FDI POLICIES IN INDIA

GROUP MEMBERS POOJA MISHRA 92 KHUSHBU MISTRY 94 MAYUR MOHITE 96 PRASAD MORYE

Agenda
Introduction

FDI in Retail
FDI in Pharma FDI in Aviation FDI in Banking & Insurance Conclusion

INTRODUCTION
Foreign direct investment (FDI) is a
direct investment into production or business in a

country by a company in another country by buying a company in the target country or by expanding operations of an existing business in that country.

Types of FDI

By direction
Inward

By target
Horizontal

By motive
Resource seeking

Outward

Vertical

Market seeking
Efficiency seeking

NEED OF FDI
Sustaining a high level of investment

Technological gap
Exploitation of natural resources

Understanding the initial risk

Development of basic economic infrastructure

Improvement in the balance of payments position

Foreign firms helps in increasing the competition

Progressive Liberalization
Pre-1991 1991 FDI was allowed selectively up to 40% under FERA This period was dominated by the Congress party 35 high priority industry groups were placed on the Automatic Route for FDI up to 51% Minority Congress government: Initiated economic reforms in a big way Automatic Route expanded to 111 high priority industry groups up to 100%/ 74%/ 51%/50% United Front Government: Inclusive of left parties, was perceived as traditionally opposed to FDI, but continued with the reforms. All sectors placed on the Automatic Route for FDI except for a small negative list BJP coalition government:(coalition of Left and Right wing parties) was traditionally seen as opposed to FDI, but continued with economic reforms.

1997

2000

Post 2000

Many new sectors opened to FDI; viz., insurance (26%), integrated townships (100%), mass rapid transit systems (100%), defence industry (26%), tea plantations (100%), print media (26%). Sectoral caps in many other sectors relaxed; BJP coalition government: pursued reforms vigorously and initiated second generation reforms.

SECTOR WISE FDI INFLOW

60

50

47.81

40

30

21
20

10

8.5

8.14

7.39

7.15

Service

I.T

Housing Construction

Power

Other

COUNTRY WISE FDI INFLOWS TO INDIA

45.00% 40.00% 35.00% 30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00%

Percentage of Total FDI Inflows

FDI inflows to India

40

USD (Billion)
35 30 25 20 15 10 5 0 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13

RETAIL SECTOR

FDI IN RETAIL SECTOR

51% FDI in Multi Brand Retail Increased FDI limit in single brand retail from 49% to 100% Minimum Investment to be done is $100 million. 50% of the investment should be done in improving the back-end infrastructure. 30% of all raw materials have to be procured from the small and medium enterprises. Permission to set retail stores only in cities with a minimum population of 10 lakhs

IMPLICATIONS
Pros:

Job opportunities
Benefit to the farmers Reduction in wastages Growth opportunities for retailers Benefit to stressed companies Real Estate companies

Cons:
Predatory pricing What about the middle men ?

Small scale enterprise

Contribution through public revenue

AVIATION

FDI in Aviation
Civil Aviation sector includes Airports, Airlines,

etc. Airports: Greenfield Projects 100% - Automatic Route Existing Projects 100% - Automatic up to 74% Government route beyond 74%
Airlines: Scheduled Air Transport Service/

Domestic Scheduled Passenger Airline - 49% (100% for NRIs) Automatic Route Non-Scheduled Air Transport Service - 74% (100% for NRIs) - Automatic up to 49% -

Pros of FDI in Aviation

One of the few aviation markets in the world

which is under-served and has vast growth potential Most of the Indian air operators are in crisis and in dire need of infusion of capital A move which will help distressed airline companies New airlines Increased competition FDI will infuse cash flow improve the current account deficit situation of the airline sector. Better International Connectivity

Cons of FDI in Aviation

Fear of a takeover of Indian airlines by the Global

giants.
Security Issues

Key Conditions Set By Government

Company should be registered in India and has

its principal place of business in India.

At least two-thirds of the Directors should be

citizens of India.
Security clearance before deployment

Impact on Indian Airline Companies

High Debt ridden kingfisher Airline
Spice jet Air India

Shortcomings
Only a handful of global airlines are making

profits
Permission to invest may not be through the

automatic route
Price war in the market.

FDI IN MINING SECTOR

FDI in Mining
Mining and Exploration of Metal and Non- Metal Ores

100% - Automatic
Mining of Coal and Lignite for Captive Consumption

100% - Automatic
Setting up Coal Processing Plants 100% -

Automatic
Mining and mineral separation of titanium bearing

minerals and ores 100% - Government

Impacts
Efficient Raw material utilization
Upgradation of technology Increase in production and exports of ores Improvement in the growth rate of mining sector

BANKING AND INSURANCE

FDI in Banking and Insurance Industry

FDI in Banking Private Sector

Cap/Equity- 74% including investment by FIIs

(Paid-up Cap) Route for FDI - Automatic up to 49% Government route beyond 49% and up to 74% Limit of 10% on voting rights for banking (Parliamentary Approvals for any changes) Subsidiary or Branches not both

FDI in Banking Public Sector

Cap/Equity - 20% (FDI and Portfolio Investment)

under Banking Companies (Acquisition & Transfer of Undertakings) Acts 1970/80. Entry Route Government RBI still holds Prime control

FDI in Insurance
Cap 26%

Route Automatic
License from IRDA for undertaking insurance

activities. As prescribed in the Insurance Act, 1938. Major Reason : Huge potential in Rural Markets Current- 16,8600 Cr to Rs 1,230,000 Cr (USD 312 B)

Conclusion Overall Effect of FDI

Increased Competition Efficiency, Cost Benefits

Increased inclusion of rural markets.

Implementation of modern technology, management

efficiency and operational efficiency Larger Capital Inflows Good for economy

CHALTA HAI!

Impact on Kirana stores (Unorganized Sector)

Dilution of Equity Loss of Management Control