Final Project (fdi).pdf

University of Mumbai's K.B. COLLEGE OF ARTS & COMMERCE FOR WOMEN (Affiliated to University of Mumbai) Kopri, Thane (East) 400 603

A project Report on FOREIGN DIRECT INVESTMENT IN INDIAN ECONOMY Submitted By MISS. SAYLI ARJUN NANAVARE SEM VI / T.Y.B.A.F 2018-19

Under the guidance of PROF. VICKY KUKREJA In fulfilment of the requirement of B.com (A&F) programme for the year 2018-19

K.B. COLLEGE OF ARTS & COMMERCE FOR WOMEN (Affiliated to University of Mumbai) Kopri, Thane (East) 400 603

Certificate This is to certify that Mr/Ms Sayli Arjun Nanavare has worked and duly completed her/his Project Work for the degree of Bachelor in Commerce (Accounting & Finance) under The Faculty of Commerce in the subject of and her/his project is entitled, “foreign Direct Investment in Indian Economy” under my supervision. I further certify that the entire work has been done by the learner under my guidance and that no part of it has been submitted previously for any Degree or Diploma of any University. It is her/his own work and facts reported by her/his personal findings and investigations.

Seal of the college

Course Co-ordinator

Internal Examiner

Date of submission:

Principal

External Examiner

Declaration by learner

The Undersigned Ms. Sayli Arjun Nanavare here by, declare that the work embodied in this project work titled “Foreign Direct Investment in Indian Economy”, forms my own contribution to the research work carried out under the guidance of is a result of my own research work and has not been previously submitted to any other University for any other Degree /Diploma to this or any other University. Wherever reference has been made to previous works of others, it has been clearly indicated as such and included in the bibliography. I, here by further declare that all information of this document has been obtained and presented in accordance with academic rules and ethical conduct.

(Sayli Arjun Nanavare)

Name and Signature of the learner

Certified by Name and Signature of the Guiding Teacher

Prof. Vicky Kukreja.

Acknowledgment To list who all have helped me is difficult because they are so numerous and the depth is so enormous. I would like to acknowledgment the following as being idealistic channels and fresh dimensions in the completion of this project . I take this opportunity to thank the University of Mumbai for giving me chance to do this project. I would like to thank my Principal, Mrs. Renu Trivedi for providing the necessary Facilities required for completion of this project . I would also like to express my sincere gratitude towards my project guide Mr. Vicky Kukreja whose guidance and care made the project successful. I would like to thank my College Library, for having provided various reference books and magazines related to my project . Lastly, I would like to thank each and every person who directly or indirectly helped me in the completion of the project especially my Parents and Peers who supported me throughout my project .

INDEX SR. NO

CONTENT

PAGE NO.

1.

Title of project

1

2.

Certificate

2

3.

Declaration

3

4.

Acknowledgement

4

5.

Project details:    

6.

7.

Objective of study Scope of study Nature of study Importance of study Limitation of study

Chapter 1:- Introduction          

10-27

What is Foreign Direct Investment Definition History of FDI Sources of FDI in India Why FDI needed in India Role of FDI in Indian economy Characteristics of FDI Salient features of FDI Types of FDI FDI a financial resources for the economic development

Chapter 2:- Research and Methodology         

7-9

28-47

Research and Methodology Importance of FDI Scope and development of FDI Advantage of FDI Disadvantage of FDI Doubt regarding FDI FDI policy India announce new FDI policy Investment/development trade policy

8.

Chapter 3:- Literature Review

48-50

9.

Chapter 4:- Data Analysis, interpretation & presentation

51-81

       

Data collection Conceptual model FDI inflow routes FDI in India inflow charts FDI- ‘A credit supplement but not a Driver’ Infrastructural financing deficit Sectors specific limits of foreign investment India Survey on FDI



Summary

10.

Chapter 5:- Conclusion and Recommendation

11.

 Recommendation Chapter 6:- Bibliography

82-83 83

OBJECTIVE OF STUDY

To understand the strategic marketing management processes of Foreign direct Investment in an Indian Economy with Special Reference to Retail Sector in Indore (M.P). To study the intelligence gathering systems that is relied upon. To understand the intricacies of analysis and decision making processes in the FDI and interpersonal /interdepartmental interface management. To analyze the trends, growth and patterns of FDI inflows into India with special focus on Retail Sector. To investigate the Indian market place and review current policy and regulations with regards to foreign investors so as to gain an understanding of the current position on FDI, as well as an overview of the Indian system. To understand the intricacies of analysis and decision making processes in the small units and interpersonal /interdepartmental interface management.

NATURE OF THE STUDY

Sample Design (i) Sampling units / Population: The retail industrial units in the selected sector from Indore (M.P). (ii) Sampling type: Stratified random sampling. (iii) Sample size: The total sample size will be divided into three parts: MALL 20 RETAIL KIRANA SHOP 100 CUSTOMER 300 Data collection- The data to be collected from Primary sources as well as Secondary sources: Primary sources: For Primary source a questionnaire will be prepared and this questionnaire will be filled by and scheduled interviews / personal observations. Three sources of evidence that Yin (2003) discusses were used in this study i.e. Interview, Documentation and Archival Records. Secondary sources: Data collected from internet, journals, magazines, text books etc. A sample of typical secondary source can be seen as per selected bibliography & references. DATA ANALYSIS Data collected was mainly qualitative in nature .data were collected from the mall managers ,KIRANA shopkeepers and customers .data was tabulated .Charts, and graphs were used for comparative analysis .In addition to this, statistical tool like averages , ranking and chi square test were used.

SCOPE OF STUDY

Target population Target population for the study was retail companies (malls) in Indore M.P. CUSTOMERS and KIRANA shopkeepers.

Place of study The research was mainly carried out from Indore. I(researcher) visited malls in Indore and recorded observations of mall managers about the operational aspect s and conducted informal interviews with the customers and KIRANA shopkeepers wherever possible.

Reference period The reference period for the study was 2013 to 2016. Source s of data – A combination of primary and secondary data was used. RESEARCH DESIGN The research design for the present study was basically descriptive and exploratory in nature.

The study started with exploratory research design in order to have a deeper insight of the changing retailing environment of FDI in INDIA. This help to formulate the research hypothesis for the present study. Owing to the fact that management is a relatively speaking a nascent field compared to other disciplines it is quite natural that most of the research studies will be of the type – exploratory.

This study therefore, will be an exploratory research based in a large measure on the collection of primary data and also the secondary sources. This study the impact of foreign direct investment on Indian economy: with special reference to retail sector will particularly cover the units based in Indore (M.P).

IMPORTANCE OF THESTUDY It is apparent from the above discussion that FDI is a predominant and vital factor in influencing the contemporary process of global economic development. The study attempts to analyze the important dimensions of FDI in India. The study works out the trends and patterns, main determinants and investment flows to India. The study also examines the role of FDI on economic growth in India for the period 19912008. The period under study is important for a variety of reasons. First of all, it was during July 1991 India opened its doors to private sector and liberalized its economy. Secondly, the experiences of South-East Asian countries by liberalizing their economies in 1980s became stars of economic growth and development in early 1990s. Thirdly, India’s experience with its first generation economic reforms and the country’s economic growth performance were considered safe havens for FDI which led to second generation of economic reforms in India in first decade of this century. Fourthly, there is a considerable change in the attitude of both the developing and developed countries towards FDI. They both consider FDI as the most suitable form of external finance. Fifthly, increase in competition for FDI inflows particularly among the developing nations. The shift of the power centre from the western countries to the Asia sub – continent is yet another reason to take up this study. FDI incentives, removal of restrictions, bilateral and regional investment agreements among the Asian countries and emergence of Asia as an economic powerhouse (with China and India emerging as the two most promising economies of the world) develops new economics in the world of industry nations. The study is important from the view point of the macroeconomic variables included in the study as no other study has included the explanatory variable.

LIMITATIONS OF THESTUDY

All the economic / scientific studies are faced with various limitations and this study is no exception to the phenomena. The various limitations of the study are: At various stages, the basic objective of the study is suffered due to inadequacy of time series data from related agencies. There has also been a problem of sufficient homogenous data from different sources. For example, the time series used for different variables, the averages are used at certain occasions. Therefore, the trends, growth rates and estimated regression coefficients may deviate from the true ones. The assumption that FDI was the only cause for development of Indian economy in the post liberalised period is debatable. No proper methods were available to segregate the effect of FDI to support the validity of this assumption. Above all, since it is a Ph.D. project and the research was faced with the problem of various resources like time and money.

Chapter 1:-Introduction

What is Foreign Direct Investment..??

Foreign direct investment (FDI) is an investment made by a firm or individual in one country into business interests located in another country. Generally, FDI takes place when an investor establishes foreign business operations or acquires foreign business assets, including establishing ownership or controlling interest in a foreign company. Foreign direct investment is distinguished from portfolio investments in which an investor merely purchases equity of foreign-based companies. In the past, India has introduced several instruments to boost its growth and economic development. One such instrument was “Foreign Direct Investment”. Since 1990s, steps taken prevent the crises as in 1990’s and there have been sustained efforts towards containing fiscal deficit through stabilization and reform measure. Foreign Direct Investment has become a major component of capital inflow. FDI today is seen as an instrument to facilitate and support domestic investment for achieving higher level of economic development, since it benefit both the domestic industry as well as the consumer, by providing opportunities for technological up graduation, access to global managerial skill and practices, optimal utilization of human & natural resources making industry internationally competitive, opening up export markets, providing backward and forward linkage and access to international quality goods and services. In the wake of current era of globalization a transactional economic regime has emerged. With the establishment of a global economic order in the firm of world trade organization (WTO), the nation of the world has moved toward integrating their economy. The economy activity of any country need substantial investment and FDI tends to bridge the investment saving gap to achieve sustained growth. Besides the long term additional capital that it bring in FDI also tend to facilitate up gradation and transfer of technology and introduction of modern production and management practices. It is needless to mention the potential benefits associated with the inflow of foreign capital into a nation. Foreign inflow of funds leads to infrastructural development, higher standards of living, technology transfer, presence of transnational companies and multinational companies, access to better product that eventually culminate in overall economic growth. At the same time there are various dangers than loon over the issue of allowing foreign corporate in a country. There remained a greater possibility of domestic producers being hampered by prolonged existence of foreign counterparts. In India, it is especially observed that most of foreign capital comes in the form of speculative investment that can lead to instability in the capital markets. One section of intelligential view, that FDI into power, telecommunication and other infrastructure industries was invited at a higher price than desirable. It has been observed that the liberalization of the economic policy and a change in the structure of the economy has not translated fully into attracting greater due to a variety of reason. Existing procedures project formulation, appraisal and approval particularly for govt. projects inadequacies in the existing management system and

Inadequate skills in project formulation, appraisal and management are some of the major reason behind delays in the investment approval and implementation of projects. India is the fifth largest economy in the world and has the third largest GDP in the entire continent of Asia. It is also the second largest among emerging nations. India is also one of the few markets in the world, which offers high prospects for growth and earning potential in practically all areas of business. India’s retail industry is the second largest sector, after agriculture which provides employment. FDI is the acquisition of assets in a country by foreign entitles for the purpose of control. FDI is ownership of at least 10 % of business. According to the ministry of commerce and industry, “FDI” is freely allowed inall sectors including the services sector, except a few sectors where the existing and notified sector policy does not permit FDI beyond a ceiling. Foreign direct investment (FDI) is an investment in a business by an investor from another country for which the foreign investor has control over the company purchased. The Organization of Economic Cooperation and Development (OECD) define control as owning 10% or more of the business. Businesses that make foreign direct investments are often called multinational corporations (MNCs) or multinational enterprises (MNEs). An MNE may make a direct investment by creating a new foreign enterprise, which is called a green field investment, or by the acquisition of a foreign firm, either called an acquisition or brown field investment. The remote direct venture is one of the measures of developing financial globalization. The venture has dependably been an issue for the creating economies, for example, India. The world has been globalizing and every one of the nation are changing their arrangements for inviting venture from nations which are rich in capital assets. The nations which are created are concentrating on new markets where there is the accessibility of plenteous works, the scope for items, and high benefits are accomplished. In this manner, Foreign Direct Investment (FDI) has turned into a fighting ground in the developing markets. The target behind permitting FDI is to supplement and supplement local speculation, for accomplishing a larger amount of financial advancement and giving chances to innovative up gradation, and also access to worldwide administrative abilities and practices. South Asian nations, for example, China have actualized open entryway arrangements amid 1980’s. However, India changed its approaches in 1991.Before preadvancement India took after moderate arrangements to ensure the indigenous financial specialists and industrialist. The financial development has not been accomplished. In 1991, the then congress government had executed progression strategies to rebuild the Indian economy. A standout amongst the most striking advancement amid the most recent two decades is the marvellous development of FDI in the worldwide financial scene. This extraordinary development of worldwide FDI in 1990 around the globe make FDI an essential and fundamental segment of advance methodology in both created and creating countries and arrangements are outlined keeping in mind the end

goal to empower internal steams. Indeed, FDI gives a win-win circumstance to the host and the nations of origin. The two nations are straightforwardly inspired by welcoming FDI, on the ground that they advantage a considerable measure from such sort of venture. The home nations need to take the upside of the huge markets opened by modern development. Then again the host nations need to secure innovative and administrative abilities and supplement residential funds and remote trade. In addition, the scarcity of a wide range of assets viz. money related, capital, business enterprise, innovative know-how, abilities and practices, access to business sectors aboard in India activity. India was positioning fifteenth on the planet in 2013 as far as FDI inflow, it ascended to the ninth position in 2014 while in 2015 India ended up the top goal for remote direct speculations. Aside from being a driver of monetary development, outside direct venture (FDI) is their financial improvement, creating countries acknowledged FDI as a sole unmistakable panacea for every one of their shortages. Further, the combination of worldwide money related markets clear approaches to this touchy development of FDI around the world. Outside direct investment was chosen as the examination point on the grounds that the nation’s national financial development and assorted variety add another viewpoint to the investigation of culturally diverse administration. Additionally, India has been accepting another part of the Asian and the worldwide economy since the advancement design in 199. Advances and markets that were once the benefit of huge, promoted, partnerships with great market associations turned out to be all of a sudden accessible for little and medium sized organization in a universe of diminished business hindrances and moderate advances. What’s more, with the deregulation of money related markets around the world, little and medium measured organisations accessed new wellsprings of capital for the extension. These political and large scale financial changes in the worldwide business field guided the business attitude into another bearing, duplicating the improvement of worldwide organizations together and force bring the globalization of business interests. Globalization requires advertising smart. Partnerships understand that it is important to create restricted information to contend effectively in the worldwide commercial centre or to serve particular market specialties. Items must be socially receptive to ensure organization survival and to increase aggressive edge. Worldwide companies must create social affectability to take the full preferred standpoint of the advantages of globalization and the upper hand of countries. The worldwide group has turned out to be progressively keen on creating mindfulness in this perplexing Indian culture. India is at present one of the principal receptors of remote direct interest in Asia. Recommendation to Indian maker, which uncovers, where the Indian maker needs in client fulfilments and the greatest opportunity and test in the worldwide focused market through joint endeavours and F.D.I. (Outside direct speculation). Indian organization must think before going to globalize. The vast majority of the Indian shopper has a place with the lower and lower white collar class for mass utilization. They are numerous huge undertakings in India who are effectively that will be postured by the multinationals. The upper and white-collar classes are additionally shoppers of expensive products, which are fundamental for their solace and extravagance. The multinational will focus on the buyer of the all classes. September 2016, India got the greatest FDI value

inflows from Mauritius (US$ 5.85 billion), trailed by Singapore (US$ 4.68 billion), Japan (US$ 2.79 billion), (US$ 1.62 billion), and USA (US$ 1.44 billion). The government of India has revised FDI approach to building FDI inflow. In 2014, the legislature expanded outside venture maximum breaking point form 26% to 49% in protection segment. It additionally propelled make in India activity in September 2014 under which FDI approach for 25 areas was changed further. As of April 2015, FDI inflow in India expanded by 48% since the dispatch of Make a noteworthy wellspring of non-obligation money related asset for the financial improvement of India. Outside organization put resources into India to exploit generally bring down wages, exceptional venture benefits, for example, charge exclusions, and so forth. For a nation where remote speculations are being made, it additionally implies accomplishing specialized know-how and creating work. The Indian government’s ideal approach administration and hearty business condition have guaranteed that outside capital continues streaming into the nation. The legislature has taken numerous activities as of late, for example, unwinding FDI standards crosswise over areas, for example, safeguard, PSU oil refineries, telecom, control trades, and stocks trades, among others. The history of foreign investment in India can be traced back with the establishment of East India Company of Britain. British capital came into India during the colonial era of Britain in India. Before independence, major amount of foreign investment came from the British companies. British companies setup their units in the mining sector and in those sectors that suit their own economic and business interest. After Second World War, Japanese companies entered Indian market and enhanced their trade with India, yet U.K. remained the most dominant investor in India. Keeping in mind the national interest, the policy makers designed the foreign direct investment policy which aims FDI as medium for acquiring advance technology and to mobilize foreign exchange resources. FDI means an investment through which the non-resident investor and foreign company can start a new company can acquire an effective share in an existing company in India with the specific objective of carrying on industrial activities or business in India. FDI from the viewpoint of the balance of payments and the international investment position (IIP) share a same conceptual framework given by the International monetary fund. The balance of payment is a statistical statement that systematically summarizes, for a specific time span, the economic transaction of an economy with the rest of the world and the IIP compiles for a specific date, such as end of a year, the value of the stock of each financial assets and liability as defined in the standard components of the balance of payments. In extractive we will not deal in this note with other relevant statistical concepts for operations overseas, particularly for financial institutions, such as exposure, which belong to the realm of the BIS statistics.

