PROJECT REPORT ON Foreign Direct Investment in India - An Analytical Study Submitted By DIPTI PATIL MFM Vth SEMESTER BATCH 2011 -2014 ROLL NO: 40 UNDER THE GUIDANCE OF PROF SMITA RAMAKRISHNA KJ. SOMATYA INSTITTE OF MANGEMENT STUDIES & RESEARCH VIDYANAGAR, VIDYA VIHAR (E), MUMBAI- 400 077SIMSR Project Report DECLARATION 1, Dipti Patil, a student of MFM programme, V Semester of 2011-2014 batch at SIMSR do hereby declare that this report entitled “Foreign Direct Investment in India - An Analytical Study” has been carried out by me during this semester under the guidance of Prof. Smita Ramakrishna as per the norms prescribed by the University of Mumbai, and the same work has not been copied from any source directly without acknowledging for the section that has been adopted from published or non-published works. (DIPTI PATIL ) Dipti Patt Foreign Direct hwvesiment in India ~ An Analstical Study Page 2/42SIMSR Project Report CERTIFICATE ‘This is to certify that Ms. Dipti Patil, a student of MFM programme V Semester of 20L1- 2014 batch at SIMSR has carried out the report entitled “Foreign Direct Investment in India - An Analytical Study” under my guidance as per the norms prescribed by the University of Mumbai Prof SMITA RAMAKRISHNA. 15™ Oct 2013 Dipfi Patit Foreign Direct Investment in India - An Analstical Study Page 3/42SIMSR Project Report ACKNOWLEDGEMENTS I wish to express my gratitude and special thanks 10 Prof Smita Ramakrishna, SIMSR for guidance and support. Her guidance in data collection and analysis helped me to come up with solution. She helped all the time whenever required and provide the right direction in completion of project. Talso thank Prof Sonal Ved who helped us in selection of topic and allocation of mentor on time, Last but not least I want 10 thank Mani sir who helped us with proper template to prepare project report and other administrative formalities while submission of project. (Dipti Patil) Roll No. 40 Dipti Pati Foreign Direct hwvesiment in India ~ An Analstical Study Page 4/42SIMSR Project Report TABLE OF CONTENT 1, LIST OF FIGURE. LIST OF TABLE, LIST OF GRAPH ABSTRACT... OBJECTIVE. 10 RESEEARCH METHODOLOGY LITERATURE REVIEW. INTRODUCTION. 14 © WHATIS FDI? * TYPES OF FDI © FDIPLOICY FRAMEWORK 9. FDIINFLOW AND ECONOMY DEVELOPMENT. ........00.000000 eel 10. FDIIN INDIA AND GLOBAL MARKET. ..........:ssscssssecessseesessncecssnereceseneeere 2, LL. FACTORS INFLUENCING FDI ~ IMPACT ANALYSIS............+ * DOLLAR RATE. + GDP wee ee 24 * POPULATION © CPIINDEX * GOLD PRICE * BOP 12. FDI FORECASTING ~ TIME SERIES ANALYSIS. 13. CONCLUSION AND RECOMMENDATION. 37 14. BIBLIOGRAPHY. 38, 15. APPENDIX. 39 Dipfi Patit Foreign Direct Investment in India An Analstical Study Page 5142SIMSR Project Report LIST OF FIGURES FigNo Title Page No Fig-1 Foreign Investment ~ Schematic Representation 15 Fig-2 UNCTAD Report - FDI Rank 2 Fig-3 FDI India Factsheet 2 Fig-4 FDI Confidence Index 2 Dipti Patt Foreign Direct investment in india » An Analytical Study Page 6/42SIMSR Project Report LIST OF TABLE TableNo Title Page No Table-1 FDI Policy Framework 17-19 Table-2 Factors affecting FDI 24-25 Table-3 Correlation Matrix 33 Table-4 Parameter Estimates 39 Table-S FDI Forecasts 40-42 Dipti Patt Foreign Direct hwvesiment in India ~ An Analstical Study Page 142SIMSR Graph No Graph-1 Graph-2 Graph-3 Graph-4 Graph-5 Graph-6 Graph-7 Graph-8 Graph-9 Graph-10 Graph-11 Graph-12 Graph-13 Graph-14 Graph-15 Graph-16 Graph-17 Graph-18, Graph-19. Graph-20 Dipti Patil LIST OF GRAPHS Title Sector wise Distribution State wise Distribution FDI Trend during post-liberalization Dollar Rate Trend Scatter Plot for Dollar Rate vs FDI Inflow GDP Trend Scatter Plot for GDP vs FDI Inflow Population Trend Scatter Plot for Population vs FDI Inflow CPI Index Trend Scatter Plot for CPI Index vs FDI Inflow Gold Price Trend Scatter Plot for Gold Price vs FDI Inflow BOP Trend Scatter Plot for BOP vs FDI Inflow FDI inflow from different countries Various Routes to FDI Equity Inflow FDI Historical Trend FDI trend - data for forecasting FDI Forecasting for 24 months Foreign Direct Investment in India - An Analytical Study Project Report Page No 19 30 30 al al a4 35 36 Page 8/42SIMSR Project Report ABSTRACT Foreign Direct Investment inflows in India seen rising 15 per cent in 2013 and observed to be grown steadily in volume and is a major source of development finance. Foreign Direct Investment is one and only major instrument of attracting International Economie Integration in any economy. It serves as a link between investment and saving. Recognizing that FDI can contribute to economic development, all