Sector Specific Foreign Direct

Investment in India
FDI in India for Foreign Investors Latest Updates

FDI in Small Scale Sector in

India Further Liberalized

India Further Opens Up Key

Hotel & Tourism: FDI in Hotel & Sectors to Foreign Investment

Tourism sector in India

100% FDI is permissible in the sector on the automatic route.

The term hotels include restaurants, beach resorts, and other tourist complexes providing
accommodation and/or catering and food facilities to tourists. Tourism related industry include travel
agencies, tour operating agencies and tourist transport operating agencies, units providing facilities for
cultural, adventure and wild life experience to tourists, surface, air and water transport facilities to
tourists, leisure, entertainment, amusement, sports, and health units for tourists and
Convention/Seminar units and organizations.

For foreign technology agreements, automatic approval is granted if

i. 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.
ii. 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.

Private Sector Banking:

Non-Banking Financial Companies (NBFC)
49% FDI is allowed from all sources on the automatic route subject to guidelines issued from RBI from
time to time.

a. FDI/NRI/OCB investments allowed in the following 19 NBFC activities shall be as per levels
indicated below:

i. Merchant banking
ii. Underwriting
iii. Portfolio Management Services
iv. Investment Advisory Services
v. Financial Consultancy
vi. Stock Broking
 vii. Asset Management
viii. Venture Capital
ix. Custodial Services
x. Factoring
xi. Credit Reference Agencies
xii. Credit rating Agencies
xiii. Leasing & Finance
xiv. Housing Finance
xv. Foreign Exchange Brokering
xvi. Credit card business
xvii. Money changing Business
xviii. Micro Credit
xix. 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 upfront 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 non-fund
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.

Insurance Sector: FDI in Insurance sector in India

FDI up to 26% in the Insurance sector is allowed on the automatic route subject to obtaining licence
from Insurance Regulatory & Development Authority (IRDA)
Telecommunication: FDI in Telecommunication sector
i. In basic, cellular, value added services and global mobile personal communications by
satellite, FDI is limited to 49% subject to licensing and security requirements and adherence
by the companies (who are investing and the companies in which investment is being made)
to the license conditions for foreign equity cap and lock- in period for transfer and addition of
equity and other license provisions.
ii. ISPs with gateways, radio-paging and end-to-end bandwidth, FDI is permitted up to 74% with
FDI, beyond 49% requiring Government approval. These services would be subject to licensing
and security requirements.
iii. No equity cap is applicable to manufacturing activities.
iv. FDI up to 100% is allowed for the following activities in the telecom sector :
a. ISPs not providing gateways (both for satellite and submarine cables);
b. Infrastructure Providers providing dark fiber (IP Category 1);
c. Electronic Mail; and
d. Voice Mail

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.

Trading: FDI in Trading Companies in India

Trading is permitted under automatic route with FDI up to 51% provided it is primarily export
activities, and the undertaking is an export house/trading house/super trading house/star trading
house. However, under the FIPB route:-

i. 100% FDI is permitted in case of trading companies for the following activities:

• 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.

Power: FDI In Power Sector in India

Up to 100% FDI allowed in respect of projects relating to electricity generation, transmission and
distribution, other than atomic reactor power plants. There is no limit on the project cost and quantum
of foreign direct investment.

Drugs & Pharmaceuticals

FDI up to 100% is permitted on the automatic route for manufacture of drugs and pharmaceutical,
provided the activity does not attract compulsory licensing or involve use of recombinant DNA
technology, and specific cell / tissue targeted formulations.

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.

Roads, Highways, Ports and Harbors

FDI up to 100% under automatic route is permitted in projects for construction and maintenance of
roads, highways, vehicular bridges, toll roads, vehicular tunnels, ports and harbors.
Pollution Control and Management
FDI up to 100% in both manufacture of pollution control equipment and consultancy for integration of
pollution control systems is permitted on the automatic route.