Section 2, 3, 4 give an overview of FDI definitions, concepts and recommendations adopted by the IMF’s Balance of payment manual and by the OECD’s benchmark definition of FDI. Both provide operational guidance and detailed international standards for recordings flows and stocks related to FDI. Section 5 a gives a quick overview in trends in FDI inward in flows and stocks for the period 19802001. Section 6 reports on onward FDI for Spain, with particular attention to the financial sector. Finally a brief description of the main available sources of FDI is found in an annex. When a group of business in New York asked Prime Minister Nehru about the Indian Government’s policy towards foreign investment, he is reported t have looked out of the window and commented on the weather. Nehru’s lofty disdain for foreign direct investment was not out of the lack of faith in its potential to transfer technology and know-how, but of his resolve to shield the economy from the grip of foreign interest; indeed, science and technology formed the centerpiece of the PM development strategy for India. The sizeable presence of British capital in pre-independence India had done little to promote development, its large presence industries, plantations, shipping, banking and insurance were geared to promoting colonial interest. Nehru’s ideals of democratic socialism and economic self-sufficiency were shaped by his aversion to India’s colonial past and dependence on Britain. A foreign direct investment (FDI) is an investment in the form of a controlling ownership in a business in one country by an entity based in another country. It is thus distinguished from a foreign portfolio investment by a notion of direct control. The origin of the investment does not impact the definition, as an FDI: the investment may be made either "inorganically" by buying a company in the target country or "organically" by expanding the operations of an existing business in that country. Broadly, foreign direct investment includes "mergers and acquisitions, building new facilities, reinvesting profits earned from overseas operations, and intra company loans". In a narrow sense, foreign direct investment refers just to building new facility, and a lasting management interest (10 percent or more of voting stock) in an enterprise operating in an economy other than that of the investor. [2] FDI is the sum of equity capital long-term capital, and short-term capital as shown in the balance of payment FDI usually involves participation in management, joint venture, transfer of technology and expertise stock of FDI is the net (i.e., outward FDI minus inward FDI) cumulative FDI for any given period. Direct investment excludes investment through purchase of shares. FDI, a subset of international factor movement, is characterized by controlling ownership of a business enterprise in one country by an entity based in another country. Foreign direct investment is distinguished from foreign portfolio investment, a passive investment in the securities of another country such as public stocks and bonds, by the element of "control". According to the financial times "Standard definitions of control use the internationally agreed 10 percent threshold of voting shares, but this is a grey

area as often a smaller block of shares will give control in widely held companies. Moreover, control of technology, management, even crucial inputs can confer de facto control. Foreign investment refers to investments made by the residents of a country in the financial assets and production processes of another country. The effect of foreign investment, however, varies from country to country. It can affect the factor productivity of the recipient country and can also affect the balance of payments. Foreign investment provides a channel through which countries can gain access to foreign capital. It can come in two forms: FDI and foreign institutional investment (FII). Foreign direct investment involves in direct production activities and is also of a medium- to long-term nature. But foreign institutional investment is a short-term investment, mostly in the financial markets. FII, given its short-term nature, can have bidirectional causation with the returns of other domestic financial markets such as money

markets,

stock markets, and foreign exchange markets. Hence, understanding the determinants of FII is very important for any emerging economy as FII exerts a larger impact on the domestic financial markets in the short run and a real impact in the long run. India, being a capital scarce country, has taken many measures to attract foreign investment since the beginning of reforms in 1991.India is the second largest country in the world, with a population of over 1 billion people. As a developing country, India’s economy is characterized by wage rates that are significantly lower than those in most developed countries. These two traits combine to make India a natural destination for FDI and foreign institutional investment (FII). Until recently, however, India has attracted only a small share of global FDI and FII primarily due to government restrictions on foreign involvement in the economy. But beginning in 1991 and accelerating rapidly since 2000, India has liberalized its investment regulations and actively encouraged new foreign investment, a sharp reversal from decades of discouraging economic integration with the global economy. The world is increasingly becoming interdependent. Goods and services followed by the financial transaction are moving across the borders. In fact, the world has become a borderless world. With the globalization of the various markets, international financial flows have so far been in excess for the goods and services among the trading countries of the world. Of the different types of financial inflows, the FDI and foreign institutional investment (FII) has played an important role in the process of development of many economies. Further many developing countries consider FDI and FII as an important element in their development strategy among the various forms of foreign assistance. One of the most striking developments during the last two decades is the spectacular growth of FDI in the global economic landscape. This unprecedented growth of global FDI in 1990 around the world make FDI an important and vital component of development strategy in both development and developing nation and policies are designed in order to stimulate inward flows. In fact, FDI provides a win-win situation to the host and the home countries. Both countries are directly interested in inviting FDI, because they benefit a lot from such type of investment. The ‘home’ countries want to take the advantage of the vast markets opened by industrial growth. On the other hand the ‘host’ countries want to acquire technological and managerial skills and supplement domestic savings and foreign exchange. Moreover, the paucity of all types of resources viz. Financial, capital, entrepreneurship, technological know-how, skills and practices, access to

markets- abroad- in their economic development, developing nations accepted FDI as a sole visible panacea for all their scarcities. Further, the integration of global financial markets paves ways to this explosive growth of FDI around the globe. When a firm control another firm located abroad, e.g. by owing more than 10% of its equity, the former is said “parent enterprise” and the latter “foreign affiliate”. For a country, attracting an inflow of FDI strengthen the connection to world trade networks and finance its development path. However, unilateral substantial FDI to a country can make it dependent on the external pressure that foreign owners might exert on it. Foreign investment plays a significant role in development of Indian economy. Many countries provide many incentives for attracting the foreign direct investment. Need of FDI depends on saving and investment rate in any country. Foreign direct investment acts as a bridge to fulfil the gap between investment and saving. In the process of economic development foreign capital helps to cover the domestic saving constraint and provide. The remote direct venture is one of the measures of developing financial globalization. The venture has dependably been an issue for the creating economies, for example, India. The world has been globalizing and every one of the nations are changing their arrangements for inviting venture from nations which are rich in capital assets. The nations which are created are concentrating on new markets where there is the accessibility of plenteous works, the scope for items, and high benefits are accomplished. In this manner, Foreign Direct Investment (FDI) has turned into a fighting ground in the developing markets. The target behind permitting FDI is to supplement and supplement local speculation, for accomplishing a larger amount of financial advancement and giving chances to innovative upgradation, and also access to worldwide administrative abilities and practices. South Asian nations, for example, China have actualized open entryway arrangements amid 1980's, however, India changed its approaches in 1991. Before preadvancement India took after moderate arrangements to ensure the indigenous financial specialists and industrialist. The financial development has not been accomplished. . One of the most striking developments during the last two decades is the spectacular growth of FDI in the global economic landscape. This unprecedented growth of global FDI in 1990 around the world make FDI an important and vital component of development strategy in both developed and developing nations and policies are designed in order to stimulate inward flows. In fact, FDI provides a win – win situation to the host and the home countries. Both countries are directly interested in inviting FDI, because they benefit a lot from such type of investment. The ‘home’ countries want to take the advantage of the vast markets opened by industrial growth. On the other hand the ‘host’ countries want to acquire technological and managerial skills and supplement domestic savings and foreign exchange. Moreover, the paucity of all types of resources viz. financial, capital, entrepreneurship, technological know- how, skills and practices, access to markets- abroad- in their economic development, developing nations accepted FDI as a sole visible panacea for all their scarcities. Further, the integration of global financial markets paves ways to this explosive growth of FDI around the globe.

Growing international linkages through foreign direct investment (FDI) are an important feature of financial globalization and raise important challenges for policymakers and statisticians in industrial and developing countries alike. With the integration of international capital markets, world FDI flows grew strongly in the 1990s at rates well above those of global economic growth or trae. This has placed the activities of direct investors and direct investment enterprises under increasing scrutiny and presented new challenges for statistical recording, balance of payments projections, economic surveillance, and vulnerability analysis. This report surveys the recent state of FDI statistics at the international and national levels. 1.2 The IMF and other international and regional organizations are working with countries to improve FDI statistics by developing methodologies and providing compilation guidance (including information on country practices), and through technical assistance, training courses, and workshops. 1.3 Countries are compiling and disseminating more data on FDI transactions and stocks and increasingly are adopting the recommendations of international statistical manuals. However, despite these improvements, and reflecting the complexities of compiling these data, there remain important deficiencies in the coverage and comparability of data in both industrial and developing countries. One symptom of these deficiencies is the sizable discrepancies seen in global aggregations of FDI outflows and inflows published by the IMF.1 1.4 This report provides an overview of (i) the available statistics on FDI (covering recent trends and data availability); (ii) the concepts and definitions set out in international statistical manuals— namely, the fifth edition of the IMF’s Balance of Payments Manual (BPM5; IMF, 1993) and the third edition of the OECD’s Benchmark Definition of Foreign Direct Investment (Benchmark Definition; OECD, 1996); and (iii) country practices in implementing these guidelines. The report is structured as follows. Chapter 2 defines direct investment. Chapter 3 reviews recent trends in the global data on FDI, while Chapter 4 describes the main sources of statistics on direct investment and discusses some of the statistical discrepancies in the published data on FDI. Chapter 5 reviews in greater detail the key concepts and definitions set out in the international statistical manuals for the recording of FDI, while Chapter 6 presents some of the findings from a recent joint IMF-OECD survey on methodological practices regarding the measurement of FDI in 61 countries and how these practices compare with the international recommendations for FDI statistics. The report concludes that an internationally coordinated survey may be required to strengthen FDI statistics across countries.

DEFINITION

The BPM5 defines FDI as a category of international investment that reflects the objective of a resident in one economy (the direct investor) obtaining a lasting interest in an enterprise resident in another economy (the direct investment enterprise). The lasting interest implies the existence of a long-term relationship between the direct investor and the direct investment enterprise, and a significant degree of influence by the investor on the management of the enterprise. A direct investment relationship is established when the direct investor has acquired 10 percent or more of the ordinary shares or voting power of an enterprise abroad. Direct investment comprises not only the initial transaction establishing the FDI relationship between the direct investor and the direct investment enterprise but all subsequent capital transactions between them and among affiliated enterprises resident in different economies. The key concepts in the measurement of FDI are elaborated. There are a number of popular misconceptions about FDI. • FDI does not necessarily imply control of the enterprise, since only a 10 percent ownership is required to establish a direct investment relationship. • FDI does not constitute a “10 percent ownership” (or more) by a group of “unrelated” investors domiciled in the same foreign country. FDI involves only one investor or a “related group” of investors in one or more countries. • FDI is not based on the nationality or citizenship of the direct investor. FDI is based on the residence of the direct investor. • Borrowings by direct investment enterprises from unrelated parties abroad that are guaranteed by direct investors are not FDI. Statistics that measure the operations of the foreign affiliates of multinational enterprises—such as sales, employment, and assets—do not form part of the traditional balance of payments and international investment position (IIP) statistics, I which capture only the net investment of the direct investor in foreign affiliates. Statistics on the operations of foreign affiliates are referred to as foreign affiliate trade statistics. In recent years, the relevance of statistics on the operations of foreign affiliates has been acknowledged, and efforts are under way to encourage and assist countries in compiling these data. The new interagency Manual on Statistics of International Trade in Services, published in 2002 by the United Nations, provides a framework for developing foreign affiliate trade in services statistics (United Nations and others, 2002). Other organizations— notably the OECD and the United Nations Conference on Trade and Development (UNCTAD)—maintain databases on the activities of foreign affiliates. Some of the types of data produced on the activities of foreign affiliates. The discussion of FDI in this report focuses on the traditional balance of payments and IIP statistics.

HISTORY OF FDI In the Victorian era, most of the world’s surplus savings flowed from Western Europe to the developing countries of the time, which included some rapidly industrializing ones like the United States. So, American railroads and canals were financed, at least in part, by European capital. At the same time, European portfolios also included the raw materials and agricultural output of what today is called the Third World. These would be extracted, processed and exported to the European market. Of course when I say “Europe”, I mean mostly the United Kingdom, for it was the premier global investor par excellence, by far the largest shareholder in the global stock of foreign investments in 18701914. The UK had accumulated huge savings surpluses from its early industrialization and these were exported around the world. Sometimes, historians talk of Britain’s “informal empire” which might have been more important and influential than the formal empire of the red bits on the map.

The initial entry of FDI in India can be loosely considered from the time of establishment of East India Company of Britain during the colonial era in the 17th century when the British merchants approached the Mughal Emperor for establishing factory in Surat city of India. Along with them the British brought on the Industrial revolution to India which led to development of transportation (Railways and Roadways) and communication systems albeit for their benefits. The new innovations and inventions happening around the European countries got introduced to the Indian subcontinent too. After the Second World War, many Japanese companies entered the Indian market and enhanced their trade with India. After our Independence the policy makers of new India realized the need of foreign investment for development and 3 designed the FDI policies aiming it as a medium for bringing in advanced technologies and gaining valuable foreign exchange resources. With time and as per economic and political regimes there have been changes in the FDI policy too.

The industrial policy of 1965, allowed MNCs to venture through technical collaboration in India. Therefore, the government adopted a liberal attitude by allowing more frequent equity. With time, economic situations in the country and the outlook of government in power, the attitudes of the policy makers kept changing towards foreign companies investing in India. FDI was introduced in the year 1991 under Foreign Exchange Management Act (FEMA), by then finance minister Dr. Man Mohan Singh. It started with a baseline of $1 billion in 1990. India is considered as second important destination for foreign investment. The major sectors that attracted FDI are services, telecommunication, construction activities and computer software and hardware. India in 1997 allowed foreign direct investment (FDI) in cash and carry wholesale.

Then, it required government approval. The approval requirement was relaxed, and automatic permission was granted in 2006.

From 2000 to 2010, Indian retail has attracted about $1.8 billion in foreign direct investment, representing a very small 1.5% of total investment flow into India. India has received till now a total foreign investment of US $ 306.88 billion since 2000 with 94 per cent of the amount coming during the last nine years. In the period 1999–2004, India received US $ 19.52 billion of foreign investment. In the period 2004– 09, foreign investment in the country touched US$ 114.55 billion, further increasing to US$ 172.82 billion between 2009–Sept 2013. During FY 2012– 4 13, India attracted FDI worth US$ 22.42 billion. Tourism, pharmaceuticals, services, chemicals and construction were among the biggest beneficiaries.

But all that was essentially brought to a dramatic end by a conspiracy amongst the First World War, the Great Depression, the Second World War, Decolonization and Third World socialism.

SOURCES OF FDI IN INDIA

India has broadened the sources of FDI in the period of reforms. There was 120 countries investing in India in 2008 as compared to 15 countries in 1991. Thus the number of countries investing in India increased after reforms. After liberalization of economy Mauritius, south korea, Malaysia, cayman islands and many more countries predominantly appears on the list of major investors apart from U.S., U.K, Germany, Japan, Italy, and France which are not only the major investor now but during.

"WHY FDI IS NEEDED IN INDIA?"

Foreign direct investment (FDI) has become an integral part of national development strategies for almost all the nations globally. It’s global popularity and positive output in augmenting of domestic capital, productivity and employment; has made it an indispensable tool for initiating economic growth for countries.FDI in India has contributed effectively to the overall growth of the economy in the recent times. FDI inflow has an impact on India's transfer of new technology and innovative ideas; improving infrastructure, thus makes a competitive business environment. Is FDI so indispensible for a country that we can’t imagine development without it? Perhaps not, if we imagine entire world as a one country, then the word is developing and growing without investment from any other planet. However, if there were some investments from Moon or Venus, the level of development or growth must be different and better.

