4th sem project(2)

8/7/2019 4th sem project(2)

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DISSERTATION

ON

ANALYTICAL STUDY OF FOREIGN DIRECT INVESTMENT ININDIA

PREPARED BY: SUBMMITTED TOPRIYA SARASWAT MRS.RAJSHREE MAM

PG/15/067 Lecturer

FINANCE SMS, VARANASI


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DECLARATION

I hereby declare that the information presented in this dissertation is correct to the best of

my knowledge. This project report has not been published anywhere else.

Priya Saraswat

Place-Date -


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PREFACE

It gives me a great pleasure to work on the survey project entitled ANALYTICAL

STUDY OF FOREIGN DIRECT INVESTMENT IN INDIA

The report is submitted in partial fulfillment of PGDM (IV SEMESTER) of School ofManagement Sciences.

Efforts have been made to avoid typing mistakes but in spite of it some mistakes might havebeen crept in inadvertently. The reader and faculty are requested to bring such type ofmistakes in my notice.

(Priya Saraswat)


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ACKNOWLEDGEMENT

No Learning is proper and effective without

Proper Guidance

A project cannot be accomplished singly. It involves blend of different people ideas,

suggestion, co-operation and also self-labour project involves continuous exercise of

physical and mental judgment.

Although it is very difficult to fulfill all the necessary requirement of the project I have

tried my level best to make a good and a complete project. The project could not have been

possible without the help of following people, therefore I would like thank them for all their

good support and co-operation.

I am immensely thankful to Dr. P.N.Jha (Director), SCHOOL OF MANAGEMENT

SCIENCES, VARANASI, for providing us every able opportunity to bring up our talent.

I would also like to thank my MentorMrs. Rajshree Singh, (Lecturer.) for providing me

the opportunity for dissertation and helping me in selecting the suitable topic.

I would also like to thank here my parents who were there with me when I needed their

support and cooperation at each and every step of the project work.

PRIYA SARASWAT


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TABLE OF CONTENT

Certificate

Declaration..

Preface...................................................................................................

Acknowledgement.

Objective of the study...

Research Methodology....

Introduction

All details

y FINDINGS OF THE PROJECT

y CONCLUSIONS OF THE PROJECT

y SUGGESTIONS OF THE PROJECT

y LIMITATIONS

y BIBLIOGRAPHY


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OBJECTIVES

Following are the objectives of my study

y To know the flow of investment in India

y To study pertaining to FDI flow in emerging markets including India deal primarily

with FDI inflows into various countries

y To study outward FDI flow from emerging economies, specifically in Indian context.

y To know benefits & cost to host and home country.

y To know Straetgies to Invest in India.

y To Examine the trends and patterns in the FDI across different sectors & from

different countries in India.

y To know which country in investing in which country.

y To know the reason for investment in India

y To understand the FII & FDI policy in India.


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RESEARCH METHODOLOGY

Research is, thus, an original contribution to the existing stock of knowledge making for its

advancement. It is the pursuit of truth with the help of study, observation, comparison and

experiment. In short, the search of knowledge through objectives and systematic method of

finding solution to a problem is research. The systematic approach concerning

generalization and the formulation of theory is also research.

My Research Type:

Descriptive Research: The major purpose of this research is description of the state of

affairs as it exists at present. In social science and business research we quite often use theterm Ex post facto research for descriptive research studies. The main characteristic of this

method is that the researcher has no control over the variables; he can only report what has

happened or what is happening.

Data Collection Method:

Secondary Data: The secondary data are those which have already been collected by

someone else and which have already been passed through statistical problem. The methods

of collecting primary and secondary data differ since primary data are to be originally

collected while in case of secondary data the nature of data collection work is merely that of

compilation.

Sources of Data Collection:

Internet,Books

Statistical Tools to be used:

Various test of significance such as Bar Graph, ratio analysis, line graph.


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INTRODUCTION

Foreign investment refers to investments made by the residents of a country in the financial

assets and production processes of another country. The effect of foreign investment,

however, varies from country to country. It can affect the factor productivity of the recipient

country and can also affect the balance of payments. Foreign investment provides a channel

through which countries can gain access to foreign capital. It can come in two forms:

foreign direct investment (FDI) and foreign institutional investment (FII). Foreign direct

investment involves in direct production activities and is also of a medium- to long-term

nature. But foreign institutional investment is a short-term investment, mostly in the

financial markets. FII, given its short-term nature, can have bidirectional causation with the

returns of other domestic financial markets such as money markets, stock markets, and

foreign exchange markets. Hence, understanding the determinants of FII is very important

for any emerging economy as FII exerts a larger impact on the domestic financial markets in

the short run and a real impact in the long run. India, being a capital scarce country, has

taken many measures to attract foreign investment since the beginning of reforms in 1991.

India is the second largest country in the world, with a population of over 1 billion people.

As a developing country, Indias economy is characterized by wage rates that are

significantly lower than those in most developed countries. These two traits combine to

make India a natural destination for foreign direct investment (FDI) and foreign institutional

investment (FII). Until recently, however, India has attracted only a small share of global

foreign direct investment (FDI) and foreign institutional investment (FII), primarily due to

government restrictions on foreign involvement in the economy. But beginning in 1991 and

accelerating rapidly since 2000, India has liberalized its investment regulations and actively

encouraged new foreign investment, a sharp reversal from decades of discouraging

economic integration with the global economy.


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The world is increasingly becoming interdependent. In fact, the world has become a

borderless world. With the globalization of the various markets, international financial

flows have so far been in excess for the goods and services among the trading countries of

the world. Of the different types of financial inflows, the foreign direct investment (FDI)

and foreign institutional investment (FII)) has played an important role in the process of

development of many economies. Further many developing countries consider foreign

direct investment (FDI) and foreign institutional investment (FII) as an important element in

their development strategy among the various forms of foreign assistance.

The Foreign direct investment (FDI) and foreign institutional investment (FII) flows are

usually preferred over the other form of external finance, because they are not debt creating,

nonvolatile in nature and their returns depend upon the projects financed by the investor.

The Foreign direct investment (FDI) and foreign institutional investment (FII) would also

facilitate international trade and transfer of knowledge, skills and technology.

The Foreign direct investment (FDI) and foreign institutional investment (FII) is the process

by which the resident of one country(the source country) acquire the ownership of assets for

the purpose of controlling the production, distribution and other productive activities of afirm in another country(the host country).

