Foreign Direct Investment in India - An Assessment

CONTENTS
Chapter 1 Introduction
Meaning and Forms of Foreign Investment
Chapter 2 Role of FDI in Economic Development of UDCs like India
Chapter 3 Flow of FDI to India Comparison to other Countries
Causes of Slow FDI in India
Chapter 4 Measures to Promote FDI in India
Chapter 5 Conclusions
Bibliography
0 FDI in India an Assessment

CHAPTER - 1
INTRODUCTION
Mobilisation of resources for economic development is the most
important problem facing in the UDCS. In these countries, the domestic
resources mobilisations from saving taxation are very much adequate to
meet the massive requirements of economic development. If sufficient
funds are not available the achievement of physical targets becomes an
impossibility the importance of resource mobilisation in under developed
countries lays in entraining consumption and augmenting savings for an
accelerated investment in the community, Deficit financing and public
borrowings have their own limitations. Hence foreign capital has come to
play an important role in the development of an under developed country.
The history of advanced countries show that almost all of them to rely on
foreign aid to speed up the pace of economic development England
borrowed from Holland in the 17th and 18th century. But by the 19th and
20th century it became so prosperous that it came to lend to almost every
country is the world. The USA now being the richest country in the world
borrowed heavily in the 19th century and in town called upon to become the
major donor in the 20th century. Japan and Russia are striking examples
who have developed without significant foreign capital.
In recent years foreign capital have made a significant contribution
to the economic transformation of South East Asian economic like Korea,
Singapore, Taiwan, and Malaysia called Asian Tigers. Most countries of the

world which embarked on the road to economic development had to depend
on foreign capital to some extent the degree of dependence, however varied
with the extent to which domestic resources could be mobilized, the sate of
domestic economy in respect of technical progress, the attitude of the
respective governments etc. But the fact cannot be denied that foreign
capital contributed in many important ways to the progress of economic
growth and industrialization. India's policy of foreign direct investment has
been to permit foreign private interest on a selective basis in areas
beneficial to the Indian economy. Although there is no separate law
governing the policy on foreign direct investment, it has generally been
guided by the industrial policy statements and five years plans from time to
time.
Need of the Study
In the pace of inadequacy of domestic resources to explore natural
resources for raising the level of employment and abolishing poverty from
Indian Soil, the importance of FDI is increasingly felt in our country. So
there is a greater need for making a comparative study relating to FDI in
India in relation to that of others selected countries of the World and to
examine its importance.
Objective of the Study
The study is conducted to assess the impact of FDI in Indian
economy particularly in industrial sector

Hypothesis
H 0 The impact of FDI in negligible in Indian Industry
H 1 The impact of FDI in Positive.
Methodology
To study the above problems and to test the above hypothesis. I have to
mail depend upon the secondary sources for collection of the data and upon
deferent journals, magazines, periodicals, and circulated daily for literature

Meaning and Forms of Foreign Investment
The UDCS like India very much depends foreign capital for
financing their development programme as they suffer low level of income
and low level of capital accumulation in order to support has development
programmes, India is very much depending on the foreign capital. Foreign
capital can enter a country in the form of private capital and public capital
foreign capital may take the form of direct and indirect investment.
Indirect foreign investment is better known as portfolio investment
which consists mainly of transferable securities (issued or guaranteed by
the Govt. of the capital importing country) or purchase of shares and
debentures by the national of foreign countries. Such holdings don't amount
to a right to control the company. The shareholders are entitled to the
dividend only. In recent years the multi indirect in have been evolved. The
national of a country purchases the bonds of the World Bank floated for
financing particular project in some LDCS.
Public foreign capital also called foreign Aid or Official
Development Assistance (ODA), consists the followings:
Bilateral hard loans (i.e.) giving of loans by the British Govt. in
pounds sterling to the Indian Govt.
Bilateral soft loans (i.e.) scale of food grains and other farm products
to India by the United States under public law 480.
Multi lateral loans (i.e.) contribution to the Aid India Club the
Colombo plan etc. by the member s countries. Under this category

are also included loans, and available by the various agencies of the
United nations like the IBRD, IFC, IDA, SUNFED, UNDP etc.
Inter Govt. grants foreign aid regress to the public foreign capital on
hard and soft terms, in case or kind inters governmental grants.
Direct investment's may take many forms
The formation in the capital importing country of a subsidy of a
company of the investing country.
Formation of a concern in which a company of the investing country
has a majority holding.
The formation in the capital importing country of a company
financed exclusively by the present concern situated in the investing
country.
Setting up a corporation in the investing country for the specific
purpose of fixed assets in the other country by the nationals of the
investing country.
Foreign investment comes to India in the form of foreign direct
investment and portfolio investment the result of the new policy is quite
encouraging. In the period August 2006 to December 2008. The Govt.
approved 3467 foreign collaboration proposals including 1565 cases with
foreign equity participation. The total value of equity foreign investment
Proposals approved in the last decade (1981-90) about 80% of the approvals
are in priority section prior to the beginning of liberalization the inflow
were very small being $113 million in 2005-06 of these $107 million was

