Foreign Direct Investment

&
Foreign Institutional Investment
IN
INDIA
Presented By

Ashish Tiwari
 AGENDA
🠶 F o r e i g n Investment

🠶Types Of Foreign Investment

🠶Significances Of Foreign Investment

🠶Limitations Of Foreign Investment

🠶Factors Affecting Foreign Investment

🠶Growth Of Foreign Investment

Foreign Investment
Types Of Foreign Investment
Wholly Owned
Subsidiary

Direct
Investment Joint Venture
(FDI)

Foreign Acquisition
Investment
Investment By
FIIs
Portfolio
Investment (FPI)
Investment In
GDRs,ADRs,FCCBs
 Significances Of Foreign Investment
🠶 Expansion In Employment 🠶 Government Benefits

🠶 Consumer Benefit 🠶 Competition

🠶 Technological Improvement 🠶 Managerial Revolution

🠶 Cultural Improvement 🠶 Global

Exposer
🠶 Import Export 🠶 Global Relationship

🠶 Growth In
Economy
 Limitations Of Foreign Investment
🠶Work On The High Profit Areas Rather
Than
Priority Sector
🠶Technological Advancement

🠶Evading
Nature
🠶Unfavourable Effect Towards Balance Of
Payment
Limitations Of Foreign Investment
🠶Interferes In The National Politics

🠶Unfair& Unethical Trade Practices

🠶Bulldogging Nature Towards Nation

Market
🠶Unfavourable For Countries
Economy
Factors Affecting Foreign Investment
🠶 Rate O f Interest
🠶Speculation
🠶Profitability
🠶Costs Of Production
🠶 E c o n o m i c Condition
🠶 G o vern men t Policies
🠶 P o l i t i c a l Policies
 Growth Of Foreign Investment
Region /Economy 1996 1997 1998 1999 2000 2001 2007 2008 2009
World 386140 478082 694457 1088263 1491934 735146 2099973 1770873 1114189
Developed 219908 267947 484239 837761 1227476 503144 1444075 1018273 565892
Economies
Developing 152685 191022 187611 225140 237894 204801 564930 630013 478349
Economics
Asia 93331 105828 96109 102779 133707 102066 336922 372739 301367
South, East 87843 96338 86252 999901 31123 94365 258830 282440 233050
And South-East
Asia
China 1st 40180 44237 43751 40319 40772 46846 83521 108312 95000
India 2nd 2525 3619 2633 2168 2319 3403 25001 40418 34613
Indonesia 4th 6194 4677 356 2745 4550 3277 6928 9318 4877
Korea 6th 2325 2844 5412 9333 9283 3198 2628 8409 5844
Malaysia 7th 7296 6324 2714 3895 3788 554 8538 7318 1381
Philippines 8th 1520 1249 1752 578 1241 1792 2916 1544 1948
Singapore 3rd 8608 10746 6389 11803 5407 8609 35778 10912 16809
 Foreign Direct Investment
In INDIA
🠶 What is it ?
🠶 Meaning of FDI
🠶 History Of FDI In INDIA
🠶 Types Of FDI
🠶 Significance of FDI
🠶 Factors Affecting FDI To Come In INDIA
🠶 Regulation For FDI Formation
 Foreign Direct Investment
In INDIA
🠶 Diversification Of FDI in INDIA
🠶 Culture OF FDI In INDIA
🠶 Growth Of FDI In INDIA
🠶 Advantages Of FDI In INDIA
🠶 Limitation Of FDI In INDIA
🠶 Impact Of FDI In INDIA
🠶 Experts Views On FDI In INDIA
 Meaning of FDI
[Link] stands for Foreign Direct Investment, a component of a
country's national financial accounts.

[Link] direct investment is investment of foreign assets

into domestic structures, equipment, and organizations.
[Link] does not include foreign investment into the stock markets.
[Link] is thought to be more useful to a country than
investments in the equity of its companies because equity
investments are potentially "hot money" which can leave at
the first sign of trouble, whereas FDI is durable and
generally useful whether things go well or badly.
5. FDI‘ Means Investment By Non-resident Entity/Person Resident Outside
India In The Capital Of An Indian Company Under Schedule 1 Of
Foreign Exchange Management (Transfer Or Issue Of Security By A
Person Resident Outside India)
 History of FDI In India
FDI Up To 100% Government Mulled Over The
Allowed Under The Idea Of Allowing 100% FDI In
Automatic Route Single-brand Retail And 50%
In Cash & Carry In Multi Brand Retail
(Wholesale)

