eco fdi project

8/18/2019 Eco Fdi Project

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CHAPTER - 1.0

1.1 INTRODUCTION

These three letters stand for foreign direct investment. The simplest explanation

of FDIA would be a direct investment by a corporation in a commercial venture in

another country. A key to separating this action from involvement in other ventures in a

foreign country is that the business enterprise operates completely outside the economy

of the corporation’s home country. The investing corporation must control ! percent or

more of the voting power of the new venture.

Foreign direct investment is that investment" which is made to serve the business

interests of the investor in a company" which is in a different nation distinct from the

investor#s country of origin. A parent business enterprise and its foreign affiliate are the

two sides of the FDI relationship. Together they comprise an $%&.

FDI stands for Foreign Direct Investment" a component of a country#s national

financial accounts. Foreign direct investment is investment of foreign assets into

domestic structures" e'uipment" and organi(ations. It does not include foreign

investment into the stock markets. Foreign direct investment is thought to be more

useful to a country than investments in the e'uity of its companies because e'uity

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.

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FDI or Foreign Direct Investment is any form of investment that earns interest in

enterprises which function outside of the domestic territory of the investor . FDIs

re'uire a business relationship between a parent company and its foreign subsidiary.

Foreign direct business relationships give rise to multinational corporations. For an

investment to be regarded as an FDI" the parent firm needs to have at least !* of the

ordinary shares of its foreign affiliates. The investing firm may also 'ualify for an FDI

if it owns voting power in a business enterprise operating in a foreign country.

Foreign Direct Investment+ when a firm invests directly in production or other

facilities" over which it has effective control" in a foreign country.

1.2 - OBJECTIVES OF THE STUDY

To study the role" significance of plastic money

To know the implications of plastic money

1.3 - METHODS OF RESEARCH

The data is collected only from secondary data source. ,uch as %ewspapers" $aga(ines"

-ooks" ournals" /0data" etc.

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1.4 - SIGNIFICANCE OF THE STUDY

FDI has grown in importance in the global economy with FDI stocks now constituting

over 1! percent of global 2D3. Foreign direct investment 4FDI5 is a measure of foreign

ownership of productive assets" such as factories" mines and land. Increasing foreign

investment can be used as one measure of growing economic globali(ation. The largest

flows of foreign investment occur between the industriali(ed countries 4%orth America"

6estern /urope and apan5. -ut flows to non0industriali(ed countries are increasing

sharply.

0 Avoiding foreign government pressure for local production.0 &ircumventing trade barriers" hidden and otherwise.0 $aking the move from domestic export sales to a locally0based national sales

office.0 &apability to increase total production capacity.0 7pportunities for co0production" 8oint ventures with local partners" 8oint

marketing arrangements" licensing" etc.

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1.5 - CHAPTER SCHEME

THIS STUDY CONSISTS OF FOLLOWING CHAPTER -

CHAPTER 1 - INTRODUCTION

CHAPTER 2 - FDI IN INDIA

CHAPTER 3 - IMPORTANCE OF FDI

CHAPTER 4 - METHODS OF FDI

CHAPTER 5 - INVESTMENT RIS!S IN INDIA

CHAPTER " - FDI POLICY IN INDIA

CHAPTER # - SPECIAL FACILITIES AND RULES FOR NRI$S AND

OCB$S

CHAPTER % - FDI E&UITY INFLOW BY COUNTRIES

CHAPTER ' - FOREIGN INSTITUTIONAL INVESTMENT

CHAPTER 10 - OBJECTIVE OF THE STUDY

CHAPTER 11 - RESEARCH METHODOLOGY

CHAPTER 12 - BIBILOGRAPHY

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CHAPTER - 2.0

FOREIGN DIRECT INVESTMENT IN INDIA

The economy of India is the third largest in the world as measured by purchasing

power parity 43335" with a gross domestic product 42D35 of 9, :;.


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India is a ma8or exporter of highly0skilled workers in software and financial services"

and software engineering. India followed a socialist0inspired approach for most of its

independent history" with strict government control over private sector participation"

foreign trade" and foreign direct investment.

@owever" since the early >>!s" India has gradually opened up its markets

through economic reforms by reducing government controls on foreign trade and

investment. The privati(ation of publicly owned industries and the opening up of certain

sectors to private and foreign interests has proceeded slowly amid political debate.

