FDI N FII

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An Overview

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What is FDI

Why we need FDI Process of the Inflow of FDI

Benefits

Types

Advantages and disadvantages

FII

Diff between FII and FDI

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India -- the largest Democracy - one of the fastest growing economies in the World!

Slow rate of growth

Bureaucratic

Protected and slow

Small consumer markets

Weak infrastructure

Yesterday

Today

Strong macro economic fundamentals

Encouraging foreign investment

Outsourcing destination

Growing consumerism

Impetus on infrastructure development

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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.

FDI stands for Foreign Direct Investment, a

component of a country's national financial

accounts. Foreign direct investment is investment offoreign assets into domestic structures, equipment,

and organizations

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Foreign Direct Investment (FDI) cross border investment with an objective to

establish lastinginterest

Objective - to encourage FDI to promote industrial & socio-economic development;

supplement domestic capital/ technology

Foreign investment in India is regulated by Government ofIndias FDI policy. The FDI

guidelines administered by the Ministry of Commerce and Industry.

Department of Industrial Policy & Promotion (DIPP), Foreign Investment Promotion

Board (FIPB) and Secretariat of Industrial Assistance (SIA) regulate the FDI Policy

GoI has set up the Foreign Investment Implementation Authority (FIIA) to facilitate

quick translation of Foreign Direct Investment (FDI) approvals into implementation, toprovide a one-window to foreign investors by helping them obtain necessary approvals,

sort out operational problems and meet with various Government agencies

Administrative and compliance aspects of FDI monitored by RBI

Since 1991, policy has been liberalized substantially to facilitate foreign investment

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Liberal, largest democracy, Political Stability Second largest emerging market (US$ 2.4

trillion) Skilled and competitive labors force highest rates of return on investment one hundred of the Fortune 500 have R & D

facilities in India Second largest group of software developers

after the U.S. lists 6,500 companies on the Bombay Stock E xchange (only the NYSE has more)

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World's fourth largest economy & second largestpharmaceutical industry

growth over the past few years averaging 8% has a middle class estimated at 300 million out of a

total population of 1 billion Destination for business process outsourcing,

Knowledge processing etc. Second largest English-speaking, scientific,

technical and executive manpower

Low costs & Tax exemptions in SEZ Tax incentives for IT , business process

outsourcing and KPO companies

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Automatic RoutePrior Permission

(FIPB)

Investing in India

General Rule

No prior permissionrequiredInform Reserve Bankwithin 30 days ofinflow/issue of shares

By Exception

Prior GovernmentApproval needed.Decision generallywithin 4-6 weeks

Automatic Route

General Rule


Prior Permission(FIPB)Automatic Route

General Rule


By Exception

Prior GovernmentApproval needed.Decision generallywithin 4-6 weeks

Prior Permission(FIPB)

Automatic Route

General Rule

No prior permissionrequiredInform Reserve Bankwithin 30 days of

inflow/issue of shares

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Only for cases other than Automatic Routeand those mentioned in sectoral policy

Applies to cases with existing venture/ tie upin same filed

Applies to investment over 24% in SSI

reserved items

Government Route

Allowed for Most sectors

Limits : Sectoral caps/ stipulated sectorspecific guidelines

Inward remittances through proper bankingchannels

Pricing valuationsprescribed

Post facto filing with 30 days of fund receipt

Filings within 30 days of share allotment

Includes Technical Collaboration/ BrandName/ Royalty

Automatic Route

FDI Guidelines for Investing in Indian Wholly Owned Subsidiary / Joint

Venture

Foreign Investment Promotion Board (FIPB)No Prior Regulatory Approval but only PostFacto Filings to RBI, through AD

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Engineering & Manufacturing sectors

Roads & Highways, Ports and Harbors

Industrial model towns/industrial parks

Hotels & Tourism

Pollution Control and Management

Advertising & Film industry

Power generation (hydro-electric, coal/lignite, oil or gasbased)

Information Technology including E-Commerce

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Profitability: Attract where return on investment is higher

Costs of production: Encouraged by lower costs of production like

raw materials, labor .

Economic Conditions: Market potential, infrastructure, size of

population, income level etc

Government 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.