According to the international monetary fund (IMF), foreign direct investment (FDI) and

foreign institutional investment (FII) is defined as an investment that is made to acquire a

lasting interest in an enterprise operating in an economy other than that of investor.

The government of India (GOI) has also recognized the key role of the foreign direct

investment (FDI) and foreign institutional investment (FII) in its process of economic

development, not only as an addition to its own domestic capital but also as an important

source of technology and other global trade practices. In order to attract the required amount

of foreign direct investment (FDI) and foreign institutional investment (FII), it has bought

about a number of changes in its economic policies and has put in its practice a liberal and

more transparent foreign direct investment (FDI) and foreign institutional investment (FII)


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policy with a view to attract more foreign direct investment (FDI) and foreign institutional

investment (FII) inflows into its economy. These changes have heralded the liberalization

era of the foreign direct investment (FDI) and foreign institutional investment (FII) policy

regime into India and have brought about a structural breakthrough in the volume of foreign

direct investment (FDI) and foreign institutional investment (FII) inflows in the economy.

About foreign direct investment

Is the process whereby residents of one country (the source country) acquire ownership of

assets for the purpose of controlling the production, distribution, and other activities of a

firm in another country (the host country). The international monetary funds balance of

payment manual defines FDI as an investment that is made to acquire a lasting interest in an

enterprise operating in an economy other than that of the investor. The investors purpose

being to have an effective voice in the management of the enterprise. The united nations

1999 world investment report defines FDI as an investment involving a long term

relationship and reflecting a lasting interest and control of a resident entity in one economy

(foreign direct investor or parent enterprise) in an enterprise resident in an economy otherthan that of the foreign direct investor ( FDI enterprise, affiliate enterprise or foreign

affiliate

Characteristics of FDI

FDI is an activity by which an investor, who is a resident in one country, obtains a lasting

interest in, and is a significant influence on, the management of an entity in another country.

This may involve either creating an entirely new enterprise, a so-called "Greenfield"

investment, or more typically, changing the ownership of existing enterprises via mergers

and acquisitions.


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Investment Patterns

International Product Life Cycle - Reduces costs by 'shifting production to developing

countries. For instance, Essel Propack moved to China.

Location - Specific advantages make FDI easier than exporting or licensing.

Mahindra tractors are manufactured in North America.

Contract manufactures - Brings down the cost of manufacturing and also contributes to

consolidating competitive sourcing and competing in the world market. Honda Motors

manufactures its vehicles in Europe.

Assured return on investment - R&D centers and futuristic projects enable the investor to

achieve great successes through high revenues.

Social effects: Countries with closed economies have started to liberalize their economies

through market reforms that are favorable to foreign investors through privatization,

property rights, and liberal labor policies.

Benefits of FDI for Host Country

Capital: Multinational enterprises invest in long-term projects, taking risks and repatriating

profits only when the projects yield returns.

Technology: The effects of technology emerge especially when the liberalization of the

investment flow drives a more rapid rate of technology development, diffusion,and transfer.

Such processes may involve the transfer of physical goods and/or the transfer of knowledge.

A vast majority of economic studies dealing with the relationship between FDI and

productivity and economic growth have found that the transfer of technology through FDI

has contributed positively to productivity and economic growth in host countries.

Market access: Investors can provide access to export markets. The growth of exports

themselves offers benefits, such as technological learning and competitive stimuli.They can

transform normal customers into intellectual customers. Increase in domestic investment:

The increase in FDI inflow is associated with a manifold increase in the investment by

national investors.


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Export promotion: It seems that FDI could be related to export trade in goods, and the host

country can benefit from an FDI-led export growth. Generating employment: FDI leads to

the generation of both direct and indirect employment opportunities in the host country.

Infrastructure: In order to facilitate and enable investors to perform well, the host country

studies other competitive destinations and enhances the level of infrastructure in selected

areas to match the requirements of the investors. India's Silver Valley in Bangalore, Hitech

City in Hyderabad, and Tidel Park in Chennai have revolutionized the areas through

connectivity.

Social effects: Countries with closed economies have started to liberalize their economies

through market reforms that are favourable to foreign investors through privatization,

property rights, and liberal labour policies. Society at large benefits as employment,

infrastructure, literacy, and health care are bound to improve as an impact of FDI inflow.

Formation of Clusters: Groups of similar projects and manufacturing centres are formed in

a specific location by way of providing common production, R&D, training, and pollution

control systems to a group of competing companies. In Italy,Brazil, and India, such clusters

have worked wonders.

Spin-offs: Statistical evidence exists across the world to prove that FDIs have a number of

spin-offs. Business history is replete with examples where individuals who trained withcompanies started their own ventures and became successful leaders in their respective

fields. Silicon Valley in the U.S. provides many examples of such spin-offs. Intel is a spin-

off of Fairchild. The main competitor to Intel today is its own spin-off. Even in India, the

machine tool industries of Ludhiana and Bangalore are spin-offs of yesteryears' popular

companies, such as SKF, Bosch and MICO.

Costs for the Host Country

The investing companies may not serve the host country's interests.

There is an outflow of earnings as they are repatriated 'to their home country. There is an

import of substantial inputs from the investor's country.

Companies will hire expatriate managers for management positions.

The investing country has controlling technologies, for which it charges a huge technology

fee. FDI can even wipe out local firms. Infant industries and other home industries may


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suffer if they cannot compete. Home-country producers do not have money, power or the

technology to withstand the onslaught of investors.

Benefits for Home Country

Inward flow of earnings on a long term basis.

High salaries for employees.

Exposure to the foreign market.

Costs for the Home Country

Initial capital outflow is extremely large.

Exports may decrease.

Imports may increase if FDI is intended to serve the home country.

Employment will be lost to the home country population.

Profits are repatriated abroad. They may not stay in the country for reinvestrnent.

Major tax havens will enjoy the money at the cost of home country.

Motivations for FDI

Exporting may not be feasible with high transportation costs and trade barriers.Companies with operations solely in the home country have a limited scope for

prosperity, and in order to grow more quickly, investing in fertile grounds outside is a

strategic move.

Ownership advantages are used to benefit from global expansion.

