2. Why India requires Foreign Capital
To speed up economic growth
To ensure investment and entrepreneurship
To bring in foreign technology and business
experience
3. In what form foreign capital become available
Foreign Direct Investment: Foreign companies
set up subsidiaries and branches in India
Portfolio investment: Foreign subscribe to
shares and debentures of companies in India
Foreign Collaboration: Foreign and Indian
firms jointly participate in business
Inter Government Loans:- Foreign
Government grant loans to India
Loans from International Institutions: like
world bank and IMF provides loans to India
4. Concept of FDI
It means investment in a foreign country where the
investor retains control over the investment in terms
of actual power of management and effective
decision making.
It typically occurs in the following ways:-
Setting up a subsidiary
Starting a joint venture
Acquiring a stake in existing firm in a foreign country
5. FII- Foreign Institutional Investors
When the investor makes only investment and does not retain
control over the enterprise, it is known as portfolio investment.
Portfolio investment tales place through FII like mutual funds,
global depository receipts, foreign currency convertible bonds.
6. Advantage of FDI
Increase the level of investment
Helps in transfer of knowledge, machinery and
equipment
Creates managerial revolution
Helps to boost the employment and income
Helps the host country to increase their exports
Helps to increase competition and break domestic
monopolies in the host country.
It improves standard of living
7. Disadvantages of Foreign Direct Investment
FDI investment are made in the high profit sectors
rather in the priority sectors.
FDI takes place through MNC’s and these MNC’s
become the threat for domestic players
The technology brought by foreign investor may not
be appropriate to the market size, resource base,
stage of economic development.
It involves risk and cost for home country
8. Determinants of FDI
Natural Resources:
Availability of natural resources is the major determinants of
FDI.
FDI is attracted in those countries which have abandon
unexploited natural resources.
Natural Markets:
Market size of the host country in relation to size and income
of population and market growth also attract FDI
Large market can adapt more firms and brings economies of
scale.
9. Availability of cheap labour:- low cost labour and low
cost raw materials helps to minimize costs of
production and increase profits.
Rate of Interest: foreign investment is also inspired by foreign
exchange rate.
Foreign capital is attracted to countries where the return on
investment is higher.
Socio economic conditions:- size of the population,
infrastructural facilities and income level of a
country influence direct foreign investment
10. Political Situation: political stability, legal
framework, judicial system, relations with other
countries and other political factors influence
movements of capital from one country to another.
Government Policies: policy towards foreign
investment, foreign collaborations, foreign exchange
control, remittance , and incentives offered to foreign
investors exercise a significant influence on FDI in a
country.
11. FDI In India
FDI is an important monetary source for India's
economic development.
Economic liberalisation started in India in the wake
of the 1991 crisis and since then, FDI has steadily
increased in the country.
India, today is a part of top 100-club on Ease of
Doing Business (EoDB) and globally ranks number 1
in the greenfield FDI ranking.
12. Currently FDI is permitted in India;
•Through financial collaborations.
•Through joint ventures and technical collaborations.
•Through capital markets via Euro issues.
•Through private placements or preferential allotments.
Major Sector for FDI in India are:
•Infrastructure
•Automotive
•Pharmaceuticals
•Defense
•Retails
•Railways Infrastructure
•Chemicals
•Textiles
•Airlines
FDI in India
13. Major Bodies Constituted For F.D.I. in India
FDI in India
• Foreign Investment
Promotion
Board (FIPB)
1991
• Foreign Investment
Promotion Council (FIPC)1996
• Foreign Investment
Implementation Authority
(FIIA)
1999
• Secretariat for
Industrial Assistance
(SIA)
2004
15. Current Status of F.D.I. in India
RECENT POLICY MEASURES UNDER MAKE IN INDIA
1
• Open new sectors for foreign direct investment,
2
• Increase the sectoral limit of existing sectors
3
• Simplifying rules and other conditions of the FDI policy
4
• 49% FDI under automatic route permitted in Insurance and Pension & Defense Sectors
5
• FDI up to 100% under automatic route permitted in Teleports, Direct to Home, Cable
Networks, Mobile TV, Headend-in- the Sky Broadcasting Service
6
• 74% FDI under automatic route permitted in brownfield pharmaceuticals. FDI beyond
74% will be allowed through government approval route
7
• 100% FDI under automatic route permitted in Brownfield Airport projects
8
• Defense, Telecom, Private Security or Information and Broadcasting need approval of
Reserve Bank of India for their offices
Source :
ttp://www.makeinindi
a.com/fdi
16. Factors affecting F.D.I. in India
Problems For Low FDI Flow To India:
Lack of adequate Infrastructure
Stringent Labor Laws
Corruption
Lack of decision making authority with the state governments
Limited scale of export processing zones
High corporate tax rates
Indecisive government and political instability
Determinants of FDI :
Stable policies
Economic factors
Cheap and Skilled Labour
Basic infrastructure
Unexplored markets
Availability of natural resources
17. Needs and Challenges of F.D.I. in India
Needs:
Sustaining a high level of investment
Technological gap
Exploitation of natural resources
Understanding the initial risk
Development of basic economic infrastructure
Improvement in the balance of payments position
Foreign firm’s helps in increasing the competition
Challenges:
18. Advantages and Disadvantages of F.D.I. in
India
ADVANTAGES:
Increase in Domestic Employment/Drop in unemployment.
Investment in Needed Infrastructure.
Positive Influence on the Balance of Payments.
New Technology and “Know How” Transfer.
Increased Capital Investment.
Targeted Regional and Sectoral Development.
DISADVANTEGS:
Local firms may loose business because of the attained power of foreign
firms.
The repatriation of profit may drain out the capital of the host country.
Local population may be displaced out of their jobs if they are unable to cope
with the technologically advanced foreign firms.
Technological Dependence on Foreign Technology Sources.
19. FDI should be aggressively promoted in R&D, Manufacturing
Import duty should be imposed to protect domestic production units.
Flexible labour laws is needed
Promote Greenfield projects
Geographical disparities of FDI should be removed
Education sector should be opened to FDI
Cooperative societies should be formed for the farmers and other agricultural
suppliers to take care of their rights.
Recommendations for Promoting F.D.I. in India
20. 1) Discuss the recent trends in India’s foreign direct
investment.
2) What are the various forms in which foreign capital
is flowing in India?
Mail it on sugandhaagarwal@ndimdelhi.in