PROJECT REPORT

Master of Management Studies- MMS

Degree in partial requirement during 3nd

Semester, 2010-11

Submitted to the

IBSAR INSTITUTE OF MANAGEMENT STUDIES,

KARJAT

TITLE OF THE PROJECT

“FOREING DIRECT INVESTMENT.”

SUBMITTED BY

NAME ROLL NO

UMESH GAIKWAD 37

AMARENDRA DHANMEHER 01

MANDHAR TAKUR

KRUNAL SHAH

BHARATI SRINIVASAN 47

SHRIJA MANE 34
MEANING OF INTERNATIONAL FINANCE:
 International finance is the branch of economics that studies the dynamics of
exchange rates, foreign investment, and how these affect international trade
 It also studies international projects, international investments and capital
flows, and trade deficits. It includes the study of futures, options and
currency swaps. International finance is a branch of international economics.

INTRODUCTION TO FOREING DIRECT INVESTMENT:

Foreign direct investment (FDI) refers to long term participation by country A

into country B. It usually involves participation in management, joint-venture,
transfer of technology and expertise. There are two types of FDI: inward foreign
direct investment and outward foreign direct investment, resulting in a net FDI
inflow (positive or negative) and "stock of foreign direct investment", which is the
cumulative number for a given period. Direct investment excludes investment
through purchase of shares.

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.

Classification of Foreign Direct Investment

Foreign direct investment may be classified as Inward or Outward.

Foreign direct investment, which is inward, is a typical form of what is termed as

'inward investment'. Here, investment of foreign capital occurs in local resources.
The factors propelling the growth of Inward FDI comprises tax breaks, relaxation
of existent regulations, loans on low rates of interest and specific grants. The idea
behind this is that, the long run gains from such a funding far outweighs the
disadvantage of the income loss incurred in the short run. Flow of Inward FDI may
face restrictions from factors like restraint on ownership and disparity in the
performance standard.

Foreign direct investment, which is outward, is also referred to as “direct

investment abroad”. In this case it is the local capital, which is being invested in
some foreign resource. Outward FDI may also find use in the import and export
dealings with a foreign country. Outward FDI flourishes under government backed
insurance at risk coverage.

Advantages of FDI:

Foreign Direct Investment plays a pivotal role in the development of India's

economy. It is an integral part of the global economic system. Advantages of FDI
can be enjoyed to full extent through various national policies and international
investment architecture. Both the factors contribute enormously to the maximum
FDI inflows in India, which stimulates the economic development of the country.
Foreign Direct Investment in India is allowed through four basic routes namely,
financial collaborations, technical collaborations and joint ventures, capital
markets via Euro issues, and private placements or preferential allotments.

FDI inflow helps the developing countries to develop a transparent, broad, and
effective policy environment for investment issues as well as, builds human and
institutional capacities to execute the same.
Benefits of Foreign Direct Investment-
Attracting foreign direct investment has become an integral part of the economic
development strategies for India. FDI ensures a huge amount of domestic capital,
production level, and employment opportunities in the developing countries, which
is a major step towards the economic growth of the country. FDI has been a
booming factor that has bolstered the economic life of India, but on the other hand
it is also being blamed for ousting domestic inflows. FDI is also claimed to have
lowered few regulatory standards in terms of investment patterns. The effects of
FDI are by and large transformative. The incorporation of a range of well-
composed and relevant policies will boost up the profit ratio from Foreign Direct
Investment higher. Some of the biggest advantages of FDI enjoyed by India have
been listed as under:

Economic growth-

This is one of the major sectors, which is enormously benefited from foreign direct
investment. A remarkable inflow of FDI in various industrial units in India has
boosted the economic life of country.

Trade-

Foreign Direct Investments have opened a wide spectrum of opportunities in the

trading of goods and services in India both in terms of import and export
production. Products of superior quality are manufactured by various industries in
India due to greater amount of FDI inflows in the country.
Employment and skill levels-

FDI has also ensured a number of employment opportunities by aiding the setting
up of industrial units in various corners of India.

Technology diffusion and knowledge transfer-

FDI apparently helps in the outsourcing of knowledge from India especially in the
Information Technology sector. It helps in developing the know-how process in
India in terms of enhancing the technological advancement in India.

Linkages and spillover to domestic firms-

Various foreign firms are now occupying a position in the Indian market through
Joint Ventures and collaboration concerns. The maximum amount of the profits
gained by the foreign firms through these joint ventures is spent on the Indian
market.

Documents Required for Foreign Direct Investments-

 Application Form
 Detailed information on the foreign investor or collaborators stating their
parent enterprises and affiliated firms
 Copies of the memorandum of collaborations made by the foreign investors
  Detailed information on the Joint Venture firms or technical collaborators
along with information on their parent enterprise, promoters, and affiliated
firms
 Companies aiming at establishing multi sectoral activities must present their
details on the already existent activities with four digit NIC code
 In case of any investments being carried out in a holding company,
information about downstream investments are to be presented
 Copies of the earlier approved proposals by FIPB or SIA or RBI connected
with the current one
 The board resolution of the investor company and the approval of transferred
shareholder while transferring the existent equity
 Before and after investments, the detailed information on shareholders of the
investor concern
 In case of indirect foreign investments, the details of the indirect route and
the names of the foreign companies along with their shareholders
 Justification for higher payments in terms of payments for technology or
trademark or brand name which require FIPB approval under automatic
route
 Declaration from the investors stating their details
 Detailed information on the existing ventures or enterprises
 Remarks from Indian partners in case of the collaborations or the Joint
ventures

FDI Approval in India:

FDI Approvals in India are carried out by agencies like the Reserve Bank of India
and the Foreign Investment Promotion Board. FDI Approval in India is done
quickly by the concerned agencies in order to bring in huge amounts of foreign
direct investment into the country.

