Foreign Direct Investment

Abhishek Tripathi Abhishek_23july@yahoo.com Contact : 9022855659

FDI
FDI refers to capital inflows from abroad that invest in the production capacity of the economy

Understanding FDI

Foreign Direct Investment

Foreign
Derived from another country or nation; not native

Direct Investment
In order to qualify as FDI the investment must afford the parent enterprise control over its foreign affiliate.

Modes
Foreign Direct Investment (FDI) is permitted as under the following forms of investments

Through financial collaborations.

Through joint ventures and technical collaborations.

Through capital markets via Euro issues. Through private placements or preferential allotments.

WHY FDI ?
1. Gain a foothold in a new geographic market. 2. Increase a firms global competitiveness and positioning. 3. Fill gaps in a companys product lines in a global industry. 4. Reduce costs in areas such as R&D, production, and distribution. 5. Competition : -Catalysts to spur competition & innovation in retail industry -Ensure highly efficient-low margin business model

WHY FDI ?...

6. Consumers: -Improved product availability, quality & reduce wastages -Consumers to get best products and services at reasonable price 7. Back End & Supply Chain Improvement : - Inadequate storage facilities cause heavy losses to farmers - 25%-30% of F&V and 5%-7% of food grain in India are wasted - Food inflation and fluctuation in food prices can be controlled

WHY FDI ?...

Back End & Supply Chain Improvement :

Inadequate storage facilities cause heavy losses to farmers 25%-30% of F&V and 5%-7% of food grain in India are wasted Food inflation and fluctuation in food prices can be controlled

FACTORS REQUIRED TO ATTRACT FDI

Low cost BUT Qualified, Educated/Skilled Labor Pool. Long-term Market Potential OR Yields greater than can be achieved Domestically. Access to Natural Resources. Geography Stability of the economic and Political Environment. Size of the Market Legal and Regulatory Framework Access to Basic Inputs

Cont

Cost factors Labor costs Transpiration/ logistic cost Low cost of raw materials Return on investment Market factor Large size of host markets Demand in host country Level of competition in host market Economic stability Infrastructure and technological factors Level of infrastructure High industrial concentration (Clustering) Availability of well qualify of work force Access to reliable and corporative suppliers Political and legal factors Political stability International trade agreements Tax reduction in host country Benign environmental legislation towards FDI Social & Cultural factors Cultural distance Attitude of the local community toward the firm

Current Indian FDI limit

Private Sector Banking - 49 % Non-Banking Financial Companies (NBFC) .100% Insurance 26% Telecommunications . 74% Petroleum Refining (Private Sector) ..100% Housing and Real Estate .100% Power 100% Drugs & Pharmaceuticals .100% Hotel & Tourism - 100% Advertising ..100% Electricity ..100% Trading 51% Single Brand Retail ........100%

Trends Indian FDI 2012-13

Advantages

Raising the Level of Investment Up gradation of Technology Improvement in Export Competitiveness Employment Generation Benefits to Consumers Revenue to Government Resilience Factor Low cost Products Employment Opportunities Economic growth Better realization to farmers

Disadvantages

Fall in domestic savings Contribution of foreign firms to public revenue through corporatetaxes is comparatively less because of liberal tax concessions income inequalities The technology is generally capital-intensive which does not suit the needs of a labor-surplus economy Foreign firms may influence political decisions

Conclusion

After considering all the aspects related to FDI, we can conclude that, though there are slight disadvantages of it, but it is very important or we can say life blood for a developing country for there economic growth and stability and for developed country, to continue their stability.

Questions?

Thank you
Abhishek Tripathi Abhishek_23july@yahoo.com Contact : 9022855659