IJMBS Vol.
3, Issue 1, Jan - March 2013
Foreign Direct Investment (FDI): A Challenge
to Indian Marketing
1
Prerna, 2Dr. Seema Dhawan
CMJ University, Shillong, Meghalaya, India
Abstract
Many Developing Countries have come increasingly to see FDI
as a source of development in various aspects. FDI tends to act
as a catalyst for underlying strengths and weaknesses in the host
economy, Bringing to the fore both its advantages and its problems.
In this paper, we have discussed about the role of FDI in Indian
economy with benefits to industry and consumers.
Keywords
FDI, Indian Economy, Indian Market, Industry, Consumers
I. Introduction
In nineties, Indian economy faces Balance of payment crises which
also affects export. So, there was a serious threat to economy. It
was in the light of such adverse situations that the policy makers
decided to adopt a more liberal and global approaches thereby,
opening its door to FDI inflows in order to restore the confidence
of foreign investors. FDI provides a situation where in both the
host and the home nations derive some benefit [3]. FDI tends to
act as a catalyst for underlying strengths and weaknesses in the
host economy, Bringing to the fore both its advantages and its
problems.
II. Indian Prospective
The historical background of FDI in India can be traced back
with the establishment of East India Company of Britain. British
capital came to India during the colonial era of Britain in India.
However, researchers could not portray the complete history of
FDI pouring in India due to lack of abundant and authentic data.
Before independence major amount of FDI came from the British
companies. British companies setup their units in mining sector
and in those sectors that suits 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 [4]. According to
UNCTAD (2007), India has emerged as the second most attractive
destination for FDI after China and ahead of the US, Russia and
Brazil. While India has experienced a marked rise in FDI inflows in
the last few years (doubling from an average of US$5-6 billion the
previous three years to around US$ 19 billion in 2006-07) [2]. Fig.
1 shows FDI Inflows into India, 1990-2007 (US$ millions).
Fig. 1: FDI Inflows Into India, 1990-2007 (US$ millions)
Source: Reserve Bank of India (RBI)
90 International Journal of Management & Business Studies
ISSN : 2230-9519 (Online) | ISSN : 2231-2463 (Print)
A. Facts About FDI
1. FDI is the safest type of external finance by developed and
developing countries.
2. China is the major recipient of global FDI flows among the
emerging economies of the world. It is also the most preferred
destination of global FDI flow. India is at 5th position in the
category of most attractive location of global FDI.
3. India is the major recipient of FDI inflows in South-Asia region.
It constitutes 75% of total FDI inflows to this region.
4. India is the signatory member of south Asian Free Trade
Agreement (SAFTA).
5. Apart from SAFTA, India is also the member of many (of
nearly 17) Free Trade Agreements (FTAs).
6. India has received increased NRIs deposits and commercial
borrowings largely because of its rate of economic growth
and stability in the political environment of the country [4].
Fig. 2 shows FDI Inflows into Asian Countries in 2006 (US$
billions)
Fig. 2: FDI Inflows Into Asian Countries in 2006 (US$ billions)
Source: UNCTAD, World Investment Report 2007 Database
Physical infrastructure is the biggest hurdle that India currently
faces, to the extent that regional differences in infrastructure
concentrates FDI to only a few specific regions. While many of
the issues that plague India in the aspects of telecommunications,
highways and ports have been identified and remedied, the slow
development and improvement of railways, water and sanitation
continue to deter major investors [6]. With an overall FDI (foreign
direct investment) inflow of $16.74 billion - FDI in single brand
retail fell marginally from 0.03% in December 2011 to 0.02%
in June 2012, as per a recent report by Knight Frank. While
the macro economic data continues to reflect weakness, the
business sentiment has significantly improved on the back of
recent government measures like cutting back on fuel subsidy
and liberalization of FDI policy in sectors like retail, aviation,
broadcasting and power exchanges, says the Knight Frank
report.
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ISSN : 2230-9519 (Online) | ISSN : 2231-2463 (Print) IJMBS Vol. 3, Issue 1, Jan - March 2013

Also, India has emerged as a destination for Non Resident Indian E. Financial Services
(NRI) investments. The country is witnessing a rising interest from In 2011, the number of projects in the Indian financial services
NRIs. Fig. 3, gives a comprehensive overview of FDI flows in the sector increased by 21 percent, whereas the value of FDI projects
country, along with the contribution from NRIs [9]. increased by 75 percent.

F. Life Sciences
Government permits 100 percent FDI for health and medical
services under the automatic route.

G. Cleantech
According to the November 2011 edition of Ernst & Youngs
Renewable energy country attractiveness indices, India ranked
as the fourth most attractive country (after China, the US and
Germany) out of 40 countries [8].

VI. Conclusion
Foreign direct investment (FDI) is an integral part of an open and
effective international economic system and a major catalyst to
development. Yet, the benefits of FDI do not accrue automatically
and evenly across countries, sectors and local communities.
National policies and the international investment architecture
matter for attracting FDI to a larger number of developing countries
and for reaping the full benefits of FDI for development [1]. One
of the advantages of foreign direct investment is that it helps in
the economic development of the particular country where the
investment is being made [5].
Fig. 3: FDI Flows in the Country, Along with the Contribution
from NRIs References
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