Foreign Direct Investment in india

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Foreign Direct Investment in india

  1. 1. ECONOMICS ASSIGNMENT [FOREIGN DIRECT INVESTMENT (FDI) IN INDIA ] FazlaniAltius Business School [Batch : 2013-2015] Page 1 ECONOMICS ASSIGNMENT “FOREIGN DIRECT INVESTMENT (FDI) IN INDIA” BY: “GROUP 6” NAVNEET CHAUDHARY NIKESH BISWAL SAGAR SINGH MUTHU AYYANAR JAIRAJ VAIDYA
  2. 2. ECONOMICS ASSIGNMENT [FOREIGN DIRECT INVESTMENT (FDI) IN INDIA ] FazlaniAltius Business School [Batch : 2013-2015] Page 2 CONTENT: PARTICULAR PAGE NO. A. INTRODUCTION 4 B. FOREIGN DIRECT INVESTMENT (FDI) FLOWS TO INDIA 5 C. WHO CAN INVEST IN INDIA 6 D. ENTITIES FOR FDI 7 E. ENTRY ROUTES FOR FDI 8 F. GUIDELINES FOR CONSIDERATION OF FDI PROPOSALS BY FIPB 9 G. TREND IN FDI FLOWS 11 H. TRENDS IN FDI FLOWS TO INDIA 13 1. Cumulative FDI flows into India (2000-2013) 14 2. Financial Year-Wise FDI inflow Data 20 I. STATEMENTONCOUNTRY-WISEFDI EQUITY INFLOWS 22 J. STATEMENTONSECTOR-WISEFDI EQUITY INFLOWS 25 K. INDIAN ECONOMY 1. Recent Trends in Indian Economy 27 2. Growth in Gross Domestic Product 28 3. Economic Survey 2012-13 29 L. POTENTIAL FOR INVESTMENT IN INDIA 30 M. ADVANTAGE IN INDIA 32 1. Indian Economy 33 2. Agriculture Sector 33 3. Industry Sector 33 4. Services Sector 33 N. FDI POLICY FRAMEWORK 1. FDI Policy Framework in India 34 2. FDI Policy: The International Experience 37 3. Cross-Country Comparison of FDI Policies – Where does India stand? 41 O. FDI FLOWS TO INDIA IN RECENT PERIOD 44 P. APPROVAL FOR FDI IN LIMITED LIABILITY PARTNERSHIP FIRM 54
  3. 3. ECONOMICS ASSIGNMENT [FOREIGN DIRECT INVESTMENT (FDI) IN INDIA ] FazlaniAltius Business School [Batch : 2013-2015] Page 3 Q. SECTOR FOR FDI 1. FDI in Agriculture 55 2. FDI in Mining 57 3. FDI in Manufacturing 59 4. FDI in Power 59 5. FDI in Defence 60 6. FDI in Civil Aviation Sector 62 7. FDI in Banking- Public Sector 63 8. FDI in Credit Information Companies (CIC) 64 9. FDI in Broadcasting 65 10. FDI in Commodity Exchanges 66 11. FDI in Real Estate & Development of Townships 67 12. FDI in Industrial Park 70 13. FDI in Insurance 71 14. FDI in Infrastructure Company in the Securities Market 71 15. FDI in Non-Banking Finance Companies (NBFC) 72 16. FDI in Petroleum & Natural Gas Sector 74 17. FDI in Print Media 75 18. FDI in Telecommunication 76 19. FDI in Trading 79 20. FDI in Courier services 81 21. FDI in Retail sector 82 R. ECONOMIC INDICATORS 83 S. TOP10FDIEQUITYINFLOWCASES 85 T. CONCLUSION 95 U. LIST OF INVESTMENT PROMOTION AGENCIES IN INDIA STATE-WISE 97 V. REFERENCES 106
  4. 4. ECONOMICS ASSIGNMENT [FOREIGN DIRECT INVESTMENT (FDI) IN INDIA ] FazlaniAltius Business School [Batch : 2013-2015] Page 4 A. INTRODUCTION India has been ranked at the second place in global foreign direct investments in 2010 and will continue to remain among the top five attractive destinations for international investors during 2010-12 period, according to United Nations Conference on Trade and Development (UNCTAD) in a report on world investment prospects titled, 'World Investment Prospects Survey 2009-2012'. The 2010 survey of the Japan Bank for International Cooperation released in December 2010, conducted among Japanese investors, continues to rank India as the second most promising country for overseas business operations. A report released in February 2010 by Leeds University Business School, commissioned by UK Trade & Investment (UKTI), ranks India among the top three countries where British companies can do better business during 2012-14. According to Ernst and Young's 2010 European Attractiveness Survey, India is ranked as the 4th most attractive foreign direct investment (FDI) destination in 2010. However, it is ranked the 2nd most attractive destination following China in the next three years. Moreover, according to the Asian Investment Intentions survey released by the Asia Pacific Foundation in Canada, more and more Canadian firms are now focusing on India as an investment destination. From 8 per cent in 2005, the percentage of Canadian companies showing interest in India has gone up to 13.4 per cent in 2010. India attracted FDI equity inflows of US$ 2,014 million in December 2010. The cumulative amount of FDI equity inflows from April 2000 to December 2010 stood at US$ 186.79 billion, according to the data released by the Department of Industrial Policy and Promotion (DIPP). The services sector comprising financial and non-financial services attracted 21 per cent of the total FDI equity inflow into India, with FDI worth US$ 2,853 million during April-December 2010, while telecommunications including radio paging, cellular mobile and basic telephone services attracted second largest amount of FDI worth US$ 1,327 million during the same period. Automobile industry was the third highest sector attracting FDI worth US$ 1,066 million followed by power sector which garnered US$ 1,028 million during the financial year April-December 2010. The Housing and Real Estate sector received FDI worth US$ 1,024 million. During April-December 2010, Mauritius has led investors into India with US$ 5,746 million worth of FDI comprising 42 per cent of the total FDI equity inflows into the country. The FDI equity inflows in Mauritius is followed by Singapore at US$ 1,449 million and the US with US$ 1,055 million, according to data released by DIPP.
  5. 5. ECONOMICS ASSIGNMENT [FOREIGN DIRECT INVESTMENT (FDI) IN INDIA ] FazlaniAltius Business School [Batch : 2013-2015] Page 5 B. FOREIGN DIRECT INVESTMENT (FDI) FLOWS TO INDIA FDI inflows to India remained sluggish, when global FDI flows to EMEs had recovered in 2010-11, despite sound domestic economic performance ahead of global recovery. The paper gathers evidence through a panel exercise that actual FDI to India during the year 2010-11 fell short of its potential level (reflecting underlying macroeconomic parameters) partly on account of amplification of policy uncertainty as measured through Kauffmann‟s Index. FDI inflows to India witnessed significant moderation in 2010-11 while other EMEs in Asia and Latin America received large inflows. This had raised concerns in the wake of widening current account deficit in India beyond the perceived sustainable level of 3.0 per cent of GDP during April-December 2010. This also assumes significance as FDI is generally known to be the most stable component of capital flows needed to finance the current account deficit. Moreover, it adds to investible resources, provides access to advanced technologies, assists in gaining production know-how and promotes exports. A perusal of India‟s FDI policy vis-à-vis other major emerging market economies (EMEs) reveals that though India‟s approach towards foreign investment has been relatively conservative to begin with, it progressively started catching up with the more liberalized policy stance of other EMEs from the early 1990s onwards, inter alia in terms of wider access to different sectors of the economy, ease of starting business, repatriation of dividend and profits and relaxations regarding norms for owning equity. This progressive liberalization, coupled with considerable improvement in terms of macroeconomic fundamentals, reflected in growing size of FDI flows to the country that increased nearly 5 fold during first decade of the present millennium. Though the liberal policy stance and strong economic fundamentals appear to have driven the steep rise in FDI flows in India over past one decade and sustained their momentum even during the period of global economic crisis (2008-09 and 2009-10),the subsequent moderation in investment flows despite faster recovery from the crisis period appears somewhat inexplicable. Survey of empirical literature and analysis presented in the paper seems to suggest that these divergent trends in FDI flows could be the result of certain institutional factors that dampened the investors „sentiments despite continued strength of economic fundamentals. Findings of the panel exercise, examining FDI trends in 10 select EMEs over the last 7 year period, suggest that apart from macro fundamentals, institutional factors such as time taken to meet various procedural requirements make significant impact on FDI inflows. This paper has been organized as follows: Section 1 presents trends in global investment flows with particular focus on EMEs and India. Section 2 traces the evolution of India‟s FDI policy framework, followed by cross- country experience reflecting on India‟s FDI policy vis-à-vis that of select EMEs. Section 3 deals with plausible explanations of relative slowdown in FDI flows to India in 2010-11 and arrives at an econometric evidence using panel estimation. The last section presents the conclusions.
  6. 6. ECONOMICS ASSIGNMENT [FOREIGN DIRECT INVESTMENT (FDI) IN INDIA ] FazlaniAltius Business School [Batch : 2013-2015] Page 6 C. WHO CAN INVEST IN INDIA 1. A non-resident entity (other than a citizen of Pakistan or an entity incorporated in Pakistan) can invest in India, subject to the FDI Policy. A citizen of Bangladesh or an entity incorporated in Bangladesh can invest in India under the FDI Policy, only under the Government route. 2. NRIs resident in Nepal and Bhutan as well as citizens of Nepal and Bhutan are permitted to invest in the capital of Indian companies on repatriation basis, subject to the condition that the amount of consideration for such investment shall be paid only by way of inward remittance in free foreign exchange through normal banking channels. 3. OCBs have been derecognized as a class of Investors in India with effect from September 16, 2003. Erstwhile OCBs which are incorporated outside India and are not under the adverse notice of RBI can make fresh investments under FDI Policy as incorporated non-resident entities, with the prior approval of Government of India if the investment is through Government route; and with the prior approval of RBI if the investment is through Automatic route. 4. (i) An FII may invest in the capital of an Indian Company under the Portfolio Investment Scheme which limits the individual holding of an FII to 10% of the capital of the company and the aggregate limit for FII investment to 24% of the capital of the company. This aggregate limit of 24% can be increased to the sectorial cap/statutory ceiling, as applicable, by the Indian Company concerned by passing a resolution by its Board of Directors followed by passing of a special resolution to that effect by its General Body. The aggregate FII investment, in the FDI and Portfolio Investment Scheme, should be within the above caps. (ii) The Indian company which has issued shares to FIIs under the FDI Policy for which the payment has been received directly into company‟s account should report these figures separately under item no. 5 of Form FC-GPR (Annex-1-A) (Post-issue pattern of shareholding) so that the details could be suitably reconciled for statistical/monitoring purposes. (iii) A daily statement in respect of all transactions (except derivative trade) have to be submitted by the custodian bank in floppy / soft copy in the prescribed format directly toRBI to monitor the overall ceiling/sectorial cap/statutory ceiling. 5. No person other than registered FII/NRI as per Schedules II and III of Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations of FEMA 1999, can invest/trade in capital of Indian Companies in the Indian Stock Exchanges directly i.e. through brokers like a Person Resident in India. 6. A SEBI registered Foreign Venture Capital Investor (FVCI) may contribute up to 100% of the capital of an Indian Venture Capital Undertaking (IVCU) and may also set up a domestic asset management company to manage the fund. All such investments can be made under the automatic route in terms of Schedule 6 to Notification No. FEMA 20. A SEBI registered FVCI can also invest in a domestic venture capital fund registered under the SEBI (Venture Capital Fund) Regulations, 1996. Such investments would also be subject to the extant FEMA regulations and extant FDI policy including sectorial caps, etc. SEBI registered FVCIs are also allowed to invest under the FDI Scheme, as non-resident entities, in other companies, subject to FDI Policy and FEMA regulations.
  7. 7. ECONOMICS ASSIGNMENT [FOREIGN DIRECT INVESTMENT (FDI) IN INDIA ] FazlaniAltius Business School [Batch : 2013-2015] Page 7 D. ENTITIES FOR FDI 1. FDI in an Indian Company (i) Indian companies including those which are micro and small enterprises (MSEs) can issue capital against FDI. 2. FDI in Partnership Firm / Proprietary Concern: (i) A Non-Resident Indian (NRI) or a Person of Indian Origin (PIO) resident outside India can invest bywayof contribution to the capital of a firm or a proprietary concern in India on non- repatriation basis provided: (a) Amount is invested by inward remittance or out of NRE/FCNR(B)/NRO account maintained with Authorized Dealers / Authorized banks. (b) The firm or proprietary concern is not engaged in any agricultural/plantation or real estate business or print media sector. (c) Amount invested shall not be eligible for repatriation outside India. (ii) Investments with repatriation benefits: NRIs/PIO may seek prior permission of Reserve Bank for investment in sole proprietorship concerns/partnership firms with repatriation benefits. The applicationwill be decided in consultation with the Government of India. (iii) Investment by non-residents other than NRIs/PIO: A person resident outside India other than NRIs/PIOmay make an application and seek prior approval of Reserve Bank for making investment by way of contribution concern or any association of persons in India. The application will be decided in consultationwith the Government of India. (iv) Restrictions: An NRI or PIO is not allowed to invest in a firm or proprietorship concern engaged in any and immovable property with a view to earning profit or earning income there from) or engaged in Print Media. 3. FDI in Venture Capital Fund (VCF): FVCIs are allowed to invest in Indian Venture Capital Undertakings (IVCUs) /Venture Capital Funds (VCFs) /other companies, as stated in paragraph 3.1.6 of this Circular. If a domestic VCF is set up as a trust, a person resident outside India (non-resident entity/individual including an NRI) cannot invest in such domestic VCF under the automatic route of the FDI scheme and would be allowed subject to approval of the FIPB. However, if a domestic VCF is set-up as an incorporated company under the Companies Act, 1956, then a person resident outside India (non-resident entity/individual including an NRI) can invest in such domestic VCF under the automatic route of FDI Scheme, subject to the pricing guidelines, reporting requirements, mode of payment, minimum capitalization norms, etc. 4. FDI in Trusts: FDI in Trusts other than VCF is not permitted. 5. FDI in other Entities: FDI in resident entities other than those mentioned above is not permitted.
