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INTERNATIONAL JOURNAL OF BUSINESS MANAGEMENT AND SCIENTIFIC RESEARCH
VOL : 17, May 2016

“A STUDY ON IMPACT OF ‘MAKE IN INDIA’ INITIATIVE ON FDI

INFLOWS IN INDIA”
PRIYA MANCHANDA
Senior Research Fellow ,Panjab University, Chandigarh

REETI GAUR
Senior Research Fellow University Business School, Punjabi University, Patiala
ABSTRACT
With the advent of the new knowledge economy, the old and some of the existing management constructs
and approaches would have to change. This changed economy places a thrust on the existing policies,
laws and regulations so that the economy can adapt itself to this globalized business arena. In this
advent, the government made an attempt to liberalize the trade policy by reducing the restrictions on
FDI inflow as FDI inflow acts as a stimulant to the growth process for the economy as a whole. The
government in this regard launched ‘Make in India’ initiative which focused on removing the barriers
on FDI investment in India across various sectors. The present study made an attempt to examine the
impact of ‘Make in India’ initiative on FDI inflows. The study is based on secondary data
(collected from various reports like Reserve Bank of India Database on Indian Economy, database of
department of Industrial Policy and Promotion). The results of the study revealed that after the
introduction of ‘Make in India’ initiative, the FDI inflows increased significantly across various sectors
from different countries.
INTRODUCTION
The insight of the role foreign direct investment (FDI) inflows plays in the development process has
evolved over time. Starting from the mid‐sixties when the function of FDI in economic development
was recognized and barriers to the flow of FDI from industrialized to developing countries were sought
to be removed there was a jagged change in the early 1970s. The economic growth witnessed during the
past two decades in India rests to a great extent on Foreign Direct Investment (FDI). FDI has been a vital
non-debt financial force behind the economic upsurge in India. Special investment benefits like tax
exemptions and cheap cost wages on the amount being invested magnetize foreign companies to invest
in India. FDI in India is done across a wide range of industries and its relentless arrival reflects the
tremendous scope, faith and trust that foreign investors have in the Indian economy.
The Indian government has taken a number of steps to boost FDI inflow into the country. One such step
is ‘Make in India’ initiative which was launched in September 2014 by Prime Minister Prime
Minister Narendra Modi. This initiative was launched with the objective of liberalizing the FDI
norms so that multinational as well as national companies get encouraged to manufacture their products
in India.
Make in India initiative focused on 25 sectors. The government allowed 100% FDI in all the sectors
given below, with the exception of space (74%), defence (49%) and news media (26%). The key sectors
wherein the relaxation norms have been introduced are;

1
 ectors Across which Make in India Initiative Introduced Relaxation
Automobiles Defence manufacturing Media and Entertainment Renewable Energy
Automobile Roads and
Electrical Machinery Mining
Components Highways
Space and
Aviation Electronic systems Oil and Gas
astronomy
Textiles and
Biotechnology Food Processing Pharmaceuticals
Garments
Information Technology and
Chemicals Ports and Shipping Thermal Power
Business process management
Tourism and
Construction Leather Railways
Hospitality
MAKE IN INDIA AND FDI INFLOW
The Make in India initiative resulted into affirmative changes in the FDI flow in the country which is a
positive sign for the growth of the country as a whole. Statistical reports of Ministry of finance showed
that after the launch of ‘Make in India’ initiative in September 2014, Investment commitments worth
$45.68 billion have been made through Foreign Direct Investment (FDI) inflows. The investment
commitments have been made in the period between October 2014 and December 2015. The department
of Industrial Policy and Promotion in its reports showed that the country received $29.44 billion foreign
direct investment (FDI).
As the government has put in place a transparent and liberal policy for FDI in which most of the sectors
are open to FDI under automatic route. This resulted into significant increase in FDI through automatic
route. The reports showed that over 90% of the total FDI received during April-December 2016 came
through automatic route. After the launch of ‘Make in India’ initiative (up to December 2015), FDI
equity flow through automatic route and approval route is 90.24% and 9.76% respectively.
According to Nomura, Japanese financial services firm, India may surpass China in attracting foreign
direct investment, as after the implementation of the reforms in India; the gap in inflows between the
two has been narrowing. This report further added that moderating inflows to China and the trend of
rising inflows in India are likely driven by a blend of pull and push factors like ongoing FDI
liberalization, economic reforms in India and divergent growth outlooks compared to increasing labour
cost in China.
OBJECTIVES OF THE STUDY
The present study made an attempt to analyse the changes in FDI inflows after the introduction of ‘Make
in India’ initiative. The study used various parameters i.e. FDI inflow through different routes, month-
wise changes in FDI inflows, country-wise FDI inflows to examine the same.
LITERATURE REVIEW
Aggarwal.S, et al. (2012) in their paper studied the need of FDI in India, to exhibit the sector-wise &
year-wise analysis of FDI’s in India, to rank the sectors based upon highest FDI inflows. The results
revealed that Mauritius is the country that has invested highly in India followed by Singapore, Japan,
and USA and so on. Following the results of Aggarwal.S, et al. (2012) , Vyas, A.V. (2015) in his study
highlighted country wise approvals of FDI inflows to India and the FDI inflows in different sector for
the period April 2000 to June 2015. The findings of the study were in congruence to the findings of
Aggarwal.S, et al. (2012) that Mauritius emerged as the most dominant source of FDI contributing .
Sagar. R, and Lalitha, (2013) in their study found that the country is far behind in comparison to some
of the developing countries like China. However, traditional industrial sectors like food processing
industries, textiles, etc. which were once important sectors attracting larger FDI, have given way to
modern industrial sectors like electronics and electrical equipments, etc.
Sangwan, S. (2015) in her study focused on the changes in FDI rate after the introduction of Make in
India initiative and growth due to increase in the FDI rate. She found that there is high correlation
between Industrial Production and FDI inflows. Rao.M et.al (2015) in their conceptual paper gave the
sector-wise distribution of FDI inflow to know about which has concerned with the chief share. He
found that the inflow of FDI in service sectors and construction and development sector gained much
interest of investors whereas in other sectors it has been quite poor.
RESEARCH METHODOLOGY
The study is descriptive in nature. Secondary data has been used for the purpose of analysis. The data on various
quantitative variables have been collected from various reports like Reserve Bank of India Database on Indian
Economy, database of department of Industrial Policy and Promotion. Tables have been used for the purpose of
analyzing the relationship between ‘Make in India’ initiative launched in September 2014 and FDI inflows in
India.
DATA ANALYSIS (COMPARISON OF FDI FLOWS)
‘Make in India’ initiative resulted into significant changes in the FDI flow across various sectors.
Reports also showed country wise differences in the flow of FDI. The table shows the data pertaining to
changes in FDI post the launch of the ‘Make in India’ initiative.
Table 1
Data pertaining to FDI inflows (month-wise)