Call Centers in India / Call Centres in India

FDI up to 100% is allowed subject to certain conditions.

Business Process Outsourcing BPO in India

FDI up to 100% is allowed subject to certain conditions.

Special Facilities and Rules for NRI's and OCB's

NRI's and OCB's are allowed the following special facilities:

1. Direct investment in industry, trade, infrastructure etc.

2. Up to 100% equity with full repatriation facility for capital and dividends in the following
sectors:

i. 34 High Priority Industry Groups

ii. Export Trading Companies
iii. Hotels and Tourism-related Projects
iv. Hospitals, Diagnostic Centers
v. Shipping
vi. Deep Sea Fishing
vii. Oil Exploration
viii. Power
ix. Housing and Real Estate Development
x. Highways, Bridges and Ports
 xi. Sick Industrial Units
xii. Industries Requiring Compulsory Licensing
xiii. Industries Reserved for Small Scale Sector

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 Company.

Certain terms and conditions do apply.

See also Opening Branch in India | Formation of Subsidiary in India | Starting a Business in
India | Opening Branch in India | Incorporating company in India | Procedure for Formation of
Company in India

Joint Ventures in India | Joint Venture Agreements | Outsourcing Agreements | Outsourcing to

India | Formation of Subsidiary in India | Starting a Business in India | Opening Branch in
India | Incorporating company in India | Procedure for Formation of Company in India

See also Government Approvals for Investing in India | Entry Strategies in India for Foreign
Investors

Foreign Direct Investment in Small Scale Industries

(SSI's) in India
Recently, India has allowed Foreign Direct Investment up to 100% in many
manufacturing industries which were designated as Small Scale Industries.

India further ended in February 2008 the monopoly of small-scale units on 79 items,
leaving just 35 on the reserved list that once had as many as 873 items.

While industrial policy reforms began with the new industrial policy statement of 1991,
India remained wary of intruding on the politically sensitive issue of reservation for
small-scale industry till the end of the 1990s.

Thus, while at the turn of the millennium the number of items reserved for SSI units
had come down from its peak of 873 in 1984, well over 800 items remained on the
list.
Since 2002, the scenario has changed dramatically. In these last seven years, around
790 items - including things like farm equipment, toothpaste, ice cream, footwear,
detergents and even garments - have been knocked off the list.

Thus, for the first time in over 40 years, there are today as few as 35 items reserved
for SSI units. When the policy of reservation was first introduced in 1967, there were
just 47 items reserved for small-scale manufacturers.

However, what was till then an administrative decision was given legal backing by an
amendment enacted in 1984 to the Industries (Development and Regulation) Act,
1951. That year also saw the number of items reserved reaching a peak of 873.

Reservation means that units producing the reserved items cannot go beyond a
stipulated cap on investment in plant and machinery. Moreover, FDI was allowed on a
limited basis in SSI's.

In the old days, therefore, it was standard practice for mass consumption items
covered by the reserved list to be farmed out by large marketing companies to dozens
of small units, thereby negating economies of scale.

What it also meant was that some companies resorted to manufacturing completely
new class of products. So, if ice cream was reserved for small scale units, a large
player could always produce, say, 'frozen desserts'.

Apart from the steady trickle of de-reservation over the last decade, one of the
measures taken to get over this problem without confronting the political problems
involved was to allow foreign investment even in reserved items with the caveat that
such units would have to fulfill an export obligation.

For players who were already manufacturing items that were suddenly reserved in
1967, the government came up with what was carry-on-business license which capped
their capacity, and fixed the location of the plant and the goods produced.

The latest de-reservation means that pastries, hard boiled sugar candy and tooth
powder can be manufactured by large units too. Similarly, buckets, paper bags, paper
cups, envelopes, letter pads, paper napkins might not be manufactured only in small
units but also in specialized factories.

The same for sesame and rapeseed oil, which are not solvent extracted, a host of
chemicals and dyes paints be it distempers.

