project report on fdi in retail

7/28/2019 Project Report on FDI in Retail

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Role of Foreign Direct Investment (FDI) in a growing

economy

-:CONTENTS:-Sr.No. SUBJECT PAGE No.

1 Introduction of the Study 7

2 Need & Purpose For FDI 9

3 TYPES OF FDI FLOW TO INDIA 9

4 Objective of the Study 10

5 Scope of the Project 10

6 Growth of Foreign direct Investment 11

7 Sectors Benefited With FDI 12

8 Regulatory Mechanism for FDI 16

9 Year wise FDI Inflow 19

10 Diversified FDI Inflows 20

11 Governments Participation In FDI 21

12 LAWS OF FDI 20

13 Permissible Limits for FDI in different Sectors 24

14 FDI in Retail Sector 47

15 RESULTS OF THE STUDY 54

16 FDI Impact on Domestic Enterprises 54

17 LIMITATION OF FOREIGN DIRECT INVESTMENT 56

18 Conclusion 56


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19 Bibliography 57

Introduction of the Study

Foreign Direct Investment (FDI) is capital provided by a foreign direct investor, eitherdirectly or through other related enterprises, where the foreign investor is directly involvedin the management of the enterprise. Development of a new business or acquisition of atleast 10% interest in a domestic company or a tangible assets, (purchase of bond & stock).Foreign direct investment is the transfer by a multinational firm of capital, managerial,and technical assets from its home country to a host country.

FDI has three components: equity capital, reinvested earnings and intra-company loans.FDI flows are recorded on a net basis (capital account credits less debits between directinvestors and their foreign affiliates) in a particular year. Outflows of FDI in the reportingeconomy comprise capital provided (either directly or through other related enterprises) bya company resident in the economy (foreign direct investor) to an enterprise resident inanother country (FDI enterprise). Inflows of FDI in the reporting economy comprise capitalprovided (either directly or through other related enterprises) by a foreign direct investor toan enterprise resident in the economy (called FDI enterprise).

Foreign direct investment (FDI) includes significant investments by foreign companies,such as construction of production facilities or ownership stakes taken in U.S. companies.FDI not only creates new jobs, it can also lead to an infusion of innovative technologies,management strategies, and workforce practices. The ultimate flow of foreign involvement

is direct ownership of foreign- based assembly or manufacturing facilities. The foreigncompany can buy part or full interest in a local company or build its own facilities. If theforeign market appears large enough, foreign promotion facilities offer distinct advantages.First, the firm secures cost economies in the form of cheaper labor or raw material, foreigngovernment incentives, and freight savings. Second, the firm strengthens its image in thehost country because it creates jobs. Third, the firm develops the recent relationship withthe government, customers, local suppliers, and distributors, enabling it to adapt itsproduct better to the local environment. Forth, the firm retains full retain over itsinvestment and therefore can develop manufacturing and marketing policies that serve itslong-term international objectives. Fifth, the firm assures itself access to the market in casethe host country starts insisting that locally purchased goods have domestic content.


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Need & Purpose For FDI :

India need FDI for reasons such as:--

SUSTAINING HIGH LEVEL OF INVESTMENT FOR DEVLOPMENT

FULFILL THE TECHNOLOGICAL GAP

EXPLOITATION OF NATURAL RESOURCES

DEVLOPMENT OF ECONOMIC INFRASTRUCTURE.

SUSTAINING HIGH LEVEL OF INVESTMENT:-as India is a developing country, it need certainamount of saving to invest for its development. This gap between investment and saving is filled by

foreign capital.

TECHNOLOGICAL GAP:- India has lower level of technology as compare to developed nations which is

very necessary for industrial and other development so it need technology transfer which comes with fdi

when it assumes the form of private foreign investment.

EXPLOITATION OF NATURAL RESOURCES:- India is full with natural resource but it has no

required technical skill and expertise to exploit it so India need foreign capital to undertake the

exploitation of its mineral wealth.

DEVLOPMENT OF ECONOMIC INFRASTRUCTURE:- Domestic capital of developing countries like

India is too low to build up its economic infrastructure so it need some foreign capital to develop its

economic infrastructure

TYPES OF FDI FLOW TO INDIA

NRI deposits:- The Forms of Foreign Capital Flowing into India include, NRI deposits, which

are made in profitable foreign currency accounts.


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Portfolio flow of capital:- portfolio flow of capital that are made by institutional foreign

investors that make investments in India's debt and stock markets.

Investment made in commercial banks:- The Forms of Foreign Capital Flowing into India also

include, investments that are being made by the foreign investors in the commercial banks of

India

Private foreign investment:- under private foreign investment investors either sets up a branch

or a subsdiary in the host country.

The major sectors that have been benefited from Foreign Direct Investment are asfollows:

Financial sector (banking and non-banking).

Insurance

Telecommunication

Hospitality and tourism

Pharmaceuticals

Software and Information Technology.

Objective of the Study:

To know Which sector is good for investment .

To know the reason for investment in India.

To know which country s safe to invest .

To know how can India Grow by Investment .

To Examine the trends and patterns in the FDI across different sectors and from different

countries in India

To know in which sector we can get more foreign currency in terms of investment in

India

To know how much to invest in a developed country or in a developing.

To know which country in investing in which country

Influence of FII on movement of Indian stock exchange


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To understand the FII & FDI policy in India.

Scope of the Project :

The Scope of the Project is to find out where in India is Foreign Direct Investmentis taking place

Growth of Foreign direct Investment

Governments Participation in FDI - INDIAN SCENARIO

In order to attact Foreign direct Investment (FDI) from the worlds majorinvestors and in order to present a favorable scenario for investors theIndian government has announced a number of reforms and hasimplemented several industrial policies. The foreign direct investment isallowed in India through collaborations that are of financial nature, jointventure collaborations, through preferential allotments, investment through

EURO issues.Apart from this it has opened of FDI route by setting up of100% EOUs /EHTPs/ STPs etc and entering into Foreign technologyagreement.

As a result of the various policy initiatives taken, India has been rapidlychanging from a restrictive regime to a liberal one, and FDI is encouragedin almost all the economic activities under the automatic route, hugeamounts of foreign direct investment is coming into India through non-resident Indians, international companies, and various other foreigninvestors. The growth of FDI in India boosted the economic growth of the

country major advantages of FDI in India have been in terms of:

Increased capital flow. Improved technology. Management expertise. Access to international markets


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Sectors Benefited With FDI


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Sector-wise FDI Inflows ( From April 2000 to January 2010)

SECTOR

AMOUNT OF FDI

INFLOWS PERCENT OF TOTAL

FDI INFLOWS (In terms

of Rs)

In Rs Million

In US$

Million

Services Sector 787420.81 18118.40 22.39

Computer Software &hardware

391109.74 8876.43 11.12

Telecommunications 275441.38 6215.55 7.83

Construction Activities 213595.12 5029.01 6.07

Automobile 146799.41 3310.23 4.17

Housing & Real estate 217936.02 5118.85 6.20

Power 137089.37 3129.66 3.90Chemicals (Other thanFertilizers)

