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IMPACT OF INWARD FDI ON HOST COUNTRY CASE OF INDIA

ABSTRACT One of the reasons often cited to attract foreign direct investment (FDI) and invite MNCs is that they induce competition beside the expected knowledge externalities emanating from foreign investors in the form of technology transfer, and in that way, improving the productivity of domestic firms. Using detailed published firm-level panel data for 14 different types of Indian industries from Capitaline 2005 provided by Capital Market Ltd., an Indian information services firm, this study examines the relationship between foreign direct investment in an industry sector and productivity of domestic firms in the same industry sector. This study primarily focuses on the following research questions. At first, the study measured the effects of foreign direct investment (foreign ownership) on firms output in 14 different types Indian industries and second, it empirically assessed whether foreign ownership in these identified industry sectors affects the productivity of domestic firms in that industry, viz., whether there is any evidence of spillovers to domestic firms from the foreign entrants in those industries. The third important feature observed in this study was in particular related to the spillover of superior technology to domestic firms, in case, inward investment involves superior technology. Most of the studies suggest that there are no aggregate benefits, which accrue to all types of domestic firms equally (See Gorg and Greenaway, 2004 and Blomstrom and Kokko, 1998), rather, the domestic firms absorptive capacity, which is the productivity deviation between the most efficient firm and rest of the firms in a particular industry, has been found to be a significant determinant for whether or not domestic firms benefit from FDI (See Girma and Gorg, 2005). Against this backdrop, the study investigated whether domestic firms have benefited from technology transfer by measuring the dispersion (deviation between the most efficient firms and rest of the firms in an industry) of overall productivity in the specific industry sector. Two specific assumptions made during the study are that if foreign subscribed capital (equity) participation is more than 20% (foreign owned firm as considered for this study) in firm and it increases that firms productivity, one should observe a positive coefficient on FDI Firmijt. Similarly, one should observe a positive coefficient on FDI Industryjt if the gain in productivity of foreign firms spills over to domestic firms in the specific industry. The estimation of the above equations has been done by the Ordinary Least Square (OLS) technique.

FDI in India set to rise: UNCTAD


Dharam Shourie in New York | September 04, 2003 23:30 IST Last Updated: September 05, 2003 00:03 IST

Foreign direct investment is set to rise in India provided economic reforms and the government's commitment to attracting FDI continue, a new United Nations report says. The prospect for increase in inward flows are promising for both India and China assuming that they want to accord FDI a role in their development process, it says, emphasising that Beijing would continue to be New Delhi's biggest competitor in this field. The large market size and potential, the skilled labour force and low wage cost will remain the key attraction for foreign investors, the World Investment report, produced by the United Nations Conference on Trade and Development, stresses. Also Read FDI flows improving FDI down 24% at $4.66 bn in '03 Comparing the performance between India and China in attracting FDI, the report says China has done much better than India for variety of reason including opening up its economy in 1979 much earlier than India did in 1990s and the Chinese overseas contributing much more than Indians. China's policies better than India's China, it says, has "more business-oriented" and more FDI-friendly policies than India and Beijing's FDI procedures are easier and decisions taken rapidly. Besides, China has more flexible labour laws, a better labour climate and better entry and exit procedures for business, it adds. The role of Chinese business networks abroad and their "significant" investments in mainland contrasts with much smaller Indian networks and investment in India, the report says. According to the report, overseas Chinese are more in number, tend to be more entrepreneurial, enjoy family connections and have interest and financial capability to invest in China and when they do, they receive red-carpet treatment. In contrast, overseas Indians are fewer, more of a professional group and, unlike the Chinese, often lack the family networks and connections and financial resources to invest in India. Growth prospects for India, China bright Describing India and China as "giants of the developing world," it says both enjoy healthy rates of growth. But it notes that there are "significant differences in their FDI performance. FDI flows to China grew from $3.5 billion in 1990 to $52.7 billion in 2002. If round-tripping is taken into consideration, China's FDI inflows could fall to around $40 billion. But those to India rose from $0.4 billion to $5.5 billion during the same period, according to the report.

