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AN IMPACT OF FDI ON INDIAN ECONOMY

Submitted for the evaluation of
Computational Techniques
In
B.A.(Hons.) Business Economics

Department of Business Economics
S.G.N.D Khalsa College
(Delhi University)
Guided By:

Submitted By:

Mrs. Sukhvinder Kaur

Ankita Goel
Shweta Dureja
Ayushi Jain
Titiksha Gupta
Ankita Gupta
Nisha Kataria
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Acknowledgement
We sincerely express our deep sense of gratitude to Mrs. Sukhvinder Kaur,
(Assistant Professor), Deptt. Of Business Economics, S.G.N.D. Khalsa college,
Delhi University, for her extraordinary cooperation, invaluable guidance and
supervision. This project is the result of her painstaking and generous attitude.
Our deep sense of gratitude to our Respected Principal Dr. Manmohan Kaur,
and Head of Deptt. Dr.Abnash Kaur for their support and constant
appreciation.
We owe and respectfully offer our thanks to our noble parents for their constant
moral support and mellifluous affection which helped us to achieve success in
every sphere of life and without their kind devotion this project would have
been a sheer dream.
We are also thankful to all our group members for their constructive
discussions, perseverance and encouragement during this research work.
We sincerely acknowledge the efforts of all those who have directly or
indirectly helped us in completing this project successfully.
It is the kindness of these acknowledged persons that this project sees the light
of the day. We submit this project with great humility and utmost regard.

With Regards,
Shweta Dureja
Ankita Goel
Ayushi Jain
Titiksha Gupta
Ankita Gupta
Nisha Kataria

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Table Of Contents
Topics

Page No.

Introduction
Preface
An Overall View

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Objectives
What is FDI?
Determinants of FDI
Types of FDI
Impact of FDI

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Literature review
Temporal Studies
Inter Country Studies
Inter Industry Studies
Studies in Indian Context
Sources Of FDI
Share of top ten companies investing in FDI inflow
FDI and Growth
Findings from review of Literature

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Hypotheses
Research Methodology
Data Collection
Analytical Tools

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Model Building
Importance of Study
Limitations of the Study

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Data preparation and Analysis
Foreign Direct Investment
FDI inflow in India
Trends and patterns of FDI Inflow
Region Wise FDI Inflow
Sectoral Composition of FDI
Gross Domestic Product
GDP of India From 1991-2011

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Foreign Exchange Reserves
FOREX of India from 1991-2011

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Interpretation and Results
Conclusion
Findings and suggestions
Introduction
Findings of the study
Trends and patterns of FDI Flows at world level
Trends and patterns of FDI Flows at Indian level
Suggestions
References
Annexure/Appendix
List of charts
List of tables

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PREFACE
In recent years, policymakers, especially in the developing countries, have come to the
conclusion that foreign direct investment (FDI) is needed to boost the growth in their
economy. It is claimed that FDI can create employment, increase technological
development in the host country and improve the economic condition of the country in
general .
FDI is a vital ingredient of the globalization efforts of the world economy. The growth
of international production is driven by economic and technological forces. It is also
driven by the ongoing liberalization of Foreign Direct Investment(FDI) and trade
policies.
One outstanding feature of the present-day world has been the circulation of private
capital low in the form of foreign direct investment (FDI) in developing countries,
especially since 1990s. Since the1980s, multinational corporations (MNCs) have come
out as major actors in the globalization context.
Governments around the world— in both advanced and developing countries—have
been attracting MNCs to come to the respective countries with their FDI. This
experience may be related to the broader context of liberalization in which most
developing and transition countries have moved to market-oriented strategies.
In this context, globalization offers an unparalleled opportunity for developing
countries like India to attain quicker economic growth through trade and investment.
In the period 1970s, international trade grew more rapidly than FDI, and thus
international trade was by far than most other important international economic
activities.
The objective behind allowing FDI is to complement and supplement domestic
investment, for achieving a higher level of economic development and providing
opportunities for technological upgradation, as well as access to global managerial
skills and practices.

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heavy electrical equipments. yet U. The first Prime Minister of India considered foreign investment as “necessary” not only to supplement domestic capital but also to secure scientific. Government setup Foreign Investment Board and enacted Foreign Exchange Regulation Act in order to regulate flow of foreign capital and FDI flow to India.AN OVERALL VIEW The historical background of FDI in India can be traced back with the establishment of East India Company of Britain. However. British capital came to India during the colonial era of Britain in India. This liberal attitude of government towards foreign capital lures investors from other advanced countries like USA. Japanese companies entered Indian market and enhanced their trade with India. aluminium. British companies setup their units in mining sector and in those sectors that suits their own economic and business interest. After Second World War. The soaring oil prices continued low exports and deterioration in Balance of Payment position during 1980s forced the government to make necessary changes in the foreign ~6~ . simplification of licensing procedures and de. the government has to adopt stringent foreign policy in 1970s. Keeping in mind the national interests the policy makers designed the FDI policy which aims FDI as a medium for acquiring advanced technology and to mobilize foreign exchange resources. royalties etc. and industrial knowledge and capital equipments. technical. However. and to accept equity capital in technical collaborations. and Germany. Further. remained the most dominant investor in India. type of FDI and ownerships of foreign companies was concerned. During this period the government adopted a selective and highly restrictive foreign policy as far as foreign capital. Before independence major amount of FDI came from the British companies. With time and as per economic and political regimes there have been changes in the FDI policy too. the government adopted a liberal attitude by allowing more frequent equity participation to foreign enterprises. operations of MNCs. researchers could not portray the complete history of FDI pouring in India due to lack of abundant and authentic data.K. the country faced two severe crisis in the form of foreign exchange and financial resource mobilization during the second five year plan (1956 -61). etc in order to further boost the FDI inflows in the country. after Independence issues relating to foreign capital. profits. Japan. Therefore. The industrial policy of 1965. etc.reserving some industries such as drugs. fertilizers. gained attention of the policy makers. allowed MNCs to venture through technical collaboration in India. The government also provides many incentives such as tax concessions. But due to significant outflow of foreign reserves in the form of remittances of dividends.

The opening up of trade and investment sector and the consequent very heavy performance of trade and investment sectors had resulted in very high macroeconomic performances in India.5 % annually. 1960s. The second section reviews available literature on the role of foreign investment sector in economic development. resulting in the partial liberalization of Indian Economy. allow MNCs to operate in India. But the available GDP data since 1991 showed that GDP in India started growing consistently at a very high rate of around 8% to 9% to especially for the recent years. efficiency and growth in industry through a stable.5 % rates. Indian economy is the second fastest growing economy in the world after China. It is during this period the government encourages FDI. This clearly shows that there was a shift of policy emphasis from closed inward looking policy to liberal outward policy from early 1990 onwards in India. Now. In section three. The government introduces reforms in the industrial sector. pragmatic and non-discriminatory policy for FDI flow.policy. ~7~ . It is only a fact that the GDP growth rates in India remained at low levels for the periods 1950s. In earlier decades of 1950s and 1960s. The first section gives introduction. aimed at increasing competency. This will throw deeper insight into the process of the economic development going on in India and the contribution particularly made by the foreign investment sector. And this shift of policy emphasis had resulted in better economic performances. 1970s and 1980s. In 1970s and 1980s GDP was growing at around 3% to 3. Thus. The paper is divided into four sections. macro economy was growing at a low 2% to 2. Against this context. this paper particularly analyses in detail the role played by the foreign investment sector in the emergence of India. we analyse the trend and growth of foreign investment in India during 1991-2011. We know very well that the main indicator of macro economy is Gross Domestic Product (GDP) The GDP rates in India started growing very leaps and bounds.

