Presentation

on
Sources and Destinations of FDI
& FII in India
Presented by:
Anith Lukose (13F39)
Jignesh Rathod (13F47)
Neel Sharma(13F53)

Presented to:
Dr. Y. C. Joshi

Sub: International Financial Management

G. H. Patel Postgraduate Institute of Business
Management

Types Of Foreign Investment

Wholly Owned
Subsidiary
Direct
Investment (FDI)

Joint Venture
Acquisition

Foreign

Investment
Portfolio
Investment (FPI)

Investment By
FIIs
Investment In
GDRs,ADRs,FCCBs

 What is FDI & FII?

A Foreign direct investment (FDI) is a controlling
ownership in a business enterprise in one country by an
entity based in another country.
Foreign direct investment is distinguished from portfolio
foreign investment, a passive investment in the securities of
another country such as public stocks and bonds, by the
element of "control". According to the Financial Times,
"Standard definitions of control use the internationally
agreed 10 percent threshold of voting shares, but this is a
grey area as often a smaller block of shares will give control
in widely held companies. Moreover, control of technology,
management, even crucial inputs can confer de facto
control.
Broadly, foreign direct investment includes "mergers and
acquisitions, building new facilities, reinvesting profits
earned from overseas operations and intra company loans.

 FII
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.
The term is used most commonly in India to refer to
outside companies investing in the financial markets of
India. International institutional investors must register
with the Securities and Exchange Board of India to
participate in the market. One of the major market
regulations pertaining to FIIs involves placing limits on FII
ownership in Indian companies.
Foreign institutional investors play a very important role in
any economy. These are the big companies such as
investment banks, mutual funds etc, who invest
considerable amount of money in the Indian markets. With
the buying of securities by these big players, markets
trend to move upward and vice-versa

History of FDI in India

FDI Up To 100%
Allowed Under The
Automatic Route In
Cash & Carry
(Wholesale)

1997

Government Mulled Over The

Idea Of Allowing 100% FDI In
Single-brand Retail And 50% In
Multi Brand Retail

2006

FDI Up To 51% Allowed

With Prior Government
Approval In
Single Brand Retail

2008

2011

Government Allowed 51%

FDI In Multi Brand Retail
And 100% FDI In Single
Brand Retail

 Types of FDI
Investment in Indian companies can be made both
By Non-resident as well as resident Indian entities.
Any Non-resident investment in an Indian company
is Direct Foreign Investment.
Investment by resident Indian entities could again
comprise of both resident and Non-resident
investment. Thus, such an Indian Company Would
Have Indirect foreign investment If the Indian
investing company has foreign investment in it. The
Indirect Investment can also be a cascading
investment i.e. through multi-layered structure.

 Need of FDI & FII:

India need FDI & FII for reasons such as:-

Fulfil the technological gap

Exploitation of natural resources
Development of economic infrastructure
Contributes
to
foreign
exchange
earnings,
employment creation and increases in incomes,
especially of skilled and semi-skilled workers in these
industries
Biggest beneficiary of this would be small farmers,
who would be able to improve productivity and
realize higher remuneration by selling directly to
large organized players and shorten the chain from
farm to consumers.

 Factors affecting FDI in India

Stable democratic environment over 60 years of

independence
Large size of the economy, particularly the large and
growing middle class
Open door policy towards FDI
Abundance of natural resources
Diversified industrial sectors
Large and growing market
Cost-effective and skilled labor

APPENDIX TABLE 19: FOREIGN DIRECT INVESTMENT FLOWS TO INDIA:

COUNTRY-WISE AND INDUSTRY-WISE
Source/Industry
1
TotalFDI
Mauritius
Singapore
U.S.A
Cyprus
Japan
Netherlands
UnitedKingdom
Germany
UAE
France
Switzerland
HongKongSAR
Spain
SouthKorea
Luxembourg
Others

2008-09
2
22,697
10,165
3,360
1,236
1,211
266
682
690
611
234
437
135
155
363
95
23
3,034

2009-10
2010-11
3
4
22,461
14,939
Country-wise Inflows
9,801
5,616
2,218
1,540
2,212
1,071
1,623
571
971
1,256
804
1,417
643
538
602
163
373
188
283
486
96
133
137
209
125
183
159
136
40
248
2,374
1,184

2011-12
5
23,473

(US$million)
2012-13
6
18,286

8,142
3,306
994
1568
2,089
1,289
2760
368
346
589
211
262
251
226
89
983

8,059
1,605
478
415
1,340
1,700
1,022
467
173
547
268
66
348
224
34
1,540

(Source: http://www.rbi.org.in/Scripts/AnnualReportPublications.aspx?

Sector-wise Inflows
Manufacture

4,777

5,143

4,793

9,337

6528

Construction

2,237

3,516

1,599

2,634

1319

FinancialServices

4,430

2,206

1,353

2,603

2760

RealEstateActivities
ElectricityandotherEnergyGeneration,
Distribution&Transmission

1,886

2,191

444

340

197

669

1,877

1,338

1,395

1653

CommunicationServices

2,067

1,852

1,228

1,458

92

643

1,554

569

1590

643

MiscellaneousServices

1,458

888

509

801

552

ComputerServices

1,647

866

843

736

247

Restaurants&Hotels

343

671

218

870

3129

Retail&WholesaleTrade

294

536

391

567

551

Mining

105

268

592

204

69

Transport

401

220

344

410

213

Trading

400

198

156

140

Education,Research&Development

243

91

56

103

150

1,097

384

506

419

43

BusinessServices

Others
P:Provisional.

Note:IncludesFDIthroughSIA/FIPBandRBIroutesonly.

 Sources of FII:

Indias Outward Direct Investment (ODI)

Source: Data accessed from RBI, EXIM BANK Research