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I have taken efforts

However, it would
possible without
and help of many
like to extend my
all of them.

ACKNO
WLED
GEME
NT

in this project.
not have been
the kind support
individuals. I would
sincere thanks to

I am highly
indebted to Miss
Shreya Dhall for her guidance and constant supervision
as well as for providing necessary information regarding
the project & also for her support in completing the project.
I would like to express my gratitude towards my parents
and Principal Shaheed Bhagat Singh College (morning)
Mr. Khurana for his kind co-operation and encouragement
which helped me in completion of this project.
I would like to express my special gratitude and thanks to
industry persons for giving me such attention and time. My
thanks and appreciations also go to my colleague in
developing the project and people who have willingly
helped me out with their abilities.
Foreign Direct Investment (FDI) is a fund flow between the
countries in the form of inflow or outflow by which one can
able to gain some benefit from their investment whereas
another can exploit the opportunity to enhance the
productivity and find out better position through
performance. The effectiveness and efficiency depends

upon the investors


perception,
if
investment
with
the purpose of
long-term then it
contributes
positively towards
economy on the
other hand if it is
for short-term the
purpose of making
profit then it may
be less significant.
Depending on the
industry sector and
type of business, a
FDI may be an attractive and viable option. Any decision
on investing is thus a combination of an assessment of
internal resources, competitiveness, and market analysis
and market expectations. The FDI may also affect due to
the government trade barriers and policies for the foreign
investments and leads to less or more effective towards
contribution in economy as well as GDP of the economy.
The studies try to find out the implications which affect the
economic scenario and also measure the level of
predominance by the factors for economic contribution to
India.

INTRO
DUCTI
ON

CONTEXTUAL BACKGROUND
After independence in India 1947, FDI gained attention of
the policy makers for acquiring advanced technology and
to mobilize foreign exchange resources. In order to boost
the FDI inflows in the country Indian government allowing
frequent equity participation to foreign enterprises apart
from provides many incentives such as tax concessions,
simplification of licensing procedures and de-reserving
some industries like drugs, fertilizers, aluminum, etc. But
due to significant outflow of foreign reserve in the form of
remittances of dividends, profits, royalties, etc., in 1973
government of India set up Foreign Investment Board and
enacted Foreign Exchange Regulation Act in order to
regulate flow of FDI to India. Further Government of India
set up Foreign Investment Promotion Board (FIPB) for
processing of FDI proposals in India. The Board is the
apex inter-ministerial body of the Central Government that
deals with proposals relating to FDI into India for projects
or sectors that do not qualify for automatic approval by the
Reserve Bank of India (RBI) or are outside the parameters
of the existing FDI policy. It could be observed that there
has been a steady build up in the actual FDI inflows in the
pre-liberalization period in Table 1. But measures
introduced by the government to liberalize provisions

relating to FDI in 1991 increased FDI Rs. 2,705 cr in 1990


to Rs. 123,378 cr in 2010. The list of investing countries to
India reached to 150 in 2010 as compared to 29 countries
in 1991. Nevertheless, still a lions share of FDI comes
from only a few countries. Table 2 shows the actual
investment flows of top 10 countries during the period of
2008-09 to 2010-11. The FDI stock for this period from
Mauritius is the largest 42%. The other top nine countries
are Singapore, USA, UK, Netherlands, Japan, Cyprus,
Germany, France and UAE. It implies that these top 10
countries accounted for well over 78% of the FDI inflows
during the above period. The Mauritius which was not in
the picture till 1992 has the highest growth rate because
such investment is represented by the holding companies
of Mauritius set up by the US firms. The reason behind the
US companies have routed through Mauritius is the tax
treaty between Mauritius and India stipulates a dividend
tax of 5% while the treaty between Indian and US
stipulated a dividend tax of 15%. The growth of FDI gives
opportunities to Indian industry for technological up
gradation, gaining access to global managerial skills and
practices, optimizing utilization of human and natural
resources and competing internationally with higher
efficiency (Ministry of Finance, 2003-04).

