finance - fdi - role of fdi in development of economy 2

7/30/2019 Finance - FDI - Role of FDI in Development of Economy 2

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AMITY UNIVERSITY, UTTAR PRADESH

PARTIAL FULFILMENT BACHELORS DEGREE OF

BUSINESS ADMINISTRATION

DISSERTATION REPORT

Role of FDI in D evelopment of E conomy

SUBMITTED BY :

HIMANI MAHESHWARIENROLLMENT : A3906410122B - 03

FACULTY GUIDE :

Mrs. GEETIKA CHAWLA

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Declaration

I, (Himani Maheshwari) S/D/O (Sudhir Maheshwari), hereby declare that thisdissertation represents my original piece of work and has not been copied fromanywhere.

I am aware that in case of non-compliance, Amity School of Business is entitled tocancel the report.

Place : Amity University Signature of Student

Date : 26-02-2012 Name of the Student

HIMANI MAHESHWARI

Enrollment No.

A3906410122

Signature of Dissertation Signature of Faculty Guide

Coordinator

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Acknowledgement

An endeavor to transform itself into success needs efforts. These efforts are individual,

standing in isolation. Such individual efforts require three things for their further

development. These three things being Reason, Rationality and Self-Esteem. The

combination of these three basic traits delivers Productivity. However, time and again this

productivity requires encouragement and guidance. This much requisite support comes in

the form of individuals furthering the development of individuals. Professionals furthering

the development of Amateurs. This acknowledgement is an effort to recognize these

professionals who have made this project a combination of the three fundamental traits.

This project report and the learning process behind it would not have been possible without the

guidance of my Faculty Guide, Mrs.Geetika Chawla. She was able to impart me with the right

approach that my training required for its successful practical implementation.

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Table of Content

1. INTRODUCTION.................................................................................... 05

2. OBJECTIVE..............................................................................................16

3. RESEARCH DESIGN AND METHODOLOGY.....................................18

4. LITERATURE REVIEW..........................................................................20

5. FOREIGN DIRECT INVESTMENT.........................................................30

6. DATA ANALYSIS....................................................................................43

7. CONCLUSION..........................................................................................56

8. REFERENCES ..........................................................................................60

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INTRODUCTION

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Background

The Indian economy has reached within the orbit of high rate of economic

process. it's being wide acclaimed and regarded as a rising international economic power. The

growth rate throughout 1950-51 to 2006-07 clearly indicated a bent of steady upward trend.

However, the last decade of 80's emerged as a starting of the high rate of economic process.

This continued within the 90s and additional growth stimulation has occurred until date.

The Indian economy is that the third largest within the world as measured by Purchasing Power

Parity, with a gross domestic product people $1.85 trillion. India is that

the second quickest growing major economy within the world, with a GDP growth rate of 6.5%

for the year 2011.

The Indian economy is numerous. The Indian work force still earns two-third of

their living through agriculture, still service sector could be a growing one Associate in

Nursing taking part in an progressively necessaryrole in India's economy. Indiais step by

step reworking as a vital 'back office' destination for international (multinational) firms for the

outsourcing of their client services and technical support.

India faces Associate in Nursing increasing population and therefore the challenge of reducing

social and economic difference . albeit impoverishment remains a heavy downside,

it's declining significantly in the main attributable to the revolution and economic reforms.

100% FDI is allowed below the automated route altogether activities/sectors except the

sectors, which can need approval ofthe govt..

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The question that begs for associate elaboration is whether or not high growth and inflows of

FDI solve structural imbalance of Indian economy and ifit'll achieve up all-time low section of

the Indian economy, living in poor socio-economic conditions within the country. The

utilization snap has gone down in agriculture and industrial sector, therefore, creation of

employment opportunities are going to be a volcanic rock task for the policy manufacturers.

FDI coming back within the most capital-intensive sectors; employment

opportunities couldn't be created particularly for the manual and therefore

the semi masterly labor. High masterly hands gained well. Hence, high growth is

termed urban centrical and has so developed a wedge between the urban and rural economy.

Since independence, the political beliefs method has matured. it's so foretold that the

growing issues can receive mature response and policy are going to be articulated in

such manner to use FDI the way China has wont to enhance economic

process whereas taking additional and additional investment to industrialize the

agricultural sector of the Indian economy.

WHAT IS FDI?

There is hardly a facet of the Indian psyche that the concept of foreign has not permeated. This

term, connoting modernization, international brands and acquisitions by MNCs in popular

imagination, has acquired renewed significance after the reforms initiated by the Indian

Government in 1991. Contrary to the grand narrative opening of flood-gates idea of 1991,

what took place was a gradual process of changes in policies on investment in certain sub-

sections of the Indian economy.

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Foreign direct investment is an investment made by a foreign individual or company in

productive capacity of another country. It is the movement of capital across national frontiers in

a way that grants the investor control over the acquired asset.

Types of FDI

There are two types of FDI:

* Greenfield investment: It is the direct investment in new facilities or the expansion of

existing facilities. It is the principal mode of investing in developing countries like India.

* Mergers and Acquisition: It occurs when a transfer of existing assets from local firms takes

place

Foreign direct investment in India

Being the third-largest economy in the world in PPP terms, India is a preferred destination for

foreign direct investments (FDI); India has its strengths in information technology and other

important areas such as:

auto components,

apparels, chemicals,

pharmaceuticals,

jewellery and so on.

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Although India has always promised for global investors its rigid FDI policies were a significant

hindrance in this context. As a result of a series of ambitious and positive economic reforms

aimed at regulating the economy again and stimulating foreign investment. India has a very

large number of skilled managerial and technical expertize.

India's recent liberalised FDI policy permits up to 100% FDI stake in ventures. Industrial policy

reforms in India have substantially reduced industrial licensing requirements and has removed

restrictions on expansion and facilitated easy access to foreign technology and FDI. The upward

moving growth curve of the real-estate sector owes some credit to a booming economy and also

in liberalizing FDI regime. A number of changes have been approved on the FDI policy to

remove the cap in most of the sectors. Restrictions have been relaxed in sectors as such as civil

aviation, construction development and also industrial parks, commodity exchanges as well as

petroleum and natural gas, credit-information services, mining and so on.

In the backdrop of this flourishing Indian economy, The Associated Chambers of Commerce

and Industry of India (ASSOCHAM) has projected that India to double its GDP.

The current GDP investments in India has increased up to 0.60 % . No wonder India has

tremendous potential to attract FDI. With so much of visibility of MNCs and foreign investors

etc, the current GDP growth flows of India slows to 5.3%. Hence with more liberalization and

opening of other sectors of the economy like the latest relaxation in FDI policies in real estate or

direct foreign investment in real estate India etc.

Indian Government has a key as far as investment laws are concerned. In this regard, it is

worthy to highlight some of the positive reforms as a positive growth in the Indian economy in

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terms of GDP growth.

Government of India accepts the key role of Foreign Direct Investment (FDI) in economic

development not only as an addition to domestic capital but also as an important source of

technology and global best practices. The Government of India has put in place a very liberal

and Transparent FDI policy.

FDI up to 100% is allowed in India under the automatic route in most sectors/activities. FDI

policy in India is recognized to be among the most liberal in emerging economies. 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 coming

under automatic route does not require any prior approval either by the Government or the RBI

Foreign Direct Investment Policy

Foreign direct investment (FDI) has become an integral part of national development strategiesin almost every nation. Its popularity and positive output in augmenting of domestic capital,

productivity and employment globally, has made it an indispensable tool for initiating economic

growth for countries.

India is evolving as one of the 'most favored destination' for FDI in Asia as well as the Pacific. It

has displaced US as the second-most favored destination for FDI in the world after China. India

has attracted more than three times foreign investment.