To evaluate the impact of FDI on the Economy. 3. distribution and other productive activities of a firm in another country (the host country).1977). This definition is correct but not complete as the important issues of control and management are not included in it. FDI is the investment made by a company outside its home country. To study the trends and patterns of flow of FDI. ~8~ . International investment can take two forms.OBJECTIVES The study covers the following objectives: 1. It is the flow of long-term capital based on long term profit consideration involved in international production (Caves. bond or any other financial security. FORIEGN DIRECT INVESTMENT What is foreign direct investment? An investment that is made to acquire a lasting interest in an enterprise operating in a economy other than that of the investor” The investor’s purpose is to have an effective voice in the management of the enterprise (IMF. where the investors buy some non-controlling portion of the stock. or direct investment where the investor participates in the control and management of such business venture. To assess the determinants of FDI inflows. 1996). 4. It could either be portfolio investment. To understand the need for FDI in India and to exhibit the sector-wise. year-wise analysis of FDI’s in India. FDI is the process by which the residents of one country (the source country) acquire the ownership of assets for the purpose of controlling the production. 2.

BASIC INFRASTRUCTURE: India though is a developing country. grants. The government of India has given many tax exemption and subsidies to the foreign investors who would help in developing the economy. tax breaks. Investors prefer countries which stable economic policies. A sound legal system and modern infrastructure supporting an efficient distribution of goods and services in the host country. ECONOMIC FACTORS: Different economic factors encourage inward FDI.DETERMINANTS OF FDI The determinant varies from one country to another due their unique characteristics and opportunities for the potential investors. financial institutions. These include interest loans. ~9~ . it has developed special economic zone where there have focused to build required infrastructure such as roads. CHEAP AND SKILLED LABOR: There is abundant labor available in India in terms of skilled and unskilled human resources. The business requires a lot of funds to be deployed and any change in policy against the investor will have a negative effect. subsidies and the removal of restrictions and limitation. Information and communication network/technology. effective transportation and registered carrier departure world wide. powers. If the government makes changes in policies which will have effect on the business. In specific the determinants of FDI in India are: STABLE POLICIES: India stable economic and socio policies have attracted investors across border. Example: Foreign firms have invested in BPO’s in India which require skilled labor and we have been providing the same. Foreign investors will to take advantage of the difference in the cost of labor as we have cheap and skilled labors. and legal system and other basic amenities which are must for the success of the business.

HORIZONTAL FDI Horizontal multinationals are firms that produce the same good or services in multiple plants in different countries. there are production costs. that different parts of the production process have different input requirements. The benefits arise from the lower production costs in the new location. The modeling of this type of FDI is based on the idea. The main motivation for horizontal FDI is to avoid transportation costs or to get access to a foreign market which can only be served locally. where this factor is relatively cheaper. both fixed and variable. conducting for example labour intensive production stages in countries with low labour costs. This is only profitable as long as the costs of fragmentation are lower than the cost savings. the decision to conduct vertical FDI can be described as a trade-off between costs and benefits. It is call vertical since the production stages in different countries are conducted one after another.TYPES OF FDI VERTICAL FDI Vertical FDI takes place if the MNE geographically fragments its production by stages. The fragmentation of production occurs in order to exploit differences in relative factor costs. Since the input prices vary across countries it becomes profitable to split production. or of having different parts of production in different countries. often with different factors required for each stage. Moreover. where each plant serves the local market from the local production. The production chain consists of several stages. The costs of splitting the production process emerge in form of transportation costs. The intuition behind horizontal FDI is best described in form of an equation with costs on the one side and benefits on the other side. The horizontal models predict that multinational activities can arise between similar countries. A difference in factor prices makes it then profitable to shift particular stages to the countries. depending on ~ 10 ~ . additional costs for acting in a new country. Establishing a foreign production instead of serving the market by exports means additional costs of dealing with a new country. Two factors are important for the appearance of horizontal FDI: presence of positive trade costs and firm-level scale economies.

~ 11 ~ . The most obvious are transport costs and tariffs.factor prices and technology. if benefits outweigh the costs a multinational enterprise will conduct a horizontal FDI. there are cost savings by switching from exports to local production. The plant-level economies of scales will increase the costs of establishing foreign plants. On the other side of the equation. as shorter delivery and quicker response to the market becomes easier. Additional benefits arise from the proximity to the market. Thus.

Negative impact  Activities of MNEs can displace local firms that can not cope with the competition from foreign firms. FDI can serve as a source of capital flight from the developing countries to the developed ones. thereby reducing the growth of the local firms. FDI can cause large scale environmental damage which sometimes is not well taken care of especially in the mining sector.  Enormous potential to create jobs. ~ 12 ~ .  Due to MNEs’ higher production capacity.  Transfer of capital by MNEs can supplement domestic savings and contribute to domestic capital formation for countries that are capital constrained and this can increase domestic investment.  If proper regulation is not in place in the host country.IMPACTS OF FDI Positive impact  FDI can serve as a source of valuable technology and know-how to the host developing countries by fostering linkages with local firms. foreign direct investment is a vital factor in the long-term economic development of the developing countries. enhance exports and transfer technology. raise productivity.  MNEs have the financial strength to invest in large plants.

The reviewed literature is divided under the following heads: • Temporal studies • Inter – Country studies • Inter – Industry studies • Studies in Indian Context ~ 13 ~ .LITERATURE REVIEW INTRODUCTION The comprehensive literature centered on economies pertaining to empirical findings and theoretical rationale tends to demonstrate that FDI is necessary for sustained economic growth and development of any economy in this era of globalization.

Bhaumik Pradip K. The study shows that the neighbourhood concepts are widely applicable in different contexts particularly for China and India. IT related investments and the scopes for cross – border mergers and acquisitions. institutional environment. FDI helps in creation/preservation of ~ 14 ~ . Finally. Andersen P. lower tariff rates.S and Hainaut P. Iyare Sunday O. IT related investments and cross – border mergers and acquisitions are the main determinants of FDI flows at temporal level. and India. FDI and European Transition Economics” studied the significance of institutional infrastructure and development as a determinant of FDI inflows into the European Transition Economies. They also find that high labour costs encourage outflows and discourage inflows and that such effect can be reinforced by exchange rate movements. and how these had changed over recent years. irrespective of the source and destination countries. availability of infrastructure. Banik Arindam28 (2004). There are significant common factors in explaining FDI inflows in select regions. in particular between outflows and employment in the source countries in response to outflows. etc. China. export intensity. the authors find clear evidence that outflows complement rather than substitute for exports and thus help to protect rather than destroy jobs.3 (2004) in their paper “Foreign Direct Investment and Employment in the Industrial Countries” point out that while looking for evidence regarding a possible relationship between foreign direct investment and employment. While a substantial fraction of FDI inflows may be explained by select economic variables. export intensity. and partly in the case of the Caribbean. The study examines the critical role of the institutional environment (comprising both institutions and the strategies and policies of organizations relating to these institutions) in reducing the transaction costs of both domestic and cross border business activity.The distribution of FDI towards services also suggests that a large proportion of foreign investment is undertaken with the purpose of expanding sales and improving the distribution of exports produced in the source countries. China and the Caribbean: An Extended Neighbourhood Approach” find out that FDI flows are generally believed to be influenced by economic indicators like market size. institutions. It is concluded from the above studies that market size. According to this study the principle determinants of FDI flows are prior trade patterns. country – specific factors and the idiosyncratic component account for more of the investment inflows in Europe. fiscal incentives. By setting up an analytical framework the study identifies the determinants of FDI.14 (2004) in his study “Institutional Reform.TEMPORAL STUDIES Dunning John H. This paper looks at FDI inflows in an alternative approach based on the concepts of neighbourhood and extended neighbourhood. in their work “Explaining FDI Inflows to India.