Location- specific advantages are important at the time of selecting the right

destination:

1. Availability of a low-cost labor force.

2. Abundant availability of natural resources that do not deplete.

3. The cost incurred in research and development can be recovered at the earliest by

identifying a suitable location.


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4. The cost of transportation and logistics is low in the specific as well as neighboring

countries.

Strategies for Foreign Investors to invest in India

There are several strategies by which foreign enterprises could be lured to set up operations

in India. Broadly, entry strategies for such organizations may be classified into three major

categories:

1. A foreign investor may directly set up its operations in India through a branch office, a

representative office, a liaison office, or a project office to carry out business.

2. A foreign investor may set up its operations through an Indian arm, i.e. through a

subsidiary company set up in India under Indian laws.

3. A foreign investor may invest in business units in Special Economic Zones (SEZs) and

Export Oriented Units (EOUs).

As Operations in India:

Foreign companies can set up their operations in India by opening liaison offices, project

offices and branch offices. Companies that wish to set up operation directly must register

themselves with the Registrar of Companies in New Delhi within 30 days of setting up

business in India.

As Indian company:

A foreign company can commence operations in India through the incorporation of a

company under the provisions of the Indian Companies Act, 1956. Foreign equity in such

Indian companies can be up to 100% depending on the business plan of the foreign investor,

subject to the prevailing investment policies of the Government and the receipt of the

requisite approvals. For registration and incorporation as an Indian company, an application

has to be filed with the Registrar of Companies. Once a company has been duly registered


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and incorporated as an Indian company, it will be subject to the same Indian laws and

regulations that are applicable to other domestic Indian companies.

Wholly- owned subsidiary company:

The other investment option open to foreign investors is the setting up of a wholly-owned

subsidiary. This implies that the foreign company can own 100% of the shares of the Indian

company. All such cases are subject to prior approval from the Foreign Investment

Promotion Board (FIPB).

The FIPB considers cases on a flexible basis and grants permission for 100% ownership

based on the following criteria:

Where only a "holding" operation is involved and all subsequent/downstream investments

to be carried out would require prior approval of the Government.

Where proprietary technology is sought to be protected or sophisticated technology is

proposed to be brought in.

Where at least 50% of the production is to be exported.

Where the company offers proposals for consultancy services.

Where the company offers proposals for power, roads, ports, and industrial model towns/

industrial parks/estates/clusters.

Where the company seeks to establish business units in SEZs, AEZs, Techno-Parks and

EODs.

Foreign Direct investor

A foreign direct investor is an individual, an incorporated or unincorporated public or

private enterprise, a government, a group of related individuals, or a group of related

incorporated and/or unincorporated enterprises which has a direct investment enterprise

that is, a subsidiary, associate or branch operating in a country other than the country or

countries of residence of the foreign direct investor or investors.


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Types of Foreign Direct Investment: An Overview

FDIs can be broadly classified into two types:

1 Outward FDIs

2 Inward FDIs

This classification is based on the types of restrictions imposed, and the various

prerequisites required for these investments.

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:


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Different economic factors encourage inward FDIs. These include interest loans, tax

breaks, grants, 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.

Other categorizations of FDI

Other categorizations of FDI exist as well. Vertical Foreign Direct Investment takes

place when a multinational corporation owns some shares of a foreign enterprise, which

supplies input for it or uses the output produced by the MNC.

Horizontal foreign direct investments happen when a multinational company carries out

a similar business operation in different nations.

Horizontal FDI the MNE enters a foreign country to produce the same products at

home.

Conglomerate FDI the MNE produces products not manufactured at home.

Vertical FDI the MNE produces intermediate goods either forward or

backward in the supply stream.

Liability of foreignness the costs of doing business abroad resulting in a

competitive disadvantage.

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:

y Low corporate tax and income tax rates tax holidays other types of tax concessions.

y Preferential tariffs special economic zones investment financial subsidies soft loan or

loan guarantees free land or land subsidies relocation & expatriation subsidies job


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training & employment subsidies infrastructure subsidies R&D support derogation

from regulations (usually for very large projects)

Entry Mode

The manner in which a firm chooses to enter a foreign market through FDI.

y International franchising

y Branches

y Contractual alliances

y Equity joint ventures

y Wholly foreign-owned subsidiaries

y Investment approaches:

y Greenfield investment (building a new facility)

y Cross-border mergers

y Cross-border acquisitions

y Sharing existing facilities

Why is FDI important for any consideration of going global?

The simple answer is that making a direct foreign investment allows companies to

accomplish several tasks:

1. Avoiding foreign government pressure for local production.

2. Circumventing trade barriers, hidden and otherwise.

3. Making the move from domestic export sales to a locally -based national sales

office.

4. Capability to increase total production capacity.

5. Opportunities for co-production, joint venture s with local partners, joint marketing

arrangements, licensing, etc;


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A more complete response might address the issue of global business partnering in very

general terms. While it is nice that many business writers like the expression, think globally

act locally , this often used clich does not really mean very much to the average business

executive in a small and medium sized company.The phrase does have significant

connotations for multinational corporations.But for executives in SMEs, it is still just

another buzzword. The simple explanation for this is the difference in perspective

between executives of multinational corporations and small and medium sized companies

Multinational corporations are almost always concerned with worldwide manufacturing

capacity and proximity to major markets. Small and medium sized companies tend to

be more concerned with selling their products in overseas markets. The advent of the

Internet has ushered in a new and very different mindset that tends to focus more on access

issues. SMEs in particular are now focusing on access to markets, access to expertise and

most of all access to technology.

The Strategic Logic behind FDI

Resources seeking

y looking for resources at a lower real cost.Market seeking

y secure market share and sales growth in target foreign

market.

Efficiency seeking

y seeks to establish efficient structure through useful

factors, cultures, policies, or markets.

Strategic asset seeking

y seeks to acquire assets in foreign firms that

promote corporate long term objectives.

Enhancing Efficiency from Location Advantages

Location advantages


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y defined as the benefits arising from a host countrys

comparative advantages.- Better access to resources

y Lower real cost from operating in a host country

y Labor cost differentials

y Transportation costs, tariff and non -tariff barriers

y Governmental policies

Foreign direct investment: Indian scenario

Foreign Direct Investment (FDI) is permitted as under the following forms of

investments

Through financial collaborations.

Through joint ventures and technical collaborations.

Through capital markets via Euro issues.

Through private placements or preferential allotments.

