AMITY UNIVERSITY, UTTAR PRADESH PARTIAL FULFILMENT BACHELORS DEGREE OF BUSINESS ADMINISTRATION

DISSERTATION REPORT

Role of FDI in Development of Economy

SUBMITTED BY : HIMANI MAHESHWARI ENROLLMENT : A3906410122 B - 03

FACULTY GUIDE : Mrs. GEETIKA CHAWLA

Declaration

I, (Himani Maheshwari) S/D/O (Sudhir Maheshwari), hereby declare that this dissertation represents my original piece of work and has not been copied from anywhere. I am aware that in case of non-compliance, Amity School of Business is entitled to cancel the report.

Place : Amity University

Signature of Student

Date : 26-02-2012

Name of the Student HIMANI MAHESHWARI Enrollment No. A3906410122

Signature of Dissertation Coordinator

Signature of Faculty Guide

Acknowledgement

An endeavor to transform itself into success needs efforts. These efforts are individual, standing in isolation. Such individual efforts require three things for their further development. These three things being Reason, Rationality and Self-Esteem. The combination of these three basic traits delivers Productivity. However, time and again this productivity requires encouragement and guidance. This much requisite support comes in the form of individuals furthering the development of individuals. Professionals furthering the development of Amateurs. This acknowledgement is an effort to recognize these professionals who have made this project a combination of the three fundamental traits. This project report and the learning process behind it would not have been possible without the guidance of my Faculty Guide, Mrs.Geetika Chawla. She was able to impart me with the right approach that my training required for its successful practical implementation.

Table of Content

1. INTRODUCTION.................................................................................... 05

2. OBJECTIVE..............................................................................................16

3. RESEARCH DESIGN AND METHODOLOGY.....................................18

4. LITERATURE REVIEW..........................................................................20

5. FOREIGN DIRECT INVESTMENT.........................................................30

6. DATA ANALYSIS....................................................................................43

7. CONCLUSION..........................................................................................56

8. REFERENCES ..........................................................................................60

INTRODUCTION

Background
The Indian economy has reached within the orbit of high rate of economic

process. it's being wide acclaimed and regarded as a rising international economic power. The growth rate throughout 1950-51 to 2006-07 clearly indicated a bent of steady upward trend. However, the last decade of 80's emerged as a starting of the high rate of economic process. This continued within the 90s and additional growth stimulation has occurred until date.

The Indian economy is that the third largest within the world as measured by Purchasing Power Parity, with a gross domestic product people $1.85 trillion. India is that the second quickest growing major economy within the world, with a GDP growth rate of 6.5% for the year 2011.

The Indian economy is numerous. The Indian work force still earns two-third of their living through agriculture, still service sector could be a growing one Associate in Nursing taking part in an progressively necessaryrole in India's economy. Indiais step by step reworking as a vital 'back office' destination for international (multinational) firms for the outsourcing of their client services and technical support.

India faces Associate in Nursing increasing population and therefore the challenge of reducing social and economic difference . albeit impoverishment remains a heavy downside, it's declining significantly in the main attributable to the revolution and economic reforms. 100% FDI is allowed below the automated route altogether activities/sectors except the sectors, which can need approval of the govt..

The question that begs for associate elaboration is whether or not high growth and inflows of FDI solve structural imbalance of Indian economy and if it'll achieve up all-time low section of the Indian economy, living in poor socio-economic conditions within the country. The utilization snap has gone down in agriculture and industrial sector, therefore, creation of employment opportunities are going to be a volcanic rock task for the policy manufacturers.

FDI coming

back within

the most created

capital-intensive the

sectors; manual and Hence, high

employment therefore growth is the

opportunities couldn't be the semi masterly labor. Since independence, to use

particularly for

High masterly hands gained well. the political FDI the beliefs method has way China

termed urban centrical and has so developed a wedge between the urban and rural economy. matured. it's so foretold that has wont to growing issues can receive mature response and policy are going to be articulated in such manner to enhance economic industrialize the process whereas taking additional and additional investment agricultural sector of the Indian economy.

WHAT IS FDI?
There is hardly a facet of the Indian psyche that the concept of foreign has not permeated. This term, connoting modernization, international brands and acquisitions by MNCs in popular imagination, has acquired renewed significance after the reforms initiated by the Indian Government in 1991. Contrary to the grand narrative opening of flood-gates idea of 1991, what took place was a gradual process of changes in policies on investment in certain subsections of the Indian economy. 7

Foreign direct investment is an investment made by a foreign individual or company in productive capacity of another country. It is the movement of capital across national frontiers in a way that grants the investor control over the acquired asset.

Types of FDI

There are two types of FDI: * Greenfield investment: It is the direct investment in new facilities or the expansion of existing facilities. It is the principal mode of investing in developing countries like India. * Mergers and Acquisition: It occurs when a transfer of existing assets from local firms takes place

Foreign direct investment in India

Being the third-largest economy in the world in PPP terms, India is a preferred destination for foreign direct investments (FDI); India has its strengths in information technology and other important areas such as: auto components, apparels, chemicals, pharmaceuticals, jewellery and so on.

Although India has always promised for global investors its rigid FDI policies were a significant hindrance in this context. As a result of a series of ambitious and positive economic reforms aimed at regulating the economy again and stimulating foreign investment. India has a very large number of skilled managerial and technical expertize. India's recent liberalised FDI policy permits up to 100% FDI stake in ventures. Industrial policy reforms in India have substantially reduced industrial licensing requirements and has removed restrictions on expansion and facilitated easy access to foreign technology and FDI. The upward moving growth curve of the real-estate sector owes some credit to a booming economy and also in liberalizing FDI regime. A number of changes have been approved on the FDI policy to remove the cap in most of the sectors. Restrictions have been relaxed in sectors as such as civil aviation, construction development and also industrial parks, commodity exchanges as well as petroleum and natural gas, credit-information services, mining and so on. In the backdrop of this flourishing Indian economy, The Associated Chambers of Commerce and Industry of India (ASSOCHAM) has projected that India to double its GDP. The current GDP investments in India has increased up to 0.60 % . No wonder India has tremendous potential to attract FDI. With so much of visibility of MNCs and foreign investors etc, the current GDP growth flows of India slows to 5.3%. Hence with more liberalization and opening of other sectors of the economy like the latest relaxation in FDI policies in real estate or direct foreign investment in real estate India etc. Indian Government has a key as far as investment laws are concerned. In this regard, it is worthy to highlight some of the positive reforms as a positive growth in the Indian economy in

terms of GDP growth.

Government of India accepts the key role of Foreign Direct Investment (FDI) in economic development not only as an addition to domestic capital but also as an important source of technology and global best practices. The Government of India has put in place a very liberal and Transparent FDI policy. FDI up to 100% is allowed in India under the automatic route in most sectors/activities. FDI policy in India is recognized to be among the most liberal in emerging economies. FDI Policy permits FDI up to 100 % from foreign/NRI investor without prior approval in most of the sectors including the services sector under automatic route. FDI in sectors/activities coming under automatic route does not require any prior approval either by the Government or the RBI

Foreign Direct Investment Policy

Foreign direct investment (FDI) has become an integral part of national development strategies in almost every nation. Its popularity and positive output in augmenting of domestic capital, productivity and employment globally, has made it an indispensable tool for initiating economic growth for countries. India is evolving as one of the 'most favored destination' for FDI in Asia as well as the Pacific. It has displaced US as the second-most favored destination for FDI in the world after China. India has attracted more than three times foreign investment. According to the Asian Investment Intentions survey released by the Asia Pacific Foundation in Canada, more Canadian firms are now focusing on India as an investment destination as there has been an increase from 8 per cent in 2005, up to 13.4 per cent in 2010 in India,

10

India has attracted FDI equity inflows of virtually US$ 2,014 million in Dec 2010. The accumulative quantity of FDI equity inflows since April 2000 to Dec 2010 has stood up at US$ 186.79 billion, as per the information discharged by the Department of business Policy and Promotion (DIPP).