  8. 8. ECONOMICS ASSIGNMENT [FOREIGN DIRECT INVESTMENT (FDI) IN INDIA ] FazlaniAltius Business School [Batch : 2013-2015] Page 8 E. ENTRY ROUTES FOR FDI 1. Investments can be made by non-residents in the equity shares/fully, compulsorily and Mandatorily convertible debentures/ fully, compulsorily and mandatorily convertible preference shares of an Indian company, through two routes: (i) The Automatic Route: under the Automatic Route, the non-resident investor or the Indian company doesnot require any approval from the RBI or Government of India for the investment. (ii) The Government Route: under the Government Route, prior approval of the Government ofIndia through Foreign Investment Promotion Board (FIPB) is required. Proposals for foreign investment under Government route as laid down in the FDI policy from time to time, are considered by the Foreign Investment Promotion Board (FIPB) in Department of Economic Affairs (DEA), Ministry of Finance.
  9. 9. ECONOMICS ASSIGNMENT [FOREIGN DIRECT INVESTMENT (FDI) IN INDIA ] FazlaniAltius Business School [Batch : 2013-2015] Page 9 F. GUIDELINES FOR CONSIDERATION OF FDI PROPOSALS BY FIPB: The following guidelines are laid down to enable the FIPB to consider the proposals for FDI and formulate its recommendations. 1. All applications should be put up before the FIPB by its Secretariat within 15 days and it should be ensured that comments of the administrative ministries are placed before the Board either prior to/or in the meeting of the Board. 2. Proposals should be considered by the Board keeping in view the time frame of thirty (30) days for communicating Government decision. 3. In cases in which either the proposal is not cleared or further information is required in order to obviate delays presentation by applicant in the meeting of the FIPB should be resorted to. 4. While considering cases and making recommendations, FIPB should keep in mind the sectorial requirements and the sectorial policies vis-à-vis the proposal (s). 5. FIPB would consider each proposal in its totality. 6. The Board should examine the following while considering proposals submitted to it for consideration: (i) Whether the items of activity involve industrial licence or not and if so the considerations for grant of industrial licence must be gone into. (ii) Whether the proposal involves any export projection and if so the items of export and the projected destinations. (iii)Whether the proposal has any strategic or defence related considerations. 7. While considering proposals the following may be prioritized: (i) Items falling in infrastructure sector. (ii) Items which have an export potential. (iii) Items which have large scale employment potential and especially for rural people. (iv) Items which have a direct or backward linkage with agro business/farm sector. (v) Items which have greater social relevance such as hospitals, human resource development, life saving drugs and equipment. (vi) Proposals which result in induction of technology or infusion of capital. 8. The following should be especially considered during the scrutiny and consideration of proposals: (i) The extent of foreign equity proposed to be held (keeping in view sectoral caps if any. (ii) Extent of equity from the point of view whether the proposed project would amount to a holding company/wholly owned subsidiary/a company with dominant foreign investment (i.e. 76% or more) joint venture. (iii) Whether the proposed foreign equity is for setting up a new project (joint venture or otherwise) or whether it is for enlargement of foreign/NRI equity or whether it is for fresh induction of foreign equity/NRI equityin an existing Indian company. (iv) In the case of fresh induction offerings/NRI equity and/or in cases of enlargement of foreign/NRI equity, in existing Indian companies whether there is a resolution of the Board of Directors supporting the saidinduction/enlargement of foreign/NRI equity and whether there is a shareholders agreement or not.
  10. 10. ECONOMICS ASSIGNMENT [FOREIGN DIRECT INVESTMENT (FDI) IN INDIA ] FazlaniAltius Business School [Batch : 2013-2015] Page 10 (v) In the case of induction of fresh equity in the existing Indian companies and/or enlargement of foreign equity in existing Indian companies, the reason why the proposalhas been made and the modality forinduction/enhancement (i.e. whether by increase of paid up capital/authorized capital, transfer of shares(hostile or otherwise) whether by rights issue, or by what modality. (vi) Issue/transfer/pricing of shares will be as per SEBI/RBI guidelines. (vii) Whether the activity is an industrial or a service activity or a combination of both. (viii) Whether the items of activity involves any restriction by way of reservation for the Micro & SmallEnterprises sector. (ix) Whether there are any sectorial restrictions on the activity. (x) Whether the proposal involves import of items which are either hazardous/banned or detrimental to environment (e.g. import of plastic scrap or recycled plastics). 9. No condition specific to the letter of approval issued to a non-resident investor would be changed or additional condition imposed subsequent to the issue of a letter of approval. This would not prohibit changes in general policies and, regulations applicable to the industrial sector.
  11. 11. ECONOMICS ASSIGNMENT [FOREIGN DIRECT INVESTMENT (FDI) IN INDIA ] FazlaniAltius Business School [Batch : 2013-2015] Page 11 G. TREND IN FDI FLOWS Widening growth differential across economies and gradual opening up of capital accounts in the emerging world resulted in a steep rise in cross border investment flows during the past two decades. This section briefly presents the recent trends in global capital flows particularly to emerging economies including India. 1. Global Trends in FDI Inflows During the period subsequent to dotcom burst, there has been an unprecedented rise in the cross-border flows and this exuberance was sustained until the occurrence of global financial crisis in the year 2008-09. Between 2003 and 2007, global FDI flows grew nearly four -fold and flows to EMEs during this period, grew by about three-fold. After reaching a peak of US$ 2.1 trillion in 2007, global FDI flows witnessed significant moderation over the next two years to touch US$ 1.1 trillion in 2009, following the global financial crisis. On the other hand, FDI flows to developing countries increased from US$ 565 billion in 2007 to US$ 630 billion in 2008 before moderating to US$ 478 billion in 2009. The decline in global FDI during 2009 was mainly attributed to subdued cross border merger and acquisition (M&A) activities and weaker return prospects for foreign affiliates,which adversely impacted equity investments as well as reinvested earnings. According to UNCTAD, decline in M&A activities occurred as the turmoil in stock markets obscured the price signals upon which M&As rely. There was a decline in the number of green field investment cases as well, particularly those related to business and financial services. From an institutional perspective, FDI by private equity funds declined as their fund raising dropped on the back of investors‟ risk aversion and the collapse of the leveraged buyout market in tune with the deterioration in credit market conditions. On the other hand, FDI from sovereign wealth funds (SWFs) rose by 15 per cent in 2009. This was apparently due to the revised investment strategy of SWFs - who have been moving away from banking and financial sector towards primary and manufacturing sector, which are less vulnerable to financial market developments as well as focusing more on Asia. As the world economic recovery continued to be uncertain and fragile, global FDI flows remained stagnant at US $ 1.1 trillion in 2010. According to UNCTAD‟s Global Investment Trends Monitor (released on January 17, 2011), although global FDI flows at aggregate level remained stagnant, they showed an uneven pattern across regions – while it contracted further in advanced economies by about 7 per cent, FDI flows recovered by almost 10 per cent in case of developing economies as a group driven by strong rebound in FDI flows in many countries of Latin America and Asia. Rebound in FDI flows to developing countries has been on the back of improved corporate profitability and some improvement in M&A activities with improved valuations of assets in the stock markets and increased financial capability of potential buyers. Improved macroeconomic conditions, particularly in the emerging economies, which boosted corporate profits coupled with better stock market valuations and rising business confidence augured well for global FDI prospects. According to UNCTAD, these favourable developments may help translate MNC‟s record level of cash holdings (estimated to be in the range of US$ 4-5 trillion among developed countries‟ firms alone) into new investments during 2011. The share of developing countries, which now constitutes over 50 per cent in total FDI inflows, may increase further on the back of strong growth prospects. However, currency volatility, sovereign debt problems and potential protectionist policies may pose some risks to this positive outlook. Nonetheless, according to the Institute of International Finance (January 2011), net FDI flows to EMEs was projected to increase by over 11 per cent in 2011. FDI flows into select countries are given in Table 1.
  12. 12. ECONOMICS ASSIGNMENT [FOREIGN DIRECT INVESTMENT (FDI) IN INDIA ] FazlaniAltius Business School [Batch : 2013-2015] Page 12 Table 1 : Countries with Higher Estimated Level of FDI Inflows than India in 2010 Amount (US$ billion) Variation (Percent) 2007 2008 2009 2010 (Estimates) 2008 2009 2010 (Estimates) World 2100.0 1770.9 1114.2 1122.0 - 15.7 - 37.1 0.7 Developed Economies 1444.1 1018.3 565.9 526.6 - 29.5 - 44.4 -6.9 United States 266.0 324.6 129.9 186.1 22.0 - 60.0 43.3 France 96.2 62.3 59.6 57.4 - 35.2 -4.3 -3.7 Belgium 118.4 110.0 33.8 50.5 -7.1 - 69.3 49.4 United Kingdom 186.4 91.5 45.7 46.2 - 50.9 - 50.1 1.1 Germany 76.5 24.4 35.6 34.4 - 68.1 45.9 -3.4 Developing Economies 564.9 630.0 478.3 524.8 11.5 - 24.1 9.7 China 83.5 108.3 95.0 101.0 29.7 - 12.3 6.3 Hong Kong 54.3 59.6 48.4 62.6 9.8 - 18.8 29.3 Russian Federation 55.1 75.5 38.7 39.7 37.0 - 48.7 2.6 Singapore 35.8 10.9 16.8 37.4 69.6 54.1 122.6 Saudi Arabia 22.8 38.2 35.5 - 67.5 -7.1 - Brazil 34.6 45.1 25.9 30.2 30.3 - 42.6 16.6 India 25.0 40.4 34.6 23.7 61.6 - 14.4 -31.5 Source: World Investment Report, 2010 and Global Investment Trends Monitor, UNCTAD.
  13. 13. ECONOMICS ASSIGNMENT [FOREIGN DIRECT INVESTMENT (FDI) IN INDIA ] FazlaniAltius Business School [Batch : 2013-2015] Page 13 H. TRENDS IN FDI FLOWS TO INDIA With the tripling of the FDI flows to EMEs during the pre-crisis period of the 2000s, India also received large FDI inflows in line with its robust domestic economic performance. The attractiveness of India as a preferred investment destination could be ascertained from the large increase in FDI inflows to India, which rose from around US$ 6 billion in 2001-02 to almost US$ 38 billion in 2008-09. The significant increase in FDI inflows to India reflected the impact of liberalisation of the economy since the early 1990s as well as gradual opening up of the capital account. As part of the capital account liberalisation, FDI was gradually allowed in almost all sectors, except a few on grounds of strategic importance, subject to compliance of sector specific rules and regulations. The large and stable FDI flows also increasingly financed the current account deficit over the period. During the recent global crisis, when there was a significant deceleration in global FDI flows during 2009-10, the decline in FDI flows to India was relatively moderate reflecting robust equity flows on the back of strong rebound in domestic growth ahead of global recovery and steady reinvested earnings (with a share of almost 25 per cent) reflecting better profitability of foreign companies in India. However, when there had been some recovery in global FDI flows, especially driven by flows to Asian EMEs, during 2010-11, gross FDI equity inflows to India witnessed significant moderation. Gross equity FDI flows to India moderated to US$ 20.3 billion during 2010-11 from US$ 27.1 billion in the preceding year. Table 2: Equity FDI Inflows to India (Percent) Sectors 2006- 07 2007- 08 2008- 09 2009- 10 2010- 11 Sectoral shares (Percent) Manufactures 17.6 19.2 21.0 22.9 32.1 Services 56.9 41.2 45.1 32.8 30.1 Construction, Real estate and mining 15.5 22.4 18.6 26.6 17.6 Others 9.9 17.2 15.2 17.7 20.1 Total 100.0 100.0 100.0 100.0 100.0 Equity Inflows (US$ billion) Manufactures 1.6 3.7 4.8 5.1 4.8 Services 5.3 8.0 10.2 7.4 4.5 Construction, Real estate and mining 1.4 4.3 4.2 6.0 2.6 Others 0.9 3.3 3.4 4.0 3.0 Total Equity FDI 9.3 19.4 22.7 22.5 14.9 From a sectoral perspective, FDI in India mainly flowed into services sector (with an average share of 41 per cent in the past five years) followed by manufacturing (around 23 per cent) and mainly routed through Mauritius (with an average share of 43 per cent in the past five years) followed by Singapore (around 11 per cent). However, the share of services declined over the years from almost 57 per cent in 2006-07 to about 30 per cent in 2010-11, while the shares of manufacturing, and „others‟ largely comprising „electricity and other power generation‟ increased over the same period (Table 2). Sectoral information on the recent trends in FDI flows to India show that the moderation in gross equity FDI flows during 2010-11 has been mainly driven by sectors such as „construction, real estate and mining‟ and services such as „business and financial services‟. Manufacturing, which has been the largest recipient of FDI in India, has also witnessed some moderation (Table 2).