India faces a burgeoning population and the challenge of reducing economic and social

ine'uality. 3overty remains a serious problem" although it has declined significantly

since independence" mainly due to green revolution and economic reforms.

FDI in India includes FDI inflows as well as FDI outflow from India. Also FDI

foreign direct investment and FII foreign institutional investors are a separate case

study while preparing a report on FDI and economic growth in India. FDI and FII in

India have registered growth in terms of both FDI flows in India and outflow from

India. The FDI statistics and data are evident of the emergence of India as both a

potential investment market and investing country. FDI has helped the Indian economy

grow" and the government continues to encourage more investments of this sort 0 but

with :B.; billion in FDI. India gets less than !* of the FDI of &hina. Foreign direct

investment 4FDI5 in India has played an important role in the development of the Indian

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economy. FDI in India has 0 in a lot of ways 0 enabled India to achieve a certain degree

of financial stability" growth and development. This money has allowed India to focus

on the areas that may have needed economic attention" and address the various

problems that continue to challenge the country. India has continually sought to attract

FDI from the world’s ma8or investors.

In >>= and >>>" the Indian national government announced a number of

reforms designed to encourage FDI and present a favorable scenario for investors. FDI

investments are permitted through financial collaborations" through private e'uity or

preferential allotments" by way of capital markets through /uro issues" and in 8oint

ventures. FDI is not permitted in the arms" nuclear" railway" coal C lignite or mining

industries. A number of pro8ects have been announced in areas such as electricity

generation" distribution and transmission" as well as the development of roads and

highways" with opportunities for foreign investors. The Indian national government also

provided permission to FDIs to provide up to !!* of the financing re'uired for the

construction of bridges and tunnels" but with a limit on foreign e'uity of I% "B!!

crores" approximately :;B1.Bm. &urrently" FDI is allowed in financial services"

including the growing credit card business.

These services include the non0banking financial services sector. Foreign

investors can buy up to !* of the e'uity in private banks" although there is condition

that stipulates that these banks must be multilateral financial organi(ations. 9p to B*

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of the shares of companies in the global mobile personal communication by satellite

services 42$3&,,5 sector can also be purchased. -y 1!!" India received :B.; billion

in FDI" big growth compared to previous years" but less than !* of the :

that flowed into &hina. 6hy does India" with a stable democracy and a smoother

approval process" lag so far behind &hina in FDI amountsE Although the &hinese

approval process is complex" it includes both national and regional approval in the same

process. Federal democracy is perversely an impediment for India.

2.1 ( TYPES OF FDI

FDIS CAN BE BROADLY CLASSIFIED INTO TWO TYPES

OUTWARD FDI - An outward0bound FDI is backed by the government against all

types of associated risks. This form of FDI is sub8ect to tax incentives as well as

disincentives of various forms. isk coverage provided to the domestic industries and

subsidies granted to the local firms stand in the way of outward FDIs" which are also

known as #direct investments abroad.

INWARD FDI - Different economic factors encourage inward FDIs. These include

interest loans" tax breaks" grants" subsidies" and the removal of restrictions and

limitations. Factors detrimental to the growth of FDIs include necessities of differential

performance and limitations related with ownership patterns.

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OTHER CATEGORI)ATIONS OF FDI - 7ther categori(ations of FDI exist as

well. Gertical Foreign Direct Investment takes place when a multinational corporation

owns some shares of a foreign enterprise" which supplies input for it or uses the output

produced by the $%&.

@ori(ontal foreign direct investments happen when a multinational company carries out

a similar business operation in different nations.

0 @ori(ontal FDI + the $%/ enters a foreign country to produce the same products

product at home.

0 &onglomerate FDI + the $%/ produces products not manufactured at home.

0 Gertical FDI + the $%/ produces intermediate goods either forward or backward in

the supply stream.

0 Hiability of foreignness + the costs of doing business abroad resulting in a competitive

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The simple explanation for this is the difference in perspective between executives of

multinational corporations and small and medium si(ed companies. $ultinational

corporations are almost always concerned with world wide manufacturing capacity and

proximity to ma8or markets. ,mall and medium si(ed companies tend to be more

concerned with selling their products in overseas markets. The advent of the Internet

has ushered focusing on access to markets" access to expertise and most of all in a new

and very different mindset that tends to focus more on access issues. ,$/’s in

particular are now access to technology.

