Pranav FDI

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FOREIGN DIRECT INVESTMENT

IN INDIA

By

Kartik Vuppuluri

C H Vijay

Somashekhar

Ram Mohan Rao

Pranav Srivastava

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CONTENTS

Introduction

Classification of FDI

Regulatory Authorities

Indias Policy Framework

Indias FDI outlook

Benefits of FDI

Problems with FDI

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INTRODUCTION

Foreign direct investment (FDI) refers to Cross-border

investment made by a resident in one economy (the direct

investor) With the objective of establishing a lasting interest in

an enterprise (the direct investment enterprise) that is Residentin a country other than that of the direct investor.

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CLASSIFICATION OF FDI

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NEED FOR FOREIGN CAPITAL

Domestic capital is inadequate for purpose of

economic growth.

During the period in which the capital market

is in the process of development, foreigncapital is essential as a temporary measure.

Foreign capital brings with it other scarce

productive factors; technical know how,

business experience and knowledge.

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AUTHORITIES DEALING WITH

FOREIGN INVESTMENT

Foreign Investment Promotion Board

(FIPB)

- Expedite clearance process.

- Periodically review implementation of

cleared proposals.

- Review general and sectoral policyguidelines.

- Undertake investment promotion

activities

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AUTHORITIES DEALING WITH

FOREIGN INVESTMENT

Secretariat for Industrial Assistance

(SIA)

- Acts as gateway to industrial investment

in India.

- Assist entrepreneurs & investors in

setting up projects.- Liaise with government bodies to seek

necessary clearance.

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AUTHORITIES DEALING WITH

FOREIGN INVESTMENT

Foreign Investment Implementation

Authority (FIIA)

- Quick implementation of FDI approvals.

- Resolution of operational difficulties

faced by foreign investors.

-Gather feedback from foreign investors

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AUTHORITIES DEALING WITH

FOREIGN INVESTMENT

Other authorities involved :

- Investment Commission.

- Project Approval Board.

- Reserve Bank of India

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APPROVAL ROUTES FOR FOREIGN

INVESTMENT

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GOVERNMENT POLICY

Foreign investment is allowed in all

areas except following sectors where

foreign investment is prohibited :

- Atomic energy

- Agriculture (except floriculture ,

horticulture , seed development etc).- Lottery business / Gambling and

betting.

- Plantations (except tea plantations)

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MOBILIZATION OF FUNDS

Different options for Indian Corporates

Investments through GDRs and ADRs.

Mobilization of funds through

preference shares.

Mobilization of funds through external

commercial borrowings.

Foreign currency exchangeable bonds

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FDI INFLOW BY COUNTRIES

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FDI EQUITY INFLOW BY

SECTORS

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PRIMARY REASONS FOR

FDI INVESTMENTS IN INDIA

Local Market Demand -86%

Low cost operations -29%

Ease of making FDI -29%

Labor Availability -29%

Entry of other players -24%

Political stability -24%

Time zone advantage -14%

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TOP FIVE DRIVERS AND CONCERNS

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BENEFITS OF FDI

Play a complementary role in overall capital

formation.

Employment generation and productivityenhancement.

Encourages the transfer of management skills,

intellectual property, and technology.

Improves Forex position of the country. Promotion of the competition within the local

input market.

Development of the human capital resources.

Increase in exports Increases tax revenues

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LIMITATIONS OF FDI

A company may lose out on its ownership to

an overseas company.

Government has less control over the

functioning of the company that is functioningas the wholly owned subsidiary of an overseas

company.

FDI entering and taking the control of already

established market, where local companies are

meeting the requirements of the market.

Invest in machinery and intellectual property,

not in wages.

Large giants can set up monopolies in highly

profitable sector

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