Electrical goods, which include geysers, hot air blowers and toasters, too are out of the
reserved list, as are ballpoint and fountain pens.

The remaining 35 items that would be produced by the SSI sector are food and allied
items, wood, wood products, paper, paper products, plastic products, organic
chemicals, drugs, drug intermediates, other chemicals, chemical products, glass,
ceramics, mechanical engineering and electrical machines, appliances and apparatus.

In a nutshell, only 35 items remain reserved for the small scale industries sector. For
foreign investors, it means that in those 35 reserved sectors foreign investment is
allowed on a limited basis, except where certain conditions are met.

Contact us for further information

India Further Opens Up Key Sectors for Foreign

Investment
India has liberalized foreign investment regulations in key sectors, opening up
commodity exchanges, credit information services and aircraft maintenance operations.
The foreign investment limit in Public Sector Units (PSU) refineries has been raised
from 26% to 49%. An additional sweetener is that the mandatory disinvestment clause
within five years has been done away with.

FDI in Civil aviation up to 74% will now be allowed through the automatic route for
non-scheduled and cargo airlines, as also for ground handling activities.

100% FDI in aircraft maintenance and repair operations has also been allowed. But the
big one, allowing foreign airlines to pick up a stake in domestic carriers has been given
a miss again.

India has decided to allow 26% FDI and 23% FII investments in commodity exchanges,
subject to the proviso that no single entity will hold more than 5% of the stake.

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. (Jan 2008)

Contact us for further information http://www.madaan.com/sectors.html

Significance

When a firm controls (or have a strong say in) another firm located
abroad, e.g. by owing more than 10% of its equity, the former is
said "parent enterprise" (or "investor") and the latter "foreign
affiliate".

Foreign Direct Investment (FDI) is the financial investment giving

rise and sustaining over time the investor's significant degree of
influence on the management of the affiliate.

The initial investment can be the purchase of an existing firm (by

acquisition or by merger, the so-called "M&A") as well as the
foundation of a new legal entity who usually - but not necessarily -
makes a green-field realinvestment (e.g. building a factory) in the
foreign country [1].

In a broader definition, FDI consists of the acquisition or creation

of assets (e.g. firm equity, land, houses, oil-drilling rigs,...)
undertaken by foreigners. If in these enterprises they are not alone
but act together with local firms and/or governments, one talks of
"joint ventures".

A country outflows of FDI means that it is "exporting money" to

"buy" or "build" foreign productive capacity, whose ownership will
remain in the first country's hands.

For a country, attracting an inflow of FDI strengthen the

connection to world trade networks and finance its development
path. However, unilateral massive FDI to a country can make it
dependent on the external pressure that foreign owners might exert
on it.

Since it is through FDI that a firm becomes a multinational, one

could say that the it's the FDI process that generates MNC
(multinational companies). The reverse is also true: firms that are
already multinational generate the majority of FDI flows.
Composition

FDI has three components:

- equity capital;

- reinvested earnings, the investor's share of earning not

distributed as dividends by affiliates, in proportion to its share in the
equity (say for instance 50% in a certain joint venture);

- intra-company loans, when the investor borrows funds to the

affiliate, usually without the intention of asking the money back.

To better understand their defining characteristics, you should

consider that FDI are flows of capital that share the following
features:

- they are long-term (in contrast to portfolio investment in

bonds and in short-term speculation in shares);

- they give rise to a property right on the asset built or bought (in
contrast to foreign aid).

However, FDI is quite heterogeneous and one should distinguish

several kinds, e.g. by looking at the following factors:

a. whether the activity in the host country is just an intermediate

phase in a longer production chain or it gives rise to a finished
good;

b. the production phase performed in the host country (design,

manufacture, distribution);

b. where the outcome of the process in the host coutry will be sold
(there or abroad).

The "classical" FDI is a manufacture plant using foreign technology

and management techniques to exploit low-cost local resources,
with sales made to the present clients of the investor (thus, usually
involving exports). However, market-oriented FDI as well as FDI in
other sectors (e.g. tourism resorts, banks, transport,...) are
important phenomena as well.

