Final for FDI

8/8/2019 Final for FDI

1/13

PROJECT REPORT

Master of Management Studies- MMS

Degree in partial requirement during 3nd

Semester, 2010-11

Submitted to the

IBSAR INSTITUTE OF MANAGEMENT STUDIES,

KARJAT

TITLE OF THE PROJECT

FOREING DIRECT INVESTMENT.

SUBMITTED BY

NAME ROLL NO

UMESH GAIKWAD 37

AMARENDRA DHANMEHER 01

MANDHAR TAKUR

KRUNAL SHAH

BHARATI SRINIVASAN 47

SHRIJA MANE 34


2/13

MEANING OF INTERNATIONAL FINANCE:

International finance is the branch of economics that studies the dynamics of

exchange rates, foreign investment, and how these affect international trade

It also studies international projects, international investments and capital

flows, and trade deficits. It includes the study of futures, options and

currency swaps. International finance is a branch of international economics.

INTRODUCTION TO FOREING DIRECT INVESTMENT:

Foreign direct investment (FDI) refers to long term participation by country A

into country B. It usually involves participation in management, joint-venture,

transfer of technology and expertise. There are two types of FDI: inward foreign

direct investment and outward foreign direct investment, resulting in a net FDI

inflow (positive or negative) and "stock of foreign direct investment", which is the

cumulative number for a given period. Direct investment excludes investment

through purchase of shares.

Foreign direct investment is that investment, which is made to serve the business

interests of the investor in a company, which is in a different nation distinct from

the investor's country of origin.

Classification of Foreign Direct Investment

Foreign direct investment may be classified as Inward or Outward.

Foreign direct investment, which is inward, is a typical form of what is termed as

'inward investment'. Here, investment of foreign capital occurs in local resources.


3/13

The factors propelling the growth of Inward FDI comprises tax breaks, relaxation

of existent regulations, loans on low rates of interest and specific grants. The idea

behind this is that, the long run gains from such a funding far outweighs the

disadvantage of the income loss incurred in the short run. Flow of Inward FDI may

face restrictions from factors like restraint on ownership and disparity in the

performance

Foreign direct investment, which is outward, is also referred to as direct

investment abroad. In this case it is the local capital, which is being invested in

some foreign resource. Outward FDI may also find use in the import and export

dealings with a foreign country. Outward FDI flourishes under government backed

insurance at risk coverage.

Advantages of FDI:

Foreign Direct Investment plays a pivotal role in the development of India's

economy. It is an integral part of the global economic system. Advantages of FDI

can be enjoyed to full extent through various national policies and international

investment architecture. Both the factors contribute enormously to the maximum

FDI inflows in India, which stimulates the economic development of the country.

Foreign Direct Investment in India is allowed through four basic routes namely,

financial collaborations, technical collaborations and joint ventures, capital

markets via Euro issues, and private placements or preferential allotments.

FDI inflow helps the developing countries to develop a transparent, broad, and

effective policy environment for investment issues as well as, builds human and

institutional capacities to execute the same.


4/13

Benefits of Foreign Direct Investment-

Attracting foreign direct investment has become an integral part of the economic

development strategies for India. FDI ensures a huge amount of domestic capital,

production level, and employment opportunities in the developing countries, which

is a major step towards the economic growth of the country. FDI has been a

booming factor that has bolstered the economic life of India, but on the other hand

it is also being blamed for ousting domestic inflows. FDI is also claimed to have

lowered few regulatory standards in terms of investment patterns. The effects of

FDI are by and large transformative. The incorporation of a range of well-

composed and relevant policies will boost up the profit ratio from Foreign Direct

Investment higher. Some of the biggest advantages of FDI enjoyed by India have

been listed as

Economic growth-

This is one of the major sectors, which is enormously benefited from foreign direct

investment. A remarkable inflow of FDI in various industrial units in India has

boosted the economic life of count

Trade-

Foreign Direct Investments have opened a wide spectrum of opportunities in the

trading of goods and services in India both in terms of import and export

production. Products of superior quality are manufactured by various industries in

India due to greater amount of FDI inflows in the country.


5/13

Employment and skill levels-

FDI has also ensured a number of employment opportunities by aiding the setting

up of industrial units in various corners of India.

Technology diffusion and knowledge transfer-

FDI apparently helps in the outsourcing of knowledge from India especially in the

Information Technology sector. It helps in developing the know-how process in

India in terms of enhancing the technological advancement in India.

Linkages and spillover to domestic firms-

Various foreign firms are now occupying a position in the Indian market through

Joint Ventures and collaboration concerns. The maximum amount of the profits

gained by the foreign firms through these joint ventures is spent on the Indian

market.

