ISSUES IN INDIAN COMMERCE
Contemporary
What are we going to study..??
Why are we studying this topic..??
---Contemporary in nature.
---A lot is happening in India in regard to trade
and commerce.
---for taking important business decisions one
should know about the environment in which
business is being run
---gives us better insights to understand the
Indian business environment, analyze various
policy decisions and frame an unbiased opinion.
List of Topics to be studied..
1. Foreign Investments
2. Make in India
3. Technology in Commerce
4. International Finance
5. Infrastructure and PPP projects
6. SEZ
7. Stock and Commodity Exchanges
8. Corporate Debt Restructuring
9. Corporate Scams and Investor Protection
10. Credit Rating
Foreign Investment
-- What is Foreign Capital?
Inflow of the capital in a country from abroad.
--What are the kinds of Foreign Capital?
Foreign aid (Grants and Concessional Loans)
Commercial Borrowings (Advances from
Foreign Banks and Non- Resident Deposits)
Foreign Investment (FDI and FPI)
Foreign Direct Investment
--Cross border investment made by resident of
country in an enterprise in another country.
-- If the investment in equity exceeds by 10% or
more then it is called as FDI.
-- Mainly by purchasing a Co. or expanding its
business in foreign country.
Foreign Direct Investment
Foreign direct investment reflects the objective
of establishing a lasting interest by a resident
enterprise in one economy (direct investor) in an
enterprise (direct investment enterprise ) that is
resident in an economy other than that of the
direct investor.
What is Lasting Interest?
The existence of a long-term relationship
A significant degree of influence on the
management of the enterprise.
Threshold Limit: The direct or indirect ownership
of 10% or more of the voting power .
Foreign direct investor
• A foreign direct investor is an entity (an
institutional unit) resident in one economy
that has acquired, either directly or indirectly,
at least 10% of the voting power of a
corporation (enterprise), or equivalent for an
unincorporated enterprise, resident in
another economy.
Foreign direct investment enterprise
• A direct investment enterprise is an enterprise
resident in one economy and in which an
investor resident in another economy owns,
either directly or indirectly 10% or more of its
voting power if it is incorporated or the
equivalent for an unincorporated enterprise.
Framework for direct investment
relationships (FDIR)
Framework for direct investment
relationships (FDIR)
Framework for direct investment
relationships (FDIR)
DIFFERENCE
DIFFERENCE
Factors Influencing FDI
1. Availability of labour at Low Cost
2. Availability of Raw Material
3. Infrastructure
4. Availability of skilled workforce
5. Political stability
6. Large customer base
7. Incentives offered by Government of Host
Nations
8. Level of Competition
Factors Influencing FDI
9. Law and order situation
10. Supportive labour legislation
11. Attitude of government and common man
towards foreign companies
12. Control over marketing
13. Long distance
14. Nature of product
15. Avoidance of tariff and non-tariff barriers
16. International image
Greenfield Investments
A company establishes operations in a foreign
country.
The firm that is set to invest constructs new
facilities cross-border from the ground up.
Examples
Brownfield Investments
Brownfield investments involve purchase or
lease of existing production facilities for the
purpose beginning new production.
It is generally carried out by mergers and
acquisitions of existing companies in the
destination country.
Routes for Inward Flow of FDI
-- Foreign Investment Promotion Board (FIPB)
-- Automatic Route
-- Government Approval
--Prohibited Sectors for FDI
Automatic Route
1. Need not be approved by government.
2. Documents to be filed with RBI within 30
days of receipt of funds.
Government Route
Government approval for FDI through the FIPB
was necessary for the following categories:
1. Proposal attracting compulsory licensing.
2. Items of manufacturing reserved for small
scale sector.
3. Acquisition of existing shares.
Government Route
1. Single window approval.
2. Screening agency
3. Maximum 30 days approval.
4. Abolished FIPB.
5. Investments up to 5000 crores are approved
by ministry.
Notified Sectors that require FIFP Approval
SOP for Processing FDI Proposals
1. Online Filing of application as per the format.
2. E-Transfer of proposal to concerned Ministry.
3. Competent authorities for approval of foreign investment.
4. Circulation of proposal for comments.
5. Security clearance from Ministry of Home Affairs.
6. Referred to DIPP if needed.
7. Uploading Comments after consultation.
8. Scrutinizing the Proposal.
9. Decision and conveying it to applicant and issue of approval letter.
10. Rejection of proposal
11. Consideration of cabinet committee on economic affairs.
12. Maintenance of database.
13. Time limit
14. Monitoring and Review.
Competent authorities for approval of foreign investment.
Time Limit
Recent Incentives to attract foreign capital
1. Rail Infrastructure Projects
2. Investment under FEMA
3. Medical Devices
4. Insurance Sector
5. One composite cap
6. White label ATM
7. Construction sector
8. Investment in Defense Sector
9. Investment in Banking Sector
10. Plantation and Agriculture
11. Retailing
12. LLPs
13. Air Transport
14. Credit information companies
Repatriation of FDI
--Repatriation refers to converting any foreign
currency into one’s local currency. Repatriation
sometimes becomes necessary due to business
transactions or foreign investments.
--In the corporate world, repatriation usually
refers to the conversion of offshore capital back
to the currency of the country in which a
corporation is based.
Repatriation of FDI
• In the corporate world, repatriation usually
refers to the conversion of offshore capital
back to the currency of the country in which a
corporation is based.
• Can be repatriated by individuals also.
Repatriation of FDI
• Dividends
• Share Buyback
• Reduction of Capital
• Royalties
• Payment in lieu of services
CASE STUDY: TATA DOCOMO
• Formed partnership in 2009.
• Agreement stated that in the event of exit deal
guaranteed DoCoMo higher either half of its
original investment on fair value.
• In 2014 DoCoMo planned exit.
• RBI opposed share purchase by TATA.
• Lastly $790 mn of amount paid to DoCoMo was
on one condition that it cannot be repatriated,
$390 Mn could be repatriated.