FDI Inflow in India by comparing the selected parameters of GDP, Inflation rates, Gold Prices, Stock Exchange (taking BSE SENSEX Prices into account). The Study is done for 7 years from 2012-2019, by taking quarterly data..

1. The Effects of selected macro-economic parameters on FDI
inflows on Indian Economy: An Empirical Analysis
Project Submitted to
H & G H Mansukhani Institute of Management
In partial fulfilment of the requirements for
Master in Management Studies
By
AKSHAT MAHENDRA
Roll No. – 2
Finance
Batch: 2018 – 2020
Under the guidance of
Internal Guide: Dr. ANJU VASWANI

2. The Effects of selected macro-economic parameters on FDI
inflows on Indian Economy: An Empirical Analysis
Project Submitted to
H & G H Mansukhani Institute of Management
In partial fulfilment of the requirements for
Master in Management Studies
By
AKSHAT MAHENDRA
Roll No. – 2
Finance
Batch: 2018 – 2020
Under the guidance of
Internal Guide: Dr. ANJU VASWANI

3. H & G H Mansukhani Institute of Management
Ulhasnagar
November 2019
Student’s Declaration
I hereby declare that this reportis submitted in partial fulfilment of the requirement of MMS
Degree of University of Mumbai to H.& G. H. Mansukhani Institute of Management.
This is my original work and is not submitted for award of any degree or diploma or for
similar titles or prizes.
Name : AKSHAT MAHENDRA
Class : SYMMS
Roll No. : 2
Place : Ulhasnagar
Date :
Student’s Signature:

5. Certificate
This is to certify that the project submitted in partial fulfilment for the award of MMS
Degree of University of Mumbai to H. & G. H. Mansukhani Institute of Management
is a result of the bonafide research work carried out by Mr. AKSHAT MAHENDRA
under my supervision and guidance, no part of this report has been submitted for award of
any other degree, diploma or other similar titles or prizes. The work has also not been
published in any journals/Magazines.
Date:
Place:Ulhasnagar
External Guide Director
(Signature & Name of the Guide) (Signature & Name of Director)
Faculty Guide
(Signature & Name of Faculty)

6. Acknowledgement
First of all, I want to thank my college for giving me a platform to commence and
gain knowledge about my chosen course for my career ahead.
Its justification will never sound good if I do not express my gratitude to the ones who
helped me gain knowledge. I would like to mention one of few such persons, my Project
Guide, Dr. Anju Vaswani without whose help my project would have neither begun
nicely nor would have reached this destination of successful completion.
I would like to raise my immense gratitude towards all those people who made my
internship experience as well as projecting it all in this report possible.
And lastly, I would like to thank my parents, friends for being pillars of supportthroughout
and gratitude in abundance to the Almighty.
AKSHAT MAHENDRA

7. Table of Contents
Executive Summary........................................................................................................................................ 1
Chapter- 1: Introduction................................................................................................................................ 1
1.1. Introduction to FDI:........................................................................................................................... 2
1.2 Types of FDI’s:................................................................................................................................. 3
1.2.1 FDI can be made through two ways: .................................................................................................. 3
1.2.2 FDI policy 2017 has specifically prohibited investment in some of the sectors...................................... 3
1.3 Methods of Foreign Direct Investments .................................................................................................... 5
1.4 Introduction to banking industry............................................................................................................... 6
1.5 INTRODUCTION TO THE BANK OF INDIA ........................................................................................ 7
1.6 History of fdi in India ........................................................................................................................ 9
1.7 Pre-Independence Reforms:..................................................................................................................... 9
1.8 Post-Independence Reforms:.................................................................................................................. 10
1.9 Government Approvals for Foreign Companies Doing Business in India .................................................. 11
1.8 FOREIGN DIRECT INVESTMENTPOLICY IN INDIA ....................................................................... 11
1.9.1 FDI is prohibited in sectors like ....................................................................................................... 11
1.10 FDI policies in permitted sectors in India .............................................................................................. 16
1.11 FDI promotion initiatives..................................................................................................................... 19
1.11.1 Investments/ developments ............................................................................................................ 19
1.11.2 Government Initiatives .................................................................................................................. 20
Chapter-2: Review of Literature: ................................................................................................................. 21
Chapter 3: Research Methodology ............................................................................................................... 22
3.1 Statement of the problem:...................................................................................................................... 22
3.2 Objectives of the research:..................................................................................................................... 22
3.3 Theoretical Model of the study............................................................................................................... 22
2.4 Methodology and Data collection: .................................................................................................... 22
2.5 Hypothesis:........................................................................................................................................... 23
2.6 Scope of the study:................................................................................................................................ 23
2.7 Limitations of the study:........................................................................................................................ 23
Chapter-4: Analysis and Interpretation........................................................................................................ 24
4.1 Trends of FDI Inflow in India ................................................................................................................ 24
4.1.1 Analysis of FDI in India year wise................................................................................................... 24
4.1.2 Analysis of country wise inflows of FDI in India .............................................................................. 25
4.1.3 FDI EQUITY INFLOWS DURING THE FINANCIAL YEAR 2018-19:........................................... 28
4.1.4 Analysis of Sector Wise inflows of FDI in India ............................................................................... 29
4.1.5 Ranking of Sector wise FDI inflows in India since April 2016 - March 2019 ...................................... 30

8. 4.1.6 Foreign Direct Investment (FDI) Confidence Index........................................................................... 31
4.2 Correlation Analysis.............................................................................................................................. 42
4.3 Regression Analysis .............................................................................................................................. 45
4.4 Hypothesis Testing................................................................................................................................ 48
Chapter-5: Findings ..................................................................................................................................... 49
5.1: Findings relating to trends analysis of FDI............................................................................................. 49
5.2: Findings relating to Correlation & Regression analysis. .......................................................................... 50
Chapter-6: Conclusion.................................................................................................................................. 51
6.1: A Road Ahead..................................................................................................................................... 51
Chapter-7: Bibliography............................................................................................................................... 52

9. LIST OF TABLES:
Table 4. 1: FDI inflows year wise in India.................................................................................................... 24
Table 4. 2: FDI inflows country wise in India............................................................................................... 25
Table 4. 3: FDI inflows during the Financial Year 2019 .............................................................................. 28
Table 4. 4: FDI inflows Sector Wise in India ............................................................................................... 29
Table 4. 5: Ranking of Sector wise FDI inflows .......................................................................................... 30
LIST OF CHARTS:
Chart 4. 1: Line chart representing Amount of FDI Inflows in Top 10 sectors ........................................... 30
Chart 4. 2: The 2019 A.T. Kearney FDI Confidence Index......................................................................... 31
Chart 4. 3: FDI Inflows of Top 20 Host Countries ....................................................................................... 33
Chart 4. 4: Investor prefer a combination of FDI modes again this year .................................................... 35
Chart 4. 5: FDI Inflows and the Underlying Trends – 1999-2018 ............................................................... 36
Chart 4. 6: The regional composition of FDI Inflows Shifted in 2018 ......................................................... 37
Chart 4. 7: Top factors in Investment decisions reinforce the dominance of developed market ............... 38
Chart 4. 8: Investment intension for all markets rise this year.................................................................... 40
Chart 4. 9: GDP of India past 10 Years....................................................................................................... 41
Chart 4. 10: showing the evolution of GDP growth at constant prices & at per capita .............................. 41

10. 1
Executive Summary
Foreign direct investment (FDI) has played an important role in the process of globalization during the past
two decades. The rapid expansion in FDI by multinational enterprises since the mid-eighties may be
attributed to significant changes in technologies, greater liberalization of trade and investment regimes, and
deregulation and privatization of markets in developing countries like India.
The title of the empirical study is “The Effects of selected macro-economic
parameters on FDI inflows on Indian Economy:” during 2012 to 2019. The present study aims at providing
detailed information about FDI inflows in India during the subsequent years. The analysis is fully based on
secondary data collected through different website and journals.
The project aims at providing information of present FDI policy, year wise FDI inflows, sector wise FDI
inflows, countries contribution to maximum of FDI inflows, state wise FDI inflows, trends and patterns of
FDI inflows in different sector, effect of Stock Market, Inflation, GOLD, Oil on FDI and so on.
From the study it has been found out that total FDI inflows are
estimated at US$16.33 billion during April 2018 to June 2019 and cumulative FDI inflows from APRIL,
2000 to JUNE, 2019 was $628774 million. The services sector, computer hardware & software,
telecommunications, real estate, construction received maximum FDI inflows in India and Mauritius is the
main source followed by Singapore, the US, the UK, the Netherlands and Japan for FDI inflows in India.
From the hypothesis it has been found out that there is a significant positive relationship between FDI and
Stock Market, Inflation & GDP.
Definition
The OECD and the IMF have developed the following definition: “Foreign direct investment reflects the
objective of obtaining a lasting interest by a resident entity in one economy (“direct investor”) in an entity
resident in an economy other than that of the investor (“direct investment enterprise”). The lasting interest
implies the existence of a long-term relationship between the direct investor and the enterprise and a
significant degree of influence on the management of the enterprise”
The above-mentioned definition itself does not specify what actually constitutes a lasting interest. However,
this is spelled out in the OECD’s implementation recommendations. They recommend that “a direct
investment enterprise be defined as an incorporated or unincorporated enterprise in which a foreigner owns
10 per cent or more of the ordinary shares or voting power of an incorporated enterprise or the equivalent
of an unincorporated enterprise.

