By: Rittika Agarwala(12020241097) Prajwal Salian(12020241053)

FDI Inflows (in US $ millions)

2013-2014(April-June, 2013) 5,397 22,423 35,121 21,383 25,834 31,396 24,575 12,492

2012-2013
2011-2012 2010-2011 2009-2010 2008-2009 2007-2008 2006-2007 2005-2006 2004-2005 2003-2004 2002-2003

5,540
3,219 2,188 2,705 4,065 2,463 FDI

2001-2002
2000-2001

10,000

20,000

30,000

40,000

Source : http://dipp.nic.in/English/Publications/FDI_Statistics/FDI_Statistics.aspx

SERVICES 4% 27% CONSTRUCTION TELECOMMUNICATION S SOFTWARE & HARDWARE PHARMACEUTICALS CHEMICALS 9% 9%

6%
6% 6% 7%

16%
10%

AUTOMOBILE INDUSTRY POWER

METALLURGICAL INDUSTRIES Source : http://dipp.nic.in/English/Publications/FDI_Statistics/FDI_Statistics.aspx

Current Status: Minimum investment of $100 million. 50% of the investment is to be in backend infrastructure development. 30% of all raw material has be procured from India's small and medium industries. Permission to set up malls only in cities with a minimum population of 10 lakhs. Government has the first right to procure material from the farmers. Products should be sold under the same brand internationally. Foreign investor should be the owner of the brand.

 Farmers get only 10 to 15% of the price we pay. 3-4 middlemen in between farmers and customers. Huge post produce losses for farmers due to inadequate facilities. A poorly managed food supply infrastructure.
US Malaysia Indonesia India 0 US
Unorganized Organized 15% 85%

Organised Unorganised 20
19% 81%

40 Taiwan
45% 55%

60
60% 40%

80
70% 30%

100
80% 20% 95% 5%

Malaysia Thailand Indonesia China India

 Reduction pre-harvest wastage/losses and thus help control food inflation. Creation of 1.5 million more jobs in 5 years. Apart from the huge number of indirect employment. Increase competition which is always beneficial for the customer. Removal of middleman from the equation thereby reducing costs which in turn will reduce prices. We are the second highest producer of fruits and vegetables in the world but still we are not able to utilize is properly because of inadequate infrastructure facilities. Reduce Food Inflation

Current Status:

Foreign airlines can now pick up 49 per cent stake in India's domestic carriers Carriers have shown interest in the proposal. E.g. Jet-Etihad deal (24% stake)
Debt reduction and more working capital to carry out operations

Impact in FDI: Passenger traffic is growing at over 17 per cent along with a significant rise in international traffic Fares reduced due to competition to grab market share Spiraling cost of aviation turbine fuel (ATF), global economic slowdown and low yield due to intense competition caused losses to many domestic airlines like Kingfisher, Air India, etc. Ensure reliability , efficiency , less delaying of flights and better operations Infrastructure development like new airports and better facilities for the passengers

Current Status: Proposing major changes in foreign direct investment policy for existing pharma companies to protect domestic generic firms. Current policy is not serving its objectives and it needs to be changed in order to ensure affordable drugs to the general public MNCs acquiring domestic firms are doing only clinical trials in India and not actual drug development work With MNCs taking control of Indian firms, there could be reduction in supply of vaccines, injectable, particularly for cancer and active pharmaceutical ingredients.

Impact of FDI: Done to protect generic industry in the wake of increasing acquisitions of homegrown companies by foreign players. Issues with drug pricing controls Less patents due to introduction of product patent instead of process patent. Emerging as one of the major contributors to Indian exports with export earnings rising from a negligible amount in early 1990s to Rs 29,139.57 crore (US$7.24bn) by 2007-08. Concentration in the hands of MNCs, with a possibly negative effect on the price and availability of medicines.

Current Status: Govt. now decided to hike foreign investment ceiling in the insurance sector to 49% from present 26%. Total premium collected during the April-February period of 2012-13 fiscal by the industry stood at Rs 84,501.75 crore, down 6.12 per cent over the same period previous year. Industry experts believe that most of the challenges can be addressed through higher capitalization. Already about Rs. 33000 crore has been invested as capital and a further Rs. 50000-60000 Crore is required before companies reach BEP. (Source: IRDA)

Impact of FDI: With increase in stake, foreign players will be able to contribute in technical aspects of insurance business. This includes product innovation, claim settlement process, effective distribution models and other technological best practices. Increase in capital will motivate insurers to ramp up their operations and expand to smaller cities and towns. A well developed insurance sector, provides long term debt for Infra and leads to economic development. Nearly 80% of Indian population is with out life, health insurance and sector needs to maintaining growth rate around 15-20%.

Current Status: Recently Govt. announced 100% FDI in Telecom Sector earlier which was 74%. The decision was taken to help industry get fresh funds to lower financial burden. The move is to bring relief to foreign partners in telecom companies After two failed spectrum auction in last 12 months, 100% FDI has renewed interest from foreign major companies.