FDI and $6 million was portfolio investment With liberalization, portfolio
investment Comprising foreign institutional investors (FIIS) and investment
Under ADRI and GDR route, portfolio investment Far exceeds FDI for
instance, portfolio investment In 2014-2015 was $909 billion against $2.2
billion of FDI.
Foreign investment has certain important fun. It raises the marginal
rate of capital formation UDSC which are generally capital deficient,
provides encouragement to the development Of technology and managerial
expertise in high priority areas, further foreign direct investment Promotes
export of capital importing countries through the production of quality
goods, produced through superior technology which solves the balance of
payment problems. Moreover it makes the domestic industry more
competitive internally and helps integration with the global economy.

CHAPTER - 2
Role of FDI in the Eco Development of UDSC like India
India's policy on FDI has been permit foreign private interests on a
selective basis in basis in areas beneficial to the Indian economy. Although
there no separate law governing policy of FDI, it has generally been guided
by the industrial policy statement and 5 year plans from time to time. The
basic approach on FDI was first laid down in the industrial policy statement
1948. The thrust of the policy was to welcome foreign Pvt. Investment on a
selective basis while maintaining majority ownership and control in Indian
hard.
The first five-year plan (1951-56) elaborated that foreign capital
should be routed through high priority areas during 1961-70 greater
emphasis was laid channeling foreign capital to area which contributed to
the employment generation and where more investment Was required to
achieve the plan targets the Govt. also issued illustrative list of industries in
which FDI, and technical collaboration would be allowed, During 1977-80
with a view to helping the balance of payment problem, the Govt.
liberalized the guidelines of foreign investment Where entities agreed to
undertake export as a major share of prod. In such cases it was decided to
allow majority foreign equity participation. During 1980's to promote
investment By non-resident Indian (NRIS) and entities owned
predominantly (60% or more) by NRIs/OCB investment Into India in
general, NRIs/OCB were allowed to investment Freely in Indian Companies

without the need for technology transfer 100% foreign equity was permitted
if the investment Was on a non-repracticable basis 2006 policy of foreign
investment in new industrial policy in July 2006, as part of the new
industrial policy, it was announced that the RBI, would accord automatic
approval for FDI up to 51% foreign equity in 34 high priority areas in
engineering, chemical food processing and tourism sector provided that the
foreign equity covers fully the imports of capital goods and outflow on
account of dividend payments are balanced by export earnings over a
period. Foreign companies and investors have also been allowed to own
offices, buy real estates and launch new companies.
Multinationals setting up manufacturing facilities and peripherals as
100% Export Oriented Units (EOU) are allowed to sell up to 30% of prod in
the domestic Traffic Areas (DTA) and 100% EOUs engaged in agriculture
and allied activities are allowed to sell upto 35% of their prod in DTA. The
Govt. has framed guidelines for setting up electronics hardware technology
parks (EHTPs) to make them an attractive investment Proposition for global
electronics giants.
Foreign ownership of 100% is allowed in the power sector, 100%
export oriented units and selected high technology industries such as hydro
carbon sector, exploration and development, Prod, refining technology
agreements upto certain ceiling covering and high priority areas, No Govt.
permission is necessary for hiring foreign technicians and full power have
been delegated to the RBI existing companies can raise foreign equity upto

517 subject to certain prescribed guidelines higher foreign equities up to
100% 34 specified areas and percentage of foreign equity for other is
determined on a case basis.
As a consequence of liberalization foreign investment Upto 51%
foreign equity is automatic permitted by the RBI other proposals are
considered and approved on merit by the cabinet committee on the foreign
investment on case by case basis. In addition foreign investment Promotion
Broad (FIPB) has been created in the prime ministers office to invite,
negotiate and facilitate mega investment From international companies on
the basis of commercial viability and mutual acceptable profitability the
Govt. has also set up an empowered committee under the chairmanship of
finance minister to consider and approve FDI cases involving total
investment Upto Rs. 300 crores. FDI projects involving higher investment
Outlays would continue to be approved by CCFI.
During 2007-08 the following initiative where taken to foster
investment In India.
Existing companies have been allowed to raise foreign equity upto
51% at prices determined by the shareholders.
Disinvestment of equity by foreign investors has been allowed at
market rates on stock exchange with effect from 25th September
2007.