1997 2006 2008 2011

FDI Up To 51% Government Allowed

Allowed With Prior 51% FDI In Multi Brand
Government Approval Retail And 100% FDI In
In Single Brand Retail
‘Single Brand Retail’
 Types Of FDI
🠶 Investment In Indian Companies Can Be Made
Both By Non-resident As Well As Resident Indian
Entities.
🠶 Any Non-resident Investment In An Indian Company
Is Direct Foreign Investment.
🠶 Investment By Resident Indian Entities Could Again
Comprise Of Both Resident And Non-resident
Investment. Thus, Such An Indian Company Would Have
Indirect Foreign Investment If The Indian Investing
Company Has Foreign Investment In It. The Indirect
Investment Can Also Be A Cascading Investment I.E.
Through Multi-layered Structure.
 Significance Of FDI
🠶Financial Transfer 🠶Information & Database
In Foreign
🠶 W o r l d w i d e Contacts
Exchange
🠶 R e s e a r c h & Development
🠶 P r o d u c t i o n Technology
🠶 T r a i n i n g Resources
🠶Management Skills
🠶 T r a d e Channels
🠶Physical Resources Like
Machinery Tools
Equipment Etc.
🠶Institutional System
 Background: India Transformed !!
…Yesterday
 Slow rate of growth
 Bureaucratic
 Protected and slow
 Small consumer markets
 Weak infrastructure
…Today
Strong Macro Economic Fundamentals

Encouraging Foreign Investment

Outsourcing Destination
Growing Consumerism
Impetus On
Infrastructure
Development
Factors Affecting FDI To Come In INDIA
🠶 Stable democratic environment over
60 years of independence
🠶 Large size of the economy,
particularly the large and growing middle
class
🠶 Open door policy towards FDI
🠶 Abundance of natural resources
🠶 Diversified industrial sectors
🠶 Large and growing market
🠶 Cost-effective and skilled labour
Factors Affecting FDI To Come In INDIA
🠶 World class scientific, technical and
managerial manpower
🠶 Cheap and abundant availability of
technical manpower at various level of skills
🠶 Large English speaking population
🠶 Stable political system
🠶 Well-established legal system with
independent judiciary
 Factors Affecting FDI To Come In INDIA
🠶Well Developed Accountancy, Legal,
Actuarial And Consultancy Profession
🠶Emerging trends towards
deregulation/privatisation and globalisation
🠶large network of banking institutions
🠶Liberal policy towards technology and capital goods
imports
🠶Gradual reduction in barriers to trade
🠶High level of compliance towards the polices of
multilateral economic institution like WTO, IMF & world
Bank
 Factors Affecting FDI To Come In INDIA
🠶Comfortable size of foreign exchange reserves &
current account convertibility
🠶 P r i c e stability
🠶Declining structure of interest rates in-
tune with global trends
🠶Good international economical & political
relations
🠶Strong advertising media
🠶Large base of existing MNC‟s in number of industrial
segment
 Regulation
For FDI Formation
Automatic Approval By RBI –
🠶 The Reserve Bank Of India Accords Automatic Approval
Within A Period Of Two Weeks (Subject To Compliance Of Norms)
To All Proposals And Permits Foreign Equity Up To 24%; 50%;
51%; 74% And100% Is Allowed Depending On The Category Of
Industries And The Sectorial Caps Applicable.
🠶 The Lists Are Comprehensive And Cover Most Industries
Of Interest To Foreign Companies.
🠶 Investments In High Priority Industries Or For Trading
Companies Primarily Engaged In Exporting Are Given Almost
Automatic Approval By The RBI.
 Regulation For FDI Formation
The FIPB Route – Processing Of Non-automatic Approval Cases
🠶 FIPB Stands For Foreign Investment Promotion Board Which Approves
All Other Cases Where The Parameters Of Automatic Approval Are Not
Met.
🠶 Normal Processing Time Is 4 To 6 Weeks.
🠶 Its Approach Is Liberal For All Sectors And All Types Of Proposals,
And Rejections Are Few.
🠶 It Is Not Necessary For Foreign Investors To Have A Local Partner, Even
When The Foreign Investor Wishes To Hold Less Than The Entire Equity Of
The Company.
🠶 The Portion Of The Equity Not Proposed To Be Held By The Foreign
Investor Can Be Offered To The Public.
 Foreign
Investor
s

