Foreign Direct Investment

Foreign Direct Investment

Efforts by – Suraj Sharma

HISTORYThe history of FDI can be traced back to…

EAST INDIA COMPANY

ECONOMIC CRISIS OF 1991

1985 1991

SERIOUS ECONOMIC

CRISIS

• Government was close to default.•Central bank had refused new credit.•Foreign exchange reserve reduced barely for 3 weeks worth of import.•Airlift of national gold reserve as a pledge to IMF in exchange for a loan to cover balance of payment debts.• License permit quota policy.

The government introduced reforms…INDIA IS RUNNIG

THROUGH TOUGH TIMES

WE NEED TO DO SOMETHING TO

REVIVE ITS ECONOMIC CONDITION

#MAIN HOON NA!

LIBERALISATION

PRIVATISATION

GLOBALISATION

AS A RESULT OF THESE REFORMS INDIA OPENED ITS DOOR TO……

WHAT IS FOREIGN DIRECT INVESTMENT (FDI)?

Foreign direct investment (FDI) takes place when a corporation in one country establishes a business operation in another country, through setting up a new wholly-owned affiliate, or acquiring a local company, or forming a joint venture in the host economy.

WHY COUNTRIES SEEK FDI?

WHY COUNTRIES SEEK FDI?Increase investment level and thereby income &

employment.

Increase tax revenue of government.

Facilitates transfer of technology.

Increase exports and reduce import requirements.

Increase competition and break domestic monopolies.

Improves quality and reduces cost of inputs.

TYPES OF FDI

Horizontal

Horizontal FDI is a business

consolidation that occur between

business firm who operate in the

same space, often as competitors

offering the same good or services.

Vertical

A vertical FDI is a FDI between two

companies producing

different goods or services for

one specific finished goods .

Conglomerate

A conglomerate FDI is a FDI

between firms that are involved

in totally unrelated business activities

Joint Venture (JV)

A joint venture is a business

agreement in which the parties agree to develop for a infinite time a new entity and

new asset by contributing

equity

DISADVANTAGES ADVANTAGES

ADVANTAGES•Increase in domestic employment•Investment in infrastructure•Positive influence on the balance of payment•New technology and “know how” transfer.•Increased capital investment.•Targeted regional and sectoral development•Economic Development

DISADVANTAGES

•Industrial sector dominance in the domestic market.•Technological dependence on foreign technology sources•Disturbance of domestic economic plans in favor of FDI-Directed Activities.•“Cultural Change” created by “Ethnocentric Staffing” the infusion of foreign culture, foreign business practices.

ADVANTAGES & DISADVANTAGES

INDIA

OTHERS

COMPETITIVE ADVANTAGE OF INDIA IN FDI

COMPETITIVE ADVANTAGE OF INDIA IN FDI

• India is the 7th largest and 2nd populous country in the world.

• 4th largest economy in the world in terms of PPP (Purchasing Power Parity).

• Transparent Environment that guarantees the security of their long term investments.

• Stable democratic environment.

• Large and growing market.

• World class scientific, technical and managerial manpower.

• Cost effective and highly skilled labor.

• Abundance of natural resources.

• Well established legal system with independent judiciary.

• Developed banking system and vibrant capital market.

OBSTACLES FOR FDI IN INDIA

OBSTACLES FOR FDI IN INDIA•Courts lead to long procedural delays.•Violent separatist movements existing in Kashmir .•Corruption faced by firms in India after bureaucratic red tape and power shortages.•Shortages of energy and handling capacities at the ports, and saturated rail and road networks •Lack of a regulatory environment, clear investment policies.•Problems with land acquisition

DIFFERENT ENTRY ROUTES OF FDI

AUTOMATIC ROUTE

GOVERNMENT ROUTE

By this route FDI is allowed without prior approval by Government or Reserve Bank of India

Prior approval by government is needed via this route. Foreign Investment Promotion Board is the responsible agency to oversee this route

RBI

MAJOR GOVERNMENT BODIES CONSTITUTED

FOR FDI

1991 – FIPB

1996 - FIPC

1999 - FIIA

2004 - SIA

MAJOR BODIES CONSTITUTED FOR FDI

FOREIGN INVESTMENT PROMOTION BOARD (FIPB)

The Foreign Investment Promotion Board (FIPB), housed in the Department of Economic Affairs, Ministry of Finance, is an inter-ministerial body, responsible for processing of FDI proposals and making recommendations for Government approval.In the process of making recommendations, the FIPB provides significant inputs for FDI policy-making.

