fdi and fii

PRESENTED BY:ANUSHA

SHYNISHATEJ SINGH

FOREIGN INVESTMENT IN INDIA

INDIAN ECONOMY

• Eleventh largest ECONOMY

• GDP growth 0.6% (2012, Q3)

• 4th largest by PPP - $4.00 trillion

TYPES OF FOREIGN CAPITAL

• FOREIGN DIRECT INVESTMENT(FDI)

• FOREIGN INSTITUTIONAL INVESTMENT(FII)

FDI

Foreign Direct Investment (FDI) occurs when an investor based in one country (the home country) acquires an asset in another country (the host country) with the intent to manage the asset.

WHY FDI IN INDIA ?

• Liberal, Largest Democracy, Political Stability

• Second Largest emerging market (US$2.4 trillion)

• Skilled & Competitive labors force• Highest rates of return on investment

WHY FDI IN INDIA ?(CONT…)

• Growth over the past few years averaging 8%

• Destination for BPO, KPO, etc• Second largest English speaking, scientific,

technical &executive manpower• Low costs & Tax exemptions in SEZ

FACTORS REQUIRED TO ATTRACT FDI

• Low cost • Qualified, educated/skilled labor pool• Long term market potential• Access to natural resources• Population of a country plays an

important role

CONTD…

• Political & environment stability• Financial incentives (funds from local

govt.)• Fiscal incentives (exemption from import

duties)• Indirect incentives (provides land & other

resources)

• 1991- Foreign Investment Promotion Board (FIPB)

• 1996- Foreign Investment promotion council (FIPC)

• 1999- Foreign Investment implementation Authority (FIIA)

• 2004- Investment Commission Secretariat of Industrial Assistance (SIA)

MAJOR BODIES CONSTITUTED FOR FDI

FDI in India are approved through two routes

• Automatic approval by RBI• The FIPB route – processing of non-

automatic approval cases

TYPES OF FDI

• Horizontal FDI

• Platform FDI

• Vertical FDI

• Inflow of equipment & technology• Competitive advantage & innovation• Financial resources for expansion• Employment generation• Contribution to exports growth

MERITS

• Crowding of local industry• Repatriation of profits/dividends by

investor• Conflicts of codes/laws• Loss of control

DEMERITS

FII

FIIs are defined under SEBI Regulations as “ an institution that is a legal entity established or incorporated outside India proposing to make investments in India only in securities. “

WHY INDIA NEED FII ?

• Large unexploited natural resource

• To share technical know-how

• To bring in new technology in country

• To share good foreign relation

WHO CAN GET REGISTERED AS FII ?

• Pension funds• Mutual funds• Investment Trust• Insurance companies• University funds• Foundations or Charitable trusts• Asset management companies• Power of Attorney holders• Bank

CATEGORIES OF REGISTERED FIIs

• Normal FIIs:- not less than 70% in equity related

instruments - 30% in non-equity instruments

• 100% Debt FIIs:- permitted to invest only in debt instruments

AN FII CAN INVEST ONLY IN THE FOLLOWING :

• Securities in the Primary & Secondary markets• Units of schemes floated by Domestic mutual

funds & Collective investment scheme• Dated Government Securities• Derivatives traded on a recognized stock

exchange• Commercial paper• Security receipts• Indian Depository receipts

MERITS OF FII

• Large availability of capital• Unavailability of Corporate Debt• Increases FOREX reserves• Increases domestic saving and

investments

DEMERITS OF FII

• Problems of Inflation• Adverse impact on exports• Problem for small investor• Revival of developed economies

DIFFERENCE BETWEEN FDI & FIIFDI FII

1 FDI is when foreign company brings capital into a country or an economy to set up a production or some other facility. FDI gives the foreign company some control in the operations of the company

FII is when a foreign company buys equity in a company through the stock markets. Therefore, in this case, FII would not give the foreign company any control in the company

2 FDI involves in the direct production activity & also of medium to long term nature

FII is a short term investment mostly in the financial markets & it consist of FII

3 It enables a degree of control in the company

It does not involve obtaining a degree of control in a company

4 FDI brings-long term capital FII brings short-term capital

CONCLUSION

• The last two decade of the 20th century witnessed a dramatic world-wide increase in foreign direct investment (FDI), accompanied by a marked change in the attitude of most developing countries towards inward FDI.

• As against a highly suspicious attitude of these countries towards inward FDI in the past, most countries now regard FDI as beneficial for their development efforts and compete with each other to attract it.

• Such shift in attitude lies in the changes in political and economic systems that have occurred during the closing years of the last century.