FIPB

CCFI Industr CCEA

y

Ministr
y

SIA
 Indian
Issues Affiliat
of e Information
About FDI
shares Receipt &
RBI Share Issue
 India's Hottest FDI Destinations
1. Maharashtra
Maharashtra received the lion's share of the FDI US $2.43 billion
(◻ 11,154 Cr), which is 35% of the total FDI inflows in to the
country
2. National Capital Region
NCR received US $1.85 billion (◻ 8,476 Cr) in FDI during the
period. The region accounted for 20% of the total FDI.
3. West Bengal, Sikkim, Andaman & Nicobar Islands
These states attracted the third highest FDI inflows worth
US $1.416 billion (◻ 6,050 Cr)
4. Karnataka US $936 million (◻ 4,333 Cr)
5. Punjab, Haryana, Himachal Pradesh US $904 million (◻ 4,141 Cr)
 Existing Foreign-Indian
Partnership In India
Year Foreign Indian Type of Outlet Name Number of
Retailer Partner presence outlet

2003 Metro Wholly Metro Cash 8

owned & Carry
2007 Wal-Mart Bharti Joint venture Easy Day 9
2008 Tesco Tata Joint venture Star Bazaar -
2010 Carrefour Wholly Carrefour 1
owned Wholesale
Cash &
Carry
 Culture OF FDI In INDIA
FDI culture
 1991 foreign investment promotion board (FIPB)
 1996 foreign investment promotion council (FIPC)
 1999 foreign investment implementation authority (FIIA)
 2004 investment commission
 Project approval board (PAB)
 Licensing committee (LC)
 Secretariat for industrial approval (SIA)
 Investment promotion & infrastructure development cell
(IPIDC)
 Growth Of FDI In INDIA
Financial Year Wise FDI In Flow From
5000 2000-2012 4684 1.6

0 7

146% 4187
4000 1.4
4 37745
0 3483 1.2
5 34847 1
3000 0.8
0 22826
2000 0.6
52% 53%
0 48%
40%8961 0.4
34%
1000
0
-10000 40 50
0 6130 35
29
4322 -18% -14% 20% 0.2

0
-8% -8%
6051 -0.2
0 -0.4
2000- 2001-0 2002-0 2003- 2004- 2005- 2006-0 2007-0 2008- 2009- 2010- 2011-
01 2 3 04 05 06 7 8 09 10 11 12
FDI In Flow 4029 6130 5035 4322 6051 8961 22826 34835 41874 37745 34847 46847
% 0 52% -18% -14% 40% 48% 146% 53% 20% -8% -8% 34%
INCREASE
 Advantages For FDI In India
🠶 30% Of Products Should Be Sourced From Small Industries With
Infrastructure Investment Not Exceeding $ 1 Million(◻ 5.36 Cr)
🠶 Retail Trading Through E Commerce Will Not Be Permissible
For Companies Invest In Retail FDI
🠶 Present Indian Retail Market Is Around $435 Billion And Growing At A
CAGR Of 10-12%
🠶 Indian Retail Market Is Still Dominated By The Unorganised Sector
🠶 FDI In Retail Is Supposed To Create Around 1crore New Jobs In
Organised Sector But On The Flip Side Will Deplete Jobs From The
Unorganized Sector
 Advantages For FDI In INDIA
FDI In Retail Sector
🠶 Indian Retail Sector Accounts For 22% Of The GDP
🠶 Foreign Retailers Can Now Open Their Shops In Only Cities
With Population More Than 1 Million (10 Lakh) Belonging To
State And Union Territories That Have Acceded To The Multi
Brand Retail In Their State
🠶 Now Foreign Retailers Can Invest Up To 51% IN MULTI
Brands Retail And 100% In Single Brand Retail
🠶 Minimum Investment Should Be 100million Dollars 0r ◻ 535crore
(At Present Exchange Rate ) And 50% Of The Amount Should Be
Invested In Back-end Infrastructure Facilities Like Processing,
Manufacturing Warehousing Logistics Etc.
 Advantages Of FDI In INDIA
Retail Sector FDI Offering
🠶 Capital Inflow From The 🠶 Capital Inflow From
Country Itself The Oversees
🠶 Increased Stress 🠶 Releasing Stress
🠶 Unproductive Way Response 🠶 Productive Way Help To Banking
To Banking Sector Sector
🠶 Neutral Towards Currency 🠶 Help Towards Currency
🠶 Quality Employment Is 🠶 Quality Employment By
Not Existing Assuring To Give 10k Jobs In
Coming Decade
 Retail Market Share In India