Forbidden Territories

FDI is not permitted in the following industrial sectors:

y Arms and ammunition.

y Atomic Energy.

y Railway Transport.

y Coal and lignite.

y Mining of iron, manganese, chrome, gypsum, sulphur, gold, diamonds, copper, zinc.

y Retail Trading (except single brand product retailing).

y Lottery Business

y Gambling and Betting

y Business of chit fund

y Nidhi Company


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y Trading in Transferable Development Rights (TDRs).

y Activity/sector not opened to private sector investment.

Foreign Investment through GDRs (Euro Issues)

Indian companies are allowed to raise equity capital in the international market through the

issue of Global Depository Receipt (GDRs). GDR investments are treated as FDI and are

designated in dollars and are not subject to any ceilings on investment. An applicant

company seeking Government's approval in this regard should have consistent track record

for good performance (financial or otherwise) for a minimum period of 3 years. This

condition would be relaxed for infrastructure projects such as power generation,

telecommunication, petroleum exploration and refining, ports, airports and roads.

1. Clearance from FIPB

There is no restriction on the number of Euro-issue to be floated by a company or a group of

companies in the financial year. A company engaged in the manufacture of items covered

under Annex-III of the New Industrial Policy whose direct foreign investment after a

proposed Euro issue is likely to exceed 51% or which is implementing a project not

contained in Annex-III, would need to obtain prior FIPB clearance before seeking final

approval from Ministry of Finance.

2. Use of GDRs

The proceeds of the GDRs can be used for financing capital goods imports, capital

expenditure including domestic purchase/installation of plant, equipment and building and

investment in software development, prepayment or scheduled repayment of earlier externalborrowings, and equity investment in JV/WOSs in India.

3. Restrictions

However, investment in stock markets and real estate will not be permitted. Companies may

retain the proceeds abroad or may remit funds into India in anticipation of the use of funds


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for approved end uses. Any investment from a foreign firm into India requires the prior

approval of the Government of India.

2.3 Foreign direct investments in India are approved through two routes

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 notproposed to be held by the foreign investor can be offered to the public.

Investment Risks in India

Sovereign Risk

India is an effervescent parliamentary democracy since its political freedom from

British rule more than 50 years ago. The country does not face any real threat of a serious

revolutionary movement which might lead to a collapse of state machinery. Sovereign

risk in India is hence nil for both "foreign direct investment" and "foreign portfolio

investment." Many Industrial and Business houses have restrained themselves from

investing in the North-Eastern part of the country due to unstable conditions

Nonetheless investing in these parts is lucrative due to the rich mineral reserves here and


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high level of literacy. Kashmir on the northern tip is a militancy affected area and hence

investment in the state of Kashmir are restricted by law.

Political Risk

India has enjoyed successive years of elected representative government at the Union

as well as federal level. India suffered political instability for a few years in the sense there

was no single party which won clear majority and hence it led to the formation of

coalition governments. However, political stability has firmly returned since the general

elections in 1999, with strong and healthy coalition governments emerging. Nonetheless

political instability did not change India's bright economic course though it delayed

certain decisions relating to the economy. Economic liberalization which mostly

interested foreign investors has been accepted as essential by all political parties

including the Communist Party of India Though there are bleak chances of political

instability in the future, even if such a situation arises the economic policy of India

would hardly be affected.. Being a strong democratic nation the chances of an army

coup or foreign dictatorship are minimal. Hence, political risk in India is practically

absent.

Commercial Risk

Commercial risk exists in any business ventures of a country. Not each and everyproduct or service is profitably accepted in the market. Hence it is advisable to study the

demand / supply condition for a p articular product or service before making any major

investment. In India one can avail the facilities of a large number of market research

firms in exchange for a professional t involves some kind of gamble and hence

involves commercial risk

Risk Due To Terrorism

In the recent past, India has witnessed several terrorist attacks on its soil which could

have a negative impact on investor confidence. Not only business environment and return on

investment, but also the overall security conditions in a nation have an effect on FDI's

Though some of the financial experts think otherwise. They believe the negative impact of

terrorist attacks would be a short term phenomenon. In the long run, it is the micro and


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macro economic conditions of the Indian economy that would decide the flow of foreign

investment and in this regard India would continue to be a favorable investment destination.

Sector Specific Foreign Direct Investment in India

Hotel & Tourism: FDI in Hotel & Tourism sector in India

100% FDI is permissible in the sector on the automatic route,

The term hotels include restaurants, beach resorts, and other tourist complexes

providing accommodation and/or catering and food facilities to tourists. Tourism

related industry include travel agencies, tour operating agencies and tourist transportoperating agencies, units providing facilities for cultural, adventure and wild life

experience to tourists, surface, air and water transport facilities to tourists, leisure,

entertainment, amusement, sports, and health units for tourists and Convention/Seminar

units and organizations. For foreign technology agreements, automatic approval is granted if

up to 3% of the capital cost of the project is proposed to be paid for technical and

consultancy services including fees for architects, design, supervision, etc up to 3% of

net turnover is payable for franchising and marketing/publicity support fee, and up to

10% of gross operating profit is payable for management fee, including incentive fee.

Private Sector Banking:

Non-Banking Financial Companies (NBFC)

49% FDI is allowed from all sources on the automatic route subject to guidelines

issued from RBI from time to time. FDI/NRI/OCB investments allowed in the following 19

NBFC activities shall be as per levels indicated below:

i. Merchant banking

ii. Underwriting

iii. Portfolio Management Services

iv. Investment Advisory Services


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v. Financial Consultancy

vi. Stock Broking

vii. Asset Management

viii. Venture Capital

ix. Custodial Services

x. Factoring

xi. Credit Reference Agencies

xii. Credit rating Agencies

xiii. Leasing & Finance

xiv. Housing Finance

xv. Foreign Exchange Brokering

xvi. Credit card business

xvii. Money changing Business

xviii. Micro Credit

xix. Rural Credit

b. Minimum Capitalization Norms for fund based NBFCs:

i) For FDI up to 51% - US$ 0.5 million to be brought upfront

ii) For FDI above 51% and up to 75% - US $ 5 million to be brought upfrontiii) For FDI above 75% and up to 100% - US $ 50 million out of which US $ 7.5 million

to be brought up front and the balance in 24 months

c. Minimum capitalization norms for non-fund based activities:

Minimum capitalization norm of US $ 0.5 million is applicable in respect of all

permitted non-fund based NBFCs with foreign investment.

d. Foreign investors can set up 100% operating subsidiaries without the condition to

disinvest a minimum of 25% of its equity to Indian entities, subject to bringing in US$ 50

million as at b) (iii) above (without any restriction on number of operating subsidiaries

without bringing in additional capital) Joint Venture operating NBFC's that have 75%

or less than 75% foreign investment will also be allowed to set up subsidiaries for

undertaking other NBFC activities, subject to the subsidiaries also complying with the

applicable minimum


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capital inflow i.e. (b)(i) and (b)(ii) above.

f. FDI in the NBFC sector is put on automatic route subject to compliance with

guidelines of the Reserve Bank of India. RBI would issue appropriate guidelines in this

regard.

