Research Journal of Commerce & Business Management

Research Journal of Commerce & Business ManagementPublished by

VICHAYA EDUCATIONAL TRUSTRanchi, Jharkhand, Indiawww.anusandhanika.co.in

ISSN 0974 - 200X

Special Issue on FDI in India June 2017

Special Issue on FDI in India

June 2017A

NU

SAN

DH

AN

IKA

ANUSANDHANIKARefereed Research Journal of Commerce & Business Management

ISSN 0974-200X

Dr. R.P. Verma

Dr. Navin Kumar

Dr. Jyoti Shekhar

Dr. S.N.L. Das

Dr. Vijay B Singh

Dr. P. K. Pani

Dr. Vijay Kumar Mishra

Dr. M.K. Singh

Dr. Amar Kumar Chaudhary


Editor Madhukar Shyam

Managing Editor Dr. A.K. Chattoraj

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Notes for Contributors

1. Need of FDI in India- Its impact on Economic Development

ShuchiDr Arun Kumar Sinha

1

2. Foreign Direct Investment (FDI) in India & its impact on Indian Economy

Dr. I. J. Khalkho 6

3. FDI in India: An Analysis Dr. Vijay Prakash 11

4. Problems and Prospects of Foreign Direct Investment in India

Darshana Gopa Minz 16

5. Opportunities and Challenges of FDI in the Indian Telecommunication Sector

Tanuj KhatriDr. S.N.L. Das

21

6. FDI in Broadcasting Sector Dr. Shravan Kumar 26

7. Recent Challenges and Issues of FDI in Retail Trade for Sustainable Development of Business

Dr. Sandeep Kumar 30

8. Impact of Multinational Corporation on Labour Practices in the Era of Liberalisation, Privatisation and Globalisation

Dr. Abha Kumari 38

9. Foreign Direct Investment in India – Retail Sector Aditi SinghaniaPriyanka Chaturvedi

46

10. An Overview of FDI in India and Measures to Increase its Infl ow

Amit Kumar Gupta 52

11. Present Scenario of Foreign Direct Investment in India

Anamika KumariSneha Toppo

60

12. Foreign Direct Investment in Aviation Anand Kumar Chitlangia 67

13. Foreign Direct Investment in Infrastructure Sector and its Impact on Economic Growth in India

Avinash KumarFouzia Tabassum

71

14. Growth of Indian Economy in Foreign Direct Investment

Badal Rakshit 77

15. Impact of FDI in Socio-economic Development of India

Binita KumariDr. Sanjiv Chaturvedi

84

16. Foreign Direct Investment in India : An outline of Develpoment Since 1991

Christina Deogam Dr Arun Kumar Sinha

90

17 A Socio-Economic Analysis of FDI in India Prof. (Dr.) Himadri Ranjan Mishra

95

18 Foreign Direct Investment in Retail Sector Jayshree Gangunly 103

19 Impact of FDI in the Socio- Economic Development in India

Dr. Aditendra Nath ShahdeoKhaleda Rehman

106



ISSN 0974-200X

Special Issue on FDI in India October 2017Contents

1. Need of FDI in India- Its impact on Economic Development

ShuchiDr Arun Kumar Sinha

1

2. Foreign Direct Investment (FDI) in India & its impact on Indian Economy

Dr. I. J. Khalkho 6

3. FDI in India: An Analysis Dr. Vijay Prakash 11

4. Problems and Prospects of Foreign Direct Investment in India

Darshana Gopa Minz 16

5. Opportunities and Challenges of FDI in the Indian Telecommunication Sector

Tanuj KhatriDr. S.N.L. Das

21

6. FDI in Broadcasting Sector Dr. Shravan Kumar 26

7. Recent Challenges and Issues of FDI in Retail Trade for Sustainable Development of Business

Dr. Sandeep Kumar 30

8. Impact of Multinational Corporation on Labour Practices in the Era of Liberalisation, Privatisation and Globalisation

Dr. Abha Kumari 38

9. Foreign Direct Investment in India – Retail Sector Aditi SinghaniaPriyanka Chaturvedi

46

10. An Overview of FDI in India and Measures to Increase its Infl ow

Amit Kumar Gupta 52

11. Present Scenario of Foreign Direct Investment in India

Anamika KumariSneha Toppo

60

12. Foreign Direct Investment in Aviation Anand Kumar Chitlangia 67

13. Foreign Direct Investment in Infrastructure Sector and its Impact on Economic Growth in India

Avinash KumarFouzia Tabassum

71

14. Growth of Indian Economy in Foreign Direct Investment

Badal Rakshit 77

15. Impact of FDI in Socio-economic Development of India

