PRESENTED BY Dhaval Khera

Portfolio investment Investment that does not involve obtaining a degree of control in a company
Foreign Direct Investment Foreign direct investment (FDI) or foreign investment refers to the net inflows of investment to acquire a lasting management interest (10 percent or more of voting stock) in an enterprise operating in an economy other than that of the investor. It is the sum of equity capital, reinvestment of earnings, other long-term capital, and short-term capital as shown in the balance of payments. It usually involves participation in management, joint-venture, transfer of technology and expertise.

Investing in India

Automatic Route Automatic Route Automatic Route

General Rule General Rule General Rule

Prior Permission Prior Permission Prior Permission (FIPB) (FIPB) (FIPB)

By Exception By Exception
Prior Government Prior Government Approval needed. Approval needed. Decision generally Decision generally within 4-6 weeks within 4-6 weeks

No prior permission No prior permission No prior permission required required required Inform Reserve Bank Inform Reserve Bank Inform Reserve Bank within 30 days of within 30 days of within 30 days of inflow/issue of shares inflow/issue of shares inflow/issue of shares

Increase investment level and thereby income & employment Increase tax revenue of government Facilitates transfer of technology Encourage managerial revolution through professional management

Increase exports and reduce import requirements Increase competition and break domestic Improves quality and reduces cost of inputs monopolies

Flow to high profit areas rather than main concern areas Through their power and flexibility, MNC can undermine economic autonomy and control

Sometimes interferes in the national politics Sometimes engage in unfair and unethical trade practices Sometimes result in minimizing / eliminating competition and create monopolies or oligopolistic structures

Year
2001 2002 2003

India(Amount US $ Billion)
4.02 6.13 5.03

2004
2005 2006 2007*

4.32
6.05 8.961 17.59

*Jan.- Nov. Source- 1. http://siteresources.worldbank.org/CHINAEXTN/Resources/chinaei.pdf 2. www.rbi.org.in

FDI equity limitAutomatic route

Insurance 26% Domestic airlines 49% Telecom services- Foreign equity 74% Private sector banks- 74% Mining of diamonds and precious stones- 74% Exploration and mining of coal and lignite for captive consumption- 74%

Defense production 26% FM Broadcasting - 20% News and current affairs- 26% Broadcasting- cable, up-linking 49% Trading- wholesale cash and carry, export trading, etc., 100% Tea plantation 100% Development of airports- 100% Courier services- 100%

FDI requiring prior approval

 Engineering & Manufacturing sectors Roads & Highways, Ports and Harbors Industrial model towns/industrial parks Hotels & Tourism Pollution Control and Management Advertising & Film industry Power generation (hydro-electric, coal/lignite, oil or gas based) Information Technology including E-Commerce

Profitability: Attract where return on investment is higher Costs of production: Encouraged by lower costs of production like raw materials, labor . 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, nature of important political parties and relations with other countries.