Presented by:

Ekta (32) Neha (137)

Anita (181) Ashish (182)

Avirup (183) Banani (184)

FDI & FPI June 29, 2009 1
Saumya (239)
 CONTENTS

FDI FPI
Definition &
Definition
Concepts Starting up
Considerations
Factors
of Govt.
affecting FPIs
Types
FPIs benefit to
Advantages &
society
Disadvantages Regulations for
Recent FIIs
changes NRIs / PIOs
Recent data FVCs
FDI & FPI June 29, 2009 2
• FDI stands for Foreign Direct Investment.

Foreign direct investment (FDI) is the movement

of capital across national frontiers in a manner
that grants the investor control over the acquired
asset. Thus it is distinct from portfolio investment
which may cross borders, but does not offer such
control

Consistent economic growth, de-regulation,

liberal investment rules, and operational
flexibility are all the factors that help increase
the inflow of Foreign Direct Investment or FDI

FDI & FPI June 29, 2009 3

 Requires relationship between foreign
country & subsidiary

 Brings out the concept of MNCs

 Minimum stake of 10% of ordinary shares

 Termed generally as FPI if less than

stipulated 10%

FDI & FPI June 29, 2009 4

• To explore the untapped potential market.

• Cheap labour availability

• To make profits: they sign MOU with the local

partner. MOUs have to be carefully crafted
and must be approved by the Govt.

FDI & FPI June 29, 2009 5

• Whether the investments are for the
priority projects
• These MNCs are very powerful so Govt.
must take care that they don’t repeat the
history of East India Company.
• Transfer of technology must be specified in
MOU
• Commodities produced must have export
potential
• Profit sharing should be properly
scrutinized FDI & FPI June 29, 2009 6
 FDI

Outwar
Inward
d
FDI & FPI June 29, 2009 7
 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 FDI & FPI June 29, 2009 8
 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

FDI & FPI June 29, 2009 9

Horizontal FDI : FDI in the same industry
abroad as that in which a firm operates at
home

Vertical FDI: When a multinational operates

in some other related fields

FDI & FPI June 29, 2009 10

Bringing infrastructure into the country

Bring advanced technology into the country

which can be used later on in the economy

Infrastructure created will be a permanent

asset of the economy

Creates more employment in the economy

FDI & FPI June 29, 2009 11

• Inflation may increase slightly

• Domestic firms may suffer if they are

relatively uncompetitive

• Too much dependency may arise and cause

problems

FDI & FPI June 29, 2009 12

 5th largest economy in the
world

 3rd largest GDP in ASIA &

2nd largest among
emerging nations

 Huge untapped markets

 Large populace and cheap

labour

 Liberalized economy

FDI & FPI June 29, 2009 13

 Main Sectors with FDI Equity/Route
Limit
FDI equity limit- FDI requiring prior
Automatic Route approval
• Insurance – 49% • Defense production – 26%
• Domestic airlines – 49% • FM Broadcasting - foreign
(74%) equity 20%
• Telecom services- Foreign • News and current affairs-
equity 74% 26%
• Private sector banks- 74% • Broadcasting- cable, DTH,
• Mining of diamonds and up-linking – foreign equity
precious stones (certain 49%
cases)- 74% (100%) • Trading- wholesale cash
• Exploration and mining of and carry, export trading,
coal and lignite for captive etc., 100%
consumption- 74% • Tea plantation – 100%
• Development
FDI & FPI
of 29,
June airports-
2009
Relaxations of norms for various sectors
 Commodity exchanges, credit information
and aircraft maintenance are opened for
overseas investors
100% investment in MRO in aviation
training units
 100% - Titanium bearing minerals
49% - Credit information companies
Hiking FDIs in public sector refineries from
26% to 49%

FDI & FPI June 29, 2009 15

Relaxations in norms like minimum
capitalization, 3 yrs. lock - in – period
Civil Aviation sector
 Domestic scheduled passenger airline sector
49% - in automatic route
100% - NRIs
 Non scheduled sector
74% - in automatic route
100% - NRIs
Real estate sector

FDI & FPI June 29, 2009 16

FDI EQUITY INFLOWS DURING CALENDAR YEAR 2008
SECTORS ATTRACTING HIGHEST FDI EQUITY INFLOWS
SECTORS-WISE FOREIGN TECHNOLOGY TRANSFER APPROVALS
 522

362

STATE-WISE FOREIGN TECHNOLOGY TRANSFER APPROVALS

 It is the passive holding of
securities such as foreign stocks,
bonds, or other financial assets
,none of which entails active
management or control of the
securities issues by the investor,

FDI & FPI June 29, 2009 22

In 1992, India opened up its economy and
allowed foreign portfolio investment in its
domestic stock market

Since then ,FPI has emerged as a major

source of private capital inflow in this country

FDI & FPI June 29, 2009 23

Tax rates on interest or dividends

Interest rates

Exchange rates

P.I is the part of capital account on BOP

FDI & FPI June 29, 2009 24

FDI & FPI June 29, 2009 25
RBI has granted permission to SEBI registered
(FIIs) invest in India under Portfolio investment
scheme.

All FIIs and their sub-accounts taken together

cannot acquire more than24% of the paid up
capital of an Indian economy

FDI & FPI June 29, 2009 26

NRIs/PIOs can purchase/ sell shares /
convertible debentures of Indian
companies on stock exchanges.

An NRI or PIO can purchase shares upto5%

of the paid up capital of Indian company.

All NRIs/PIOs taken together cannot

purchase more than 10% of the paid up
value of the company.

FDI & FPI June 29, 2009 27

A foreign venture capital investor may make
investment in a venture capital fund for an
Indian venture capital undertaking as per the
terms and condition of SEBI.

FDI & FPI June 29, 2009 28

FDI & FPI June 29, 2009 29