Impact of FDI: Foreign investor no longer need to partner with Indian investors. Foreign Telcos will buy out Indian shareholders. This will enable Indian Telco's sitting on total debt of 2.5lakh crore (50% foreign debt), to reduce exposure by bringing in cash and retiring debt through equity infusion. Company like Bharti Airtel that have large debt can bring in money from abroad through equity. Help company reduce leverage and strengthen balance sheet and will sector to grow continuously with help of FDI inflows.

Impact of FDI: Provided private players to tap the existing potential in the sector. Assisted the industry in upgrading its technology quotient by being exposed to international standards. Opening up international markets for the telecom equipment manufacturers Provided the sector with the much needed financial assistance to set up the infrastructure required to distribute the benefits of the telecom revolution. Prices of products and services have come down substantially

Current Status: FDI Cap : 26 % will continue to go through the Foreign Investment Promotion Board (FIPB) route. The upper limit for (FDI) in defence manufacturing, subject to approval by Cabinet Committee on Security (CCS). The primary concern is that allowing greater FDI will reduce control over a security sensitive sector. The government has spent over Rs 2.35 lakh crore ($38.4 Billion) in the last three years for procuring weapon systems for the three armed forces.

Need for FDI: Defence Sector is highly capital intensive and undergoes rapid change of technology FDI is not just getting funds, but access to latest technologies India faces significant challenges in protecting its territory and its citizens. Analysis: Raising the ceiling from 26% to 49% makes no difference to control of Indian partner. No regulatory Difference between 26% and 49% ceiling. Higher stake allows the investor to bring in latest technology in India. Increase in FDI cap will reduce defence related import.

Impact on Economy: India currently procures approx. 70% of its equipment's from abroad, but this can be reversed through higher FDI cap. Enhances job opportunity , proper payments and better economic status. European naval system major DCNS and Russian army truck maker Kamaz are keen to hold higher stake if restriction are eased. Higher stake allows foreign companies greater incentive to bring in latest technology to India.

Challenges In Attracting FDI: Modern defence systems are complex and not available from single source. Heavy initial investment limits the number of defence equipment manufacturers. International arms trade does not follow the dynamics of an open and free market. Major defence procurements are an extension of countrys foreign policy. Global defence companies will remain subject to license requirement for technologies in countries of origin

Current Status: 100% FDI is permitted in the Electronic hardware sector and the Software development sector under the automatic route. The major fiscal incentives provided by the Government of India in this sector have been for export-oriented units (EOU), software technology parks (STP) and special economic zones (SEZ).

 The Information Technology (IT) sector in India is one of the fastest growing in the country. The demand for IT services has been fuelled by subsequent growth in allied sectors such as telecom, banking, insurance, retail, healthcare and automobiles. Share of GDP: 9% of India GDP. Forex Earnings: 25% of Indias exports Employment Generation: Industry employs 3 million people; 2 million added in last decade IT-BPO sector has become one of the most significant growth catalysts for the Indian economy.

Current Status: In March 2005, the govt. of India amended existing norms to permit 100% FDI in the construction business. The real estate sector contributes to 5%of the Indian GDP and has been consistently growing at a CAGR of over 17%. FDI to fulfil the demand into the development of the residential and commercial real estate sectors. Indian GDP has moved downwards consistently in past three quarters of 2012-13. But it is being expected that second half of year 2013 would bring gain in momentum for real estate sector in India.

Impact Of FDI: FDI inflow has an impact on India's transfer of new technology and innovative ideas; improving infrastructure, a competitive business environment. Increasing inflationary pressure and the phenomenal rise in property prices it has become difficult for middle India to aspire for housing in Metro cities. The government has allowed an FDI of 100%in the townships and residential areas through automatic routes and USD 625 Billion has been allocated for rural housing projects.

 The minimum capitalization norm will be $10 million for a wholly owned subsidiary and $5 million for joint ventures with Indian partners. The minimum area to be developed by a company will have to be 100 acres. A minimum lock-in period of 3 years from completion of minimum capitalization shall apply before repatriation of original investment is permitted. A minimum of 50% of the integrated project development must be completed within a period of 5 years from the date of possession of the land. The company must be registered as an Indian company under the Companies Act 1956 and will be allowed to take up land aggregation and development. FIPB under the Ministry of Urban Development & Poverty Alleviation will process all FDI cases and set guidelines for the companies.

Negative Implications of FDI: Foreign company may buy local company in order to shut it down. Domestic corporation cant compete with these corporation. Repatriation of profits can be stressful on balance of payments. Foreign corporation have tendency to use their usual suppliers and this can lead to increased imports. May cut working position(Privatization / M&A)

Positive Implications of FDI: FDI provides capital which is one of most important aspect for economic development. Foreign corporation creates new work place. FDI brings new technologies that are were not available in India. Foreign companies provide better access to foreign markets. Bring new know how and managerial skills Improve business environment. Bring new clean technology that improve environmental conditions. Have positive effect on trade balance

 http://www.assocham.org/ www.nasscom.in/ Department Of Industrial Policy & Promotion: Government Of India www.investindia.gov.in/ Wikipedia IRDA

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