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CHAPTER - 1.0
1.1 INTRODUCTION
These three letters stand for foreign direct investment. The simplest explanation
of FDIA would be a direct investment by a corporation in a commercial venture in
another country. A key to separating this action from involvement in other ventures in a
foreign country is that the business enterprise operates completely outside the economy
of the corporation’s home country. The investing corporation must control ! percent or
more of the voting power of the new venture.
Foreign direct investment is that investment" which is made to serve the business
interests of the investor in a company" which is in a different nation distinct from the
investor#s country of origin. A parent business enterprise and its foreign affiliate are the
two sides of the FDI relationship. Together they comprise an $%&.
FDI stands for Foreign Direct Investment" a component of a country#s national
financial accounts. Foreign direct investment is investment of foreign assets into
domestic structures" e'uipment" and organi(ations. It does not include foreign
investment into the stock markets. Foreign direct investment is thought to be more
useful to a country than investments in the e'uity of its companies because e'uity
investments are potentially )hot money) which can leave at the first sign of trouble"
whereas FDI is durable and generally useful whether things go well or badly.
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FDI or Foreign Direct Investment is any form of investment that earns interest in
enterprises which function outside of the domestic territory of the investor . FDIs
re'uire a business relationship between a parent company and its foreign subsidiary.
Foreign direct business relationships give rise to multinational corporations. For an
investment to be regarded as an FDI" the parent firm needs to have at least !* of the
ordinary shares of its foreign affiliates. The investing firm may also 'ualify for an FDI
if it owns voting power in a business enterprise operating in a foreign country.
Foreign Direct Investment+ when a firm invests directly in production or other
facilities" over which it has effective control" in a foreign country.
1.2 - OBJECTIVES OF THE STUDY
To study the role" significance of plastic money
To know the implications of plastic money
1.3 - METHODS OF RESEARCH
The data is collected only from secondary data source. ,uch as %ewspapers" $aga(ines"
-ooks" ournals" /0data" etc.
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1.4 - SIGNIFICANCE OF THE STUDY
FDI has grown in importance in the global economy with FDI stocks now constituting
over 1! percent of global 2D3. Foreign direct investment 4FDI5 is a measure of foreign
ownership of productive assets" such as factories" mines and land. Increasing foreign
investment can be used as one measure of growing economic globali(ation. The largest
flows of foreign investment occur between the industriali(ed countries 4%orth America"
6estern /urope and apan5. -ut flows to non0industriali(ed countries are increasing
sharply.
0 Avoiding foreign government pressure for local production.0 &ircumventing trade barriers" hidden and otherwise.0 $aking the move from domestic export sales to a locally0based national sales
office.0 &apability to increase total production capacity.0 7pportunities for co0production" 8oint ventures with local partners" 8oint
marketing arrangements" licensing" etc.
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1.5 - CHAPTER SCHEME
THIS STUDY CONSISTS OF FOLLOWING CHAPTER -
CHAPTER 1 - INTRODUCTION
CHAPTER 2 - FDI IN INDIA
CHAPTER 3 - IMPORTANCE OF FDI
CHAPTER 4 - METHODS OF FDI
CHAPTER 5 - INVESTMENT RIS!S IN INDIA
CHAPTER " - FDI POLICY IN INDIA
CHAPTER # - SPECIAL FACILITIES AND RULES FOR NRI$S AND
OCB$S
CHAPTER % - FDI E&UITY INFLOW BY COUNTRIES
CHAPTER ' - FOREIGN INSTITUTIONAL INVESTMENT
CHAPTER 10 - OBJECTIVE OF THE STUDY
CHAPTER 11 - RESEARCH METHODOLOGY
CHAPTER 12 - BIBILOGRAPHY
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CHAPTER - 2.0
FOREIGN DIRECT INVESTMENT IN INDIA
The economy of India is the third largest in the world as measured by purchasing
power parity 43335" with a gross domestic product 42D35 of 9, :;.
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India is a ma8or exporter of highly0skilled workers in software and financial services"
and software engineering. India followed a socialist0inspired approach for most of its
independent history" with strict government control over private sector participation"
foreign trade" and foreign direct investment.