87008.07 1964.06 2.47

Ports 63290.50 1551.88 1.80

Metallurgicalindustries

109563.20 2612.85 3.11

Electrical Equipments 57379.63 1324.92 1.63

Cement & GypsumProducts

70781.19 1621.03 2.01

Petroleum & NaturalGas

94417.17 2244.17 2.68

Trading 62416.85 1480.94 1.77

Consultancy Services 48647.43 1112.92 1.38

Hotel and Tourism 52500.05 1217.50 1.49

Food ProcessingIndustries

34362.49 760.32 0.98

Electronics 33914.75 748.57 0.96

Misc. Mechanical &Engineering industries

28310.13 648.86 0.80

Information &Broadcasting (Incl.Print media)

52115.90 1194.20 1.48

Mining 21204.94 522.86 0.60


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Regulatory Mechanism for FDI


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Measuring FDI restrictiveness

The FDI Index gauges the restrictiveness of a countrys FDI rules bylooking at the four main types of restrictions on FDI:

Foreign equity limitations Screening or approval mechanisms Restrictions on the employment of foreigners as key personnel Operational restrictions, e.g. restrictions on branching and on

capital repatriation or on land ownership

The FDI Index is not a full measure of a countrys investment climate. Arange of other factors come into play, including how FDI rules areimplemented. Entry barriers can also arise for other reasons, including

state ownership in key sectors. A countrys ability to attract FDI will beaffected by factors such as the size of its market, the extent of itsintegration with neighbours and even geography.

Nonetheless, FDI rules are a critical determinant of a countrysattractiveness to foreign investors. Furthermore, unlike geography, FDIrules are something over which governments have control. FDI restrictionstend to arise mostly in primary sectors such as mining, fishing andagriculture, but also in media and transport.


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Year wise FDI Inflow


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Diversified FDI Inflows


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Governments Participation In FDI

On February 11, 2010, the Government of India approved new rules on foreign directinvestment. They were issued on March 26 by the Department of Industrial Policy and

Promotion (DIPP) and entered into force on April 1. Under the liberalized measures, the

Finance Minister can endorse proposals involving foreign equity of up to

INR1200crore[1croreequals 10,000,000 Indian rupees (INR)](about US$268 million

as of April 5, 2010) without seeking approval from the Cabinet Committee on Economic

Affairs (CCEA), creating an automatic consideration procedure.

Previously, FDI proposals for amounts above INR600 crore were referred to the CCEA.Because the CCEA is comprised of several ministers in charge of various portfolios, it could be

a time-consuming procedure. The new FDI rules stipulate that proposals for FDI of up toRS1,200 crore will be handled by the FIPB, which is under the Finance Ministry. Thisadministrative change is expected to streamline the process. (Singh,supra.) Now, foreigninvestors who have already obtained the requisite approval are not required to obtain newapprovals in order to make additional investments in the same entity if:

1) The investment activities or sectors have been transferred to the automatic procedure;

2) Previous sectoral caps on foreign FDI activities have been removed or the permitted FDIamount increased and the activities have been placed under the automatic route; or

3) The approval was obtained to meet previous requirements set forth in Press Note 18/1998 orPress Note 1/2005. These Notes address foreign investment/ technical collaboration proposals"where the foreign investor has or had any previous joint venture or technologytransfer/trademark agreement in the same or allied field in India. Moreover, foreign investorswill no longer need to obtain no-objection certificates (NOC) from domestic company joint-venture partners in order to invest on their own in the same sectors.


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LAWS OF FDI

GOVERNING LAWS

Both domestic (of the investing andrecipient economies) and international

laws govern FDI. Domestic investment codes typically include provisions to

attract FDI and safeguard direct investors, such as promises ofnational

treatment, most-favored-nation treatment, tax incentives, security

measures, and/or dispute resolution .In the event of an investor-State

dispute, investors generally must exhaust local remedies before turning to

other nations or international dispute resolution, such as the International

Centre for Settlement of Investment Disputes, an international arbitration

institution.

International law also governs FDI. Sources of international law include, inter

alia, multilateral treaties, bilateral investment treaties (BITs), customary

international law, and judicial decisions. Multilateral treaties, such as

the Agreement on Trade-Related Investment Measures (regarding trade in

goods) and the Agreement on Trade-Related Aspects of Intellectual

Property (regarding intellectual property) harmonize disparate domestic

laws. Attempts, however, to negotiate a comprehensive, multilateral

investment treaty have failed. As such, the U.S. views BITs as particularly

important and has negotiated40 that are currently in force.
http://topics.law.cornell.edu/wex/national_treatmenthttp://topics.law.cornell.edu/wex/national_treatmenthttp://topics.law.cornell.edu/wex/most_favored_nationhttp://icsid.worldbank.org/ICSID/Index.jsphttp://icsid.worldbank.org/ICSID/Index.jsphttp://topics.law.cornell.edu/wex/multilateral_treatieshttp://topics.law.cornell.edu/wex/bilateral_investment_treatyhttp://topics.law.cornell.edu/wex/customary_international_lawhttp://topics.law.cornell.edu/wex/customary_international_lawhttp://www.wto.org/english/docs_e/legal_e/18-trims.pdfhttp://www.wto.org/english/docs_e/legal_e/27-trips.pdfhttp://www.wto.org/english/docs_e/legal_e/27-trips.pdfhttp://www.ustr.gov/trade-agreements/bilateral-investment-treatieshttp://www.ustr.gov/trade-agreements/bilateral-investment-treatieshttp://tcc.export.gov/Trade_Agreements/Bilateral_Investment_Treaties/index.asphttp://topics.law.cornell.edu/wex/national_treatmenthttp://topics.law.cornell.edu/wex/national_treatmenthttp://topics.law.cornell.edu/wex/most_favored_nationhttp://icsid.worldbank.org/ICSID/Index.jsphttp://icsid.worldbank.org/ICSID/Index.jsphttp://topics.law.cornell.edu/wex/multilateral_treatieshttp://topics.law.cornell.edu/wex/bilateral_investment_treatyhttp://topics.law.cornell.edu/wex/customary_international_lawhttp://topics.law.cornell.edu/wex/customary_international_lawhttp://www.wto.org/english/docs_e/legal_e/18-trims.pdfhttp://www.wto.org/english/docs_e/legal_e/27-trips.pdfhttp://www.wto.org/english/docs_e/legal_e/27-trips.pdfhttp://www.ustr.gov/trade-agreements/bilateral-investment-treatieshttp://www.ustr.gov/trade-agreements/bilateral-investment-treatieshttp://tcc.export.gov/Trade_Agreements/Bilateral_Investment_Treaties/index.asp


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Foreign Direct Investment (FDI)

Permissable Limits in Different

Sectors as on December 2012

Sl. No. Sector FDI Permissible Limit

1 Hotel & Tourism 100%

2 Power 100%

3 Drugs & Pharmaceuticals 100%

4 Roads, Highways, Ports and Harbours 100%

5 Pollution Control and Management 100%

6 Call Centers in India 100%

7 Telecom Sector 74%

8 Insurance 26%

9 Defense 26%
http://www.blogger.com/email-post.g?blogID=4420455964467110669&postID=1188357161317809215


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What are the Permissible Limits for FDI in

different Sectors :