Thus, India can grow without FDI and in fact developed without or with very little FDI till 1980s but pattern and rate of growth is entirely different from the post 1990 years. Since, the GDP growth rate is falling now, export growth and Index of Industrial Production (IIP) abysmally low, need for big push is felt for the economy and if domestic investment is unable to provide that impetus, foreign investment can bridge that gap.FDI provides a win – win situation to the host and the home countries. Both countries are directly interested in inviting FDI, because they benefit a lot from such type of investment. ‘Home’ countries want to take the advantage of the vast markets opened by industrial growth. On the other hand the ‘host’ countries want to acquire technological and managerial skills and supplement domestic savings and foreign exchange. Moreover, the paucity of all types of resources viz. financial, capital, entrepreneurship, technological know- how, skills and practices, access to markets- abroad- in their economic development, developing nations accepted FDI as a sole visible panacea for all their scarcities. Further, the integration of global financial markets paves ways to this explosive growth of FDI around the globe.

Developing countries like India need substantial foreign inflows to achieve the required investment to accelerate economic growth and development. It can act as a catalyst for domestic industrial development. Further, it helps in speeding up economic activity and brings with it other scarce productive factors such as technical knowhow and managerial experience, which are equally essential or economic development.

In 2012-13, the domestic saving rate is expected to be 32.8 percent, 0.5 percent lower than what seen in fiscal year 2011-12. Despite of such a high saving rate, growth rate in 2012-13 is expected to be just 7.5 percent.

Domestic saving rate is not able to fuel the required investment to maintain the growth target of Twelfth Five Year Plan (2012-17). Thus the gap between domestic saving rate and required investment rate will be filled by foreign capital coming through FDI. Foreign investment is not meant to replace the domestic investment but to strengthen the domestic investment.

Services, telecommunications, construction, computers (software and hardware), real estate and housing, chemicals, drugs and pharmaceuticals, power, automobiles and metallurgical industries are certain sectors attracting highest FDI inflows across India.

Among these sectors, financial, infrastructure sector including power, telecommunications, petroleum, metallurgy etc are the most vital for the future growth and development of the country. If domestic investment is not coming up in these sectors, gap must be filled by the foreign investment.

Of late, the fallout of growth seen in India is the lopsided growth where it evades the under developed states like Uttar Pradesh, Bihar, Jharkhand, Orissa, Chhattisgarh, Madhya Pradesh etc but are concentrated in Delhi/NCR, Maharashtra, Gujarat etc.

A major advantage of foreign investment in India over the domestic investment is that it is coming up in less developed sectors. In 2011-13, Odisha has emerged as the most favourite destination for overseas investors with investment proposals worth Rs 49,527 crore followed by Andhra Pradesh and Gujarat. Moreover, Chhattisgarh and Karnataka ranked fourth and fifth of the top five investment destinations. Thus in the top five investment destinations, two are the underdeveloped states and three are naxal infested. For the foreign investors, India presents a vast potential for overseas investment and is actively encouraging the entrance of foreign players into the market. No company, of any size, aspiring to be a global player can, for long ignores this country which is expected to become one of the top three emerging economies.

India is competing for foreign investments with other emerging economies and thus FDI is imperative for India as it has transformed the quality, productivity and production in areas it has been allowed and can supplement domestic efforts significantly.

ROLE OF FDI IN INDIAN ECONOMY

FDI provides Capital: Foreign Direct Investment is e3xpected to bring needed capital to developing countries. The developing countries need higher investment to achieve increased targets of growth in national income. Since they cannot normally have adequate savings, there is a need to supplement savings of these countries from foreign savings. This can be done either through external borrowings or through permitting and encouraging Foreign Direct Investment. Foreign Direct Investment is an effective source of this additional capital and comes with its own risks.

FDI removes Balance of Payments Constraint: FDI provides inflow of foreign exchange resource and removes the constraints on balance of payment. It can be seen that a large number of developing countries suffer from balance of payments deficits for their demand for foreign exchange which is normally far in excess of their ability to earn. FDI inflows by providing foreign exchange resources remove the constraint of developing countries seeking higher growth rates.FDI has a distinct advantage over the external borrowings considered from the balance of payments point of view. Loan creates fixed liability. The governments or corporations have to repay. The resulting international debt of the government and the corporation parts a fixed liability on balance of payments. This means that they have to repay loans along with interest over a specific period. In the context of FDI this fixed liability is not there. The foreign investor is expected to generate adequate resources to finance outflows on account of the activity generated by the FDI. The foreign investor will also bear the risk.

FDI brings Technology, Management and Marketing Skills: FDI brings along with it assets which are crucially either missing or scarce in developing countries. These assets are technology and management and marketing skills without which development cannot take place. This is the most important advantage of FDI. This advantage is more important than bringing capital, which perhaps can be had from the international capital markets and the governments.

FDI promotes Exports of Host Developing Country: Foreign direct investment promotes exports. Foreign enterprises with their global network of marketing, possessing marketing information are in a unique position to exploit these strengths to promote the exports of developing countries.

FDI provides Increased Employment: Foreign enterprises by employing the nationals of developing countries provide employment. In the absence of this investment, these employment opportunities would not have been available to many developing countries. Further, these employment opportunities are expected to be in relatively higher skill areas. FDI not only creates direct employment opportunities but also through backward and forward linkages, it is able generate indirect employment opportunities as well.

FDI results in Higher Wages: FDI also promotes higher wages. Relatively higher skilled jobs would receive higher wages. FDI generates Competitive Environment in Host Country: Entry of foreign enterprises in domestic market creates a competitive environment compelling national enterprises to compete with the foreign enterprises operating in the domestic market. This leads to higher efficiency and better products and services. The Consumer may have a wider choice.

CHARACTERISTICS OF FDI: 1. In all such transactions there is a basic intention to participate in the management of the target company. 2. In most cases it involves a long term commitment, that is, there is no intention to seek quick capital gains. 3. By convention an investment is considered as FDI when it involves acquisition of a minimum of 10% of the paid up equity of the target company.

4. Generally all such investments are accompanied by technology transfers and access to newer markets therefore the partnership involves access to raw materials for the foreign entity and access to technology for the target company. 5. Such investments involve creation of physical assets which generally increase the productive capacity of the target company. This generates employment and consequently economic growth in the host country. 6. Investment by the foreign entity may involve fresh issue of capital or sale of shares held by promoters in the target company. Therefore such transactions are essentially primary market operations. In most cases there would be an effect on the balance sheet of the company.

FEATURES OF FOREIGN DIRECT INVESTMENT POLICY IN INDIA:

(1) FDI up to 100 per cent is allowed under the automatic route in all activities/sectors except the following, which will require approval of the Government: (a) Activities/items that require an Industrial License; (b) Proposals in which the foreign collaborator has a previous/existing venture/tie up in India in the same or allied field. (c) All proposals relating to acquisition of shares in an existing Indian company by a foreign/NRI investor. (d) All proposals falling outside notified sector policy/caps or under sectors in which FDI is not permitted.

(2) FDI in areas of special economic activity: (a) Special Economic Zones: 100 per cent FDI is permitted under automatic route for setting up of Special Economic Zone. Units in SEZ qualify for approval through automatic route subject to sector norms. Details about the type of activities permitted are available in the Foreign Trade Policy issued by the Department of Commerce. Proposals not covered under the automatic route require approval by FIPB.

(b) Export Oriented Units (EOUs): 100 per cent FDI is permitted under automatic route for setting up 100 per cent EOU, subject to sector norms. Proposals, which are not covered under the automatic route would be considered and approved by FIPB.

(c) Industrial Park: 100 per cent FDI is permitted under automatic route for setting up of the Industrial Park. Electronic Hardware Technology Park (EHTP) Units All proposals for FDI/NRI investment in EHTP Units are eligible for approval under the automatic route subject to the parameters listed. For proposals not covered under automatic route, the applicant should seek separate approval of the FIPB, as per the procedure outlined in the policy.

TYPE OF FOREIGN DIRECT INVESTMENT:

Horizontal FDI

Conglomerate FDI

Vertical FDI

Types of foreign direct investment

Greenfield Entry

Foreign takeover

 Horizontal FDI:

It is the investment done by a company or organization which practices all the tasks and activities done at the investing company, back at its own country of operation. Therefore, basically such investors are from the same industry where investments are done but operating in two different countries. For e.g., a car manufacture in Australia invests in a car manufacturing company of India.  Vertical FDI:

The industry of the investor and the company where investments are done are related to each other. This type of FDI is further classified as: Forward Vertical FDI: In such investments, foreign investments are done in organizations which can take the products forward towards the customers. For e.g., a car manufacturing company in Australia invests in a wholesale Car Dealer company in India. Backward Vertical FDI: In such investments, foreign investments are done in an organization which is involved in sourcing of products for the particular industry. For e.g., the car manufacturer of Australia invests in a tyre manufacturing plant in India.  Conglomerate FDI:

Such investments are done to gain control in unrelated business segments and industries in a foreign land. For e.g., the car manufacturer of Australia invests in a consumer durable good manufacturer in India. Here the investing company ideally manages two challenges, first being gaining operational control in a foreign land, and the second being starting operations in a new industry segment.  Greenfield Entry:

In this special type of FDI, the investing company refers to an investing organization starting assembling from scratch just like Honda did in United Kingdom  Foreign Takeover:

This type of FDI takes the form of a foreign merger, acquisition or takeover of an existing foreign company.

FDI A FINANCIAL RESOURCE FOR THE ECONOMIC DEVELOPMENT Apart from being a critical driver of economic growth, foreign direct investment (FDI) is a major source of non-debt financial resource for the economic development of India. Foreign companies invest in India to take advantage of relatively lower wages, special investment privileges such as tax exemptions, etc. For a country where foreign investments are being made, it also means achieving technical know-how and generating employment. The Indian government’s favourable policy regime and robust business environment have ensured that foreign capital keeps flowing into the country. The government has taken many initiatives in recent years such as relaxing FDI norms across sectors such as defence, PSU oil refineries, telecom, power exchanges, and stock exchanges, among others. The economic development in India followed socialist-inspired politicians for most of its independent history, including state-ownership of many sectors; India's per capita income increased at only around 1% annualized rate in the three decades after its independence. Since the mid-1980s, India has slowly opened up its markets through economic liberalization. After more fundamental reforms since 1991 and their renewal in the 2000s, India has progressed towards a free market economy.

In the late 2000s, India's growth reached 7.5%, which will double the average income in a decade. Analysts say that if India pushed more fundamental market reforms, it could sustain the rate and even reach the government's 2011 target of 10%.States have large responsibilities over their economies. The average annual growth rates (2007-12) for Uttarakhand (13.66%), Bihar (10.15%) or Jharkhand (9.85%) were higher than for West Bengal (6.24%), Maharashtra (7.84%), Odisha (7.05%), Punjab (6.85%) or Assam (5.88%).India is the seventh-largest economy in the world and the third largest by purchasing power parity adjusted exchange rates (PPP). On per capita basis, it ranks 140th in the world or 129th by PPP.

The economic growth has been driven by the expansion of services that have been growing consistently faster than other sectors. It is argued that the pattern of Indian development has been a specific one and that the country may be able to skip the intermediate industrialisation-led phase in the transformation of its economic structure. Serious concerns have been raised about the jobless nature of the economic growth. Favourable macroeconomic performance has been a necessary but not sufficient condition for the significant reduction of poverty amongst the Indian population. The rate of poverty decline has not been higher in the post-reform period (since 1991) [citation needed]. The improvements in some other noneconomic dimensions of social development have been even less favourable. The most pronounced example is an exceptionally high and persistent level of child malnutrition (46% in 2005–6).The progress of economic reforms in India is followed closely. The World Bank suggests that the most important priorities are public sector reform, infrastructure, agricultural and rural development, removal of labour regulations, reforms in lagging states, and HIV/AIDS For 2016, India ranked 130th in Ease of Doing Business Index, which is setback as compared with China 84th,Russia 51st and Brazil 116th.

According to Index of Economic Freedom World Ranking an annual survey on economic freedom of the nations, India ranks 123rd as compared with China and Russia which ranks 138th and 144th respectively in 2014. At the turn of the century India's GDP was at around US$480 billion. As economic reforms picked up pace, India's GDP grew five-fold to reach US$2.2 trillion in 2015 (as per IMF estimates).India's GDP growth during January–March period of 2015 was at 7.5% compared to China's 7%, making it the fastest growing economy. During 2014–15, India's GDP growth recovered marginally to 7.3% from 6.9% in the previous fiscal. During 2014–15, India's services sector grew by 10.1%, manufacturing sector by 7.1% & agriculture by 0.2%. The Indian government has forecast a growth of 8.1–8.5% during 2015–16.

Chapter 2:- RESEARCH AND METHODOLOGY Research Methodology is a way to find out the result of a given problem on a specific matter or problem that is also referred as research problem. In Methodology, researcher uses different criteria for solving/searching the given research problem. Different sources use different type of methods for solving the problem. If we think about the word “Methodology”, it is the way of searching or solving the research problem. This chapter contains conceptual model, research hypotheses, research methodology, methodology used in the research. Conceptual model will also be used to undertake for analysis of study. In last research methodology will be offered so that set objectives can be attained successfully.

Methodological Framework FDI IN IMPACT OF FDI IN AN INDAIN ECONOMY Positive relationship exists between the inflows of FDI and the size of the host market in terms of GDP or GNP Primary Data Questionnaire Secondary Data Journals, Articles, Internet, Text books & magazine Analysis of Data Table, charts &Graphs Chi square test applied C FDI Positively impact on Indian Economy Research Methodology (Exploratory Research). India is without doubt a 'growth' economy and many consider it an attractive country to invest in, particularly in its rapidly growing and changing retail market. However, Foreign Direct Investment (FDI) is restricted in the retail sector, and despite many years of debate, the regulations are still only changing very slowly and there are still lots of uncertainties. Foreign Investors are watching India, ready for a piece of the action in the retail market, but there are still plenty of uncertainties, restrictions and potential socioeconomic risks. This division of the retail sector, which has a very heavy weighting towards, unorganized, is just one of the issues contributing to the sensitive debate on FDI in India at the moment.

What are the potential risks to the unorganized retail sector, and of course to the wider Indian economy? There are several groups who are strongly opposed to FDI in the Indian retail sector, but are their concerns unfounded? Equally, could FDI in retail be a disaster for the sector and the Indian economy? What reforms are necessary, if any, to protect the subcontinent's domestic retail sector and national interests? Thus, retailing can be said to be the interface between the producer and the individual consumer buying for personal consumption. This excludes direct interface between the manufacturer and institutional buyers such as the government and other bulk customers retailing is the last link that connects the individual consumer with the manufacturing and distribution chain. A retailer is involved in the act of selling goods to the individual consumer at a margin of profit. With this keeping in mind, the following objectives are formulated.

MAIN OBJECTIVE OF RESEARCH WORK The Government of India was initially very apprehensive of the introduction of the Foreign Direct Investment in the Retail Sector in India. The unorganized retail sector as has been mentioned earlier occupies 98% of the retail sector and the rest 2%. Hence one reason why the government feared the surge of the Foreign Direct Investments in India was the displacement of labour. The unorganized retail sector contributes about 14% to the GDP and absorbs about 7% of our labour force. Hence the issue of displacement of labour consequent to FDI is of primal importance.

There are different viewpoints on the impact of FDI in the retail sector in India, According to one viewpoint, the US evidence is empirical proof to the fact that FDI in the retail sector does not lead to any collapse in the existing employment opportunities. There are divergent views as well. According to the UK Competition Commission, there was mass scale job loss with entry of the hypermarkets brought about by FDI in the UK retail market. India being a signatory to World Trade Organization’s General Agreement on Trade in Services, which include wholesale and retailing services, had to open up the retail trade sector to foreign investment. There were initial reservations towards opening up of retail sector arising from fear of job losses, procurement from international market, competition and loss of entrepreneurial opportunities. However, the government in a series of moves has opened up the retail sector slowly to Foreign Direct Investment (FDI). In 1997, FDI in cash and carry (wholesale) with 100 percent ownership was allowed under the Government approval route. It was brought under the automatic route in 2006. 51 percent investment in a single brand retail outlet was also permitted in 2006. FDI in Multi-Brand retailing is prohibited in India.

