Foreign direct investment (FDI) is a direct investment into production or

business in a country by a company in another country, either by buying a

company in the target country or by expanding operations of an existing
business in that country. Foreign direct investment is in contrast to portfolio
investment which is a passive investment in the securities of another country
Why countries do FDI
Explore the untapped maret
!dvantage of cheaper wages,
"pecial investment privileges (e.g. tax exemptions) o#ered by the
country
Why Countries Seek FDI ?
Domestic capital is inade$uate for purpose of economic growth%
Foreign capital is usually essential, at least as a temporary measure,
during the period when the capital maret is in the process of
development%
Foreign capital usually brings it with other scarce productive factors
lie technical now how, business expertise and nowledge
What are the major benefts of FDI :
Improves forex position of the country%
Employment generation
Increase in production %
&elp in capital formation by bringing fresh capital%
&elps in transfer of new technologies, management sills,
intellectual property
Increases competition within the local maret and this brings higher
e'ciencies
&elps in increasing exports%
Increases tax revenues
Infrastructure development
India's position in word map in FDI
India has been raned at the second place in global foreign direct
investments in ()*) and will continue to remain among the top +ve
attractive destinations for international investors , according to ,nited
-ations .onference on /rade and Development (,-./!D) in a report
on world investment prospects titled, 01orld Investment 2rospects
"urvey ())34()*(0.

Steps taken toward iberaisin! FDI in India by the "o#t$

*335 6 1orld /rade 7rganisation8s (1/7) 9eneral !greement on /rade
in "ervices, which includes both wholesale and retailing services, came
into e#ect
*33: 6 FDI in cash and carry (wholesale) with *)); rights allowed
under the government approval route%
())< 6 FDI in cash and carry (wholesale) was brought under automatic
approval route% ,pto 5*; investment in single brand retail outlet
permitted
()** = December 6
(i) /he Indian government removed the 5* percent cap on FDI into
single4brand retail outlets and thus opened the maret fully to foreign
investors by permitting *)) percent foreign investment in this area.
()*( 4 "eptember 6 /he government approved the
(a) !llowed 5*; foreign investment in multi4brand retail,
(b) >elaxed FDI norms for civil aviation and broadcasting sectors. =
FDI cap in ?roadcasting was raised to :@; from @3;%
(c) !llowed foreign investment in power exchanges
()*( = 7ctober6 In the second round of economic reforms, the
government cleared amendments to raise the FDI cap
(a) in the insurance sector from (<; to @3;%
(b) in the pension sector it approved a (< percent FDI%
-ow, Indian 2arliament will have to give its approval for the +nal
shape,A
%he sectors where FDI is not aowed in India& both under the
'utomatic (oute as we as under the "o#ernment (oute?

FDI is prohibited under the 9overnment >oute as well as the !utomatic
>oute in the following sectors6
i) !tomic Energy
ii) Bottery ?usiness
iii) 9ambling and ?etting
iv) ?usiness of .hit Fund
v) -idhi .ompany
vi) !gricultural (excluding Floriculture, &orticulture, Development of
seeds, !nimal &usbandry, 2isciculture and cultivation of vegetables,
mushrooms, etc. under controlled conditions and services related to
agro and allied sectors) and 2lantations activities (other than /ea
2lantations)
vii) &ousing and >eal Estate business (except development of
townships, construction of residentialCcommercial premises, roads or
bridges to the extent speci+ed in noti+cation
viii) /rading in /ransferable Development >ights (/D>s).
ix) Danufacture of cigars , cheroots, cigarillos and cigarettes , of
tobacco or of tobacco substitutes.
Bimit of FDI in India in Di#erent "ectors
(!) (<; FDI is permitted in
E Defence
E -ewspaper and media
E 2etroleum re+ning
E 2ension sector (allowed in 7ctober ()*( as per cabinet decision)
(?)@3; FDI is permitted in 6
?aning
.able networ
D/&
Infrastructure investment
/elecom
Insurance (Enhanced from (<; to @3; in 7ctober, ()*()
@3; (FDI F FII) in power exchanges registered under the .entral
Electricity >egulatory .ommission (2ower Daret) >egulations ()*)
subGect to an FDI limit of (< per cent and an FII limit of (H per cent of
the paid4up capital is now permissible. I2ermitted in "eptember ()*(J

(. ) 5*; is 2ermitted in
Dulti4?rand >etail ("ince "eptember ()*()
2etro4pipelines

(D) :@; FDI is permitted in
!tomic minerals
"cience DagaKines CLournals
2etro mareting
.oal and Bignite mines
/elecom
(E)*)); FDI is permitted in
"ingle ?rand >etail (Increased to *)); from 5*; in December ()**).
!dvertiKement
!irports
.old4storage
?27C.all centres
E4commerce
Energy (except atomic)
export trading house
Films
&otel, tourism
Detro train
Dines (gold, silver)
2etroleum exploration
2harmaceuticals
2ollution control
2ostal service
>oads, highways, ports.
/ownship
1holesale trading

"ource 6 >?I website, -ewpaper reports, 9oI data
Why FDI is bein! )pposed by Domestic *ayers:
Domestic companies fear that they may lose their ownership to
overseas company
"mall enterprises fear that they may not be able to compete
with world class large companies and may ultimately be edged
out of business
Barge giants of the world try to monopolise and tae over the
highly pro+table sectors
"uch foreign companies invest more in machinery and
intellectual property than in wages of the local people
9overnment has less control over the functioning of such
companies as they usually wor as wholly owned subsidiary of
an overseas company
+enifts From the Indian Consumers *oint of ,iew
&igh .ompetition resulting in lower prices
&igher e'ciency in delivering goods and services
! wider range of products and services to choose from
Exposure to 9lobal products and services
?etter shopping experience
Development of >ural sector and development of Infrstructure
Development of !griculture supply chains and Mertical
Integratyion in India which are currently fragmented