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FOREIGN DIRECT INVESTMENT
IN INDIA
By
Kartik Vuppuluri
C H Vijay
Somashekhar
Ram Mohan Rao
Pranav Srivastava
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CONTENTS
Introduction
Classification of FDI
Regulatory Authorities
Indias Policy Framework
Indias FDI outlook
Benefits of FDI
Problems with FDI
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INTRODUCTION
Foreign direct investment (FDI) refers to Cross-border
investment made by a resident in one economy (the direct
investor) With the objective of establishing a lasting interest in
an enterprise (the direct investment enterprise) that is Residentin a country other than that of the direct investor.
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CLASSIFICATION OF FDI
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NEED FOR FOREIGN CAPITAL
Domestic capital is inadequate for purpose of
economic growth.
During the period in which the capital market
is in the process of development, foreigncapital is essential as a temporary measure.
Foreign capital brings with it other scarce
productive factors; technical know how,
business experience and knowledge.
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AUTHORITIES DEALING WITH
FOREIGN INVESTMENT
Foreign Investment Promotion Board
(FIPB)
- Expedite clearance process.
- Periodically review implementation of
cleared proposals.
- Review general and sectoral policyguidelines.
- Undertake investment promotion
activities
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AUTHORITIES DEALING WITH
FOREIGN INVESTMENT
Secretariat for Industrial Assistance
(SIA)
- Acts as gateway to industrial investment
in India.
- Assist entrepreneurs & investors in
setting up projects.- Liaise with government bodies to seek
necessary clearance.
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AUTHORITIES DEALING WITH
FOREIGN INVESTMENT
Foreign Investment Implementation
Authority (FIIA)
- Quick implementation of FDI approvals.
- Resolution of operational difficulties
faced by foreign investors.
-Gather feedback from foreign investors
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AUTHORITIES DEALING WITH
FOREIGN INVESTMENT
Other authorities involved :
- Investment Commission.
- Project Approval Board.
- Reserve Bank of India
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APPROVAL ROUTES FOR FOREIGN
INVESTMENT
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GOVERNMENT POLICY
Foreign investment is allowed in all
areas except following sectors where
foreign investment is prohibited :
- Atomic energy
- Agriculture (except floriculture ,
horticulture , seed development etc).- Lottery business / Gambling and
betting.
- Plantations (except tea plantations)
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MOBILIZATION OF FUNDS
Different options for Indian Corporates
Investments through GDRs and ADRs.
Mobilization of funds through
preference shares.
Mobilization of funds through external
commercial borrowings.
Foreign currency exchangeable bonds
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FDI INFLOW BY COUNTRIES
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FDI EQUITY INFLOW BY
SECTORS
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PRIMARY REASONS FOR
FDI INVESTMENTS IN INDIA
Local Market Demand -86%
Low cost operations -29%
Ease of making FDI -29%
Labor Availability -29%
Entry of other players -24%
Political stability -24%
Time zone advantage -14%
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TOP FIVE DRIVERS AND CONCERNS
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BENEFITS OF FDI
Play a complementary role in overall capital
formation.
Employment generation and productivityenhancement.
Encourages the transfer of management skills,
intellectual property, and technology.
Improves Forex position of the country. Promotion of the competition within the local
input market.
Development of the human capital resources.
Increase in exports Increases tax revenues
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LIMITATIONS OF FDI
A company may lose out on its ownership to
an overseas company.
Government has less control over the
functioning of the company that is functioningas the wholly owned subsidiary of an overseas
company.
FDI entering and taking the control of already
established market, where local companies are
meeting the requirements of the market.
Invest in machinery and intellectual property,
not in wages.
Large giants can set up monopolies in highly
profitable sector
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