THE IMPORTANCE OF FDI Foreign direct investment (FDI) is recognized as a powerful engine for economic growth. It enables capital-poor countries to build up physical capital, create employment opportunities, develop productive capacity, enhance skills of local labour through transfer of technology and managerial know-how, and help integrate the domestic economy with the global economy Foreign direct investment (FDI) is recognized as a powerful engine for economic growth. It enables capital-poor countries to build up physical capital, create employment opportunities, develop productive capacity, enhance skills of local labour through transfer of technology and managerial know-how, and help integrate the domestic economy with the global economy Foreign direct investment (FDI) is recognized as a powerful engine for economic growth. It enables capital-poor countries to build up physical capital, create employment opportunities, develop productive capacity, enhance skills of local labor through transfer of technology and managerial know-how, and help integrate the domestic economy with the global economy. International investment levels have exploded in recent decades thanks to the financial liberalization across the world. Technological inventions which made doing business easier abroad, the lure of profits and countries increasingly embracing free market economies model also contributed to these increases in the flows of foreign investment in the era of globalization. Proponents say FDI has an important effect on economic growth of the third world countries by creating a bridge between the gap of domestic savings and investment, and in the introduction and familiarization of modern technology and management skills from developed countries. Studies have revealed that FDI can also help generate domestic investment in matching funds, facilitate transfer of managerial skills and technological knowledge, increase local market competition, create modern job opportunities and increase global market access for export commodities. Inward FDI not only serves the long-term financial interests of foreign investors, it can also play a significant role in the growth dynamics of host countries. Since the last decade, there has been a considerable change in global flows of trade and finance including a surge in FDI. Despite being a recent phenomenon, several underlying factors have contributed to increasing the FDI inflow in Bangladesh, namely trade and exchange liberalization, current account convertibility, emphasis on private sector led development, liberalization of the investment regime, opening up of infrastructure and services to the private sector - both domestic and foreign, and above all the interest of foreign investors in the energy and telecommunication sector.

Inflows of FDI into Bangladesh rose by 24 percent year-on-year to USD 1.6 billion in 2013, according to the United Nations Conference on Trade and Development, although the country witnessed serious political unrest and an anti-business climate during the period. Although the flow to FDI to Bangladesh has gone up substantially in recent years, the country's share is negligible if the foreign money which flowed into Asia in the same year is taken into account: in 2013, FDI inflow to Asia was USD 426 billion, 30 percent of the global share. But Bangladesh can woo in more FDI as the country is always grouped among a set of countries that have the potential to become a destination for investors who are trying to find an alternative to China. Bangladesh need not go too far to see its potential: Myanmar, which has seen stable economic growth in recent years, has become a hot investment destination, having absorbed foreign direct investment of USD 45.2 billion as of January 2014. More than USD 2 billion in foreign investment entered Myanmar alone in December 2014. Foreign investment has increased in the neighbouring country since the government allowed investors to rent privately owned land instead of just government-owned land, permitted them to operate independent foreign investment firms without local partners and eased the process of transferring foreign currency for investment. International investors are rushing to Myanmar not only for exploring opportunities within the country, but also in the increasingly integrating ASEAN region, a market with a population of 600 million and annual economic output reaching USD 3 trillion. The same is also true of Bangladesh. The country's position, both geographically and in respect of its business culture, puts it at the centre of a diverse collection of markets and sectors. Its open market and diversified economy present opportunities for new investors to access a domestic market and to use the location as a gateway to the rest of the world. It offers the most liberal investment climate in South Asia. The Foreign Private Investment (Promotion and Protection) Act, 1980, which deals with promotion and protection of investment in Bangladesh, ensures equal treatment for local and foreign investors. Bangladesh is historically recognized as a well-established and reputable jurisdiction in which to conduct business. Custom regulations are investment friendly without discrimination between foreign and domestic investors, and attractive incentive packages are available for the foreign investors. The country offers a competitive location for doing business in terms of costs, inputs, human resources, market access and facilitation. Investing in the chosen sector will yield higher returns than most other competing locations, with lesser risks. Bangladesh owns a trainable, enthusiastic, hard-working and low-cost (even by regional standards) labor force suitable for any labor intensive industry.

Besides, it has one of the largest treaty networks among the Asia Pacific countries and has 30 Double Taxation Avoidance Agreements or tax treaties with almost all major nations. According to a study of the Japan External Trade Organization (JETRO), Bangladesh is the most cost-comparative advantageous country for operating business. Despite this advantageous situation, per capita FDI is one of the lowest in the world here. But Bangladesh needs foreign funds dearly, as its tax-GDP ratio has remained stagnant at 11 percent for many years. Bangladesh's economy needs to grow at 7-8 percent in the next one to become a middle income nation and cut the poverty rate in the process. A growth rate of seven percent would require an investmentGDP ratio of more than 30 percent as opposed to the current level of 27 percent. Bangladesh needs to undertake effective promotion measures to convince the potential foreign investors that their involvement in business activities in the country is valued, they would be facing friendly regulations, and they can enjoy investment incentives that are competitive with those offered by other countries in the region and the developing world. The country also needs to move forward through implementing investment-friendly policies, simplifying regulatory practices, and removing inefficient bureaucratic procedures. Bangladesh slipped to number 173 among 189 nations on the Doing Business list 2014 of the World Bank, down from rank 170 a year ago because of slow pace of economic reforms. Bureaucratic control and interference in business and investment activities should be minimized on a priority basis. The law and order situation needs to be improved. Both the government and private sector need to come forward to invest in infrastructure development. Despite recent improvements, the efficiency of port services can be further improved and the custom clearance procedures can be further simplified. Land is one area that constrains the flow of FDI to Bangladesh. The country does not have enough industrial land. In this case, the government can free up closed-down and non-functioning state-run enterprises and give the land to foreign investors by declaring them as special economic zones. Foreign investors will be particularly interested about those establishments as they are ready to use and already have gas and electricity connections, and some of them are located on the banks of rivers. Strengthening economic and commercial diplomacy is a key factor in attracting FDI in the present world characterized by rapid globalization and increasing competition. Moreover, it is important not only to improve relations with countries that have already invested in Bangladesh, but also to identify potential investors in other countries and undertake appropriate measures to attract them to invest in the country.

SCOPE AND DEVELOPMENT OF FOREIGN DIRECT INVESTMENT The economic reawakening in the 90’s has sought to put the country on a firm growth path the inward looking development strategy followed hither with extensive government intervention helped the country to overcome the massive illiteracy and poverty that prevailed before independence but this also isolated the control from the rest of the world in terms of trade, technology and productivity with adverse implications for growth. The snowballing effects of the structural weaknesses in macroeconomic policies on current account and fiscal balances culminated in the 1990-91 crisis. To some extent the balance of payment crisis was diffused by short terms measure such as correcting the exchange rate and liberalising investment and trade regimes, with immediate result too. Foreign investment is considered as one of the very important source of capital scarce developing countries like India. It is the flow of foreign capital in the economy and has important implication for the economy. International capital flows have been marked by sharp expansion in net and gross capital flows and a substantial increase in the participation of foreign institutions in th3e financial markets of developing countries (World Bank 1997). The capital flows are generally welcome in the developing economy. They leads to the appreciation of real exchange rate also gives upward thrust to the economy. They ease the external constraints and help to achieve higher investment and growth of economy. Such flows also serve as vehicles for transfer of technology and management skills. The capital inflows may be in the form of foreign portfolio investment and foreign direct investment. Foreign portfolio investment is the important form of foreign investment. The fastest growing component has been the portfolio investment in a form of bond and portfolio equity flows. Portfolio flows accounted for 32% of net development financing to developing countries during 1993-96 as against 11% during 1989-92. It comprises both debt and equity components. The debt portion includes mainly the bonds, certificate of deposits and commercial papers issued by developing country borrowers in international markets. The equity Components of investment is through emerging market mutual fund, country fund and direct purchase of foreigners of equity in developing country stock market through foreign institutional investors. The latter Component represents the most dynamic and growing segment of portfolio equity investment. Foreign portfolio investment can be made through foreign institutional investment, global depository ratio and euro equity. Foreign institutional investor includes institutions such as pension funds, investment trust, asset management companies, nominee companies and incorporated institutional portfolio managers. The securities include shares, debentures, warrants and the schemes floated by domestic mutual fund.

The most important benefit from foreign portfolio investment is that it gives an upward thrust to the domestic stock exchange prices. This has an impact on the price ratios earning of the firm. A higher price earning ratio leads to lower cost of finance, which in turns lead to a higher amount of investment. The lower cost of capital and a booming share market can encourage new equity issue. Foreign institutional investor also has the virtue of stimulating the development of the domestic stock market. The catalyst for this development in competition from foreign financial institutions. The competition necessitates the importation of more sophisticated financial technology, adaption of technology to local environment and greater investment in information processing and financial services. The results are greater efficiencies in allocating capital, risk sharing and monitoring the issue of capital. This enhancement of efficiency due to internationalization makes the market more liquid, which leads to a lower cost of capital. The cost of foreign capital also tend to be lower because the foreign portfolio investment can be more diversified across the national boundaries and therefore be more efficient in reducing country specific risks, resulting in lower risk premium. The recent experience of some developing countries shows that huge capital inflows have created peculiar problems. Firstly they may be of a short term duration which could leads to instability in inflation rate and instability in balance of payment. Sudden deterioration in any country’s political environment and changes in tax rate on the returns from these inflows may also create a situation where foreign investor may sell the domestic stocks held by them and take their money out of the country. All this can effects the stock prices of host country, on the other hand, if the conditions are favourable and portfolio investment continue to come in heavily, this may lead to an increase in stock prices, fall in domestic interest rates and cause exchange rate to appreciate up to a point where expected depreciation compensates foreign investors for the lower expected return they may demand. The second form of foreign investment is foreign direct investment. FDI is particularly attractive channel for the less developed countries because to them it transfers not only capital but also some scarce managerial, technical and marketing skills which cannot be supplied through aid mechanism of foreign trade. Foreign direct investment is the control of a company in one country by an individual or organization of another country. Foreign direct investment of a particular country includes the share of investment of the particular country in all those foreign business enterprises in which that country’s resident, person, organization or affiliated group owns as 25% either in stock of a foreign corporation or an equivalent ownership in non-incorporated foreign enterprises.

Inflows in the form of direct foreign investment are generally considered more permanent in character. They also have an immediate favourable impact on the real sector of the economy including investment and output even though not all foreign direct investment result directly an increase in capital formation. FDI flows into developing countries are now running at $100 billion a year, compared with under $20 billion in the early 1980s, mainly into china and the countries of south-east Asia. FDI raise the investment ratio above the domestic savings ratio, which is good for growth if nothing adverse happens to the productivity of an investment. The investment brings with itself the knowledge, technology and management skills, which can have positive externalities on the rest of the economy. Foreign investment can often be a catalyst for domestic investment in the same or related fields. It requires that training of labour, which is another positive externality. Finally, a great deal of FDI goes into the tradable goods sector of the recipient countries which improves the export performance of these countries and earns them valuable foreign exchange. MNC’s locate in urban areas. They widen the income gap between the urban and rural sectors, thus perpetuating dualism. They encourage and manipulate consumption. They may introduce inappropriate technology and retard the development of an indigenous capital goods industry. FDI has the potential disadvantage even compared with loan finance, that there may be an outflow of profits and lasts much longer than the outflow of debt-service payments on a loan of equivalent amount. While a loan only creates obligation for a definite number of years, FDI may involves an unending commitment. This has serious implications for the balance of payment and for domestic resource utilization of foreign exchange is a scarce resource. The cost of foreign investors may also manifest in the form of refusal of foreign firms to transfer latest technology and the refusal to train local manpower. They might realize excessive profits due to higher prices as a result of tariff protection and might refuse to reinvest them in less developed countries thus draining of the national reserves. The host country might even feel balance of payment pressure if there is a significant difference in inflows and outflows of funds.

If you are planning to engage in this kind of venture, you should determine first if it provides you and the society with maximum benefits. One good way to do this is evaluating its ADVANTAGES and DISADVANTAGES

FOREIGN DIRECT INVESTMENT

ADVANTAGES

DISADVANTAGES

Economic development stimulation

Risk from political changes

Easy international trade

Negative influence on exchange rate

Employment & economic boost

High cost

Tax incentives

Economic non-viability

Resource transfer

Expropriation

Increased productivity

Negative impact on country’s investment

Increment in income

Weak capital market

More advance technology

Subsidies

Positive effect on local stock markets

High profit repatriations

ADVANTAGES OF FOREIGN DIRECT INVESTMENT

1. Economic Development Stimulation Foreign direct investment can stimulate the target country’s economic development, creating a more conducive environment for you as the investor and benefits for the local industry.

2. Easy International Trade Commonly, a country has its own import tariff, and this is one of the reasons why trading with it is quite difficult. Also, there are industries that usually require their presence in the international markets to ensure their sales and goals will be completely met. With FDI, all these will be made easier.

3. Employment and Economic Boost Foreign direct investment creates new jobs, as investors build new companies in the target country, create new opportunities. This leads to an increase in income and more buying power to the people, which in turn leads to an economic boost.

4. Development of Human Capital Resources One big advantage brought about by FDI is the development of human capital resources, which is also often understated as it is not immediately apparent. Human capital is the competence and knowledge of those able to perform labour, more known to us as the workforce. The attributes gained by training and sharing experience would increase the education and overall human capital of a country. Its resource is not a tangible asset that is owned by companies, but instead something that is on loan. With this in mind, a country with FDI can benefit greatly by developing its human resources while maintaining ownership.

5. Tax Incentives Parent enterprises would also provide foreign direct investment to get additional expertise, technology and products. As the foreign investor, you can receive tax incentives that will be highly useful in your selected field of business.

6. Resource Transfer Foreign direct investment will allow resource transfer and other exchanges of knowledge, where various countries are given access to new technologies and skills.

7. Reduced Disparity Between Revenues and Costs. Foreign direct investment can reduce the disparity between revenues and costs. With such, countries will be able to make sure that production costs will be the same and can be sold easily.

8. Increased Productivity. The facilities and equipment provided by foreign investors can increase a workforce’s productivity in the target country.

9. Increment in Income. Another big advantage of foreign direct investment is the increase of the target country’s income. With more jobs and higher wages, the national income normally increases. As a result, economic growth is spurred. Take note that larger corporations would usually offer higher salary levels than what you would normally find in the target country, which can lead to increment in income.

10. Improved management techniques FDI along with the foreign capital brings in improved management techniques from advanced countries into the developing countries.

11. More advanced technologies FDI along with the foreign capital brings in more advanced technologies from the advanced countries into the developing countries.

12. Easier access to international financial markets FDI result in an easier access to the low cost finance from the international financial markets.

13. Relatively stable long-term commitment FDI’s is a relatively stable long-term commitment rather than FII’s which are speculative in nature.

14. Provision of additional capital FDI result in provision of the additional capital in the domestic economy and thereby it helps to overcome the “Investment-saving” gap in a developing nation.

DISADVANTAGES OF FOREIGN DIRECT INVESTMENT

1. Hindrance to Domestic Investment. As it focuses its resources elsewhere other than the investor’s home country, foreign direct investment can sometimes hinder domestic investment.

2. Risk from Political Changes. Because political issues in other countries can instantly change, foreign direct investment is very risky. Plus, most of the risk factors that you are going to experience are extremely high.

3. Negative Influence on Exchange Rates. Foreign direct investments can occasionally affect exchange rates to the advantage of one country and the detriment of another.

4. Higher Costs. If you invest in some foreign countries, you might notice that it is more expensive than when you export goods. So, it is very imperative to prepare sufficient money to set up your operations.

5. Economic Non-Viability. Considering that foreign direct investments may be capital-intensive from the point of view of the investor, it can sometimes be very risky or economically non-viable.

6. Expropriation. Remember that political changes can also lead to expropriation, which is a scenario where the government will have control over your property and assets.

7. Negative Impact on the Country’s Investment. The rules that govern foreign exchange rates and direct investments might negatively have an impact on the investing country. Investment may be banned in some foreign markets, which means that it is impossible to pursue an inviting opportunity.

8. Modern-Day Economic Colonialism. Many third-world countries, or at least those with history of colonialism, worry that foreign direct investment would result in some kind of modern day economic colonialism, which exposes host countries and leave them vulnerable to foreign companies’ exploitations.

9. Higher share in countries with weak institutions and high risk FDI claims a higher share in countries with weak institutions and which possess high risks both to the FDI investors as well as the domestic economy.

10. Weak capital markets FDI beings non-speculative investment it results in weak capital markets. The substitute is missing or it results in incomplete markets.

11. Subsidies Due to subsidies granted to FDI investors the expected contribution on growth may be partly or completely lost.

12. Economy Due to FDI inflows the competitive structure of the economy may get worsened and result in monopoly in the long run. 13. No “Trickle-down” effect of technology The technology brought in due to FDI will not have any “Trickle-down” effect on the developing countries economy.

14. High profit Repatriations There is huge FOREX outflows rather than inflows due to high profit repatriations, technical fees to foreign consultants, royalty payments, salary to foreign staff, interest payments and loan payments.

Doubts regarding FDI a) It is said that the positive effects of FDI have been exaggerated. b) Does FDI create a long-term stability in the domestic economy in the developing nations. c) There is volatility of FDI by the FDI investors from one nation to another in search of higher returns. d) Unsustainable macro-economic policies in the long-run in favour of FDI investments.