(A) 26% FDI is permitted in

Defence

Newspaper and media **

Petroleum refining

Pension sector (allowed in October 2012 as per cabinet

decision)

(B) 49% FDI is permitted in :

Banking

Cable network**

DTH **

Infrastructure investment

Telecom

Insurance (Enhanced from 26% to 49% in October, 2012)49% (FDI & FII) in power exchanges registered under the Central

Electricity Regulatory Commission (Power Market) Regulations

2010 subject to an FDI limit of 26 per cent and an FII limit of 23

per cent of the paid-up capital is now permissible. [Permitted in

September 2012]

(C ) 51% is Permitted in

Multi-Brand Retail (Since September 2012)

Petro-pipelines


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(D) 74% FDI is permitted in

Atomic minerals

Science Magazines /Journals

Petro marketing

Coal and Lignite mines

Telecom

(E)100% FDI is permitted in

Single Brand Retail (Increased to 100% from 51% in December

2011).

Advertizement

Airports

Cold-storage

BPO/Call centres

E-commerceEnergy (except atomic)

export trading house

Films

Hotel, tourism

Metro train

Mines (gold, silver)

Petroleum exploration

Pharmaceuticals

Pollution control

Postal service

Roads, highways, ports.


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Township

Wholesale trading

Insurance Sector: FDI in Insurance sector in India

FDI up to 26% in the Insurance sector is allowed on the automatic route subject to obtaining

license from Insurance Regulatory & Development Authority (IRDA)

Telecommunication:

FDI in Telecommunication sector

i. In basic, cellular, value added services and global mobile personal communications by

satellite, FDI is limited to 49% subject to licensing and security requirements and

adherence by the companies (who are investing and the companies in which investment

is being made) to the license conditions for foreign equity cap and lock- in period for

transfer and addition of equity and other license provisions.ii. ISPs with gateways, radio-paging and end-to-end bandwidth, FDI is permitted up to 74%

with FDI, beyond 49% requiring Government approval. These services would be subject

to licensing and security requirements.

iii. No equity cap is applicable to manufacturing activities.

iv. FDI up to 100% is allowed for the following activities in the telecom sector :

a. ISPs not providing gateways (both for satellite and submarine cables);

b. Infrastructure Providers providing dark fiber (IP Category 1);

c. Electronic Mail; and

d. Voice Mail


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The above would be subject to the following conditions:

e. FDI up to 100% is allowed subject to the condition that such companies would

divest 26% of their equity in favor of Indian public in 5 years, if these companies

are listed in other parts of the world.

f. The above services would be subject to licensing and security requirements,

wherever required.Proposals for FDI beyond 49% shall be considered by FIPB

on case to case basis.

Trading:

FDI in Trading Companies in India

Trading is permitted under automatic route with FDI up to 51% provided it is primarily export

activities, and the undertaking is an export house/trading house/super trading house/star trading

house. However, under the FIPB route:-

i. 100% FDI is permitted in case of trading companies for the following activities:

exports;

bulk imports with ex-port/ex-bonded warehouse sales;

cash and carry wholesale trading;

other import of goods or services provided at least 75% is for procurement and sale of

goods and services among the companies of the same group and not for third party use or

onward transfer/distribution/sales.

ii. The following kinds of trading are also permitted, subject to provisions of EXIM Policy:

a. Companies for providing after sales services (that is not trading per se)

b. Domestic trading of products of JVs is permitted at the wholesale level for such trading

companies who wish to market manufactured products on behalf of their joint ventures

in which they have equity participation in India.


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c. Trading of hi-tech items/items requiring specialized after sales service

d. Trading of items for social sector

e. Trading of hi-tech, medical and diagnostic items.

f. Trading of items sourced from the small scale sector under which, based on technology

provided and laid down quality specifications, a company can market that item under its

brand name.

g. Domestic sourcing of products for exports.

h. Test marketing of such items for which a company has approval for manufacture

provided such test marketing facility will be for a period of two years, and investment in

setting up manufacturing facilities commences simultaneously with test marketing

FDI up to 100% permitted for e-commerce activities subject to the condition that such

companies would divest 26% of their equity in favor of the Indian public in five years, if these

companies are listed in other parts of the world. Such companies would engage only in business

to business (B2B) e-commerce and not in retail trading.

Power:

FDI In Power Sector in India

Up to 100% FDI allowed in respect of projects relating to electricity generation, transmission

and distribution, other than atomic reactor power plants. There is no limit on the project cost and

quantum of foreign direct investment.

Drugs & Pharmaceuticals

FDI up to 100% is permitted on the automatic route for manufacture of drugs and

pharmaceutical, provided the activity does not attract compulsory licensing or involve use of

recombinant DNA technology, and specific cell / tissue targeted formulations.


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FDI proposals for the manufacture of licensable drugs and pharmaceuticals and bulk drugs

produced by recombinant DNA technology, and specific cell / tissue targeted formulations will

require prior Government approval.

Roads, Highways, Ports and Harbors

FDI up to 100% under automatic route is permitted in projects for construction and maintenance

of roads, highways, vehicular bridges, toll roads, vehicular tunnels, ports and harbors.

Pollution Control and Management

FDI up to 100% in both manufacture of pollution control equipment and consultancy for

integration of pollution control systems is permitted on the automatic route.

Call Centers in India / Call Centres in India

FDI up to 100% is allowed subject to certain conditions.

Business Process Outsourcing BPO in India

FDI up to 100% is allowed subject to certain conditions.

Special Facilities and Rules for NRI's and OCB's

NRI's and OCB's are allowed the following special facilities:

1. Direct investment in industry, trade, infrastructure etc.

2. Up to 100% equity with full repatriation facility for capital and dividends in the

following sectors

i. 34 High Priority Industry Groups

ii. Export Trading Companies


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iii. Hotels and Tourism-related Projects

iv. Hospitals, Diagnostic Centers

v. Shipping

vi. Deep Sea Fishing

vii. Oil Exploration

viii. Power

ix. Housing and Real Estate Development

x. Highways, Bridges and Ports

xi. Sick Industrial Units

xii. Industries Requiring Compulsory Licensing

3. Up to 40% Equity with full repatriation: New Issues of Existing Companies raising

Capital through Public Issue up to 40% of the new Capital Issue.

4. On non-repatriation basis: Up to 100% Equity in any Proprietary or Partnership engaged

in Industrial, Commercial or Trading Activity.

5. Portfolio Investment on repatriation basis: Up to 1% of the Paid up Value of the equity

Capital or Convertible Debentures of the Company by each NRI. Investment in

Government Securities, Units of UTI, National Plan/Saving Certificates.

6. On Non-Repatriation Basis: Acquisition of shares of an Indian Company, through a

General Body Resolution, up to 24% of the Paid Up Value of the Company.