According to the Asian Investment Intentions survey released by the Asia Pacific Foundation in

Canada, more Canadian firms are now focusing on India as an investment destination as there

has been an increase from 8 per cent in 2005, up to 13.4 per cent in 2010 in India,

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India has attracted FDI equity inflowsof virtuallyUS$2,014 million inDec2010.

Theaccumulativequantityof FDI equity inflows sinceApril2000 toDec2010 has stood

up at US$ 186.79 billion, as perthe information dischargedby the Departmentof

businessPolicy and Promotion (DIPP).

FDI policy is reviewed onassociate degreecurrentbasis and measures for

itsanyeasingarea unittaken. amendmentin sectoral policy/sectoral equity cap is notified

from time to time through Press Notes by the Secretariat for Industrialhelp(SIA)within

theDepartmentof businessPolicy announcement by SIAarea unitlaternotified

bytallyunderneathFEMA. All Press Notesarea unitout thereatthe web siteof

Departmentof businessPolicy & Promotion.

FDI from NRI & for 100% EOU

FDI applications from NRI Investments and 100% EOU , ought to be submitted to the general

public Relation &criticism (PR&C) Section of Secretariat of business help (SIA), Department of

business Policy & Promotion.

Portfolio Investment by Foreign Sources

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The decline in portfolio investment since 1997-98ahead, has been contributed by a decline in

flows ofeachforeign institutional investment and GDRs.contemporaryflowof funds by

FIIs have declined from U.S.$ 1,926 million in 1996-97 to U.S.$ 979 million in 1997-98.

This trend laterintensedin 1998-99 with calculable outflow of U.S.$ 752

millionthroughoutApril-December, 1998 compared to inflows of U.S.$ 973

millionthroughout the correspondingamountwithin theprevious year. GDRs were raised

in 1997-98 to U.S.$ 645 million,thatwasbutthe quantityof U.S.$ 1,366 million in 1996-

97.

The declining trendcontinuing throughoutthe primary 9 months of 1998-99. The poor

performance of portfolio investment has resulted as a consequence ofeachincreased

risingmarket risk-perception,and therefore thedepressed condition of the domestic capitalmarket.

FDI may be harmful to economic growth

DISCUSSIONS on foreign direct investment are detected as a kind of continuous background

music at the most seminars and conferences of late and business newspapers carry articles on

that each alternative day.

The FDI mantra is taken into account associate general curative for the ills of the Indian

economy additionally because of the society. It's currently become a routine for our finance

ministers to "showcase" India in numerous international forums Davos being somewhat of a

premier venue and exhort the world captains of business and commerce to return to India.

Unfortunately there's not abundant discussion, refrain au fait discussion, between the

educational andalternative policy-makers regarding the extensive implications of FDI in oureconomy. the controversy solely focuses on the alleged impact on employment and loss of "

socialism" that nonexistent dogma of the nineteenth century.

Fortunately India's economic process over the last decade and has primarily been driven by

savings within the economy, particularly by households. Housewives

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from materialistic homes ought to lean due credit for this. The Table shows the savings and

investment rate in our economy, the gap being met by foreign flows.

We find from the Table that each one our investments have return from our own savings within

the past decade. The argument relating the requirement for FDI relies on the

subsequent premises.

If we would like to grow at ten per cent and if our capital-output magnitude relation is 3.5, we

want investment at thirty five per cent and, if our savings rate is twenty eight per cent, then the

gap should be met by the West.

This is, to start out with, spurious since the measure of the capital-output magnitude

relation isn't reliable and positively not applicable to our service sector, that makes up

nearly sixty per cent of the economy and is its growth engine.

Anyone WHO has cosmopolitan during a taxi within the North can recognize that there are

often passengers to the correct facet of the motive force and also the actual capability of our

buses is infinite.

Made in China is not Made by China

Thenecessaryand crucialpurpose,lostby the China enthusiasts, is that Chinadoesn'thave a

developed entrepreneurialcategorylikeIndiaand, hence,it'sobsessed onthe foreign capitalists

and foreign capital compared toIndia,thatencompasses aburgeoning entrepreneurialcategory,

createdin Chinaisn'tsame ascreatedby China. Indiaencompasses aphenomenally well-

developed capitalistcategorywhich might got wind offirstautomobile, steel,organic

compoundand cement plants.

While India'ssecurities markethas soared in recent years,virtuallythe alternativeis going onin

China. In 2001, the Shanghaisecurities marketindex had reachedovera pair of,200 points;

byGregorian calendar monthtwo hundred5, nearlyhalfit had gone, with the Shanghai index

atone,135 points. This sharp decline occurredoncethe valuewas growing at11th of

Septembera year.it'sbeen tootoughto search outanother country that displays this strange

combinationof wonderfulpolitical economyperformance and dismalpolitical

economyperformance .the explanationsarea unitto be foundwithin thestructure created by

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foreign FDI,abundantofthatisn'teven listed.

Chinaneeds torely onforeign capitalto lineup itsproducingfacilities and istroubledarduousto

encourage party bureaucrats to become entrepreneurs.

The second argument is that China isobtainingmostFDI. Its currentnetinflows as per 2008-

2012 is $220,143,285,430.

Thenecessaryand crucialpurpose,lostby the China enthusiasts, is that Chinadoesn'thave

a developed entrepreneurialcategorylikeIndiaand, hence,it'sobsessed onthe foreign

capitalists and foreign capital compared toIndia,thatencompasses aburgeoning

entrepreneurialcategory.Createdin Chinaisn'tsame ascreatedby China.India

offirstautomobile, steel,organic compoundand cement plants.

While India'ssecurities markethas soared in recent years,virtuallythe alternativeis going

onin China. In 2001, the Shanghaisecurities marketindex had reachedovera pair of,200

points; byGregorian calendar monthtwo hundred5, nearlyhalfit had gone, with the

Shanghai index atone,135 points. This sharp decline occurredoncethe valuewas growing

at11th of Septembera year.it'sbeen tootoughto search outanother country that displaysthis strange combinationof wonderfulpolitical economyperformance and dismalpolitical

economyperformance. the explanationsarea unitto be foundwithin thestructure created

by foreign FDI,abundantofthatisn'teven listed.

Chinaneeds torely onforeign capitalto lineup itsproducingfacilities and

istroubledarduousto encourage party bureaucrats to become entrepreneurs.

Active capital market

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The third argument is that FDI provides America with a continual flow of funds and an

energetic capital market. Actually, many MNCs have de-listed from the stock exchange within

the last decade by changing to unlisted subsidiaries of foreign folks.

An analysis of this alone can provides a clue to the character of the capital market thanks

to foreign investment in our economy. many a MNC doesn't even bring funding from outside

sources since it will access funds within the domestic market by showing "comfort letters" from

its parent company.

There square measure several native money establishments, which might lend them below prime

rate since they're "global". money establishments in Republic of India don't deny foreigners

funds. That the MNC can unceasingly bring funds from abroad may be a statement that ought

to be loving tones of salt.

Remember Enron, that was purportedly conveyance Rs ten,000 large integer from outside. In

reality, now, government establishments square measure holding over Rs 6000 large

integer of otiosepaper. Ms wife Mark of Enron has claimed that millions are spent to " educate"

Indians as a region of that project. we have a tendency to either refuse to

urge "educated", within the true sense, or need to be additional " educated", within the Enron

sense.

The fourth argument is concerning technology transfer. during this age of data flows

and marketplace for technology any bourgeois can buy technology required by him. in avery country like Republic of India, thatscores terribly high for "technology diffusion" or

"absorption", building on technology isn't a problem.

