FOREIGN DIRECT INVESTMENT- Some Facts and Figures

It is the movement of capital across national frontiers in a manner that grants the investor control over the acquired asset.

TYPES OF INVESTMENT
Greenfield investment: Direct investment in new facilities or the expansion of existing facilities. Greenfield investments are the primary target of a host nation’s promotional efforts because they create new production capacity and jobs, transfer technology and know-how, and can lead to linkages to the global marketplace. Greenfield investments are the principal mode of investing in developing countries.

Mergers and Acquisitions: Occur when a transfer of existing assets from local firms to foreign firms takes place. Cross-border mergers occur when the assets and operation of firms from different countries are combined to establish a new legal entity. Cross-border acquisitions occur when the control of assets and operations is transferred from a local to a foreign company, with the local company becoming an affiliate of the foreign company. Mergers and acquisitions are the principal mode of investing in developed countries.

FDI IN INDIA IS PERMITTED THROUGH TWO ROUTES

  • Automatic approval by RBI
  • The FIPB route (Foreign Investment Promotion Board)

FDI’S IS NOT PERMITTED IN THE FOLLOWING SECTORS

  • Arms and ammunition
  • Automatic energy
  • Railway Transport
  • Coal and lignite
  • Mining of iron, manganese,chromosome,gypsum,sulphur,gold,diamonds,copper and zinc.

FDI IN REAL ESTATE

ACCORDING TO FICCI

  • The size of real estate industry is estimated to be around U.S $ 12billion.
  • Almost 80% real estate developed in India is in residential space & the rest comprise of offices, shopping malls, hotels and hospitals.
  • Townships
  • Housing
  • Commercial premises
  • Hotels
  • Resorts
  • Industrial parks
  • Resorts
  • Hospitals
  • Educational institutes
  • Recreational facilities

INVESTMENT IN SHOPPING MALLS IN INDIA

  • At present, housing and real estate is on the list of seven activities where FDI is prohibited. The commerce and industry ministry, which administers the foreign investment policy, is also looking at partly opening up retail trade, another prohibited activity, for FDI.
  • The commerce and industry ministry has proposed opening up of the foreign investment policy by allowing 100% FDI in construction of commercial properties such as shopping malls and hotels.
  • In the broad sector of real estate, FDI of up to 100% is allowed only in the “development of integrated township”. The automatic route is, however, not available to such proposals which require to go through FIPB (Foreign Investment Promotion Board) clearance

TELECOM SECTOR

  • India’s 23 million-line telephone network is one of the largest in the world and the third largest among emerging economies.
  • The industry is considered as having the highest potential for investment in India.
  • India has witnessed rapid growth in Cellular, Radio Paging, Value-added services, Internet and Global Mobile Communication by satellite (GMPCS) services.
  • It offers an ideal environment for investment

FDI  IN  INSURANCE

  • It was first mooted by P. Chidambaram as finance minister in the united front government in 1997.
  • The sector was opened up in 1999.
  • The IRDA act (Insurance Regulatory and Development Authority Act, 1999) allowed the insurance sector to be opened up.
  • Indian insurance industry has attracted $235 million foreign direct investment.
  • Currently the FDI’s in insurance is restricted to 26%.
  • The current UPA government has announced its intention to increase the cap on FDI in the insurance sector to 49%.
  • According  to us ambassador to India David Mulford at a conference on Indian insurance market. (06 October 2005) the FDI cap should be raised above 50 per cent within a short period so that foreign investors would have management control commensurate with their investment and the flow of FDI to the sector will increase.

COMPETITIVE ADVANTAGE OF INDIA IN FDI

  • From a shortage economy of food and foreign exchange, India has now become a surplus one.
  • From an agro based economy it has emerged as a service oriented one.
  • From the low-growth of the past, the economy has become a high-growth one in the long-term.
  • After having been an aid recipient, India is now joining the aid givers club.
  • Although India was late and slow in modernization of industry in general in the past, it is now a front-runner in the emerging Knowledge based New Economy.
  • The Government is continuing its reform and liberalization not out of compulsion but out of conviction.
  • Indian companies are no longer afraid of Multinational Companies. They have become globally competitive and some of them have started becoming MNCs themselves.

OBSTACLES FOR FDI’S IN INDIA

  • Courts lead to long procedural delays.
  • Violent separatist movements existing in Kashmir .
  • Corruption faced by firms in India after bureaucratic red tape and power shortages.
  • Shortages of energy and handling capacities at the ports, and saturated rail and road networks .
  • Lack of a regulatory environment, clear investment policies.
  • Problems with land acquisition

GOLDMAN SACHS REPORT  ON “DREAMING WITH BRICS”

  • India’s GDP will reach $ 1 trillion by 2011, $ 2 trillion by 2020, $ 3 trillion by 2025, $ 6 trillion by 2032, $ 10 trillion by 2038, and $ 27 trillion by 2050, will overtake Italy by the year 2016, France by 2019, UK by 2022, Germany by 2023,and becoming the third largest economy after USA and China.
  • In terms of GDP, India will overtake Italy by the year 2016, France by 2019, UK by 2022, Germany by 2023,and Japan by 2032.
  • Among the BRIC group India alone has the potential to show the highest growth (over 5 percent) over the next 50 years. The Chinese growth rate is likely to reduce to 5% by 2020, 4% by 2029, and 3% by 2046.