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CHAPTER ( 4.0

4.1 - METHODS OF FOREIGN DIRECT INVESTMENTS

The foreign direct investor may ac'uire !* or more of the voting power of an

enterprise in an economy through any of the following methods

-y incorporating a wholly owned subsidiary or company

-y ac'uiring shares in an associated enterprise

Through a merger or an ac'uisition of an unrelated enterprise

3articipating in an e'uity 8oint venture with another investor or enterprise

Foreign direct investment incentives may take the following forms

How corporate tax and income tax rates

Tax holidays

7ther types of tax concessions

3referential tariffs

,pecial economic (ones

Investment financial subsidies

,oft loan or loan guarantees

Free land or land subsidies

elocation C expatriation subsidies

ob training C employment subsidies

Infrastructure subsidies

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CD support

Derogation from regulations 4usually for very large pro8ects5

The manner in which a firm chooses to enter a foreign market through FDI.

4.2 - ENTRY MODE

International franchising-ranches&ontractual alliances

/'uity 8oint ventures6holly foreign0owned subsidiaries.

CHAPTER ( 5.0

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INVESTMENT RIS!S IN INDIA

5.1 - SOVEREIGN RIS!

India is an effervescent parliamentary democracy since its political freedom from

-ritish rule more thanB! years ago. The country does not face any real threat of a

serious revolutionary movement which might bright economic course though it delayed

certain decisions relating to the economy. /conomic liberali(ation which mostly

interested foreign investors has been accepted as essential by all political parties lead to

a collapse of state machinery. ,overeign risk in India is hence nil for both )foreign

direct investment) and )foreign portfolio investment.) $any Industrial and -usiness

houses have restrained themselves from investing in the %orth0/astern part of the

country due to unstable conditions. %one the less investing in these parts is lucrative

due to the rich mineral reserves here and high level of literacy.

Mashmir on the northern tip is a militancy affected area and hence investment in the

state of Mashmir are restricted by law.

5.2 - POLITICAL RIS!

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India has en8oyed successive years of elected representative government at the

9nion as well as federal level. India suffered political instability for a few years in the

sense there was no single party which won clear ma8ority and hence it led to the

formation of coalition governments. @owever" political stability has firmly returned

since the general elections in >>>" with strong and healthy coalition governments

emerging. %onetheless" political instability did not change India#s including the

&ommunist 3arty of India Though there are bleak chances of political instability in the

future" even if such a situation arises the economic policy of India would hardly be

affected.. -eing a strong democratic nation the chances of an army coup or foreign

dictatorship are minimal. @ence" political risk in India is practically absent.

5.3 - COMMERCIAL RIS!

&ommercial risk exists in any business ventures of a country. %ot each and every

product or service is profitably accepted in the market. @ence it is advisable to study

the demand N supply condition for a particular product or service before making any

ma8or investment. In India one can avail the facilities of a large number of market

research firms in exchange for a professional fee to study the state of demand Nsupply

for any product. As it is" entering the consumer market involves some kind of gamble

and hence involves commercial risk.

5.4 ( RIS! DUE TO TERRORISM

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In the recent past" India has witnessed several terrorist attacks on its soil which

could have a negative impact on investor confidence. %ot only business environment

and return on investment" but also the overall security conditions in a nation have an

effect on FDI#s. Though some of the financial experts think otherwise. They believe the

negative impact of terrorist attacks would be a short term phenomenon. In the long run"

it is the micro and macro economic conditions concerned of -I of receipt of inward

remittances within ;! days of such receipt and will have to file the of the Indian

economy that would decide the flow of Foreign investment and in this regard India

would continue to be a favorable investment destination.

