The document discusses foreign direct investment (FDI), including definitions, types of FDI, methods of foreign investors participating in enterprises in host countries, incentives for FDI, importance of FDI, FDI in India, sectors and limits of FDI in India, and difficulties in limiting FDI. FDI is defined as investment made by a company or entity located in one country into business interests located in another country and can involve mergers and acquisitions or building new facilities.

1. SHIVANG SAXENA
ROLL NO. – 56
M.B.A. {SEM II}
FOREIGN DIRECT
INVESTMENTS

2.  Foreign Direct Investment (FDI) is a…..
 Direct investment into production or business in a
country by a company of another country.
 In the form of either buying a company in a target
country or by expanding operations of an existing
business in that country.
 Example : -
A Chinese Company building a factory and a supply
chain in the US in order to tap into the American market
would be an example of Chinese foreign direct
investment into America.
WHAT IS FOREIGN DIRECT INVESTMENT ?

3.  Foreign Direct Investment (FDI) can be defined
as
 DEFINITION :-
Foreign direct investment includes “merges
and acquisitions, building new facilities,
reinvesting profits earned from overseas
operations and intracompany loans.”
DEFINITION OF FOREIGN DIRECT
INVESTMENT

4.  In regard to National Income,
National Income Equation Y = C+I+G+(X-M)Where,
I = Investment plus foreign direct investment.
 ASSUMPTIONS :-
 FDI is a net inflow of investment (inflow minus outflow) to acquire
a lasting management interest in an enterprise operating in an
economy other than that of the investor.
 FDI is the sum of equity capital, other long term capital and short
term capital as shown in the balance of payments.
 FDI involves participation in management, joint ventures, transfer
of technology and expertise.
RELATIONSHIP BETWEEN NATIONAL
INCOME AND FOREIGN DIRECT
INVESTMENT

5.  HORIZONATAL FDI :-
Horizontal FDIs arises when a firm duplicates its
home country based activities at the same value
chain stage in a host country through FDI. In short, it
is the investment in the same industry abroad as a
firm operates in at home.
 VERTICAL FDI :-
Vertical FDI takes place when a firm through FDI
moves upstream or downstream in different value
chain i.e. when a firm perform value – adding
activities stage by stage in a vertical fashion in a host
country.
TYPES OF FOREIGN DIRECT INVESTMENT

6.  The foreign direct investor may acquire voting
power of an enterprise in an economy of a host
country through the following methods :-
 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.
HOW THE FOREIGN DIRECT INVESTOR
CAN PARTICIPATE IN AN ENTERPRISE IN A
HOST COUNTRY ?

7.  Foreign Direct Investment incentives may take
the following forms : -
Low corporate & Individual tax & other types of tax
concessions.
Preferable tariffs
Special Economic Zones
Export Processing Zones
Bonded Warehouses
Investment financial subsidies
Infrastructure subsidies
R&D supports
FOREIGN DIRECT INVESTMENT
INCENTIVES

8.  FDI has proven to be one of the fastest mean and
imposing higher impact on growth and
development whether it’s a field of education,
healthcare, construction, etc.
 Beneficial to both investing firms and hosting
countries, as it embarks large jumps in
development if prominently practiced and
followed well.
 Eking out advances with even moderate long
term impacts.
 FDIs are found to work well and are beneficial
when they are engaged with local realities,
adjusting contracts and reconfiguring policies as
IMPORTANCE OF FOREIGN DIRECT
INVESTMENT

9.  Foreign investment was introduced in 1991 as
Foreign Exchange Management Act (FEMA),
driven by Finance Minister Manmohan Singh.
 A recent UNCTAD survey projected India as the
second most important FDI destination for
transactional corporations during 2010 – 2012.
 The sectors that attracted the higher inflows were
services, telecommunication, construction
activities and computer software and hardware.
 Mauritius, Singapore, United States and United
Kingdom are among the leading sources of FDI.
FOREIGN DIRECT INVESTMENT IN INDIA

10.  Based on UNCTAD data FDI flows were $10.4
billion, a drop of 43 % from the first half of the last
year.
FOREIGN DIRECT INVESTMENT IN INDIA

11. PRESENT FDI LIMITS IN INDIA – ALL
SECTORS
SECTORS LIMIT
Hotels & Tourism, Roads & Highways,
Education, Advertisement, Farms,
Petrochemicals, Pharmaceuticals, Coal & Lignite
100 %
Multi brand Retails 51 %
Civil Aviation
Incl: Airports, scheduled & non scheduled
domestic airlines, helicopter services, ground &
maintenance services, repair organizations,
flying training institutes & technical training
institutes
49 %
Insurance Sector
FDI in insurance sector, as prescribed in
Insurance Act 1999, is under automatic route
49 %

12. SECTORS LIMIT
Defense Sector
FDI in defense sector is subject to industrial
license under the Industries Act 1951 through
government approval route
26 %
Print Media
Publishing Newspapers and periodicals dealing
with news & current affairs; publication of Indian
editor of foreign magzines dealing with news &
current affairs.
26 %
Broadcasting Sector
FM Radio Stations
Cable Networks
Direct -2-Home (d2h) service
Headend-In-The-Sky (HITS)
Setting up hardware facilities (such as HUB)
20 %
49 %
49 %
74 %
49 %

13. SECTORS LIMIT
Credit Information Companies 49 %
Banking Sector
New Bank (after August 2011)
Private Sector Banks
Public Sector Banks
49 %
74 %
49 %

14.  FDIs can affect the policies intended to protect
the growth of local investment or infant industry.
 The nature of FDI depends upon the jurisdiction’s
need and policies. FDI is not restricted to
developing countries.
 To secure greatest benefits for lesser costs, FDI
tunnels are created that focuses on particular
company needs & negotiable specific terms like
certain levels of trades, concessions by host
jurisdiction, etc.
 Without cost concessions, hastening the transfer
of premium paying skills to host country work
force, etc can affect FDI policy.
DIFFICULTIES IN LIMITING FOREIGN
DIRECT INVESTMENT

15.  Apolitical activities like changing concessions
policies unethically, curbing protection of small
business from large or global environment, etc.
can lead to corruption.
 The lead up for a big FDI can be risky.
 Market valuations can shift dramatically in short
times, and because local circumstances and
global economy can vary rapidly. Hence,
negotiating and planning FDI is often quite
irrational.