Foreign Direct Investments - An Overview

It is the movement of capital across national frontiers in a manner that grants the investor control over the acquired asset.

TYPES OF INVESTMENT

Greenfield investment: Direct investment in new facilities or the expansion of existing facilities. Greenfield investments are the primary target of a host nation’s promotional efforts because they create new production capacity and jobs, transfer technology and know-how, and can lead to linkages to the global marketplace. Greenfield investments are the principal mode of investing in developing countries.

Mergers and Acquisitions: Occur when a transfer of existing assets from local firms to foreign firms takes place. Cross-border mergers occur when the assets and operation of firms from different countries are combined to establish a new legal entity. Cross-border acquisitions occur when the control of assets and operations is transferred from a local to a foreign company, with the local company becoming an affiliate of the foreign company. Mergers and acquisitions are the principal mode of investing in developed countries.

FDI IN INDIA IS PERMITTED THROUGH TWO ROUTES

• Automatic approval by RBI
• The FIPB route (Foreign Investment Promotion Board)

FDI’S IS NOT PERMITTED IN THE FOLLOWING SECTORS

• Arms and ammunition
• Automatic energy
• Railway Transport
• Coal and lignite
• Mining of iron, manganese,chromosome,gypsum,sulphur,gold,diamonds,copper and zinc.

COMPETITIVE ADVANTAGE OF INDIA IN FDI

• From a shortage economy of food and foreign exchange, India has now become a surplus one.
• From an agro based economy it has emerged as a service oriented one.
• From the low-growth of the past, the economy has become a high-growth one in the long-term.
• After having been an aid recipient, India is now joining the aid givers club.
• Although India was late and slow in modernization of industry in general in the past, it is now a front-runner in the emerging Knowledge based New Economy.
• The Government is continuing its reform and liberalization not out of compulsion but out of conviction.
• Indian companies are no longer afraid of Multinational Companies. They have become globally competitive and some of them have started becoming MNCs themselves.

OBSTACLES FOR FDI’S IN INDIA

• Courts lead to long procedural delays.
• Violent separatist movements existing in Kashmir .
• Corruption faced by firms in india after bureaucratic red tape and power shortages.
• Shortages of energy and handling capacities at the ports, and saturated rail and road networks .
• Lack of a regulatory environment, clear investment policies.
• Problems with land acquisition

GOLDMAN SACHS REPORT ON “DREAMING WITH BRICS”

• India’s GDP will reach $ 1 trillion by 2011, $ 2 trillion by 2020, $ 3 trillion by 2025, $ 6 trillion by 2032, $ 10 trillion by 2038, and $ 27 trillion by 2050, will overtake Italy by the year 2016, France by 2019, UK by 2022, Germany by 2023,and becoming the third largest economy after USA and China.
• In terms of GDP, India will overtake Italy by the year 2016, France by 2019, UK by 2022, Germany by 2023,and Japan by 2032.
• Among the BRIC group India alone has the potential to show the highest growth (over 5 percent) over the next 50 years. The Chinese growth rate is likely to reduce to 5% by 2020, 4% by 2029, and 3% by 2046.