  14. 14. ECONOMICS ASSIGNMENT [FOREIGN DIRECT INVESTMENT (FDI) IN INDIA ] FazlaniAltius Business School [Batch : 2013-2015] Page 14 I. CUMULATIVEFDIFLOWSINTOINDIA(2000-2013): A. TOTALFDIINFLOWS(fromApril, 2000toMarch, 2013): 1. CUMULATIVEAMOUNTOF FDIINFLOWS (Equityinflows+„Re-investedearnings‟+„Othercapital‟)* - US$290,078 million 2. CUMULATIVEAMOUNTOFFDI EQUITY INFLOWS (excluding,amountremittedthroughRBI‟s-NRI Schemes) Rs. 896,38 crore US$193,282 million B. FDIINFLOWSDURINGFINANCIALYEAR 2012-13(fromApril, 2012to March,2013): 1. TOTAL FDI INFLOWSINTOINDIA (Equityinflows+„Re-investedearnings‟+„Othercapital‟) (asper RBI‟sMonthly bulletindated: 13.05.2013). - US$36,860 million 2. FDI EQUITY INFLOWS Rs. 121,907 crore US$22,423 million C. FDIEQUITYINFLOWS(MONTH-WISE) DURINGTHE FINANCIALYEAR2012-13: Financial Year2012-13 (April-March) AmountofFDIEquityinflows (InRs.Crore) (InUS$mn) 1. April,2012 9,620 1,857 2. May, 2012 7,229 1,327 3. June, 2012 6,971 1,244 4. July,2012 8,182 1,475 5. August,2012 12,578 2,264 6. September,2012 25,552 4,679 7. October,2012 10,295 1,942 8. November, 2012 5,798 1,058 9. December, 2012 6,012 1,100 10 . January,2013 11,719 2,157 11 . February,2013 9,654 1,795 12 . March, 2013 8,297 1,525 2012-13(uptoMarch, 2013) # 121,907 22,423 2011-12(up to March, 2012)# 165,146 35,121 %age growthover lastyear (-)28% (-)38%
  15. 15. ECONOMICS ASSIGNMENT [FOREIGN DIRECT INVESTMENT (FDI) IN INDIA ] FazlaniAltius Business School [Batch : 2013-2015] Page 15 D. FDIEQUITYINFLOWS(MONTH-WISE) DURINGTHE CALENDAR YEAR 2013: Calendar Year 2013 (Jan.-Dec.) Amount of FDI Equity inflows (In Rs. Crore) (In US$ mn) 1. January, 2013 11,719 2,157 2. February, 2013 9,654 1,795 3. March, 2013 8,297 1,525 Year 2013 (up to March, 2013) # 29,670 5,477 Year 2012 (up to March, 2012) # 29,354 5,844 %age growth over last year ( + ) 01 % ( - ) 06 % Note: Country &Sectorspecificanalysisisavailablefromtheyear2000onwards, asCompany- wisedetailsareprovidedbyRBI fromApril,2000onwards only. *Dataon „Re-investedearnings‟ &„Othercapital‟ , are theestimateson anaveragebasis, basedupondata for the previoustwoyears, published by RBI in monthlybulletindated: 10.12.2012. #Figuresareprovisional, subject toreconciliationwith RBI,Mumbai. ^Inflows forthemonthofMarch,2012areasreportedbyRBI, consequent to the adjustmentmadein thefiguresofMarch, „11,August,‟ 11andOctober,„11.
  16. 16. ECONOMICS ASSIGNMENT [FOREIGN DIRECT INVESTMENT (FDI) IN INDIA ] FazlaniAltius Business School [Batch : 2013-2015] Page 16 E. SHARE OFTOP INVESTINGCOUNTRIESFDIEQUITYINFLOWS(Financialyears): AmountRupeesincrores (US$in million) Ranks Country 2010-11 (April - March) 2011-12 (April - March) 2012-13 (April – March) Cumulative Inflows(April ‟ 00– March‟13) %age tototal Inflows (interms ofUS $) 1. MAURITIUS 31,855 (6,987) 46,710 (9,942) 51,654 (9,497) 341,125 (73,666) 38% 2. SINGAPORE 7,730 (1,705) 24,712 (5,257) 12,594 (2,308) 90,182 (19,460) 10% 3. U.K. 12,235 (2,711) 36,428 (7,874) 5,797 (1,080) 80,459 (17,549) 9% 4. JAPAN 7,063 (1,562) 14,089 (2,972) 12,243 (2,237) 70,094 (14,550) 8% 5. U.S.A. 5,353 (1,170) 5,347 (1,115) 3,033 (557) 50,923 (11,121) 6% 6. NETHERLANDS 5,501 (1,213) 6,698 (1,409) 10,054 (1,856) 42,378 (8,965) 5% 7. CYPRUS 4,171 (913) 7,722 (1,587) 2,658 (490) 32,328 (6,889) 4% 8. GERMANY 908 (200) 7,452 (1,622) 4,684 (860) 25,512 (5,480) 3% 9 FRANCE 3,349 (734) 3,110 (663) 3,487 (646) 16,865 (3,573) 2% 10. U.A.E. 1,569 (341) 1,728 (353) 987 (180) 11,307 (2,422) 1% TOTALFDIINFLOWSFR OM ALLCOUNTRIES* 97,320 (21,383) 165,146 (35,121) 121,907 (22,423) 896,913 (193,403) - *Includes inflows underNRI SchemesofRBI. Note: (i) Cumulativecountry-wiseFDI equityinflows (from April,2000toMarch,2013)areat– Annex-„A‟ (ii) %ageworkedout inUS$terms&FDIinflowsreceivedthroughFIPB/SIA+RBI‟ sAutomatic Route+acquisitionof existing sharesonly.
  17. 17. ECONOMICS ASSIGNMENT [FOREIGN DIRECT INVESTMENT (FDI) IN INDIA ] FazlaniAltius Business School [Batch : 2013-2015] Page 17 F. SECTORSATTRACTINGHIGHESTFDI EQUITY INFLOWS: Amount inRs.crores(US$inmilli on) Ranks Sector 2010-11 (April - March) 2011-12 (April - March) 2012-13 (April – March) Cumulative Inflows (April ‟ 00– March‟ 13) %agetototal Inflows (Intermsof US$) 1. SERVICES SECTOR ** 15,054 (3,296) 24,656 (5,216) 26,306 (4,833) 172,275 (37,235) 19% 2. CONSTRUCTION DEVELOPMENT: TOWNSHIPS,HOUSING,BUILT- UP INFRASTRUCTURE 7,590 (1,663) 15,236 (3,141) 7,248 (1,332) 101,049 (22,080) 11% 3. TELECOMMUNICATIONS (radio paging, cellular mobile, basic telephone services) 7,542 (1,665) 9,012 (1,997) 1,654 (304) 58,732 (12,856) 7% 4. COMPUTER SOFTWARE& HARDWARE 3,551 (780) 3,804 (796) 2,656 (486) 52,774 (11,691) 6% 5. DRUGS&PHARMACEUTICALS 961 (209) 14,605 (3,232) 6,011 (1,123) 48,880 (10,318) 5% 6. CHEMICALS(OTHER THAN FERTILIZERS) 10,612 (2,354) 18,422 (4,041) 1,596 (292) 40,496 (8,881) 5% 7. AUTOMOBILE INDUSTRY 5,864 (1,299) 4,347 (923) 8,384 (1,537) 39,170 (8,295) 4% 8. POWER 5,796 (1,272) 7,678 (1,652) 2,923 (536) 36,137 (7,834) 4% 9. METALLURGICAL INDUSTRIES 5,023 (1,098) 8,348 (1,786) 7,878 (1,466) 34,814 (7,507) 4% 10 HOTEL&TOURISM 1,405 (308) 4,754 (993) 17,777 (3,259) 33,260 (6,631) 3% Note: (i) **ServicessectorincludesFinancial,Banking,Insurance,Non-Financial/Business,Outsourcing, R&D,Courier,Tech.TestingandAnalysis (ii) CumulativeSector-wiseFDIequityinflows (fromApril,2000toMarch,2013) are at-Annex-„B‟ . (iii) FDISectoraldatahasbeenrevalidated/reconciledinlinewiththeRBI,whichreflectsminor changesintheFDI figures(increase/decrease)ascomparedtotheearlier publishedsectoral data.
  18. 18. ECONOMICS ASSIGNMENT [FOREIGN DIRECT INVESTMENT (FDI) IN INDIA ] FazlaniAltius Business School [Batch : 2013-2015] Page 18 G. STATEMENT ONRBI‟SREGIONALOFFICES (WITHSTATECOVERED) RECEIVEDFDI EQUITYINFLOWS(fromApril, 2000toMarch, 2013): Amount Rupeesin crores (US$inmillion) S. No. RBI‟ s - Regional Office State covered 2010-11 (April - March) 2011-12 (April - March) 2012-13 (April – March) Cumulative Inflows(April‟ 00 – March‟13) %age to total Inflows (in terms of US$) 1 MUMBAI MAHARASHTRA, DADRA& NAGAR HAVELI, DAMAN &DIU 27,669 (6,097) 44,664 (9,553) 47,359 (8,716) 293,494 (63,337) 33 2 NEWDELHI DELHI, PARTOF UPAND HARYANA 12,184 (2,677) 37,403 (7,983) 17,490 (3,222) 168,581 (36,294) 19 3 CHENNAI TAMIL NADU, PONDICHERRY 6,115 (1,352) 6,711 (1,422) 15,252 (2,807) 52,810 (11,081) 6 4 BANGALORE KARNATAKA 6,133 (1,332) 7,235 (1,533) 5,553 (1,023) 49,445 (10,784) 6 5 AHMEDABAD GUJARAT 3,294 (724) 4,730 (1,001) 2,676 (493) 39,100 (8,650) 4 6 HYDERABAD ANDHRA PRADESH 5,753 (1,262) 4,039 (848) 6,290 (1,159) 36,891 (7,968) 4 7 KOLKATA WEST BENGAL, SIKKIM, ANDAMAN &NICOBAR ISLANDS 426 (95) 1,817 (394) 2,319 (424) 10,504 (2,306) 1 8 CHANDIGARH CHANDIGARH, PUNJAB, HARYANA, HIMACHAL PRADESH 1,892 (416) 624 (130) 255 (47) 5,564 (1,201) 1 9 BHOPAL MADHYA PRADESH, CHATTISGARH 2,093 (451) 569 (123) 1,208 (220) 4,787 (997) 0.5 10. KOCHI KERALA, LAKSHADWEEP 167 (37) 2,274 (471) 390 (72) 4,321 (911) 0.5 11 PANAJI GOA 1,376 (302) 181 (38) 47 (9) 3,554 (771) 0.4 12 JAIPUR RAJASTHAN 230 (51) 161 (33) 714 (132) 3,325 (685) 0.4 13 KANPUR UTTAR PRADESH, UTTRANCHAL 514 (112) 635 (140) 167 (31) 1,614 (347) 0.2 14 BHUBANESHW AR ORISSA 68 (15) 125 (28) 285 (52) 1,617 (341) 0.2
  19. 19. ECONOMICS ASSIGNMENT [FOREIGN DIRECT INVESTMENT (FDI) IN INDIA ] FazlaniAltius Business School [Batch : 2013-2015] Page 19 15 GUWAHATI ASSAM, ARUNACHAL PRADESH, MANIPUR, MEGHALAYA, MIZORAM, NAGALAND, TRIPURA 37 (8) 5 (1) 27 (5) 348 (78) 0 16 PATNA BIHAR, JHARKHAND 25 (5) 123 (24) 41 (8) 190 (37) 0 17 REGION NOTINDICATED 29,344 (6,447) 53,851 (11,399) 21,833 (4,004) 220,233 (47,494) 24.6 SUB.TOTAL 97,320 (21,383) 165,146 (35,121) 121,907 (22,424) 896,380 (193,282) 100.00 18 RBI‟S-NRI SCHEMES (from2000to 2002) 0 0 0 533 (121) - GRANDTOTAL 97,320 (21,383) 165,146 (35,121) 121,907 (22,423) 896,913 (193,403) - Note: 1. Includes „equity capital components‟ only. 2. The Region-wise FDI inflows are classified as per RBI‟ s – Regional Office received FDI inflows, furnished by RBI, Mumbai. 3 Represents, FDI inflows through acquisition of existing shares by transfer from residents to non residents. For this, RBI Regional wise information is not provided by Reserve Bank of India.
