PRESENTATIONON

ROLE OF FDI IN INTERNATIONAL TRADE

PRESENTED BY- VIKASH GUPTA

GOPAL KUMAR GAURAV KUMAR

RAHUL

WHAT IS FDIForeign direct investment

An investment made by a company or entity based in one country into a company or entity based in another country.

ORA foreign direct investment is a controlling

ownership in a business enterprise in one countryby an entity based in another country.

What is FII…?FII stands for Foreign Institutional investor.

It refers to a company or an institution established outside India who makes an investment in the financial markets of

India in the form of securities.

To trade in the Indian equity market, the International investor must register with SEBI (Securities And

Exchange Board Of India).

Difference between FDI and FIIFDI

1. It is long-term investment2. Investment in physical assets3. Aim is to increase enterprise capacity

or productivity or change management control

4. Leads to technology transfer, access to markets and management inputs

5. FDI flows into the primary market6. Entry and exit is relatively difficult7. FDI is eligible for profits of the

company8. Does not tend be speculative9. Direct impact on employment of labor

and wages10.Abiding interest in mgt.

FII1. It is generally short-term

investment2. Investment in financial assets3. Aim is to increase capital

availability4. FII results in only capital inflows5. FII flows into the secondary

market6. Entry and exist is relatively easy7. FII is eligible for capital gain8. Tends to be speculative9. No direct impact on employment

of labour and wages10.Fleeting interest in mgt.

Significances of Foreign investment -Expansion in Employement-Consumer benefit -Technological improvement-Import export -Growth in economy-Competition-Global Exposer-Global Relationship

How FDI takes place…? -By incorporating a wholly owned subsidiary or

company anywhere. -By acquiring shares in an associated

enterprise.-Through a merger or an acquisition of an

unrelated enterprise.-Participating in an equity joint venture with

another investor or enterprise.

BOP Effects of MNC

.FDI brings both capital inflow and capital outflow.

thus net balance of payment effect is important.

.The greater the inflow the better for economy.

.The greater the outflow the better the trade relations and the market.

.The net of inflow & outflow should be maintained.

Growth & employment effectsFDI by a company for:- -Utilization of resources.-Imm0bility of capital & technology from one

industry to another.-Move operations to low wage country :-

Horizontal & Vertical FDI.-Host country advantage-Inflow of capital & technology-Host country losses.

FDI Impact on economy

-Defence-Retail-Power Generation-Computer/Telephone instruments hardware-Automobiles-Service: Construction etc.

POTENTIAL EFFECT OF FDI

-The dramatic increase in FDI over the last decade has had at least three sources. First, technological improvements in communications, information processing and transportation/

-Second, the changing framework of international competition has led to the liberalisation of capital flows among developed countries, deregulation of key sectors such as telecommunications.

-Third, developing countries are increasingly liberalising their regimes for inward foreign investment. These countries accounted for 37% of total FDI flows in 1997, an increase of20 percentage points since 1990. At present, one-third of the world’s FDI stock is located in developingcountries, although it remains heavily concentrated in a few of them.

Advantages of FDI-More consumer saving -Higher Remuneration for farmers-Increase in employment opportunities-Increase in government revenue

Disadvantage of FDI-Destruction of small entrepreneurs-Shrinking of jobs-No real benefit to farmers -Downfall of domestic market.-Increase unemployement.