11. 2
Chapter- 1: Introduction
1.1. Introduction to FDI:
Foreign Direct Investment (FDI) means investment by non-resident entity/person outside India in the capital
of an Indian company under Schedule 1 of Foreign Exchange Management (Transfer or Issue of Security
by a Person Resident outside India) Regulations, 2000. Foreign (Direct) investment was introduced under
Foreign Exchange Management Act (FEMA) 1991. The Department of Industrial Policy and Promotion
(DIPP), Ministry of Commerce & Industry, Government of India makes policy pronouncements on FDI. As
of now FDI is allowed in almost all the major sectors of India economy.
The Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce and Industry,
Government of India (GOI) recently released the consolidated foreign direct investment (FDI) policy
circular of 2017 (New FDI Policy). The New FDI Policy is effective immediately from the date of its
publication, i.e., 28 August 2017. The New FDI Policy supersedes the consolidated FDI policy of 2016
issued by the DIPP on 7 June 2016 (Erstwhile FDI Policy) and consolidates all the press notes issued by the
DIPP post 7 June 2016 until 27 August 2017.
The policy of Foreign Direct Investment (FDI) provides a mechanism of investment in an enterprise in one
nation by another enterprise in another nation. FDI acts as the bridge to fill in the lacuna between saving
and investment of resources and thus, plays one of the most essential roles in the growth of both developed
countries as well as developing countries. It aims to increase the efficiency of the rate of input as well as
output (which includes existing capacity of production along with the new capacity of production that will
be generated). In a way, it also helps in saving the domestic constraint and brings in the superior or ideal
technology required for the venture from foreign.
The consolidated FDI policy which has been in effect from 28th of August 2017 directs towards
liberalization norms and has brought in some key changes which include:
 FDI in LLPs
 Downstream investment intimation
 Cash and carry wholesale form of trading
 FDI in one single brand retailing
 FDI in e-commerce
 Fresh approval for additional FDI
 FDI linked with the performance conditions
 Foreign Investment Promotion Board (FIPB) abolishment
 FDI in start-ups
 Pension sector
 FDI in other financial services
 FDI in infrastructure companies in the securities market
 Liberalization in: -Defence -Pharmaceuticals -Broadcasting
 Deferred consideration
 Remittance against pre-incorporation expenses.

12. 3
Foreign Direct Investment (FDI) broadly encompasses any long-term investments by an entity that is not a
resident of the host country. Typically, the investment is over a long duration of time and the idea is to make
an initial investment and then subsequently keep investing to leverage the host country’s advantages which
could be in the form of access to better (and cheaper) resources, access to a consumer market or access to
talent specific to the host country - which results in the enhancement of efficiency.
This long-term relationship benefits both the investor as well as the host country. The investor benefits in
getting higher returns for his investment than he would have gotten for the same investment in his country
and the host country can benefit by the increased know how or technology transfer to its workers, increased
pressure on its domestic industry to compete with the foreign entity thus making the industry improve as a
whole or by having a demonstration effect on other entities thinking about investing in the host country.
1.2 Types of FDI’s:
1. Horizontal FDI arises when a firm duplicates its home country-based activities at the same value
chain stage in a host country through FDI.
2. Platform FDI Foreign direct investment from a source country into a destination country for the
purpose of exporting to a third country.
3. Vertical FDI takes place when a firm through FDI moves upstream or downstream in different
value chains i.e., when firms perform value-adding activities stage by stage in a vertical fashion in
a host country.
1.2.1 FDI can be made through two ways:
 Automatic Route where FDI is allowed without prior approval either of the Government or the
Reserve Bank of India in all activities/sectors as specified in the consolidated FDI Policy, issued by
the Government of India from time to time.
 Government Route where FDI in activities not covered under the automatic route requires prior
approval of the Government which is considered by the Foreign Investment Promotion Board
(FIPB), Department of Economic Affairs, and Ministry of Finance.
1.2.2 FDI policy has specifically prohibited investment in some of the sectors.
They are:
 Lottery Business including Government/private lottery, online lotteries, etc.
 Gambling and Betting including casinos etc.
 Chit funds
 Nidhi company
 Trading in Transferable Development Rights (TDRs)
 Real Estate Business or Construction of Farm Houses. ‘Manufacturing of cigars, cheroots,
cigarillos and cigarettes, of tobacco or of tobacco substitutes
 Activities/sectors not open to private sector investment e.g. (I) Atomic Energy and (II) Railway
operations (other than permitted activities).

13. 4
By direction
Outward FDI:
An outward-bound FDI is backed by the government against all types of associated risks. This form of FDI
is subject to tax incentives as well as disincentives of various forms. Risk coverage provided to the domestic
industries and subsidies granted to the local firms stand in the way of outward FDIs, which are also known
as 'direct investments abroad.'
Inward FDIs:
Different economic factors encourage inward FDIs. These include interest loans, tax breaks, subsidies, and
the removal of restrictions and limitations. Factors detrimental to the growth of FDIs include necessities of
differential performance and limitations related with ownership patterns.
Horizontal FDI- Investment in the same industry abroad as a firm operates in at home.
Vertical FDI
 Backward Vertical FDI: Where an industry abroad provides inputs for a firm's domestic production
process.
 Forward Vertical FDI: Where an industry abroad sells the outputs of a firm's domestic production.
BY TARGET
Greenfield investment:
Direct investment in new facilities or the expansion of existing facilities. Greenfield investments are the
primary target of a host nation’s promotional efforts because they create new production capacity and jobs,
transfer technology and know-how, and can lead to linkages to the global marketplace. The Organization
for International Investment cites the benefits of Greenfield investment (or in sourcing) for regional and
national economies to include increased employment (often at higher wages than domestic firms);
investments in research and development; and additional capital investments. Disadvantage of Greenfield
investments include the loss of market share for competing domestic firms. Another criticism of Greenfield
investment is that profits are perceived to bypass local economies, and instead flow back entirely to the
multinational's home economy. Critics contrast this to local industries whose profits are seen to flow back
entirely into the domestic economy.
Mergers and Acquisitions:
Transfers of existing assets from local firms to foreign firm takes place; the primary type of FDI. Cross-
border mergers occur when the assets and operation of firms from different countries are combined to
establish a new legal entity. Cross-border acquisitions occur when the control of assets and operations is
transferred from a local to a foreign company, with the local company becoming an affiliate of the foreign
company. Nevertheless, mergers and acquisitions are a significant form of FDI and until around 1997,
accounted for nearly 90% of the FDI flow into the United States. Mergers are the most common way for
multinationals to do FDI.

14. 5
BY MOTIVE
FDI can also be categorized based on the motive behind the investment from the
perspective of the investing firm:
•Resource-Seeking
Investments which seek to acquire factors of production those are more efficient than those obtainable in
the home economy of the firm. In some cases, these resources may not be available in the home economy
at all. For example, seeking natural resources in the Middle East and Africa, or cheap labour in Southeast
Asia and Eastern Europe.
•Market-Seeking
Investments which aim at either penetrating new markets or maintaining existing ones. FDI of this kind may
also be employed as defensive strategy; it is argued that businesses are more likely to be pushed towards
this type of investment out of fear of losing a market rather than discovering a new one. This type of FDI
can be characterized by the foreign Mergers and Acquisitions in the 1980’s Accounting, Advertising and
Law firms.
•Efficiency-Seeking
Investments which firms hope will increase their efficiency by exploiting the benefits of economies of scale
and scope, and also those of common ownership. It is suggested that this type of FDI comes after either
resource or market seeking investments have been realized, with the expectation that it further increases the
profitability of the firm.
1.3 Methods of Foreign Direct Investments
The foreign direct investor may acquire 10% or more of the voting power of an enterprise in an economy
through any of the following methods:
By incorporating a wholly owned subsidiary or company
By acquiring shares in an associated enterprise
Through a merger or an acquisition of an unrelated enterprise
Participating in an equity joint venture with another investor or enterprise
Foreign direct investment incentives may take the following forms:
Low corporate tax and income tax rates
Tax holidays
Preferential tariffs
Special economic zones
Investment financial subsidies
Soft loan or loan guarantees
Free land or land subsidies
Relocation & expatriation subsidies
Job training & employment subsidies
Infrastructure subsidies
R&D support.

15. 6
1.4: The effects of FDI for economic growth
The most obvious effect of FDI on the growth potential of host countries may be the provision of additional
capital. The inflow of foreign funds can help overcome the pervasive investment-saving gap, thus enabling
countries to grow faster without sacrificing current consumption. By attracting foreign venture capital, the
growth potential could be raised without incurring the vulnerabilities typically associated with external debt
burdens.
In addition, the investment by one MNE in a foreign firm can induce other MNEs to invest in the same host
country as well in order to retain a role as a supplier of intermediate products. Moreover, MNEs usually
enjoy better access to international financial markets than firms based only in the host economy. Also, a
positive effect on the saving gap can be expected if the MNE is seen as an attractive investment opportunity
by local residents or firms.
Estimates have put this latter effect at one extra US dollar of domestic investment for every US dollar
invested by an MNE, which substantially exceeds estimates for the effects of portfolio flows or bank
lending. Furthermore, FDI may have a positive influence on the development of the local stock market if
foreign firms were to recover part of the investment by selling equities in the host country. Additionally,
the liquidity of stock markets is increased if foreign investors choose to purchase existing equities of the
local firm as part of the investment.
Since FDI will usually be a long-term commitment, its contribution to growth is generally taken for granted.
Keeping only to the effect of providing additional capital, the picture is not quite that clear-cut, however,
because the actual inflows must not be very large. This is due to the fact that, if a developed capital market
exists in the host country, the foreign investor could in principle borrow the needed funds locally.
As a negative side-effect, local investors might be crowded out, especially if the MNE possesses market
power and can gain preferential access. Furthermore, for the economy as a whole the positive effect on the
supply of capital might be significantly reduced by the preferential treatment often extended to MNEs as
incentives to invest. Depending on the size of the subsidies, the expected contributions of FDI on growth
may be partly or even completely lost.
1.5 Introduction to banking industry
The rapid transformation in the banking industry over the last decade has made the industry stronger,
cleaner, transparent, efficient, faster, disciplined and a lot more competitive. The banking industry in India
has a huge canvass of history, which covers the traditional banking practices from the time of Britishers to
the reforms period, nationalization to privatization of banks and now increasing numbers of foreign banks
in India. Therefore, banking in India has been through a long journey.
The use of technology has brought a revolution in the working style of the banks and it has pervaded each
and every aspect of human life in a drastic manner. At anytime, anywhere banking has become possible due
to technology adoption. Life has changed enormously due to gadgets and appliances becoming easy to use
and that too, in affordable prices.
The rapid transformation in the banking industry over the last decade has made the industry stronger,
cleaner, transparent, efficient, faster, disciplined and a lot more competitive. The banking industry in India

