Impact of FDI on Indian

Entrepreneurship

 Presented by - Zenith group

 Sanghamitra s. Parihar
 Palash Goyal
 Hina Agarwal
 Juhi Pawar
 Karishma kakkad
 INTRODUCTION

 Foreign Direct Investment (FDI) is fund flow between the

countries in the form of inflow or outflow by which one
can able to gain some benefit from their investment
whereas another can exploit the opportunity to enhance
the productivity and find out better position through
performance.

 The effectiveness and efficiency depends upon the

investors perception, if investment with the purpose of
long term then it is contributes positively towards
economy on the other hand if it is for short term for the
purpose of making profit then it may be less significant.
 Overview of FDI
o A simple definition of FDI would be –“An
investor based in one country acquires an
asset in another country with the intent to
manage that asset” (OECD, 2000).

o According to International Monetary

Fund (IMF), FDI is defined as “ an
investment that is made to acquire a
lasting interest in an enterprise operating
in a economy other than that of the
investor”.
 CURRENT SCENARIO OF FDI
INFLOW IN
INDIA:
 Since economic reforms initiated in 1991, Government of
India has taken many programs to magnetize FDI inflows,
to improve the Indian economy.

 An important objective of promoting FDI in India and other

developing countries has been to promote efficiency in
production and increase exports.

 However, any increase in equity stake of the

foreign investors in existing joint ventures or purchase of a
share of equity by them in domestic firms would not
automatically change the orientation of the firm. That is,
“the aim of FDI investors would be to benefit from the
profit earned in the Indian market.
 FDI AND INDIA

In order to have a flow of FDI, India maintained Double Tax

Avoidance Agreements (DTAA) with nearly 70 countries of the
world.

India has signed 57 (up to 2006) numbers of

Bilateral Investments Treaties (BITS).

India as the founding member of General Agreement on Tariffs

and Trade (GATT), World Trade Organization (WTO), a
signatory member of South Asian Free Trade Area (SAFTA)
and a member of Multilateral Investment Guaranty Agency
(MIGA) is making its presence felt in the economic landscape
of globalised economies which will help a conducive and
healthy atmosphere for foreign investors and thus resulting in
substantial amount of FDI inflows in the country.
 ENTREPRENEURSHIP AND FDI

 I'M NOT CLAIMING LOCAL

ENTREPRENEURSHIP IS THE ONLY
DETERMINANT OF FDI, BUT IT COULD
BE AN IMPORTANT DETERMINANT
THAT IS
OFTEN IGNORED.— says HBS professor
YASHENG HUANG
 OVERVIEW….ENTREPRENEURSHIP AND FDI

 A far more important driver of FDI is at a micro

level: FDI is determined in part by the strength
or weakness of local entrepreneurship in host
countries, Huang argued. The institutional
quality of an economy, which affects the
efficiency of capital allocation and the security
of property rights of productive and innovative
entrepreneurs, influences the supply of local
entrepreneurship in an economy. Poor
institutions reduce the supply of local
entrepreneurship; high quality institutions
increase local entrepreneurship.
 "By that logic, at a given level of
macroeconomic [and] macro political
fundamentals, a country gets more or less
FDI depending on the strength of local
entrepreneurship.


If a country with strong macroeconomic
and macro political fundamentals is also
strong at a micro level—at an
entrepreneurship level— then the country
actually may not get much FDI," he said.
Local firms may pose a serious competitive
threat to foreign firms, at least in certain
industries, and foreign firms will think twice
before entering into such a market."
 FDI AND ECONOMIC
GROWTH
 One school of thought argued that FDI has
a negative impact on the growth of India
because FDI flows mainly towards the
primary sector which basically promoted
the less market values.
 However another school of thought argued
that FDI inflow into the core sectors is
assumed to play a vital role as a source of
capital,management and technology in
countries transaction economies.
•In the context of the new theory of Economic Growth, FDI
is considered as an engine of growth of mainstream economies.

•As noted by the World Bank (2002), several recent studies concluded
that FDI can promote the economic development of the host Country
by promoting productivity growth and export.

•However, the exact relationship between foreign multinational

corporations and their host countries varies considerably
between countries and among industries.

