FOREIGN DIRECT INVESTMENT

Long-term investment by a foreign direct investor in a foreign economy

A source of capital and investment involving foreign control of

production A channel of technology transfer and industrial development It usually involves participation in management, joint-venture, transfer of technology and expertise.

Greenfield Investment

TYPES OF FDI

Direct investment in new facilities or the expansion of existing facilities. Create new production capacity and jobs, transfer technology, etc. Profit flows out of the host nation Horizontal Foreign Direct Investment Investment in the same industry abroad as a firm operates in at home.

Vertical Foreign Direct Investment

Backward Vertical - Industry abroad provides inputs for a firm's domestic production process Forward Vertical - Industry abroad sells the outputs of a firm's domestic production

To prevent the loss of resource to a competitor. Like OPEC

MODE OF ENTRY
Joint Venture Green Field Strategy

Wholly owned subsidiary

Project Office

Mergers and Acquisitions

MAJOR INFLOW FROM DIFFERENT COUNTRIES

ALLOCATION OF FDI CAPITAL

FDI AND GDP GROWTH RATE IN INDIA

FDI EQUITY INFLOWS (MONTH-WISE) DURING THE FINANCIAL YEAR 2011-12:

Financial Year 2011-12 ( April-March )

Amount of FDI inflows* (In ` Crore) 9,697 10,135 6,429

Amount of FDI inflows* (In US$ mn) 2,179 2,213 1,380

April 2011 May 2011 June 2011

July 2011 August 2011

September 2011 October 2011 November 2011 2011-12 (up to November 2011) # 2010-11 (up to November 2010) %age growth over last year

8,359 6,196
9,754 6,185 7,328 64,083 93,096 ( - ) 27 %

1,785 1,330
2,118 1,392 1,628 14,025 19,326 ( - ) 20 %

MAJOR INVESTMENTS
Companies
Wal mart,Marks Intel Corp. British & cairn Essar power Toyota Panasonic

Sector
Retail I.T Oil & Energy Power sector Automobile

Investment
US$ 10 Billion US$ 40 Billion US$ 2 Billion US$ 2 Billion US$ 10.51 Billion

Telecommunication US$ 200 million

1/26/2013

Source:

Major M&A and Investments Announcements in India

Vodafone buys Hutch
USD 11 billion

Plans to spend on its development operations in India over the next four years

USD 1.7 billion

Plans investment in private equity, real estate, and private wealth management

USD 1 billion

Aditya Birla Group increased its stake in Idea Cellular by acquiring 48.14-percent stake

USD 0.98 billion

Renault, Nissan and Mahindra & Mahindra has initiated a Greenfield automobile plant project in Chennai.

USD 0.905 billion

Mylan Laboratories acquired a majority stake in Matrix Laboratories

USD 0.74 billion

FDI LIMIT IN DIFFERENT SECTOR

Sector/Activity Airports Construction Development Petroleum & Natural Gas (b) Refining Other than Refining Power ( Except Atomic energy); regulations transmission, distribution and Power Trading Ports Roads & Highways Shipping 26% (For PSUs ) FIPB 100% ( Private companies) Automatic 100% 100% Automatic Automatic FDI Cap/Equity 100% 100% Entry Route Automatic Automatic

100% 100% 100%

Automatic Automatic Automatic

Sector/Activity

Agriculture and animal husbandry Tea plantation Mining

FDI LIMIT IN DIFFERENT SECTOR

100% 100% 100% FIPB

FDI Cap/Equity

Entry Route Automatic

Automatic Automatic Automatic Automatic FIPB Automatic

Drugs & pharmaceuticals Hazardous chemical

100% 100% 100%

Industrial Explosives

MANUFACTURING Alcohol Distillation & Brewing Cigars & Cigarettes Manufacture Defense Industry

24%

100%

100%
26%

FIPB
FIPB

FDI IN VARIOUS INDUSTRIES

Hotel & Tourism
100% FDI is permissible in the sector on the automatic route. For foreign technology agreements, automatic approval is granted if up to 3% of the capital cost of the project is proposed to be paid for technical and consultancy services including fees for architects, design, supervision, etc. Up to 3% of net turnover is payable for franchising and marketing/publicity support fee, and up to 10% of gross operating profit is payable for management fee, including incentive fee.

