JOURNAL OF CRITICAL REVIEWS

ISSN- 2394-5125VOL 7, ISSUE 18, 2020

IMPACTS OF FOREIGN DIRECT INVESTMENT IN

MANUFACTURING SECTOR ON INDIAN ECONOMY
Dr. MARY ANBUMATHY1*, D.VELUMANI2
1
HEAD OF THE DEPARTMENT OF COMMERCE NEHRU MEMORIAL COLLEGE, PUTHANAMPATTI,
TRICHIRAPPALLI, AFFILITED TO BHARATHIDASAN UNIVERSITY.
2
RESEARCH SCHOLAR DEPARTMENT OF COMMERCE, NEHRU MEMORIAL COLLEGE,
PUTHANAMPATTI, TRICHY ,AFFILIATED TO BHARATHIDASAN UNIVERSITY.

ABSTRACT: The Manufacturing Sector is one of the most important sector in the Globalised Economy. Its
contribution to the Indian Economy is significant role with regard to National income, GDP, Employment
opportunities and per capita income and so on. It covers interlinked with other sectors like Retail Trade and Service
Sectors. In order to expand the Manufacturing Industries, Foreign Direct Investment plays an important role in the
development of the on Indian Economy is essential part one. So, the key Manufacturing industries like
Metallurgical Industries, Chemical Industries, pharmaceutical Industries and Textile Industries have attracted FDI
largely and showed considerable growth in the post-liberalisation period. Besides, due to the flexible Policies of
the Government, availability of low cost of raw materials and skilled labourers are the main factors to the
development of the economy by way of Manufacturing industries. Therefore, a study on impacts of FDI of
Manufacturing Sector is effective one at the present scenario. At this juncture, according to the development
modernized world the adoption of new types of Technology is inevitable. For the purpose of the study,
Manufacturing Industries have been segregated into four views. Hi-Tech Manufacturing Industries, Medium-Tech
Manufacturing Industries, Medium-Low- Tech Manufacturing Industries and Low-Techonology Manufacturing
Industries. In order to find out feasible solution to the effects of the FDI in Manufacturing Industries, applicable
statistical tools like Growth rate and ANOVA table analysis have been utilized

INTRODUCTION
MEANINNG:
It means, any industry engage in the transformation of goods, materials or substances change into finished products, the
process of these industries can be physical, chemical or mechanical work in order to consume the goods to the public, is called
Manufacturing Industries. There are three types of Manufacturing Industries, 1. Make to stock 2. Make to assemble 3. Make to
order.
ROUTES OF FEW INDUSTRIES 100 PER CENT FOREIGN DIRECT INVESTMENT IS PERMITTED UNDER THE
AUTOMATIC ROUTE ARE:
Auto-components, Automobiles, Biotechnology (Greenfield), Capital Goods, , Chemicals, Coal & Lignite, , Construction of
Hospitals, Electronic Systems, Food Processing, Gems & Jewellery, Healthcare, Industrial Parks, IT & BPM, Leather,
Manufacturing, Mining & Exploration of metals & non-metal ores, Petroleum & Natural gas, Pharmaceuticals, Railway
Infrastructure, Renewable Energy, Textiles & Garments, Thermal Power,
ROUTES OF FEW INDUSTRIES UNDER FDI POLICY 2016
THE FOLLOWING SECTORS HAVE ALLOWED BY THE CENTRAL GOVERNMENT
APPROVAL with the relevant FDI Policy, June 2016
Mining and mineral separation of titanium bearing minerals and ores – Upto 100%
Defence – Beyond 49% & upto 100%
Pharma – Brownfield – Beyond 74% & Upto 100%
SECTORS UNDER AUTOMATIC ROUTE
Agriculture – 100%
Mining of metal and non-metal ores – 100%
Mining – Coal & Lignite – 100%
Food Product Retail Trading – 100%
Railway Infrastructure – 100%
Pharma – Greenfield – 100%

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Petroleum & Natural Gas - Exploration activities of oil and natural gas fields – 100%
Petroleum refining by PSUs – 49%