FOREIGN DIRECT INVESTMENT POLICY FDI in India is allowed on automatic route in almost all sectors except: a) Proposals that require an industrial licence and cases where foreign investment is more than 24% in the equity capital of units manufacturing items reserved for the small scale industries. b) Proposals in which the foreign collaborator has a previous venture/tie-up in India. c) Proposals relating to acquisition on shares in an existing Indian company in favour of a foreign/Nonresident Indian/Overseas Corporate Body investor, and d) Proposals falling outside notified sector policy caps or under sectors in which FDI is not permitted and/or whenever any investor chooses to make an application to the foreign investment promotion board and not to avail of the automatic route. FDI up to 100% is allowed under the automatic route in all activities/sectors except the following which will require approval of the Government:

1) FDI policy: FDI policy’s reviewed on an ongoing basis and measures for its further liberalization are taken. Change in sector policy/sector equity cap is notified from time to time through press notes by the Secretariat for Industrial Assistance (SIA) in the department of industrial policy and promotion. Policy announcement by SIA are subsequently notified by RBI under FEMA. All press Notes are available at the website of Department of Industrial policy and promotion.

2) FDI policy permits: FDI up to 100% from foreign/NRI investor without prior approval in most of the sectors including services sector under automatic route. FDI in sector/activities under automatic route does not require any prior approval either by the Government or the RBI. The investors are required to notify the regional office concerned of RBI of receipt of inward remittances within 30 days of such receipt and will have to file the required documents with that office within 30 days after issue of shares to foreign investors.

3) Automatic route: All activities which are not covered under the automatic route, Prior government approval for FDI/NRI shall be necessary. Areas/sectors/activities hitherto not open to FDI/NRI investment shall continue to be so unless otherwise decided and notified by government. An investor can make an application for prior government approval even when the proposed activity is under the automatic route.

4) Procedure for obtaining government approval: The foreign investment promotion board considers approving all proposals for foreign investment, which requires government approval. The FIPB also grants composite approvals involving foreign investment/foreign technical collaboration. For seeking the approval for FDI other than NRI investments and 100% EOU applications in form FC-IL should be submitted to the Department of Economic Affairs (DEA), Ministry of finance.

5) FDI prohibited: FDI is not permissible in Gambling and Betting or lottery business, business of chit fund, NIDHI Company, housing and real estate business, trading in transferable development rights, atomic energy agricultural or plantation activities or agriculture and plantations.

6) General permission of RBI under FEMA: RBI has granted general permission under Foreign Exchange Management Act (FEMA) in respect of proposals approved by the government. Indian companies getting foreign investment approval through FIPB route do not require any further clearance from RBI for the purpose of receiving inward remittance and issue of shares to the foreign investors. The companies are, however, required to notify the regional office concerned of the RBI of receipt of inward remittances within 30 days of such receipt and to file the required documents with the concerned regional offices of the RBI within 30 days after issue of shares to the foreign investors or NRI’s.

7) FDI/NRI investment for existing companies with an expansion programme: Besides new companies, automatic route for FDI/NRI investment is also available to the existing companies proposing to induct foreign equity.

8) FDI investment for existing companies without an expansion programme: For existing companies without an expansion programme, the additional requirement for eligibility for automatic approval are: a) That they are engaged in the industries under automatic route; b) The increase in equity level must be from expansion of the equity c) The foreign equity must be in foreign currency

India announces new Foreign Direct Investment Policy, 2017 – 2018 The ability to attract large scale Foreign Direct Investment (FDI) into India has been a key driver for policy making by the Government. Prime Minister Modi seems to be going along the right track, with India receiving FDI inflows worth USD 60.1 billion in 2016-17, which was an all-time high. Hence, the FDI policy of India has always been closely watched and carefully amended over the years. On August 28th, 2017, the Department of Industrial Policy and Promotion (DIPP) had issued the updated and revised Foreign Direct Investment Policy, 2017 – 2018 (FDI Policy 2017). The FDI Policy 2017 incorporated various notifications issued by the Government of India over the past year. New Streamlined Procedure for Government Approval 

Abolition of the Foreign Investment Promotion Board (FIPB): The most significant amendment to the FDI regime has been the institutional change brought by notification dated June 5th, 2017 issued by the Department of Economic Affairs confirming the abolition of the FIPB (the erstwhile government body authorised to approve proposals for FDI requiring government approval); and the introduction of the ‘Foreign Investment Facilitation Portal’(FIFP), an administrative body to facilitate FDI applicants.

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Introduction of ‘Competent Authorities’: The FDI Policy 2017 defines and lists sector-specific administrative ministry / department as ‘Competent Authorities’ empowered to grant government approval for FDI. Competent Authorities listed in the FDI Policy 2017 include the DIPP in respect of applications for FDI in the Single Brand, Multi Brand and Food Product retail trading and the Department of Economic Affairs of India for FDI in the financial services sector.

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Introduction of ‘Standard Operating Procedure’ (SOP) to process FDI proposals: The DIPP had also issue the SOP which sets out a detailed procedure and timeline for applications as well as the list of ‘competent authorities’ for processing government approvals for FDI in India.

Under the SOP, investors are required to make an application on the website of the FIFP, supported by the specified documents which inter alia include relevant charter documents, board resolutions, etc. The application shall then be forwarded to the concerned ‘Competent Authority’ and the Reserve Bank of India (for comments from a foreign exchange law perspective) within 2 (two) days. Proposals requiring security clearance (in sectors such as defense and telecommunication) shall also be forwarded to the Ministry of Home Affairs. The Competent Authority shall process the complete proposal and convey the approval / rejection of such proposal to the applicant in the format prescribed under the SOP. Key provisions likely to benefit applicants with proposals for FDI: Consultation with the DIPP has been made strictly need based, leading to a more streamlined procedure and expeditious timeline (maximum time of 10 weeks) for approval. Moreover, the FDI Policy 2017 also states that the Competent Authority may only reject a proposal, or stipulate conditions in addition to those listed in the FDI Policy 2017 / applicable sector laws with the concurrence of the DIPP. An LLP, operating in sectors/activities where 100% FDI is allowed under the automatic route (without FDI-linked performance conditions), is permitted to convert into a company. Similarly, conversion of a company into an LLP is also now permitted under the automatic route.

Revisions to existing provisions of the FDI Policy of 2016 The FDI Policy 2017 also incorporates all Press Notes issued by the DIPP during the course of the year. Set out below are the sector-specific significant amendments brought about in the last year: 

Manufacturing: To further liberalize the manufacturing sector (which allowed 100% FDI under the automatic route), 100% FDI under government approval route was allowed for retail trading, including through e-commerce, in respect of food products manufactured and/or produced in India.

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Civil Aviation: The threshold for FDI in existing projects under the automatic route was increased from 74% to 100%.

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Single Brand Retailing: Sourcing norms applicable for FDI were relaxed and will not be applicable up to 3 (three) years from commencement of the business i.e. opening of the first store for entities undertaking single brand retail trading of products having ‘state-of-art’ and ‘cutting-edge’ technology and where local sourcing is not possible.

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Other Financial Services: The previously applicable capitalization norms for non-banking financial services companies were struck off, and all financial sector activities by entities already regulated by financial sector regulators fall under the 100% automatic route of investment, with applicability of sector laws.

Some Thoughts The changes in the FDI Policy 2017 display the efforts of the Indian Government to remove of multiple layers of bureaucracy, and to process proposals for FDI under the government approval route in a more streamlined, positive and expeditious manner. The Government has eased 87 FDI rules across 21 sectors in the last 3 years, opening up traditionally conservative sectors like rail infrastructure and defense. Even India’s agriculture sector has received FDI worth INR 515.49 crore in 2016-17. The FDI Policy 2017 for the first time makes specific reference to fund rising through convertible instruments by Start-ups, which should encourage fund raising by Indian Start-ups from FVCI’s and NonResidents. The definition of Start-ups as provided in the Policy is also proposed to be incorporated in the Patents Rules, 2017. The three year relaxation of the local sourcing norms in single brand retail should make it easier for the likes of iconic investors Apple and Tesla to open shop in India. But further details may be needed before the likes of such investors may commit to India. It is expected that the Government will continue to bring about liberalization of the FDI regime in India in the months to come. All in all, we intend to maintain our trajectory towards remaining the world’s most attractive destinations for foreign investment. Recent significant FDI announcements In February 2018, Ikea announced its plans to invest up to Rs 4,000 crore (US$ 612 million) in the state of Maharashtra to set up multi-format stores and experience centres. In November 2017, 39 MoUs were signed for investment of Rs 4,000-5,000 crore (US$ 612-765 million) in the state of North-East region of India. In December 2017, the Department of Industrial Policy and Promotion (DIPP) approved FDI proposals of Damro Furniture and Super Infotech Solutions in retail sector, while Department of Economic Affairs, Ministry of Finance approved two FDI proposals worth Rs 532 crore (US$ 81.4 million). The Department of Economic Affairs, Government of India, closed three foreign direct investment (FDI) proposals leading to a total foreign investment worth Rs 24.56 crore (US$ 3.80 million) in October 2017. Singapore's Temasek will acquire a 16 per cent stake worth Rs 1,000 crore (US$ 156.16 million) in Bengaluru based private healthcare network Manipal Hospitals which runs a hospital chain of around 5,000

beds. France-based energy firm, Engie SA and Dubai-based private equity (PE) firm Abraaj Group have entered into a partnership for setting up a wind power platform in India. US-based footwear company, Skechers, is planning to add 400-500 more exclusive outlets in India over the next five years and also to launch its apparel and accessories collection in India. The government has approved five Foreign Direct Investment (FDI) proposals from Oppo Mobiles India, Louis Vuitton Malletier, Chumbak Design, Daniel Wellington AB and Actoserba Active Wholesale Pvt Ltd, according to Department of Industrial Policy and Promotion (DIPP). Cumulative equity foreign direct investment (FDI) inflows in India increased 40 per cent to reach US$ 114.4 billion between FY 2015-16 and FY 2016-17, as against US$ 81.8 billion between FY 2011-12 and FY 2013-14. Walmart India Pvt Ltd, the Indian arm of the largest global retailer, is planning to set up 30 new stores in India over the coming three years. US-based ecommerce giant, Amazon, has invested about US$ 1 billion in its Indian arm so far in 2017, taking its total investment in its business in India to US$ 2.7 billion. Kathmandu based conglomerate, CG Group is looking to invest Rs 1,000 crore (US$ 155.97 million) in India by 2020 in its food and beverage business, stated Mr Varun Choudhary, Executive Director, CG Corp Global. International Finance Corporation (IFC), the investment arm of the World Bank Group, is planning to invest about US$ 6 billion through 2022 in several sustainable and renewable energy programmes in India. SAIC Motor Corporation is planning to enter India’s automobile market and begin operations in 2019 by setting up a fully-owned car manufacturing facility in India. Soft Bank is planning to invest its new US$ 100 billion technology fund in market leaders in each market segment in India as it is seeks to begin its third round of investments. In September 2017, the Government of India asked the states to focus on strengthening single window clearance system for fast-tracking approval processes, in order to increase Japanese investments in India. The Ministry of Commerce and Industry, Government of India has eased the approval mechanism for foreign direct investment (FDI) proposals by doing away with the approval of Department of Revenue and mandating clearance of all proposals requiring approval within 10 weeks after the receipt of application. India and Japan have joined hands for infrastructure development in India's north-eastern states and are also setting up an India-Japan Coordination Forum for Development of North East to undertake strategic infrastructure projects in the northeast. The Government of India is in talks with stakeholders to further ease foreign direct investment (FDI) in defense under the automatic route to 51 per cent from the current 49 per cent, in order to give a boost to the Make in India initiative and to generate employment. In January 2018, 100 per cent FDI was allowed in single brand retail through automatic route along with relaxations in rules in other areas. The Central Board of Direct Taxes (CBDT) has exempted employee stock options (ESOPs), foreign direct investment (FDI) and court-approved transactions from the long term capital gains (LTCG) tax, under the Finance Act 2017. Government of India is likely to allow 100 per cent foreign direct investment (FDI) in cash and ATM management companies, since they are not required to comply with the Private Securities Agencies Regulations Act (PSARA).

TRADE POLICY

India’s trade policy has been undergoing rapid and drastic changes since 1991. Some of these changes are the result of economic reforms initiated by the Government while some others are also influenced by the requirements of the World Bank and the IMF from whom India has received structural adjustment loans. The most important element of the new policy is the increasing use of exchange rate. Rupee was adjusted downwards by 18 per cent in July 1991 to make the rupee’s external value more realistic. Simultaneously, the system of cash compensatory support which has so far been the most important instrument of export promotion was abolished. These steps were supposed to improve export incentives and make them uniform. Few months later, in March, 1992, Rupee was made partly convertible, under a system known as Liberalised exchange Rate Management System (LERMS). In March 1993, the rupee was made fully convertible on trade account. The Government of India outlined the policy framework for a broad-based, rapid and sustained growth of exports in the next four years. 1. Reduction in domestic excess demand: The balance of payments deficit represents the excess of domestic demand for goods and services over domestic supply. In order to correct it domestic demand will have to be restrained and supply increased. It will be necessary to restrain the degree of excess spending by the Government to correct the balance of payments. At the same time, it will be necessary to ensure that any reduction in aggregate demand is brought about without hurting production and that it is shared demand is brought about without hurting production and that it is shared equitably by different sections of the population. 2. Enhanced Competitiveness: By mid-1991, domestic prices had become seriously misaligned with international prices. This required two changes. A change in the exchange rate of the Rupee was made by means of a downward adjustment of about 18 per cent in the external value of the Rupee in July 1991. The second step would require a phasing down of import restrictions and a reduction in these high levels of protection which characterize Indian industries. Progress in this regard is at present constrained by the grave balances of payments position as well as by the importance of import duties as a source of government revenue; however, it will be necessary to bring down trade restrictions as payments and fiscal conditions permit. 3. Deregulation: One of the obstacles to exports lies in the cumbersome administrative procedures involved, arising from controls over imports (and on inputs required for exports) and exports, exchange control and also customs procedures. Simplification of trade-related produces must continue; the aim should be to make international trade as easy as domestic trade in respect of procedures. 4. Capability for self-improvement: World markets are more competitive than some hitherto sheltered domestic markets. If agricultural and industrial products are to compete internationally, their producers will have to improve their own competitive position continuously through technological and managerial improvements and adapt themselves rapidly to changes in international market conditions. This capacity for unceasing adaptation and innovation would need to be developed.

INVESTMENTS/ DEVELOPMENTS

Some of the recent significant FDI announcements are as follows: BSH Home Appliances Group, one of the leading home appliances manufacturers worldwide, opened its first technology centre in India at Adugodi, Bengaluru, which will enable the company to further develop localised technologies for the Indian market. Ford Motor Co. plans to invest Rs 1,300 crore (US$ 189.2 million) to build a global technology and business centre in Chennai, which will be designed as a hub for product development, mobility solutions and business services for India and other markets. JW Marriott plans to have 175-200 hotels in India over the next four years. China based LCD and touch-screen panel manufacturer, Holitech Technology, plans to invest up to US$ 1 billion in India next year, as per the company’s CEO Mr Bingshuang Chen. Mr Abdul Lahir Hassan, Chairman of UAE-based Gamma Group, outlined plans of investing around Rs 3,000 crore (US$ 436.5 million) in the infrastructure, health and education sectors of Kerala, which is expected to generate around 2,000 indirect and direct jobs in the state. Mr Stephane Descarpentries, Director of operations FM Logistic Asia, outlined plans of investing around EUR 50 million (US$ 52.9 million) in India in the next four years, to contribute to a better efficiency of logistics market in the country. The first Incredible India Tourism Investment Summit 2016, which was organised from September 21-23, 2016, witnessed signing of 86 Memoranda of Understanding (MOUs) worth around Rs 15,000 crore (US$ 2.18 billion), for the development of tourism and hospitality projects. Apple Inc has started its first development centre outside the US in Hyderabad, which will employ over 4,000 people and focus on Apple Maps, the company’s digital maps and navigation service. Panasonic Corporation plans to set up a new manufacturing plant for refrigerators in India with an investment of Rs 250 crore (US$ 36.4 million), and also invest around Rs 20 crore (US$ 3 million) on an assembly unit for lithium ion batteries at its existing facility in Jhajjar in the next 8-10 months. Vistra Group Ltd, a Hong Kong-based professional services provider, has acquired IL&FS Trust Company Ltd, India’s largest independent corporate trust services provider, which will enable Vistra to expand the platform to provide a broader suite of corporate and fiduciary services and thereby gain a foothold in the Indian corporate services market. Silver Spring Capital Management, a Hong Kong-based equity hedge fund, plans to invest over 2,000 crore (US$ 291.0 million) in Hyderabad-based infrastructure developer Transstroy India Ltd, for construction of highways in the country. Global beverage company Pepsi plans to invest Rs 500 crore (US$ 72.8 million) to set up another unit in Maharashtra to make mango, pomegranate and orange-based citrus juices, while biotechnology giant Monsanto plans to set up a seed plant in Buldhana district of Maharashtra. India has become the fastest growing investment region for foreign investors in 2016, led by an increase in investments in real estate and infrastructure sectors from Canada, according to a report by KPMG.

