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FDI and FII impact on dollar rupee exchange rate
1. FDI and FII investments rules, are they good,
do they have an impact on the Rupee/ Dollar rate
Presented By:
Bhupendra Choubisa 06
Jitesh Jain 13
Rishon Bhastekar 32
Shoeb Pathan 40
Swanand Bhadang 45
Tushar Bhosale 48
2. TYPES OF INFLOWS
Types of
Inflows
FDI FII
Foreign Direct Investment
Foreign direct investment (FDI) in its classic form is defined
as a company from one country making a physical
investment into building a factory in another country. It is
the establishment of an enterprise by a foreigner.
3. ROUTES OF FDI
INVESTING IN INDIA
PRIOR PERMISSION
AUTOMATIC ROUTE
(F.I.P.B.)
ONLY
DECISION
INFORMATION
GENERALLY
TO RBI WITHIN GENERAL RULE EXCEPTION
30 DAYS OF WITHIN 4
NO PRIOR PRIOR
INFLOW/ ISSUE TO 6 WEEKS
PERMISSION GOVERNMENT
OF SHARES
REQUIRED APPROVAL NEEDED
4. Automatic Route
No prior Government approval is required if the investment to be
made falls within the sectoral caps specified for the listed activities.
Only filings have to be made by the Indian company with the
concerned regional office of the Reserve Bank of India (“RBI”)
within 30 days of receipt of remittance and within 30 days of
issuance of shares
FIPB Route
Investment proposals falling outside the automatic route would
require prior Government approval. Foreign Investment requiring
Government approvals are considered and approved by the Foreign
Investment Promotion Board (“FIPB”). Decision of the FIPB usually
conveyed in 4-6 weeks. Thereafter, filings have to be made by the
Indian company with the RBI
4
5. Most manufacturing activities
Non-banking financial services
Drugs and pharmaceuticals
Food processing
Electronic hardware
Software development
Film industry
Advertising
Hospitals
Pollution control and management
Management consultancy
Computer related Services
Research and Development Services
Construction and related Engineering Services
Pollution Control and Management Services
Health related & Social Services
Travel related services
6. FDI is not permissible in the following cases
Gambling and Betting, or
Lottery Business, or
Business of chit fund
Housing and Real Estate business.
Trading in Transferable Development Rights (TDRs)
Retail Trading
Atomic Energy
7. AIRPORTS
Foreign Investment upto 100% is allowed in green field projects under
automatic route
Foreign Direct Investment is allowed in existing projects
- upto 74% under automatic route
- beyond 74% and upto 100% subject to Government approval
TELECOM
- Automatic upto 49%
- FIPB beyond 49% but upto 74%
8. INSURANCE
FDI upto 26% allowed on the automatic route
However, license from the Insurance Regulatory & Development
Authority (IRDA) has to be obtained
PETROLEUM
For petroleum refining activity 100% FDI is permitted in Indian Private
Companies under automatic route and upto 26% FDI is permitted in
Public Sector Undertakings with Government approval
9. PRIVATE SECTOR BANKING
Foreign Investment upto 74% is permitted from all sources (FDI +FII)
under the automatic route subject to guidelines for setting up of
branches/subsidiaries of foreign banks issued by RBI from time to
time.
PRINT MEDIA
FDI upto 26% in publishing news papers and periodicals dealing in
news and current affairs subject to verification of antecedents of
foreign investor and keeping editorial and management control in the
hands of resident Indians
10. Large and growing market
World class scientific, technical and managerial manpower
Cost-effective and highly skilled labor
Access to global market place for domestic players
Contribution to exports growth
Large availability of capital
Increase domestic savings and investments
Increase in Forex Reserves
11. Crowding of local industry
Loss of control
Repatriation of profits ( dividends by investor)
Effects on local culture / sentiments – socio cultural effects
12. Foreign Institutional Investment is used to denote an investor -
mostly of the form of an institution or entity, which invests money
in the financial markets of a country different from the one where
in the institution or entity was originally incorporated.
FII investment is frequently referred to as hot money for the reason
that it can leave the country at the same speed at which it comes
in.
Agencies Regulating FII in India
RBI: the apex bank
FIPB: reviews all foreign investment proposals
SEBI: which regulates India's capital markets
13. FDI FII
1. FDI is when a foreign company brings capital FII is when a foreign company buys equity in
into a country or an economy to set up a a company through the stock markets.
production or some other facility. FDI gives Therefore, in this case, FII would not give the
the foreign company some control in the foreign company any control in the company.
operations of the company
2. Foreign direct investment involves in the Foreign portfolio investment is a short-term
direct production activity and also of medium investment mostly in the financial markets
to long-term nature and it consists of Foreign Institutional
Investment (FII).
3. It enables a degree of control in the company. It does not involve obtaining a degree of
control in a company.
4. FDI brings long-term capital, The FII brings short-term one
14. Trading and delivery volume raises
Volatility will be curtailed
More liquidity will created
Standard will be improved because of investors quality
15. Disadvantages of FII
Problems of Inflation.
Hot Money.
False representation of economy.
Cannot be utilized for long term.
Problem for small investor.
16. Stock market
The FII’s profit from investing in emerging financial stock markets, say the
Indian stock Exchange. If the cap on FII is high then they can bring in lot of
funds in the countries stock markets and thus have great influence on the
way the stock markets behaves, going up or down. The FII buying pushes the
stocks up and their selling shows the stock market the downward path. So
this is how influencing FII can be, as is seen in the present downtrend of the
stock markets in India courtesy heavy FII selling.
Exchange Rates
The simple way of understanding is through Demand and Supply. If say US
imports from India it is creating a demand for Rupee thus the Indian rupee
appreciates w.r.t the dollar. If India imports then the dollar appreciates w.r.t
the Indian rupee.
17.
18. Exports & Imports
The FII lead to appreciation of the currency, they lead to the exports industry
becoming uncompetitive due to the appreciation of the rupee. For e.g. if 1 USD =
Rs.40 and a soap costs 1 USD. Now when the rupee appreciates 1 USD = Rs. 20, I
will have to sell the same soap to the US for 2 US Dollars in order to sustain the
same income that I have been making i.e. Rs.40. Thus excess FII fund inflow in the
country can also make a negative impact on the economy of the country.
Inflation
The huge amount of FII fund inflow into the country creates a lot of demand for
rupee, and the RBI pumps the amount of Rupee in the market as a result of
demand created by the FII’s. This situation could lead to excess liquidity
Thus there should be a limit to the FII inflow in the country.