"Even with the adjustments, China attracted seven times more FDI than India in 2002, 3.2 per cent of its GDP compared with 1.1 per cent for India." In UNCTAD 'S FDI performance index, China ranked 54th and India 122nd. On basic economic determinants of inward FDI, the report says, China does better than India. China's total and per capita GDP are higher, making it more attractive for market-seeking FDI. It higher literacy and education rates suggest that its labour is more skilled, making it more attractive to efficiency-seeking investors. Besides, it has large natural resources endowment and its physical infrastructure is more competitive, particularly in coastal are as, the report adds. Both China and India, according to the report, are good candidates for relocation of labourintensive activities by transnational corporations, a major factor in the growth of Chinese exports. But in case of India, it says, the relocation has been primarily in services, notably information and communication technology. Almost all major US and European information technology firms have presence in the country, mostly in Bangalore. However, 80 per cent of Fortune 500 companies have presence in China while 37 per cent of these firms outsource to India. "Despite the improvement in India's policy environment, TNC investment interest remains lukewarm with some exceptions such as information and communication technology," the report adds. FDI drives China growth FDI, it finds, has contributed to the rapid growth of China's merchandise exports at an annual rate of 15 per cent between 1989 and 2001. In 1989 foreign affiliates account for less than 9 per cent of total Chinese exports but by 2002, they provided half. In some high-tech industries in 2000, the share of foreign affiliates in total exports was as high as 91 per cent in electronic circuits and 96 per cent in mobile phones. About two-thirds of FDI flows to China went to manufacturing in 200-2001, the report says. In India, by contrast, FDI has been much less important in driving export growth except in information technology. FDI in Indian manufacturing has been and remains domestic market seeking, it finds. FDI accounted for only 3 per cent of India's export in early 1990s and even today, it is estimated to account for less than 10 per cent of India's manufacturing exports. For China, the report says, the lion's share of FDI inflows in 2000-2001 went to a broad range of manufacturing industries. For India, most went to services, electronic and computer industries. The two countries, it notes, focused on different types of FDI and pursued different industrial strategies.

India, it says, long followed an import substitution policy and relied on domestic resource mobilisation and domestic firms, encouraging FDI only in higher technology activities. It notes that following the Chinese model, India recently took steps to establish special economic zones. "China's special economic zones have been more successful than Indian export processing zones in promoting trade and attracting FDI," it stresses. The report also notes that India is planning to open some more industries for FDI and further relax the foreign equity ownership. China's accession to World Trade Organisation, it says, has led to the introduction of more favourable FDI policies. With further liberalization in the services sector, China's investment environment may be further enhanced.

FDI has helped the Indian economy grow, and the government continues to encourage more investments of this sort but with $5.3 billion in FDI in 2004 India gets less than 10% of the FDI of China. Foreign direct investment (FDI) in India has played an important role in the development of the Indian economy. FDI in India has in a lot of ways enabled India to achieve a certain degree of financial stability, growth and development. This money has allowed India to focus on the areas that may have needed economic attention, and address the various problems that continue to challenge the country. India has continually sought to attract FDI from the worlds major investors. In 1998 and 1999, the Indian national government announced a number of reforms designed to encourage FDI and present a favorable scenario for investors. FDI investments are permitted through financial collaborations, through private equity or preferential allotments, by way of capital markets through Euro issues, and in joint ventures. FDI is not permitted in the arms, nuclear, railway, coal & lignite or mining industries. A number of projects have been announced in areas such as electricity generation, distribution and transmission, as well as the development of roads and highways, with opportunities for foreign investors. The Indian national government also provided permission to FDIs to provide up to 100% of the financing required for the construction of bridges and tunnels, but with a limit on foreign equity of INR 1,500 crores, approximately $352.5m. Currently, FDI is allowed in financial services, including the growing credit card business. These services include the non-banking financial services sector. Foreign investors can buy up to 40% of the equity in private banks, although there is condition that stipulates that these banks must be multilateral financial organizations. Up to 45% of the shares of companies in the global mobile personal communication by satellite services (GMPCSS) sector can also be purchased. By 2004, India received $5.3 billion in FDI, big growth compared to previous years, but less than 10% of the $60.6 billion that flowed into China. Why does India, with a stable democracy and a

smoother approval process, lag so far behind China in FDI amounts? Although the Chinese approval process is complex, it includes both national and regional approval in the same process. Federal democracy is perversely an impediment for India. Local authorities are not part of the approvals process and have their own rights, and this often leads to projects getting bogged down in red tape and bureaucracy. India actually receives less than half the FDI that the federal government approves.

