1.

FDI IN INDIA
1.1. WHAT IS FOREIGN INVESTMENT? Any investment flowing from one country to another country is foreign investment. The management of a business enterprise in a foreign country is foreign investment. Indian Government classifies foreign investment in the following form: investment (FDI)

-resident Indian (NRI) investment 1.2. ENTRY OPTIONS FOR FOREIGN INVESTORS A foreign company planning to set up business operations in India has the following options: Incorporate a company under the Companies Act, 1956 through: Joint Venture or Wholly owned Subsidiary

Foreign equity in such Indian companies can be up to 100% depending on the requirements of the investor, subject to equity caps in respect of the sector/area of activities under the FDI policy. Enter as a Foreign Company through:
o Liaison Office/Representative Office o Project Office o Branch Office

Such offices can undertake activities permitted under the Foreign Exchange Management Regulations, 2000 (Establishment in India of branch or office of other place of business). 1.3. WHAT IS THE DIFFERENCE BETWEEN FDI AND FII? Foreign direct investment (FDI) is defined as "investment made to acquire lasting interest in enterprises operating outside of the economy of the investor."The FDI relationship consists of a parent enterprise and a foreign affiliate which together form a Multinational corporation (MNC). In order to qualify as FDI the investment must afford the parent enterprise control over its foreign affiliate. The UN defines control in this case as owning 10% or more of the ordinary shares or voting power of an incorporated firm or its equivalent for an unincorporated firm; lower ownership shares are known as

portfolio investment. The definition of FDI originally meant that the investing corporation gained a significant number of shares (10 percent or more) of the new venture. In recent years, however, companies have been able to make a foreign direct investment that is actually long-term management control as opposed to direct investment in buildings and equipment. FDI growth has been a key factor in the international nature of business that many are familiar with in the 21st century. This growth has been facilitated by changes in regulations both in the originating country and in the country where the new installation is to be built. FII generally means portfolio investment by foreign institutions in a market which is not their home country. These institutions are generally Mutual Funds, Investment Companies, Pension Funds, and Insurance Houses. Their investments are in the stock market whereas FDI is generally a long term commitment to a particular company in a sector in terms of equity investment by some foreign entity. FII funding is a paramount maker of stock markets and there selling or buying moves the stock in a day. FDI have long term commitment and hence we see flight of capital in terms of FII outflows but not generally in FDIs. 1.4. DIFFERENT TYPES OF FDI IN INDIA: Foreign direct investment (FDI) is permitted in India as under the following form:

ments

4. POLITICAL FOOTPRINTS ON FDI IN INDIA

Year 1991 Political Impact on FDI in India

BJP: We will make our economy truly Swadeshi by promoting native initiatives". Congress: "Foreign investment will not be at the cost of self-reliance".

1993-94

FDI.
1995-96

The FDI Mindset sets into the Government but opposition were critical of FDI and the

Government's acceptance to IMF conditionality.

1996-97

United Front Government: Increase in understanding towards Foreign Investment. Foreign Investment Promotion Council Setup.

1997

The first ever guidelines were announced for consideration of foreign direct investment proposals by the FIPB, which were not covered under the automatic route. The list of industries eligible for automatic approval of up to 51 per cent foreign equity was expanded.

1998

When there was a decline in FDI the government had to take greater technical measures in terms of liberalizing investment norms in bring in FDI.

1998-99

BJP admitted in its manifesto that the country cannot do without FDI, because besides capital stocks it brings with it technology, new market practices and most importantly employment. However BJP clarified that FDI will be encouraged in core areas so that it usefully supplements the national efforts and it discouraged FDI in non