PRESENTATION ON FDI & FII IN INDIA

Presented By: Ram Prakash & Sriram

Definition of FDI
Foreign direct investment is that investment, which is made to serve the business interests of the investor in a company, which is in a different nation distinct from the investor's country of origin.

The parent enterprise through its foreign direct investment effort seeks to exercise substantial Control over the foreign affiliate company.

Exp. - An American company taking a majority stake in a company in India.

Factors Affecting FDI

Financial incentives (Funds from local Government) Fiscal incentives (Exemption from import duties) Indirect incentives (Provides land and other resources)

Political stability
Market potential & accessibility Large economy Market size

SHARE OF TOP INVESTING COUNTRIES - FDI INFLOWS (US$ Mn.)

Rank Country Total 2000 to 2009 % of Total of all

Countries
1. 2. 3. 4. 5. 5. 6. 7. Mauritius Singapore U.S.A U.K Netherlands Cyprus Germany France 39,379 8,071 6,508 5,289 3,701 2,579 2,379 1,233 44 9 7 6 4 3 3 1

Share of countries
CONTRIBUTION IN FDI (in %)
MAURITIUS JAPAN SINGAPORE NETHERLANDS U.S.A. CYPRUS U.K. OTHERS

22% 4% 4% 4% 5% 8% 9%

44%

Investing in India Entry Routes

Investing in India

Automatic Route
General rule No prior permission required
Only information to the Reserve Bank of India within 15 days of inflow/ Issue of shares

Prior Permission (FIPB)

By exception Prior Government Approval needed Decision generally Within 4-6 weeks

FDI Limit in Different Sector

Sector/Activity
Airports Construction Development Petroleum & Natural Gas (b) Refining Other than Refining Telecommunication

FDI Cap/Equity
100% 100%

Entry Route
Automatic Automatic

26% (For PSUs) FIPB 100% ( Private companies) Automatic

100% Automatic

Basic and cellular;STD/ISD

Manufacture of telecom equipment Power ( Except Atomic energy); regulations transmission, distribution and Power Trading Ports Roads & Highways

74%
100%

Automatic up to 49%
Automatic

100% 100%

Automatic Automatic

Shipping

100%

Automatic

Sectors Attracting Highest FDI Equity Inflows

Ranks Sector 2006-07 (AprMar)
21,047 (4,664)

2007-08 (AprMar)
26,589 (6,615)

2007-08 (AprMar)
28,411 (6,116)

2007-08 (AprMar)
16,566 (3,438)

Cum Inflows Till Nov09

% of total Inflows
22 %

1.

SERVICES SECTOR (fin& nonfinancial) COMPUT. SOFT & HARD. TELE COMMUN ICATIONS

101,019 (22,687)

2.

11,786 (2,614) 2,155 (478) 2,121 (467) 4,424 (985)

5,623 (1,410) 5,103 (1,261) 8,749 (2,179) 6,989 (1,743)

7,329 (1,677) 11,727 (2,558) 12,621 (2,801) 8,792 (2,028)

2,763 (575) 10,811 (2,223) 10,565 (2,189) 8,380 (1,754)

42,259 (9,529) 39,179 (8,600) 34,348 (7,701) 30,557 (6,945)

9%

3.

8%

4.

HOUSING & REAL ESTATE CONSTRU CTION (inroads & highways)

7%

5.

7%

Advantages of FDI Economic growth Trade Employment and skill levels Technology diffusion and knowledge transfer Linkages and spillover to domestic firms Improved technology. Management expertise. Access to international markets

Prohibited Sectors For FDI

Gambling and betting

Lottery Business
Atomic Energy

Retail Trading
Agricultural or plantation activities of Agriculture
(excluding

Floriculture, Horticulture, Development of Seeds, Animal Husbandry, Pisiculture and Cultivation of Vegetables, Mushrooms etc., under controlled conditions and services related to agro and allied sectors) and Plantations other than Tea Plantations)

Foreign Institutional Investor

An investor or investment fund that is from or

registered in a country outside of the one in which

it is currently investing.

Institutional investors include

hedge funds,

insurance companies,
pension funds and mutual funds.

Entities / funds eligible to get registered as FII:

Pension Funds Mutual Funds Insurance Companies Investment Trusts Banks Endowments Foundations Charitable Trusts / Charitable Societies

Year wise FII

Chart Title
100000

80000
60000 Axis Title 40000 20000 0 -20000 -40000 -60000 2001 2002 2003 2004 2005 2006 2007 2008 2009 YEAR FII in Rs Cr.

Foreign Institutional Investor

Foreign Institutional Investors can individually purchase up to 10% and collectively up to 24% of the paid up share capital of any company. This limit of 24% can be increased to sectoral cap/ statutory limit applicable to the Indian company by passing Board or shareholder resolution. FIIs can purchase shares through open offer/ private placement/ stock exchange. shares purchased by FII through stock exchange cant be sold through a private arrangement.

Positives and Negatives of FII

Advantages Unavailability of Corporate Disadvantages
Problem of inflation Reduces flexibility of Policy makers Hot Money

Debt
Increase Forex Reserve Increase Domestic Savings and Investments Large Availability of Capital

False
Economy

representation

of

Cant be used for long term

Problems for small investors

Differences..
FDI
FDI is when a foreign

FII FII is when a foreign stock

company brings capital into a

company or economy to set up a production or some other

company buys equity in any

company market. through

facility.
FDI gives some CONTROL in operation of foreign company

FII

does in

not

give

any of

control

operation

to the foreign company

foreign company

Contd
FDI FDI involves in direct FII FII is mostly the short term

production activity and is

long term in nature. It enables a degree of

investment mostly in
financial market. It does not involve in degree of control in the company. FII brings short term capital.

control in the company.

FDI brings long term capital.