FOREIGN DIRECT INVESTMENT

Foreign direct investment (FDI) is an investment from a party in one country into a business or
corporation in another country with the intention of establishing a lasting interest. Lasting
interest differentiates FDI from foreign portfolio investments, where investors passively hold
securities from a foreign country. A foreign direct investment can be made by obtaining a lasting
interest or by expanding one’s business into a foreign country.

Methods of Foreign Direct Investment

As mentioned above, an investor can make a foreign direct investment by expanding their
business in a foreign country. Amazon opening a new headquarters in Vancouver, Canada would
be an example of this.
Reinvesting profits from overseas operations, as well as intra-company loans to overseas
subsidiaries, are also considered foreign direct investments.
Finally, there are multiple methods for a domestic investor to acquire voting power in a foreign
company. Below are some examples:
• Acquiring voting stock in a foreign company
• Mergers and acquisitions
• Joint ventures with foreign corporations
• Starting a subsidiary of a domestic firm in a foreign country
Learn more about mergers and acquisitions with CFI’s mergers & acquisitions (M&A) modeling
course!

MAJOR FOREIGN EXCHANGE EARNER FOR INDIA

India is one of the largest exporters of Gems and Jewellery. The industry plays a vital role in the
Indian economy for its role as a major contributor to the total foreign exchange reserves of the
country.

 The overall net exports of Gems and Jewellery registered an annual growth of 9.1% to reach $
35.6 bn during 2016-17. Exports of cut and polished diamonds, gold jewellery and silver
jewellery registered a growth of 10.2%, 1.9% and 35.9%, respectively during 2016-17. Exports
of gold coins and medallions from India stood at $ 1.9 bn, while exports of silver jewellery stood
at $ 3.3 bn during April 2017-February 2018.
India is also a major importer of gems and jewellery. The imports of gems and jewellery
increased at a CAGR of 7.8% from $ 11.63 bn in 2004-05 to $ 28.8 bn in 2016-17. The imports
during April 2017-February 2018 stood at $ 28.3 bn.
US, Hong Kong and UAE are the major exporters, who accounted for 75% of the total gems and
jewellery exports from India during 2016-17. Other big importers of Indian jewellery include
Russia, Singapore, Latin America and China.
The Indian Government has permitted 100% Foreign Direct Investment (FDI) in the sector under
the automatic route.
The market size of Gems and Jewellery in India contributes to about 7% of the country’s GDP.
Gems and Jewellery industry contributes to about 16% to India’s total merchandise exports and
has grown at a CAGR of over 14.8% over the last 50 years. The Gems and Jewellery industry in
India is one of the largest in the world, contributing 29% to the global jewellery consumption.
The overall market size is expected to reach $ 110 bn by 2022 from approximately $ 60 bn in
2017. The industry that currently employs over 4.5 mn people, is expected to provide
employment opportunities to over 8.2 mn people by 2022.
Gems and Jewellery comprises of the following sub-sectors:

• Diamonds
• Gemstones
• Pearl
• Gold, Silver and Platinum Jewellery

India being the largest manufacturer of cut and polished diamonds globally, its global diamond
market share is 60% and 90% in value terms and volume terms, respectively. The country where

gold jewellery forms around 80% of the total jewellery market, stood as the biggest buyer of
gold globally in 2016-17.
GROWTH DRIVERS

• Traditional Domestic Demand

• Rise in gold demand during weddings and festivals like Diwali
• Rising Income Levels
• Rise in income levels is directly proportional to rise in gold demand
• Growing Middle-Class Population
• Population to reach 500 mn by 2025
• Increasing Expenditure
• India to become 3rd largest consumer economy by 2025
• Growing Organized Retail Format
• Indian retail market to reach $ 1 tn by 2020

India gems and jewelry market is forecast to register growth during the forecast period, owing to
growing e-commerce platform along with organized retail channels. Moreover, opening of
exclusive showrooms, availability of jewelry through online retail space, and tie-ups of jewelry
providers with online vendors to facilitate easy sale and supply of gems and jewelry to end
customers is also expected to drive the country’s gems and jewelry market. Increasing
urbanization and development, changing consumer lifestyle, and growing innovative and
premium product launches are some of the other factors that would have a positive impact on the
gems and jewelry market during forecast period.
In terms of type, India gems and jewelry market has been categorized into gold, diamond in gold,
gemstones, diamond, silver and others. Of these categories, gold jewelry accounted for the
highest revenue share in India gems and jewelry market in 2018. The category is also anticipated
to continue accounting for a significant market share during the forecast period, as all leading

 market players are offering jewelry keeping in mind the altering consumer preferences, latest
fashion trends and growing interest of youth in exclusive jewelry designs.

Demand for gems and jewelry in India is predominantly concentrated in the southern region.
South India gems and jewelry market is likely to register growth over the course of next five
years, primarily owing to the presence of a large number of market players and aggressive
marketing strategies adopted by companies. Moreover, increasing brand consciousness along
with rising middle class population in the region is expected to aid the region’s gems & jewelry
market.

Major players operating in India gems and jewelry market are expanding their product portfolio
and are customizing jewelry as per consumer demand. Malabar Gold Private Limited, Titan
Company Limited, Kalyan Jewellers India Private Limited, PC Jewellers Limited and Gitanjali
Gems Limited are few of the leading market players.

The Gems and Jewellery sector plays a significant role in the Indian economy, contributing
around 7 per cent of the country’s GDP and 15 per cent to India’s total merchandise exports. It
also employs over 4.64 million workers and is expected to employ 8.23 million by 2022. One of
the fastest growing sectors, it is extremely export oriented and labour intensive.

Based on its potential for growth and value addition, the Government of India has declared the
Gems and Jewellery sector as a focus area for export promotion. The Government has recently
undertaken various measures to promote investments and to upgrade technology and skills to
promote ‘Brand India’ in the international market.

India is deemed to be the hub of the global jewellery market because of its low costs and
availability of high-skilled labor. India is the world’s largest cutting and polishing center for
diamonds, with the cutting and polishing industry being well supported by government policies.
Moreover, India exports 75 per cent of the world’s polished diamonds, as per statistics from the

Gems and Jewellery Export promotion Council (GJEPC). India's Gems and Jewellery sector has
been contributing in a big way to the country's foreign exchange earnings (FEEs). The
Government of India has viewed the sector as a thrust area for export promotion. The Indian
government presently allows 100 per cent Foreign Direct Investment (FDI) in the sector through
the automatic route. The sector employs over 4.64 million employees and is expected to employ
8.23 million by 2022.