FDI or FII what India needs ?

The Mint a financial newspaper from India reported  that the Inflows from foreign institutional investors (FIIs), the main imagesdriver of Indian equities, topped $20 billion (around Rs.1.1 trillion today) in the first 11 months of the calendar year—the second highest since 1993, when India opened the doors to this class of investors.  So India is attracting more FII than the FDI’s let’s try to go through some basic and try to find the difference in both of them,

Foreign direct investment is an investment of assets done by foreign origin company into the domestic equipments, organization, and company. (FDI)

An investor or investment fund that is from or registered in a country outside of the one in which it is currently investing. Institutional investors include hedge funds, insurance companies, pension funds and mutual funds. (FII)

Sr. no. FDI FII
1  Defined as investment made by a non-resident in equity of domestic company with intension of participating in the management company. FII can be defined as investment made by a Non-resident in equity of domestic company without intension of acquiring management control.
2 Generally associate with new technology, funding mechanism , new markets or new process. FII dosn’t involve any mgt related interaction between the investor and the target company.
3  FDI normally expected to be long-term involvement in the target company. FII is normally expected to be short-term investment.
4 Intension of the investment is to achieve long-term growth. Intension is to make quick capital gains.
5 FDI generally takes place through private placement of new shares or direct purchase from existing promoters. FII generally takes place through secondary market operations and there is no direct relationship between the investor and the company.
6 FDI results in economic growth and employment and therefore is desired by all governments. FII basically substitutes domestic investment with foreign investment and although it helps to increase the available capital in the economy there is no direct relation with economic growth.
7 Withdrawl or exit of FDI is difficult and time consuming. Due to easy exit possibility FII results in ‘HOT money” situation such funds destabilise the domestic market and exchange rates there by resulting in losses for genuine domestic operators. Due to this effect most countries restrict the inflow of such funds through exchange control regulations.
8 FDI involves an increase in resources of the company which has direct impact on its Balance sheet. It may or may not impact the market price. FII does not have any connection with resources available to company and therefore has no effect on balance sheet. But due to transactions undertaken in secondary market it has immediate impact in the market price of the company.

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