IJAMBU Volume 2 Issue 1Jan-Mar 2014

ISSN 2348-1382 (Online)

Current Scenario of Foreign Direct Investment (FDI) in India

M. Gandhi
Doctoral Research Scholar
Dr. G. Prabakaran
Assistant Professor, Department of Business Administration,
Government Arts College, Dharmapuri
Abstract
FDI is no. of factors have contributed to this trend. External resources have played an important role
in bridging their saving investment and import-export gaps. But also a growing awareness of greater
possibilities of combining advantages of greater capital availability with the acquisition of know and marketing
skill of the investor. In recent years the possibility of using FDI to enhance exporting capabilities is being
recognized. FDI being considered as more stable and secure source of domestic investment in comparison to
short term and more volatile private financial institution areas.
Nations participating in the international investment are known as open economies. Nations options to
remain open economies because they realize the welfare of their citizens are improved through international
investment.
I. Necessity for Foreign Direct Investment
Foreign investment enables division of labour with consequent specialization of functions among the
individuals. As a result, the total output of the society is increased. With greater national output, the economic
well being the people is enhanced. Similar to the case with individuals, nations are also not endowed equally
with natural and acquired resources. Each nation differs from others in the level of natural endowments like
land minerals, metals, water vegetation, climatic conditions etc.
If a nation functions in autarky and produces all the requirements of its residents, two situations will
emerge. Firstly, its residents will not be enjoying those goods and services for which the nation lacks the
needed resources. Secondly, even in the case of goods and services produces in the country with the resources
available, their total consumption will be less because in many cases they will be paying prices higher that that
would prevail if import was permitted.
Foreign investment takes place because the price at which a commodity can be produced by different
nations differ. Countries concentrate in producing those goods and services which they can produce at cheaper
cost than others. Their production will be at a level higher that the requirement for domestic consumptions.
Thus surplus is exported from the country. A country will import a commodity so long as it costs higher it
produce the same commodity domestically. Thus international investment will take place so long as there is a
p[rice differential between imported and domestically produced goods.
II. Current Scenario of Foreign Direct Investment (FDI) in India
FDI is no. of factors have contributed to this trend. External resources have played an important role in
bridging their saving investment and import-export gaps. But also a growing awareness of greater possibilities
of combining advantages of greater capital availability with the acquisition of know and marketing skill of the
investor. In recent years the possibility of using FDI to enhance exporting capabilities is being recognized. FDI
being considered as more stable and secure source of domestic investment in comparison to short term and more
volatile private financial institution areas.
Nations participating in the international investment are known as open economies. Nations options to
remain open economies because they realize the welfare of their citizens are improved through international
investment.
III. Necessity for Foreign Direct Investment
Foreign investment enables division of labour with consequent specialization of functions among the
individuals. As a result, the total output of the society is increased. With greater national output, the economic
well being the people is enhanced. Similar to the case with individuals, nations are also not endowed equally
with natural and acquired resources. Each nation differs from others in the level of natural endowments like
land minerals, metals, water vegetation, climatic conditions etc.
They also differ on the level of technological sophistication and capital resources. Therefore no
country is able to produce al the goods and services required by its residents in the most efficient way.

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IJAMBU Volume 2 Issue 1Jan-Mar 2014

ISSN 2348-1382 (Online)
If a nation functions in autarky and produces all the requirements of its residents, two situations will
emerge. Firstly, its residents will not be enjoying those goods and services for which the nation lacks the
needed resources. Secondly, even in the case of goods and services produces in the country with the resources
available, their total consumption will be less because in many cases they will be paying prices higher that that
would prevail if import was permitted.
Foreign investment takes place because the price at which a commodity can be produced by different
nations differ. Countries concentrate in producing those goods and services which they can produce at cheaper
cost than others. Their production will be at a level higher that the requirement for domestic consumptions.
Thus surplus is exported from the country. A country will import a commodity so long as it costs higher it
produce the same commodity domestically. Thus international investment will take place so long as there is a
p[rice differential between imported and domestically produced goods.
IV. How far FDI helps Developing Countries?
Foreign Direct Investment (FDI)
has proved the vital role in the business path of developing
countries financial crises.
The international flow of capital reduces that risk faced by owners of capital by allowing them to
diversify their lending and investment.
The global integration of capital markets can contribute to their spread of best practices in corporate
governance, accounting rules and legal traditions.
FDI allows the transfer of technology - particularly in the form of new verities of capital inputs that
cannot be achieved through financial investments or trade in goods and services.
FDI can also promote competition in the domestic input market.
Recipients often gain employees training in the course of operating the new business, which contributes
to human capital development in the host country.
Profits generated by FDI - contribute to corporate tax revenues in the host country.
An additional the FDI is thought to be bolted down and cannot leave so easily at the first sign of
trouble
Unlike short-term debt, direct investments in a country are immediately re priced in the event of crisis.
V. FDI is an Important Driver of Growth of the Country
A number of important flows come from international investments. It is generally accepted that the world
would be better world international investment that without it. The classical economists are so convinced about
the benefits of international investments that they advocate a regime of free trade, where each government
adopts a policy on non interference which makes no difference between domestic and foreign commodities.
In an environment of free trade and investment no restrictions are placed on the movement of gods and services
across national borders.
1. The world output can be maximized: An international investment enables each country to
concentrate of the production of goods and services for which they are best endowed, and import those
commodities and services for which they are best at a cheaper price.
2.