7. Other Facilities: Income Tax is at a Flat Rate of 20% on Income arising from Shares or

Debentures of an Indian


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India Further Opens Up Key Sectors for Foreign Investment

India has liberalized foreign investment regulations in key sectors, opening up commodity

exchanges, credit information services and aircraft maintenance operations. The foreign

investment limit in Public Sector Units (PSU) refineries has been raised from 26% to 49%.

An additional sweetener is that the mandatory disinvestment clause within five years has been

done away with. FDI in Civil aviation up to 74% will now be allowed through the automatic

route for non-scheduled and cargo airlines, as also for ground handling activities. 100% FDI in

aircraft maintenance and repair operations has also been allowed.

But the big one, allowing foreign airlines to pick up a stake in domestic carriers has been given a

miss again. India has decided to allow 26% FDI and 23% FII investments in commodity

exchanges, subject to the proviso that no single entity will hold more than 5% of the stake.

Sectors like credit information companies, industrial parks and construction and development

projects have also been opened up to more foreign investment. Also keeping India's civilian

nuclear ambitions in mind, India has also allowed 100% FDI in mining of titanium, a mineral

which is abundant in India.

Sources say the government wants to send out a signal that it is not done with reforms yet. At

the same time, critics say contentious issues like FDI and multi-brand retail are out of the policy

radar because of political compulsions.

Forbidden Territories:

Arms and ammunition

Atomic Energy

Coal and lignite


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Rail Transport

Mining of metals like iron, manganese, chrome, gypsum, sulfur, gold, diamonds, copper,

zinc.

Foreign Investment through GDRs (Euro Issues)

Indian companies are allowed to raise equity capital in the international market through the issue

of Global Depository Receipt (GDRs). GDR investments are treated as FDI and are designated

in dollars and are not subject to any ceilings on investment. An applicant company seeking

Government's approval in this regard should have consistent track record for good performance

(financial or otherwise) for a minimum period of 3 years. This condition would be relaxed for

infrastructure projects such as power generation, telecommunication, petroleum exploration and

refining, ports, airports and roads.

1. Clearance from FIPB

There is no restriction on the number of Euro-issue to be floated by a company or a group of

companies in the financial year. A company engaged in the manufacture of items covered under

Annex-III of the New Industrial Policy whose direct foreign investment after a proposed Euro

issue is likely to exceed 51% or which is implementing a project not contained in Annex-III,

would need to obtain prior FIPB clearance before seeking final approval from Ministry of

Finance.

2. Use of GDRs

The proceeds of the GDRs can be used for financing capital goods imports, capital expenditure

including domestic purchase/installation of plant, equipment and building and investment in

software development, prepayment or scheduled repayment of earlier external borrowings, and

equity investment in JV/WOSs in India.

Foreign direct investments in India are approved through two routes


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1. Automatic approval by RBI

The Reserve Bank of India accords automatic approval within a period of two weeks (subject to

compliance of norms) to all proposals and permits foreign equity up to 24%; 50%; 51%; 74%and 100% is allowed depending on the category of industries and the sectoral caps applicable.

The lists are comprehensive and cover most industries of interest to foreign companies.

Investments in high priority industries or for trading companies primarily engaged in exporting

are given almost automatic

approval by the RBI.

2. The FIPB Route Processing of non-automatic approval cases FIPB stands for Foreign Investment Promotion Board which approves all other cases where the

parameters of automatic approval are not met. Normal processing time is 4 to 6 weeks. Its

approach is liberal for all sectors and all types of proposals, and rejections are few. It is not

necessary for foreign investors to have a local partner, even when the foreign investor wishes to

hold less than the entire equity of the company. The portion of the equity not proposed to be

held by the foreign investor can be offered to the public.

iii. Analysis of sector specific policy for FDI

Sr. No. Sector/Activity FDI cap/Equity Entry/Route

1. Hotel & Tourism 100% Automatic

2. NBFC 49% Automatic

3. Insurance 26% Automatic

4. Telecommunication:

cellular, value added services

ISPs with gateways, radio-

paging

Electronic Mail & Voice Mail

49%

74%

100%

Automatic

Above 49% need Govt. licence

5. Trading companies:

primarily export activities 51% Automatic


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bulk imports, cash and carry

wholesale trading 100% Automatic

6. Power(other than atomic reactor

power plants) 100% Automatic

7. Drugs & Pharmaceuticals 100% Automatic8. Roads, Highways, Ports and

Harbors

100% Automatic

9. Pollution Control and

Management

100% Automatic

10 Call Centers 100% Automatic

11. BPO 100% Automatic

12. For NRI's and OCB's:

i. 34 High Priority

Industry Groups

ii. Export Trading

Companies

iii. Hotels and

Tourism-related Projects

iv. Hospitals,

Diagnostic Centers

v. Shipping

vi. Deep Sea Fishing

vii. Oil Exploration

viii. Power

ix. Housing and Real

Estate Development

x. Highways,

Bridges and Ports

100% Automatic


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xi. Sick Industrial

Units

xii. Industries

Requiring Compulsory

Licensing

xiii. Industries

Reserved for Small Scale

Sector

13. Airports:

Greenfield projects

Existing projects

100%

100%

Automatic

Beyond 74% FIPB14 Assets reconstruction company 49% FIPB

15. Cigars and cigarettes 100% FIPB

16. Courier services 100% FIPB

17. Investing companies in

infrastructure (other than

telecom sector)

49% FIPB

iv. Analysis of FDI inflow in India

From April 2000 to August 2011-12

(Amount US$ in Millions)

S.No Financial Year Total FDI Inflows % Growth Over Previous Year

1. 2000-01 4,029 ----

2. 2001-02 6,130 (+) 52

3. 2002-03 5,035 (-) 18

4. 2003-04 4,322 (-) 14

5. 2004-05 6,051 (+) 40


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6. 2005-06 8,961 (+) 48

7. 2006-07 22,826 (+) 146

8. 2007-08 34,362 (+) 51

9. 2008-09 35,168 (+) 02

10. 2009-10 16,232 (-) 0.1

11. 2010-2011 19427 (+) 15

12. 2011-2012 28403 (+) 31


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v. Analysis of share of top ten investing countries FDI equity in flows

From April 2000 to January 2012

(Amount in Millions)

Sr. No Country Amount of FDI Inflows % As ToTotal FDI

Inflow

1. Mauritius 19,18,633.61 44.01

2. Singapore 3,80,142.56 8.72

3. U.S.A. 3,32,935.60 7.64

4. U.K. 2,40,974.98 5.53

5. Netherlands 1,78,047.76 4.08

6. Japan 1,50,129.05 3.44

7. Cyprus 1,32,448.04 3.04

8. Germany 1,12,242.06 2.579. France 61,686.39 1.42

10. U.A.E. 50,915.59 1.17


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Mauritius

Mauritius invested Rs.19,18,633 million in India Up to the January 2010, equal to 44.01 percent

of total FDI inflows. Many companies based outside of India utilize Mauritian holdingcompanies to take advantage of the India- Mauritius Double Taxation Avoidance Agreement

(DTAA). The DTAA allows foreign firms to bypass Indian capital gains taxes, and may allow

some India-based firms to avoid paying certain taxes through a process known as round

tripping.

