FOREIGN DIRECT INVESTMENT (FDI)

• FDI is a long –term investment by a foreign

direct investor in an enterprise resident in an
economy other than that in which the investor
is based.

• FDI relationship consists of a parent enterprise

and a foreign affiliate, which together form a
Transnational Corporation.

"The only way to get rid of responsibilities is to discharge them."

TYPES OF FDI
 Greenfield Investment

 Merger & Acquisitions

 Horizontal FDI

 Vertical FDI

Backward Vertical FDI
 Forward Vertical FDI
"Live in such a way that you would not be ashamed to sell your parrot to the town
gossip."
 COSTS & BENEFITS OF FDI

I)HOST COUNTRY

 Benefits to the host country:

 Availability of scarce factors of
production.

Improvements on BOP.
 Building of economic & social

infrastructure.

Fostering of economic linkages.

Strengthening
"When small men ofitthe
begin to cast long shadows, govt.
is a sure sign thatbudget.
the sun is
 COST TO THE HOST COUNTRY

 Strained BOP following reverse flow.

 Dependence on the import of technology
 Employment of expatriates.
 Inappropriate technology
 Unhealthy competition
 Cultural & political interference.

"Show me a man who cannot bother to do little things and I'll show you a man who
cannot be trusted to do big things."
II) HOME COUNTRY
 BENEFITS
 Availability of raw material
 Improvement in BOP
 Employment generation
 Revenue to the govt.
 Improved political relations
• COSTS
• Undesired outflow of factors of production
• Possibility of conflict with the host-country
government.

"He who wishes to be rich in a day will be hanged in a year."

STRATEGIES FOR FDI
 FIRM-SPECIFIC STRATEGY

 COST-ECONOMISING STRATEGY

 STRATEGY OF ENTERING IN NEW AREAS

 CROSS-INVESTMENT STRATEGY

 JOINT-VENTURE WITH A RIVAL FIRM

 INVESTMENT MODE STRATEGY:MERGER VS GI

"We make a living by what we get, but we make a life by what we

give."
 PORTFOLIO CAPITAL

Represents passive holding of securities such foreign

stocks, bonds or other financial assets, none of
which entails active Mgt. or control of securities
issuer by the investor.

Exmaples:
 Purchase of shares in a Foreign Co.
 Purchase of bonds issued by a Foreign Govt.
 Acquisition of financial assets in a foreign country
 Loans to members by WB
"You grow up the day you have your first real laugh--at yourself."
DIFFERENCE B/W PORTFOLIO
INVESTMENT AND FDI

PI FDI

 Minority  Majority
 No control  Direct control
 Purely financial  Investment in
Assets ,bonds factories , goods
&stocks etc.

"Consider the postage stamp; its usefulness consists in the ability to stick
to one thing until it gets there."
MOTIVES
 Risk-Diversification:- to earn higher risk
adjusted return. Depends on the variability of
the foreign exchange rate.

 Capital Growth:- level of investment tends to

fall in investing nation.

 Effect on trade term:-

 Short Run – BOP
 Long Run – BOP

"With time and patience, the mulberry leaf becomes satin. With time and
patience the mulberry leaf becomes a silk gown."
PI FOR NRI’S

 Can purchase Shares & Convertible

Debentures
 Schedule 2 & 3
 OCB’s
 Designated Branches
 Can authorize Indian residents or Brokers

"Don't let life discourage you; everyone who got where he is had to begin
where he was."
GENERAL PROVISIONS
 Basis
 Purchase/sale
 Registered broker
 Market price
 Bank branch Repatriation
 Mode of payment
Non-
 Ceiling Repatriation
 Per investor
 Per investee company
 Repatriation sale / maturity proceeds
 Repatriation basis-FCNR/NRE/NRO
 Non-repatriation-in NRO account
 Permission
 Sale/transfer of shares or bonds by NRI’s
to residents
 Form TS 1.
 Letter of consent
 For repatriation

General exemption for transfer of rupee securities

by non –residents as gifts.
 Such shares held with the permission of RBI
 B/w relatives.

Transfer of rupee securities to non-residents as gift.

 Name
 Relationship
 Reason
 PI SCHEME FOR FIIS
Schedule 2 of the Regulation 5(2)
FIIs- institutional portfolio Mgr, Asset Mgt Cos,
Pension funds.
Investment in primary & secondary stock market as
well as treasure bills etc. on repatriation basis.

Permission for FCA/NRRA

Provision
 Registration

 RBI permission-not necessary

 Registered broker

 Manner of investment
 Limit
 Individual
 Total holding
 Holding in Govt securities :- 70%30 , 100%
debt.

 Remittances

 Investment in govt. undated securities ,

treasure bills , non-convertible debentures.
"The happiest person is the person who thinks the most interesting
thoughts."