India on April 13th 2007 has signed the multi lateral investment
guarantee Agency Protocol and has become its member along with
other countries for the protection of foreign investment.
Provisions of FERA has been liberalization through ordinance dated
9th Jan, 2008 as a result of which companies with more than 40%
foreign equity can operate like any other Indian company.
Foreign Companies has been allowed to use their trade marks a
domestic sales with effect from May 14th, 2007.
The govt. has allowed reputed Foreign Institutional Investors (FIIS)
including passion Funds, Mutual Funds, assets Management companies,
investment trust etc. to investment In Indian capital market subject to
certain conditions, FIIS investing under the scheme enjoy a confessional
tax rate of 20% on dividend and interest, 10% on long term capital gains
and 30% on short term capital gains.
India among the European investors is believed to be a good
investment Destination despite political uncertainty, bureaucratic hassles,
shortage of power and infrastructure deficiencies India presents a vat
potential for overseas investment and is actively encouraging the entrance
of foreign players into the market.
On Jan 4th 2017, the union govt. gave its nod to 100% FDI for the
development of integrated township including housing. It includes
commercial premises, city and regional level urban infrastructure facilities

like roads and bridge, hotels, resorts, mass rapid trimmest systems and
manufacture of building materials.
The following are the highlights of the new FDI norms.
Minimum capitalization norm at $10 million for wholly owned
subsidiary and 5 million for joint ventures.
A minimum lock in period of 3 years forms completion of minimum
capitalization.
Minimum area to be developed should be 100 acres.
Foreign company should be registered as an Indian economy.
Such FDI cases to be processed by FIBP.
Minimum of 50% of integrated project development To be completed
with a period of 5 years from possession date.
Investor to be responsible for developing internal and peripheral
development, infrastructure, facilities and layout plan.
Land with assembled area for peripheral services to be handed over
face of cost to the Govt./Local authority.
Community services to be retained by developer who will develop
and will be operational before occupied.
FIPB may exempt conditions for companies investing in special
economic zones.
Intending company must have record of successful execution of such
project elsewhere.
Investors should achieve clear miles line after approval.

FIPB to decide in case investors intends to exit the project.
The following table shows the FDI approval and inflows in India
up to Nov. 2015.
Year Amount approved Actual inflow 2 as % of 1

(Rs. in crores) (1) (Rs in crores)
2006 534 351 65.7
2007 3888 675 17.4
2008 8859 1787 20.2
2009 14187 3289 23.2
2010 32072 6820 21.3
2011 36147 10389 28.7
2012 54891 16425 29.9
2013 30814 13340 43.3
2014 28367 16868 59.5
2015 32843 15436 47.0
Total 242,601 85,380 35.2
(Source) - Economic Survey (2015-16), Po- 134
Note - Approvals and inflows include NRI Investment as well.
The Following point describes the impact of foreign capital on India's
economic development.
Foreign capital and technology have been playing a useful role in
India's Eco. Development At the time of independence, India inherited an
industrial structure restricted to a few industries like textile sugar. There
were only two steel plants and some limited development of engineering in

railway workshop and assembly plants. Today, the industrial structure has
been widely diversified covering broadly the entire range of consumers,
intermediate and capital goods in most of the manufactured products, the
country has achieved a large measure of self sufficiency with foreign
collaboration but primarily through domestic efforts this is indicated by the
decline in relative share in industrial prod of the traditional manufacturing
sectors like food & textile and the substantial increase in the prod of new
sectors like engineering and chemicals. The diversification of industrial
structure is further reflected in the commodity composition of owe foreign
trade in which the share of imports of manufactured products has steadily
declined and that of engineering products has become a growing
components of export the rapid stride in industrialization has been
accompanied by corresponding growth in technological and managerial
skill obtained from abroad, not only for efficient operation of highly
complex and sophisticated enterprises, but also for their planning, design
and construction.
Foreign capital has also been instrumental in filling the gap between
domestic saving and the capital needed for development This is revealed by
net aid as percentage of plan expenditure during the second plan, 3rd plan
and the 3 annual plans, its contribution had been very substantial being
28%, 27% and 34 % respectively. Material at confessional terms during
recurring drought help by international organization in the field of
agricultural technologies in tool, implements, seed, irrigation, cropping

pattern, better farm practices etc. this has resulted in manifold increase in
food prod. Thus it is on the basis of food imports and increased food
production with in the country, that the govt. has been able to build buffer
stocks and stabilize food prices.
Beside foreign aid from international organization like World Bank
and IDA has helped India in expanding and modernizing its irrigation and
power potential, development In rail and sea transport, communication etc.
Above all, foreign aid has been assisting the Govt. in the
development of its integrated health and family welfare programmes
through out through out the country.

