Foreign Direct Investment (FDI) in India has grown significantly in recent years. The government's consolidated FDI policy aims to promote FDI through a transparent and predictable framework. Key factors that attract foreign investors to India include its large and growing market, availability of skilled labor, and stable democratic environment. While cases like UBS fraud and the Vodafone tax dispute have increased uncertainty, India remains an attractive destination for FDI due to its strong economic fundamentals and future growth prospects. Recommendations to further encourage FDI include liberalizing caps, streamlining approvals, and maintaining a balance between domestic and foreign companies.

1. Foreign Direct Investment (FDI)
Presented by –
Pritish Govindpurkar &
Dinoop Nair

2. 2
Road Map for Presentation
Background
FDI Guidelines
Objectives of Research
What is FDI
Methodology
Recommendations

3. Objective of Research-
• To study the FDI.
• To find out the contribution of FDI in Indian
economy.
• To find out the Impact of increase in FDI.
• To study in detail effect of FDI in agriculture.
3

4. Methodology
• We use Primary as well as secondary data.
4

5. 5
Background: India Transformed !!
India -- the largest Democracy - one of the fastest growing economies in the World!
 Slow rate of growth
 Bureaucratic
 Protected and slow
 Small consumer markets
 Weak infrastructure
…Yesterday
…Today
 Strong macro economic fundamentals
 Encouraging foreign investment
 Outsourcing destination
 Growing consumerism
 Impetus on infrastructure development

6. ADVANTAGES INDIA HAS TO OFFER
• Stable democratic environment over 60
years of independence
• Large and growing market
• World class scientific, technical and
managerial manpower
• Cost-effective and skilled labour
• Abundance of natural resources
• Large English speaking population
• Well-established legal system with
independent judiciary
• Developed banking system and vibrant
capital market
• Well developed
accountancy, legal, actuarial and
consultancy profession
6

7. 7
What is FDI
Foreign Direct Investment (FDI):
1. FDI stands for Foreign Direct Investment, a component of a country's national financial
accounts.
2. Foreign direct investment is investment of foreign assets into domestic structures,
equipment, and organizations.
3. It does not include foreign investment into the stock markets.
4. FDI is thought to be more useful to a country than investments in the equity of its
companies because equity investments are potentially "hot money" which can leave at
the first sign of trouble, whereas FDI is durable and generally useful whether things go
well or badly.

8. 8
Overview

9. 9
Foreign Direct Investment Policy…
• Foreign Direct Investment (‘FDI’) – cross border investment with an objective to
establish ‘lasting interest’
• Objective - to encourage FDI to promote industrial & socio-economic development;
supplement domestic capital/ technology
• Foreign investment in India is regulated by Government of India’s FDI policy. The FDI
guidelines administered by the Ministry of Commerce and Industry.
• Department of Industrial Policy & Promotion (‘DIPP’), Foreign Investment Promotion
Board (‘FIPB’) and Secretariat of Industrial Assistance (‘SIA’) regulate the FDI Policy
• GoI has set up the Foreign Investment Implementation Authority (FIIA) to facilitate quick
translation of Foreign Direct Investment (FDI) approvals into implementation, to provide
a one-window to foreign investors by helping them obtain necessary approvals, sort out
operational problems and meet with various Government agencies
• Administrative and compliance aspects of FDI monitored by RBI
• Since 1991, policy has been liberalized substantially to facilitate foreign investment

10. 10
Foreign Direct Investment
Snapshot
5549
15730
24579
27309
22963
0
5000
10000
15000
20000
25000
30000
2005-06 2006-07 2007-08 2008-09 2009-10* * April 2009 – January 2010
Figures in
Million US$
• Mauritius, Singapore and Cyprus are the favorite jurisdictions for investment into India
• Foreign investment (‘FI’) from Mauritius constituting 43%* of India’s total FI
*as per information in the Press

11. 11
India's Hottest FDI Destinations
1. Maharashtra
Maharashtra received the lion's share of the FDI $2.43 billion (Rs 11,154 crore),
which is 35% of the total FDI inflows in to the country,.
2. National Capital Region
NCR received $1.85 billion (Rs 8,476 crore) in FDI during the period. The region
accounted for 20% of the total FDI.
3. West Bengal, Sikkim, Andaman & Nicobar Islands
These states attracted the third highest FDI inflows worth $1.416 billion (Rs 6,050
crore)
4. Karnataka - $936 million (Rs 4,333 crore)
5. Punjab, Haryana, Himachal Pradesh - $904 million (Rs 4,141 crore)
Dated-June2012