FDI

policy

is

reviewed

on associate

degree current basis

and

measures

for

its any easing area unit taken. amendment in sectoral policy/sectoral equity cap is notified from time to time through Press Notes by the Secretariat for Industrial help (SIA) within the Department of business Policy announcement by SIA area unit later notified by tally underneath FEMA. All Press Notes area unit out there at the web site of Department of business Policy & Promotion.

FDI from NRI & for 100% EOU

FDI applications from NRI Investments and 100% EOU , ought to be submitted to the general public Relation &criticism (PR&C) Section of Secretariat of business help (SIA), Department of business Policy & Promotion.

Portfolio Investment by Foreign Sources

11

The decline in portfolio investment since 1997-98 ahead, has been contributed by a decline in flows of each foreign institutional investment and GDRs. contemporary flow of funds by FIIs have declined from U.S.$ 1,926 million in 1996-97 to U.S.$ 979 million in 1997-98. This trend later intensed in 1998-99 1998 with calculable to outflow inflows of of U.S.$ U.S.$ 752 973 million throughout April-December, compared

million throughout the corresponding amount within the previous year. GDRs were raised in 1997-98 to U.S.$ 645 million, that was but the quantity of U.S.$ 1,366 million in 199697. The declining trend continuing throughout the primary 9 months of 1998-99. The poor

performance of portfolio investment has resulted as a consequence of each increased rising market risk-perception, and therefore the depressed condition of the domestic capital market.

FDI may be harmful to economic growth

DISCUSSIONS on foreign direct investment are detected as a kind of continuous background music at the most seminars and conferences of late and business newspapers carry articles on that each alternative day. The FDI mantra is taken into account associate general curative for the ills of the Indian economy additionally because of the society. It's currently become a routine for our finance ministers to "showcase" India in numerous international forums Davos being somewhat of a premier venue and exhort the world captains of business and commerce to return to India. Unfortunately there's not abundant discussion, refrain au fait discussion, between the educational andalternative policy-makers regarding the extensive implications of FDI in our economy. the controversy solely focuses on the alleged impact on employment and loss of " socialism" that nonexistent dogma of the nineteenth century. Fortunately India's economic process over the last decade and has primarily been driven by savings within the economy, particularly by households. Housewives 12

from materialistic homes ought to lean due credit for this. The Table shows the savings and investment the past rate decade. in our The economy, the gap being met by foreign flows. We find from the Table that each one our investments have return from our own savings within argument relating the requirement for FDI relies on the subsequent premises. If we would like to grow at ten per cent and if our capital-output magnitude relation is 3.5, we want investment at thirty five per cent and, if our savings rate is twenty eight per cent, then the gap should be met by the West. This is, to start out with, spurious since the measure of the capital-output magnitude relation isn't reliable and positively not applicable to our service sector, that makes up nearly sixty per cent of the economy a taxi within and is its growth engine. there are Anyone WHO has cosmopolitan during buses is infinite. the North can recognize that

often passengers to the correct facet of the motive force and also the actual capability of our

Made in China is not Made by China

The necessary and crucial purpose, lost by the China enthusiasts, is that China doesn't have a developed entrepreneurial category like India and, hence, it's obsessed on the foreign capitalists and foreign capital compared to India, that encompasses a burgeoning entrepreneurial category, created in China isn't same as created by China. India encompasses a phenomenally welldeveloped capitalist category which might got wind of first automobile, steel, organic plants. compound and cement

While India's securities market has soared in recent years, virtually the alternative is going on in China. In 2001, the Shanghai securities market index had reached over a pair of,200 points; by Gregorian calendar month two hundred5, nearly half it had gone, with the Shanghai index at one,135 points. This sharp decline occurred once the value was growing at 11th of September a year. it's been too tough to search out another country that displays this strange combination of wonderful political economy performance and dismal political economy performance .the explanations area unit to be found within the structure created by 13

foreign

FDI, abundant of that isn't even

listed.

China needs to rely on foreign capital to line up its producing facilities and is troubled arduous to encourage party bureaucrats to become entrepreneurs. The second argument is that China is obtaining most FDI. Its current net inflows as per 20082012 is $220,143,285,430.

The necessary and crucial purpose, lost by the China enthusiasts, is that China doesn't have a developed entrepreneurial category like India and, hence, it's obsessed on the foreign capitalists and foreign capital compared to India, that encompasses as created by a burgeoning China. India entrepreneurial category. Created in China isn't same

of first automobile, steel, organic compound and cement plants.

While India's securities market has soared in recent years, virtually the alternative is going on in China. In 2001, the Shanghai securities market index had reached over a pair of,200 points; by Gregorian calendar month two hundred5, nearly half it had gone, with the Shanghai index at one,135 points. This sharp decline occurred once the value was growing at 11th of September a year. it's been too tough to search out another country that displays this strange combination of wonderful political economy performance and dismal political economy performance. the explanations area unit to be found within the structure created by foreign FDI, abundant of that isn't even listed.

China needs

to rely

on foreign

capital to

line up

its producing facilities

and

is troubled arduous to encourage party bureaucrats to become entrepreneurs.

Active capital market

14

The third argument is that FDI provides America with a continual flow of funds and an energetic capital market. Actually, many MNCs have de-listed from the stock exchange within the last decade by changing to unlisted subsidiaries of foreign folks. An analysis of this alone can provides a clue to the character of the capital market thanks to foreign investment in our economy. many a MNC doesn't even bring funding from outside sources since it will access funds within the domestic market by showing "comfort letters" from its parent company. There square measure several native money establishments, which might lend them below prime rate since they're "global". money establishments in Republic of India don't deny foreigners funds. That the MNC can unceasingly bring funds from abroad may be a statement that ought to be loving tones reality, Indians sense. The fourth argument is concerning technology transfer. during this age of data flows and marketplace for technology any bourgeois can buy technology required by him. in a very country like Republic of India, thatscores terribly high for "technology diffusion" or "absorption", building on technology isn't a problem. If we tend to travel within the rural areas of geographic region, we now, as a government establishments square region of that project. we have of measure holding over Rs a tendency to either salt. 6000 large refuse to Remember Enron, that was purportedly conveyance Rs ten,000 large integer from outside. In integer of otiose paper. Ms wife Mark of Enron has claimed that millions are spent to " educate" urge "educated", within the true sense, or need to be additional " educated", within the Enron

discover laundry machines being employed for churning lassi on a mass scale. WHO ever thought that laundry machines have various uses? The Indian Diaspora is relied upon to amass latest technology in advanced areas, and also there area unit already vital organic links between the NRIs and the domestic capitalists.

15

Is it a one-way street?
The fifth argument is concerning the growing world flow of funds and the way nation-states cannot ignore it. Fascinatingly, once adult male Hindu deity Mittal tried to require over Arcelor, or once China oil tried to equivalent globalisers fell sort in victimisation persuasion to produce world capital require over of scuttle and a a ton the Unocal of brick white of on man's the America, an the tries. burden to

The Senate members or the ministers of France and Luxemburg wasted no time moves. it's the not the other approach.