CHAPTER - 3
Flow of FDI to India in Comparison to other Countries
The response of foreign investors to the liberalisation of the foreign
investment regional as envisaged in the new economic policy has been very
encouraging, portfolio investment has responded swiftly to rise from under
100 million dollar in 2007-08 to near by 3.5 billion dollars in 2008-09.
These have been sharp increase in approvals of FDI proposals, the value
raising to $ 2.9 billion (Rs. 8987 crores) in 2009 from $ 235 million (Rs.
534 crores) in 2006 the total direct foreign investment Proposal approved
since 2006 to 2010 amount to Rs. 40,000 crores. Against just under $ 1
billion (1274 crores) approved during the whole of the previous decades
1981 to 2005.
Further foreign capital has helped the country in supplying the much
needed foreign exchange gap to a considerable extent. The foreign
exchange gap equals the difference between imports and exports which can
be filled by net capital inflow. Net foreign aid as a percentage of imports
increased from 4.9% in the 1st plan to a peak of 37.5% in the 3rd plan.
These after, there had been a steady decline during the fourth plan and fifth
plan, when net aid financed 17.6% and 12.9% of imports respectively.
During the 6th plan net aid financed 8.2% of imports and 8% during 7th
plan.
Foreign Capital has been a major factor in India's drive towards self
reliance and imports substitution in critical areas. Import substitution has

led to diversification of domestic production and consequent reduction in
imports for certain areas like machinery manufacture, crude, oil, and
petroleum products infrastructure development etc. ever in such areas as
project consultancy, design engineering and project implementation, the
country has been able to export these services this had been made possible
through the development of indigenous expertise with the help of foreign
assistance.
In fact, India has been receiving foreign technical assistance in 2
broad categories of services:
a) Engineering related such as feasibility studies, designing and
construction supervision and
b) Institutional Improvements project related training and management
and policy studies. This has helped in upgrading Indian expertise and
personnel to inter national level.
Foreign aid has increased India's ability to cope with shortfalls in
food production and raw materials for consumer goods industries, India has
been importing substantial quantities of food grains, oil and new.
The following Table Illustrates Foreign investment flows 2006-07 to 2015-16
Column
Year Foreigners NRI Subtotal FIIS Others Subtotal
4+7
2006-07 66 63 12 4 0 4 133
2007-08 264 51 315 1 243 244 559
2008-09 369 217 586 1665 1902 3567 4153

2009-10 872 442 1314 1503 2321 3824 5138
2010-11 1429 715 2144 2009 739 2748 4892
2011-12 2182 639 2821 1926 1386 3312 6133
2012-13 3316 241 3557 979 849 4828 5385
2013-14 2400 62 2462 -390 329 -61 2401
2014-15 2071 84 2155 2135 891 3026 5181
2015-16 2272 67 2339 1847 913 2760 5099
Total 15241 2581 17822 11679 9573 21252 39074

2006-07
2015-16 (39.0) (6.6) (45.6) (29.8) (24.5) (54.4) (100)
Source - Compiled from Govt. of India, Economic Survey (2015-2016)
After the announcement of the New Industrial Policy (2006), there
has been an acceleration in the flow of foreign capital in India, as per data
provided in the Govt. of India, economic, survey (2016-17) during 2006-07
to 2015-16, total FDI flow ere of the order of $ 39.07 billion, out of which
about $ 17.82 billion (45.6%) were in the form of FDI and the remaining $
21.25 billion 54.4%) were in the form of portfolio investment This clearly
shows that the preference of foreign firms was more in favor of portfolio
investment And much less in the form of direct investment Moreover out of
the total FDI of the order $ 17.82 billion nearly 6.6% ($2.58 billion) was
contributed by the NRIs. Thus, the net contribution of foreign firms in
direct investment was merely 39% of the total foreign investment Flows.

As a response to the policies of liberalization, the foreign investors
were very keen to undertake portfolio investment Including GDR (Global
Depository Receipts) and investment By foreign institutional investors,
Euro equities and others raise sharply from $ 244 million is 2007-08 to $
3,567 million in 2008-09, $3,824 million in 2009-10 and declined to $ 1828
million in 2012-13. Portfolio investment became negative in 2013-14 but
again improved to $ 2.76 billion in 2015-16.
Finance Ministry released its provisional data in New Delhi on Jan
22, 2017. According to it, FDI into the country in calendar 2016 hit a new
low and is threading to the lower than that registered in the previous two
years. During the first eleven months of the year (Jan-Nov.2016), FDI
inflows stood at $3,712.70 million compared to $4, 498.07 million
registered is 2015 and $4,016.1 million registered in 2014. But a dramatic
turns around unlikely given the political instability in the region in the after
month of the Dec 13, terrorist attacks on the parliament.
Source - SIA Newsletter, Ministry of Commence & Industry.