FDI Restrictions in Indian Sectors:

FDI Restrictions in Indian Sectors have been imposed in a number of sectors

such as, atomic energy, chit fund business and lottery business. FDI Restrictions
in Indian Sectors have been imposed by the government of India in order to
protect the interests of the nation.

Foreign direct investment in India:

The several policy initiatives taken by the government of India in the 1990s
helped to transform the country from a restrictive regime with regard to foreign
direct investment to a liberal one.

As in 2007, foreign direct investment in India is encouraged in almost all the

sectors of the country's economy under the automatic route. At the same time
there are a few Indian sectors in which foreign direct investment has been
restricted by the government. Forms through which foreign direct investment
in India are allowed include, Euro issues, preferential allotments, technical
collaborations, and financial collaborations.

Various Indian sectors having FDI restrictions:

FDI Restrictions in Indian Sectors have been imposed on a few sectors by the
Indian government. FDI Restrictions in Indian Sectors have been imposed in order
to protect the interests of the country, as these sectors either relate to national
security or sensitive enough to keep apart the foreign companies. Foreign direct
investment restrictions in Indian sectors have also been imposed in order to allow
the domestic companies to make more profits with less competition, than that of in
the presence of rivalry international firms. The various Indian Sectors having
restrictions of foreign direct investment are:

 Atomic energy
 Nidhi company
 Betting and gambling
 Chit fund business
 Plantation or agricultural activities
 Real estate business
 Business in Transferable Development Rights
 Lottery business
 Retail trading
 Railway transport
 Mining of chrome, zinc, gold, diamonds, copper, iron, gypsum, manganese,
and sulfur
 Ammunition and arms

Top Investing Countries FDI Inflows in India

Countries sending FDI to India are:

 Mauritius
 U.K
 U.S.A
 Sweden
 France
 Switzerland
 Malaysia
 Singapore
 Japan
 Germany
 Netherlands
FDI in Maharashtra:

Foreign Direct Investment on Maharashtra covers Mumbai, Dadra and Nagar

Haveli, and Daman & Diu.The total FDI Inflows in Maharashtra economy from
January 2000 to October 2006 was estimated to be around Rs. 25,685.45 crores
which is approximately USD 5,650.1 million

Sectors in India attracting FDI from foreign countries are:

 Telecommunications that includes services of cellular mobile, radio paging,
and basic telephone
 Chemicals
 Metallurgical industries
 Food processing industries
 Transportation industry
 Pharmaceuticals and drugs
 Fuels
 Electrical equipments that includes electronics and computer software
 Services sector that includes non- financial and financial
 Gypsum and cement products
STATE WISE FDI:

Major constraints of FDI:

 Image and Attitude:

There is a perception among investors that foreign businesses are still treated with
suspicion and distrust in India.

 Domestic Policy:

While the FDI policy is quite straightforward and getting increasingly liberalized
for most sector, once an investor establishes his presence, “national” treatment
means that this investor is subject to domestic regulations, which are perceived as
being excessive.

 Procedures.

Although approval for investment is given quite readily, actual setting up requires
a long series of further approvals from central, state and local authorities. This
introduces substantial implementation lags.

 Quality of infrastructure.

Foreign investors are concerned about a number of problems with the

infrastructure sector – in particular, electricity and transport. Irregular and
undependable supply complicates problems for foreign investors.

 State_government_level_obstacles.

This issue is tied up with one of the most pressing agenda items for reform.

 Delays in legal process.

Despite a highly structured legal system, dispute settlement and contract

enforcement are time consuming activities in India. Such apprehensions prevent
the rapid flow of foreign investment
LATEST NEWS IN FDI:
 India, China and Brazil are the top three target countries for foreign direct
investment until the end of 2012 with the United States.
 The Government today indicated that a new policy on foreign direct
investment in the politically sensitive multi-brand retail sector will come
soon. At present, India does not allow FDI in the lucrative retail sector,
which employs 33 million people and is dominated by mom & pop stores
(kirana shops)

Conclusion

 FDI policy is to be seen as part of a general policy of enhancing investment

in this economy under conditions of sustained production efficiency.
 This latter variety of FDI needs a certain type of domestic policy support in
order to flourish.
 Foreign Direct Investment it is important to keep in mind that we are talking
of investment. Hence, unless FDI has a net contribution of its own there is
no reason why it should be distinguished from the general level of
investment in the economy. In many ways India’s principal problem remains
that of boosting its rate of saving and investment from the current about 23%
of GDP to over 30% of GDP in order to make growth prospects.