PEOJECT REPORT ON

ANALYTICAL STUDY OF FOREIGN DIRECT

INVESTMENT IN ODISHA

(A Project report submitted to UG.Dept.of commerce Rajendra

(AUTO)college,Balangir in partial fulfillment for the degree of
B.Com.)

Submitted by Guidance by

Manish kumar Das Mr. Surya Kanta Sahu

Roll no- BC-16-140 Lecturer in commerce

UG. DEPARTMENT OF COMMERCE

RAJENDRA (AUTO) COLLEGE, BALANGIR (ODISHA)

2019
1
 PERSONAL MEMORANDA
1.Name of the project :ANALYTICAL STUDY OF
FORGIEN DIRECT INVESTMENT IN ODISHA

2.Name of the student : Manish Kumar Das

3.Name of The College : Rajendra (Auto)college Balangir

4.College Roll No : BC-16-140

5.Examination Roll No : RC16COM071

6.Registration No : 46876/16

7.Name of University : Sambalpur University

INTERNAL EXAMINER EXTERNAL EXAMINER

2
 DECLARATION

I MANISH KUMAR DAS declare that the project

entitled “ANALYTICAL STUDY OF FOREGIN DIRECT
INVESTMENT IN ODISHA,is my original efforts & it has
not been submitted to any organization or university
other than the institution for any purpose whatever.
This project has been compiled for fulfilling the partial
requirement for the awarded of Under Graduate of
Commerce under Sambalpur University. The empirical
Finding in this repost are based on the information
collected by me. Neither the same nor the similar
report has been submitted to any other organization.

PLACE :- BALANGIR MANISH KUMAR DAS

DATE :-

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PROJECT SUPERVISOR’S CERTIFICATE

RAJENDRA AUTONOMOUS COLLEGE, BALANGIR

U.G DEPARTMENT OF COMMERCE

Mr. Surya Kanta Sahu

Lecturer in Commerce

This is to certify that the project reposts entitled,

“ANALYTICAL STUDY OF FOREGIN DIRECT INVESTMENT IN
ODISHA” has been prepared by MANISH KUMAR DAS under
my guidance & sup

Mr.Surya Kanta Sahu

Lecturer in Commerce

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 ACKNOWLEDGEMENT
I am extremely grateful to Associate lecturer in commerce
Mr.Surya Kanta Sahu for his kind consent to supervise my
work. The completion of my work practical study and
preparation of this report would not have been possible
without his guidance and timely advice. I pay my thanks to
him for giving me his valuable time even at odd hours and
going through the manuscript.

I am also thankful to Dr. D.P. Mahapatra and other member

of U.G Dept. of commerce for their help and suggestion at
different stages of study.

A work is never a work of an individual. So a sense of

gratitude to the intelligence and co-operation of all people
who have so easily let me understand what I needed for time
to time for completion of the exclusive project.

I am also thankful to all the student who positively

responded to my questionnaire without whose co-operation,
this dissertation couldn’t have been complotted.

MANISH KUMAR DAS

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 TABLE OF CONTENT

Chapters page no

1. Introduction 7 - 14
1.1 Introduction
1.2 Objective of the study
1.3 Scope of the study
1.4 Limitation of research
1.5 Research methodology

2. Conceptual Framework 15 - 36

2.1 Entry mode

2.2 Strategic logic behind FDI
2.3 Investment Risk
2.4 FDI policy
2.5 Sector Specific

3. Data Analysis&Interpretation 37 - 46

4. Finding, Suggestion & Conclusion 47 - 49

4.1 Finding
4.2 Suggestion
4.3 Conclusion

Bibliography 50

Annexure 51 - 52

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 Chapter -1

Introduction

7
1.1.Introduction

These three letters stand for foreign direct investment. The simplest explanation of
FDI would be a direct investment by a corporation in a commercial venture . The
business enterprise operates completely outside the economy of the corporation’s
home country. The investing corporation must control 10 percent or more of the
voting power of the new venture.

According to history the United States was the leader in the FDI activity dating back
as far as the end of World War II. Businesses from other nations have taken up the
flag of FDI, including many who were not in a financial position to do so just a few
years ago.

The practice has grown significantly in the last couple of decades, to the point that
FDI has generated quite a bit of opposition from groups such as labor unions. These
organizations have expressed concern that investing at such a level in another
country eliminates jobs. Legislation was introduced in the early 1970s that would
have put an end to the tax incentives of FDI.. One key to understanding FDI is to get
a mental picture of the global scale of corporations able to make such investment. A
carefully planned FDI can provide a huge new market for the company, perhaps
introducing products and services to an area where they have never been available.
Not only that, but such an investment may also be more profitable if construction
costs and labor costs are less in the host place.

The definition of FDI originally meant that the investing corporation gained a
significant number of shares (10 percent or more) of the new venture. In recent years,
however, companies have been able to make a foreign direct investment that is
actually long-term management control as opposed to direct investment in buildings
and equipment.

FDI growth has been a key factor in the “international” nature of business that many
are familiar with in the 21st century. This growth has been facilitated by changes in

8
regulations both in the originating place and in the place where the new installation is
to be built. Corporations that lead the world’s economy have found fertile soil for FDI
in nations where commercial development was limited, if it existed at all. The financial
strength of the investing corporations has sometimes meant failure for smaller
competitors in the target place. One of the reasons is that foreign direct investment in
buildings and equipment still accounts for a vast majority of FDI activity. Corporations
from the originating place gain a significant financial foothold in the host places. Even
with this factor, host organization may welcome FDI because of the positive impact it
has on the smaller economy.

Foreign direct investment (FDI) is a measure of foreign ownership of productive

assets, such as factories, mines and land. Increasing foreign investment can be used
as one measure of growing economic globalization. Figure below shows net inflows
of foreign direct investment as a percentage of gross domestic product (GDP).

It usually involves participation in management, joint-venture, transfer of

technology and expertise. There are two types of FDI: inward foreign
direct investment and outward foreign direct investment, resulting in
a net FDI inflow (positive or negative) .Foreign direct investment reflects the objective
of obtaining a lasting interest by a resident entity in one economy (‘‘direct investor’’) in
an entity resident in an economy other than that of the investor (‘‘direct investment
enterprise’’).The lasting interest implies the existence of a long-term relationship
between the direct investor and the enterprise and a significant degree of influence
on the management of the enterprise. Direct investment involves both the initial
transaction between the two entities and all subsequent capital transactions between
them and among affiliated enterprises, both incorporated and unincorporated.