governments want to attract it. This project examines the different forms of capital, the global and regional trends in FDI inflows, factors influencing FDI in India, and experiences in India, comparative study with global market. The policy implications of the determinants of EDI flows are analyzed. FDI is an important factor in the globalization process as it intensifies the interaction between states, regions, and firms. Growing international flows of portfolio and direct investment, international trade, information and migration are all parts of this process. The large incentive in the volume of FDI during the past two decades provides a strong incentive for research on this phenomenon. Dipti Pati Foreign Direct hwvesiment in India ~ An Analstical Study Page 9142SIMSR Project Report OBJECTIVE OF STUDY © Study Foreign Direct Investment in India for India’s growth and development of after ‘economic reforms ‘+ Examine the significance and assess the various aspects pertaining to performance of the FDI in India viz-a-viz. sector-wise, country-wise, state-wise and year-wise during post reform period © Analyze historical trends or pattern of FDI to forecast future FDI ‘* Analyze impact of FDI on economy of India Dipfi Patit Foreign Direct Investment in India An Analstical Study Page 10/42SIMSR Project Report RESEARCH METHODOLOGY ‘The present study is based on the objectives like how FDI helps in economy growth of India, statistical analysis like forecasting, correlation with other factors of Indian economy based on historical data during post-liberali tion period. To accomplish all above objectives data has been collected from various sources like SIA Newsletter, Reports, publication of Govt, RBI relating to foreign Investment, economic journals, book: nagarines and internet etc. Impact analysis and time series forecasting is done using tool SAS Enterprise Guide and Microsoft Excel Dipfi Patit Foreign Direct Investment in India An Analstical Study Page 11/42SIMSR Project Report LITERATURE REVIEW Gulshan Akhtar (2013), in his paper “Inflows of Foreign Direct Investment in India” foe es on potential impact of FDI in the growth and development of Indian economy. FDI acts as a catalyst for domestic industrial development and considered to be an important vehicle for economic development. The study finds out that during pre liberalization period FDI increased at CAGR of 19.05% while during post liberali ion period it has grown 24.28%. Since 1991 FDI inflows in India has increased approximately by more than 165 times. K.R. Kaushik & Dr. Kapil Kumar Bansal (2012), in their research article “Foreign Direct Investinent in Indian Retail Sector” highlights div jon of retail industry in India, FDI policy with regard to retailing, foreign investor's concer regarding FDI in retail sector and Government viewpoint. The article highlights the mixed response about FDI in retail sector with major reason to oppose is FDI in retail can be harmful to local retailers in India, The article concludes that FDI in retail sector may boost the socio economic development of the entire country if implemented wisely carefully while signing the agreements with the Foreign Investors Dr. Jasbir Singh, Ms. Sumita Chadha & Dr. Anupama Sharma (2012), in their research paper “Role of FDI in India” focus on how Foreign Direct Investment helps in reducing the defect of BOP. Foreign Direct Investment is one and only major instrument of attracting Intemational Economic Integration in any economy. It serves as a link between investment and saving. Many developing countries like India are facing the deficit of savings, This problem can be solved with the help of Foreign Direct Investment. The analytical study in this paper concludes that we id should welcome inflow of foreign investment in such way that it should be convenient favorable for Indian economy and enable us to achieve our cherished goal like rapid economic development, removal of poverty, internal personal disparity in the development and making ‘our Balance of Payment favorable. Pankaj Sinha and Anushree Singhal (2013), in their research article “FDI in Retail in India” focuses on the relationship between FDI in retail and seven macroeconomic factors ~ Exchange Dipfi Patit Foreign Direct Investment in India An Analstical Study Page 12/42SIMSR Project Report rate (yoy%), Inflation (CPD, GDP growth, Index of Industrial Production, Trade Openness, Unemployment rate and Tax as a percentage of nominal GDP. This research also recommends the government of India to shift focus and not rely much on FDI in retail to act as a game changer. Indian Goverment should