Foreign Direct Investment

FDI
 FDI, is a type of investment that involves the injection of
foreign funds into an enterprise that operates in a
different country of origin from the investor
 Investors are granted management and voting rights if
the level of ownership is greater than or equal to
10% of ordinary shares
 Inward FDI occurs when foreign capital is invested in local
resources. The factors propelling the growth of inward
FDI include tax breaks, low interest rates and grants.
 Outward FDI, also referred to as "direct investment
abroad", is backed by the government against all
associated risk.
FDI
 Foreign direct investment (FDI) occurs when a firm
invests directly in new facilities to produce and/or market
in a foreign country
 the firm becomes a multinational enterprise
 FDI can be in the form of
 Greenfield investments - the establishment of a wholly new
operation in a foreign country
 Brownfield investments - acquisitions or mergers with existing
firms in the foreign country
FDI
 The flow of FDI - the amount of FDI undertaken over a
given time period
 Outflows of FDI are the flows of FDI out of a country
 Inflows of FDI are the flows of FDI into a country
 The stock of FDI - the total accumulated value of foreign-
owned assets at a given time
Pattern of FDI
 Both the flow and stock of FDI have increased over the
last 30 years
 Most FDI is still targeted towards developed nations
 United States, Japan, and the EU
 but, other destinations are emerging
 South, East, and South East Asia especially China
 Latin America
Types of FDI
 Horizontal − In case of horizontal FDI, the company
does all the same activities abroad as at home. For
example, Toyota assembles motor cars in Japan and the
UK.
 Vertical − In vertical assignments, different types of
activities are carried out abroad. In case of forward
vertical FDI, the FDI brings the company nearer to a
market (for example, Toyota buying a car distributorship
in America). In case of backward Vertical FDI, the
international integration goes back towards raw materials
(for example, Toyota getting majority stake in a tyre
manufacturer or a rubber plantation).
FDI Benefit to the Host Country
 Resource transfer effects - FDI brings capital,
technology, and management resources
 Employment effects - FDI can bring jobs
 Balance of payments effects - FDI can help a
country to achieve a current account surplus
 Effects on competition and economic growth -
greenfield investments increase the level of
competition in a market, driving down prices and
improving the welfare of consumers
 can lead to increased productivity growth, product and
process innovation, and greater economic growth
Costs of FDI to the Host Country
 Adverse effects of FDI on competition within the host
nation
 subsidiaries of foreign MNEs may have greater economic power
than indigenous competitors because they may be part of a
larger international organization
 Adverse effects on the balance of payments
 when a foreign subsidiary imports a substantial number of its
inputs from abroad, there is a debit on the current account of
the host country’s balance of payments
 Perceived loss of national sovereignty and autonomy
 decisions that affect the host country will be made by a
foreign parent that has no real commitment to the host
country, and over which the host country’s government has
no real control
Government Influence on FDI
 Governments can encourage outward FDI
 government-backed insurance programs to cover major types
of foreign investment risk
 Governments can restrict outward FDI
 limit capital outflows, manipulate tax rules, or outright prohibit
FDI
 Governments can encourage inward FDI
 offer incentives to foreign firms to invest in their countries
 gain from the resource-transfer and employment effects of FDI, and
capture FDI away from other potential host countries
 Governments can restrict inward FDI
 use ownership restraints and performance requirements
FDI Policies in India
 49% FDI under automatic route permitted in Insurance and
Pension sectors
 Foreign investment up to 49% in defence sector permitted
under automatic route. The foreign investment in access of
49% has been allowed on case to case basis with Government
approval in cases resulting in access to modern technology in
the country or for other reasons to be recorded
 FDI limit of 100% (49% under automatic route, beyond 49%
government route) for defence sector made applicable to
Manufacturing of Small Arms and Ammunitions covered under
Arms Act 1959
 FDI up to 100% under automatic route permitted in Teleports,
Direct to Home, Cable Networks, Mobile TV, Headend-in- the
Sky Broadcasting Service

Source: http://www.makeinindia.com/policy/foreign-direct-investment
FDI Policies in India
 FDI up to 100% under automatic route permitted in Up-linking of
Non-‘News & Current Affairs’ TV Channels, Down-linking of TV
Channels
 In case of single brand retail trading of ‘state-of-art’ and ‘cutting-edge
technology’ products, sourcing norms can be relaxed up to three
years and sourcing regime can be relaxed for another 5 years
subject to Government approval
 Foreign equity cap of activities of Non-Scheduled Air Transport
Service, Ground Handling Services increased from 74% to 100%
under the automatic route
 100% FDI under automatic route permitted in Brownfield Airport
projects
 FDI limit for Scheduled Air Transport Service/ Domestic Scheduled
Passenger Airline and regional Air Transport Service raised to 100%,
with FDI up to 49% permitted under automatic route and FDI
beyond 49% through Government approval
FDI Policies in India
 Foreign airlines would continue to be allowed to invest in capital of
Indian companies operating scheduled and non-scheduled air-
transport services up to the limit of 49% of their paid up capital
 In order to provide clarity to the e-commerce sector, the
Government has issued guidelines for foreign investment in the
sector. 100% FDI under automatic route permitted in the
marketplace model of e-commerce
 100% FDI under Government route for retail trading, including
through e-commerce, has been permitted in respect of food
products manufactured and/or produced in India
 100% FDI allowed in Asset Reconstruction Companies under the
automatic route
 74% FDI under automatic route permitted in brown-field
pharmaceuticals. FDI beyond 74% will be allowed through
government approval route
FDI Policies in India
 FDI limit for Private Security Agencies raised to 74% (49%
under automatic route, beyond 49% and up to 74% under
government route)
 For establishment of branch office, liaison office or
project office or any other place of business in India if the
principal business of the applicant is Defence, Telecom,
Private Security or Information and Broadcasting,
approval of Reserve Bank of India would not be required
in cases where FIPB approval or license/permission by the
concerned Ministry/Regulator has already been granted
 Requirement of ‘controlled conditions’ for FDI in Animal
Husbandry (including breeding of dogs), Pisciculture,
Aquaculture and Apiculture has been waived off
FDI in India in 2016-17
FDI in India (Last Five Years)