SUMMER INTERNSHIP PROGRAMME

FINAL PROJECT REPORT ON INTEGRATED CREATION AND PROPAGATION OF ONLINE AND OFFLINE MECHANISMS TO PROMOTE FDI IN INDIAN SECTORS

By Anurag Shukla 09BSHYD0148

Remorphing

SIP FINAL REPORT 2010

AN INTERIM REPORT ON INTEGRATED CREATION AND PROPAGATION OF ONLINE AND OFFLINE MECHANISMS TO PROMOTE FDI IN INDIAN SECTORS By Anurag Shukla (09BSHYD0148)

Remorphing

A report submitted in partial fulfillment of the requirements of MBA Program of IBS Hyderabad
Distribution List: Dr. I R S Sarma Mr. Sandeep Mann

Date of Submission: May 13- 2010

ICFAI Business School, Hyderabad

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SIP FINAL REPORT 2010

AUTHORISATION

This is to certify that the summer project work titled
INTEGRATED CREATION AND PROPAGATION OF ONLINE AND OFFLINE MECHANISMS TO PROMOTE FDI IN INDIAN SECTORS BY

Anurag Shukla

Has been submitted in partial fulfillment of the requirements of MBA Program of IBS Hyderabad. All materials contained in the report, obtained from different sources have been duly acknowledged.

Sandeep Mann COO Remorphing

Dr. I R S Sarma Faculty IBS Hyderabad

ICFAI Business School, Hyderabad

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Hyderabad iv . I believe that however strongly a person claims about the success of the project being due to his own sole effort. I am especially grateful to my faculty guide Dr. I R S Sarma. from IBS Hyderabad for the support and advice provided throughout the internship period. Richa Gupta (Senior HR Executive REMORPHING) for her expert guidance on critical areas and helping me in coping with the organizational and project deadlines. I would also like to express my sincere thanks to Ms. On successful completion of my Summer Training. Sandeep Mann my mentor in the company for lending his precious support throughout the term without whom it would have been difficult to come up with the work that I have done.SIP FINAL REPORT 2010 ACKNOWLEDGEMENT ³Even a mirage is helpful in guiding or motivating a thirsty person in search of oasis´. I would like to express my deepest gratitude towards all who have helped me in anyway during the tenure of my internship. It is with their constant support and guidance that I have been able to complete my internship project. there has always been a guiding factor involved which has in some way or the other helped him to reach his goal. Anurag Shukla ICFAI Business School. I would like to take pleasure to thank Mr.

.................. 18 2.................................................................................................................................................................................................. 9 1.........................................................8 Benefits of FDI .................................................................... 33 ICFAI Business School.................................................................................SIP FINAL REPORT 2010 TABLE OF CONTENTS Authorization................................................1...................................................... 24 2...............2 Entry options into the Indian Economy ......................................................................................................................................................................................3 Data Collection and Methodology .................................................................... 15 1..................................................................... 16 1...............7................................. 27 2................ iii Acknowledgement .....2 Limitations of the Project ............10 Foreign Direct Investment Policy ...........................................1......................................................................................... Main Text .......................................... 4 1......................................................................................................................................................1................................4 FDI status in Indian states ............................................................................................................ 1 1.....................................................................................1 To the Host country .................................................1 Purpose and Objectives .................................................... 22 2........................... 19 2......................... 4 1....................... Introduction to the Project .........................................1.........7 Determinants of FDI ........................ 7 1.................................... 14 1.........2 To the Home country ............................................... 11 1....................................................... 12 1..................................................................................3 FDI status in Indian sectors ..................................... viii 1.............................................................................................................................5 Entry options for investors ............................................................................................................................... Hyderabad v ........ vi Executive Summary ...........................................7.... iv List of Illustrations.....................................................................................................................1..................................................................1 FDI Status in India ........................9 Disadvantages of FDI .......................... 14 1. 5 1................................................................................................................................................................................................ vii Remorphing Profile ..............4 Need for foreign capital ................... 20 2....6 Why FDI ......1 Pre and Post Liberalization .................................5 Top investors for the Indian Economy ................... 31 2.....

...................2 Recommendations ...........4 Business Scenario in a select Indian State ................................ Hyderabad vi ...............................................SIP FINAL REPORT 2010 2.................2 Comparative study of the BRIC economies ......................... 46 3...........3 Overview of the Blog for FDI promotion ..... 40 2................................. 52 3..............................1 Future of FDI ...........................................................................................................................................................................................................5 Business Scenario in a select Indian Sector .......................................................................... 53 ICFAI Business School........................................................................... Conclusion ............. 34 2............. 38 2................................. 51 3.............................................................................

................................................................................................SIP FINAL REPORT 2010 LIST OF ILLUSTRATIONS FIGURES: Fig 1 Effect of Capital inflows ................................References .................................................................................................................................................................... Hyderabad vii ........................................................................................................... 31 Fig 10 Share of top investors in India ............................................................................ 35 Fig 15 FDI inflow & Real GDP growth % in BRIC economies .......................................................................................................................................... 31 Fig 9 Percentage Share of FDI inflow in States 2008-09 ........ 40 Fig 18 Break up of Economic Activities in Andhra Pradesh .... 56 ICFAI Business School.................. 27 Fig 6 Cumulative Sectoral FDI distribution 2006-10 .. 54 B.................................................................................... 7 Fig 2 Foreign investment know how ................................................................................................................................................................ 41 TABLES: Table 1 Rankings of BRIC economies.......................................................................................... 33 Fig 11 Cumulative Investments done in India 2006-10..................................................................................................... 33 Fig 12 Sectoral Distribution of FDI in BRIC economies ................................................................................ 35 Fig 14 Global comparison of FDI ..........................................Factsheet on FDI August 1991.............. 23 Fig 5 Sectoral FDI distribution April09-Jan10 ..................................... 28 Fig 7 Growth rate of Indian Sectors 2008-09................... 35 Fig 13 FDI as % of Gross Investment in BRIC economies ............................................... 36 Fig 16 Snapshot of the blog fdiopportunities............ 39 Fig 17 Estimates of Per Capita Income in Andhra Pradesh (1999-2000 to 2006-2007) ............................com .....January 2010 ... 21 Fig 4 Liberalization of Indian FDI policy ..... 34 APPENDIX A................................... 16 Fig 3 FDI inflows to India ......................................................................................................................... 29 Fig 8 FDI inflow in States 2008-09 ...............................................................................................wordpress.......................

Quality of infrastructure. provided these economies did some improvements regarding issues such as Domestic Policy. which form a part of the final report and blog. I took this project for my internship to have a closer glimpse on the concept and issues surfacing the developing economies in attracting Foreign Direct Investments and finally to help REMORPHING in the promotion of such investments in Indian Sectors by bringing together the relevant facts with regards to the business scenario in Indian States and Sectors. the company also intends to convert this blog to a website named fdiopportunities. Through my study I have come to the conclusion that the coming decades belong to the BRIC economies particularly India. Gurgaon.com which is there to promote such investments to Indian shores. Hyderabad viii . Procedures of entry and establishment of business and State government level obstacles. a student of IBS Hyderabad. DLF Phase I. Russia and China focusing particularly on the FDI trends in these economies.com which shall solely be dedicated to promote FDI into the BRIC economies.SIP FINAL REPORT 2010 EXECUTIVE SUMMARY This summer internship project titled an integrated creation and propagation of online and offline mechanisms to promote FDI in Indian sectors is prepared by Anurag Shukla.wordpress. a leading consulting and advisory firm at H33/46. class of 2011. My focus of study is on the Indian States and sectors which are dealt keeping an investor¶s prospective in mind. for this I did extensive research and reading to come up with a blog titled fdiopportunities. Over the years. for REMORPHING. foreign direct investment has helped the economies of the host countries to obtain a launching pad from where they can make further improvements. Delays in legal process. Along with it I have also worked on the investment scenario in Brazil. Foreign direct investment (FDI) is an integral part of an open and effective international economic system and a major catalyst to development. ICFAI Business School.