emphasize on building infrastructural facilities especially developing transportation systems like roadways and railways, setting up economic zones for warehousing. fa y, streamlining labour laws, planning urbanization to ensure adequate availability of quality real estate, high street and implementing GST to give new dimensions to modem organized retail in India. Dipfi Patit Foreign Direct Investment in India An Analstical Study Page 13/42SIMSR Project Report INTRODUCTION Foreign Direct Investment is an investment made by a foreign company or entity into a company or entity based in another country. FDI refers to capital inflows from abroad that is invested in or to enhance the production capacity of the economy. It can be a subsidiary, joint venture or merger or acquisition and includes Greenfield and Brownfield projects. ORCD has defined FDI as investment by a foreign investor in at least 10% or more of the voting stock or ordinary shares of the investee company. According to the intemational monetary fund (IMF), FDI is defined as “Investment that is made to acquire lasting interest in an enterprise operating in an cconomy other than that of investor. The investor's purpose is being to have an effective voice in the management of enterprise.” ‘Types of EDI Foreign Direct Investment can be of two types: L. Inward Foreign Direct Investment: This occurs when one company purchases another business or establishes new operations for an existing business in a country different than the investing company's origi 2. Outward FDI: A business strategy where a domestic firm expands its operations to a foreign country either via a Green field investment, merger/acquisition and/or expansion of an existing foreign facility, Dipfi Patit Foreign Direct Investment in India An Analstical Study Page 14/42SIMSR Project Report Foreign Direct Investment is one of the important and highly focused among the entire foreign investment in India, Below is the schematic representation Foreign Investment, —— Foreign VEnture Investments an ForeignDiect _|roreignForttaio other sig Oe ‘ Capital “ non-epatable Ivetment | “investment lnvesiments | nat Automatic Route a eBlog FVC Geet, NEDsete L NRveI0 I Gouthoute nap vcr.veus A q } NRI/PIO- Fig-1: Foreign Investment ~ Schematic Representation An Indian company receives Foreign Direct Investment under the two routes as given below: 1. Automatic Route FDI is allowed under the automatic route without prior approval either of the Government or the Reserve Bank of India in all activities/sectors as specified in the consolidated FDI Policy, issued by the Government of India from time to time, 2. Government Route EDI in activities not covered under the automatic route requires prior approval of the Government which is considered by the Foreign Investment Promotion Board (FIPB), Department of Economic Affairs, and Ministry of Finance. FDI Policy Framework in India ‘There has been # sea change in Indi 's approach to foreign investment from the early 1990s when it began structural economic reforms encompassing almost all the sectors of the economy. Pre-Liberalization Period Dipfi Patit Foreign Direct Investment in India An Analstical Study Page 15/42SIMSR Project Report Historically, India had followed an extremely cautious and selective approach while formulating FDI Government took active participation to command and control the economy by allocation of resources (budgetary grants) or in setting priorities for the economy Self-Reliance was the buzz word and there was limited scope to privatization whereas nationalization of banks was taken as high priority With the objective of becoming “self reliant’, there was a dual nature of policy intention — FDI through foreign collaboration was weleomed in the areas of high technology and high priorities to build national capability and discouraged in low technology areas to protect and nurture domestic industries. Foreign Exchange Regulation Act (FERA) was introduced in 1973 , a regulatory framework and removed restriction on FDI by allowing foreign equity holding in a joint venture up to 40 per cent. Government then established special economic zones (SEZs) and designed liberal policy to provide incentives for promoting EDI in these zones with a view to promote exports ‘The announcements of Industrial Policy (1980 and 1982) and Technology Policy (1983) provided for a liberal attitude towards forcign investments in terms of changes in policy directions. Post-Liberalization Period Post 1991 becomes a major shift in Liberalization and Globalization of Indian Economy aiming to raise growth potential and integrating