DETAILS ABOUT FDI

1. ~ SANDESH GHOSAL
IIPM AHMEDABAD 09-11 1

2. FDI - Meaning
Factors Attracting FDI
Advantages & Disadvantages
Difference between FDI & FII
Contribution of Countries – FDI
FDI – INDIA
Inflation Rate, GDP, Trade Balance, Forex Reserves
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3.  Direct Investments in productive assets by company
incorporated in foreign country
 Investments in shares of local company by foreign
entities
 An important feature of an globalized economic
system
 Example: An Chinese company taking major stake in
A m e r i c a n o r I n d i a n c o m p a n y.
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4.  Av a i l a b i l i t y o f r a w m a t e r i a l s & r e s o u r c e s
 Cheap labor
 Large Domestic Market
 Policy Liberalization – easy entry & exit
 Rapid technical progress
 Low transaction cost – interest rates, royalties & fees,
f u n d t r a n s f e r, e t c .
 Friendly political support
 New Managerial & organizational techniques
 Political Stability
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5. A D VA N TA G E S
 Helps in the improvement of economic development
 Permits transfer of latest technology & knowledge transfer
 Develop human capital resources
 Creates jobs
 Boosts wages & salaries of employees
 Rise in productivity
 Borrow finance at lesser rate of interest
 Opportunities in trade of good & services
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6. D I S - A D VA N TA G E S
 Occur mostly in matters of operation & distribution of
profits.
 More expensive & risky than exporting and licensing
 Te c h n o l o g y d e p e n d e n c e
 Disturbance of Domestic Economic plans
 Cultural Change
 May entail high travel & communication expenses
 Chances of loosing ownership to an overseas company
 Instability in geographical region
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7. FDI FII
 Investment that parent company  Investment made by an investor
makes in foreign country in the markets of foreign nation
 Invest in foreign nation  Need to get register in the stock
exchange to make investments
 Cannot enter & exit easily  Enter the stock market easily &
withdraw if easily
 Aims to increase the enterprise  Investment flows into the
capacity or productivity or its secondary market. Helps in
management control increasing capital
 Flows into primary market  Flows into secondary market
 Brings capital as well as good  Does not come out with great
governance & better management benefits in spite of good
skills governance
 Long term investments  Short term investments
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8. CONTRIBUTION IN FDI (in %)
MAURITIUS SINGAPORE U.S.A. U.K.
JAPAN NETHERLANDS CYPRUS OTHERS
22%
44%
4%
4%
4%
Source: IMF
5% 8%
9%
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9.  FDI allows for investment in following ways:
Through Financial Alliance
Through Capital Markets
J o i n t S c h e m e s & Te c h n i c a l A l l i a n c e
Through Private Placements & preferential
allotments
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10. Automatic Route Government Control
Requires prior
Does not require
Government
any prior
approval &
approval from
considered by
RBI
FIPB
Required to
notify Regional
Decision within
office of RBI
4-6 weeks
within 30 days of
receipt inward
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11.  FDI in India is not allowed in following industrial
sectors:
1. Arms & Ammunition
2. Atomic Energy
3. Coal & Lignite
4. Ra il Tr a n s p o rt
5. Mining of metals like iron, manganese, chrome,
g y p s u m, s u l f u r, g o l d , d i a mo n d s , c o p p e r, z i n c .
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12. FDI IN DIFFERENT SECTORS OF INDIA
SECTOR FDI ALLOWED ROUTE
H o t e l & To u r i s m 100% Automatic
Insurance 26% (license from Automatic
IRDA)
Te l e c o m m u n i c a t i o n
• Basic, Cellular, 49% Automatic
VA S ,
communication
through Satellite
• ISPs, Radio paging 74% Automatic
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13. FDI IN DIFFERENT SECTORS OF INDIA
SECTOR FDI ALLOWED ROUTE
Tr a d i n g – b u l k 100% Automatic
imports, exports, cash
& Carry whole sale
trading
Power (other than 100% Automatic
atomic plants)
Drugs & 100% Automatic
Pharmaceuticals
(Manufacture)
Roads, Highways, 100% Automatic
Ports & Harbours
Pollution Control & 100% Automatic
Management
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14. FDI IN DIFFERENT SECTORS OF INDIA
SECTOR FDI ALLOWED ROUTE
BPO 100% Automatic
C i v i l Av i a t i o n 74% Automatic
Air Craft 100%
Maintenance &
repair operations
Commodity 26%
Exchanges
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15. Ye a r Wi s e F D I I n f l o w s
4500 4222
4000 3754
3682
3500
3134
USD MILLIONS
3000 2908
2770
2634
2439
2500
2141 2083
2000
1500 1374
1000
654
500 393
165
0
Source: Department of Commerce IIPM AHMEDABAD 09-11 15

16. CURRENCY PRICES
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17. Inflation Rate – Consumer Prices
9 8.3
8
7 6.7
6.4
6 5.4 5.4 5.4 5.3
5
4.2 4.2
4 3.8 Inflation Rate
3
2
1
Source: CIA World Fact Book
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
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18. Source: Reserve Bank of India IIPM AHMEDABAD 09-11 18

19. Ye a r Forex Reserves Amount ( in US $ million)
December 2007 272,722
December 2008 254,052
December 2009 283,643
April 2010 279,476
Source: Reserve Bank of India IIPM AHMEDABAD 09-11 19

20. Amount in US $ Millions
0
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
-8201.79
-20000 -13276.75
-27981.5
-40000
-46075.19
-60000
-80000
-100000
-95418
-120000 -114721
-140000
Source: Department of Commerce IIPM AHMEDABAD 09-11 20

21. G D P G R O W T H R AT E
12
10 9.7
9.2
8 7.7
7.2
6
4
2
0
2010 2009 2008 2007
Source: India Central Statistical Organization IIPM AHMEDABAD 09-11 21

22. Country Total Trade Trade Balance
China PRP 163,202 -92,676
USA 155,353 12,254
United Arab Emirates 152,668 -1934
Saudi Arabia 105,602 -64303
Germany 67,602 -19497
Singapore 63,280 2934
UK 50114 524
Hong Kong 50,129 1772
Belgium 41552 -5294
Netherland 33099 19049
Source: Federal Ministry of Commerce, Government of India
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