Actually, given the demographic structure and growth of pension funds in Europe and therefore the America, are able to} see that funds are in search of markets, and not the opposite approach. It means that we tend to square measure in a very position to settle on whom to ask. But we might rather still " sell" Republic of India. commerce Republic of India is a simple talent for many ofour flesh pressers. that sectors square measure "sold" globally for FDI in India? it's the retail trade, restaurants, road transport and construction. Non-corporate, familyrun cent. we would businesses like dominate of return into Republic these activities. of India and lot In most of those sectors the share of partnership/proprietorship companies is quite eighty per world corporates to into switch these immeasurable entrepreneurs employees. will there be something a

of perverse than this? What they have is adequate credit at cheap rates and fewer bribes demanded by government minions. What extra technological wonders are going to be formed by FDI in these area

16

OBJECTIVE

17

 To examine the trends and patterns within the FDI across totally different sectors and from different countries in India. To study about the FDI policy in India. To identify the varied new FDI policies introduced in India.

18

RESEARCH DESIGN

19

3.1 METHODOLOGY

In order to accomplish this project successfully we will take following steps. FDI: The study is limited to a sample of top 10 investing countries e.g. Mauritius, Singapore, China, USA etc.

and top 10 sectors e.g. service sector, computer hardware and software, telecommunications etc.

which had attracted larger inflow of FDI from different countries.

3.2 Data collection:

Secondary Data: Internet, newspapers, journals and books, other reports and projects, literatures

20

LITERATURE REVIEW

21

1. TITLE AUTHOR DATA ANALY SIS

IMPLICATION OF ECONOMIC SLOWDOWN ON FDI INFLOWS TO INDIAN ECONOMY

Prof. Prity Sharma, Mithilesh Kumar, Rishi sengupta

This paper relies on the premises that however international economic holdup has taken its toll on the foreign investment flows within the country as FDI has declined by a humongous 27.85% throughout the month of Nov 2008 this year over constant month a year past. FDI has been increasing over the past few years within the country. The share of FDI in total investment has quite doubled from a pair of.55 per cent in 2003-04 to six.42 p.cin 2006-07. however an issue that whether or not the continued inflows in India would be affected owing to worldwide holdup, it absolutely was tough to assess the impact. This paper relies on the premises international economic holdup has taken its toll on the foreign investment flows within the country as FDI has declined

CONCLUSI ON

22

2. TITLE AUTHOR DATA ANALY SIS

Foreign Direct Investment in India: A Critical Analysis of FDI from 1991-2005 Kulwindar Singh
The Concept of Foreign Direct Investment is now a part of Indias economic future but the term remains vague to many, despite the profound effects on the economy. Despite the extensive studies on FDI, there has been little illumination forthcoming and it remains a contentious topic. The paper explores the uneven beginnings of FDI, in India and examines the developments (economic and political) relating to the trends in two sectors: Industry and Infrastructure and sub sector Telecom, to illustrate that. FDI eludes definition owing to the presence of many authorities: Organisation for Economic Co-operation and Development (OCED), International Monetary Fund (IMF), International Bank for Reconstruction and Development (IBRD) and United Nations Conference on Trade and Development (UNCTAD). All these bodies attempt to illustrate the nature of FDI with certain measuring methodologies. Generally speaking FDI refers to capital inflows from abroad that invest in the production capacity of the economy and are usually preferred over other forms of external finance because they are non-debt creating, non-volatile and their returns depend on the performance of the projects financed by the investors. FDI also facilitates international trade and transfer of knowledge, skills and technology. The paper explores the uneven beginnings of FDI, in India and examines the developments (economic and political) relating to the trends in two sectors: Industry and Infrastructure and sub sector Telecom, to illustrate that.

CONCLUSI ON 3. TITLE AUTHOR

MANUAL ON FOREIGN DIRECT INVESTMENT IN INDIA

SIA

23

DATA ANALY SIS

In recognition of the necessary role of Foreign Direct Investment(FDI) within the accelerated economic processof the country, Government of India initiated a slew of economic and money reforms in 1991. India is currently entry the second generation reforms aimed toward any and quicker integration of Indian economy with the worldwide economy. As a results of the assorted policy initiatives taken, India has been apace dynamic from a restrictive regime to a liberal one, and FDI is inspired in the majority the economic activities beneath the automated route. Over the years, FDI influx within the country is increasing. However, India has tremendous potential for engrossing larger flow of FDI within the returning years. Serious efforts square measure being created to draw in larger influx of FDI within the country by taking many actions each on policy and implementation front. Since the last publication of the Manual in Gregorian calendar month 2002, Foreign Investment Promotion Board has been shifted to Department of Economic Affairs, Ministry of Finance and Company Affairs. However, the topic about FDI Policy and its promotion and Facilitation as conjointly promotion and facilitation of investment by Non- Resident Indians(NRIs) and Overseas company Bodies (OCBs) can still be handled by this Department. Further, form needed for keep it up Business(COB) License has been revised. These create the on facilities, changes are incorporated during this issue of the Manual. In Annexure- IV of this Manual, tips concerning medium has Manual a lot of easy, some new Departments web site, on-line Chat been conjointly careful. To and Bulletin Board additions are created like write-up

temporary details of clearances/approvals needed, agencies involved and their web site address and regularly asked queries.

TOOLS USED

Policy and Procedures

MAY- 2003

24

CONCLUSI ON

Because the main stress of the Manual is to facilitate a lot of FDI in India, from this issue the name of the Manual has been conjointly modified. a vital demand of the foreign investment community in creating their investment call is accessibility of timely and reliable data regarding the policies and procedures governing FDI in India. This publication could be a a part of our endeavour to apprise the investment community of our policy measures and also the opportunities obtainable for investment in India. we tend to hope that this Manual are going to be found helpful by the investment community. we tend to welcome suggestions for its improvement.

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4. TITLE AUTHOR DATA ANALY SIS

EXPORT GROWTH IN INDIA: HAS FDI PLAYED A ROLE?

Kishor Sharma Export growth in Indi has been abundant quicker than value growth over the past few decades. Many factors seem to own contributed to the present development as well as foreign direct investment (FDI). However, despite increasing inflows of FDI particularly in recent years there has not been any conceive to assess its contribution to India's export performance one among the channels through that FDI influences growth. Exploitation annual information for 1970-98 we have a tendency to investigate the determinants framework. of export performance demand in India during for Indian a coincident equation Results counsel that

exports will increase once its export costs fall in regard to world costs.

TOOLS USED CONCLUSI ON

Moreover, the important appreciation of the rupee adversely effects India's exports. Export offer is absolutely associated with the domestic relative value of exports and better domestic demand reduces export offer. Foreign investment seems to own statistically no important impact on export performance though the constant of FDI encompasses a positive sign.