with the world economy. Industrial policy reforms gradually removed restrictions on investment projects and business expansion on the one hand and allowed increased access to foreign technology and funding on the other. A series of measures takes place to promote foreign direct investment © Disinvestment Policy - Government started getting out of owning and managing businesses © Dual route of approval of FDI — RBI's automatic route and Government's approval (SIA/FIPB) route © Automatic permission for technology agreements in high priority industries Dipfi Patit Foreign Direct Investment in India An Analstical Study Page 16/42SIMSR Project Report © Removal of restriction of FDI in low technology areas as well as liberalization of technology imports, © Non-resident Indians (NRIs) and Overseas Corporate Bodies (OCBs) are permitted to invest up to 100 per cent in high priorities sectors © Foreign equity participation limits has been increased up to 51% for existing companies © Convention of Multilateral Investment Guarantee Agency (MIGA) for protection of foreign investments, ‘© Foreign Exchange Management Act (FEMA), 1999 [that replaced the Foreign Exchange Regulation Act (FERA), 1973] which was less stringent. Current FDI policy in terms of sector specific limits has been summarized below: ‘Table 1: Sector Specific Limits of Foreign Investment in India Sector FDI Entry Route Other Cap/Equity Conditions ‘A. Agriculture 1. Floriculture, Horticulture, Development of | 100% Automatic Seeds, Animal Husbandry, Pisciculture, Aquaculture, Cultivation of vegetables & mushrooms and services related to agro and allied sectors. 2. Tea sector, including plantation 100% FIPB (EDI is not allowed in any other agricultural sector laetivity) ‘B. Industry 1. Mining covering exploration and mining | 100% Automatic of diamonds & precious stones: gold, silver and minerals. 2. Coal and lignite mining for captive 100% ‘Automatic consumption by power projects, and iron & steel, cement production, 3. Mining and mineral separation of titanium | 100% FIPB bearing minerals C, Manufacturing ‘Automatic 1, Alcohol- Distillation & Brewing 100% 2. Coffee & Rubber processing & 100% ‘Automatic ‘Warehousing. 3. Defence production 26% FIPB 4. Hazardous chemicals and isocyanates | 100% ‘Automatic Dipti Patt Foreign Direct hwvesiment in India ~ An Analstical Study Page 1142SIMSR Project Report | 5. Industrial explosives —Manufacture [100% Automatic 6, Drugs and Pharmaceuticals 100% ‘Automatic 7. Power including generation (exeept 100% ‘Automatic Atomic energy); transmission, distribution and power trading. (EDI is not permitted for generation, transmission & distribution of electricity produced in atomic power plant/atomic energy since private investment in this activity is prohibited and reserved for public sector.) D. Services 1. Civilaviation (Greenfield projects and 100% Automatic Existing projects) 2, Asset Reconstruction companies D% FIPB 3. Banking (private) sector 74%e(FDI¥FID, | Automatic Filnotto exceed 49% 4. NBFCs : underwriting, portfolio s.tminimum management services, investment advisory | 100% Automatic capitalisation services, financial consultancy, stock norms broking, asset management, venture capital, custodian, factoring, leasing and finance, housing finance, forex broking, etc. 5. Broadcasting a. FM Radio 20% FIPB . Cable network; c. Direct to home; d. 49% ‘Hardware facilities such as up-linking, (FDI-FID) HUB. Uptlinking anews and current affairs TV | 100% Channel 6. Commodity Exchanges 49% FDTD | FIPB (FDI 26 % FIL 23%) 7, Insurance 26% Automatic ‘Clearance from IRDA 8 Petroleum and natural gas 49% (PSU9._ | FIPB (PSUs) a. Refining 100% (Pvt. | Automatic(Pvt. Companies) |) 9, Print Media 26% FIPB S.tguidelines a. Publishing of newspaper and periodicals by Ministry of dealing with news and current affairs Information & », Publishing of scientific magazines / 100% FIPB broadcasting speciality journals/periodicals - E 10. Telecommunications 74% (including | Automatic up a. Basic and cellular, unified access services, | FDI, FI, NRI, | to 49% and national / international long-distance, V- FCCBs, FIPB beyond SAT, public mobile radio trunked services. | ADRVGDRs, | 49%. (PMRTS), global mobile personal convertible Dipti Patil Foreign Direct Investment in India - An Analytical Study Page 18/42SIMSR Project Report ‘communication services (GMPCS) and preference others. shares, ete. Sectors where FDI is Banned 1. Retail Trading (except single brand product retailing); 2. Atomic Energy; 3. Lottery Business including Government / private lottery, online lotteries etc; 4, Gambling and Betting