100%
80%
60% 95 94 92 90 88 85
% % % % %
%
40%
20%
6 8 10 12 15
5
0% %
2010 %
2011 %
2012
%
2013
%
2014
%
2015
Column1
Un-Oragnized 95% 94% 92% 90% 88% 85%
Oragnized 5% 6% 8% 10% 12% 15%

Column1 Un-Oragnized
 Experts
Views On FDI In INDIA
"The safest form of financing is through
FDI, without any doubt because its long "We Have To Be Careful
term... If you can make more financing That We Are Not Overtly
Dependent On External
through FDI, you are safer and so to the Investors That This Is An
extent we can open up more to FDI ... Environment When The
There will be efficiency, because there will External Investor Is
be more competition in local economy," Quite Fickle...,"

Chief Economic Adviser

Raghu ram Rajan
 India & China Organized Retail Market Shares
100%

80%

60% 85% 80%

UN-ORANIZED
40% ORANIZED

20%
15% 20%
0%
INDIA CHINA
 Politics Goes On The FDI

If All Parties Vote If DMK,SP,BSP,ABSTAIN TO SAVE

THE GOVT.
0

205 205
243
243
96 0

35
For FDI Game Changer Anti FDI For FDI Game Changer Anti FDI
 Limitation Of FDI In INDIA
FDI is prohibited in
🠶 Retail Trading (except single brand product retailing)
🠶 Lottery Business including Government /private lottery, online lotteries,
etc.
🠶 Gambling and Betting including casinos etc.
🠶 Chit funds
🠶 Nidhi company
🠶 Trading in Transferable Development Rights (TDRs)
🠶 Real Estate Business or Construction of Farm Houses
🠶 Manufacturing of Cigars, cheroots, cigarillos and cigarettes,
of tobacco or of tobacco substitutes
🠶 Activities / sectors not open to private sector investment e.g.
Atomic Energy and Railway Transport (other than Mass Rapid
Transport Systems).
 Impact Of FDI In INDIA
🠶Creates employment opportunity for domestic country.
🠶Good relation between two countries.
🠶Inflow of foreign funds in Indian economy.
🠶It creates the competition among the domestic
company and MNC in this way domestic co can increase
their efficiency.
🠶Creating good capital market in India.
🠶Government earns in the form of licenses fees, registration
fees, taxes which is spend for public expenditure.
Foreign Institutional Investment
In INDIA

🠶 Meaning Of FII
🠶 Significance Of FII
🠶 Factors Affecting FII To Come In
INDIA
🠶Diversification Of FII In INDIA
Foreign Institutional Investment
In INDIA

🠶Growth Of FII In INDIA

🠶Advantages Of FII In
INDIA
🠶Limitation Of FII In INDIA
🠶Impact Of FII In INDIA
 Meaning Of FII
Foreign Institutional Investment (FII)
 FII denotes all those investors or investment companies
that are not located within the territory of the country in
which they are investing.
 “SEBI‟s definition of FIIs presently includes foreign pension
funds, mutual funds, charitable/endowment/university funds
etc. as well as asset management companies and other
money managers operating on their behalf.”

 Foreign Institutional Investor„(FII) means an entity

established or incorporated outside India which
proposes to make investment in India and which is
registered as a FII in accordance with the SEBI (FII)
Regulations 1995.
What are Foreign Investors looking
for?
🠶 Good projects
🠶 Demand Potential
🠶 Revenue Potential
🠶 Stable Policy Environment/Political
Commitment
🠶 Optimal Risk Allocation Framework
 Advantages for Foreign Institutional
Investors
🠶 FIIs Can Individually Purchase Up To 10% And Collectively Up To 24% Of
The Paid-up Share Capital Of An Indian Company
🠶 This Limit Of 24% Can Be Increased To Sectorial Cap/ Statutory Limit
Applicable To The Indian Company By Passing A Board
Resolution/Shareholder Resolution
🠶 FII Can Purchase Shares Through Open Offers/Private Placement/Stock
Exchange
🠶 Shares Purchased By FII Through Stock Exchange Cannot Be Sold
Through A Private Arrangement
🠶 Proprietary Funds, Foreign Individuals And Foreign Corporates Can
Register As A Sub- Account And Invest Through The FII. Separate
Limits Of 10% / 5% Is Available For The Sub-accounts
🠶 FIIs Can Raise Money Through Participatory Notes Or Offshore
Derivative Instruments For Investment In The Underlying Indian Securities
🠶FIIs In Addition To Investment Under The FII Route Can Invest Under FDI
Route
 Advantages of FII
🠶Enhanced flows of equity capital
🠶FIIs have a greater appetite for equity than
debt in their asset structure. It improve
capital structures.
🠶Managing uncertainty and controlling risks.
🠶FII inflows help in financial innovation and
development of hedging instruments.
🠶Improving capital markets.
 Advantages of FII
🠶 FIIs as professional bodies of asset managers and
financial analysts enhance competition and efficiency of
financial markets.
🠶 Equity market development aids economic
development.
🠶 By increasing the availability of riskier long
term capital for projects, and increasing firms‟
incentives to provide more
information about their operations, FIIs can help in the
process of
economic development.
🠶 Improved corporate governance.
🠶 FIIs constitute professional bodies, improve corporate
governance.
 Disadvantages of
FII
🠶Problems of Inflation
🠶Problems for small investor
🠶Adverse impact on Exports
🠶 H o t Money
Investment limits on Equity by FII