It is guided by its core values which keep it (hundreds of ivy-league professors. ICFAI Business School. And Remorphing steadily matches and exceeds the expectations of its customers in all initiatives and engagements. It is customersdriven as the customers set its agenda and its level of excellence. Remorphing deals into advisory and research auditing projects. The innovative approach into handling each of these projects and novel advisory mechanism makes it a leader in the consulting industry and a company to emulate.SIP FINAL REPORT 2010 REMORPHING PROFILE Remorphing is a global business consulting and knowledge services powerhouse. This report which will be displayed in the form of a blog and later converted to a website is a novel effort on behalf of Remorphing to promote FDI in Indian Sectors. It is into a wide range of content development and auditing projects. In quest of its humble contribution to the vast field of knowledge. Hyderabad ix . especially in the domains of strategy. and global industry professionals) focused on helping the customers apply edge-of-the-wave insights and trends to achieve their strategic goals. The successful completion and implementation of these live projects is the result of its varied and talented workforce. which come as a part of globalization and aim to improve the standard of living in the host country. leadership and innovation this project ³An Integrated Creation and Propagation of Online and Offline Mechanisms to Promote FDI in Indian Sectors´ is one such effort by the organization to reveal areas (states & regions) and sectors which still provide a vast opportunity for the foreign investors to invest in India. alumni.

SIP FINAL REPORT 2010 INTRODUCTION TO THE PROJECT ICFAI Business School. Hyderabad 1 .

In order to be able to negotiate effectively. Over the years. Hyderabad 2 .SIP FINAL REPORT 2010 Foreign Direct investments have come of an age where these were viewed with concern and suspicion so as to threaten the developing domestic markets but are now regarded as the panacea for developing world¶s economic problems. India and many other developing countries are wary of such demands as they feel that the multinational firms might adversely affect the development of domestic firms and otherwise be a source of economic exploitation.  Detailed study on the FDI status in Haryana and the issues concerning FDI for IT Enabled Services in India as a whole. foreign direct investment has helped the economies of the host countries to obtain a launching pad from where they can make further improvements.com). to understand and facilitate in promotion of Foreign Direct Investments in Indian Sectors by bringing together the relevant facts with regards to the business scenario in Indian States and Sectors. This blog in addition to the basic contents on the know how of FDI also brings about -  Facts related to sectoral distribution of FDI inflow into the Indian economy Ways to improve such investments and promotion of a blog solely dedicated to attract investors to India. it is important that we analyze properly the economic role of FDI in developing countries like India. Foreign direct investment (FDI) is an integral part of an open and effective international economic system and a major catalyst to development. which form a part of the final report and blog. ICFAI Business School.wordpress. One of the important and contentious issues is whether or not to establish a multilateral framework for investment. This is the purpose of my project i. Russia and China too. The high income countries are pushing for an agreement that would grant foreign investors virtually unfettered rights to invest in all sectors of the host economy and to obtain for them the same treatment like the domestic investors.e. Along with it I have also worked on the investment scenario in Brazil. However. My focus of study is on the Indian States and sectors which will are dealt on a priority basis in both the final report submission and the blog (fdiopportunities.

SIP FINAL REPORT 2010  Profiling with respect to governance issues.  The distribution of FDI across various sectors and industries to facilitate the visitors of this site to comprehend easily the status of investments in Indian sectors and equip them in charting out strategies to enter Indian markets. Russia. per capita income. The promotion of the blog has been initiated and is an ongoing process under the supervision of company officials in due course of time. ICFAI Business School. Hyderabad 3 . data collection regarding the profiling of the Indian states and sectors in which capital investment is being done and the economic overview of other BRIC economies namely Brazil. FDI status among others will be made available for each state. The uploading of the basic content of FDI. Groups and profiles have been created on social networking sites such as Face book & LinkedIn. and percentage of GDP contributed by each state. China is also uploaded onto the blog.

Hyderabad 4 . Lastly. This project in no way authenticates any of the mentioned or implied facts. 1. there are three main objectives that we are going to accomplish through this project I. figures.wordpress. hence the effectiveness of this literary work cannot be gauged in such a short span of time (2 months) which is in itself a major limitation of the project.1 Purpose and Objectives The purpose of my project is to study the relevance and importance of FDI in context with the BRIC economies primarily focusing on India thereby attempting to promote foreign funds flow in form of Foreign Direct Investments to Indian shores via a blog titled fdiopportunities. III. their classification. This project is limited to the secondary data available from internet sites of various countries and states and to the published works of renowned authors who have come out with their initial findings on FDI and its prospects. data. so as to attract investors to invest in India. modes of entry of the firms. Briefly. for any serious business investments by the intended target audience. II. To understand what Foreign Direct Investments are all about. to promote this blog within the limited time period (as much as possible) given. III. ICFAI Business School. it is in fact a compilation of published information which are construed to be reliable and up to date (the sources of which are made available at all stages of the project). policies governing such entries and what needs to be done on the part of the government to lure more and more investors.SIP FINAL REPORT 2010 1. the determinants. The promotion and propagation of investments into the Indian markets by the investors is an ongoing process influenced by numerous macroeconomic variables.com. To give an exhaustive content about the Indian States and sectors which offer vast opportunities to the investors but need to be presented systematically at a single platform. benefits. II.2 Limitations of the Project I.

profiling of top Indian Sectors.3 Data Collection & Methodology As we are dealing with a serious mode of investment in a foreign country namely the Foreign Direct Investments. Hence this forms the first phase of my project which involved extensive reading and data collection on the topic as much as possible through internet sites. FDI status among others will be made available for each state. Hyderabad 5 . their suggestions and ideas to be incorporated and digging in deeper to collect relevant facts and figures regarding the FDI status in Indian States and sectors. ICFAI Business School. it becomes imperative for us to first understand what these investments are all about and how they are different / superior to most of the other conventional ways of entering the foreign market. The second phase comprised of some field interactions with some professionals working on the said area to capture their take on the subject. The details of all of which are already contained in the blog. all of this has been systematically compiled at a single platform for any investor to get interested and invest in these emerging economies. per capita income.com by the company officials.SIP FINAL REPORT 2010 1.wordpress. This website in addition to the basic contents on the know how of FDI will also encompass a detailed study on the FDI status in Haryana and the issues concerning FDI for IT Enabled Services in India as a whole. a detailed analysis of each subsection whether it be the profiling of states. CMIE and so on. this forms the crux of the entire Internship program of mine at Remorphing. the domain name for which was suggested and registered by me. databases available such as EBSCO. The third phase was of preparing a blog named fdiopportunities. the basics on FDI or the economic profiling of BRICS economies is concerned. books related to Foreign Direct Investments. and percentage of GDP contributed by each state. Along with the matter presented in this report. going through the blogs of eminent personalities working on the similar field. The distribution of FDI across various sectors and industries will also be covered to facilitate the visitors of this site to comprehend easily the status of investments in Indian sectors and will equip them in charting out strategies to enter Indian markets. Profiling with respect to governance issues.com. The aim of the above exercise is to develop a website named fdiopportunities. government bulletins.

assists human capital formation. FDI may help improve environmental and social conditions in the host country by. the work on the promotion aspect of this blog through online (viral marketing) has been initiated via. for example. Moreover. contributes to international trade integration. Based on the discussions and the readings done so far I had tried to get an idea on what are the factors which need to be addressed so as to attract the foreign investors and the findings are incorporated in this final report submission. beyond the strictly economic benefits. ICFAI Business School. Given the appropriate hostcountry policies and a basic level of development. Forwarding and creating teasers on social networking sites such as Face book and LinkedIn. helps create a more competitive business environment and enhances enterprise development. which is the most potent tool for alleviating poverty in developing countries. transferring ³cleaner´ technologies and leading to more socially responsible corporate policies. All of these contribute to higher economic growth. Lastly. the promotion of this on a large scale has already been taken up by the company officials to promote the inflow of money into the Indian economy via FDI. a preponderance of studies shows that FDI triggers technology spillovers.SIP FINAL REPORT 2010 The overall benefits of FDI for developing country economies with a special focus on India and other BRIC economies are well documented here in the report. Hyderabad 6 .

Hyderabad 7 .SIP FINAL REPORT 2010 1. So in order to update the traditional ICFAI Business School. The figure (Fig. Foreign capital can provide necessary support towards developing such infrastructural facilities.4 Need for foreign capital: Foreign capital is an important element in the path of development for emerging and developing economies such as India. The Technological Gap: The prevailing technological gap amongst the developing and emerging economies and the developed world is a known fact.1) below shows the effect of capital inflows into an economy- The below are major needs of developing countries like India. Not only emerging economies such as India and Brazil are heavily reliant on foreign capital inflows but the developed economies of United States and England too are in look out for such investments which have led to the establishment of new industries as well as job creation in both the developing and developed nations. Building Infrastructure: The developmental programs of underdeveloped and developing economies are heavily relied on infrastructural facilities in the country which in turn require huge investments.

