Foreign direct investment

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Foreign direct investment (FDI) is direct investment into production in a country by a
company in another country, either by buying a company in the target country or by
expanding operations of an existing business in that country. Foreign direct investment is
done for many reasons including to take advantage of cheaper ages, special investment
privileges such as tax exemptions offered by the country as an incentive to gain tariff!free
access to the markets of the country or the region. Foreign direct investment is in contrast to
portfolio investment hich is a passive investment in the securities of another country such as
stocks and bonds.
"s a part of the national accounts of a country, and in regard to the national income e#uation
$%&'(')'(*!+), ( is investment plus foreign investment, F,( refers to the net inflos of
investment(inflo minus outflo) to ac#uire a lasting management interest (-. percent or
more of voting stock) in an enterprise operating in an economy other than that of the investor.
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(t is the sum of e#uity capital, other long!term capital, and short!term capital as shon the
balance of payments. (t usually involves participation in management, 1oint!venture, transfer
of technology and expertise. 2here are to types of F,(: inard and outard, resulting in a
net F,( inflow (positive or negative) and 3stock of foreign direct investment3, hich is the
cumulative number for a given period. ,irect investment excludes investment through
purchase of shares.
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F,( is one example of international factor movements.
Types
1. Horizontal FDI arises when a frm duplicates its home country-based
activities at the same value chain stage in a host country through FDI.
[3]
2. Platform FDI
3. Vertical FDI taes place when a frm through FDI moves upstream or
downstream in di!erent value chains i.e." when frms per#orm value-
adding activities stage by stage in a vertical #ashion in a host country.
[$]
5ori6ontal F,( decreases international trade as the product of them is usually aimed at host
country7 the to other types generally act as a stimulus for it.
Methods
2he foreign direct investor may ac#uire voting poer of an enterprise in an economy through
any of the folloing methods:
by incorporating a wholly owned subsidiary or company
by ac%uiring shares in an associated enterprise
through a merger or an ac%uisition o# an unrelated enterprise
participating in an e%uity &oint venture with another investor or enterprise
Foreign direct investment incentives may take the folloing forms:
/citation needed0
low corporate ta' and individual income ta' rates
ta' holidays
other types o# ta' concessions
pre#erential tari!s
special economic (ones
)*+ , )'port *rocessing +ones
-onded .arehouses
/a%uiladoras
investment fnancial subsidies
so#t loan or loan guarantees
#ree land or land subsidies
relocation 0 e'patriation
in#rastructure subsidies
10D support
derogation #rom regulations 2usually #or very large pro&ects3
Foreign direct investment by contry
!lobal overvie" of foreign direct investment
2he 8nited 9ations &onference on 2rade and ,evelopment said that there as no significant
groth of global F,( in 4.-.. (n 4.-. as :-,-44 billion and in 4..; as :-,--< billion.
2he figure as 4= percent belo the pre!crisis average beteen 4..= and 4..>.
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Foreign direct investment in the #nited $tates
4his section does not cite any references or
sorces. (June 2011)
?roadly speaking, the 8.@. has a fundamentally open economy and very small barriers to
foreign direct investment.
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2he 8nited @tates is the orldBs largest recipient of F,(. 8.@. F,( totaled :-;< billion in
4.-.. C<D of F,( in the 8.@. in 4.-. came from or through eight countries: @it6erland, the
8nited Eingdom, Japan, France, )ermany, Fuxembourg, the 9etherlands, and &anada.
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Gesearch indicates that foreigners hold greater shares of their investment portfolios in the
8nited @tates if their on countries have less developed financial markets, an effect hose
magnitude decreases ith income per capita. &ountries ith feer capital controls and
greater trade ith the 8nited @tates also invest more in 8.@. e#uity and bond markets.
/C0
White 5ouse data reported in June 4.-- found that a total of =.> million orkers ere
employed at facilities highly dependent on foreign direct investors. 2hus, about -HD of the
"merican manufacturing orkforce depended on such investments. 2he average pay of said
1obs as found as around :>.,... per orker, over H.D higher than the average pay across
the entire 8.@. orkforce.
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Iresident ?arack Jbama has said, 3(n a global economy, the 8nited @tates faces increasing
competition for the 1obs and industries of the future. 2aking steps to ensure that e remain
the destination of choice for investors around the orld ill help us in that competition and
bring prosperity to our people.3
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Foreign direct investment in %hina
F,( in &hina, also knon as GF,( (renminbi foreign direct investment), has increased
considerably in the last decade reaching :C= billion in 4.-..
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&hina is the second largest
recipient of F,( globally. F,( into &hina fell by over one!third in 4..; due the global
financial crisis (global macroeconomic factors) but rebounded in 4.-..
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(n the first six
months of 4.-4 &hina received more foreign direct investment than the 8nited @tates (:=;.-
billion and :=>.< billion, respectively).
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Foreign direct investment in India
@tarting from a baseline of less than :- billion in -;;., a recent 89&2", survey pro1ected
(ndia as the second most important F,( destination (after &hina) for transnational
corporations during 4.-.K4.-4. "s per the data, the sectors that attracted higher inflos ere
services, telecommunication, construction activities and computer softare and hardare.
+auritius, @ingapore, 8@ and 8E ere among the leading sources of F,(. "ccording to
Lrnst M $oung, F,( in (ndia in 4.-. as :<<.C billion and in 4.-- experienced an increase
of -HD to :=..C billion.
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(ndia has seen an eightfold increase in its F,( in +arch 4.-4.
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(ndia disalloed overseas corporate bodies (J&?) to invest in (ndia.
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2012 FDI reforms
5ee also6 1etailing in India
Jn -< @eptember 4.-4, )overnment of (ndia alloed F,( in aviation up to <;D, in the
broadcast sector up to ><D, in multi!brand retail up to =-D and in single!brand retail up to
-..D.
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2he choice of alloing F,( in multi!brand retail upto =-D has been left to each
state.
(n its supply chain sector, the government of (ndia had already approved -..D F,( for
developing cold chain. 2his allos non!(ndians to no invest ith full onership in (ndiaNs
burgeoning demand for efficient food supply systems.
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2he need to reduce aste in fresh
food and to feed the aspiring demand of (ndiaNs fast developing population has made the cold
supply chain a very exciting investment proposition.
Foreign investment is announced by the government of (ndia as FL+" (Foreign Lxchange
+anagement "ct).
Foreign direct investment and the developing "orld
" recent meta!analysis of the effects of foreign direct investment on local firms in developing
and transition countries suggest that foreign investment robustly increases local productivity
groth.
/->0
2he &ommitment to ,evelopment (ndex ranks the 3development!friendliness3 of
rich country investment policies.
$ee also
Economics
portal
7ist o# countries by received FDI
International Investment 8greement
Investment *olicy Framewor #or 5ustainable Development
FDI in /ulti -rand 1etail 4rade" The Journey " 5eptember 9:19" Dinodia
;apital 8dvisors
De&nition of 'Foreign Direct Investment ( FDI'
8n investment made by a company or entity based in one country" into a
company or entity based in another country. Foreign direct investments di!er
substantially #rom indirect investments such as port#olio <ows" wherein overseas
institutions invest in e%uities listed on a nation=s stoc e'change. )ntities maing
direct investments typically have a signifcant degree o# in<uence and control
over the company into which the investment is made. >pen economies with
silled wor#orces and good growth prospects tend to attract larger amounts o#
#oreign direct investment than closed" highly regulated economies.
FDI in 1etailing
F,( can be defined as a cross border investment, here foreign assets are invested into the
organi6ations of the domestic market excluding the investment in stock. (t brings private funds
from overseas into products or services. 2he domestic company in hich foreign currency is
invested is usually being controlled by the investing foreign company. Lg. "n "merican
company taking ma1or stake in a company in (ndia. 2heir GJ( is based on the performance of
the pro1ect.

