FOREIGN DIRECT INVESTMENT

FDI stands for Foreign Direct Investment, a component of a country's national financial accounts. Foreign direct investment is investment of foreign assets into domestic structures, equipment, and organizations. It does not include foreign investment into the stock markets. It is the investment by company of country A in country B, with a view to have control and management on its investment.

Foreign
Foreign

Direct Investment (FDI) cross border investment with an objective to establish lasting interest
investment in India is regulated by Government of Indias FDI policy. The FDI guidelines administered by the Ministry of Commerce and Industry. of Industrial Policy & Promotion (DIPP), Foreign Investment Promotion Board (FIPB) and Secretariat of Industrial Assistance (SIA) regulate the FDI Policy monitored by RBI and compliance aspects of FDI

Department

Administrative

Reliable access to economic information. Stability of political and business environment . Ability to meet and comply with internationality acceptable standards and norms . Character of local market (size , growth , potential) or the distance and the access to neighboring markets. The existence of good quality infrastructure.

Market seeking : The investors are attached by the size of the local market , which depends on the income of the country and its growth rate. Lower cost : Investors are most cost-conscious . They are influenced by infrastructure facilities and labour costs. Location and other factors : Technology status of a country , brand name , goodwill enjoyed by the local firms , favorable location , openness of the economy , policies of the government and intellectual property protection granted by the government are some of the factors that attract investors to undertake investments

Wholly owned

subsidiaries.
e.g. LEGI Pvt. Ltd. By LG electronics

Joint venture. e.g. BAJAJ and ALLIANCE

Acquisition, one lose identity. e.g. korus by TATA

Amalgmation of two companies, both lose identity

Merger of two companies, no one lose his identity

Arms and ammunition Atomic energy . Railway transport. Coal and Lignite. Mining of iron , manganese , chrome , gypsum , gold , diamonds , copper and zinc . Lottery Business Gambling and Betting Business of Chit Fund

Hotel & Tourism Power Sector Drugs and Pharmaceuticals Roads, Highways, Ports and Harbors Pollution Control and Management Call centers Business Process Outsourcing Manufacturing Industries Designated as small scale Industries. Education

Multibrand retailing

49% FDI allowed in following sectors

Public sector Banking . Telecommunication Civil aviation Insurance sector

74% FDI allowed in

Private sector bank

 Defense

sector Pension sector Print media

Services Sector (19 per cent), Construction development: Townships , housing, builtup infrastructure* (12 per cent), Telecommunications (7 per cent), Computer Software & Hardware (6 per cent), Drugs & Pharmaceuticals (5 per cent), Chemicals (other than Fertilizers) (5 per cent), Power (4 per cent), Automobile Industry (4 per cent), Metallurgical Industries (4 per cent), Hotel & Tourism (3 per cent) . (oct.2012)

Mauritius (38 per cent) Singapore (10 per cent) U.K (9 per cent) Japan (7 per cent) U.S.A (6 per cent) Netherlands (4 per cent) Cyprus (4 per cent) Germany (3 per cent) France (2 per cent) U.A.E (1 per cent)

(oct.2012)

Automatic Route
General General Rule General Rule Rule

Prior Permission (FIPB)

By By Exception Exception
Prior Prior Government Government Approval Approval needed. needed. Decision Decision generally generally within within 4-6 4-6 weeks weeks

No No prior permission No prior prior permission permission required required required Inform Inform Reserve Bank Inform Reserve Reserve Bank Bank within 30 days of within within 30 30 days days of of inflow/issue inflow/issue of shares inflow/issue of of shares shares

A retailer is one who stocks the producers goods and is involved in the act of selling it to the individual consumer, at a margin of profit. Retailing is the last link that connects the individual consumer with the manufacturing and distribution chain.

 Retail trade is worlds oldest business. Retail trade consists of sale of goods & services to consumers for their personal, family or household use. Based on turnover and volume, retail trade is worlds biggest economic activity. In India by investing nominal Capital a person can start retail business. In India Retail shops are generally owned and run by family. The whole family gets self employed.

Top Ten Global Food Retailers

% Global Market Share (Grocery Retail)

Wal-Mart (US) Carrefour (France) Metro AG (Germany) Ahold (Netherlands) Tesco (UK) Kroger (US) Costco (US) ITM enterprises (France) Albertsons (for sale) (US)

8% 3% 2% 2% 2% 2% 2% 1% 1%

Source: Outlook for the retail and consumer products sector in Asia (PWC) - 2011

 Shortage

of capital Upgradation of technology foreign exchange Increase in employment Reduction in inflation Helpful in export promotion Standard of living Economies of scale

 Tax

Revenue Increase competition and break domestic monopolies.

Conflicts of laws. Loss of control. Effect on local cultural. Effect on SSI Increase in foreign dependence. Uncertainty Regional disparity Political interferences. Flow to high profit areas rather than main concern areas

Through their power and flexibility, MNC can undermine economic autonomy and control no correlation b/w fdi & infrastructure Product for upper class only. Preference to limited products and limited brands.

I.

II.

III. IV.

V.

India has a well developed network and financial institutions and an organized capital market open to foreign institutional investors that attracts them to undertake investments. Indian skills and competence is used as a base for carrying out production activities and export to neighbor countries. For the last few years there has been political stability in the country. India enjoy good reputation among other countries as a honoring of its commitments about repayment obligations , remittance of dividends etc India has vast potential of unskilled labor available at cheap rates as compared to other countries, and vast natural resources that attract foreign investors.

High rates of taxation Lack of infrastructure facilities Favoritisms in the selection of investment Complicated legal framework of rules, regulations, procedures for foreign direct investment into India. Lack of transparency.

51% FDI is allowed into Multi brand retailing in India which basically means the foreign retailers can set up shop in India with an Indian partner and have majority stake in the management of the business. The retailer has to invest at least 100 Mn USD (appox 550 Cr ) into the business. 50% of this investment should be invested to improve the back end infrastructure to benefit the producers like the farmers etc. The investment could be in cold chains, supply chain etc. The retailers have to source 30% of their goods in value terms from small and medium enterprises. The store can open in towns with population more than 1 million. 55 towns would qualify for this criteria in India The retailer has to comply with the local state rules and regulations and has to take relevant licenses for the same.

Ranked 2nd most favoured destination for foreign investments after china. In textile , the country is ranked 4th after CHINA,USA and ITALY. In electrical machinery it is ranked 5th. 6th position in basic metal category. 7th in chemical & chemical products. 12th in machinery and equipment and motor vehicles. UNCTAD reported that FDI in 2011 was $1.5 trillion, a 17% increase and a new record. It forecast that FDI would reach $1.6 trillion in 2012.

Source: economic survey 2O12