5. TITLE AUTHOR

Hype or Reality: Can the CDM trigger FDI? Raymond Saner

26

Inherent within

the CDM thought was Mechanism would of foreign Direct climate-friendly direct

the

expectation broaden the investment

that flows.

the

Clean Such an towards

DATA ANALY SIS

Development determinants direct markets

possibly

normal economic

extra investment chance would act as Associate in Nursing economic driver and Foreign for Investment technologies (FDI) or environmentally accessory investments and later would expand access to new services. It is usually accepted that the CDM has underperformed which this example is probably going to continue. Issues known ar associated with CDM governance, its objectives, the eligibility of comes, or the functioning of emissions markets. it's hoped that after these problems ar settled, the CDM may live up to its expectations to direct FDI towards greener technologies. This report analyses the relation between Foreign Direct Investment and also the CDM. It describes numerous CDM group action sorts, provides current CDM project information, presents general FDI flows given to main destinations of FDI and eventually examines the doable links between FDI and CDM potential. The author of this report but cautions against over-simplification and concludes that CDM money flows don't seem to be related with FDI flows at this time which ways that to create CDM additional enticing to transrequired to nationalcorporations would merit any exploration. any analysis is

see however developing country entitieswill attract CDM investment or enhance their ability to export CERs. this can need additional careful analysis of: the sources of demand (countries; government vs. private; sectors and their CDM preferences), the dynamics of evolving carbon markets, the various CDM dealings models (equity investment in CDM comes vs. ex ante CER purchase agreements vs. secondary market CER trades), and the national determinants of CDM monetary flows.

For the year 2003, far and away the best recipients of FDI square measure the developed countries (69%), followed by developing countries while not China (20%) then China (10%) and in conclusion the smallest amount developed countries (1%).

27

TOOLS USED
The main reasons that are reported to cause such slowness square measure for

CONCLUSI ON

example barriers to bigger CDM investment comes like money and institutional risk and uncertainty related to delays in approving CDM project activities and methodologies coach validators or lack (Ellis of ample capability building et al., 2004). whereas of in host countries to main these barriers square bottom,the

measure vital with respect flows to

to obtaining CDM comes of the developing

focus of this paper remains on the larger interaction issue of however FDI/CDM countries. Despite the slowly increasing investment flows into CDM opportunities, one shouldn't forget that the most FDI flows don't attend CDM comes nor to developing countries.

28

6. TITLE AUTHOR

NBER Research Paper

R. Vaidyanathan

29

significant

and

path-breaking

study

was

undertaken

recently process.

DATA ANALY SIS

by 3 authors concerning the impact of foreign direct investment on the speed of economic This paper was revealed by National Bureau of Economic analysis (NBER) as a operating paper: "Sources for funding domestic capital: Is foreign saving a viable choice for developing countries?" (Joshua Aizenman; Brian Pinto; Artur Radziwill, June 2004. Joshua Aizenman is prof of social science at the University of Calif., Santa Cruz. Brian Equus caballus is at the globe Bank. Artur Radziwill is with the Centre for Social and Economic analysis (CASE), Warsaw, Poland.)They observe that on average, 90 per cent of the stock of capital

in developing countries is self-financed, and this fraction was surprisingly stable throughout the 1990s. More importantly, they argue, "there is no evidence of any "growth bonus" associated with increasing the financing share of foreign savings. In fact, the evidence suggests the opposite: throughout the 1990s, countries with higher self-financing ratios grew significantly faster than countries with low selffinancing ratios. This result persists even after controlling growth for the quality of institutions."
They observe that on the average, ninety per cent of the stock of capital in developing countries is self-financed, and this fraction was amazingly stable throughout the Nineteen Nineties. a lot of significantly, they argue, "thereisn't any proof of any "growth bonus" related to increasing the finance share of foreign savings. In fact, the proofsuggests the opposite: throughout the Nineteen Nineties, countries with higher self-financing ratios grewconsiderably quicker than countries with low self-financing ratios. This result persists even once dominant growth for the standard of establishments." More curiously, they conjointly found that the upper volatility of the selffinancing ratios are related to lower growth rates, which higher establishments ar related to lower volatility of the self finance ratios. It fully negates the FDI mantra musical day in and day trip by India's metropolitan elite. however can we tend to heed any empirical analysis or logic out there on this score? we tend to might not, since we tend to ar embedded with what might be known as the "Colonial Gene", that has its own impact. It paralyses our ability to assume straight and makes USA crave, sort of a junkie, the controlled substance of FDI.

30

TOOLS USED CONCLUSI ON

The FDI mantra is considered an all-purpose panacea for the ills of the economy and society. Unfortunately, there has not been much debate about the far-reaching implications of FDI in our economy and, particularly, how it can stifle economic growth, says R. Vaidyanathan, presenting counters to the five arguments in favour of FDI and citing a research paper to buttress his stand.

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FOREIGN DIRECT INVESTMENT

32

Overview of Foreign Direct Investment (FDI)

The physical investment from an organization or corporation happiness to 1 country, to construct amanufacturing plant, for example, in another one bears the name foreign direct investment, additionally called FDI. At constant time, a far off company will invest so as for it to amass long lasting interest in enterprises that lead their business outside the sphere of economy it invested with in. The reference to FDI must do with a parent enterprise and a far off affiliate that type along a company, additionally called international. Any variety of investment which will earn interest in enterprises, functioning outside the investors territory are often thought of FDI. The investment should afford the management of the parent enterprise over the foreign affiliate, for the investment to qualify as FDI, and this specific management owns 100 percent, or a lot of of the shares or pickpower of Associate in Nursing incorporated company, for unorganised ones, the precise equivalent of thisshare. Ownership shares that area unit not up to that, area unit proverbial to be portfolio investment. u. s. dominated the worldwide FDI market, once WW II, and it account for pretty much three-quarters of the new FDI, together with reinvested profits. Since then, FDI has unfold even wider has presently become a of growth, with the world development. FDI stock World economy is currently experiencing a domestic lot of over twenty % of world gross product.

Together with the economic process, de-regulation and liberal investment rules, the influx of Foreign direct investment was even a lot of inflated. A relationship between a parent company and its foreign subsidiary is additionally needed to make the FDIs; Associate in Nursingd for an investment to be an FDI, it's needed that the parent company includes a minimum 100 invests will qualify for FDI given that it's the pick power in a percent of stock of the foreign affiliates it's engaged in doing business with. Moreover, the corporate that very business operative in a very foreign country. There are 2 sorts of FDIs and this classification is created supported the categories of restrictions that square measure obligatory, and every one the stipulations required for the investment, that is outward FDIs and inward FDIs. the govt against all sorts of risks ensures outward FDIs and per se, they're subject to tax,whereas the chance coverage given to domestic industries, granted to native companies substitute the means of outward FDIs. Inward FDIs square measure a lot of inspired than the primary kind, since they additionally embody interest loans, tax breaks, grants, subsidies, and limitations square measure removed.

33

In this section we have a tendency to square measure progressing to discuss or describe the most business of the report i.e. analysis of secondary knowledge. It includes knowledge in associate degree organized type, discussion on its significance and analyzing the results. For this we have a tendency to had divided this section in any 2 subsections i.e. initial section fulfill the necessity of first objective that is concerning FDI.

About foreign direct investment.

Is the method whereby residents of 1 country (the supply country) acquire possession of assets for the aim of dominant the assembly, distribution, and different activities of a firm in another country (the host country). The international financial funds balance of payment manual defines FDI as investment that's created to amass a long-lasting interest in enterprise operative in economy apart from that of the capitalist. The investors purpose being to own a good voice within the management of the enterprise. The international organisation 1999 world investment report defines FDI as an investment involving a protracted term relationship, the reflective a long-lasting management of a resident entity in one economy (foreign direct capitalist or parent enterprise) in an enterprise resident in an economy apart from that of the foreign direct capitalist ( FDI enterprise, affiliate enterprise or foreign affiliate).