16. 7
has a huge canvass of history, which covers the traditional banking practices from the time of Britishers to
the reforms period, nationalization to privatization of banks and now increasing numbers of foreign banks
in India.
Therefore, banking in India has been through a long journey. The use of technology has brought a revolution
in the working style of the banks and it has pervaded each and every aspect of human life in a drastic
manner. At anytime, anywhere banking has become possible due to technology adoption. Life has changed
enormously due to gadgets and appliances becoming easy to use and that too, in affordable prices.
1.6 INTRODUCTION TO THE BANK OF INDIA
Bank of India
Bank of India was founded on 7 September 1906 by a group of eminent businessmen from Mumbai,
Maharashtra, India. The Bank was under private ownership and control till July 1969 when it was
nationalised along with 13 other banks.
Beginning with one office in Mumbai, with a paid-up capital of rupee five million and 50 employees, the
Bank has made a rapid growth over the years and blossomed into a mighty institution with a strong national
presence and sizable international operations. In business volume, the Bank occupies a premier position
among the nationalised banks.
The bank has over 5,100 branches in India spread over all states and union territories including specialized
branches. These branches are controlled through 54 zonal offices. There are 60 branches, 5 subsidiaries,
and 1 joint venture abroad.
Its international footprints located in London, New York, Tokyo, Paris, Singapore and Hong Kong accounts
for approximately 17.82 % of B. O. I.’s total business. This was the first bank from India to establish a
foreign branch in 1946 in London and in 1974 at Paris in Europe. This Indian bank is associated with B. S.
E. (Bombay Stock Exchange) since the year 1921.
a) Product Range
 Ancillary Services like Depository Services, Gold Coin (New), Insurance (Domestic travel,
health, education etc.), Mutual Fund, Remittance, Safe Custody, Safe Deposit Locker
 Cards like Bank of India Master Card, Bank of India VISA Card, Gift Card, Platinum Debit
Card, VISA Electron
 Loans like Satr Autofin, Star Educational Loan, Star Home Loan, Star Mortgage Loan, Star
Mitra Personal Loan, Star Pensioner Loan Scheme
 Online Services like Bill Payment, Fund Transfer (Inter-bank), Internet Banking, Mobile
Banking, etc.

17. 8
b) Size
10. Bank of India (NSE: BANKINDIA)
Bank of India (BoI) is yet another public sector bank that has figured in the top 10 banks in terms of market
capitalization. As on April 2, 2019, its market cap was Rs. 28,464.06 crores. Bank of India is a founding
member of SWIFT. This Mumbai-headquartered bank has total employee strength of over 48,000 and
revenue of 41,796.47 crores. While BOI has 5100 branches across India, 56 offices are located abroad.
c) Market share and position
Bank of India (BoI) is yet another public sector bank that has figured in the top 10 banks in terms of market
capitalization. As on April 2, 2019, its market cap was Rs. 28,464.06 crores. Bank of India is a founding
member of SWIFT. This Mumbai-headquartered bank has total employee strength of over 48,000 and
revenue of 41,796.47 crores. While BoI has 5100 branches across India, 56 offices are located abroad. The
important overseas centers of this bank are Singapore, Paris, Tokyo, Hong Kong, New York, New Jersey,
and London.
d) Bank structure

18. 9
1.7 History of FDI in India
India intent to open its markets to foreign investment can be traced back to the economic reforms adopted
during two prime periods- pre- independence and post-independence.
Pre- independence, India was the supplier of foodstuff and raw materials to the industrialised economies of
the world and was the exporter of finished products- the economy lacked the skill and means to convert raw
materials to finished products.
Post-independence with the advent of economic planning and reforms in 1951, the traditional role-played
changes and there was remarkable economic growth and development. International trade grew with the
establishment of the WTO. India is now a part of the global economy. Every sector of the Indian economy
is now linked with the world outside either through direct involvement in international trade or through
direct linkages with export and import.
Development pattern during the 1950-1980 periods was characterised by strong centralised planning,
government ownership of basic and key industries, excessive regulation and control of private enterprise,
trade protectionism through tariff and non-tariff barriers and a cautious and selective approach towards
foreign capital.
It was a quota, permit, licence regime which was guided and controlled by a bureaucracy trained in colonial
style. This inward thinking, import substitution strategy of economic development and growth was widely
questioned in the 1980’s. India’s economic policy makers started realising the drawbacks of this strategy
which inhibited competitiveness and efficiency and produced a much lower growth rate that was expected.
Consequently, economic reforms were introduced initially on a moderate scale and controls on industries
were substantially reduced by 1985 industrial policy. This set the trend for more innovative economic
reforms and they got a boost with the announcement of the landmark economic reforms in 1991.
After nearly five decades of insulation from world markets, state controls and slow growth, India in 1991
embarked on an accelerated process of liberalization. The 1991 reforms ensured that the way for India to
progress will be through globalization, privatisation, and liberalisation.
In this new regime, the government is now assuming the role of a promoter, facilitator and catalyst agent
instead of the regulator and India has a number of advantages which make it an attractive market for foreign
capital namely, political stability in democratic polity, steady and sustained economic growth and
development, significantly huge domestic market, access to skilled and technical manpower at competitive
rates, fairly well developed infrastructure. FDI has attained the status of being of global importance because
of its beneficial use as an instrument for global economic integration.
1.8 Pre-Independence Reforms:
Under the British colonial rule, the Indian economy suffered a major set-back. An economy with rich natural
resources was left plundered and exploited to the hilt under the English regime. India is originally an
agrarian economy. India’s cottage industries and trade were abused and exploited as means to pave the way
for European manufactured goods. Under the British rule the economy stagnated and on the eve of
independence India was left with a poor economy and the textile industry as the only life support of the
industrial economy.

19. 10
1.9 Post-Independence Reforms:
India’s struggle post-independence has been an excruciating financial battle with a slow economic growth
and development which were largely due to the political climate and impact of the economic reforms. The
country began it transformation from a native agrarian to industrial to commercial and open economy in the
post-independence era. India in the post-independence era followed what can be best called as a ‘trial and
error’ path. During the post-independence era, the Indian Economy geared up in favour of central planning
and resource allocation.
The government tailored policies that focussed a great deal on achieving overall economic self-reliance in
each state and at the same time exploit its natural resource. In order to augment trade and investments, the
government sought to play the role of custodian and trustee by intervening in the practice of crucial sectors
such as aviation, telecommunication, banking, energy mainly electricity, petrol and gas.
The policy of central planning adopted by the government sought to ensure that the government laid down
marked goals to be achieved by the economy thereby establishing a regime of checks and balances. The
government also encouraged self-sufficiency with the intent to encourage the domestic industries and
enterprises, thereby reducing the dependence on foreign trade.
Although, initially these policies were extremely successful as the economy did have a steady economic
growth and development, they weren’t sustained. In the early, 1970’s, India had achieved self-sufficiency
in food production. During the 1970’s, the government still continued to retain and wield a significant
spectre of control over key In the Early 1980’s-Macro-Economic Policies were conservative. Government
control of industries continued. There was marginal economic growth & development courtesy of the
development projects funded by foreign loans.
The financial crisis of 1991 compelled drafting and implementation of economic reforms. The government
approached the World Bank and the IMF for funding. In keeping with their policies there was expectation
of devaluation of the rupee. This led to a lack of confidence in the investors and foreign exchange reserves
declined. There was a withdrawal of loans by Non-Resident Indians.
Economic reforms of 1991:
India has been having a robust economic growth since 1991 when the government of India decided to
reverse its socially inspired policy of a retaining a larger public sector with comprehensive controls on the
private sector and eventually treaded on the path of liberalization, privatisation and globalisation.
During early 1991, the government realised that the sole path to India enjoying any status on the global map
was by only reducing the intensity of government control and progressively retreating from any sort of
intervention in the economy – thereby promoting free market and a capitalist regime which will ensure the
entry of foreign players in the market leading to progressive encouragement of competition and efficiency
in the private sector.
In this process, the government reduced its control and stake in nationalized and state-owned industries and
enterprises, while simultaneously lowered and deescalated the import tariffs. All of the reforms addressed
macroeconomic policies and affected balance of payments. There was fiscal consolidation of the central
and state governments which lead to the country viewing its finances as a whole. There were limited tax
reforms which favoured industrial growth. There was a removal of controls on industrial investments and
imports, reduction in import tariffs.

