The great INDIAN

FDI conundrum

THE BEGINNING

THE HISTORY OF FDI CAN BE TRACED BACK TO

FAST FORWARD

YEAR-1991

ECONOMIC CRISIS IN INDIA

THE GOVERNMENT INTRODUCES REFORMS

LIBERALISATION

PRIVATISATION

GLOBALISATION

AIMED AT liberalizing & GLOBALISING THE ECONOMY

AS A RESULT OF THESE REFORMS INDIA OPENED IT’S DOORS TO

FOREIGN DIRECT INVESTMENT

वि�दे�शी� प्रत्यक्ष वि���शी

Foreign investment was introduced in 1991 under Foreign Exchange Management Act (FEMA), driven by then finance minister Manmohan Singh.

WHAT IS

FDI ?

Foreign direct investment (FDI) is a direct investment into production or business in a country by an individual or company in another country, either by buying a company in the target country or by expanding operations of an existing business in that country.

“

in regard to the GDP equation

Y=C+I+G+(X-M)Where Y = income C = household(or private) consumption demand I = investment plus foreign investment G = government demand for goods & services X = exports M= imports

WHY INVEST IN INDIA ?• India is the 7th largest and 2nd most populous country in the world• 4th largest economy in the world in terms of PPP(Purchasing power

parity)• Skilled managerial and technical manpower that matches the best

available in the world.• transparent environment that guarantees the security of their long

term investments.• Availability of highly competitive private sector that provides

considerable scope for foreign direct investment, joint ventures and collaborations.

India has been ranked at the second place in global foreign direct investments in 2010 and will continue to remain among the top five attractive destinations for international investors during 2010-12 period, according to United Nations Conference on Trade and Development (UNCTAD) in a report on world investment prospects titled, 'World Investment Prospects Survey 2009-2012'

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 is not permitted in the following industrial sectors:

arms and ammunition

Atomic Energy

Coal and lignite

Mining of iron, manganese, chrome, gypsum, sulphur, gold, diamonds, copper, zinc.

ENTRY ROUTES FOR FDI

• Investments can be made by non-residents in the equity shares/fully, compulsorily and Mandatorily convertible debentures/ fully, compulsorily and mandatorily convertible preference shares of an Indian company, through two routes:

• (i) The Automatic Route: under the Automatic Route, the non-resident investor or the Indian company does not require any approval from the RBI or Government of India for the investment.

• (ii)The Government Route: under the Government Route, prior approval of the Government of India through Foreign Investment Promotion Board (FIPB) is required. Proposals for foreign investment under Government route as laid down in the FDI policy from time to time, are considered by the Foreign Investment Promotion Board (FIPB) in Department of Economic Affairs (DEA), Ministry of Finance

STATUS OF FDI IN INDIA

STATUS OF FDI IN INDIA

FACTS

We get 38% of FDI from Mauritius root due to tax relaxation treaty with this. Shungalu committee analysed the issue and gives a solution as GAAR which is yet to implement.

Apart from Mauritius leading sources of FDI for India are Singapore, United Kingdom and Japan.

Highest FDI was recorded in the services, telecommunication, construction activities and computer hardware and software and hospitality sectors.

According to UNCTAD’s world investment report India is the second lucrative place for FDI after china.

Advantages of FDI

Sufficient flow of capital towards development in various sectors as well as revenue generation.

Improvement in technology and skill which reduce the cost and increase the efficiency of working process.

Increase in job opportunities in many sectors,resulted as uplifting in their life style and acceptability.

Infrastructure and administrative reforms which create effectiveness and accountability of nation.

Social and economic growth due to awareness from various sources like schools, colleges, constitutional body and information technology etc. which is possible due to FDI.

The healthy competition will increase, so at the end customer will be in profit

DISADVANTAGES

OFFDI

Domestic industries are seeking due to overflow of cheap products and monopoly which makes them uncomfortable to survive.

Political pressure always tries to control the flow of FDI to get advantages which create the obstacle in development.

Inflation is on high due to lower value of money, we have to pay high due to lack of money in the market because it is shifting to FDI companies.

Unethical behaviours like

corruption, redtapism and selfishness is

increasing day by day because

of money matter for

example Wal-Mart issue.

Foreign direct investment incentives may take the following forms• low corporate tax and individual income tax rates• tax holidays• special economic zones• EPZ – Export Processing Zones• Bonded Warehouses• free land or land subsidies• relocation & expatriation• infrastructure subsidies• R&D support

What will happen if WALMART comes to INDIA ?

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 a turnover of over Rs. 80,330 mn with only 10,195 employees. Extrapolating this with the average trend in India, it would mean displacing about 4,32,000 persons

Anna Hazare makes a controversial statement saying

“Liberalizing trade will repeat history of British Rule in India. We cannot allow East India Company happen again”. Big companies in USA in organized retail sector are controversial for penetrating pricing or for misbehavior with employees. If you invite FDIs in Retail, you are going to kill small retailers.

CONCLUSION

As far as organized sector is concerned there should be regulatory framework. On the one hand because of penetrating pricing and because of 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 closing door of your home world outside will not stop from upgradation. Accepting changes and challenges is the truth of life.

Our foreign dependency will be increased so it will affect our overall development in technology, agriculture, production etc.

Backing efficiency of the system at a cost of potentially social disruptive policy is the main concern. As a countrymen I hope for the best but at last its all about natures law:“Survival of the Fittest!”

ANYWAY,THAT’S PRETTY MUCHALL WE HAVE TO SAYABOUT FDI.

* For now

THANK YOU !!

•PRESENTATION DESIGNED & DEVELOPED BY --- PARAS CHOWHAN

• PRESENTED BY ------ CHETAN• ------ SIDDARTH• ------- UNNATI• ------- KASHIF• ------- PARAS