ASSIGNMENT

ON
FOREIGN DIRECT INVESTMENT
Foreign Direct Investment (FDI)
 Foreign direct investment is defined as a company from one country making a
physical investment into building a factory in another country. Foreign direct
investment is investment of foreign assets into domestic structures, equipment,
and organizations. It does not include foreign investment into the stock
markets.
Classification of Foreign Direct Investment :-
Foreign direct investment may be classified as Inward or Outward.

Foreign direct investment, which is inward, is a typical form of what is termed as

'inward investment'. Here, investment of foreign capital occurs in local resources.

The factors propelling the growth of Inward FDI comprises tax breaks, relaxation
of existent regulations, loans on low rates of interest and specific grants. The idea
behind this is that, the long run gains from such a funding far outweighs the
disadvantage of the income loss incurred in the short run. Flow of Inward FDI may
face restrictions from factors like restraint on ownership and disparity in the
performance standard

Foreign direct investment, which is outward, is also referred to as “direct

investment abroad”. In this case it is the local capital, which is being invested in
some foreign resource. Outward FDI may also find use in the import and export
dealings with a foreign country. Outward FDI flourishes under government backed
insurance at risk coverage.
Foreign direct investment may be further classified by their set target. The areas
here are Greenfield investment and Acquisitions and Mergers.

Greenfield investments involve the flow of FDI for either building up of new
production capacities in the host nation or for expansion of the existent production
facilities of the host country. The plus points of this come in form of increased
employment opportunities, relatively high wages, R&D activities and capacity
enhancement.

Some other types of foreign direct investment in vogue are termed as Horizontal
FDI, Forward Vertical FDI, Vertical FDI and Backward Vertical FDI.
Benefits of Foreign Direct Investment:-

One of the advantages of foreign direct investment is that it helps in the economic
development of the particular country where the investment is being made. This is
especially applicable for the economically developing countries.

Foreign direct investment also permits the transfer of technologies. This is done
basically in the way of provision of capital inputs.

The countries that get foreign direct investment from another country can also
develop the human capital resources by getting their employees to receive training
on the operations of a particular business.

The profits that are generated by the foreign direct investments that are made in
that country can be used for the purpose of making contributions to the revenues of
corporate taxes of the recipient country.

Foreign direct investment helps in the creation of new jobs in a particular country.
It also helps in increasing the salaries of the workers. This enables them to get
access to a better lifestyle and more facilities in life.

It also opens up the export window that allows these countries the opportunity to
cash in on their superior technological resources. It has also been observed that as a
result of receiving foreign direct investment from other countries, it has been
possible for the recipient countries to keep their rates of interest at a lower level.

It becomes easier for the business entities to borrow finance at lesser rates of
interest. The biggest beneficiaries of these facilities are the small and medium-
sized business enterprises.
 INDIA--YEAR WISE FDI (1991-2010)

FDI (US $ IN MILLION)

YEAR including advance

1991-1992
(Aug.-Mar.) 165
1992-1993 393
1993-1994 654
1994-1995 1374
1995-1996 2141
1996-1997 2770
1997-1998 3682
1998-1999 3083
1999-2000 2439
2000-2001 2463
2001-2002 4065
2002-2003 2705
2003-2004 2188
2004-2005 3219
2005-2006 5540
2006-2007 12492
2007-2008 24575
2008-2009 27330

2009-2010 25834
2010-
March-Nov. 14025
30000

25000

20000

15000

FDI (US $
10000 IN
MILLION)
including
advance

5000

0
2 4 6 8 0 2 4 6 8 0
99 ar.) 1 99 1 99 1 99 2 00 2 00 2 00 2 00 2 00 2 01
- 1 - - - - - - - - -
91 .-M 93 95 97 99 01 03 05 07 09
1 9 A ug 19 19 19 19 20 20 20 20 20
(

TOP 10 INVESTING COUNTRIES FDI

 2008-09 2009-10 2010-11(Till Nov.)
Mauritius 11229 10376 5158
Singapore 3454 2379 1367
U.S.A. 1802 1943 926
U.K. 864 657 385
Netherlands 883 899 802
Japan 405 1183 917
Cyprus 1287 1627 598
Germany 629 626 104
France 467 303 340
U.A.E 257 629 278

12000

10000

8000

6000
2008-09

4000 2009-10
2010-
11(Till
2000 Nov.)

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SECTOR ATTRACTING HIGHEST FDI

Sectors 2008-09 2009-2010 2010-11 (till Nov).

Service sector 6138 4353 2596
computer software &
hardware 1677 919 574
Telecommunications 2558 2554 1093
housing & real estate 2801 2844 999
construction activities 2028 2862 834
power 985 1437 984
Automobile Industry 1152 1208 533
Metallurgical Industries 961 407 960
petroleum & natural gas 412 272 529
Chemicals 749 362 271

7000
6000
5000
4000
3000
2000 2008-09
1000 2009-2010
0
2010-11 (till
Nov).