Unit III

Unit C International trade and FDI Unit C Topic 1 -Role of FDI in international trade Unit C Topic 2 -Norms of FDI and their justifications Unit C Topic 3 -Ways in which FDI can flow in an economy

Definition: FDI A form of investment that gives controlling interest in a foreign company The ambiguity: FDI is good yet dangerous Home and host country influence on FDI

What MNEs have to offer Investments HR Training and Development Technology Trade Environment

What MNEs have to offer MNEs Investments: Links to local cos. Increased productivity Improved efficiency Capital formation HR: Training Employment Managerial Skills Technology: R&D Industrial upgrading New capital equipment Trade: Export Expansion Lower cost import Environment: Access to clean technology Company wide standards

Stakeholders Tradeoff Companies must satisfy: Shareholders Employees Customers Society But trade off exists The philosophy, actions and goals of MNEs are thus unique matching the situation it is in..

Balance of Payment Effect of MNE FDI brings both capital inflow and capital outflow Thus net balance-of-payment effect is important The greater the inflow the better for economy: WHY The greater the outflow the better the trade relations… and the market The net of inflow and outflow should be:…..

Growth and employment effects FDI by a company for: Fuller utilization of resources Immobility of capital and technology from one industry to another Move operations to low wage country: Horizontal and vertical FDI Host country advantage: Inflow of capital and technology Host country losses:...

MNE and ethical behavior Concept : Relativism: when in Rome do as Romans do.. and Normativism.. There are universal standards of behavior.. Cultural foundations: Walk in between fine lines of both of the above Negotiate between evils Respect cultural identity Overpower corruption Sustainability

FDI impacts on economy Defense Retail Power generation Computer/Telephone instruments: Hardware Automobiles Services: Construction etc

Sector Specific Conditions on FDI 6.1 Prohibited Sectors: 2014 FDI is prohibited in: (a) Lottery Business including Government/private lottery, online lotteries, etc. (b) Gambling and Betting including casinos etc. (c) Chit funds (d) Nidhi company

FDI not permitted…..contd e) Trading in Transferable Development Rights (TDRs) (f) Real Estate Business or Construction of Farm Houses (g) Manufacturing of cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes (h) Activities/sectors not open to private sector investment e.g. Atomic Energy and Railway Transport (other than Mass Rapid Transport Systems).

FDI not permitted…..contd Foreign technology collaboration in any form including licensing for franchise, trademark, brand name, management contract is also prohibited for Lottery Business and Gambling and Betting activities

FDI Permitted.. Route Automatic Government through FIPB (Foreign investment promotion board of DEA) ‘Government route’ means that investment in the capital of resident entities by non-resident entities can be made only with the prior approval of Government (FIPB, Department of Economic Affairs (DEA), Ministry of Finance or Department of Industrial Policy & Promotion, as the case may be).

The foreign investment (FI) shall include in addition to FDI, investment by Foreign Institutional Investors (FIIs), Foreign Portfolio Investors (FPIs), Qualified Foreign Investors(QFIs), Non-Resident Indians (NRIs), Foreign Currency Convertible Bonds (FCCBs), American Depository Receipts (ADRs), Global Depository Receipts (GDRs) and convertible preference shares held by foreign entities.

August 2014 latest FDI Policy of GOI FDI cap in India: Page 49 onwards sector wise FDI ban in India 1 FDI ST_ pdf Pg 9

Sector-wise distribution of FDI inflows During August 2014, top 10 Sectors attracting highest FDI inflows Were: Services Sector (18 per cent), Construction development: Townships, housing, built- up infrastructure(10per cent), Telecommunications (7 per cent), Computer Software & Hardware (6 per cent),

…FDI sectors contd… Drugs & Pharmaceuticals (5 per cent), Chemicals (other than Fertilizers) (4 per cent), Power (4 per cent), Automobile Industry (4 per cent), Metallurgical Industries (4 per cent),

Country-wise distribution of FDI inflows Top 10 investing countries during August 2012 were: Mauritius (36 per cent), Singapore (12 per cent), U.K (10 per cent), Japan (8 per cent), Netherlands (6 per cent), US (5 per cent),