🠶FII, on its own behalf, shall not invest in equity

more than 10% of total issued capital of an Indian
company.
🠶Investment on behalf of each sub-account shall
not exceed 10% of total issued capital of an India
company.
🠶For the sub-account registered under Foreign
Companies/Individual category, the investment
limit is fixed at 5% of issued capital.
🠶These limits are within overall limit of 24% / 49
% / or the sectorial caps a prescribed by
Government of India / Reserve Bank of India.
Investment Limits On Debt
Investments By FII
🠶For FII Investments In Government Debt, Currently
Following Limits Are Applicable:
🠶 100 % Debt RouteUS $ 1.55 Billion
🠶 70 : 30 RouteUS $ 200 Million
🠶 Total Limit US $ 1.75 Billion

🠶For Corporate Debt The Investment Limit Is Fixed At

US $ 500 Million.
 Prohibitions On Investments
🠶 Business of chit fund
🠶 Nidhi Company
🠶 Agricultural or plantation activities
🠶 Real estate business or construction of farm
houses (real estate business does not include
development of townships, construction of
residential/commercial premises, roads or
bridges.
🠶Trading in Transferable Development Rights
(TDRs).
 Growth Of FII In INDIA
Financial year equity Debt. equity Total
2000-01 10206.7 -273.3 9933.4
2001-02 8072.2 690.4 8762.6
2002-03 2527.2 162.1 2689.3
2003-04 39959.7 5805.0 45674.7
2004-05 44122.7 1758.6 45881.3
2005-06 48800.5 -7333.8 41466.7
2006-07 25235.7 5604.7 30840.4
2007-08 53403.8 12775.3 66179.1
2008-09 -47706.2 1895.2 -45811.0
2009-10 110220.6 32437.7 142658.3
2010-11 110120.8 36317.3 146438.1
2011-12 (till 2367.6 8186.2 10553.8
today)
 FII: How To Impact Indian Economy
FII leads to appreciation of the currency: FII need to maintain an account
with RBI fro all transaction. to understand the implication of FII on the
exchange rate we have to understand how the value of one currency
appreciate or depreciate against the other currency
FII and exports: if our Indian currency appreciates just because of FII
(net inflow in India) there is adverse effect on our export. Our export
industry will become uncompetitive due to appreciation of rupees.
FII and stock market: when cap on FII is high then they can bring in lot of
funds in country‟ stock market.
FII and inflation: the huge amount of FII fund flow creates the huge
demand for Indian rupees. In that situation RBI print more money in the
market. This situation could lead to excess liquidity thereby leading to
inflation.
 Differentiation Between
FDI & FII
FDI 10. Abiding interest in mgt.

1. It is long-term investment

2. Investment in physical assets

3. Aim is to increase enterprise capacity

or productivity or change
management control

4. Leads to technology transfer, access to

markets and management inputs

5. FDI flows into the primary market

6. Entry and exit is relatively difficult

7. FDI is eligible for profits of the company

8. Does not tend be speculative

9. Direct impact on employment of labour and

wages
 FII
1. It is generally short-term investment

2. Investment in financial assets

3. Aim is to increase capital availability

4. FII results in only capital inflows

5. FII flows into the secondary market

6. Entry and exist is relatively easy

7. FII is eligible for capital gain

8. Tends to be speculative

9. No direct impact on employment of labour and

wages

[Link] interest in mgt.

"If there is one place on the face of this
earth where all the dreams of living men
have found a home when man began the
dream of existence, it is India".

Romaine Rolland,

French philosopher