(n the past decades, F,( as concerned only ith highly industriali6ed countries. 8@ as the
orlds largest recipient of F,( during 4..A ith an investment of -C< million from JL&,
(Jrgani6ation for Lconomic &o!operation and ,evelopment) countries. France, )reece,
(celand, Ioland, @lovak Gepublic, @it6erland and 2urkey also have a positive record in F,(
investments. 9o, during the course of time, F,( has become a vital part in every country
more particularly ith the developing countries. 2his is because of the folloing reasons:

"vailability of cheap labor.
8ninterrupted availability of ra material.
Fess production cost compared ith other developed countries.
Ouick and easy market penetration.

FDI in the Retail sector:

Getailing is one of the orlds largest private industry. Fiberali6ations in F,( have caused a
massive restructuring in retail industry. 2he benefit of F,( in retail industry superimposes its
cost factors. Jpening the retail industry to F,( ill bring forth benefits in terms of advance
employment, organi6ed retail stores, availability of #uality products at a better and cheaper
price. (t enables a countrys product or service to enter into the global market.
Cheaper production facilities:
F,( ill ensure better operations in production cycle and distribution. ,ue to economies of
operation, production facilities ill be available at a cheaper rate thereby resulting in
availability of variety products to the ultimate consumers at a reasonable and lesser price.

Availability of new technology:
F,( enables transfer of skills and technology from overseas and develops the infrastructure of
the domestic country. )reater managerial talent inflo from other countries is made possible.
,omestic consumers ill benefit getting great variety and #uality products at all price points.

Long term cash liquidity:
F,( ill provide necessary capital for setting up organi6ed retail chain stores. (t is a long term
investment because unlike e#uity capital, the physical capital invested in the domestic
company is not easily li#uidated.


Lead driver for the countrys economic growth:
F,( ould create a competition among the global investors, hich ould ultimately ensure
better and loer prices thus benefiting people in all sections of the society. 2here ould be an
increase in the market groth and expansion. (t ill increase retail employment and suppress
untrained manpoer and lack of experience. (t ill ensure better managerial techni#ues and
success. 5igher ages ill be paid by the international companies. 8rban consumers ill be
exposed to international lifestyles.

FDI opens new doors for Franchising:

Gestrictions on F,( are considered as trade barriers as they deny direct market access to
foreign firms. Getail giants ho are at their ings, seeking entry into foreign market look for
other available alternatives. 2hese restrictions on the global retailers regarding the inflo of
Foreign ,irect (nvestment, leads them toards ac#uiring the market entry through franchises.
2hus, countries hich offer promising market potentialities for retail groth offers
substantial groth in the franchising sector as ell.

FDI uccess story China:

&hina is the orlds largest F,( recipient, and has used it deftly to increase its exports. (t
started off ith an F,( investment of :-; billion in -;;., and reached :H.. billion in -;;;.
<. retailers no have a secured approval in the &hinese market. F,( has created an
encouraging effect in both traditional as ell as modern formats of retail business in &hina.


&arrefour from France, 2esco from Lngland, +etro from )ermany, and Wal!+art from 8@
have entered the &hinese retail sector and has uplifted the countrys economy. (nitially during
-;;4, &hina alloed F,( only in a fe selected cities and also restricted the onership by 4A
percent. Fater on as the exports of the country progressively increased, by 4..4, the
)overnment increased the F,( cap to <; percent. &hina continues to hit ne records. +ore
than 4C million people and approximately -. percent of &hinas total population are orking
in companies funded ith F,(.

