FORIGN DIRECT INVESTMENT IN INDIAN ECONOMY

FDI is a type of investment that involves the injection

of foreign funds into an enterprise that operates in a different country of origin from the investor.
It usually involves participation in management, joint

venture, transfer of technology and expertise.

FDI can be classified:

Inward FDI and outward FDI

 A recent UNCTAD survey project India as the second

most important FDI destination(after China) for transnational corporations during 2010-2012. The sectors which attracted higher inflow were service, telecommunication, construction activities and computer software and hardware. Mauritius, Singapore, the US and the UK were among the leading sources of FDI. FDI in India crossed $ 46.84 billion in the last financial year.

Sector-wise FDI Limit In India:

Multi brand retail-51% Civil aviation -49% Insurance sector-26% Defense sector-26% Print media-26% Credit information Companies-49%

 Broadcasting

-FM radio stations-20% -cable network-49% -Direct-To- Home service-49% -sky broadcasting service-74%(Automatic-49%, Gov approval route-up to 74%) Banking sector -Private sector Bank-74%(Automatic route 49% and Governmental approval route-up to 74%). -Public sector banks-20%

 Economic growth Technology diffusion and knowledge transfer

Employment and skill levels

Linkage and spillover to domestic firms Increased productive efficiency due to competition from

multinational subsidiaries

The objectives of this study being conducted is:

To study the trend and patterns of flow of FDI

To assess the determinants of FDI inflow

To study evaluate the impact of FDI on Indian

economy. To study distribution of FDI within India.

2005-2006------$8.96billion (48%) 2006-2007------$22.82billion (146%) 2007-2008------$34.83billion (53%) 2008-2009------$41.87billion (20%) 2009-2010 ------$37.74 billion(-08%) 2010-2011 ------ $34.84 billion(+34%) 2011-2012 ------ $46.84 billion(+34.4%)

[ 1]Vodafone(services)
[2] Nokia(Electrical Equipment) [3] General motors(Real state)

[4] suzuki(Transportation)

Ranks

Country
MAURITIUS SINGAPORE UK JAPAN U.S.A

20092010 49,633 11,295 3,094 5,670 9,230

20102011 31,855 7,730 3,434 7,063 5,353

2011-2012

Cumulati ve Inflow 289,471 77,588 74,661 57,851 47,889

% to Total inflow 38% 10% 9% 7% 6%

46,710 24,712 45,229 14,089 5,347

3 4 5
6

NETHERLANDS
CYPRUS GERMANY FRANCE U.A.E

4283
7,728 2,980 1,437 3,017 123,120

5,501
4,171 908 3,349 1,569 88,520

6,698
7,722 7,452 3,110 1,728 173,946

32,325
29,670 20,828 13,378 10,320 775,006

4%
4% 3% 2% 1%

7 8 9 10
TOTAL FDI INFLOWES

Rank s 1 2 3 4 5

Sector

20092010 19,945 12,270 13,469 4,127

2010-2011

2011-2012

Cumulativ e Inflow 145,764 57,078 52,253 50,118 49,717

% to Total inflow 10% 7% 7% 7% 7%

Service Sector Telecommunication Construction Computer software & hardware

15,053 7,542 4,979 3,551 5,600

24,656 9,012 13,672 3,804 3,443

Housing & Real estate 14,027

6
7 8 9 10

Chemicals
Drugs & Pharmaceuticals Power Auto Mobile Industry Metallurgical Industries

1,726
1,006 6,138 5,893 1,999

1,812
961 5,796 5,864 5,023

36,227
14,605 7,678 4,347 8,348

47,904
42,868 33,214 30,785 26,936

6%
5% 4% 4% 4%

 Economic reform process since 1991 have paves way for

increasing foreign exchange reserves to US$ 251985 millions as against US$ 9220 millions in 1991-92. An analysis of last eighteen years of trends in FDI inflows in India shows that initially the inflows were low but there is a sharp rise in investment flows from 2005 onwards. Although Indias share in global FDI has increased considerably, but the pace of FDI inflows has been slower than China, Singapore, Brazil, and Russia. India has received maximum number of financial collaborations as compared to technical collaborations

 India received large amount of FDI from Mauritius

(nearly 40 percent of the total FDI inflows) apart from USA (8.8 percent), Singapore (7.2 percent), U.K (6.1 percent), Netherlands (4.4 percent) and Japan (3.4 percent) In order to have a generous flow of FDI, India has maintained Double Tax Avoidance Agreements (DTAA) with nearly 70 countries of the world. 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

Mumbai and New Delhi have been the top performers, with the majority of FDI inflows within India being heavily concentrated around these two major cities. Chennai, Bangalore, Hyderabad and Ahamedabad are also drawing significant shares of FDI inflows. For statistical purposes, Indias Department of Industrial Policy and Promotion (DIPP) divides the country into 16 regional offices. The top 6 regions account for more than two-thirds of all FDI inflows to India.

 The Govt should provide additional incentives to

foreign investors to invest in state where the foreign investors to invest in states where the level of FDI inflows is quite low. Govt should ensure the equitable distribution of inflows among states, so that they can attract inflows at their own level. Gov must target at attracting specific type of FDI that will be able to generate spillovers effects in the overall economy like investing in human capital R&D activities, environmental issues, productive capacity, sectors with high income elasticity of demand.

 The policy makers should focus more on attracting

diverse type of FDI and should design policies where foreign investment can be utilized as means of enhancing domestic production, savings and exports and also as medium of technological learning and diffusion and also in providing access to the external market. Gov must exercise strict control over inefficient bureaucracy, red-tapism and the rampant corruption, so that investors confidence can be maintained for attracting more FDI inflows to India.

 The increased flow of FDI in a country has given a

major boost to the countys economy. FDI has provided better access to technologies for the local economy. FDI has lead to indirect productivity gains through spillovers. Multinational firms have increased the degree of competition in host- country markets which will force existing inefficient firms to invest more in physical or human capital.

 Service sector has been the most sought after sector in

India for FDI. India, with its skilled labour and manpower has the potential to overtake China as the most preferred destination for foreign investment. Hence measures must be taken in order to ensure that the flow of FDI in our country continues to grow.