Foreign Investment by Group A5

7/31/2019 Foreign Investment by Group A5

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Foreign Investment In India


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Agenda

Structure of Foreign Investments

Foreign Direct Investments

Foreign Institutional Investments


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Foreign Investment Structure

Foreign Investments in India

ForeignDirect

Investments

ForeignPortfolio

Investments

ForeignVentureCapital

Investments

OtherInvestments

(G-Sec,NCDs etc)

Investmentson non

repatriablebasis

Automatic

Route

Govt.

Route

Person residentoutside India

FIISNRIs,PIO

FIISNRIs,PIO

NRIs,PIO

SEBI

RegisteredFVCIs

VCF ,

IVCUs


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Entry Process for FDIs in India

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Automatic Route

Investing in India

General ruleInform RBI within 30 days ofinflow/issue of shares

Pricing: FEMA RegulationsUnlisted CCIListed SEBI

Cap of Rs. 600 Crore

Prior Permission/

Government Route

By exception (projects falling outside theautomatic route)

Approval of Foreign InvestmentPromotion Board and Cabinet Committee

of Foreign Investment (project cost >=Rs 600 cr) is needed.

Decision generally within 4-6 weeks and8-10 week for FIPB and CCFI respectively


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FDI incentives for MNC and India

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# Low penetrationmarket providesdomestic consumption

# Subsidies low

corporate tax and taxholidays

# Extension of ProductLife Cycle

# Low labor costprovides opportunity to

achieve economies ofscale

# Investment financialsubsidies

MNC # Revenue for thegovernment

# Employmentgeneration

# Results in creation ofbetter goods andservices at lower pricesfor the consumers

# Encourages localenterprises to setupsupporting industries

# Advances technologyand processes andincreases competition

# Greater foothold in theworld economy

India

(HostCountry)


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FDI in India -Time line

Pre-1991

FDI was allowed selectively up to 40% under FERA

This period was dominated by the Congress party

1991

35 high priority industry groups were placed on the Automatic Route for FDI up to 51% Minority Congress government: Initiated economic reforms in a big way

1997

Automatic Route expanded to 111 high priority industry groups up to 100%/ 74%/ 51%/50% United Front Government: Inclusive of left parties, was perceived as traditionally opposed

to FDI, but continued with the reforms

2000

All sectors placed on the Automatic Route for FDI except for a small negative list BJP coalition government:(coalition of Left and Right wing parties) was traditionally seen

as opposed to FDI, but continued with economic reforms.

Post 2000

Many new sectors opened to FDI; viz., insurance (26%), integrated townships (100%),mass rapid transit systems (100%), defense industry (26%), tea plantations (100%), printmedia (26%).


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Rapid FDI Growth in India


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I di 2011 A FDI h t t i li


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India 2011: An FDI hot spot in a coolingworld

Rank Top Five countriesNumber of Projects % Change Value (2011)

2010 2011 2011 Vs 2010 US$ Millions

1 USA 1522 1707 12% 57275

2 China 1344 1409 5% 100688

3 United Kingdom 941 1014 8% 36039

4 India 774 932 20% 58261

5 Brazil 366 507 39% 63018


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STATEMENT ON COUNTRY-WISE TOP 20 FDIINFLOWS FROM APRIL, 2000 TO FEBRUARY, 2012


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STATEMENT ON SECTOR-WISE FDI INFLOWS

FROM APRIL, 2000 TO FEBRUARY, 2012.


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Atomic Energy

Lottery Business

Gambling and Betting

Business of Chit Fund

Nidhi Company

Trading in TransferableDevelopment Rights (TDRs)

Manufacture of cigars , cigarettes, products of tobacco or of

tobacco substitutes

FDI Not allowed in sectors

Retail Trading (exceptsingle brand productretailing)

Agricultural (excludingFloriculture, Horticulture,

agro and allied sectorsetc) and Plantationsactivities (other than TeaPlantations)

Housing and Real

Estate business (exceptdevelopment oftownships, constructionof residen-tial/commercialpremises etc)


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Foreign Direct Investment(FDI)

Foreign InstitutionalInvestment (FII)

Foreign company brings capitalinto a company or economy toset up a production or someother facility.

Foreign company buys equity inany company through stockmarket.

FDI gives some Control inoperation of the foreigncompany

FII does not give any control inoperation of the foreigncompany

FDI is involved in directproduction activity and is longterm in nature

FII is short term investmentmostly in financial market

Differences between FDI and FII


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September

1992 FII inprimary andsecondarymarketsecurities andmutual funds

February 2000Foreign firms andHNIs permitted toinvest assubaccounts ofFIIs

December 2003Single approval

process by SEBI

October 2008Removal ofrestriction of a 70:30ratio of Debt andEquity

March 2011 - Limitof corporate bondsissues byInfrastructuresector increased to$25b

Historical Evolution of FII in India

The relaxation of investmentlimits for FIIs

The relaxation of the eligibilityconditionsThe liberalization of theinvestment instrumentsaccessible to FIIs


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Where FII can Invest Securities in the primary and secondary marketsincluding shares, debentures, and warrants of

companies, unlisted, listed, or to be listed on arecognized stock exchange in India

Units of schemes floated by domestic mutual

funds including the Unit Trust of India, whetherlisted or not listed on a recognized stockexchange, or units of schemes floated by aCollective Investment Scheme

Dated government securities

Derivatives traded on a recognized stockexchange

Commercial papers

Security receipts

Indian Depository Receipts


19/24Factors contributing to FII flows in India

RapidlydevelopingEconomy

Regulationand TradingEfficiencies

Attractive

Markets

Encouragingcorporate

results


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FII Investments in India


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FIIs in Different Sectors in India.Sectors Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Sep-

11

Banks 18.41 19.15 14.27 16.02 17.62 18.17

Engineering 11.45 10.63 7.34 8.28 9.36 9.30

Finance 18.18 17.44 13.01 16.53 23.35 19.20

FMCG 11.91 14.07 12.72 14.09 16.34 17.00

Information Technology 14.53 16.00 12.44 11.68 21.16 17.07

Infrastructure 7.15 8.86 7.31 8.90 7.87 7.50

Manufacturing 9.57 9.46 7.28 8.79 9.41 9.60

Media & Entertainment 15.20 11.71 11.42 7.06 10.97 11.63

Petrochemicals 5.83 4.73 4.77 6.08 6.52 6.49

Pharmaceuticals 11.17 10.69 7.88 8.78 10.19 10.13Services 13.09 10.70 8.39 8.05 7.41 9.50

Telecommunication 11.17 9.12 6.85 8.64 8.44 8.46

Miscellaneous 8.19 9.30 8.39 8.10 13.65 13.37

Total stake of FIIs in all the

Sectors

10.78 10.62 8.40 9.58 10.32 10.45


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Monitoring by RBI

FII - Purchase ofEquity Shares

Aggregate

purchase ofEquity

Shares


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Advantages and Disadvantages of FII

Increase in Forex Reserves Increase in Domestic Savings and

Investments Large Availability of CapitalAdvantages

Reduces flexibility of Policymakers

Problem of inflation Problems for small investors Hot Money which can not be

used for long term

Disadvantages


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Helping India Grow!!!

Foreign Investment by Group A5

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