With the advent of F,(, retail sector is likely to make massive strides, and cataly6e the
groth of the ountrys economy. "s far as developing nations are concerned, it is the life
blood of economy.

FDI in civil aviation sector: Foreign
carriers alone can't save Indian aviation,
say analysts
+8+?"(P9LW ,LF5(: Foreign carriers like Fufthansa, Lmirates and @ingapore "irlines
can no pick up to <;D e#uity stake in domestic airlines.
2he (ndian carriers ent into a huddle not knoing ho to react to ma1or policy change by
the government. "viation analysts and experts said the move ill benefit only if the sector
fundamentals are changed and no foreign carrier can change that ith any amount of
investment.
3"lloing foreign airlines to invest in (ndian carriers does not solve the problem. 2he tax
structure is negatively impacting aviation. Why ould any airline come to (ndia unless it has
a viable business model that ould give a strategic advantage,3 said Iaresh Iarekh, tax
partner, Lrnst M $oung.
Full text of govt reforms on: Civil Aviation | Multi brand retail | Single brand retail |
roadcast sector
(ndian carriers posted a combined loss of -4,... crore in the last financial year and airline
honchos have time and again urged the government to modify the 1et fuel tax structure.
"ccording to )o"ir, an (ndian lo!cost airline pays about :<,... in fuel per block hour,
hich is 4=D higher than any other lo!cost airline in the orld. 2his lands (ndian carriers in
a situation here their fuel costs are higher by at least <=D on a comparative basis globally.
"irlines are negatively impacted by steep increase in airport tariffs (more than H=.D hike by
,elhi "irport) and increased ground handling charges (straight <.D increase announced
recently). 2hese, coupled ith a southard!biased fare structure, does (fares in &hina more
than -C>D of the (ndian fares) not support a high operating cost environment.
Qi1ay +allya appeared ecstatic by the reform package and teeted: 3?old decisions taken by
)overnment. Fantastic to restore confidence and kick start economic groth opportunities.3
"nalysts across the board say the move is elcome and it ill benefit (ndian carriers in a
mid!term to long!term period.
32he move ill benefit the industry in a medium to long!term as the problem of the industry
right no is of profitability and not investment!related. 2he profitability!related issues need
to be addressed, hich clearly cannot be done by foreign carriers as they cannot change the
tax or the fare structures here. ?ut yes, in terms of investment re#uired in adding capacity or
expansion, that capital ill ork ell for (ndian carriers,3 said "mrit Iandurangi, senior
director, ,eloitte (ndia.
" banker pointed out that not all airlines ill benefit from the move in vie of the huge
burden of debt in case of Qi1ay +allya!promoted Eingfisher "irlines ( C,=.. crore). (t ill
deter investors from investing in the airline. @ome bankers bet on Ealanithi +aran, the media
tycoon!promoted airline @piceJet and Wadia )roup!promoted )o"ir to be the favourites for
probable investors.
32here ill be selective interest by global airlines, chiefly because the financial condition of
the global airline industry is not like the glorious days. +oreover, despite first #uarter profits
of Jet "irays and @piceJet, ( donNt think that happy days are back. Jur long!term outlook is
that (ndian carriers re#uire heavy recapitalisation but no one has enough capital,3 said
"mitabh +alhotra, +,, Gothschild.
"nd according to this banker, ho sealed the deal for "merican billionaire Wilbur Goss for
@piceJet, taking into account the current scenario, the carrier again seems to be the best
beneficiary of the policy change ith its big netork and constantly increasing market share.
Jet "irays and (ndi)o have been saying they are not interested, but foreign carriers ould
be interested in them. Who knos ith Jet ooing @tar "lliance, they also end up attracting
Fufthansa as a strategic partner. ?" might be interested in )o"ir.
?ut ( can put my professional experience behind the fact that no one ould be keen on
investing in Eingfisher "irlines, hose balance sheet and operations are both in a mess. Ilus,
if the management control is not changing, no one ould like to take the liabilities that
Eingfisher has,3 +alhotra added.
2he obvious names ho could invest in (ndian carriers are the +iddle!Lastern airlines,
@ingapore "irlines, Fufthansa, may be ?ritish "irays, but not &athay Iacific nor any
"merican airline.
&ivil "viation
Sector !vervie"
&ivil aviation is an important part of a countryBs national infrastructure. 2he sector is one of
the prime movers for economic groth and a strategic element of employment generation.
2he (ndian civil aviation sector is robust, ith passenger traffic groing at a fast pace, at
almost double the rate of the countryBs ),I. ,omestic airlines carried H;.A million
passengers during January to "pril 4.--, as against HH.< million during the corresponding
period of the previous year, registering a groth of -C.AD, according to statistics of the
,irector )eneral of &ivil "viation.
Jverall, passenger traffic in both domestic and international flights, registered an increase of
-CD in 4.-., ith the year clocking ;. million passengers. (ndia is a fast!groing aviation
market today7 it is expected to be among the four to five biggest aviation markets by 4.4.
and third in terms of domestic market after 8@ and &hina. (n fact, (ndia is expected to cross
the <=.!million mark of domestic passengers by 4.4..