SIP FINAL REPORT 2010 technology of production foreign capital is badly needed for attaining international competitiveness. the foreign capital is urgently needed to support various investment projects. Thus foreign capital should be obtained on liable terms and without any strings. But while inviting foreign capital care must be taken to protect the interests of the country. ICFAI Business School. Scarcity of Resources: Following the scarcity of capital resources due to inadequate capital formation in the country. R&D facilities. Initial Risk: The emerging economies do face the lack of domestic capital at the initial stage of a project due to lack of experience and expertise and high initial risk. Hyderabad 8 . business experience etc. Based on the above discussion we may conclude that foreign capital is no doubt an important resource for funding development projects. The foreign capital undertaking the initial risk of investment can augment flow of domestic capital to the desired direction. Associated Assistance: Economic development is nearly a distant dream without technological knowledge. the flow of foreign capital can offer a temporary solution to the problem. BOP support: In order to meet the crisis of balance of payment arising due to the huge import requirements for importing capital goods and other maintenance imports in the initial part of development process of a developing country like India. which comes along with foreign capital invested in the country.

For this the company needs to get registered in stock exchange. The investor in this invests its capital in order to get return but they do not retain any significant equity stake in a foreign business entity (i. It is an investment having an essence of long term relationship and reflects a lasting interest and control over residual equity. This is indirect form of investment held by an individual or institutions in the form of equities.e. Foreign Direct Investment Foreign Portfolio Investment is investment by individuals. firms. or public bodies (e.g. It is accountable that investor invests its capital at a stake in an enterprise.SIP FINAL REPORT 2010 1. Foreign Portfolio Investment 2. bonds or other securities.g. government bonds. Hyderabad . One such form comprising the category of such investments is Foreign Institutional Investors. the equity stake is less than 10%). National and local governments) in foreign financial instruments (e. Foreign Direct Investment is also known as direct business investment. 9 ICFAI Business School. It is easily liquidable. an investor can sell or take back the money invested and hence not a reliable and preferred form of investment.5 Entry options for investors: Private players can enter into foreign markets via two kinds of investment routes: 1. y Generating revenue & profit is the prime motive of such an investment. It occurs when a firm invests directly in facilities to produce and/or market a product in a foreign country. The chief characteristics of FDI are: y Investor retains control over investment and management of the firm concerned (takes an interest of 10% or more in a foreign business entity or has voting rights in the affiliated group) y The foreign company might enter by opening its branch or by having a subsidiary or foreign controlled company in home country. FPI is transitory in nature. foreign stocks). These are the investments done in the secondary markets like stock.

cost effectiveness & profit maximization.SIP FINAL REPORT 2010 Modes of FDI: 1. FDI with this motive is common among MNCs. enhanced R&D. y Mergers and Acquisitions: These involve acquiring or merging with an existing firm in a foreign country. y Vertical FDI: It occurs when a MNC acquires a stake in a foreign company that Results are: New jobs. y Resource Seeking: It occurs when the investments seek to acquire factors of production that are more efficient than those available in the home country of the investor. 3. majority (foreign interest of 50%99%). By Direction: y Inward FDI: Inward FDI or Inbound FDI is a form of inward investment where foreign capital is invested in local resources of home country. y Horizontal FDI: It occurs when a multinational company makes investments in other countries but in the same industry to which it belongs. The foreign company can be a supplier or a customer. I. Outward FDI: Outward FDI or direct investment abroad is when local capital is invested in foreign resources. Hyderabad 10 . new technology & know-how. etc.e. y Efficiency Seeking: It includes the investors who invest with the hope of exploiting the benefits of economies of scale. By Motive: y Market Seeking: It includes investments that aim at penetrating new markets or maintaining existing markets. y 2. Investments in new facilities or expansion of existing facilities. By Target: y Green Field Investments: These involve the establishment of a wholly new operation in a foreign country. ICFAI Business School. to a similar business operation but in a different nation. Acquisition can be a minority (when foreign firm takes 10%-49% interest in the firm¶s voting stock). or full outright stake (foreign interest of 100%). either uses its output or provides it the inputs.

Hyderabad 11 . technology and management skills rather than starting afresh as in a green field investment. y Efficiency of the acquired unit can easily be increased to match the parent company by transferring capital. to the parent company which is a time taking job if it were to opt for green field investments. production systems etc. Exports y By placing tariffs on imported goods the governments increase the cost of exporting relative to FDI and hence FDI is preferred. such as brand loyalty.6 Why FDI At this stage we must answer the question that why FDI is the most preferred form of investments rather than other lucrative options available such as those of Green field investments. FDI vs. ICFAI Business School. We take each of these and figure the reasons out. customer relationship. Green field investments y FDI in the form of mergers & acquisitions are less complex and quicker to execute than green field investments. distribution systems. FDI vs. Exporting and Licensing. y FDI is a better option when the firm needs tight control over the foreign entity for rapid expansion in the market share and earnings in that country. y Acquiring a foreign company gives access to valuable strategic assets. Licensing y Licensing may result in a firms giving away its know how to potential foreign competitor. FDI in the form of mergers & acquisitions vs.SIP FINAL REPORT 2010 1. y FDI is again advisable when a firm¶s skills and know how are not amenable to licensing such as that for management and marketing know how.

SIP FINAL REPORT 2010 1. y Labour force: Inexpensive labour force is also important in this regard. y Economic Stability: When the economy is in a state of turmoil i.7 Determinants of FDI The most important determining factor or the determinant for Foreign Direct Investment in an economy is the size and growth prospects of the economy based on the presumption that a big market in a country will definitely boost up sales and growth prospects of the company in the foreign land. passing through a recessionary phase then it¶s really hard to attract foreign players to invest in the domestic market as they longer feel safe and hence such a situation hampers FDI flows in a country. This approach also constrains the flow of FDI into the country. y Infrastructural facilities: Infrastructural factors like railways and telecommunications are a major determinant for a company to get interested and invest on the host country. the BPO revolution and the exponential growth of the IT sector in India is primarily due to the availability of IT professionals working at wages less than the global standards. Other major factors include the followingy Per Capita Income: The Per Capita income of the citizens plays a major role. which will offer excellent opportunities for expansion. the higher the per capita income more will be the spending rate assuming sound governance in the country. improvement in areas such as these will definitely boost up investor confidence. y Foreign Investment Restrictions: The government might feel that by allowing the foreign investors to invest in production facilities will mean the outflow of capital from the country in the form of profits. Hyderabad 12 . y Corruption cum lack of Transparency: Corruption deters several efficient players from investing as they are of the opinion (Stats by FICCI shows only 29% of FDI amount was approved between August 1999 and January 1999) that the clearance of their proposal is ICFAI Business School.e.

j Stabilization policies that affect the aggregate efficiency of resource allocation. viz.e. Pull or domestic factors reflect the improved policies that increase the long run expected return. y Lack of Political Stability: Stable governance is much more attractive to attract FDI into the economy. Hyderabad 13 . This is because that each government has its own policy regarding FDI i. These factors include j Lower foreign interest rates j Recession abroad j Herd mentality in the international capital markets. one might follow a liberal approach and the other a conservative one. j Ability of the economy to absorb shocks from changes in international terms of trade. Hence the lack of transparency and bureaucracy deters them in entering such markets. these include j Liberalization of FDI j Credible structural or macroeconomic policies j Measures that increase the openness of the domestic financial market to foreign investors. ICFAI Business School. j Sustainable debt and debt service reduction ensuring timely repayments. y Push factors: These are global or exogenous factors which arise from the prevailing socioeconomic scenario across the world affected by major economic policies of developed nations. Apart from these there are two distinguishing factors affecting capital movements. y Pull factors: These are country specific in nature and reflect domestic opportunities and risks in an economy.SIP FINAL REPORT 2010 not performance or reputation oriented but under the table dealings. Hence FDI inflows are in direct proportion to the political stability of the economy.

the capital account of the host country is benefitted when an MNE establishes a foreign subsidiary although this is a one time effect only. j Third. Direct effect is when the foreign MNE investing in the host country employs a number of host country citizens.8 Benefits of FDI One of the major benefits of Foreign Direct Investments is that it contributes in the economic development of the recipient country. Hyderabad 14 . Indirect effect is when jobs are created in the local suppliers serving the MNE and jobs are also created when these employees spend the money earned on to the local markets. The long term results may include increased productivity growth. The benefits of FDI extend both to the host country as well as to the home (source) country as well which are as follows1. product and process innovation and greater economic growth.8. current account of the host country¶s balance of payments improves if the FDI is a substitute for imports of goods or services. y Employment effects: FDI increases the employability both directly and indirectly. of players in the market thereby increasing the level of competition in the national market and bringing the prices down. when the MNE uses a foreign subsidiary to export goods and services to other countries the also the host country¶s balance of payments account is benefitted. j Second.SIP FINAL REPORT 2010 1. ICFAI Business School.1 Benefits of FDI to the host country y Effects on Competition and Economic growth: When FDI is in the form of Green field Investment it increases the no. y Balance of payment effects: FDI effects the balance of payments of a country in three waysj First.