Income factor can be multiplied: Under conditions of free movement the factors of production will
move to the used where they can best return. Thus, wages, interests, and rent will be higher with
international investment than otherwise, benefiting all the factors of production.

3.

Monopolistic exploitation can be prevented: At the national level every country has the freedom
both as a seller and as buyer. Exploitation of one country by another is difficult because each country
has numerous markets to produce their requirements.

4.

Consumption can be optimized: By enabling division of labour and specialization, international

investments results in lowest cost for all products. The consumption across the globe is optimized
because the consumers can import goods at cheaper prices from abroad. With increased consumption,
the standard of living is also maximized.

5.

International cooperation can be promoted: The proper functioning of the monetary systems
depends on the co operation among the member countries. Different countries come forward to
contact with each other to solve the bilateral and multilateral investments issues. They provide latform
for cooperation among the nations.

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IJAMBU Volume 2 Issue 1Jan-Mar 2014

ISSN 2348-1382 (Online)
6.

Economic development can be promoted: It believes that international investments helps the
developing countries to accelerate their rate of economic development by enabling import of capital
goods and essential raw material required, import of necessary capital, technical know how,
managerial talents, entrepreneurship and so on, by promoting international capital movements.
VI. The Current Scenario of FDI: On Human Capital Development
It is believed that economic growth of a country varies directly with the flow or transfer of foreign
direct investment (FDI) in to the country. Most of the developing countries of the world have been designing
policies and developing infrastructure at attract FDIs. The investing countries usually supply superior
technologies to the host countries. At the initial stages, however the Developing Countries lack not only the
necessary skills and infrastructure too attract FDI in high technology sector but also the knowledge for proper
implementation of technology. This helps ion improving the human capital of the country by facilitating
education and technical to a greater mass of people. Simultaneously with the development of the economy the
country moves from the subsistence level to the point where the dependence of FDI gradually shifts from mere
manufacturing level to the managerial level of a company.
VII. Government makes all Efforts to Attract FDI
Foreign institutional investors (FII) are entities that have established or incorporated outside
geographical boarders of they make investments in India after registering with the SEBI. FII invested
Rs.44123crore in the Indian market, domestic mutual fund invested only Rs.40245crore. FII are also big moves
in the futures and option segment their investment in derivatives Rs.152970crore at the end of March 2006.
Foreign Direct Investment is a major source of project funding in India according to the World
Investment report of the United Nations conference on Trade and Development (UNCTAD).
Indias FDI flow accounted for 5.4. % of Indias Gross Capital Formation. Most of the FDI in India
either enters through the automatic route under power delegated to the RBI or through the government approval
on behalf of the government the Foreign Investment promotion Board (FIPB) approves the flow of FDI finance
1991, there has been a significant changes in the composition of FDI inflows for different sectors of the
economy.
The sectors which have a majority of FDI inflows are electrical equipment (including computers)
transportation, telecommunications, fuels, services, chemicals, food processing an d drug and pharmaceuticals
etc. The growing interest of research and development may absorb huge volume of FDI inflows in the future.
The FDI always welcome to the India to invest their money in various field and spread their influences through
which the India like country believes that the economic development can be improved automatically. Some
concessions have been offered by country those who are emerging to invest in our country, Tax relief, no
critical formalities, government support in all the assistance, location of places, providing raw materials, labour
assistances, technical know persons whether semi skilled or semi skilled and so on.
VIII. The Assistance of International Organisations with FDI
Some of the international organizations are giving their assistance and full support along with Foreign
Direct Investment, they are, International Develop Association ( IDA ), International finance Corporation
(IFC) and Multilateral Investment Guarantee Agency (MIGA)
Conclusion
Foreign Direct Investment is often lauded for bringing economic growth and technical Know-how to developing
countries. For Example Shell is an important FDI investor in our country having committed firm investments of
more that $ 750m to the country, including a $600m port and Indias first private sector Liquefied Natural Gas
(LNG) terminal, which was helped our country to earn economic growth in his period.
This has opened up opportunities for foreign investors such as Shell, to enter a vast and growing
market but it also brings challenges. For instance Gas transportation is still controlled by the government and
state companies. Shell recently received government approval to set up 2000 retail Gas stations.
In the Recent budget the Government of India has proposed FDI limit hikes in Telecom, civil Aviation
and Insurance Sectors. FDI Cap is to be raised in Telecom sector from 49 % to 74%: in Civil Aviation from
40% to 69% and in the case of insurance foreign Investment is proposed to 79%, from the 26%. This move
office finalized is expected to attract long- term funds to invest in India and permit Indian players to raise fianc
through the equity route.
Hence the Government is making all the efforts to attract and facilitate FDI investment from nonresidents. To make investment in India more attractive, investment and return on them are freely reportable.
Hence understanding the determinants of Foreign Direct Investment is very important for any
emerging economy.

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