Determinants

At investor's level, a firm can decide to make a foreign investment

because of many factors, including:

1. upstream integration, by purchasing a provider, whose input

will now be sold cheaper (or exclusively) to it or
be differentiated along particular features;

2. horizontal integration, by purchasing a firm making the

same product, to expand its production, reduce costs, improving
logistics;

3. downstream integration, by purchasing a firm using or

distributing its products, to get higher value added along the chain
and to aggressively push distribution;

4. diversification, by purchasing a firm doing somewhat

different activities than the purchaser, to seize new opportunities.

A firm already exporting to a market can decide to make a FDI

and build there a productive unit to reduce the transport cost and
avoid tariff barriers.

In another vein, FDI is the chosen vehicle used by a foreign firm

having a monopolistic advantage vis-a-vis other firms in the market.
Host country conditions are such that the application of the
advantage enables the generation of economic profits, higher than
the expected profit to be gained from selling or licensing the
advantage to other firms.

Access to a privileged network of input-output relationships as

well as of knowledge providers is an important objective of many
FDI initiatives.
 Note that strictly financial consideration are important as well,
since a current positive cash-flow is conducive to look for
investment opportunites.

Together with "rational" reasons, the specific country chosen can

often be forecast by an external observer in terms of "imitation",
being the same as the target country of other FDI.

At country level, outflows of FDI are high when:

• firms have sound financial conditions but consider that other

countries have more favourable investment conditions;
• the exchange rate is "high" in an historical perspective (e.g.
after a re-valuation) so foreign firms are "cheap" and exports
are braked - in this case FDI substitutes exports;
• the trade balance is positive, with exports higher then imports,
since capital flows usually compensate the commercial flows;

Inflow of Foreign Direct Investments increases with

the attractiveness of the country, due to the following factors in
different proportions depending on the industry and the country:

1. large GDP and market potential;

2.1. advanced know-how;
2.2. skilled work-force;
3.1. low labour cost and wages;
3.2. low taxation;
3.3. lower environmental protection;
4. high tariff protection;
5.1. favourable laws and public incentives;
5.2. intentional and professional territorial marketing.

In particular, the establishment and the skills of an Investment

Promotion Agency, actively looking for investors in industries and
activities for which the country has a competitive advantage and a
strong need, can make the difference, both in quantity, quality and
positive effects of FDI.

On a sub-national level, FDI usually concentrates in the

richest part of the country, where wages are higher, also
because there the investor can find a better infrastructure and
easier logistical accessibility from abroad. This empirical
evidence weakens the relationships between FDI and low wages.

In macroeconomic terms, net inflow of FDI often occurs when

the country has a trade deficit.

Impact on other variables

A. Financial variables

The equity capital component of FDI generates an increase in "total

equity" of the foreign economy. Note that the latter is not equal to
total assets in the aggregated balance sheet.

As an inflow of capital it is, FDI changes the balance of

payments. Other things equal, if not sterilized, FDI increases
the official reserves of foreign currency.

B. External trade and industrial variables

A particularly strong FDI concentrated in a short period of time (e.g.

a purchase of a newly privatized big state company) can lead to a
re-valuation of the currency exchange rate.

If significant flows of FDI are aimed to real investments (e.g.

building a factory), then total investment will rise, other things
equal.

Usually, in this case, the foreigners will import machines as well

as raw and intermediate inputs for the production process (from
their country or their providers' one). For both reasons, imports will
rise after a FDI inflow.

If the good produced in the host country is sold

there, consumption composition will change, possibly with a loss in
market shares of local producers and of foreing producers based
abroad. in the latter case, FDI is crowding out imports. If the
product is new for the host country, it fills a gap and increases the
variety of available goods, thus opening the path to higher
productivity for industrial users and higher satisfaction for
consumers. For instance, a FDI in an electricity generation plant will
allow more firms to operate in the region and wider availability of
energy for inhabitants.

