Synopsis

Expectation of FII in terms of HR law

Introduction

Submitted By: Group-3

Foreign investment provides a channel through which these countries

can have access to foreign capital. It can come in two forms: Foreign
Direct Investment (FDI) and Foreign Portfolio Investment (FPI). Foreign
direct investment involves in the direct production activity and is of
medium to long term nature. But the foreign portfolio investment is a
short-term investment mostly in the financial markets and it consists of
Foreign Institutional Investment (FII). The FII, given its short-term
nature, might have bi-directional causation with the returns of other
domestic financial markets like money market, stock market, foreign
exchange market, etc. Hence, understanding the determinants of FII is
very important for any emerging economy as it would have larger
impact on the domestic financial markets in the short run and real
impact in the long run.

Previous laws and expectation of Laws by FII

In November 1995, SEBI notified the Foreign Institutional Investors
Regulations which were largely based on the earlier guidelines issued
in 1992. The regulations require FIIs to register with SEBI and to obtain
approval from the Reserve Bank of India under the Foreign Exchange
Regulation Act, 1973 to enable them to buy and sell securities, open
foreign currency and rupee bank accounts and remit and repatriate
funds. SEBIs definition of FIIs presently includes foreign pension funds,
mutual funds, charitable/endowment/university funds etc. as well as
asset management companies and other money managers operating
on their behalf.
Empirical research has also found relative labour costs to be
statistically significant, particularly for foreign investment in labour
intensive industries and for export oriented subsidiaries. In India labour
market rigidities and relatively high wages in the formal sector have
been reported as deterring any significant inflows into the export
sector in particular. The decision to invest in china has been heavily
influenced by the prevailing low wage rate.

In India, organized labour has fiercely resisted privatization or other

moves, which threaten existing jobs workers rights. A number of
structural problems are constraining the process of privatization.
Financial markets in most low income countries are slow to become
competitive; they are characterized by the inefficiencies, lack of debt
and transparency and the absence of regulatory procedures.
In India, there are so many qualified people, competing for good jobs.
Pay scales provided by foreign companies may be much lower than
their domestic rate, but that lower salary will be an excellent one for
people in India due to lower living costs and currency exchange rate. If
today a single job vacancy is put up, it is common to get a list of 100
candidates, each of them almost equally well qualified. As such the
scarcity of employment opportunities brings good competition in the
labour force and automatically improves the quality and productivity
which is highly favorable for foreign corporations. Labour costs in India
rise each year and in some fields like software, it is believed that a
double digit salary increase is not possible anymore. This is important
to protect the cost benefits and continue to attract Foreign Institutional
Investors to India. This is the reason that industries like BPO, IT and
Manufacturing are steadily rising in India. There is hardly any big
company in the entire world which does not have its presence in India
in one way or the other. Some companies outsource their accounting
and others outsource IT and BPO operations. Regardless of the
domestic issues, they get an excellent service for their money.
Government of India has accepted the recommendation of A.P. Shah
Committee to not impose Minimum Alternate Tax (MAT) on overseas
portfolio investors retrospectively for the years prior to April 01, 2015,
thereby providing significant relief to foreign portfolio investors (FPIs).
The Securities and Exchange Board of India (SEBI) has allowed Foreign
Portfolio Investors (FPI) to invest in units of Real Estate Investment
Trusts (REITs), infrastructure investment trusts (InvITs), category III
Alternative Investment Funds (AIFs), and also permitted them to
acquire corporate bonds under default.
In order to make India a more attractive foreign investment
destination, the Ministry of Finance is planning to introduce the
residency permit policy, which will allow key executives of foreign
companies making investments worth US$ 2 billion or more in India, to
avail various facilities such as special package on upscale housing,

residency permits allowing long stay in the country, and cheap rates
for utilities.
India, despite recessions dark clouds lingering around it, has been able
to manage a decent growth rate and the best part is that inspite of
some early sell outs, FIIs have reposed their faith in the fundamentals
of Indian economy by reinvesting in India. Thus India even though has
certain issues which are to be sorted out but still remains a potent FII
attractor and retainer which is generating wealth for everyone
concerned.