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-:CONTENTS:Sr.No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 SUBJECT Introduction of the Study Need & Purpose For FDI TYPES OF FDI FLOW TO INDIA Objective of the Study Scope of the Project Growth of Foreign direct Investment Sectors Benefited With FDI Regulatory Mechanism for FDI Year wise FDI Inflow Diversified FDI Inflows Governments Participation In FDI LAWS OF FDI Permissible Limits for FDI in different Sectors FDI in Retail Sector RESULTS OF THE STUDY FDI Impact on Domestic Enterprises LIMITATION OF FOREIGN DIRECT INVESTMENT Conclusion PAGE No. 7 9 9 10 10 11 12 16 19 20 21 20 24 47 54 54 56 56
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Bibliography
57
Portfolio flow of capital:- portfolio flow of capital that are made by institutional foreign investors that make investments in India's debt and stock markets. Investment made in commercial banks:- The Forms of Foreign Capital Flowing into India also include, investments that are being made by the foreign investors in the commercial banks of India Private foreign investment:- under private foreign investment investors either sets up a branch or a subsdiary in the host country. The major sectors that have been benefited from Foreign Direct Investment are as follows: Financial sector (banking and non-banking). Insurance Telecommunication Hospitality and tourism Pharmaceuticals Software and Information Technology.
Scope of the Project : The Scope of the Project is to find out where in India is Foreign Direct Investment is taking place
In order to attact Foreign direct Investment (FDI) from the worlds major investors and in order to present a favorable scenario for investors the Indian government has announced a number of reforms and has implemented several industrial policies. The foreign direct investment is allowed in India through collaborations that are of financial nature, joint venture collaborations, through preferential allotments, investment through EURO issues.Apart from this it has opened of FDI route by setting up of 100% EOUs /EHTPs/ STPs etc and entering into Foreign technology agreement. As a result of the various policy initiatives taken, India has been rapidly changing from a restrictive regime to a liberal one, and FDI is encouraged in almost all the economic activities under the automatic route, huge amounts of foreign direct investment is coming into India through nonresident Indians, international companies, and various other foreign investors. The growth of FDI in India boosted the economic growth of the country major advantages of FDI in India have been in terms of: Increased capital flow. Improved technology. Management expertise. Access to international markets
Sector-wise FDI Inflows ( From April 2000 to January 2010) SECTOR AMOUNT OF FDI INFLOWS In Rs Million Services Sector 787420.81 In US$ Million 18118.40 8876.43 6215.55 5029.01 3310.23 5118.85 3129.66 1964.06 1551.88 2612.85 1324.92 1621.03 2244.17 1480.94 1112.92 1217.50 760.32 748.57 648.86 1194.20 522.86 PERCENT OF TOTAL FDI INFLOWS (In terms of Rs) 22.39 11.12 7.83 6.07 4.17 6.20 3.90 2.47 1.80 3.11 1.63 2.01 2.68 1.77 1.38 1.49 0.98 0.96 0.80 1.48 0.60
Chemicals (Other than 87008.07 Fertilizers) Ports Metallurgical industries 63290.50 109563.20
Electrical Equipments 57379.63 Cement & Gypsum Products Petroleum & Natural Gas Trading Consultancy Services Hotel and Tourism Food Processing Industries Electronics 70781.19 94417.17 62416.85 48647.43 52500.05 34362.49 33914.75
Misc. Mechanical & 28310.13 Engineering industries Information & Broadcasting (Incl. Print media) Mining 52115.90 21204.94
Measuring FDI restrictiveness The FDI Index gauges the restrictiveness of a countrys FDI rules by looking at the four main types of restrictions on FDI: Foreign equity limitations Screening or approval mechanisms Restrictions on the employment of foreigners as key personnel Operational restrictions, e.g. restrictions on branching and on capital repatriation or on land ownership The FDI Index is not a full measure of a countrys investment climate. A range of other factors come into play, including how FDI rules are implemented. Entry barriers can also arise for other reasons, including state ownership in key sectors. A countrys ability to attract FDI will be affected by factors such as the size of its market, the extent of its integration with neighbours and even geography. Nonetheless, FDI rules are a critical determinant of a countrys attractiveness to foreign investors. Furthermore, unlike geography, FDI rules are something over which governments have control. FDI restrictions tend to arise mostly in primary sectors such as mining, fishing and agriculture, but also in media and transport.
