role of fdi &fii
TRANSCRIPT
BYSUPARNA PANI
MA ECONOMICS 2 N D YEAR
ROLE OF FDI &FII
FDI AND DEVELOPMENT
Injection into circular flowFills the saving gapPositive balance of paymentMNCs and infrastructure developmentImproved productivity domesticallyTechnological transferTax revenue collection
TYPES OF FDI
FDO PROCEDURE IN INDIA
FDI 2015
FDI 2016
2016
ADVANTAGES DISADVANTAGES
Increased saving Increased employment Increased education and training Increased R &D ,technology Multiplier effect of increased
incomes Increased tax revenue Increased foreign capital Improved infrastructure Increased choice in market place Lower prices in market place Increased free trade
MNCs bring own management teams Too much power to MNCs Practice of transfer pricing Increase pollution due to low regulation MNC extract natural resources from
host country MNC use capital intensive production
method MNCs purchase domestic firms MNCs often repatriate profits Tax revenue may be lower than
expected Employment may be short term or less
than expected MNCs may ship resources and leave
ADVANTAGE AND DISADVANTAGE OF FDI
FOREIGN INSTITUTIONAL INVESTMENT
HOW FII STARTED FII refers to outside companies investing in the
financial markets of India India opened its stock market to foreign investors
in September 1992 Since 1993,received portfolio investment from
foreigners in form of FII in equities This has become one of the main channels of FII
in India for foreigners In order to trade in Indian equity market foreign
corporation need to register with SEBI as FII
WHO CAN BE REGISTERED AS AN FII?
One who can propose to invest their proprietary funds or on behalf of “broad based” fund or for foreign corporate and individuals and belong to any of the under given categories can be registered for FII
Pension fund Mutual fund Investment trust Insurance or reinsurance companies Endowment fund University fund Foundation or charitable trusts Asset management companies Nominee companies Institutional portfolio managers Trustees Power of attorney holder Bank
WHERE FII CAN INVEST?
Current financial instruments are available for FII investments
Securities in primary and secondary markets including shares, debentures and warrants of companies, unlisted, listed or to be listed on a recognized stock exchange in India
Units of mutual fundsDated government securitiesDerivatives traded on a recognized stock
exchangeCommercial paper
Taxation
NATURE OF INCOME TAX RATEShort term capital gains-30%Long term capital gain-10%Corporate dividend declared after June,1997-
nil Interest income-20%
Why there is a need of FII?
FII flows supplements and augmented domestic savings and domestic investment without increasing the foreign debt of our country
FII AND STOCK MARKET-Capital inflow to the equity market increase stock prices, lower the cost of equity capital and encourage the investment by Indian firms
FII leads to appreciate of the currency FII AND EXPORT-if our Indian currency appreciate just because
of FII there is adverse effect on our export. Our export industry will become uncompetitive due to appreciation of rupee
FII AND INFLATION-the huge amount of FII fund flow creates the huge demand for Indian rupees. In that situation RBI print more money in market. This situation could lead to excess liquidity thereby leading to inflation
ADVANTAGES DISADVANTAGES
Increases forex reserves
Increases domestic savings
Increases domestic investments
Availability of capital reserves
Problem of inflationFalse representation of
economyProblem for small investorsHot money FII investment is
frequently referred to as hot money for the reason that it can leave the country at the same speed at which it comes in
ADVANTGES AND DISADVANTAGES OF FII
CONCLUSION
FDI has played an important role in development of indian economy. It has helped achieved a certain level of financial stability and production growth. It being a long term investment has also improved the balance of payment and employment generation
FII do have significant impact on the Indian stock market but there are other factors like government policies, budgets, bullion market, inflation , economical and political condition etc do also have an impact on the Indian stock market. Also FII is not only the factor affecting the stock market indices. There are other major factors that influence the stock market. Now a days FII are the major contributors to stock market. The pros of allowing FII to invest in Indian markets far outweigh the cons.
THANK YOU