including casinos etc. 5. Business of chit fund; 6. Nidhi Company: 7. Trading in Transferable Development Rights (TDRs); 8. Activities/sector not opened to private sector investment; 9. Agriculture (exchiding Floriculture, Horticulture, Development of seeds, Animal Husbandry, Piscicultureand cultivation of vegetables, mushrooms etc. under controlled conditions and services related to agro and allied sectors) and Plantations (Other than Tea Plantations); 10. Real estate business, or construction of farm houses; ‘Manufacturing of Cigars, cherools, cigarillos and cigarettes, of tobacco or of tobacco or of tobacco substitutes. Table-1: Source —lutp:Vhwww.rhi org in/ecripivbs viewcontentaypx?Md=2513 Sector wise FDI in India ‘Manufacturing, constructions, Financial Services are top major sectors for FDI inflow in India. Real Estate, Mining, Hotel, Retail, Computer Services, Mining, Energy & Electricity also attractive sectors for FDI inflow Below graph shows the comparative distribution of FDI inflow in recent four years. Steady growth is observed in all the sectors which help in the economic development of India Sectorwise FDI Inflow (us $ mition) Graphe-L: Source hitp:/irbicorgl Dipfi Patit Foreign Direct Investment in India An Analstical Study Page 19/42SIMSR Project Report State wise FDI in India Mumbai, Delhi, Chennai, Bangalore, Hyderabad are the major states in India to FDI inflow. Below is the distribution for FDI in different countries in India in year 2012. State wise distribution - FDI Equity Inflow in 2012 2 counara, ‘vMEDABAD Graph-2: Source hitp:irbi.org/ Dipfi Patit Foreign Direct Investment in India An Analstical Study Page 20/42shuse Project Report EDI INFLOW AND ECONOMY DEVELOPMENT FDI is an important vehicle of for economic development as far as the developing nations are concerned. The important effect of FDI is its contribution to the growth of the economy in all sectors like ma wwlacturing, telecommunication, information technology, financial services, energy & electricity ete. FDI has an important impact on country’s trade balance, increasing labor standards and ski transfer of technology and innovative ideas, skills and the general business imate, FDI also provides opportunity for technological transfer and up grada jon, access to global managerial skills and practices, optimal utilization of human capabilities and natural resources, making industry intemationally competitive, opening up export markets, access to international quality goods and services and augmenting employment opportunities, Dipfi Patit Foreign Direct Investment in India An Analstical Study Page 21/42SIMSR Project Report FDI INFLOW AND GLOBAL MARKET ‘The global rankings of the largest recipients of FDI also reflect changing patterns of investment flows: 9 of the 20 largest recipients were developing countries (Fig-2). India ranks 15" in international market to FDI recipients Pra 9-201 ranking Fig-2 Source: UNCTAD Report India continues to be preferred destination for FDI. Fig shows the FDI inflow and outflow in India. Fig-3 Source: FDI India Factsheet Dipti Pati Foreign Direct Investment in India - An Analical Stuy Page 22/42SIMSR Project Report The Foreign Direct Investment Confidence Index is a regular survey of global executives conducted by A-T. Kearney. The Index provides a unique look at the present and future prospects for intemational investment flows, India ranks among the best in investment surveys Fig-4 shows the comparative ranking in global market for FDI investments Ranking Values calculated on a0 10.3 scale 2010 2012 2013 00 aso 120 10 200 20 244 mea see 1102 om a3a3 et 9 20 4 canada 32 68 nae 7 6 6 oats es Srey 10 8B Ueno 8 - 8 Meco 7 © ‘Sroscore eu on oe sv 2 ara - 7 a aoa 115 Mtns matee - "8 ‘outa - a 6 soar - 60 Tatar - 2 8 Seen 28 ton - 8 20 Tome - om sounsoree - + ne 5 2 Argenta 20 9 done a 0 38 Matra wena Vovcnttoce Wi verneticg | Mesto] eredown See: A ese orn Ove estmentConece de® 219, Fig-4 2013 FDI Confidence Index, Source: http Zvww.atkearney.com Dipfi Patit Foreign Direct Investment in India An Analstical Study Page 23/42SIMSR Project Report FDI-IMPACT ANALYSIS FDI inflow ~ Historical Trend 2005 onwards FDI inflow increased with in India which helped in development in Indian economy. High FDI inflow observed in 2008 with $43,000 million Graph-3 shows the historical trend in FDI inflow in India FDI inflow (US $$ million) Graph-3 Source: hutp:/www.oeed org/investmeni/statisties. him Factors influencing FDI inflow Foreign Direct Investment plays a very important role in the development of any nation. A lot of factors are involved to attract FDI in India