ECONOMICS PROJECT:FOREIGN DIRECT INVESTMENT
Part 1 by swikriti----What is the full form of FDI :
The full form of FDI is Foreign Direct Investment.
What is the meaning of FDI ? The Foreign Direct Investment means “cross border investment made by a
resident in one economy economy in an enterprise in another economy, with the objective of establishing establishing a lasting interest interest in the investee economy. economy. FDI is also described as
“investment into the business of a country by a
company in another country”.
Mostly the investment is into production by
either buying a company in in the target country or by expanding operations of an an existing business in that country”.
Such investments can take place for many
reasons, including to take advantage of cheaper wages, special investment investment privileges (e.g. tax exemptions) offered by the country.
Foreign direct investment is of growing importance to global economic growth. This is especially important for developing deve loping and emerging and emerging marketcountries. marketcountries.
FDI from investors in developed areas like the European Union and the U.S. provide funding and expertise to help smaller companies companies in these emerging markets to expand and increase international sales.
In 2012, these emerging markets became the greatest beneficiary of FDI.
Foreign direct investment (FDI) is a direct investment into production
or business in a country by an individual or company of 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 such as stocks and bonds.
Broadly, foreign direct investment includes "mergers and acquisitions, building new facilities, reinvesting profits earned from overseas operations and intra [1]
company loans".
In a narrow sense, foreign direct investment refers just to
building new facilities. The numerical FDI figures based on varied definitions are not easily comparable. As a part of the national accounts of a country, and in regard to the GDP equation
Y=C+I+G+(X-M)
[Consumption + gross Investment + Government spending +(exports - imports], where I is domestic investment plus foreign investment, FDI is defined as the net inflows of investment (inflow minus outflow) to acquire a lasting management interest (10 percent or more of voting stock) in an enterprise operating in an economy other than that of the investor .
[2]
FDI is the sum of equity capital, other long-term capital, and short-term capital as shown the balance of payments. FDI usually involves participation in management, joint-venture, transfer of technology and expertise. .
[3]
FDI is one example of international factor movements
Part -2 by Aprajita Why Countries Seek FDI ?
(a)
Domestic capital is inadequate for purpose of economic growth;
(b) Foreign capital is usually essential, at least as a temporary measure, during the period when the capital market is in the process of development; (c)
Foreign capital usually brings it with other scarce productive factors like technical know how, business expertise and knowledge
What are the major benefits of FDI :
(a)
Improves forex position of the country;
(b) Employment generation and increase in production ; (c)
Help in capital formation by bringing fresh capital;
(d) Helps in transfer of new technologies, management skills, intellectual property (e)
Increases competition within the local market and this brings higher efficiencies
(f)
Helps in increasing exports;
(g) Increases tax revenues
Why FDI is Opposed by Local People or Disadvantages of FDI :
(a)
Domestic companies fear that they may lose their ownership to overseas company
(b) Small enterprises fear that they may not be able to compete with world class large companies and may ultimately be edged out of business; (c)
Large giants of the world try to monopolise and take over the highly
profitable sectors;
(d) Such foreign companies invest more in machinery and intellectual property than in wages of the local people; (e)
Government has less control over the functioning of such companies as they usually work as wholly owned subsidiary of an overseas company;
Brief Latest Developments on FDI (all sectors including retail):-
2012 – October: In the second round of economic reforms, the government
cleared amendments to raise the FDI cap (a)
in the insurance sector from 26% to 49%;
(b)
in the pension sector it approved a 26 percent FDI;
Now, Indian Parliament will have to give its approval for the final shape,"
2012 - September : The government approved the
(a) (b)
Allowed 51% foreign investment in multi-brand retail, Relaxed FDI norms for civil aviation and broadcasting sectors. – FDI cap in Broadcasting was raised to 74% from 49%;
(c)
Allowed foreign investment in power exchanges
Part -3 by Gokul
Types 1. Horizontal FDI -arises when a firm duplicates its home country-based activities at the same value chain stage in a host country through FDI.[4] 2. Platform FDI -Foreign direct investment from a source country into a destination country for the purpose of exporting to a third country. 3. Vertical FDI- takes place when a firm through FDI moves upstream or downstream in different value chains i.e., when firms perform valueadding activities stage by stage in a vertical fashion in a host country. [4]
Methods[edit]
( give breifly )
The foreign direct investor may acquire voting power of an enterprise in an economy through any of the following methods:
by incorporating a wholly owned subsidiary or company anywhere
by acquiring shares in an associated enterprise
through a merger or an acquisition of an unrelated enterprise participating in an equity joint venture with another investor or enterprise[5]
procedure for receiving Foreign Direct Investment in an Indian company
An Indian company may receive Foreign Direct Investment under the two routes as given under:
i. Automatic Route
FDI is allowed under the automatic route without prior approval either of the Government or the Reserve Bank of India in all activities/sectors as
specified in the consolidated FDI Policy, issued by the Government of India from time to time.
ii. Government Route
FDI in activities not covered under the automatic route requires prior approval of the Government which are considered by the Foreign Investment Promotion Board (FIPB), Department of Economic Affairs, Ministry of Finance.
