FDI

Foreign direct investment (FDI) or foreign investment refers to long term participation by country A into
country B. It usually involves participation in management, joint-venture, transfer of
technology and expertise. There are two types of FDI: inward foreign direct investmentand outward
foreign direct investment, resulting in a net FDI inflow (positive or negative) and "stock of foreign direct
investment", which is the cumulative number for a given period. Direct investment excludes investment
through purchase of shares.[1]

US International Direct Investment Flows:[2]

Period FDI Outflow FDI Inflows Net

1960-69 $ 42.18 bn $ 5.13 bn + $ 37.04 bn

Types
1970-79 $ 122.72 bn $ 40.79 bn + $ 81.93 bn
A foreign direct investor may be
classified in any sector of the
1980-89 $ 206.27 bn $ 329.23 bn - $ 122.96 bn economy and could be any one of
the following:[citation needed]
1990-99 $ 950.47 bn $ 907.34 bn + $ 43.13 bn
 an individual;
 a group of related individuals;
2000-07 $ 1,629.05 bn $ 1,421.31 bn + $ 207.74 bn
 an incorporated or unincorporated
entity;
Total $ 2,950.69 bn $ 2,703.81 bn + $ 246.88 bn  a public company or private

company;
 a group of related enterprises;
 a government body;
 an estate (law), trust or other social institution; or
 any combination of the above.
[edit]

Methods
The foreign direct investor may acquire voting power of an enterprise in an economy through any of the
following methods:
 by incorporating a wholly owned subsidiary or company
 by acquiring shares in an associated enterprise
 through a merger or an acquisition of an unrelated enterprise
 participating in an equity joint venture with another investor or enterprise

Foreign direct investment incentives may take the following forms:[citation needed]

 low corporate tax and income tax rates

 tax holidays
 other types of tax concessions
 preferential tariffs
 special economic zones
 EPZ - Export Processing Zones
 Bonded Warehouses
 Maquiladoras
 investment financial subsidies
 soft loan or loan guarantees
 free land or land subsidies
 relocation & expatriation subsidies
 job training & employment subsidies
 infrastructure subsidies
 R&D support
 derogation from regulations (usually for very large projects

Foreign direct investment in the United States

The United States is the world’s largest recipient of FDI. More than $325.3 billion in FDI flowed into the
United States in 2008, which is a 37 percent increase from 2007. The $2.1 trillion stock of FDI in the
United States at the end of 2008 is the equivalent of approximately 16 percent of U.S. gross domestic
product (GDP).55

Benefits of FDI in America: In the last 6 years, over 4000 new projects and 630,000 new jobs have been
created by foreign companies, resulting in close to $314 billion in investment.[citation needed] Unarguably, US
affiliates of foreign companies have a history of paying higher wages than US corporations.[citation
needed]
 Foreign companies have in the past supported an annual US payroll of $364 billion with an average
annual compensation of $68,000 per employee.[citation needed]

Increased US exports through the use of multinational distribution networks. FDI has resulted in 30% of
jobs for Americans in the manufacturing sector, which accounts for 12% of all manufacturing jobs in the
US.[4]

Affiliates of foreign corporations spent more than $34 billion on research and development in 2006 and
continue to support many national projects. Inward FDI has led to higher productivity through increased
capital, which in turn has led to high living standards.[5]

[edit]Foreign direct investment in China

Starting from a baseline of less than $19 billion just 20 years ago, FDI in China has grown to over $300
billion in the first 10 years. China has continued its massive growth and is the leader among all
developing nations in terms of FDI.[citation needed] Even though there was a slight dip in FDI in 2009 as a result
of the global slowdown, 2010 has again seen investments increase.

[edit]Foreign direct investment in India

A recent UNCTAD survey projected India as the second most important FDI destination (after China) for
transnational corporations during 2010-2012. As per the data, the sectors which attracted higher inflows
were services, telecommunication, construction activities and computer software and hardware. Mauritius,
Singapore, the US and the UK were among the leading sources of FDI. FDI for 2009-10 at USD 25.88
billion was lower by five per cent from USD 27.33 billion in the previous fiscal. Foreign direct investment in
August dipped by about 60 per cent to USD 1.33 billion, the lowest in 2010 fiscal, industry department
data released showed. [6]

[edit]Foreign direct investment and the developing world

Foreign investment can be a significant driver of development in poor nations. It provides an inflow of
foreign capital and funds, in addition to an increase in the transfer of skills, technology, and job
opportunities. Many of the East Asian tigers such as China, South Korea, Malaysia,
and Singapore benefited from investment abroad. The Commitment to Development Index ranks the
"development-friendliness" of rich country investment policies.