employment. Diverse types of FDI lead to diverse types of spillovers. which emphasizes non – discriminatory treatment of FDI) between nations are found to have a significant impact on attracting aggregate FDI flow as the concepts of neighbourhood and extended neighbourhood are widely applicable in different contexts for different countries.). ~ 15 ~ . SAPTA. It enhances the chances of developing internationally competitive business clusters (e.g. skill transfers and physical capital flows. The increasing numbers of BITs (Bilateral Investment Treaties among nations. It also facilitates exports. ASEAN. It is concluded that FDI plays a positive role in enhancing the economic growth of the host country. NAPTA etc.

higher growth rate. The study shows that the indirect employment effects have been minimal and possibly even negative because of the limited linkages which foreign investors create and the possibility of “crowding out of domestic investment”. They identify that FDI spillovers depend on many factors like absorptive capacities of domestic firms and regions. the technological gap. a country that received considerable inflow of foreign capital in the 1990s as part of its increased integration with the global economy. (1978). debt burden. It is also observed that countries pursuing export led growth strategy and firms in clusters gain more benefits from FDI. It is also found that improve infrastructure. The study observed that inflation. debt burden. The study concluded that the contribution of FDI to economic growth in Nigeria was very low even though it was perceived to be a significant factor influencing the level of economic growth in Nigeria. or the export capacity. examines the impact of FDI on employment in Vietnam. the study finds out that despite the significant share of foreign firms in industrial output and exports.INTER – COUNTRY STUDIES Bhagwati J. Salisu A. Crespo Nuno and Fontoura Paula Maria (2007) in their paper “Determinant Factors of FDI Spillovers – What Do We Really Know?” analyze the factors determining the existence. It is concluded from the analysis of the above studies that political environment. in his study “Anatomy and Consequences of Exchange Control Regimes” analyzed the impact of FDI on international trade. exchange rate. ensure improvements in infrastructural facilities and to put a stop to the incessant social unrest in the country. the direct employment generated has been limited because of the high labour productivity and low ratio of value added to output of much of this investment. FDUI spillovers significantly influence FDI flow to the developing countries. and exchange rate significantly influence FDI flows into Nigeria. Afees (2004) in his study “The Determinants and Impact of Foreign Direct Investment on economic Growth in Developing Countries: A study of Nigeria” examines the determinants and impact of Foreign Direct Investment on economic Growth in Developing Countries using Nigeria as a case study. FDI and Employment in Vietnam”. He concluded that countries actively pursuing export led growth strategy can reap enormous benefits from FDI. higher degree of openness of the host ~ 16 ~ . Rhys Jenkins (2006) in his study “Globalization. dimensions and sign of FDI spillovers. The study suggests the government to pursue prudent fiscal and monetary policies that will be geared towards attracting more FDI and enhancing overall domestic productivity.N. Thus.

economy and higher levels of human capital attract FDI to the developed as well as developing nations. ~ 17 ~ . It augments domestic savings and enhances efficiency of human capital (through transfer of new technology. innovation and best practices). marketing and managerial skills.

The study concludes that the entry of FDI in India’s retailing sector is inevitable. The conclusion of ~ 18 ~ . dislocation of labor. so that their higher costs are taken advantage of by large supermarkets and hypermarkets. in other Asian countries. the prevailing financial situation and the viability of alternatives to FDI. Sharma Rajesh Kumar (2006) in his article “FDI in Higher Education: Official Vision Needs Corrections”. commodity trade and commercial policy in a specific factor model”. India should also draw lessons from restrictions placed on the expansion of organized retailing. foreign investment enhances the social uplift of the people. the government can slow down the process.G (1988) in his study “Effect of Foreign Direct Investment in the presence of sector specific unemployment” extends the work done by Srinivasan (1983) “International factor movements. capital requirement. The study shows that if there are no distortions. by making an analysis of the welfare effects of foreign investment. The study strongly favours import substitution policies since such a strategy provides greater job opportunities to the people and consequently improves their standards of living. Gonzalez J. The government can try to ensure that the domestic and foreign players are more or less on an equal footing and that the domestic traders are not at a special disadvantage. perverse logic and forced conclusions. The small retailers must be given the opportunity to provide more personalized service. its contextual relevance. examines the issues and financial compulsions presented in the consultation paper prepared by the Commerce Ministry. However. This article raises four issues which need critical attention: the objectives of higher education.INTER – INDUSTRY STUDIES Guruswamy Mohan. (2005) in their paper. find that retail in India is severely constrained by limited availability of bank finance. both Srinivasan (1983) and Gonzalez (1998) concluded that foreign direct investment and distortions of the labour market results in social uplift of the people. The study suggests suitable measures like need for setting up of national commission to study the problems of the retail sector and to evolve policies that will enable it to cope with FDI. The article comments on the retail FDI report that as commissioned by the Department of Consumer Affairs and suggests the need for a more comprehensive study. zoning etc. in terms of sourcing. But the study finds that welfare effects of foreign Investment do not explain the pattern of trade in the economy. Sharma Kamal. “FDI in India’s Retail Sector:” More Bad than Good”. Mohanty Jeevan Prakash. Sarma EAS (2005) in his paper ‘Need for Caution in Retail FDI” examines the constraints faced by traditional retailers in the supply chain and give an emphasis on establishment of a package of safety nets as Thailand has done. Thus. which is marked by Shoddy arguments. with the instruments of public policy in its hands. Korah Thomas J.

