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For Knowledge Level I :

What is the full form of FDI :

The full form of FDI is Foreign Direct Investment.

What is the meaning of FDI ?

The Foreign Direct Investment means cross border investment made by a resident in

one economy in an enterprise in another economy, with the objective of establishing a

lasting interest in the investee economy.

FDI is also described as investment into the business of a country by a company in

another country. ostly the investment is into production by either buying a

company in the target country or by e!panding operations of an e!isting business in that

country. "uch investments can ta#e place for many reasons, including to ta#e

advantage of cheaper wages, special investment privileges $e.g. ta! e!emptions% offered

by the country.

Why Countries Seek FDI ?

$a% Domestic capital is inade&uate for purpose of economic growth'

$b% Foreign capital is usually essential, at least as a temporary measure, during the period

when the capital mar#et is in the process of development'$c% Foreign capital usually brings it with other scarce productive factors li#e technical #now

how, business e!pertise and #nowledge

What are the major enefits of FDI :

$a% Improves fore! position of the country'$b% (mployment generation and increase in production '

$c% )elp in capital formation by bringing fresh capital'

$d% )elps in transfer of new technologies, management s#ills, intellectual property

$e% Increases competition within the local mar#et and this brings higher efficiencies$f% )elps in increasing e!ports'

$g% Increases ta! revenues

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Why FDI is !""osed y Lo#al $eo"le or Disadvantages of FDI :

$a% Domestic companies fear that they may lose their ownership to overseas company

$b% "mall enterprises fear that they may not be able to compete with world class largecompanies and may ultimately be edged out of business'

$c% *arge giants of the world try to monopolise and ta#e over the highly profitable sectors'

$d% "uch foreign companies invest more in machinery and intellectual property than inwages of the local people'

$e% +overnment has less control over the functioning of such companies as they usually

wor# as wholly owned subsidiary of an overseas company'

%rief Latest Develo"ments on FDI &all se#tors in#luding retail':(

)*+) , !#toer: In the second round of economic reforms, the government cleared amendments to

raise the FDI cap

$a% in the insurance sector from - to /0'

$b% in the pension sector it approved a - percent FDI'

1ow, Indian 2arliament will have to give its approval for the final shape,3

)*+) ( Se"temer4 The government approved the

$a% 5llowed 67 foreign investment in multi8brand retail,

$b% 9ela!ed FDI norms for civil aviation and broadcasting sectors. : FDI cap in ;roadcasting was raised

to

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i/ 0utomati# 1oute

FDI is allowed under the automatic route without prior approval either of the

+overnment or the 9eserve ;an# of India in all activitiesCsectors as specified in theconsolidated FDI 2olicy, issued by the +overnment of India from time to time.

ii/ 2overnment 1oute

FDI in activities not covered under the automatic route re&uires prior approval of the+overnment which are considered by the Foreign Investment 2romotion ;oard $FI2;%,

Department of (conomic 5ffairs, inistry of Finance.

What is S#o"e of FDI in India? Why World is looking towards India for Foreign Dire#t

Investments :

India is the rd largest economy of the world in terms of purchasing power parity and thus loo#s

attractive to the world for FDI. (ven +overnment of India, has been trying hard to do away with the

FDI caps for majority of the sectors, but there are still critical areas li#e retailing and insurance where

there is lot of opposition from local Indians C Indian companies.

"ome of the major economic sectors where India can attract investment are as follows48

Telecommunications

5pparels

Information Technology

2harma

5uto parts

?ewelry

>hemicals

In last few years, certainly foreign investments have shown upward trends but the strict FDI policies

have put hurdles in the growth in this sector. India is however set to become one of the major

recipients of FDI in the 5sia82acific region because of the economic reforms for increasing foreign

investment and the deregulation of this important sector. India has technical e!pertise and s#illed

managers and a growing middle class mar#et of more than == million and this represents an

attractive mar#et.

%a#kground and 1e#ent Develo"ments for FDI in 1etail Se#tor whi#h has raised lot of

#ontroversies in "oliti#al #ir#les :

5s part of the economic liberaliEation process set in place by the Industrial 2olicy of

7007, the Indian government has opened the retail sector to FDI slowly through a series

of steps4

7006 4 Aorld Trade Brganisations $ATB% +eneral 5greement on Trade in "ervices,

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which includes both wholesale and retailing services, came into effect

700< 4 FDI in cash and carry $wholesale% with 7== rights allowed under the

government approval route'

==- 4 FDI in cash and carry $wholesale% was brought under automatic approval route'

Gpto 67 investment in single brand retail outlet permitted, subject to 2ress 1ote

$==- series%

=77 4 7== FDI in "ingle ;rand 9etail allowed

=7 4 Bn "ept. 7, +overnment approved the allowance of 67 percent foreigninvestment in multi8brand retail, H It also rela!ed FDI norms for civil aviation and

broadcasting sectors

Name the sectors where FDI is NOT allowed in India, both under

the Automatic Route as well as under the Government Route?