The eligibility criteria for applicant seeking FII registration

As per Regulation 6 of SEBI (FII) Regulations,1995, Foreign Institutional Investors are required to fulfill the following
conditions to qualify for grant of registration: 
  Applicant should have track record, professional competence, financial soundness, experience, general
reputation of fairness and integrity;
 The applicant should be regulated by an appropriate foreign regulatory authority in the same
capacity/category where registration is sought from SEBI. Registration with authorities, which are
responsible for incorporation, is not adequate to qualify as Foreign Institutional Investor.
 The applicant is required to have the permission under the provisions of the Foreign Exchange Management
Act, 1999 from the Reserve Bank of India.
 Applicant must be legally permitted to invest in securities outside the country or its in-corporation /
establishment.
 The applicant must be a "fit and proper" person.
 The applicant has to appoint a local custodian and enter into an agreement with the custodian. Besides it
also has to appoint a designated bank to route its transactions.
 Payment of registration fee of US $ 5,000.00

What is the procedure for registration of sub-account?

Annexure B of the Regulations duly filled and signed by the FII and Sub-Account has to be submitted by FII on behalf
of the proposed sub-account. With if DD of US$ 1000 favouring "Securities and Exchange Board of India" as fees is
to be submitted payable at New York.

Is it that all sub-accounts need to be broad-based?

No. Proprietary, Foreign corporates and foreign individuals need not be broad-based.

What is the duration required to register sub-accounts?

For registered Foreign Institutional Investor, it takes 3 working days from the date of receipt of complete application
and fees.

In which name should the securities be registered?

The Foreign Institutional Investor has the choice to register the securities in the following names: 

 In the name of the Foreign Institutional Investor if the FII is investing on its own behalf.
 In the name of the sub-account if the FII is investing on behalf of the sub-account
 In the name of the Foreign Institutional Investor a/c sub-account if the FII is investing on behalf of the sub-
account

What is the procedure if the Foreign Institutional Investor/ sub account changes its name? 
For registered Foreign Institutional Investor, it has to inform SEBI promptly with the relevant documents supporting
the name change. The relevant documents are : 

 Request for change in name by the Foreign Institutional Investor mentioning reasons for name change of the
FII and/or sub account.
 Certificate from the Registrar of Companies, and/or approval from home regulator.
 Original Registration Certificate issued by SEBI to the Foreign Institutional Investor.

SEBI will issue a no-objection letter in this regard after recording the request of name change. The information
regarding name change should be submitted immediately after the change has taken place in the home country and
the requisite approval from the home regulator (if needed) has to been taken.

What is the procedure for transferring a sub-account from one registered Foreign Institutional Investor to
another?
If a registered sub-account wishes to transfer from one registered Foreign Institutional Investor to another, then the
FII to whom it is proposed to be transferred has to request SEBI with the following documentation.

 A declaration that it is authorised to invest on behalf of the sub-account.

 A no-objection letter for the transfer of the sub-account from the transferor FII.

What is the procedure for change of local custodian?

In case of change of the local custodian of the FII / sub-account, the change should be intimated to SEBI by the FII.
On receipt of no objection from the existing custodian and acceptance from the proposed custodian, the change of
custodian would be approved - by SEBI.

What is the procedure for registration as FII/sub account under 100% debt route?
The procedure for registration of FII/sub account under 100% debt route is similar to that of normal funds besides a
clear statement by the applicant that it wishes to be registered as FII/sub account under 100% debt route. However,
Government of India allocates the overall investment limit for 100% debt funds annually. The grant of investment limit
for individual 100% debt funds is within this overall limit. The funds have to seek further investment limit in case the
limit allotted to them is exhausted and they wish to invest further.

Can a Foreign Institutional Investor having an existing account with one custodian open an account with
other custodian for its sub- accounts?
Yes. A Foreign Institutional Investor having an account with one custodian can open accounts with different
custodians for its different sub-accounts. However, one sub-account cannot be custodied with more than one
custodian.

What is the procedure if an existing sub-account wants to get registered as a Foreign Institutional Investor?
In case if a registered sub-account wishes to get itself registered as a Foreign Institutional Investor, then it will have to
apply in Form A to SEBI for the same and has to satisfy all the eligibility criteria norms mentioned in SEBI (Foreign
Institutional Investor) Regulations, 1995. It should also submit a letter from the old FII indicating its 'No-objection' to
such registration.

In case of merger or takeover, in case if the registered Foreign Institutional Investor loses its existence, then
can the SEBI FII registration be transferred to the surviving entity?
No. SEBI FII Registration is not transferable. The surviving entity has to obtain fresh registration as an FII from SEBI.

What are the investment limits for FII/ sub-accounts?

The sub-account which is not a foreign individual/ corporate can individually invest upto 10%. The limit for each
foreign corporate/ individual is 5%. These limits are within the overall limit of 24% / 49% or the sectoral caps as the
case may be.

Who all are included under the definition of foreign individual?

Foreign individuals mean all foreign residents other than NRI and Overseas Corporate Bodies.

On what basis is the FII investment limit calculated?