Higher education will require an investment of Rs. To sum up. ~ 19 ~ .the article is that higher education needs long – term objectives and a broad vision in tune with the projected future of the country and the world.000 to 25. 20. For such a huge amount the paper argues.000 crore over the next five or more years to expand capacity and improve access. it can be said that industrial clusters are playing a significant role in attracting FDI at Inter – industry level. we can look toFDI. It is argued that industries and products that are technology – intensive and have economies of scale and significant domestic content attract FDI at industrial level.

which generates substantial spillovers. Finally.N Sapsford David (2007) in their article “Does India need a lot more FDI” compares the levels of FDI inflows in India and China. The paper also finds that India may not require increased FDI because of the structure and composition of India’s manufacturing. the causal factors that underlie Indian FDI and their specific strengths and weaknesses using data from government files. Morris Sebastian (1999) in his study “Foreign Direct Investment from India: 1964-83” studied the features of Indian FDI and the nature and mode of control exercised by Indians and firms abroad.STUDIES IN INDIAN CONTEXT Balasubramanyam V. enhances learning on the job. whether through exports or when conditions at home put a brake on accumulation and condition abroad permit its continuation. the study concludes by suggesting a realistic foreign investment policy. Neither the “advantage concept” of Kindlebrger. they conclude that the country is now in a position to unbundle the FDI package effectively and rely on sources other than FDI for its requirements of capital. The optimum level of FDI. Naga Raj R (2003) in his article “Foreign Direct Investment in India in the 1990s: Trends and Issues” discusses the trends in FDI in India in the 1990s and compare them with China. The current regime of tariff and narrow export policy are other reasons that have motivated market seeking FDI. The study raises some issues on the effects of the recent investments on the domestic economy. service sectors and her endowments of human capital. The only truly general force is the inexorable push of capital to seek markets. paper. light machinery. and found that FDI in India is one tenth of that of china. ~ 20 ~ . To this effect. 14 case studies of firms in the textiles. and contributes to the growth of productivity. Based on the analytical discussion and comparative experience. and hence are not truly general forces that underlie FDI. is likely to be much lower in India than in other developing countries including China. Also. The country may need much larger volumes of FDI than it currently attracts if it were to attain growth rates in excess of 10 per cent per annum.how from foreign firms to locally own firms. nor the concept of large oligopolies trying to retain their technological and monopoly power internationally of Hymer and Vaitsos are relevant in understanding Indian FDI. consumer durables and oil industry in Kenya and South East Asia are presented. Resources seeking FDI has started to constitute a substantial portion of FDI from India. This study concludes that the indigenous private corporate sector is the major source of investments. India has a large pool of well – Trained engineers and scientists capable of adapting and restructuring imported know – how to suit local factor and product market condition all of these factors promote effective spillovers of technology and know. The requirements of managerial and organizational skills of these industries are much lower than that of labour intensive industries such as those in China.

~ 21 ~ . cheap labour. are the main determinants of FDI inflows to India. Vani Archana (2007) in their paper “Foreign Direct Investment in India: Emerging Horizon”. it can be said that large domestic market.Basu P. which has to be channelized in the form of export promotion for penetration in the new markets.. The study also finds out that R&D as a significant determining factor for FDI inflows for most of the industries in India.C. It reveals that the country is not only cost – effective but also hot destination for R&D activities. To sum up. human capital. centralize decision making processes. The study also reveals strong negative influence of corporate tax on FDI inflows. and a very limited numbers of SEZs make India an unattractive investment location. Nayak N. poor quality infrastructure. however. intends to study the qualitative shift in the FDI inflows in India in – depth in the last fourteen odd years as the bold new policy on economic front makes the country progress in both quantity and the way country attracted FDI. The software industry is showing intensive R&D activity. its stringent labour laws.

51 1. its share in these inflows have being as high as 42.32 See CHART 1. Cyprus.52 3. 3.16 9. United Arab Emirates and their respective share of inflow of FDI are 7. 2. While investors get higher returns on their money in India.S.35.Singapore is second with a share of 9.1 in the appendix ~ 22 ~ . The other major sources of foreign direct investment are from U. 3.07 4.S. 1. The inflows from U.48% respectively. Germany. Britain and the Netherlands. UK.16%. and 1. The tax advantage emanates from the double tax avoidance agreement that India has with that country USA.51%. Japan.A. This agreement means that any foreign investor has the option of paying tax either in India or in Mauritius. The tax rates in Mauritius are amongst the lowest in the world. SHARE OF TOP TEN INVESTING COUNTRIES FDI EQUITY INFLOWS Countries Mauritius Singapore U.35 7.31 1.S.07%. those from Mauritius “get even higher returns on their capital as we have a double taxation avoidance treaty.28 3.28%.52%.A UK Netherlands Cyprus Japan Germany France United Arab Emirates Other countries Share 42. 4.49%. Netherlands.SOURCES OF FDI The largest inflows of FDI’s over the period of April 1990s to October 2010 have been received from Mauritius.A are routed through Mauritius due to tax advantage.49 5. The other big investors included Singapore. 5.51 2.51%.35%. France.48 19. the US.

Foreign direct investment is included in GDP and much has been done to uncover the relationship between FDI and growth. the effect of FDI inflow is not so clear. He claimed that FDI inflow to the manufacturing sector has a positive effect on growth whereas FDI inflow to the primary sector tends to have a negative effect on growth. Alfaro (2003) concluded that the contribution of FDI to growth depends on the sector of the economy where the FDI operates. (See Chart 2. 2003). many researchers have concluded that FDI has positive impact on growth. GDP includes all the production within the country for the given period. Some research works agree that the FDI contribution to growth is positive but depends on some factors in the host country. Many research works have shown that the contribution of FDI to growth is positive.1 in the appendix) ~ 23 ~ . The impact of FDI on growth also depends on the local condition of the host countries. However. Using different data and methodologies. an economy with a well-developed financial sector gains more from FDI (Alfaro et al. For the service sector.FDI AND GROWTH GDP growth is usually the parameter to measure the economic growth of a country even though it is not the only parameter.

within industry and across other industries in the region. It is found that bigger diversity of types of FDI lead to more diverse types of spillovers and skill transfers which proves more favourable for the host economy. debts. Institutional environment (comprising both institutional strategies and policies of organizations relating to these institutions) plays critical role in reducing the transaction costs of both domestic and cross border business activity. stable political environment etc. The foregoing review of empirical literature confirms and highlights the following facts: Institutional infrastructure and development are the main determinants of FDI inflows in the European transition economies. It is found that in developing economies FDI and economic growth are mutually supporting.e. ~ 24 ~ . the concept of neighbourhood and extended neighbourhood is also gaining importance especially in Europe. exports. infrastructural facilities. The principle determinants of FDI in these countries are IT – related investments. In industrial countries high labour costs encourage outflows and discourage inflows of FDI. source and destination countries. In other words economic growth increases the size of the host country market and strengthens the incentives for market seeking FDI. The main determinants of FDI in developing countries are inflation. infrastructure facilities. It is also observed that bidirectional causality exist between FDI and economic growth i. It is also found that apart from market size. trade and cross – border mergers and acquisitions. FDI spillovers. exchange rate. growth in GDP attracts FDI and FDI also contributes to an increase in output. China and India. FDI plays a crucial role in employment generation/ preservation in Central Europe. Studies which underlie the effects of FDI on the host countries economic growth shows that FDI enhance economic growth in developing economies but not in developed economies. burden. institutions.FINDINGS FROM REVIEW OF LITERATURE The above review of literature helps in identifying the research issues and gaps for the present study. It is found that firms in cluster gain significantly from FDI in their region.

3. 2. FDI and foreign reserves) ~ 25 ~ . Foreign Reserves also has a positive relation with the growth of the economy. FDI has a positive impact on economic growth of the country. FDI and foreign reserves) H1: β2 ≠β3 (there exists a relation between GDP. Flow of FDI shows a positive trend over the period 1991-2011. H0: β2=β3= 0 (there is no relation between GDP.HYPOTHESES The study has been taken up for the period 1991-2011 with the following hypotheses: 1. i.e.