20. 11
All of this created a favourable environment for foreign capital investment. As a result of economic reforms
of 1991, trade increased by leaps and bounds. India has become an attractive destination for foreign direct
and portfolio investment.
1.10 Government Approvals for ForeignCompanies doing Business in India
Government Approvals for Foreign Companies Doing Business in India or Investment Routes for Investing
in India, Entry Strategies for Foreign Investors India's foreign trade policy has been formulated with a view
to invite and encourage FDI in India. The Reserve Bank of India has prescribed the administrative and
compliance aspects of FDI. A foreign company planning to set up business operations in India has the
following options:
1. Automatic approval by RBI:
The Reserve Bank of India accords automatic approval within a period of two weeks (subject to compliance
of norms) to all proposals and permits foreign equity up to 24%; 50%; 51%; 74% and 100% is allowed
depending on the category of industries and the sectoral caps applicable. The lists are comprehensive and
cover most industries of interest to foreign companies. Investments in high-priority industries or for trading
companies primarily engaged in exporting are given almost automatic approval by the RBI.
2. The FIPB Route: Processing of non-automatic approval cases:
FIPB stands for Foreign Investment Promotion Board which approves all other cases where the parameters
of automatic approval are not met. Normal processing time is 4 to 6 weeks. Its approach is liberal for all
sectors and all types of proposals, and rejections are few. It is not necessary for foreign investors to have a
local partner, even when the foreign investor wishes to hold less than the entire equity of the company. The
portion of the equity not proposed to be held by the foreign investor can be offered to the public.
1.11 FOREIGN DIRECT INVESTMENTPOLICYIN INDIA
1.11.1 FDI is prohibited in sectors like
(a) Retail Trading (except single brand product retailing)
(b) Lottery Business including Government /private lottery, online lotteries, etc.
(c) Gambling and Betting including casinos etc.
(d) Chit funds
(e) Nidhi Company
(f) Trading in Transferable Development Rights (TDRs)
(g) Real Estate Business or Construction of Farm Houses
(h) Manufacturing of Cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes
(I) Activities / sectors not open to private sector investment e.g. Atomic Energy and Railway Transport
(other than Mass Rapid Transport Systems).
Foreign technology collaboration in any form including licensing for franchise, trademark, brand name,
management contract is also prohibited for Lottery Business and Gambling and Betting activities.
PERMITTED SECTORS
In the following sectors/activities, FDI up to the limit indicated against each sector/activity is allowed,
subject to applicable laws/ regulations; security and other conditionalities. In sectors/activities not
listed below, FDI is permitted up to 100% on the automatic route, subject to applicable laws/ regulations;
security and other conditionalities.

21. 12
Table 1.1: Major sectors where FDI is permitted but caps are put on these sectors:
S. No Sector Sectoral Cap/ Route
1. Defence Industry 49%
2. Civil Aviation 100 per cent FDI is allowed under
automatic route for MRO
3. Asset Reconstruction
Companies (ARCs)
100 % FDI
4. Banking: Private Sector
Banking: Public Sector
74% (FDI + FII) by FIPB if
beyond 49%
20% (FDI + FII) FIPB
5. Broadcasting
(I) FM Radio
(ii) Cable Network
(iii) DTH
49% (FDI + FII) FIPB
49% (FDI + FII) FIPB (not
Automatic)
100 per cent is allowed for up-
linking
6. Commodity Exchanges 24% (FDI + FII) Automatic
7. Credit Information
Companies (CICs)
subject to the Credit Information
Companies (Regulation) Act, 2005.
8. Insurance Sector
insurance intermediaries
74% FDI is allowed through
approval
100 per cent FDI may
be permitted
9. Stock
Exchanges, Depositories,
Clearing Corp
49% (26% FDI + 23% FII)
Automatic
10. Petroleum and Natural Gas
Refining
100% FDI Automatic
49% in case of PSUs without any
disinvestment or
dilution of domestic equity
in the existing PSUs under
automatic route
11. Publishing of Newspapers
and Current Affairs News
26%(FDI+FII) Approval
12. Security Agencies in
Private Sector
Allowed up-to 100%, but above
74% required approval

22. 13
13. Satellite and Establishment
and Operation
74 % FIPB
14. Single Brand Product
Retailing
mandated to source 30 per cent
locally every year if
their FDI crossed 51 per cent, even
though 100 per cent FDI is allowed
15. Multi Brand Product
Retailing
100% FIPB-subject to various
conditions and govt. approval
16. Telecom Services 74% FDI allowed
74% to 100% through FIPB
17. Pharma Sector
(Brownfield)
allowed only up to 74 per cent
through the automatic route and
big-ticket acquisitions are required
to get additional clearance
18. Power Exchanges 100% FDI under automatic route,
permitted under and subject to
applicable laws and regulations
19. Railway Infrastructure 100% percent automatic
20. Construction Development
Projects
100% automatic- subject to various
conditions.
Detail analysis of some noteworthy amendments:
1. Abolishment of FIPB; New SOP for processing of FDI applications.
FDI proposals in sectors like mining, broadcasting, print media, civil aviation, satellites,
telecommunications, banking, pharmaceuticals, would be approved by the relevant sector specific
ministries/departments. Additionally, certain applications involving investments from Countries of Concern
(like Pakistan and Bangladesh) or applications seeking investment in defence, telecommunications,
broadcasting, satellite etc. would need security clearance from the Ministry of Home Affairs.
DIPP has been notified as the Competent Authority to approve FDI proposals in the trading sector. In cases
of sectors where there is a doubt about the Competent Authority, DIPP will identify the Competent
Authority for processing of the application. The earlier requirement of proposals for FDI above Rs. 5,000
crore requiring consideration of the Cabinet Committee on Economic Affairs, however, continues to apply.
FDI proposals are required to be filed online on the revamped FIPB Portal (now Foreign Investment
Facilitation Portal), which will thereafter be e-transferred by DIPP to the Competent Authority for necessary
action. Submission of a physical copy would not be required if the online proposal has been signed digitally.
DIPP will also circulate the proposal online to RBI, and proposals requiring security clearance would be
additionally referred to the Ministry of Home Affairs.

23. 14
All proposals would also be forwarded to the Ministry of External Affairs and the Department of Revenue
for information and comments. The SOP, thereafter, goes into step by step timelines for submission of
comments by the consulted ministries/departments/RBI and expects the entire approval process to take
approximately 8 weeks from the date of filing of a complete application with the Competent Authority and
about 10 weeks for applications requiring security clearance.
2. Issuance of Convertible Notes by Start-Ups.
Earlier this year, RBI by its notification, permitted start-ups to issue ‘convertible notes’ to foreign investors,
which was defined as an instrument evidencing receipt of money initially as debt, which is (a) repayable at
the option of the holder, or (b) convertible into such number of equity shares of such start-up company,
within a period not exceeding five years from the date of issue of the convertible note, upon occurrence of
specified events as per the agreed terms and conditions. Issuance of such convertible notes is, however,
subject to certain prescribed conditions, such as:
 The convertible notes should be for a minimum amount of Rs. 25 Lacs in a single tranche.
 If the start-up is in a sector where FDI requires Government approval, issuance of convertible notes
to a non-resident or any transfer of such convertible note would also require Government approval.
 Issue of shares against convertible notes is to be in accordance with the Schedule 1 of the Foreign
Exchange Management (Transfer or Issue of Security by a Person Resident Outside India)
Regulations, 2000, which inter alia prescribe certain pricing guidelines. Similarly, acquisition or
transfer of convertible notes between residents and non-residents would also need to be in
accordance with the pricing guidelines prescribed by RBI, thereby treating them at par with other
FDI instruments.
 The remittance of consideration can also be received in an escrow account which can continue until
the requirements are completed (i.e. remittance of consideration into the issuer’s account and
issuance of convertible notes to the investor) or a period of 6 months, whichever is earlier.
3. Conversion of a Company into LLP and vice versa: The FDI Policy – 2017, permits conversion of an
Limited Liability Partnership (“LLP”) with FDI into a company, and conversion of a company with FDI
into an LLP, under the automatic route, as long as the said LLP or company, is operating in a sector where
100% FDI is allowed under automatic route and where there are no FDI-linked performance conditions. A
definition of ‘FDI Linked Performance Conditions’ has also been added, to mean sector specific conditions
for companies receiving foreign investment.
4. Limit on additional FDI within approved foreign equity percentage or wholly owned subsidiary:
Under the erstwhile FDI policy for the government route sector, any additional foreign investment into the
same entity (which has already received government approval) within an approved foreign equity
percentage or into a wholly owned subsidiary did not require prior government approval i.e., such approved
entities could have generally received foreign investment exceeding Rs. 5000 crores without additional
approval as long as (I) the earlier investments in the entity were government approved and (II) such
additional investments are within the approved foreign equity percentage.
However, the FDI Policy-2017, has modified this paragraph and stated that additional foreign investment
up to cumulative amount of Rs 5000 crore within the approved foreign equity percentage/or into a wholly
owned subsidiary, would not require prior government approval. Therefore, by implication, any additional
foreign investment beyond the said limit of Rs. 5,000 crores would require a fresh government approval.

24. 15
5. Single Brand Retail Trading: In case the proposed FDI in a single brand retail trading (“SBRT”) entity
is beyond 51%, sourcing of 30% of the value of goods purchased has to be done from India. However, the
Press Note 5 of 2016, dated June 24, 2016 allowed SBRT entities undertaking trading of products having
‘state-of-art’ and ‘cutting-edge’ technology and where local sourcing is not possible, to seek exemption
from these sourcing norms for a period of 3 (three) years from opening of its first store. Thereafter, the
sourcing norms would become applicable. The FDI Policy-2017, reflects this change and further provides
that examination of claims of applicants (and recommendations of relaxations) on the issue of products
being in the nature of ‘state-of-art’ and ‘cutting-edge’ technology, where local sourcing is not possible
would be undertaken by a committee under the Chairmanship of Secretary, DIPP.
Key changes in conditions related to single brand retail trading (SBRT)are as follows:
 For the initial five years, incremental sourcing by overseas companies, including their group
companies for the specific brand will count towards the mandatory 30% local sourcing commitment.
 The requirement of license agreement between brand owner and investor has been removed.
 A Committee to be formed under the Chairmanship of Secretary, DIPP, with representatives from
NITI Aayog concerned Administrative Ministry and independent technical expert(s) to examine the
claim of applicants of the products being in the nature of “state-of-art” and “cutting-edge”
technology, where local sourcing is not possible and give recommendations for such relaxation.
In the absence of clear definitions on what constitutes “state-of-art” and “cutting-edge” technology,
constitution of this committee would allow applicants to approach the committee with their individual case
and seek exemptions. However, to bring in further clarity, the Government should consider coming out with
certain basic guidelines or qualifying parameters on the basis of which such applications would be examined
and approved by the committee.
1. Wholesale Trading entity permitted to undertake both single brand and multi-brand retail trading:
Earlier, a wholesale/cash & carry trader was not allowed to undertake retail trading in the same entity, which
restriction was later relaxed and an entity undertaking wholesale trading was permitted to undertake single
brand retail trading provided it maintained separate books of accounts for these two areas of business. The
FDI Policy -2017replaces the reference to “single brand retail trading” by “retail trading”, thereby allowing
a wholesale/cash and carry trader to undertake both single brand and multi-brand retail trading in the same
entity.
2. E-Commerce – Clarification on computation of 25% sales value cap: Last year saw detailed guidelines
on FDI in the e-commerce sector being brought in by the Government, which inter alia restricted an e-
commerce entity from permitting more than 25% of the sales affected through its marketplace from one
vendor or their group companies. This restriction has been further clarified in the FDI Policy-2017 to be
calculated as 25% of value of sales, on a financial year basis.
3. FDI in Construction Development: Townships, Housing, Built-up Infrastructure and Real Estate
Broking – A new clause has been inserted, which states that real estate broking services do not amount to
real estate business and 100% foreign investment is permitted under the automatic route.
4. Foreign investment in investing companies, NBFCs and CICs