SIP FINAL REPORT 2010
y Resource transfer effects: FDI makes a positive contribution to the economic condition of the host economy by supplying capital and technology, and the transfer of improved management practices that would not have been available to boost country¶s economic growth. 3.8.2 Benefits of FDI to the home country y Effects on Balance of Payments: Capital account of the home country¶s balance of payments is sure to benefit from the direct foreign currency earned by these companies abroad. The current account can also be benefited if the foreign subsidiary succeeds in creating demands for home country exports of capital equipment, intermediate goods, complementary products and alike. y Reverse resource-transfer effects: This benefit arises when the home country MNE learns valuable skills from its exposure to foreign markets that can subsequently be transferred back to the home country. y Employment effects: Benefits to the home country from outward FDI arise from the employment effects. This is because of the demand created in the home country itself to keep pace with the needs of the host country.

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SIP FINAL REPORT 2010
1.9 Disadvantages of FDI An investor¶s earnings on FDI take the form of profits such as dividends, retained earnings, management fees and royalty payments. Shown here is a clear diagrammatic view of this-

(Fig. 2) Foreign investment know how

The recently discussed benefits of Foreign Direct Investments to both the host and home economies are definitely true, but there exist some contentious issues to be brought forward to an investors psyche, which can be summarized as followsy FDI is irreversible and hence entails the risk of creating under ± utilized capacity in case the market turns out to be small. y The chances of a company loosing out on its ownership to an overseas company are also not completely ruled which in itself is a major drawback. y Consistent instability in a geographical region; be it political or economic are also not ruled out and hence pose a threat to the profitability of the investor.

ICFAI Business School, Hyderabad

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SIP FINAL REPORT 2010
y Deterioration of the balance of payments as profits is often offset by incoming FDI and presents a false picture of economic stability. y The economically backward section of the host country is always inconvenienced when the stream of foreign direct investment is negatively affected. y Harmful environmental impact of FDI is there especially in case of extractive and heavy industries. y Social disruptions of accelerated commercialization in less developed economies, is also an issue which the governance faces. y Issues related to national secrets are also to be kept in mind when allowing Foreign Direct Investments in areas such as defense of a country. y Effect on competition in national markets is one of the direct spillovers of Foreign Direct Investments which could rise up the technological prowess of the host country if implemented wisely.

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labour policy.10 Foreign Direct Investment Policy The FDI policy is one of the prime concerns of an investor interested in an overseas investment and these are the rules and regulations laid down by the government of the host country to attract such investments to its shores. These policies determine the ease of assessing the domestic market and the terms and conditions of entry. become as important as the FDI policy itself. systems and procedures including the FDI policy itself which are carefully scrutinized by a far sighted investor. etc.SIP FINAL REPORT 2010 1. Hence it is this whole package of laws. Hyderabad 18 . regulations and operating conditions once he is in consequently. the below mentioned issues are some of the prime concerns of an investors which should be resolved by the governance to increase such investments. y y y y y y y y y y y y Reduction in the number of channels to process FDI proposals Investor friendliness of state Removal of restrictions on Equity Holdings A liberal exit policy Proper implementation of Intellectual Property Rights Foreign Exchange Regulations to be made investor friendly Financial Sector Reforms to be implemented wisely Corporate Tax Rates form a major issue among bulk investors Import tariff reforms Central and State level clearances to be transparent enough Supporting Bureaucracy Proper Infrastructural Facilities in place ICFAI Business School. With regards to an investor friendly FDI policy. An investor evaluates the entire spectrum of rules. issues like law and order conditions.

Hyderabad 19 .SIP FINAL REPORT 2010 MAIN TEXT ICFAI Business School.

2.SIP FINAL REPORT 2010 In order to achieve phenomenal growth both in terms of economics and technology it is by now very clear that the developing economies need to attract more and more of Foreign Direct Investments. FDI is considered as a developmental tool. y The huge technically competent workforce. with its consistent growth/performance and abundant skilled manpower provides enormous opportunities for investment. is also a huge benefit to the Indian economy. y It is the second largest growing economy at present and hence offers huge potential to the investors. Given the compelling need to increase investment and to improve technology it is therefore of prime importance to lure more and more investors to these developing nations. India. which can help in achieving self-reliance in all the sectors of the economy. ICFAI Business School. the largest democracy in the world.1 FDI Status in India In India. simplification of investment procedures and full commitment to safeguarding intellectual property rights are among other major policy initiatives taken by the Indian governance to lure foreign investors. Hyderabad 20 . fluent in English speaking and available at much cheaper rates as compared to the European economies is also one of the major attractions. y The changing scenario of the Indian economy particularly the liberalization of exchange regulations and trade policy. with a special focus on India. this enormous population is in itself a major attraction for any investor as it represents the sheer largeness of the Indian market. The salient features of the Indian Economy which makes it a top destination for foreign direct investments arey India has a huge middle class and is one of the youngest nations in the world. both domestic and foreign. Through my study I have come up with a blog solely devoted to the promotion of FDI in BRIC economies. One such way of attracting the attention of these foreign investors is making them aware of the political and economic conditions of the regions in which they are investing and this is where the need of such a project work arises. y Abundance of rich natural resources be it in the power sector or in the real estate sector.

Source: Ministry of Commerce.22 5. the amount of inflows is in billion$.46 16 20. ICFAI Business School. The pick up in FDI inflows further reflects growing investor interest in the Indian economy on the back of strong fundamentals and simplified business procedures.13 22. FDI Inflow in billion $ 2008-09 2007-08 2006-07 2005-06 2004-05 2003-04 2002-03 2001-02 2000-01 2.9 3. India The inflows of FDI in India registered 11 per cent growth during the FY ¶09 as compared to the FY ¶08. 3 FDI inflows to India.SIP FINAL REPORT 2010 The yearly trend of FDI in India in absolute terms is shown in the graph. Hyderabad 21 .75 2.34 Fig.13 4.63 3.

making it more competitive.3% in 1992-93 and then accelerated to 6. Pre Liberalization Period: In the Indian context economic reforms were based on the assumption that market forces could guide the economy in a more effective manner than government control. Examples of one of other undeveloped countries like Korea. getting the government out of the huge morass of regulation. The GDP growth rate. Procedures for ICFAI Business School. empowering the states to take more responsibility for economic management and thereby creating a kind of competition among the states for foreign investors. etc. The policy now allows 100% foreign ownership in a large number of industries and majority ownership in all except banks. The extensive regulation was sarcastically dubbed as the "License Raj".5% in the 3 years 1994-95 to 1996-97. the rupee. Subsequently the GDP grew at an average rate of 7.SIP FINAL REPORT 2010 2. Need for Liberalization: A Balance of Payments crisis in 1991which pushed the country to near bankruptcy was the major deciding factor. the belief that India needed to rely on internal markets for development. Hyderabad 22 . After Independence. IMF bailout was secured for which gold was transferred to London as collateral. Singapore. telecommunications and airlines. that had achieved rapid economic development as a result of liberalization were kept in consideration. which had collapsed to 0.2% in 1993-94. to rescue the Indian economy of that crisis.1.1 Pre and Post Liberalization Liberalization of the economy means to free it from direct or physical controls imposed by the government. Indian central bank had refused new credit and foreign exchange reserves had reduced to the point that India could barely finance three weeks¶ worth of imports. The Indian currency. Thailand. India adhered to socialist policies. The central pillar of the policy was import substitution. The International bailout package came when India promised for the much needed economic reforms. not international trade.8% in 1991-92 rebounded to a near normal 5. was inconvertible and high tariffs and import licensing prevented foreign goods reaching the market. insurance. The slow growth rate was named the "Hindu rate of growth". Post Liberalization Period: The major effect of Liberalization is in the opening of the economy.