• Foreign Direct Investment – when a firm invests directly in production or

other facilities, over which it has effective control, in a foreign country.
• Manufacturing FDI requires the establishment of production facilities.
• Service FDI requires building service facilities or an investment foothold via
capital contributions or building office facilities.
•
•
• Foreign subsidiaries – overseas units or entities.
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 • Host place – the place in which a foreign subsidiary operates.
• Flow of FDI – the amount of FDI undertaken over a given time.
• Stock of FDI – total accumulated value of foreign-owned assets.
• Outflows/Inflows of FDI – the flow of FDI out of or into a country.
• Foreign Portfolio Investment – the investment by individuals, firms, or public
bodies in foreign financial instruments.
• Stocks, bonds, other forms of debt.
• Differs from FDI, which is the investment in physical assets.

Portfolio theory – the behavior of individuals or firms administering large amounts

of financial assets.

Product Life-Cycle Theory

• Ray Vernon asserted that product moves to lower income countries as

products move through their product life cycle.
• The FDI impact is similar: FDI flows to developed countries for innovation, and
from developed countries as products evolve from being innovative to being
mass-produced.

The Eclectic Paradigm

• Distinguishes between:
– Structural market failure – external condition that gives rise to
monopoly advantages as a result of entry barriers
– Transactional market failure – failure of intermediate product markets
to transact goods and services at a lower cost than internationalization

The Dynamic Capability Perspective

• A firm’s ability to diffuse, deploy, utilize and rebuild firm-specific resources for
a competitive advantage.
• Ownership specific resources or knowledge are necessary but not sufficient for
international investment or production success.
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 • It is necessary to effectively use and build dynamic capabilities for quantity
and/or quality based deployment that is transferable to the multinational
environment.
• Firms develop centers of excellence to concentrate core competencies to the
host environment.

Monopolistic Advantage Theory

• An MNE has and/or creates monopolistic advantages that enable it to operate
subsidiaries abroad more profitably than local competitors.
• Monopolistic Advantage comes from:
– Superior knowledge – production technologies, managerial skills,
industrial organization, knowledge of product.
– Economies of scale – through horizontal or vertical FDI
Internationalization Theory
• When external markets for supplies, production, or distribution fails to provide
efficiency, companies can invest FDI to create their own supply, production, or
distribution streams.
• Advantages
– Avoid search and negotiating costs
– Avoid costs of moral hazard (hidden detrimental action by external
partners)
– Avoid cost of violated contracts and litigation
– Capture economies of interdependent activities
– Avoid government intervention
– Control supplies
– Control market outlets
– Better apply cross-subsidization, predatory pricing and transfer pricing

Foreign direct investment is that investment, which is made to serve the business
interests of the investor in a company, which is in a different place distinct from the
investor's origin. A parent business enterprise and its foreign affiliate are the two
sides of the FDI relationship. Together they comprise an MNC.
The ownership of greater than or equal to 10% of ordinary shares or access to voting
rights in an incorporated firm. For an unincorporated firm one needs to consider an
11
equivalent criterion. Ownership share amounting to less than that stated above is
termed as portfolio investment and is not categorized as FDI.
FDI stands for Foreign Direct Investment, a component of a country's national
financial accounts. Foreign direct investment is investment of foreign assets into
domestic structures, equipment, and organizations. It does not include foreign
investment into the stock markets. Foreign direct investment is thought to be more
useful to a country than investments in the equity of its companies because equity
investments are potentially "hot money" which can leave at the first sign of trouble,
whereas FDI is durable and generally useful whether things go well or badly.
FDI or Foreign Direct Investment is any form of investment that earns interest in
enterprises which function outside of the domestic territory of
the investor. FDIs require a business relationship between a parent company and its
foreign subsidiary. Foreign direct business relationships give rise to multinational
corporations. For an investment to be regarded as an FDI,

1.2Objective of the study:

 To know the flow of investment .

 To know how can India Grow by Investment.
 To Examine the trends and patterns in the FDI across different sectors.
 To know in which sector we can get more foreign currency in terms of
investment .
 To know which place is safe to invest.
 To know how much to invest in a developed place or in a developing places.
 To know Which sector is good for investment.
 To know which country in investing in which country
 To know the reason for investment .
 To understand the FDI policy .

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1.3 Scope of the study
The foreign direct investment is a process for facilitating people to invest. If you
are really interested in doing business with the help of foreign capital then make
sure that you are investing in the right source and you can do this in a number of
ways. Even when India was going through tough times, it was still a good
financial breeding ground for all foreign investors. They have never felt the
pressure as their genre of investment has always been unleashed for the purpose
of ushering more capital.

There have been several Infrastructures who may have suffered in the field of
production and manufacturing due to lack of essential capital. However, a good
way for them to survive is by offering FDI equity to companies or individuals who
would be interested in making huge capital investments.

Foreign direct investment is done in several ways. Investment can take place
through effective financial collaborations. In this case the common interest is the
yearly financial turn over and to make this work out two or more companies
come in association and they share much in contributing towards a common
financial consensus. The effort has to be there from both the ends, from the part
of the investor and also from the part of the collaborator. When collaborating,
you can keep the leadership factors aside and think about a healthy togetherness
contributing towards a bigger financial platform.

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1.4 Limitations of research

 Profit of MNC will go outside the India.

 Balance of payment can be unfavorable.
 The Government should control on much investment.
 Government must safeguard the interest of Indian economy.

1.5 Research methodology

The following research methodology has been adopted in this project work.

1.5.1 Data collection:

Secondary Data is collected from Internet, Books , newspapers, journals and books,
other reports and projects, literatures etc.
1.5.2 statistical tools and technique:
We have used the Correlation tool to determine whether two ranges of data move
together — that is, how the Sensex, Bankex, IT, Power and Capital Goods are
related to the FII which may be positive relation, negative relation or no relation.We
will use this model for understanding the relationship between FII and stock indices
returns. FII is taken as independent variable. Stock indices are taken as dependent
variable
1.5.3 Hypothesis Test:
HO: that FIIs have significant impact on the Indian capital market.
H1: that FIIs will have no significant impact on the Indian capital markert.