•The characteristics of the host country and the policy environment

are important determinants of net benefit of FDI.
Analysis of FDI and its
role….
 Researchers have argued that new firm
creation and entrepreneurship are the engines
of economic growth and development.

 However, most studies analyzing the

process of transition from a command to a
market economy have focused on the
privatization of existing firms rather than on
the creation of new domestic firms, arguably
an equally important channel for growth and
development.
 CONT………

 Only recently, researchers have started to evaluate

the determinants of entrepreneurship, including the
impact of the business environment, institutions,
and the role of the government.

 But, studies of entrepreneurship in the transition

economies are incomplete without considering the
impact of foreign direct investment (FDI), which has
been shown to play a critical role in fostering
growth, technology transfer, new market
development, and enterprise restructuring.
 Impact of FDI……

FDI can have two opposing effects on
domestic entry. Presence of foreign firms in an
industry can discourage entry of domestic firms
by raising the technological barriers to entry.
We refer to this as the entry barrier effect.

 Alternatively, foreign presence can generate

demand for local products and services, bring
new or higher quality inputs, and generate new
business opportunities in the local market,
thus encouraging the entry of domestic firms.
We refer to this as the demand creation effect.
 IMPACT OF FDI……
 On one hand, foreign firms can raise the barriers
to entry (entry barrier effect) and thus inhibit the
creation of new domestic firms.
 On the other hand, foreign firms can generate
positive entry spillover effects via bringing new
business opportunities to domestic entrepreneurs
(demand creation effect), thus encouraging the
entry of domestic firms across industries.
 Assessing which of these two effects dominates
is critical for the public policy debate on the
restructuring process in the transition economies.
 OPPORTUNITIES,POTENTIAL SECTORS

Foreign Direct Investment (FDI) as a strategic component of

investment is needed by India for its sustained economic growth
and development through creation of jobs, expansion of
existing manufacturing industries, short and long term project in
the field of healthcare, education, research and development (R
& D) etc.

Government should design the FDI policy such a way where

FDI inflow can be utilized as means of enhancing domestic
production, savings and exports through the equitable
distribution among states by providing much freedom to
states, so that they can attract FDI inflows at their own
level.FDI can help to raise the output, productivity and export
at the sectoral level of the Indian economy.
 However, it can observed that the result of
sectoral level output, productivity and
export is minimal due to the low flow of FDI
into India both at the macro level as well
as at the sectoral level.
 Therefore for further opening up of the
Indian economy, it is advisable to open up
the export oriented sectors and higher
growth of the economy could be achieved
through the growth of these sectors.
 CHALLENGES

 The export and import balance may be upset.

 Predatory pricing of global retailers may wipe out the domestic retailers
 High cost of borrowing affect the investment of domestic retailers..
 Global players will give a cut throat competition for the existing retailers.
 Employment in several sectors would be affected.

India has received total FDI of US$ 180,034 million from the year 1990-
91to 2009-10 which is due to the initiatives taken by the government of
India in attracting FDI inflows in India. The FDI inflows have shown a
rising trend from 1991-92 to 1997-98 owing to the sincere programmes
of structural liberalization and open market reforms.
 CONCLUSION

 The concept of ‘Investment led Economic

Development’ has promoted the idea that the outward
and inward FDI position of a country is linked to its
economic development relative to the rest of the world.

 The effects of FDI in the host economy are usually

believed to be increase in the employment, augment in
the productivity, boost in exports and amplified pace of
transfer of technology.
It facilitates the utilization and exploitation of local raw
materials, introduces modern techniques of
management and marketing, eases the access to new
technologies, foreign inflows can be used for financing
current account deficits, finance flows in form of FDI do
not generate repayment of principal and interests (as
opposed to external debt) and increases the stock of
human capital via on the job training.
 SUGGESTIONS….
 FDI is a vital ingredient of the globalization efforts of the
world economy. The growth of international production is
driven by economic and technological forces. It is also driven
by the ongoing liberalization of Foreign Direct
Investment(FDI) and trade policies.

 For FDI to be a noteworthy provider to economic growth,

India would do better by focusing on improving infrastructure,
human resources, developing local entrepreneurship,
creating a stable macroeconomic framework
and conditions favorable for productive investments to
augment the process of development.
FDI OVERVIEW
ANY QUESTIONS……?