2. WHAT IS FDI?
Foreign direct investment (FDI) is an investment made by a company or individual in
one country in business interests in another country, in the form of either establishing
business operations or acquiring business assets in the other country, such as
ownership or controlling interest in a foreign company.
METHODS:
• by incorporating a wholly owned subsidiary or company anywhere
• 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
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3. How did it all start in 1991 ?
External factors
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Exports were significantly low
India needed US dollars for buying
oil
Iraq attacked Kuwait in 1990
resulting in increase in oil prices
India asked loan from IMF of $3.9
billion for our gold of 67 tons of
gold sent to London and
Switzerland
USSR was breaking up
Custom duty of 400%
Import license was abolished
For any industry you needed
government permission for
what to produce and how
much to produce
Inshort market was wholly
controlled by government
Internal Factors
4. How did INDIAN ECONOMY overcome it?
• Import duties were substantially reduced
• Import licensing was allowed
• Restriction on what and how much to produce was abolished
• Manmohan Singh abolished gold smuggling allowing 5Kg of gold
• Allowed foreign investors to come to India
RESULTS
• Indian economy grew by 7.5% of GDP
• Economy grew from 13 cr in 1992 to 500 cr billion in 1996
• This is how FDI was introduced in India.
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8. IMPACT ON FOREX RESERVES
8
0
50
100
150
200
250
300
350
400
2001
2004
2007
2010
2013
2016
Chart Title • Foreign exchange reserve
can be defined as deposits
of a foreign currency held
by the central bank of a
country
• FOREX reserves in 2017
are $402B
• The main purpose of
holding foreign exchange
reserves is to make
international payments.
• Hedge against exchange
rate risks.
9. 9
DEBT IMPROVEMENT
EXTERNAL
DEPTH
FOREX
RESERVES
EXTERNAL
DEBT %
2012-13 409.4 71.3
2013-14 446.2 68.2
2014-15 474.7 72
2015-16 485 74.3
2016-17 471.9 78.4
The external debt to GDP ratio
stood at 20.2 per cent as at end-
March 2017, lower than its level
of 23.5 per cent at end-March
2016.
At end-March 2017, India’s
external debt was placed at US$
471.9 billion, recording a decline
of US$ 13.1 billion over its level
at end-March 2016.
10. Sectors where FDI is permitted and not permitted
100 % FDI Allowed in Following Sectors
• Hotel and Tourism
• Power Sector
• Drugs and Pharmaceuticals
• Roads, Highways, Ports and Harbors
• Pollution Control and Management
• Call Centers
• Business Process Outsourcing
• Manufacturing Industries Designated as
Small scale Industries
FDI Prohibited Sectors
• Atomic energy
• Lottery business
• Gambling &Betting
• Chit fund and Nidhi Company
• Trading in Transferable Development
Rights
• Real Estate business or construction of
Farm Houses
• Sectors not opened for private sector
investments
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11. GOVT. REFORMS FOR FDI
• DEFENCE
The government's decision to liberalize conditions allowing 100 per cent FDI in
the defense sector may result in at least some foreign entities setting up
subsidiaries in India.
• PHARMA SECTOR
With 100 per cent FDI allowed in pharma, mergers and acquisitions (M&A) by
multinational companies are likely to intensify in the sector, attracting a sizeable
amount of funds.
• SINGLE BRAND RETAIL
Local sourcing norms have been eased in Single brand retail for three years and a
relaxed sourcing regime have been introduced for five years.
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12. GOVT. REFORMS FOR FDI
• AVIATION
Opening up foreign investments in the civil aviation sector, the Union government
allowed overseas entrepreneurs, other than airlines, to bring in up to 100 per cent FDI
to set up an airline in India. However, foreign airlines will be permitted to invest only
up to 49 per cent in an airline.
To give a fillip to airport modernization, 100 per cent FDI will be allowed for existing
airports under the automatic route.
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13. CHALLENGES TO FDI
Factors Discouraging FDI in India
• Labor Policies
• Poor Infrastructure
• Bueurocracy &Corruption
• Transport Costs
• Legal Delays
• Political Structure
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14. Disadvantages of FDI
• Local Market is affected badly
• Inflation is raised
• The languages and cultural barrier may pose problem
between the investor and the host company
• High travel and communication expenses occur
• The foreign policies involved in FDI may not be liked by
workers of host country
• Destruction of small entrepreneurs
• Creation of monopoly