The extent of round tripping by Indian companies through Mauritius is unknown. However, the

Indian government is concerned enough about this problem to have asked the government of

Mauritius to set up a joint monitoring mechanism to study these investment flows. The potential

loss of tax revenue is of particular concern to the Indian government. These are the sectors

which attracting more FDI from Mauritius Electrical equipment Gypsum and cement products

Telecommunications Services sector that includes both non- financial and financial Fuels.


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Singapore

Singapore continues to be the single largest investor in India amongst the Singapore with FDI

inflows into Rs. 3,80,142 crores up to January 2010

Sector-wise distribution of FDI inflows received from Singapore the highest inflows have beenin the services sector (financial and non financial), which accounts for about 30% of FDI

inflows from Singapore. Petroleum and natural gas occupies the second place followed by

computer software and hardware, mining and construction.

U.S.A.

The United States is the third largest source of FDI in India (7.64 % of the total), valued at

732335 crore in cumulative inflows up to January 2010. According to the Indian government,

the top sectors attracting FDI from the United States to India are fuel, telecommunications,

electrical equipment, food processing, and services. According to the available M&A data, the

two top sectors attracting FDI inflows from the United States are computer systems design and

programming and manufacturing

U.K.

The United Kingdom is the fourth largest source of FDI in India (5.53 % of the total), valued at2,40,974 crores in cumulative inflows up to January 2010

Over 17 UK companies under the aegis of the Nuclear Industry Association of UK have tied up

with Ficci to identify joint venture and FDI possibilities in the civil nuclear energy sector.

UK companies and policy makers the focus sectors for joint ventures, partnerships, and trade are

non-conventional energy, IT, precision engineering, medical equipment, infrastructure

equipment, and creative industries.


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Netherlands

FDI from Netherlands to India has increased at a very fast pace over the last few years.

Netherlands ranks fifth among all the countries that make investments in India. The total flow of

FDI from Netherlands to India came to Rs. 1, 78,047 crores between 1991 and 2002. The totalpercentage of FDI from Netherlands to India stood at 4.08% out of the total foreign direct

investment in the country up to August 2009.

Following Various industries attracting FDI from Netherlands to India are:

Food processing industries

Telecommunications that includes services of cellular mobile, basic telephone, and radio

paging

Horticulture

Electrical equipment that includes computer software and electronics

Service sector that includes non- financial and financial services


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vi. Analysis of sectors attracting highest FDI equity inflows

From April 2000 to March 2010

(Amount in Millions)

Sr. No Country Amount of FDI

Inflows

% As To

Total FDI

Inflow

1. Service Sector

(Financial & Non Financial)

9,65,210.77 22.14

2. Computer Software & Hardware 4,13,419.03 9.48

3. Telecommunication 3,68,899.62 8.46

4. Housing & Real Estate 3,25,021.36 7.46

5. Construction Activities 2,65,492.96 6.096. Automobile Industry 1,90,172.22 4.36

7. Power 1,79,849.92 4.13

8. Metallurgical Industries 1,25,785.57 2.89

9. Petroleum & Natural Gas 1,11,957.00 2.57

10. Chemical 1,01,680.18 2.33

The sectors receiving the largest shares of total FDI inflows up to arch 2010 were the

service sector and computer software and hardware sector, each accounting for 22.14

and 9.48 percent respectively. These were followed by the telecommunications, real

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

M&A 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 ASSOCHAM has revealed that FDI in Chemicals sector (other than fertilizers) registered

maximum growth of 227 per cent during April 2008 March 2009 as compared to 11.71 per


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cent during the last fiscal. The sector attracted USD 749 million FDI in FY 09 as compared to

USD 229 million in FY 08.

During the year 2009 government had raised the FDI limit in telecom sector from 49 per cent to

74 per, which has contributed to the robust growth of FDI. The telecom sector registered a

growth of 103 per cent during fiscal 2008-09 as compared to previous fiscal. The sector

attracted USD 2558 million FDI in FY 09 as compared to the USD 1261 million in FY 08,

acquired 9.37 per cent share in total FDI inflow.

India automobile sector has been able to record 70 per cent growth in foreign investment. The

FDI inflow in automobile sector has increased from USD 675 million to 1,152 million in FY 09

over FY 08. The other sectors which registered growth in highest FDI inflow during April

March 2009 were housing & real estate (28.55 per cent), computer software & hardware (18.94

per cent), construction activities including road & highways (16.35 per cent) and power (1.86

per cent).


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Foreign Investment Promotion Board

The FIPB (Foreign Investment Promotion Board) 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. Consisting of Senior Secretaries drawn from different

ministries with Secretary ,Economic Affairs in the chair, this high powered body discusses and

examines proposals for foreign investment in the country for restricted sectors ( as laid out in the

Press notes and extant foreign investment policy) on a regular basis. Currently proposals for

investment beyond 600 crores require the concurrence of the CCEA (Cabinet Committee on

Economic Affairs). The threshold limit is likely to be raised to 1200 crore soon.The Board thus

plays an important role in the administration and implementation of the Governments FDI

policy. In circumstances where there is ambiguity or a conflict of interpretation, the FIPB 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 objective in its decision making. It therefore has

a strong record of actively encouraging the flow of FDI into the country. The FIPB is assisted in

this task by a FIPB Secretariat. The launch of e- filing facility is an important initiative of the

Secretariat to further the cause of enhanced accessibility and transparency .


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Low Income Countries in Global FDI Race

The situation of foreign direct investment has been relatively good in the recent times with an

increase of 38%. Normally, the foreign direct investment is made mostly into the extractive

industries. However, now the foreign directinvestors are also looking to pump money into the

manufacturing industry that has garnered 47% of the total foreign direct investment made in

1992. However, the situation has not been the same in the countries with a middle income range.

The middle income countries have not received a steady inflow of foreign direct income coming

their way. The situation is comparatively better in the low income countries. They have had an

uninterrupted and continually increasing flow offoreign direct investment. It has been observed

that the various debt crises, as well as, other forms of economic crises have had less effect on

these countries.

These countries had lesser amounts of commercial bank obligations, which again had been

caused by the absence of properfinancial markets, as well as the fact that their economies were

not open to foreign direct investment. During the later phases of the decade of 70s the Asian

countries started encouraging foreign direct investments in their economies. China has received

the most of the foreign direct investment that was pumped into the countries

with low income. It accounted for as much as 86% of the total foreign direct investment made in

the lower income countries in with low income. It accounted for as much as 86% of the total

foreign direct investment made in the lower income countries in 1995.