If we tend to travel within the rural areas of geographic region, we

discover laundry machines being employed for churning lassi on a mass scale. WHO ever

thought that laundry machines have various uses? The Indian Diaspora is relied upon to

amass latest technology in advanced areas, and also there area unit already vital organic links

between the NRIs and the domestic capitalists.

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Is it a one-way street?

The fifth argument is concerning the growing world flow of funds and the way nation-states

cannot ignore it. Fascinatingly, once adult male Hindu deity Mittal tried to require over Arcelor,or once China oil tried to require over a Unocal of the America, an

equivalent globalisers fell sort of a ton of brick on the tries.

The Senate members or the ministers of France and Luxemburg wasted no time

in victimisation persuasion to scuttle the moves. it's the white man's burden to

produce world capital and not the other approach.

Actually, given the demographic structure and growth of pension funds in Europe and therefore

the America, are able to} see that funds are in search of markets, and not the opposite approach.

It means that we tend to square measure in a very position to settle on whom to ask.

But we might rather still " sell" Republic of India. commerce Republic of India is a

simple talent for many ofour flesh pressers. that sectors square measure "sold" globally for FDI

in India? it's the retail trade, restaurants, road transport and construction. Non-corporate, family-

run businesses dominate of these activities.

In most of those sectors the share of partnership/proprietorship companies is quite eighty per

cent. we would like world corporates to return into Republic of India and

switch these immeasurable entrepreneurs into employees. will there be something a lot

ofperverse than this? What they have is adequate credit at cheap rates and fewer bribes

demanded by government minions. What extra technological wonders are going to be formed by

FDI in these area

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OBJECTIVE

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To examine the trends and patternswithin theFDI acrosstotally different sectors andfrom different countries inIndia.

Tostudy aboutthe FDI policy inIndia.

Toidentifythe variednew FDI policies introduced inIndia.

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RESEARCH DESIGN

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3.1 METHODOLOGY

In order to accomplish this project successfully we will take following steps.

FDI:

The study is limited to a sample of top 10 investing countries e.g.

Mauritius,

Singapore,

China,

USA etc.

and top 10 sectors e.g.

service sector,

computer hardware and software,

telecommunications etc.

which had attracted larger inflow of FDI from different countries.

3.2 Data collection:

Secondary Data: Internet, newspapers, journals and books, other reports and projects, literatures

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LITERATURE REVIEW

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1.TITLE

IMPLICATION OF ECONOMIC SLOWDOWN ON FDI INFLOWS TOINDIAN ECONOMY

AUTHOR

Prof. Prity Sharma, Mithilesh Kumar, Rishi sengupta

DATA

ANALY

SIS

This paper relies on the premises that however international economic holdup has

taken its toll on the foreign investment flows within the country as FDI has

declined by a humongous 27.85% throughout the month of Nov 2008 this year

over constant month a year past. FDI has been increasing over the past few

years within the country. The share of FDI in total investment has quite doubled

from a pair of.55 per cent in 2003-04 to six.42 p.cin 2006-07. however an

issue that whether or not the continued inflows in India would be affected owing to

worldwide holdup, it absolutely was tough to assess the impact.

CONCLUSI

ON

This paper relies on the premises international economic holdup has taken its toll

on the foreign investment flows within the country as FDI has declined

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2.TITLE

Foreign Direct Investment in India: A Critical Analysis of FDI from

1991-2005

AUTHOR

Kulwindar Singh

DATA

ANALY

SIS

The Concept of Foreign Direct Investment is now a part of Indias economic future

but the term remains vague to many, despite the profound effects on the economy.

Despite the extensive studies on FDI, there has been little illumination forthcoming

and it remains a contentious topic. The paper explores the uneven beginnings of

FDI, in India and examines the developments (economic and political) relating to

the trends in two sectors: Industry and Infrastructure and sub sector Telecom, to

illustrate that.

FDI eludes definition owing to the presence of many authorities: Organisation for

Economic Co-operation and Development (OCED), International Monetary Fund

(IMF), International Bank for Reconstruction and Development (IBRD) and

United Nations Conference on Trade and Development (UNCTAD). All these

bodies attempt to illustrate the nature of FDI with certain measuring

methodologies. Generally speaking FDI refers to capital inflows from abroad that

invest in the production capacity of the economy and are usually preferred over

other forms of external finance because they are non-debt creating, non-volatile

and their returns depend on the performance of the projects financed by the

investors. FDI also facilitates international trade and transfer of knowledge, skills

and technology.

CONCLUSI

ON

The paper explores the uneven beginnings of FDI, in India and examines the

developments (economic and political) relating to the trends in two sectors:

Industry and Infrastructure and sub sector Telecom, to illustrate that.

3.TITLEMANUAL ON FOREIGN DIRECT INVESTMENT

IN INDIA

AUTHOR

SIA

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DATA

ANALY

SIS

In recognition of the necessary role of Foreign Direct Investment(FDI) within

the accelerated economic processof the country, Government of India initiated a

slew of economic and money reforms in 1991. India is currently entry the second

generation reforms aimed toward any and quicker integration of Indian economy

with the worldwide economy. As a results of the assorted policy initiatives

taken, India has been apace dynamic from a restrictive regime to a liberal one, and

FDI is inspired in the majority the economic activities beneath the automated route.

Over the years, FDI influx within the country is increasing. However, India has

tremendous potential for engrossing larger flow of FDI within the returning years.

Serious efforts square measure being created to draw in larger influx of FDI within

the country by taking many actions each on policy and implementation front. Since

the last publication of the Manual in Gregorian calendar month 2002, Foreign

Investment Promotion Board has been shifted to Department of Economic Affairs,

Ministry of Finance and Company Affairs. However, the topic about FDI Policy

and its promotion and Facilitation as conjointly promotion and facilitation of

investment by Non- Resident Indians(NRIs) and Overseas company Bodies

(OCBs) can still be handled by this Department. Further, form needed for keep it

up Business(COB) License has been revised. These

changes are incorporated during this issue of the Manual. In Annexure- IV of this

Manual, tips concerning medium has been conjointly careful. To create the

Manual a lot of easy, some new additions are created like write-up on

Departments web site, on-line Chat and Bulletin Board facilities,

temporary details of clearances/approvals needed, agencies involved and their web

site address and regularly asked queries.

TOOLS

USED

Policy and Procedures

MAY- 2003

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CONCLUSI

ON

Because the main stress of the Manual is to facilitate a lot of FDI in India, from

this issue the name of the Manual has been conjointly modified. a vital demand of

the foreign investment community in creating their

investment call is accessibility of timely and reliable data regarding the policies

and procedures governing FDI in India. This publication could be a a part of our

endeavour to apprise the investment community of our policy measures and also

the opportunities obtainable for investment in India. we tend to hope that this

Manual are going to be found helpful by the investment community. we tend

to welcome suggestions for its improvement.

.

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4. TITLEEXPORT GROWTH IN INDIA: HAS FDI PLAYED

A ROLE?

AUTHOR

Kishor Sharma

DATA

ANALY

SIS

Export growth in Indi has been abundant quicker than value growth over the past

few decades. Many factors seem to own contributed to the present development as

well as foreign direct investment (FDI). However, despite increasing inflows of

FDI particularly in recent years there has not been any conceive to assess its

contribution to India's export performance one among the channels through that FDI

influences growth. Exploitation annual information for 1970-98 we have a tendency

to investigate the determinants of export performance in India during

a coincident equation framework. Results counsel that demand for Indian

exports will increase once its export costs fall in regard to world costs.

TOOLS

USED

CONCLUSI

ON

Moreover, the important appreciation of the rupee adversely effects India's exports.

Export offer is absolutely associated with the domestic relative value of exports and

better domestic demand reduces export offer. Foreign investment seems to

own statistically no important impact on export performance though the constant of

FDI encompasses a positive sign.