On February 11, 2010, the Government of India approved new rules on foreign direct investment. They were issued on March 26 by the Department of Industrial Policy and Promotion (DIPP) and entered into force on April 1. Under the liberalized measures, the Finance Minister can endorse proposals involving foreign equity of up to INR1200 crore [1 crore equals 10,000,000 Indian rupees (INR)] (about US$268 million as of April 5, 2010) without seeking approval from the Cabinet Committee on Economic Affairs (CCEA), creating an automatic consideration procedure. Previously, FDI proposals for amounts above INR600 crore were referred to the CCEA. Because the CCEA is comprised of several ministers in charge of various portfolios, it could be a time-consuming procedure. The new FDI rules stipulate that proposals for FDI of up to RS1,200 crore will be handled by the FIPB, which is under the Finance Ministry. This administrative change is expected to streamline the process. (Singh, supra.) Now, foreign investors who have already obtained the requisite approval are not required to obtain new approvals in order to make additional investments in the same entity if: 1) The investment activities or sectors have been transferred to the automatic procedure; 2) Previous sectoral caps on foreign FDI activities have been removed or the permitted FDI amount increased and the activities have been placed under the automatic route; or 3) The approval was obtained to meet previous requirements set forth in Press Note 18/1998 or Press Note 1/2005. These Notes address foreign investment/ technical collaboration proposals "where the foreign investor has or had any previous joint venture or technology transfer/trademark agreement in the same or allied field in India. Moreover, foreign investors will no longer need to obtain no-objection certificates (NOC) from domestic company jointventure partners in order to invest on their own in the same sectors.
LAWS OF FDI
GOVERNING LAWS
Both domestic (of the investing and recipient economies) and international laws govern FDI. Domestic investment codes typically include provisions to attract FDI and safeguard direct investors, such as promises of national treatment, most-favored-nation treatment, tax incentives, security measures, and/or dispute resolution .In the event of an investor-State dispute, investors generally must exhaust local remedies before turning to other nations or international dispute resolution, such as the International Centre for Settlement of Investment Disputes, an international arbitration institution. International law also governs FDI. Sources of international law include, inter alia, multilateral treaties, bilateral investment treaties (BITs), customary international law, and judicial decisions. Multilateral treaties, such as the Agreement on Trade-Related Investment Measures (regarding trade in goods) and the Agreement on Trade-Related Aspects of Intellectual Property (regarding intellectual property) harmonize disparate domestic laws. Attempts, however, to negotiate a comprehensive, multilateral investment treaty have failed. As such, the U.S. views BITs as particularly important and has negotiated40 that are currently in force.
Foreign Direct Investment (FDI) Permissable Limits in Different Sectors as on December 2012
Sl. No. Sector FDI Permissible Limit
100%
Power
100%
100%
100%
100%
100%
Telecom Sector
74%
Insurance
26%
Defense
26%
Limits
for
FDI
in
(B)
Banking Cable network** DTH ** Infrastructure investment Telecom Insurance (Enhanced from 26% to 49% in October, 2012)
49% (FDI & FII) in power exchanges registered under the Central Electricity Regulatory Commission (Power Market) Regulations 2010 subject to an FDI limit of 26 per cent and an FII limit of 23 per cent of the paid-up capital is now permissible. [Permitted in September 2012]
(D) 74% FDI is permitted in Atomic minerals Science Magazines /Journals Petro marketing Coal and Lignite mines Telecom (E)100% FDI is permitted in Single Brand Retail (Increased to 100% from 51% in December 2011). Advertizement Airports Cold-storage BPO/Call centres E-commerce Energy (except atomic) export trading house Films Hotel, tourism Metro train Mines (gold, silver) Petroleum exploration Pharmaceuticals Pollution control Postal service Roads, highways, ports.