Foreign direct investment: Indian scenario

FDI is permissible as underneath the subsequent styles of investments Through monetary collaborations. Through joint ventures and technical collaborations. Through capital markets via monetary unit problems. Through non-public placements or advantageous allotments. Forbidden Territories: Arms and ammunition Atomic Energy

34

 Coal and brown coal Rail Transport Mining of metals like iron, manganese, chrome, gypsum, sulfur, gold, diamonds, copper, zinc.

FDI Prohibited: FDI isn't permissible in Gambling and card-playing, or Lottery Business, Business of tab fund, Nidhi Company, Housing and property business, commerce in Transferable Development Rights (TDRs), Retail commerce,energy Agricultural or plantation activities or Agriculture (excluding flower gardening, husbandry, Development of Seeds, husbandry, Pisciculture and Cultivation of Vegetables, Mushrooms etc. underneath controlled conditions and services associated with agro and allied sectors) and Plantations(other than Tea plantations)

Foreign Investment through GDRs (Euro Issues)

Indian corporations area unit allowed to boost equity capital within the international market through the difficulty of worldwide installation Receipt (GDRs). GDR investments area unit treated as FDI and area unit selected in greenbacks and aren't subject to any ceilings on investment. AN someone company seeking Government's approval during this regard ought to have consistent diary permanently performance (financial or otherwise) for a minimum amount of three years. This condition would be relaxed for infrastructure comes likepower generation, telecommunication, rock oil exploration and purification, ports, airports and roads.

1. Clearance from FIPB

There is no restriction on the quantity of Euro-issue to be floated by a corporation or a gaggle of firms within the twelve of month. a the New corporation engaged within Industrial Policy whose the manufacture of direct foreign things lined beneath Annex-III

investment once a projected monetary unit issue is probably going to exceed fifty one or that is implementing a project not contained in Annex-III, would want to get previous FIPB clearance before seeking final approval from Ministry of Finance.

2. Use of GDRs

35

The payoff of the GDRs will be used for funding capital product imports, cost as well as domestic purchase/installation of plant, instrumentality and building and investment in package development, defrayal orregular reimbursement of earlier external borrowings, and equity investment in JV/WOSs in India

Foreign direct investments in India are approved through two routes

1. Automatic approval by RBI The Reserve Bank of India accords automatic approval among a amount of fortnight (subject to
compliance of norms) to any or all proposals and permits foreign equity up to 24%; 50%; 51%; seventy four and 100%is allowed looking on the class of industries and also the sectoral caps applicable. The lists are comprehensive and canopy most industries of interest to foreign firms. Investments in high priority industries or for mercantilism firmsprimarily engaged in mercantilism are given nearly automatic approval by the RBI.

2. The FIPB Route Processing of non-automatic approval cases

FIPB stands for Foreign Investment Promotion Board that approves all different cases wherever the parameters of automatic approval aren't met. traditional time interval is four to six weeks. Its approach is liberal for all sectors and every one forms of proposals, and rejections square measure few. it's not necessary for foreign investors to own an area partner, even once the foreign capitalist desires to carry but the complete equity of the corporate. The portion of the equity not projected to be command by the foreign capitalist may be offered to the general public.

General permission of RBI under FEMA

RBI has granted general permission beneath interchange Management Act (FEMA) in respect of proposals approved by the govt. Indian corporations obtaining foreign investment approval through FIPB route don't need to any extent further clearance from run for the aim of receiving inward remission and issue of shares to the foreign investors. The companies area unit, however, needed to apprize the Regional workplace involved of the run batted in of receipt of inward remittances at intervals thirty days of such receipt and to file the desired documents with the involved Regional offices of the RBI at intervals thirty days when issue of shares to the foreign investors or NRIs.

36

Besides new firms, automatic route for FDI/NRI investment is additionally on the market to the prevailing firms proposing to induct foreign equity. For existing firms with associate growth programme, the extra necessities include:

The

increase

in

equity

level ensuing from

the growth of

the

equity

base

of the

prevailing company while not the acquisition of existing shares by NRI/foreign investors, the money to be remitted ought to be in foreign currency and projected growth programme ought to be within the sector(s) beneath automatic route. Otherwise, the proposal would want Government approval through the FIPB. For this a Board Resolution of the prevailing Indian company should support the proposal. For existing firms while not associate degree enlargement programme, the extra necessities for eligibility the equity for base and automatic also approval the foreign are: that they're engaged within in foreign currency. the industries underneath automatic route; the rise in equity level should be from enlargement of equity should be

The

earlier

SEBI demand,

applicable shall not be

to

public restricted firms, in any manner

that for

shares assigned on discriminatory basis

transferable

a amount of five years from the date of their allotment has currently been changed to the extent that no more than twenty per cent of the complete contribution brought in by promoter cumulatively publically or discriminatory issue shall be locked-in.

Equity participation by international monetary establishments like ADB, IFC, CDC, DEG, etc. in domestic firms isallowable through automatic route subject to SEBI/RBI rules and sector specific cap on FDI
ADR/GDR

An

Indian company will raise

foreign

currency

resources

abroad

through the

problem of

yank deposit Receipts (ADRs) or international deposit Receipts (GDRs). Regulation four of Schedule I of independent agency Notification no. twenty permits associate degree Indian company to issue its Rupee denominated shares to someone resident outside India being a deposit for the aim of supply international deposit Receipts (GDRs) and/ or yankee deposit Receipts (ADRs), subject to the conditions that:

37

the ADRs/GDRs area unit issued in accordance with the theme for issue of Foreign Currency Convertible Bonds and common stock (Through deposit Receipt Mechanism) theme, 1993 associate degreed pointers issued by the Central Government there below from time to time The Indian company supply such shares has an approval from the Ministry of Finance, Government of India to issue such ADRs and/or GDRs or is eligible to issue ADRs/ GDRs in terms of the relevant theme effective or There aren't any end-use notification restrictions issued on by the Ministry of Finance, and GDR/ADR issue return, aside from associate

degree specific ban on investment in property and stock markets. The FCCB issue return have to be compelled to adjust to external industrial borrowing finish use requirements; additionally, twenty general company restructuring. Is not otherwise ineligible to issue shares to persons resident outside Republic of India in terms of those laws. There's no limit upto that AN Indian company will raise ADRs/GDRs. However, the Indian company should be otherwise eligible to boost foreign equity below the surviving FDI policy. A company engaged within the manufacture of things coated below Automatic route, whose direct foreign investment when a projected GDRs/ADRs/FCCBs issue is probably going to exceed the proportion limits below the automated route, or that is implementing a project falling below Government approval route, would want to get previous Government clearance through FIPB before seeking final approval from the Ministry of Finance five per cent of the FCCB return may be used for

Foreign currency convertible Bonds

FCCBs area unit issued in accordance with the theme [the theme for issue of Foreign Currency Convertible Bonds and common stock (Through deposit Receipt Mechanism) theme, 1993] and signed by a non-resident in foreign currency and convertible into common stock of the supply company in any manner, either in whole, or in part, on the premise of any equity connected warrants connected to debt instruments;

The eligibility for issue of Convertible Bonds or common stock of supply Company is given as under: An supply company athirst of raising foreign funds by supply Foreign Currency Convertible Bonds or common stock for equity problems through world Depositary Receipt will issue FCCBs, upto USD fifty Million underneath the automated route, From USD fifty -100 Million, the

38

businesses need to take run batted in approval, From USD one hundred Million and on top of, previous permission of the Department of Economic Affairs is needed.