Documents Required for Foreign Direct Investments-y Application Form

y Detailed information on the foreign investor or collaborators stating their

parent enterprises and affiliated firms

y Copies of the memorandum of collaborations made by the foreign investors

y

Detailed information on the Joint Venture firms or technical collaborators

along with information on their parent enterprise, promoters, and affiliated

firms

y Companies aiming at establishing multi sectoral activities must present their

details on the already existent activities with four digit NIC code


6/13

y In case of any investments being carried out in a holding company,

information about downstream investments are to be presented

y Copies of the earlier approved proposals by FIPB or SIA or RBI connected

with the current one

y The board resolution of the investor company and the approval of transferred

shareholder while transferring the existent equity

y Before and after investments, the detailed information on shareholders of the

investor concern

y In case of indirect foreign investments, the details of the indirect route and

the names of the foreign companies along with their shareholders

y Justification for higher payments in terms of payments for technology or

trademark or brand name which require FIPB approval under automatic

route

y Declaration from the investors stating their details

y Detailed information on the existing ventures or enterprises

y Remarks from Indian partners in case of the collaborations or the Joint

ventures

FDI Approval in India:

FDI Approvals in India are carried out by agencies like the Reserve Bank of India

and the Foreign Investment Promotion Board. FDI Approval in India is done

quickly by the concerned agencies in order to bring in huge amounts of foreign

direct investment into the country.


7/13

FDI Restrictions in Indian Sectors:

FDI Restrictions in Indian Sectors have been imposed in a number of sectorssuch as, atomic energy, chit fund business and lottery business. FDI Restrictions

in Indian Sectors have been imposed by the government of India in order to

protect the interests of the nation.

Foreign direct investment in India:

The several policy initiatives taken by the government of India in the 1990s

helped to transform the country from a restrictive regime with regard to foreign

direct investment to a liberal one.

As in 2007, foreign direct investment in India is encouraged in almost all the

sectors of the country's economy under the automatic route. At the same time

there are a few Indian sectors in which foreign direct investment has been

restricted by the government. Forms through which foreign direct investment in

India are allowed include, Euro issues, preferential allotments, technical

collaborations, and financial collaborations.

Various Indian sectors having FDI restrictions:

FDI Restrictions in Indian Sectors have been imposed on a few sectors by the

Indian government. FDI Restrictions in Indian Sectors have been imposed in order

to protect the interests of the country, as these sectors either relate to national

security or sensitive enough to keep apart the foreign companies. Foreign direct

investment restrictions in Indian sectors have also been imposed in order to allow


8/13

the domestic companies to make more profits with less competition, than that of in

the presence of rivalry international firms. The various Indian Sectors having

restrictions of foreign direct investment are:

y Atomic energy

y Nidhi company

y Betting and gambling

y Chit fund business

y Plantation or agricultural activities

y Real estate business

y Business in Transferable Development Rights

y Lottery business

y Retail trading

y Railway transport

y Mining of chrome, zinc, gold, diamonds, copper, iron, gypsum, manganese,

and sulfur

y

Ammunition and arms

Top Investing Countries FDI Inflows in India

Countries sending FDI to India are:

y Mauritius

y U.K

y U.S.A

y Sweden

y France

y Switzerland


9/13

y Malaysia

y Singapore

y Japan

y

Germany

y Netherlands


10/13

FDIin Maharashtra:

Foreign Direct Investment on Maharashtra covers Mumbai, Dadra and Nagar

Haveli, and Daman & Diu.The total FDI Inflows inM

aharashtra economy fromJanuary 2000 to October 2006 was estimated to be around Rs. 25,685.45 crores

which is approximately USD 5,650.1 million

Sectors in India attracting FDI from foreign countries are:

y Telecommunications that includes services of cellular mobile, radio paging,

and basic telephone

y Chemicals

y Metallurgical industries

y Food processing industries

y Transportation industry

y Pharmaceuticals and drugs

y Fuels

y

Electrical equipments that includes electronics and computer software

y Services sector that includes non- financial and financial

y Gypsum and cement products


11/13

STATE WISE FDI:

Major constraints of FDI: Image and Attitude:

There is a perception among investors that foreign businesses are still treated with

suspicion and distrust in India.

Domestic Policy:

While the FDI policy is quite straightforward and getting increasingly liberalized

for most sector, once an investor establishes his presence, national treatment


12/13

means that this investor is subject to domestic regulations, which are perceived as

being excessive.

Procedures.

Although approval for investment is given quite readily, actual setting up requires

a long series of further approvals from central, state and local authorities. This

introduces substantial implementation lags.

Quality of infrastructure.

Foreign investors are concerned about a number of problems with the

infrastructure sector in particular, electricity and transport. Irregular and

undependable supply complicates problems for foreign investors.

State_government_level_obstacles.

This issue is tied up with one of the most pressing agenda items for reform.

Delays in legal process.

Despite a highly structured legal system, dispute settlement and contract

enforcement are time consuming activities in India. Such apprehensions prevent

the rapid flow of foreign investment


13/13

LATEST NEWS IN FDI:

India, China and Brazil are the top three target countries for foreign direct

investment until the end of 2012 with the United States.

The Government today indicated that a new policy on foreign direct

investment in the politically sensitive multi-brand retail sector will come

soon. At present, India does not allow FDI in the lucrative retail sector,

which employs 33 million people and is dominated by mom & pop stores

(kirana shops)

Conclusion

FDI policy is to be seen as part of a general policy of enhancing investment

in this economy under conditions of sustained production efficiency.

This latter variety of FDI needs a certain type of domestic policy support in

order to flourish.

Foreign Direct Investment it is important to keep in mind that we are talking

of investment. Hence, unless FDI has a net contribution of its own there is

no reason why it should be distinguished from the general level of

investment in the economy. In many ways Indias principal problem remains

that of boosting its rate of saving and investment from the current about 23%

ofGDP to over 30% ofGDP in order to make growth prospects.