25. 16
 FDI in investing companies not registered as non-banking financial companies (NBFCs) with the
RBI and
 FDI in Core investment companies (CICs), both engaged in the activity of investing in the capital
of other Indian entities should require prior Government approval.
 FDI in investing companies registered as NBFCs with the RBI shall be under the 100% automatic
route.
1. Joint Audit of Investee Companies – Where a person resident outside India (PROI) who has made foreign
investment, specifies a particular auditor/audit firm with an international network, then the audit of the
Indian investee company shall be undertaken by two or more auditors not forming part of the same network.
2. FDI in Air Transport Services- beyond 49% under the Government route, the notified regulations have
amended the regulations to allow FDI beyond 49% under Government route.
 FDI in Air India Limited allowed under approval route, subject to the following conditions i.e., FDI
beyond 49%, either directly or indirectly; and Substantial ownership and effective control shall not
to be continue vested in Indian Nationals.
3. FDI in Pharmaceuticals- The definition of medical devices amended in the regulations and its reference
to Drugs and Cosmetics Act removed.
4. FDI in Power Exchanges- Foreign Institutional Investor/ Foreign Portfolio Investor permitted to invest
even under the primary route (erstwhile only permitted under secondary route) within the overall cap of
49% in power exchanges registered under the Central Electricity Regulatory Commission (Power Market)
Regulations, 2010.
Foreign investments have a deep impact on the economy of a fast-growing country like India, and they have
helped in achieving growth, developing the infrastructure, market and many other aspects of our country.
FDI has an impact in many areas and is one of the key factors in the growth of the nation. A relation was
established between FDI and GDP of our country as well as its effect on the ease of doing business ranking.
The recent launch of the Make in India initiative has helped in attracting the FDI even more. The FDI has
increased considerably due to this; as much as 23-25% in the year 2014 and 2015, right after the launch of
Make in India. India is one of the emerging markets in the world, along with countries like China, Japan,
and Brazil etc. However, in comparison to China; India is still far behind in attracting the investors. China
has been the top priority of investors with approximately US$136 billion investments in the year 2015,
while India only received an inflow of US$ 45 billion.
1.12 FDIpolicies in permitted sectors in India
Cabinet approves proposal for Review of FDI policy on various sectors
Major Impact and Benefits from FDI Policy Reform
i. The changes in FDI policy will result in making India a more attractive FDI destination, leading to
benefits of increased investments, employment and growth.
ii. In the coal sector, for sale of coal, 100% FDI under automatic route for coal mining activities including
associated.
iii. Further, manufacturing through contract contributes equally to the objective of Make in India. FDI now
being permitted under automatic route in contract manufacturing will be a big boost to Manufacturing sector

26. 17
in India.
iv. Easing local sourcing norms for FDI in Single Brand Retail Trading (SBRT) was announced in Union
Budget Speech of Finance Minister. This will lead to greater flexibility and ease of operations for SBRT
entities, besides creating a level playing field for companies with higher exports in a base year. In addition,
permitting online sales prior to opening of brick and mortar stores brings policy in sync with current market
practices. Online sales will also lead to creation of jobs in logistics, digital payments, customer care, training
and product skilling.
v. The above amendments to the FDI Policy are meant to liberalize and simplify the FDI policy to provide
ease of doing business in the country, leading to larger FDI inflows and thereby contributing to growth of
investment, income and employment.
Background
FDI is a major driver of economic growth and a source of non-debt finance for the economic development
of the country. Government has put in place an investor friendly policy on FDI, under which FDI up to
100% is permitted on the automatic route in most sectors/ activities. FDI policy provisions have been
progressively liberalized across various sectors in recent years to make India an attractive investment
destination. Some of the sectors include Defense, Construction Development, Trading, Pharmaceuticals,
Power Exchanges, Insurance, Pension, Other Financial Services, Asset reconstruction Companies,
Broadcasting and Civil Aviation.
These reforms have contributed to India attracting record FDI inflows in the last 5 years. Total FDI into
India from 2014-15 to 2018-19 has been US $ 286 billion as compared to US $ 189 billion in the 5-year
period prior to that (2009-10 to 2013- 14). In fact, total FDI in 2018-19 i.e. US $ 64.37 billion (provisional
figure) is the highest ever FDI received for any financial year.
Global FDI inflows have been facing headwinds for the last few years. As per UNCTAD's World Investment
Report 2019, global foreign direct investment (FDI) flows slid by 13% in 2018, to US $1.3 trillion from US
$1.5 trillion the previous year - the third consecutive annual decline. Despite the dim global picture, India
continues to remain a preferred and attractive destination for global FDI flows. However, it is felt that the
country has the potential to attract far more foreign investment which can be achieved inter-alia by further
liberalizing and simplifying the FDI policy regime.
In Union Budget 2019-20, Finance Minister proposed to further consolidate the gains under FDI in order to
make India a more attractive FDI destination. Accordingly, the Government has decided to introduce a
number of amendments in the FDI Policy. Details of these changes are given in the following paragraphs.
Coal Mining
As per the present FDI policy, 100% FDI under automatic route is allowed for coal & lignite mining for
captive consumption by power projects, iron & steel and cement units and other eligible activities permitted
under and subject to applicable laws and regulations.
Further, 100% FDI under automatic route is also permitted for setting up coal processing plants like
washeries subject to the condition that the company shall not do coal mining and shall not sell washed coal
or sized coal from its coal processing plants in the open market and shall supply the washed or sized coal
to those parties who are supplying raw coal to coal processing plants for washing or sizing.

27. 18
It has been decided to permit 100% FDI under automatic route for sale of coal, for coal mining activities
including associated processing infrastructure subject to provisions of Coal Mines (special provisions) Act,
2015 and the Mines and Minerals (development and regulation) Act, 1957 as amended from time to time,
and other relevant acts on the subject. "Associated Processing Infrastructure" would include coal washery,
crushing, coal handling, and separation (magnetic and non-magnetic)
Contract Manufacturing
 The extant FDI policy provides for 100% FDI under automatic route in manufacturing sector. There is no
specific provision for Contract Manufacturing in the Policy. In order to provide clarity on contract
manufacturing, it has been decided to allow 100% FDI under automatic route in contract manufacturing in
India as well.
 Subject to the provisions of the FDI policy, foreign investment in 'manufacturing' sector is under automatic
route. Manufacturing activities may be conducted either by the investee entity or through contract
manufacturing in India under a legally tenable contract, whether on Principal to Principal or Principal to
Agent basis.
Single Brand Retail Trading (SBRT)
i. The extant FDI Policy provides that 30% of value of goods has to be procured from India if SBRT
entity has FDI more than 51%. Further, as regards local sourcing requirement, the same can be met
as an average during the first 5 years, and thereafter annually towards its India operations. With a
view to provide greater flexibility and ease of operations to SBRT entities, it has been decided that
all procurements made from India by the SBRT entity for that single brand shall be counted towards
local sourcing, irrespective of whether the goods procured are sold in India or exported. Further, the
current cap of considering exports for 5 years only is proposed to be removed, to give an impetus to
exports.
ii. The extant Policy provides that as regards local sourcing requirement, incremental sourcing for
global operations by the non-resident entities undertaking single brand retail trading, either directly
or through their group companies, will also be counted towards local sourcing requirement for the
first 5 years. However, prevalent business models involve not only sourcing from India for global
operations by the entity or its group companies, but also through an unrelated third Party, done at
the behest of the entity undertaking single brand retail trading or its group companies. In order to
cover such business practices, it has been decided that 'sourcing of goods from India for global
operations' can be done directly by the entity undertaking SBRT or its group companies (resident or
non-resident}, or indirectly by them through a third party under a legally tenable agreement.
iii. The extant policy provides that only that part of the global sourcing shall be counted towards local
sourcing requirement which is over and above the previous year's value. Such requirement of year-
on-year incremental increase in exports induces aberrations in the system as companies with lower
exports in a base year or any of ' the subsequent years can meet the current requirements, while a
company with consistently high exports gets unduly discriminated against. It has been now decided

28. 19
that entire sourcing from India for global operations shall be considered towards local sourcing
requirement. (And no incremental value)
iv. The present policy requires that SBRT entities have to operate through brick and mortar stores before
starting retail trading of that brand through e-commerce. This creates an artificial restriction and is
out of sync with current market practices. It has therefore been decided that retail trading through
online trade can also be undertaken prior to opening of brick and mortar stores, subject to the
condition that the entity opens brick and mortar stores within 2 years from date of start of online
retail. Online sales will lead to creation of jobs in logistics, digital payments, customer care, training
Digital Media
The extant FDI policy provides for 49% FDI under approval route in Up-linking of 'News &Current Affairs'
TV Channels. It has been decided to permit 26% FDI under government route for uploading/ streaming of
News & Current Affairs through Digital Media, on the lines of print media.
1.13 FDI promotion initiatives
1.13.1 Investments/ developments
India emerged as the top recipient of greenfield FDI Inflows from the Commonwealth, as per a trade review
released by The Commonwealth in 2018.
Some of the recent significant FDI announcements are as follows:
 In August 2019, Reliance Industries Limited (RIL) announced one of India's biggest FDI deals,
as Saudi Aramco will buy a 20 per cent stake in Reliance's oil-to-chemicals (OTC) business at an
enterprise value of US$ 75 billion.
 In October 2018, VMware, a leading software innovating enterprise of US has announced
investment of US$ 2 billion in India between by 2023.
 In August 2018, Bharti Airtel received approval of the Government of India for sale of 20 per cent
stake in its DTH arm to an America based private equity firm, Warburg Pincus, for around $350
million.
 In June 2018, Idea’s appeal for 100 per cent FDI was approved by Department of
Telecommunication (DoT) followed by its Indian merger with Vodafone making Vodafone Idea the
largest telecom operator in India
 In February 2018, Ikea announced its plans to invest up to Rs 4,000 crore (US$ 612 million) in the
state of Maharashtra to set up multi-format stores and experience centers.
 Kathmandu based conglomerate, CG Group is looking to invest Rs 1,000 crore (US$ 155.97 million)
in India by 2020 in its food and beverage business, stated Mr. Varun Choudhary, Executive Director,
CG Corp Global.
 International Finance Corporation (IFC), the investment arm of the World Bank Group, is planning
to invest about US$ 6 billion through 2022 in several sustainable and renewable energy programmed
in India.

