Fdi and Fera

8/4/2019 Fdi and Fera

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Foreign portfolio investment

Foreign institutions such as banks,insurance companies,companiesmanaging mutual funds purchase stocks

and bonds of companies of other countriesin the secondary markets.

The investment is made for

Diversifying their risks

Higher interest on their investments


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Advantages

Provide needed finance

Bring foreign exchange Disadvantages

Volatile

Destabilising effects on financial markets And the economy


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FOREIGN DIRECT INVESTMENT(FDI)

FDI is the investment in the constructionof physical capital such as buildingfactories and infrastructure (power,

telecom, ports etc) in the capital importingcountry.

It may be done in several ways-

Cos may be specially set up in the capital-exporting country to carry out trade andindustry in host country


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Contd

Existing corp spreads out its business inanother country by establishing branches.

To form cos and register them in theborrowing country without having anyconnection in the lending country.

Joint ventures or joint participation


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Advantages of FDI

Such investment does not burden thetaxpayersince no interest is to be paid atfixed rate as in the case of foreign

borrowing.The foreign investor idscompensated by the profit he gets

Efficient utilisation of resources tomaximise profit.

Introduction of new technology,modernskills ,innovations and new ideas.


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Help to overcome suply-side bottlenecks

The foreign cos have theresources,technology and technical

knowhow to start productive ventures ininfrastructure.

FDIenters the developing countriesto build

physical assets and these assets stayeven if investor decides to sell out later todomestic buyers unlike FII.


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Conditions for favourableinvestment climate

Political stability and freedom fromexternal aggression

Security of life and property

Availability of opportunities for earningprofits

Facilities for thr remittance of profits,dividends, interest etc.

Freedom from double taxation


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CONTD

A general spirit of friendliness for foreigninvestors

Facilities for the immigration andemployment of foregn technical andadministrative staff.

Asystem of taxation that does not imposean excess burden on private foreignenterprise.


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MNC

An organisation that engages in producion orservice activities through its own affiliates inseveral countries, maintains control over the

policies of the affiliates and manages from aglobal perspective.

With a global perspective top managers allocateresources and coordinate activities to take the

best possible advantage of favourable businessconditions throughout the world.


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A MNC passes throuhgh thefollowing stages

Exports products to foreign countries

Establishes sales organisations abroad

Licenses use of patents technology toforeign firms that make and sell MNCsproducts.

Establishing foreign manufacturing

facilities but important decisions aboutsuch matters as product design andfinances are made at the home office.


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CONTD

Gives foreign producion facilitiessubstantial autonomy but still reservessome important decisions for the home

office.

Decentralises authority throughout thecompany so that functions at home and

abroad are done by executives fromdifferent countries.


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BENEFITS FROM MNCS

Benefits to home countries

Transfer of technology, capital andentrepreneurship

Improvement of host countries BOP

Creation of local jobs and career

opportunities Improved competition in the local economy

and better utilisation of resources


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CONTD

Greater availability of of products for localconsumers

Greater access to high quality mgt talentsthat tends to be scarce in developingcountries

Encouragement to world economic unityand through that political and economicintegration- all resulting in world harmony


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Benefits to home countries

Acquision of raw materials from abroadexport ofcomponents and finished goods for assembly ordistribution in forign countris

Inflow of income from overseas profits ,royalties,licensing fees and mgt contracts.

Job and career opportunities at home andabroad in connection with overseas operations.

Technology and mgt expertise acquired fromcompeting in global markets


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FERA1973

Traditionally foreign exchangetransactions have been regulated in India.

FERA aim at regulating foreign exchange.

FERA was promulgated in 1973.

It came into force 1974.


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OBJECTIVES OF FERA

To regulate certain payments

To regulate dealings in foreign exchangeand securities

To regulate transactions indirectlyaffecting foreign exchange

To regulate the import and export ofcurrency

To conserve the foreign exchangeresources of the country


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To ensure the proper utilisation of foreignexchange in the interests of the economicdevelopment of the country.

To regulate the acquisition, holding,transfer or disposal of immovable propertyby persons residents in india (other than

foreign nationals)

To regulate participation by residents inIndia in the trading , commercial and

industrial activities abroad in the form of


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To regulate the appointment of agent ortechnical or management adviser of anyperson or company in foreign companies.

To regulate the purchase of goods inIndia(with a view to reselling them beforeprocessing) by foreign companies.

To regulate foreign investment in the formof branches in India so that priorpermission of RBI is required by foreign

companies to carry on in India or establish


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Contd

In the country for carrying on any activityof a trading, commercial or industrialnature.

To regulate employment of foreignnationals.

To regulate acquision etcof immovableproperty in India by foreign nationals orforeign companies.


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RESTRICTIVE PROVISIONSOF FERA

A.Restrictions on dealing in foreignexchange

RBI is the sole authority to regulate foreignexchange transactions.

B.Restrictions on payments

Section 9 laid down certain restrictions onpayments.

C.Restriction on import and export of certaincurrency and bullion


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Section 13 of the Act provided that exceptwith yhe permission of RBI no person canbring or send into India any foreign

exchange or any Indian currency other tahforeign exchange obtained by him from anauthorised dealer or money

changer.Bullion movements preventedprior to 1993.

D. Duty of person entitled to receive

foreign exchange


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Section 16 of the Act provided that noperson who has a right to receive anyforeign exchange or to receive from a

person resident outside India a payment inrupees without RBI permission

E.Payment for exported goods Section 18

provides that the central government mayprohibit export of goods from India to anyplace


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F. Regulation of transfer of securities.

Section 19 of the Act provided that noperson except with the RBI permissiontransfer or send any security to any placeoutside India.

G.Restrictions on holding of immovable

propery outside India Section 25.

H. Restrictions on acquisition, holding etcof ommovable proprty in India.Sub section

1 of sec31


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I. Restrictions on appointment of certainpersons and companies as agents ortechnical or management advisors in

India.

Sec 28 laid down without permission ofRBI No person resident outside India (a

citizen of India or not)or a person who isnot a citizen of India but is resident of Indiaacts as such agent


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J. Restricions on establishment of place ofbusiness in India

Sec 29 prohibits to establish in India abranch, office or other place of businessfor carrying on any activity of a tradingcommercial or industrial nature.

K. Prior permission for taking upemployment etc in India by nationals offoreign states.Sec 30


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Contd

a.Provisions relating to Enforcement,penalty and prosecution.

Sections dealing with enforcement.

Sections 33 to 45.

b.Penalty, adjudication and appeal.

Sections 50 to 53.c.Offences and prosecutions.

Sections 56 and 57.

Fdi and Fera

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