Country wise FDI Inflows


Ranks 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 Mauritius U.S.A. Japan Netherlands U.K. Germany Singapore France South Korea Switzerland Italy Sweeden Hongkong Australia Denmark U.A.E. Belgium Malaysia Cyprus Russia Cayman Island Canada Sector Amount of FDI inflows 11,115.47 4,912.75 2.059.33 1,987.18 1,911.77 1,338.88 962.41 772.99 748.98 613.58 485.74 471.99 366.11 154.79 156.49 140.95 142.41 135.82 117.47 116.33 103.46 105.39 % age of total inflows 37.25 15.8 6.79 6.65 6.26 4.27 3.14 2.55 2.28 1.98 1.58 1.56 1.05 0.51 0.51 0.5 0.46 0.46 0.4 0.39 0.37 0.35

23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58

British Virginia Bermuda Thailand Phillipines Finland Luxemburh Israel Austria Spain Bahrain South Africa Indonesia West Indies Oman Nevis Bahamas Ice Land Ireland Saudi Arabia Moracco Iran Norway Taiwan Gibraltar Bangladesh Kenya Panama Slovenia Korea(North) Kuwait British Island Channel Island Sri Lanka Tunisia Czech Republic Liechtenstien

81.42 70.51 74.73 52.35 43.25 41.05 43.62 39.62 32.16 32.65 30.87 30.32 31.98 24.02 19.17 20.76 18.65 19.8 19.14 15.21 19.66 14.4 15.13 10.97 9.66 8.98 10.19 8.24 8.36 6.09 5.38 5.64 4.88 4.31 4.73 4.48

0.28 0.23 0.22 0.15 0.14 0.14 0.13 0.13 0.11 0.11 0.11 0.11 0.11 0.08 0.07 0.06 0.06 0.06 0.06 0.05 0.05 0.05 0.04 0.04 0.04 0.03 0.03 0.03 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02

59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94

New Nealand China Isle of Man Nigeria Greece Poland Scotland Slovakia Uruguay St. Vincent Liberia Portugal Cuba Seychelles Ukraine Uganda Estonia Belorussia Brazil Maldives Aruba Bhutan Egypt Malta Hungary Yugoslavia Columbia Croatia Muscat Nepal Tanzania Bulgaria Virgin Islands Zambia Turkey Vietnam

3.66 2.91 2.85 2.48 2.68 2 2 1.85 1.45 1.38 1.36 1.21 1.04 1.02 0.84 0.81 1.07 0.9 0.81 0.56 0.43 0.61 0.45 0.29 0.31 0.24 0.25 0.2 0.28 0.22 0.18 0.14 0.13 0.1 0.1 0.1

0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

95 96 97 98 99 100 101 102 103 104 105 106 107 108 109 110 111 112 113 114 Total 115 116 117 118

Qatar Mayanmar Peru Mexico Kazakhstan Afghanistan Romania West Africa Tatrstan Argentina Jordon Yaman Sudan Syria Malta Lebanon Georgia Costa Rica NRI Unindicated Country

0.09 0.05 0.04 0.04 0.02 0.02 0.02 0.02 0.01 0.01 0.01 0.01 0.01 0.01 0 0 0 0 310.98 301.49 30,452.54

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0.96 0.95 100 -----

Advance of Inflows(from 1999 to 2004) RBIs-NRI Schemes Acquisition of existing shares(from 1996 to 1999) Stock Swapped Grand Total

2,178.72 2,509.86 1,848.86 61.2 37,051.18

Sectors Attracting FDI


Though the services sector in India constitutes the largest share in the Gross Domestic Product, still it has failed to some extent in attracting more funds in the forms of investments. Important sectors of the Indian Economy attracting more investments into the country are as follows: Electrical Equipments (Including Computer Software & Electronic)

Telecommunications (radio paging, cellular mobile, basic telephone service) Transportation Industry Services Sector (financial & non-financial) Fuels (Power + Oil Refinery) Chemical (other than fertilizers) Food Processing Industries Drugs & Pharmaceuticals Cement and Gypsum Products Metallurgical Industries

FDI in India
FDI in India has increased over the years due to the efforts that have been made by the Indian government. The increased flow of FDI in India has given a major boost to the country's economy and so measures must be taken in order to ensure that the flow of FDI in India continues to grow.