The simplified view can be better shown as below- Fig. 74% and 51%). Hyderabad 23 .SIP FINAL REPORT 2010 obtaining permissions were greatly simplified by listing industries that are eligible for automatic approval up to specified levels of foreign equity (100%. 4 Liberalization of Indian FDI policy ICFAI Business School.

1. y As an Unincorporated Entity y As a foreign company through y y y Liaison Office/Representative Office Project Office Branch Office Liaison Office/Representative Office y Its role is limited to collecting information about possible market opportunities and providing information about the company and its products to prospective Indian customers. subject to any equity caps prescribed in respect of the area of activities under the Foreign Direct Investment Policy. earn any income in India. Hyderabad 24 . 1956 through y y Joint Ventures Wholly Owned Subsidiaries Foreign equity in such Indian companies can be up to 100% depending on the requirements of the investor.SIP FINAL REPORT 2010 2.2. therefore. y Once it is convinced of the potentiality of the Indian market it can bring in greater investments. y Liaison office cannot undertake any commercial activity directly or indirectly and cannot. y Approval for establishing a liaison office is grated by Reserve Bank of India (RBI). y It can promote export/import from/to India and also facilitate technical/financial collaboration between parent company and companies in India. Entry options into the Indian Economy A foreign company planning to set up business in India has the following optionsy As an Incorporated Entity y By incorporating a company under the Companies Act. ICFAI Business School.

o All proposals relating to acquisition of existing shares in an existing Indian Company by a foreign investor. In case of Foreign Direct Investment into the Indian economy the entry procedure into India for any investor is via. trading activities. and import & export activities1. y Project offices may remit outside India the surplus of the project. Source: Investing in India. after meeting the tax liabilities. o All proposals in which the foreign collaborator has a previous venture/ tie up in India. y Such offices cannot undertake or carry on any activity other than the activity relating and incidental to execution of the project.SIP FINAL REPORT 2010 Project Office y These offices can be set up temporarily as project/site offices in India for the execution of specific projects in India. Hyderabad 25 . o All proposals falling outside notified sectoral policy/ caps or under sectors in which FDI is not permitted. Foreign Direct Investment Policy and Procedures ICFAI Business School. two routesy Automatic Route: All items/activities in which FDI investment up to 100% is allowed by the Indian Government fall under the Automatic Route except the following: o All proposals that require an Industrial License. 1. on its completion. Branch Office y To boost up the manufacturing and trading sector the GOI has allowed foreign companies engaged in such activities to set up branch offices in India for purposes like research work.

which are not covered under the Automatic Route o Composite collaboration Evolution of FDI Policy in India can be better summarized in the following mannery From 1948-66: A cautious welcome policy from the period of independence to the emergence of crisis in the late sixties. signifying liberal investment environment. o For all activities. The latest policy guidelines of the Indian Government regarding the percentage of Foreign Direct Investment allowed in a sector and the prohibited sectors can be represented in the below chart as followsapprovals involving foreign investment/ foreign technical Government Approval: Approval of Foreign Investment Promotion Board (FIPB) needed Decision generally within 4-6 ICFAI Business School. y y y From 1967-79: A period of Selective and Restrictive Policy From 1980-90: A Period of Partial Liberalization Policy From 1991 onwards: Period of full liberalization and open door policy.SIP FINAL REPORT 2010 y weeks. Hyderabad 26 .

SIP FINAL REPORT 2010 2. Hyderabad 27 .3 FDI status in Indian sectors Fig.5 Sectoral FDI distribution April09-Jan10 Source: India FDI fact sheet (August 91-January 10) ICFAI Business School.1.

Fig. The sector had grown by 227 percent with USD 749 million during FY µ09 as compared to 11. During FY ¶09 telecommunications (which includes radio paging.6 Cumulative Sectoral FDI distribution 2006-10 Source: India FDI fact sheet (August 1991January 2010) Chemical sector (other than fertilizers) registered maximum growth during April ± March 2009.SIP FINAL REPORT 2010 The above graph shows the current situation of FDI inflows into the sectors during the period April 2009.71 per cent with USD 229 million in the last year. Crores. computer hardware and telecommunications all three in close competition. the figures are in Rs. cellular mobile and basic telephone services) sector registered growth of 103 per cent on top of 164 per cent growth in FY ICFAI Business School. The cumulative investments done in these sectors during the period 2006-2010 is as shown under. Hyderabad 28 . the highest FDI inflows as can be seen are in the services sector of the Indian Economy followed by Housing & Real Estate.January 2010.

Hyderabad 29 .55 70. Even as the auto industry in developed countries faced serious financial problems bailed out by the government.35 18. However. the foreign investment in the sector kept flowing and showed a rise of 19 per cent.152 million in FY ¶09 over FY ¶08.7 Growth rate of Indian Sectors 2008-09 Source: Department of industrial policy and promotion. The FDI inflow in automobiles sector has increased from USD 675 million to 1.261 million in FY ¶08.54 -18.35 -71.85 227. The telecom sector had attracted USD 2.558 million FDI in FY µ09 as compared to the USD 1.07 -100 -50 0 50 100 150 200 250 % GROWTH RATE FROM 2007-08 TO 2008-09 Fig.67 102. the India automobile sector has been able to record 70 per cent growth in foreign investment. Inflows in ICFAI Business School. During the year 2009 government had raised the FDI limit in telecom sector from 49 per cent to 74 per. which has contributed to the robust growth of FDI.SIP FINAL REPORT 2010 µ08.94 28. Assocham Eco Pulse (AEP) The Indian IT sector which depends on the US and Europe markets for 90 per cent of its revenues faced pressure on their top lines during the previous financial year. SERVICE SECTOR (FINANCIAL & NON FINANCIAL) METALLURGICAL INDUSTRIES PETROLEUM & NATURAL GAS CONSTRUCTION ACTIVITIES COMPUTER SOFTWARE & HARDWARE HOUSING & REAL ESTATE AUTOMOBILE TELECOMMUNICATIONS CHEMICALS (OTHER THAN FERTILIZERS) -7.13 16.

615 million in FY ¶08 to USD 6. Source: Department of industrial policy and promotion. the growth rate of FDI in metallurgical sector declined by about 18.410 million in 200708. The FDI in services slipped from USD 6. With almost 76 per cent decline in the crude oil prices during the period 200809 and severe liquidity crunch in financial markets. Hyderabad 30 . The sector attracted USD 961 million foreign investments during the period 200809.116 million in FY µ09 declining by 7.13 per cent during FY ¶09. Due to the fall in the demand and consumption of aluminum and other metals worldwide. registered a fall in FDI received in view of the global financial crisis.35 per cent in FY ¶09.54 per cent during the period1. Assocham Eco Pulse (AEP) http://www. the FDI in petroleum and natural gas took a hit of 71. 1.org/arb/aep/AEP-Study-FDI-June-2009. The total FDI in sector was USD 412 million in 200809 as against USD 1. The Services sector which includes both financial & non financial business segments.667 million as against of USD 1.assocham.pdf ICFAI Business School.SIP FINAL REPORT 2010 computer software and hardware sector during fiscal µ09 stood at USD 1.427 million in 200708.

2 1868.4 2825. Hyderabad 31 .8 1724.2 Fig.4 FDI status in Indian states INFLOW DURING 2008-09 IN MILLION$ ANDHRA TAMIL NADU NEW DELHI KARNATAKA GUJRAT MAHARASHTRA 1237.SIP FINAL REPORT 2010 2.1. Assocham Eco Pulse (AEP) % SHARE OTHERS 19% MAHARASHTRA 46% ANDHRA 5% TAMIL NADU 6% NEW DELHI 7% KARNATAKA 7% GUJRAT 10% Fig. Assocham Eco Pulse (AEP) ICFAI Business School.1 2026.8 FDI inflow in States 2008-09 Source: Department of industrial policy and promotion.9 Percentage Share of FDI inflow in States 2008-09 Source: Department of industrial policy and promotion.8 12409.

