FDI:
ü
This is a capital inflow (non-debt)
ü
It supplements the domestic investments
ü
This is like an external source of financing and supplements the
domestic investments
ü
It brings in not just capital but also technical know how
ü
Increases competitiveness
ü
Increased the growth rate
Note:
ü The Department of
Industrial Policy and Promotion (DIPP), Ministry of Commerce and Industry, GOI
makes policy pronouncements on FDI.
Merits:
ü
Latest and superior technology flows in
ü
Inter firm collaboration helps in augments the economic growth
ü
It promotes competition
ü
Higher efficiency
ü
FDI crowds in (reduces the governments intereference)
ü
Increases the production (Advanced technology)
ü
Promotes exports
ü
New skills can be acquired
Demerits:
ü
Local companies may suffer
ü
Domestic companies (developing nations) cannot invest in Research and
Development (R and D)
ü
It displaces the potential domestic producers
FDI Policies in India:
This is
divided into four phases
ü Phase I: 1950
– 1967:
ü
This is the period of receptive attitude or cautious welcome
ü
There was a non discriminatory treatment to FDI
ü
No restrictions on remittance (transfer of funds) of profits and
dividends (Share or bonus)
ü
Ownership and control with Indians
ü Phase II:
1967 – 1980:
ü
This period is with the restrictive attitude
ü
Restriction on FDI without technology
ü
Above 40 percent stake was not allowed
ü
It was allowed only in the priority areas
ü
FDI was controlled by FERA (Foreign Exchange Regulation Act)
ü
Discretionary power in sanctioning the projects
ü Phase III:
1980- 1990
ü
This is the period of gradual liberalization
ü
Higher foreign equity in export oriented units
ü
Procedure for remittance of royalty and technical fees liberalized
ü
Fast channel for FDI clearance
ü Phase IV: 1991
onwards
ü
In the year 1991 the government announced the New Industrial Policy.
ü
Industrial license was abolished except where it required for strategic
or environmental grounds.
ü
Creation of automatic clearance of FDI proposals
ü
Sectors were opened up like mining, banking, insurance,
telecommunications, constructions and management of port, roads and highways,
harbors, airlines, defence equipment etc.
ü
Liberal policies relating to technology collaboration, foreign trade and
foreign exchange
ü
Encouraging FDI in core and infrastructure industries
ü
FERA was replaced by FEMA (Foreign Exchange Management Act) in 1999
ü
Procedures were made transparent
ü
Liberal approach for NRI investments
ü
FDI need not be accompanied by technology
ü
FDI through mergers and acquistions
ü
FDI in services and financial sector banks, Insurance and NBFC
How FDI
enters India?
ü There are three options for foreign investors
ü In few sectors FDI is not permitted (negative list)
ü FDI is permitted only up to a level as specified
ü 100 percent equity participation is allowed (this again has 2 parts.
Automatic approval is granted and here the foreign equity is less than 100
percent)..(Other sectors where prior approval from the FIPB is required).
ü November
2015:
ü The government eased the FDI norms in 15 major sectors in November,
2015.
ü The government also increased the financial power of FIPB to give
single window clearance for investment projects from Rs 3,000/- cr to Rs.
5,000- cr.
ü Route will be automatic rather than the government route.
ü It cuts down red tape, by pass Parliament.
ü For defense the foreign ownership has been increased to 49 percent
without government approval.
ü The government also said that manufacturing sector for wholesale,
retails and e-commerce will be opened up to motivate industries to
Make-In-India and sell to the customers in India. So India can avoid the
importing from other countries.
SINGLE BRAND RETAIL:
ü The foreign investor is the
owner of the brand
ü Products to be sold should
be of single brand only (products should be sold under the same brand name in
one or more countries other than India)
ü Sourcing of 30 percent of
the value of goods purchased will be from India only preferably from small and
medium units
ü Quantum of sourcing should
be self certified
ü Retail trading in any form
through e-commerce is not allowed
ü Government permitted 100 %
FDI in single brand retail
MULTI
BRAND RETAIL:
ü 51 % FDI is allowed
ü Minimum amount to be
brought in is $ 100 million
ü At least 50 % of total FDI should
be invested in back end infrastructure in 3 years
ü 30 percent of the value of
manufactured or processed products shall be sourced from Indian small
industries
ü Outlets can be set up in
only in those cities where the population is more than 10 lakhs as per the 2011
census and can cover an area of 10 km around the such cities
ü Trading by means of
e-commerce is not permitted
ü Fresh farm produce like
fruits, vegetables, flowers, grains may be unbranded
WHY FOREIGN RETAILERS WANT TO ENTER INTO
INDIAN MARKET?
ü Large market, rising
disposable incomes and spending power
ü The estimated size of the
Indian retail market is about $450 billion
ü Does FDI
in retail sector benefit India?
·
Results in new investment
·
Adds 3 – 4million new jobs
·
Another 4 – 6 million jobs are created in logistics, contract labor,
housekeeping and security
·
Develops cold chains and warehouses
·
Government revenues could get an additional $ 24 to 30 billion through
various taxes
·
Helps in taming inflation
·
Reduces wastage of vegetables and other perishables
·
Consumers can save 5 – 10 percent
·
Farmers can get 10 to 30 percent higher remuneration
·
This adds to economic growth
FII (Foreign Institutional Investors)
ü
These are the investment in the Indian capital market
ü
In 1992 new guidelines have been announced
ü
At present FIIs are allowed to invest in all types of securities traded
in the primary and secondary market and with total repatriation benefits.
ü
There is no lock in period
ü
There is also no restriction on the volume of the trade.
ü
In June 2013 the FIIs has been classified into FPI (Foreign Portfolio
Investor) if the holdings in a company are less than 10 percent of its equity
ü
If it is beyond it comes under the category of FDI
Capital Markets:
ü
Capital markets help channelize surplus funds from
savers to institutions which then invest them into productive use.
ü
It trades mostly in long-term securities.
ü
Capital market consists of primary markets and
secondary markets.
ü
Primary markets deal with trade of new issues of stocks
and other securities, whereas secondary market deals with the exchange of
existing or previously-issued securities.
ü
Another important division in the capital market is
made on the basis of the nature of security traded, i.e. stock market and bond
market.