REPORT ON FDI FOR BRICs, GERMANY by RAVI JAIN, GITAM School of International Business INTRODUCTION In the today’s capitalist world, individuals’ growth is measured in materialistic terms and similarly a Country’s growth and development is measured in terms of economic parameters viz. GDP, Foreign Exchange Reserves, BoPs, and FDIs etc. Social indicators like HDI, Soft infrastructure have been pushed to the back seat. FDI stands for Foreign Direct Investment, a component of a country's national financial accounts. Foreign direct investment is investment of foreign assets into domestic structures, equipment, and organizations. FDI inflow is a skewed indicator of a nation’s attractiveness to foreign investors. Many developing countries, including the least developed countries, have attracted only small amounts of foreign direct investment (FDI) despite their efforts at economic liberalization in an increasingly globalizing world. It is generally well known that the modest levels of, and disparity in, the distribution of FDI inflows, are due to factors such as a deficient regulatory framework, a poor business environment and opportunities, weak FDI policies and incentives, poor institutional frameworks, limited market access, unfavorable comparative costs and lack of political stability. However, what is less known is that the scarcity, unreliability and inconsistency of data collection and reporting systems in many developing countries cause severe problems in formulating policies and strategies relating to FDI, which in turn affects their attractiveness as host countries. In this report we attempt to consolidate and analyze FDI patterns for the last decade in India, China, Thailand, South Africa and Brazil. The analysis explains Flow and stock of FDI, FDI trends, Categorization of FDI, Source wise, Regulatory frameworks and the impact of financial crisis on the FDI flows.
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REPORT ON FDI FOR BRICs, GERMANY by RAVI JAIN, GITAM School of International Business
INTRODUCTION
In the today’s capitalist world, individuals’ growth is measured in materialistic terms and
similarly a Country’s growth and development is measured in terms of economic parameters
viz. GDP, Foreign Exchange Reserves, BoPs, and FDIs etc. Social indicators like HDI, Soft
infrastructure have been pushed to the back seat.
FDI stands for Foreign Direct Investment, a component of a country's national financial
accounts. Foreign direct investment is investment of foreign assets into domestic structures,
equipment, and organizations. FDI inflow is a skewed indicator of a nation’s attractiveness to
foreign investors.
Many developing countries, including the least developed countries, have attracted only small
amounts of foreign direct investment (FDI) despite their efforts at economic liberalization in an
increasingly globalizing world. It is generally well known that the modest levels of, and disparity
in, the distribution of FDI inflows, are due to factors such as a deficient regulatory framework, a
poor business environment and opportunities, weak FDI policies and incentives, poor
institutional frameworks, limited market access, unfavorable comparative costs and lack of
political stability. However, what is less known is that the scarcity, unreliability and
inconsistency of data collection and reporting systems in many developing countries cause
severe problems in formulating policies and strategies relating to FDI, which in turn affects their
attractiveness as host countries.
In this report we attempt to consolidate and analyze FDI patterns for the last decade in India,
China, Thailand, South Africa and Brazil. The analysis explains Flow and stock of FDI, FDI trends,
Categorization of FDI, Source wise, Regulatory frameworks and the impact of financial crisis on
the FDI flows.
2
INDIA
INDIA ranks second in the world in terms of financial attractiveness, people and skills
availability and business environment. This is revealed in AT Kearney's 2007 Global Services
Location Index. Country's financial stability in the current environment of financial turbulence
and a possible unwinding of macro imbalances sends clear message to the prospective foreign
investors about India's position as an expanding investment destination.
“The strong macroeconomic fundamentals, growing size of the economy and improving
investment climate has attracted global corporation to invest in India. A major outcome of the
economic reforms process aimed at opening up the economy and embracing globalization has
led to tremendous increase in Foreign Direct Investment inflows into India", says country's
powerful industry lobby CII.
YEAR-WISE INFLOW AND STOCK
0
20000
40000
60000
80000
100000
120000
140000
160000
180000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
FLOW (m USD)
STOCK (m USD)
3
YEAR-WISE OUTFLOW AND STOCK
The total FDI inflow into INDIA since liberalization in 1991 has been USD 132.43 billion. Of this,
around USD 115 billion has come during the last decade. CAGR of FDI over the last decade is
24.44%. Equally important is the growth of FDI during the last 4 years. FDI inflow almost tripled
in a single year from US$ 5.5 billion in 2005-06 to US$ 15.7 billion in 2006-07. The FDI outflow
has seen a similar trend over the last decade. Serious M&As by the India Inc., has seen a steady
increase in the FDI outflow.
The above data gives a consolation and a rosy picture of India’s future. It shows the increasing
power of India in the global stage and its attractiveness to foreign investors.
0
10000
20000
30000
40000
50000
60000
70000
80000
90000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
FLOW (m USD)
STOCK (m USD)
4
SECTOR-WISE INFLOWS
ON % BASIS
0
5000
10000
15000
20000
25000
SECTOR-WISE FLOW (m USD)
2006-07
2007-08
2008-09
2009-10
Cumulative '00-'10
0
5
10
15
20
25
% BASIS
5
SOURCE COUNTRY WISE
ON % BASIS
0
5000
10000
15000
20000
25000
30000
35000
40000
45000
500002006-07
2007-08
2008-09
2009-10
Cumulative '00-'10
0
5
10
15
20
25
30
35
40
45
50
% BASIS
6
FDI POLICY IN INDIA
Foreign Direct Investment (FDI) is permitted as under the following forms of investments.
Through financial collaborations.
Through joint ventures and technical collaborations.
Through capital markets via Euro issues.
Through private placements or preferential allotments.
FDI Policy under Automatic Route
Sectors working under automatic route do not require any prior approval of the Central
Government of RBI to attract Foreign Direct Investment. The foreign investors are only required
to inform the Regional Office concerned of RBI within thirty days receiving of inward payments
and submit the required documents in that office again within thirty days of the issuing of the
shares of foreign institutional investors.
FDI Policy under Government Approval
The proposals which involve foreign investment or foreign technical collaboration is granted
permission by the Foreign Investment Promotion Board (FIPB). All the proposals for FDI are to
be submitted to the FIPB Unit and those of Non-Resident Indian (NRI) investments and 100%
Export Oriented Units (EOUs) should be submitted to SIA in Department of Industrial Policy and
Promotion.
Industrial Units in India Deprived from FDI as per FDI Policy