By CA K Raghu www.facebook.com/k.raghu.ca

1. CA K. RAGHU

2.  Introduction
 Types of FDI
 FDI routes in India
 Advantages of FDI
 Disadvantages of FDI
 Sectors - FDI permitted
 Sectors – FDI not permitted
 Potential Sectors in India
 Trend of FDI in past years
 Challenges
 Recent Developments
 Conclusion

3.  Its net inflows of investment to acquire a lasting management
interest (10 percent or more of voting stock) in an enterprise
operating in an economy other than that of the investor.
 Voting power of an enterprise in an economy through any of
the following methods:
- 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.
 The United States is the world’s largest recipient of FDI.
 FDI in india started from a baseline of less than $1 billion in
1990.

4. Indian companies can receive FDI through two main
routes:
1. Automatic Route: It allows up to 100% FDI in
allowed sectors. This route does not require
Government approval.
2. Government Route: It covers FDI in activities
not covered under the automatic route.
Applications have to be made to the Foreign
Investment Promotion Board to gain approval.

5. By Direction
Inward:
Inward foreign direct investment is a particular form of inward
investment when foreign capital is invested in local resources.
Outward:
Outward foreign direct investment is when local capital is invested in
foreign resources. Yet it can also be used to invest in imports and exports
from a foreign commodity country.
By Target
Greenfield investment
Direct investment in new facilities or the expansion of existing facilities.
Mergers and Acquisitions
Transfers of existing assets from local firms to foreign firms takes place;
the primary type of FDI.

6. By Motive
Resource-Seeking
Investments which seek to acquire factors of production that are more
efficient than those obtainable in the home economy of the firm.
Market-Seeking
Investments which aim at either penetrating new markets or maintaining
existing ones.
Efficiency-Seeking
Investments which firms hope will increase their efficiency by exploiting the
benefits of economies of scale and scope, and also those of common
ownership.
Strategic-Asset-Seeking
A tactical investment to prevent the gain of resource to a competitor.

7.  It helps in the economic development of the particular country where the
investment is being made.
 Foreign direct investment also permits the transfer of technologies.
 It can also develop the human capital resources by getting their
employees to receive training on the operations of a particular business.
 Foreign direct investment helps in the creation of new jobs in a particular
country.
 Foreign direct investment can also bring in advanced technology and skill
set in a country.
 Foreign direct investment assists in increasing the income that is
generated through revenues realized through taxation.

8.  The economically backward section of the host country is always
inconvenienced when the stream of foreign direct investment is negatively
affected.
 Sometimes, the defense of a country has faced risks as a result of the
foreign direct investment in the country.
 At times, certain foreign policies are adopted that are not appreciated
by the workers of the recipient country.
 Foreign direct investment may entail high travel and communications
expenses.
 There is a chance that a company may lose out on its ownership to an
overseas company.
 There have been adverse effects of foreign direct investment on the
balance of payments of a country.

9. -Banking - 74%
- Non-banking financial companies (stock broking, credit cards, financial
consulting, etc.) - 100%
-Insurance - 26%
-Telecommunications - 74%
- Private petrol refining - 100%
- Construction development - 100%
-Coal & lignite - 74%
-Trading - 51%
- Electricity - 100%

10. -Pharmaceuticals - 100%
-Transportation infrastructure - 100 %
-Tourism - 100%
-Mining - 74%
-Advertising - 100%
- Airports - 74%
- Films - 100%
-Domestic airlines - 49%
-Mass transit - 100%
-Pollution control - 100%
- Print media - 26% for newspapers and current events, 100 % for
scientific and technical periodicals

11.  Arms and ammunition.
 Atomic Energy.
 Railway Transport.
 Coal and lignite.
 Mining of iron, manganese, chrome, gypsum, gold, diamonds, copper,
zinc.
 Gambling and Betting
 Lottery Business
 Atomic Energy
 Agriculture (with certain exceptions) and Plantations (Other than Tea
plantations)

12. 1. Services sector (Financial and non-financial)
FDI equity inflows: Rs 123,706 crore ($27,668 million)
2. Computer (software & hardware)
FDI equity inflows: Rs 48,135 crore ($10,821 million)
3. Telecommunications (radio paging, cellular mobile, basic telephone
services)
FDI equity inflows: Rs 48,313 crore ($10,611 million)
4. Housing and real estate
FDI equity inflows: Rs 43,288 crore ($9,655 million)
5. Construction (including roads & highways)
FDI equity inflows: Rs 42,160 crore ($9,491 million)

13. 6. Automobile industry
FDI equity inflows: Rs 28,037 crore ($6,199 million)
7. Power
FDI equity inflows: Rs 27,848 crore ($6,156 million)
8. Metallurgical Industries
FDI equity inflows: Rs 18,724 crore ($4,286 million)
9. Petroleum & Natural Gas
FDI equity inflows: Rs 13,763 crore ($3,159 million)
10.Chemicals (other than fertilizers)
FDI equity inflows: Rs 13,234 crore ($2,927 million)

14. CUMULATIVE FDI EQUITY INFLOWS(1991-
Sl No. (Rs.in crores)
2009)
Cumulative amount of FDIinflows (from
A. 5,86,962
Aug. 1991 -Oct. 2009)
Cumulative amount of FDIinflows (from
B.1 5,01,900
April 2000 toMarch 2009)
Amount of FDI inflowsduring 2010-11 (for
B.2 9,854
April2010
Cumulative amount of FDIinflows (updated
B.3 5,11,754
up to Oct.2009)