29. 20
1.13.2 Government Initiatives
 In Union Budget 2019-2020, the government of India proposed opening of FDI in aviation, media
(animation, AVGC) and insurance sectors in consultation with all stakeholders.
 In February 2019, the Government of India released the Draft National E-Commerce Policy which
encourages FDI in the marketplace model of e-commerce. Further, it states that the FDI policy for
e-commerce sector has been developed to ensure a level playing field for all participants.
Government of India is planning to consider 100 per cent FDI in Insurance intermediaries in India
to give a boost to the sector and attracting more funds.
 In December 2018, the Government of India revised FDI rules related to e-commerce. As per the
rules 100 per cent FDI is allowed in the marketplace-based model of e-commerce. Also, sales of any
vendor through an e-commerce marketplace entity or its group companies have been limited to 25
per cent of the total sales of such vendor.
 In September 2018, the Government of India released the National Digital Communications Policy,
2018 which envisages increasing FDI inflows in the telecommunications sector to US$ 100 billion
by 2022.
 In January 2018, Government of India allowed foreign airlines to invest in Air India up to 49 per
cent with government approval. The investment cannot exceed 49 per cent directly or indirectly. No
government approval will be required for FDI up to an extent of 100 per cent in Real Estate Broking
Services.
 In September 2017, the Government of India asked the states to focus on strengthening single
window clearance system for fast-tracking approval processes, in order to increase Japanese
investments in India.
 The Ministry of Commerce and Industry, Government of India has eased the approval mechanism
for foreign direct investment (FDI) proposals by doing away with the approval of Department of
Revenue and mandating clearance of all proposals requiring approval within 10 weeks after the
receipt of application.
 The Government of India is in talks with stakeholders to further ease foreign direct investment (FDI)
in defense under the automatic route to 51 per cent from the current 49 per cent, in order to give a
boost to the Make in India initiative and to generate employment.
 In January 2018, Government of India allowed 100 per cent FDI in single brand retail through
automatic route.
India has become the most attractive emerging market for global partners (GP) investment for the coming
12 months, as per a recent market attractiveness survey conducted by Emerging Market Private Equity
Association (EMPEA).

30. 21
Annual FDI inflows in the country are expected to rise to US$ 75 billion over the next five years, as per a
report by UBS. The Government of India is aiming to achieve US$ 100 billion worth of FDI inflows in the
next two years.
The World Bank has stated that private investments in India is expected to grow by 8.8 per cent in FY 2018-
19 to overtake private consumption growth of 7.4 per cent, and thereby drive the growth in India's gross
domestic product (GDP) in FY 2018-19. Exchange Rate Used: As on June 30, 2019: Re. 1 = US$ 0.014401.
Chapter-2: Review of Literature:
Mohammad Amir (2011) in their study found that by increasing FDI by one percent the GDP of China
increases by 0.07 percent and Indian GDP increases by 0.02 percent. The study reviled that impact of FDI
on China is better than India which is due to political decision-making ability and hierarchal hurdles.
Maram Srikanth & Braj Kishore (2011) in their study tried to explain the impact of FDI equity inflows
on Indian economy by using monthly data for the period April to March 2011, before and after the
eruption of Global financial crises. They used “Granger Causality Test” to establish the linkages between
FDI equity inflows and macro – economic variables. They found that there is a unidirectional reserve to
FDI. Consequently, Indian policy makers are encouraged to attract more FDI inflows into the country in
order to give pace to industrial production.
Mustafa & Santhirasegaram (2013) in their study examined the overall impact of FDI in pushing the
growth and pace of Sri Lanka economy. For the purpose they used time series annual data for the period
of 1978-2012. In addition, they also implemented multiple regression models to estimate the impact of
FDI on economic growth. By using all these tools and technique they found that actual impact of FDI can
be seen after time lag of two plus years.
Kuliaviene & Solnyskiniene (2014) in their study tried to determine exclusive impact of FDI on
Lithuanian GDP by using lag analysis. During the study they found that average lag was of two years,
Bhavya Malhotra (2014) in his study tried to study the trends and pattern of FDI along with assessing the
determinant of FDI Inflows. In his study he found that Indian economy has a tremendous potential and
FDI has a positive impact. Further he found that FDI inflow supplements domestic capital along with
technological development and efficiency
Zafar, S.M. Tariq & Waleed Hemdat (2016) in their study found that FDI flow in India has increased to
many folds in comparison to past. They also found that FDI inflow has influenced the GDP of the nation
and both were moving with matching pace and was having positive impact on economy. They also found
that FDI has generated balance growth and development and engaged manpower across the nation.

31. 22
Chapter 3: Research Methodology
3.1 Statement of the problem:
The current study aims to study how these foreign direct investments impact various macro-
economic variables like GDP, Stock Return, interest rate, Dollar-rupee rate, Oil prices and Gold.
3.2 Objectives of the research:
The objectives of this study are as under:
1. To know the trend of FDI inflows in India.
2. To analyse the impact of FDI inflows on selected macro-economic parameters of India
3.3 Theoretical Model of the study
The variables selected are GDP, Stock Return, Interest Rates, Dollar-Rupees Rate, Oil Prices &
Gold , where FDI is dependent variable & these (GDP, Stock Return, Interest Rates, Dollar-Rupees
Rate, Oil Prices & Gold) are Independent Variable and the schedule aims to apply Correlation &
Regression Analysis.
3.4Methodology and Data collection:
AIM: To establish the relationship between FDI and growing trends in the Indian economy.
SECONDARY SOURCE:
The present study is of analytical nature and makes use of secondary data. The relevant secondary
FDI INFLOW
GDP
Stock
Return
Interest
Rate
Dollar-
Rupees Rate
Oil Prices
Gold

32. 23
data has been collectedfrom reports of the Ministry of Commerce and Industry - Department for
Promotion of Industry and Internal Trade Government of India, Centre for Monitoring Indian
Economy, Reserve Bank of India, World Investment Report.
3.5 Hypothesis:
The study has been taken up for the period 2012-2019 with the following hypothesis
Hypothesis1:
Ho: There is no significant impact of Stock on FDI inflow in India.
H1: There is significant impact of Stock on FDI inflow in India.
Hypothesis 2:
H0: There is no significant impact of GDP on FDI inflow in India.
H1: There is significant impact of GDP on FDI inflow in India.
Hypothesis 3:
H0: There is no significant impact of Inflation on FDI inflow in India.
H1: There is significant impact of Inflation on FDI inflow in India.
Hypothesis 4:
H0: There is no significant impact of Gold on FDI inflow in India.
H1: There is significant impact of Gold on FDI inflow in India.
Hypothesis 5:
H0: There is no significant impact of Oil on FDI inflow in India.
H1: There is significant impact of Oil on FDI inflow in India.
3.6 Scope of the study:
1. The current study is for 7 years.
2. The current study is related to selected macro-economic variables like GDP, Stock Return, interest
rate, Dollar-rupee rate, Oil prices and Gold.
3.7 Limitations of the study:
1. It’s not only FDI that effects the growth of economy there are other factors such as FII, monetary
policy and government policies.
2. FDI data keeps on changing.
3. Time limitation

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Chapter-4: Analysis and Interpretation
4.1 Trends of FDI Inflow in India
4.1.1 Analysis of FDI in India year wise
Table 4. 1: FDI inflows year wise in India
According to the Annual Report 2018-19 of the DPIIT, FDI worth $286 billion were received in the country
in past five years.
India received the highest-ever FDI inflow of $64.37 billion during the fiscal ended March 2019, said a
government report. According to the Annual Report 2018-19 of the Department for Promotion of Industry
and Internal Trade (DPIIT), foreign direct investments (FDI) worth $286 billion were received in the
country in past five years.
"In the current financial year (2018-19), the country registered highest ever FDI inflow of $64.37 billion,"
the report said. Highlighting the importance of FDI, it said the foreign inflows bring in resources, the latest
technology and best practices to push economic growth on to a higher trajectory.
The DPIIT under the commerce and industry ministry further said path-breaking reform measures
undertaken during the last financial year have resulted in India surpassing the FDI received in 2016-17 and
registering an inflow of $60.98 billion during 2017-18, a new all-time high.
The FDI inflows was $45.14 billion during 2014-15 when Prime Minister Narendra Modi-led NDA