Advantages of FDI in India:


The Indian government made several reforms in the economic policy of the country in the early 1990s. This helped in the liberalization and deregulation of the Indian economy and also opened the country's markets to foreign direct investment. As a result of this, huge amounts of foreign direct investment came into India through non- resident Indians, international companies, and various other foreign investors. The growth of FDI in India boosted the economic growth of the country. Major advantages of FDI in India have been in terms of -

Increased capital flow. Improved technology. Management expertise. Access to international markets.

Amount of foreign direct investment in India


The total amount of FDI in India came to around US$ 42.3 billion in 2001, in 2002 this figure stood at US$ 54.1 billion, in 2003 this figure came to US$ 75.4 billion, and in 2004 this figure increased to US$ 113 billion. This shows that the flow of foreign direct investment in India has grown at a very fast pace over the last few years. The various forms of foreign capital flowing into India are NRI deposits, investments in the commercial banks of India, and investments in the country's debt and stock markets.

FDI in major sectors in India


The major sectors of the Indian economy that have benefited from FDI in India are -

Financial sector (banking and non-banking). Insurance Telecommunication Hospitality and tourism Pharmaceuticals Software and Information Technology.

FDI Restrictions in Indian Sectors


FDI Restrictions in Indian Sectors have been imposed in a number of sectors such as, atomic energy, chit fund business and lottery business. FDI Restrictions in Indian Sectors have been imposed by the government of India in order to protect the interests of the nation.

Foreign direct investment in India:


The several policy initiatives taken by the government of India in the 1990s helped to transform the country from a restrictive regime with regard to foreign direct investment to a liberal one As in 2007, foreign direct investment in India is encouraged in almost all the sectors of the country's economy under the automatic route. At the same time there are a few Indian sectors in which foreign direct investment has been restricted by the government. Forms through which foreign direct investment in India are allowed include, Euro issues, preferential allotments, technical collaborations, and financial collaborations. The amount of foreign direct investment in India came to around US$ 4.7 billion in 2006 - 2007, and the next year this figure increased more than three times to about US$ 15.7 billion.

Various Indian sectors having FDI restrictions:


FDI Restrictions in Indian Sectors have been imposed on a few sectors by the Indian government. FDI Restrictions in Indian Sectors have been imposed in order to protect the interests of the country, as these sectors either relate to national security or sensitive enough to keep apart the foreign companies. Foreign direct investment restrictions in Indian sectors have also been imposed in order to allow the domestic companies to make more profits with less competition, than that of in the presence of rivalry international firms. The various Indian Sectors having restrictions of foreign direct investment are:

Atomic energy Nidhi company Betting and gambling Chit fund business Plantation or agricultural activities Real estate business Business in Transferable Development Rights Lottery business Retail trading Railway transport Mining of chrome, zinc, gold, diamonds, copper, iron, gypsum, manganese, and sulfur Ammunition and arms

Top Investing Countries FDI Inflows in India


Top Investing Countries FDI Inflows in India has registered significant growth over the last few years due to the several incentives that have been provided by the Indian government. The increase in the Top Investing Countries FDI Inflows in India has helped in the growth of the country's economy.

Foreign direct investment in India:


Regulatory reforms were undertaken in India in the early 1990s to encourage FDI inflows to the country. Foreign direct investment in India is allowed through joint ventures, preferential allotments, capital markets, and financial collaborations. The total amount of foreign direct investment in India came to around US$ 4,222 million in 2001- 2002 and the next year, this figure stood at US$ 3,134 million. The advantages of foreign direct investment in India are that it has led to transfer of technology, generation of new opportunities for employment, and infrastructure development.