Insurance Sector: FDI in Insurance sector in India

FDI up to 26% in the Insurance sector is allowed on the automatic route subject to

obtaining license from Insurance Regulatory & Development Authority (IRDA)

Telecommunication:

FDI in Telecommunication sector

y In basic, cellular, value added services and global mobile personal

communications by satellite, FDI is limited to 49% subject to licensing and

security requirements and adherence by the companies (who are investing and

the companies in which investment is being made) to the license conditions for

foreign equity cap and lock - in period for transfer and addition of equity and other

license provisions.

y ISPs with gateways, radio-paging and end-to-end bandwidth, FDI is permitted upto

74% with FDI, beyond 49% requiring Government approval. These services

would be subject to licensing and security requirements.

y No equity cap is applicable to manufacturing activities.

y FDI up to 100% is allowed for the following activ ities in the telecom sector :

a. ISPs not providing gateways (both for satellite and submarine cables);

b. Infrastructure Providers providing dark fiber (IP Category 1);

c. Electronic Mail; and

d. Voice Mail

The above would be subject to the following conditions:

e. FDI up to 100% is allowed subject to the condition that such companies would

divest 26% of their equity in favor of Indian public in 5 years, if these companies are listed

in other parts of the world.


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f. The above services would be subject to licensing and securi ty

requirements, wherever required. Proposals for FDI beyond 49% shall be considered by

FIPB on case to case basis.

Power:

FDI In Power Sector in India

Up to 100% FDI allowed in respect of projects relating to electricity generation,

transmission and distribution, other than atomic reactor power plants. There is no

limit on the project cost and quantum of foreign direct investment.

Drugs & Pharmaceuticals

FDI up to 100% is permitted on the automatic route for manufacture of drugs and

pharmaceutical, provided the activity does not attract compulsory licensing or involve use of

recombinant DNA technology, and specific cell / tissue targeted formulations.

FDI proposals for the manufacture of licensable drugs and pharmaceuticals and bulk drugs

produced by recombinant DNA technology , and specific cell / tissue targeted formulations

will require prior Government approval.

Roads, Highways, Ports and Harbors

FDI up to 100% under automatic route is permitted in projects for construction and

maintenance of roads, highways, vehicular bridg es, toll roads, vehicular tunnels, ports

and harbors.

Pollution Control and Management

FDI up to 100% in both manufacture of pollution control equipment and consultancy for

integration of pollution control systems is permitted on the automatic route.

Call Centers in India / Call Centres in India

FDI up to 100% is allowed subject to certain conditions.

Business Process Outsourcing BPO in India


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FDI up to 100% is allowed subject to certain conditions.

Special Facilities and Rules for NRI's and OCB's

NRI's and OCB's are allowed the following special facilities:

1. Direct investment in industry, trade, infrastructure etc.

2. Up to 100% equity with full repatriation facility for capital and dividends in the

following sectors

i. 34 High Priority Industry Groups

ii. Export Trading Companies

iii. Hotels and Tourism-related Projects

iv. Hospitals, Diagnostic Centers

v. Shipping

vi. Deep Sea Fishing

vii. Oil Exploration

viii. Power

ix. Housing and Real Estate Development

x. Highways, Bridges and Ports

xi. Sick Industrial Unitsxii. Industries Requiring Compulso ry Licensing

3. Up to 40% Equity with full repatriation: New Issues of Existing Companies raising

Capital through Public Issue up to 40% of the new Capital Issue.

4. On non-repatriation basis: Up to 100% Equity in any Proprietary or

Partnership engaged in Industrial, Commercial or Trading Activity.

5. Portfolio Investment on repatriation basis: Up to 1% of the Paid up Value of the

equity Capital or Convertible Debentures of the Company by each NRI. Investment in

Government Securities, Units of UTI, National Pl an/Saving Certificates.

6. On Non-Repatriation Basis: Acquisition of shares of an Indian Company, through

a General Body Resolution, up to 24% of the Paid Up Value of the Company.

7. Other Facilities: Income Tax is at a Flat Rate of 20% on Income arising from Shares or

Debentures of an Indian


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Why is FDI important for any consideration of going global ?

The simple answer is that making a direct foreign investment allows companies to

accomplish several tasks:

1 .Avoiding foreign government pressur e for local production.

2. Circumventing trade barriers, hidden and otherwise.

3. Making the move from domestic export sales to a locally-based national sales office.

4. Capability to increase total production capacity.

5.Opportunities for co-production, joint ventures with local partners, joint marketing

arrangements, licensing, etc. A more complete response might address the issue of

global business partnering in very general terms.

While it is nice that many business writers like the expression,think globally, act locally

this often used clich does not really mean very much to the average business

executive in a small and medium sized company.The phrase does have significant

connotations for multinational corporations. But for executives in SMEs, it is still just

another buzzword. The simple explanation for this is the difference in perspective

between executives of multinational corpor ations and small and medium sized

companies. Multinational corporations are almost always concerned with worldwide

manufacturing capacity and proximity to major markets. Small and medium sized

companies tend to be more concerned with selling their products in overseas markets. The

advent of the Internet has ushered in a new and very different mindset that tends to focus

more on access issues. SMEs in particular are now focusing on access to markets, access to

expertise and most of all access to technology.

The Strategic Logic Behind FDI Resources seeking

y looking for resources at a lower real cost.

Market seeking

y secure market share and sales growth in target foreign market.


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Efficiency seeking

y seeks to establish efficient structure through useful factors, cultures, policies, or

markets.

Strategic asset seeking

y seeks to acquire assets in foreign firms that promote corporate long term objectives.