12. 12
The Roadmap so far…
Allowed selectively
up to 40%
Up to 51%
under ‘Automatic
Route’ for
35 Priority Sectors
Up to 74/51/50%
in 111 Sectors under
‘Automatic Route’
100% in some sectors
Up to 100% under
‘Automatic Route’ in
all sectors except
a small negative list
Sectoral caps raised;
Conditions relaxed;
Pre 1991 1991 1997 2000 Post 2000

13. 13
…Foreign Direct Investment Policy…
 Only for cases other than Automatic Route
and those mentioned in sectoral policy
 Applies to cases with existing venture/ tie up
in ‘same filed’
 Applies to investment over 24% in SSI
reserved items
Government Route
 Allowed for Most sectors
 Limits : Sectoral caps/ stipulated sector
specific guidelines
 Inward remittances through proper banking
channels
 Pricing valuations prescribed
 Post facto filing with 30 days of fund receipt
 Filings within 30 days of share allotment
 Includes Technical Collaboration/ Brand
Name/ Royalty
Automatic Route
FDI Guidelines for Investing in Indian Wholly Owned Subsidiary / Joint
Venture
Foreign Investment Promotion Board (FIPB)No Prior Regulatory Approval but only Post
Facto Filings to RBI, through AD
 

14. 14
…Foreign Direct Investment Policy
 Existing Airports 100%
 Asset Reconstruction
Companies 49%
 Titanium Minerals 100%
 Broadcasting (a)
 Cigars & Cigarettes 100%
 Courier 100%
 Print Media (a) 26%
 Single brand retailing 51%
 Agriculture (b)
 Atomic energy
 Retail trading (except single
brand up to 51%)
 Lottery, betting and gambling
 Chit fund, Nidhi company
 Trading in Transferable
Development Rights
Negative List
(Illustrative)
Prior Approval
(Illustrative)
 NBFC (minimum capitalization
norms)
 IT / ITes
 Financial services(a)
 Telecom Sector (74% cap)(a)
 Insurance (26 % cap)(a)
 Real Estate(a)
 Special Economic Zones
 Infrastructure
 Shipping
 Manufacturing sector
 Hotels and tourism
Automatic Route
(Illustrative)
Note: (a) Sector specific guidelines
(b) Subject to certain exceptions
 
FDI limits – Illustrative list

15. 15
Recent Developments

16. 16
Setting the context…
• Contribution of FDI in India’s economic development is an acknowledged
fact.
• From inception policy subject to extensive amendments from time to time
through Press Notes, circulars and clarifications
• Press Note 2,3 and 4 of 2009 issued to provide clarity on indirect FDI and
downstream investment
• FM stressed the need for a consolidated FDI policy in Budget 2010-11
• Draft consolidated policy issued in late 2009 for public comments
• Consolidated FDI policy issued effective from 1 April, 2010

17. 17
Consolidated FDI Policy –
Salient Features
• Consolidated document of all foreign investment policies /regulations under
FEMA, Press Notes, Press Releases and Clarifications issued by DIPP
• Underlying rationale to promote FDI through a policy framework that is
transparent, predictable, simple and clear and which reduces regulatory burden
• As an investor friendly measure, a new Circular is proposed to be issued every
six months
• Press Notes/Press Releases/Clarifications on FDI in force as of 31 March 2010 will
stand rescinded. Savings for actions taken under earlier press notes
• Use of chapters, headings and definitions
• Two kinds of foreign investment – (i) FDI and (ii) Foreign Portfolio Investment
(FPI)
FDI – strategic long term relationship and establish a lasting interest
FPI – no intention to influence the management of the investee entity

18. 18
FDI Policy – Principles
• Capital defined as Equity, Compulsorily Fully Convertible Preference Shares and
Compulsorily Fully Convertible Debentures
• Warrants, partly paid up shares other hybrid instruments not permitted for FDI
• Investment in other instruments such as:
− Non Convertible Preference Shares/ Debenture (‘NCP’)
− Optionally Convertible Preference Shares/ Debentures (‘OCP’)
− Partially Convertible Preference Shares/ Debentures (‘PCP’)
treated as External Commercial Borrowings (‘ECB’) - subject to ECB guidelines
• Existing NCP/ OCP/ PCP on cut off date outside sectoral cap till current maturity

