FDI INVESTMENT IN INDIA

Rakhi Sharma 157Rianka Mangat 158Rishi Vazir 159Rizwan Sheikh 160Rohan Kedia 161Rohan Deshmukh 162Rohit Kateja 163Rupesh Gaikwad 164Rushabh Turakhia 165

FOREIGN DIRECT INVESTMENT

What is FDI?

It is defined as a company from one country making a physical investment into building a factory in another country of the investor.

HISTORY OF FDI

FDI or Foreign Direct Investment is any form of investment that earns interest in enterprises which function outside of the domestic territory of the investor.

FDIs require a business relationship between a parent company and its foreign subsidiary.

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

quickly .

To communicate with the non- government, government, and Industry Bodies in order to promote the flow of foreign direct investment into the country .

To identify the various sectors that require foreign direct investment .

To take up various other activities that help in bringing in more foreign direct investment into the country .

To give its recommendations to the Indian government in order to encourage foreign direct investment into the country.

ADVANTAGES of FDI Causes a flow of money into the economy

which stimulates economic activity.

Employment will increase.

Long run aggregate supply will shift outwards.

Aggregate demand will also shift outwards as investment is a component of aggregate demand.

It may give domestic producers an incentive to become more efficient .

The government of the country experiencing increasing levels of FDI will have a greater voice at international summits as their country will have more stakeholders in it.

DIS-ADVANTAGES of FDI Inflation may increase slightly

Domestic firms may suffer if they are relatively uncompetitive

If there is a lot of FDI into one industry e.g. the automotive industry then a country can become too dependent on it and it may turn into a risk that is why countries like the Czech Republic are “seeking to attract high value-added services such as research and 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 Agriculture (excluding Floriculture, Horticulture, Development of Seeds, Animal Husbandry, Pisciculture and Cultivation of Vegetables, Mushrooms etc., under controlled conditions and services related to agro and allied sectors) and Plantations (other than Tea Plantations)

INDUSTRIAL LICENSING Alcoholics drinks.

Cigarettes and tobacco products.

Electronic aerospace and defense equipment.

Explosives.

Hazardous chemicals such as hydrocyanic acid, phosgene, isocynates and di-isocynates of hydro carbon and derivatives.

FDI POLICIES IN INDIAFIPB regulations in various sectors

Airport: Upto 100% and FDI beyond 74%.

Agriculture

Advertising and films

Defence and strategic industries

Hotels and tourism

Insurance

FDI POLICIES IN INDIAHistory of fund flow in India Foreign exchange reserves crossed US$137.55

BILLION.

Foreign direct investment has become the major economic driver of globalization. Nearly $1 trillion in Greenfield investment was announced by companies in 2007.

FDI POLICIES IN INDIA In cases in which either the proposal is not cleared or

further information is required, in order to obviate delays presentation by applicant in the meeting of the FIPB should be resorted to.

While considering cases and making recommendations, FIPB should keep in mind the sectoral requirements and the sectoral policies vis-a-vis the proposal(s).

In respect of activities to which equity caps apply, FIPB may consider recommending higher levels of foreign equity as compared to the prescribed caps, keeping in view the special requirements and merits of each case.

FDI : CURRENT SCENARIOCase 1: Foreign company owns over 51% in investing company, stake picked up by investing company in target company will be FDI.

Case 2: Foreign company owns less than 51% in investing company, stake picked up by investing company in target company 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 in investing company.

Case 4: Foreign company invests in target company directly; entire investment is FDI.

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