15. Flow of FDI in India
Year Inflow (Rs. in crores) Growth (%)
1991-2000
60,604 -
(Aug.1991 - March00)
2000-01 12,646 22.64
2001-02 19,361 53.11
2002-03 14,932 -29.66
2003-04 12,117 -18.85
2004-05 17,138 41.44
2005-06 24,613 43.61
2006-07 70,630 186.96
2007-08 98,664 39.69
2008-09 1,23,025 24.70
2009-10 1,23,378 0.30
2009-10
11,708 -
(for April)
2010-11
9,854 -18.81
(For April’10)
Total 5,87,032 345.13
Average of 10 years (2000 -
53,366.55 35.00
2009)

16. COUNTRY WISE INFLOW OF FDI
2007- 2008- 2009-
2010-11
08 % of 09 % of 10 % of Cumulative % of
Country (for Ranks
(April - Total (April - Total (April - Total Inflows Total
April'10)
March) March) March)
Mauritius 44,483 45.09 50,794 41.29 49,633 40.23 2,528 2,13,434 43% 1
Singapore 12,319 12.49 15,727 12.78 11,295 9.15 1,900 47,080 9% 2
U.S.A. 4,377 4.44 8,002 6.50 9,230 7.48 404 37,593 7% 3
U.K. 4,690 4.75 3,840 3.12 3,094 2.51 265 26,263 5% 4
N.Lands 2,780 2.82 3,922 3.19 4,283 3.47 312 20,438 4% 5
Japan 3,336 3.38 1,889 1.54 5,670 4.60 1,455 18,350 4% 6
Cyprus 3,385 3.43 5,983 4.86 7,728 6.26 123 17,900 4% 7
Germany 2,075 2.10 2,750 2.24 2,980 2.42 102 12,571 3% 8
France 583 0.59 2,098 1.71 1,437 1.16 184 7,102 1% 9
U.A.E. 1,039 1.05 1,133 0.92 3,017 2.45 31 7,054 1% 10
TOTAL 98,664 123,025 123,378 9,854 526,357

17. SECTROS ATTRACTING HIGHEST FDI EQUITY INFLOWS
2008- 2009- Cummulative
2007-08 2010-11 % to
09 10 inflows
Ranks Sector (April- (for total
(April- (April- (April'00-
March) April'10) Inflows
March) March) April10)
SERVICE SECTOR
1
(Financial & Non-financial) 26,589 28,411 20,958 1,581 106,992 21%
COMPUTER SOFTWARE &
2
HARDWARE 5,623 7,329 4,350 765 44,611 9%
TELECOMMUNICATIONS
(Radio,Paging,
3 5,103 11,727 12,338 1,914 42,620 8%
CellularMobile, Basic
Teleohonic Services)
4 HOUSING & REAL ESTATE 8,749 12,621 13,586 246 37,615 77%
CONSTRUCTION ACTIVITES
5 (Including Roada and 6,989 8,792 13,544 345 36,066 7%
Highways)
6 POWER
3,875 4,382 6,908 547 21,466 4%
7 AUTOMOBILE INDUSTRY
2,697 5,212 5,609 187 20,864 4%
8 METALLURGICAL INDUSTRY
4,686 4,157 1,935 404 13,845 3%
9 PETROLEUM & NATURAL GAS
5,729 1,931 1,328 522 12,026 2%
CHEMICALS
10
(Other than Fertilizers) 920 3,427 1,707 115 11,390 2%

18.  FICCI’s 2010 FDI Survey found that the three main challenges for
foreign investors lie in procedural delays, the tax regime and labour
laws. Recommendations from the survey to Government include:
• Rationalizing the tax structure.
• Modernizing government systems and reducing bureaucracy.
• Improving infrastructure facilities.
• Rationalizing labour laws.
• Liberalizing employment visa rules.
 Public transport is a particular infrastructure challenge; in Bangalore,
for example, Infosys Technologies spends US$5 million a year to
transport its 18,000 employees to their place of work.
 FICCI’s survey also suggests that power supply also presents a
genuine challenge.
 Other challenges include income disparities, bureaucracy,
environmental impact of development , and corruption.

19.  FDI in 2009-10 was $24.2 billion, a significant decrease from both
2007-08 and 2008-09.
 In the first two months of 2010–11 fiscal, FDI inflow into India was at
an all-time high of $7.78 billion up 77% from $4.4 billion during the
corresponding period in the previous year.
 A recent UNCTAD survey projected India as the second most
important FDI destination (after China) for transnational corporations
during 2010–2012.
 According to the recent reports, India is targeting annual foreign
direct investments worth $50 billion by 2012. It would double the inflows
by 2017.

20.  Depending on the industry sector and type of business, a foreign
direct investment may be an attractive and viable option. With rapid
globalization of many industries and vertical integration rapidly taking
place on a global level, at a minimum a firm needs to keep abreast of
global trends in their industry.
 The world’s largest retailer WalMart has termed India’s decision to
allow 51% FDI in multi-brand retail as a “first important step” and said it
will study the finer details of the new policy to determine the impact on
its ability to do business in India. However this decision of the
government is currently under suspension due to opposition from
multiple political quarters.