Preference Shares

Foreign investment through stock is treated as foreign direct investment. Proposals area unit processed either through the automated route or FIPB because the case is also, as per the subsequent guidelines: Foreign investment in preference share is taken into account as a part of share capital and fall outside the External business Borrowing (ECB) guidelines/cap. stock to be treated as foreign direct equity for purpose of sectoral caps on foreign equity, wherever such caps area unit prescribed, provided they carry a conversion choice. stock structured while not such conversion choice fall outside the foreign direct equity cap. Duration for conversion shall be as per the most limit prescribed underneath the businesses Act or what has beenin agreement to within the shareholders agreement whichever is a smaller amount. The dividend rate wouldn't exceed the limit prescribed by the Ministry of Finance. Issue of stock ought to change to pointers prescribed by the SEBI and tally and different statutory needs.

FDI in EOUs/SEZs/Industrial Park/EHTP/STP Special Economic Zones

100% FDI is permissible underneath automatic route for fixing of Special Economic Zone. Units in SEZ qualify for approval through automatic route subject to sectoral norms. Details regarding the kind of activities permissible are accessible within the Foreign foreign policy issued by Department of Commerce. Proposals not lined underneath the automated route need approval by FIPB.
Export Oriented Units (EOUs)

39

100% FDI is permissible beneath automatic route for fitting 100 percent EOU, subject to sectoral norms. Proposals not lined beneath the automated route would be thought-about and approved by FIPB.

Industrial Park

100% FDI is allowable below automatic route for putting in place of business Park. Electronic Hardware Technology Park (EHTP) Units All proposals for FDI/NRI investment in EHTP Units area unit eligible for approval below automatic route. For proposals not coated below automatic route, that somebody ought to look for separate approval of the FIPB.
Software Technology Park Units

All proposals for FDI/NRI investment in STP Units ar eligible for approval beneath automatic route. For proposals notlined beneath automatic route, the soul ought to look for separate approval of the FIPB.
Capitalization of Import Payables

FDI

inflows ar needed to

be below the

subsequent modes:

By inward remittances through traditional banking channels or by debit to the desired account of person involved maintained in a certified dealer/authorized bank. Issue of equity to non-residents against different modes of FDI inflows or in a similar way isn't permissible.

However,

Issue

of

equity

shares

against payment fee,

royalty collectable and

external industrial borrowings (ECBs) in convertible foreign currency ar allowable, subject to meeting all applicable tax liabilities and sector specific tips.

Policies & Exchange Control Management

FEMA

The banking company of India's Exchange management Department, administers interchange Management Act, 1999, (FEMA) that has replaced the sooner act, FERA,

40

with impact from June one, 2000. The new legislation is for "facilitating external trade" and "promoting the orderly development and maintenance of interchange market in India". Independent agency extends to the full of India. underneath independent agency Indian company with foreign equity participation is treated at par with different regionally incorporated firms. Consequently, the exchange management laws and laws for residents apply to foreigninvested firms.
FDI in Indian Company

In terms of Section 6(3) (b) of exchange Management Act. 1999 Federal Reserve Bank regulates transfer or issue of any security by someone resident outside India scan with Notification No. Federal Emergency Management Agency 20/2000-RB dated could May 3, 2000

Issue of Rights/ Bonus Shares

General permission is on the market to Indian firms to issue Right/Bonus shares subject to sure conditions. title of rights shares isn't mechanically on the market to investors UN agency are assigned such shares as OCBs. Such issuance firms would need to get specific permission from run, exchange Department, Foreign Investment Division, main office, metropolis for issue of shares on right basis to erstwhile OCBs. However, bonus shares may be issued to OCBs.
Issue of shares under ESOS scheme

A company could issue shares below this theme, to its workers or workers of its venture or totally in hand subsidiary abroad WHO area unit resident outside India , directly or through a Trust subject to the condition that the theme has been drawn in terms of relevant rules issued by the SEBI; and face worth of the shares to be assigned below the theme to the nonresident workers doesn't exceed five-hitter of the paid capital of the issue company.
Issue of shares under merger/amalgamation

An Indian company will raise foreign currency resources abroad through the difficulty of ADRs or GDRs. Regulation 4 of Schedule I of Federal Emergency Management Agency Notification

41

no. twenty permits AN Republic of Indian company to issue its Rupee denominated shares to an individual resident outside India being a repositoryfor the aim of supplying GDRs and/ or ADRs, subject Convertible Bonds to the and stock (Through repository Receipt conditions Mechanism) theme, that: 1993 the ADRs/GDRs square measure issued in accordance with the theme for issue of Foreign Currency and pointers issued by the Central Government there underneath from time to time.

The Indian company supplying such shares has AN approval from the Ministry of Finance, Government of Republic of India to issue such ADRs and/or GDRs or is eligible to issue ADRs/ GDRs in terms of the relevant themeoperative or notification issued by the Ministry of Finance, and isn't otherwise ineligible to issue shares to persons resident outside Republic of India in terms of those laws.
Repatriation of investment Capital and profits Earned in India

All foreign investments area unit freely repatriable aside from the cases wherever NRIs opt to invest specifically below non-repatriable schemes. Dividends declared on foreign investments may be remitted freely through associate Authorised Dealer.

Non-residents will sell shares on stock market while not previous approval of tally and repatriate through a bank the sale yield if they hold the shares on return basis and if they need necessary NOC/tax clearance certificate issued by tax authorities. purchasable of shares through nonpublic arrangements, Regional offices of tally grant permission for recognized units of foreign equity in Indian company in terms of pointers indicated in Regulation ten. B of Notification No. FEMA.20/2000 Rb dated third might 2000. The sale worth of shares on recognised units is to be determined in accordance with the rules prescribed below Regulation 10B (2) of the on top of Notification. Profits, dividends, etc. (which area unit remittances classified as accounting transactions) may be freely repatriated.
Transfer of shares/debentures

A person resident outside India could transfer by method of sale or gift the shares or convertible debentures to any individual resident outside India (including NRIs); provided transferee has obtained previous permission of SIA/FIPB to a mass the shares if he has previous venture or tie-up

42

in NRI or

India

in

same by method of

field sale or gift

or the

allied shares or

field convertible

OCB could transfer

debentures command by him or it to a different non-resident Indian; provided transferee has obtained previous permission of Central Government to amass the shares if he has previous venture or tie-up in India within the same field or allied field The person resident India couldtransfer any security to someone resident in India by method of gift. someone resident outside India could sell the shares the convertible debentures of an Indian company on a recognized stock market in India through a registered broker.
Acquisition of Immovable property by Non-resident

A person resident outside

India, World Health Organization has been allowable by banking

company to ascertain a branch, or office, or place of business in India (excluding a Liaison Office), has general permission of banking company to amass stabile property in Republic of India, that is important for, acquisition Foreign nationals of non-Indian orconcomitant, the activity. However, in such cases a declaration, in prescribed kind (IPI), is needed to be filed with thebanking company, among ninety days of the of stabile property. origin World Health

Organization have nonheritable stabile property India with the precise approval of the RBI cannot transfer such property while not previous permission from the Reserve Bank of India.
Acquisition of Immovable property by NRI

An Indian resident

outside

India

(NRI) will acquire

byapproach of

purchase

any immoveable property in India aside from agricultural/ plantation /farm house. He might transfer any immoveable property aside from agricultural or plantation property or farm house to an individualresident outside India, United Nations agency may be a national of India or to an individual of Indian origin resident outside India or an individual resident in India.
Liberalization of FDI

Beside one includes one

hundred hundred

pc relaxation pc in

of

FDI

in property, the processing,

govt policies

on

FDI conjointly supply opportunities for foreign investors to speculate in numerous sectors. This power commerce, development of latest airports, birthing of gas pipelines, crude oil infrastructure and repositing of occasional and 43

rubber. Limit for telecommunication services corporations are raised from forty nine per cent toseventy Another cap to four per the marketing business in Asian country is permitting fifty cent. one FDI in

single complete outlet.the govt is currently set to initiate a second wave of reforms within the section by liberalizing investment normsadditional. And this has conjointly led to a conspicuous interest by towards investments within the Indianwelcome sector. business reports recommend the influx of concerning US$ five hundred million into the important estate sector over the past six months and is predicted to rise to a huge $ seven to eight billion over succeeding 18-30 month

44

DATA ANALYSIS

45

iii.