The economic liberalization in China started in 1979. This led to an increase in the foreign direct

investment in China. In the years between 1982 and 1991 the average foreign direct investmentin China was US$ 2.5 billion. This average increased by seven times to become US$ 37.5

billion during 1995. A significant amount of the foreign direct investment in China was

provided in the industrial sector.
http://www.economywatch.com/foreign-direct-investment/global-fdi-race.htmlhttp://www.economywatch.com/foreign-direct-investment/global-fdi-race.htmlhttp://www.economywatch.com/foreign-direct-investment/global-fdi-race.htmlhttp://www.economywatch.com/foreign-direct-investment/global-fdi-race.htmlhttp://www.economywatch.com/foreign-direct-investment/global-fdi-race.htmlhttp://www.economywatch.com/foreign-direct-investment/global-fdi-race.htmlhttp://www.economywatch.com/foreign-direct-investment/global-fdi-race.htmlhttp://www.economywatch.com/foreign-direct-investment/global-fdi-race.htmlhttp://www.economywatch.com/foreign-direct-investment/global-fdi-race.htmlhttp://www.economywatch.com/foreign-direct-investment/global-fdi-race.htmlhttp://www.economywatch.com/foreign-direct-investment/global-fdi-race.htmlhttp://www.economywatch.com/foreign-direct-investment/global-fdi-race.htmlhttp://www.economywatch.com/foreign-direct-investment/global-fdi-race.htmlhttp://www.economywatch.com/foreign-direct-investment/global-fdi-race.html


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It was as much as 68%. Around 20% of the foreign direct investment of China was made in the

real estate sector. During the same period Nigeria had been the second best in terms of receiving

foreign direct investment. In the recent times India has risen to be the third major foreign direct

investment destination in the recent years. Foreign direct investment started in India in 1991

with the initiation of the economic liberation.

There were more initiatives that enabled India to garner foreign direct investments worth US$

2.9 billion from 1991 to 1995. This was a significant increase from the previous twenty years

when the total foreign direct investment in India was US$1 billion. Most of the foreign direct

investment made in India has been in the infrastructural areas like telecommunications and

power. In the manufacturing industry the emphasis has been on petroleum refining, vehicles and

petrochemicals Vietnam is a low income country, which is supposed to have the same potential

as China to generate foreign direct investment.

The foreign direct investment laws were introduced in Vietnam in 1987-88. This led to an

increase in the foreign direct investment made in the country. The amount stood at US$ 25

million in 1993 compared to US$ 8 million in 1993. This amount increased by 3 times after the

USA removed its economic sanctions in 1994. The gas andpetroleum industries were the

biggest beneficiaries of the foreign direct investment. Bangladesh started receiving increasing

foreign direct investment after 1991, when the economic reforms took place in the country.

After 1991 it was possible for foreign companies to set up companies in Bangladesh without

taking permission beforehand. The foreign direct investment rose from US$ 11 million in 1994

to US$ 125 million in 1995. As per the available statistics the manufacturing industry,

comprising of clothing and textiles took up 20% of the total approved foreign direct investment.

Food processing, chemicals and electric machinery were also important in this regard. The

increase in the foreign direct investment in Ghana was remarkable as well. The figures increased

from US$11.7 million, on an average, from 1986 to 1992 to US$ 201 million, on an average,from 1993 to 1995. This improvement was brought about by the privatization of the Ashanti

Goldfields.
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FDI in Retail Sector

More than two decades after the first wave of reforms were introduced in the year1991; the countrys

socio-economic health has by no means become better. In the midst of these galloping problems, the

announcement by the UPA government about FDI in multi brand retail comes not as a relief but as a

matter to be given a serious thought. The debate so far is threefold: (a) one section which is droolingover the reforms and projecting huge surge of investment in infrastructure and thereby increment in

the employment levels. (b) The second group is the one which is sceptical about the opening of

markets for foreign retail giants like Walmart, Carrefour, Kmart etc. not because they fear that it

would affect the overall development of the economy. Rather, this group fears competition from the

big foreign companies which have deep pockets to procure products from the world market. Thus, it

would affect their profits by a huge margin. (c) The third group comprises of the unorganized retail

sector which fears its elimination from the market in the long run.

Various claims made by UPA seem to fall flat on any reason if we take into consideration the

outcomes of previous reforms. Employment in formal sector has not increased by any count since

1991, informalization of labour in the formal sector is a clear indication of this fact. Productivity in

agriculture, where almost 54 per cent of the population is dependent has declined. It is no longer a

profitable venture as the input costs have gone up in the post green revolution phase. Rise in the

phenomena of rural to urban migration, rural non-farm employment, farmer suicides, show what

precarious condition agriculture has landed into. Gradual shift of the economy from agriculture to

industry, as expected in the prospects of reforms, has proven to be a fallacy. Instead, the existing

industries have become more capital intensive leading to the displacement of labour on a mass scale.

Trade liberalisation has given the global players a free hand to rein the economy. As a consequence

rate of inflation is rising unchecked as the price of crude oil is fluctuating globally. These examples

showcase that reforms and liberal policies have not led to the overall development of the economy.

In the light of the above observations, announcement of FDI in multi brand retail does not give

much hope. The Indian retail sector is not only very vast but also varied in its composition. The huge

population of the country, the rise of the middle class and its purchasing power and a huge market

for foreign investment in India are factors that have invoked the interest of the foreign investors.

But, it becomes imperative to see what this FDI would entail for the retail sector when it is analyzed

by keeping the informal economy at the centre of the debate.

When only 4 percent of the retail trade in India comes under the organized retail it becomes

essential to evaluate or assess the viability of FDI taking into consideration not this 4 percent but the

96 percent which belongs to the unorganized retail sector. The unorganized retail sector is not a

homogeneous category, it comprises of peddlers, street vendors, kiosks, push-cart vendors, weekly

traders. It is not unknown that the majority of those engaged in retailing at the lower end of the

economy depend on the small and medium enterprises for their supplies. It has been reiterated timeand again, by many economists, how and under what conditions the unorganized sector has risen to

such heights in India and other developing countries via the route of the neo-liberal regime. Indian

retail market is quite diverse in terms of scale, culture and structure. Some reasons for this diversity

can be attributed to the divide that exists between rural and urban India. Traditional forms of

marketing (neighbourhood markets, mandis, and periodic/weekly markets) coexist with modern

day markets (supermarkets, hypermarkets, Single brand outlets etc.). Decline of the rural economy

coupled with lack of employment in the manufacturing sector (organized sector) created a vast pool


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of surplus labour in the country in the post reform period. This multitude of labour started

migrating to urban centres in search of employment and many of them landed up with self

employment in the service sector of which retailing forms a huge part. Annihilation of small scale

and self employed lower middle class will lead to large scale poverty and destitution because the

unorganised sector is absorbing the shocks of migration and rural distress. It manages by catering to

middle classes in the metropolis. If this market is gone, they will all be unemployed.

On the one hand the government is trying to convince that FDI would not harm the local trading

practices and on the other hand various traders associations, vendors are fearing its exit from the

retail market in the long run when various multi brand retail giants with their deep pockets and

marketing skills would create direct contacts with farmers and producers of essential commodities.

Whether its a small vendor selling fruits on his bicycle or a trader who has a kiosk in a

neighbourhood where he sells grocery or a weekly market trader who sells garments, all three of

them depend on a vegetable mandi, grain mandi and wholesale market for garments respectively.