,uring the last to decades, from a fleet of only about -.., airline companies no operate
<H= aircraft, connecting (ndia to the orld. (n a 4.--!-4 aviation industry outlook, &entre for
"sia Iacific "viation (&"I") pro1ects that the countryBs private carriers posted a combined
profit of 8@, H=. million to 8@, <.. million during 4.--!-4. (t also expects (ndiaBs
domestic airline traffic to post a groth of ->!4.D during 4.--!-4.
"ccording to revised Ilanning &ommission estimates, around 8@, >.=4 billion is expected to
be invested in the airports sector during the --th Five!$ear Ilan, compared to 8@, -.< billion
invested in the -.th Five!$ear Ilan (4..4K.>). 2he "irports "uthority of (ndia (""() earned
approximately 8@, - billion and made a profit of 8@, -AH million in 4.-.!--.
#olicy and #romotion
2he (ndian aviation sector is an open, liberal and investment!friendly sector. RLntry of lo!
cost carriers, higher household incomes, strong economic groth, increased F,( inflos,
surging tourist inflo, increased cargo movement, sustained business groth and supporting
government policies are the ma1or drivers for the groth of the aviation sector in (ndia,S
according to a ,eloitte report on the (ndian aviation sector.
2he +inistry of &ivil "viation is charged ith the responsibility of the formulation of
national policies and programmes for the development and regulation of civil aviation in the
country7 devising and implementing schemes for orderly groth and expansion of civil air
transport7 and overseeing the provision of airport facilities, air traffic services and carriage of
passengers and goods by air.
2he responsibility of developing, financing, operating and maintaining all government
airports in the country rests ith the ""(, hich as established in -;;< under the "irports
"uthority "ct. ""( has also entered into operations management and development
agreements ith ,elhi (nternational "irport Ftd for (ndira )andhi (nternational (()() "irport
in 9e ,elhi, ith an ob1ective to develop it into a orld!class airport. Ihase!- of the
development of ()( airport has been completed ith the construction of the ne integrated
2erminal H (2H). (t caters to an additional H< million passengers per annum (mppa) and can
operate as a hub.
""( has announced that it ill seek the governmentNs clearance for its proposal to issue 8@,
-..< billion orth of infrastructure bonds to further develop -= airports in the country.
"ccording to estimates of the +inistry of &ivil "viation, the total investment re#uired in the
aviation sector is about 8@, -H.=< billion.
2he introduction of lo!cost airlines, coupled ith rising disposable incomes in the country,
has resulted in substantial groth in domestic passenger traffic, hich increased at a
compound annual groth rate of ->.=D beteen 4..<K.= and 4..;K4.-.. @ome of the
policies and promotions being offered by (ndian government to the civil aviation sector are:
Fiberal policy for capacity entitlements and traffic rights: 2he +inistry of &ivil "viation
follos a liberal policy in the exchange of capacity entitlementsPtraffic rights. ,omestic
airlines are alloed to fly overseas and forge partnerships ith foreign carriers, hile foreign
carriers, in turn, have been interlining ith domestic airlines to access secondary destinations.
$%%& FDI: 8nder the civil aviation sectorBs investment policy, -..D F,( is permissible for
existing airports, ith F(I? approval re#uired for F,( beyond ><D.
Automatic route: -..D F,( under the automatic route is permissible for greenfield airports.
<;D F,( is permissible in domestic airlines under the automatic route, but not by foreign
airline companies. -..D e#uity onership by non!resident (ndians (9G(s) is permitted.
2here is also a provision of -..D tax exemption for airport pro1ects for a period of -. years.
A''ointment of Air'ort (conomic )egulatory Aut*ority: 2o monitor the #uality of
services rendered by various airports and their tariff, an independent regulator, the "irport
Lconomic Gegulatory "uthority ("LG") has been appointed. "LG" is a statutory body
constituted under the "irports Lconomic Gegulatory "uthority of (ndia "ct, 4..C. 2he "LG"
as established by the government in 4..;. 2he statutory functions of the "LG" are to
determine the tariff for aeronautical services and to determine the amount of development
fees in respect of ma1or airports.
Setting u' of Air +avigation Services Cor'oration: "ir traffic control ("2&) operations
have started to function as a ne entity from "pril 4.-4. Larlier, the air navigation service
as under the ""(, the state!oned airport operator. 2he ne company is called "ir
9avigation @ervices &orporation of (ndia. Gevenues coming from "2& operations include
charges for route navigation facilities, terminal navigation and instrument landing, among
others. "lso, every time an international flight uses (ndiaBs airspace, it pays a fee for "2&
services.
Ma,or #layers
"t present, (ndia has -HA airports, of hich -4C are oned by the ""(. 2he )overnment of
(ndia has recogni6ed the need to involve private players in developing orld!class airport
infrastructure, based on the high groth of traffic handled at airports over the last fe years.
With changing government policies, the involvement of private players is increasing rapidly
in the sector.
With business activity groing, the demand for non!scheduled airline services is increasing.
(n 4..CK.;, the country as home to ;; non!scheduled airline operators ith a combined
fleet of 4<- aircraft, compared ith A= operators ith a combined fleet of 4.- aircraft in
4..>K.C.
