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Foreign Direct Investment

Foreign direct investment (FDI) involves long-term investment by foreign investors in businesses located in another country. India seeks to attract FDI to increase investment, employment, tax revenue, technology transfer, and exports while improving competition. India allows up to 100% FDI in most sectors automatically but places caps in sectors like insurance, defense, and banking. While FDI provides benefits like economic growth, jobs, and technology diffusion, it can also reduce competition and autonomy if a foreign corporation dominates the economy. Overall, attracting FDI has given India's economy a major boost.

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74 views

Foreign Direct Investment

Foreign direct investment (FDI) involves long-term investment by foreign investors in businesses located in another country. India seeks to attract FDI to increase investment, employment, tax revenue, technology transfer, and exports while improving competition. India allows up to 100% FDI in most sectors automatically but places caps in sectors like insurance, defense, and banking. While FDI provides benefits like economic growth, jobs, and technology diffusion, it can also reduce competition and autonomy if a foreign corporation dominates the economy. Overall, attracting FDI has given India's economy a major boost.

Uploaded by

anshu
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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FOREIGN DIRECT

INVESTMENT (FDI)

Presented By :- Jyoti
WHAT IS FDI..?
 Foreign direct investment (FDI)- is a direct
long-term investment by a foreign direct investor
in an enterprise resident in an economy other than
that in which the foreign direct investor is based.

 It can be either by buying a company in the target


country or by expanding operations of an existing
business in that country.
What was the criteria for FDI?
 Some time in 1991-92, the then Finance Minister and
Prime Minister Dr. Manmohan Singh referred to
certain criteria for allowing Foreign Direct
Investment. These were :

1. Establishment of basic industries requiring huge


capital and advanced sophisticated technology.

2. Infrastructure projects like electricity generation


road building etc.

3. Projects which would generate employment.


WHY COUNTRIES SEEK FDI?
 Increase investment level and thereby income &
employment.
 Increase tax revenue of government.

 Facilitates transfer of technology.

 Encourage managerial revolution through professional


management.
 Increase exports and reduce import requirements.

 Increase competition and break domestic monopolies.

 Improves quality and reduces cost of inputs.


Investor perspective-What attracts FDI?
Market size-per-
capita income
like retail
telecom

Resources-capital/
Good FDI labour
governance attractive /infrastructure
ness Mining, gas, power

Efficiency -
Productivity-wage
differentials
Mfg, trade,
transport
TYPES OF FDI
By Motive

By Target FDI By Direction

By Entry Mode
FDI Policies in India(overview)
 FDI Policy permits FDI up to 100 % from foreign/NRI
investor without prior approval in most of the sectors.
Known as the automatic route.
 The FDI policies in INDIA are formulated on 4
parameters:
-Increased capital flow.
-Improved technology.
-Management expertise.
-Access to international markets.
 Hence 100% inflow was allowed in sectors like Power,
Renewable energy , Agriculture, mining etc.
 Also sectors like insurance and defence have a cap of 49%
and the banking sectors has cap of 20%.
Foreign Direct Investment (FDI) up to 100% is
permitted in all manufacturing activities
except:-

Where more
than 24%
Where the foreign
foreign equity is
Cigars & investor has proposed to
Defense Cigarette an existing be inducted
Industry manufacturi joint venture for
ng in India in manufacture
the same of
field. items reserve
d for Small
Scale sector
Economic
Growth

Linkages and
spillover to
Trade
domestic
firms

Technology
diffusion and Employment
knowledge and skill levels
transfer
Services Sector

4% 4% Computer Software &


6%
3% hardware
6% Telecommunications

Housing & real Estate


10%
Construction Activities
31%
Power
11%
Automobile Industry

Metallurgical Industries
12%
Petroleum & Natural Gas
13%
Chemicals
COSTS OF FDI TO HOST COUNTRIES
 Adverse effects on competition
 Adverse effects on the balance of payments
 After the initial capital inflow there is normally a
subsequent outflow of earnings
 Foreign subsidiaries could import a substantial
number of inputs

 National sovereignty and autonomy


 Some host governments worry that FDI is
accompanied by some loss of economic
independence resulting in the host country’s
economy being controlled by a foreign corporation
FDI may provide better access to latest technologies for the
local economy.

FDI provides competition to the local industries which in turn


make them competent. Hence product quality improvement.

The increased flow of FDI in a country has given a major boost


to the country's economy .
Hence measures must be taken in order to ensure that the flow
of FDI in the country to continue to progress in all
perspectives.
Thank You !!!

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