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 Chapter - 2

Conceptual Framework

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2.1Entry Mode

• The manner in which a firm chooses to enter a foreign market through FDI.

– International franchising

– Branches

– Contractual alliances

– Equity joint ventures

– Wholly foreign-owned subsidiaries

• Investment approaches:

– Greenfield investment (building a new facility)

– Cross-border mergers

– Cross-border acquisitions

– Sharing existing facilities

Important for any consideration of going global

The simple answer is that making a direct foreign investment allows companies to
accomplish several tasks:

1 .Avoiding foreign government pressure for local production.

2. Circumventing trade barriers, hidden and otherwise.

3. Making the move from domestic export sales to a locally-based national sales
office.

4. Capability to increase total production capacity.

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5.Opportunities for co-production, joint ventures with local partners, joint marketing
arrangements, licensing, etc;

A more complete response might address the issue of global business partnering in
very general terms. While it is nice that many business writers like the expression,
“think globally, act locally”, this often used cliché does not really mean very much to
the average business executive in a small and medium sized company. The phrase
does have significant connotations for multinational corporations. The simple
explanation for this is the difference in perspective between executives of
multinational corporations and small and medium sized companies. Multinational
corporations are almost always concerned with worldwide manufacturing capacity
and proximity to major markets. Small and medium sized companies tend to be more
concerned with selling their products in overseas markets. The advent of the Internet
has us hered in a new and very different mindset that tends to focus more on access
issues.

2.2The Strategic Logic behind FDI

• Resources seeking – looking for resources at a lower real cost.

• Market seeking – secure market share and sales growth in target market.

• Efficiency seeking – seeks to establish efficient structure through useful

factors, cultures, policies, or markets.

• Strategic asset seeking – seeks to acquire assets in firms that promote

corporate long term objectives.

Enhancing Efficiency from Location Advantages

• Location advantages - defined as the benefits arising from a host place

comparative advantages.- Better access to resources

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 – Lower real cost from operating in a host place

– Labor cost differentials

– Transportation costs, tariff and non-tariff barriers

– Governmental policies

Improving Performance from Structural Discrepancies

• Structural discrepancies are the differences in industry structure attributes

between home and host countries. Examples include areas where:

– Competition is less intense

– Products are in different stages of their life cycle

– Market demand is unsaturated

– There are differences in market sophistication

Increasing Return from Ownership Advantages

• Ownership Advantages come from the application of proprietary tangible and

intangible assets.

– Reputation, brand image, distribution channels

– Technological expertise, organizational skills, experience

• Core competence – skills within the firm that competitors cannot easily imitate
or match.

Ensuring Growth from Organizational Learning

• MNEs exposed to multiple stimuli, developing:

– Diversity capabilities

– Broader learning opportunities

• Exposed to:

– New markets

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 – New practices

– New ideas

– New cultures

– New competition

The Impact of FDI on the Host places Employment

– Firms attempt to capitalize on abundant and inexpensive labor.

– seek to have firms develop labor skills and sophistication.

– feel like “least desirable” jobs are transplanted

– face the loss of employment as jobs move.

FDI Impact on Domestic Enterprises

– Foreign invested companies are likely more productive than local

competitors.

– The result is uneven competition in the short run, and competency

building efforts in the longer term.

– It is likely that FDI developed enterprises will gradually develop local

supporting industries, supplier relationships in the host country.

2.3Investment Risk

Soveregin Risk
India is an effervescent parliamentary democracy since its political freedom from
British rule more than 50 years ago. The country does not face any real threat of a
serious revolutionary movement which might lead to a collapse of state machinery.
Sovereign risk is hence nil for both "foreign direct investment" and "foreign portfolio
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investment." Many Industrial and Business houses have restrained themselves from
investing in the North-Eastern part of the country due to unstable conditions.
Nonetheless investing in these parts is lucrative due to the rich mineral reserves here
and high level of literacy. Kashmir on the northern tip is a militancy affected area and
hence investment in the state of Kashmir are restricted by law

Political Risk
India has enjoyed successive years of elected representative government at the
Union as well as federal level. India suffered political instability for a few years in the
sense there was no single party which won clear majority and hence it led to the
formation of coalition governments. However, political stability has firmly returned
since the general elections in 1999, with strong and healthy coalition governments
emerging. Nonetheless, political instability did not change India's bright economic
course though it delayed certain decisions relating to the economy. Economic
liberalization which mostly interested foreign investors has been accepted as
essential by all political parties including the Communist Party of India Though there
are bleak chances of political instability in the future, even if such a situation arises
the economic policy of India would hardly be affected.. Being a strong democratic
nation the chances of an army coup or foreign dictatorship are minimal. Hence,
political risk in India is practically absent.

Commercial Risk
Commercial risk exists in any business ventures of a country. Not each and every
product or service is profitably accepted in the market. Hence it is advisable to study
the demand / supply condition for a particular product or service before making any
major investment. In India one can avail the facilities of a large number of market
research firms in exchange for a professional t involves some kind of gamble and
hence involves commercial risk

Risk Due To Terrorism

In the recent past, India has witnessed several terrorist attacks on its soil which could
have a negative impact on investor confidence. Not only business environment and
return on investment, but also the overall security conditions in a nation have an
effect on FDI's. Though some of the financial experts think otherwise. They believe
the negative impact of terrorist attacks would be a short term phenomenon. In the
long run, it is the micro and macro economic conditions of the Indian economy that
would decide the flow of foreign investment and in this regard India would continue to
be a favorable investment destination.

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2.4FDI Policy

Foreign Direct Investment Policy

FDI policy is reviewed on an ongoing basis and measures for its further liberalization
are taken. Change in sectoral policy/sectoral equity cap is notified from time to time
through Press Notes by the Secretariat for Industrial Assistance (SIA) in the
Department of Industrial Policy announcement by SIA are subsequently notified by
RBI under FEMA. All Press Notes are available at the website of Department of
Industrial Policy & Promotion. FDI Policy permits FDI up to 100 % from foreign/NRI
investor without prior approval in most of the sectors including the services sector
under automatic route. FDI in sectors/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.

