Impact of foreign direct investment in india


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Impact of foreign direct investment in india

  1. 1. INDEX : What is Foreign direct investment? Why Foreign direct investment? Drawbacks of FDI Impact of FDI on host economy FDI policy in India Top Investors in India Telecommunications sector Retail Sector in India Major arguments against adoption of FDI in Retail in India Suggestive measures to eliminate the negative effects of FDI in Retail
  2. 2. Investment made to acquire lasting interests in enterprises operating outside of the economy of the investor. Consists of a parent enterprise and foreign affiliate which together form a MNC. Eg: Hero Honda
  3. 3. No debt creation on the part of the government. Triggers technology transfer. Assists Human capital formation. Contributes to international integration by promoting exports. Increases productivity and competitiveness. Improves efficiency of resources. Promotes innovation
  4. 4. Local firms may loose business because of the oligopolistic power of foreign firms.  The repatriation of profit may drain out the capital of the host country. Local population may be displaced out of their jobs if they are unable to cope with the technologically advanced foreign firms.
  5. 5. FDI may have a negative impact on the growth of the developing countries (Singer,1950; Griffin, 1970). Hanson (2001) argues that evidence that FDI generates positive spillovers for host countries is weak.  FDI could have a favorable short-term effect on growth as it expands the economic activity. However, in the long run it reduces the growth rate due to dependency, particularly due to “decapitalization” (Bornschier, 1980).
  6. 6. Banga (2005) demonstrates that FDI, trade and technological progress have differential impact on wages and employment. Higher extent of FDI in an industry leads to higher wage rate, it has no impact on its employment. Higher export intensity of an industry increases employment in the industry but has no effect on its wage rate. Import of technology has unfavorably affected employment in India. The study by Sharma (2000) concluded that FDI does not have a statistically significant role in the export promotion in Indian Economy.
  7. 7. Currently FDI is permitted: a) Through financial collaborations. b) Through Joint Ventures and technical collaborations. c) Through capital markets via Euro issues. d) Through preferential allotments. India had opened up its economy and allowed MNCs in the core sectors such as Power and Fuels, Electrical Equipments, Transport, Chemicals, Food Processing, Metallurgical, Drugs and Pharmaceuticals, Textiles, and Industrial Machinery.
  8. 8. Telecommunications, Banking, Insurance, Hotel & Tourism, IT. Mining of titanium keeping India's civilian nuclear ambitions in mind upto100%,a mineral which is abundant in India. single Brand product retailing where Foreign Investment up to 51% is permitted with prior Government approval. Major debate going on about approving FDI in India’s Retail sector.
  9. 9. 42 9 7 5 4 4 4 2 2 19 0 5 10 15 20 25 30 35 40 45 M auritius Singapore U .S.A . U .K N etherlands Japan C yprus G erm any France O thers %agetototalInflows(intermsofUS$) %
  10. 10. Large number of private operators started operating in the basic/mobile telephony and Internet domains after several series of reforms in the telecom sector. FDI is permitted up to 74% with FDI, beyond 49% requiring Government approval. As a result of the New Telecom Policy 1999 (NTP99) Total FDI in telecom is currently over US $ 15 billion. Tremendous improvement in infrastructure, lowest tariff rates in the world and over 250 million users. In 2007-2008 Vodafone took over Hutch for about US $ 11 billion.
  11. 11. Retail industry in India is one of the fastest growing. Contributes 14% to the national GDP and employs 7% of the total workforce. The retail industry is divided into organised and unorganised sectors. Organised trade employs roughly 5 lakh people whereas the unorganized retail trade employs nearly 3.95 crores. Growth in Retail as a result of economic expansion as well as jobless growth.
  12. 12. FDI driven modern retailing is labour displacing. It can only expand by destroying the traditional retail sector. Foreign retail firms have deep pockets and can cause even the organized retail sector to go out of business. Will buy big from India and abroad and be able to sell low. When monopoly situation is created will will buy low and sell high.
  13. 13. It is true that it is in the consumer’s best interest to obtain his goods and services at the lowest possible price. But collective well being should take precedence.
  14. 14. FDI should be aggressively promoted in R&D, Manufacturing, Entertainment to accommodate the people who have lost their jobs. Import duty should be imposed to protect domestic production units. Labour laws should be imposed to ensure that no management jobs are outsourced. Jobs should be reserved for the poor people.
  15. 15. Hindi and local languages as a mode of operation should be encouraged. Cooperative societies should be formed for the farmers and other agricultural suppliers to take care of their rights. The foreign retail units should be made to divest a certain percentage of their equity in the Indian financial markets. Social infrastructure like schools, colleges and hospitals should be developed to promote human capital formation
  16. 16.  t    indian-market
  17. 17. THANK YOU !