In flows during September, October and November 2016 is estimated
at $395, $204 million and $316 million (provisional) respectively against
the highs of $ 806 million registered in Aug 2016 and $ 444 million in June
2016.
Thus, the FDI investment In India have recorded on phenomenal
growth the UN conference on trade and development (UNTAD) in its latest
report has termed the India's performance as remarkable. Due to the efforts
of the Govt. of India to attract FDI, including investment From overseas
investors, investment into the country surged by 34% to US $2.6 billion as
compared to $ 1.9 billion of the previous years the country has also became
an attractive FDI location for Asia Trans national companies. The pace of
investment From the Republic of Korea into the country has far outstripped
ever that of the USA and UK. However, the Indian Govt. target of rising
annual flows amounting to $ 10 billion still remains a far.
Flow of FDI to India from the USA
Among the various countries from which FDI inflows is coming to
India, the USA has emerged as number one investors in India accounting
for $8.58 billion of FDDI approval, out of a total of $ 33 billion cleared till
the end of 2011-12 since the liberalization process began.
The FDI approvals for US investors has shown a spurt in the first
months of 2012 with the figure touching $1.3 billion till march 2012,
followed closely by the UK at $ 700 million, South Korea at $ 484 million
and Mauritius $ 264.9 million between 2006 and 2012, the US had invested

$ 8.58 billion various projects including many in the infrastructure sector.
But actual inflow till 2011 has been quite niggardly at only $ 532.2 million.
Total FDI inflows between 2006 to 2011 stood at $ 5.6 billion as compared
to FDI commitments of $ 33.078 billion from more than eleven countries
including USA, UK, Germany, the Netherlands, Switzerland, South Korea
and Thailand.
Flow of FDI to India in Comparison to China
India's trade with China is estimated to have registered growth of
25% in 2015-17 rising to $ 2.29 billion against $ 1.82 billion in 2014-2015.
It gets a much higher amount in comparison to India. The World Bank
report 2000 observed that FDI flow in India is no comparison with China,
which received 8.1 billion dollar in 2005, 7.5 billion dollar in 2006, 11.2
billion dollar in 2007.

The following Table shows FDI by Host Region (US $ Million)
Country 2007 2010 2013
China 11156 35849 43751
India 233 2144 2635
Indonesia 1777 4346 -356
South Korea 727 1357 5215
Malaysia 5183 5816 2700
Philippines 228 1459 1752
Thailand 2114 2000 7449
All developing
countries including 51,108 1,11,884 1,79,481
China
Indias Share (%) 0.5 1.9 1.5
Chinas Share (%) 21.8 34.0 24.4
Source
United nation, world investment report, 2000 from the above table it
is quite clear that china's share in comparison to India is much greater

incase of FDI ever as the trade balance continues to be favor of china, over
all exports from India posted a 53% growth in 2015-16
Source Graph
Lok Sabha unstirred question from the above graph it is clear that the
flow of FDI has registered an impressive growth of 87% at $ 501 million in
May against $ 268 million in the same period of 2016.
A sector wise break up reveals that Tele communications attracted the
highest FDI approval is may at $ 195.6 million cornering 41.51%. The
service sector which includes both financial services attract the 3rd highest
with $ 47.8 million where as U.K. account 35.37% was the top investor and
Mauritius with 24.81% and followed by U.S. with 9.44% of total inflow.

Causes of Slow FDI in India
The importance of FDI inflow for an economic is transition like India
can never be ignored as the FDI inflow not only integrates the hast country
close to the world economy but also acts as a developmental resource in the
form of capital, technology, managerial and marketing know how and
market access required for sustained economic growth and development.
Besides, a large and quality inward FDI can make relationship between the
domestic and foreign enterprises more dynamic in term of both technology
and environment, which is very urgent particularly in the present era
globalization and competition.
Compared to earlier restrictive FDI policy reigns, in India, the new
industrial policy of 2006 accords a much liberal attitude towards FDI to
exploit the opportunities for promoting foreign investment In the country in
the form of simplification of procedural rules and regulation and r3moval
of entry barriers have created a favorable environment for the foreign
investors. The new policy framework not only permits the firm to have
higher equity participation in their ventures in India, but also opens up
many new sectors to them that were earlier reserved exclusively for the
domestic firms.
It is matter of serious concern that despite giving much attention on
attracting large and quality FDI inflow and introducing a number of liberal
measures this direction ever since the initiation of the liberalisation
process, the amount of FDI is yet to reach a satisfactory level. Although as

many as 11,874 numbers of FDI proposals have been received with
proposed investment of Rs 2,42,602 crores during 2006-2015, total amount
of inward FDI including foreign portfolio investment Is still only about 1%
of the country's national income and only about 2% of the total investment
in the country. Further more, the rate of realization has also not been
picking up as per expectations. This is shown in the following table.
No. of No. of FDI Actual Actual/

