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.