8ntil recently, the ""( as the only ma1or player involved in developing and upgrading
airports in the country. 5oever, private sector players are no becoming increasingly
involved in the sector. @ome ma1or private sector players include )+G (nfrastructure Ftd,
)QE Ioer and (nfrastructure Ftd, @iemens, Farsen M 2oubro (FM2), 8ni#ue Turich and
+aytas (nfrastructure Fimited, etc.
"ir (ndia and (ndian "irlines are public sector airlines that operate both domestic and
international flights. "part from these, a plethora of private airlines operate in the (ndian sky,
prominent among hich are: )o"ir, (ndi)o, Jet "irays, Jet Eonnect, JetFite, Eingfisher
"irlines, @piceJet, ,eccan, Iaramount "irays, Jagson "irlines, etc. Jet "iraysPJetFite had
a combined passenger level of -.4 million passengers, or around 4AD, of the market as of
July 4.--.
(ndi)o has started international air services from @eptember -, 4.--, after completing the
mandatory five years of holly domestic operations. 2he lo!cost carrier (F&&), the largest
in the domestic (ndian market, marked its foray into international markets ith direct services
to ,ubai, folloed by @ingapore and ?angkok, in the first phase. ,ubaiNs first lo cost
airline, Flydubai, has started flights to "hmedabad in )u1arat from "ugust 4.--.
2he ?angalore!based 9ational "erospace Faboratories (9"F) and +ahindra "erospace have
been orking on manufacturing a small plane for three years. +ahindraNs "ustralian
subsidiary )ipps"ero built the prototype in -. months at its facility and has conducted the
first flight. 2eams from 9"F, +ahindra "erospace and )ipps"ero are involved in the &!
9+= programme.
Sector !utloo-
?y the end of this decade, i.e. in 4.4., air traffic in (ndia is pro1ected to gro H.= times from
todayNs level, making it the third!largest market in the orld, behind the 8@ and &hina,
according to the &"I" (ndia 4.--!-4 aviation industry outlook.
2he main drivers for the groth of (ndian civil aviation sector are:
Fiberali6ation and economic reforms undertaken by the government.
Fast expansion of industries as a conse#uence of economic reforms.
5igh ),I groth in (ndia.
o (ncrease in inbound and outbound tourists, and in medical tourism7 disposable
incomes expected to increase at an average of C.=D per annum until 4.-=.
Lmergence of lo!cost airlines.
o 2he organi6ed retail boom that ould re#uire timely delivery of goods, thus
contributing to the groth of the air cargo segment.
&orporates increasingly prefer private 1ets and air charter services.
+oderni6ation and setting up ne airports across the country.
&ity!side development of non!metro airports.
Iroviding international airport status to ma1or 2ier!( and 2ier!(( cities.
o Jpen sky policy and permission to private operators to operate on
international sectors.
Lncouraging private investments in airlines and airport infrastructure.
Facilitative foreign direct investment norms.
o Fiberal bilateral service agreements and emphasis on development through
public!private partnership (III) mode, etc.
o 2he Qision 4.4. announced by the +inistry of &ivil "viation conceives of
building infrastructure to support 4C. million customers by the end of year
4.4..
o (mmense groth potential exists in 2ier!(( and 2ier!((( markets ith airlines
on an expansion spree in these markets. 2he ""( is upgrading and
modernising H= non!metro airports in the country at an estimated cost of
around 8@, - billion, as ell as modernising the &hennai and Eolkata
airports.
&"I"Bs outlook for the (ndian aviation industry for 4.--!-4 estimated that (ndiaBs
carriers placed orders for 4.. ne aircrafts in 4.--, ith a list price of 8@, -- billion
to 8@, -4 billion. 2his included approximately -4=!-=. narro bodied aircraft, -.!
-= ide bodied aircraft and H.!=. regional aircraft.
2he (ndian commercial aerospace market is estimated to absorb about -,-..
commercial 1ets orth 8@, -H. billion over the next 4. years, making it one of the
most lucrative markets for global aviation ma1ors, according to the ,eloitte report.
Further, over the last fe years, the government has been proactive in building and
modernising (ndian airports under the III mode to encourage the private sectorBs
participation. Irominent pro1ects undertaken for airports under the III mode are at
5yderabad, ,elhi, ?angalore, &ochin, Eannur and +umbai. 2hese pro1ects have been
undertaken through the III mode ith a total investment of (9G 4.,.<- crore.
(ndia is also gaining a leadership position ith regard to launch of commercial
satellites in space. For instance, in 4..>, (ndia successfully conducted its first launch
of a commercial satellite hen an indigenously built rocket put an (talian ")(FL
astronomical satellite into a ==.!km e#uatorial orbit. 2he aim of the satellite as to
gather information about the origins of the universe through imaging of distant
celestial ob1ects in the *!ray and )amma ray regions of the electromagnetic
spectrum. With this launch, (ndia 1oined an elite club of nations ho have the capacity
to deploy their space exploration resources for commercial use.
+oreover, a technology safeguard agreement (2@") signed in July 4.-- paves the
ay for (ndia to launch 8@!made satellites from its spaceport at @riharikota in "ndhra
Iradesh. Further, a proposed commercial space launch agreement (&@F") ith the
8@ government ill enable (ndia to compete in the international market for launching
heavy commercial satellites. &@F" is likely to be signed this year, according to
official sources. 2his agreement ill allo 8@ commercial satellites, or satellites ith