CHAPTER ( ".O

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FDI POLICY IN INDIA

".1 ( FOREIGN DIRECT INVESTMENT POLICY

FDI policy is reviewed on an ongoing basis and measures for its further

liberali(ation are taken. &hange in sector policyNsector e'uity cap is notified from time

to time through 3ress %otes by the ,ecretariat for Industrial Assistance 4,IA5 in the

Department of Industrial 3olicy announcement by ,IA are subse'uently notified by -I

under F/$A. All 3ress %otes are available at the website of Department of Industrial

3olicy C 3romotion. FDI 3olicy permits FDI up to !! * from foreignN%I investor

without prior approval in most of the sectors including the services sector under

automatic route. FDI in sectorsNactivities under automatic route does not re'uire any

prior approval either by the 2overnment or the -I. The investors are re'uired to notify

the egional office re'uired documents with that office within ;! days after issue of

shares to foreign investors.

The Foreign direct investment scheme and strategy depends on the respective

FDI norms and policies in India. The FDI policy of India has imposed certain foreign

direct investment regulations as per the FDI theory of the 2overnment of India.

These include FDI limits in India for example

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Foreign direct investment in India in infrastructure development pro8ects excluding

arms and ammunitions" atomic energy sector" railways system" extraction of coal and

lignite and mining industry is allowed up to !!* e'uity participation with the capping

amount as s. B!! corers.FDI figures in e'uity contribution in the finance sector cannot exceed more than !* in

banking services including credit card operations and in insurance sector only in 8oint

ventures with local insurance companies. FDI limit of maximum >* in telecom

industry especially in the 2,$ services.

".2 - GOVERNMENT APPROVALS FOR FOREIGN COMPANIES

DOING BUSINESS IN INDIA

2overnment Approvals for Foreign &ompanies Doing -usiness in India or

Investment outes for Investing in India" /ntry ,trategies for Foreign Investors India#s

foreign trade policy has been formulated with a view to invite and encourage FDI in

India. The eserve -ank of India has prescribed the administrative and compliance

aspects of FDI. A foreign company planning to set up business operations in India has

the following options

Investment under automatic route andInvestment through prior approval of 2overnment.

".3 - PROCEDURE UNDER AUTOMATIC ROUTE

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FDI in sectorsNactivities to the extent permitted under automatic route does not

re'uire any prior approval either by the 2overnment or -I. The investors are only

re'uired to notify the egional office concerned of -I within ;! not available" include

the following

BAN!ING

NBFC*S ACTIVITIES IN FINANCIAL SERVICES SECTOR

CIVIL AVIATION

PETROLEUM INCLUDING E+PLORATION,REFINERY,MAR!ETING

HOUSING REAL ESTATE DEVELOPMENT SECTOR FOR

INVESTMENT FROM PERSONS OTHER THAN NRIS,OCBS.

VENTURE CAPITAL FUND AND VENTURE CAPITAL COMPANY.

INVESTING COMPANIES IN INFRASTRUCTURE SERVICE SECTOR.

ATOMIC ENERGY RELATED PROJECTS.

DEFENSE AND STRATEGIC INDUSTRIES.

AGRICULTURE INCLUDING PLANTATION/

PRINT MEDIA

BROADCASTING

POSTAL SERVICES

".4 - PROCEDURE UNDER GOVERNMENT APPROVAL

FDI in activities not covered under the automatic route" re'uires prior

2overnment approval and are considered by the Foreign Investment 3romotion -oard

4FI3-5. Approvals of composite proposals involving foreign investmentNforeign

technical collaboration are also granted on the recommendations of the FI3-.

Application for all FDI cases" except %on0esident Indian 4%I5 investments and !!*

/xport 7riented 9nits 4/79s5" should be submitted to the FI3- 9nit" Department of

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/conomic Affairs 4D/A5"$inistry of Finance. Application for %I and !!* /79

cases should be presented to ,IA in Department of Industrial 3olicy C 3romotion.

".5 - INVESTMENT BY WAY OF SHARE AC&UISITION

A foreign investing company is entitled to ac'uire the shares of an Indian

company without obtaining any prior permission of the FI3- sub8ect to prescribed

parametersN guidelines. If the ac'uisition of shares directly or indirectly results in the

ac'uisition of a company listed on the stock exchange" it would re'uire the approval of

the ,ecurity /xchange -oard of India.

"." - NEW INVESTMENT BY AN E+ISTING COLLABORATOR

IN INDIA

A foreign investor with an existing venture or collaboration 4technical and

financial5 with an Indian partner in particular field proposes to invest in another area"

such type of additional investment is sub8ect to a prior approval from the FI3-" wherein

both the parties are re'uired to participate to demonstrate that the new venture does not

pre8udice the old one.

