do International
Institutions Influence FDI?
Until the 1990s, there was no consistent involvement by
multinational institutions in the governing of FDI
Today, the World Trade Organization is changing this by
trying to establish a universal set of rules designed to
promote the liberalization of FDI
7-10
An Overview of India-FDI
UNCTAD ranked India at 3rd position in 2010 as the attractive
destination for FDI, which further rose to secondmost attractive
destination for FDI in 2012, as ranked by A.T. Kearney FDI
Confidence Index.
As a directinvestment in to production or business in India, by
purchasing the stocks or buying a company or expanding
the business
The investment is done either through purchase of shares or
purchase of stocks or through participationin management and
working.
India allows FDI through mergers and acquisitions, joint
ventures, Greenfieldinvestment, etc. The major participation is
seen inSEZ’s, EPZ’s, and sectors which are lucrative for higher
returns.
11
…Foreign Direct Investment Policy…
FDI Guidelines for Investing in Indian Wholly Owned Subsidiary / Joint
Venture
Automatic Route Government Route
14
FDI cap in telecom raised to 100 percent from 74 percent; up to 49 percent
through automatic route and beyond via FIPB
*In power exchanges 49 percent FDI allowed through automatic route, from
earlier FIPB route.
15
* FDI up to 100 percent through automatic route allowed in courier services
16
17
FDI not allowed in…..
Rail Transport.
Arms and Amunition.
Atomic Energy.
Coal and lignite.
Mining of metals like iron,chrome,gypsum,diamonds
etc…
18
India’s FDI Hottest Destinations
1. Maharashtra
Maharashtra received the lion's share of the FDI $2.43 billion
(Rs 11,154 crore), which is 35% of the total FDI inflows in to
the country,.
2. National Capital Region
NCR received $1.85 billion (Rs 8,476 crore) in FDI during the
period. The region accounted for 20% of the total FDI.
3. West Bengal, Sikkim, Andaman & Nicobar Islands
These states attracted the third highest FDI inflows worth $1.416
billion (Rs 6,050 crore)
4. Karnataka - $936 million (Rs 4,333 crore)
5. Punjab, Haryana, Himachal Pradesh - $904 million (Rs 4,141
crore)
19
Factors Affecting FDI In india
Favourable: Unfavourable:
Larze size of economy. Beuracratic Culture.
Rich resource base. High Tax Rate
Cheap Labour. Poor governance
Removal of barrier to High degreeof
foreign trade. corruption.
Abundant technical
supply of manpower
2
0
India should welcome FDI as it has huge benefits for the
Indian economy.
FDI participation always brings prosperity for any
emerging country.
Various benefits which India can entice by
liberalising FDI are use of advanced technology,
expertise, better infrastructural developments,widened
product basket, improving standard of living, uplifting
the brand quality, improving competitiveness, better
foreign relations, boosting exports, and providing India
with a globalplatform.
The debated views of FDI in multi brand have certainly
hindered the flow in retailing
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Figure in milliondollars
2
2
23
Country-wise FDI inflows in Indiafrom April, 2000 to June, 2012
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4
2
5
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What is FPI
2
7
Advantage of FPI
Enhanced flows of equitycapital
FIIs have a greater appetite for equity than debt.. It improve capital
structures.
Managing uncertainty and controllingrisks.
FPI inflows help in financial innovation and developmentof hedging
instruments.
Improving capital markets.
FPIs as professional bodies of asset managers and financial analysts
enhance competition and efficiencyof financial markets.
Equity market development aids economic development.
FPIs can help in the process of economic development.
Improved corporategovernance.
FPIs constitute professional bodies, improve corporate governance.
2
8
Disadvantages of FPI
Problems of Inflation
Hot Money
Political Risk represented by the possibility of change in the political
environment resulting in change in investment norms andrepatriation
regulations.
Emerging markets which are the beneficiaries of most FPI traditionally suffer
from low retail participation which results in inadequate liquidity which results
in price volatility.
Due to the unpredictable nature of such funds there is a tendency to shift from
one market to another at short intervals. Volatility arising out of FPI inflows and
outflowshas adverse effects on the host country economy.
Emerging economics tend to have depreciation prone currencies. This exposes
the foreign investor to exchange rate risk on both principal and returns.
2
9
FII Investments & Market Reaction
While strong inflow of funds from foreign
institutional investors (FIIs) has been a
bourses crashing.
3
0
FII Inflows Vs Sensex
120000
100000
FII Investment from
2005 - 2R0s1.0in(Crores)
BSE Sensex
80000
60000
40000
20000
Rs. in (Crores)
0
-20000 2005 2006 2007 2008 2009 2010
-40000
-60000
-80000
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Distinction between FDI and FPI
FDI FPI
1. It is long-term investment 1. It is generally short-terminvestment
2. Investment in physical assets 2. Investment in financial assets
3. Aim is to increase enterprise capacity or 3. Aim is to increase capitalavailability
productivity or change management
control
4. Leads to technology transfer, access to 4. FPI results in only capital inflows
markets and management inputs
5. FDI flows into the primarymarket 5. FPI flows into the secondarymarket
6. Entryand exit is relatively difficult 6. Entryand exist is relatively easy
7. FDI is eligible for profits of the 7. FPI is eligible for capitalgain
company
8. Tends to be speculative
8. Does not tend be speculative
9. No direct impact on employment of
9. Direct impact on employment of labour labour and wages
and wages
10.Fleeting interest in mgt. 32 32