5.TITLEHype or Reality: Can the CDM trigger FDI?

AUTHORRaymond Saner

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DATA

ANALY

SIS

Inherent within the CDM thought was the expectation that the Clean

Development Mechanism would possibly broaden the normal economic

determinants of foreign direct investment flows. Such an

extra investment chance would act as Associate in Nursing economic driver and

direct Foreign Direct Investment (FDI) towardsenvironmentally accessory investments and later would expand access to new

markets for climate-friendly technologies or services.

It is usually accepted that the CDM has underperformed which this example is

probably going to continue. Issues known ar associated with CDM governance,

its objectives, the eligibility of comes, or the functioning of emissions

markets. it's hoped that after these problems ar settled, the CDM may live up to

its expectations to direct FDI towards greener technologies.

This report analyses the relation between Foreign Direct Investment and also

the CDM. It describes numerous CDM group action sorts, provides current CDM

project information, presents general FDI flows given to main destinations of

FDI and eventually examines the doable links between FDI and CDM potential.

The author of this report but cautions against over-simplification and concludes

that CDM money flows don't seem to be related with FDI flows at this

time which ways that to create CDM additional enticing to trans-

nationalcorporations would merit any exploration. any analysis is required to

see however developing country entitieswill attract CDM investment or enhance

their ability to export CERs. this can need additional careful analysis of:

the sources of demand (countries; government vs. private; sectors and their

CDM preferences),

the dynamics of evolving carbon markets,

the various CDM dealings models (equity investment in CDM comes vs. ex

ante CER purchase agreements vs. secondary market CER trades), and

the national determinants of CDM monetary flows.

For the year 2003, far and away the best recipients of FDI square measure the

developed countries (69%), followed by developing countries while not China

(20%) then China (10%) and in conclusion the smallest amount developed

countries (1%).

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TOOLS

USED

CONCLUSI

ON

The main reasons that are reported to cause such slowness square measure for

example barriers to bigger CDM investment comes like money and institutionalrisk and uncertainty related to delays in approving CDM project activities and

methodologies or lack of ample capability building in host countries to

coach validators (Ellis et al., 2004). whereas of these barriers square

measure vital with respect to obtaining CDM comes of the bottom,the main

focus of this paper remains on the larger interaction issue of however FDI/CDM

flows to developing countries.

Despite the slowly increasing investment flows into CDM opportunities,

one shouldn't forget that the most FDI flows don't attend CDM comes nor to

developing countries.

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6.TITLENBER Research Paper

AUTHOR

R. Vaidyanathan

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DATA

ANALY

SIS

A significant and path-breaking study was undertaken recently

by 3 authors concerning the impact of foreign direct investment on the

speed of economic process.

This paper was revealed by National Bureau of Economic analysis (NBER) as

a operating paper: "Sources for funding domestic capital: Is foreign saving aviable choice for developing countries?" (Joshua Aizenman; Brian Pinto; Artur

Radziwill, June 2004. Joshua Aizenman is prof of social science at the

University of Calif., Santa Cruz. Brian Equus caballus is at the globe Bank.

Artur Radziwill is with the Centre for Social and Economic analysis (CASE),

Warsaw, Poland.)They observe that on average, 90 per cent of the stock of capital

in developing countries is self-financed, and this fraction was surprisingly stable

throughout the 1990s. More importantly, they argue, "there is no evidence of any

"growth bonus" associated with increasing the financing share of foreign savings.

In fact, the evidence suggests the opposite: throughout the 1990s, countries with

higher self-financing ratios grew significantly faster than countries with low self-

financing ratios. This result persists even after controlling growth for the quality of

institutions."

They observe that on the average, ninety per cent of the stock of capital in

developing countries is self-financed, and this fraction was amazingly stable

throughout the Nineteen Nineties. a lot of significantly, they argue, "thereisn't

any proof of any "growth bonus" related to increasing the finance share of

foreign savings. In fact, the proofsuggests the opposite: throughout

the Nineteen Nineties, countries with higher self-financing ratios

grewconsiderably quicker than countries with low self-financing ratios. This

result persists even once dominant growth for the

standard of establishments."

More curiously, they conjointly found that the upper volatility of the self-

financing ratios are related to lower growth

rates, which higher establishments ar related to lower volatility of the

self finance ratios.It fully negates the FDI mantra musical day in and day trip by India's

metropolitan elite. however can we tend to heed any empirical analysis or

logic out there on this score? we tend to might not, since we tend

to ar embedded with what might be known as the "Colonial Gene", that has its

own impact. It paralyses our ability to assume straight and

makes USA crave, sort of a junkie, the controlled substance of FDI.

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TOOLS

USED

CONCLUSI

ON

The FDI mantra is considered an all-purpose panacea for the ills of the economy

and society. Unfortunately, there has not been much debate about the far-reaching

implications of FDI in our economy and, particularly, how it can stifle economic

growth, says R. Vaidyanathan, presenting counters to the five arguments in favour

of FDI and citing a research paper to buttress his stand.

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FOREIGN DIRECT INVESTMENT

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Overview of Foreign Direct Investment (FDI)

The physical investment from an organization or corporation happiness to 1 country, to construct

amanufacturing plant, for example, in another one bears the name foreign directinvestment, additionally called FDI. At constant time, a far off company will invest so as for it to

amass long lasting interest in enterprises that lead their business outside the sphere of economy

it invested with in.

The reference to FDI must do with a parent enterprise and a far off affiliate that type along a

company, additionally called international. Any variety of investment which will earn interest in

enterprises, functioning outside the investors territory are often thought of FDI.

The investment should afford the management of the parent enterprise over the foreign affiliate, for

the investment to qualify as FDI, and this specific management owns 100 percent, or a lot of of the

shares or pickpower of Associate in Nursing incorporated company, for unorganised ones, the

precise equivalent of thisshare.

Ownership shares that area unit not up to that, area unit proverbial to be portfolio investment. u.

s. dominated the worldwide FDI market, once WW II, and it account for pretty much three-quarters

of the new FDI, together with reinvested profits. Since then, FDI has unfold even wider

has presently become a world development. World economy is currently experiencing a lot

of growth, with the FDI stock of over twenty % of world gross domestic product.

Together with the economic process, de-regulation and liberal investment rules, the influx of

Foreign direct investment was even a lot of inflated. A relationship between a parent company andits foreign subsidiary is additionally needed to make the FDIs; Associate in Nursingd for an

investment to be an FDI, it's needed that the parent company includes a minimum 100

percent of stock of the foreign affiliates it's engaged in doing business with. Moreover, the

corporate that invests will qualify for FDI given that it's the pick power in a

very business operative in a very foreign country.

There are 2 sorts of FDIs and this classification is created supported the categories of restrictions

that square measure obligatory, and every one the stipulations required for the investment, that is

outward FDIs and inward FDIs. the govt against all sorts of risks ensures outward FDIs and perse, they're subject to tax,whereas the chance coverage given to domestic industries, granted

to native companies substitute the means of outward FDIs. Inward FDIs square measure a lot

of inspired than the primary kind, since they additionally embody interest loans, tax breaks, grants,

subsidies, and limitations square measure removed.

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In this section we have a tendency to square measure progressing to discuss or describe the

most business of the report i.e. analysis of secondary knowledge. It includes knowledge in associate

degree organized type, discussion on its significance and analyzing the results. For this we have a

tendency to had divided this section in any 2 subsections i.e. initial section fulfill the necessity offirst objective that is concerning FDI.

About foreign direct investment.