Table 1: FDI Inflows in India (from 1948-2010)

Amount
of
FDI

In
crores

1948

1964

1974

1980

1990

2000

2010

256

565

916

933.2

2,705 18,486 1,23,378

Table 2: Share of Top 10 Investing Countries in FDI Inflows


(Financial Year-Wise)
RANKS COUNTRIE
S
MAURITIUS
1
SINGAPORE
2
U.S.A
3
U.K
4

NETHERLAN
D

6
7
8
9
10

JAPAN
CYPRUS
GERMANY
FRANCE
UAE

TOTAL
INFLOW

(APR-MAR)

CUMULATIVE
INFLOWS

496333.7
112948.2
92304.3
30941.5

318547.8
77296.6
53526.7
34342

2427607.2
528762.9
425422.4
294326.8

42
9
7
5

39215
18885.6
59828.3
27497.3
20980.5
11333.3

42826.7
56704
77275.8
29800.4
14368.3
30168.2

55012.3
70629.8
41706.7
9078.8
33486.3
15691.8

256268.9
239579.2
219479.4
133761.8
102673.1
85921.8

4
4
4
2
1

1230248.
8

1231196.4

885193.7

5807223.3

2008-09

2009-10

2010-11

(APR-MAR)

(APR-MAR)

508993.1
157266.7
80017.8
38404.1

LIMITATIO
NS OF
THE
STUDY

All the
studies are faced
limitations and this
exception to the
various limitations of the study are:

economic/scientific
with various
study is no
phenomena. The

1. At various stages, the basic objective of the study is


suffered due to inadequacy of time series data from
related agencies. There has also been a problem of
sufficient homogenous data from different sources. For
example, the time series used for different variables, the
averages are used at certain occasions. Therefore, the
trends, growth rates and estimated regression
coefficients may deviate from the true ones.
2. The assumption that FDI was the only cause for
development of Indian economy in the post liberalized
period is debatable. No proper methods were available
to segregate the effect of FDI to support the validity of
this assumption.

The

OBJECTIV
E OF THE
STUDY

study covers the following


objective:

1. To study the trends and patterns of flow of FDI.


2. To evaluate the impact of FDI on the economy.
3. T understand what FDI is.

of Sector wise FDI inflows in


SECTOR Ranking
India since April 2000- Dec 2014:
WISE FDI
INFLOW
TABLE NO. 3
ANALYSIS
Industrial Sector
Rank

Service Sector

Telecommunication

Computers

Housing and Real Estate

Construction Activities

Drugs and Pharmaceuticals

Automobile Industry

Metallurgical Industry

Power

Petroleum and Natural Gas

10

The Sector wise Analysis of FDI Inflow in India reveals that


maximum FDI has taken place in the service sector
including the telecommunication, information technology,
travel and many others. The service sector is followed by
the computer hardware and software in terms of FDI. High
volumes of FDI take place in telecommunication, real
estate, construction, power, automobiles, etc.
The rapid development of the telecommunication sector
was due to the FDI inflows in form of international players
entering the market and transfer of advanced
technologies. The telecom industry is one of the fastest
growing industries in India. With a growth rate of 45%,
Indian telecom industry has the highest growth rate in the
world. During the year 2009 government had raised the
FDI limit in telecom sector from 49 per cent to 74 per,
which has contributed to the robust growth of FDI. The
telecom sector registered a growth of 103 per cent during
fiscal 2008-09 as compared to previous fiscal year.
FDI inflows to real estate sector in India have developed
the sector. The increased flow of foreign direct investment
in the real estate sector in India has helped in the growth,
development, and expansion of the sector. FDI Inflows to
Construction Activities has led to a phenomenal growth
in the economic life of the country. India has become one
of the most prime destinations in terms of construction
activities as well as real estate investment.