India stat etc. Y= α + β1x1+β2x2+ui where Y = Dependent variable(GDP) α = intercept. It is a time series data and the relevant data have been collected for the period 1991 to 2011. World Investment Reports. magazines. of India. Department of State and from websites of World Bank. To work out the trend analyses the following formula is used: a) Trend Analysis i. RBI. IMF. x1 = independent variable (which is FDI).. DATA COLLECTION This study is based on secondary data. Ministry of Commerce and Industry. U. Govt. Country Reports on Economic Policy and Trade Practice.e. UNCTAD. The secondary data was collected from various journals. Asian Development Outlook. Asian Development Bank’s Reports.S. The study is based on the time period from 1995-2011. WTO. Simple percentages have been used to defect the growth rate of India and world GDP and to draw further comparison between the two. ~ 26 ~ . United Nations.Bureau of Economic and Business Affairs. EXIM Bank etc. ANALYTICAL TOOLS In order to analyse the collected data the following mathematical tool was used. and websites particularly from the Department of Industrial Policy & Promotion. β= slope of the regression line (or the rate of change in y for a given change in x).e. The required data have been collected from various sources i. various statistical and mathematical tools were used. Economic and Social Survey of Asia and the Pacific. various Bulletins of Reserve Bank of India. Graphs and tables have also been used where ever required to depict statistical data of FDI during the study period. publications from Ministry of Commerce. x2= independent variable(which is FOREIGN RESERVES) In order to analyse the collected data.RESEARCH METHODOLOGY This research is a descriptive study in nature.

desirability and reliability of model estimation parameters. Multiple regression analysis was used to identify the major variables which have impact on Gross domestic Product. FDI= Foreign Direct Investment GDP= Gross Domestic Product calculated at factor cost Forex= Foreign Exchange Reserves Regression analysis (Multiple Regression) was carried out using relevant econometric techniques. Relevant econometric tests such as coefficient of determination R2. Standard error of coefficients. one model was framed and fitted. to study the impact of foreign direct investment on economic growth. Forex) Where.ratio were carried out in order to assess the relative significance. T Statistics and F.MODEL BUILDING Further. ~ 27 ~ . The economic growth model depicts the contribution of foreign direct investment to economic growth. The model equation is expressed below: GDPi=f(FDI. Durbin – Watson [D-W] statistic.

They both consider FDI as the most suitable form of external finance. The period under study is important for a variety of reasons. it was during July 1991 India opened its doors to private sector and liberalized its economy. main determinants and investment flows to India. increase in competition for FDI inflows particularly among the developing nations. there is a considerable change in the attitude of both the developing and developed countries towards FDI. the experiences of South-East Asian countries by liberalizing their economies in 1980s became stars of economic growth and development in early 1990s. The shift of the power center from the western countries to the Asia sub – continent is yet another reason to take up this study. The study is important from the view point of the macroeconomic variables included in the study as no other study has included the explanatory variables which are included in this study. bilateral and regional investment agreements among the Asian countries and emergence of Asia as an economic powerhouse (with China and India emerging as the two most promising economies of the world) develops new economics in the world of industralised nations. FDI incentives. The study works out the trends and patterns.2011. Fifthly. The study also examines the role of FDI on economic growth in India for the period 1990-2010.IMPORTANCE OF THE STUDY It is apparent from the above discussion that FDI is a predominant and vital factor in influencing the contemporary process of global economic development. ~ 28 ~ . First of all. removal of restrictions. Thirdly. The study is appropriate in understanding inflows during 1991 . Secondly. The study attempts to analyze the important dimensions of FDI in India. India’s experience with its first generation economic reforms and the country’s economic growth performance were considered safe havens for FDI which led to second generation of economic reforms in India in first decade of this century. Fourthly.

Therefore. No proper methods were available to segregate the effect of FDI to support the validity of this assumption. the basic objective of the study is suffered due to inadequacy of time series data from related agencies. the trends. For example. 2. The assumption that FDI was the only cause for development of Indian economy in the post liberalised period is debatable. ~ 29 ~ . At various stages.LIMITATIONS OF THE STUDY All the economic / scientific studies are faced with various limitations and this study is no exception to the phenomena. There has also been a problem of sufficient homogenous data from different sources. The various limitations of the study are: 1. growth rates and estimated regression coefficients may deviate from the true ones. the time series used for different variables. the averages are used at certain occasions.

DATA PREPARATION AND ANALYSIS FOREIGN DIRECT INVESTMENT (FDI) Economic growth has a profound effect on the domestic market as countries with expanding domestic markets should attract higher levels of FDI inflows. the country’s annual growth rate has averaged 8. As a result of India’s economic reforms.4% in 2009-10.1 in the appendix) Fdi inflow US$(million) 77 204 375 802 1289 2141 2770 3682 3083 2439 2463 4065 2705 2188 3219 5540 12492 24575 27330 25834 FDI showed a major rise since 2005. The generous flow of FDI is playing a significant and contributory role in the economic growth of the country. India’s FDI touched $ 27330 million Up 10 % against $ 24575 million in 2007-08 and the country’s foreign exchange reserves touched a new high of $ 279057 million in 2009-10. In 2009-2010. FDI INFLOW IN INDIA(IN US $ MILLIONS) Year 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-2000 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 (See CHART 3. ~ 30 ~ .FDI is main independent variable.

considered FDI as the safest type of external finance as it not only supplement domestic savings.39% and 7. we can find that the largest recipient of such investment is service sector (Financial and non-financial services). The share of this sector in cumulative FDI flows is 21% of the inflow total foreign direct investment. ~ 31 ~ . skills. Housing and real estate. Whereas all the other sectors totally contribute about 47. 7.81%. in particular. India represents a promising macroeconomic story. and domestic competition.14%. liberal policy changes and procedural relaxation made by the government from time to time. Developing countries. FDI has become an instrument of international economic integration. foreign reserves but promotes growth even more through spillovers of technology. increased innovative capacity. Central Europe and Western Europe. Similarly.5% of total FDI. SECTORAL COMPOSITION OF FDI The Sectoral composition of FDI over the period of April 2000 to October 2010.15% respectively. All this could be attributed to the rapid growth of the economy and favourable investment process. construction activities and power sector contribute 8. In the last two decades the pace of FDI flows are rising faster than almost all other indicators of economic activity worldwide.Notwithstanding some concerns about the large fiscal deficit. The foreign investors are interested in mainly financial services due its profit generating advantage. The keys takeaways regarding global flows are – the increase in the relative share of developing countries as both destination and sources and flow to the sector gaining over manufacturing. UNCTAD’s World Investment Report 2005 considers India the 2nd most attractive investment destination among the Transnational Corporations (TNCs). The second recipient is computer software and hardware sector which shares 8. According to a survey conducted by Ernst and Young19 in June 2008 India has been rated as the fourth most attractive investment destination in the world after China. with potential to sustain high economic growth rates. This sector gives scope for the foreign investor to takes back the profits to the home country. TRENDS AND PATTERENS OF FDI INFLOWS One of the most prominent and striking feature of today’s globalised world is the exponential growth of FDI in both developed and developing countries. As service sector the services are consumed in the host country and there by generating outflow of funds from the host country. Now a days.