Countries sending FDI to India are:



Mauritius U.K U.S.A Sweden France Switzerland Malaysia Singapore Japan Germany Netherlands

Sectors in India attracting FDI from foreign countries are:



Telecommunications that includes services of cellular mobile, radio paging, and basic telephone Chemicals Metallurgical industries Food processing industries Transportation industry Pharmaceuticals and drugs Fuels Electrical equipments that includes electronics and computer software Services sector that includes non- financial and financial Gypsum and cement products

Amount of FDI inflows from top investing countries in India are:



FDI FDI FDI FDI FDI FDI FDI FDI from from from from from from from from Mauritius came to US$ 6,811.1 million between 1991 to 2002 Japan came to US$ 1,254.8 million between 1991 to 2002 U.S.A came to US$ 3,194.6 million between 1991 to 2002 Germany came to US$ 3,603.94 million between 1991 to 2002 Netherlands came to US$ 3,251.65 million between 1991 to 2002 Singapore came to US$ 1,648.22 million between 1991 to 2002 France came to US$ 1,995.79 million between 1991 to 2002 U.K came to US$ 3,768.77 million between 1991 to 2002

Regulations for Foreign Company Investments


Abstract: The Regulations for Foreign Company Investments (FCI) are established to control the flow of foreign investments in different sectors in the Indian economy. The limits to FCI vary in different sectors with the aim of maintaining a proper balance between domestic and foreign investments. Approval to FCI is of two types - approvals by government and automatic approval.

FCI-Regulations:
The Regulations for Foreign Company Investments control the inflow of investments in India made by foreign companies. These regulations are formulated under the Foreign Direct Investment (FDI) policy by the Foreign Investment Promotion Broad. The FDI policies in India are primarily development oriented, seeking to maximize the economic growth while maintaining a proper balance of domestic and foreign investments. These regulations allow approval of Foreign Company Investments by means of automatic route, as suggested by the Reserve Bank of India (RBI) or approval route, which requires confirmation from the Government of India. The Regulations for Foreign Company Investments allow two types of approvals for FCI. These are -

FCI allowed through governmental approval:


Foreign Company Investments are allowed up to 26% in-

FM Radio Broadcasting Print media such as publishing newspaper and periodicals dealing with news and current affairs Defense industries Insurance

A maximum of 49% FCI is allowed in Broadcasting

Establish hardware facilities like up-linking, HUB, etc Cable network Direct To Home T.V. Transmission Domestic airlines Telecommunication services (basic and cellular services) Investing companies in infrastructure/service sector

FCI is allowed up to 74% for-

Development of Airports Internet Service Protocol including gateways, End-to-End Bandwidth, Radio-paging Atomic minerals Private sector banking

Establishment and operation of satellites Exploration and mining of coal Diamonds and other precious stones mining

100% FCI is allowed in the following sectors -

Development of Airports Domestic airlines Investment and Financing in Petroleum sector, Development of Pipelines for natural gas and liquefied petroleum gas Wholesale Cash Trading, Exports, Trading of advanced technological equipments Courier services Tea Sector, including tea plantation Non Banking Finance Companies

FCI allowed under automatic route:


FCI is allowed up to 100% under automatic route for the following sectors -

Pharmaceuticals Pollution control and management Manufacturing sector Non-banking financial services Software development Food processing Electronic hardware Hospitals Film industry Advertising Petroleum Pipeline Private oil refineries Exploration and mining of minerals (diamonds and precious stones excluded) Management consultancy Venture capital funds/companies Development of industrial park, model township, SEZ

In the Infrastructure sector, FCI is allowed up to 100% under automatic route in -

Electricity Generation (Atomic energy excluded) Electricity Transmission Mass Rapid Transport System Electricity Distribution Ports and Harbors Roads and Highways Vehicular Bridges Hotel and Tourism

Prohibited Sectors
Regulations for Foreign Company Investments have specified certain sectors where FCI cannot be undertaken either through government approvals or through automatic approvals. FCI is prohibited in the sectors of -

Atomic energy Retail Business Lottery Business Gambling and betting sector Housing and Real Estate sector apart from the development of townships

Foreign Ventures Into the Indian Market


Foreign Ventures Into the Indian Market has been on the rise since past few years, especially with the boom in the IT sector. Manufacturing, banking, healthcare and textiles are among the other important sectors where foreign ventures have taken place in the Indian market.

