report presentation of gom
TRANSCRIPT
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Report PresentationOutflow Of FDI from India inother Countries
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Introduction Foreign direct investment (FDI) or foreign investment refers to the
net inflows of investment to acquire a lasting management interest(10 percent or more of voting stock) in an enterprise operating in an
economy other than that of the investor.
It is the sum of equity capital, reinvestment of earnings, other long-term capital, and short-term capital as shown in the balance ofpayments.
It usually involves participation in management, joint-venture,
transfer of technology and expertise
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Major Sectors for FDI Outflow IT Sector
Pharmaceuticals Industry
Emerging Services and Product
Metal
Industrial Goods
Automotive Components
Beverages
Cosmetics Industry
Energy Sector
Mobile Communications
Software Industry
Financial Services
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Major factors for outflow
Access to the Global Markets
Huge Cash Reserves Natural Resources
Distribution Networks of Foreign Companies
Foreign Technologies
StrategicAssets like Brand Names
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Other Factors
Strong Financial System
Good Credit Rating
Stronger Balance Sheets
Confidence shown byGlobal Business
Communication
Competitive Business Environment
Larger Fund Supply Favorable RegulatoryEnvironment
Higher Margins, profits and revenues
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Some Big ticket Deals
Tata Motors & J-LR
Tata Steel & Corus Hindalco Industries & Novelis
Tata Tea & Energy Brand of US
Suzlon Energy & RE Power of Germany
Subex Azure & Syndesis of Canada Ranbaxy & Merck ( Deal did not strike )
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Drivers for FDI abroad
The increasing number of home-grown Indian
firms. Indian firms are investing abroad to accessforeign markets, production facilities andinternational brand names.
Access to technology and knowledge has beena strategic consideration forIndian firms.
Securing natural resources is becoming animportant driver forIndian outward FDI.
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Drivers for FDI abroad
Favorable Economic Conditions
Large foreign exchange reserveLiberal policies
India Corporate Advantage
Understanding of global environment:Consolidated domestic presence:
Large free cash reserves
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Pros and ConsPros
Diversification of investments
Hedge against currency movements of the local
currency vis-a-vis other currencies Tax advantages
Cons
Exchange rate fluctuation risk especially in the short run
Higher transaction costs
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Pros and Cons Exit risk like exchange control restrictions (repatriation of
capital and income), lack of liquidity, low market depth,settlement delays
Handling and complying with the special regulatory andtax norms
Communication gaps
Need to keeping abreast with international and company
specific developments Minimum portfolio size
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Determinants of Indian FDI in Developing
Countries Historical perspective
Drivers of outward FDI quite different for the pre-1990 period compared to post-1990 period
Pre-1990
Size of investment was small Policy-led barriers (MRTP, FERA) and slow
economic growth main reasons Low firm-level specific capabilities & modest
intangible advantages reasons for foray intodeveloping nations
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Determinants of Indian FDI in Developing
Countries Historical perspective
Lack of SME participation due to inward looking
development policies Strong FDI bias towards developing countries
Cordial attitude of host countries helped matters
Post-1990Natural resource based companies forayed
Liberalization lifted ceilings
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Reasons for FDI
GrowthLarge- Scale Overseas Expansion
Change RBIs Guidelines
Business operations
Secure Strategic resource for enhancing their learningcapabilities
Increased Competition
MarketAccess for exports
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Reasons For FDI decline: Since 2008
Gl l estic Sl
Cre it Cru ch
epreci ti f the I i rupee g i stUS ll r i 2008
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Favorable policy changes
Hiked the overseas investment limit from 200 per cent ofthe net worth to 300 per cent of the net worth;
Hiked the limit on overseas portfolio investment from 25
per cent of their net worth to 35 per cent of their networth;
Allowed Indian residents to remit up to US$ 1,00,000 perfinancial year, from US$ 50,000 previously, for anycurrent or capital account transaction or a combination of
both. Allowed mutual funds to invest funds to the tune of US$
4 billion in overseas avenues, from an earlier cap of US$3 billion
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Prospects Revival of global and domestic growth
Improvements in Corporate Profitability
Ease of Financing
Cash-rich Indian firms, including SMEs
Cheap valuations of Foreign Assets
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Sagar ShuklaPG/SS/10-12
GOM Presentation