34. 25
government assumed power. The inflows were $55.55 billion in the following year.
Besides, the DPIIT said an action plan for promotion of Indian 'geographical indications' (GIs) has been
prepared. This can help supplement the incomes of our farmers, weavers, artisans and craftsmen. A logo
and tagline for all Indian GIs has been prepared through crowd-sourcing.
4.1.2 Analysis of country wise inflows of FDI in India
Table 4. 2: FDI inflows country wise in India
India’s perception abroad has been changing steadily over the years. This is reflected in the ever-growing
list of countries that are showing interest to invest in India. Mauritius emerged as the most dominant source
of FDI contributing 32 % of the total investment in the country.
Singapore was the second dominant source of FDI inflows with 20% of the total inflows. Japan was the
third dominant source of FDI inflows with 7% of the total inflows. It is followed by with fourth position &
7% of the total inflow. Netherlands However, UK slipped to fifth position by contributing 6% of the total
inflows. They maintained continuous increasing trend under the period of study. It was followed by USA
with 6%, Germany with 3%, Cyprus with 2%, UAE with 2%, & France with 2%.
It has been observed that some of the countries like Israel, Thailand, Hong Kong, South Africa and Oman
increased their share gradually during the period under study. It is also interesting to note that some of the
new countries such as Hungary, Nepal, Virgin Islands, and Yemen are making significant investments in
India.
Mauritius:
Mauritius have always topped the position for FDI inflows in India after 2011, with FDI on 2018-19
standing at 8084 million US $, consisting of 32% of total FDI inflows. The inordinately high investment

35. 26
from Mauritius is due to routing of international funds through the country given significant tax advantages;
double taxation is avoided due to a tax treaty between India and Mauritius, and Mauritius is a capital gains
tax haven, effectively creating a zero-taxation FDI channel.
The India-Mauritius Double Taxation Avoidance Agreement (DTAA) was signed in 1982 and has played
an important role in facilitating foreign investment in India via Mauritius. It has emerged as the largest
source of foreign direct investment (FDI) in India.
Many foreign institutional investors (FIIs) who trade on the Indian stock markets operate from Mauritius.
According to the DTAA between India and Mauritius, capital gains arising from the sale of shares are
taxable in the country of residence of the shareholder and not in the country of residence of the company
whose shares have been sold. Therefore, a Company resident in Mauritius selling shares of an Indian
company will not pay tax in India. Since there is no capital gains tax in Mauritius, the gain will escape tax
altogether.
The Mauritius stock market was opened to foreign investors following the lifting of foreign exchange
controls in 1994. Mauritius has an active offshore financial sector, which is a major route for foreign
investments into the Asian subcontinent.
Foreign direct investment transiting through the Mauritian offshore sector to India has been considerably
increasing, according to figures released by the Indian Ministry of Commerce and Industry. Major US
corporations use the Mauritius offshore sector to channel their investment to India. Incentives to foreign
investors include free repatriation of revenue from the sale of shares and exemption from tax on dividends
and capital gains.
Singapore:
Singapore has become a rapidly growing source of investment funds to India in the past few years. In fact,
the data above shows that investment from Singapore has grown to very high levels. Although FDI inflow
from most countries has grown in the past few years, the pace of growth in Singapore’s investment has
made others look surprised.
U.S.A:
Broadly speaking, the United States has a fundamentally "open economy" and low barriers to FDI. U.S.
FDI totaled $194 Billion in 2010. 84% of FDI in the United States in 2010 came from or through eight
countries: Switzerland, the United Kingdom, Japan, France, Germany, Luxembourg, the Netherlands, and
Canada. A major source of investment is real estate; the foreign investment in this area totaled $92.2 billion
in 2013, under various forms of purchase structures (considering the U.S. taxation and residency laws).
A 2008 study by the Federal Reserve Bank of San Francisco indicated that foreigners hold greater shares of
their investment portfolios in the United States if their own countries have less developed financial markets,
an effect whose magnitude decreases with income per capita. Countries with fewer capital controls and
greater trade with the United States also invest more in U.S. equity and bond markets.
White House data reported in 2011 found that a total of 5.7 million workers were employed at facilities
highly dependent on foreign direct investors. Thus, about 13% of the American manufacturing workforce
depended on such investments. The average pay of said jobs was found as around $70,000 per worker, over
30% higher than the average pay across the entire U.S. workforce.

36. 27
President Barack Obama said in 2012, "In a global economy, the United States faces increasing competition
for the jobs and industries of the future. Taking steps to ensure that we remain the destination of choice for
investors around the world will help us win that competition and bring prosperity to our people."
In September 2013, the United States House of Representatives voted to pass the Global Investment in
American Jobs Act of 2013 (H.R. 2052; 113th Congress), a bill which would direct the United States
Department of Commerce to "conduct a review of the global competitiveness of the United States in
attracting foreign direct investment". Supporters of the bill argued that increased foreign direct investment
would help job creation in the United States.
European Union:
 History of Foreign Investment Law
In 1991, for the first time, Russia regulated the form, range and favorable policy of FDI in Russia.
In 1994, a consulting council of FDI was an established in Russia, which was responsible for setting tax
rate and policies for exchange rate, improving investment environment, mediating relationship between
central and local government, researching and improving images of FDI work, and increasing the right and
responsibility of Ministry of Economic in appealing FDI and enforcing all kinds of policies.
In 1997, Russia starts to enact policies appealing for FDI on particular industries, for example, fossil fuel,
gas, woods, transportation, food reprocessing, etc.
In 1999, Russia announced a law named 'FDI of the Russian Federation', which aimed at providing a basic
guarantee for foreign investors on investing, running business, earnings.
In 2008, Russia banned FDI on strategic industries, such as military defense and country safety.
In 2014, president Putin announced that once abroad Russian investment inflows legally, it would not be
checked by tax or law sector. This is a favorable policy of Putin to appeal Russian investment to come back.
 Structure of foreign investment in Russia
1. Direct investment: Investing directly with cash. Basically, investment more than 10% of the item is
called Direct investment.
2. Portfolio investment: Investing indirectly with company loans, financial loans, stocks, etc. Basically,
investment less than 10% of the item is called Portfolio investment.
3. Other investment: Except for direct and portfolio investment, including international assistance and
loans for original country.
Foreign direct investment in services sector grew 36.5 per cent to USD 9.15 billion in 2018-19, according
to the Department for Promotion of Industry and Internal Trade (DPIIT). The sector attracted FDI worth
USD 6.7 billion in 2017-18. Services sector includes finance, banking, insurance, outsourcing, R&D,
courier, tech testing and analysis.
The government has taken several measures like fixing timeliness for approvals and streamlining procedures
to improve ease of doing business in the country and attract foreign investments.
Increasing FDI inflows in services sector is vital as it contributes over 60 per cent to the gross domestic
product. The sector accounts for about 18 per cent of the total FDI India received between April 2000 and

37. 28
March 2019. Other sectors that recorded healthy growth in FDI inflows include computer software and
hardware, trading, automobile industry, and chemicals.
4.1.3 FDI EQUITY INFLOWS DURING THE FINANCIAL YEAR 2018-19:
Table 4. 3: FDI inflows during the Financial Year 2019
FDI equity inflows up 28% in June quarter to $16.3 billion, from $12.75 billion last year
The top three sectors that received maximum foreign funds are telecom, the services sector -- BFSI vertical,
non-financial activities, outsourcing, R&D and courier services, among others -- and computer industry.
The uptick in FDI equity inflows is more impressive on the quarter-on-quarter basis - up over 50 per cent
from $10.8 billion in Q4FY19
The first quarter of the current fiscal saw Foreign Direct Investment (FDI) equity inflows jump by 28 per
cent year-on-year to $16.33 billion, as per latest figures released by the Department for Promotion of
Industry and Internal Trade (DPIIT). For the April to June period last year, the figure stood at $12.75 billion.
The uptick in FDI equity inflows is more impressive on the quarter-on-quarter basis - up over 50 per cent
from $10.8 billion in Q4FY19. The total FDI inflows , including re-invested earnings as well as other
capital, on the other hand have shot up 26 per cent (y-o-y) to $21.3 billion in the June quarter of FY20.
However, according to the government factsheet, these are provisional figures, subject to reconciliation with
the RBI.
The top three sectors that received maximum foreign funds are telecom, the services sector - including the
BFSI vertical (banking, financial services and insurance), non-financial/business activities, outsourcing,
R&D and courier services, among others - and computer software and hardware.

38. 29
While the telecom sector attracted FDI equity investments to the tune of $4.2 billion in Q1FY20, the other
two sectors bagged $2.7 billion and $2.2 billion, respectively. However, on a cumulative basis, the last fiscal
saw the services sector top the rankings, attracting over $9 billion of foreign investments, 250 per cent more
than the telecom sector, which stood in the third spot.
Singapore, which overtook Mauritius as the top source of foreign equity inflows in FY19, continued to
maintain its top rank in the quarter under review. The island city-country's share in the total investment pie
was nearly 33 per cent in the first quarter, or $5.3 billion. Mauritius came in second at $4.6 billion followed
by the US ($1.4 billion) and the Netherlands ($1.3 billion).
FDI inflows had declined for the first time in six years in 2018-19, falling by 1 per cent to $44.37 billion.
That prompted the Modi government to announce a fresh round of FDI reforms, amid the deceleration in
India's GDP growth rate.
The Union Cabinet allowed 100 per cent foreign investment in coal mining and contract manufacturing
along with easing sourcing norms for single-brand retailers and approving 26 per cent overseas investment
in digital media. Previously, in its first term, the government had liberalised FDI norms in sectors such as
defence, medical devices, construction development, retail and civil aviation.
In Q1FY20, the National Capital Region attracted around $5 billion, followed by Karnataka ($3 billion) and
Gujarat ($2.6 billion). Maharashtra (along with Dadra & Nagar Haveli and Daman & Diu) came in the
fourth rank with $1.5 billion of FDI equity inflows.
4.1.4 Analysis of Sector Wise inflows of FDI in India
Table 4. 4: FDI inflows Sector Wise in India