With the entry of the multi-brand retail giants in the market two possibilities emerge (a) these retail

giants are expected to procure 30 percent of goods from medium scale enterprises (but it is not

necessary that these enterprises should be from the host country) thus, in case it decides to capture

the domestic market it would create direct contact with small and medium enterprises and get

commodities at the lowest possible cost and take benefit of the economies of scale. In case this

happens, then the retail giants would slowly gain hands and monopolize the market and dictate the

prices of essential commodities in the domestic market. This would slowly displace small vendors

who dont have enough working capital to compete with retail giants. These vendors who till now

were able to purchase goods from the wholesale market by proving their credit worthiness would no

longer be able to give cash and carry goods to the retail market.

(b) Since multi brand retail stores have the liberty to buy products from anywhere in the world and

they have enough resources to conduct market research, it would explore the world market and

invest wherever they would be able to maximize their profits through final sale. In this scenario,

small vendors and traders would continue to have access to the products which are produced by thesmall scale industries but at the same time these enterprises would face severe competition from

cheap commodities imported from elsewhere. In the long run it is speculated that the prices of their

commodities would fall in the markets and sooner or later these domestic small enterprises would

be forced to quit. For example, T. Vellayan, president of the Tamil Nadu Federation of Traders

Associations gives the example of how the import of palm oil and soyabean oil for edible purposes

proved ineffectual to the oil manufacturing units. Vellore, Tiruvannamalai, Cuddalore and

Villupuram districts had several stone oil presses. But these traditional oil mills closed down. In

Pudukottai district, oil mill premises have been converted into marriage halls ( Frontline, Dec.2011).

Another justification given by the government for allowing FDI is that it would stabilize the

inflationary trends that the Indian economy is witnessing for the past two years. This logic seems tobe a wishful thinking because rising inflation cannot be controlled by the multi brand retail giants

instead the prices of food grains, fruits and vegetables and essential commodities would only

increase once these retail outfits will make a market for their products in India. Price of diesel and

petrol has been exponentially hiked up; this is going to affect the cost of production both in

agriculture and manufacturing. Farmers are not going to benefit in any way as they would continue

to be exploited by the multi brand retail giants in the long run. If in this context we see the large


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unorganized retail sector, we can observe how small vendors of fruits and vegetables are able

contain the inflationary pressure by offering lower prices.

One round of a weekly market in the neighbourhood of Delhi or elsewhere would show that the

margins between the prices at which weekly traders sell their products and the price at which any

supermarket sells the same thing varies by more than 20 to 30 percent. Multi brand retail giantswould not only affect the price of food grains at the national level but it might also result in the

disappearance of Agricultural Produce Marketing Committees which keep a certain minimum check

on the price of the foodgrains coming to the grain markets. Thus, corporate capital would get a free

reign in the indigenous markets of India and the process of primitive accumulation would set in as

predicted by C.P. Chandrashekhar, Prabhat Patnaik et. al. This would have direct impact on that

section of the unorganized retail sector which is employed in the lowest level of the market hierarchy

who do not have ready cash to invest and whose livelihood is dependent on the recycling of debt for

a day, a week, a month or a year because the prices are going to rise in the long run and so will the

interests on the borrowed sum.

The adverse impact of the FDI would befall the unorganized retail sector with great intensity if theState makes more stringent rules of zoning and regulation. I have been researching the local weekly

markets of Delhi for the past three years. These markets are very prominent feature in all parts of

Delhi and NCR. There are around twelve hundred weekly markets of which only one fourth are

recognized by the Municipal Corporation of Delhi (consequence of zoning). Approximately 2.5

million people are employed through these markets. This figure would just double if we take in to

account additional employment that is created around these markets. Various own account and

household enterprises are producing commodities on a daily basis for such low end markets. Local

weekly markets provide a very easy channel of distribution of commodities produced not only in

local small scale industries but also in the neighbouring States. For instance, rubber chappals and

shoes made in Agra, sarees made in Surat, hosiery made in Coimbatore, woollens made in Ludhiana

are all sold at affordable prices here in these very markets. FDI in multi brand retail would either

displace various wholesale markets or the size of such markets would shrink. Today the localmarkets run on capital which has a fluid or floating nature. But with the coming of multi brand retail

stores this floating capital would freeze and small retailers and vendors will be evicted from the

market.

It is argued by the government that FDI in retail would create employment opportunities. But

employment for whom is the crucial question? It would create employment for those who are

educated and have professional experience. Taking cue from my observation in the weekly markets

of Delhi I would argue that majority of those now employed in these markets have minimal

education and have no professional degrees apart from their marketing knowledge. Now if FDI in

multi brand retail comes, it is not in any way going to benefit these traders if they lose their sole

means of survival.


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I have observed in the course of my research that through weekly markets of Delhi hundreds of

people have employed themselves who were displaced for one reason or the other. At the same time

it has created a distinct market for lower middle class who would not go to a super market or a mall

for shopping. Where will this section of population shop for daily needs with the entry of multi

brand retail outlets in case it leads to the displacement of weekly markets?

Instead of providing infrastructural facilities the State already keeps street vending, peddling and

weekly markets at the helm by keeping them in that buffer zone where it is difficult to recognize

their real viabilility for the economy at large. Often these are characterized as unlawful, black, or

hidden activity.

It is my contention that in order to make way for the private capital the State might evict street

vendors, cancel their licenses, or remove tehbazaari rights for weekly markets in the times to come.

Just as in Delhi, Mumbai, Bangalore and other metropolitan cities, the State, has from time to time

uprooted slums and relocated them to the periphery of the city, to make way for the investment by

private corporate builders in order to make the city slum free. Similar decisions if taken for the

unorganized retail sector would gravely increase inequality and poverty.

Challenges

Automatic approval is not allowed for foreign investment in retail.

Regulations restricting real estate purchases, and cumbersome local laws.

Taxation, which favours small retail businesses.

Absence of developed supply chain and integrated IT management.

Lack of trained work force.

Low skill level for retailing management.

Lack of Retailing Courses and study options

Intrinsic complexity of retailing rapid price changes, constant threat of product obsolescence

and low margins


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Sector Specific Foreign Direct Investment in India

Hotel & Tourism: FDI in Hotel & Tourism sector in India

100% FDI is permissible in the sector on the automatic route,

The term hotels include restaurants, beach resorts, and other tourist complexes providing

accommodation and/or catering and food facilities to tourists. Tourism related industry include

travel agencies, tour operating agencies and tourist transport operating agencies, units providing

facilities for cultural, adventure and wild life experience to tourists, surface, air and water

transport facilities to tourists, leisure, entertainment, amusement, sports, and health units for

tourists and Convention/Seminar units and organizations.


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For foreign technology agreements, automatic approval is granted if

i. up to 3% of the capital cost of the project is proposed to be paid for technical andconsultancy services including fees for architects, design, supervision, etc.

ii. up to 3% of net turnover is payable for franchising and marketing/publicity support fee,

and up to 10% of gross operating profit is payable for management fee, including

incentive fee.