2. IMPORTANCE OF THE STUDY

Manufacturing industries have involved in a vital role at the present day technological world. India is one of
the biggest Agricultural based professional country in the world. It helps in modernising the Agricultural Tools and
Machineries and reduce the employment pressure on agriculture. On the other hand, it is the basic sector to bring much
needed foreign exchange and expansion of trade and commerce. It also helps to eradicate the unemployment and Poverty in
the country. Therefore, the role of FDI in manufacturing sector

3. SCOPE OF THE STUDY:

The period of study only from 2015-2016 to 2019-2020 and the Manufacturing Sector is divided into four
angles. Let us discuss in four divisions. 1. Hi-tech Manufacturing Industries 2. Medium Technology Manufacturing
Industries 3. Medium-Low Technology Manufacturing Industries 4. Low-Technology Manufacturing Industries

4. OBJECTIVES OF THE STUDY:

1. To analyse the Pre and Post Liberalisation Period of FDI in Manufacturing Sector in India.
2. To analyse the different Technology-wise Manufacturing Industries
3. To make findings, suggestions and conclusion.
4.
5. METHODS OF COLLECTION DATA:
The data is collected from RBI reports and fact sheets of Ministry of Commerce and Industry and other statistical method books
6. STATISTICAL TOOLS USED: Growth rate, percentage and ANOVA table analysis have been used for this
study.
7. HI- TECHNOLOGY MANUFACTURING INDUSTRIES
TABLE 7.1. ANALYSIS OF FDI IN DRUGS AND PHARMACEUTICAL INDUSTRIES

Sources: Secondary data

The Table 1.1 shows that the position of progress of FDI in Drugs and Pharmaceutical Industries. During the year
2016-2017 FDI has progressed considerably but it has been reduced in the next year due to high skilled workforce and
marketing and distribution system are available in India. Then, the Greenfield industries 100 per cent and Brownfield Industries
have permitted 100 per cent in automatic as well as Government route permission in FDI, are the reasons it has been
increased in the next year,
TABLE7. 2. ANALYSIS OF FDI IN HOSPITAL AND DIAGNOSTIC MACHINERIES

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Sources: Secondary data

The Table 7.2 shows that the FDI in Hospital and Diagnostic industries have increased during the year 2018-2019
because of the urban population of India and contributes up to 65% of the total revenues of the diagnostics industry. Rapid
health insurance and Government initiatives like e-health, together with tax benefits and incentives are the reasons decreasing
the FDI in the year 2019-2020.
TABLE: 7.3: ANALYSIS OF FDI IN INDUSTRIAL MACHINERIES

Sources: Secondary data

The Table 1.3 shows that the FDI in Industrial Machineries, during the year 2017-2018 and also during the year
2019-2020 Fdi has been showed in a positive growth 36% and 26% respectively because of Mahindra and Mahindra
Limited is the leading player occupying the highest share in the Indian agricultural tractors market, followed by Tractor and
Farm Equipment Ltd., companies have indulged in joint ventures and agreements and to create a production capacity of
manufacturing tractors in India.

TABLE: 7.4: ANALYSIS OF FDI IN ELECTRONIC INDUSTRIES

Sources: Secondary data

The Table 7.4 shows that the flow of FDI in India, during the year 2017-2018 FDI has increased 124 per cent and in
the next year it has shown 152 per cent, due to Digital Media programme and National knowledge Network programme have
initiated by the Government , are the factors for progressive situations have prevailed in the Electronic Industries. .

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TABLE:7.5:ANALYSIS OF FDI IN MEDICAL AND SURGICAL APPLIANCES

Sources: Secondary data

The table 7.5 shows that the inflows of FDI in Medical and surgical appliances have shown in highest position 200
per cent during the year 2016-2017 due to create not only wealth and technology but also co-create an ecosystem for
manufacturing of medical devices in India.
TABLE: 7.6 : ANALYSIS OF FDI IN MACHINE TOOLS INDUSTRIES

Sources: Secondary data

The table 7.6 showed that the position of Machine Tools Industries, during the year 2017-2018 FDI has
increased to 82%, but it has been reduced to 8 per cent in the next year, in the next year it has gone to negative stage of FDI.

