FDI v/s FII (India and China) Presented By : Sakshi Chawla Apurva Jain Rahul Ojha Siddharth Jain Varun Chopra Amit Vasishth (MBA-IB,Sec-C)

Introduction FDI (Foreign Direct Investment) can be defined as the physical investment being made by a firm in one country for building a factory in another country. FII (Foreign Institutional Investment) involves the investments or the investment companies, that are not located in the territory of the country in which they are investing. These are the outsiders in the financial markets of the company. Economies, which includes China, South Korea, Singapore and the Philippines also known as “Asian Tigers”.

FDI in India and China China’s Investment Regime According to the Chinese law, the foreign investors can choose a variety of investment entities, the destination of investment may be limited. Under the chinese law are divided into three broad categories i.e. (1) prohibited, (2) restricted, and (3) encouraged. India’s Investment Regime In India, FDI is governed with the number of laws which includes the Foreign Exchange Management Act of 1999 (FEMA) for all FDI and the Stock Exchange Board of India (SEBI).

Trends in FDI The flow of FDI has increased, especially in the emerging economies around the world, with the developed countries still accounting for the largest share of FDI inflows. FDI, a way to internationalize apart from assuming FDIs to be an investment channel and a method to reduce operating costs. Countries praise FDI for raising standards and welfare in recipient countries and are hence, lowering the standards to attract FDI. The access to low- cost labour, markets and natural resources are some of the trends that are reinforcing traditional impulses for the foreign direct investment.

Balanced geographical distribution of FDI inflows could have been instrumental in achieving sustainable growth. But, it seems to have wide concentration of FDI inflows around. Mumbai Region (36%), followed by New Delhi region (19%), Karnataka (6%), Gujarat (6%), Tamil Nadu (5%) and Andhra Pradesh (4%).

FII in India and China FIIs from new geographies such as China, South Africa, South Korea and Australia are among the latest entrants in the Indian capital market in In terms of numbers its still North America (28) and Europe (26) based FII that top the list of maximum number of FIIs entering Indian capital market. Factors that contribute to the FII flows to India: 1. Regulation and Trading Efficiencies 2. New Issuance and Attractive Markets 3. Outsourcing and Infrastructure 4. Rising Commodity Prices

CONTD….. Currently, entities eligible to invest under the FII route are as follows : i) As FII ii) As Sub-accounts Net FII inflows this year have been very poor. In April- October contracted by 99% with same period last year. FII inflows in April-October stood extremely low at $0.34 billion compared with $56.13 billion in the same period a year ago.

Conclusion and Recommendations Domestic sources of outside finance are limited in many countries, hence, foreign capital has become increasingly significant source of finance. In developing countries like India foreign capital helps in increasing the productivity of labour and to build up foreign exchange reserves to meet the current account deficit. The investment climate in India has become much friendlier today than previous decades. FDI is not needed in India as compared because it is getting more money from the FIIs. It accounts for around $12 billion. In order to attract the required amount of FDI and FII, government has put in its practice a liberal and more transparent FDI and FII policy.

Recommendations Country such as china avoids the issues such as corporate irregularities and political unrest and hence, with its politically dictatorial regime it is able to attract the foreign investment. India should also consider the above in order to attract the foreign investment. Internal resources and withdrawal from the foreign reserves, trade loans and long- term financing might help in better investment plans. Planned structural changes to the Indian Economy and also the country’s bureaucratic structure should be more investor friendly. Various legislative changes should be made to ensure safety of investor’s money.

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