The above would be subject to the following conditions: e. FDI up to 100% is allowed subject to the condition that such companies would divest 26% of their equity in favor of Indian public in 5 years, if these companies are listed in other parts of the world. f. The above services would be subject to licensing and security requirements, wherever required.Proposals for FDI beyond 49% shall be considered by FIPB on case to case basis.
exports; bulk imports with ex-port/ex-bonded warehouse sales; cash and carry wholesale trading; other import of goods or services provided at least 75% is for procurement and sale of goods and services among the companies of the same group and not for third party use or onward transfer/distribution/sales.
ii. The following kinds of trading are also permitted, subject to provisions of EXIM Policy: a. Companies for providing after sales services (that is not trading per se) b. Domestic trading of products of JVs is permitted at the wholesale level for such trading companies who wish to market manufactured products on behalf of their joint ventures in which they have equity participation in India.
c. Trading of hi-tech items/items requiring specialized after sales service d. Trading of items for social sector e. Trading of hi-tech, medical and diagnostic items. f. Trading of items sourced from the small scale sector under which, based on technology provided and laid down quality specifications, a company can market that item under its brand name. g. Domestic sourcing of products for exports. h. Test marketing of such items for which a company has approval for manufacture provided such test marketing facility will be for a period of two years, and investment in setting up manufacturing facilities commences simultaneously with test marketing
FDI up to 100% permitted for e-commerce activities subject to the condition that such companies would divest 26% of their equity in favor of the Indian public in five years, if these companies are listed in other parts of the world. Such companies would engage only in business to business (B2B) e-commerce and not in retail trading.
FDI proposals for the manufacture of licensable drugs and pharmaceuticals and bulk drugs produced by recombinant DNA technology, and specific cell / tissue targeted formulations will require prior Government approval.
Hotels and Tourism-related Projects Hospitals, Diagnostic Centers Shipping Deep Sea Fishing Oil Exploration Power Housing and Real Estate Development Highways, Bridges and Ports Sick Industrial Units Industries Requiring Compulsory Licensing
3. Up to 40% Equity with full repatriation: New Issues of Existing Companies raising Capital through Public Issue up to 40% of the new Capital Issue. 4. On non-repatriation basis: Up to 100% Equity in any Proprietary or Partnership engaged in Industrial, Commercial or Trading Activity. 5. Portfolio Investment on repatriation basis: Up to 1% of the Paid up Value of the equity Capital or Convertible Debentures of the Company by each NRI. Investment in Government Securities, Units of UTI, National Plan/Saving Certificates. 6. On Non-Repatriation Basis: Acquisition of shares of an Indian Company, through a General Body Resolution, up to 24% of the Paid Up Value of the Company. 7. Other Facilities: Income Tax is at a Flat Rate of 20% on Income arising from Shares or Debentures of an Indian
Sectors like credit information companies, industrial parks and construction and development projects have also been opened up to more foreign investment. Also keeping India's civilian nuclear ambitions in mind, India has also allowed 100% FDI in mining of titanium, a mineral which is abundant in India. Sources say the government wants to send out a signal that it is not done with reforms yet. At the same time, critics say contentious issues like FDI and multi-brand retail are out of the policy radar because of political compulsions.
Forbidden Territories:
Rail Transport Mining of metals like iron, manganese, chrome, gypsum, sulfur, gold, diamonds, copper, zinc.
2. Use of GDRs
The proceeds of the GDRs can be used for financing capital goods imports, capital expenditure including domestic purchase/installation of plant, equipment and building and investment in software development, prepayment or scheduled repayment of earlier external borrowings, and equity investment in JV/WOSs in India.
iii.
Sr. No. 1. 2. 3. 4.
5.