The Foreign direct investment scheme and strategy depends on the respective FDI
norms and policies. The FDI policy of India has imposed certain foreign direct
investment regulations as per the FDI theory of the Government of India . These
include FDI limits in India for example:

o Foreign direct investment in infrastructure development projects excluding

arms and ammunitions, atomic energy sector, railways system , extraction of
coal and lignite and mining industry is allowed upto 100% equity participation
with the capping amount as Rs. 1500 crores.
o FDI figures in equity contribution in the finance sector cannot exceed more
than 40% in banking services including credit card operations and in insurance
sector only in joint ventures with local insurance companies.
o FDI limit of maximum 49% in telecom industry especially in the GSM services

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Government Approvals for Foreign Companies Doing Business

Government Approvals for Foreign Companies Doing Business or Investment Routes

for Investing, Entry Strategies for Foreign Investors India's foreign trade policy has
been formulated with a view to invite and encourage FDI in India. The Reserve Bank
of India has prescribed the administrative and compliance aspects of FDI. A foreign
company planning to set up business operations in India has the following options:

 Investment under automatic route; and

 Investment through prior approval of Government.

Procedure under automatic route

FDI in sectors/activities to the extent permitted under automatic route does not

require any prior approval either by the Government or RBI. The investors are only

required to notify the Regional office concerned of RBI within 30 days of receipt of

inward remittances and file the required documents with that office within 30 days of

issue of shares to foreign investors.

List of activities or items for which automatic route for foreign investment is not
available, include the following:

 Banking
 NBFC's Activities in Financial Services Sector
 Civil Aviation
 Petroleum Including Exploration/Refinery/Marketing
 Housing & Real Estate Development Sector for Investment from Persons other
than NRIs/OCBs.
 Venture Capital Fund and Venture Capital Company
 Investing Companies in Infrastructure & Service Sector
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  Atomic Energy & Related Projects
 Defense and Strategic Industries
 Agriculture (Including Plantation)
 Print Media
 Broadcasting
 Postal Services

Procedure under Government approval

FDI in activities not covered under the automatic route, requires prior Government
approval and are considered by the Foreign Investment Promotion Board (FIPB).
Approvals of composite proposals involving foreign investment/foreign technical
collaboration are also granted on the recommendations of the FIPB. Application for
all FDI cases, except Non-Resident Indian (NRI) investments and 100% Export
Oriented Units (EOUs), should be submitted to the FIPB Unit, Department of
Economic Affairs (DEA), Ministry of Finance. Application for NRI and 100% EOU
cases should be presented to SIA in Department of Industrial Policy & Promotion.

Investment by way of Share Acquisition

A foreign investing company is entitled to acquire the shares of an Indian company

without obtaining any prior permission of the FIPB subject to prescribed parameters/
guidelines. If the acquisition of shares directly or indirectly results in the acquisition of
a company listed on the stock exchange, it would require the approval of the Security
Exchange Board of India.New investment by an existing collaborator in India
A foreign investor with an existing venture or collaboration (technical and financial)
with an Indian partner in particular field proposes to invest in another area, such type
of additional investment is subject to a prior approval from the FIPB, wherein both the
parties are required to participate to demonstrate that the new venture does not
prejudice the old one.

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General Permission of RBI under FEMA

Indian companies having foreign investment approval through FIPB route do not
require any further clearance from RBI for receiving inward remittance and issue of
shares to the foreign investors. The companies are required to notify the concerned
Regional office of the RBI of receipt of inward remittances within 30 days of such
receipt and within 30 days of issue of shares to the foreign investors or NRIs.
Participation by International Financial Institutions
Equity participation by international financial institutions such as ADB, IFC, CDC,
DEG, etc., in domestic companies is permitted through automatic route, subject to
SEBI/RBI regulations and sector specific cap on FDI.

FDI In Small Scale Sector (SSI) Units

A small-scale unit cannot have more than 24 per cent equity in its paid up capital
from any industrial undertaking, either foreign or domestic.
If the equity from another company (including foreign equity) exceeds 24 per cent,
even if the investment in plant and machinery in the unit does not exceed Rs 10
million, the unit loses its small-scale status and shall require an industrial license to
manufacture items reserved for small-scale sector. See also FDI in Small Scale
Sector in India Further Liberalized

2.5Sector Specific Foreign Direct Investment

Hotel & Tourism: FDI in Hotel & Tourism sector

100% FDI is permissible in the sector on the automatic route,

The term hotels include restaurants, beach resorts, and other tourist complexes
providing accommodation and/or catering and food facilities to tourists. Tourism

24
related industry include travel agencies, tour operating agencies and tourist transport
operating agencies, units providing facilities for cultural, adventure and wild life
experience to tourists, surface, air and water transport facilities to tourists, leisure,
entertainment, amusement, sports, and health units for tourists and
Convention/Seminar units and organizations.

For foreign technology agreements, automatic approval is granted if

i. up to 3% of the capital cost of the project is proposed to be paid for technical

and consultancy services including fees for architects, design, supervision, etc.
ii. up to 3% of net turnover is payable for franchising and marketing/publicity
support fee, and up to 10% of gross operating profit is payable for
management fee, including incentive fee.

Private Sector Banking:

Non-Banking Financial Companies (NBFC)

49% FDI is allowed from all sources on the automatic route subject to guidelines
issued from RBI from time to time.

a. FDI/NRI/OCB investments allowed in the following 19 NBFC activities shall be

as per levels indicated below:

i. Merchant banking
ii. Underwriting
iii. Portfolio Management Services
iv. Investment Advisory Services
v. Financial Consultancy
vi. Stock Broking
vii. Asset Management
viii. Venture Capital
ix. Custodial Services

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 x. Factoring
xi. Credit Reference Agencies
xii. Credit rating Agencies
xiii. Leasing & Finance
xiv. Housing Finance
xv. Foreign Exchange Brokering
xvi. Credit card business
xvii. Money changing Business
xviii. Micro Credit
xix. Rural Credit

b. Minimum Capitalization Norms for fund based NBFCs:

i) For FDI up to 51% - US$ 0.5 million to be brought upfront

ii) For FDI above 51% and up to 75% - US $ 5 million to be brought upfront

iii) For FDI above 75% and up to 100% - US $ 50 million out of which US $ 7.5
million to be brought up front and the balance in 24 months

c. Minimum capitalization norms for non-fund based activities:

Minimum capitalization norm of US $ 0.5 million is applicable in respect of all

permitted non-fund based NBFCs with foreign investment.

d. Foreign investors can set up 100% operating subsidiaries without the condition
to disinvest a minimum of 25% of its equity to Indian entities, subject to bringing in
US$ 50 million as at b) (iii) above (without any restriction on number of operating
subsidiaries without bringing in additional capital)

26
 e. Joint Venture operating NBFC's that have 75% or less than 75% foreign
investment will also be allowed to set up subsidiaries for undertaking other NBFC
activities, subject to the subsidiaries also complying with the applicable minimum
capital inflow i.e. (b)(i) and (b)(ii) above.

f. FDI in the NBFC sector is put on automatic route subject to compliance with
guidelines of the Reserve Bank of India. RBI would issue appropriate guidelines
inthis regard.