Enhancing Efficiency from Location AdvantagesLocation advantages

- defined as the benefits arising from a host countrys comparative

advantages.- Better access to resources

y Lower real cost from operating in a host country

y Labor cost differentials

y Transportation costs, tariff and non-tariff barriers

y Governmental policies

Improving Performance from Structural DiscrepanciesStructural discrepancies

The differences in industry structure attributes between home and

host countries.

Examples include areas where:

y Competition is less intense

y Products are in different stages of their life cycle

y Market demand is unsaturated

y There are differences in market sophistication

Increasing Return from Ownership Advantages

Ownership Advantages come from the application of proprietary tangible and intangible

assets in the host country.

y Reputation, brand image, distribution channels

y Technological expertise, organizational skills, experience

Core competence

y skills within the firm that competitors cannot easily imitate or match.


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Ensuring Growth from Organizational Learning

MNEs exposed to multiple stimuli, developing:

y Diversity capabilities

y Broader learning opportunities Exposed to:

New markets

New practices

New ideas

New cultures

New competition

The Impact of FDI on the Host CountryEmployment

Firms attempt to capitalize on abundant and inexpensive labor .

Host countries seek to have firms develop labor skills and sophistication.

Host countries often feel like least desirable jobs are transplanted from home

countries.

Home countries often face the loss of employment as jobs move.

FDI Impact on Domestic Enterprises

Foreign invested companies are likely more productive than local competitors.

The result is uneven competition in the short run, and competency building effor ts

in the longer term.

It is likely that FDI developed enterprises will gradually develop local

supporting industries, supplier relationships in the host country.

Foreign Direct Investment in India

The economy of India is the third largest in the world as measured by pur chasing power

parity ( PPP), with a gross domestic pr oduct (GDP) of US $3.611 trillion. When measured

in USD exchange-rate terms, it is the tenth largest in the world, with a GDP of US $800.8

billion (2006). is the second fastest growing major economy in the world, with a GDP

growth r ate of 8.9% at the end of the first quarter of 2006-2007. However, India's


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huge population results in a per capita income of $3,300 at PPP and $714 at nominal. The

economy is diverse and encompasses agriculture, handicrafts, textile, manufacturing, and a

multitude of services. Although two-thirds of the Indian work force still earn their

livelihood directly or indirectly through agriculture, services are a growing sector and are

playing an increasingly important role of India's economy. The advent of the digital age, and

the large number of young and educated populace fluent in English, is gradually

transforming India as an important 'back off ice' destination for global companies for the

outsourcing of their customer services and technical support.

India is a major exporter of highly-skilled workers in software and financial services

and software engineering. India followed a socialist-inspired approach for most of its

independent history, with strict government control over private sector participation

foreign trade, and foreign direct investment.

However, since the early 1990s, India has gradually opened up its markets through economic

reforms by reducing government controls on foreign trade and investment. The

privatization of publicly owned industries and the opening up of certain sectors to private

and foreign interests has proceeded slowly amid political debate. India faces a burgeoning

population and the challenge of reducing economic and social inequality. Poverty remains aserious problem, although it has declined significantly since independence, mainly due to the

green revolution and economic reforms. FDI up to 100% is allowed under the automatic

route in all activities/sectors except the following which will require approval of the

Government:

Activities/items that require an Industrial License; Proposals in which the foreign

collaborator has a previous/existing venture/tie up in India

FDI in India includes, FDI inflows as well as FDI outflow from India. Also FDI foreign

direct investment and FII foreign institutional investors are a separate case study while

preparing a report on FDI and economic gr owth in India. FDI and FII in India have

registered growth in terms of both FDI flows in India

Analysis of share of top ten investing countries FDI equity in flows


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From April 2010 to January 2011

(Amount in Millions)

Sr. No Country Amount of FDI Inflows % As To

Total FDI

Inflow

1. Mauritius 19,18,633.61 44.01

2. Singapore 3,80,142.56 8.72

3. U.S.A. 3,32,935.60 7.64

4. U.K. 2,40,974.98 5.53

5. Netherlands 1,78,047.76 4.08

6.Japan 1,50,129.05 3.44

7.Cyprus 1,32,448.04 3.04

8.Germany 1,12,242.06 2.57

9.France 61,686.39 1.42

10.U.A.E. 50,915.59 1.17

58


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Mauritius

Mauritius invested Rs.19,18,633 million in India Up to the January 2011, equal to

44.01 percent of total FDI inflows. Many companies based outside of India

utilizeMauritian holding companies to take advantage of the India - Mauritius Double

Taxation Avoidance Agreement (DTAA). The DTAA allows foreign firms to bypass

Indian capital gains taxes, and may allow some India-based firms to avoid paying

certain taxes through a process known as round tripping.

The extent of round tripping by Indian companies through Mauritius is unknown

However, the Indian government is concerned enough about this problem to have

asked the government of Mauritius to set up a joint monitoring mechanism to study these

investment flows. The potential loss of tax revenue is of particular concern to the Indian

government. These are the sectors which attracting more FDI from Mauritius

Electrical equipment Gypsum and cement products Telecommunications Services sector

that includes both non- financial and financial Fuels.

Singapore

Singapore continues to be the single largest investor in India amongst the Singapore with

FDI inflows into Rs. 3,80,142 crores up to January 2011.Sector-wise distribution of FDI inflows received from Singapore the highest inflows have

been in the services sector (financial and non financial), which accounts for about

30% of FDI inflows from Singapore. Petroleum and natural gas occupies the second place

followed by computer software and hardware, mining and construction.

U.S.A.

The United States is the third largest source of FDI in India (7.64 % of the total)

valued at 732335 crore in cumulative inflows up to Januar y 2011. According to the

Indian government, the top sectors attracting FDI from the United States to India are fuel,

telecommunications, electrical equipment, food processing, and services. According to

the available M&A data, the two top sectors attracting FDI inflows from the United States

are computer systems design and programming and manufacturing


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U.K.

The United Kingdom is the fourth largest source of FDI in India (5.53 % of the total), valued

at 2,40,974 crores in cumulative inflows up to January 2011.Over 17 UK companies under

the aegis of the Nuclear Industry Association of UK have tied up with Ficci to identify

joint venture and FDI possibilities in the civil nuclear energy sector.

