FOREIGN DIRECT INVESTMENT

PRESENTED BY:- RAKESH KUMAR

WHAT IS FDI ?
Foreign direct investment (FDI) In its classic form is defined as a company from one country making a physical investment in another country.

Include investments made to acquire lasting interest in enterprises operating outside of the economy of the investor.

Generally speaking FDI refers to capital inflows from abroad that invest in the production capacity of the economy and Usually preferred over other forms of external finance because they are Non-debt creating, non-volatile and their returns depend on the performance of the projects financed by the investors. FDI also facilitates international trade and transfer of knowledge, skills and technology.

The FDI relationship consists of a parent enterprise and a foreign affiliate which together form a multinational corporation (MNC).

In order to qualify as FDI the investment must afford the parent enterprise control over its foreign affiliate.

Foreign Direct Investment (FDI) is permitted as under the following forms of investments Through financial collaborations. Through joint ventures and technical collaborations. Through private placements or preferential allotments.

Foreign Company has the following options to set up business operations in India : By incorporating a company under the Companies Act, 1956 A wholly owned subsidiary Joint venture company - existing company or new company with domestic partner As an unincorporated entity Liaison Office Project Office Branch Office

LIASON OFFICE
Liason office not permitted to undertake any commercial/trading/industrial activity

The role of the liaison office is limited to

Collecting information about possible market opportunities and providing information about the company and its products to prospective Indian customers

Acting as a communication channel between the parent company and Indian Companies.

It can promote export/import from/to India and also facilitate technical/financial collaboration between parent company/Group companies and companies in India

Approval for establishing a liaison office in India is granted by RBI

PROJECT OFFICE
General permission to foreign entities to establish Project / Site Offices (temporary in nature) Such offices cannot undertake or carry on any activity other than the activity relating and incidental to execution of the project General permission also for remitting surplus funds after completion of project.

BRANCH OFFICE
Foreign companies engaged in manufacturing and trading activities abroad are allowed to set up Branch Offices in India for specified purposes Branch Offices are established with the approval of RBI Permitted to remit outside India profit of the branch

WHY FDI ?
1. Gain a foothold in a new geographic market. 2. Increase a firms global competitiveness and positioning. 3. Fill gaps in a companys product lines in a global industry. 4. Reduce costs in areas such as production, and distribution.

FORBIDDEN TERRITORIES
FDI is not permitted in the following industrial sectors: Arms and ammunition. Atomic Energy. Railway Transport. Coal and lignite.

 Mining of iron, manganese, chrome, gypsum, sculptured, gold, diamonds, copper, zinc. Lottery Business Agricultural or plantation activities Housing and Real Estate Business.

F D I - APPROVAL
Foreign direct investments in India are approved through three routes:

Automatic approval by RBI. The FIPB Route. CCFI Route

AUTOMATIC ROUTE
The Reserve Bank of India accords automatic approval within a period of two weeks (provided certain parameters are met) to all proposals involving: foreign equity up to 50% in 3 categories relating to mining activities . foreign equity up to 51% in 48 specified industries. foreign equity up to 74% in 9 categories .

ADVANTAGES OF FDI
Increase in Domestic Employment/Drop in unemployment Investment in Needed Infrastructure. Positive Influence on the Balance of Payments. New Technology and Know How Transfer. Increased Capital Investment. Targeted Regional and Sectoral Development.

DISADVANTAGES OF FDI
Industrial Sector Dominance in the Domestic Market. Technological Dependence on Foreign Technology Sources. Disturbance of Domestic Economic Plans in Favor of FDI-Directed Activities. Cultural Change Created by Ethnocentric Staffing The Infusion of Foreign Culture , and Foreign Business Practices

INFRASTRUCTURE
100% FDI is permitted for the following activities: Electricity Generation (except Atomic energy) Electricity Transmission Electricity Distribution Mass Rapid Transport System Roads & Highways Toll Roads Vehicular Bridges Ports & Harbors Hotel & Tourism

ADVANTAGES OF INDIA
Stable democratic environment over 60 years of independence Large and growing market World class scientific, technical and managerial manpower Cost-effective and highly skilled labor Abundance of natural resources

Well-established legal system with independent judiciary. Developed banking system and vibrant capital market . India among the top three investment hot spots and one of the fastest growing economies in the world. Large English speaking population

Thanks