Analysis of sector specific policy for FDI

Sr. No. 1. 2. 3. 4.

Sector/Activity Hotel & Tourism NBFC Insurance Telecommunication: cellular, value added services ISPs with gateways, radiopaging

FDI cap/Equity 100% 49% 26%

Entry/Route Automatic Automatic Automatic Automatic

49% Above 74% 49% need

Govt. licence

Electronic Mail & Voice Mail 100% 5. Trading companies: primarily export activities bulk imports, cash and carry wholesale trading 100% 6. 7. 8. 9. Power(other than atomic Automatic Automatic Automatic Automatic reactor power plants) 100% Drugs & Pharmaceuticals 100% Roads, Highways, Ports and 100% Harbors Pollution Management 46 Control and 100% Automatic 51% Automatic

10 11. 12.

Call Centers BPO For NRI's and OCB's: i. ii. iii. 34 High Priority Industry Groups Export Trading Companies Hotels Tourism-related Projects iv. v. vi. vii. viii. ix. Real Development x. xi. Units xii. Industries Requiring Compulsory Licensing xiii. Industries Reserved for Small Highways, Bridges and Ports Sick Industrial Hospitals, Diagnostic Centers Shipping Deep Sea Fishing Oil Exploration Power Housing and Estate and

100% 100%

Automatic Automatic

100%

Automatic

13.

Scale Sector Airports:

47

Greenfield projects Existing projects Assets reconstruction company Cigars and cigarettes Courier services Investing companies in infrastructure telecom sector) (other than

100% 100% 49% 100% 100% 49%

Automatic Beyond 74% FIPB FIPB FIPB FIPB FIPB

14 15. 16. 17.

48

Analysis of FDI inflow in India from April 2010 to Dec 2010 Table : Inflows- Sector wise
Cumulat 200708 SECTOR (AprilMarch ) 200809 (AprilMarch ) 200910 (AprilMarch ) 201011 (For April '10) ive Inflows (April '00 to April '10) Service Sector(Financial & Non-Financial Computer Software & Hardware Telecommunications(ra dio paging, cellular mobile,basic telepone services Housing & Real Estate Construction Activities(incl roads & highways) Power Automobile Industry Metallurgical Industries Petroleum & Natural Gas Chemicals(other than fertilizers) 3875 2697 4686 5729 920 4382 5212 4157 1931 3427 6908 5609 1935 1328 1707 547 187 404 522 115 21466 20864 13845 12026 11390 4% 4% 3% 2% 2% 8749 12621 13586 246 37615 7% 26,589 5623 28411 7329 20958 4350 1581 765 106992 44611 % Age to Total Inflow s (In Terms of US$) 21% %

5103

11727

12338

1914

42620

8%

6989

8792

12544

345

36066

7%

49

530

50

The Sector wise Analysis of FDI influx in India shows that most FDI has been taken place within the service sectorwhich has the tele-communication, info & technology, travel and plenty of others. constituent and packagefollows the Service Sector, in terms of FDI. High volumes of FDI conjointly takes place in tele-communication, realty, construction, power, cars, etc.

From April 2000 to August 2009 (Amount in Millions) Sr. No Country Amount Inflows 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Service Sector (Financial & Non Financial) Computer Software & Hardware Telecommunication Housing & Real Estate Construction Activities Automobile Industry Power Metallurgical Industries Petroleum & Natural Gas Chemical 9,65,210.77 4,13,419.03 3,68,899.62 3,25,021.36 2,65,492.96 1,90,172.22 1,79,849.92 1,25,785.57 1,11,957.00 1,01,680.18 of FDI % As To FDI

Total Inflow 22.14 9.48 8.46 7.46 6.09 4.36 4.13 2.89 2.57 2.33

51

The sectors receiving the most important shares of total FDI inflows up to August 2009 were the service sector and laptop code and hardware sector, every accounting for 22.14% and 9.48 % severally. These were followed by the telecommunications, assets, construction and automobile sectors. The highest sectors attracting FDI into India via M&A activity were manufacturing; information; and skilled, scientific, and technical services. These sectors correspond closely with the sectors known by the Indian government as attracting the most important shares of FDI inflows overall. The ASSOCHAM has discovered that FDI in Chemicals sector (other than fertilizers)

registered most growth of 227 per cent throughout Apr 2008 March 2009 as compared to eleven.71 per cent throughout the last commercial enterprise. the world attracted USD 749 million FDI in FY 09 as compared to USD 229 million in FY 08.

During the year 2009 government had raised the FDI limit in medium sector from forty nine per cent to 74%, that has contributed to the strong growth of FDI. The medium sector registered a growth of 103 per cent throughout commercial enterprise 2008-09 as compared to previous commercial enterprise. the world attracted USD 2558 million FDI in FY 09 as compared to the USD 1261 million in FY 08, acquired 9.37 per cent share in total FDI flow. India automobile sector has been ready to record seventy per cent growth in foreign investment. The FDI flow in automobile sector has exaggerated from USD 675 million to one,152 million in FY 09

52

over

FY

08.

The other sectors that registered growth in highest FDI flow throughout Apr March 2009 were housing & realty(28.55 per cent), laptop software package & hardware (18.94 per cent), construction activities as well as road & highways (16.35 per cent) and power (1.86 per cent).

iii.

Analysis of share of top ten investing countries FDI equity in flows

Table : FDI Inflows-Countries Wise

RANK

COUNTRY

200708 (AprilMarch) 44483 12319 4377 4690 2780 3336 3385 2075 583 1039 98664

200809 (AprilMarch) 50794 15727 8002 3840 3922 1889 5983 2750 2098 1133 123025

200910 (AprilMarch) 49633 11295 9230 3094 4283 5670 7728 2980 1437 3017 123378

(For April '10) 2528 1933 404 265 312 1455 123 102 184 31 9854

1 2 3 4 5 6 7 8 9 10

Mauritious Singapore USA UK Netherlands Japan Cyprus Germany France UAE Total FDI Inflows

Cumulati ve Inflows (April '00 to April '10) 213434 47080 37593 26263 20438 18350 17900 12571 7102 7054 526357

% Age to Total Inflows 43 9 7 5 4 4 4 3 1 1 83%

53

Indias 83% of accumulative FDI

is

being

contributed

by nine totally

different countries whereas remaining 17 % from the rest of the world. The analysis of country wise inflows of FDI in Indiais indicating that in 2007-2010, the whole quantity of Rs 526537 of FDI was received from 113 totally differentcountries as well as NRI investments. this is often mirrored within position in India. the growing Mauritius list of states that are showing interest to take a emerged mutually of the foremost dominant supply of

FDI contributive a 44% capitalization on the whole investment within the country. Singapore is that thesecond dominant supply of FDI flows with a complete inflow of 9%.