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".# - GENERAL PERMISSION OF RBI UNDER FEMA

Indian companies having foreign investment approval through FI3- route do not

re'uire any further clearance from -I for receiving inward remittance and issue of

shares to the foreign investors. The companies are re'uired to notify the concerned

egional office of the -I of receipt of inward remittances within ;! days of such

receipt and within ;! days of issue of shares to the foreign investors or %Is.

".% - PARTICIPATION BY INTERNATIONAL FINANCIAL

INSTITUTIONS

/'uity participation by international financial institutions such as AD-" IF&"

&D&" D/2" etc." in domestic companies is permitted through automatic route" sub8ect

to ,/-IN-I regulations and sector specific capon FDI.

".' - FDI IN SMALL SCALE SECTOR UNITS

A small0scale unit cannot have more than 1 per cent e'uity in its paid up capital

from any industrial undertaking" either foreign or domestic. If the e'uity from another

company 4including foreign e'uity5 exceeds 1 per cent" even if the invest main ten

plant and machinery in the unit does not exceed s ! million" the unit loses its small0

scale status and shall re'uire an industrial license to manufacture items reserved for

small0scale sector. ,ee also FDI in ,mall ,cale ,ector in India Further Hiberali(ed.

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".10 - FOREIGN DIRECT INVESTMENT INDIAN SCENARIO

FDI IS PERMITTED AS UNDER THE FOLLOWING FORMS OF

INVESTMENTS (

O Through financial collaborations.

O Through 8oint ventures and technical collaborations.

O Through capital markets via /uro issues.

O Through private placements or preferential allotments.

CHAPTER - #.0

SPECIAL FACILITIES AND RULES FOR NRI*S AND OCB*S

0 %I#s and 7&-#s are allowed the following special facilities0 Direct investment in industry" trade" infrastructure etc.0 9p to !!* e'uity with full repatriation facility for capital and dividends in the

following sectors0

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$auritius invested s.>"="


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;!* of FDI inflows from ,ingapore. 3etroleum and natural gas occupies the second

place followed by computer software and hardware" mining and construction.

C/ UNITED STATE OF AMERICA

The 9nited ,tates is the third largest source of FDI in India 4?.


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9M companies and policy makers the focus sectors for 8oint ventures" partnerships" and

trade are nonconventional energy" IT" precision engineering" medical e'uipment"

infrastructure e'uipment" and creative industries.

E/ NETHERLANDS

FDI from %etherlands to India has increased at a very fast pace over the last few

years. %etherlands ranks fifth among all the countries that make investments in India.

The total flow of FDI from %etherlands to India came to s. " ?="!? &r. between

>> and 1!!1. The total percentage of FDI from %etherlands to India stood at .!=*

out of the total foreign direct investment in the country up to August 1!!>.

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%.2 - FOREIGN INVESTMENT PROMOTION BOARD

The FI3- 4Foreign Investment 3romotion -oard5 is a government body that

offers a single window clearance for proposals on foreign direct investment in the

country that are not allowed access through the automatic route. &onsisting of ,enior

,ecretaries drawn from different ministries with ,ecretary" /conomic Affairs in the

chair" this high powered body discusses and examines proposals for foreign investment

in the country for restricted sectors 4 as laid out in the 3ress notes and extant foreign

investment policy5 on a regular basis. &urrently proposals for investment beyond

&r. re'uire them concurrence of the &&/A 4&abinet &ommittee on /conomic Affairs5.

The threshold limit is likely to be raised to 1!! &r. soon. The -oard thus plays an

important role in the administration and implementation of the 2overnment’s FDI

policy. In circumstances where there is ambiguity or a conflict of interpretation" the

FI3- has stepped in to provide solutions. Through its fast track working it has

established its reputation as a body that does not unreasonably delay and is ob8ective in

its decision making. It therefore has a strong record of actively encouraging the flow of

FDI into the country. The FI3- is assisted in this task by a FI3- ,ecretariat. The launch

of e0 filing facility is an important initiative of the ,ecretariat to further the cause of

enhanced accessibility and transparency.