8@ components, to be launched on (@GJ space vehicles, significantly opening up the
nearly 8@, 4 billion global space launch business for (ndia.
Cabinet a''roves FDI in insurance, 'ension
9e ,elhi: )overnment on 2hursday unleashed a second ave of reforms deciding to open
the pension sector to foreign investment and raising the F,( cap in insurance to <; percent,
undeterred by opposition to its decisions on F,( in retail and threats to block these
legislations.
2he 8nion &abinet cleared a raft of big!ticket legislative proposals including the ne
&ompanies ?ill, amendments to &ompetition "ct and Forard &ontracts (Gegulation) "ct.
32he &abinet has approved necessary official amendments in the (nsurance Fas
("mendment) ?ill, 4..C...(t also approved introduction of certain official amendments to
Iension Fund Gegulatory and ,evelopment "uthority ?ill, 4.--.
3We hope these ill be passed in the next session of Iarliament,3 Finance +inister I
&hidambaram told reporters hile briefing on the &abinet decision.
"pparently anticipating resistance, Finance +inister I &hidambaram said the government
ould reach out to political parties, especially the principal Jpposition ?JI, in seeking their
support for passage of the ?ills on insurance and pension sector in the Winter session of
Iarliament.
2rinamool &ongress, hich a fortnight ago ithdre support to 8I", and the Feft parties
voed to defeat these bills in Iarliament.
@ignificantly, the &abinet decided to fix a cap of <; percent of F,( in the insurance sector
raising it from 4A percent. While doing this, it straightaay took the cap in the pension sector
to <; percent saying it generally follos the insurance sector.
2he <; percent cap is much higher than the 4A percent recommended by the Iarliamentary
@tanding &ommittee on Finance headed by ?JI leader $ashant @inha.
"sked ho confident the government as about getting these bills cleared, &hidambaram
said, legislation is a process of negotiations and discussions ith political parties and
reaching a consensus.
3We are fully aare of the @tanding &ommitteeNs recommendations. 5oever, at the same
time, taking an ob1ective vie of the situation, e ill have to sit and talk ith political
parties,3 he said.
2o a #uestion about the absence of ministers belonging to allies ,+E and 9&I and hether
they ould support these legislations, he shot back, 3hy should you assume they ill not
supportU3
3We ill reach out to all political parties, especially principal opposition party, to get the
reforms bill passed (in Iarliament)3, &hidambaram said hile briefing reporters about the
decisions by the &abinet.
While ?JI as ambivalent in its reaction to the governmentNs decisions on hether it ould
support the bills, &hidambaram said, 3We have accepted bulk of the recommendations of the
@tanding &ommittee headed by a senior ?JI leader. ( am optimistic that all parties, especially
the principal opposition party, ill support the legislations.3
5e noted the statement of ?JI Iresident 9itin )adkari that though they opposed F,( in
retail, the party ould support in many other sectors.
I2(
Gelated @tories
Iolicy holders need safeguards in ne life insurance norms: Lxperts
(nsurance shares log smart gains on hopes of hike in F,( cap
(ndian economy itnessing rebound: Iranab +ukher1ee
&abinet grants international airport status to five airports
F&G" ?ill cleared, F+& to get more poer
&abinet gives green signal to revised &ompanies ?ill
&abinet nod for changes in &ompetition "ct
)ovt approves -4th Five $ear Ilan
)ovt to sell pulses, cooking oil at cheaper rate via I,@
&abinet approves hospital patient care alloance
)ovt clears tripartite agreement for operationalising (,F
9(? proposal likely to be taken up in next &abinet meet: F+
(ndia (nc hails govtNs decision on insurance, pension funds
Iension bill passage ill clear investorsN doubts: IFG,"
9od to F,( hike in insurance ill turn market sentiments: Lxperts
Geplying to #uestions, &hidambaram said, 32he F,( limit in pension ill follo F,( limit in
insurance. (f insurance bill passes ith <; percent, pension ill also be <; percent.3
32hat has alays been the structure of the bill that hatever cap has been put on insurance
ill also apply to pension.
3(t is not unusual. (nsurance and pension are long!term savings and funds,3 he said explaining
the rationale behind the decisions.
2he +inister clarified that the enhanced F,( cap in insurance and pension ould not apply to
public sector entities.
3Iublic sector insurance companies ill adopt government policy and ill remain public
sector companies,3 &hidambaram said.
5e said he has handed over a list of bills that deserve to be passed to opposition leaders.
3We ill no discuss the official amendments ith the principal parties. Fegislation making
in a Iarliament here government does not have ma1ority is a process of discussion and
negotiations.
3+any bills have been passed after discussion and negotiation ith opposition parties,
especially the principal opposition. ?ut ( donNt think e should start on a premise that there
ould be a consensus, ill not be a agreement on the floor of the house,3 he said.
Gelated Qideos
&abinet approves F,( in insurance, pension
2he Iension Fund Gegulatory and ,evelopment "uthority (IFG,") ?ill, cleared by the
&abinet, seeks to open up the pension sector to F,(. 2he F,( cap could go up to <; percent.
2he (nsurance Fas ("mendment) ?ill seeks to raise the F,( cap insurance sector to <;
percent from the 4A percent at present.
2he Forard &ontract Gegulation "ct ("mendment) ?ill ill empoer commodity markets