Sectoral composition of FDI Service Sector Computer and Hardware Housing and Real Estate Construction 210 8.39 Power Other Sectors 7.14 7.2 in the appendix) ~ 32 ~ .8 (See CHART 3.5 8.15 47.

in $ million) Year 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-2000 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-2011 (See CHART 3. India makes its presence felt by making remarkable progress in information technology. By achieving a growth rate of 9% in three consecutive years opens new avenues to foreign investors from 2004 until 2010. GROSS DOMESTIC PRODUCT (amt. The tremendous growth in GDP since 1991 put the economy in the elite group of 12 countries with trillion dollar economy.37 percent reaching an historical high of 9. high end services and knowledge process services.49 percent in 2006. India’s GDP growth was 8.GROSS DOMESTIC PRODUCT (GDP) Gross Domestic Product is used as one of the DEPENDENT variable.4 in the appendix) Gdp 204427 215393 227629 242186 259837 388343 410915 416252 450476 460182 477848 507189 599461 721573 834035 951339 1242426 1213782 1380460 1729010 ~ 33 ~ .

The present study uses GDP at factor cost (GDPFC) with constant prices as one of the explanatory variable to the FDI inflows into India for the aggregate analysis. There is direct relationship between the market size and FDI inflows. large human capital (which has benefited immensely from outsourcing of work from developed countries). Gross Domestic Product at Factor cost (GDPFC) as the macroeconomic variable of the Indian economy is one of the pull factors of FDI inflows into India at national level.India’s diverse economy attracts high FDI inflows due to its huge market size. ~ 34 ~ . an economy with higher GDPFC will attract more FDI inflows. If market size of an economy is large than it will attract higher FDI inflows and vice versa i.e. It is conventionally accepted as realistic indicator of the market size and the level of output. In the present decade India has witnessed unprecedented levels of economic expansion and also seen healthy growth of trade. GDP reflects the potential market size of Indian economy. low wage rate. The relevant data on GDP have been collected from the various issues of Reserve bank of India (RBI) bulletin and Economic Survey of India.

057 million as on March 2010.179 3.687 26.51. in $ million) YearsYears 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 FOFOREX 4352 9220 9832 19254 25186 21. increased gradually to $54.622 1.036 42. hold the largest foreign exchange reserves globally and India is among the top 10 nations in the world in terms of foreign exchange reserves.367 32. after which rose steadily reaching a level of $199. and China) countries. India. Russian Federation. The emerging economic giants. special drawing rights (SDR) and Reserve Tranche Position (RTP) in the International Monetary Fund. India is also the world’s 10th largest gold holding country (Economic Survey 2009-10)17.100 1.12.106 76. The reserves.FOREIGN EXCHANGE RESERVES India’s foreign exchange reserves comprise foreign currency assets (FCA). India’s foreign exchange reserves have grown significantly since 1991.423 29.514 1. gold.490 38.09.99.723 ~ 35 ~ . The reserves stood at $279. the BRIC (Brazil. which stood at $4352 million at end march 1991.179 million in March 2007.281 54.959 1. Stock of foreign exchange reserves shows a country’s financial strength.41.106 million by the end of March 2002. Data on FOREIGN EXCHANGE RESERVES (Amt.

057 by March 2010. an adequate FDI inflow adds foreign reserves by exchange reserves which put the economy in better position in international market.79.51. commodity prices.985 2. credit risks. ~ 36 ~ . market risks.330 Further. liquidity risks and operational risks but it also helps the country to defend itself from speculative attacks on the domestic currency.057 2. Adequate foreign reserves of India indicates its ability to repay foreign debt which in turn increases the credit rating of India in international market and this helps in attracting more FDI inflows in the country.74. An analysis of the sources of reserves accretion during the entire reform period from 1991 onwards reveals that increase in net FDI from $9220 million in 1991-92 to $279.5 in the appendix) 2.2008-09 2009-10 2010-2011 (See CHART 3. It not only allows the Indian government to manipulate exchange rates.

FOREX) Descriptive Statistics Mean Std.3819 8837.INTERPRETATION AND RESULTS ECONOMIC GROWTH MODEL GDPi= f(FDIi . however the mean for GDP i.  Std. Deviation N gdp fdi forex 440665. 646647.e. 646647. ~ 37 ~ . of observations are 20 for all variables i.550  Mean = The mean values of FDI are 6363.150.0058 20 20 20 646647.150 is positive since is a positive value.3819 which explains that the GDP values over the time deviates to the extent of 440665. from year 1991-2011.150 6363.3819 from its mean i.e.40035 103317. deviation=the standard deviation of GDP is 440665.  The no.6500 105217.e.65 which is positive.

.899 1.840 .962 .000 .000 . ~ 38 ~ .840 1.899 .000 . .000 .962 .000 .000 .000 20 20 20 Fr . 20 20 20 Karl Pearson coefficient of correlation is calculated for finding out the degree of correlation between three variable and all values are close to 1 which represents high correlation between three variables There is a positive correlation between GDP and FDI 0.000 .962. (1-tailed) N Gdp Fdi forex Gdp Fdi forex Gdp Fdi forex Gdp 1.000 20 20 20 Fdi .Correlations Pearson Correlation Sig.899 which represents a high degree of correlation between GDP and FDI and there is a positive correlation between GDP and Foreign reserves 0.

forex. Dependent Variable: gdp b. it is considered as a better measure of goodness of fit and represents how well the data fits to the regression line.  R2(coefficient of determination)= it is nothing but the squared value of r or ESS/TSS.977 which shows a high degree of correlation between the variables.00 shows that model is significant at 1%.4% variation in GDP is explained by FDI AND FOREX.in this case it .56593 a. Error of Square Square the Estimate a 1 . 5% ~ 39 ~ Sig.173 Note: * = Significant at 1% and 5% both F .  Std. fdi b.768 . Predictors: (Constant).  Adjusted R square 0.000* 170192378564. Dependent Variable: gdp  R = r i.95 which is adjusted to degrees of freedom and represents a better results. error= std.802 175.604 2 1 Residual Total 3689533598120.954 which is quite close to 1 representing low level of residual values. ANOVA Model Sum of Squares Df Mean Square Regression 3519341219555.550 19 a.56593 from the mean. error is the std. fdi Significance level 0.977 .948 100056. Predictors: (Constant).Model Summary Model R R Adjusted R Std. 1759670609777. which represents that the sample values deviates by the extent of 100056. deviation of the sample. forex.947 17 10011316386. This also explains that that 95.954 . overall coefficient of correlation is .e.

Collinearity Statistics Tolerance VIF .295 3.Inflation and Interest rate.516+15.409) FOR STANDARDISED COFFECIENTS GDP= 0.100 3.393 ANALYSIS OF IMPACT OF FDI AND FOREX ON GDP GDP=233295.785 . Error Beta (Constant) 233295.Coefficients Model Unstandardized Standardized Coefficients Coefficients B Std.061) (4.061 Fdi 15.309(FDI)+0.309 Forex 2. constant.e.forex and gold reserves with RBI.421(FDI) +2. ui refers to the residual term which consists of vaiables other than FDI and FOREX that effect GDP.000 .996 .702(FOREX)      In the Study GDP is the dependent variable 233295.409 . Dependent Variable: GDP T 7.320 Sig.393 .g. FDI is the first independent variable FOREX is the another independent variable.516 is the intercept term i.516 32859.000 .421 4.295 3.223 7. ~ 40 ~ .for e.996(FOREX) (32859.005 .702 a.785) (0.