Year Proposed
FTCs. Proposals Inv. Proposed(%)
2006 661 289 534 351 65.73
2007 828 692 3888 675 17.36
2008 691 785 8859 1787 20.17
2009 792 1062 14187 3289 23.18
2010 982 1355 32072 6820 21.26
2011 744 1559 36147 10389 28.74
2012 660 1665 54891 16425 29.92
2013 595 1191 30814 13340 43.29
2014 498 1726 28367 16868 59.46
2015 365 1550 32843 15436 47.00
Total 6816 11874 242602 85380 35.19
Source- ministry of industry- SIA statistics, April 2015

FTC's- foreign technology collaborations.
It is also important to note that India's share in global inflows
declined sharply from 0.75 percent in 2012- to 0.24 % in 2017 India does
not figure among the top ten investment destinations in the globe. It fares
badly ever when compared with the smaller countries like- Venezuela,
Argentina, Saudi Arabia etc. actual FDI inflow from the European union so
far has been far from the potential worse perhaps is the number of the
investors walking out of the country for the following reasons.
They are being frustrated by the procedural hassles.
Endless Red-Taoism coupled with the slow pace of reforms of the
infrastructure sector.
Lack of required focus in the policy resolutions.
The distribution of FDI is skewed towards the basic goods and
service sectors, which together received more than 75% of the total
amount.
Most of the recent FDI inflows seem to be for taking over of the
exiting Indian companies rather than to invest for capacity expansion
or new venture in the host country.
Until 2005 almost all the FDI inflows in the country took the form of
green field investment, about 40% if that was through mergers and
acquisitions during 2012-14 in 2015-16 only around 43% of the FDI
inflows were for take over purpose. This increasing tendency of FDI
inflows in the form of M& as might have limited the economy from its very

objective of attracting quality FDI inflows that have domestic capital
augmentation potentials, spill over benefits along with competition
employment and efficiency generating competencies.
The failure of the neo liberal economy in attracting large and quality
FDI inflows, therefore, requires a clear understanding of the factors
responsible fir such dismal situation existing empirical studies on FDI
shows that the magnitude of FDI inflow into an economy is largely driver
by the factors like: market size, the extent of urbanization, geographical
and cultural proximity with the source countries and quality of
infrastructure considering that the composition of the set may very
depending on the situation/context, there are four major factors namely
adverse economic environment poor and inefficient infrastructure
decelerating corporate profitability and imperfections in the policy frame
work which seems to have influenced the quantity as well as quantity of
FDI inflows into the country in a considerable way in recent years.
(i) Adverse Economic Environment: the recent economic slow down
seems to be one of the major cause for the slow inflow of FDI into
the country. The erratic economic growth since the latter half of the
nineties in general and industrial recession in particular have
undoubtedly have limited the market for industrial products and
therefore broke the confidence of the potential foreign investors to
invest in the country with the recession of the domestic and domestic

and global economy and the rate of inflation will reserve in near
future unless appropriate measures are taken.
(ii) Decelerating corporate profitability: Declining corporate
profitability since the mid nineties is another important factor
responsible for low investment There also a sharp decline in the
overall corporate sector as well as that of the foreign private sector
enterprises in India in the past liberalization era. This declining state
of corporate profitability especially that of the foreign firms, might
have under mined the confidence as well as risk taking attitude of the
potential foreign investors in a considerable way. Not only that the
sorry state of profitability of the existing foreign firms might have
also reduced their ability to expand capacity of the existing with or
opening up new ones and forces them to take the relatively safe route
of MLA to entry into and increase presence in India industry.
(iii) Poor an inefficient infrastructions: It goes with out saying that for
attracting more inward FDI, a developing country like India badly
needs fast development and provision of industrial infrastructure
facilities, which seems to be absent creating seven obstacles in way
rapid investment inflows ever in the current situation hardly any
thing could be more shocking than the fact that among 47
industrializing countries world wide, India stands at the bottom most
in terms of infrastructure competitiveness (World investment Report
2015) no or very little progress has been made in respect of roads

railways, ports, power etc, during the last ten years or so for example
while the major ports ate still over utilized and hence cast inefficient
compared to other Asian ports like Singapore, Hong Kong, and
Colombo, the growth rate of power generating capacity is gradually
decreasing . Similarly although about 30 million people in the
country enjoy telecom services, the penetration is far behind the
other developing countries.
(iv) Imperfection in the policy frame work: The imperfection in the
policy frame work has influenced the magnitude of inward FDI
especially after the harmonization of policies across the world while
the liberal policy measures may not necessarily guarantee a bigger
and quality inflow of FDI for many economies, the imperfections and
inconsistencies there is car surely pose a threat on its way in besides
with the developmental impact of FDI being influenced to a large
extent by the initial conditions prevailing in the host country.
Investment strategies of the foreign firms and policies and
performance of the host govt. in channeling FDI inflows in tune with
the objectives of its dev policy, development of a comprehensive
policy framework is quite imperative.
This, ever after a decade or so since the NIP was introduced, India
has failed to appear as one of the hat destination for the green field
investment This contract strikingly to the experience from several
developed nation where high standards of living and corresponding high

cast have forced many manufactures to shift their operation to the poorer
countries the failure may largely to due to the imperfection and in
consistencies in the policy measures that have made the investment Climate
more rather than less certain coupled with economic slowdown, poor
corporate performances and inadequate infrastructure facilities reducing the
ability as well as the willingness of the potential investors to invest in the
country.

