FDI in India : Impact of FDI in

India
Presented by :

 Av i Pipada – 13011
 Divya Parekh - 13022
 Jayesh Porwal - 13036
 Yusuf Shaikh – 13043
 Rahul Chabukswar - 13051
INDEX :
 What is FDI
 W h y FDI
 Drawbacks of FDI
 Impact of FDI on host economy
 Studies on FDI in India
 F D I policy in India
 Year wise FDI inflow in the post reforms era
(1990-2010)
 To p Investors in India
Telecommunications sector
 Retail Sector in India
 What is FDI?
•Foreign direct investment (FDI) is a direct investment
into production or business in a country by an individual
or company of another country, either by buying a
company in the target country or by expanding
operations of an existing business in that country.
•
•Foreign direct investment is in contrast to portfolio
investment which is a passive investment in the
securities of another country such as stocks and bonds..
 Why FDI?
 N o debt creation on the part of the government.
 Triggers technology transfer.
 Assists Human capital formation.
 Contributes to international integration by promoting
exports.
 Increases productivity and competitiveness.
 Improves efficiency of resources.
 Promotes innovation
 Drawbacks of FDI
 Local firms may loose business because of the
oligopolistic power of foreign firms.

 The repatriation of profit may drain out the

capital of the host country.

 Local population may be displaced out of their

jobs if they are unable to cope with the
technologically advanced foreign firms.
 Impact of FDI on host economy-
Review of literatures.
 F D I may have a negative impact on the growth of
the developing countries (Singer,1950; Griffin,
1970).

 Hanson (2001) argues that evidence that FDI

generates positive spillovers for host countries is
weak.

 F D I could have a favorable short-term effect on

growth as it expands the economic activity.
However, in the long run it reduces the growth rate
due to dependency, particularly due to
“decapitalization” (Bornschier, 1980).
 Studies on FDI in India
 Banga (2005) demonstrates that FDI, trade and
technological progress have differential impact on
wages and employment.

 Higher extent of FDI in an industry leads to higher

wage rate, it has no impact on its employment.

 Higher export intensity of an industry increases

employment in the industry but has no effect on its
wage rate.

 Import of technology has unfavorably affected

employment in India. The study by Sharma (2000)
concluded that FDI does not have a statistically
significant role in the export promotion in Indian
Economy.
“FDI is not growth stimulant rather it is
growth resultant.”

 Study by Sahoo and Mathiyazhagan (2003) support

the view that FDI in India is not able to enhance the
growth of the economy.
 Pailwar (2001) argues that the foreign firms are
more interested in the large Indian market rather
than aiming for the global market.
 Export oriented sectors should be opened up for FDI
so that a higher growth of the economy could be
achieved through the growth of these sectors.
 FDI policy in India:
 Currently FDI is permitted:
a) Through financial collaborations.
b)Through Joint Ventures and technical
collaborations.
c) Through capital markets via Euro issues.
d) Through preferential allotments.

 India had opened up its economy and allowed

MNCs in the core sectors such as Power and Fuels,
Electrical Equipments, Transport, Chemicals, Food
Processing, Metallurgical, Drugs and
Pharmaceuticals, Textiles, and Industrial Machinery.
 Currently FDI is also allowed in:
Telecommunications, Banking, Insurance, Hotel
& Tourism, IT.

 Mining of titanium keeping India's civilian

nuclear ambitions in mind upto100%,a mineral
which is abundant in India.

 single Brand product retailing where Foreign

Investment up to 51% is permitted with prior
Government approval. Major debate going on
about approving FDI in India’s Retail sector.
Year wise FDI inflow in the post
reforms era (1990-2001)

1999-2000 2439

1998-1999

1997-1998

1996-1997

FDI
1995-1996

1994-1995

1993-1994

1992-1993

0 1000 2000 3000 4000

US $ MILLIONS
2009-2010
37763

2008-2009
Year wise revised FDI
Inflow since 2000-2001 with
2007-2008
expended coverage to
approach International
2006-2007
Best Practices.

