Foreign Direct Investment (FDI) & Foreign Institutional Investment (FII). A Presentation by: Kedar Gharat 20 Manoj Gupta 21 Pramod Jadhav 24 Ashish Lalpuria 34 Arun Pacheco 38 Nilesh Raut 49
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A Presentation by:
Kedar Gharat 20
Manoj Gupta 21
Pramod Jadhav 24
Ashish Lalpuria 34
Arun Pacheco 38
Nilesh Raut 49
Anand Singh 60
Sachin D’souza 63
What is FDI & FII
Distinction between FDI & FII
India -- the largest Democracy - one of the fastest growing economies in the World!
Stable democratic environment over 60 years of independence
Large and growing market
World class scientific, technical and managerial manpower
Cost-effective and skilled labour
Abundance of natural resources
Large English speaking population
Well-established legal system with independent judiciary
Developed banking system and vibrant capital market
Well developed accountancy, legal, actuarial and consultancy profession
Foreign Direct Investment (FDI):
Foreign Institutional Investment (FII):
* April 2009 – January 2010
*as per information in the Press
Maharashtra received the lion's share of the FDI $2.43 billion (Rs 11,154 crore), which is 35% of the total FDI inflows in to the country,.
2. National Capital Region
NCR received $1.85 billion (Rs 8,476 crore) in FDI during the period. The region accounted for 20% of the total FDI.
3. West Bengal, Sikkim, Andaman & Nicobar Islands
These states attracted the third highest FDI inflows worth $1.416 billion (Rs 6,050 crore)
4. Karnataka - $936 million (Rs 4,333 crore)
5. Punjab, Haryana, Himachal Pradesh - $904 million (Rs 4,141 crore)
Data: Jan – Jun 2010
Sectoral caps raised;
Up to 100% under
‘Automatic Route’ in
all sectors except
a small negative list
Up to 74/51/50%
in 111 Sectors under
100% in some sectors
Up to 51%
35 Priority Sectors
up to 40%
FDI Guidelines for Investing in Indian Wholly Owned Subsidiary / Joint Venture
No Prior Regulatory Approval but only Post Facto Filings to RBI, through AD
Foreign Investment Promotion Board (FIPB)
FDI limits – Illustrative list
Automatic Route (Illustrative)
Prior Approval (Illustrative)
Negative List (Illustrative)
Note: (a) Sector specific guidelines
(b) Subject to certain exceptions
FDI – strategic long term relationship and establish a lasting interest
FPI – no intention to influence the management of the investee entity
treated as External Commercial Borrowings (‘ECB’) - subject to ECB guidelines
Brand name/ trade mark royalty
Foreign Technology Agreements
The Government has liberalized the aforesaid limits by permitting, under the automatic route, and without any restrictions:
Direct Foreign Investment
Indirect Foreign Investment
Different methods of computing Indirect FI prescribed for different sectors. E.g.
Co1 with Indians
FI in Co2 is 54% (90*60%)
FI in Co2 is NIL
Non Resident Entity (‘NRE’)
Co1 (Owned or Controlled by NRE)
Co1 (Owned and Controlled by RIC)
Co2 (Owned and Controlled by NRE)
Co2 (Owned and Controlled by RIC)
Direct FI in Co2 = 51%
Indirect FI in Co2 = 49%
Total FI in Co2 = 100%
Direct FI in Co2 = 39%
Indirect FI in Co2 = Nil
Total FI in Co2 = 39%
Co1 could be
Co2 is an operating company
Procedural Aspects limits
Sector Specific Guidelines limits
* FDI component not to exceed 20%
** May be raised to 49% as per recent press reports
* May be raised to 49% as per recent press reports
DRUGS & PHARMACEUTICALS
FDI upto 26% allowed on the automatic route
However, license from the IRDA has to be obtained & There is a proposal to increase this limit to 49%.
FDI upto 100% is permitted under the automatic route for manufacture of drugs and pharmaceuticals (The following is the current position)
i. FDI upto 74% in the case of bulk drugs, their intermediates Pharmaceuticals and formulations (except those produced by the use of recombinant DNA technology) would be covered under automatic route.
ii. FDI above 74% for manufacture of bulk drugs will be considered on case to case basis.
Foreign Investment up to 100% is allowed in green field projects under automatic route
Foreign Direct Investment is allowed in existing projects
- up to 74% under automatic route
- beyond 74% and up to 100% subject to Government approval
100% FDI is permitted for the following activities:
Factors affecting foreign investment
investment limits on debt investments by FII
limits are applicable:
What is P-Note:
PNs are instruments issued by registered FIIs to overseas investors, who wish to invest in the Indian stock markets without registering themselves with SEBI.
Why is P-Note:
More than 30% of foreign institutional money coming into India is from hedge funds. Hedge funds, which thrive on arbitrage opportunities, rarely hold a stock for a long time.
P-Notes are issued to the real investors on the basis of stocks purchased by the FII.
To monitoring investments through P Notes, Sebi decided that FIIs must report P-Notes details.
Reporting by FIIs
P-Notes issued - 7th day of the following month.
The FII merely investing for themselves through P-Notes – Quarterly basis
FIIs who do not issue PNs but have trades – File 'Nil' undertaking on a quarterly basis.
FII Investment from 2005 - 2010
FII Investment Vs Sensex
FII average holding in BSE 500
- The funds held in the accounts of the two companies (ADAG Group )opened in UBS with the approval of RBI were transferred to another account without RBI’s approval, by obtaining overdrafts against cash collateral security provided through the funds.
- Thereafter, substantial amounts were transferred to certain accounts belonging to 8-10 diamond dealers based in India and Belgium..
- The funds were then passed on from the accounts of the diamond merchants to two funds that in turn invested them in the Indian stock market through FIIs.
- Swiss bank UBS has been fined £8 million by UK's Financial Services Authority (FSA)
- ED is probing the matter because the transactions may amount to violation of Indian foreign exchange and anti-money laundering laws.
- The Court has held that earnings of FIIs registered in India are in the nature of business income.
- Such income is not taxable in India if the FII does not have a permanent establishment in India.
- The judgement benefits FIIs investing in India from countries such as UK, USA.
- Those from Mauritius that already enjoy capital gains tax exemption under a tax treaty India has with the island nation.
- This is not likely to settle the debate over taxation of capital gains made by FIIs in India
- Only a Supreme Court decision can provide a binding certainty on the issue. Th
Case : Show cause notice to Vodafone was issued by Indian Revenue Authorities arguing that they had failed to discharge withholding tax obligation with respect to tax on gains made by Hutch on sale of shares to Vodafone
The Bombay High court said Vodafone Group Plc is liable for an estimated $2.6 billion in taxes for its 2007 acquisition of one of India's largest mobile phone companies.
Decision as well as the tax department’s approach creates tremendous uncertainty on what aspects of an offshore transaction may fall within the Indian tax net.
Tax practitioners see inherent bottlenecks while computing tax liability on such deals.
The Vodafone judgement will definitely impact foreign investments into India.
This is bound to affect FDI/M&A/PE deals as companies would ascribe a higher tax weightage risk while entering India. Offshore deals may also start drying up.
But due to growing image and future prospectus of country, we are developing as a prominent nation and FDI would get much strong over the years despite any such issues.
"If there is one place on the face of this Earth where all the dreams of living men have found a home when man began the dream of existence, it is India".