Is the method whereby residents of 1 country (the supply country) acquire possession of assets

for the aim of dominant the assembly, distribution, and different activities of a firm in another

country (the host country). The international financial funds balance of payment manual defines

FDI as investment that's created to amass a long-lasting interest

in enterprise operative in economy apart from that of the capitalist. The investors purpose being to

own a good voice within the management of the enterprise. The international organisation 1999

world investment report defines FDI as an investment involving a protracted term relationship,

the reflective a long-lasting management of a resident entity in one economy (foreign

direct capitalist or parent enterprise) in an enterprise resident in an economy apart from that of the

foreign direct capitalist ( FDI enterprise, affiliate enterprise or foreign affiliate).

Foreign direct investment: Indian scenario

FDI is permissible as underneath the subsequent styles of investments

Through monetary collaborations.

Through joint ventures and technical collaborations.

Through capital markets via monetary unit problems. Through non-public placements or advantageous allotments.

Forbidden Territories:

Arms and ammunition

Atomic Energy

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Coal and brown coal

Rail Transport

Mining of metals like iron, manganese, chrome, gypsum, sulfur, gold, diamonds, copper, zinc.

FDI Prohibited:

FDI isn't permissible in Gambling and card-playing, or Lottery Business, Business of tab fund, Nidhi

Company, Housing and property business, commerce in Transferable Development Rights (TDRs),

Retail commerce,energy Agricultural or plantation activities or Agriculture (excluding flower

gardening, husbandry, Development of Seeds, husbandry, Pisciculture and Cultivation of

Vegetables, Mushrooms etc. underneath controlled conditions and services associated with agro and

allied sectors) and Plantations(other than Tea plantations)

Foreign Investment through GDRs (Euro Issues)

Indian corporations area unit allowed to boost equity capital within the international market

through the difficulty of worldwide installation Receipt (GDRs). GDR investments area unit treated

as FDI and area unit selected in greenbacks and aren't subject to any ceilings on

investment. AN someone company seeking Government's approval during this regard ought to have

consistent diary permanently performance (financial or otherwise) for a minimum amount of

three years. This condition would be relaxed for infrastructure comes likepower generation,

telecommunication, rock oil exploration and purification, ports, airports and roads.

1. Clearance from FIPB

There is no restriction on the quantity of Euro-issue to be floated by a corporation or a

gaggle of firms within the twelve month. a corporation engaged within the manufacture of

things lined beneath Annex-III of the New Industrial Policy whose direct foreign

investment once a projected monetary unit issue is probably going to exceed fifty one or that is

implementing a project not contained in Annex-III, would want to get previous FIPB clearance

before seeking final approval from Ministry of Finance.

2. Use of GDRs

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The payoff of the GDRs will be used for funding capital product imports, cost as well as domestic

purchase/installation of plant, instrumentality and building and investment

in package development, defrayal orregular reimbursement of earlier external borrowings, and

equity investment in JV/WOSs in India

Foreign direct investments in India are approved through two

routes

1. Automatic approval by RBI

The Reserve Bank of India accords automatic approval among a amount of fortnight (subject to

compliance of norms) to any or all proposals and permits foreign equity up to 24%; 50%;

51%; seventy four and 100%is allowed looking on the class of industries and also the sectoral caps

applicable. The lists are comprehensive and canopy most industries of interest to foreign firms.

Investments in high priority industries or for mercantilism firmsprimarily engaged

in mercantilism are given nearly automatic approval by the RBI.

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

FIPB stands for Foreign Investment Promotion Board that approves all different cases wherever the

parameters of automatic approval aren't met. traditional time interval is four to six weeks. Its

approach is liberal for all sectors and every one forms of proposals, and rejections square

measure few. it's not necessary for foreign investors to own an area partner, even once the

foreign capitalist desires to carry but the complete equity of the corporate. The portion of the equity

not projected to be command by the foreign capitalist may be offered to the general public.

General permission of RBI under FEMA

RBI has granted general permission beneath interchange Management Act (FEMA) in respect of

proposals approved by the govt. Indian corporations obtaining foreign investment approval through

FIPB route don't need to any extent further clearance from run for the aim of receiving

inward remission and issue of shares to the foreign investors.

The companies area unit, however, needed to apprize the Regional workplace involved of the run

batted in of receipt of inward remittances at intervals thirty days of such receipt and to file the

desired documents with the involved Regional offices of the RBI at intervals thirty days when issue

of shares to the foreign investors or NRIs.

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Besides new firms, automatic route for FDI/NRI investment is additionally on the market to the

prevailing firms proposing to induct foreign equity. For

existing firms with associate growth programme, the extra necessities include:

The increase in equity level ensuing from the growth of the equity base of the

prevailing company while not the acquisition of existing shares by NRI/foreign investors, the

money to be remitted ought to be in foreign currency and projected growth programme ought

to be within the sector(s) beneath automatic route. Otherwise, the proposal would

want Government approval through the FIPB. For this a Board Resolution of the prevailing Indian

company should support the proposal.

For existing firms while not associate degree enlargement programme, the extra necessities for

eligibility for automatic approval are: that they're engaged withinthe industries underneath automatic route; the rise in equity level should be from enlargement of

the equity base and also the foreign equity should be in foreign currency.

The earlier SEBI demand, applicable to public restricted firms, that

shares assigned on discriminatory basis shall not be transferable in any manner for

a amount of five years from the date of their allotment has currently been changed to the extent

that no more than twenty per cent of the complete contribution brought in by promoter

cumulatively publically or discriminatory issue shall be locked-in.

Equity participation by international monetary establishments like ADB, IFC, CDC, DEG, etc. in

domestic firms isallowable through automatic route subject to SEBI/RBI rules and sector specific

cap on FDI

ADR/GDR

An Indian company will raise foreign currency resources abroad through the problem of

yank deposit Receipts (ADRs) or international deposit Receipts (GDRs). Regulation four of Schedule

I of independent agency Notification no. twenty permits associate degree Indian company to issue

its Rupee denominated shares to someone resident outside India being a deposit for the

aim of supply international deposit Receipts (GDRs) and/ or yankee deposit Receipts (ADRs),

subject to the conditions that:

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the ADRs/GDRs area unit issued in accordance with the theme for issue of Foreign Currency

Convertible Bonds and common stock (Through deposit Receipt Mechanism) theme, 1993 associate

degreed pointers issued by the Central Government there below from time to time The Indian

company supply such shares has an approval from the Ministry of Finance, Government of India to

issue such ADRs and/or GDRs or is eligible to issue ADRs/ GDRs in terms of therelevant theme effective or notification issued by the Ministry of Finance, and

There aren't any end-use restrictions on GDR/ADR issue return, aside from associate

degree specific ban on investment in property and stock markets.

The FCCB issue return have to be compelled to adjust to external industrial borrowing finish use

requirements; additionally, twenty five per cent of the FCCB return may be used for

general company restructuring.

Is not otherwise ineligible to issue shares to persons resident outside Republic of India in terms ofthose laws. There's no limit upto that AN Indian company will raise ADRs/GDRs. However, the

Indian company should be otherwise eligible to boost foreign equity below the surviving FDI policy.

A company engaged within the manufacture of things coated below Automatic route, whose direct

foreign investment when a projected GDRs/ADRs/FCCBs issue is probably going to exceed the

proportion limits below the automated route, or that is implementing a project

falling below Government approval route, would want to get previous Government clearance

through FIPB before seeking final approval from the Ministry of Finance

Foreign currency convertible Bonds

FCCBs area unit issued in accordance with the theme [the theme for issue of Foreign Currency

Convertible Bonds and common stock (Through deposit Receipt Mechanism) theme, 1993]

and signed by a non-resident in foreign currency and convertible into common stock of

the supply company in any manner, either in whole, or in part, on the premise of any

equity connected warrants connected to debt instruments;

The eligibility for issue of Convertible Bonds or common stock of supply Company is given as

under:

An supply company athirst of raising foreign funds by supply Foreign Currency Convertible Bonds

or common stock for equity problems through world Depositary Receipt will issue FCCBs, upto

USD fifty Million underneath the automated route, From USD fifty -100 Million, the

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businesses need to take run batted in approval, From USD one hundred Million and on top

of, previous permission of the Department of Economic Affairs is needed.