@owever" since the early >>!s" India has gradually opened up its markets
through economic reforms by reducing government controls on foreign trade and
investment. The privati(ation of publicly owned industries and the opening up of certain
sectors to private and foreign interests has proceeded slowly amid political debate.
India faces a burgeoning population and the challenge of reducing economic and social
ine'uality. 3overty remains a serious problem" although it has declined significantly
since independence" mainly due to green revolution and economic reforms.
FDI in India includes FDI inflows as well as FDI outflow from India. Also FDI
foreign direct investment and FII foreign institutional investors are a separate case
study while preparing a report on FDI and economic growth in India. FDI and FII in
India have registered growth in terms of both FDI flows in India and outflow from
India. The FDI statistics and data are evident of the emergence of India as both a
potential investment market and investing country. FDI has helped the Indian economy
grow" and the government continues to encourage more investments of this sort 0 but
with :B.; billion in FDI. India gets less than !* of the FDI of &hina. Foreign direct
investment 4FDI5 in India has played an important role in the development of the Indian
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economy. FDI in India has 0 in a lot of ways 0 enabled India to achieve a certain degree
of financial stability" growth and development. This money has allowed India to focus
on the areas that may have needed economic attention" and address the various
problems that continue to challenge the country. India has continually sought to attract
FDI from the world’s ma8or investors.
In >>= and >>>" the Indian national government announced a number of
reforms designed to encourage FDI and present a favorable scenario for investors. FDI
investments are permitted through financial collaborations" through private e'uity or
preferential allotments" by way of capital markets through /uro issues" and in 8oint
ventures. FDI is not permitted in the arms" nuclear" railway" coal C lignite or mining
industries. A number of pro8ects have been announced in areas such as electricity
generation" distribution and transmission" as well as the development of roads and
highways" with opportunities for foreign investors. The Indian national government also
provided permission to FDIs to provide up to !!* of the financing re'uired for the
construction of bridges and tunnels" but with a limit on foreign e'uity of I% "B!!
crores" approximately :;B1.Bm. &urrently" FDI is allowed in financial services"
including the growing credit card business.
These services include the non0banking financial services sector. Foreign
investors can buy up to !* of the e'uity in private banks" although there is condition
that stipulates that these banks must be multilateral financial organi(ations. 9p to B*
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of the shares of companies in the global mobile personal communication by satellite
services 42$3&,,5 sector can also be purchased. -y 1!!" India received :B.; billion
in FDI" big growth compared to previous years" but less than !* of the :
that flowed into &hina. 6hy does India" with a stable democracy and a smoother
approval process" lag so far behind &hina in FDI amountsE Although the &hinese
approval process is complex" it includes both national and regional approval in the same
process. Federal democracy is perversely an impediment for India.
2.1 ( TYPES OF FDI
FDIS CAN BE BROADLY CLASSIFIED INTO TWO TYPES
OUTWARD FDI - An outward0bound FDI is backed by the government against all
types of associated risks. This form of FDI is sub8ect to tax incentives as well as
disincentives of various forms. isk coverage provided to the domestic industries and
subsidies granted to the local firms stand in the way of outward FDIs" which are also
known as #direct investments abroad.
INWARD FDI - Different economic factors encourage inward FDIs. These include
interest loans" tax breaks" grants" subsidies" and the removal of restrictions and
limitations. Factors detrimental to the growth of FDIs include necessities of differential
performance and limitations related with ownership patterns.
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OTHER CATEGORI)ATIONS OF FDI - 7ther categori(ations of FDI exist as
well. Gertical Foreign Direct Investment takes place when a multinational corporation
owns some shares of a foreign enterprise" which supplies input for it or uses the output
produced by the $%&.
@ori(ontal foreign direct investments happen when a multinational company carries out
a similar business operation in different nations.
0 @ori(ontal FDI + the $%/ enters a foreign country to produce the same products
product at home.
0 &onglomerate FDI + the $%/ produces products not manufactured at home.
0 Gertical FDI + the $%/ produces intermediate goods either forward or backward in
the supply stream.