FDI is prohibited under the Government Route as well as the Automatic Route in

the following sectors:

i) Atomic Energy

ii) ottery !usiness

iii) Gambling and !etting

iv) !usiness of "hit Fund

v) #idhi "ompany

vi) Agricultural $e%cluding Floriculture& 'orticulture& Development of seeds&

Animal 'usbandry& (isciculture and cultivation of vegetables& mushrooms& etc

under controlled conditions and services related to agro and allied sectors) and

(lantations activities $other than *ea (lantations)vii) 'ousing and Real Estate business $e%cept development of townships&

construction of residential+commercial premises& roads or bridges to the e%tent

specified in notification

viii) *rading in *ransferable Development Rights $*DRs)

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i%) ,anufacture of cigars & cheroots& cigarillos and cigarettes & of tobacco or of

tobacco substitutes

For Knowledge Level III :

3ame the authorities Dealing With Foreign Investment:

$a% Foreign Investment 2romotion ;oard $popularly #nown as FI2;% 4 The ;oard is

responsible for e!peditious clearance of FDI proposals and review of the implementation

of cleared proposals. It also underta#e investment promotion activities and issue and

review general and sectoral policy guidelines'

$b% "ecretariat for Industrial 5ssistance $"I5% 4 It acts as a gateway to industrial investment

in India and assists the entrepreneurs and investors in setting up projects. "I5 also

liaison with other government bodies to ensure necessary clearances'

$c% Foreign Investment Implementation 5uthority $FII5% 4 The authority wor#s for &uic#

implementation of FDI approvals and resolution of operational difficultieis faced by

foreign investors'

$d% Investment >ommission

$e% 2roject 5pproval ;oard

$f% 9eserve ;an# of India

What are the instruments for re#eiving Foreign Dire#t Investment in an Indian

#om"any?

Foreign investment is rec#oned as FDI only if the investment is made in e&uity shares ,fully and mandatorily convertible preference shares and fully and mandatorily

convertible debentures with the pricing being decided upfront as a figure or based on theformula that is decided upfront. 5ny foreign investment into an instrument issued by an

Indian company which4 gives an option to the investor to convert or not to convert it into

e&uity or does not involve upfront pricing of the instruments a date would be rec#oned as(>; and would have to comply with the (>; guidelines.

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The FDI policy provides that the priceC conversion formula of convertible capital

instruments should be determined upfront at the time of issue of the instruments. The

price at the time of conversion should not in any case be lower than the fair value wor#ed

out, at the time of issuance of such instruments, in accordance with the e!tant F(5regulations Hthe D>F method of valuation for the unlisted companies and valuation in

terms of "(;I $I>D9% 9egulations, for the listed companies.

What are the 4otal Inflows of FDI in India :

a For the F- ./0.102 $for the month of 3uly& ./0.) was 456 078

billion

b Amount of FDI e9uity inflows for the financial year ./0.102 $from

April ./0. to 3uly ./0.) stood at 456 ;/ billion

c. Cumulative amount o FDI !rom A"ril #$$$ to %ul&

#$'#( into India stood at )*+ '-.- billion

.

Whi#h #ountry to"s in inflow of FDI Sin#e )***()*+*? 4o" 5 Countries for FDI :

Country Iinflow in 6 age terms Inflows in asolute 4erms &million 7S dollars'

8auritius 9)6 5*+9

Singa"ore ; ++) whi#h works well for the international investors/

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What are the Limits for FDI in different Se#tors :

JJ 1ote C >aution 4 The below is only broad categoriEation and may need fine tuningand updations, For e!ample in >ivil 5viation and ;roadcasting there are subcategorieswith different ag of FDI allowed. These needs to be chec#ed for further and updated

#nowledge.

$a%1ews 5bout >ivil 5viation and ;roadcasting can be read from this lin#.

$b% "econd *in# for the details can be chec#ed by clic#ing here

$5% - FDI is permitted in

Defence $In ?uly =7, there has been no change in FDI limit but

higher investment may be considered in state of the art technology

production by >>"%

1ewspaper and media JJ

2ension sector $allowed in Bctober =7 as per cabinet decision%

>ourier "ervices $through automatic route%

Tea 2lantation $upto /0 through automatic route' /087==

through FI2; route%

$;%/0 FDI is permitted in 4

;an#ing

>able networ#JJDT) JJ

Infrastructure investment

Telecom

Insurance $in ?uly =7 it was raised to /0 from - subject to2arliament approval%

2etroleum 9efining $/0 allowed under automatic route%

2ower (!changes $/0 allowed under automatic route%

http://news.outlookindia.com/items.aspx?artid=775211http://news.outlookindia.com/items.aspx?artid=775211http://news.outlookindia.com/items.aspx?artid=775211http://news.outlookindia.com/items.aspx?artid=775211

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"toc# (!changes, Depositories allowed under automatic route upto /0

/0 $FDI K FII% in power e!changes registered under the >entral

(lectricity 9egulatory >ommission $2ower ar#et% 9egulations =7=subject to an FDI limit of - per cent and an FII limit of per cent of the

paid8up capital is now permissible. H2ermitted in "eptember =7

&C ' 5+6 is $ermitted in

ulti8;rand 9etail $"ince "eptember =7%

2etro8pipelines

&D' oal and *ignite mines

>redit information comanies $raised from /0 to

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etro train

ines $gold, silver%

2etroleum e!ploration

2harmaceuticals2ollution control

2ostal service

9oads, highways, ports.

Township

Aholesale trading

Telecom $raised from