Private Sector Banking:

Non-Banking Financial Companies (NBFC)

49% FDI is allowed from all sources on the automatic route subject to guidelines issued from

RBI from time to time.

i. Merchant banking

ii. Underwriting

iii. Portfolio Management Services

iv. Investment Advisory Services

v. Financial Consultancy

vi. Stock Broking

vii. Asset Management

viii. Venture Capital

ix. Custodial Services

x. Factoring

xi. Credit Reference Agencies


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xii. Credit rating Agencies

xiii. Leasing & Finance

xiv. Housing Finance

xv. Foreign Exchange Brokering

xvi. Credit card business

xvii. Money changing Business

xviii. Micro Credit

xix. Rural Credit

b. Minimum Capitalization Norms for fund based NBFCs:

i) For FDI up to 51% - US$ 0.5 million to be brought upfront

ii) For FDI above 51% and up to 75% - US $ 5 million to be brought upfront

iii) For FDI above 75% and up to 100% - US $ 50 million out of which US $ 7.5 million

to be brought up front and the balance in 24 months

c. Minimum capitalization norms for non-fund based activities:

Minimum capitalization norm of US $ 0.5 million is applicable in respect of all permitted non-

fund based NBFCs with foreign investment.

d. Foreign investors can set up 100% operating subsidiaries without the condition to

disinvest a minimum of 25% of its equity to Indian entities, subject to bringing in US$ 50

million as at b) (iii) above (without any restriction on number of operating subsidiaries without

bringing in additional capital)


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e. Joint Venture operating NBFC's that have 75% or less than 75% foreign investment will

also be allowed to set up subsidiaries for undertaking other NBFC activities, subject to the

subsidiaries also complying with the applicable minimum capital inflow i.e. (b)(i) and (b)(ii)

above.

f. FDI in the NBFC sector is put on automatic route subject to compliance with guidelines of

the Reserve Bank of India. RBI would issue appropriate guidelines in this regard.

Methods of Foreign Direct Investments

The foreign direct investor may acquire 10% or more of the voting power of an enterprise in an

economy through any of the following methods:

by incorporating a wholly owned subsidiary orcompany

by acquiring shares in an associated enterprise

through a mergeror an acquisition of an unrelated enterprise

participating in an equityjoint venture with another investor or enterprise

Foreign direct investment incentives may take the following forms:

low corporate tax and income tax rates

Tax holidays

Special economic zones

Investment financial subsidies

Soft loanor loan guarantees

Free land or land subsidies

Job training & employment subsidies
http://en.wikipedia.org/wiki/Subsidiaryhttp://en.wikipedia.org/wiki/Companyhttp://en.wikipedia.org/wiki/Mergerhttp://en.wikipedia.org/wiki/Takeoverhttp://en.wikipedia.org/wiki/Joint_venturehttp://en.wikipedia.org/wiki/Corporate_taxhttp://en.wikipedia.org/wiki/Income_taxhttp://en.wikipedia.org/wiki/Tax_holidayhttp://en.wikipedia.org/wiki/Tax_holidayhttp://en.wikipedia.org/wiki/Special_economic_zonehttp://en.wikipedia.org/wiki/Special_economic_zonehttp://en.wikipedia.org/wiki/Soft_loanhttp://en.wikipedia.org/wiki/Soft_loanhttp://en.wikipedia.org/wiki/Soft_loanhttp://en.wikipedia.org/wiki/Guaranteeshttp://en.wikipedia.org/wiki/Subsidiaryhttp://en.wikipedia.org/wiki/Companyhttp://en.wikipedia.org/wiki/Mergerhttp://en.wikipedia.org/wiki/Takeoverhttp://en.wikipedia.org/wiki/Joint_venturehttp://en.wikipedia.org/wiki/Corporate_taxhttp://en.wikipedia.org/wiki/Income_taxhttp://en.wikipedia.org/wiki/Tax_holidayhttp://en.wikipedia.org/wiki/Special_economic_zonehttp://en.wikipedia.org/wiki/Soft_loanhttp://en.wikipedia.org/wiki/Guarantees


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Infrastructure subsidies

RESULTS OF THE STUDY:

My project report will help to find out how FDI contributed Growth in following

Employment

Firms attempt to capitalize on abundant and inexpensive labor.

Host countries seek to have firms develop labor skills and sophistication.

Host countries often feel like least desirable jobs are transplanted from home

countries.

Home countries often face the loss of employment as jobs move.

FDI Impact on Domestic Enterprises

Foreign invested companies are likely more productive than local competitors.
http://en.wikipedia.org/wiki/Infrastructurehttp://en.wikipedia.org/wiki/Infrastructurehttp://en.wikipedia.org/wiki/Infrastructure


49/52

The result is uneven competition in the short run, and competency building

efforts in the longer term.

It is likely that FDI developed enterprises will gradually develop local supporting

industries, supplier relationships in the host country.

WORK DONE:-

The following can be mentioned under work done. This section is to specify the work done till

date.

My Project will be completed tentatively within 2 months. The break up time is as follows

1. Reading / note taking / planning / writing introduction 1 Week

2. Writing review of literature 1 Weeks

3. Writing of research methodology 1 Weeks

4. Carrying out work / recording findings 2 Weeks

5. Data analysis 1 Week

6. Preparing conclusions / Bibliography 1 Week

7. Typing / proof reading / corrections / binding 1 Weeks

8. Total Time Taken: 8 Weeks (2 Months)


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LIMITATION OF FOREIGN DIRECT INVESTMENT.

Foreign direct investment is not free from limitations. Developing countries like India

has very little choice when it comes to opening the different sectors of the economy to

foreign investment. A case in point is the opening up of the consumer non-durable

industry to foreign investment.

Eg :- The advent of Pepsi and Coke saw the exit of domestic soft drink manufactures

and the emergence of a duopoly. Similarly, the experience with regard to FDI in the

power sector has been far from desirable. The governments of developing countries

must be able to channelize FDI in the most desirable areas of investment and the

government policy towards FDI should be stable over the long run.

Conclusion

India, the 4th largest economy in the world is undoubtedly one of the most preferred

destinations for foreign direct investments (FDI) as India has proven its caliber in thefield of information technology and a host of other significant arenas.

The latent strength of India has made it one of the most exciting emerging markets in

the world. The strength of India is its skilled managerial and technical manpower that

matches the best available in the world. The size of middle class population, a vital part

of India, exceeds the population of the USA or the European Union so it provides India


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with a distinct cutting edge in global competition. Apart from that Indias time tested

institutions offer foreign investors a transparent environment that guarantees the

security of their long term investments in this promising land.

Indias liberalized economy was a big boon for investors as the updated FDI policy

allows a 100% FDI stake in a venture in few sectors. The industrial sector was among

the first sectors to be liberalized in India in a series of measures. The industrial policy

reforms have substantially reduced the industrial licensing requirements, removed

restrictions on expansion and facilitated easy access to foreign technology and foreign

direct investment FDI. These factors make India one of the hottest destinations for FDI

investment across the globe.

Bibliography

www.rbi.org

www.fin.in.nic

www.sebi.org

www.economywatch.com

wikipedia.org

www.investopedia.com

www.fdiworldental.org

www.fdimarkets.com


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project report on fdi in retail

Documents