Electronic Mail & Voice Mail Trading companies: primarily export activities
bulk imports, cash and carry 6. 7. 8. 9. 10 11. 12. wholesale trading 100% Power(other than atomic reactor power plants) 100% Drugs & Pharmaceuticals 100% Roads, Highways, Ports and 100% Harbors Pollution Management Call Centers BPO For NRI's and OCB's: i. ii. 34 High Priority Industry Groups Export Companies iii. Hotels and Trading 100% Automatic Control and 100% 100% 100% Automatic Automatic Automatic Automatic Automatic Automatic Automatic
Tourism-related Projects iv. Hospitals, Diagnostic Centers v. vi. vii. viii. ix. Shipping Deep Sea Fishing Oil Exploration Power Housing and Real Estate Development x. Highways, Bridges and Ports
Sick
Industrial
13.
Greenfield projects 14 15. 16. 17. Existing projects Assets reconstruction company Cigars and cigarettes Courier services Investing companies in infrastructure telecom sector) (other than
iv.
S.No 1. 2. 3. 4. 5.
v.
Sr. No
Country
As
To FDI
Total 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Mauritius Singapore U.S.A. U.K. Netherlands Japan Cyprus Germany France U.A.E. 19,18,633.61 3,80,142.56 3,32,935.60 2,40,974.98 1,78,047.76 1,50,129.05 1,32,448.04 1,12,242.06 61,686.39 50,915.59 Inflow 44.01 8.72 7.64 5.53 4.08 3.44 3.04 2.57 1.42 1.17
Mauritius
Mauritius invested Rs.19,18,633 million in India Up to the January 2010, equal to 44.01 percent of total FDI inflows. Many companies based outside of India utilize Mauritian holding companies to take advantage of the India- Mauritius Double Taxation Avoidance Agreement (DTAA). The DTAA allows foreign firms to bypass Indian capital gains taxes, and may allow some India-based firms to avoid paying certain taxes through a process known as round tripping. The extent of round tripping by Indian companies through Mauritius is unknown. However, the Indian government is concerned enough about this problem to have asked the government of Mauritius to set up a joint monitoring mechanism to study these investment flows. The potential loss of tax revenue is of particular concern to the Indian government. These are the sectors which attracting more FDI from Mauritius Electrical equipment Gypsum and cement products Telecommunications Services sector that includes both non- financial and financial Fuels.
Singapore
Singapore continues to be the single largest investor in India amongst the Singapore with FDI inflows into Rs. 3,80,142 crores up to January 2010 Sector-wise distribution of FDI inflows received from Singapore the highest inflows have been in the services sector (financial and non financial), which accounts for about 30% of FDI inflows from Singapore. Petroleum and natural gas occupies the second place followed by computer software and hardware, mining and construction.
U.S.A.
The United States is the third largest source of FDI in India (7.64 % of the total), valued at 732335 crore in cumulative inflows up to January 2010. According to the Indian government, the top sectors attracting FDI from the United States to India are fuel, telecommunications, electrical equipment, food processing, and services. According to the available M&A data, the two top sectors attracting FDI inflows from the United States are computer systems design and programming and manufacturing
U.K.
The United Kingdom is the fourth largest source of FDI in India (5.53 % of the total), valued at 2,40,974 crores in cumulative inflows up to January 2010 Over 17 UK companies under the aegis of the Nuclear Industry Association of UK have tied up with Ficci to identify joint venture and FDI possibilities in the civil nuclear energy sector. UK companies and policy makers the focus sectors for joint ventures, partnerships, and trade are non-conventional energy, IT, precision engineering, medical equipment, infrastructure equipment, and creative industries.
Netherlands
FDI from Netherlands to India has increased at a very fast pace over the last few years. Netherlands ranks fifth among all the countries that make investments in India. The total flow of FDI from Netherlands to India came to Rs. 1, 78,047 crores between 1991 and 2002. The total percentage of FDI from Netherlands to India stood at 4.08% out of the total foreign direct investment in the country up to August 2009.