which includes government policy, political environment, market size, labor cost. Not all factors are quantitative. Listed below few quantitative factors to find impact on EDI Name Type Description INR _per_USD Numeric | Indian Rupee per 1 $ GDP ‘Currency Gross Domestic Product in million Population ‘Numeric India Population Inflation Numeric Consumer Price Index (inflation rate) gold_per_10_gram Numeric | Rupee per 10gram gold Dipfi Patit Foreign Direct Investment in India An Analstical Study Page 24/42SIMSR Project Report Overall_BOP Currency | Balance of Payments FDI_Eq_govt_app_route | Currency | FDI approval from government route FDI_Eq_auto_route Currency| FDI approval from auto route FDI_Eq existing share | Currency | FDI approval from existing share FDI_Eq NRIscheme | Currency | FDI approval from NRI scheme FDI_Mauritius Cureney | FDI from Mauritius FDI_USA Cunency | FDI from USA FDI_Japan Currency| FDI from Japan FDI_Netherlands Currency | FDI from Netherlands FDI_UK Currency | FDI from UK FDI Germany Currency | FDI from Germany FDI France Currency | FDI from France FDI_Singapore Cunency | FDI from Singapore Table-2 List of factors Dollar Rate Dollar rate trend shows a steady growth in 1990, but very fast growth in recent year which cross Rupee 55 per dollar. Graph shows the historical trend for Indian Rupee per 1US dollar. Indian Rupee per 1.00 US Dollar 555 S SEPSEEIPPE SESS EES IS SOS Graph-4 Source: lutp://www.inflation.ewinflation-rates/india/historie-inflation Dipfi Patit Foreign Direct Investment in India An Analstical Study Page 25/42SIMSR Project Report Scatter plot shows the 29.48% variation in FDI inflow explained by Indian Rupee per USD and remaining 70% will be explained by other factors. FDI and dollar rate has direet proportional relation having every Lunit of increase in dollar rate, will increase FDI by 1112 units. FDI inflow (US $$ million) $50,000 $45,000 ° y= 4112.3x- 34408 $40,000 ~ F=0.2948 $35,000 * $30,000 . © FDlinflow (US S$ pene ° million) $20,000 o/ —inear (FDI inflow (US $$ $15,000 million)) $10,000 $5,000 so 30.00 -€2000 840.00 860.00 Graph-5 Scatter plot for dollar rate vs FDI inflow Gross Domestic Product Historical trend for gross domestic product shows the increase in year on year. Recent horizon shows the very high increase as FDI inflow. GROSS DOMESTIC PRODUCT (GDP - UD $$ million) $2,000,000 $1,500,000 $3,000,000 » Ham GELGEEREERRPRERES ELE EEL 2: Graph-6 Source: hitp://www.oecd.org/investment/statistics.hum Dipfi Patit Foreign Direct Investment in India An Analstical Study Page 26/42SIMSR Project Report ‘The trend line in scatter plot shows that FDI Inflow and GDP are directly proportional. 78% variation in FDI Inflow explained by factor GDP and 22% will be explained by other factors, GDP and FDI has direct relation ie. every 1% of increase in GDP, will have increase in FDI by 2.32%. FDI inflow (US $$ million) 80,000 = 1 : y-002325-6231 $40,000 Reo reas me, $20,000 - $15,000 | 95.000 K, 50 Graph-7 Scatter Plot for GDP vs FDI inflow India Population Population in India has a steady growth as shown in graph below India Population 1,400,000,000 2,200,000,000 1,000 090,000 800,000,000 600,000,000 400,000,000 200,000,000 Dipfi Patit Foreign Direct Investment in India An Analstical Study Page 21/42SIMSR Project Report 65% variation in FDI Inflow explained by population. But the model shows minor change in FDI if population increases although population and FDI has directly proportional. Indi population is not much significant factor to impact on FDI inflow. FDI inflow (US $$ million) $50,000 $340,000 ° o $30,000 Y=9E05%-88310 soonoo R=0.6471 Me & FDIinflow (US $$ million) $10,000 Linear (FDHintlow (US $$ rmiltion}) so '500,000,000 1.090,000,000 1,500.000,000 ($10,000) ($20,000) Graph-9 scatter plot for population vs FD1 inflow Consumer Price Indix (CPD) Inflation rate in India is on an average 8%. It is expected to be in the range of 8% - 10% in nearer future, Below graph shows the hostorical trend for CPI index. CPI - Inflation Rate LEPELIPSPEEESESESSES ESS Graph-10 source butp:/Avww.inflation.ewfnflation-rates Dipfi Patit Foreign Direct Investment in India An Analstical Study Page 28/42SIMSR Project Report 2% variation in FDI inflow explained by inflation rate which is very less. Infation rate is not the signification factor to impact FDI inflow. FDI inflow (US $$ million) $50,000 $45,000 é $40,000 y=57285x+ 7340.1 Ssas00h! © @ ~— F=00189 $30,000 + Fotinfiow (Us $5 $25,000 *“-* ‘million) $20,000 . Linear (01 inflow (US $15,000 $8 milon)) $10,000 é $5,000 $0 O52 OH 4% 0.00% — $.00% 10.00% 15.00% Graph-11 scatter plot for CPI