  20. 20. ECONOMICS ASSIGNMENT [FOREIGN DIRECT INVESTMENT (FDI) IN INDIA ] FazlaniAltius Business School [Batch : 2013-2015] Page 20 Sr. No. Financial Year (April-March) FOREIGN DIRECT INVESTMENT (FDI) Investment by F II‟ s Foreign Institutiona l Investors Fund (net) Equity Re- invested earnings + Other capital + FDI FLOWS INTO INDIAFIPB Route/ RBI‟ s Automatic Route/ Acquisition Route Equity capitalof unicorpora ted bodies # TotalFDI Flows %age growth over previous year (in US$ terms) FINANCIAL YEARS2000-01to2012-13 (up toMarch,2013) 1. 2000-01 2,339 61 1,350 279 4,029 - 1,847 2. 2001-02 3,904 191 1,645 390 6,130 (+) 52 % 1,505 3. 2002-03 2,574 190 1,833 438 5,035 (-) 18 % 377 4. 2003-04 2,197 32 1,460 633 4,322 (-) 14 % 10,918 5. 2004-05 3,250 528 1,904 369 6,051 (+) 40 % 8,686 6. 2005-06 5,540 435 2,760 226 8,961 (+) 48 % 9,926 7. 2006-07 15,585 896 5,828 517 22,826 (+) 146 % 3,225 8. 2007-08 24,573 2,291 7,679 300 34,843 (+) 53 % 20,328 9. 2008-09 31,364 702 9,030 777 41,873 (+) 20 % (-) 15,017 10. 2009-10 (P) (+) 25,606 1,540 8,668 1,931 37,745 (-) 10 % 29,048 11. 2010-11 (P) (+) 21,376 874 11,939 658 34,847 (-) 08 % 29,422 12. 2011-12 (P) 34,833 1,022 8,206 2,495 46,556 (+) 34 % 16,812 13. 2012-13 (P) (up toMarch, 2013) 21,825 1,059 11,025 2,951 36,860 - 27,583 CUMULATIVE TOTAL (fromApril,2000toMarch‟201 3) 194,966 9,821 73,327 11,964 290,078 - 144,654 II. FINANCIALYEAR-WISE FDIINFLOWSDATA: A. AS PER INTERNATIONALBESTPRACTICES: (DataonFDIhavebeenrevised since2000-01withexpended coverage toapproach International Best Practices) (AmountUS$million) Source: (i) RBI‟ sBulletinMay,2013dt.13.05.2013(TableNo. 34–FOREIGN INVESTMENT INFLOWS). (ii) Inflows undertheacquisitionofshares inMarch, 2011, August,2011&October,2011, include netFDI on accountof transferofparticipatinginterest from Reliance IndustriesLtd.to BP Exploration(Alpha). (iii) RBI had included SwapofSharesofUS$3.1billion underequitycomponentsduring December 2006. (iv) Monthlydataon componentsof FDI asperexpended coverageare not available. Thesedata, therefore,arenot comparablewithFDI dataforpreviousyears. (v) FiguresupdatedbyRBI upto March,2013. „#‟ Figures forequitycapital ofunincorporatedbodiesfor 2010-11are estimates. (P) All figures areprovisional “+”Datainrespect of„Re-investedearnings‟ &„Othercapital‟ forthe years 2009-10,2010-11&2012-13are estimated as average of previoustwoyears. B. DIPP‟S–FINANCIALYEAR-WISE FDI EQUITYINFLOWS:
  21. 21. ECONOMICS ASSIGNMENT [FOREIGN DIRECT INVESTMENT (FDI) IN INDIA ] FazlaniAltius Business School [Batch : 2013-2015] Page 21 (Asper DIPP‟sFDIdatabase–equity capital components only): Sr.No s Financial Year (April –March) AmountofFDI Inflows %agegrowth over previous year (intermsofUS$) FINANCIALYEARS2000-01to2012-13(upto March, 2013) InRscrores InUS$ million 1. 2000-01 10,733 2,463 - 2. 2001-02 18,654 4,065 (+) 65% 3. 2002-03 12,871 2,705 (-)33% 4. 2003-04 10,064 2,188 (-) 19% 5. 2004-05 14,653 3,219 (+) 47% 6. 2005-06 24,584 5,540 (+) 72% 7. 2006-07 56,390 12,492 (+)125% 8. 2007-08 98,642 24,575 (+)97% 9. 2008-09 „*‟ 142,829 31,396 (+)28% 10. 2009-10# 123,120 25,834 (-)18% 11. 2010-11# 97,320 21,383 (-) 17% 12. 2011-12# ^ 165,146 35,121 (+) 64% 13. 2012-13# (fromApril,2012to March, 2013) 121,907 22,423 - CUMULATIVETOTAL (fromApril,2000to March, 2013) 896,913 193,404 - Note: (i) Includingamountremittedthrough RBI‟ s-NRI Schemes(2000-2002). (ii) FEDAI (Foreign ExchangeDealers AssociationofIndia) conversion ratefromrupeestoUS dollar applied,onthe basisofmonthlyaverage rate providedby RBI (DEPR),Mumbai. #Figures fortheyears 2009-10,2010-11,2011-12&2012-13(fromApril,2012toAugust,2012)areprovisional subject to reconciliation with RBI. ^Inflows forthemonth ofMarch,2012areasreportedby RBI, consequent to the adjustmentmadein the figures ofMarch,„11,August, ‟ 11and October,„11. *‟ Anadditional amount ofUS$4,035millionpertaining totheyear2008-09,since reported byRBI,has been included in FDI databasefromFebruary, 2012.
  22. 22. ECONOMICS ASSIGNMENT [FOREIGN DIRECT INVESTMENT (FDI) IN INDIA ] FazlaniAltius Business School [Batch : 2013-2015] Page 22 I. STATEMENTONCOUNTRY-WISEFDI EQUITY INFLOWS APRIL,2000TO MARCH,2013 Sr. No. Country AmountofForeignDirect InvestmentInflows %agewith total FDI Inflows (+)(InRscrore) (InUS$million) 1 Mauritius 341,124.86 73,666.11 38.11 2 Singapore 90,182.32 19,460.35 10.07 3 UnitedKingdom 80,458.61 17,548.55 9.08 4 Japan 70,094.45 14,550.29 7.53 5 U.S.A 50,922.68 11,121.11 5.75 6 Netherlands 42,378.39 8,965.08 4.64 7 Cyprus 32,328.14 6,889.33 3.56 8 Germany 25,512.17 5,480.30 2.84 9 France 16,864.63 3,572.99 1.85 10 UAE 11,307.02 2,422.47 1.25 11 Switzerland 11,064.28 2,367.02 1.22 12 Spain 6,960.69 1,463.19 0.76 13 SouthKorea 5,821.17 1,231.55 0.64 14 Italy 5,258.45 1,169.48 0.61 15 HongKong 4,769.75 1,028.74 0.53 16 Sweden 4,604.83 982.37 0.51 17 Caymen Islands 3,755.52 877.74 0.45 18 BritishVirginia 3,604.01 795.76 0.41 19 Indonesia 2,825.48 610.30 0.32 20 Poland 2,987.28 568.79 0.29 21 Malaysia 2,730.13 549.45 0.28 22 Australia 2,478.02 535.06 0.28 23 The Bermudas 2,252.20 502.07 0.26 24 Belgium 2,277.18 491.86 0.25 25 Luxembourg 2,197.27 473.03 0.24 26 Russia 2,236.55 468.17 0.24 27 Canada 1,954.65 425.67 0.22 28 Oman 1,622.44 352.02 0.18 29 Denmark 1,645.73 342.61 0.18 30 China 1,428.48 278.31 0.14 31 Finland 1,301.95 273.89 0.14 32 Austria 895.05 187.64 0.10 33 Ireland 687.66 154.23 0.08 34 Chile 654.72 141.07 0.07 35 Morocco 649.65 136.99 0.07 36 Norway 607.06 126.18 0.07 37 SouthAfrica 564.27 120.71 0.06 38 Thailand 513.66 111.10 0.06 39 BritishIsles 451.33 98.37 0.05 40 WestIndies 348.17 78.28 0.04 41 Taiwan 306.60 65.70 0.03 42 Mexico 345.83 64.97 0.03 43 Turkey 279.53 59.66 0.03 44 Israel 247.93 55.69 0.03
  23. 23. ECONOMICS ASSIGNMENT [FOREIGN DIRECT INVESTMENT (FDI) IN INDIA ] FazlaniAltius Business School [Batch : 2013-2015] Page 23 45 St. Vincent 254.02 49.67 0.03 46 SaudiArabia 193.91 40.93 0.02 47 Panama 185.36 40.61 0.02 48 Korea(North) 187.15 36.94 0.02 49 SaintKitts&Nevis 147.88 33.53 0.02 50 NewZealand 145.92 32.62 0.02 51 Philippines 168.58 31.24 0.02 52 Bahamas 141.68 30.74 0.02 53 Sri Lanka 138.45 29.45 0.02 54 Jordan 155.03 28.57 0.01 55 Portugal 119.72 25.00 0.01 56 Iceland 93.72 21.14 0.01 57 Kenya 98.45 21.07 0.01 58 Brazil 100.43 20.97 0.01 59 VirginIslands(US) 101.10 20.83 0.01 60 Gibraltar 83.67 19.51 0.01 61 Seychelles 86.99 18.24 0.01 62 Kuwait 84.96 17.95 0.01 63 Kazakhstan 81.11 17.42 0.01 64 CzechRepublic 74.81 17.36 0.01 65 Bahrain 130.53 29.23 0.01 66 Liberia 64.54 14.56 0.01 67 Malta 58.39 12.78 0.01 68 Channel Islands 57.20 12.71 0.01 69 Belarus 49.93 12.17 0.01 70 Nigeria 49.48 10.44 0.01 71 Hungary 47.86 10.30 0.01 72 Argentina 46.23 10.15 0.01 73 Myanmar 35.75 8.96 0.00 74 IsleofMan 38.09 8.49 0.00 75 Slovenia 39.07 8.24 0.00 76 Liechtenstein 29.90 6.43 0.00 77 Belize 25.14 5.52 0.00 78 Maldives 24.72 5.49 0.00 79 Slovakia 22.62 5.22 0.00 80 Rep.ofFiji Islands 22.30 5.07 0.00 81 Romania 23.16 4.60 0.00 82 Ghana 21.13 4.46 0.00 83 Tunisia 19.84 4.31 0.00 84 Guersney 23.27 4.20 0.00 85 Greece 18.78 3.72 0.00 86 Uruguay 16.06 3.63 0.00 87 Scotland 13.51 2.99 0.00 88 Qatar 14.23 2.84 0.00 89 WestAfrica 12.31 2.47 0.00 90 Nepal 9.12 1.93 0.00 91 Yemen 7.74 1.87 0.00 92 Monaco 7.49 1.52 0.00 93 Egypt 7.30 1.43 0.00 94 Tanzania 6.31 1.41 0.00
