FDI IN INDIA

BY-Vikas KumarMIET

FDI is defined in dictionary of economics is “investment in a foreign country through the

acquisition of a local company or the establishment there of an operation on a new site”.

What is FDI ?

The Automatic Route- The non resident investor or the india company doesn’t require any approved route from the RBI or government of india from the investment .

The Government route- The government of india through foreign investment promotion board(FIPB) is required.

Entry Route For FDI

Portfolio investmentInvestment that does not involve obtaining a degree of control in a company

Foreign Direct Investment Purchase of physical assets or a significant amount of the ownership (stock) of a company in another country to gain a measure of management control

DESCRIPTION

Advantages of FDI

Increase investment level and thereby income & employmentIncrease tax revenue of governmentFacilitates transfer of technologyEncourage managerial revolution through professional managementIncrease exports and reduce import requirementsIncrease competition and break domestic monopoliesImproves quality and reduces cost of inputs

Limitations of FDI

Flow to high profit areas rather than main concern areasThrough their power and flexibility, MNC can undermine economic autonomy and controlSometimes interferes in the national politicsSometimes engage in unfair and unethical trade practicesSometimes result in minimizing / eliminating competition and create monopolies or oligopolistic structures

FDI equity limit-Automatic routeInsurance – 26%Domestic airlines – 49%Telecom services- Foreign equity 74%Private sector banks- 74%Mining of diamonds and precious stones- 74%Exploration and mining of coal and lignite for captive consumption- 74%

FDI requiring prior approvalDefense production – 26%FM Broadcasting - 20%News and current affairs- 26%Broadcasting- cable, up-linking – 49%Trading- wholesale cash and carry, export trading, etc., 100%Tea plantation – 100%Development of airports- 100%Courier services- 100%

100% FDI permitted in India

Engineering & Manufacturing sectors Roads & Highways, Ports and HarborsIndustrial model towns/industrial parksHotels & TourismPollution Control and ManagementAdvertising & Film industryPower generation (hydro-electric, coal/lignite, oil or gas based)Information Technology including E-Commerce

Factors affecting FDI

Profitability: Attract where return on investment is higherCosts of production: Encouraged by lower costs of production like raw materials, labor .Economic Conditions: Market potential, infrastructure, size of population, income level etcGovernment policies: Policies like foreign investment, foreign collaboration, remittances, profits, taxation, foreign exchange control, tariffs etc.Political factors: Political stability, nature of important political parties and relations with other countries.

FII

Foreign Institutional Investors (FIIs) are allowed to invest in the primary and secondary capital markets in India through the portfolio investment scheme (PIS). Under this scheme, FIIs/NRIs can acquire shares/debentures of Indian companies through the stock exchanges in India 

List of companies in which FII investment is allowed upto limits fixed by companies as indicated against their names

Amtek Auto Ltd (74%) Advanta India Limited 49% Amtek India Ltd (74%) Ahmednagar Forgings Ltd (74%) Anant Raj Industries Ltd. (40%) ANG Auto Ltd (49%) Apollo Hospitals (74%) Aptech Ltd (74%) Arshiya International Limited (49%) Bombay Rayon Fashions Ltd (40%)

OBJECTIVE OF THE STUDY

The main objective of the study is to know about in which sector the industries are invest our money FDI or FII.To identify factors which inhibit higher FDI or FII flows and suggest remedial steps.To examine policy reforms towards mergers and acquisition for attracting FDI or FIITo suggest changes in institutional apparatus and organizations, both in Centre and States, for attracting the FDI or FII flows.

CONCLUSION

The result of all these efforts are encouraging: the inflow of foreign capital has been steadily rising year to year so that FDI is better then FIIInvestors based in many countries have taken advantage of the India-Mauritius bilateral tax treaty to set up holding companies in Mauritius which subsequently invest in India, thus reducing their tax obligations. By industry, the largest destinations for FDI are electrical equipment (including computer software and electronics), services, telecommunication & transportation.

Thank You………!