index vs FDL inflow Gold Price Gold price hipe a lot in recent years. In 2012 the gold rate increases to INR 30,000. Gold Price is appreciated and it is expected to be appriciate more in nearer future. Graph shows the historical trend for gold price per 10 gram in INR. Gold Price per 10 Gram 30,000 £25,000 20,000 | 15,000 | 20,000 | oP oP Pe Sha $ 2 LELIPIDI II I SPP PPI SPF PH Graph-12:Source:hup://thebankingbible.com/10-gram-of-gold-price-history -for-the-last-86- years-6440 35,000 Dipfi Patit Foreign Direct Investment in India An Analstical Study Page 29/42SIMSR Project Report 60% variation in FDI inflow explained by Gold price. Below is the scatter plot for Gold Price vs FDI inflow FDI inflow (US $$ million) $50,000 $45,000 z v= 1.4685x- 990.67 $40,000 R= 0.6089 $35,000 . $30,000 © FDtinflow (Us $$ $25,000 es million) $20,000 7 — Linear (FDI inflow (US $15,000 $$ milion) $10,000 + c $5,000 | £ so 0 10,000 £20,000 *30,000 £40,000 Graph -13 scatter plot for gold price vs FDI inflow Balance of Payments FDI in the balance of payments accounts appears in two ways: 1, The initial outflow of FDI is entered as an outflow (debit) on the capital account 2. ‘The investment income is entered as an inflow (credit) on the current account. Graph-14 shows the historical trend in balance of payments, BOP : (cur acct + capital acct ) FPP LEO LE SE GO LOPE EEO PP PE og Graph-14 Source: letpJ/dhie.rbiors.inDBUEMbie.rbisite=hom Dipfi Patit Foreign Direct Investment in India An Analstical Study Page 30/42SIMSR Project Report Graph-15 shows the scatter plot for BOP vs FDI inflow. It shows that BOP has less explaining power for FDI inflow. FDI inflow (US $$ million) $50,000 $45,goo sH0.000: y= 0.0132x+ 11657 33508 + = 0.0004 $30,000 © FDHinflow (US$$ $25,000 . ab $20,000 . Linear (FO1 inflow (US $15,000 $10,000 $5,000 a @hoy 30. $50,000 30, $50,000 $100,000 Graph: 15 Scatter plot for BOP vs FDI Inflow FDI inflow from top countries Top countries for FDI inflow in india are Mauritius, USA, Signgapore, UK, Grance, Netherlands. But major FDI inflow in India is from Mauritius. Graph shows the comparative distribution of FDI inflow in India from top countries. FDI inflow from singapore, USA, Japan contributes significant amount FDI Inflow from top countries - A comparative approach SSinganore France mGermany UK Netherlands Japan USA m Mauritius 100% 90% 0% 70% 60% 50% 40% 30% 20% 10% om FLL LELOPLE EPP LE SELE SSS ZGraph-16 Source: Iuip:Hldipp nic, in/Enelish/Publications/SIA_Newsleiter/201 3fjun2013/index htm Dipfi Patit Foreign Direct Investment in India An Analstical Study Page 31/42SIMSR Project Report FDI inflow via different routes in India FDI inflow in India can take place via govemment route, automatic route, existing shares or NRI’s schemes. Major FDI inflow is via government route but in recent years automat route becomes more attractive. Graph shows the comparative distribution for various routes for FDI inflow in India. Comparative study of various Routes to FDI Equity Inflow vt. approval Route (FIPR.SIA ) uitomatic Route {Inflows through acquisition of existing shares 1A -Various NAY’ schemes 100% 0% 80% 70% 30%, 20% 10% 0% SHESLPELPSPSESESES PSS 8 3 3 . es Graph-17 Source: hitp:tdipp.nic.inEnglish¢Publication /SIA New setter/2013/jun2012/inules. him Dipfi Patit Foreign Direct Investment in India An Analstical Study Page 32/42SIMSR Project Report ‘Table3 shows the correlation of measurable factors with FDI inflow FDinnfiow (USS milion) GDP INAper USD Population CP\—nflation Gold Pre GOP. For inflow (US $$ million) 100% cop 29% 100% INRper USD 50% Or 10% Population 80% ae 2% 100% PI- inflation. 16 0% a 300% Gold Price Te 95% sr B% 20% 100% BoP 2 15% 2% 3% 20% 100% Table3 Correlation Matrix Correlation Matrix Interpretation is as below: 10 Perfect correlation Ott Both variables tend to increase or decrease together 00 The two variables do not vary together at all. -1to0 One variable increases as the other decreases. “10 Perfect negative or inverse correlation, Factors like GDP, dollar rate, population, and gold price shows very high correlation with FDI inflow. Dipfi Patit Foreign Direct Investment in India An Analstical Study Page 33/42SIMSR Project Report FDI INFLOW - TIME SERIES ANALYSIS FDI Forecasting Graph shows historical trend for FDI inflow in India during post-liberalization period. Trend shows drastic growth in recent years. To forecast FDI for period 2013 and 2013, historical 12 years data (2000-2012) is used. FDI inflow (US $$ million) $5000 545 00 seo 53500 30000 525.00 sooo00 915,000 i900 000 $0 + = Lh j 9 SEE PES SFI ESSE SSEESEESS S ‘ ree: actin : ‘ 8 Graph-18 