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FOREIGN INVESTMENTS IN INDIA

FOREIGN INVESTMENTS IN INDIA. Introduction…. Foreign Investment Investment by citizens and government of one country in industries of another; also investment within a country by foreigners. The acquisition by individuals, businesses, and governments of financial and real assets in a

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FOREIGN INVESTMENTS IN INDIA

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  1. FOREIGN INVESTMENTS IN INDIA

  2. Introduction… Foreign Investment • Investment by citizens and government of one country in industries of another; also investment within a country by foreigners. • The acquisition by individuals, businesses, and governments of financial and real assets in a foreign country. • The income tax treatment of foreign investment income is governed by Tax Treaties between the country of the investment owner and the country where the investment is located.

  3. FOREIGN INVESTMENT FOREIGN DIRECT INVESTMENT PORTFOLIO INVESTMENT Subsidiary Joint Venture Acquisition Investment by FIIs Investment in ADRs, GDRs, FCCBs etc.

  4. What is Foreign Direct Investment? • Foreign direct investment (FDI) refers to long term participation by country A into country B. • FDI usually involves participation in management in the form of starting a subsidiary, acquiring a stake or joint venture. • FDI’s are generally invested for a longer period of time because they cannot be easily liquidated i.e. converted to cash. • Direct investors are directly responsible for promotion and management of the firm. • Since the economic liberalization of 1991, FDI has increased considerably.

  5. What is PORTFOLIO INVESTMENT? • If an investor has interest only in investing the capital, in buying equities, bonds and other securities abroad, then it is called as Portfolio Investment • Here, the investor uses his capital to get a return on it, but has no much control over the use of the capital. • There are two routes of portfolio investments in India: • By Foreign Institutional Investors (FIIs) like mutual funds. • American Depository Receipts (ADRs), Global Depository Receipts (GDRs) and through Foreign Currency Convertible Bonds (FCCBs). • Some portfolio investments can be easily liquidated while others cannot be easily liquidated easily. • Direct investors are not directly responsible for promotion and management of the firm.

  6. Importance of Foreign Investments • Foreign capital and technology can play a very important role in the socio-economic development of the nation. • Foreign Investment enables the nation to achieve a certain degree of financial stability, growth and development. • Foreign capital facilitates essential imports required for carrying out development programmes, like capital goods, know-how, raw materials and other inputs and even consumer goods.

  7. There maybe some direct benefits to the following: • Domestic Labor (Increase employment opportunities, higher wages because of increase in productivity.) • Consumers (Lower product prices, better quality products or new products.) • Government (Increase revenue for government .) • External Economies (E.g. if the foreign capital is used for the development of infrastructure, this could stimulate domestic investment in industrial and other sectors.)

  8. Limitations of foreign investments • Absorptive capacity of the recipient country, i.e., the capacity of the country to utilize foreign capital effectively. Lack of infrastructural facilities, technical know-how, personnel, inputs, market, feasible projects, inefficiency or inadequacy of machinery etc. are important factors that affect the Absorptive capacity. • Foreign capital tends to flow to the high profit areas rather than to the priority sectors. • Another major disadvantage of foreign direct investment is that there is a chance that a company may lose out on its ownership to an overseas company. • Foreign investors sometimes engage in unfair and unethical trade practices. • At times it has been observed that certain foreign policies are adopted that are not appreciated by the workers of the recipient country.  

  9. Thank you

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