FDI

ARMS AND AMMUNITIONS

ATOMIC ENERGY

RAILWAY TRANSPORT

COAL AND LIGNITE

STATISTICS

TOP 10 INVESTORS IN INDIA

MAURIT

IUS

SINGAPORE

U.K.

JAPAN

U.S.A.

NETHERLANDS

CYPRUS

GERMANY

FRANCEUAE

0

10000

20000

30000

40000

50000

60000

70000

80000

39506

71195

3280 6988

2310313925

2589 5040 2373 2600

FDI INVESTMENT (in US$ Billion)

FDI INVESTMENT (in US$ Bil-lion)

SECTORS OF FDI

SERVICE SECTOR; 19963

REAL ESTATE; 4582

COMPUTER SOFTWARE; 13564

TELECOMMUNICATION; 17372

AUTOMOBILE INDUSTRY; 15794

DRUGS & PHARMACEU-TICALS; 9211

CHEMICAL; 4077

POWER; 3985

TRADING; 16962

METALLURGICAL INDUSTRIES; 2897

India Foreign Direct Investment

Actual Previous Highest Lowest Dates Unit Frequency

2473.00

4413.00 5670.00 60.00 2015 - 2016

USD Million

Monthly

GOVERNMENT INITIATIVE

PM Narendra Modi’s ambitious “Make in India” initiative has improved FDI inflows significantly between September 2014 and November 2015 according to RBI.

FDI will grow by 40-45% in 2016 despite the global slowdown. The government has taken vast number of policy measures this year.

MAKE IN INDIA

TOP INVESTORS

FDI INVESTMENT IN INDIA•E-commerce giant Amazon plans to set up its second largest global delivery centre outside the United States, in Hyderabad.•Global beverage company Pepsi plans to invest Rs 500 crore (US$ 72.84 million) to set up another unit in Maharashtra.•Apple will build its first technology development centre outside the US in Hyderabad with an investment of $25 million.•Japan has won the right to construct India’s first bullet train, while offering a loan of US$ 8.11 billion to India for the same.•Google plans to invest Rs 1,500 crore (US$ 220 million) for a new campus in Hyderabad which will be focused on three key areas — Google Education, Google Fibre broadband services and Street view.

THE GREAT INDIAN

FDI CONUNDRUM

INDIA HAS 35 TOWNS EACH WITH A POPULATION OVER 1 MILLION. IF WAL MART WERE TO OPEN AN AVERAGE WAL- MART STORE IN EACH OF THESE CITIES AND THEY REACHED THE AVERAGE WAL-MART PERFORMANCE PER STORE WE ARE LOOKING AT TUROVER OF OVER RS.80,330 mn WITH ONLY 10,195 EMPLOYEES EXTRAPOLATING WITH MARKET TREND IN INDIA, IT WOULD MEAN DISPLACING ABOUT 432000 PERSON

Conclusion

As far as organized sector is concerned, there should be regulatory framework.Because of penetrating pricing and the fact that it definitely creates monopolistic market and because it has potential to create loss to crores of families which will occur to unorganized sector, FDIs shall not be allowed in retail sector.

Whereas on the other hand, the concept of global village forces the theme of liberalization. By closingdoors to our home, the world outside will not stop from upgradation. Accepting changes and challenges is the truth of life.

Thus the impact of the reforms in India on the policy environment for Foreign Direct Investment presents a mixed picture. The industrial reforms have gone shady, they are supplemented by more infrastructure reforms and increase in service sector rather than any significant industrial growth  which is a critical missing link.