0 Hiability of foreignness + the costs of doing business abroad resulting in a competitive
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The simple explanation for this is the difference in perspective between executives of
multinational corporations and small and medium si(ed companies. $ultinational
corporations are almost always concerned with world wide manufacturing capacity and
proximity to ma8or markets. ,mall and medium si(ed companies tend to be more
concerned with selling their products in overseas markets. The advent of the Internet
has ushered focusing on access to markets" access to expertise and most of all in a new
and very different mindset that tends to focus more on access issues. ,$/’s in
particular are now access to technology.
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CHAPTER ( 4.0
4.1 - METHODS OF FOREIGN DIRECT INVESTMENTS
The foreign direct investor may ac'uire !* or more of the voting power of an
enterprise in an economy through any of the following methods
-y incorporating a wholly owned subsidiary or company
-y ac'uiring shares in an associated enterprise
Through a merger or an ac'uisition of an unrelated enterprise
3articipating in an e'uity 8oint venture with another investor or enterprise
Foreign direct investment incentives may take the following forms
How corporate tax and income tax rates
Tax holidays
7ther types of tax concessions
3referential tariffs
,pecial economic (ones
Investment financial subsidies
,oft loan or loan guarantees
Free land or land subsidies
elocation C expatriation subsidies
ob training C employment subsidies
Infrastructure subsidies
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CD support
Derogation from regulations 4usually for very large pro8ects5
The manner in which a firm chooses to enter a foreign market through FDI.
4.2 - ENTRY MODE
International franchising-ranches&ontractual alliances
/'uity 8oint ventures6holly foreign0owned subsidiaries.
CHAPTER ( 5.0
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INVESTMENT RIS!S IN INDIA
5.1 - SOVEREIGN RIS!
India is an effervescent parliamentary democracy since its political freedom from
-ritish rule more thanB! years ago. The country does not face any real threat of a
serious revolutionary movement which might bright economic course though it delayed
certain decisions relating to the economy. /conomic liberali(ation which mostly
interested foreign investors has been accepted as essential by all political parties lead to
a collapse of state machinery. ,overeign risk in India is hence nil for both )foreign
direct investment) and )foreign portfolio investment.) $any Industrial and -usiness
houses have restrained themselves from investing in the %orth0/astern part of the
country due to unstable conditions. %one the less investing in these parts is lucrative
due to the rich mineral reserves here and high level of literacy.
Mashmir on the northern tip is a militancy affected area and hence investment in the
state of Mashmir are restricted by law.
5.2 - POLITICAL RIS!
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India has en8oyed successive years of elected representative government at the
9nion as well as federal level. India suffered political instability for a few years in the
sense there was no single party which won clear ma8ority and hence it led to the
formation of coalition governments. @owever" political stability has firmly returned
since the general elections in >>>" with strong and healthy coalition governments
emerging. %onetheless" political instability did not change India#s including the
&ommunist 3arty of India Though there are bleak chances of political instability in the
future" even if such a situation arises the economic policy of India would hardly be
affected.. -eing a strong democratic nation the chances of an army coup or foreign
dictatorship are minimal. @ence" political risk in India is practically absent.
5.3 - COMMERCIAL RIS!
&ommercial risk exists in any business ventures of a country. %ot each and every
product or service is profitably accepted in the market. @ence it is advisable to study
the demand N supply condition for a particular product or service before making any
ma8or investment. In India one can avail the facilities of a large number of market
research firms in exchange for a professional fee to study the state of demand Nsupply
for any product. As it is" entering the consumer market involves some kind of gamble
and hence involves commercial risk.
5.4 ( RIS! DUE TO TERRORISM
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In the recent past" India has witnessed several terrorist attacks on its soil which
could have a negative impact on investor confidence. %ot only business environment
and return on investment" but also the overall security conditions in a nation have an
effect on FDI#s. Though some of the financial experts think otherwise. They believe the
negative impact of terrorist attacks would be a short term phenomenon. In the long run"
it is the micro and macro economic conditions concerned of -I of receipt of inward
remittances within ;! days of such receipt and will have to file the of the Indian
economy that would decide the flow of Foreign investment and in this regard India
would continue to be a favorable investment destination.