If, instead, the production is exported, FDI boosts exports of the

host country, providing it with foreign currency.

If FDI is targeted to green-field investment, employment will rise,

possibly involving a Keynesian multiplier of income and
consumption. If FDI is targeted to an acquisition of a large
inefficient firm, the priority of profits will possibly lead, in the short
run, to waves of dismissals and a rise of unemployment.

Wages are usually higher in foreign affiliates than in local firms,

sometimes with the crowding out of the latter on the labour market
(i.e. they do not find any more workers at the previous level of
wage and they are not profitable at the new level, because of their
lagging productivity).

C. Knowledge and entrepreneurial variables

Usually, foreign firms have higher productivity than local ones, since
the foreing ownership prompts managers to use non-locally
available knowledge, both incorporated and not-incorporated in
machines, which often constitute aninnovation.

The local workforce is put into contact with that knowledge and,
more in general, with the foreigners' mentality.

All this might generate knowledge spillovers to workers, as well

as to local providers (e.g. forced to adopt ISO certification or
specific methods of production) and to local competitors (who
could imitate the foreign firm).

Thus, a mid-term effect of FDI can be the mushrooming of new

businesses in the same industry by competitors and past key
workers. In parallel, the presence of a big foreign investor can re-
orient the education & training courses offered in the region, giving
rise to a "pool" of specialized skills, which in turn become a
competitive advantage for the investor as well as an incentive for
other international firm to locate there.

D. Political variables

Far-sighted politicians can use FDI for their country to catch up with
world standards in certain industries, prompting a fast development
of the economy, by attracting and selecting the investors.

However, large and concentrated FDI can exert external

pressure to obtain a preferential treatment against the local firms,
giving rise to political attrition between the two groups. The external
pressure can take the form of funds for electoral expenses of certain
parties or of corruption of bureacrats and politicians, the more so
the money at stake is huge in comparision with the typical wage of
the officer.

Foreign-owned managers risk to exhibit a radical "ignorance of

law", since the law is written in a not-known language and they
have no experience with it. In this case, the management behaves
as it wants, leaving to lawyers and bribery the task to make the
activity "compliant" with regulation.

FDI in non-democratic countries can exploit the lack of free trade

unions and active citizens to carry out activities banned in
democratic countries. However, FDI is a "window to the world", thus
in a longer time perspective, it's conducive to openness, sometimes
to the same development of democracy.

E. Caveat

All this can be the effect of FDI provided they are big with respect to
the host economy. By contrast, for most countries and for most of
their history, FDI stocks and flows are quite small and their (positive
or negative) effects simply do not influence the aggregate, which is
rather determined by other factors.

Long-term trends
During the relatively stable UK-dominated world system of 19th
century, globalization boosted FDI from the core to the semi-
periphery and to colonies. The subsequent conflict between "core
countries" exploded in two global wars, with international trade
collapse, protectionism, nationalization of foreing affiliates and
FDI crise.

The US-dominated world system of the second half of 20th

century showed a strong trend of increasing FDI.

However, this overall general tendency is structurally unstable:

nervous short-run "flames" of FDI reach a short list of "target"
countries, with abrupt crashes (as with the East Asia boom and crise
in the last decade of the century).

Debt crises are a dramatic end of FDI "flames" (as in Argentina,

Russia, Brazil during the same period), in interaction with external
aid, currency crises, bank crashes and political turm-oil.

Behaviour during the business cycle

Being pro-cyclical and lagged, inflows of FDI usually arrive late

after robust signs of recovery and growth. The international press
helps to tune the sentiment of international investors, providing a
kind of "early signal" of FDI inflows in case of "good coverage".

Outflows of FDI can arise especially in two subsequent periods:

a. at the end of the business cycle when very liquid firms try to
extend their assets abroad;
b. during recession, when the interest rate is low but no investment
opportunity are evident in the domestic economy.