The FDI in these states during 200708 was USD 42. Apart from the top six favorite destinations Rajasthan.409. Haryana and Himachal Pradesh could not attract any foreign investment during the year. Tamil Nadu and Andhra Pradesh emerged as the top six states which together attracted about 81 per cent of total FDI during FY ¶09. were fast catching up with proactive policies of their respective state governments. Going by the recent trend in FDI inflows in the Indian polity.org/arb/aep/AEP-Study-FDI-June-2009. As clearly evident from the above figures. approvals and operating procedures. Karnataka.14 per cent as compared to the FY ¶08. West Bengal and Northeast states also registered a positive growth in FDI inflows during FY ¶09 as compared to the FY ¶08. However. Orissa. systems and procedures and not the FDI policy alone which is considered by any far sighted investor and hence it is the responsibility of the state governments to ease up these procedures and maintain a high degree of competitiveness thus raising the bars for economic development. Hyderabad 32 .pdf ICFAI Business School. New Delhi and Tamil Nadu.SIP FINAL REPORT 2010 The flow of foreign investment shows the inclination towards the states which are industrially and commercially well off with investor friendly business environment. the other states like Gujarat. one of the largest states of India. was not seen preferably by the foreign investors as the amount of FDI during the crisis ridden year 2008-09 was down to zero level in the state.4 per cent of the total FDI in India.6 million as FDI inflows1. Karnataka. Uttar Pradesh. Maharashtra has emerged as the top state in attracting highest inflows of foreign direct investment (FDI) during the financial year 200809. Gujarat. It is this whole package of laws. making up for 45. registering 100 per cent decline in FDI inflows during FY ¶09. New Delhi. Kerala. 1.assocham.2 million.1 million in FY ¶08. the state managed to receive a meager sum of USD 3. Source: Department of industrial policy and promotion. Punjab. In the previous year 2007-08. Maharashtra. Maharashtra attracted foreign direct investment of USD 12. State Governments and their agencies are responsible for the numerous clearances. However. Madhya Pradesh. Assocham Eco Pulse (AEP) http://www. the combined share of these states was less than 4 per cent in total FDI inflows in the country. The state registered a growth of 22.

SIP FINAL REPORT 2010 2.5 Top investors for the Indian Economy Fig. Fig. The cumulative investments made from 2006-2010 are shown here under.11 Cumulative Investments done in India 2006-10 Source: India FDI fact sheet (August 1991January 2010) ICFAI Business School. Mauritius leading the chart and contributing 52% of all the investments made is in itself a great contributor to the Indian economy. Hyderabad 33 .10 Share of top investors in India Source: India FDI fact sheet (August 1991.1. here also Mauritius leads the charts.January 2010) The pie-chart above shows the break up of the foreign investors to India.

765 trillion (2) $4. Russia and China are also part of the five permanent members of the U.813 (75) 5 Table 1 Rankings of BRIC economies Source: Wikipedia and CIA world fact book As is clearly evident from the above data.N.909 trillion (4) 0. along with India.272. illiteracy.229 trillion (14) 0. while Brazil and Russia are global superpowers in natural resources.RANKING IN THE WORLD) GDP PPP (#) GDP NOMINAL (#) HUMAN DEVELOPMENT INDEX (#) LAND AREA RANKING 1180757000 (2) $3.862 trillion (4) $1. all the four BRIC countries: y y are among the top seven largest countries in land area among the top eight most populous countries (accounting for about 40 percent of the world population) y y among the ten biggest economies in terms of GDP purchasing power parity and among the top fourteen biggest economies in terms of nominal GDP. Russia is the top-most country among BRIC countries at number 71 and India is at a dismal 126.612 (134) 7 CHINA 1338612968 (1) $8.2 Comparative study of the BRIC economies INDIA POPULATION(# .013 trillion (9) $1. possess nuclear capabilities. China is a manufacturing powerhouse of the entire world and India continues to be the same in the Services sector.890 (5) $2. apart from the above stats.367 trillion (11) 0. Moreover. and over-population form a vicious cycle. curbing an alarming population growth.722 (91) 3 RUSSIA 141927297 (9) $2.574 trillion (10) 0. Hyderabad 34 . ICFAI Business School. Security Council and the two of them. low life expectancy.109 trillion (10) $1. It is especially important for the BRIC countries to improve their HDI scores by enhancing literacy. The Human Development Index (HDI) evaluates the country¶s socio-economic status. It is common knowledge that poverty.817 (71) 1 BRAZIL 192. and alleviating poverty since the four countries represent a significant percent of the world population.SIP FINAL REPORT 2010 2.

13 FDI as % of Gross Investment in BRIC Source: Foreign Direct Investment Report by AMCHAM Fig.12 Sectoral Distribution of FDI in BRIC economies Fig.14 Global comparison of FDI ICFAI Business School.SIP FINAL REPORT 2010 Fig. Hyderabad 35 .

12.SIP FINAL REPORT 2010 Fig. Hyderabad 36 . The Indian Economy is the most balanced and consistent economy as far as sectoral distribution of FDI in Indian sectors is concerned which is clearly depicted by Fig. Brazilian ICFAI Business School.15 FDI inflow & Real GDP growth % in BRIC economies The above pictorial representations bring out a clear picture of the status of FDI in BRIC economies.

Germany. in the same period.15 and explain why the Chinese economy is rising at such a phenomenal rate and is all set to overtake all of the G7 countries comprising Japan. the growth rate in terms of attracting FDI is the highest for the Indian economy which clearly shows the rising confidence of investors into the Indian economy. by 2045 and become the worlds largest economy. Indian story is vice-versa. Indian economy has not done well in this regard but is constantly on a rise shown by fig. While India going by its current growth rate will also overtake all of the G7 countries except the U. France.S. FDI inflows and the real GDP growth rates are the highest for the Chinese economy as depicted by fig.K.SIP FINAL REPORT 2010 economy occupies the top spot in 2008 in terms of FDI as percentage of gross investments followed closely by Russia. ICFAI Business School. we can clearly decipher that these BRIC economies are all set to play a vita role in the coming decades.S. Italy and Canada including the U.. 13. 14 depicts that although the growth rate in terms of attracting the FDI is the lowest in Chinese economy but then also it enjoys the major chunk of FDI inflows into the world economy. Hyderabad 37 . the only world of precaution for them is to manage their internal political conditions so as to better compete with G7 countries at all fronts. Hence. Fig. U.

SIP FINAL REPORT 2010 2. Thus in a way this blog is an attempt to bring out critical information at a single platform to facilitate in the decision making process of a prospective investor.wordpress.com a comprehensive and exhaustive information on FDI¶s compiled under the various heads as discussed briefly hereundery Definition/Classification ± What is FDI all about. the ways by which companies may invest in a country. y Benefits ± The advantages that an economy gets when there is a substantial investment across sectors. ICFAI Business School. their classifications (kinds) are discussed here. These are the major issues which a host country must ponder to and work upon so as to boost up the prospects of inflow in form of foreign direct investments. Along the above mentioned basic content about FDI. y Disadvantages ± Some of the drawbacks associated with FDI¶s are discussed here. y FDI policies ± The policies in place to allow foreign investors to invest particularly with regards to India. Hyderabad 38 . y Determinants ± The factors responsible for the investors to get interested in an economy. relevance in the present context. its importance.com) and later the website fdiopportunities.3 Overview of the Blog for FDI promotion This project is a novel attempt from Remorphing¶s side to bring together many such facets of FDI¶s which will definitely provide the viewer¶s of this blog (fdiopportunities. the blog also consists of detailed discussion on the socioeconomic conditions of all the states in India and the major sectors in which there are still umpteen opportunities left to be explored. These above mentioned articles along with many more fruitful insights about the Indian economy are presented for the viewer to have a closer glimpse as to how India is a favorite destination for such investments. y Attracting FDI¶s ± The steps which governance must implement to top the list as a favorite FDI destination.

wordpress.SIP FINAL REPORT 2010 Below is the front/cover page of the blog - Fig.16 Snapshot of the blog fdiopportunities.com ICFAI Business School. Hyderabad 39 .