CHAPTER ( ".O
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FDI POLICY IN INDIA
".1 ( FOREIGN DIRECT INVESTMENT POLICY
FDI policy is reviewed on an ongoing basis and measures for its further
liberali(ation are taken. &hange in sector policyNsector e'uity cap is notified from time
to time through 3ress %otes by the ,ecretariat for Industrial Assistance 4,IA5 in the
Department of Industrial 3olicy announcement by ,IA are subse'uently notified by -I
under F/$A. All 3ress %otes are available at the website of Department of Industrial
3olicy C 3romotion. FDI 3olicy permits FDI up to !! * from foreignN%I investor
without prior approval in most of the sectors including the services sector under
automatic route. FDI in sectorsNactivities under automatic route does not re'uire any
prior approval either by the 2overnment or the -I. The investors are re'uired to notify
the egional office re'uired documents with that office within ;! days after issue of
shares to foreign investors.
The Foreign direct investment scheme and strategy depends on the respective
FDI norms and policies in India. The FDI policy of India has imposed certain foreign
direct investment regulations as per the FDI theory of the 2overnment of India.
These include FDI limits in India for example
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Foreign direct investment in India in infrastructure development pro8ects excluding
arms and ammunitions" atomic energy sector" railways system" extraction of coal and
lignite and mining industry is allowed up to !!* e'uity participation with the capping
amount as s. B!! corers.FDI figures in e'uity contribution in the finance sector cannot exceed more than !* in
banking services including credit card operations and in insurance sector only in 8oint
ventures with local insurance companies. FDI limit of maximum >* in telecom
industry especially in the 2,$ services.
".2 - GOVERNMENT APPROVALS FOR FOREIGN COMPANIES
DOING BUSINESS IN INDIA
2overnment Approvals for Foreign &ompanies Doing -usiness in India or
Investment outes for Investing in India" /ntry ,trategies for Foreign Investors India#s
foreign trade policy has been formulated with a view to invite and encourage FDI in
India. The eserve -ank of India has prescribed the administrative and compliance
aspects of FDI. A foreign company planning to set up business operations in India has
the following options
Investment under automatic route andInvestment through prior approval of 2overnment.
".3 - PROCEDURE UNDER AUTOMATIC ROUTE
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FDI in sectorsNactivities to the extent permitted under automatic route does not
re'uire any prior approval either by the 2overnment or -I. The investors are only
re'uired to notify the egional office concerned of -I within ;! not available" include
the following
BAN!ING
NBFC*S ACTIVITIES IN FINANCIAL SERVICES SECTOR
CIVIL AVIATION
PETROLEUM INCLUDING E+PLORATION,REFINERY,MAR!ETING
HOUSING REAL ESTATE DEVELOPMENT SECTOR FOR
INVESTMENT FROM PERSONS OTHER THAN NRIS,OCBS.
VENTURE CAPITAL FUND AND VENTURE CAPITAL COMPANY.
INVESTING COMPANIES IN INFRASTRUCTURE SERVICE SECTOR.
ATOMIC ENERGY RELATED PROJECTS.
DEFENSE AND STRATEGIC INDUSTRIES.
AGRICULTURE INCLUDING PLANTATION/
PRINT MEDIA
BROADCASTING
POSTAL SERVICES
".4 - PROCEDURE UNDER GOVERNMENT APPROVAL
FDI in activities not covered under the automatic route" re'uires prior
2overnment approval and are considered by the Foreign Investment 3romotion -oard
4FI3-5. Approvals of composite proposals involving foreign investmentNforeign
technical collaboration are also granted on the recommendations of the FI3-.
Application for all FDI cases" except %on0esident Indian 4%I5 investments and !!*
/xport 7riented 9nits 4/79s5" should be submitted to the FI3- 9nit" Department of
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/conomic Affairs 4D/A5"$inistry of Finance. Application for %I and !!* /79
cases should be presented to ,IA in Department of Industrial 3olicy C 3romotion.
".5 - INVESTMENT BY WAY OF SHARE AC&UISITION
A foreign investing company is entitled to ac'uire the shares of an Indian
company without obtaining any prior permission of the FI3- sub8ect to prescribed
parametersN guidelines. If the ac'uisition of shares directly or indirectly results in the
ac'uisition of a company listed on the stock exchange" it would re'uire the approval of
the ,ecurity /xchange -oard of India.