19. 19
FDI Policy – Principles …contd.
• FDI permitted in:
− Indian companies including micro & small enterprise
− Partnership firm/ proprietorship concern – only by NRI/PIOs
− Trust only in the form of VCFs
• Not permitted in LLPs or any other entities – under consideration
• Investment by FIIs permitted upto 10% for individual FII and 24% in aggregate
• Pricing of capital instruments (including conversion price for convertible
instruments) is now required to be decided upfront at the time of issue of
instruments
• Investment by FVCI in DVCF set up as trust would now require specific
Government approval; FVCI can directly invest subject to FDI policy

20. What are Foreign Investors
looking for?
• Good projects
• Demand Potential
• Revenue Potential
• Stable Policy
Environment/Political
Commitment
• Optimal Risk Allocation
Framework
•Rate of interest
•Speculation
•Profitability
•Costs of production
•Economic conditions
•Government policies
•Political factors
Factors affecting foreign
investment
20

21. 21
Case Studies and Recommendations

22. UBS Fraud case
• - The funds held in the accounts of the two companies (ADAG Group )opened
in UBS with the approval of RBI were transferred to another account without
RBI’s approval, by obtaining overdrafts against cash collateral security provided
through the funds.
• - Thereafter, substantial amounts were transferred to certain accounts
belonging to 8-10 diamond dealers based in India and Belgium..
• - The funds were then passed on from the accounts of the diamond merchants
to two funds that in turn invested them in the Indian stock market through FIIs.
• - Swiss bank UBS has been fined £8 million by UK's Financial Services
Authority (FSA)
• - ED is probing the matter because the transactions may amount to violation of
Indian foreign exchange and anti-money laundering laws.

23. The Prudential Assurance Company vs. DIT (Bombay High Court)
• - The Court has held that earnings of FIIs registered in India are in the nature of
business income.
• - Such income is not taxable in India if the FII does not have a permanent
establishment in India.
• - The judgement benefits FIIs investing in India from countries such as UK, USA.
• - Those from Mauritius that already enjoy capital gains tax exemption under a tax
treaty India has with the island nation.
• - This is not likely to settle the debate over taxation of capital gains made by FIIs
in India
• - Only a Supreme Court decision can provide a binding certainty on the issue. Th

24. Will the Vodafone case hit FDI?
• Case : Show cause notice to Vodafone was issued by Indian Revenue Authorities
arguing that they had failed to discharge withholding tax obligation with respect to tax on
gains made by Hutch on sale of shares to Vodafone
• The Bombay High court said Vodafone Group Plc is liable for an estimated $2.6 billion
in taxes for its 2007 acquisition of one of India's largest mobile phone companies.
• Decision as well as the tax department’s approach creates tremendous uncertainty on
what aspects of an offshore transaction may fall within the Indian tax net.
• Tax practitioners see inherent bottlenecks while computing tax liability on such deals.
• The Vodafone judgement will definitely impact foreign investments into India.
• This is bound to affect FDI/M&A/PE deals as companies would ascribe a higher tax
weightage risk while entering India. Offshore deals may also start drying up.
• But due to growing image and future prospectus of country, we are developing as a
prominent nation and FDI would get much strong over the years despite any such issues.

25. Recommendations for India
Do away with too many caps in the overall regulatory regime.
Increase FDI limit for Insurance Sector to 49% from current 26%.
Increase FDI limit for Retail Sector.
Easy access to Foreign Investor by simplifying the approval procedure and industrial license
Liberalize the locking period for FDI
Allow FDI in investment companies
"Better Investment Climate" Need of the Hour.
Liberalise the economic policies further so as to overcome the fiscal deficits faced by Indian
economy
Invite corporate giants from countries like USA, China and south Korea
Maintain a balance between domestic companies and foreign companies so as domestic
companies could survive in front of foreign giants.
25

26. 26
"If there is one place on the
face of this Earth where all
the dreams of living men have
found a home when man
began the dream of existence,
it is India".
Romain Rolland,
French philosopher