Insurance Sector: FDI in Insurance sector

FDI up to 26% in the Insurance sector is allowed on the automatic route subject to
obtaining license from Insurance Regulatory & Development Authority (IRDA)

Telecommunication:

FDI in Telecommunication sector

i. In basic, cellular, value added services and global mobile personal

communications by satellite, FDI is limited to 49% subject to licensing and
security requirements and adherence by the companies (who are investing
and the companies in which investment is being made) to the license
conditions for foreign equity cap and lock- in period for transfer and addition of
equity and other license provisions.
ii. ISPs with gateways, radio-paging and end-to-end bandwidth, FDI is permitted
up to 74% with FDI, beyond 49% requiring Government approval. These
services would be subject to licensing and security requirements.
iii. No equity cap is applicable to manufacturing activities.
iv. FDI up to 100% is allowed for the following activities in the telecom sector :
a. ISPs not providing gateways (both for satellite and submarine cables);
b. Infrastructure Providers providing dark fiber (IP Category 1);
c. Electronic Mail; and

27
 d. Voice Mail

The above would be subject to the following conditions:

e. FDI up to 100% is allowed subject to the condition that such companies

would divest 26% of their equity in favor of Indian public in 5 years, if
these companies are listed in other parts of the world.
f. The above services would be subject to licensing and security
requirements, wherever required.

Proposals for FDI beyond 49% shall be considered by FIPB on case to case basis.

Trading:

FDI in Trading Companies

Trading is permitted under automatic route with FDI up to 51% provided it is primarily
export activities, and the undertaking is an export house/trading house/super trading
house/star trading house. However, under the FIPB route:-

i. 100% FDI is permitted in case of trading companies for the following activities:

 exports;
 bulk imports with ex-port/ex-bonded warehouse sales;
 cash and carry wholesale trading;
 other import of goods or services provided at least 75% is for procurement and
sale of goods and services among the companies of the same group and not
for third party use or onward transfer/distribution/sales.

ii. The following kinds of trading are also permitted, subject to provisions of EXIM
Policy:

a. Companies for providing after sales services (that is not trading per se)
b. Domestic trading of products of JVs is permitted at the wholesale level for
such trading companies who wish to market manufactured products on behalf
of their joint ventures in which they have equity participation .
28
 c. Trading of hi-tech items/items requiring specialized after sales service
d. Trading of items for social sector
e. Trading of hi-tech, medical and diagnostic items.
f. Trading of items sourced from the small scale sector under which, based on
technology provided and laid down quality specifications, a company can
market that item under its brand name.
g. Domestic sourcing of products for exports.
h. Test marketing of such items for which a company has approval for
manufacture provided such test marketing facility will be for a period of two
years, and investment in setting up manufacturing facilities commences
simultaneously with test marketing

FDI up to 100% permitted for e-commerce activities subject to the condition that such
companies would divest 26% of their equity in favor of the Indian public in five years,
if these companies are listed in other parts of the world. Such companies would
engage only in business to business (B2B) e-commerce and not in retail trading.

Power:

FDI In Power Sector

Up to 100% FDI allowed in respect of projects relating to electricity generation,

transmission and distribution, other than atomic reactor power plants. There is no
limit on the project cost and quantum of foreign direct investment.

Drugs & Pharmaceuticals

FDI up to 100% is permitted on the automatic route for manufacture of drugs and
pharmaceutical, provided the activity does not attract compulsory licensing or involve
use of recombinant DNA technology, and specific cell / tissue targeted formulations.

FDI proposals for the manufacture of licensable drugs and pharmaceuticals and bulk
drugs produced by recombinant DNA technology, and specific cell / tissue targeted
formulations will require prior Government approval.

29
Roads, Highways, Ports and Harbors

FDI up to 100% under automatic route is permitted in projects for construction and
maintenance of roads, highways, vehicular bridges, toll roads, vehicular tunnels,
ports and harbors.

Pollution Control and Management

FDI up to 100% in both manufacture of pollution control equipment and consultancy

for integration of pollution control systems is permitted on the automatic route.

Call Centers / Call Centre

FDI up to 100% is allowed subject to certain conditions.

Business Process Outsourcing BPO

FDI up to 100% is allowed subject to certain conditions.

Special Facilities and Rules for NRI's and OCB's

NRI's and OCB's are allowed the following special facilities:

1. Direct investment in industry, trade, infrastructure etc.

2. Up to 100% equity with full repatriation facility for capital and dividends in the
following sectors
i. 34 High Priority Industry Groups
ii. Export Trading Companies
iii. Hotels and Tourism-related Projects
iv. Hospitals, Diagnostic Centers
v. Shipping
vi. Deep Sea Fishing
vii. Oil Exploration
viii. Power
ix. Housing and Real Estate Development
x. Highways, Bridges and Ports
xi. Sick Industrial Units

30
 xii. Industries Requiring Compulsory Licensing
3. Up to 40% Equity with full repatriation: New Issues of Existing Companies
raising Capital through Public Issue up to 40% of the new Capital Issue.
4. On non-repatriation basis: Up to 100% Equity in any Proprietary or Partnership
engaged in Industrial, Commercial or Trading Activity.
5. Portfolio Investment on repatriation basis: Up to 1% of the Paid up Value of the
equity Capital or Convertible Debentures of the Company by each NRI.
Investment in Government Securities, Units of UTI, National Plan/Saving
Certificates.
6. On Non-Repatriation Basis: Acquisition of shares of an Indian Company,
through a General Body Resolution, up to 24% of the Paid Up Value of the
Company.
7. Other Facilities: Income Tax is at a Flat Rate of 20% on Income arising from
Shares or Debentures of an Indian