"." - NEW INVESTMENT BY AN E+ISTING COLLABORATOR
IN INDIA
A foreign investor with an existing venture or collaboration 4technical and
financial5 with an Indian partner in particular field proposes to invest in another area"
such type of additional investment is sub8ect to a prior approval from the FI3-" wherein
both the parties are re'uired to participate to demonstrate that the new venture does not
pre8udice the old one.
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".# - GENERAL PERMISSION OF RBI UNDER FEMA
Indian companies having foreign investment approval through FI3- route do not
re'uire any further clearance from -I for receiving inward remittance and issue of
shares to the foreign investors. The companies are re'uired to notify the concerned
egional office of the -I of receipt of inward remittances within ;! days of such
receipt and within ;! days of issue of shares to the foreign investors or %Is.
".% - PARTICIPATION BY INTERNATIONAL FINANCIAL
INSTITUTIONS
/'uity participation by international financial institutions such as AD-" IF&"
&D&" D/2" etc." in domestic companies is permitted through automatic route" sub8ect
to ,/-IN-I regulations and sector specific capon FDI.
".' - FDI IN SMALL SCALE SECTOR UNITS
A small0scale unit cannot have more than 1 per cent e'uity in its paid up capital
from any industrial undertaking" either foreign or domestic. If the e'uity from another
company 4including foreign e'uity5 exceeds 1 per cent" even if the invest main ten
plant and machinery in the unit does not exceed s ! million" the unit loses its small0
scale status and shall re'uire an industrial license to manufacture items reserved for
small0scale sector. ,ee also FDI in ,mall ,cale ,ector in India Further Hiberali(ed.
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".10 - FOREIGN DIRECT INVESTMENT INDIAN SCENARIO
FDI IS PERMITTED AS UNDER THE FOLLOWING FORMS OF
INVESTMENTS (
O Through financial collaborations.
O Through 8oint ventures and technical collaborations.
O Through capital markets via /uro issues.
O Through private placements or preferential allotments.
CHAPTER - #.0
SPECIAL FACILITIES AND RULES FOR NRI*S AND OCB*S
0 %I#s and 7&-#s are allowed the following special facilities0 Direct investment in industry" trade" infrastructure etc.0 9p to !!* e'uity with full repatriation facility for capital and dividends in the
following sectors0
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$auritius invested s.>"="
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;!* of FDI inflows from ,ingapore. 3etroleum and natural gas occupies the second
place followed by computer software and hardware" mining and construction.
C/ UNITED STATE OF AMERICA
The 9nited ,tates is the third largest source of FDI in India 4?.
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9M companies and policy makers the focus sectors for 8oint ventures" partnerships" and
trade are nonconventional energy" IT" precision engineering" medical e'uipment"
infrastructure e'uipment" and creative industries.
E/ NETHERLANDS
FDI from %etherlands to India has increased at a very fast pace over the last few
years. %etherlands ranks fifth among all the countries that make investments in India.
The total flow of FDI from %etherlands to India came to s. " ?="!? &r. between
>> and 1!!1. The total percentage of FDI from %etherlands to India stood at .!=*
out of the total foreign direct investment in the country up to August 1!!>.
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%.2 - FOREIGN INVESTMENT PROMOTION BOARD
The FI3- 4Foreign Investment 3romotion -oard5 is a government body that
offers a single window clearance for proposals on foreign direct investment in the
country that are not allowed access through the automatic route. &onsisting of ,enior
,ecretaries drawn from different ministries with ,ecretary" /conomic Affairs in the
chair" this high powered body discusses and examines proposals for foreign investment
in the country for restricted sectors 4 as laid out in the 3ress notes and extant foreign
investment policy5 on a regular basis. &urrently proposals for investment beyond
&r. re'uire them concurrence of the &&/A 4&abinet &ommittee on /conomic Affairs5.
The threshold limit is likely to be raised to 1!! &r. soon. The -oard thus plays an
important role in the administration and implementation of the 2overnment’s FDI
policy. In circumstances where there is ambiguity or a conflict of interpretation" the
FI3- has stepped in to provide solutions. Through its fast track working it has
established its reputation as a body that does not unreasonably delay and is ob8ective in
its decision making. It therefore has a strong record of actively encouraging the flow of
FDI into the country. The FI3- is assisted in this task by a FI3- ,ecretariat. The launch
of e0 filing facility is an important initiative of the ,ecretariat to further the cause of
enhanced accessibility and transparency.