  24. 24. ECONOMICS ASSIGNMENT [FOREIGN DIRECT INVESTMENT (FDI) IN INDIA ] FazlaniAltius Business School [Batch : 2013-2015] Page 24 95 Colombia 5.36 1.17 0.00 96 Ukraine 5.06 1.12 0.00 97 Uganda 5.06 1.10 0.00 98 Cuba 4.73 1.04 0.00 99 Guyana 4.60 1.00 0.00 100 Vanuatu 4.41 0.94 0.00 101 Bermuda 3.45 0.64 0.00 102 TogoleseRepublic 3.08 0.60 0.00 103 Congo(DR) 2.41 0.54 0.00 104 Croatia 2.29 0.52 0.00 105 Aruba 1.96 0.43 0.00 106 Lebanon 1.87 0.39 0.00 107 Bulgaria 1.69 0.36 0.00 108 Estonia 1.31 0.30 0.00 109 Anguilla 1.46 0.29 0.00 110 Yugoslavia 1.13 0.24 0.00 111 Vietnam 1.14 0.24 0.00 112 Jamaica 1.00 0.22 0.00 113 Iraq 0.85 0.19 0.00 114 Zambia 0.67 0.15 0.00 115 Iran 0.47 0.10 0.00 116 Libya 0.28 0.07 0.00 117 Latvia 0.27 0.06 0.00 118 Mongolia 0.27 0.06 0.00 119 Sudan 0.24 0.05 0.00 120 Peru 0.20 0.04 0.00 121 Bangladesh 0.16 0.03 0.00 122 Afghanistan 0.12 0.03 0.00 123 Botswana 0.13 0.02 0.00 124 St. Lucia 0.06 0.01 0.00 125 Georgia 0.02 0.00 0.00 126 EastAfrica 0.02 0.00 0.00 127 Bolivia 0.01 0.00 0.00 128 CostaRica 0.01 0.00 0.00 129 Kyrgyzstan 0.01 0.00 0.00 130 Trinidad&Tobago 0.01 0.00 0.00 131 Cameroon 0.01 0.00 0.00 132 Djibouti 0.00 0.00 0.00 133 Venezuela 0.00 0.00 0.00 134 Barbados 0.00 0.00 0.00 135 Muscat 0.00 0.00 0.00 136 FII's 0.25 0.06 0.00 137 NRI „*‟ 20,383.66 4,684.25 2.42 138 CountryDetailsAwaited 30,854.20 6,960.47 3.65 SUB.-TOTAL 896,379.66 193,281.91 100.00 139 RBI‟S- NRI SCHEMES (2000- 2002) 533.06 121.33 - GRANDTOTAL 896,912.72 193,403.24 -
  25. 25. ECONOMICS ASSIGNMENT [FOREIGN DIRECT INVESTMENT (FDI) IN INDIA ] FazlaniAltius Business School [Batch : 2013-2015] Page 25 J. STATEMENTONSECTOR-WISEFDI EQUITY INFLOWS APRIL,2000TOMARCH,2013 Sr. No Sector AmountofFDI Inflows %agewith total FDI Inflows (+)(InRscrore) (InUS$million) 1 SERVICES SECTOR (Fin.,Banking, Insurance,NonFin/Business, Outsourcing, R&D,Courier,Tech. TestingandAnalysis,Other) 172,275.31 37,234.60 19.26 2 CONSTRUCTION DEVELOPMENT Townships,housing, built-upinfrastructure andconstruction-developmentprojects 101,049.13 22,080.20 11.42 3 TELECOMMUNICATIONS 58,732.23 12,856.06 6.65 4 COMPUTER SOFTWARE&HARDWARE 52,774.07 11,691.10 6.05 5 DRUGS&PHARMACEUTICALS 48,879.53 10,318.17 5.34 6 CHEMICALS (OTHER THAN FERTILIZERS) 40,495.55 8,880.83 4.59 7 AUTOMOBILE INDUSTRY 39,169.94 8,294.85 4.29 8 POWER 36,136.88 7,834.22 4.05 9 METALLURGICAL INDUSTRIES 34,814.13 7,507.07 3.88 10 HOTEL&TOURISM 33,260.03 6,631.25 3.43 11 PETROLEUM&NATURALGAS 24,808.41 5,381.48 2.78 12 TRADING 18,646.51 3,955.80 2.05 13 INFORMATION &BROADCASTING (INCLUDING PRINTMEDIA) 15,495.69 3,284.21 1.70 14 ELECTRICAL EQUIPMENTS 14,668.58 3,182.70 1.65 15 CEMENTAND GYPSUMPRODUCTS 11,779.04 2,626.43 1.36 16 NON-CONVENTIONAL ENERGY 12,901.12 2,591.22 1.34 17 MISCELLANEOUS MECHANICAL&ENGINEERINGINDUSTRIES 10,522.52 2,318.71 1.20 18 INDUSTRIALMACHINERY 11,017.51 2,302.14 1.19 19 CONSULTANCY SERVICES 9,692.72 2,095.13 1.08 20 CONSTRUCTION (INFRASTRUCTURE) ACTIVITIES 9,741.06 2,090.41 1.08 21 FOODPROCESSINGINDUSTRIES 8,681.38 1,811.06 0.94 22 PORTS 6,717.38 1,635.08 0.85 23 AGRICULTURESERVICES 7,797.73 1,608.69 0.83 24 HOSPITAL&DIAGNOSTIC CENTRES 7,437.93 1,597.33 0.83 25 TEXTILES (INCLUDINGDYED,PRINTED) 5,689.76 1,226.02 0.63 26 ELECTRONICS 5,466.74 1,198.22 0.62 27 SEATRANSPORT 5,492.51 1,194.50 0.62 28 FERMENTATION INDUSTRIES 5,095.29 1,134.63 0.59 29 RUBBER GOODS 5,824.46 1,134.44 0.59 30 MINING 4,368.18 998.30 0.52 31 PAPERAND PULP (INCLUDINGPAPER PRODUCTS) 4,056.14 865.54 0.45 32 PRIME MOVER (OTHER THAN ELECTRICALGENERATORS) 4,131.80 848.68 0.44
  26. 26. ECONOMICS ASSIGNMENT [FOREIGN DIRECT INVESTMENT (FDI) IN INDIA ] FazlaniAltius Business School [Batch : 2013-2015] Page 26 33 EDUCATION 3,332.97 684.35 0.35 34 SOAPS,COSMETICS &TOILETPREPARATIONS 3,115.54 632.39 0.33 35 MACHINETOOLS 2,967.09 622.99 0.32 36 MEDICALAND SURGICALAPPLIANCES 2,913.92 604.47 0.31 37 CERAMICS 2,195.59 508.13 0.26 38 AIR TRANSPORT (INCLUDINGAIR FREIGHT) 2,022.00 449.26 0.23 39 DIAMOND,GOLD ORNAMENTS 1,810.74 390.76 0.20 40 GLASS 1,942.21 389.07 0.20 41 VEGETABLEOILSAND VANASPATI 1,893.72 384.94 0.20 42 FERTILIZERS 1,425.53 297.90 0.15 43 AGRICULTURALMACHINERY 1,423.25 296.42 0.15 44 PRINTINGOF BOOKS (INCLUDINGLITHO PRINTING INDUSTRY) 1,257.51 272.32 0.14 45 RAILWAY RELATED COMPONENTS 1,246.35 270.33 0.14 46 COMMERCIAL,OFFICE &HOUSEHOLDEQUIPMENTS 1,181.76 254.83 0.13 47 EARTH-MOVINGMACHINERY 769.05 174.95 0.09 48 LEATHER,LEATHER GOODSAND PICKERS 527.88 107.43 0.06 49 TEA AND COFFEE (PROCESSING&WAREHOUSING COFFEE&RUBBER) 456.01 101.21 0.05 50 RETAILTRADING (SINGLEBRAND) 459.55 95.36 0.05 51 SCIENTIFICINSTRUMENTS 496.11 94.48 0.05 52 TIMBER PRODUCTS 398.52 79.15 0.04 53 PHOTOGRAPHIC RAWFILMAND PAPER 269.26 66.54 0.03 54 INDUSTRIAL INSTRUMENTS 307.45 66.53 0.03 55 BOILERSAND STEAM GENERATING PLANTS 305.75 61.83 0.03 56 SUGAR 242.32 51.82 0.03 57 COAL PRODUCTION 103.11 24.78 0.01 58 DYE-STUFFS 87.32 19.50 0.01 59 GLUEAND GELATIN 70.56 14.55 0.01 60 MATHEMATICAL,SURVEYING AND DRAWING INSTRUMENTS 39.80 7.98 0.00 61 DEFENCE INDUSTRIES 19.89 4.12 0.00 62 COIR 10.37 2.17 0.00 63 MISCELLANEOUSINDUSTRIES 35,469.28 7,843.68 4.10 SUB-TOTAL 896,379.67 193,283.31 100 - - 64. RBI‟S- NRI SCHEMES (2000-2002) 533.06 121.33 - GRANDTOTAL 896,912.73 193,404.64 - FDI inflows datare-classified,aspersegregationofdatafromApril 2000onwards. +‟ Percentage ofinflows workedoutin termsofUS$&theaboveamount ofinflows receivedthroughFIPB/SIA routeRBI‟ sautomatic route&acquisitionofexistingsharesonly. FDI Sectoral datahasbeenrevalidated/ reconciledin linewith theRBI,whichreflectsminor changes intheFDI figures(increase/decrease) ascomparedtotheearlierpublishedsectoral data.
  27. 27. ECONOMICS ASSIGNMENT [FOREIGN DIRECT INVESTMENT (FDI) IN INDIA ] FazlaniAltius Business School [Batch : 2013-2015] Page 27 K. INDIAN ECONOMY I. Recent Trends in Indian Economy 1. The Indian economy has emerged with remarkable rapidity from the slowdown caused by the global economic crisis and emerged stronger in 2011.The Indian economy is estimated to grow at 8.6 per cent in 2010-11 as compared to the growth rate of 8.0 per cent in 2009-10. The growth rate of 8.6 per cent in GDP during 2010-11 has been due to the robust growth rates of over 8 per cent in the sectors of manufacturing, construction, trade, hotels, transport and communication, financing, insurance, and, real estate and business services. 2. The agriculture, forestry and fishing sector is likely to show a growth of 5.4 per cent during 2010-11, as against the previous year's growth rate of 0.4 per cent. According to the Department of Agriculture and Cooperation (DAC) of Government of India, production of food grains and oilseeds is expected to grow by 6.5 per cent and 11.9 per cent, respectively, as compared to the previous agriculture year. The production of cotton and sugarcane is also expected to rise by 41.2 per cent and 15.2 per cent, respectively, in 2010- 11. Among the horticultural crops, production of fruits and vegetables is expected to increase by 4.1 per cent and 3.8 per cent, respectively, during the year 2010-11. 3. The growth in mining and quarrying and manufacturing sectors during 2010-11 is expected to be 6.2 and 8.8 per cent respectively over previous year. According to the latest estimates available of the Index of Industrial Production (IIP),mining and manufacturing registered growth rates of 8.0 per cent and 10.0 per cent respectively during April-November, 2010. The estimated growth rate for construction sector is 8.0 per cent in 2010-11. The key indicators of construction sector, namely, cement production and steel consumption have registered growth rates of 4.4 per cent and 8.8 per cent, respectively during April- December, 2010. 4. The estimated growth in the trade, hotels, transport and communication sectors during 2010-11 is placed at 11.0 per cent, mainly on account of growth of 14.9 per cent in passengers handled in civil aviation, 21.3 per cent in air cargo handled and 40.9 per cent in stock of telephone connections. The sales of commercial vehicles witnessed an increase of 34.1 per cent per cent in April-December, 2010. The financing, insurance, real estate and business services sectors are expected to show a growth rate of 10.6 per cent during 2010-11, on account of 14.0 per cent growth in aggregate deposits and 22.6 per cent growth in bank credit during April- November 2010 (against the respective growth rates of 18.6 per cent and 10.1 per cent in the corresponding period of previous year). The growth rate of community, social and personal services during 2010-11 is estimated to be 5.7 per cent. 5. India's per capita income, often used to measure a country's standard of living, increased by 14.5 per cent during 2009-10 to US$ 1038.2 as compared to US$ 906.9 in 2008-09.