12 .482 1.00 shows that model is significant at 1% 5% and10%.085 5.85 .000 1 2 .96 INTERPRETATION  The intercept term 233295.516 mln.72 .409 a.01 .S $233295.516 explains that even at zero level of FDI.05 .22 .2  Model is statistically significant and there is no multicollinearity in the model.Collinearity Diagnostics Mode Dimensio Eigen Condition l n value Index 1 2.395 3 .03 .02 . ~ 41 ~ .FOREX and other factors the GDP will be U.  Significance value 0. Dependent Variable: GDP Variance Proportions (Constant) Fdi forex .433 2.  Variance inflating factor is below 10 so there is no multicollinearity in the model and tolerance level is also above 0.

in other words no asymmetry exists.Normally distributed The histogram represents that the dependent variable GDP is normally distributed. And since it is normally distributed the degree of skewness is 0. ~ 42 ~ .

I ~ 43 ~ .The normal probability plot explains how the residual terms are distributed over the time. The straight upward sloping line represents the ideal condition and the closer residual plots are to the line the better it is.

these macroeconomic variables have a profound impact on the GDP in India. ~ 44 ~ . the study observes that FDI is a significant factor influencing the level of economic growth in India. It provides a sound base for economic growth and development by enhancing the financial position of the country. This analysis also helps the future aspirants of research scholars to identify the main determinants of FDI at sectoral level because FDI is also a sector – specific activity of foreign firms’ vis-à-vis an aggregate activity at national level. It helps in increasing the trade in the international market. it has failed in raising the R&D and in stabilizing the exchange rates of the economy. The positive sign of exchange rate variables depicts the appreciation of Indian Rupee in the international market. However. Further. the above analysis helps in identifying the major determinants of FDI in the country. FDI plays a significant role in enhancing the level of economic growth of the country. Finally.CONCLUSIONS It is observed from the results of above analysis that FDI and FOREX are the main determinants of GDP to the country. The results of Economic Growth Model and Foreign Direct Investment Model show that FDI plays a crucial role in enhancing the level of economic growth in the country. This appreciation in the value of Indian Rupee provides an opportunity to the policy makers to attract FDI inflows in Greenfield projects rather than attracting FDI inflows in Brownfield projects. In other words.

Moreover. India as the founding member of GATT. This can be attributed to the economic reform process of the country for the last eighteen years. but there has been a generous flow of FDI in India since 1991.3% in 2007 as compared to 0. India has substantially increased its list of source countries in the post – liberalisation era. The main findings of the study are as under: Trends and Patterns of FDI flows at World level: It is seen from the analysis that large amount of FDI flows are confined to the developed economies. The other preferred destinations apart from China and above to India are Brazil. Mexico and Russia. ~ 45 ~ .FINDINGS AND SUGGESTIONS Therefore from the above study and research. India has signed a number of bilateral and multilateral trade agreements with developed and developing nations. It has become the 2nd fastest growing economy of the world. FDI plays a crucial role in enhancing the economic growth and development of the country. India is at 5th position among the major emerging destinations of global FDI inflows. it may be concluded that developing countries has make their presence felt in the economics of developed nations by receiving a descent amount of FDI in the last three decades. India’s share in World FDI rose to 1. This section highlights the main findings of the study and sought valuable suggestions.7% in 1996. WTO.2007. It is found that FDI inflows to India have increased from 11% in 1990-99 to 69% in 2000. No doubt. resulting in substantial amount of FDI inflows in the country. FDI as a strategic component of investment is needed by India for achieving the objectives of its second generation of economic reforms and maintaining this pace of growth and development of the economy. a signatory member of SAFTA and a member of MIGA is making its presence felt in the economic landscape of globalised economies. Although India is not the most preferred destination of global FDI. But there is a marked increase in the FDI inflows to developing economies from 1997 onwards. Developing economies fetch a good share of 40 percent of the world FDI inflows in 1997 as compared to 26 percent in 1980s. China is the most attractive destination and the major recipient of global FDI inflows among emerging nations. The economic reform process started in 1991 helps in creating a conducive and healthy atmosphere for foreign investors and thus.

In order to have a generous flow of FDI. Infact. India’s economy has been growing more than 9 percent for three consecutive years since 2006 which makes the country a prominent performer among global economies.4 percent) and Japan (3. It is the 11th largest economy in terms of industrial output and has the 3rd largest pool of scientific and technical manpower.2 percent).5 percent in 2003-04 to 2.4 percent). India has considerably decreased its fiscal deficit from 4.Trends and patterns of FDI flows at Indian level: Although India’s share in global FDI has increased considerably. Due to the continued economic liberalization since 1991. but the pace of FDI inflows has been slower than China. There has been a generous flow of FDI in India since 1991 and its overall direction also remained the same over the years irrespective of the ruling party. Economic reform process since 1991 have paves way for increasing foreign exchange reserves to US$ 251985 million as against US$ 9220 million in 1991. India has seen a decade of 7 plus percent of economic growth.1 percent). India has received maximum number of financial collaborations as compared to technical collaborations.6 percent to 1.7 percent in 2007-08 and revenue deficit from 3.1 percent in 2007-08.92. UK. Singapore (7. and Russia. USA. It is observed that India received a cumulative FDI flow of $127273 million during 1991 to march 2011. India has maintained Double Tax Avoidance Agreements (DTAA) with nearly 70 countries of the world. Mauritius. Netherlands (4. India received large amount of FDI from Mauritius (nearly 40 percent of the total FDI inflows) apart from USA (8. Singapore.8 percent).K (6. ~ 46 ~ . Netherlands and Singapore). India has received increased NRI’s deposits and commercial borrowings largely because of its rate of economic growth and stability in the political environment of the country. At present India is the 4th largest and 2nd fastest growing economy in the world. Brazil. U. It is also found that although the list of sources of FDI flows has reached to 120 countries but the lion’s share (66 percent) of FDI flow is vested with just fivecountries (viz.

R&D activities. Indeed. ~ 47 ~ . Zit is also needed in the healthcare. The government must promote policies which allow development process starts from within (i. infrastructure. education. it is found that FDI as a strategic component of investment is needed by India for its sustained economic growth and development. So. Finally.e. Government must target at attracting specific types of FDI that are able to generate spillovers effects in the overall economy. It is also suggested that the government while pursuing prudent policies must also exercise strict control over inefficient bureaucracy. dynamic products. retailing and in longterm financial projects. as medium of technological learning and technology diffusion and also in providing access to the external market. Indeed.tapism. and the rampant corruption. Government should open doors to foreign companies in the export – oriented services which could increase the demand of unskilled workers and low skilled services and also increases the wage level in these services. so that investor’s confidence can be maintained for attracting more FDI inflows to India. This could be achieved by investing in human capital. through productive capacity and by absorptive capacity). the study recommends the following suggestions: The study urges the policy makers to focus more on attracting diverse types of FDI. It is also observed that the realisation of approved FDI into actual disbursement is quite low. and exports. SUGGESTIONS Thus. infrastructure and sectors with high income elasticity of demand. productive capacity. Last but not least. R&D. The policy makers should design policies where foreign investment can be utilised as means of enhancing domestic production.Mauritius and United states are the two major countries holding first and the second position in the investor’s list of FDI in India. expansion of existing manufacturing industries and development of the new one. red . India needs a business environment which is conducive to the needs of business. it is suggested that the policy makers should ensure optimum utilisation of funds and timely implementation of projects. environmental issues. the study suggests that the government ensures FDI quality rather than its magnitude. FDI is necessary for creation of jobs. savings.