31
 Sector-wise FDI Inflows ( From April 2000 to January 2010)
AMOUNT OF FDI
SECTOR INFLOWS PERCENT OF TOTAL FDI
INFLOWS (In terms of Rs)
In US$
In Rs Million
Million

Services Sector 787420.81 18118.40 22.39

Computer Software &
391109.74 8876.43 11.12
hardware
Telecommunications 275441.38 6215.55 7.83
Construction
213595.12 5029.01 6.07
Activities
Automobile 146799.41 3310.23 4.17
Housing & Real
217936.02 5118.85 6.20
estate
Power 137089.37 3129.66 3.90
Chemicals (Other
87008.07 1964.06 2.47
than Fertilizers)
Ports 63290.50 1551.88 1.80
Metallurgical
109563.20 2612.85 3.11
industries
Electrical Equipments 57379.63 1324.92 1.63
Cement & Gypsum
70781.19 1621.03 2.01
Products
Petroleum & Natural
94417.17 2244.17 2.68
Gas
Trading 62416.85 1480.94 1.77
Consultancy Services 48647.43 1112.92 1.38
Hotel and Tourism 52500.05 1217.50 1.49
Food Processing
34362.49 760.32 0.98
Industries
Electronics 33914.75 748.57 0.96
Misc. Mechanical &
Engineering 28310.13 648.86 0.80
industries
Information &
Broadcasting (Incl. 52115.90 1194.20 1.48
Print media)

32
Mining 21204.94 522.86 0.60
Textiles (Incl. Dyed,
26736.94 611.03 0.76
Printed)
Sea Transport 17653.81 402.59 0.50
Hospital & Diagnostic
27241.42 644.73 0.77
Centers
Fermentation
27743.46 658.04 0.79
Industries
Machine Tools 10955.32 247.88 0.31
Air Transport ( Incl.
10552.19 240.71 0.30
air freight)
Ceramics 17462.43 409.92 0.50
Rubber Goods 11392.76 247.60 0.32
Agriculture Services 7937.13 188.39 0.23
Industrial Machinery 13748.27 316.97 0.39
Paper & Pulp 18612.76 429.06 0.53
Diamond & Gold
11014.62 248.15 0.31
Ornaments
Agricultural
6649.12 148.37 0.19
Machinery
Earth Moving
5749.34 134.22 0.16
Machinery
Commercial, Office &
Household 5798.71 132.74 0.16
Equipments
Glass 5683.60 126.51 0.16
Printing of Books
(Incl. Litho printing 6066.23 135.80 0.17
industry)
Soaps, Cosmetics
and Toilet 4984.88 114.54 0.14
Preparations
Medical & Surgical
8087.87 177.42 0.23
Appliances
Education 14374.11 309.09 0.41
Fertilizers 4282.17 96.59 0.12
Photographic raw 2580.20 63.90 0.07

33
Film & Paper
Railway related
3281.85 75.11 0.09
components
Vegetable oils and
3769.18 83.69 0.11
Vanaspati
Sugar 1836.64 41.58 0.05
Tea & Coffee 3774.81 84.28 0.11
Leather, Leather
1621.56 36.74 0.05
goods &Piackers
Non-conventional
3640.58 86.84 0.10
energy
Industrial instruments 1368.36 29.47 0.04
Scientific instruments 511.44 11.64 0.01
Glue and Gelatine 385.80 8.44 0.01
Boilers & steam
238.67 5.40 0.01
generating plants
Dye-Stuffs 406.48 9.52 0.01
Retail Trading (Single
1074.67 25.18 0.03
brand)
Coal Production 614.10 15.42 0.02
Coir 50.17 1.12 0.00
Timber products 139.59 3.10 0.00
Prime Mover (Other
than electrical 178.30 3.72 0.01
generators
Defence Industries 6.87 0.15 0.00
Mathematical,
Surveying & drawing 50.35 1.27 0.00
instruments
Misc. industries 180561.54 4162.55 5.19

Sub Total 3517310.79 81010.63 100.00

Stock Swapped
145466.35 3391.07 -
(from 2002 to 2008)
Advance of Inflows
89622.22 1962.82 -
(from 2000 to 2004)

34
RBI's NRI Schemes 5330.60 121.33 -
Grand Total 3757729.96 86395.85 -

Sector wise FDI inflows

SOURCE: DIPP, Federal Ministry of Commerce and Industry, Government

of India

Forbidden Territories:

 Arms and ammunition

 Atomic Energy
 Coal and lignite
 Rail Transport
 Mining of metals like iron, manganese, chrome, gypsum, sulfur, gold,
diamonds, copper, zinc.

35
Foreign direct investments are approved through two routes –

1. Automatic approval by RBI –

The Reserve Bank of India accords automatic approval within a period of two weeks
(subject to compliance of norms) to all proposals and permits foreign equity up to
24%; 50%; 51%; 74% and 100% is allowed depending on the category of industries
and the sectoral caps applicable. The lists are comprehensive and cover most
industries of interest to foreign companies. Investments in high priority industries or
for trading companies primarily engaged in exporting are given almost automatic
approval by the RBI.

2. The FIPB Route – Processing of non-automatic approval cases –

FIPB stands for Foreign Investment Promotion Board which approves all other cases
where the parameters of automatic approval are not met. Normal processing time is 4
to 6 weeks. Its approach is liberal for all sectors and all types of proposals, and
rejections are few. It is not necessary for foreign investors to have a local partner,
even when the foreign investor wishes to hold less than the entire equity of the
company. The portion of the equity not proposed to be held by the foreign investor
can be offered to the public.