  28. 28. ECONOMICS ASSIGNMENT [FOREIGN DIRECT INVESTMENT (FDI) IN INDIA ] FazlaniAltius Business School [Batch : 2013-2015] Page 28 II. Growth in Gross Domestic Product Annual growth by economic activity in Gross Domestic Product (GDP) for the year 2010-11, released by the Central Statistics office (CSO) of Government of India S.No. Industry GDP at Factor Cost (2010-11) Percentage change over previous year at 2004-05 prices(US$ billion) at current prices (US$ billion) at 2004-05 prices at current prices 1 Agriculture, forestry & fishing 152.42 295.25 5.4 23.2 2 Mining & quarrying 24.32 40.13 6.2 18.2 3 Manufacturing 170.87 228.09 8.8 14.5 4 Electricity, gas & water supply 20.49 22.15 5.1 8.6 5 Construction 84.57 129.21 8.0 17.0 6 Trade, hotels, transport & communication 291.36 379.65 11.0 16.7 7 Financing, insurance, real estate & business services 187.89 285.97 10.6 26.5 8 Community, social & personal services 141.87 216.87 5.7 11.3 Total GDP 1073.79 1597.49 8.6 18.3 Source: Central Statistics Office (CSO), Ministry of Statistics &Programme Implementation, Government of India
  29. 29. ECONOMICS ASSIGNMENT [FOREIGN DIRECT INVESTMENT (FDI) IN INDIA ] FazlaniAltius Business School [Batch : 2013-2015] Page 29 III. Economic Survey 2012-13 According to the Economic Survey 2010-11, tabled in Parliament on February 25, 2011 by the Union Finance Minister, Mr.Pranab Mukherjee, the economy is expected to grow at 8.6 per cent in 2010-11 and is expected to be around 9 per cent in the next fiscal year. The growth has been broad based with a rebound in the Agriculture sector which is expected to grow around 5.4 per cent. Manufacturing and Services sector have registered impressive gains. The Survey reports that the industrial output growth rate was 8.6 per cent while the manufacturing sector registered a growth rate of 9.1 per cent in 2010-11. The main highlights of the survey are: 1. Economy expected to grow at 8.6 per cent in 2010-11 and 9 per cent in next fiscal. 2. Growth broad based with rebound in Agriculture, continued momentum in manufacturing and private services. 3. Fundamentals strong with savings and investments up, exports rising rapidly and inflation falling. 4. Agriculture likely to grow at 5.4 per cent in 2010-11. 5. Industrial output grows by 8.6 per cent. 6. Manufacturing sector registers 9.1 per cent growth. 7. Exports in April–December 2010 up by 29.5 per cent. 8. Imports in April–December 2010 up by 19 per cent. 9. Trade gap narrowed to US$ 82.01 billion in April-December 2010. 10. 59 per cent rise in Net Bank Credit. 11. Social programme spending stepped up by 5 percentage points of GDP over past 5 years. 12. 9.7 per cent growth of GDP at market prices. 13. Production of food grains estimated at 232.1 million tonnes. 14. Forex Reserves estimated at US$ 297.3 billion. 15. Gross Fiscal Deficit stands at 4.8 per cent of GDP
  30. 30. ECONOMICS ASSIGNMENT [FOREIGN DIRECT INVESTMENT (FDI) IN INDIA ] FazlaniAltius Business School [Batch : 2013-2015] Page 30 L. POTENTIAL FOR INVESTMENT IN INDIA 1. India presents a vast potential for overseas investment and is actively encouraging the entrance of foreign players into the market. India is also one of the few markets in the world, which offers high prospects for growth and earning potential in practically all areas of business. 2. India‟s biotechnology sector is set to become a $10 billion industry by 2015, CMD of Biocon Ltd, KiranMazumdar-Shaw said . She expects the industry to grow to $5 billion by next year. In 2008-09 it was $2.51 billion. “India‟s biotechnology industry is at an inflexion point, and has attained a critical mass, Mazumdar-Shaw said. It now has a platform from where it can leapfrog and deliver exponential growth, she said. India is also becoming the vaccine capital.Clinical trials, agri-biotech and bio-fuels are becoming opportunities. There are a lot of growth drivers and trigger points which, she said, will deliver in the next five years. 3. With the launch of video telephony, by BSNL and Sai Info Systems (SIS), will boost demand for broadband connection, Sam Pitroda, advisor to Prime Minister on public information, infrastructure and innovations, expects the number to hit 100 million in next five years. "The service is expected to revolutionize the telecom sector and take it to the next level. Globally with video phones have become an integral part of life. The service will be provided and marketed by SIS while the connectivity for the service will be provided by BSNL. BSNL will also market it as another value added service to its large broadband customer base," said Vijay Mandora, director, SIS. 4. Tumbling voice tariffs contributing to the declining average revenue per user (ARPU) rates, will result in SMS volumes to reach 191.6 billion in India by 2013, predicts Gartner.By 2013, the country would have more than 750 million mobile connections; therefore the SMS usage per user would essentially drop. However, overall large base of mobile connections would support this SMS volume. Strong organic growth continues in Asia‟s developing markets, with marginal subscribers turning to low-cost messaging as an entry-level service. In the mature markets of the Asia-Pacific region, SMS has seen sustained healthy growth as a result of steady price declines and increasingly generous SMS and data bundles," said Madhusudan Gupta, senior research analyst at Gartner. SMS contributes around 8% to value added services (VAS), which in turn contributes 10-12% of an operator‟s revenue. 5. The Indian auto sector is likely to witness an overall growth of 10%-12% in sales during 2010 and a faster recovery in expected in passenger vehicle (PV) volumes of 12%-14% compared with 5%-6% for the commercial vehicle (CV) segment. The positive outlook for demand could result in a sharp increase in capex plans, which could offset the positive impact on credit profiles of higher volumes and lower inventories, said Fitch Ratings. The PV rebound has been supported by an improving liquidity scenario and restoration of consumer confidence; modest growth in industrial production, together with the government stimulus, has brought about stability in CV sales, though at lower levels than for PVs.Domestic CV sales grew by 22.3% during April-December 2009 compared with same period in 2008, building on the recovery in demand beginning Q4 09. However, growth trends have distinctly varied within the CV segment - depending on the tonnage capacity and end-use, as light commercial vehicles (LCVs) have been able to maintain their ground while medium and heavy commercial vehicles (M&HCVs) continued to face pressure due to the decline in industrial output. The M&HCV segment is now stabilizing with the higher industrial production, while the LCV segment is showing a more rapid recovery. Fitch expects the full-year 2010 numbers to reveal moderate growth in the range of 5%-6% for domestic sales, with the first few months being driven by regulatory guidelines.
  31. 31. ECONOMICS ASSIGNMENT [FOREIGN DIRECT INVESTMENT (FDI) IN INDIA ] FazlaniAltius Business School [Batch : 2013-2015] Page 31 6. The Union food processing ministry has set a target of attracting investments to the tune of Rs 1 lakh crore in the sector by 2015.Subodh Kant Sahai, Union food processing minister, said: “We are expecting investments of Rs 1 lakh crore in the next five years. We are planning to increase food processing to 20% of the total fruits and vegetable produced in the country. “According to him, food processing has grown by 10% in India while value-added products have grown by 10-15% in the last five years.We are looking at a growth of 35% in value-added production by 2015,” Sahai said. 7. The 234 million tonne per annum (mtpa) Indian cement industry, which witnessed a double digit dispatch growth in December 2009 and an overall growth thanks to infrastructure and real estate projects, is set to add 43.2 mtpa capacity during the next 15 months (January 2010 to March 2011).South India, which has already started feeling the heat of oversupply, will add the maximum capacity of 17.6 million tonne during that period. The next in line is the northern region, which will add 9.6 mt. The western, central and eastern regions will add 9 mt, 3 mt and 4 mt, respectively. “The southern market with 18 players having capacity of 1mtpa or more is the most fragmented one in India. Capacities of three new players (Raghuram Cement, Jayajyothi and JSW Cement with more than 2 mtpa each) will stabilize in the next 6-9 months. With sharp price cuts, new producers may find it difficult to break even, and this would likely to prompt some consolidation. All the three new producers are unlikely to participate in consolidation,” J Radhakrishnan, analyst with IIFL, said in his report. 8. The healthcare industry in the country, which comprises hospital and allied sectors, is projected to grow 23% per annum to touch $77-billion mark by 2012 from the current estimated size of $35 billion, according to a Yes Bank and Assocham report. The sector has registered a growth of 9.3% between 2000- 2009, comparable to the sectorial growth rate of other emerging economies such as China, Brazil and Mexico. The growth in the sector would be driven by healthcare facilities, both private and public sector, medical diagnostic and pathlabs and the medical insurance sector.Of the sum, diagnostic and pathology services would account for $2.5 billion in 2012, more than double its estimated current size of $1billion. The growth in the segment is expected to be driven by consolidation in the industry and increasing insurance penetration among the country‟s population. Healthcare facilities, inclusive of public and private hospitals, the core sector, around which the healthcare sector is centered, would continue to contribute over 70% of the total sector and touch a figure of $54.7 billion by 2012.The medical insurance sector would account for another $ 3 billion in the next three years, up from the estimated current size of $1 billion. 9. Steve King, CEO of Zenith Optimedia Worldwide feels that new and emerging advertising markets like India and China will power the global industry‟s recovery, on the back of positive signals from developed markets like US, Europe. “India, with an approximate 10% growth, will certainly be in the top ten advertising markets in absolute dollar terms by 2015,” he told.Zenith Optimedia, the world‟s third largest media-buying agency and an enterprise under the Paris-based Publics Group is upbeat about India.It has brought fresh business worth $100 million in the country this year.India figures amongst Zenith Optimedia‟s 20 largest markets globally, but over the past five years, it has been among the top three fastest growing ones. “Most of our markets are between 15 to 20 years old, so despite being here for only five years, this market has responded very well. Our focus here will be on winning local clients, apart from the international ones. By the next five years, we will have considerably closed the gap on the top two market leaders here,” King said.
  32. 32. ECONOMICS ASSIGNMENT [FOREIGN DIRECT INVESTMENT (FDI) IN INDIA ] FazlaniAltius Business School [Batch : 2013-2015] Page 32 M. ADVANTAGE IN INDIA 1. World's largest democracy with 1.2 billion people. 2. Stable political environment and responsive administrative set up. 3. Well established judiciary to enforce rule of law. 4. Land of abundant natural resources and diverse climatic conditions. 5. Rapid economic growth: GDP to grow by 8.5% in 2010-11* and 9.0% in 2011-12. 6. India's growth will start to outpace China's within three to five years and hence will become the fastest large economy with 9-10% growth over the next 20-25 years (Morgan Stanley). 7. Investor friendly policies and incentive based schemes. 8. Second most attractive Foreign Direct Investment (FDI) location in the world: India received a total of US$ 25.9 billion of FDI in 2009-10. 9. Healthy macro-economic fundamentals: Investment rate is expected to be 37% in 2010-11 and 38.4% in 2011-12 while Domestic Savings rate is expected to be 34% in 2010-11 and 36% in 2011-12. 10. India's economy will grow fivefold in the next 20 years (McKinsey). 11. Cost competitiveness: low labour costs. 12. Total labour force of nearly 530 million. 13. Large pool of skilled manpower; strong knowledge base with significant English speaking population. 14. Young country with a median age of 30 years by 2025: India's economy will benefit from this "demographic dividend". 15. The proportion of population in the working age group (15-59 years) is likely to increase from approximately 58% in 2001 to more than 64% by 2021. 16. Huge untapped market potential. 17. The urban population of India will double from the 2001 census figure of 290m to approximately 590m by 2030 (McKinsey). 18. Progressive simplification and rationalization of direct and indirect tax structures. 19. Reduction in import tariffs. 20. Full current account convertibility. 21. Compliance with WTO norms. 22. Robust banking and financial institutions. "* India's financial year is from April to March. 2010-11 above means April 2010-March 2011."
  33. 33. ECONOMICS ASSIGNMENT [FOREIGN DIRECT INVESTMENT (FDI) IN INDIA ] FazlaniAltius Business School [Batch : 2013-2015] Page 33 I. Indian Economy India has undergone a paradigm shift owing to its competitive stand in the world. The Indian economy is on a robust growth trajectory and boasts of a stable annual growth rate, rising foreign exchange reserves and booming capital markets among others. Indian economy is estimated to grow at 8.6 percent in 2010-11 as compared to the growth rate of 8.0 percent in 2009-10. These GDP figures are based at factor cost at constant (2004-05) prices in the year 2010-11.The growth rate of 8.6 per cent in GDP during 2010-11 has been due to the robust growth rates of over 8 per cent in the sectors of manufacturing, construction, trade, hotels, transport and communication, financing, insurance, and, real estate and business services. Agriculture sector registered a growth rate of 5.4 percent in 2009-10. A growth rate of 18.3 percent is estimated for GDP at current prices in the year 2010-11. II. Agriculture Sector The agriculture, forestry and fishing sector is likely to show a growth of 5.4 per cent in its GDP during 2010- 11, as against the previous year‟s growth rate of 0.4 per cent.The estimate of GDP from agriculture in 2010- 11,according to the Department of Agriculture and Cooperation (DAC),production of foodgrains and oilseeds is expected to grow by 6.5 per cent and 11.9 per cent, respectively, as compared to the previous agriculture year. The production of cotton and sugarcane is also expected to rise by 41.2 per cent and 15.2 per cent, respectively, in 2010-11. Among the horticultural crops, production of fruits and vegetables is expected to increase by 4.1 per cent and 3.8 per cent, respectively, during the year 2010-11. III. Industry Sector The growth in GDP for mining and quarrying and manufacturing sectors during 2010-11 is expected to be 6.2 and 8.8 percent respectively over previous year. According to the latest estimates available on the Index of Industrial Production (IIP), the index of mining and manufacturing registered growth rates of 8.0 per cent and 10.0 per cent during April-November, 2010. The estimated growth rate for construction sector is 8.0 percent in 2010-11. The key indicators of construction sector, namely, cement production and steel consumption have registered growth rates of 4.4 per cent and 8.8 per cent, respectively during April- December, 2010. IV. Services Sector The estimated growth in GDP for the trade, hotels, transport and communication sectors during 2010-11 is placed at 11.0 per cent, mainly on account of growth during April- November, 2010-11 of 14.9 per cent in passengers handled in civil aviation, 21.3 per cent in air cargo handled and 40.9 per cent in stock of telephone connections. The sales of commercial vehicles witnessed an increase of 34.1 per cent per cent in April-December, 2010. The financing, insurance, real estate and business services sector is expected to show a growth rate of 10.6 per cent during 2010-11, on account of 14.0 per cent growth in aggregate deposits and 22.6 per cent growth in bank credit during April- November 2010 (against the respective growth rates of 18.6 per cent and 10.1 per cent in the corresponding period of previous year). The growth rate of community, social and personal services during 2010-11 is estimated to be 5.7 per cent.