ANDHRA PRADESH General Profile The State was carved out on November 1st. of Andhra Pradesh.SIP FINAL REPORT 2010 2.wordpress. as the hub of industrial activity in South India. Andhra Pradesh is increasingly being recognized. on the west by Karnataka state.: P: Provisional. Compiled from the statistics released by: Directorate of Economics and Statistics. Andhra Pradesh is bordered on the south by Tamil Nadu state. this profiling is a mere compilation of facts and figures from sources believed to be reliable. 1956 following the merger of Hyderabad and Andhra State. to be named as TELANGANA. ICFAI Business School.com. A: Advanced Estimates. and on the east by the Bay of Bengal. Hyderabad 40 . With an area of 276754 sq km it is the third largest Indian State with a population of around 76210007 as per 2001 census.3 Business Scenario in a select Indian State Below is the profile of a state as it appears in the blog fdiopportunities. Q: Quick Estimates. Govt. on the northeast by Madhya Pradesh and Orissa states. on the north and northwest by Maharashtra state. Recently it was in news because of the demand for carving out of a new state from it. Economic Profile Fig 17 Estimates of Per Capita Income in Andhra Pradesh (1999-2000 to 2006-2007) 30000 25000 20000 15000 At Current Prices 10000 5000 0 At Constant (1999-2000) Prices Abbr.

of Andhra Pradesh. Year: Period of fiscal year in India is April to March. 43% ICFAI Business School. Hyderabad 41 . 40% SERVICES. Govt. year shown as 1990-91 relates to April 1990 to March 1991. Fig 18 Break up of Economic Activities MANUFACTURI NG.SIP FINAL REPORT 2010 Average Annual Growth Rates (1995-2000 to 2015-2020) 18 16 14 12 10 8 6 4 2 0 1995-2000 2000-2005 2005-2010 2010-2015 2015-2020 AGRICULTURE INDUSTRY SERVICES Source : Department of Planning.g. e. 17% AGRICULTURE.

pressed metal components.000 crore in 2020-21. electronics /electrical. Over half the cylinder liners and clutch plates in India are produced in Andhra Pradesh.57 million tones of fruits. with a good scope for the establishment of large and medium scale industrial units. etc. The state provides for favorable investment in bulk drugs and pharmaceuticals. CAD/CAM design. electronic regulators. Andhra Pradesh has a market size of US$1. brake liners. vegetables and spices and has set a target to produce 22. machined components. fuel filters. leaf springs. diesel fuel injection equipment. marine resources and cattle population that serve as catalysts for the promotion of the biotech sector. Andhra Pradesh is the second largest producer of horticulture produce with 1. oils and lubricants. forging. high pressure die castings.6 billion presently growing to US$10 billion by 2010. starter motors.SIP FINAL REPORT 2010 Major Industries y Automobile and Auto Components Industry The Automobile Industry has a strong presence in the State of Andhra Pradesh owing to a broad base of automotive component manufacturers and a large pool of highly trained and skilled manpower. providing employment to around 65 per cent of the state population. more than a 100 automotive component manufacturing companies (including first-tier suppliers and OEM's) that specialize in precision aluminum castings.24 million hectare area under cultivation y Bulk Drugs and Pharmaceuticals Andhra Pradesh has a dominant position in the bulk drugs and pharmaceutical sector with Hyderabad accounting for nearly one third of India's total bulk drug production. It is also well known internationally for its skills in chemical synthesis and process engineering. clutch covers. The Agriculture sector is predicted to experience a quantum leap in terms of growth with an average annual growth of 6 per cent (real terms) over the next 20 years. Andhra Pradesh produces over 9. alternators. y Biotechnology Biotechnology is another important industry sector in Andhra Pradesh with the state being naturally blessed with abundant and diverse agriculture. This sector is endowed with a bounty of natural resources in terms of soil and irrigation systems. forest wealth. Andhra Pradesh has to its credit.90 million tones by the year 2020. Hyderabad 42 . nozzles. y Agro-Food processing Industry The agriculture sector contributes nearly 19 percent of the State's GDP. delivery valves. looking at an elevated increase in the state agricultural GSDP from Rs 22. cylinder liners. pistons. front axles.810 crore in 1995-96 to over Rs 90. grey-iron. ICFAI Business School. gears.

SIP FINAL REPORT 2010 y Information Technology The Government of Andhra Pradesh has placed thrust on the Information Technology (IT) sector. EMS to Telecom. fourth in the production of wool and textile mills in the country. The state stands first in the value of mineral production. The Mining sector has been identified as a growth engine for the overall development of the industry and infrastructure. Animation to Gaming etc. 43 ICFAI Business School. as one of the major growth driver of the state in the future. contributing 9 to 10 percent (Rs. Hyderabad . beaches. hills. Andhra Pradesh is well suited in terms of ideal climatic conditions that are conducive to the growth of the leather and textile industry. The state offers numerous investment opportunities for investment and development of mineral and mining projects owing to its vast explored mineral potential and natural infrastructure. The state of Andhra Pradesh has the potential to be a favorable tourist destination in view of its array of natural resources. y Tourism Andhra Pradesh marks the land that has hosted a variety of cultures. y Textiles and Leather Industry The Textile and leather industry is poised for exponential growth in Andhra Pradesh with the state being second in the manufacture of raw silk and cotton. The state has also emerged as a back office to the world . that poises to promote a strong and vibrant textile industry that would promote sustainable employment to weavers and workers in the handloom. traditions and religions for thousands of years. The State has numerous advantages in terms of the abundant availability of highly skilled IT manpower. y Mines and Minerals Andhra Pradesh ranks among the second largest storehouse of mineral resources in India. emerging as a preferred Investment destination for the global ICT community from BPO to KPO.6583 Crores) of the country's mineral value of production and approximately Rs 800 crore by way of foreign exchange. and a pro-active Government. The state also possesses an excellent raw material base with skilled human resources. The state aims at utilizing the Information Technology in achieving the policy objectives of economic development thereby enhancing the quality of life of its citizens and providing good governance to its citizens. The state also envisages mineral projects with the participation and investment from the private sector. Technology to R&D. The Government aims at creating the right climate and atmosphere for investors and entrepreneurs to benefit from the world trade through the Textile and Apparel Promotion policy. World-class technical and social infrastructure. Design to FAB. power loom and textile / apparel sector.

bird sanctuaries and the traditional hospitality of the people. of investment intentions 582 Source: SIA Statistics September 2009. temples. of investment intentions 700 600 500 400 300 200 100 0 2005-06 2006-07 2007-08 2008-09 2009-10 (upto june) 76 345 493 382 No.SIP FINAL REPORT 2010 wildlife and forests. Investment Profile in the State Investment Opportunities The Andhra Pradesh State Industrial Development Corporation has identified the following broad areas for investment: y y y y y y y y y y y Petroleum. ICFAI Business School. Buddhist sites. Hyderabad 44 . forts. Petro-chemicals Food & agro processing Chemical & fertilizers Engineering & Automotives Mineral Based Industries Information Technology Biotechnology Renewable sources of energy Energy saving devices Pollution Control Equipments Waste utilization and recycling No.

Hyderabad 45 .SIP FINAL REPORT 2010 Proposed investments in US$ mn 35 30 25 20 15 10 5 0 2005-06 2006-07 2007-08 2008-09 2009-10 (upto june) Source: SIA Statistics September 2009.8 4.6 Proposed investments in US$ mn ICFAI Business School. 29 16.3 5.6 10.

wordpress. Automotive component industry / Automobiles ICFAI Business School.4 Business Scenario in a select Indian Sector Below is the profile of a sector as it appears in the blog fdiopportunities.com. this profiling is a mere compilation of facts and figures from sources believed to be reliable. Hyderabad 46 .SIP FINAL REPORT 2010 2.

This has significantly increased automotive industry's contribution to overall industrial growth in the country.SIP FINAL REPORT 2010 Automotive Industry comprises of automobile and auto component sectors and is one of the key drivers of the national economy as it provides large-scale employment. having a strong multiplier effect. Being one of the largest industries in India. Growth Drivers of Indian Automobile Market y y y Rising industrial and agricultural output Rising per capita income Favorable demographic distribution with rising working population and middle class Urbanization ICFAI Business School. Hyderabad 47 . It has been able to restructure itself. align itself to the global developments and realize its potential. absorb newer technology. this industry has been witnessing impressive growth during the last two decades.

