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CHAPTER-9

ROLE
OF FOREIGN DIRECT INVESTMENT IN INDIAN STOCK MARKET

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The
Indian stock markets  has increased the
development of Indian stock market to many folds. FDI has
helped Indian economy to grow, develop and attain financial stability globally.
Foreign Direct Investment in India has helped India in overcoming many of the
problems which our economy was suffering and in facing the global challenges
from the global economy. Money from FDI has helped to boost those sectors of
economy which needed financial motivation or boost. Indian stock market has
always attracted the world’s powerful and major investors to come and invest in
Indian economy. India has always tried to promote the business environment
which is healthy and favourable for foreign investors and provoked them to
invest in our Indian economy. Presently, FDI is allowed to invest in financial
services which include banking also along with financial sector which does not
include banking services. Expanding markets of India from business point of
view is attracting large number of foreign investors to put their money in
Indian stock market. Indian government is supporting Foreign Direct Investment in
India by giving liberty to foreign investors in trade policies. Government is
also trying to loosen restrictions on foreign investment which is a benefit for
foreign investors and is giving them a golden opportunity to invest in Indian
stock market. Technological development in India along with strong
telecommunication networks is helping the foreign investors to reap benefits
from Indian stock market.

There are several benefits
of foreign direct investment in Indian stock market which can be listed as:

a) India’s access to global
market – a developing country like India is benefitted by inviting FDI as
Indian economy got the access to the global market which will help Indian
economy to grow at a fast rate.

b) Advancement in
technology – FDI’s have the power from which they have the ability to introduce
the advanced and world class technology along with its technical knowhow which
help Indian economy to progress at a faster rate. Experts from foreign also
help in the up gradation of the existing technology in India which helps in
saving the cost which would have been incurred if we have opted for the new
technology.

c) Competition increases –
Foreign Direct Invest in Indian stock market has allowed in increasing
competition amongst the investors in domestic market. Competition increased due
to up gradation of technology and invention of technology in India which acted
a major jolt for the Indian economy and has enhanced the chances of growth of
Indian economy. FDI’s have provoked the domestic companies to improve their
technology in order to be competitive in the market which is a good sign o
development for a developing economy.

d) Human resources in India
have improved many folds – FDI provides the host country with valuable skills
which are used globally and this has upgraded the skill sets of the people of
host country by making them more competent and efficient. Biggest disadvantage
of Foreign Direct Investment in Indian stock market is that it is increasing
the aggregate demand for short run, the day foreign investors will start
recovering their investment which they invested in initial outlay, and our
economy will suffer to a very large extent. If the FDI schedule is not healthy
it will affect the capital flow our country. All the FDI’s come with a view to
earn high return on investment; if foreign investors come with this motive they
will actually hamper the Indian economy in long run.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CHAPTER-10

GUIDELINES FOR FDI IN BANKING   

In the private banking sector of India, FDI is
allowed up to a maximum limit of 74 % of the paid-up capital of the bank. On
the other hand, Foreign Direct Investment and Portfolio Investment in the
public or nationalized banks in India are subjected to a limit of 20 % in
totality. This ceiling is also applicable to the investments in the State Bank
of India and its associate banks. FDI limits in the banking sector of India
were increased with the aim to bring in more FDI inflows in the country along
with the incorporation of advanced technology and management practices. The
objective was to make the Indian banking sector more competitive. The Reserve
Bank of India governs the investment matters in the banking sector. –

 

According to the guidelines
for FDI in banking sector, Indian operations by foreign  banks can be executed  by any one of the following three channels:-

·        
Branches
in India

·        
Wholly
owned subsidiaries.

·        
Other
subsidiaries.

In case of wholly owned subsidiaries (WOS), the guidelines
for FDI in the banking sector specified that the WOS must involve a capital of
minimum ` 300 crores and should ensure proper corporate
governance.

1.1     
Problems faced by the Indian banking sector

FDI in
Indian banking sector resolves the following problems often faced by various
banks in the country:

Inefficiency in management

Instability in financial
matters

Innovativeness in financial
products or schemes

Technical developments
happening across various foreign markets

Non-performing areas or
properties

Poor marketing strategies

Changing financial market
conditions

 

1.2     
Benefits of FDI in banking sector in India:-

Transfer of technology from
overseas countries to the domestic market

Ensure better and improved
risk management in the banking sector

Assures better
capitalization

Offers financial stability
in the banking sector in India

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