Page 144 - DMGT545_INTERNATIONAL_BUSINESS

Unit 7: Foreign Direct Investment

7.6.2 india’s share in Global scenario notes

India’s share in the global scenario is interesting-outflows exceed inflows. The outflows comprise
cross border acquisitions. The number of deals involving acquisitions has been increasing, year
after year. In monetary terms (according to the RBI), FDI outflows have increased from US $ 709
million in 2000–01 to US $1494 million in 2003–04 and then almost doubled to US $ 2679 million
in 2005–06. The outflow during 2006–07 is estimated at $ 35 billion.
But the issue is the inflow of FDI into India. India needs FDI much more than any other developing
country. Realizing this, the Government of India has been adopting various structural reform
measures and making changes in the regulatory framework to encourage FDI flow into the
country. In the beginning of the 90s, India devalued the Indian Rupee twice, and made Rupee
convertible on the current account. India has signed the multilateral investors’ protection treaty
to protect the interest of the foreign investors. For speedy approval of various FDI proposals,
the Foreign Investment Promotion Board (FIPB) has been set up. For reducing the time lag
between approval and implementation of these projects, the Foreign Investment Implementation
Authority (FIIA) has been set up recently.
Apart from various structural reform measures and regulatory changes, the government is
continuously evolving and implementing FDI promotion measures. As a part of these measures,
the government has opened up all sectors of the economy, except agriculture and plantation, for
foreign investors, both Non-resident Indians (NRIs) and Foreign Institutional Investors (FIIs).
NRIs are permitted to invest up to 100 per cent of equity under automatic approval of 51 priority
sectors with responsibility of capital. This limit for the FII’s is 51 per cent. In some of the priority
sectors, the FII’s can even invest 74 per cent of the equity. Foreign investors are also allowed to
invest in banking and financial institutions.

7.6.3 measures adopted to attract fDi

In table contains some other promotional measures announced to attract FDI flow into
the country. Perhaps the most important of these relaxations from the foreign investor’s
viewpoint was the discontinuation, in 2000, of the provision for ‘dividend balancing’ in
22 categories of industries (mainly consumer goods/consumer durables). Under this provision,
dividends repatriated to the parent country had to be balanced by export earnings over a
seven-year period, such exports being optionally from own production or merchant exports.
table 7.6: measures to attract fDi

1992 Foreign firms obtained automatic rights over international brand names.
1993 Requirement for industrial licensing in specified industries (white goods, entertainment
electronics) abolished
FIIs allowed to invest in new Mutual Fund schemes.
1994 Banks allowed to set their own rates for lending.
Companies allowed to issue preferential equity to FIIs.
1996 Overseas pension funds, charities, foundations qualify as FIIs
FIIs allowed to invest in unlisted firms.
FIIs allowed to invest 100% of funds (previous 30%) in debt instruments.
1998 Further concessions to FIIs, now allowed to invest in Government securities, Treasury Bills,
listed and unlisted debt securities.
1999 FIIs allowed conditional forward foreign exchange cover.
FIIs could participate in open offers in accordance with take over codes.
2000 100% foreign equity allowed in infrastructure projects – ports, roads, highways.
2002 Limited FDI in print media permitted.

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