Foreign direct investment

Foreign direct investment (FDI) or foreign investment

refers to long term participation by country A into
country B.
 Benefits of Foreign Direct Investment-
1.Helps in economic growth .
The infl ow of foreign direct investment helps in the economic growth of a country.
2. Brings employment opportunities .
FDI infl ow results in an increase in the number of employment opportunities for
people living in that country. New industrial units are set up aff ording employment to
people from the top level to the working groups like factory workers.
3 . Aids in transfer of technology and knowledge .
The infl ow of FDI aids in the transfer of technology and knowledge from one country
to another. For instance, the people of Asian countries like India had vast knowledge
related to IT sector which was later used by many other non Asian countries of the
world. Thus, FDI helps in the transfer of knowledge across the world.
4. Benefi ts to the government .
Foreign direct investment helps in increasing the sources of government income. With
the increased fl ow of FDI the income generated through taxation increases thus,
bringing higher revenues to the government.56. 5. Improves productivity.
FDI plays an important role in enhancing the overall productivity in the host countries.
6. Benefi ts for the investors.
FDI is also quite benefi cial for countries that make investments in other countries.
Their companies get opportunities for exploring new global markets, thereby generating
higher incomes and profi ts.
7. Benefi ts to businesses.
Business entities get easy loans at low rates of interest. These facilities are extremely
benefi cial for small and medium-sized businesses that otherwise face many problems in
getting loans.
 Foreign direct investment in India
A recent UNCTAD(United Nations Conference on
Trade and Development) survey projected India as the
second most important FDI destination (after China)
for transnational corporations during 2010-2012. As
per the data, the sectors which attracted higher inflows
were services, telecommunication, construction
activities and computer software and hardware.
Mauritius, Singapore, the US and the UK were among
the leading sources of FDI.
MODES OF FOREIGN DIRECT
INVESTMENT
FDI can enter India through two channels
1. The automatic route under which companies receiving
foreign direct Investment need to inform the Reserve
Bank of India within 30 days of receipt of funds and
issuance of shares to the foreign investor.
2. For sectors that are not covered under the automatic
route, prior approval is needed from the Foreign
Investment Promotion Board (FIPB).
Foreign Direct Investment in India
In India, Foreign Direct Investment Policy allows for
investment only in case of the following form of
investments:
 Through financial alliance
 Through joint schemes and technical alliance
 Through capital markets, via Euro issues
 Through private placements or preferential allotments
Foreign Direct Investment in India is not allowed under
the following industrial sectors:

Arms and ammunition

Atomic Energy
Coal and lignite
Rail Transport
Mining of metals like iron, manganese, chrome,
gypsum, sulfur, gold, diamonds, copper, zinc
Up to 100 per cent equity is allowed in the
following sectors
34 High Priority Industry Groups
Export Trading Companies
Hotels and Tourism-related Projects
Hospitals, Diagnostic Centers
Shipping
Deep Sea Fishing
Oil Exploration
Power
Housing and Real Estate Development
Highways, Bridges and Ports
Sick Industrial Units
Industries Requiring Compulsory Licensing
Industries Reserved for Small Scale Sector
FDI In India Across Different Sectors
Drugs & Pharmaceuticals - For the production of drugs and
pharmaceutical a FDI of 100 per cent is allowed.
Private Banking - FDI of 49 per cent is allowed in the Banking
sector through the automatic route provided the investment adheres
to guidelines issued by RBI.
Insurance Sector - For the Insurance sector FDI allowed is 26 per
cent through the automatic route on condition of getting license
from Insurance Regulatory and Development Authority (IRDA).
Business Processing Outsourcing - FDI of 100 per cent is
permitted provided such investments satisfy certain prerequisites.
Telecommunication - 49 per cent FDI is permitted for this sector
ACTUAL FDI INFLOWS IN INDIA (1991-2010).
FDI (US $ IN MILLION)
YEAR including advance

1991-1992
(Aug.-Mar.) 165
1992-1993 393
1993-1994 654
1994-1995 1374
1995-1996 2141
1996-1997 2770
1997-1998 3682
1998-1999 3083
1999-2000 2439
2000-2001 2463
2001-2002 4065
2002-2003 2705
2003-2004 2188
2004-2005 3219
2005-2006 5540
2006-2007 12492
2007-2008 24575
2008-2009 27330
2009-2010 25834

2010-
March-Nov. 14025
SECTOR ATTRACTING HIGHEST FDI EQUITY
INFLOWS
(US $ in million)
Sectors 2008-09 2009-2010 2010-11 (till Nov).
Service sector 6138 4353 2596
computer software &
hardware 1677 919 574
Telecommunications 2558 2554 1093
housing & real estate 2801 2844 999
construction activities 2028 2862 834
power 985 1437 984
Automobile Industry 1152 1208 533
Metallurgical Industries 961 407 960
petroleum & natural gas 412 272 529
Chemicals 749 362 271
 SHARE OF TOP INVESTING COUNTRIES FDI
EQUITY INFLOWS (FINANCIAL YEAR)
2008-09 2009-10 2010-11(Till Nov.)
Mauritius 11229 10376 5158
Singapore 3454 2379 1367
U.S.A. 1802 1943 926
U.K. 864 657 385
Netherlands 883 899 802
Japan 405 1183 917
Cyprus 1287 1627 598
Germany 629 626 104
France 467 303 340
U.A.E 257 629 278
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