BYSUPARNA PANI

MA ECONOMICS 2 N D YEAR

ROLE OF FDI &FII

FDI AND DEVELOPMENT

Injection into circular flowFills the saving gapPositive balance of paymentMNCs and infrastructure developmentImproved productivity domesticallyTechnological transferTax revenue collection

TYPES OF FDI

FDO PROCEDURE IN INDIA

FDI 2015

FDI 2016

2016

ADVANTAGES DISADVANTAGES

Increased saving Increased employment Increased education and training Increased R &D ,technology Multiplier effect of increased

incomes Increased tax revenue Increased foreign capital Improved infrastructure Increased choice in market place Lower prices in market place Increased free trade

MNCs bring own management teams Too much power to MNCs Practice of transfer pricing Increase pollution due to low regulation MNC extract natural resources from

host country MNC use capital intensive production

method MNCs purchase domestic firms MNCs often repatriate profits Tax revenue may be lower than

expected Employment may be short term or less

than expected MNCs may ship resources and leave

ADVANTAGE AND DISADVANTAGE OF FDI

FOREIGN INSTITUTIONAL INVESTMENT

HOW FII STARTED FII refers to outside companies investing in the

financial markets of India India opened its stock market to foreign investors

in September 1992 Since 1993,received portfolio investment from

foreigners in form of FII in equities This has become one of the main channels of FII

in India for foreigners In order to trade in Indian equity market foreign

corporation need to register with SEBI as FII

WHO CAN BE REGISTERED AS AN FII?

One who can propose to invest their proprietary funds or on behalf of “broad based” fund or for foreign corporate and individuals and belong to any of the under given categories can be registered for FII

Pension fund Mutual fund Investment trust Insurance or reinsurance companies Endowment fund University fund Foundation or charitable trusts Asset management companies Nominee companies Institutional portfolio managers Trustees Power of attorney holder Bank

WHERE FII CAN INVEST?

Current financial instruments are available for FII investments

Securities in primary and secondary markets including shares, debentures and warrants of companies, unlisted, listed or to be listed on a recognized stock exchange in India

Units of mutual fundsDated government securitiesDerivatives traded on a recognized stock

exchangeCommercial paper

Taxation

NATURE OF INCOME TAX RATEShort term capital gains-30%Long term capital gain-10%Corporate dividend declared after June,1997-

nil Interest income-20%

Why there is a need of FII?

FII flows supplements and augmented domestic savings and domestic investment without increasing the foreign debt of our country

FII AND STOCK MARKET-Capital inflow to the equity market increase stock prices, lower the cost of equity capital and encourage the investment by Indian firms

FII leads to appreciate of the currency FII AND EXPORT-if our Indian currency appreciate just because

of FII there is adverse effect on our export. Our export industry will become uncompetitive due to appreciation of rupee

FII AND INFLATION-the huge amount of FII fund flow creates the huge demand for Indian rupees. In that situation RBI print more money in market. This situation could lead to excess liquidity thereby leading to inflation

ADVANTAGES DISADVANTAGES

Increases forex reserves

Increases domestic savings

Increases domestic investments

Availability of capital reserves

Problem of inflationFalse representation of

economyProblem for small investorsHot money FII investment is

frequently referred to as hot money for the reason that it can leave the country at the same speed at which it comes in

ADVANTGES AND DISADVANTAGES OF FII

CONCLUSION

FDI has played an important role in development of indian economy. It has helped achieved a certain level of financial stability and production growth. It being a long term investment has also improved the balance of payment and employment generation

FII do have significant impact on the Indian stock market but there are other factors like government policies, budgets, bullion market, inflation , economical and political condition etc do also have an impact on the Indian stock market. Also FII is not only the factor affecting the stock market indices. There are other major factors that influence the stock market. Now a days FII are the major contributors to stock market. The pros of allowing FII to invest in Indian markets far outweigh the cons.

THANK YOU