Published on March 12, 2014
Foreign Direct Investment in INDIA & its advantages and disadvantages By: Ashwini Kumar  & Pankaj Bhukar  MIT School Of Business, Pune, India 1
WHAT IS FDI? Direct Investment in business or production of foreign country by a individual or company. Can be achieved by buying company in the target country or by expansion of Operations. Includes : - “mergers and acquisitions, building new facilities, reinvesting profits earned from overseas operations and intra company loans” . 2
EVOLUTION!!! • Economic reforms embarked upon by the Government of India since mid-1991 • FEMAAct. • Problems Faced. • FDI policy liberalized progressively, through: • ongoing review • permitting FDI in more industries under the automatic route • Since Then: • FDI Policy Gradually Simplified • More Sectors opened up for foreign Investment • For India to maintain its momentum of GDP growth, it is vital to ensure that the robustness of its FDI inflows is also maintained. 3
INDIAAS AN INVESTMENT DESTINATION • India rated as one of the most attractive investment destinations across the globe. • Third most attractive location for FDI for 2013-2015: [IBN Live] UNCTAD World Investment Report (WIR), 2013 • Second most promising country for overseas business operations. 4
INDIA’s GLOBAL POSITION* FDI Inflows: Global rank : 32nd in 2001 16th in 2013 India’s share of world FDI inflows: 0.78% in 2005 3.90% in 2013 5.00% in 2017(Expected)[Economics Times] * - UNCTAD data 5
Types of FDI… Horizontal FDI Platform FDI Vertical FDI 6
HORIZONTAL FDI Investment made by Multinational Company in Other Country. The investment is made for conducting the similar business operations as already operated by the company. Called Horizontal as the MNC duplicates its activities. Example:- Coca Cola, Suzuki’s investment in India to manufacture car in India. 7
VERTICAL FDI Those multinationals that fragment production process geographically. The basic idea behind the analysis of this type of FDI is that a production process consists of multiple stages with different input requirements. It is called “vertical” because MNE separates the production chain vertically by outsourcing some production stages abroad Example:- when Ford builds a factory in Spain that makes one model for the entire European market, and then builds another factory in Germany that makes a different model for the entire European market, and then they cross-ship cars. 8
PLATFORM FDI Platform FDI is generally defined as investment and production in a host country where the output is largely sold in third markets, not the parent or host-country markets . Can be called as Export Led Growth Strategies for Developing Economies . Might Use the Technique of Host Nation 9
ADVANTAGES OF FDI FDI encourages domestic investment by providing new markets, demand for Input and New Technology. Differentiated products. Investment in new sectors initiates the growth of New Industry and new products. It is responsible for generation of employment and thus increases the labour Efficiency. FDI sometimes, bring new technology for improvement in productivity with reduction in error rates. Dominant technologies brought in by foreign companies makes product suitable for export. Some Foreign Firms has brand names that help exports. 10
DISADVANTAGES OF FDI Entry of Multi National Companies and hypermarket chains can hamper the business of unorganized Sectors. According to the theory of DE-capitalization of local economies, the host country does not benefit from the capital investment by the multinational company as majority of the capitals in the form of profits is transferred to the home countries of MNCs for investment. Exploitation of Natural Resources. Conflicts of Laws, amendments in certain policies due to investing Company Recession in Foreign Market would bring recession in host countries Cultural Differences. 11
RECENT UPDATES* *Source:- rediff.com 12
BIBLIOGRAPHY http://www.slideshare.net/gadarohit7/fdi-2932305. http://www.buzzle.com/articles/advantages-and-disadvantages-of-fdi.html http://en.wikipedia.org/wiki/Foreign_direct_investment http://www.bms.co.in/disadvantages-of-fdi-in-retail-in-india/ http://www.slideshare.net/RupalTiwari1/fdi-26538521 http://useconomy.about.com/od/tradeterms/g/Foreign-Direct-Investment-FDI- Definition.htm http://voices.yahoo.com/disadvantages-foreign-direct-investment-host- country-6106222.html?cat=3 http://ibnlive.in.com/news/india-is-the-worlds-third-most-attractive-fdi- destination-survey/402169-7.html http://books.google.co.in/books?id=4iqJ21- 68IwC&pg=PA32&lpg=PA32&dq=example+of+horizontal+fdi&source=bl&ots=xG 7OaB4IlU&sig=Sw_IcSnbNf3- 7QhOF5C20sCT9IQ&hl=en&sa=X&ei=CHMfU_3UEsqekQXKt4DABw&ved=0CC4Q6 AEwATgK#v=onepage&q=example%20of%20horizontal%20fdi&f=false 13
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