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%.3 - FOLLOWING VARIOUS INDUSTRIES ATTRACTING FDI FROM
NETHERLANDS TO INDIA ARE
0 Food processing industries0 Telecommunications that includes services of cellular mobile" basic telephone"
and radio paging0 @orticulture0 /lectrical e'uipment that includes computer software and electronics0 ,ervice sector that includes non0 financial and financial services.
The sectors receiving the largest shares of total FDI inflows up to arch 1!! were the
service sector and computer software and hardware sector" each accounting for 11.
and >.= percent respectively. These were followed by the telecommunications" real
estate" construction and automobile sectors. The top sectors attracting FDI into India via
$CA activity were manufacturing information and professional" scientific" and
technical services. These sectors correspond closely with the sectors identified by the
Indian government as attracting the largest shares of FDI inflows overall.
The A,,7&@A$ has revealed that FDI in &hemicals sector 4other than fertili(ers5
registered maximum growth of 11? per cent during April 1!!= + $arch 1!!> as
compared to .? per cent during the last fiscal. The sector attracted 9,D ?> million
FDI in FP Q!> as compared to 9,D 11> million in FP ’!=. During the year 1!!>
government had raised the FDI limit in telecom sector from > per cent to ? per" which
has contributed to the robust growth of FDI. The telecom sector registered a growth of
!; per cent during fiscal 1!!=0!> as compared to previous fiscal. The sector attracted
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9,D 1BB= million FDI in FP Q!> as compared to the 9,D 1
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FOREIGN INSTITUTIONAL INVESTMENT
'.1 - INTRODUCTION TO FII
,ince >>!0>" the 2overnment of India embarked on liberali(ation and
economic reforms with a view of bringing about rapid and substantial economic growth
and move towards globali(ation of the economy. Asa part of the reforms process" the
2overnment under its %ew Industrial 3olicy revamped its foreign investment policy
recogni(ing the growing importance of foreign direct investment as an instrument of
technology transfer" augmentation of foreign exchange reserves and globali(ation of the
Indian economy.
,imultaneously" the 2overnment" for the first time" permitted portfolio
investments from abroad by foreign institutional investors in the Indian capital market.
The entry of FIIs seems to be a follow up of there commendation of the %arsimhan
&ommittee eport on Financial ,ystem. 6hile recommending their
entry" the &ommittee" however did not elaborate on the ob8ectives of the suggested
policy. The committee only suggested that the capital market should be gradually
opened up to foreign portfolio investments.
From ,eptember " >>1 with suitable restrictions" FIIs were permitted to invest in all
the securities traded on the primary and secondary markets" including shares"
debentures and warrants issued by companies which were listed or were to be listed on
the ,tock /xchanges in India. 6hile presenting the
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-udget for >>10>;" the then Finance $inister Dr. $anmohan ,ingh had announced a
proposal to allow reputed foreign investors" such as 3ension Funds etc." to invest in
Indian capital market.
'.2 - MAR!ET DESIGN IN INDIA FOR FOREIGN INSTITUTIONAL
INVESTORS
Foreign Institutional Investors means an institution established or incorporated
outside India which proposes to make investment in India in securities. A 6orking
2roup for ,treamlining of the 3rocedures relating to FIIs" constituted in April" 1!!;"
inter alia" recommended streamlining of ,/-I registration procedure" and suggested
that dual approval process of ,/-I and -I be changed to a single approval process of
,/-I. This recommendation was implemented in December 1!!;.
&urrently" entities eligible to invest under the FII route are as follows 0
0 As FII 7verseas pension funds" mutual funds" investment trust" asset
management company" nominee company" bank" institutional portfolio manager"
university funds" endowments" foundations" charitable trusts" charitable societies"
a trustee or power of attorney holder incorporated or established outside India
proposing to make proprietary investments or with no single investor holding
more than ! per cent of the shares or units of the fund.
0 As ,ub0accounts The sub account is generally the underlying fund on whose
behalf the FII invests. The following entities are eligible to be registered as sub0
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accounts" vi(. partnership firms" private company" public company" pension fund"
investment trust" and individuals.