36
 Chapter- 3

Data Analysis & Interpretation

37
 Analysis of sector specific policy for FDI

Sr. No. Sector/Activity FDI cap/Equity Entry/Route

1. Hotel & Tourism 100% Automatic
2. NBFC 49% Automatic
3. Insurance 26% Automatic
4. Telecommunication: Automatic
cellular, value added services 49%
ISPs with gateways, radio- Above 49% need Govt.
paging 74% licence
Electronic Mail & Voice Mail 100%
5. Trading companies:
primarily export activities 51% Automatic
bulk imports, cash and carry
wholesale trading 100% Automatic
6. Power(other than atomic
reactor power plants) 100% Automatic
7. Drugs & Pharmaceuticals 100% Automatic
8. Roads, Highways, Ports and 100% Automatic
Harbors
9. Pollution Control and 100% Automatic
Management
10 Call Centers 100% Automatic
11. BPO 100% Automatic

38
12. For NRI's and OCB's:

i. 34 High Priority
100% Automatic
Industry Groups
ii. Export Trading
Companies
iii. Hotels and Tourism-
related Projects
iv. Hospitals, Diagnostic
Centers
v. Shipping
vi. Deep Sea Fishing
vii. Oil Exploration
viii. Power
ix. Housing and Real
Estate Development
x. Highways, Bridges and
Ports
xi. Sick Industrial Units
xii. Industries Requiring
Compulsory Licensing
xiii. Industries Reserved for
Small Scale Sector

13. Airports:
Greenfield projects 100% Automatic
Existing projects 100% Beyond 74% FIPB
14 Assets reconstruction 49% FIPB
company
15. Cigars and cigarettes 100% FIPB
16. Courier services 100% FIPB

39
 17. Investing companies in 49% FIPB
infrastructure (other than
telecom sector)

Analysis of FDI inflow in India

From April 2000 to August 2 (Amount in Rs)

S.No Financial Year Total FDI % Growth Over Previous Year
Inflows
1. 2000-01 286059 ----
2. 2001-02 435230 (+) 52
3. 2002-03 357485 (-) 18
4. 2003-04 306862 (-) 14
5. 2004-05 429621 (+) 40
6. 2005-06 636231 (+) 48
7. 2006-07 1620646 (+) 146
8. 2007-08 2439702 (+) 51
9. 2008-09 2496928 (+) 02
10. 2009-10 1152472 ----

40
 TOTAL FDI INFLOWS
40,000

35,000 35,168
34,362

30,000

25,000

22,826

20,000
TOTAL FDI INFLOWS

16,232
15,000

10,000
8,961

6,130 6,051
5,000 5,035
4,029 4,322

41
Role of FDI
Bhubaneshar ; A number offoreign direct investment proposal have come
Odisha way at the make in India week in Mumbai. Business leaders from the
globe including Japan, Germany,Korea, and Indonasia, who participate in
it.Praised the industrial reforms in Odisha such as lunching of the mobile
app,online monitoring system and lank bank During an interaction with chief
minister Naveen Patnaik ,who led Odisha in the make in India week .A number
of global businessman promised investment in the state in mineral, food
processing ,electronic ,information and technology and downstream sectors
.Naveen said Odisha plan to create 10 lakh jobs and attract investment worth rs
2.5lakh corer in the next decade and added that tha state will be a
manufracture hub in the next five to six years . To explore investment
opportunity in the state ,South Korean ambassador will lead a business
delegation to the statein April .,official source said .Besides , automobilr major
Volkswagan will also visit the state .A Chinese delegation is likely to visite the
state and chief minister launched e-BIZ,an online portal to fast track hurdle in
different department .Naveen also launch an online common inspection
framework for assessment of industry which recived accolade form industrialist
and policy makers .

Source: Directorate of Industries, Governement of Orissa

42
The key industries in Orissa are primarily basic metals (including iron & steel,
aluminium) and chemicals & chemical products. Between 1991-2004, Orissa
attracted 0.9 per cent of India’s investment, aggregating to nearly US$ 370
million. Currently, investment worth US$ 20 billion are in the pipeline in Orissa
and a sector-wise break-up of these projects indicates that a majority of the
investment are in electricity generation and mineral-based industries including
aluminium and steel. Orissa can emerge as a hub for metals business in India and
has the potential to attract investment up to US$ 30-40 billion over the next five
years if it focuses on utilising the opportunity presented by the current global
metals cycle. With its locational advantage, and the current up trend in global
market, the State can become the metals, mining, and manufacturing hub of the
country. Though Orissa accounted for only 6.3 per cent of projects under
implementation as on January 2005, its share of India’s aggregate outstanding
projects ‘announced’ has risen to 17 per cent. Its share in manufacturing sector
projects announced in India is higher at 38 per cent and the investment value of
projects announced in Orissa has shot up over four times to US$ 24 billion as on
January 2005 from US$ 5.5 billion in January 2004 (Centre for Monitoring
Indian Economy).

During 1991 to 2003, Orissa approved over US$ 2.3 billion of foreign direct
investment. The key sectors attracting FDI in Orissa are electricity, metals and
metallurgical products, chemical and chemical products. It now seems that there
has been a turning point in the last few years and the economy of Orissa has
witnessed acceleration in terms of the gross state domestic product (GSDP).
Orissa’s real GSDP has grown by an average annual rate of 4.8% on a long
termbasis during 1980-81 to 2006-07 compared to 6% for the same period for
the nation as a whole. The index number of GSDP (with 1980-81 = 100.0)
nearly doubled over the 20 years period 1980-2000 and has further increased by
another 60 per cent since then. In particular, there has been a sharp rise in the
index after 2002-03. The average GSDP growth rate of 8.6 per cent per annum
during the period 2002-03 to 2006-07 compares very well with the national

43
level. The per capita income of Orissa was about Rs.7700 at 1999-2000 prices in
the year

1980-81. It nearly doubled to Rs.15100 in 2006-07 (Figure 2). Per capita income
at the national level has grown by 160 per cent from about Rs.8600 to Rs.22700
during the same period. Orissa thus continues to remain behind the national
average considerably. There have been attempts to bridge the gap and the growth
rates noticed in recent years is the first major indicator of a move in that
direction.

Like other developing economy, the economy of Orissa has been going
through structural changes away from agriculture in favour of industry and
services. Primary sector accounted for most of income generated in the State in
1980-

81. It has reduced to 32% in 2006-07. It might be noted that mining and
quarrying sector plays a more important role in Orissa and income generated in
this sector forms about 8% of total income. About 24% of State income is
produced by agriculture and allied sectors. Share of secondary sector has
increased from 17% to 23% and that of services from 30% to 44%. Compared to
the all-India level, primary sector’s share is about 12% more in Orissa and
service sector’s share is about 10% less. Share of the secondary sector in Orissa
is nearly similar to that for all states taken together.