Source: Reserve bank of India

Table 1 is showing data pertaining to month-wise changes in FDI inflows. Results of the data revealed
that post the launch of the ‘Make in India’ Initiative in September 2014, there has been significant
changes in FDI inflows month-wise. There has been tremendous raise in FDI inflows post the launch of
the scheme. It signifies that this initiative has made significant changes in the FDI inflows.
 Table 2

Source: Reserve bank of India

Table 2 showed the share of top investing countries FDI equity inflows from 2013 to 2015 (June). The
results of the table showed that country-wise significant increase took place with the exception of U.K.
and Switzerland. The inflows declined from 20,246 crores to 8,769 crores after the launch of ‘Make in
India’ initiative. The highest increase in FDI inflows were from Mauritius wherein the inflows increased
from 29,360 crores to 55,172 crores (35% of total inflows). The lowest proportion of FDI inflows were
from Switzerland.
 able 3
Data pertaining to FDI inflows (year-wise) in Equity through automatic and approval route and investment
by FII’s from the year 2000 to 2015 (June)

Table 3 shows year-wise changes in FDI inflow from the year 2000 to 2015 (June). The results
reveals that there is significant raise in FDI inflow after the launch of ‘Make in India’ initiative as FDI
inflow increased from 2,339 US$ in 2000 to 24,299 US$ in 2013-14 and 30,933 US$ in 2014-15 (after
the launch of ‘Make in India’ initiative in September 2014) through automatic route. The total raise in
FDI was 23% post the launch of the scheme under study. There were significant changes in the inflows
from foreign institutional investors. It was 5,009 US$ in 2013-14 and it raised to 40,923 US$ post the
launch of the scheme.
Table 4
Source : RBI bulletain
Table 4 shows the sectors which have attracted highest FDI equity inflows. The table revealed that the
highest share was from the service sector. It was 2,225 US$ in 2013-14 and it increased to 3,253 US$
post the launch of the ‘Make in India’ initiative. Percentage share of service sector amounted to 17%
(highest share). The share was lowest for Metallurgical Industries. It was 568 US$ in 2013-14 and it
decreased to 472 US$ post the launch of the ‘Make in India’ initiative. Its percentage share amounted to
3% of total inflows (lowest share).
THE ROAD AHEAD
There has been significant increase in FDI inflow after the launch of ‘Make in India’ Initiative. Further,
the government is proposing to relax the FDI policy in several sectors, including asset reconstruction
companies, insurance and pension with the aim of attracting more overseas investments. The rising FDI
inflows has not only provided a stable source of financing for the current account deficit problem, but
also expected to bring technical know-how, which may help in boosting India’s productivity growth in
the near future.
The government is striving to further liberalize the FDI policy in Food Processing industry and trade.
Plans are being made to allow 100% FDI through the FIPB route in the marketing of food products
produced and manufactured in India. This will work as an impetus in boosting the food processing
ministry. This will also help in creating employment opportunities in India.
CONCLUSION
The study made an attempt to analyse the impact of ‘Make in India’ initiative launched by government
of India to liberalise trade on FDI inflows in India in various years across various sectors. The study
used secondary data for the purpose of attainment of the aforesaid objective. The results of the tables
revealed that there has been significant increase in the FDI inflows after the introduction of this
initiative. This increase has been across various sectors, from different countries, in different time
periods. The results thus revealed that New FDI policy helped in increasing FDI inflow across various
sectors. The government is moving ahead with ‘Make in India’ India initiative by relaxing the sectors
which were earlier not in the purview of New FDI policy. This will help significantly in ensuring
balanced growth across various sectors throughout the country.
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World development, 36(7), 1192-1212.
Hsiao, C., & Shen, Y. (2003). Foreign direct investment and economic growth: the importance of
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Sangwan, S. (2015). Making “Make in India” a realism: role of FDI. IJAR,1(7), 770-773.