PPT on Foreign direct Investment

FDI IN INDIAFDI IN INDIA

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WHAT IS FDI ?WHAT IS FDI ?

Foreign direct investmentForeign direct investment ( (FDIFDI) in its classic form is defined as a ) in its classic form is defined as a company from one country making a physical investment into company from one country making a physical investment into building a factory in another country.building a factory in another country.

General speak FDI refers to capital inflows from abroad that invest General speak FDI refers to capital inflows from abroad that invest in the production capacity of the economy .in the production capacity of the economy .

FDI refers to capital inflows from abroad that invest in the production capacity of the economy.

FOREIGNDerived from another country or nation; not native

DIRECT INVESTMENTDIRECT INVESTMENTIn order to qualify as FDI the investment must afford the parent enterprise control over its foreign affiliate.

FDI is permitted as under the FDI is permitted as under the following forms of investmentsfollowing forms of investments

Through financial collaborations. Through financial collaborations.

Through joint ventures and technical collaborations. Through joint ventures and technical collaborations.

Through capital markets via Euro issues. Through capital markets via Euro issues.

Through private placements or preferential allotments. Through private placements or preferential allotments.

FOREIGN INVESTMENTS THROUGH FOREIGN INVESTMENTS THROUGH GDRs (Euro Issues)GDRs (Euro Issues)

Foreign Investment through GDRs is treated as Foreign Foreign Investment through GDRs is treated as Foreign Direct Investment Direct Investment

WHY FDI ?WHY FDI ?

1.Gain a foothold in a new geographic market. 1.Gain a foothold in a new geographic market.

2. Increase a firm’s global competitiveness and positioning. 2. Increase a firm’s global competitiveness and positioning.

3. Fill gaps in a company’s product lines in a global industry. 3. Fill gaps in a company’s product lines in a global industry.

4. Reduce costs in areas such as R&D, production, and distribution. 4. Reduce costs in areas such as R&D, production, and distribution.

FACTORS REQUIRED TO FACTORS REQUIRED TO ATTRACT FDIATTRACT FDI

Low cost BUT Qualified, Educated/Skilled Labor Pool. Low cost BUT Qualified, Educated/Skilled Labor Pool.

Long-term Market Potential OR Yields greater than can be achieved Long-term Market Potential OR Yields greater than can be achieved Domestically.Domestically.

Access to Natural Resources.Access to Natural Resources.

GeographyGeography

Stability of the economic and Political Environment.Stability of the economic and Political Environment.

FORBIDDEN TERRITORIESFORBIDDEN TERRITORIES

FDI is not permitted in the following industrial sectors: FDI is not permitted in the following industrial sectors:

Arms and ammunition.Arms and ammunition.

Atomic Energy. Atomic Energy.

Railway Transport. Railway Transport.

Coal and lignite.Coal and lignite.

Mining of iron, manganese, chrome, gypsum, sulphur, gold, Mining of iron, manganese, chrome, gypsum, sulphur, gold, diamonds, copper, zinc.diamonds, copper, zinc.

Lottery BusinessLottery Business

Agricultural or plantation activitiesAgricultural or plantation activities

Housing and Real Estate Business (except development of Housing and Real Estate Business (except development of townships, construction of residen­tial/commercial premises, townships, construction of residen­tial/commercial premises, roads or bridges to the extent specified in Notification No. roads or bridges to the extent specified in Notification No. FEMA 136/2005­RB dated July 19, 2005).FEMA 136/2005­RB dated July 19, 2005).

F D I - APPROVALF D I - APPROVAL

Foreign direct investments in India are Foreign direct investments in India are approved through three routes:approved through three routes:

Automatic approval by RBI.Automatic approval by RBI.

The FIPB Route.The FIPB Route.

CCFI RouteCCFI Route

+VE’S OF FDI+VE’S OF FDI

Increase in Domestic Employment/Drop in unemploymentIncrease in Domestic Employment/Drop in unemployment

Investment in Needed Infrastructure.Investment in Needed Infrastructure.

Positive Influence on the Balance of Payments.Positive Influence on the Balance of Payments.

New Technology and “Know How” Transfer.New Technology and “Know How” Transfer.

Increased Capital Investment.Increased Capital Investment.

Targeted Regional and Sectoral Development.Targeted Regional and Sectoral Development.

-VE’S OF FDI-VE’S OF FDI

Industrial Sector Dominance in the Domestic Market.Industrial Sector Dominance in the Domestic Market.

Technological Dependence on Foreign Technology Sources.Technological Dependence on Foreign Technology Sources.

Disturbance of Domestic Economic Plans in Favor of FDI­Disturbance of Domestic Economic Plans in Favor of FDI­Directed Activities.Directed Activities.

““Cultural Change” Created by “Ethnocentric Staffing” The Cultural Change” Created by “Ethnocentric Staffing” The Infusion of Foreign Culture , and Foreign Business PracticesInfusion of Foreign Culture , and Foreign Business Practices

FDI FDI SECTORAL GUIDELINESSECTORAL GUIDELINES

AIRPORTSAIRPORTS

Foreign Investment up to 100% is allowed in green field projects Foreign Investment up to 100% is allowed in green field projects under automatic route under automatic route

Foreign Direct Investment is allowed in existing projectsForeign Direct Investment is allowed in existing projects

- up to 74% under automatic route - up to 74% under automatic route

- beyond 74% and up to 100% subject to Government approval- beyond 74% and up to 100% subject to Government approval

TELECOMTELECOM

• FDI in basic and cellular, unified access services, national/ international FDI in basic and cellular, unified access services, national/ international long distance , V­Sat, public mobile radio trunk services , global mobile long distance , V­Sat, public mobile radio trunk services , global mobile personal communications services personal communications services

DOMESTIC AIRLINESDOMESTIC AIRLINES

FDI up to 49% (40%) permitted under automatic route .FDI up to 49% (40%) permitted under automatic route .

