03-12-2012, 12:40 PM
Assignment on Foreign Direct Investment (FDI) & Foreign Institutional Investment (FII)
Assignment on.docx (Size: 359.16 KB / Downloads: 61)
INTRODUCTION:
The FDI and FII is the process by which the resident of one country ( the source country) acquire the ownership of assets for the purpose of controlling the production, distribution and other productive activities of a firm in another country( the host country).
According to the international monetary fund(IMF), FDI and FII is defined as “an investment that made to acquire a lasting interest in an enterprise operating in an economy other than that of investor”.
The effect of foreign investment varies from country to country. It can affect the factor productivity of the recipient country and can also affect the balance of payments. Foreign investments provides a channel through which countries can gain access to foreign capital. It can come in two forms: FDI and FII. Foreign direct investment involves in direct production activities and is also of a medium to long term nature. But foreign institutional investment is a short term investment, mostly in the financial markets. FII given its short term nature, can have bidirectional causation with returns of other domestic financial markets such as money markets, stock markets and foreign exchange markets.
History:
In the years after the Second World War global FDI was dominated by the United States, as much of the world recovered from the destruction brought by the conflict. The US accounted for around three-quarters of new FDI (including reinvested profits between 1945 and 1960.
Since that time FDI has spread to become a trulyglobalphenomenon, no longer the exclusive preserve of OECD countries. FDI has grown in importance in theglobal economy with FDI stocks now constituting over 20 percent of global GDP.
Foreign Investments in India:
Foreign investments in the country can take the form of investments in listed companies (i.e FII investments);investments in listed/unlisted companies other than through stock exchange (i.e Foreign Direct Investment, Private Equity / Foreign Venture Capital Investment route); investments through American Depository / Global Depository Receipts (ADR/GDR) or investments by Non Resident Indians (NRIs) and Persons of Indian Origin (PIO) in various forms
FOREIGN DIRECT INVESTMENT(FDI):
Foreign direct investment is an investment made by a foreign individual or company in productive capacity of another country. It is the movement of capital across national frontiers in a way that grants the investor control over the acquired asset.
As the third-largest economy in the world in PPP terms, India is a preferred destination for foreign direct investments (FDI). India's recently liberalized FDI policy permits up to a 100% FDI stake in ventures. Industrial policy reforms have substantially reduced industrial licensing requirements, removed restrictions on expansion and facilitated easy access to foreign technology and FDI. The upward moving growth curve of the real-estate sector owes some credit to a booming economy and liberalized FDI regime. A number of changes were approved on the FDI policy to remove the cap in most of the sectors. Restrictions will be relaxed in sectors as diverse as civil aviation, construction development, industrial parks, commodity exchanges, petroleum and natural gas, credit-information services, Mining etc.
FDI Policy in India:
After the granting of Foreign Direct Investment by the Foreign Investment Promotion Board (FIPB) under automatic route, the industrial sectors in India can take regulatory approvals from the state government and other authorities in the local places for construction of building, water, environmental clearance, and so on.
FDI Policy Under Automatic Route-
Sectors working under automatic route does not require any prior approval of the Central Government of RBI to attract Foreign Direct Investment. The foreign investors are only required to inform the Regional Office concerned of RBI within thirty days receiving of inward payments and submit the required documents in that office again within thirty days of the issuing of the shares of foreign institutional investors.
FDI Policy Under Government Approval-
The proposals which involve foreign investment or foreign technical collaboration is granted permission by the Foreign Investment Promotion Board (FIPB). All the proposals for FDI are to be submitted to the FIPB Unit and those of Non-Resident Indian (NRI) investments and 100% Export Oriented Units (EOUs) should be submitted to SIA in Department of Industrial Policy and Promotion.
Industrial Licensing in FDI Policy-
Industrial Licensing is regulated by Industries (Development and Regulation) Act 1951. Following are the sectors which require Industrial Licensing:
_ Industries which abide by compulsory licensing
_ Manufacturing of items by the larger industrial units for small sector industries
_ Locational restrictions on the proposed sites