An Overview of Foreign Ventures into the Indian MarketVenture capital and private equity funding are a new system of providing financial assistance to various industrial units in Indian market to carry out developmental activities. In the later part of 1990s, IT sector came into existence in the Indian market which was a boon to the country in terms of foreign venture. The dot com industry suffered a downfall during the year 2001-2002, which made the foreign investors reconsider all the parameters before investing in any undertakings in Indian market. The venture capitalists monitored each and every attribute of the Indian market at the time when it witnessed an upsurge in the stock exchange. India is the developing country with emerging markets where the foreign investors prefer to invest with the aim to globalize their business. The global venture capitalists, high-net worth individuals and foreign investors are by and large involved in the foreign ventures in Indian market.

Major Venture Capitalists in Indian Market


New bridge Capital Chrys Capital Warburg Pincus Temasek General Atlantic

Sectors in Indian Market Attracting the Maximum Foreign Investments


IT-ITES (USD 422.90 million) Manufacturing (USD 331.45 million) Health care and Life Sciences (USD 201.24 million) Banking and Financial Services (146.70 million) Textiles (USD 146.50 million)

Regulations for Foreign Ventures Into the Indian MarketA Foreign Venture Capital Investor (FVCI) is one who wishes to set up a foreign affiliated firm in India to globalize the parent company located abroad. This affiliated firm is registered under Foreign Venture Capital Investor Regulations, 2000 (FVCI Regulations). The foreign investors in this regard

are permitted to carry out investments in domestic Venture Capital Funds (VCFs) and Venture Capital Undertakings (VCUs). These foreign investors working under FVCI Regulations are privileged with certain benefits from the SEBI. FDI scheme is not applied to the FVCIs. The companies registered by SEBI are not entitled to any tax exemption as such, but the Venture Capital Company enjoys the exemption of tax under Section 10(23FB). The income of FVCI is exempted from tax issues even after the domestic company which has experienced the FVCI investments are enlisted in the stock exchange in India.

Comparative Analysis of India's and China's FDI Flow


A Comparative Analysis of India's and China's FDI Flow has been summarized in the following article. The rise in the industrial sectors of India and China are regarded as one of the biggest factors which led to the huge amount of FDI inflows in both the countries.

Comparative Analysis of India's and China's FDI Flow at a GlanceChina stands on a higher plane than India in terms of economy. India's per capita income is USD 440 and China's per capita income is USD 990. The population residing below the poverty line in China is 3 percent whereas in India, the population below poverty line is 30 to 40 percent. China offered investment opportunities to the foreign players much before India did and thereby attracted a raging FDI Inflows in the country. China received USD 52.7 billion of FDI inflows in the year 2002 while, India received USD 4.67 billion of FDI inflows in the same year.

India Lagging Behind China in FDI InflowsAccording to a new World Bank report, India lags behind China in terms of attracting FDI Inflows in the country, in spite of having high-tech industries and adept workforce. The main cause behind this drawback is that India is not skilled enough to adopt the technological advancements at a fast pace. FDI Inflows only contributes to 0.8 percent of India's GDP as compared to 3.5 percent of the same in China. India's high-tech industries claim for 2.3 percent of Gross Domestic Product whereas the high-tech industries in China contributes to around 7.9 percent in the GDP of the country. India did not opened much of economic activities to the foreign players as compared to other developing nations except liberalizing trade and foreign investments.

Advantages of India and China in terms of FDI InflowsThe majority of the foreign investors prefer China over India for investment opportunities as China has a bigger market size than India, offers easy accessibility to export market, government incentives, developed infrastructure, cost-effectiveness, and macro-economic climate. India on the other hand has skilled and efficient manpower, talented management system, rule of law, transparent system of work, cultural affinity and regulatory environment.

FDI Inflows in India during 2006- 2007

FDI Inflows in India During 2006 - 2007 registered significant growth in comparison to the previous year. Sectors that attracted high FDI inflows in India during 2006- 2007 were real estate, construction activities, services sector, telecommunications and electrical equipments.

Foreign direct investment in India:


Liberalization of the Indian economy in the early 1990s boosted the inflow of Foreign Direct Investments (FDI) to India. It also helped to open Indian markets to foreign direct investment. Further the government of India simplified the procedures for foreign direct investment in the country in order to encourage the foreign investors to invest in the country. Foreign direct investment in India, came from non resident Indians, international companies, and other foreign investors. FDI inflows to India grew significantly over the years and assumed significant proportions by 2006-2007.