A R is not availableA R is not available

However, a foreign airlines are not allowed to have any direct or indirect However, a foreign airlines are not allowed to have any direct or indirect equity participationequity participation

100% investment by NRIs/OCB’s100% investment by NRIs/OCB’s

DRUGS & PHARMADRUGS & PHARMA

FDI up to 100% is permitted under the automatic route for manufacture of FDI up to 100% is permitted under the automatic route for manufacture of drugs and pharmaceuticals.drugs and pharmaceuticals.

INSURANCEINSURANCE FDI up to 26%.FDI up to 26%.

However, license from the (IRDA) has to be obtained However, license from the (IRDA) has to be obtained

There is a proposal to increase this limit to 49%There is a proposal to increase this limit to 49%

MININGMINING Coal & Lignite mining for captive consumption by power projects, and for Coal & Lignite mining for captive consumption by power projects, and for

iron & steel and cement production - Automatic up to 100% iron & steel and cement production - Automatic up to 100%

Mining covering exploration and mining of diamonds and precious stones, Mining covering exploration and mining of diamonds and precious stones, gold, silver and minerals - Automatic up to 100% gold, silver and minerals - Automatic up to 100%

PETROLEUMPETROLEUM• Petroleum and natural gas sector, other than refining and including market study Petroleum and natural gas sector, other than refining and including market study

and formulation; setting up infrastructure for marketing - Automatic up to 100% and formulation; setting up infrastructure for marketing - Automatic up to 100%

• For petroleum refining activity 100% FDI is permitted in Indian Private For petroleum refining activity 100% FDI is permitted in Indian Private Companies under automatic route and up to 26% FDI is permitted in Public Companies under automatic route and up to 26% FDI is permitted in Public Sector Undertakings with Government approval. Sector Undertakings with Government approval.

PRIVATE SECTOR BANKINGPRIVATE SECTOR BANKING

Foreign Investment up to 74% is permitted from all sources under the Foreign Investment up to 74% is permitted from all sources under the automatic route subject to guidelines for setting up of branches/subsidiaries automatic route subject to guidelines for setting up of branches/subsidiaries of foreign banks issued by RBI from time to time. of foreign banks issued by RBI from time to time.

TRADINGTRADING

Wholesale / cash & carry trading - Automatic up to 100% Wholesale / cash & carry trading - Automatic up to 100%

Trading for exports - Automatic up to 100% Trading for exports - Automatic up to 100%

Trading of items sourced from small scale sector - 100% with Government Trading of items sourced from small scale sector - 100% with Government approvalapproval

Single Brand product retailing - 51% with Government approvalSingle Brand product retailing - 51% with Government approval

PRINT MEDIAPRINT MEDIA

FDI up to 100% in publishing/printing scientific & technical magazines, FDI up to 100% in publishing/printing scientific & technical magazines, periodicals & journalsperiodicals & journals

FDI up to 26% in publishing news papers and periodicals dealing in news and FDI up to 26% in publishing news papers and periodicals dealing in news and current affairs. current affairs.

All investments are subject to the guidelines issued by the Ministry of All investments are subject to the guidelines issued by the Ministry of Information and Broadcasting.Information and Broadcasting.

INFRASTRUCTUREINFRASTRUCTURE

100% FDI is permitted for the following activities:100% FDI is permitted for the following activities:

Electricity Generation (except Atomic energy)Electricity Generation (except Atomic energy) Electricity TransmissionElectricity Transmission Electricity DistributionElectricity Distribution Mass Rapid Transport SystemMass Rapid Transport System Roads & HighwaysRoads & Highways Toll RoadsToll Roads Vehicular BridgesVehicular Bridges Ports & HarborsPorts & Harbors Hotel & TourismHotel & Tourism

BENIFITS TO INDIABENIFITS TO INDIA

Stable democratic environment over 60 years of independenceStable democratic environment over 60 years of independence

Large and growing marketLarge and growing market

World class scientific, technical and managerial manpowerWorld class scientific, technical and managerial manpower

Cost-effective and highly skilled laborCost-effective and highly skilled labor

Abundance of natural resourcesAbundance of natural resources

Well-established legal system with independent judiciary.Well-established legal system with independent judiciary.

Developed banking system and vibrant capital market .Developed banking system and vibrant capital market .

India among the top three investment hot spots and one of the fastest India among the top three investment hot spots and one of the fastest growing economies in the world.growing economies in the world.

Large English speaking population.Large English speaking population.

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RECENT TRENDS.RECENT TRENDS.

Indian Railways, which is facing a severe cash crunch to the tune of Rs Indian Railways, which is facing a severe cash crunch to the tune of Rs 30,000 crore every year, received a major financial boost as 30,000 crore every year, received a major financial boost as 100% 100% Foreign Direct Investment (FDI) is now allowed for developing Foreign Direct Investment (FDI) is now allowed for developing infra.structure and improving safety features.infra.structure and improving safety features.

It is expected that these new guidelines can attract upto Rs 90,000 crore It is expected that these new guidelines can attract upto Rs 90,000 crore FDI into Indian Railways.FDI into Indian Railways.

Among others suggestions, proposal to build Bio-toilets in passenger Among others suggestions, proposal to build Bio-toilets in passenger coachescoaches

THANK YOU

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