Foreign Direct Investment (FDI) What is FDI Why we need FDI Process of the Inflow of FDI Benefits Types Advantages and disadvantages FII Diff between FII and FDI
Modes of FDI 1) By Direction * Inward *Outward 2) By Target * Mergers and Acquisitions * Horizontal FDI * Vertical FDI (a) Backward Vertical FDI (b) Forward Vertical FDI 3 ) By Motive * Resource-Seeking * Market-Seeking * Efficiency-Seeking
Factors Affecting FDI Financial incentives (Funds from local Government) Fiscal incentives (Exemption from import duties) Indirect incentives (Provides land and Political stability Market potential & accessibility Large economy Market size
Why India? Liberal, largest democracy, Political Stability Second largest emerging market (US$ 2.4 trillion) Skilled and competitive labors force highest rates of return on investment one hundred of the Fortune 500 have R & D facilities in India Second largest group of software developers after the U.S. lists 6,500 companies on the Bombay Stock Exchange (only the NYSE has more)
Why India (cont.) World's fourth largest economy & second largest pharmaceutical industry growth over the past few years averaging 8% has a middle class estimated at 300 million out of a total population of 1 billion Destination for business process outsourcing, Knowledge processing etc. Second largest English-speaking, scientific, technical and executive manpower Low costs & Tax exemptions in SEZ Tax incentives for IT, business process outsourcing and KPO companies
Government policies Automatic Route Prior Permission (FIPB)
Investing in India – Entry Routes Investing in India Automatic Route Prior Permission (FIPB) General rule No prior permission required Only information to the Reserve Bank of India within 30 days of inflow/ Issue of shares By exception Prior Government Approval needed Decision generally Within 4-6 weeks
FDI Investment Sectors Prohibited activities Atomic energy Arms and ammunition Lottery business Betting and Gambling Aircraft and warships Coal lignite Fully permitted Activities Cigar and cigarettes of tobacco Coal, Roads & Highways Diamond, Gold, Silver, Minerals Atomic minerals Electricity Hotel, hospitals
Retail I.T Oil & Energy Power sector Pharmaceuticals & Chemicals Real state Mining Mobile Sector Automobile Telecommunication FDI inflows In real estate US$ 5 Billion FDI inflows Retail US$ 20 Billion by 2010 FDI inflows in Mining US$ 2,5 Billion per N.M. FDI inflows in Telecommunication US$ 24 Billion
Major Investments CompaniesSectorInvestment Wal mart,MarksRetailUS$ 10 Billion Intel Corp.I.TUS$ 40 Billion British & cairnOil & EnergyUS$ 2 Billion Essar powerPower sectorUS$ 2 Billion ToyotaAutomobileUS$ 10.51 Billion PanasonicTelecommunicatio n US$ 200 million
What is an FII?? An institution established outside India, which invests in securities traded on the markets in India e.g. Pension Funds Mutual Funds Investment Trust Insurance companies Endowment Funds University Funds Foundations or Charitable Trusts Asset Management Companies Power of Attorney Holders Bank
FII Vs FDI FII is Foreign Institutional Investment: It is investment made by foreign Mutual Funds in the Indian Market. FDI is Foreign Direct Investment: It is the investment made by Foreign Multinational companies in India.
Foreign Institutional Investors (FII) Foreign investment banks are not permitted to directly invest in shares on the Indian stock exchange Makes investments on behalf of foreign investors, referred to as “sub-accounts”
Foreign Institutional Investors (FII) FIIs may invest in: securities in the primary and secondary markets (shares, debentures, warrants of listed and unlisted companies) units issued by domestic mutual funds dated Government securities derivatives traded on a recognized stock exchange commercial paper debt instruments – provided a 70/30 equity/debt ratio is maintained
Foreign Institutional Investors (FII) Limits on the type and amount of investments apply to FIIs no more than 10% of the equity in any one company no more than 10% in the equity in any one company on behalf of a fund sub-account no more than 5% in the equity in any one company on behalf of a corporate/individual sub-account no more than 24% in the aggregate of the total issued capital of a company to be held by FIIs
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