Chapter 3:- Literature review It is well known that an abundance of FDI in a country generates economic growth (Kurtishi-Kastrati 2013). There are many benefits associated with FDI, including environmental and social improvement, knowledge transfer, employment opportunities, new technologies, and innovations (De Mello 1997; Basu and Guariglia 2007; Kurtishi-Kastrati 2013), and the generation of state budget income (Nistor and Păun 2013). Even these benefits differ from one country to another based on their ability to attract FDI, and it is very important for all countries to see FDI as a source of economic development and modernization.

Int. J. Financial Stud. 2018, 6, 55 4 of 13Considerable expansion in both foreign capital inflows (i.e., FDI inflows and foreign portfolio investments) and financial sectors have led researchers to discover possible macroeconomic effects of foreign capital inflows and financial development.

Empirical studies have generally focused on the FDI and portfolio inflow–growth nexus and the financial development–growth nexus (Eschenbach 2004; Acaravci et al. 2009; Wan 2010; Almfraji and Almsafir 2014; Ahmad et al. 2016). Furthermore, some authors have studied the influence of financial development on the FDI–growth interaction and discovered financial development was a prerequisite for the positive interaction between FDI inflows and growth (Alfaro et al. 2004; Adjasi et al. 2012). However, a limited number of papers have analyzed the interaction between FDI inflows and financial development, although they revealed that financial development was a significant factor that lead to FDI (Al Nasser and Gomez 2009; Korgaonkar 2012; Desbordes and Wei 2014; Bayar and Ozel 2014; Fauzel 2016; Enisan 2017).

On the contrary, a limited number of papers showed that FDI inflows have made significant contributions

to

the

development

of

financial

sector

(Abzarietal.2011;SahinandEge2015;

Gebrehiwotetal.2016). The relevant literature has generally focused on the impact of financial sector development on FDI inflows. This study investigates the impact of FDI inflows and portfolio inflows on the development of financial sectors as distinct from the existing literature. In the related literature, there have been no studies which investigate the impact of FDI inflows on the development of financial sectors in the total sample of CEEU countries. However, some studies included several countries from the CEEU sampled.

These studies generally revealed a significant relationship from financial development to FDI inflows (e.g., see Korgaonkar 2012; Desbordes and Wei 2014; Bayar and Ozel 2014). Korgaonkar(2012)also analyzed

the

interaction

between

financial

development

and

FD

inflows

in

78countriesovertheperiodfrom1980–2009utilizingadataminingapproachanddiscovered financial development was an important pre requisite for the attraction of FDI inflows.

Desbordes and Wei (2014) researched the relationship between FDI flows and financial development of both source and destination countries in 83 source countries with 3919 parent companies and 125 destination countries with 13 broad manufacturing sectors over the 2003–2006 period, employing panel regression and revealing that improvements in financial sectors of source and destination countries had positive impact on FDI flows. Furthermore, Bayar and Ozel (2014) also explored the determinants of FDI inflows in seven EU transition economies during 1997–2011 and concluded that financial development positively affected FDI inflows.

In another study, Sahin and Ege (2015) also examined the causal interaction between FDI inflows and financial development in Turkey, Macedonia, Greece and Bulgaria over the period from 1996–2012 using bootstrap causality tests and revealed a unilateral causality from FDI inflows to financial development in Bulgaria and Greece, but a two-way causality in Turkey. Some papers researched the interplay between finance-FDI for different countries and country groups. In one of the initial studies, Al Nasser and Gomez (2009) studied the interplay among FDI inflows, banking, and capital market development in 15 countries from Latin America between 1978 and 2003 with panel regression and revealed a positive interaction among FDI inflows, banking sector, and capital market development.

Furthermore, Anyanwu (2011) revealed that financial development affected FDI inflows negatively in the study about factors behind FDI inflows to Africa. In a similar way, Abzari et al. (2011) analyzed the causality between financial development and FDI inflows in eight developing countries between 1976–2005 using a Vector Autoregressive (VAR) model and reached a contrary one-way causality from FDI inflows to financial development.

Gebrehiwot et al. (2016) analyzed the connection between financial development and FDI in eight African countries between 1991–2013 employing Granger causality tests and panel regression and revealed a two-way causality between the variables. Bayar and Ozturk (2016) also examined the causal interaction between financial development and FDI inflows sinTurkeyoverthe1974–2015period with the bootstrap Granger causality tests of Hacker and Hatemi-J (2006) and determined a one-way causality from the development of financial sectors to foreign direct investment inflows.

Fauzel (2016)Int. J. Financial Stud. 2018, 6, 55 5 of 13also analyzed the relation between FDI and financial development in a small island developing states during the 1990–2013 period, using a panel vector autoregressive model and found a bi-causal relationship. Therefore, foreign investments contribute to countries’ financial development, but that it also attracts and encourages foreign investment.

Enisan (2017) investigated the major determinants underlying FDI inflows in Nigeria employing the Markov regime-switching approach and revealed that the development level of a financial sector is one of the main determinants for FDI attraction. Finally, some researchers have studied the interplay between foreign capital inflows and capital marketdevelopmentanddiscoveredapositiveeffectofFDIinflowsandforeign portfolio investment son stock markets development (Razaetal.2015; AbdulMalikandAmjad2013; EvrimMandacietal.2013; AdamandTweneboah2009;Billmeierand Massa2007

Chapter 4:- Data Analysis, interpretation and presentation This study is based on secondary data. The required data have been collected from various sources i.e. World Investment Reports, Asian Development Bank’s Reports, various Bulletins of Reserve Bank of India, publications from Ministry of Commerce, Govt. of India, Economic and Social Survey of Asia and the Pacific, United Nations, Asian Development Outlook, Country Reports on Economic Policy and Trade Practice- Bureau of Economic and Business Affairs, U.S. Department of State and from websites of World Bank, IMF, WTO, RBI, UNCTAD, EXIM Bank etc.. It is a time series data and the relevant data have been collected for the period 1991 to2008.

ANALYTICALTOOLS In order to analyze the collected data the following mathematical tools were used. To work out the trend analyses the following formula is used:

a.) Trend Analysis i.e. ŷ = a + b x Where ŷ = predicted value of the dependent variable a = y – axis intercept, b = slope of the regression line (or the rate of change in y for a given change in x), x = independent variable (which is time in this case). b.) Annual Growth rate is worked out by using the following formula: AGR = (X2- X1)/ X1 Where X1 = first value of variable X X2 = second value of variable X c.)Compound Annual Growth Rate is worked out by using the following formula

CAGR (t0, tn) = (V(tn)/V(t0))1/tn–t0 -1 Where, V(t0): start value, V(tn): finish value, tn− t0: number of years. In order to analyze the collected data, various statistical and mathematical tools were used.

MODELBUILDING Further, to study the impact of foreign direct investment on economic growth, two models were framed and fitted. The foreign direct investment model shows the factors influencing the foreign direct investment in India. The economic growth model depicts the contribution of foreign direct investment to economic growth. The two model equations are expressed below: FDI = f [TRADEGDP, RESGDP, R&DGDP, FIN. Position, EXR.] GDPG = f[FDIG] Where, FDI= Foreign Direct Investment GDP = Gross Domestic Product FIN. Position = Financial Position TRADEGDP= Total Trade as percentage of GDP. RESGDP= Foreign Exchange Reserves as percentage of GDP. R&DGDP= Research & development expenditure as percentage of GDP. FIN. Position = Ratio of external debts to exports EXR= Exchange rate GDPG = level of Economic Growth FDIG = Foreign Direct Investment Growth

CONCEPTUAL MODEL To study the impact of FDI in an INDIAN economy, two models were framed and fitted .The foreign direct investment model shows the factors influencing the foreign direct investment in India. The economic growth model depicts the contribution of foreign direct investment to economic growth. The two model equations are expressed below: 1 FDI = f [TRADEGDP, RESGDP, R&DGDP, FIN. Position, EXR.] 2 GDPG = f [FDIG] Where, FDI= Foreign Direct Investment GDP = Gross Domestic Product FIN. Position = Financial Position TRADEGDP= Total Trade as percentage of GDP. RESGDP= Foreign Exchange Reserves as percentage of GDP. R&DGDP= Research & development expenditure as percentage of GDP. FIN. Position = Ratio of external debts to exports EXR= Exchange rate GDPG = level of Economic Growth FDIG = Foreign Direct Investment Growth Regression analysis was carried out using relevant econometric techniques. Simple regression method was used to measure the impact of FDI flows on economic growth in India. Further, multiple regression analysis was used to identify the major variables which have impact on foreign direct investment.

FDI INFLOW ROUTES

An Indian company may receive Foreign Direct Investment under the two routes as given under:

1. Automatic Route: FDI in sectors /activities to the extent permitted under the automatic route does not require any prior approval either of the Government or the Reserve Bank of India. 2. Government Route: FDI 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.

SECTORS On 25 September 2014, Government of India launched Make in India initiative in which policy statement on 25 sectors were released with relaxed norms on each sector During 2014–15.India received most of its FDI from Mauritius, Singapore, Netherlands, Japan and the US..Following are some of major sectors for Foreign Direct Investment. Infrastructure 10% of India's GDP is based on construction activity. Indian government has plans to invest $1 trillion on infrastructure from 2012–2017. 40% of this $1 trillion is to be funded by private sector. 100% FDI under automatic route is permitted in construction sector for cities and townships. On-primary source needed. Automotive FDI in automotive sector was increased by 89% between April 2014 to February 2015.India is 7th largest producer of vehicles in the world with 17.5 million vehicles p.a. 100% FDI is permitted in this sector via automatic route. Automobiles shares 7% of the India's GDP. Pharmaceuticals Indian pharmaceutical market is 3rd largest in terms of volume and 13th largest in terms of value. Indian PHRMA industry is expected to grow at 20% compound annual growth rate from 2015 to 2020.100% FDI is permitted in this sector. Service FDI in service sector was increased by 46% in 2014–15. Service sector includes banking, insurance, outsourcing, research & development, courier and technology testing.FDI limit in insurance sector was raised from 26% to 49% in 2014. Railways 100% FDI is allowed under automatic route in most of areas of railway, other than the operations, like High speed train, railway electrification, passenger terminal, mass rapid transport systems etc. MumbaiAhemdabad high speed corridor project is single largest railway project in India, other being CSTM-Panvel suburban corridor. Foreign investment more than ₹90,000 crore (US$14 billion) is expected in these projects.

Chemicals Chemical industry of India earned revenue of $155–160 billion in 2013.[28] 100% FDI is allowed in Chemical sector under automatic route. Except Hydrocynic acid, Phosgene, Isocynates and their derivatives, production of all other chemicals is de-licensed in India. India's share in global specialty chemical industry is expected to rise from 2.8% in 2013 to 6–7% in 2023. Textile Textile is one major contributor to India's export. Nearly 11% of India's total export is textile. This sector has attracted about $1647 million from April 2000 to May 2015. 100% FDI is allowed under automatic route. During year 2013–14, FDI in textile sector was increased by 91%.Indian textile industry is expected reach up to $141 billion till 2021. Airlines Foreigner investment in a scheduled or regional air transport service or domestic scheduled passenger airline is permitted to 100, with FDI up to 49% permitted under automatic route and beyond 49% through government approval. For airport modernization, 100% FDI will be allowed for existing airport under automatic route.

Year wise FDI inflows in India ( April 2000 – March 2016 )

SL.

Financial year

No.

(April-March)

Equity

Re-

Other

FIPB route/RBI’s Equity capital

invested

capital

automatic

of

earnings

route/acquisition

unincorporated

route

bodies

Total

1

2000-01

2,339

61

1,350

279

4,029

2

2001-02

3,904

191

1,645

390

6,130

3

2002-03

2,574

190

1,833

438

5,035

4

2003-04

2,197

32

1,460

633

4,322

5

2004-05

3,250

528

1,904

369

6,051

6

2005-06

5,540

435

2,760

226

8,961

7

2006-07

15,585

896

5,828

517

22,826

8

2007-08

24,573

2,291

7,679

300

34,843

9

2008-09

31,364

702

9,030

777

41,873

10

2009-10

25,606

1,540

8,668

1,931

37,745

11

2010-11

21,376

874

11,939

658

34,847

12

2011-12

34,833

1,022

8,206

2,495

46,556

13

2012-13

21,825

1,059

9,880

1,534

34,298

14

2013-14(P)

24,299

975

8,978

1,794

36,046

15

2014-15(P)

30,933

978

9,988

3,249

45,148

16

2015-16(P)

40,001

1,042

10,049

4,365

55,457

2,90,199

12,816

1,01,197

19,955

4,24,167

Cumulative total (April 2000-March 16)

Foreign direct investment (FDI) is an investment made by an organization/entity in one country in an industrial/business activity in another country. FDI can take place in the form of establishing new business operations from scratch or acquiring existing business assets in the other country. FDI includes mergers and acquisitions, building new facilities, expansion of existing production capacity, etc. FDI usually involves control/participation in management, joint-venture, management expertise and technology transfer. It excludes investment through purchase of securities or portfolio foreign investment, a passive investment in the securities of another country e.g. shares and bonds. Total FDI Equity inflow in India from various sectors was USD 2378.68 million in 2000-01, USD 4027.69 million in 2001-02, USD 2704.34 million in 2002-03, USD 2187.85 million in 2003-04, USD 3218.69 million in 2004-05, USD 5539.72 million in 2005-06, USD 12491.77 million in 2006-07, USD 24575.43 million in 2007-08, USD 31395.97 million in 2008-09, USD 25834.41 million in 2009-10, USD 21383.05 million in 2010-11, USD 35120.8 million in 201-12, USD 22423.58 million in 2012-13, USD 24299.33 million in 2010-14, USD 30930.5 million in 2014-15, USD 40000.98 million in 2015-16 and USD 43478.27 million in 2016-17, respectively. There was a decline in growth of total FDI Equity Inflow of -36.15% during 2012-13 over 2011-12 in India. There was a growth of total FDI Equity Inflow of 8.37% during 2013-14 over 2012-13 in India. There was a growth of total FDI Equity Inflow of 27.29% during 2014-15 over 2013-14 in India. There was a growth of total FDI Equity Inflow of 29.33% during 2015-16 over 2014-15 in India. There was a growth of total FDI equity inflow of 8.69% during 2016-17 over 2015-16 in India. India foreign direct investment (FDI) increased by 13.0 USD in Jun 2018, compared with an increase of 8.6 USD in the previous quarter. India’s foreign direct investment: USD net flows data is updated quarterly, available from Jun 1990 to Jun 2018. The data reached an all-time high of 14.7 USD in Sep 2017 and a record low of 7.0 USD in Jun 1991. CEIC extends history for quarterly foreign direct investment. The reserve bank of India provides foreign direct investment in USD based on BPM6. Foreign direct investment prior to Q2 2009 is based on BPM5. In the latest reports of India, current account recorded a deficit of 15.8 USD in Jun 2018. India’s Direct Investment abroad expanded by 3.3 USD in Jun 2018. Its foreign portfolio investment fell by 9.1 USD in Jun 2018. The country's direct investment GDP was 661.8 USD in Jun 2018.

FDI in India

Chart 1:- In 2017, FDI inflows slowed down. It shows percentage of GDP. It shows gross FDI to India less repatriation/disinvestment Chart 2:- It shows Make in India has received less than half of all FDI flows in recent years. It includes sectors like Make in India sectors, construction(infrastructure), chemicals(ex fertilizers), Automobiles, computer(software & hardware), electrical equipment, power. Chapter 3:- It shows, FDI flows have dried up for most of the BRICS economies. Fig 3 indicates 4 years average of net FDI inflow as share of GDP.

FDI equity inflows in India

FDI equity inflows shows various sector like Service sector flows 20%, Telecommunication flows 8%, Computer software flows 7%, Housing and real state flows 6%, constructions activities flows 6%, Drugs and Pharmaceutical flows 4%, power flows 4%, Automobile industry flows 4%, Metallurgical industries flows 4%, Petroleum and natural gas flows 2%..