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4.1.5 Ranking of Sector wise FDI inflows in India since April 2016 - March 2019
Table 4. 5: Ranking of Sector wise FDI inflows
Rank Sector
1 SERVICESSECTOR
2 COMPUTER SOFTWARE& HARDWARE
3 TELECOMMUNICATIONS
4
CONSTRUCTION DEVELOPMENT: (Townships,housing,built-upinfrastructure and
construction developmentprojects)
5 TRADING
6 AUTOMOBILE INDUSTRY
7 CHEMICALS (OTHER THAN FERTILIZERS)
8 DRUGS & PHARMACEUTICALS5
9 CONSTRUCTION (INFRASTRUCTUREACTIVITIES)
10 POWER
Chart 4. 1: Line chart representing Amount of FDI Inflows in Top 10 sectors

40. 31
The Sector wise Analysis of FDI Inflow in India reveals that maximum FDI has taken place in the service
sector including the telecommunication, information technology, travel and many others. The service sector
is followed by the computer hardware and software in terms of FDI. High volumes of FDI take place in
telecommunication, real estate, construction, power, automobiles, etc.
The rapid development of the telecommunication sector was due to the FDI inflows in form of international
players entering the market and transfer of advanced technologies. The telecom industry is one of the fastest
growing industries in India. India has the second largest telecom network in the world.
Total subscriber base in the country stood at 1,193.72 million, at the end of November 2018.
4.1.6 Foreign Direct Investment (FDI) Confidence Index
The Foreign Direct Investment Confidence Index is a regular survey of global executives conducted by A.T.
Kearney. The Index provides a unique look at the present and future prospects for international investment
flows. Companies participating in the survey account for more than $2 trillion in annual global revenue.
FDI Confidence Index examines future prospects for FDI flows as the world seeks to recover from the
global recession and continued economic uncertainty in Europe and the United States.
The United States tops the A.T. Kearney Foreign Direct Investment (FDI) Confidence Index for the seventh
year in a row. While seven years is the country’s longest run in the top position on the Index, China holds
the all-time record, as it maintained the first position from 2002 through 2012.
The enduring appeal of the United States to foreign investors is likely a result of its business-friendly
regulatory environment, skilled workforce, technological capabilities, and large domestic market. Recent
policy volatility and a slowing economy appear, however, to be diminishing the relative attractiveness of
the US market.
This decline is apparent in the decrease in the score gap between the United States and the next-highest
ranked country on the Index this year as well as the smaller gap between the highest and lowest scores
among the top 25 markets.
Chart 4. 2: The 2019 A.T. Kearney FDI Confidence Index
0
10000
20000
30000
40000
50000
60000
70000
Line chart representing Amountof FDI Inflows in Top 10 sectors
Amount (₹ in Crores) Sector

41. 32
Germany rises one spot to reclaim the second position, after ceding the spot to Canada in last year’s Index.
Canada remains in the top five, though, falling just one spot to third. And the United Kingdom holds steady
in the fourth position for the third year in a row, despite the uncertainties associated with Brexit. France,
another major European market, also rises two spots to enter the top five for the first time since 2002. This
year marks the first time in the history of the Index in which all of the top five spots are held by developed
markets.
The top 10 countries on the Index remain unchanged from 2018 with one exception: Singapore rises to rank
10th and displace Switzerland, which falls to 13th. Within the top 10, Italy is one of the biggest gainers,
rising two spots to 8th this year. The other notable movement among the top 10 is China’s drop down two
spots to 7th this year. It remains, however, the highest-ranked emerging market on the Index—having firmly
held this position since 1999.
More broadly, the Asia Pacific markets do well on the 2019 Index. Their share of spots increases from seven
last year to eight this year, with Taiwan (China) re-joining the top 25 after a two-year absence. And half of
the Asia Pacific markets on the Index rank in the top 10: Japan, China, Australia, and Singapore.

42. 33
European markets hold steady with 14 spots in this year’s Index—once again claiming the title of the region
in which investors are most confident about the likelihood of their investments in the coming years.
Furthermore, Europe includes all of the markets that make the largest gains in the rankings this year:
Denmark (+6), Spain (+4), Austria (+3), and Belgium (+3).
And Finland, which joins Taiwan (China) as a newcomer on the 2019 Index, is also a European market.
Continued investor focus on European markets likely reflects ongoing uncertainty surrounding Brexit, as
companies invest in other European Union (EU) member economies to maintain their preferential access to
the EU market.
In contrast, the countries with the largest drops in the rankings—Mexico (-8), India (-5), and Switzerland (-
4)—have few shared characteristics. The extent of their commonalities is that two of these countries are
emerging markets, though each represents a different region of the world economy.
Similarly, the two countries that appeared on last year’s Index but do not rank in the top 25 this year hail
from different regions and are at different levels of development: Portugal and Brazil. The lack of a pattern
implies that it may be country-specific developments that explain these shifts in investor sentiment rather
than a broader global trend.
It is important to note, however, that—despite the changes in rankings—almost all countries enjoy score
increases this year. Among the top 25 markets on the 2019 Index, the only two countries to experience score
decreases are China and India.
And more generally, almost all of the 70-plus countries included in our survey—which together account for
more than 95 percent of FDI inflows—experience gains in their scores this year. These increases represent
the most dramatic upward trend in scores across the board in the history of the Index, suggesting that
companies are more likely to invest broadly around the world in the years to come.
Chart 4. 3: FDI Inflows of Top 20 Host Countries

43. 34
In 2019, FDI is expected to see a rebound in developed economies as the effect of the United
States tax reform winds down. Greenfield project announcements – indicating forward spending
plans – also point at an increase, as they were up 41 per cent in 2018 from their low 2017 levels.
Despite these positive indicators, projections for global FDI show only a modest recovery of 10
per cent to about $1.5 trillion, below the average over the past 10 years. Growth potential is
limited because the underlying FDI trend remains weak. Trade tensions also pose a downward
risk for 2019 and beyond. The underlying FDI trend has shown anemic growth since 2008.

44. 35
Net of fluctuations caused by one-off factors such as tax reforms, megadeals and volatile
financial flows, it has averaged only 1 per cent growth per year this decade, compared with 8
per cent in 2000–2007, and more than 20 per cent before 2000. Key drivers for the long-term
slowdown in FDI include declining rates of return on FDI, increasingly asset-light forms of
investment and a less favorable investment policy climate.
Chart 4. 4: Investor prefer a combination of FDI modes againthis year
Investors Continue to Prioritize FDI …
FDI is seen as vitally important for corporate profitability and competitiveness, with 77 percent
of investors telling us that FDI will be more important in the coming years. And the share of
investors saying that FDI will be significantly more important for corporate profitability and
competitiveness has grown steadily over the past several years, from just 26 percent in 2016 to
32 percent in 2019.
Given these views on the strategic importance of FDI, it is not surprising that 79 percent of
investors say their company will increase its level of FDI over the next three years. Investors
based in Asia Pacific and those in the industry sector are particularly keen to increase their level
of FDI.
While there is no change in the overall percentage of investors expressing such bullishness on
FDI intentions since last year’s survey, the reasons for increasing FDI shift somewhat this year.

45. 36
Topping the list in 2019 are the availability of quality targets and the macroeconomic
environment. These two factors may be related, as several years of global economic growth
have likely created attractive investment targets in many markets around the world.
Chart 4. 5: FDI Inflows and the Underlying Trends – 1999-2018
FDI inflows to developing Asia rose by 4 per cent to $512 billion in 2018. Growth occurred
mainly in China, Hong Kong (China), Singapore, Indonesia and other ASEAN countries, as
well as in India and Turkey. Asia continued to be the world’s largest FDI recipient region,
absorbing 39 per cent of global inflows in 2018, up from 33 per cent in 2017.
Flows to East Asia rose by 4 per cent to $280 billion in 2018 but remained significantly below
their 2015 peak of $318 billion. Inflows to China increased by 4 per cent to an all-time high of
$139 billion. Flows to South-East Asia were up 3 per cent to a record level of $149 billion.
Robust investment from other Asian economies, including investment diversion and relocations
of manufacturing activity from China, supported FDI growth in the region. Strong intra-ASEAN
investments also contributed to the trend, although Singapore played a significant role in this as
a regional investment hub.
FDI inflows to South Asia increased by 4 per cent to $54 billion, with a 6 per cent rise in
investment in India to $42 billion, driven by an increase in M&As in services, including retail,

46. 37
e-commerce and telecommunication. West Asia saw a 3 per cent rise in investment to $29
billion, halting an almost continuous 10-year downward trend. The largest increases were
recorded in Turkey and Saudi Arabia.
Chart 4. 6: The regionalcompositionof FDIInflows Shifted in 2018
Strong FDI Flows to Emerging Markets ContradictDevelopedMarketDominance on
the Index
One of the most distinguishable macro trends in the Index this year is that developed markets
once again dominate the top 25 markets for investor intentions. Developed markets account for
22 of the 25 spots on the Index—hitting their highest-ever share of positions for the second year
in a row. China, India, and Mexico are the only emerging markets on the Index. This trend of
high investor confidence in developed markets has been growing since 2014, with the exception
of a slight shift in favor of emerging markets in the 2017 Index. Investor preference for
developed markets has corresponded with somewhat stronger economic growth in developed
markets, which also began in 2014. Investors’ prioritization of governance and regulatory
factors when determining where to invest may also be driving the increased focus on investing
in developed markets

47. 38
In fact, four of the top five factors that investors consider when choosing where to invest are
governance and regulatory factors. And two of these factors—regulatory transparency and lack
of corruption and the general security environment—have been consistently among the top five
factors for investment decisions since 2015. Investors’ focus on such governance issues helps
to explain why developed markets continue to dominate the rankings, as these markets are
generally perceived to have more transparent regulatory environments, lower levels of
corruption, and higher levels of security.
Chart 4. 7: Top factors in Investment decisions reinforce the dominance of
developed market
The only market asset and infrastructure factor that ranks among the top five factors investors
consider when determining where to invest is technological and innovation capabilities, which
are also assets that many developed markets possess. Perhaps unsurprisingly—given the
increasingly digital nature of the global economy and the ongoing battle for technological
supremacy—the technological and innovation capabilities factor makes one of the largest gains
in the factor rankings this year.