UK companies and policy makers the focus sectors for joint ventures, partnerships, and

trade are non -conventional energy, IT, precision engineering, medical equipment

infrastructure equipment, and creative industries.

Netherlands

FDI from Netherlands to India has increased at a very fast pace over the last few years

Netherlands ranks fifth among all the countries that make investments in India. The

total flow of FDI from Netherlands to India came to Rs. 1,78,047 crores between 1991 and

2002. The total percentage of FDI f rom Netherlands to India stood at 4.08% out of the

total foreign direct investment in the country up to August 2010.

Following Various industries attracting FDI from Netherlands to India are:Food processing industries

Telecommunications that includes services of cellular mobile, basic

telephone, and radio paging,Horticulture Electrical equipment that includes computer

software and electronics

Service sector that includes non- financial and financial services

Analysis of sectors attracting highest FDI equity inflows

From April 2000 to March 2010

(Amount in Millions)

Total FDIInflow

1.Service Sector 9,65,210.77 22.14


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(Financial & Non Financial)

2.Computer Software & Hardware 4,13,419.03 9.48

3.Telecommunication 3,68,899.62 8.46

4. Housing & Real Estate 3,25,021.36 7.46

5.Construction Activities 2,65,492.96 6.09

6.Automobile Industry 1,90,172.22 4.36

7.Power 1,79,849.92 4.13

8.Metallurgical Industries 1,25,785.57 2.89

9.Petroleum & Natural Gas 1,11,957.00 2.57

10.Chemical 1,01,680.18 2.33

The sectors receiving the largest shares of total FDI inflows up to march 2010 were the

service sector and computer software and hardware sector, each accounting for 22.14

and 9.48 percent respectively. These were followed by the telecommunications, rea

estate, construction and automobile sectors. The top sectors attracting FDI into India via

M&A activity were manufacturing; information; and professional, scientific, and technical

services.

These sectors correspond closely with the sectors identified by the Indian government

as attracting the largest shares of FDI inflows overall.

The ASSOCHAM has revealed that FDI in Chemicals sector (other than fertilizers)

registered maximum growth of 227 per cent during April 2008 March 2009 as

compared to 11.71 per cent during the last fiscal. The sector attracted USD 749 million FDI

in FY 09 as compared to USD 229 million in FY During the year 2009 government had

raised the FDI limit in telecom sector from 49 per cent to 74 per, which has contributed to

the robust growth of FDI. The telecom sector registered a growth of 103 per cent

during fiscal 2008-09 as compared to previous fiscal. The sector attracted USD 2558

million FDI in FY 09 as compared to the USD 1261 million in FY 08, acquired 9.37 per

cent share in total FDI inflow. India automobile sector has been able to record 70 per

cent growth in foreign investment. The FDI inflow in automobile sector has increased from


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USD 675 million to 1,152 million in FY 09 over FY 08. The other sectors which registered

growth in highest FDI inflow during April March 2009 were housing & real estate (28.55

per cent), computer software & hardware (18.94 per cent), construction activities

including road & highways (16.35 per cent) and power (1.86 per cent).

Foreign Investment Promotion Board

The FIPB (Foreign Investment Promotion Board) is a government body that offers a single

window clearance for proposals on foreign direct investment in the country that are not

allowed access through the automatic route. Consisting of Senior Secretaries drawn from

different ministries with Secretary ,Economic Affairs in the chair,this high powered body

discusses and examines proposals for foreign investment in the country for restricted

sectors (as laid out in the Press notes and extant foreign investment policy) on a regular

basis. Currently proposals for investment beyond 600 crores require the concurrence of the

CCEA (Cabinet Committee on Economic Affairs). The threshold limit is likely to be

raised to 1200 crore soon.The Board thus plays an important role in the

administration and implementation of the Governments FDI policy. In circumstances

where there is ambiguity or a conflict of interpretation, the FIPB has stepped in to provide

solutions.

Through its fast track working it has established its reputation as a body th at does not

unreasonably delay and is objective in its decision making. It therefore has a strong

record of actively encouraging the flow of FDI into the country. The FIPB is assisted in

this task by a FIPB Secretariat. The launch of e-filing facility is an important

initiative of the Secretariat to further the cause of enhanced accessibility and transparency

.

Low Income Countries in Global FDI Race

The situation of foreign direct investment has been relatively good in the recent times with

an increase of 38%. Normally, the foreign direct investment is made mostly into the

extractive industries. However, now the foreign direct investors are also looking to pump


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money into the manufacturing industry that has garnered 47% of the total foreign direct

investment made in 1992. However, the situation has not been the same in the countries

with a middle income range.

The middle income countries have not received a steady inflow of foreign direct

income coming their way. The situation is comparatively better in the low income

countries. They have had an uninterrupted and continually increasing flow of foreign direct

investment. It has been observed that the various debt crises, as well as, other forms of

economic crises have had less effect on these countries.These countries had lesser amounts

of commercial bank obligations, which again had been caused by the absence of proper

financial markets, as well as the fact that their economies were not open to foreign direct

investment. During the later phases of the decade of 70s the Asian countries started

encouraging foreign direct investments in their economies. China has received the most

of the foreign direct investment that was pumped into the countries with low income. It

accounted for as much as 86% of the total foreign direct investment made in the lower

income countries in with low income. It accounted for as much as 86% of the total

foreign direct investment made in the lower income countries in 1995.

The economic liberalization in China started in 1979. This led to an increase in the foreign

direct investment in China. In the years between 1982 and 1991 the average foreign directinvestment in China was US$ 2.5 billion. This average increased by seven times to

become US$ 37.5 billion during 1995. A significant amount of the foreign direct

investment in China was provided in the industrial sector.

It was as much as 68%. Around 20% of the foreign direct investment of China was made in

the real estate sec tor. During the same period Nigeria had been the second best in terms of

receiving foreign direct investment. In the recent times India has Risen to be the third major

foreign direct investment destination in the recent years.

Foreign direct investment started in India in 1991 with the initiation of the economic

liberation.There were more initiatives that enabled India to garner foreign direct

investments worth US$ 2.9 billion from 1991 to 1995. This was a significant increase

from the previous twenty years when the total foreign direct investment in India was


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US$1 billion. Most of the foreign direct investment made in India has been in the

infrastructural areas like telecommunications and power. In the manufacturing industry

the emphasis has been on pet roleum refining, vehicles and petrochemicals . Vietnam is a

low income country, which is supposed to have the same potential as China to generate

foreign direct investment.