TABLE:7. 7: ANALYSIS OF FDI IN AGRICULTURAL MACHINERY INDUSTRIES

Sources: Secondary data

The table 7.7 shows that the inflow of FDI in Agricultural Machinery Industries in a single digit way because of
under the Make-in-India programme , Government of India has initiated different plans to produce modern agricultural
machineries by using Technological Advancements. Therefore, the necessity of FDI was in a lowest stage.

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TABLE: 7.8: ANALYSIS OF FDI IN EARTH-MOVING MACHINERY INDUSTRIES

Sources: Secondary data

The table 1.8 shows that the FDI in Earth-moving machinery industries have increased during the year 2016-2017
225% . Due to increased mining activities and greater demand for the equipments; reduced import duties are the another
reason for increasing demand for the machineries.
TABLE: 7.9 : ANALYSIS OF FDI IN MATHS SURVEYING & DRAWING INSTRUMENTS & SCIENTIFIC
EQUIPMENTS INDUSTRIES

Sources: Secondary data

The table 7.9 depicts that the situation of FDI in Maths Surveying Instruments in the year 2016-2017 & 2019-2020
has been in 577 per cent and 638 per cent respectively, when compare with the other terms, because of New techniques of
production and the use of advanced technological instrumentation, low cost of production and labour force are the factors
determined the inflown of FDI in above type of industries .

TABLE: 7.10 : ANALYSIS OF FDI IN MINING INDUSTRIES

Sources: Secondary data

The table 7.10 shows that the situation of inflows of FDI in Mining industries, In the beginning of the
study area there was no effective to the FDI , few years later, it has been increased particularly in the year 2019-2020 due to
large number of thermal coal was imported by the government of India was economically substituted by domestically produced
coal, creates significant employment opportunities particularly remote areas.

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7.2 ANALYSIS OF MEDIUM TECH NOLOGY INDUSTRIES

TABLE: 7.2.1: ANALYSIS OF FDI IN AUTOMOBILE INDUSTRIES

Sources: Secondary data

The table 2.1 shows that the inflows of FDI in Automobile sector, during 2016-2017 it has been decreased to -24
per cent of FDI, because of Government Policy of “Make-in-India plan”, particularly manufacturing of automobiles and
components are permitted 100 per cent under automatic route the Government has insisted that the policy of production in India
only, due to the technological advancements it has been increased during the year 2018-2019. The opportunities of Indian
policy and competition among these companies in the country, FDI has been reduced in the next year to 8 per cent only. Import
of components is allowed without any restrictions and also encouraged.

TABLE: 7. 2. 2 : ANALYSIS OF FDI IN POWER INDUSTRIES

Sources: Secondary data

The Table 2.2 shows that the position of FDI in power industries, During the year 2017-2018 has shown increased the necessity
of power industries, but in the coming years it has been reduced considerably because of expansion of the Industrial activities to
boost the demand for electricity and various new projects for further requirements of power fulfilled by the domestic efforts .
TABLE:7. 2.3: ANALYSIS OF FDI IN ELECTRICAL EQUIPMENTS INDUSTRIES

Sources: Secondary data

The table 7.2.3 shows that the FDI in Electrical Equipments, in the year 2016-2017 it has shown 445 per cent, in
the next year it has been reduced to 79 per cent due to Government initiatives like the strong implementation of “Make in India”
programme. In the year it has shown in -40 per cent in a negative position in this field.

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TABLE: 7.2.4: ANALYSIS OF FDI IN CHEMICAL (OTHER THAN FERTILIZERS) INDUSTRIES

Sources: Secondary data

The table 7.2.4 shows that the FDI Inflows to Chemicals industry in India has registered significant growth in the last
few years. In the year 2018-2019 that the inflows of FDI during the year 2018-2019 increased up to 62 per cent due to
availability of infrastructure, Government initiatives, the following Chemical Industries have entered in India:- Dow Chemical,
Due pont and Bayer. The inflows of FDI not only given boost to the industry but also led to improvement of the quality of the
products from the industry.