Preference Shares

Foreign investment through stock is treated as foreign direct investment. Proposals area

unit processed either through the automated route or FIPB because the case is also, as per the

subsequent guidelines:

Foreign investment in preference share is taken into account as a part of share capital and fall

outside the External business Borrowing (ECB) guidelines/cap. stock to be treated as foreign direct

equity for purpose of sectoral caps on foreign equity, wherever such caps area unit prescribed,

provided they carry a conversion choice. stock structured while not such conversion choice fall

outside the foreign direct equity cap.

Duration for conversion shall be as per the most limit prescribed underneath the businesses Act or

what has beenin agreement to within the shareholders agreement whichever is a smaller amount.

The dividend rate wouldn't exceed the limit prescribed by the Ministry of Finance. Issue

of stock ought to change to pointers prescribed by the SEBI and tally and different statutory needs.

FDI in EOUs/SEZs/Industrial Park/EHTP/STP

Special Economic Zones

100% FDI is permissible underneath automatic route for fixing of Special Economic Zone. Units in

SEZ qualify for approval through automatic route subject to sectoral norms. Details regarding the

kind of activities permissible are accessible within the Foreign foreign policy issued by Department

of Commerce. Proposals not lined underneath the automated route need approval by FIPB.

Export Oriented Units (EOUs)

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100% FDI is permissible beneath automatic route for fitting 100 percent EOU, subject to sectoral

norms. Proposals not lined beneath the automated route would be thought-about and approved by

FIPB.

Industrial Park

100% FDI is allowable below automatic route for putting in place of business Park.

Electronic Hardware Technology Park (EHTP) Units All proposals for FDI/NRI investment in

EHTP Units area unit eligible for approval below automatic route. For proposals

not coated below automatic route, that somebody ought to look for separate approval of the FIPB.

Software Technology Park Units

All proposals for FDI/NRI investment in STP Units ar eligible for approval beneath automatic route.

For proposals notlined beneath automatic route, the soul ought to look for separate approval of the

FIPB.

Capitalization of Import Payables

FDI inflows ar needed to be below the subsequent modes:

By inward remittances through traditional banking channels or by debit to the desired account of

person involved maintained in a certified dealer/authorized bank. Issue of equity to non-residents

against different modes of FDI inflows or in a similar way isn't permissible.

However, Issue of equity shares against payment fee, royalty collectable and

external industrial borrowings (ECBs) in convertible foreign currency ar allowable, subject to

meeting all applicable tax liabilities and sector specific tips.

Policies & Exchange Control ManagementFEMA

The banking company of India's Exchange management Department,

administers interchange Management Act, 1999, (FEMA) that has replaced the sooner act, FERA,

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with impact from June one, 2000. The new legislation is for "facilitating external trade" and

"promoting the orderly development and maintenance of interchange market in India".

Independent agency extends to the full of India. underneath independent agency Indian company

with foreign equity participation is treated at par with different regionally incorporatedfirms. Consequently, the exchange management laws and laws for residents apply to foreign-

invested firms.

FDI in Indian Company

In terms of Section 6(3) (b) of exchange Management Act. 1999 Federal Reserve Bank regulates

transfer or issue of any security by someone resident outside India scan with Notification

No. Federal Emergency Management Agency 20/2000-RB dated could May 3, 2000

Issue of Rights/ Bonus Shares

General permission is on the market to Indian firms to issue Right/Bonus shares subject

to sure conditions. title of rights shares isn't mechanically on the market to investors UN

agency are assigned such shares as OCBs.

Such issuance firms would need to get specific permission from run, exchange Department, Foreign

Investment Division, main office, metropolis for issue of shares on right basis to erstwhile OCBs.

However, bonus shares may be issued to OCBs.

Issue of shares under ESOS scheme

A company could issue shares below this theme, to its workers or workers of its venture or totally in

hand subsidiary abroad WHO area unit resident outside India , directly or through a Trust subject to

the condition that the theme has been drawn in terms of relevant rules issued by the SEBI; and

face worth of the shares to be assigned below the theme to the non-

resident workers doesn't exceed five-hitter of the paid capital of the issue company.

Issue of shares under merger/amalgamation

An Indian company will raise foreign currency resources abroad through the difficulty of ADRs or

GDRs. Regulation 4 of Schedule I of Federal Emergency Management Agency Notification

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no. twenty permits AN Republic of Indian company to issue its Rupee denominated shares to an

individual resident outside India being a repositoryfor the aim of supplying GDRs and/ or ADRs,

subject to the conditions that:

the ADRs/GDRs square measure issued in accordance with the theme for issue of Foreign Currency

Convertible Bonds and stock (Through repository Receipt Mechanism) theme, 1993and pointers issued by the Central Government there underneath from time to time.

The Indian company supplying such shares has AN approval from the Ministry of Finance,

Government of Republic of India to issue such ADRs and/or GDRs or is eligible to issue ADRs/

GDRs in terms of the relevant themeoperative or notification issued by the Ministry of Finance,

and isn't otherwise ineligible to issue shares to persons resident outside Republic of India in

terms of those laws.

Repatriation of investment Capital and profits Earned in India

All foreign investments area unit freely repatriable aside from the cases wherever NRIs opt to invest

specifically below non-repatriable schemes. Dividends declared on foreign investments may

be remitted freely through associate Authorised Dealer.

Non-residents will sell shares on stock market while not previous approval of tally and repatriate

through a bank the sale yield if they hold the shares on return basis and if they need necessary

NOC/tax clearance certificate issued by tax authorities. purchasable of shares through non-

public arrangements, Regional offices of tally grant permission for recognized units of foreign equity

in Indian company in terms of pointers indicated in Regulation ten. B of Notification No.

FEMA.20/2000 Rb dated third might 2000. The sale worth of shares on recognised units is to be

determined in accordance with the rules prescribed below Regulation 10B (2) of the on top

of Notification.

Profits, dividends, etc. (which area unit remittances classified as accounting transactions) may

be freely repatriated.

Transfer of shares/debentures

A person resident outside India could transfer by method of sale or gift the shares or convertible

debentures to any individual resident outside India (including NRIs); provided transferee has

obtained previous permission of SIA/FIPB to a mass the shares if he has previous venture or tie-up

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in India in same field or allied field

NRI or OCB could transfer by method of sale or gift the shares or convertible

debentures command by him or it to a different non-resident Indian; provided transferee has

obtained previous permission of Central Government to amass the shares if he has previous venture

or tie-up in India within the same field or allied fieldThe person resident India couldtransfer any security to someone resident in India by method of

gift. someone resident outside India could sell the shares the convertible debentures of an Indian

company on a recognized stock market in India through a registered broker.

Acquisition of Immovable property by Non-resident

A person resident outside India, World Health Organization has been allowable by banking

company to ascertain a branch, or office, or place of business in India (excluding a Liaison Office),

has general permission of banking company to amass stabile property in Republic of India, that is

important for, orconcomitant, the activity. However, in such cases a declaration, in

prescribed kind (IPI), is needed to be filed with thebanking company, among ninety days of the

acquisition of stabile property.

Foreign nationals of non-Indian origin World Health

Organization have nonheritable stabile property India with the precise approval of the RBI cannot

transfer such property while not previous permission from the Reserve Bank of India.