The foreign direct investment laws were introduced in Vietnam in 1987 -88. This led to an

increase in the foreign direct investment made in the country. The amount stood at

US$ 25 million in 1993 compared to US$ 8 million in 1993. This amount increased by

3 times after the USA removed its economic sanctions in 1994. The gas and

petroleum industries were the biggest beneficiaries of the foreign direct investment

Bangladesh started receiving increasing foreign direct investment after 1991, when the

economic reforms took place in the country.

After 1991 it was possible for foreign companies to set up companies in Bangladesh without

taking permission beforehand. The foreign direct investment rose from US$ 11 million in

1994 to US$ 125 million in 1995. As per the available statistics the manufacturing

industry, comprising of clothing and textiles took up 20% of the total approved foreign

direct investment. Food proces sing, chemicals and electric machinery were also

important in this regard. The increase in the foreign direct investment in Ghana wasremarkable as well. The figures increased from US$11.7 million, on an average, from 1986

to 1992 to US$ 201 million, on an average, from 1993 to 1995. This improvement was

brought about by the privatization of the Ashanti Goldfields.

Criteria considered by investors prior to selecting a destination

Political stability and a strong policy to protect investors.

Safety and security for life, money, and output.

Investment protection through legal provisions.

Good governance as compared to other countries.

Proactive government policies and implementing authorities and bureaucrats.

Continuous infrastructural development.


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A banking system with up-to-date technology.

A highly productive labour force and unhindered working conditions.

Clear and simple tax procedures without any ambiguity.

The availability of raw material, components, and consumables.

A hospitable society, especially with a secular approach towards investors.

A demand for the products the investor manufactures.

Ample potential opportunities for products in neighbouring countries.

Why India was unable to attract an expected investment

The reasons are:

A poor infrastructure, which does not match international standards.

Political instability, which is no longer a major constraint.

High levels of corruption, which are deep-rooted at all levels.

Bureaucratic red tape, which the investor does not have to face in other

destinations in the world.

A complex interpretation and implementation of policies.

A heterogeneous society with different states, cultures, and languages.

An inordinate delay in projects.

A draconian labour legislation.

A lack of transparency in regulatory bodies.

High costs of production due to expensive power and other inputs, as well as

transportation.

FOREIGN INSTITUTIONAL INVESTMENT

I. Introduction to FII

Since 1990-91, the Government of India embarked on liberalization and economic

reforms with a view of bringing about rapid and substantial economic growth and

move towards globalization of the economy. As a part of the reforms process, the


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Government under its New Industrial Policy revamped its foreign investment policy

recognizing the growi ng importance of foreign direct investment as an instrument of

technology transfer, augmentation of foreign exchange reserves and globalization of the

Indian economy. Simultaneously, the Government, for the first time, permitted

portfolio investments from abroad by foreign institutional investors in the Indian

capital market. The entry of FIIs seems to be a follow up of the recommendation of the

Narsimhan Committee Report on Financial System. While recommending their entry, the

Committee, however did not elaborate on the objectives of the suggested policy. The

committee only suggested that the capital market should be gradually opened up to

foreign portfolio investments.

From September 14, 1992 with suitable restrictions, FIIs were permitted to invest in all the

securities traded on the primary and secondary markets, including shares, debentures

and warrants issued by companies which were listed or were to be listed on the Stock

Exchanges in India.


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CONCLUSION

y A large number of changes that were introduced in the country Is regulatory

economic policies heralded the liberalization era of the FDI policy regime in India and

brought about a structural breakthrough in the volume of the FDI inflows into

the economy maintained a fluctuating and unsteady trend during the study

period.

y It might be of interest to note that more than 50% of the total FDI inflows received

by India , came from Mauritius, Singapore and the USA.

y The main reason for higher levels of investment from Mauritius was that the fact that

India entered into a double taxation avoidance agreement (DTAA) with

Mauritius were protected from taxation in India.

y Among the different sectors, the service sector had received the larger proportion

followed by computer software and hardware sector and telecommunication sector.

y The existing Strategy for attracting FDI should be overhauled. The relative emphasis

must shift from a broad approach to one of the targeting specific companies in specific

sector.y Domestic Policy Reforms in the power Sector, Urban Infrastructure and Real Estate

should be expedited to promote.

y The Special Economic Zones should be developed as the most competitive

destination for export related FDI in the world.

y Most of the foreign investment from India has been to countries with high income

with established large market which Indian firms want to capture


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Recommendations & suggestions

y FDI is good for growth of economy. It generates employment for the country. It

increases standard living of the people.

y Investment in a particular region leads to regional development. The gap of regional

disparity can be minimized.

y New MNC comes with new Technology. The entire FDI policy and procedures, as

notified by the Government from time to time, are duly incorporated under FEMA

regulations.

y Infrastructure investment and exports can be key drivers of productivity change and

economic growth. Both domestic private and foreign direct investment can play an

important role in these areas, but FDI can potentially play a more than proportionate

role because of the special features of these sectors.

y Some industry associations are already taking steps to help foreign direct investors in

dealing with unfamiliar Indian procedures. This effort needsto be supported and

expanded.

y

FDI in food retailing (entry of food department store chain) would lead to moreEfficient supply chain management systems that can reduce the large gap between the

price received by farmers and that paid by consumers.

y There is scope for greater FDI inflow in the insurance sector if the cap of 26 per cent

foreign equity is raised.

y The real estate and housing sector has a globally demonstrated potential for attracting

FDI.


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Limitations

y Profit of MNC will go outside the India.

y

Balance of payment can be unfavorable for Indiay The government should control on much investment.

y Government must safeguard the interest of Indian economy.

y This study has concentrated only on one part of foreign investment (FDI).

y It has thus relegated FDI to the core which is also an important

y component of investment.

y This study has taken the flow of FDI relating to mainly in India.


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Bibliography

www.rbi.org

www.fin.in.nic

www.sebi.org

http://www.answers.com/topic/foreign -direct-investment#History

http://www.unctad.org/sections/dite_iiab/docs/diteiiab20041_en.pdf

http://www.economywatch.com/foreign-direct-investment/

http://www.legalserviceindia.com/articles/fdi_india.htm

4th sem project(2)

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