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Insurance 26%

Domestic airlines 49%

Telecom services- Foreign

equity 74%

Private sector banks- 74%

Mining of diamonds and

precious stones- 74%

Exploration and mining ofcoal and lignite for captive

consumption- 74%

Defense production 26%

FM Broadcasting - 20%

News and current affairs-26%

Broadcasting- cable, up-linking 49%

Trading- wholesale cash andcarry, export trading, etc.,100%

Tea plantation

100% Development of airports-

100%

Courier services- 100%

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Flow to high profit areas rather than main concern areas

Through their power and flexibility, MNC can undermine

economic autonomy and control

Sometimes interferes in the national politics

Sometimes engage in unfair and unethical trade practices

Sometimes result in minimizing / eliminating competition and

create monopolies or oligopolistic structures

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Increase investment level and thereby income & employment

Increase tax revenue of government

Facilitates transfer of technology

Encourage managerial revolution through professional

management

Increase exports and reduce import requirements

Increase competition and break domestic monopolies

Improves quality and reduces cost of inputs

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Existing Airports 100%

Asset Reconstruction

Companies 49% Titanium Minerals 100%

Broadcasting (a)

Cigars & Cigarettes 100%

Courier 100%

Print Media

(a)

26% Single brand retailing 51%

Agriculture (b)

Atomic energy

Retail trading (except singlebrand up to 51%)

Lottery, betting and gambling

Chit fund, Nidhi company

Trading in TransferableDevelopment Rights

Negative List

(Illustrative)

Prior Approval

(Illustrative)

NBFC (minimum capitalizationnorms)

IT / ITes

Financial services(a)

Telecom Sector (74% cap)(a)

Insurance (26 % cap)(a)

Real Estate(a)

Special Economic Zones

Infrastructure

Shipping

Manufacturing sector

Hotels and tourism

Automatic Route

(Illustrative)

Note: (a) Sector specific guidelines(b) Sub ect to certain exce tions

FDI limits Illustrative list

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Automatic Route

Prior Permission (FIPB)

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Investing in India

Automatic Route Prior Permission(FIPB)

General ruleNo prior permission

requiredOnly information to theReserve Bank of Indiawithin 30 days of inflow/Issue of shares

By exceptionPrior Government

Approval needed

Decision generallyWithin 4-6 weeks

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Prohibited activities

Atomic energy

Arms and ammunition

Lottery business

Betting and Gambling

Aircraft and warships

Coal lignite

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Fully permitted Activities

Cigar and cigarettes oftobacco

Coal, Roads & Highways

Diamond, Gold, Silver ,Minerals

Atomic minerals

Electricity

Hotel, hospitals

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Retail I.T

Oil & Energy

Power sector

Pharmaceuticals & Chemicals

Real state Mining

Mobile Sector

Automobile

Telecommunication

FDI inflows In real estate US$ 5 Billion

FDI inflows Retail US$ 20 Billion by 2010

FDI inflows in Mining US$ 2,5 Billion per N.M. FDI inflows in Telecommunication US$ 24 Billion

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Companies Sector Investment

Wal mart,Marks Retail US$ 10 Billion

Intel Corp. I.T US$ 40 Billion

British & cairn Oil & Energy US$ 2 Billion

Essar power Power sector US$ 2 Billion

Toyota Automobile US$ 10.51 Billion

Panasonic Telecommunication

US$ 200 million

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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

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12/13/2012 25

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List of companies in which FII investment is allowed uptolimits fixed by companies as indicated against theirnames

1 Amtek Auto Ltd (74%)

2 Advanta India Limited 49%

3 Amtek India Ltd (74%)

4 Ahmednagar Forgings Ltd (74%)

5 Anant Raj Industries Ltd. (40%)

6 ANG Auto Ltd (49%)

7 Apollo Hospitals (74%)

8 Aptech Ltd (74%)
http://www.rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=17073http://www.rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=17836http://www.rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=17073

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FDI

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

10.Abiding interest in mgt.

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 easy7. FII is eligible for capital gain

8. Tends to be speculative

9. No direct impact on employment of labour

and wages

10.Fleeting interest in mgt.

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An institution established outside India, whichinvests in securities traded on the markets inIndia e.g.

Pension Funds Mutual Funds Investment Trust Insurance companies Endowment Funds University Funds Foundations or Charitable Trusts Asset Management Companies Power of Attorney Holders Bank

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is Foreign Institutional Investment: It isinvestment made by foreign Mutual Funds in th

Indian Market.FDI is Foreign Direct Investment: It is theinvestment made by Foreign Multinationalcomapnies in India.

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Foreign Institutional Investors (FII)

FIIs may invest in: securities in the primary and secondary markets

(shares, debentures, warrants of listed and unlistedcompanies)

units issued by domestic mutual funds dated Government securities

derivatives traded on a recognized stock exchange

commercial paper

debt instruments provided a 70/30 equity/debtratio is maintained

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Foreign Institutional Investors (FII)

Limits on the type and amount ofinvestments apply to FIIs no more than 10% of the equity in any one company

no more than 10% in the equity in any one company

on behalf of a fund sub-account no more than 5% in the equity in any one company

on behalf of a corporate/individual sub-account

no more than 24% in the aggregate of the totalissued capital of a company to be held by FIIs

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Thank You

FDI N FII

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