Executive summary on

Global Capital Flows (Overview of FDI in and from

India)

Su
bmitted by

Basant kumar Sinha (PGMF1614)

 What is FDI?
It 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.

Method of FDI
Subsidiary:-
A subsidiary is a company with voting stock that is more than 50%
controlled by another company, usually referred to as the parent
company or the holding company.
Merger-
A merger is a deal to unite two existing companies into one new
company.
Ordinary Shares-
They are common shares which represent the basic voting shares of a
corporation.
Joint Venture-
It is a business arrangement in which two or more parties agree to pool
their resources for the purpose of accomplishing a specific task.

Nature of FDI
FDIs are commonly categorized as being horizontal, vertical or
conglomerate in nature.
Horizontal-
A horizontal direct investment refers to the investor establishing the
same type of business operation in a foreign country as it operates in
its home country, for example, a cell phone provider based in the US
opening up stores in China.
Vertical-
A vertical investment is one in which different but related business
activities from the investors main business are established or acquired
 in a foreign country, such as when a manufacturing company acquires
an interest in a foreign company that supplies parts or raw materials
required for the manufacturing company to make its products.

Conglomerate-
A conglomerate type of foreign direct investment is one where a company or
individual makes a foreign investment in a business that is unrelated to its
existing business in its home country. Since this type of investment involves
entering an industry the investor has no previous experience in, it often
takes the form of a joint venture with a foreign company already operating in
the industry.
Inward Foreign Direct Investment
An Inward Foreign Direct Investment involves an external or foreign entity
either investing in or purchasing the goods of a local economy. A
common type of inward investment is a foreign direct investment.
outward foreign direct investment
An outward direct investment is a business strategy where a domestic firm
expands its operations to a foreign country either via a Green field
investment, merger/acquisition and/or expansion of an existing foreign
facility.
FDI inflows and outflows
FDI net inflows are the value of inward direct investment made by non-
resident investors in the reporting economy.
FDI net outflows are the value of outward direct investment made by the
residents of the reporting economy to external economies
Inflow of FDI increases due to the following factors:
Inflow of FDI increases due to the following factors
Large GDP and market potential
Advanced know-how
Skilled work-force
Low labor cost and wages
Low taxation
Lower environmental protection
High tariff protection
Favorable laws and public incentives
Intentional and professional territorial marketing
Greenfield FDI- A green field investment is a form of FDI where a parent
company builds its operations in a foreign country from the ground up. In
addition to the construction of new production facilities, these projects can also
include the building of new distribution hub office and living quarters.
Benfit of FDI
Bring high paying, new jobs.
Bring new technology and create new markets.
Increase exports.
Bring new dollars.
The sectors which contribute to the increase in FDI in India
Infrastructure
Automobile
Pharmaceuticals
Service
Railways
Chemicals
Textiles
Airlines
Government Initiatives
The Government of India has approved 100 per cent FDI in other financial
services carried out by non-banking finance companies (NBFCs), which is
expected to attract more foreign capital into the country.
The National Highways Authority of India (NHAI) plans to offer a risk cover to
foreign investors who are willing to invest in government owned operational
national highways, which would cover risk associated with the possibility of
structural design fault, sub-standard quality of construction, and loss of
traffic.
The Union Cabinet has approved a scheme allowing the grant of Permanent
Residency Status (PRS) to foreign investors based on a minimum investment
of Rs 10 crore (US$ 1.5 million) within 18 months or Rs 25 crore (US$ 3.6
million) within 36 months, which is expected to encourage foreign
investment and facilitate Make in India programme.
The Department of Industrial Policy and Promotion (DIPP) has allowed 100
per cent foreign direct investment (FDI) in asset reconstruction companies
(ARC) under automatic route, which will help to tackle the issue of declining
asset quality of banks.
The Government of India has amended the FDI policy regarding Construction
Development Sector. The amended policy includes easing of area restriction
norms, reduction of minimum capitalisation and easy exit from project.
Further, in order to provide boost to low cost affordable housing, it has
indicated that conditions of area restriction and minimum capitalisation will
not apply to cases committing 30 per cent of the project cost towards
affordable housing.
The Government of Karnataka has approved three investment proposals
worth Rs 2,211 crore (US$ 321.7 million), which includes that of PepsiCo and
Biocon for setting up their new production facilities in the state, and one
expansion project proposal of Manyata Promoters Private Limited.
The government has also raised FDI cap in insurance from 26 per cent to 49
per cent through a notification issued by the DIPP. The limit is composite in
nature as it includes foreign investment in the form of foreign portfolio
investment, foreign institutional investment, qualified foreign investment,
foreign venture capital investment, and non-resident investment..
Indias cabinet cleared a proposal which allows 100 per cent FDI in railway
infrastructure, excluding operations. Though the initiative does not allow
foreign firms to operate trains, it allows them to invest in areas such as
creating the network and supplying trains for bullet trains etc.

Road ahead
According to United Nations Conference on Trade and Development
(UNCTAD) World Investment Report 2016, India acquired 10th slot in the top
10 countries attracting highest FDI inflows globally in 2015. The report also
mentioned that among the investment promotion agencies, India has moved
up by one rank to become the sixth most preferred investment destination.
India will require around US$ 1 trillion in the 12th Five-Year Plan (201217), to
fund infrastructure growth covering sectors such as highways, ports and
airways. This would require support from FDI flows. Indias growth rate, along
with competitive location in terms of wages and policies like Stand Up India,
is expected to boost FDI in the coming future.