Acquisition of Immovable property by NRI

An Indian resident outside India (NRI) will acquire byapproach of purchase

any immoveable property in India aside from agricultural/ plantation /farm house. He might

transfer any immoveable property aside from agricultural or plantation property or farm house

to an individualresident outside India, United Nations agency may be a national of India or to an

individual of Indian origin resident outside India or an individual resident in India.

Liberalization of FDI

Beside one hundred pc relaxation of FDI in property, the govt policies on

FDI conjointly supply opportunities for foreign investors to speculate in numerous sectors. This

includes one hundred pc in power commerce, processing, development of

latest airports, birthing of gaspipelines, crude oil infrastructure and repositing of occasional and

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rubber. Limit for telecommunication services corporations are raised from forty nine per cent

toseventy four per cent.

Another cap to the marketing business in Asian country is permitting fifty one FDI in

single complete outlet.the govt is currently set to initiate a second wave of reforms within

the section by liberalizing investment normsadditional. And this has conjointly led to a

conspicuous interest by towards investments within

the Indianwelcome sector. business reports recommend the influx of concerning US$ five

hundred million into the important estate sector over the past six months and is predicted to rise

to a huge $ seven to eight billion over succeeding 18-30 month

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DATA ANALYSIS

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iii. Analysis of sector specific policy for FDI

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

1. Hotel & Tourism 100% Automatic

2. NBFC 49% Automatic3. Insurance 26% Automatic

4. Telecommunication:

cellular, value added services

ISPs with gateways, radio-

paging

Electronic Mail & Voice Mail

49%

74%

100%

Automatic

Above 49% need

Govt. licence

5. Trading companies:

primarily export activities

bulk imports, cash and carry

wholesale trading

51%

100%

Automatic

Automatic

6. Power(other than atomic

reactor power plants) 100% Automatic

7. Drugs & Pharmaceuticals 100% Automatic

8. Roads, Highways, Ports and

Harbors

100% Automatic

9. Pollution Control and

Management

100% Automatic

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10 Call Centers 100% Automatic

11. BPO 100% Automatic

12. For NRI's and OCB's:

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

xii. Industries

Requiring Compulsory

Licensing

xiii. Industries

Reserved for Small

Scale Sector

100% Automatic

13. Airports:

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Greenfield projects

Existing projects

100%

100%

Automatic

Beyond 74% FIPB

14 Assets reconstruction company 49% FIPB

15. Cigars and cigarettes 100% FIPB

16. Courier services 100% FIPB

17. Investing companies in

infrastructure (other than

telecom sector)

49% FIPB

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Analysis of FDI inflow in India from April 2010 to Dec 2010

Table : Inflows- Sector wise

SECTOR

2007-

08

(April-

March

)

2008-

09

(April-

March

)

2009-

10

(April-

March

)

2010-

11

(For

April

'10)

Cumulat

ive

Inflows

(April

'00 to

April'10)

%

Age to

Total

Inflow

s (In

Terms

of

US$)

Service Sector(Financial

& Non-Financial26,589 28411 20958 1581 106992 21%

Computer Software &

Hardware5623 7329 4350 765 44611 %

Telecommunications(ra

dio paging, cellular

mobile,basic telepone

services

5103 11727 12338 1914 42620 8%

Housing & Real Estate8749 12621 13586 246 37615 7%

Construction

Activities(incl roads &

highways)

6989 8792 12544 345 36066 7%

Power3875 4382 6908 547 21466 4%

Automobile Industry

2697 5212 5609 187 20864 4%

Metallurgical

Industries4686 4157 1935 404 13845 3%

Petroleum & Natural

Gas5729 1931 1328 522 12026 2%

Chemicals(other than

fertilizers)920 3427 1707 115 11390 2%

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530

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The Sector wise Analysis of FDI influx in India shows that most FDI has been taken

place within the service sectorwhich has the tele-communication, info & technology, travel and

plenty ofothers. constituent and packagefollows the Service Sector, in terms of FDI. High

volumes of FDI conjointly takes place in tele-communication, realty, construction, power, cars,

etc.

From April 2000 to August 2009

(Amount in Millions)

Sr. No Country Amount of FDI

Inflows

% As To

Total FDI

Inflow

1. Service Sector

(Financial & Non Financial)

9,65,210.77 22.14

2. Computer Software & Hardware 4,13,419.03 9.48

3. Telecommunication 3,68,899.62 8.46

4. Housing & Real Estate 3,25,021.36 7.46

5. Construction Activities 2,65,492.96 6.09

6. Automobile Industry 1,90,172.22 4.36

7. Power 1,79,849.92 4.13

8. Metallurgical Industries 1,25,785.57 2.89

9. Petroleum & Natural Gas 1,11,957.00 2.57

10. Chemical 1,01,680.18 2.33

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The sectors receiving the most important shares of total FDI inflows up to August 2009 were the

service sector and

laptop code and hardware sector, every accounting for 22.14% and 9.48 % severally. These were

followed by the telecommunications, assets, construction and automobile sectors. The

highest sectors attracting FDI into India via M&A activity were manufacturing; information;

and skilled, scientific, and technical services. These sectors correspond closely with the

sectors known by the Indian government as attracting the most important shares of FDI inflows

overall.

The ASSOCHAM has discovered that FDI in Chemicals sector (other than fertilizers)

registered most growth of 227 per cent throughout Apr 2008 March 2009 as compared

to eleven.71 per cent throughout the last commercial enterprise. the world attracted USD 749

million FDI in FY 09 as compared to USD 229 million in FY 08.

During the year 2009 government had raised the FDI limit in medium sector from forty nine per

cent to 74%, that has contributed to the strong growth of FDI. The medium sector registered a

growth of 103 per cent throughout commercial enterprise 2008-09 as compared to

previous commercial enterprise. the world attracted USD 2558 million FDI in FY 09 as compared to

the USD 1261 million in FY 08, acquired 9.37 per cent share in total FDI flow.

India automobile sector has been ready to record seventy per cent growth in foreign investment. The

FDI flow in automobile sector has exaggerated from USD 675 million to one,152 million in FY 09

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over FY 08.

The other sectors that registered growth in highest FDI flow throughout Apr March 2009 were

housing & realty(28.55 per cent), laptop software package & hardware (18.94 per cent), construction

activities as well as road & highways (16.35 per cent) and power (1.86 per cent).

iii. Analysis of share of top ten investing countries FDI equity in flows

Table : FDI Inflows-Countries Wise

RANK COUNTRY

2007-08

(April-March)

2008-09

(April-March)

2009-10

(April-March)

(ForApril'10)

Cumulative

Inflows(April '00to April

'10)

% Ageto TotalInflows

1 Mauritious 44483 50794 49633 2528 213434 43

2 Singapore 12319 15727 11295 1933 47080 9

3 USA 4377 8002 9230 404 37593 7

4 UK 4690 3840 3094 265 26263 5

5 Netherlands 2780 3922 4283 312 20438 4

6 Japan 3336 1889 5670 1455 18350 4

7 Cyprus 3385 5983 7728 123 17900 4

8 Germany 2075 2750 2980 102 12571 3

9 France 583 2098 1437 184 7102 1

10 UAE 1039 1133 3017 31 7054 1

Total FDI

Inflows 98664 123025 123378 9854 526357 83%

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Indias 83% of accumulative FDI is being contributed by nine totally

different countries whereas remaining 17 % from the rest of the world. The analysis of country

wise inflows of FDI in Indiais indicating that in 2007-2010, the whole quantity of Rs 526537 of

FDI was received from 113 totally differentcountries as well as NRI investments. this is

often mirrored within the growing list of states that are showing interest to take a

position in India. Mauritius emerged mutually ofthe foremost dominant supply ofFDI contributive a 44% capitalization on the whole investment within the country. Singapore is

that thesecond dominant supply of FDI flows with a complete inflow of9%.