  34. 34. ECONOMICS ASSIGNMENT [FOREIGN DIRECT INVESTMENT (FDI) IN INDIA ] FazlaniAltius Business School [Batch : 2013-2015] Page 34 N. FDI POLICY FRAMEWORK Policy regime is one of the key factors driving investment flows to a country. Apart from underlying macro fundamentals, ability of a nation to attract foreign investment essentially depends upon its policy regime - whether it promotes or restrains the foreign investment flows. This section undertakes a review of India‟s FDI policy framework and makes a comparison of India‟s policy vis-à-vis that of select EMEs. 1. FDI Policy Framework in India There has been a sea change in India‟s approach to foreign investment from the early 1990s when it began structural economic reforms encompassing almost all the sectors of the economy. Pre-Liberalization Period Historically, India had followed an extremely cautious and selective approach while formulating FDI policy in view of the dominance of „import-substitution strategy‟ of industrialization. With the objective of becoming „self-reliant‟, there was a dual nature of policy intention – FDI through foreign collaboration was welcomed in the areas of high technology and high priorities to build national capability and discouraged in low technology areas to protect and nurture domestic industries. The regulatory framework was consolidated through the enactment of Foreign Exchange Regulation Act (FERA), 1973 wherein foreign equity holding in a joint venture was allowed only up to 40 per cent. Subsequently, various exemptions were extended to foreign companies engaged in export oriented businesses and high technology and high priority areas including allowing equity holdings of over 40 per cent. Moreover, drawing from successes of other country experiences in Asia, Government not only established special economic zones (SEZs) but also designed liberal policy and provided incentives for promoting FDI in these zones with a view to promote exports. As India continued to be highly protective, these measures did not add substantially to export competitiveness. Recognising these limitations, partial liberalisation in the trade and investment policy was introduced in the 1980s with the objective of enhancing export competitiveness, modernisation and marketing of exports through Trans- national Corporations (TNCs). The announcements of Industrial Policy (1980 and 1982) and Technology Policy (1983) provided for a liberal attitude towards foreign investments in terms of changes in policy directions. The policy was characterized by de-licensing of some of the industrial rules and promotion of Indian manufacturing exports as well as emphasizing on modernization of industries through liberalized imports of capital goods and technology. This was supported by trade liberalization measures in the form of tariff reduction and shifting of large number of items from import licensing to Open General Licensing (OGL). Post-Liberalization Period A major shift occurred when India embarked upon economic liberalization and reforms program in 1991 aiming to raise its growth potential and integrating with the world economy. Industrial policy reforms gradually removed restrictions on investment projects and business expansion on the one hand and allowed increased access to foreign technology and funding on the other. A series of measures that were directed towards liberalizing foreign investment included: (i) Introduction of dual route of approval of FDI – RBI‟s automatic route and Government‟s approval (SIA/FIPB) route, (ii) Automatic permission for technology agreements in high priority industries and removal of restriction of FDI in low technology areas as well as liberalization of technology imports, (iii) Permission to Non-resident Indians (NRIs) and Overseas Corporate Bodies (OCBs) to invest up to 100 per cent in high priorities sectors, (iv) Hike in the foreign equity participation limits to 51 per cent for existing companies and liberalization of the use of foreign „brands name‟ and
  35. 35. ECONOMICS ASSIGNMENT [FOREIGN DIRECT INVESTMENT (FDI) IN INDIA ] FazlaniAltius Business School [Batch : 2013-2015] Page 35 (v) Signing the Convention of Multilateral Investment Guarantee Agency (MIGA) for protection of foreign investments. These efforts were boosted by the enactment of Foreign Exchange Management Act (FEMA), 1999 [that replaced the Foreign Exchange Regulation Act (FERA), 1973] which was less stringent. This along with the sequential financial sector reforms paved way for greater capital account liberalization in India. Investment proposals falling under the automatic route and matters related to FEMA are dealt with by RBI, while the Government handles investment through approval route and issues that relate to FDI policy per se through its three institutions, viz., the Foreign Investment Promotion Board (FIPB), the Secretariat for Industrial Assistance (SIA) and the Foreign Investment Implementation Authority (FIIA). FDI under the automatic route does not require any prior approval either by the Government or the Reserve Bank. The investors are only required to notify the concerned regional office of the RBI within 30 days of receipt of inward remittances and file the required documents with that office within 30 days of issuance of shares to foreign investors. Under the approval route, the proposals are considered in a time-bound and transparent manner by the FIPB. Approvals of composite proposals involving foreign investment/ foreign technical collaboration are also granted on the recommendations of the FIPB. Current FDI policy in terms of sector specific limits has been summarized in Table 3 below: Table 3: Sector Specific Limits of Foreign Investment in India Sector FDI Cap/Equity Entry Route Other Conditions A. Agriculture 1. Floriculture, Horticulture, Development of Seeds, Animal Husbandry, Pisciculture, Aquaculture, Cultivation of vegetables & mushrooms and services related to agro and allied sectors. 100% Automatic 2. Tea sector, including plantation 100% FIPB (FDI is not allowed in any other agricultural sector /activity) B. Industry 1. Mining covering exploration and mining of diamonds & precious stones; gold, silver and minerals. 100% Automatic 2. Coal and lignite mining for captive consumption by power projects, and iron & steel, cement production. 100% Automatic 3. Mining and mineral separation of titanium bearing minerals 100% FIPB C. Manufacturing 1. Alcohol- Distillation & Brewing 100% Automatic 2. Coffee & Rubber processing & Warehousing. 100% Automatic 3. Defence production 26% FIPB 4. Hazardous chemicals and isocyanates 100% Automatic 5. Industrial explosives -Manufacture 100% Automatic 6. Drugs and Pharmaceuticals 100% Automatic 7. Power including generation (except Atomic energy); transmission, distribution and power trading. 100% Automatic
  36. 36. ECONOMICS ASSIGNMENT [FOREIGN DIRECT INVESTMENT (FDI) IN INDIA ] FazlaniAltius Business School [Batch : 2013-2015] Page 36 (FDI is not permitted for generation, transmission & distribution of electricity produced in atomic power plant/atomic energy since private investment in this activity is prohibited and reserved for public sector.) D.Services 1. Civil aviation (Greenfield projects and Existing projects) 100% Automatic 2. Asset Reconstruction companies 49% FIPB 3. Banking (private) sector 74% (FDI+FII). FII not to exceed 49% Automatic 4. NBFCs : underwriting, portfolio management services, investment advisory services, financial consultancy, stock broking, asset management, venture capital, custodian, factoring, leasing and finance, housing finance, forex broking, etc. 100% Automatic s.t.minimum capitalization norms 5. Broadcasting a. FM Radio b. Cable network; c. Direct to home; d. Hardware facilities such as up-linking, HUB. e. Up-linking a news and current affairs TV Channel 20% 49% (FDI+FII) 100% FIPB 6. Commodity Exchanges 49% (FDI+FII) (FDI 26 % FII 23%) FIPB 7. Insurance 26% Automatic Clearance from IRDA 8. Petroleum and natural gas : a. Refining 49% (PSUs). 100% (Pvt. Companies) FIPB (for PSUs). Automatic (Pvt.) 9. Print Media a. Publishing of newspaper and periodicals dealing with news and current affairs b. Publishing of scientific magazines / speciality journals/periodicals 26% 100% FIPB FIPB S.t.guidelines by Ministry of Information & broadcasting 10. Telecommunications a. Basic and cellular, unified access services, national / international long-distance, V-SAT, public mobile radio trunked services (PMRTS), global mobile personal communication services (GMPCS) and others. 74% (including FDI, FII, NRI, FCCBs, ADRs/GDRs, convertible preference shares, etc. Automatic up to 49% and FIPB beyond 49%. Sectors where FDI is Banned 1. Retail Trading (except single brand product retailing); 2. Atomic Energy; 3. Lottery Business including Government / private lottery, online lotteries etc; 4. Gambling and Betting including casinos etc.; 5. Business of chit fund; 6. Nidhi Company; 7. Trading in Transferable Development Rights (TDRs); 8. Activities/sector not opened to private sector investment; 9. Agriculture (excluding Floriculture, Horticulture, Development of seeds, Animal Husbandry, Piscicultureand cultivation of vegetables, mushrooms etc. under controlled conditions and services related to agro and allied sectors) and Plantations (Other than Tea Plantations); 10. Real estate business, or construction of farm houses; 11. Manufacturing of Cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco or of tobacco substitutes.
  37. 37. ECONOMICS ASSIGNMENT [FOREIGN DIRECT INVESTMENT (FDI) IN INDIA ] FazlaniAltius Business School [Batch : 2013-2015] Page 37 2. FDI Policy: The International Experience Foreign direct investment is treated as an important mechanism for channelizing transfer of capital and technology and thus perceived to be a potent factor in promoting economic growth in the host countries. Moreover, multinational corporations consider FDI as an important means to reorganise their production activities across borders in accordance with their corporate strategies and the competitive advantage of host countries. These considerations have been the key motivating elements in the evolution and attitude of EMEs towards investment flows from abroad in the past few decades particularly since the eighties. This section reviews the FDI policies of select countries to gather some perspective as to „where does India stand‟ at the current juncture to draw policy imperatives for FDI policy in India. China Encouragement to FDI has been an integral part of the China‟s economic reform process. It has gradually opened up its economy for foreign businesses and has attracted large amount of direct foreign investment. Government policies were characterised by setting new regulations to permit joint ventures using foreign capital and setting up Special Economic Zones (SEZs) and Open Cities.The concept of SEZs was extended to fourteen more coastal cities in 1984.Favorable regulations and provisions were used to encourage FDI inflow, especially export-oriented joint ventures and joint ventures using advanced technologies in 1986. Foreign joint ventures were provided with preferential tax treatment, the freedom to import inputs such as materials and equipment, the right to retain and swap foreign exchange with each other, and simpler licensing procedures in 1986. Additional tax benefits were offered to export-oriented joint ventures and those employing advanced technology. Priority was given to FDI in the agriculture, energy, transportation, telecommunications, basic raw materials, and high-technology industries, and FDI projects which could take advantage of the rich natural resources and relatively low labour costs in the central and northwest regions. China‟s policies toward FDI have experienced roughly three stages: gradual and limited opening, active promoting through preferential treatment, and promoting FDI in accordance with domestic industrial objectives. These changes in policy priorities inevitably affected the pattern of FDI inflows in China. Chile In Chile, policy framework for foreign investment, embodied in the constitution and in the Foreign Investment Statute, is quite stable and transparent and has been the most important factor in facilitating foreign direct investment. Under this framework, an investor signs a legal contract with the state for the implementation of an individual project and in return receives a number of specific guarantees and rights. Foreign investors in Chile can own up to 100 per cent of a Chilean based company, and there is no time limit on property rights. They also have access to all productive activities and sectors of the economy, except for a few restrictions in areas that include coastal trade, air transport and the mass media. Chile attracted investment in mining, services, electricity, gas and water industries and manufacturing. Investors are guaranteed the right to repatriate capital one year after its entry and to remit profits at any time. Although Chile‟s constitution is based on the principle of non-discrimination, some tax advantages are extended to foreign investors such as invariability of income tax regime, invariability of indirect taxes, and special policy regime for large projects.
  38. 38. ECONOMICS ASSIGNMENT [FOREIGN DIRECT INVESTMENT (FDI) IN INDIA ] FazlaniAltius Business School [Batch : 2013-2015] Page 38 Malaysia The Malaysian FDI regime is tightly regulated in that all foreign manufacturing activity must be licensed regardless of the nature of their business. Until 1998, foreign equity share limits were made conditional on performance and conditions set forth by the industrial policy of the time. In the past, the size of foreign equity share allowed for investment in the manufacturing sector hinged on the share of the products exported in order to support the country's export-oriented industrial policy. FDI projects that export at least 80 per cent of production or production involving advanced technology are promoted by the state and no equity conditions are imposed. Following the crisis in 1997-98, the restriction was abolished as the country was in need of FDI. Korea The Korean government maintained distinctive foreign investment policies giving preference to loans over direct investment to supplement its low level of domestic savings during the early stage of industrialisation. Korea‟s heavy reliance on foreign borrowing to finance its investment requirements is in sharp contrast to other countries. The Korean Government had emphasised the need to enhance absorptive capacity as well as the indigenisation of foreign technology through reverse engineering at the outset of industrialisation while restricting both FDI and foreign licensing. This facilitated Korean firms to assimilate imported technology, which eventually led to emergence of global brands like Samsung, Hyundai, and LG. The Korean government pursued liberalised FDI policy regime in the aftermath of the Asian financial crisis in 1997-98 to fulfil the conditionality of the International Monetary Fund (IMF) in exchange for standby credit. Several new institutions came into being in Korea immediately after the crisis. Invest Korea is Korea‟s national investment promotion agency mandated to offer one-stop service as a means of attracting foreign direct investment, while the Office of the Investment Ombudsman was established to provide investment after-care services to foreign-invested companies in Korea. These are affiliated to the Korea Trade Investment Promotion Agency. Korea enacted a new foreign investment promotion act in 1998 to provide foreign investors incentives which include tax exemptions and reductions, financial support for employment and training, cash grants for R&D projects, and exemptions or reductions of leasing costs for land for factory and business operations for a specified period. One of the central reasons for the delays in the construction process in Korea is said to be the lengthy environmental and cultural due diligence on proposed industrial park sites. (OECD, 2008). Thailand Thailand followed a traditional import-substitution strategy, imposing tariffs on imports, particularly on finished products in the 1960s. The role of state enterprises was greatly reduced from the 1950s and investment in infrastructure was raised. Attention was given to nurturing the institutional system necessary for industrial development. Major policy shift towards export promotion took place by early 1970s due to balance of payments problems since most of components, raw materials, and machinery to support the production process, had to be imported.
