INTERNATIONAL FINANCIAL

MANAGEMENT
FDI

INTRODUCTION
FDI is direct investment into
production in a country by a
company located in another country,
either by buying a company in the
target country or by expanding
operations of an existing business in
that country.

 FDI offers an exclusive opportunity to

enter into the international or global
business, new markets and
marketing channels, elusive access
to new technology and expertise,
expansion of company with new or
more products or services, and
cheaper production facilities.

WHY
FDI plays a major role in developing
countries like India. They act as a
long term source of capital as well as
a source of advanced and developed
technologies. This helps in increasing
employment. FDI also helps in
promoting international trade.

SECTORS
Top 10 sectors by number of projects
Software & IT services 3,447
Business Services 2,477
Textiles 2,382
Financial Services 1,926
Industrial Machinery , Equipment & Tools 1,495
Communications 1,425
Consumer Products 1,234
Food & Tobacco 1,195
Transportation 1,046
Automotive Components 907

BENEFITS OF FDI FOR

HOST COUNTRIES
Both host country and home get
benefit from FDI
Host country means that country
which accept the FDI from other
countries and use this for its
economic development
Home country means that country
which
supply
its
abundance
resources and widen its market.

BENEFITS OF FDI FOR

HOST COUNTRIES
1. Policy framework for FDI

Economic, political, and social stability

Rules regarding entry and operations
Standards of treatment of foreign affiliates
Policies on functioning and structure of markets
(especially competition and policies governing mergers
and acquisitions)
International agreements on FDI
Privatization policy
Trade policy (tariffs and nontariff barriers) and
coherence of FDI and trade policies
Tax policy

BENEFITS OF FDI FOR

HOST COUNTRIES
2.
Economic
determinants&
Business facilitation
Investment promotion
Investment incentives
Hassle costs (related to corruption
and administrative efficiency)
Social amenities

BENEFITS OF FDI FOR

HOST COUNTRIES
3. Market-seeking
Market size and per capita income
Market growth
Access to regional and global markets
Country-specific consumer preferences
Structure of markets
4. Resource/asset-seeking
Raw materials
Low-cost unskilled labor
Skilled labor
Technological, innovative, and other created assets (for
example, brand names), including as embodied in individuals,
firms, and clusters
Physical infrastructure (ports, roads, power,
telecommunications)

BENEFITS OF FDI FOR

HOST COUNTRIES
5. Efficiency seeking
Cost of resources and assets listed above,
adjusted for labor productivity
Other input costs, such as transport and
communication costs to/from and within host
economy and other intermediate products
Membership of a regional integration
agreement conducive to the establishment
of regional corporate networks

DECISION
Exchange Rate - The stronger the foreign currency is in
comparison to that of the host country, lesser will be the amount of
investment required. In other words, depreciation of currency in the
host country will lead to more investments.
Market Size - This refers to the GDP growth. Developing and
emerging countries are more likely to attract investments.
Infrastructure - Investors will invest in a country if they think that
the country has suitable infrastructure to support the business.
Tax regime - MNCs are subject to tax in both the parent as well as
host country. The host country which attempts to reduce this double
taxation of MNCs will attract more FDI.
Labor market conditions - The educational levels of the labor as
well as the wage rates also play a major role in determining the
flow of FDI.
Financial and economic stability
Political stability

RECENT TRENDS
RECENT POLICY
RECENT PROJECTS

POLICY

100% FDI allowed in medical devices

FDI cap increased in insurance & sub-activities from 26% to
49%
FDI up to 49% has been permitted in the Pension Sector.
FDI limit of 26% in defense sector raised to 49% under
Government approval route. Foreign Portfolio Investment up
to 24% permitted under automatic route.
Construction, operation and maintenance of specified
activities of Railway sector opened to 100% foreign direct
investment under automatic route.
Investment by NRIs under Schedule 4 of FEMA (Transfer or
Issue of Security by Persons Resident Outside India)
Regulations will be deemed to be domestic investment at
par with the investment made by residents.
Composite caps on foreign investments introduced to bring
uniformity and simplicity is brought across the sectors in

PROJECTS
Five industrial corridor projects have been identified, planned and
launched by the Government of India in the Union Budget of 20142015, to provide an impetus to industrialization and planned
urbanization. In each of these corridors, manufacturing will be a
key economic driver and these projects are seen as critical in
raising the share of manufacturing in Indias Gross Domestic
Product from the current levels of 15% to 16% to 25% by 2022.
Along these corridors, the development of 100 Smart Cities has
also been envisaged in the Union Budget of 2014-2015. These
cities are being developed to integrate the new workforce that will
power manufacturing along the industrial corridors and to
decongest Indias urban housing scenario.
A National Industrial Corridor Development Authority (NICDA) is
being established to converge and integrate the development of
all industrial corridors.

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Years

FDI inflows Post Reform Period (Rs.

in Crores )
1991-92
409
1992-93
1094
1993-94
2018
1994-95
4312
1995-96
6916
1996-97
9654
1997-98
13548
1998-99
12343
1999-00
10311
2000-01
10,733
2001-02
18,654
2002-03
12,871
2003-04
10,064
2004-05
14,653
2005-06
24,584
2006-07
56,390
2007-08
98,642
2008-09 * 142,829
2009-10 # 123,120
2010-11 #
2011-12 #
^
2012-13 #
2013-14
2014-15

97,320
165,146
121,907
147,518
64,193

Top Ten Country-wise FDI Equity Inflows to India from

April, 2000 to July, 2014

S.No

Name of the
Country

Amount of FDI
Inflows (Rs. in
crore)

%age with total

FDI Inflows (+)

Mauritius

390691.18

35.88

Singapore

135784.52

11.88

United Kingdom 105795.83

9.46

Japan

85639.02

7.49

Netherlands

65256.29

5.57

U.S.A

57835.90

5.38

Cyprus

37349.33

3.38

Germany

33486.48

2.99

France

19398.74

1.75

10

Switzerland

13801.42

1.23

FINDINGS
India is one of the most important countries in the world
to attract FDI.
The FDI inflow to India was not new one, because it was
prevailed way back during the colonial period.
Since introduction of New Economic Policy 1991, FDI
inflow got greater scope. This is because of open market
conditions.
Service sector, construction, telecommunication etc
tertiary sector attracting more FDI then agricultural and
small scale industries. Because we need more fund the
primary sector but they are deprived from the investment.
Sectors which are deprived from the FDI are those where
large market potential is present but these are ignored by
the policy makers & poor infrastructure as well as due to
high concentration on priority sectors also contributed to
the cause.

FINDINGS
State- wise FDI inflows show that Maharashtra,
New Delhi, Karnataka, Gujarat and Tamil Nadu
received major investment from investors because
of the infrastructural facilities and favorable
business environment provided by these states.
It is observed that major investment in the above
sectors came from Mauritius and investments in
these sectors in India are primarily concentrated
in Mumbai and New Delhi.
It is also observed that the realization of approved
FDI into actual disbursement is quite low.

Thank you