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%.3 - FOLLOWING VARIOUS INDUSTRIES ATTRACTING FDI FROM

NETHERLANDS TO INDIA ARE

0 Food processing industries0 Telecommunications that includes services of cellular mobile" basic telephone"

and radio paging0 @orticulture0 /lectrical e'uipment that includes computer software and electronics0 ,ervice sector that includes non0 financial and financial services.

The sectors receiving the largest shares of total FDI inflows up to arch 1!! were the

service sector and computer software and hardware sector" each accounting for 11.

and >.= percent respectively. These were followed by the telecommunications" real

estate" construction and automobile sectors. The top sectors attracting FDI into India via

$CA activity were manufacturing information and professional" scientific" and

technical services. These sectors correspond closely with the sectors identified by the

Indian government as attracting the largest shares of FDI inflows overall.

The A,,7&@A$ has revealed that FDI in &hemicals sector 4other than fertili(ers5

registered maximum growth of 11? per cent during April 1!!= + $arch 1!!> as

compared to .? per cent during the last fiscal. The sector attracted 9,D ?> million

FDI in FP Q!> as compared to 9,D 11> million in FP ’!=. During the year 1!!>

government had raised the FDI limit in telecom sector from > per cent to ? per" which

has contributed to the robust growth of FDI. The telecom sector registered a growth of

!; per cent during fiscal 1!!=0!> as compared to previous fiscal. The sector attracted

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9,D 1BB= million FDI in FP Q!> as compared to the 9,D 1


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FOREIGN INSTITUTIONAL INVESTMENT

'.1 - INTRODUCTION TO FII

,ince >>!0>" the 2overnment of India embarked on liberali(ation and

economic reforms with a view of bringing about rapid and substantial economic growth

and move towards globali(ation of the economy. Asa part of the reforms process" the

2overnment under its %ew Industrial 3olicy revamped its foreign investment policy

recogni(ing the growing importance of foreign direct investment as an instrument of

technology transfer" augmentation of foreign exchange reserves and globali(ation of the

Indian economy.

,imultaneously" the 2overnment" for the first time" permitted portfolio

investments from abroad by foreign institutional investors in the Indian capital market.

The entry of FIIs seems to be a follow up of there commendation of the %arsimhan

&ommittee eport on Financial ,ystem. 6hile recommending their

entry" the &ommittee" however did not elaborate on the ob8ectives of the suggested

policy. The committee only suggested that the capital market should be gradually

opened up to foreign portfolio investments.

From ,eptember " >>1 with suitable restrictions" FIIs were permitted to invest in all

the securities traded on the primary and secondary markets" including shares"

debentures and warrants issued by companies which were listed or were to be listed on

the ,tock /xchanges in India. 6hile presenting the

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-udget for >>10>;" the then Finance $inister Dr. $anmohan ,ingh had announced a

proposal to allow reputed foreign investors" such as 3ension Funds etc." to invest in

Indian capital market.

'.2 - MAR!ET DESIGN IN INDIA FOR FOREIGN INSTITUTIONAL

INVESTORS

Foreign Institutional Investors means an institution established or incorporated

outside India which proposes to make investment in India in securities. A 6orking

2roup for ,treamlining of the 3rocedures relating to FIIs" constituted in April" 1!!;"

inter alia" recommended streamlining of ,/-I registration procedure" and suggested

that dual approval process of ,/-I and -I be changed to a single approval process of

,/-I. This recommendation was implemented in December 1!!;.

&urrently" entities eligible to invest under the FII route are as follows 0

0 As FII 7verseas pension funds" mutual funds" investment trust" asset

management company" nominee company" bank" institutional portfolio manager"

university funds" endowments" foundations" charitable trusts" charitable societies"

a trustee or power of attorney holder incorporated or established outside India

proposing to make proprietary investments or with no single investor holding

more than ! per cent of the shares or units of the fund.

0 As ,ub0accounts The sub account is generally the underlying fund on whose

behalf the FII invests. The following entities are eligible to be registered as sub0

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accounts" vi(. partnership firms" private company" public company" pension fund"

investment trust" and individuals.

FIIS REGISTERED WITH SEBI FALL UNDER THE FOLLOWING

CATEGORIES

0 egular FIIs0 those who are re'uired to invest not less than ?! * of their

investment in e'uity0related instruments and ;! * in non0e'uity instruments.