Amount of FDI inflows in India during 2006- 2007:


The amount of FDI Inflows in India during 2006- 2007 that included, only the equity inflows, came to US$ 15.7 billion, which is a growth of around 185% in comparison to 2005- 2006. The amount of FDI Inflows in India during 2006- 2007 that included, reinvested earnings, equity inflows, and other inflows of capital, came to US$ 19.5 billion, which is a growth of around 153% in comparison with the previous year.

Sectors attracting FDI inflows in India during 2006- 2007 are:



Real estate Construction activities Services sector Telecommunications Electrical equipments that includes electronics and computer software

Countries contributing to FDI inflows in India during 2006- 2007 are:



USA Singapore UK Netherlands Mauritius

In 2006-07, FDI comprised 2.31% of the GDP of India. This was merely 0.77% in 2003-04. FDI comprised 6.42% of total investments in India in 2006-07 which was a significant growth 2.55% in 2003-04. The remarkable growth of FDI in India during 2006-07 had major impacts on the economic growth of the country boosting output and employment significantly

FDI Status in Different States of India

FDI in different states in India have increased steadily since the early 1990s when the Indian economy was opened up to foreign investments. Delhi, Maharashtra, Karnataka and Tamil Nadu are among the leading states that have attracted maximum FDI. The status of FDI in different states of India, during the period beginning from the year January 2000 to October 2006 corroborates the growth of Indian states in sync with the Indian economy. Some of the states in India which have witnessed a massive upsurge in FDI Inflows include Delhi (USD 6,780 million), Maharashtra (USD 5,650.1 million), Karnataka (USD 1,876.1 million), and Tamil Nadu (USD 1,876.1 million). Other states which are in the receipt of FDI Inflows in India include West Bengal, Gujarat, Haryana, Andhra Pradesh, Kerala, and Uttar Pradesh.

FDI in Maharashtra Foreign Direct Investment on Maharashtra covers Mumbai, Dadra and Nagar Haveli, and Daman & Diu. The total FDI Inflows in Maharashtra economy from January 2000 to October 2006 was estimated to be around Rs. 25,685.45 crores which is approximately USD 5,650.1 million.

FDI in West Bengal Foreign Direct Investment in various states in and around West Bengal covers West Bengal, Sikkim, and Andaman & Nicobar Islands. The FDI Inflows in these states from January 2000 to October 2006 was around Rs. 1,523.83 crores which comes to around USD 334.8 million.

FDI in Karnataka Foreign Direct Investment on Karnataka from January 2000 to October 2006 has accounted for Rs. 8,485.38 crores which approximately comes to around USD 1,876.1 million.

FDI in Gujarat Foreign Direct Investment on Gujarat from January 2000 to October 2006 was estimated to be around Rs. 4,112.73 crores which comes to around USD 898.8 million. Gujarat ranks six in terms of FDI Inflows in India.

FDI in Haryana The total Foreign Direct Investment Inflows in Haryana, Delhi, and parts of Uttar Pradesh has been estimated to be around Rs. 30,673.73 crores which is approximately USD 6,780.0 million from January 2000 to October 2006. Haryana ranks first in terms of receiving FDI Inflows in India.

FDI in Delhi Foreign Direct Investment Inflows on Delhi economy has been estimated to be around Rs. 30,673.73 crores which roughly comes to USD 6,780.0 million from January 2000 to October 2006.

FDI in Tamil Nadu Foreign Direct Investment Inflows on Tamil Nadu and Pondicherry has been accounted for Rs. 8,485.38 crores which comes to around USD 1,876.1 million from January 2000 to October 2006. Tamil Nadu ranks third in terms of FDI Inflows in India.

FDI in Andhra Pradesh Foreign Direct Investment Inflows on Andhra Pradesh has been estimated to be around Rs. 4,825.36 crores which is approximately USD 1,061.4 million as has been calculated between January 2000 and October 2006. Andhra Pradesh ranks fifth as a recipient of FDI Inflows in India.

FDI in Kerala Foreign Direct Investment Inflows in Kerala has also covered regions in Lakshadweep and has been estimated to be around Rs. 339.77 crores which is approximately USD 75.1 million from January 2000 to October 2006.

FDI in Uttar Pradesh Foreign Direct Investment Inflows on Uttar Pradesh and Uttaranchal was Rs. 15.27 crores which comes to around USD 3.3 million from January 2000 to October 2006.