(1992-93): Ministry of Finance. New Delhi.2. Government of India. Crespo Nuno and Fontoura Paula Maria (2007) “Determinant Factors of FDI Spillovers – What Do We Really Know?” Ernst and Young (2008). www.managementparadise. China and the Caribbean Morris Sebastian (1990): “Foreign Direct Investment from India: 1964-83”. “Anatomy and Consequences of Exchange Control Regimes” Andersen P. Economic Survey. 31. Nayak N. Vol.1701-1712. (2003-04): Ministry of Finance. (2009-10): Ministry of Finance. No.com Bhagwati J. Economic and Political Weekly. Guruswamy Mohan. Economic Survey. 2314-2331. “Explaining FDI Inflows to India. Mohanty Jeevan Prakash.REFERENCES RESEARCH JOURNALS. pp. Sharma Kamal. ARTICLES AND SURVEYS Basu P.S and Hainaut P.3 (2004) “Foreign Direct Investment and Employment in the Industrial Countries” Iyare Sunday O. Banik Arindam28 (2004). ~ 48 ~ . Vol. New Delhi.G (1988) “Effect of Foreign Direct Investment in the presence of sector specific unemployment”. Economic Survey. pp. Indian Economic Review. “FDI in India’s Retail Sector:” More Bad than Good” NagaRaj R (2003): “Foreign Direct Investment in India in the 1990s: Trends and Issues”. Archana (2007): “Foreign Direct Investment in India: Emerging Horizon”. Economic and Political Weekly. New Delhi. Sarma EAS (2005) ‘Need for Caution in Retail FDI” Gonzalez J. (1978). Bhaumik Pradip K.. Korah Thomas J.C. (2005).N. Government of India. XXXXII. Government of India. RBI (2002): Handbook of Statistics on the Indian Economy. Reserve Bank of India.

Finance Minister’s Speech in Parliament. World Investment Report (WIR).wto.ifc. FDI and European Transition Economics” Balasubramanyam V. Salisu A. Union Budget (2007-08). Afees (2004) “The Determinants and Impact of Foreign Direct Investment on economic Growth in Developing Countries: A study of Nigeria” Rhys Jenkins (2006) “Globalization.org ~ 49 ~ . United Nations Conference on Trade and Development (UNCTAD) 2005.worldbank.imf.org www.N Sapsford David (2007) “Does India need a lot more FDI” WEBSITES www. FDI and Employment in Vietnam” Dunning John H. United Nations Conference on Trade and Development (UNCTAD) 2007. World Investment Report (WIR).org www.org www.Sharma Rajesh Kumar (2006) “FDI in Higher Education: Official Vision Needs Corrections”. United Nations Conference on Trade and Development (UNCTAD) 1999.rbi.org www.14 (2004) “Institutional Reform. World Investment Report (WIR).

48 1.28 5.2 SHARE OF TOP TEN INVESTING COUNTRIES FDI EQUITY INFLOWS 45 40 35 30 25 20 15 10 5 0 Series1 ~ 50 ~ .32 UK 1.31 3.APPENDIX LIST OF CHARTS SHARE OF TOP TEN INVESTING COUNTRIES FDI EQUITY INFLOWS Chart 1.51 2.07 42.51 3.S.A 19.16 Netherlands Cyprus Japan Germany 7.52 4.1 Mauritius Singapore U.49 France 9.35 United Arab Emirates Other countries Chart 1.

in US Million $ Chart 2.1 Fdi Inflow In India Trend: FDI INFLOW Movement of Fdi inflow in India Fdi inflow .30000 20000 10000 0 Years ~ 51 ~ 2009-10 2008-09 2007-08 2006-07 2005-06 2004-05 2003-04 2002-03 2001-02 2000-01 1999-… 1998-99 1997-98 1996-97 1995-96 1994-95 1993-94 1992-93 1991-92 1990-91 Amt.1 Growth Rate Of GDP Chart 3.

Chart 3.15 .81 8.5 8.3 Sector Wise FDI Inflow In India SECTOR WISE FDI INFLOW % GROWTH RATE 60 50 40 30 20 1 10 21 0 47.2 REGIONAL WISE FDI INFLOW IN INDIA Chart 3.14 7.39 SECTORS ~ 52 ~ 7.

in $ millions (amt.C CH HA AR RTT 33.. in $ million) Gross Domestic Product 400000 200000 0 Years CHART 3.5 Foreign exchange reserves in india FOREX 400000 Years ~ 53 ~ 2009-10 2008-09 2007-08 2006-07 2005-06 2004-05 2003-04 2002-03 2001-02 2000-01 1999-00 1998-99 1997-98 1996-97 1995-96 1994-95 1993-94 1992-93 1991-92 1990-91 0 2010-… 200000 FOREX .44 G GR RO OSSSS D DO OM MEESSTTIIC C PPR RO OD DU UC CTT Amt.

52 3.48 19.1 SHARE OF TOP TEN INVESTING COUNTRIES FDI EQUITY INFLOWS Countries Mauritius Singapore U.51 2.31 1.49 5.LIST OF TABLES Table 1.32 ~ 54 ~ .16 9.51 1.28 3.A UK Netherlands Cyprus Japan Germany France United Arab Emirates Other countries Share 42.07 4.S.35 7.

14 7.39 Power Other Sectors 7.8 ~ 55 ~ .1 FDI INFLOW IN INDIA(IN US $ MILLIONS) Year 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-2000 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 Fdi inflow US$(million) 77 204 375 802 1289 2141 2770 3682 3083 2439 2463 4065 2705 2188 3219 5540 12492 24575 27330 25834 Table 3.3 Sectoral composition of FDI Service Sector Computer and Hardware Housing and Real Estate Construction 210 8.5 8.Table 3.15 47.

TTaabbllee 33. in $ million) Year 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-2000 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-2011 Gdp 204427 215393 227629 242186 259837 388343 410915 416252 450476 460182 477848 507189 599461 721573 834035 951339 1242426 1213782 1380460 1729010 ~ 56 ~ ..44 G GR RO OSSSS D DO OM MEESSTTIIC C PPR RO OD DU UC CTT (amt.

41.74.281 54.179 3.959 1.Table 3.985 2.79.687 26.622 1.723 2.367 32. in $ million) YearsYears 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-2011 FOFOREX 4352 9220 9832 19254 25186 21.5 Data on FOREIGN EXCHANGE RESERVES (Amt.12.51.490 38.514 1.09.057 2.99.330 ~ 57 ~ .036 42.100 1.106 76.51.423 29.

~ 58 ~ .