Food processing industries Telecommunications that includes services of cellular mobile, basic telephone, and radio paging
Horticulture Electrical equipment that includes computer software and electronics Service sector that includes non- financial and financial services
vi.
Sr. No
Country
Amount Inflows
of
FDI %
As
To FDI
Total Inflow 22.14 9.48 8.46 7.46 6.09 4.36 4.13 2.89 2.57 2.33
1. 2. 3. 4. 5. 6. 7. 8. 9. 10.
Service Sector (Financial & Non Financial) Computer Software & Hardware Telecommunication Housing & Real Estate Construction Activities Automobile Industry Power Metallurgical Industries Petroleum & Natural Gas Chemical
9,65,210.77 4,13,419.03 3,68,899.62 3,25,021.36 2,65,492.96 1,90,172.22 1,79,849.92 1,25,785.57 1,11,957.00 1,01,680.18
The sectors receiving the largest shares of total FDI inflows up to arch 2010 were the service sector and computer software and hardware sector, each accounting for 22.14 and 9.48 percent respectively. These were followed by the telecommunications, real estate, construction and automobile sectors. The top sectors attracting FDI into India via M&A activity were manufacturing; information; and professional, scientific, and technical services. These sectors correspond closely with the sectors identified by the Indian government as attracting the largest shares of FDI inflows overall. The ASSOCHAM has revealed that FDI in Chemicals sector (other than fertilizers) registered maximum growth of 227 per cent during April 2008 March 2009 as compared to 11.71 per
cent during the last fiscal. The sector attracted USD 749 million FDI in FY 09 as compared to USD 229 million in FY 08. During the year 2009 government had raised the FDI limit in telecom sector from 49 per cent to 74 per, which has contributed to the robust growth of FDI. The telecom sector registered a growth of 103 per cent during fiscal 2008-09 as compared to previous fiscal. The sector attracted USD 2558 million FDI in FY 09 as compared to the USD 1261 million in FY 08, acquired 9.37 per cent share in total FDI inflow. India automobile sector has been able to record 70 per cent growth in foreign investment. The FDI inflow in automobile sector has increased from USD 675 million to 1,152 million in FY 09 over FY 08. The other sectors which registered growth in highest FDI inflow during April March 2009 were housing & real estate (28.55 per cent), computer software & hardware (18.94 per cent), construction activities including road & highways (16.35 per cent) and power (1.86 per cent).
It was as much as 68%. Around 20% of the foreign direct investment of China was made in the real estate sector. During the same period Nigeria had been the second best in terms of receiving foreign direct investment. In the recent times India has risen to be the third major foreign direct investment destination in the recent years. Foreign direct investment started in India in 1991 with the initiation of the economic liberation. There were more initiatives that enabled India to garner foreign direct investments worth US$ 2.9 billion from 1991 to 1995. This was a significant increase from the previous twenty years when the total foreign direct investment in India was US$1 billion. Most of the foreign direct investment made in India has been in the infrastructural areas like telecommunications and power. In the manufacturing industry the emphasis has been on petroleum refining, vehicles and petrochemicals Vietnam is a low income country, which is supposed to have the same potential as China to generate foreign direct investment. The foreign direct investment laws were introduced in Vietnam in 1987-88. This led to an increase in the foreign direct investment made in the country. The amount stood at US$ 25 million in 1993 compared to US$ 8 million in 1993. This amount increased by 3 times after the USA removed its economic sanctions in 1994. The gas and petroleum industries were the biggest beneficiaries of the foreign direct investment. Bangladesh started receiving increasing foreign direct investment after 1991, when the economic reforms took place in the country. After 1991 it was possible for foreign companies to set up companies in Bangladesh without taking permission beforehand. The foreign direct investment rose from US$ 11 million in 1994 to US$ 125 million in 1995. As per the available statistics the manufacturing industry, comprising of clothing and textiles took up 20% of the total approved foreign direct investment. Food processing, chemicals and electric machinery were also important in this regard. The increase in the foreign direct investment in Ghana was remarkable as well. The figures increased from US$11.7 million, on an average, from 1986 to 1992 to US$ 201 million, on an average, from 1993 to 1995. This improvement was brought about by the privatization of the Ashanti Goldfields.