CHAPTER - 4
Measures to Promote FDI in India
Considering that the trend of foreign investment Has to be reserved
failing which the Indian industry sector will lose much in the present era of
globalization and competition efforts should immediately be made not only
in removing the imperfections and making the policy frame work more
consistent, transparent and rule based but also in creating an investors
friendly environment by eliminating different obstacles to proper
implementation of these measures as well as providing necessary
infrastructure facilities. The following measures should be followed to
promote FDI in India.
i. Unfavorable Economic Environment: the recent economic slow down
seems to be one of the major factors responsible for the sorry state of FDI
situation in the country with the recession of domestic as well as global
economy continuing and the rate of inflation being very low it is very
unlikely that the situation will reverse in mean future unless appropriate
measures are taken in this regard with immediate effects
ii. Reduction of corporate profitability: The declining state of corporate
profitability especially that of the foreign firms have undermined the
confidence as well as the risk taking attitudes of the potential foreign
investors in a considerable way by taking perfect measures to increase the
corporate profitability we can increase the flow of FDI in India.

iii. Ineffective infrastructure facilities: India badly needs fast development
and provision of industrial infrastructure facilities which seems to be
absent creating seven obstacles in the way of rapid investment In flow
even in the current situation. By creating good infrastructure facilities we
can increase the flow of FDI in India.
iv. Inconsistent and imperfect policy frame work: The liberal policies do
not guarantee a bigger and quality inflow of FDI for many economics. The
perfection and inconsistencies there is the policy pose theat in the way of
the flow of FDI. Thus by checking the imperfections and inconsistencies
and making a perfect policy frame work we can increase the flow of FDI.
v. Increase inv. Through advanced MNCS: We can increase the promotion
of FDI a developing country like India by encouraging more inv. Through
the technologically advanced MNCS (multi national corporations).
vi. Reduce the increasing rate of portfolio investment: By reducing the
portfolio inv., which constitutes about 55% of the foreign investment.
Weaker the flow of FDI in India. It only strengthens the speculative
trading in shares and lead to artificial boom in the share market.
vii. Entry of MNGS in soft areas: By restricting the entry of MNCS in the
soft we can increase the flow of FDI in India. The entry of MNCS in soft
areas has dangerous implications both in the pattern of production and
employment.
Thus there are also some other measures to promote the flow of FDI
in India. A group of ministers headed by the finance minister on 14th July

2015 cleared a proposal for allowing 100% FDI on automatic route in all
categories of non-banking financial companies (NBFCs) and venture capital
funds (VCFs) etc.
On the other hand 26% FDI is allowed in news and current affairs
present that the editorial and management control remained in Indian hands.
Decisions have also been made to allow 100% FDI is tea plantation
with hundred percent foreign ownership in tea plantation, subject to case by
case approval.
Decisions have been taken by the govt. not to raise FDI limit over
26% in insurance. The N.K. SINGH, committee has recently giver the FDI
percentage at present Various Dept.
Dept %of FDI at present N.K. Singh Committee
Bank 49% 100%
Real estate 0% 100%
Oil refinery 26% 100%
Airport 74% 100%
Telecom 49% 100%
Insurance 26% 100%
The FDI percentage should be increased to 100% to make India a
developed country. There are many critical factors for future flow. These
are represented in the following graph:

1. Political Stability.
2. Reduction in Ground Level Obstacles.
3. Market Growth.
4. Man Power.
The future of the FDI in India holds good of several recent policy
reforms which would accelerate FDI flow in consumer product industries
first the reforms of India's intellectual property legislation and country '
accession to WTO will boost investors confidence especially industries
where brand name recognisation and the ability to protect IPRSs play an
important role in determining corporate performances. The partial
liberalisation of financial service which will allow foreign investment in
consumer oriented credit facilities will also make India a more attractive
hast country MNCS that produce consumer products.

