FOREIGN DIRECT INVESTMENT

By: ANURAG MODI

Foreign Direct Investment [FDI] is a measure of foreign ownership of domestic productive assets such as factories, land and organizations.
FDIs do not only provide an foreign capital and funds, but also provides domestic countries with an exchange of skill sets, information and expertise, job opportunities and improved productivity levels.

The "Asian Tiger" economies such as China, South Korea, Singapore and the Philippines benefitted tremendously and experienced high levels of economic growth at the onset of foreign direct investment into their economies.

 Foreign direct investment is an investment made to acquire long term interest in enterprises operating outside of the economy of the investor. Two countries investing country and host country FDI may take different forms: 1. It could involve a foreign MNC acquiring equity in a domestically owned business. 2. An MNC expanding an existing subsidiary 3. Foreign investors setting up a completely new enterprise. FDI gives both ownership and control over the businesses that they set up and acquire. FDI Creates MNCs

Economic Advantages for the host country

Money capital: FDI facilitate transfer of capital from capital-surplus economies to capital scarce-economies Technology: Host country not only gets capital but also technology Knowledge capital (e.g. patents, brands, management skills, etc) shared with the host country. Low cost of production: Superior management skills and efficient management standards of MNCs will also boost overall productivity, leading to a reduction in the cost of production.

 Creation of Employment Management development Balance of payments: Inward FDIs are a major driver of export-led economic growth in a number of countries. GDP: For developing counties, FDI is especially important for eradication of poverty through economic growth Crowding in: Stimulates investment in downstream and upstream production by other foreign or domestic producers,

Limitations
Competition National sovereignty Crowding out: If FDI comes into sectors in which domestic firms are themselves planning to invest, it may take away the investment opportunities that are available to domestic firms.

FDI In Retail Sector

The government allows 51% FDI for singlebrand retail. FDI is not allowed in any other retail activities, including multi-brand retailing. However, several large multinational retailers are partnering with Indian companies to form joint-venture wholesale enterprises to avoid violating FDI rules.

Bharti Wal-Mart

FDI In Insurance
FDI is limited to 26% in insurance and insurance brokering. While FDI approval is automatic, the Insurance Regulatory and Development Authority (IRDA) must first grant a license. The GOI is considering raising the FDI cap to 49 percent in the insurance sector. After the Finance Standing Committee finishes considering the Insurance Regulatory and Development Authority (Amendment) bill, it will go to the full Parliament for a vote.

ICICI Prudential HDFC Standard

FDI In Telecom
This sensitive sector has seen enormous changes in 2010 FDI in the telecom services sector can be made directly or indirectly in the operating company or through a holding company subject to licensing and security requirements. DIPP sets the security conditions prospective investors must follow to participate in the telecom sector. When approving investment proposals, FIPB will note whether the investment is coming from countries of concern or unfriendly countries. FDI in telecom services such as basic, cellular, access services, national/international long distance, V-Sat, public mobile radio trunked services, global mobile, unified personal communication services, ISP gateways, radio-paging, and end-to-end services is limited to 74 percent and FDI proposals above 49 percent must go via the government route. One hundred percent FDI in equipment manufacturing is authorized via the automatic route. FDI in Internet service providers (ISP) without international gateways, voice-mail, and email is allowed up to 100 percent. Below 49 percent, FDI in this category is authorized via the automatic route. Above 49 percent FDI is authorized via the government route. In both cases, 26 percent divestment is required within the first five years of the investment.

Tata Docomo

FDI in Pharmaceuticals
FDI is allowed up to 100 percent for drug manufacturing on an automatic approval route.

Chrochin