Insurance Sector
FDI up to 26% in the Insurance sector is allowed on the automatic route subject to obtaining licence from Insurance Regulatory & Development Authority (IRDA)

Private Sector Banking Non-Banking Financial Companies

49% FDI is allowed from all sources on the automatic route subject to guidelines issued from RBI
from time to time. Allowed in the following 19 NBFC activities -

Merchant banking
Financial Consultancy Asset Management Factoring Leasing & Finance Credit card business Rural Credit

Underwriting
Stock Broking Venture Capital Custodial Services Housing Finance Micro Credit

Portfolio Management Services

Investment Advisory Services Credit Reference Agencies Credit rating Agencies Foreign Exchange Brokering Money changing Business

Telecommunication
FDI is limited to 49% subject to licensing and security requirements and adherence by the companies to the license conditions for foreign equity cap and lock- in period for transfer and addition of equity and other license provisions. ISPs with gateways, radio-paging and end-to-end bandwidth, FDI is permitted up to 74% with FDI, beyond 49% requiring Government approval. FDI up to 100% is allowed for the following activities in the telecom sector :

ISPs not providing gateways (both for satellite and submarine cables);
Infrastructure Providers providing dark fiber (IP Category 1); Electronic Mail; and Voice Mail

Trading
Permitted up to 51% provided it is primarily export activities, and the undertaking is an export house/trading house/super trading house/star trading house.

100% FDI is permitted in case of trading companies for the following activities:
exports bulk imports with ex-port/ex-bonded warehouse sales; cash and carry wholesale trading; other import of goods or services provided at least 75% is for procurement and sale of goods and services among the companies of the same group and not for third party use or onward transfer/distribution/sales.

FDI up to 100% permitted for e-commerce activities subject to the condition that such companies
would divest 26% of their equity in favour of the Indian public in five years.

Drugs & Pharmaceuticals

FDI up to 100% is permitted on the for manufacture of drugs and pharmaceutical Provided the activity does not attract compulsory licensing or involve use of recombinant DNA technology, and specific cell / tissue targeted formulations.

FDI proposals for the manufacture of licensable drugs and pharmaceuticals and bulk drugs produced
by recombinant DNA technology, and specific cell / tissue targeted formulations will require prior Government approval.

Roads, Highways, Ports and Harbours

FDI up to 100% under automatic route is permitted in projects for construction and maintenance of roads, highways, vehicular bridges, toll roads, vehicular tunnels, ports and harbours.

Call Centres in India

FDI up to 100% is allowed subject to certain conditions

Power
Up to 100% FDI allowed in respect of projects relating to electricity generation, transmission and distribution, other than atomic reactor power plants. There is no limit on the project cost and quantum of foreign direct investment.

Pollution Control and Management

FDI up to 100% in both manufacture of pollution control equipment and consultancy for integration of pollution control systems is permitted on the automatic route.

Business Process Outsourcing

FDI up to 100% is allowed subject to certain conditions.

FDI FUTURE PROJECTION FOR INDIA

FACTORS AFFECTING FDI

Profitability Electronic Gadgets - Samsung Costs of Production/Operations DBOI in Jaipur

Economic Conditions - Market potential, infrastructure, size of population, income

level etc Government Policies - Policies like foreign investment, foreign collaboration, remittances, profits, taxation, foreign exchange control, tariffs etc Political Factors - Political Stability, Relations with other countries, etc

PROBLEMS WITH FDI

Crowding of local industry Repatriation of profits/dividends by investor Conflicts of codes/laws Loss of control

Possible exploitation of resources-material/wages

Effect on natural environment Socio cultural effect

FINDINGS
Net FDI in India was valued at $4.7 billion in the 200708 Indian fiscal year, and more than tripled, to $15.7 billion, in the 200910 fiscal year. Almost one-half of all FDI is invested in the Mumbai and New Delhi regions. By country, the largest investors in India are Mauritius, the United States, and the United Kingdom. Investors based in many countries have taken advantage of the India-Mauritius bilateral tax treaty to set up holding companies in Mauritius which subsequently invest in India, thus reducing their tax obligations. By industry, the largest destinations for FDI are electrical equipment (including computer software and electronics), services, telecommunications, and transportation.