0 !! * debt0fund FIIs0 those who are permitted to invest only in debt

instruments.

The 2overnment guidelines for FII of >>1 allowed" inter0alia" entities such as asset

management companies" nominee companies and incorporatedNinstitutional portfolio

managers or their power of attorney holders 4providing discretionary and non0

discretionary portfolio management services5 to be registered as FIIs. 6hile the

guidelines did not have a specific provision regarding clients" in the application form

the details of clients on whose behalf investments were being made were sought.

6hile granting registration to the FII" permission was also granted for making

investments in the names of such clients. Asset management companiesNportfolio

managers are basically in the business of managing funds and investing them on behalf

of their fundsNclients. @ence" the intention of the guidelines was to allow these

categories of investors to invest funds in India on behalf of their #clients#. These #clients#

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later came to be known as sub0accounts. The broad strategy consisted of having a wide

variety of clients" including individuals" intermediated through institutional investors"

who would be registered as FIIs in India. FIIs are eligible to purchase shares and

convertible debentures issued by Indian companies under the 3ortfolio Investment

,cheme.

'.3 - PROHIBITIONS ON INVESTMENTS

FIIs are not permitted to invest in e'uity issued by an Asset econstruction

&ompany. They are also not allowed to invest in any company which is engaged or

proposes to engage in the following activities

0 -usiness of chit fund

0 %idhi &ompany

0 Agricultural or plantation activities

0 eal estate business or construction of farm houses 4real estate business does not

Include development of townships" construction of residentialNcommercial

premises" roads or bridges5.

Trading in Transferable Development ights 4TDs5.

'.4 - TRENDS OF FOREIGN INSTITUTIONAL INVESTMENTS

IN INDIA

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3ortfolio investments in India include investments in American Depository

eceipts 4ADs5N 2lobal Depository eceipts 42Ds5" Foreign Institutional

Investments and investments in offshore funds. -efore>>1" only %on0esident Indians

4%Is5 and 7verseas &orporate -odies were allowed to undertake portfolio investments

in India. Thereafter" the Indian stock markets were opened up for direct participation by

FIIs. They were allowed to invest in all the securities traded on the primary and the

secondary market including the e'uity and other securitiesNinstruments of companies

listedNto be listed on stock exchanges in India. It can be observed from the table below

that India is one of the preferred investment destinations for FIIs over the years. As of

$arch 1!!>" there were FIIs registered with ,/-I.

'.5 ( FDI V,: FII

-oth FDI and FII is related to investment in a foreign country. FDI or Foreign

Direct Investment is an investment that a parent company makes in a foreign country.

7n the contrary" FII or Foreign Institutional Investor is an investment made by an

investor in the markets of a foreign nation. In FII" the companies only need to get

registered in the stock exchange to make investments. -ut FDI is 'uite different from it

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as they invest in a foreign nation. The Foreign Institutional Investor is also known as

hot money as the investors have the liberty to sell it and take it back. -ut in Foreign

Direct Investment" this is not possible. In simple words" FII can enter the stock market

easily and also withdraw from it easily. -ut FDI can not enter and exit that easily. This

difference is what makes nations to choose FDI’s more than then FIIs.

FDI is more preferred to the FII as they are considered to be the most beneficial

kind of foreign investment for the whole /conomy. specific enterprise. It aims to

increase the enterprises capacity or productivity or change its management control. In

an FDI" the capital inflow is translated into additional production. The FII investment

flows only into the secondary market. It helps in increasing capital availability in

general rather than enhancing the capital of a specific enterprise. The Foreign Direct

Investment is considered to be more stable than Foreign Institutional Investor. FDI not

only brings in capital but also helps in good governance practices and better

management skills and even technology transfer.

Though the Foreign Institutional Investor helps in promoting good governance

and improving accounting" it does not come out with any other benefits of the FDI.

6hile the FDI flows into the primary market" the FII flows into secondary market.

W@? FII: =? :-?> 7?:>?7: ? FDI$: =? @7 ?>.

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FDI is an investment that a parent company makes in a foreign country. 7n the

contrary" FII is an investment made by an investor in the markets of a foreign

nation.