Total Foreign Direct Investment Equity Inflows from 2000-01 to 2016-17

Foreign direct investment (FDI) is an investment made by an organization/entity in one country in an industrial/business activity in another country. FDI can take place in the form of establishing new business operations from scratch or acquiring existing business assets in the other country. FDI includes mergers and acquisitions, building new facilities, expansion of existing production capacity, etc. FDI usually involves control/participation in management, joint-venture, management expertise and technology transfer. It excludes investment through purchase of securities or portfolio foreign investment, a passive investment in the securities of another country e.g. shares and bonds. Total FDI Equity inflow in India from various sectors was                 

USD 2378.68 million in 2000-01, USD 4027.69 million in 2001-02, USD 2704.34 million in 2002-03, USD 2187.85 million in 2003-04, USD 3218.69 million in 2004-05, USD 5539.72 million in 2005-06, USD 12491.77 million in 2006-07, USD 24575.43 million in 2007-08, USD 31395.97 million in 2008-09, USD 25834.41 million in 2009-10, USD 21383.05 million in 2010-11, USD 35120.8 million in 201-12, USD 22423.58 million in 2012-13, USD 24299.33 million in 2010-14, USD 30930.5 million in 2014-15, USD 40000.98 million in 2015-16 and USD 43478.27 million in 2016-17, respectively.

 There was a decline in growth of total FDI Equity Inflow of -36.15% during 2012-13 over 2011-12 in India.  There was a growth of total FDI Equity Inflow of 8.37% during 2013-14 over 2012-13 in India. There was a growth of total FDI Equity Inflow of 27.29% during 2014-15 over 2013-14 in India. There was a growth of total FDI Equity Inflow of 29.33% during 2015-16 over 2014-15 in India. There was a growth of total FDI Equity Inflow of 8.69% during 2016-17 over 2015-16 in India.

Sector-wise FDI inflow in India

Investors are much more likes to pursue a combination of FDI methods this year

By which mode does your company typically engage in FDI..?? Green field investment:In 2016, investment flows 15%, in 2017 flows 24%, in 2018 flows 13% Joint venture with a local firm:In 2016, investment flows 24%, in 2017 flows 30%, in 2018 flows 16% Mergers and acquisitions:In 2016, investment flows 25%, in 2017 flows 27%, in 2018 flows 19% Combination of method:In 2016, investment flows 36%, in 2017 flows 19%, in 2018 flows 52%

Annual Foreign Direct Investment flows into India

FOREIGN DIRECT INVESTMENT: A CREDIT SUPPLEMENT BUT NOT A DRIVER

A Financial Times report that India had claimed the pole position as global foreign direct investment (FDI) destination for the first half of 2015 generated much cheer across the country.41 It appeared to be a just reward for the government’s aggressive courting of FDI over the previous year and half. On a more realistic note, it raises the question of whether FDI can make up for the country’s massive investment deficit. For a sample of eleven emerging East Asian economies, excluding Singapore, the average rate of annual FDI inflows as a share of GDP in the 1997–2014 period was 2.18 percent, with very low dispersion (see figure 7). The similar average as a share of GFCF was 8.4 percent, though it ranged from 10 percent to 20 percent for Malaysia, Thailand, and Vietnam. Over the more than two decades of China’s rapid growth, annual FDI inflows as a share of GDP never rose above 4 percent and as a share of total fixed investment peaked at about 11.6 percent before declining to about 8 percent. For India, the respective figures for 2014 stood at 1.65 percent of GDP and 5.75 percent of GFCF, and averaged 1.47 percent and 4.80 percent over the 1997–2014 Period.

The country’s total annual incremental nonfood bank credit as a share of GDP peaked at 8–11 percent in the high-growth period of 2003–2008, only to fall back to around 6 percent in recent years. In recent years, including the high-growth years, FDI has been no more than 20 to 25 percent of the total incremental credit.

Optimistically, assuming that FDI inflows average 4 percent of GDP (or $80 billion for 2015, well above the actual net FDI inflow of $48.2 billion into India for the year 2015–2016, as per RBI data) and 10 percent of GFCF over the coming ten years for India (both figures being higher than China’s over the 1997– 2014 period) implies FDI inflows, at current credit volumes, would account for about 40 percent of India’s total incremental credit market. Apart from the difficulty of achieving such growth in times of global economic weakness, the effects of massive inflows on macroeconomic stability and the exchange rate, given the very narrow financial markets and limited domestic credit base, are not likely to be benign.

In 2007–2008, India had a balance of payments surplus of more than $92 billion. The capital account balance was $106.6 billion. India was not able to absorb it well. Bubbles popped up in asset markets. Bad investments were made, and capital misallocation was rampant. The inflation rate spiked up, and the rupee became overvalued, despite intervention. That is why when the global recession struck in 2008, India felt the shock. Had India channeled the capital flood well, its potential growth rate would not have dropped after the crisis and the country would not be struggling to get back on track.

Though India has not managed to attain a similar high level of balance of payments surplus since then, its combined net investment flows have been respectable. In the year ending March 2015, net investment inflow was on the order of $73.6 billion (this figure came down drastically to $31.5 billion in 2015–2016 due to portfolio outflows). Yet official statistics aside, many economists peg India’s economic growth rate at or slightly above 6 percent for 2014–2015.44That judgment reflects India’s inability to turn investments into output and inputs into production. India’s land, labor, and capital productivity and its total factor productivity are too low for a growth takeoff to happen.

This discussion is not intended to serve as an argument against FDI. Technological benefits, a culture of innovation, and an enhanced ability to meet competition are clear benefits of FDI. Two points should be stressed, however: first, the country is ill-equipped to absorb and gainfully deploy vast sums of FDI, and second, the historical experience of other countries, including those that received generous FDI, suggests that total FDI inflows would not exceed 4 percent of GDP. Therefore, increasing the domestic savings rate is a growth and policy imperative for India.

INFRASTRUCTURE FINANCING DEFICIT

The cumulative effect of all this unrealized money is to put a natural limit on the resources available for public investment, especially in infrastructure. The government’s Planning Commission, which formulated India’s five-year plans before Prime Minister Modi took office, estimated that India would require infrastructure investments worth $1 trillion in the Twelfth Five Year Plan period of 2012–2017.54 A large share of this was to come from public financing. But not only do the state and central governments lack the fiscal space to mobilize anything remotely close to that amount, but the banking system is simply too small to finance more than a small part of this requirement. The country’s capital markets remain too small, and it may be unrealistic to expect them to expand sufficiently and fast enough to meet the financing needs. In any case, there is only so much that credit intermediation can do when the GDS is stuck in the low thirties and three-fourths of savings are invested in illiquid and unproductive property and gold assets.

How can India finance its massive requirements? The size of the problem is illustrated by housing. The Housing for All program targets the construction of around 20 million units just in urban areas over the next five years. Most of the demand for the units would come from those in lower income groups. A conservative assessment shows that the total credit requirement for this program would be about INR 20,000 billion.55 but the total allocation for affordable housing in the entire twelfth plan period is only INR 350 billion. In fact, the total bank credit outstanding on October 30, 2015, was just INR 6,959 billion, and the incremental bank credit for all housing for the year beginning October 31, 2014, was just INR 1,042 billion.

Another example is the national highways project. At a cost of INR 130 million per kilometer, the construction target of 25,000 kilometers for 2016–2017 would require investment of about INR 3,250 billion.56Assuming three-quarters debt and a similar proportion of this to come from banks, the total bank credit required for the projects of this year alone would be around INR 1,800 billion. In contrast, for the year ending May 27, 2016, the total incremental bank credit to the entire infrastructure and construction sectors was a mere INR 27 billion. In fact, the total outstanding bank credit to roads sector was itself only INR 1,827 billion.

In 2014–2015, the total incremental bank credit to the infrastructure sector was INR 881 billion (about $14 billion), of which four-fifths, or INR 706 billion, went to just the energy sector, leaving transportation, airports, ports, telecommunications, gas, and urban infrastructure to fight over less than $3 billion. In fact, the total incremental industrial credit flow was INR 1,411 billion, less than half that in 2013– 2014. The total equity issuance by all types of firms was just INR 170 billion, an amount that was more or less unchanged from that of the preceding four years. The total amount mobilized by nonfinancial public and private corporations through private placement was INR 1,276 billion.

The Twelfth Plan estimates 50 percent of the INR 65.0 trillion infrastructure investment to come from budget financing and the rest from various private sources. The assumptions are straight out of the Chinese storybook—GDS and infrastructure investment are to reach 48.2 percent and 10.7 percent of GDP, respectively, by 2016–2017.58 But both shares have been far lower than estimates, and declining, for each of the first three plan years, with the latest available figures, for 2014–2015, showing shares of 29 percent and 3.2 percent of GDP, respectively.59 The difference is one of orders of magnitude.

The government of India’s total capital expenditure has itself been just a third of the total budgetary support estimated. Owing to tepid credit growth, incremental bank lending for infrastructure financing, the largest source for the sector, was just INR 881.7 billion, compared with the estimated INR 1,436.54 billion in 2014–2015. Similar shortfalls exist in all the funding sources. Because of the pre-existing funding gap of 22.5 percent (INR 14.6 billion) of the estimated INR 65.0 trillion, the plan’s investment deficit to date is more than 50 percent.

In absolute terms, for the entire twelfth plan period, the total equity investments, including domestic equity and FDI, and external commercial borrowings to finance infrastructure are estimated at INR 7,325 billion, just 11 percent of the total resources required. In recent years, private equity has emerged as the largest financing source of FDI, and commercial real estate, e-commerce, and financial services have been the biggest sector destinations.

Certain features stand out in infrastructure financing. Global experience, especially outside the United States, shows that the vast majority of infrastructure financing comes from domestic bank loans. The conventional wisdom with respect to bond financing is refuted by available evidence. Bonds have formed less than 10 percent of the global infrastructure financing sources, with the vast majority concentrated in the United States.61 Annual infrastructure bonds issuances for all emerging economies, excluding China, have been in the $10 billion to $15 billion range in recent years.

In any case, the global pool of infrastructure finance available for emerging economies is very small. The most funds raised in a year by infrastructure debt funds was $4.7 billion in 2011, and their contribution has been declining since then.63 Infrastructure equity funds, which leverage capital from insurance and pension funds, while larger, also form a small share of the total infrastructure financing and are concentrated in developed markets, especially the United States and Europe. Globally, they formed just above $36 billion in 2013.64. The data provider Pre in has reported that the total value of all unlisted infrastructure funds under management raised in the period between September 2007 and March 2014 was $282 billion. Of this, the dry powder (unallocated) available was $107 billion, of which just $13 billion was earmarked for Asian markets, including China.

Moreover, structured equity or debt financing in the form of infrastructure equity funds, infrastructure debt funds, or bonds is rarer still in the construction phase, when bank loans are the most riskappropriate form of financing. Finally, asset-liability mismatches arising from domestic currency revenue streams make foreign capital a costly source of infrastructure financing. The risks of sudden stops and capital flow reversals, from which no country is spared, with their attendant currency volatility only add to the costs of such financing. Simply stated, it is unrealistic to expect foreign capital to significantly close the large financing gap.

In this context, it is worrisome that at a time when public investments in infrastructure ought to have been climbing, the capital expenditure of the government of India as a share of GDP has been steadily declining for many years. At 1.71 percent of GDP, it was a mere $40 billion in 2015–2016 (see figure 9). The budget for 2015–2016 seeks to reverse this declining trend in the capital expenditure of the government. Steady increase in capital expenditure by the government should continue for many years. The fiscal latitude to do so must be maintained. In connection with this discussion, it should be noted that the period of high growth (2003–2008) coincided with a sharp increase in the tax-to-GDP ratio of 4 percentage points.

India’s public Capital Expenditure and Tax-to-GDP ratio

Capital expenditure by Private sector

Capital expenditure by corporations has also been on a continuously declining trajectory since 2011 (see figure 10).66 It was 27 percent lower in 2014–2015 than in 2013–2014 and is expected to be still lower in 2015–2016. Though this declining trend is more likely a cyclical slowdown, the low base, less than INR 10,000 billion (about $16 billion), expected for 2015–2016 is a matter of great concern for a country that aspires to an 8-to-10-percent GDP growth rate.

As India explores various alternatives for financing infrastructure, it would do well to keep in mind the dominant experience from across the world and understand that domestic bank loans should form the lion’s share of infrastructure financing. Alternative sources, such as structured debt and equity, can contribute only marginally. This again underscores the importance of immediately restoring bank balance sheets and recapitalizing banks. The size of the banking sector imposes another constraint. The small size of the banking sector calls for prioritized action to expand the breadth and depth of financial intermediation by the country’s banking sector, including privatization and liberalization to allow foreign investments.

To finance infrastructure, then, India will have to embrace all available financial intermediation channels—domestic and foreign, equity and debt, bank and capital markets. In each case, policy action should expedite a market deepening and broadening by expanding market participation, both on the demand side and on the supply side.

SECTOR SPECIFIC LIMITS OF FOREIGN INVESTMENT IN INDIA

Many changes have been made to the Foreign Direct Investment (FDI) policy in the last few years. Further, FDI is also allowed through two different routes namely, Automatic and the Government route. The erstwhile Foreign Investment Promotion Board (FIPB) has been phased out recently. In the automatic route, foreign entities do not need the prior approval of the government to invest. However, they have to inform the RBI about the amount of investment within a stipulated time period. In the government route, any investment can be made only after the prior approval of the government. Various other conditions as defined in the consolidated FDI policy are applicable to various sectors. In specific sectors, the FDI is prohibited. Sector wise FDI Limits FDI Limit

Entry Route & Remarks

• Floriculture, Horticulture, Apiculture and Cultivation of Vegetables & Mushrooms under controlled conditions • Development and Production of seeds and planting material • Animal Husbandry(including breeding of dogs), Pisciculture, Aquaculture • Services related to agro and allied sectors

100%

Automatic

Plantation Sector • Tea sector including tea plantations • Coffee plantations • Rubber plantations • Cardamom plantations • Palm oil tree plantations • Olive oil tree plantations

100%

Automatic

Mining Mining and Exploration of metal and non-metal ores including diamond, gold, silver and precious ores but excluding titanium bearing minerals and its ores

100%

Automatic

Mining (Coal & Lignite)

100%

Automatic

Mining Mining and mineral separation of titanium bearing minerals and ores, its value addition and integrated activities

100%

Government

Petroleum & Natural Gas Exploration activities of oil and natural gas fields, infrastructure related to marketing of petroleum products and natural gas, marketing of natural gas and petroleum products etc

100%

Automatic

Petroleum & Natural Gas Petroleum refining by the Public Sector Undertakings (PSU), without any disinvestment or dilution of domestic equity in the existing PSUs.

49%

Automatic

100%

Automatic up to 49% Above 49% under

Sector Agriculture & Animal Husbandry

Defence Manufacturing

Government routein cases resulting in access to modern technology in the country Broadcasting • Teleports(setting up of up-linking HUBs/Teleports) • Direct to Home (DTH) • Cable Networks (Multi System operators (MSOs) operating at National or State or District level and undertaking upgradation of networks towards digitalization and addressability • Mobile TV • Head end-in-the Sky Broadcasting Service(HITS)

100%

Automatic

Broadcasting Cable Networks (Other MSOs not undertaking up gradation of networks towards digitalization and addressability and Local Cable Operators (LCOs))

100%

Automatic

Broadcasting Content Services • Terrestrial Broadcasting FM(FM Radio) • Up-linking of ‘News & Current Affairs’ TV Channels

49%

Government

Up-linking of Non-‘News & Current Affairs’ TV Channels/ Down-linking of TV Channels

100%

Automatic

Print Media • Publishing of newspaper and periodicals dealing with news and current affairs • Publication of Indian editions of foreign magazines dealing with news and current affairs

26%

Government

Publishing/printing of scientific and technical magazines/specialty journals/ periodicals, subject to compliance with the legal framework as applicable and guidelines issued in this regard from time to time by Ministry of Information and Broadcasting.

100%

Government

Publication of facsimile edition of foreign newspapers

100%

Government

Civil Aviation – Airports Green Field Projects & Existing Projects

100%

Automatic

100%

Automatic up to 49% Above 49% under Government route 100% Automatic for NRIs

Civil Aviation • Non-Scheduled Air Transport Service • Helicopter services/seaplane services requiring DGCA approval • Ground Handling Services subject to sector regulations and security clearance • Maintenance and Repair organizations; flying training institutes; and technical training institutions

100%

Automatic

Construction Development: Townships, Housing, Built-up Infrastructure

100%

Automatic

Civil Aviation – Air Transport Services • Scheduled Air Transport Service/ Domestic Scheduled Passenger Airline • Regional Air Transport Service (Foreign Airlines are barred from Investing in Air India)

Industrial Parks (new & existing)

100%

Automatic

Satellites- establishment and operation, subject to the sector guidelines of Department of Space/ISRO

100%

Government

74%

Automatic up to 49% Above 49% & up to 74% under Government route

Telecom Services

100%

Automatic up to 49% Above 49% under Government route

Cash & Carry Wholesale Trading

100%

Automatic

E-commerce activities (e-commerce entities would engage only in Business to Business (B2B) e-commerce and not in Business to Consumer (B2C) e-commerce.)

