Foreign Direct Investments in India PresentedBy: Vivekkumar.S Bharani Ramakrishnan.S I-Year, MBA BSMED Bharathiar University
Introduction World is perceived as a global village Globalization is the integration of economies of world through uninhibited trade and financial flows, as also through mutual exchange of technology and knowledge Globalisation has made markets highly competitive and there is remarkable growth of new service products
In context to India, Globalization implies opening up of the economy to Foreign Direct Investment by providing facilities to foreign companies to invest in different fields of economic activity
Foreign Direct Investments India offers greater incentives to encourage the foreign direct investments (FDI) inflows into its economy FDI has become a significant part of capital formation in the country FDI usually flows as a bundle of resources and skills into the economy These skills tend to spill over to domestic enterprises in the host country
Therefore, FDI can be expected to contribute to growth more than proportionately compared to domestic investments in the host country.
Benefits of Foreign Direct Investment FDI ensures a huge amount of domestic capital, production level, and employment opportunities which is a major step towards the economic growth of the country FDI has been a booming factor that has bolstered the economic life of India
FDI policy in India FDI is not allowed in the sectors of arms and ammunitions, atomic energy, railway system, extraction of coal and lignite and mining industry In infra-structure development, FDI is allowed up to 100% equity participation, with the capping amount as Rs.1500 crores In finance sector, FDI is allowed up to 40% In telecom industry, FDI is allowed up to 49%
Table-1 Cumulative FDI equity Inflows (Equity Capital Components only) Trends in India since 1991 Note: FDI inflows include amount received on account of advances pending for issue of shares for the years 1999-04.
It should be noted that, Mauritius is the top investor in India. These investments are nothing but U.S. based investments They are routed through Mauritius because of the double taxation treaty advantage The tax advantage emanates from double tax avoidance agreement that India has with Mauritius It means that, any foreign investor has the option of paying tax either in India or in Mauritius
Advantages of FDI FDI usually flows as a bundle of resources including, besides capital, production technology, organisational and managerial skills These skills tend to spill over to domestic enterprises in the host country FDI contributes more to the growth of the economy than that of the domestic investments
Disadvantages of FDI Loss of ownership rights to a foreign company makes it a cautious decision The increased liquidity and the consequent inflation is due to the excessive FDI inflow It is being blamed for ousting the domestic inflows It is also claimed to have lowered few regulatory standards in terms of investment patterns
The effects of globalization on Indian industry through FDI has proved to be positive as well as negative The government of India must try to make economic policies with regard to Indian Industries globalization that are beneficial and not harmful