FII can enter the stock market easily and also withdraw from it easily. -ut FDI

cannot enter and exit easily.

Foreign Direct Investment targets a specific enterprise. The FII increasing capital

availability in general.

The Foreign Direct Investment is considered to be more stable than Foreign

Institutional Investor.

CHAPTER - 10.0

OBJECTIVE OF THE STUDY

OBJECTIVE OF THE STUDY

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0 To know the flow of investment in India0 To know how can India 2row by investment.0 To examine the trends and patterns in the FDI across different sectors and from

different countries

0 in India.0 To know in which sector we can get more foreign currency in terms of

investment in India0 To know which country s safe to invest.0 To know how much to invest in a developed country or in a developing.0 To know 6hich sector is good for investment.0 To know which country in investing in which country0 To know the reason for investment in India0 Influence of FII on movement of Indian stock exchange0 To understand the FII C FDI policy in India.

CHAPTER - 11.0

RESEARCH METHODOLOGY

In order to accomplish this pro8ect successfully we will take following steps.

DATA COLLECTION

Internet" -ooks " newspapers" 8ournals and books" other reports and pro8ects" literatures

FDI

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The study is limited to a sample of investing countries e.g. $auritius" ,ingapore" 9,A

etc. and sectors e.g. service sector" computer hardware and software"

telecommunications etc. which had attracted larger inflow of FDI from different

countries.

FII

CORRELATION - 6e have used the &orrelation tool to determine whether two

ranges of data move together R that is" how the ,ensex" -ank" IT" 3ower and &apital

2oods are related to the FII which may be positive relation" negative relation or no

relation.

6e will use this model for understanding the relationship between FII and stock indices

returns. FII is taken as independent variable. ,tock indices are taken as dependent

variable

HYPOTHESIS TEST

If the hypothesis holds good then we can infer that FIIs have significant impact

on the Indian capital market. This will help the investors to decide on their investments

in stocks and shares. If the hypothesis is re8ected" or in other words if the null

hypothesis is accepted" then FIIs will have no significant impact on the Indian bourses.

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CHAPTER ( 12.0

CONCLUSION

It can be observed from the above analysis that at the sector level of the Indian

/conomy" FDI has helped to raised the output" productivity and export in some sector.

@owever" in this variables 4 output" Habour productivity and export 5 is establish by the

FDI inflow in the sector. This may be due to the How flow of the FDI into India both at

the micro level as well as at sectoral level. It implies that the spirit in which economy

has been liberali(ed and exposed to world economy at the let eighties and early nineties

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@as not been achieved after so many years. This call for a udicious 3olicy Decision

towards FDI at the sectoral level. Therefore" in eve of India’s plan for further opening

up of the economy" it is advisable to open up the export oriented sectors and a higher

the growth of the economy could be achieved through the growth of this sector. Foreign

Direct Investment 4 FDI 5 as a strategic component of investment is needed by India for

its sustained economy growth and development through creation of 8obs" /xpansion 7f

/xiting $anufacturing Industries" short and long term pro8ect in the filed of @ealth care

/ducation" esearch and Development etc. 2overnment should Design the FDI 3olicy

,uch a way where FDI Inflow can be utili(ed as means of enhancing Domestic

3roduction" ,aving and /xport through the e'uitable Distribution among ,ated by

3roviding $uch freedom to states" so that they can attract FDI inflow at there own

level. FDI can @elp to raised the output" 3roductivity and /xport at the sectoral level of

the Indian /conomy.

CHAPTER - 13.0

BIBILOGRAPHY

A5 eference -ooks0

A9T@7#, %A$/ 0 Dana Gachan

TITH/ 7F -77M 0 Foreign Investments

39-HI&ATI7% 0 ;rd /dition" 1!!

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-5 79%AH,

/0DATA

httpNNwww.answers.comNtopicNforeign0direct0investmentS@istory

httpNNwww.unctad.orgNsectionsNditeiiabNdocsNditeiiab1!!en.pdf

httpNNwww.economywatch.comNforeign0direct0investmentN

httpNNwww.legalserviceindia.comNarticlesNfdiindia.htm

www.coca0colacompany
http://www.coca-colacompany/http://www.coca-colacompany/

eco fdi project

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