CHAPTER - 5
Conclusion
In conclusion we can say that FDI in India is absolutely necessary to fill the
resource and technology gap, which hinder our economic development. After
opening of the economy, the process in this field has been remarkable but when we
compare the flows of FDI in India with the East Asian tigers particularly china,
India stands no where. The World Bank report 2015 observed that china received
44.2 billion dollar FDI in 2012 and 40.4 billion dollar in 2014. This shows that in
the area of FDI, India has long away to go. Various obstacles in this field will have
to be removed. In the area of infrastructure we have to do a lot. The deficiency of
which acts as a hindrance to FDI. However the Govt. has taken several steps in
recent years to improve the prospect of FDI. The N.K. Singh committee report has
suggested 100% FDI in the spare of bank, real estate, oil refineries and airport,
while recommending 74% FDI in telecom sector and increasing FDI from 26% to
40% in insurance sector. The recommendations are being debated in the press and
political circles. There is growing apprehension among the opposition parties that
the new policy may make the multi national corporations to dominate the economy
which would adversely affect our-reliance and economic sovereignty. It is also
pointed out that we should not invite foreign investment to those areas in which
our domestic entrepreneur can deliver the goods. These issues must be clearly kept
in the mind while formulating policies for FDI in our country. The alternative
hypothesis is accepted that FDI has positive upon the industrial development in
India.

BIBLIOGRAPHY
Books
1. Economics of Development: Micheal. P. Todaro
2. Indian Economics : Dutta & Sudnaram (2017 edition)
3. The Economics of Development & Planning : M.L. JHINGAN
4. Indian Economy : A. N. Aggarwalla
5. Indian Economics : P.K. Dhar
6. Indian Economics : Mishra & Puri
Magazines
1. The Journal of the Indian Institute of Bankers, Vol.-71, Oct. to Dec.
2015.
2. Yojana: Nov. 30, 2008.
3. Competition Refresher : Feb. 2014
4. Competition Refresher : Sept. 2015
5. Competition Refresher : March 2017
6. Yojana - June 2016
7. Banking Service Chronicles - Nov. 2016
Websites
www.googlesearch.com

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CONTENTS

Meaning and Forms of Foreign Investment

Chapter 2 Role of FDI in Economic Development of UDCs like India

Chapter 3 Flow of FDI to India Comparison to other Countries

Causes of Slow FDI in India

Chapter 4 Measures to Promote FDI in India

0 FDI in India an Assessment

Mobilisation of resources for economic development is the most

important problem facing in the UDCS. In these countries, the domestic

resources mobilisations from saving taxation are very much adequate to

meet the massive requirements of economic development. If sufficient

funds are not available the achievement of physical targets becomes an

impossibility the importance of resource mobilisation in under developed

countries lays in entraining consumption and augmenting savings for an

accelerated investment in the community, Deficit financing and public

play an important role in the development of an under developed country.

foreign aid to speed up the pace of economic development England

20th century it became so prosperous that it came to lend to almost every

who have developed without significant foreign capital.

In recent years foreign capital have made a significant contribution

to the economic transformation of South East Asian economic like Korea,

1 FDI in India an Assessment

on foreign capital to some extent the degree of dependence, however varied

domestic economy in respect of technical progress, the attitude of the

capital contributed in many important ways to the progress of economic

growth and industrialization. India's policy of foreign direct investment has

been to permit foreign private interest on a selective basis in areas

beneficial to the Indian economy. Although there is no separate law

governing the policy on foreign direct investment, it has generally been

Need of the Study

In the pace of inadequacy of domestic resources to explore natural

Indian Soil, the importance of FDI is increasingly felt in our country. So

there is a greater need for making a comparative study relating to FDI in

India in relation to that of others selected countries of the World and to

examine its importance.

Objective of the Study

The study is conducted to assess the impact of FDI in Indian

economy particularly in industrial sector

2 FDI in India an Assessment

H 0 The impact of FDI in negligible in Indian Industry

H 1 The impact of FDI in Positive.

deferent journals, magazines, periodicals, and circulated daily for literature

3 FDI in India an Assessment

financing their development programme as they suffer low level of income

and low level of capital accumulation in order to support has development

programmes, India is very much depending on the foreign capital. Foreign

Indirect foreign investment is better known as portfolio investment

which consists mainly of transferable securities (issued or guaranteed by

the Govt. of the capital importing country) or purchase of shares and

debentures by the national of foreign countries. Such holdings don't amount

to a right to control the company. The shareholders are entitled to the

financing particular project in some LDCS.

Public foreign capital also called foreign Aid or Official

Development Assistance (ODA), consists the followings:

Bilateral hard loans (i.e.) giving of loans by the British Govt. in

pounds sterling to the Indian Govt.

to India by the United States under public law 480.

Colombo plan etc. by the member s countries. Under this category

4 FDI in India an Assessment

hard and soft terms, in case or kind inters governmental grants.

Direct investment's may take many forms

The formation in the capital importing country of a subsidy of a

company of the investing country.

Formation of a concern in which a company of the investing country