However, USA slipped to 3rd position by contributive to 7%

inflows. They maintained

continuous increasing trend. UK s occupied fourth position with a 5 percent followed Netherlands with 4%, Japan with 4%, Cyprus with 4%, Germany with 3%, France with 1% and UAE with 1%.. it's additionally been determined that some alternative countries like Israel, Thailand, Hong Kong, South Africa and Asian nation have magnified their share .a number of other new countries like Hungary, Nepal, Virgin Islands, are also creating a major investment in India.

54

The FDI boom in India

* India is now the third most favoured destination for Foreign Direct Investment (FDI), behind China and the USA, according to an AT Kearney survey that tracked investor confidence among global executives to decide their order of preferences. * India's share of global FDI flows rose from 1.8 per cent in 1996 to 2.2 percent in 1997. * FDI in India in 1997-98 was lower at U.S.$ 5,025 million compared to U.S.$ 6,008 million in 1996-97 because of a decline in portfolio investment. Although foreign direct investment (FDI) increased by 18.6 per cent from U.S.$ 2,696 million in 1996-97 to U.S.$ 3,197 million in 199798 * International developments continue to attract capital flows into India in 1998-99 as well. * Mauritius, as in the previous two years, was the dominant source of FDI inflows in 1997- 98. U.S.A. and S. Korea were, respectively, the second and third largest sources of FDI. * S. Korea increased its flow of investment in India from a meager U.S.$ 6.3 million in 1996-97 (0.2 per cent of total FDI) to U.S.$ 333.1 million in 1997-98 (10.4 per cent share). * There has been a sharp rise in the number of FDIs approved in 2004. * During the first seven months of 2004, between January and July, Rs. 5,220 crore worth of FDI was approved. * Almost a third share of the investment in India is by NRI. * According to the latest Reserve Bank of India figures, outflows through various NRI deposits schemes amounted to $11920 million since 2011-12.

The negative facet of this bouncing FDI and NRI influx is that the constraints of Indian economic process that arinternal and not external .Ups and downs in Indian agriculture plays a significant role in restricting Indian rate let alone unhealthy infrastructure like pot holed roads, incomplete flyovers, undeveloped flying field facilities etc are the most constraints within the growth of the Indian economy. Again lopsided regional variation within the economic process of the country is another major impediment within the economic process. Truant Left Parties whose support is vital for the 55

survival of the UPA government at the middle is another major bottleneck within the influx to FDI investment. However a awfully encouraging development has been the tremendous improve that the recent budget has given to industrial infrastructure and FDI investment in India. Positive facet of the story is and a that the tremendous and resilience deep of the economy, rapid climb of Indian of agriculture, improve to infrastructural facilities, the tremendousworld outsourcing boom in India well-regulated capital market. observing the present rate FDI influx India will attract a record of $ twelve billion FDI influx this yr. The commerce minister of India feels it's attainable tho' he encompasses a note of caution, "There is competition not barely from China however conjointly from others like Kingdom of Thailand, Malaya and then on. we have a tendency tocant lose target attracting investments since we have a tendency to cant get inflows by giving lectures however work on ways that to urge investors. "If a comparative analysis of the India and Chinese economy is finished some attentiongrabbing comparison emerges through India lags behind China in plenty of} areas and a lot has to be done if India must catch up with China. The comparative analysis is given as below.

Basis of Comparison China Total population 1272 billion Savings rate 50 per cent Labour force 757 billion Annual GDP US $ 1159 billion Share of agriculture in GDP 15 per cent Share of industry in GDP 52 per cent Share of service sector in33 per cent GDP Rail routes 56.7 thousand sq kms Motor vehicles per 10008 people

India 1033 billion 26 per cent 451 billion 478 US $ billion 27 per cent 27 per cent 48 per cent 62.5 thousand sq kms 7

56

R& D expenditure Internet host Education expenditure Female adult literacy Undernourished people

0.1 % of GNP 0.6 per 10000 people 2.3 per cent of GNP 85 per cent 9 per cent of the population

0.6 % of GNP 0.8 per 10000 people 3.2 per cent of GNP 45 per cent total23 per cent of the total population

Thus it's noticed that the scene of Indian economy with a booming stock touching virtually the 14000 mark, a buoyant Rupee of Rs forty 3.44 /Dollar and a healthy growth trend of the foremost sectors of the Indian economy the setting is extremely positive for FDI and NRI inflows. But compared to China it's still behind even supposing it's walk ahead. plenty additional has to be done. The Indian bull is not any doubt energetic currently but it's to run quick to overtake the Chinese dragon.

57

CONCLUSION

58

CONCLUSION
It is usually aforementioned that future is usually unsure. This spoken language is correct to some extent.however at identical time it's additionally aforementioned that exceptions area unit invariably there. This exception is regarding India's sure higher rate of growth within the coming back future. The long run of Indian economy is brighter owing to its large human resources, apace future service sector, accessibility of huge rangeof competent professionals, large marketplace for each product, increasing impact of consumerism, absence of controls and licenses, interest of foreign entrepreneurs in India and existence of 400 million bourgeoisie individuals. Even today, India is manufacturing largest range of billionaires in an exceedingly year, take over by Indian multinationals is wonderful, the craze of Indians to travel abroad is apace decreasing, the Rupee is changing into stronger and stronger in relevancy dollar. India's say within thousands the international of diplomacy and politics has currently become important, foreigners area unit operating as

executives in India, packages are getting profitable and competitive and annual rate of growth is highest when China. This gift image offers some reflections of the long run. However this is often beat absolutely the sense and not within therelative terms. a rustic will solely grow if the government. Policies enable a lot of participation and is in a position to draw in a lot of and a lot 59

of foreign direct investment in India. Today, India provides highest returns on FDI than the other country within this context it's the world. India is poised for more growth that in producing, rate infrastructure,vehicles, motor vehicle parts, food process sectors, assets development etc. during additionally value mentioning savings has additionally magnified from twenty third to thirty firstover the last year to the current year. India's continued feeling on FDI, as a result, exacts a significant toll on the economy. Beyond any doubt, India is relinquishment billions of bucks of FDI to its neighbours annually. Indiathus stands to win within the next few years.

A large variety of changes that were introduced within the countrys regulative economic policies publicized the alleviation era of the FDI policy regime in India and led to a structural breakthrough within the volume of the FDI inflows into the economy maintained a unsteady and unsteady trend throughout the study amount. It'd be of interest to notice that over five hundredth of the full FDI inflows received by India throughout the amount from 2000 - 2009 came from Mauritius, Singapore and also the USA. The most reason for higher levels of investment from Mauritius was that the very fact that India entered into a double taxation shunning agreement (DTAA) with Mauritius were protected against taxation in India. Among the various sectors, the service sector had received the larger proportion followed by laptop computer code and hardware sector and telecommunication sector.

60

REFERENCES

61

Online References

http://en.wikipedia.org

http://www.indianindustry.com

http://www.indianground.com

http://dipp.nic.in

http://www.rediff.com

http://ideas.repec.org

http://business.mapsofindia.com

http://www.hinduonet.com

http://www.merinews.com

http://commerce.nic.in

62

http://www.igidr.ac.in

http://www.economywatch.com

63