FIIS REGISTERED WITH SEBI FALL UNDER THE FOLLOWING
CATEGORIES
0 egular FIIs0 those who are re'uired to invest not less than ?! * of their
investment in e'uity0related instruments and ;! * in non0e'uity instruments.
0 !! * debt0fund FIIs0 those who are permitted to invest only in debt
instruments.
The 2overnment guidelines for FII of >>1 allowed" inter0alia" entities such as asset
management companies" nominee companies and incorporatedNinstitutional portfolio
managers or their power of attorney holders 4providing discretionary and non0
discretionary portfolio management services5 to be registered as FIIs. 6hile the
guidelines did not have a specific provision regarding clients" in the application form
the details of clients on whose behalf investments were being made were sought.
6hile granting registration to the FII" permission was also granted for making
investments in the names of such clients. Asset management companiesNportfolio
managers are basically in the business of managing funds and investing them on behalf
of their fundsNclients. @ence" the intention of the guidelines was to allow these
categories of investors to invest funds in India on behalf of their #clients#. These #clients#
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later came to be known as sub0accounts. The broad strategy consisted of having a wide
variety of clients" including individuals" intermediated through institutional investors"
who would be registered as FIIs in India. FIIs are eligible to purchase shares and
convertible debentures issued by Indian companies under the 3ortfolio Investment
,cheme.
'.3 - PROHIBITIONS ON INVESTMENTS
FIIs are not permitted to invest in e'uity issued by an Asset econstruction
&ompany. They are also not allowed to invest in any company which is engaged or
proposes to engage in the following activities
0 -usiness of chit fund
0 %idhi &ompany
0 Agricultural or plantation activities
0 eal estate business or construction of farm houses 4real estate business does not
Include development of townships" construction of residentialNcommercial
premises" roads or bridges5.
Trading in Transferable Development ights 4TDs5.
'.4 - TRENDS OF FOREIGN INSTITUTIONAL INVESTMENTS
IN INDIA
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3ortfolio investments in India include investments in American Depository
eceipts 4ADs5N 2lobal Depository eceipts 42Ds5" Foreign Institutional
Investments and investments in offshore funds. -efore>>1" only %on0esident Indians
4%Is5 and 7verseas &orporate -odies were allowed to undertake portfolio investments
in India. Thereafter" the Indian stock markets were opened up for direct participation by
FIIs. They were allowed to invest in all the securities traded on the primary and the
secondary market including the e'uity and other securitiesNinstruments of companies
listedNto be listed on stock exchanges in India. It can be observed from the table below
that India is one of the preferred investment destinations for FIIs over the years. As of
$arch 1!!>" there were FIIs registered with ,/-I.
'.5 ( FDI V,: FII
-oth FDI and FII is related to investment in a foreign country. FDI or Foreign
Direct Investment is an investment that a parent company makes in a foreign country.
7n the contrary" FII or Foreign Institutional Investor is an investment made by an
investor in the markets of a foreign nation. In FII" the companies only need to get
registered in the stock exchange to make investments. -ut FDI is 'uite different from it
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as they invest in a foreign nation. The Foreign Institutional Investor is also known as
hot money as the investors have the liberty to sell it and take it back. -ut in Foreign
Direct Investment" this is not possible. In simple words" FII can enter the stock market
easily and also withdraw from it easily. -ut FDI can not enter and exit that easily. This
difference is what makes nations to choose FDI’s more than then FIIs.
FDI is more preferred to the FII as they are considered to be the most beneficial
kind of foreign investment for the whole /conomy. specific enterprise. It aims to
increase the enterprises capacity or productivity or change its management control. In
an FDI" the capital inflow is translated into additional production. The FII investment
flows only into the secondary market. It helps in increasing capital availability in
general rather than enhancing the capital of a specific enterprise. The Foreign Direct
Investment is considered to be more stable than Foreign Institutional Investor. FDI not
only brings in capital but also helps in good governance practices and better
management skills and even technology transfer.
Though the Foreign Institutional Investor helps in promoting good governance
and improving accounting" it does not come out with any other benefits of the FDI.
6hile the FDI flows into the primary market" the FII flows into secondary market.
W@? FII: =? :-?> 7?:>?7: ? FDI$: =? @7 ?>.
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FDI is an investment that a parent company makes in a foreign country. 7n the
contrary" FII is an investment made by an investor in the markets of a foreign
nation.