Part-4 by karan Forms of FDI incentives
Foreign direct investment incentives may take the following form low corporate tax and individual income tax rates
tax holidays
other types of tax concessions
preferential tariffs
special economic zones
EPZ – Export Processing Zones
Bonded warehouses
Maquiladoras
investment financial subsidies
soft loan or loan guarantees
free land or land subsidies
relocation & expatriation
infrastructure subsidies
R&D support derogation from regulations (usually for very large projects)
Governmental Investment Promotion Agencies (IPAs) use various marketing strategies inspired by the private sector to try and attract inward FDI, including Diaspora marketing.
by excluding the internal investment to get a profited downstream.
part-5 by vishwendra
What is Scope of FDI in India? Why World is looking towards India for Foreign Direct Investments :
India is the 3rd largest economy of the world in terms of purchasing power parity and thus looks attractive to the world for FDI. Even Government of India, has been trying hard to do away with the FDI caps for majority of the sectors, but there are still critical areas like retailing and insurance where there is lot of opposition from local Indians / Indian companies. Some of the major economic sectors where India can attract investment are as follows:
Telecommunications Apparels
Information Technology
Pharma
Auto parts
Jewelry
Chemicals In last few years, certainly foreign investments have shown upward trends but the strict FDI policies have put hurdles in the growth in this sector. India is however set to become one of the major recipients of FDI in the Asia-Pacific region because of the economic reforms for increasing foreign investment and the deregulation of this important sector. India has technical expertise and
skilled managers and a growing middle class market of more than 300 million and this represents an attractive market.
Name the sectors where FDI is NOT allowed in India, both under the Automatic Route as well as under the Government Route?
FDI is prohibited under the Government Route as well as the Automatic Route in the following sectors: i) Atomic Energy ii) Lottery Business iii) Gambling and Betting iv) Business of Chit Fund v) Nidhi Company vi) Agricultural (excluding Floriculture, Horticulture, Development of seeds, Animal Husbandry, Pisciculture and cultivation of vegetables, mushrooms, etc. under controlled conditions and services related to agro and allied sectors) and Plantations activities (other than Tea Plantations) vii) Housing and Real Estate business (except development of townships, construction of residential/commercial premises, roads or bridges to the extent specified in notification viii) Trading in Transferable Development Rights (TDRs). ix) Manufacture of cigars , cheroots, cigarillos and cigarettes , of tobacco or of tobacco substitutes.
****Background and Recent Developments for FDI in Retail Sector which has raised lot of controversies in political circles :****
As part of the economic liberalization process set in place by the Industrial Policy of 1991, the Indian government has opened the retail sector to FDI slowly through a series of steps: 1995 : World Trade Organisation’s (WTO) General Agreement on Trade in Services, which includes both wholesale and retailing services, came into effect 1997 : FDI in cash and carry (wholesale) with 100% rights allowed under the government approval route; 2006 : FDI in cash and carry (wholesale) was brought under automatic approval route; Upto 51% investment in single brand retail outlet permitted, subject to Press Note 3 (2006 series) 2011 : 100% FDI in Single Brand Retail allowed’ 2012 : On Sept. 13, Government approved the allowance of 51 percent foreign investment in multi-brand retail, [ It also relaxed FDI norms for civil aviation and broadcasting sectors]’
After Walmart, Amazon lobbies in US for Indian FDI WASHINGTON: After supermarket giant Walmart, it is online retail major Amazon which has begun lobbying with the US lawmakers to seek their support for f acilitating its "foreign direct investment in India". According to lobby disclosure reports filed with the US Senate, Amazon.com and its group entities including Amazon Corporate LLC have been lobbying on various issues since at least year 2000.
Government may go slow on FDI in ecommerce retail NEW DELHI: With the political fortunes of Congress taking a beating in state assembly elections, the government is unlikely to move forward on the proposal to allow FDI in e-commerce at retail level. At present, 100 per cent foreign direct investment (FDI) is allowed in business-to-business (B2B) ecommerce but not in retail trading.
(ADD SOME MORE IF YOU GET )