of surplus labour in the country in the post reform period. This multitude of labour started migrating to urban centres in search of employment and many of them landed up with self employment in the service sector of which retailing forms a huge part. Annihilation of small scale and self employed lower middle class will lead to large scale poverty and destitution because the unorganised sector is absorbing the shocks of migration and rural distress. It manages by catering to middle classes in the metropolis. If this market is gone, they will all be unemployed. On the one hand the government is trying to convince that FDI would not harm the local trading practices and on the other hand various traders associations, vendors are fearing its exit from the retail market in the long run when various multi brand retail giants with their deep pockets and marketing skills would create direct contacts with farmers and producers of essential commodities. Whether its a small vendor selling fruits on his bicycle or a trader who has a kiosk in a neighbourhood where he sells grocery or a weekly market trader who sells garments, all three of them depend on a vegetable mandi, grain mandi and wholesale market for garments respectively. With the entry of the multi-brand retail giants in the market two possibilities emerge ( a) these retail giants are expected to procure 30 percent of goods from medium scale enterprises (but it is not necessary that these enterprises should be from the host country) thus, in case it decides to capture the domestic market it would create direct contact with small and medium enterprises and get commodities at the lowest possible cost and take benefit of the economies of scale. In case this happens, then the retail giants would slowly gain hands and monopolize the market and dictate the prices of essential commodities in the domestic market. This would slowly displace small vendors who dont have enough working capital to compete with retail giants. These vendors who till now were able to purchase goods from the wholesale market by proving their credit worthiness would no longer be able to give cash and carry goods to the retail market. (b) Since multi brand retail stores have the liberty to buy products from anywhere in the world and they have enough resources to conduct market research, it would explore the world market and invest wherever they would be able to maximize their profits through final sale. In this scenario, small vendors and traders would continue to have access to the products which are produced by the small scale industries but at the same time these enterprises would face severe competition from cheap commodities imported from elsewhere. In the long run it is speculated that the prices of their commodities would fall in the markets and sooner or later these domestic small enterprises would be forced to quit. For example, T. Vellayan, president of the Tamil Nadu Federation of Traders Associations gives the example of how the import of palm oil and soyabean oil for edible purposes proved ineffectual to the oil manufacturing units. Vellore, Tiruvannamalai, Cuddalore and Villupuram districts had several stone oil presses. But these traditional oil mills closed down. In Pudukottai district, oil mill premises have been converted into marriage halls ( Frontline, Dec.2011). Another justification given by the government for allowing FDI is that it would stabilize the inflationary trends that the Indian economy is witnessing for the past two years. This logic seems to be a wishful thinking because rising inflation cannot be controlled by the multi brand retail giants instead the prices of food grains, fruits and vegetables and essential commodities would only increase once these retail outfits will make a market for their products in India. Price of diesel and petrol has been exponentially hiked up; this is going to affect the cost of production both in agriculture and manufacturing. Farmers are not going to benefit in any way as they would continue to be exploited by the multi brand retail giants in the long run. If in this context we see the large