100% Foreign Direct Investment (FDI) is allowed in the automobile industry in India. The automobile sector in the Indian industry is one of the high performing sectors of the Indian economy. The automobile industry in India is growing by 18 percent per year. Hyderabad 48 . This has contributed largely in making India a prime destination for many international players in the automobile industry who wish to set up their businesses in India. advanced technology. Advantages of FDI in the Automobile Sector in India The basic advantages provided by India in the automobile sector include. The automobile sector in India was opened up to foreign investments in the year 1991. India has a well-developed and competent ICFAI Business School. Besides. Subsequent to the liberalization. the automobile sector has been aptly described as the sunrise sector of the Indian economy as this sector has witnessed tremendous growth. globally competitive auto ancillary industry Established automobile testing and R&D centers Among one of the lowest cost producers of steel in the world World's second largest manufacturer of two wheeler Fifth largest manufacturer of commercial vehicles Largest manufacturers of tractors in the world Fourth largest passenger car market in Asia India is the second largest two-wheeler market in the world 11th largest passenger car market in the world Expected to be the seventh largest auto industry by 2016 The Automobile Sector in IndiaOne of the major industrial sectors in India is the automobile sector. and efficient manpower. cost-effectiveness.SIP FINAL REPORT 2010 y y y y y y Increasing disposable incomes in rural agri-sector Availability of a variety of vehicle models meeting diverse needs and preferences Greater affordability of vehicles Easy finance schemes Favorable government policies Robust production India's Position in World's Production y y y y y y y y y y Well-developed.

y FDI up to 100 percent.SIP FINAL REPORT 2010 Auto Ancillary Industry along with automobile testing and R&D centers. The automobile sector in India ranks third in manufacturing three wheelers and second in manufacturing of two wheelers.Government of India Ministry of Commerce & Industry Department of Industrial Policy & Promotion (FC Section) CIRCULAR 1 OF 2010 ICFAI Business School. Important Aspects of FDI in Automobile Industry1 FDI Inflows to Automobile Industry have been at an increasing rate as India has witnessed a major economic liberalization over the years in terms of various industries. has been permitted under automatic route to this sector. Hyderabad 49 . Opportunities of FDI in the Automobile Sector in India exist in y y y y y y Establishing Engineering Centers Two Wheeler Segment Exports Establishing Research and Development Centers Heavy truck Segment Passenger Car Segment SOURCE. which has led to a turn over of USD 12 billion in the Indian auto industry and USD 3 billion in the auto parts industry y The manufacturing of automobiles and components are permitted 100 percent FDI under automatic route y The automobile industry in India does not belong to the licensed agreement Import of components is allowed without any restrictions and also encouraged. The automobile sector in India is growing by 18 percent per year.

M & HCVSs. MUVs and LCVs Two wheelers. Hyderabad 50 . M&HCVs: Medium and heavy commercial vehicles ICFAI Business School. MUVs. MPVs: Multi purpose vehicles. buses M & HCVs Two and three wheelers Cars and MUVs Cars LCVs. cars and MUVs Cars and MUVs Two wheelers Three wheelers. buses Cars. buses MUVs. LCVs Cars. LCVs. cars. MUVs Two wheelers M & HCVs. MUVs.SIP FINAL REPORT 2010 Major Automotive Players in India Companies Ashok Leyland Asian Motor Works Bajaj Auto BMW India Daimler Chrysler India Eicher Motors Fiat India Force Motors Ford India General Motors India Hero Honda Motors Hindustan Motors Honda Hyundai Motors Kinetic Motor Mahindra & Mahindra Maruti Suzuki Piaggio Royal Enfield Motors Skoda Auto India Suzuki Motorcycles Swaraj Mazda Ltd Tata Motors Cars Toyota Kirloskar TVS Motor Co Volvo India Volkswagen India Segments LCVs. LCVs Two wheelers Cars Two wheelers LCVs. LCV: Light commercial vehicles. MPVs Three wheelers. M & HCVs Cars MUVs and LCVs Cars and MUVs Cars & MUVs Two wheelers Cars. M&HCVs. M&HCVs. buses Cars Yamaha Motor India Two wheelers MUVs: Multi utility vehicles.

Hyderabad 51 .SIP FINAL REPORT 2010 CONCLUSION ICFAI Business School.

For the governance of developing nations to bring their economies at par with the developed nations in the world.SIP FINAL REPORT 2010 3. Hyderabad 52 . The future is for India given the current growth rate and recent economic trends favoring the Indian economy. regulations and operating conditions once he is in consequently. With a proper environment in the country. Procedures Although approval for investment is given quite readily. etc. foreign investments will pour in. state and local authorities. labour policy. ³national´ treatment means that this investor is subject to domestic regulations. Image and Attitude There is a perception among investors that foreign businesses are still treated with suspicion and distrust in India. This introduces substantial implementation lags.1 Future of FDI In order to achieve phenomenal growth both in terms of economics and technology it is by now very clear that the developing economies need to attract more and more of Foreign Direct Investments. FDI is must. But still there are considerable glitches in Indian political system taking care of these will definitely prove to be a boony Domestic Policy While the FDI policy is quite straightforward and getting increasingly liberalized for most sectors. issues like law and order conditions. actual setting up requires a long series of further approvals from central. which are perceived as being excessive. once an investor establishes his presence. y y y y y ICFAI Business School. electricity and transport. dispute settlement and contract enforcement are time consuming activities in India. Hence it is this whole package of laws. Irregular and undependable supply complicates problems for foreign investors. Delays in legal process Despite a highly structured legal system. systems and procedures including the FDI policy itself which are carefully scrutinized by a far sighted investor. Quality of infrastructure Foreign investors are concerned about a number of problems with the infrastructure sector. And this is where the state governments should strive for bringing in uniformity in the policies and procedures for investments in the state otherwise it becomes as if an investor has to invest in 30 different countries carefully scrutinizing the rules and norms of each. Given the compelling need to increase investment and to improve technology it is therefore of prime importance to lure more and more investors to these developing nations. State government level obstacles An investor evaluates the entire spectrum of rules. become as important as the FDI policy itself. in particular.

Government should pursue such macro and stabilization policies that allow the maintenance of unified and realistic environment for foreign direct investments. Arrangements for FDI should be made in such a way that it improves factor-cost differences and provide long production runs. a close and deep look should be provided to those areas of government policies that can increase the GDP of the country. y Government should modify norms for FDI in a way. Hyderabad 53 .SIP FINAL REPORT 2010 3. acquire resources. etc. ICFAI Business School. licensing. which can expand sales. y Lastly. joint marketing arrangements. y y Foreign direct investments should be resource seeking rather than market seeking.2 Recommendations To sum up. joint ventures with local partners. diversify sales and supply and can minimize the competitive risk. So a few words of caution for the governance arey Before entering into the market. y Opportunities for co-production. should be provided to foreign investors. the general economic direction is towards liberalization and globalization. in emerging economies as those of the BRIC economies..

Hyderabad 54 .SIP FINAL REPORT 2010 ICFAI Business School.

Hyderabad 55 .SIP FINAL REPORT 2010 ICFAI Business School.

com/ Books & publications: y y y y y y Marketing Management by Philip Kotler Foreign Direct Investment in India.asp http://www.net/ashishnangla/fdi-fii-presentation http://ibef.nfia-india.assocham. Assocham Eco Pulse (AEP) http://www.org/arb/aep/AEP-Study-FDI-June-2009. T.about.org/endpovertyinsouthasia/ http://www.com/cs/economicsglossary/g/fdi.fdipromotion.K.in/ http://blogs.worldbank.SIP FINAL REPORT 2010 References: Websites: http://www.pdf Government of India Ministry of Commerce & Industry Department of Industrial Policy & Promotion (FC Section) CIRCULAR 1 OF 2010 ICFAI Business School.indiaonestop.com/ http://www.slideshare.htm http://www.indiainternet.org/ http://www.indianembassy.com/ https://www. Problems and Prospects by Anil Kumar Thakur.state. Shandilya International Business by Charles W L Hill & Arun Kumar Jain Investing in India.org/newsite//Doing_business_In_India/FDI_Policy_Procedures. Hyderabad 56 .gov/aboutstate/ http://economics.economywatch.com/ http://www. Foreign Direct Investment Policy and Procedures Department of industrial policy and promotion.

SIP FINAL REPORT 2010 ICFAI Business School. Hyderabad 57 .

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