regulator F+& ith greater financial autonomy, facilitate the entry of institutional investors
and introduce ne products for trading such as options and indices.
2he ne &ompanies ?ill ill be a thorough overhaul of the existing las hile the
&ompetition "ct seeks to bring all sectors under its purvie, except involuntary mergers in
sectors like banking and insurance hich are already regulated.
" proposal for operationalising the (nfrastructure ,evelopment Fund ((,F) for enhanced
funding of infrastructure pro1ects as also approved.
(n anticipation of big!ticket reforms, the @ensex earlier in the day surged -CC points to breach
the -;,... mark for the first time in nearly -= months.
Foreign Direct Investments )FDI* ( Pros and %ons
-y Sam Vaknin, Ph.D.
2he role of foreign direct investment (F,() in promoting groth and sustainable development
has never been substantiated. 2here isnNt even an agreed definition of the beast. (n most
developing countries, other capital flos ! such as remittances ! are larger and more
predictable than F,( and J," (Jfficial ,evelopment "ssistance).
@everal studies indicate that domestic investment pro1ects have more beneficial trickle!don
effects on local economies. ?e that as it may, close to to!thirds of F,( is among rich
countries and in the form of mergers and ac#uisitions (+M"). "ll said and done, F,(
constitutes a mere 4D of global ),I.
F,( does not automatically translate to net foreign exchange inflos. 2o start ith, many
multinational and transnational 3investors3 borro money locally at favorable interest rates
and thus finance their pro1ects. 2his constitutes unfair competition ith local firms and
crods the domestic private sector out of the credit markets, displacing its investments in the
process.
+any transnational corporations are net consumers of savings, draining the local pool and
leaving other entrepreneurs high and dry. Foreign banks tend to collude in this reallocation of
financial hereithal by exclusively catering to the needs of the less risky segments of the
business scene (read: foreign investors).
"dditionally, the more profitable the pro1ect, the smaller the net inflo of foreign funds. (n
some developing countries, profits repatriated by multinationals exceed total F,(. 2his
untoard outcome is exacerbated by principal and interest repayments here investments are
financed ith debt and by the outflo of royalties, dividends, and fees. 2his is not to mention
the sucking sound produced by #uasi!legal and outright illegal practices such as transfer
pricing and other mutations of creative accounting.
+oreover, most developing countries are no longer in need of foreign exchange. 32hird and
fourth orld3 countries control three #uarters of the global pool of foreign exchange reserves.
2he 3poor3 (the @outh) no lend to the rich (the 9orth) and are in the enviable position of net
creditors. 2he West drains the bulk of the savings of the @outh and Last, mostly in order to
finance the insatiable consumption of its deni6ens and to prop up a variety of indigenous
asset bubbles.
@till, as any first year student of orthodox economics ould tell you, F,( is not about foreign
exchange. F,( encourages the transfer of management skills, intellectual property, and
technology. (t creates 1obs and improves the #uality of goods and services produced in the
economy. "bove all, it gives a boost to the export sector.
"ll more or less true. $et, the proponents of F,( get their causes and effects in a tangle. F,(
does not foster groth and stability. (t follos both. Foreign investors are attracted to success
stories, they are dran to countries already groing, politically stable, and ith a si6able
purchasing poer.
Foreign investors of all stripes 1ump ship ith the first sign of contagion, unrest, and
declining fortunes. (n this respect, F,( and portfolio investment are e#ually unreliable.
@tudies have demonstrated ho multinationals hurry to repatriate earnings and repay inter!
firm loans ith the early harbingers of trouble. F,( is, therefore, partly pro!cyclical.
What about employmentU (s F,( the panacea it is made out to beU
Far from it. Foreign!oned pro1ects are capital!intensive and labor!efficient. 2hey invest in
machinery and intellectual property, not in ages. @killed orkers get paid ell above the
local norm, all others languish. +ost multinationals employ subcontractors and these, to do
their 1ob, fre#uently haul entire orkforces across continents. 2he natives rarely benefit and
hen they do find employment it is short!term and badly paid. +M", hich, as you may
recall, constitute A.!>.D of all F,( are notorious for inexorably generating 1ob losses.
F,( buttresses the governmentNs budgetary bottom line but developing countries invariably
being governed by kleptocracies, most of the money tends to vanish in deep pockets, greased
palms, and @iss or &ypriot bank accounts. @uch 3contributions3 to the hitherto
impoverished economy tend to inflate asset bubbles (mainly in real estate) and prolong
unsustainable and pernicious consumption booms folloed by painful busts.
Al'*abetical ibliogra'*y
"ustriaBs Foreign ,irect (nvestment in &entral and Lastern Lurope:V@upply!?asedBor V+arket
,rivenBU ! W "lt6inger ! th(nternational "tlantic Lconomic &onference, Qienna, -;;;
?lessing Jr &urseU: ,omestic IlantsN @urvival and Lmployment Irospects "fter Foreign
"c#uisition ! @ )irma, 5 )Wrg ! 4..- ! opus.6b!kiel.de
&ompetition for Foreign ,irect (nvestment: a study of competition among governments to
attract F,( ! &I Jman ! 4... ! books.google.com
(2he) &ontribution of F,( to Ioverty "lleviation ! & "aron ! Geport from the Foreign