100%

Automatic

Single Brand retail trading Local sourcing norms will be relaxed up to three years and a relaxed sourcing regime for another five years for entities undertaking Single Brand Retail Trading of products having ‘state-of-art’ and ‘cutting edge’ technology.

100%

Automatic up to 49% Above 49% under Government route

Multi Brand Retail Trading

51%

Government

Duty Free Shops

100%

Automatic

Railway Infrastructure Construction, operation and maintenance of the following • Suburban corridor projects through PPP • High speed train projects • Dedicated freight lines • Rolling stock including train sets, and locomotives/coaches manufacturing and maintenance facilities • Railway Electrification • Signalling systems • Freight terminals • Passenger terminals • Infrastructure in industrial park pertaining to railway line/sidings including electrified railway lines and connectivity to main railway line • Mass Rapid Transport Systems.

100%

Automatic

Asset Reconstruction Companies

100%

Automatic

Banking- Private Sector

74%

Automatic up to 49% Above 49% & up to 74% under Government route

Banking- Public Sector

20%

Government

Credit Information Companies (CIC)

100%

Automatic

Infrastructure Company in the Securities Market

49%

Automatic

Insurance • Insurance Company • Insurance Brokers

49%

Automatic

Private Security Agencies

• Third Party Administrators • Surveyors and Loss Assessors • Other Insurance Intermediaries Pension Sector

49%

Automatic

Power Exchanges

49%

Automatic

White Label ATM Operations

100%

Automatic

Financial services activities regulated by RBI, SEBI, IRDA or any other regulator

100%

Automatic

Pharmaceuticals(Green Field)

100%

Automatic

Pharmaceuticals(Brown Field)

100%

Automatic up to 74% Above 74% under Government route

Food products manufactured or produced in India Trading, including through e-commerce, in respect of food products manufactured or produced in India.

100%

Government

PROHIBITED SECTORS FDI is prohibited in the following sectors        

Lottery Business including Government/private lottery, online lotteries, etc. Gambling and Betting including casinos etc. Chit funds NIDHI company Trading in Transferable Development Rights (TDRs) Real Estate Business or Construction of Farm Houses (Real estate business does not include development of townships, construction of residential /commercial premises, roads or bridges ) Manufacturing of cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes Activities/sectors not open to private sector investment e.g. Atomic Energy and Railway operations (other than permitted activities)

India’s Investment, savings, and growth

In contrast, China’s spectacular growth story was underwritten by the country’s high savings rate, which rocketed beyond 50 percent of GDP in the past decade. Its GDS rate today is almost twice as large as India’s, and its GFCF is nearly 20 percentage points higher. Furthermore, even as India’s savings rate has been declining, China’s savings rate shows no signs of weakening. In light of the vastly different contexts, it appears unlikely that India can come near the savings and investment rates achieved by China.

Even India’s current savings rate is deceptive since the share of household savings locked up in illiquid and unproductive investments such as real estate and gold has grown in recent years.38 A study from Credit Lyonnais Securities Asia, a group of brokerage and investment houses focused on institutional service and asset management, found that as of the end of 2012, land and gold together made up 71 percent of all household assets.39The limited market for housing mortgages and gold funds means that savings in these forms contribute very little to India’s investment needs, and the share of equity and other nonbank financial investments is marginal. This is in sharp contrast to global trends, which show the bulk of savings invested directly in financial assets.40 the investment proclivities of Indians therefore shrink the pool of savings available for investments.

Thus another challenge emerges. High growth rates cannot be sustained without high investment rates, but high investment rates require a high domestic savings rate. The alternative, namely, to use foreign capital, risks creating large current account deficits, which would leave the country vulnerable to sudden stops of capital inflow and capital flight.

India, it appears, is trapped in a low-level equilibrium. Problems of access, volatility in equity markets, limited liquid fixed income savings instruments, and a grossly underdeveloped insurance market have kept investors out of the financial markets. Furthermore, the inflation tax has been a big disincentive to investing in financial assets. In contrast, thanks to recurrent booms, and for historical reasons, land and gold have appeared to be relatively attractive investment options. Their allure is amplified by the attraction of their being safe conduits to stash away black, or ill-gotten, money as well as avoid taxes. In turn, this selfreinforcing savings-investment channel is a formidable deterrent to the emergence of a deep and broad financial market. Therefore, India must not only increase its domestic savings rate but also take measures to limit the distortion savings misallocation by developing more effective financial intermediation channels.

India’s high-growth episode in the last decade (2000–2010) was characterized by gross fixed investment contributing 4 to 5 percentage points to GDP growth. In the aftermath of the worldwide recession of 2008–2009, the contribution of gross fixed investment crashed and has not recovered. In its absence, high rates of sustained economic growth are not plausible.

As a simple rule of thumb, since 1997, a 1 percentage point contribution of GFCF to GDP growth has been associated with a 3.56 percent growth in GFCF. If this relationship still holds, a 4 percentage point contribution of GFCF to GDP growth would require an annual GFCF growth of 14 percent. However, GFCF has been growing at a crawling pace of 3 to 5 percent in the past four accounting years, up to March 2016.

In simple terms, consumers have to save more (and spend more, too) and businesses have to invest more, thereby generating a virtuous circle that can sustain a high-growth trajectory. In the face of formidable headwinds—high interest rates, a high inflation rate, deficient infrastructure, weak global cues, and bruised bank balance sheets—the prospects for either look bleak.

SURVEY ON FDI

Q.1 Are you familiar with FDI? i) Yes:- 84% ii) No:- 5% iii) Heart it often:- 11%

Familiar with FDI

11% 5%

Yes No

Heard it often

84%

Interpretation I understand, 84% people are familiar with term FDI. 11% people are heard it often. And 5% people are not familiar with FDI.

Q.2 Are you aware the current FDI Retail i) Aware :- 52.63% ii) Not aware:- 26.32% iii) No response:- 21.05%

Current FDI retail

21%

Aware

Not aware 53%

No response

26%

Interpretation 53% people are aware about current FDI retail. 26% people are not aware about current FDI retail. And 21% people have no response of question.

Q.3 According to you, does it pace economic growth? i) Yes:- 74% ii) No:- 10% iii) No idea:- 16%

Pace economic growth

16%

10% Yes No 74% No idea

Interpretation In survey, according to people 74% are said it is pace economy growth. 10% people are said it is not pace economy growth. And 16% people are said no idea about economic growth.

Q.4 Do you think FDI can improve the present infrastructural levels in India? i) Yes:- 79% ii) No:-0.00% iii) Can’t say:-21%

Infrastructural levels

21%

0%

Yes No 79%

Can't say

Interpretation In survey, I understand 79% people are said FDI can improve the present infrastructural level in India. No one can opposite of this question. And 21% people are can’t say about improve of FDI.

Q.5 According to you whom will the FDI benefit the most? i) Producers:- 26% ii) Suppliers:- 57% iii) Consumers:- 17%

FDI benefits

17%

26%

Producers

Suppliers

57%

Consumers

Interpretation 26% people are said that producers having the FDI benefits. 57% people are said that suppliers having the FDI benefits. And 17% people are said that consumers having the FDI benefits.

SUMMARY

India has already marked its presence as one of the fastest growing economics of the world. It has been ranked amount the top ten attractive destinations for inbound investment. Since 1991, the regulatory environment in terms of foreign investment has been consistently eased to make it investor-friendly. The measures taken by the government are directed to open new sectors for foreign direct investment, increase the sector limit of existing sectors and simplifying other conditions of the FDI policy. FDI policy reforms are meant to provide ease of doing business and accelerate the pace of foreign investment in the country.  

  

49% FDI under automatic route permitted in Insurance and Pension sectors Foreign investment up to 49% in defence sector permitted under automatic route. The foreign investment in access of 49% has been allowed on case to case basis with government approval in cases resulting in access to modern technology in the country or for other reasons to be recorded FDI limit of 100% (49% under automatic route, beyond 49% government route) for defence sector made applicable to manufacturing of small Arms and Ammunitions covered under Arms Act 1959 FDI up to 100% automatic route permitted in Teleports, Direct to Home, Cable networks, Mobile TV, Headed-in-the sky broadcasting service FDI up to 100% under automatic route permitted in up-linking of Non-‘News & current affairs’ TV channels, down-linking of TV channels

In case of single brand retail trading of ‘state-of-art’ and ‘cutting-edge technology’ products, sourcing norms can be relaxed up to three years and sourcing regime can be relaxed for another 5 years subject to government approval Foreign equity cap of activities of Non-scheduled air transport service, ground handling services increased from 74% to 100% under the automatic route  

 

    



100% FDI under automatic route permitted in Brownfield airport projects FDI limit for schedule air transport service/Domestic scheduled passenger airline and regional air transport service raised to 100%, with FDI up to 49% permitted under automatic route and FDI beyond 49% through government approval Foreign airlines would continue to be allowed to invest in capital of Indian companies operating scheduled and non-scheduled air transport services up to the limit of 49% of their paid up capital In order to provide clarity to the e-commerce sector, the government has issued guidelines for foreign investment in the sector. 100% FDI under automatic route permitted in the market place model of ecommerce 100% FDI under government route for retail trading, including through e-commerce, has been permitted in respect of food products manufactured and/or produced in India 100% FDI allowed in Asset Reconstruction Companies under the automatic route 74% FDI under automatic route permitted in brown field pharmaceuticals. FDI beyond 74% will be allowed through government approval route FDI limit for private security agencies raised to 74% (49% under automatic route, beyond 49% and up to 74% under government route) For establishment of branch office, liaison office or project office or any other place of business in India if the principal business of the applicant is defence, telecom, private security or information and broadcasting, approval of Reserve Bank of India would not be required in cases where FIPB approval or license/permission by the concerned Ministry/Regulator has already been granted Requirement of ‘controlled conditions’ for FDI in animal husbandry (including breeding of dogs), Pisciculture, Aquaculture and apiculture has been waived off

Chapter 5:- CONCLUSION& RECOMMENDATION The Indian economic power has improved because of multinational Companies in India the national income is twice the annual income of General Motors, the economic condition of all developing countries are much lesser than of multinational Companies. Foreign collaborations much more needed in certain fields like power Generation, Steel, Aluminium, Petroleum, Cement etc. The activities of multinationals which increases our dependency on foreign companies which ultimately use our resources should be restricted. India must make a strong and much bolder persistent policy which ultimately boosts our FDI in India. FDI provides in Indian market economy with stability in inflow of funds, access to international markets, export growth, transfer of technology and skills and improves balance of payments. More FDI always guarantee high growth rates, more job opportunity and cash inflow. Both FDI and India's growth are directly proportional. India needs a strong policy maker team for investors and at the same time it must encourage its state and central government to improve infrastructural setups. The steps taken by India to bring FDI will also help India to grow on its own. FDI must be monitored and nurtured so that it will bring more skills and resources to India that will be mutually beneficial.

Foreign capital inflow in general supplements and compliments domestic capital and stoke the pace of economic growth along with certain benefits like transfer of technology, competitive management practice, employment opportunities and economy of scale in host nation. These benefits from large capital inflows also have certain costs such as appreciation in asset prices, appreciation in exchange rates, balance of payment imbalance, tax holidays, low corporate tax and income tax rates, concessions in other kinds of taxes, special economic zones, preferential tariffs, export processing zone, Bonded warehouses, free lands or land subsidies, infrastructure subsidies, relocation and expatriation subsidies, job training and employment subsidies, investment financial subsidies, soft loan or loan guarantees, research and development, derogation from regulations usually for very large projects, declining domestic export competiveness etc. The outcome of the conducted study revealed that government of India’s amendments and policy initiatives have generated positive and encouraging results which accelerated the nation’s economic pace.

FDI inflow at micro and macro level has accelerated the industrial production and it has influenced the general price level in the economy. FDI inflow has helped to raise the output, productivity, domestic consumption, export and employment in respective sectors. In comparison to yester year the judicious policy decisions of present government to liberate FDI inflow at the sector level has been appreciated by the global investors. The GOI in order to answer the domestic demand and to cater the unemployment used amendments as a leverage tool and introduced policy initiative to attract more FDI inflows into the country. GOI succeeded in accelerating the pace of industrial production and managed supply side gaps to contain inflationary pressures in the economy and also to accumulate foreign exchange reserves to maintain and enhance the international creditworthiness of the country.

Foreign Direct Investment (FDI) is an appealing concept through which companies progress and enter into new markets as a result of globalization. Nonetheless, there are an array of factors that might influence a company’s decision to enter into a new market suchas the availability of resources, the political stability of the identified country, and the nation’s openness to regional and international trade. Aesop has a better opportunity of being a successful company in China due to the excellent economic environment which supports businesses. Additionally, the Chinese skin care product market is edging towards the high-end. The figures exhibited above highlight that the market share of fast-moving skin care products outpaced the market share of fast-moving alternatives.

The study concludes a positive impact of FDI inflow on the GDP. This would be beneficial for policy makers to design strategies to target GDP based on the inflow of FDI. This study needs to be further developed taking into account other control variables which impacts GDP. This model describes the overall impact of FDI on GDP, however the sector wise impacts needs to be further analyzed before drawing any conclusion.

RECOMMENDATION

Therefore, for better economic growth and balance development it is paramount important for nation policy makers to plan for further opening up of the economy. It is advisable to open up the export oriented sectors to attract more FDI inflows. Political stability, corruption less and freedom to invest in desired sector hold the key of attracting FDI.

Thus GOI has to develop investment friendly environment along with investment protection and ready to use infrastructure and have to keep on amending the law till it is having positive impact on economy of the nation. Government of India (GOI) has to adopt innovative and globally competitive policies along with good governance according to global standards in order to make India as a most preferred and attractive destination for foreign capital.

The impact and level of influence of FDI on nation’s economy should be carried out with other microeconomic variables than GDP. The outcome of study differs from period to period depending upon global economic environment.

Thus government has to keep on bringing the changes in policy and have to keep on amending the rules in comparison to international perspectives.

Chapter 6:-BIBLIOGRAPHY R. Nagasaki. "What Has Happened since 1991? Assessment of India's Economic Reforms" (PDF). Igidr.ac.in. Retrieved 2015-10-12. "How the Indian economy changed in 1991–2011". The economic time, 24 July 2011. Retrieved 11 October 2015. "India pips US, China as No. 1 foreign direct investment destination". The Times of India. 30 September 2015. Retrieved 11 October 2015. "India grabs investment league pole position". Financial Times. "India Pips China, US to Emerge as Favourite Foreign Investment Destination: Report". NDTV Profit. Retrieved 1 October 2015. Rishi Ingra (30 September 2015). "India Tops Foreign Investment Ranking Ahead of U.S and China". Time. Retrieved 11 October 2015. "Reserve Bank of India – Frequently Asked Questions". Reserve Bank of India. Retrieved 11 October 2015. "FIPB Abolished – What happens now?" Retrieved 25 May 2017. "Eyeing big-billions in 2015, government rolls out FDI red carpet". The Economic Times. 28 December 2014. Retrieved 11 October 2015. "Got initiatives help revive FDI inflow after 3-year slump, up 54% in FY15". The Indian Express. 31 August 2015. Retrieved 11 October 2015. "FDI up 48% since 'Make in India' campaign launch". The Economic Times. 14 July 2015. Retrieved 2015-10-11. IST Jun 25, 2015 (2015-06-25). "India Attracts Enough FDI to Join Global Top Ten – India Real Time – WSJ". The Wall Street Journal. Retrieved 2015-10-11. "Welcome to India in Business". Indiainbusiness.nic.in. Retrieved 2015-10-17. "'Make in India' pitch from Sept. 25". The Hindu. 2014-09-21. Retrieved 2015-10-17. www.google.com www.shodhganga.com www.academia.in

SAMPLE QUESTIONNARE Name:_________________________ Age:__________________ Mob No:______________________

QUESTION 1.What is your age? a)15-25 b)26-50 c)50 Above

QUESTION 2.What is your education qualification? a)Intermediate b)Graduation c)Post graduation d)Others

QUESTION 3.What is your occupation? a)Business b)Profession c)Service d)Student

QUESTION 4.Are you familiar with term FDI? a) Yes b) No c) Heard it often

QUESTION 5.Has FDI helped Indian Economy a)Yes b)No

QUESTION 6.According to you, does it pace economic growth a)Yes b)No c)No idea

QUESTION 7.Do you think FDI can improve the present infrastructural levels in India a)Yes b)No c)Can’t say

QUESTION 8.According to you, Whom will the FDI benefits the most? a)Producer b)Suppliers c)Consumers