The FDI in Automobile Industry has experienced huge


growth in the past few years. The increase in the demand
for cars and other vehicles is powered by the increase in
the levels of disposable income in India. The options have
increased with quality products from foreign car
manufacturers.
The introduction of tailor made finance schemes,
easy repayment schemes has also helped the growth of
the automobile sector. The basic advantages provided by
India in the automobile sector include, advanced
technology, cost-effectiveness, and efficient work force.
Besides, India has a well-developed and competent Auto
Ancillary Industry along with automobile testing and R&D
centres. The automobile sector in India ranks third in
manufacturing
three
wheelers
and
second
in
manufacturing of two wheelers. Opportunities of FDI in the
Automobile Sector in India exist in establishing
Engineering Centres, Two Wheeler Segment, Exports,
Establishing Research and Development Centres, Heavy
truck Segment, Passenger Car Segment.
The increased FDI Inflows to Metallurgical Industries in
India has helped to bring in the latest technology to the
industries. Further, the increased FDI Inflows to
Metallurgical Industries in India has led to the
development, expansion, and growth of the industries. All
this has helped in improving the quality of the products of
the metallurgical industries in India.

The increased FDI Inflows to Chemicals industry in India


has helped in the growth and development of the sector.
The increased flow of foreign direct investment in the
chemicals industry in India has helped in the development,
expansion, and growth of the industry. This in its turn has
led to the improvement of the quality of the products from
the industry. Based upon the data given by department of
Industrial Policy and Promotion, in India there are sixty two
(62) sectors in which FDI inflows are seen but it is found
that top ten sectors attract almost seventy percent (70%)
of FDI inflows. The cumulative FDI inflows from the above
results reveals that service sector in India attracts the
maximum FDI inflows amounting to Rs. 1,06,992 Crores,
followed by Computer Software and Hardware amounting
to Rs. 44,611 Crores. These two sectors collectively attract
more than thirty percent (30%) of the total FDI inflows in
India.
The housing and real estate sector and the construction
industry are among the new sectors attracting huge FDI
inflows that come under top ten sectors attracting
maximum FDI inflows. Thus the sector wise inflows of FDI
in India shows a varying trend but acts as a catalyst for
growth, quality maintenance and development of Indian
Industries to a greater and larger extend. The technology
transfer is also seen as one of the major change apart
from increase in operational efficiency, managerial

efficiency, employment opportunities and infrastructure


development.

FDI
AND
ECON
OMIC
DEVEL
OPME
NT

FDI is considered to be the lifeblood


and an important vehicle of for
economic development as far as the
developing nations are concerned. The
important effect of FDI is its
contribution to the growth of the
economy.

FDI has an important impact on


countrys trade balance, increasing
labour standards and skills, transfer of
technology and innovative ideas, skills
and the general business climate. FDI
also
provides
opportunity
for
technological transfer and up gradation, access to global
managerial skills and practices, optimal utilization of
human capabilities and natural resources, making industry
internationally competitive, opening up export markets,
access to international quality goods and services and
augmenting employment opportunities.

CONCLUSION
Foreign direct investment has continued to play a
significant role in the Indias economy. From the above
calculation, the analysis shows that there is a positive
relationship between the FDI and economic growth, which
the relationship is found to be significant. These findings
have important policy implication where the government
has to concern the importance of the FDI contributed to
economic growth. Economy development of a country can
be achieve by encourage more foreign direct investment,
which it can help to create more employment in the
country. In addition, advance technology in production will
trained more skilled labour; therefore it will enhance the
productivity and fulfil the satisfaction and demand from the
consumers. But, there is negative effect on domestic
producer, because they losing the market power, since the
foreign investor become monopoly in the market. This
indirectly will make the domestic producer facing the
difficulties to survive in the market in the long term as
foreign companies can achieve economy of scale with
advance technology.

BIBLIO
GRAPH

The necessary data were collected through following


websites1. www.rbi.org.in
2. www.worldbank.org.in
3. www.dipp.nic.in
4. http://indiahighcom-mauritius.org
5. www.docs.google.com
6. www.imf.org
7. www.uscc.gov

SHAHEED BHAGAT SINGH


COLLEGE (MORNING)

Project report on FDI


Foreign Direct Investment

Submitted bytoSandesh Chaurasia


Dhall

1187
B.com Program
Section- B

Submitted
Miss Shreya