unorganized retail sector, we can observe how small vendors of fruits and vegetables are able contain the inflationary pressure by offering lower prices. One round of a weekly market in the neighbourhood of Delhi or elsewhere would show that the margins between the prices at which weekly traders sell their products and the price at which any supermarket sells the same thing varies by more than 20 to 30 percent. Multi brand retail giants would not only affect the price of food grains at the national level but it might also result in the disappearance of Agricultural Produce Marketing Committees which keep a certain minimum check on the price of the foodgrains coming to the grain markets. Thus, corporate capital would get a free reign in the indigenous markets of India and the process of primitive accumulation would set in as predicted by C.P. Chandrashekhar, Prabhat Patnaik et. al. This would have direct impact on that section of the unorganized retail sector which is employed in the lowest level of the market hierarchy who do not have ready cash to invest and whose livelihood is dependent on the recycling of debt for a day, a week, a month or a year because the prices are going to rise in the long run and so will the interests on the borrowed sum. The adverse impact of the FDI would befall the unorganized retail sector with great intensity if the State makes more stringent rules of zoning and regulation. I have been researching the local weekly markets of Delhi for the past three years. These markets are very prominent feature in all parts of Delhi and NCR. There are around twelve hundred weekly markets of which only one fourth are recognized by the Municipal Corporation of Delhi (consequence of zoning). Approximately 2.5 million people are employed through these markets. This figure would just double if we take in to account additional employment that is created around these markets. Various own account and household enterprises are producing commodities on a daily basis for such low end markets. Local weekly markets provide a very easy channel of distribution of commodities produced not only in local small scale industries but also in the neighbouring States. For instance, rubber chappals and shoes made in Agra, sarees made in Surat, hosiery made in Coimbatore, woollens made in Ludhiana are all sold at affordable prices here in these very markets. FDI in multi brand retail would either displace various wholesale markets or the size of such markets would shrink. Today the local markets run on capital which has a fluid or floating nature. But with the coming of multi brand retail stores this floating capital would freeze and small retailers and vendors will be evicted from the market. It is argued by the government that FDI in retail would create employment opportunities. But employment for whom is the crucial question? It would create employment for those who are educated and have professional experience. Taking cue from my observation in the weekly markets of Delhi I would argue that majority of those now employed in these markets have minimal education and have no professional degrees apart from their marketing knowledge. Now if FDI in multi brand retail comes, it is not in any way going to benefit these traders if they lose their sole means of survival.
I have observed in the course of my research that through weekly markets of Delhi hundreds of people have employed themselves who were displaced for one reason or the other. At the same time it has created a distinct market for lower middle class who would not go to a super market or a mall for shopping. Where will this section of population shop for daily needs with the entry of multi brand retail outlets in case it leads to the displacement of weekly markets? Instead of providing infrastructural facilities the State already keeps street vending, peddling and weekly markets at the helm by keeping them in that buffer zone where it is difficult to recognize their real viabilility for the economy at large. Often these are characterized as unlawful, black, or hidden activity. It is my contention that in order to make way for the private capital the State might evict street vendors, cancel their licenses, or remove tehbazaari rights for weekly markets in the times to come. Just as in Delhi, Mumbai, Bangalore and other metropolitan cities, the State, has from time to time uprooted slums and relocated them to the periphery of the city, to make way for the investment by private corporate builders in order to make the city slum free. Similar decisions if taken for the unorganized retail sector would gravely increase inequality and poverty.
Challenges
Automatic approval is not allowed for foreign investment in retail. Regulations restricting real estate purchases, and cumbersome local laws. Taxation, which favours small retail businesses. Absence of developed supply chain and integrated IT management. Lack of trained work force. Low skill level for retailing management. Lack of Retailing Courses and study options Intrinsic complexity of retailing rapid price changes, constant threat of product obsolescence and low margins
For foreign technology agreements, automatic approval is granted if i. ii. up to 3% of the capital cost of the project is proposed to be paid for technical and consultancy services including fees for architects, design, supervision, etc. up to 3% of net turnover is payable for franchising and marketing/publicity support fee, and up to 10% of gross operating profit is payable for management fee, including incentive fee.
