FOREIGN INVESTMENT

BY KETAN MANJEET

MEANING:
Flows of capital from one nation to another
in exchange for significant ownership stakes in domestic companies or other domestic assets.
A source of capital and investment involving foreign control of production A channel of technology transfer and industrial development.

Foreign Direct Investment in India

5 4.5 4 3.5 3 $Billions 2.5 2 1.5 1 0.5 0 1990 1992 1994 1996 1997 1998 1999 2000 2001 2002 Year

Indias Development Strategy:

1947 Indias independence. 1956 second Five-Year Plan focuses on government led industrializationstrict foreign exchange and import controls enacted. 1969 all domestically owned banks nationalized. 1972 all insurance companies nationalized. 1973 all foreign investment placed under governmental control; limited foreign holdings to under 40%.

TYPES .
FDI PORTFOLIO INVESTMENT.
FDI refers to investment in a foreign country where the investors retain control over the investment. It takes the form of starting a subsidiary or starting a joint venture in the foreign country. If the investor has only a sort of property interest in investing the capital in buying equities , bonds or other securities abroad, it is referred to the portfolio investment.

 FDIs are governed by long term considerations because these investments cannot be easily liquidated.
Long term political stabilities government policy industrial and economics prospect

Whereas portfolio investment can be easily liquidified easily are influenced by short run gains.

 So
FOREIGN INVESTMENT

WHOLLY OWNED SUBSIDA RY

JOINT VENT
ACQUISTION

INVEST MENT BY FIIS

INVEST BY FDR, FCCB

SIGNIFICANCE OF FI
Foreign capital and technology can play a very important role in the socio-economic development of a nation. Other examples are.. Economic growth is by facilitating essential imports required for carrying development programmes like..
Capital goods raw materials or other imports even consumer goods

 Foreign investment may also help increasing a countrys export and reduce the imports requirements, if such investment take place in export-oriented and import oriented industries. In early years of present decade, nearly half of the Chinese exports were said to be the contribution of the foreign funded enterprises. Analysis.
Donald MacDougall and paul streeten observes that from the stand point of national economics benefits, the essence of the case for encouraging an inflow of capital is that the increase in real income resulting from the act of investment is greater than the resultant increase in the income of investors. As long as investors increase the productivity and this in wholly appropriate by the investors the greater product is shared with others.

 Some other direct benefits are. Domestic labor. Consumers Government

 DL:- may get higher real wages because of the increase in productivity and may expansion of the employment opportunities. Consumers:- if FI is cost reducing in particular industry consumers of the product may gain through lower product prices. If the investment or product improving consumers benefit from better quality product or new product.

 Government:- the increase in production and foreign trade resulting from foreign capital might increase the fiscal revenue of the government.
GROWTH OF FOREIGN INVESTMENT:Sweeping change in foreign policy, foreign investment has been surging in many countries. FDI has increase from $21.5 billion in 1973. to $1.4 trillion in 2000.

ANNUAL GROWTH RATE OF GDP FDI EXPORTS AND CAPITAL FORMATION ITEMS 1986-90 1991-95 1996-2000 2001 2004

GDP(in current prices)

10.8

5.6

1.3

-0.8

12.0

Exports of goods and services

FDI inflows

15.6

5.4

3.4

-3.3

20.1

23.1

21.1

40.2

-40.9

2.5

Gross fixed capital formation.

13.4

4.2

1.0

-3.9

12.9

WHAT WAS THE CRITERIA FOR FDI

Some time in 1991-92, the then Finance Minister and present Prime Minister Dr. Manmohan Singh referred to certain criteria for allowing Foreign Direct Investment. These were :

1. Establishment of basic industries requiring huge capital and advanced sophisticated technology. 2. Infrastructure projects like electricity generation road building etc.
3. Projects which would generate employment

WHAT SHOULD GOVT. DO

Govt. should identify the weakness of present retail trade. Govt. should specify the areas where customers are not being served properly. Govt. should specify what it expects from retail trade that is not being met presently. Govt. should publicize the sector / persons who have demanded FDI in Retail Trade. Govt. should come out with white paper on FDI in Retail Trade specifying the picture after 25 years and 50 years.

FOREIGN INVESTMENT IN INDIA

The flow of direct foreign investment to India has been comparatively limited because of the type of industrial development strategy and very caution foreign investment policy followed by nation. Direct foreign investment (private) in India was adversely affected by the following factors.. 1. public sector was assigned a monoploy in the most important industries and there is scope of private investment both domestic and foreign was limited. 2. Government policy towards foreign capital was very selective. it is only permitted in high technology industries in priority areas and in export oriented industries. 3. Corporate taxation was high and tax laws and procedures was complex. 4. Factors either limited the scope of or discouraged the foreign investment in India.

FACTORS AFFECTING
RATE OF INTEREST SPECULATION PROFITABILITY COST OF PRODUCTION ECONOMICS CONDITION GOVERNMENT POLICIES. POLITICAL FACTORS.

SUMMARY
Foreign capital now contribute a significance share of the domestic investment, employment generation , industrial production and exports in a number of economics, including china. Broadly, FI are of two types:FDI and portfolio investment.

And there is an three economic motives of fdi:Resources seeking Market seeking Efficiency seeking. The presence of these determinants alone need not only attract FDI , other factors are Political environment Government policies Social climate Infrastructural facilities etc. Are imp determinants of FDI

Thanks