However, USA slipped to 3rd position by contributive to 7% inflows. They maintained

continuous increasing trend. UK s occupied fourth position with a 5 percent followed

Netherlands with 4%, Japan with 4%, Cyprus with 4%, Germany with 3%, France with 1% and

UAE with 1%.. it's additionally been determined that some alternative countries like Israel,

Thailand, Hong Kong, South Africa and Asian nation have magnified their share .a number

of othernew countries like Hungary, Nepal, Virgin Islands, are also creating a

major investment in India.

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The FDI boom in India

* India is now the third most favoured destination for Foreign Direct Investment (FDI), behind

China and the USA, according to an AT Kearney survey that tracked investor confidence among

global executives to decide their order of preferences.

* India's share of global FDI flows rose from 1.8 per cent in 1996 to 2.2 percent in 1997.

* FDI in India in 1997-98 was lower at U.S.$ 5,025 million compared to U.S.$ 6,008 million in

1996-97 because of a decline in portfolio investment. Although foreign direct investment (FDI)

increased by 18.6 per cent from U.S.$ 2,696 million in 1996-97 to U.S.$ 3,197 million in 1997-

98

* International developments continue to attract capital flows into India in 1998-99 as well.

* Mauritius, as in the previous two years, was the dominant source of FDI inflows in 1997- 98.

U.S.A. and S. Korea were, respectively, the second and third largest sources of FDI.

* S. Korea increased its flow of investment in India from a meager U.S.$ 6.3 million in 1996-97

(0.2 per cent of total FDI) to U.S.$ 333.1 million in 1997-98 (10.4 per cent share).

* There has been a sharp rise in the number of FDIs approved in 2004.

* During the first seven months of 2004, between January and July, Rs. 5,220 crore worth of

FDI was approved.

* Almost a third share of the investment in India is by NRI.

* According to the latest Reserve Bank of India figures, outflows through various NRI deposits

schemes amounted to $11920 million since 2011-12.

The negative facet of this bouncing FDI and NRI influx is that the constraints of

Indian economic process that arinternal and not external .Ups and downs in Indian agriculture

plays a significant role in restricting Indian rate let alone unhealthy infrastructure like pot holed

roads, incomplete flyovers, undeveloped flying field facilities etc are the most constraints within

the growth of the Indian economy.

Again lopsided regional variation within the economic process of the country is another major

impediment within the economic process. Truant Left Parties whose support is vital for the

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survival of the UPA government at the middle is another major bottleneck within the influx to

FDI investment.

However a awfully encouraging development has been the tremendous improve that the recent

budget has given to industrial infrastructure and FDI investment in India. Positive facet of the

story is that the tremendous resilience of the economy, rapid climb of Indian

agriculture, improve to infrastructural facilities, the tremendousworld outsourcing boom in India

and a well-regulated and deep capital market. observing the present rate of

FDI influx India will attract a record of $ twelve billion FDI influx this yr. The commerce

minister of India feels it's attainable tho' he encompasses a note of caution, "There is

competition not barely from China however conjointly from others like Kingdom of

Thailand, Malaya and then on. we have a tendency tocant lose target attracting investments

since we have a tendency to cant get inflows by giving lectures however work on ways that to

urge investors.

"If a comparative analysis of the India and Chinese economy is finished some attention-

grabbing comparison emerges through India lags behind China in plenty of} areas and a lot has

to be done if India must catch up with China. The comparative analysis is given as below.

Basis of Comparison China India

Total population 1272 billion 1033 billion

Savings rate 50 per cent 26 per cent

Labour force 757 billion 451 billion

Annual GDP US $ 1159 billion 478 US $ billion

Share of agriculture in GDP 15 per cent 27 per cent

Share of industry in GDP 52 per cent 27 per cent

Share of service sector in

GDP

33 per cent 48 per cent

Rail routes 56.7 thousand sq kms 62.5 thousand sq kms

Motor vehicles per 1000

people

8 7

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R& D expenditure 0.1 % of GNP 0.6 % of GNP

Internet host 0.6 per 10000 people 0.8 per 10000 people

Education expenditure 2.3 per cent of GNP 3.2 per cent of GNP

Female adult literacy 85 per cent 45 per cent

Undernourished people 9 per cent of the total

population

23 per cent of the total

population

Thus it's noticed that the scene of Indian economy with a booming stock touching virtually the

14000 mark, a buoyant Rupee of Rs forty 3.44 /Dollar and a healthy growth trend of the

foremost sectors of the Indian economy the setting is extremely positive for FDI and NRI

inflows. But compared to China it's still behind even

supposing it's walk ahead. plenty additional has to be done. The Indian bull is not any doubt

energetic currently but it's to run quick to overtake the Chinese dragon.

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CONCLUSION

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CONCLUSION

It is usually aforementioned that future is usually unsure. This spoken language is correct to

some extent.however at identical time it's additionally aforementioned that exceptions area

unit invariably there. This exception is regarding India's sure higher rate of growth within

the coming back future. The long run of Indian economy is brighter owing to its large human

resources, apace future service sector, accessibility of huge rangeof competent

professionals, large marketplace for each product, increasing impact of consumerism, absence

of controls and licenses, interest of foreign entrepreneurs in India and existence of 400

million bourgeoisie individuals. Even today, India is manufacturing largest range of

billionaires in an exceedingly year, take over by Indian multinationals is wonderful, the craze of

Indians to travel abroad is apace decreasing, the Rupee is changing into stronger and stronger

in relevancy dollar. India's say within the international diplomacy andpolitics has currently become important, thousands of foreigners area unit operating as

executives in India, packages are getting profitable and competitive and annual rate of growth is

highest when China. This gift image offers some reflections of the long run. However this is

often beat absolutely the sense and not within therelative terms. a rustic will solely grow if the

government. Policies enable a lot ofparticipation and is in a position to draw in a lot ofand a lot

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offoreign direct investment in India. Today, India provides highest returns on FDI than the

other country within the world. India is poised for more growth in producing,

infrastructure,vehicles, motor vehicle parts, food process sectors, assets development etc. during

this context it's additionally value mentioning that savings rate

has additionally magnified from twenty third to thirty firstover the last year to the current year.

India's continued feeling on FDI, as a result, exacts a significant toll on the economy. Beyond

any doubt, India is relinquishment billions ofbucks of FDI to its

neighbours annually. Indiathus stands to win within the next few years.

A large variety of changes that were introduced within the countrys regulative economic

policies publicized the alleviation era of the FDI policy regime in India and led to a structural

breakthrough within the volume of the FDI inflows into the economy maintained a unsteady and

unsteady trend throughout the study amount. It'd be of interest to notice that over five

hundredth of the full FDI inflows received by India throughout the amount from 2000 - 2009

came from Mauritius, Singapore and also the USA. The most reason for higher levels of

investment from Mauritius was that the very fact that India entered into a double

taxation shunning agreement (DTAA) with Mauritius were protected against taxation in India.

Among the various sectors, the service sector had received the larger proportion followed by

laptop computer code and hardware sector and telecommunication sector.

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REFERENCES

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Online References

http://en.wikipedia.org

http://www.indianindustry.com

http://www.indianground.com

http://dipp.nic.in

http://www.rediff.com

http://ideas.repec.org

http://business.mapsofindia.com

http://www.hinduonet.com

http://www.merinews.com

http://commerce.nic.in

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http://www.igidr.ac.in

http://www.economywatch.com

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finance - fdi - role of fdi in development of economy 2

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