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Foreign Direct Investment (FDI)

What is FDI

Why we need FDI

Process of the Inflow of FDI

Benefits

Types Advantages and disadvantages

FII

Diff between FII and FDI

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Modes of FDI1)By Direction

* Inward

*Outward

2)By Target* Mergers and Acquisitions* Horizontal FDI

* Vertical FDI

(a) Backward Vertical FDI

(b) Forward Vertical FDI

3)By Motive* Resource-Seeking

* Market-Seeking

* Efficiency-Seeking

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Factors Affecting FDI Financial incentives (Funds from local

Government)

Fiscal incentives (Exemption from import duties)

Indirect incentives (Provides land and

Political stability

Market potential & accessibility Large economy

Market size

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WhyIndia? Liberal, largest democracy, Political Stability

Second largest emerging market (US$2.4trillion)

Skilled and competitive labors force

highest rates of return on investment

one hundred of the Fortune 500 have R & D

facilities in India Second largest group of software developers

after the U.S.

lists 6,500 companies on the Bombay Stock

Exchange (only the NYSE has more)

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WhyIndia (cont.)

World's fourth largest economy & second largestpharmaceutical industry

growth over the past few years averaging 8%

has a middle class estimated at 300 million out of a totalpopulation of1 billion

Destination for business process outsourcing,Knowledge processing etc.

Second largest English-speaking, scientific, technicaland executive manpower

Low costs & Tax exemptions in SEZ Tax incentives for IT , business process outsourcing and

KPO companies

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Government policies

Automatic Route

Prior Permission (FIPB)

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Investing in India Entry Routes

Investing in India

Automatic RoutePrior Permission

(FIPB)

General rule

No prior permission

requiredOnly information to the

Reserve Bank of India

within 30 days of inflow/Issue of shares

By exception

Prior Government

Approval needed

Decision generally

Within 4-6 weeks

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FDI Investment Sectors

Prohibited activities

Atomic energy

Arms and ammunition Lottery business

Betting and Gambling

Aircraft and warships

Coal lignite

Fully permitted Activities

Cigar and cigarettes oftobacco

Coal, Roads & Highways Diamond, Gold, Silver ,

Minerals

Atomic minerals

Electricity

Hotel, hospitals

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Retail

I.T

Oil & Energy

Power sector

Pharmaceuticals &C

hemicals

Real state

Mining

Mobile Sector

Automobile

Telecommunication

FDI inflows In real estate US$5 Billion

FDI inflows Retail US$20 Billion by 2010

FDI inflows in Mining US$2,5 Billion per N.M.

FDI inflows in Telecommunication US$24 Billion

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Major InvestmentsCompanies Sector Investment

Wal mart,Marks Retail US$10 Billion

Intel Corp. I.T US$40 Billion

British & cairn Oil & Energy US$2 Billion

Essar power Power sector US$2 Billion

Toyota Automobile US$10.51 Billion

Panasonic Telecommunicatio

n

US$200 million

Source:

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What is an FII??

An institution established outside India, which investsin securities traded on the markets in India e.g.

Pension Funds Mutual Funds

Investment Trust

Insurance companies

Endowment Funds

University Funds

Foundations or Charitable Trusts Asset Management Companies

Power of Attorney Holders

Bank

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FII Vs FDI

FII is Foreign Institutional Investment: It is

investment made by foreign Mutual Funds in the

Indian Market.FDI is Foreign Direct Investment: It is the

investment made by Foreign Multinational

comapnies in India.

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Foreign Institutional Investors (FII)

Foreign investment banks are not permitted

to directly invest in shares on the Indianstock exchange

Makes investments on behalf of foreign

investors, referred to as sub-accounts

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Foreign Institutional Investors (FII)

FIIs may invest in:

securities in the primary and secondary markets

(shares, debentures, warrants of listed and

unlisted companies) units issued by domestic mutual funds

dated Government securities

derivatives traded on a recognized stock

exchange commercial paper

debt instruments provided a 70/30 equity/debtratio is maintained

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Foreign Institutional Investors (FII) Limits on the type and amount of investments

apply to FIIs

no more than 10% of the equity in any onecompany

no more than 10% in the equity in any onecompany on behalf of a fund sub-account

no more than 5% in the equity in any onecompany on behalf of a corporate/individual sub-account

no more than 24% in the aggregate of the totalissued capital of a company to be held by FIIs

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ThankYou