Credit rating Agencies Leasing & Finance Housing Finance Foreign Exchange Brokering Credit card business Money changing Business Micro Credit Rural Credit
b. Minimum Capitalization Norms for fund based NBFCs: i) For FDI up to 51% - US$ 0.5 million to be brought upfront ii) For FDI above 51% and up to 75% - US $ 5 million to be brought upfront iii) For FDI above 75% and up to 100% - US $ 50 million out of which US $ 7.5 million to be brought up front and the balance in 24 months c. Minimum capitalization norms for non-fund based activities: Minimum capitalization norm of US $ 0.5 million is applicable in respect of all permitted nonfund based NBFCs with foreign investment. d. Foreign investors can set up 100% operating subsidiaries without the condition to
disinvest a minimum of 25% of its equity to Indian entities, subject to bringing in US$ 50 million as at b) (iii) above (without any restriction on number of operating subsidiaries without bringing in additional capital)
e. Joint Venture operating NBFC's that have 75% or less than 75% foreign investment will also be allowed to set up subsidiaries for undertaking other NBFC activities, subject to the subsidiaries also complying with the applicable minimum capital inflow i.e. (b)(i) and (b)(ii) above. f. FDI in the NBFC sector is put on automatic route subject to compliance with guidelines of the Reserve Bank of India. RBI would issue appropriate guidelines in this regard.
by incorporating a wholly owned subsidiary or company by acquiring shares in an associated enterprise through a merger or an acquisition of an unrelated enterprise participating in an equity joint venture with another investor or enterprise
Foreign direct investment incentives may take the following forms: low corporate tax and income tax rates
Tax holidays Special economic zones Investment financial subsidies Soft loan or loan guarantees Free land or land subsidies Job training & employment subsidies
Infrastructure subsidies
RESULTS OF THE STUDY: My project report will help to find out how FDI contributed Growth in following Employment Firms attempt to capitalize on abundant and inexpensive labor. Host countries seek to have firms develop labor skills and sophistication. Host countries often feel like least desirable jobs are transplanted from home countries. Home countries often face the loss of employment as jobs move.
The result is uneven competition in the short run, and competency building efforts in the longer term.
It is likely that FDI developed enterprises will gradually develop local supporting industries, supplier relationships in the host country.
WORK DONE:The following can be mentioned under work done. This section is to specify the work done till date. My Project will be completed tentatively within 2 months. The break up time is as follows 1. Reading / note taking / planning / writing introduction 1 Week 2. Writing review of literature 1 Weeks 3. Writing of research methodology 1 Weeks 4. Carrying out work / recording findings 2 Weeks 5. Data analysis 1 Week 6. Preparing conclusions / Bibliography 1 Week 7. Typing / proof reading / corrections / binding 1 Weeks 8. Total Time Taken: 8 Weeks (2 Months)
LIMITATION OF FOREIGN DIRECT INVESTMENT. Foreign direct investment is not free from limitations. Developing countries like India has very little choice when it comes to opening the different sectors of the economy to foreign investment. A case in point is the opening up of the consumer non-durable industry to foreign investment. Eg :- The advent of Pepsi and Coke saw the exit of domestic soft drink manufactures and the emergence of a duopoly. Similarly, the experience with regard to FDI in the power sector has been far from desirable. The governments of developing countries must be able to channelize FDI in the most desirable areas of investment and the government policy towards FDI should be stable over the long run. Conclusion India, the 4th largest economy in the world is undoubtedly one of the most preferred destinations for foreign direct investments (FDI) as India has proven its caliber in the field of information technology and a host of other significant arenas. The latent strength of India has made it one of the most exciting emerging markets in the world. The strength of India is its skilled managerial and technical manpower that matches the best available in the world. The size of middle class population, a vital part of India, exceeds the population of the USA or the European Union so it provides India
with a distinct cutting edge in global competition. Apart from that Indias time tested institutions offer foreign investors a transparent environment that guarantees the security of their long term investments in this promising land. Indias liberalized economy was a big boon for investors as the updated FDI policy allows a 100% FDI stake in a venture in few sectors. The industrial sector was among the first sectors to be liberalized in India in a series of measures. The industrial policy reforms have substantially reduced the industrial licensing requirements, removed restrictions on expansion and facilitated easy access to foreign technology and foreign direct investment FDI. These factors make India one of the hottest destinations for FDI investment across the globe.
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