  39. 39. ECONOMICS ASSIGNMENT [FOREIGN DIRECT INVESTMENT (FDI) IN INDIA ] FazlaniAltius Business School [Batch : 2013-2015] Page 39 On the FDI front, in 1977 a new Investment Promotion Law was passed which provided the Board of Investment (BOI) with more power to provide incentives to priority areas and remove obstacles faced by private investors (Table 4). After the East Asian financial crisis, the Thai government has taken a very favourable approach towards FDI with a number of initiatives to develop the industrial base and exports and progressive liberalisation of laws and regulations constraining foreign ownership in specified economic activities. The Alien Business Law, which was enacted in 1972 and restricted majority foreign ownership in certain activities, was amended in 1999. The new law relaxed limits on foreign participation in several professions such as law, accounting, advertising and most types of construction, which have been moved from a completely prohibited list to the less restrictive list of businesses. To sum up, the spectacular performance of China in attracting large amount of FDI could be attributed to its proactive FDI policy comprising setting up of SEZs particularly exports catering to the international market, focus on infrastructure and comparative advantage owing to the low labour costs. A comparison of the FDI policies pursued by select emerging economies, set out above, suggests that policies although broadly common in terms of objective, regulatory framework and focus on technological upgradation and export promotion, the use of incentive structure and restrictions on certain sectors, has varied across countries. While China and Korea extend explicit tax incentives to foreign investors, other countries focus on stability and transparency of tax laws. Similarly, while all the countries promote investment in manufacturing and services sector, China stands out with its relaxation for agriculture sector as well. It is, however, apparent that though policies across countries vary in specifics, there is a common element of incentivisation of foreign investment (Table 4). Table 4: FDI Policy and Institutional Framework in Select Countries Year of Liberalisation Objective Incentives Priority Sectors Unique features China 1979 Transformation of traditional agriculture, promotion of industrialization, infrastructure and export promotion. Foreign joint ventures were provided with preferential tax treatment. Additional tax benefits to export-oriented joint ventures and those employing advanced technology. Privileged access was provided to supplies of water, electricity and transportation (paying the same price as state-owned enterprises) and to interest- free RMB loans. Agriculture, energy, transportation, telecommunications, basic raw materials, and high-technology industries. Setting up of Special Economic Zones Chile 1974 Technology transfer, export promotion and greater domestic competition. Invariability of tax regime intended to provide a stable tax horizon. Allproductive activities and sectors of the economy, except for a few restrictions in areas that include coastal trade, air transport and the mass media. Does not use tax incentives to attract foreign investment.
  40. 40. ECONOMICS ASSIGNMENT [FOREIGN DIRECT INVESTMENT (FDI) IN INDIA ] FazlaniAltius Business School [Batch : 2013-2015] Page 40 Korea 1998 Promotion of absorptive capacity and indigenization of foreign technology through reverse engineering at the outset of industrialization while restricting both FDI and foreign licensing. Businesses located in Foreign Investment Zone enjoy full exemption of corporate income tax for five years from the year in which the initial profit is made and 50 percent reduction for the subsequent two years. High- tech foreign investments in the Free Economic Zones are eligible for the full exemption three years and 50 percent for the following two years. Cash grants to high-tech green field investment and R&D investment subject to the government approval. Manufacturing and services Loan-based borrowing to an FDI-based development strategy till late1990s. Malaysia 1980s Export promotion No specific tax incentives. Manufacturing and services. Malaysian Industrial Development Authority was recognised to be one of the effective agencies in the Asian region Thailand 1977 Technology transfer and export promotion No specific tax incentives. The Thai Board of Investment has carried out activities under the three broad categories to promote FDI. 1. Image building to demonstrate how the host country is an appropriate location for FDI. 2. Investment generation by targeting investors through various activities. 3. Servicing investors Manufacturing and services -
  41. 41. ECONOMICS ASSIGNMENT [FOREIGN DIRECT INVESTMENT (FDI) IN INDIA ] FazlaniAltius Business School [Batch : 2013-2015] Page 41 3. Cross-Country Comparison of FDI Policies – Where does India stand? A true comparison of the policies could be attempted if the varied policies across countries could be reduced to a common comparable index or a measure. Therefore, with a view to examine and analyse „where does India stand‟ vis-a-vis other countries at the current juncture in terms of FDI policy framework, the present section draws largely from the results of a survey of 87 economies undertaken by the World Bank in 2009 and published in its latest publication titled „Investing Across Borders‟. The survey has considered four indicators, viz., „Investing across Borders‟, „Starting a Foreign Business‟, „Accessing Industrial Land‟, and „Arbitrating Commercial Disputes‟ to provide assessment about FDI climate in a particular country. Investing across Bordersindicator measures the degree to which domestic laws allow foreign companies to establish or acquire local firms.Starting foreign business indicator record the time, procedures, and regulations involved in establishing a local subsidiary of a foreign company. Accessing industrial land indicator evaluates legal options for foreign companies seeking to lease or buy land in a host economy, the availability of information about land plots, and the steps involved in leasing land. Arbitrating commercial disputes indicator assesses the strength of legal frameworks for alternative dispute resolution, rules for arbitration, and the extent to which the judiciary supports and facilitates arbitration. India‟s relative position in terms of these four parameters vis-à-vis major 15 emerging economies, which compete with India in attracting foreign investment, is set out in Tables 5A and 5B. Following key observations could be made from this comparison: A comparative analysis among the select countries reveals that countries such as Argentina, Brazil, Chile and the Russian Federation have sectoral caps higher than those of India implying that their FDI policy is more liberal. The sectoral caps are lower in China than in India in most of the sectors barring agriculture and forestry and insurance. A noteworthy aspect is that China permits 100 per cent FDI in agriculture while completely prohibits FDI in media. In India, on the other hand, foreign ownership is allowed up to 100 per cent in sectors like „mining, oil and gas‟, electricity and „healthcare and waste management‟. India positioned well vis-a-vis comparable counterparts in the select countries in terms of the indicator „starting a foreign business‟. In 2009, starting a foreign business took around 46 days with 16 procedures in India as compared with 99 days with 18 procedures in China and 166 days with 17 procedures in Brazil (Table 5 B). In terms of another key indicator, viz., „accessing industrial land‟ India‟s position is mixed. While the ranking in terms of indices based on lease rights and ownership rights is quite high, the time to lease private and public land is one of the highest among select countries at 90 days and 295 days, respectively. In China, it takes 59 days to lease private land and 129 days to lease public land. This also has important bearing on the investment decisions by foreign companies. In terms of the indicator „arbitrating commercial disputes‟ India is on par with Brazil and the Russian Federation. Although, the strength of laws index is fairly good, the extent of judicial assistance index is moderate.
  42. 42. ECONOMICS ASSIGNMENT [FOREIGN DIRECT INVESTMENT (FDI) IN INDIA ] FazlaniAltius Business School [Batch : 2013-2015] Page 42 Table 5A: Investing Across Borders – Sector wise Caps – 2009 Country Mini ng, oil and gas Agric ul ture and fores try Light manuf act uring Teleco mm unicat ions Electrici ty Banking Insura nce Trans portation Media Constr uction, touris m and retail Health care and waste manag ement Argentina 100 100 100 100 100 100 100 79.6 30 100 100 Brazil 100 100 100 100 100 100 100 68 30 100 50 Chile 100 100 100 100 100 100 100 100 100 100 100 China 75 100 75 49 85.4 62.5 50 49 0 83.3 85 India 100 50 81.5 74 100 87 26 59.6 63 83.7 100 Indonesia 97.5 72 68.8 57 95 99 80 49 5 85 82.5 Korea, 100 100 100 49 85.4 100 100 79.6 39.5 100 100 Malaysia 70 85 100 39.5 30 49 49 100 65 90 65 Mexico 50 49 100 74.5 0 100 49 54.4 24.5 100 100 Philippines 40 40 75 40 65.7 60 100 40 0 100 100 Russian 100 100 100 100 100 100 49 79.6 75 100 100 South 74 100 100 70 100 100 100 100 60 100 100 Thailand 49 49 87.3 49 49 49 49 49 27.5 66 49
  43. 43. ECONOMICS ASSIGNMENT [FOREIGN DIRECT INVESTMENT (FDI) IN INDIA ] FazlaniAltius Business School [Batch : 2013-2015] Page 43 Table 5B: Investing Across Borders – Key Indicators 2009 Country Starting a Foreign Business Accessing Industrial Land Arbitrating Commercial Disputes Time (day s) Pro ced ures (nu mbe r) Ease of establ i shme nt index (0 = min, 100 = max) Strengt h of lease rights index (0 = min, 100 = max) Strength of ownersh ip rights index (0 = min, 100 = max) Acces s to land infor m ation index (0 = min, 100 = max) Avail a bility of land infor m ation index (0 = min, 100 = max) Tim e to leas e priv ate land (day s) Tim e to leas e pub l ic land (day s) Stre n gth of laws inde x (0 = min, 100 = max ) Ease of proc essin de x (0 = min, 100 = max ) Exten t of judici al assist a nce index (0 = min, 100 = max) Argentin a 50 18 65 79.3 100 44.4 85 48 112 63.5 72.2 55.1 Brazil 166 17 62.5 85.7 100 33.3 75 66 180 84.9 45.7 57.2 Chile 29 11 63.2 85.7 100 33.3 80 23 93 94.9 62.8 74.8 China 99 18 63.7 96.4 n/a 50 52.5 59 129 94.9 76.1 60.2 India 46 16 76.3 92.9 87.5 15.8 85 90 295 88.5 67.6 53.4 Indonesi a 86 12 52.6 78.6 n/a 21.4 85 35 81 95.4 81.8 41.3 Korea, 17 11 71.1 85.7 100 68.4 70 10 53 94.9 81.9 70.2 Malaysia 14 11 60.5 78.5 87.5 23.1 85 96 355 94.9 81.8 66.7 Mexico 31 11 65.8 81.3 100 33.3 90 83 151 79.1 84.7 52.7 Philippin es 80 17 57.9 68.8 n/a 23.5 87.5 16 n/a 95.4 87 33.7 Russian 31 10 68.4 85.7 100 44.4 90 62 231 71.6 76.1 76.6 South 65 8 - 84.5 100 47.4 85 42 304 82.4 79 94.5 Thailand 34 9 60.5 80.7 62.5 27.8 70 30 128 84.9 81.8 40.8 Thus, a review of FDI policies in India and across major EMEs suggests that though India‟s policy stance in terms of access to different sectors of the economy, repatriation of dividend and norms for owning equity are comparable to that of other EMEs, policy in terms of qualitative parameters such as „time to lease private land‟, „access to land information‟ and „Extent of Judicial assistance‟ are relatively more conservative. Since time taken to set up a project adds to the cost and affect competitiveness, an otherwise fairly liberal policy regime may turn out to be less competitive or economically unviable owing to procedural delays. Thus, latter may affect the cross border flow of investible funds. But an assessment of precise impact of these qualitative parameters on the flow of FDI is an empirical question. The following section makes an attempt to quantify the impact of various factors that govern the flow of FDI in India.
  44. 44. ECONOMICS ASSIGNMENT [FOREIGN DIRECT INVESTMENT (FDI) IN INDIA ] FazlaniAltius Business School [Batch : 2013-2015] Page 44 O. FDI FLOWS TO INDIA IN RECENT PERIOD Distinct slowdown despite strong fundamentals – Plausible Explanations As stated above, global FDI flows moderated significantly since the eruption of global financial crisis in 2008, albeit with an uneven pattern across regions and countries. Though initially developing countries showed some resilience, crisis eventually spread through the trade, financial and confidence channels and FDI flows declined in both the advanced and developing economies during 2009. Subsequently, while FDI flows to advanced countries continued to decline, FDI flows to many of the Latin American and Asian countries witnessed strong rebound during 2010 on the back of improved corporate profitability and some improvement in M&A activities. FDI flows to India also moderated during 2009 but unlike trends in other EMEs, flows continued to be sluggish during 2010 despite strong domestic growth ahead of global recovery. This raised concerns for policy makers in India against the backdrop of expansion in the current account deficit. Table 6: FDI Inflows in Select EMEs (US$ billion) Argentina Brazil Chile India Indonesia Mexico South Africa Thailand 2007 6.5 34.6 12.5 25.5 6.9 29.1 5.7 11.3 2008 9.7 45.1 15.2 43.4 9.3 24.9 9.6 8.5 (50.2) (30.3) (21.1) (70.3) (34.5) -(14.3) (68.1) -(24.7) 2009 4.0 25.9 12.7 35.6 4.9 14.5 5.4 5.0 -(92.0) -(14.3) -(39.9) -(49.4) -(85.9) -(200.8) -(92.1) -(120.2) Q1-10 1.9 5.5 5.5 6.1 2.9 4.8 0.4 1.5 Q2-10 0.0 6.6 2.5 6.0 3.3 7.6 0.4 2.0 Q3-10 1.9 10.5 5.3 6.7 3.4 2.4 0.1 1.5 Q4-10 0.9 25.9 1.9 5.3 3.7 2.8 - 0.7 2010 4.7 48.5 15.2 24.1 13.3 17.6 0.9 5.7 (17.5) (87.3) (19.7) -(32.3) (171.4) (21.4) -(80.4) (14.0) Note: Figures in brackets relate to percentage variation over the corresponding period of the previous year. Source:IMF, BOP Statistics.

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