(nvestment "dvisory @ervice ! -;;; ! ifc.org
&orruption and Foreign ,irect (nvestment ! + 5abib, F Turaicki ! Journal of (nternational
?usiness @tudies, 4..4
,eterminants Jf, and the Gelation ?eteen, Foreign ,irect (nvestment and )roth ! L)
Fim, (nternational +onetary Fund ! 4..- ! papers.ssrn.com
,irect (nvestment in Lconomies in 2ransition ! E +eyer ! &heltenham and 9orthampton
(-;;C), -;;C
(2he) disappearing tax base: is foreign direct investment (F,() eroding corporate income
taxesU ! G )ropp, E Eostial ! papers.ssrn.com
,oes Foreign ,irect (nvestment "ccelerate Lconomic )rothU ! + &arkovic, G Fevine !
8niversity of +innesota, Working Iaper, 4..4
,oes Foreign ,irect (nvestment &rod Jut ,omestic LntrepreneurshipU ! E ,e ?acker, F
@leuaegen ! Gevie of (ndustrial Jrgani6ation, 4..H
,oes Foreign ,irect (nvestment (ncrease the Iroductivity of ,omestic FirmsU ! ?@ Javorcik !
"merican Lconomic Gevie, 4..<
,oes foreign direct investment promote economic grothU Lvidence from Last "sia and
Fatin "merica ! E Thang ! &ontemporary Lconomic Iolicy, 4..-
2he Lconomics of Foreign ,irect (nvestment (ncentives ! + ?lomstrom, " Eokko ! 4..H !
9?LG
2he effects of foreign direct investment on domestic firms Lvidence from firm!level panel
data ! J Eonings ! 2he Lconomics of 2ransition, 4..-
Lffects of foreign direct investment on the performance of local labour marketsK2he case of
5ungary ! E Fa6ekas ! G@" (nternational &onference, Iisa, 4..H
(2he) Lffects of Geal Wages and Fabor Iroductivity on Foreign ,irect (nvestment ! ,J
&ushman ! @outhern Lconomic Journal, -;C>
Lmployment and Foreign (nvestment: Iolicy Jptions for ,eveloping &ountries ! @ Fall !
(nternational Fabour Gevie, -;;=
Lxport Ierformance and the Gole of Foreign ,irect (nvestment ! 9 Iain, E Wakelin ! 2he
+anchester @chool, -;;C
Lxports, Foreign ,irect (nvestment and Lmployment: 2he &ase of &hina ! * Fu, Q9
?alasubramanyam ! 2he World Lconomy, 4..=
Facts and Fallacies about Foreign ,irect (nvestment ! G& Feenstra ! -;;C ! econ.ucdavis.edu
F,( and the labour market: a revie of the evidence and policy implications ! 9 ,riffield, E
2aylor ! Jxford Gevie of Lconomic Iolicy, 4...
Foreign ,irect (nvestment and &apital Flight ! & Eant ! -;;A ! princeton.edu
Foreign ,irect (nvestment and Lconomic ,evelopment ! 2 J6aa ! 2ransnational
&orporations, -;;4 ! unctad.org
Foreign ,irect (nvestment and Lmployment: 5ome &ountry Lxperience in the 8nited @tates
and @eden ! + ?lomstrom, ) Fors, GL Fipsey ! 2he Lconomic Journal, -;;>
Foreign ,irect (nvestment and (ncome (ne#uality: Further Lvidence ! & our F"O, G Tone !
World ,evelopment, -;;=
Foreign ,irect (nvestment and Ioverty Geduction ! + Elein, & "aron, ? 5ad1imichael,
World ?ank ! 4..- ! oecd.org
Foreign ,irect (nvestment as a &atalyst for (ndustrial ,evelopment ! JG +arkusen, "
Qenables ! -;;> ! 9?LG
Foreign ,irect (nvestment as an Lngine of )roth ! Q9 ?alasubramanyam, + @alisu, ,
@apsford ! Journal of (nternational 2rade and Lconomic ,evelopment, -;;;
Foreign ,irect (nvestment, Lmployment Qolatility and &yclical ,umping ! J "i6enman !
-;;< ! 9?LG
Foreign ,irect (nvestment in &entral and Lastern Lurope: Lmployment Lffects in the L8 ! 5
?raconier, E Lkholm ! 4..- ! snee.org
Foreign ,irect (nvestment in &entral Lurope since -;;.: "n Lconometric @tudy ! +
Fansbury, 9 Iain, E @midkova ! 9ational (nstitute Lconomic Gevie, -;;A
Foreign ,irect (nvestment in ,eveloping &ountries: " @elective @urvey ! Fui6 G. de +ello Jr.
! 9?LG
Foreign (nvestment, Fabor (mmobility and the Ouality of Lmployment ! , &ampbell !
(nternational Fabour Gevie, -;;<
Foreign direct investment!led groth: evidence from time series and panel data ! F de +ello !
Jxford Lconomic Iapers, -;;;
5ome and 5ost &ountry Lffects of F,( ! GL Fipsey ! 4..4 ! 9?LG
5o ,oes Foreign ,irect (nvestment "ffect Lconomic )rothU ! L ?orens6tein, J ,e
)regorio, JW Fee ! Journal of (nternational Lconomics, -;;C
2he (mpact of Foreign ,irect (nvestment (nflos on Gegional Fabour +arkets in 5ungary !
E Fa6ekas ! @J&J Iro1ect Iaper >>c, 4...
(2he) (mpact of Foreign ,irect (nvestment on Wages and Lmployment ! F Thao ! Jxford
Lconomic Iapers, -;;C
(2he) link beteen tax rates and foreign direct investment ! @I &assou ! "pplied Lconomics,
-;;>
Focation &hoice and Lmployment ,ecisions: " &omparison of )erman and @edish
+ultinationals ! @J ?ecker, E Lkholm, G JXckle, +" +uendler ! Gevie of World
Lconomics, 4..=
+uch "do about 9othingU ,o ,omestic Firms Geally ?enefit from Foreign ,irect
(nvestmentU ! 5 )org ! 2he World ?ank Gesearch Jbserver, 4..<
@hould &ountries Iromote Foreign ,irect (nvestmentU ! )5 5anson ! 4..- ! r..unctad.org
2axation and Foreign ,irect (nvestment: " @ynthesis of Lmpirical Gesearch ! G" de +ooi1, @
Lderveen ! (nternational 2ax and Iublic Finance, 4..H
2rade, Foreign ,irect (nvestment, and (nternational 2echnology 2ransfer: " @urvey ! E @aggi
! 2he World ?ank Gesearch Jbserver, 4..4
2roubled ?anks, (mpaired Foreign ,irect (nvestment: 2he Gole of Gelative "ccess to &redit !
+W Elein, J Ieek, L@ Gosengren ! 2he "merican Lconomic Gevie, 4..4
Qertical foreign direct investment, elfare, and employment ! W Llberfeld, ) )ot6, F @tahler
! 2opics in Lconomic "nalysis and Iolicy, 4..=
Qolatility, employment and the patterns of F,( in emerging markets ! J "i6enman ! 4..4 !
9?LG
Who ?enefits from Foreign ,irect (nvestment in the 8EU ! @ )irma, , )reenaay, E
Wakelin ! @cottish Journal of Iolitical Lconomy, 4..-
Why (nvestment +atters: 2he Iolitical Lconomy of (nternational (nvestments ! @ingh,
Eaval1it ! FLG9 (8E and ?elgium)