44
 Fig.-2
Percentage Composition of GDP

mining& quarrying
agriculture& allied
secondary
services

Source: Directorate of Industries, GovernementofOrissa

Conclusion

India’s rising growth trajectory requires rapidly expanding infrastructure

facilities to support it. The Government recognises the fact that domestic
resources alone may not be adequate to sustain the required expansion in
infrastructure. Thus, it has followed a strategy to create incentives for Foreign
Direct Investment. India, today, has an extremely liberal regime for FDI in terms
of entry norms. As Odisha is a hub of mineral resources the Government has
taken systematic initiatives to address these problems largely through
comprehensive reforms in sectors like power, iron and steel. The combination
ofdomestic private foreign investment and multilateral investments is
likely to propel Odisha’s economic growth momentum in future.

45
Foreign Investment Promotion Board

The FIPB (Foreign Investment Promotion Board) is a government body that offers a
single window clearance for proposals on foreign direct investment that are not
allowed access through the automatic route. Consisting of Senior Secretaries drawn
from different ministries with Secretary ,Economic Affairs in the chair, this high
powered body discusses and examines proposals for foreign investment in the
country for restricted sectors ( as laid out in the Press notes and extant foreign
investment policy) on a regular basis. Currently proposals for investment beyond 600
crores require the concurrence of the CCEA (Cabinet Committee on Economic
Affairs). The threshold limit is likely to be raised to 1200 crore soon.The Board thus
plays an important role in the administration and implementation of the Government’s
FDI policy. In circumstances where there is ambiguity or a conflict of interpretation,
the FIPB has stepped in to provide solutions. Through its fast track working it has
established its reputation as a body that does not unreasonably delay and is objective
in its decision making. It therefore has a strong record of actively encouraging the
flow of FDI. The FIPB is assisted in this task by a FIPB Secretariat. The launch of e-
filing facility is an important initiative of the Secretariat to further the cause of
enhanced accessibility and transparency .

46
 Chapter - 4

Finding, Suggestions& Conclusion

47
4.1.Finding

1) FDI is an important tool for economic growth.

2) FDI will create good profile jobs for skilled employee in service sector.

3) Retailing helps in absorbing the unemployment in agriculture sector and

providing safety net and opportunities to the superfluous labour

4) Orgainised retailing with FDI helps in infrastructure development would

result in berry of building and opening of multiplexes in rural areas .

5) FDI in retailing resultant rural prosperity to open up market for the other
industrial goods and helps bring about a more balanced regional development

6) FDI in retailing can significantly increase export.

7) Customers get benefited from FDI in retailing because competition would

take place so that they get best quality product at right price.

8) FDI in retailing sector means that its contribution to GDP would grow.

9) FDI helps in expanding the economy, generate employment and result in

more tax income.

10) FDI help in socio economic equilibrium of the entire economy.

11) FDI retail attract more of technical up gradation.

48
4.2 Recommendations & suggestions

1. FDI is good for growth of economy.

2. It generates employment.
3. It increases standard living of the people.
4. Investment in a particular region leads to regional development.
5. The gap of regional disparity can be minimized.
6. New MNC comes with new Technology.

4.3. Conclusion

A large number of changes that were introduced to regulatory economic policies

heralded the liberalization era of the FDI policy regime and brought about a structural
break through in the volume of the FDI inflows into the economy maintained a
fluctuating and unsteady trend during the study period. It might be of interest to note
that more than 50% of the total FDI inflows received came from outside the country
The main reason for higher levels of investment from outside was that the fact that
double taxation avoidance agreement (DTAA). Among the different sectors, the
service sector had received the larger proportion followed by computer software and
hardware sector and telecommunication sector.

According to findings and results, we have concluded that FDI will generate the
employment,increase the economy as well as standard of living of the people . It also
help the people to invest the capital or mobilize his fund in different sector .

49
 Bibliography

www.rbi.org

www.fin.in.nic

www.sebi.org

http://books.google.co.in/books?id=0VUafaE3pOIC&pg=PA4&dq=types+of+foreign+d
irect+investment&hl=en&ei=efzrS_rEAoy5rAfv34DbBg&sa=X&oi=book_result&ct=bo
ok-
thumbnail&resnum=1&ved=0CDUQ6wEwAA#v=onepage&q=types%20of%20foreign
%20direct%20investment&f=false

http://www.indiahousing.com/fdi-foreign-direct-investment.html

http://finance.indiamart.com/investment_in_india/fdi.html

http://www.answers.com/topic/foreign-direct-investment#History

http://www.unctad.org/sections/dite_iiab/docs/diteiiab20041_en.pdf

http://www.economywatch.com/foreign-direct-investment/

http://www.legalserviceindia.com/articles/fdi_india.htm

50
 Annexure

1.AGE *
o 15-25
o 26-50

2.Are you familiar with the term "FDI"?

o Yes
o No
o Heard it often

3.According to you, does it pace economic growth?

o Yes
o No
o No idea

4. Do you think FDI can improve the present infrastructural levels in India?

o Yes
o No
o Can't say

5.Can FDI induce competitive environment?

o Yes
o No
o Can't say

6.In which of the following sectors FDI should be promoted?

o Large Scale Industries

o Small Scale Industries
o Healthcare
o IT and Communications
o Transportation
o Fashion & Clothing
o Hotels & Restaurants

51
 o Should not be enforced

7.FDI is prohibited under the Government Route as well as the Automatic Route
in the "Agriculturalsector" (excluding Floriculture, Horticulture, Development of
seeds). Do you think FDI can lead toadvancements in Agriculture?

o Yes
o No
o May be

8.Do you think growth of organised retail through F.D.I. will create millions of
good quality newjobs?

o Yes
o No
o May be

9.If someone said the advent of the taxi threatens the Tonga, would you put a
stop to taxis? In thesame way is it wise to stop foreign investment?

o Yes
o No
o Can't say

10. According to you, whom will the F.D.I. benefit the most?

o Producers
o Suppliers
o Consumers

11.Thanks for your responses. Hopefully you would have made an opinion by
now. Conclude yourviews on F.D.I.

o Boon to economy
o Bane to economy
o Still in dilemma

52