Source: hip:Jwnw.oecd org/investment/statistics. htm Grpah-19 shows the month on month pattern in FDI inflow. This data is used for time series forecasting of next 24 months FDI inflow in India. Winters Multiplicative method is used to forecast FDI. This method is the simplest form of exponential smoothing and can be used for data without any systematic trend or seasonal components. Dipfi Patit Foreign Direct Investment in India An Analstical Study Page 34/42SIMSR Project Report FDI- Amount in US $ million $5,500 $6,000 $5,500 $5,000 $4,500 $4,000 $3,500 $3,000 $2,500 $2,000 $1,500 $1,000 $500 so Jan-00 Jan-O1 JanG2 JavO3 Jan-04 tan-0S Jan06 Jan-07 Jan-O8 Jan-09 Jan-10 Jan-L1 Jan-42 Graph-19 Source: http:/vww.oecd.org/investment/statistics.him ‘Theil’s U is one of the accuracy measure used to check the performance of a model. The Theit's U statistic falls between 0 and 1. When U = 0, that means that the predictive performance of the model is excellant and when U = 1 then it means that the forecasting performance is not better than just using the last actual observation as a forecast. 0.586 the lowest Theil’s U is used to ‘choose the model ‘Theil’s U determins the forecasting performance of the model. The interpretation for Theil U is, 2s follows: Interpret (1- Thei’l U) 1,000.80. High (strong) forecasting power 0.80 0.60 Moderately high forecasting power 0.60-0.40 Moderate forecasting power 0400.20 Weak forecasting power 0.20-0.00 Very weak forecasting power FDI time series model has moderate forecasting power (I- Thei'l U = 0.41) Dipfi Patit Foreign Direct Investment in India An Analstical Study Page 35/42SIMSR Project Report Graph-20 shows the forecasting of FDI inflow for 24 months (2013 — 2014) FD/ Forecast - Winters Multiplicative Method sano ss svn ea 00 aa samo sumo sso sso Graph-20 FDI Forecasting for 24 months Dipfi Patit Foreign Direct Investment in India An Analstical Study Page 36/42SIMSR Project Report CONCLUSION AND RECOMMENDATION It can be observed from the above analysis that at the sector wise level of the Indian economy, FDI has helped to raise the output, productivity and export in some sectors. Manufacturing been always attractive for foreign investors however government is required to look more into policy up gradation in sectors like construction, financial services, telecommunication to generate more ‘opportunity for foreign investors ‘The major FDI inflow is observed from Mauritius i.e. almost 50% of EDI inflow. The main reason for higher levels of investment from Mauritius was that the fact that India entered into a double taxation avoidance agreement (DTAA) with Mauritius were protected from taxation in Indi Various macro-economic factors like GDP, dollar rate, political environment, market size, government policy plays an important role in FDI inflow. FIPB, SIA helps to entry for foreign investors however automatic route been more attractive for investors in recent years. Government needs to improve more on RBI’s ~ NRI scheme to attract more investors. Dipfi Patit Foreign Direct Investment in India An Analstical Study Page 37/42SIMSR Project Report BIBLIOGRAPHY International Journal of Humanities and Social Science Invention ISSN (Online): 2319 — 7722, ISSN (Print): 2319 ~ 7714 www.ijhssiorg Volume 2 Issue 2 | February. 20131 PP.OL-I International Journal of Emerging Research in Management &Technology ISSN: 2278- 9359 RESEARCH INVENTY: Intemational Journal of Engineering and Science ISSN: 2278- 4721, Vol. 1, Issue 5 (October 2012), PP 34-42 www.rescarchinventy.com 34 Online at hitp:/impra.ub.uni-muenchen.de683/MPRA Paper No. 46833, posted 9. May 2013 04:47 UTC India Fact Book, Department of Economic Affairs, Ministry of Finance, Government of India June 2012 UNCTAD - World Investment Report 2013 Ernst & Young's 2012 attractiveness survey — India RBI website FIPB website DIPP website Dipfi Patit Foreign Direct Investment in India An Analstical Study Page 38/42SIMSR Project Report APPENDIX PARAMETER ESTIMATES ‘Method - Winters Ni 132, (1055728, 0, 10354082 i 1.9691 0.9351759, DLASH7UNS .2782075, a 0,2050663, 13138415 218s 3754, 22: 0,6405127 1u7m023 10.5866506 0.092368 14 0,0940959 RTHEILU, 09287715) Table-# Paramever Estimates Dipti Pati Foreign Direct Investment in India - An Analical Stuy Page 39/42SIMSR Project Report FORECASTING RESULTS Dipti Pati Foreign Direct Investment in India - An Analical Stuy Page 40/42SIMSR Project Report Dipti Pati Foreign Direct Investment in India - An Analical Stuy Page 41/42SIMSR Project Report Table-5 FDI Forecasting Results Dipti Patt Foreign Direct Investment in India - An Analytical Study Page 42/42