Investment limit by all registered FIIs or sub accounts in primary or secondary markets under Portfolio Investment
Scheme is subject to a ceiling of 24% of issued share capital of a company. The limit can be extended upto 49% per
sectoral cap if the general body of the company approves it.
What is the validity period of sub-account registration?
The registration of the sub-account is concurrent with its registered FII and the registration of the sub-account expires
with the expiry of registration of the FII. Moreover, if the registration of the FII is suspended/cancelled, the registration
of its sub-account is also suspended/ cancelled as the case may be.

Can an FII/sub-account trade after its registration has expired? 

No. if it is not interested in renewal but has certain residual assets, it should apply for disinvestment in terms of
Circular No. FITTC/CUST/12/2001 dated June 04, 2001 and abide by the guidelines specified in this regard.

Can protected cell companies/cells incorporated in Mauritius be registered as FIIs/sub-accounts?

No. 

Can FII/sub-accounts trade in derivatives ?

Yes subject to operational guidelines as specified by SEBI/RBI/various regulatory authorities from time to time.

What is the procedure for renewal of FII/sub-account registration ?

They has to apply before 3 months of the expiry of registration in Form A. Circular No FITTC/CUST/09/2000 dated
September 21, 2000 may be referred.

ulti faceted relations in the field of politics, economics and commerce. India-US
economic relations in the form of bilateral investments and trade constitute important
elements in India-US bilateral relations particularly because India is now the second
fastest growing economy in the world and USA is the world's largest economy.

Economic Reforms introduced since 1991 have radically changed the course of
theIndian economy and has led to its gradual integration with the global economy. The
effect of this reform process on trade and investment relation with US is profound. USA
is the largest investing country in India in terms of FDI approvals, actual inflows, and
portfolio investment. US investments cover almost every sector in India, which is open
for private participants. India's investments in USA are picking up. USA is also India's
largest trading partner. By 2003, India became the 24th largest export destination for
the US. In terms of exports to the US, India now ranks eighteenth largest country.
US investment in India 
With regards to FDI U.S. is one of the largest foreign direct investors in India. The stock
of actual FDI Inflow increased from U.S. $11.3 million in 1991 to US $4132.8 million as
on August 2004 recording an increase at a compound rate of 57.5 percent per annum.
The FDI inflows from the US constitute about 11 percent of the total actual FDI inflows
into India.

Top sectors attracting FDI from USA are: Fuels (Power & Oil Ref.) (35.93%),
Telecommunications (radio paging, cellular mobile & basic telephone services (10.56%)
Electrical Equipment (including Computer Software & Electronics) (9.50%), Food
Processing Industries (Food products & marine products) (9.43%), and Service Sector
(Fin. & Non-Fin. Services) (8.28%).

India's investment in US 

India's direct investment abroad was initiated in 1992. Streamlining of the procedures
and substantial liberalization has been done since 1995. As of now, Indian
corporate/Registered partnership firms are allowed to invest abroad upto 100% of
their net worth and are permitted to make overseas investments in business activity.
The overall annual ceiling on overseas investment and also the requirement of prior
approval of RBI for diversification of activity and for transfer by way of sales
of shares have been done away with. The need for opening up the regime of Indian
investments overseas has been the need to provide Indian industry access to new
markets and technologies with a view to increasing their competitiveness globally
Since 1996 and upto September 2004, the total approved Indian investment abroad
amounts to US $ 11083.11 mln, of which 60.9% has been the actual outflow. US share
($ 2080.367 mln.) constitutes 18.77% of the total approval. Since 1996, USA attracted
highest Indian direct investments (US$ 2080.367 mn) followed by Russia (US$ 1751.39
mn), Mauritius (US$ 948.864 mn) and Sudan (US$ 912.03 mn). India's outgoing
investments has been largest in the field of manufacturing (54.8%) followed by non-
financialservices including software development (35.4%).
In the current financial year 2004-05(April- August, 2004) actual outflows from India on
account of overseas investment was US$ 575.14 million as compared to US$ 384.49
million in the corresponding period of last year. In the current year, USA attracted
highest Indian direct investments (US$ 125.4 mn) followed by Australia (US$ 116.33
mn), Kazakhstan (US$ 39.05 mn) and Hong Kong (US$ 28.49 mn). India's outgoing
investments was largest in the field of manufacturing at US$ 279.07 million followed by
non-financial services (including software development) at US$ 75.27 million, Others at
US$ 61.27 million and Trading Sector at US$ 30.3 million. The returns on account of
repatriation of dividend, royalty, consultancy fee etc. from overseas JV/WOS during
April-August, 2004 amounted to US$ 40.87 million.

The US investor community is increasingly sharing confidence in the future of the Indian
economy presently. The growing synergy between the two countries in the technology
sectors and mutually shared respect for democracy, rule of law and well established
business practices have considered the two countries natural business partners from
time to time.