Industry life cycle

FDI comprehends cross-border Mergers & Acquisition, thus they

retain some of their hectic movements, with accelerated boost and
severe crashes.
 Looking instead to the industrial side, FDI can be framed in the
"product life cycle" as an emerging feature of the moment when,
after a "dominant design" has put a temporary end to product
innovation, a new phase of cost control is leading to movements in
the production preferred location, by transferring active factories
from core countries to semi-peripheries where production costs are
lower. This movement goes together with semi-periphery
firms imitating the core countries' innovators.

In the perspective of a competition among countries to attract

foreign investors, a low-wage, low-tax country attracts investments
from abroad thanks to a relatively acceptable dotation of
infrastructure and technical expertise, until other even-lower-wage
& tax country substitute it. This contributes to a geographical
earthquake-like movement of FDI from a "centre" to its neighbours
and to further "peripheries".

http://economicswebinstitute.org/glossary/fdi.htm

INDIAN FDI INVESTMENT N POLICY

http://www.economywatch.com/foreign-direct-investment/fdi-india/

Foreign direct investment (FDI) in India has played an important role in the development
of the Indian economy. FDI in India has - in a lot of ways - enabled India to achieve a
certain degree of financial stability, growth and development. This money has allowed
India to focus on the areas that may have needed economic attention, and address the
various problems that continue to challenge the country.
India has continually sought to attract FDI from the world’s major investors. In 1998 and
1999, the Indian national government announced a number of reforms designed to
encourage FDI and present a favorable scenario for investors.
FDI investments are permitted through financial collaborations, through private equity or
preferential allotments, by way of capital markets through Euro issues, and in joint
ventures. FDI is not permitted in the arms, nuclear, railway, coal & lignite or mining
industries.
A number of projects have been announced in areas such as electricity generation,
distribution and transmission, as well as the development of roads and highways, with
opportunities for foreign investors.
 The Indian national government also provided permission to FDIs to provide up to 100%
of the financing required for the construction of bridges and tunnels, but with a limit on
foreign equity of INR 1,500 crores, approximately $352.5m.

Currently, FDI is allowed in financial services, including the

growing credit card business. These services include the non-banking financial services
sector. Foreign investors can buy up to 40% of the equity in private banks, although
there is condition that stipulates that these banks must be multilateral financial
organizations. Up to 45% of theshares of companies in the global mobile personal
communication by satellite services (GMPCSS) sector can also be purchased.
By 2004, India received $5.3 billion in FDI, big growth compared to previous years, but
less than 10% of the $60.6 billion that flowed into China. Why does India, with a stable
democracy and a smoother approval process, lag so far behind China in FDI amounts?

Although the Chinese approval process is complex, it includes both national and
regional approval in the same process.

Federal democracy is perversely an impediment for India. Local authorities are not part
of the approvals process and have their own rights, and this often leads
to projects getting bogged down in red tape and bureaucracy. India actually receives
less than half the FDI that the federal government approves.

Two-stage choice process of FDI: Ownership structure and

diversification mode
Abstract
Prior literature on foreign direct investment examines single-stage decision making processes based on, either the
ownership structure (full vs. partial ownership), the diversification mode (Greenfield vs. acquisition), or the
simultaneity of both of them (with four independent alternatives as a result of combining the ownership structure and
diversification mode decisions simultaneously). This study proposes that ownership structure and diversification
mode are nested and non independent decisions. However, the sequential order of the two decisions, ownership
structure and diversification mode, is unknown. Thus, the current study tests the single-stage process used by
previous researchers versus the two different hierarchical two-stage processes (ownership structure choice precedes
diversification mode choice; and diversification mode choice precedes ownership structure choice). The empirical
findings support the existence of a two-stage choice process where ownership structure choice precedes
diversification mode choice. The main implication of these findings is that, given the human limited analytical
capability, a hierarchical choice process can be useful to handle the information overload and the complexity inherent
to the foreign direct investment choices.