TABLE:7.2.5: ANALYSIS OF FDI IN CEMENT AND GYPSUM PRODUCTS

Sources: Secondary data

The government of India has allowed foreign direct investment up to 100% in the cement and gypsum products
industry of the country. This has led to the increase in FDI Inflows to Cement and Gypsum Products industry in India. During
the year 2016-2017 that the position of FDI has shown 1013 per cent, because of India is the second biggest manufacturer of
high grade cement in the whole world and International companies Lafarge, Italcementi, Holcim having presence in cement and
gypsum products industry in India are the reasons have increased the FDI.
Due to the increased FDI Inflows to Cement and Gypsum Products industry in India has led to the growth, expansion of the
industry. As a result of this the quality of the cement and gypsum products has improved a great deal.
TABLE: 7.2.6: ANALYSIS OF FDI IN MISCELLANEOUS MECHANICAL & ENGINEERING INDUSTRIES

Sources: Secondary data

The table 7.2.6 shows that the inflows of FDI , during the year 2018-2019 it has been increased to 66 per cent
when compared with the previous year, because of Government initiated to enjoy 100 per cent FDI allowed automatic route and
also relaxed excise duties on factory gate tax, capital goods etc.

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TABLE: 7.3: ANALYSIS OF CONSOLIDATED TECHNOLOGY-WISE INFLOW OF FDI IN MANUFACTURING

INDUSTRIES ( RUPEES IN CRORES)

Sources: Secondary data Note: inflow of FDI changed into percentage

Table 7.3.1 ANOVA TABLE RESULT

H1 = There is no significant effects between the INFLOW of FDI in TECHNOLOGY-WISE IN MANUFACTURING

INDUSTRIES
Calculated value is less than the Table value that the hypothesis is accepted otherwise it is rejected.
HERE : Calculated value is less than the Table value, Hence, the Hypothesis is Accepted.
The Inflow of FDI has inflown into India according to the various types of technologies, if it is essential high technology type
industries, it is necessary to collaborate with foreign countries are essential part, otherwise , it could not be expected from the
overseas, it is enough to fulfil domestically.
H2 = There is no significant effects between the INFLOW of FDI in YEAR -WISE IN MANUFACTURING INDUSTRIES
Calculated value is Less than the Table Value that the Hypothesis is accepted otherwise it is rejected.
HERE : Calculated value is Higher than the Table value, Hence, the Hypothesis is Rejected. Because, according to the
needs and wants of the people, changing advancement of Technology, it may be decreased or increased. Hence, year-wise FDI
may be changed at any situation.
FINDINGS:
1. High-Technology industries have participated in the economic development of a country limited one and it
creates .

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2. Due to the technological advancement in the Manufacturing Industries have encouraged the domestic labour force
and reduction in the cost of production.
3. By increasing the Greenfield and Brownfield industries have increased employment
opportunities and skilled labour forces.
4. By concentrating FDI Joint Ventures have been increased
5. Due to Digitalization policy of the Government FDI has increased
6. Because of the Government initiatives like “Make in India Plan” domestic economic has developed in Production in
Heavy Industrial Machineries, Electrical and Electronic Items.
SUGGESTIONS:
1. The routes of FDI must be scrutinized otherwise , the domestic industries may be
affected and also loosing their jobs in Medium-low technology and Low technology industries.
2. The Government should take necessary steps to bring hi-tech institutes to give advanced Technology to the Indian
students.
3. It is better to encourage the FDI in Hospital Industries to avoid unnecessary diseases are met by the people like
India.
4. The period of extension of mining industries must be restricted to avoid unnecessary exploitation of the natural
resources by the tenants.
5. Non-conventional Energy must be encouraged
CONCLUSION:
Manufacturing sector is the backbone of any economy. Most of the activities of a country depending upon Manufacturing
Industries. So, it constitutes a significant part of the employment opportunities , due to Foreign Direct Investment has enrolled
crucially in the economic development of a country when compares with other sectors. Therefore, in India is concerned , by
increasing the share of young working population in the total population, India can achieve the full manufacturing
infrastructure in the Globalised Economy. This also way to enhance the FDI in India in this sector both internal and external
trade. However, due to this factor not only development of advanced technology but also securing high standard of living
conditions which stimulates of Imports and Exports and increase the Foreign Exchange in the competitive Globalised
Economy.
REFERENCES:
[1] www.rbi.org.in
[2] www.pharmatechmedia.com
[3] www.mining-journal,com
[4] https://www.researchgate.net
[5] https://dipp.gov.in
[6] Statistical methods , S.P. Guptha
[7] Research Methodology, C.R. Kothari

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