2005-2006

FDI
2004-2005

2003-2004

2002-2003

2001-2002

2000-2001

0 10000 20000 30000 40000

US $ MILLIONS
 T h e growth of FDI inflows in India was not significant
until 1991 due to the regulatory policy framework.

 There has been a steady build up in the actual FDI

inflows in the post-liberalization period. Actual
inflows have steadily increased from US $ 143.6
million in 1991 to US $ 37,763 million in 2010.

The pace of FDI inflows to India has definitely been
slower than some of the smaller developing
countries like Indonesia, Thailand, Malaysia and
Vietnam.
 India had registered a declining trend of FDI inflows
and the FDI- GDP ratio especially in 1998 and 2003
could be attributed to many factors, including the US
sanctions imposed in the aftermath of the nuclear
tests and Swadeshi movements.

 B u t since 2006 India has seen a remarkably higher

growth of FDI in accordance with the general trends
of the global economy with a slight dip in the year
2009-2010.
 Capital goods sector has more or less been
bypassed by FDI. This clearly points out the
tendency of foreign investment to exploit the pent up
domestic demand for consumer durable goods.

 A gradual increase in the mergers and acquisitions

during the 1990s which show a tendency of FDI
inflows to acquire existing industrial assets and
managerial control without actually engaging in new
productive activities (Nagraj, 2006).
 Top Investors in India:
45 42

40
%age to total Inflows (in terms of US $)

35

30

25
%
19
20

15

10 9
7
5
5 4 4 4
2 2

0
 Telecommunications sector-
A success story
 Large number of private operators started operating
in the basic/mobile telephony and Internet domains
after several series of reforms in the telecom sector.
FDI is permitted up to 74% with FDI, beyond 49%
requiring Government approval.

 A s a result of the New Telecom Policy 1999

(NTP99) Total FDI in telecom is currently over US $
15 billion.

 Tremendous improvement in infrastructure, lowest

tariff rates in the world and over 250 million users.

 I n 2007-2008 Vodafone took over Hutch forabout

US $ 11 billion.
 Retail Sector in India
 Retail industry in India is one of the fastest growing.

 Contributes 14% to the national GDP and employs

7% of the total workforce.

 T h e retail industry is divided into organised and

unorganised sectors.

 Organised trade employs roughly 5 lakh people

whereas the unorganized retail trade employs nearly
3.95 crores.

 Growth in Retail as a result of economic expansion

as well as jobless growth.
 Major arguments against adoption of
FDI in Retail in India:

 F D I driven modern retailing is labour displacing.

 I t can only expand by destroying the traditional retail
sector.
 Foreign retail firms have deep pockets and can
cause even the organized retail sector to go out of
business.
 Will buy big from India and abroad and be able to
sell low. When monopoly situation is created will will
buy low and sell high.
 I t is true that it is in the consumer’s best interest
to obtain his goods and services at the lowest
possible price. But collective well being should
take precedence.
 Suggestive measures to eliminate the
negative effects of FDI in Retail
 F D I should be aggressively promoted in R&D,
Manufacturing, Entertainment to accommodate the
people who have lost their jobs.

 Import duty should be imposed to protect domestic

production units.

 Labour laws should be imposed to ensure that no

management jobs are outsourced.

 Jobs should be reserved for the poor people.

 Hindi and local languages as a mode of operation
should be encouraged.
 Cooperative societies should be formed for the
farmers and other agricultural suppliers to take care
of their rights.
 T h e foreign retail units should be made to divest a
certain percentage of their equity in the Indian
financial markets.
 Social infrastructure like schools, colleges and
hospitals should be developed to promote human
capital formation
Bibliography

http://en.wikipedia.org/wiki/Foreign_direct
_investment
http://www.sharetipsinfo.com/fdi-
retail.html
http://en.wikipedia.org/wiki/Retailing_in_In
dia
http://toostep.com/debate/what-is-impact-
of-fdi-in-indian-market
THANK
YOU !