mba - i trimester b e - foreign investment - 6.8.14

8/11/2019 MBA - I Trimester B E - Foreign Investment - 6.8.14

1/14


2/14

Since mid 1980s significant change inForeign Investment

World Investment rather than world trade willbe driving the international economy.Exchange rates, taxes and legal rules willbecome more important than wage rates andtariffs P F Drucker


3/14

Foreign InvestmentDirect Investment

a) Wholly Owned Subsidiary

b) Joint Venturec) AcquisitionPortfolio Investment

a) Investment by FIISb) investment in GDRs, ADRs and

FCCBs etc


4/14

It is the intent and objective of theGovernment of India to attract and promoteforeign direct investment in order tosupplement domestic capital, technology andskills, for accelerated economic growth.Foreign Direct Investment, as distinguishedfrom portfolio investment, has theconnotation of establishing a lasting interest in an enterprise that is resident in aneconomy other than that of the investor


5/14

FDI means investment by non-resident entity/person residentoutside India in the capital of an Indian company under Schedule 1of Foreign Exchange Management

Depository Receipt DR) means a negotiable security issued outside

India by a Depository bank, on behalf of an Indian company, whichrepresent the local Rupee denominated equity shares of thecompany held as deposit by a Custodian bank in India. DRs aretraded on Stock Exchanges in the US, Singapore, Luxembourg, etc.DRs listed and traded in the US markets are known as AmericanDepository Receipts ADRs) and those listed and traded

anywhere/elsewhere are known as Global Depository ReceiptsGDRs).


6/14

Foreign Currency Convertible Bond FCCB)means a bond issued by an Indian companyexpressed in foreign currency, the principal andinterest of which is payable in foreign currency.FCCBs are issued in accordance with the ForeignCurrency Convertible Bonds and ordinary sharesthrough depository receipt mechanism) Scheme,

1993 and subscribed by a non-resident entity in

foreign currency and convertible into ordinaryshares of the issuing company in any manner,either in whole, or in part.


7/14


8/14

In the FDI, Investor retains control over theinvestmentIt typically takes the form of starting asubsidiary, acquiring a stake in an existingfirm or starting a joint venture in the foreigncountryDirect Investment and management of the

firms concerned normally go together


9/14


10/14

Raising the level of InvestmentUp gradation of TechnologyExploitation of Natural Resource

Development of Basic Economic InfrastructureImprovement in Export competitivenessImprovement in BoP PositionBenefit to consumersRevenue to Government


11/14

Factors affecting FDILong term political stabilityGovernment policy

Industrial and economic prospects etcinfluence the FDI decisionHowever, Portfolio investments are which canbe liquidated easily are influenced by short

term gainsPortfolio investments much more sensitivethan FDI


12/14

Foreign capital and technology play a veryimportant role in the socio economicdevelopment of the country - Ex: ChinaForeign capital helps accelerate pace of economic

growth is by facilitating essential importsrequired for carrying out developmentprogrammesCapital Goods, Technical knowhow, raw materialsand other inputs to some extent consumer goodsWhen the export earnings are insufficient tofinance such vital imports it can reduce foreignexchange gap


13/14

Exploitative Character of Foreign InvestmentFDI is required loco technology and highlyprofitable consumer goods but not longgestation industriesFDI is not in the physical movement of capitalfrom a developed country to on LDC but in thecapital formation in the later through the localoperation of MNC

Discrimination against the employment of localnationals in the high salaried jobs against localtransport, insurance or credit organizations


14/14

mba - i trimester b e - foreign investment - 6.8.14

Documents