FII can enter the stock market easily and also withdraw from it easily. -ut FDI
cannot enter and exit easily.
Foreign Direct Investment targets a specific enterprise. The FII increasing capital
availability in general.
The Foreign Direct Investment is considered to be more stable than Foreign
Institutional Investor.
CHAPTER - 10.0
OBJECTIVE OF THE STUDY
OBJECTIVE OF THE STUDY
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0 To know the flow of investment in India0 To know how can India 2row by investment.0 To examine the trends and patterns in the FDI across different sectors and from
different countries
0 in India.0 To know in which sector we can get more foreign currency in terms of
investment in India0 To know which country s safe to invest.0 To know how much to invest in a developed country or in a developing.0 To know 6hich sector is good for investment.0 To know which country in investing in which country0 To know the reason for investment in India0 Influence of FII on movement of Indian stock exchange0 To understand the FII C FDI policy in India.
CHAPTER - 11.0
RESEARCH METHODOLOGY
In order to accomplish this pro8ect successfully we will take following steps.
DATA COLLECTION
Internet" -ooks " newspapers" 8ournals and books" other reports and pro8ects" literatures
FDI
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The study is limited to a sample of investing countries e.g. $auritius" ,ingapore" 9,A
etc. and sectors e.g. service sector" computer hardware and software"
telecommunications etc. which had attracted larger inflow of FDI from different
countries.
FII
CORRELATION - 6e have used the &orrelation tool to determine whether two
ranges of data move together R that is" how the ,ensex" -ank" IT" 3ower and &apital
2oods are related to the FII which may be positive relation" negative relation or no
relation.
6e will use this model for understanding the relationship between FII and stock indices
returns. FII is taken as independent variable. ,tock indices are taken as dependent
variable
HYPOTHESIS TEST
If the hypothesis holds good then we can infer that FIIs have significant impact
on the Indian capital market. This will help the investors to decide on their investments
in stocks and shares. If the hypothesis is re8ected" or in other words if the null
hypothesis is accepted" then FIIs will have no significant impact on the Indian bourses.
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CHAPTER ( 12.0
CONCLUSION
It can be observed from the above analysis that at the sector level of the Indian
/conomy" FDI has helped to raised the output" productivity and export in some sector.
@owever" in this variables 4 output" Habour productivity and export 5 is establish by the
FDI inflow in the sector. This may be due to the How flow of the FDI into India both at
the micro level as well as at sectoral level. It implies that the spirit in which economy
has been liberali(ed and exposed to world economy at the let eighties and early nineties
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@as not been achieved after so many years. This call for a udicious 3olicy Decision
towards FDI at the sectoral level. Therefore" in eve of India’s plan for further opening
up of the economy" it is advisable to open up the export oriented sectors and a higher
the growth of the economy could be achieved through the growth of this sector. Foreign
Direct Investment 4 FDI 5 as a strategic component of investment is needed by India for
its sustained economy growth and development through creation of 8obs" /xpansion 7f
/xiting $anufacturing Industries" short and long term pro8ect in the filed of @ealth care
/ducation" esearch and Development etc. 2overnment should Design the FDI 3olicy
,uch a way where FDI Inflow can be utili(ed as means of enhancing Domestic
3roduction" ,aving and /xport through the e'uitable Distribution among ,ated by
3roviding $uch freedom to states" so that they can attract FDI inflow at there own
level. FDI can @elp to raised the output" 3roductivity and /xport at the sectoral level of
the Indian /conomy.
CHAPTER - 13.0
BIBILOGRAPHY
A5 eference -ooks0
A9T@7#, %A$/ 0 Dana Gachan
TITH/ 7F -77M 0 Foreign Investments
39-HI&ATI7% 0 ;rd /dition" 1!!
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-5 79%AH,
/0DATA
httpNNwww.answers.comNtopicNforeign0direct0investmentS@istory
httpNNwww.unctad.orgNsectionsNditeiiabNdocsNditeiiab1!!en.pdf
httpNNwww.economywatch.comNforeign0direct0investmentN
httpNNwww.legalserviceindia.comNarticlesNfdiindia.htm
www.coca0colacompany
http://www.coca-colacompany/http://www.coca-colacompany/