The following links provide detailed information on the impact of FDI in different Indian states:
Impact of FDI on Maharashtra Economy Impact of FDI on Karnataka Impact of FDI on Gujarat Impact of FDI on Delhi Economy Economy Impact of FDI on West Bengal Economy Impact of FDI on Uttar Pradesh Impact of FDI on Haryana Impact of FDI on Kerala Impact of FDI on Andhra Economy Economy Economy

Economy Economy Pradesh

Impact of FDI on Tamil Nadu Economy

FDI Inflows in India During 2005- 2006


FDI Inflows in India During 2005- 2006 has registered significant growth in comparison to the previous year. FDI Inflows in India During 2005- 2006 has increased to such an extent that the country has ranked 4th among all the recipients of foreign direct investment in 2006. India has also helped in increasing the total inflow of foreign direct investment in the region of South Asia by around 126% in 2006.

Advantages of foreign direct investment in India:


The advantage of increased flow of Foreign direct investment in India is that, it has helped in the economic development of the country. Further the various advantages of FDI in India are that it has helped in the transfer of technology, raising the level of production, developing the infrastructure, and generating opportunities for employment in the country.

Amount of FDI inflows in India during 2005- 2006:


The amount of FDI Inflows in India During 2005- 2006, that included, equity capital, came to US$ 5.5 billion, which is an increase of around 72% in comparison with the previous year. The amount of FDI Inflows in India During 2005- 2006 which included, reinvested capital, equity capital, and all other capital, came to over US$ 7.7 billion, which is an increase of more than 37% over 20042005. India ranked 4th among all the recipients of foreign direct investment during 2005- 2006 and it was also instrumental in increasing the flow of foreign direct investment to South Asia by around 126% which amounted to about US$ 22 billion in 2006.

Various sectors in India that attracted FDI during 2005- 2006 are:

Telecommunications Food processing industries Transportation industry Pharmaceuticals and drugs

Metallurgical industries Services sector Electrical equipments Fuels Chemicals Gypsum and cement products

Countries contributing to FDI inflows in India during 2005- 2006 are:



USA UK Mauritius Singapore Switzerland Germany France Japan Netherlands South Korea

Openness to Foreign Investments in India


The article presents an overview of the Openness to Foreign Investments in India. The postindependence era of India had a negative notion about Foreign Investments as per the economic policy till the year 1991 when reforms were taken up foreign investments were allowed in the India industries.

An Overview of Openness to Foreign Investments in IndiaIn 1991, India opened its market for the foreign investors for the first time as a consequence of the huge economic crisis post-independence. The foreign investors were only allowed to invest in Indian market and set up units in India only if they had a better technology which was not available in India.

Policy for Foreign Investments in IndiaThe industrial policy which was implemented in the year 1991 was the simplified form of the previous one. The newly revised industrial policy was more liberal, transparent, and convenient in compare to the earlier ones. As per the new industrial policy, foreign investments were highly

necessary for India to become equally competent to the global level. This policy also allows FDI inflows under automatic route up to 51 percent.

Previous Policies for Foreign Investments in IndiaBefore the year 1991, the FDI Inflows, under automatic route, was limited to only 40 percent and the foreign investors had to follow a series of unnecessary norms which in some cases also forced them to abandon their projects. There were a lot of hassles involved in the execution of projects in Indian market before which, were a big impediment for the economic development of the country. The Government of India had turned down requests for foreign shares of more than 52 percent. In 1991 the Government of India opened the Indian market to the foreign investors by changing the investment policies in certain sub-sections of the Indian economy. This resolved the crisis after 1991 slowly, when the Non-resident Indians (NRI's) and Overseas Corporate Bodies (firms with NRI majority ownership) were allowed to hold 100 percent ownership in all the industrial sectors in India except those reserved for the public sector.

Industries Reserved for Public Sector and Do not Receive FDI


Atomic energy Railway transport Ammunition and defense equipment Mineral oils Arms Minerals used in atomic energy Improved conditions

In the recent period, the foreign investment procedures, especially investments by NRIs and OCBs, are allowed to carry out on a repatriation basis in the manufacturing sector, which means the payments can be done outside India under the regulations of RBI.