Binita KumariDr. Sanjiv Chaturvedi

84

16. Foreign Direct Investment in India : An outline of Develpoment Since 1991

Christina Deogam Dr Arun Kumar Sinha

90

17 A Socio-Economic Analysis of FDI in India Prof. (Dr.) Himadri Ranjan Mishra

95

18 Foreign Direct Investment in Retail Sector Jayshree Gangunly 103

19 Impact of FDI in the Socio- Economic Development in India

Dr. Aditendra Nath ShahdeoKhaleda Rehman

106



ISSN 0974-200X

Special Issue on FDI in India October 2017Contents

20 Impact of FDI in the Socio-Economic Development of India

Khushboo RaiDr. B.M. Sahu

114

21 Bottleneks in Ariving Foreign Direct Investment in India and Suggestions to Overcome them

CS. Mala Kumari Upadhyay

118

22 Challenges and Future Prospects of FDI in Automobile Industry in India

Gaurav Srivastava 127

23 FDI and Its Impact on Jharkhand’s Socio-Economic Development

Nirmala KhessDr Sanjeev Chaturvedi

131

24 Problems and Prospects of FDI in Indian Retail Sector

Binay Kumar PanjiyarDr. Shravan Kumar

136

25 FDI in Insurance Sector Pervez WahabDr Nayeem Akhatar

142

26 Foreign Direct Investment in India Priyanka ChaturvediDr. H.B Singh

148

27 FDI in Indian Retail Sector Opportunities and Challenges

Priyanka Pandey Dr. D.L Maurya

154

28 Present Scenario of FDI in India Rachana Kumari 161

29 The Opportunities and Challenges for FDI in Retail in India

Ruchi Kumari 166

30 Growth of FDI in Indian Telecom Sector Sagorika RakshitDr. Subhas Kumar

174

31 FDI - An Opportunity to Indian Economy Shradha VermaAnamika Kumari

184

32 Impact of Demonetization on Foreign Portfolio Investment & Return in Stock Market

Sitaram PandeyDr. Amitava Samanta

188

33 Effect of Foreign Direct Investment and Human Capital Formation on Labour Markets in India

Dr. Abha Kumari Sheela Kumari Gupta

197

34 The Impact of FDI & FPI on Human Welfare AmarnathDr. Amitava Samanta

202

35 FDI in Energy Infrastructure – Power Generation & Distribution

Dr. Madan Kumar Singh 207

36 Role of FDI in Economic Growth of India Mantosh Kumar Singh 212

37 FDI in Retail Sector: Opportunities and Challenges Ahead

Dr. Bijay Kumar SinhaMritunjay Kumar Mishra

215

38 Foreign Direct Investment (FDI) in Indian Service Sector

Rajiv Ranjan Sinha 219

39 Role of FDI in Indian Economy and its Problems Dr. Sanjay PrasadProf. Srinath Koley

223

40 Present Scenario of FDI in India Sheela Kumari Gupta 229

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Anusandhanika /Special Issue on FDI in India/ October 2017/ pp 1 - 5 ISSN 0974 - 200X

Need of FDI in India- Its impact on Economic Development

Abstract

As India is a developing country, capital has been one of the scare resources that are usually required for economic development. Capital is limited and there are many issues such as Health, poverty, employment, education, research and development, technology obsolesce, global competition. The flow of FDI in India from across the world will help in acquiring the funds at cheaper cost, better technology, employment generation, and upgraded technology transfer, scope for more trade, linkages to domestic firms. The following arguments are advanced in favour of foreign capital. FDI is an important vehicle of technology transfer from developed countries to developing countries. India is the second fastest growing economy in the world with a GDP growth rate of 7.6% in the FY16. To maintain this growth rate and rank India requires huge foreign investment. Government of India has taken many initiatives to attract foreign investment into India. One of such initiative is “Make in India”, programme to make India a ‘Manufacturing Hub’ of the world. A Foreign Direct Investment is an investment made by a company or entity based in one country, into a company or entity based in another country. A foreign direct investment is a controlling ownership in a business enterprise in one country by an entity based in another country. Foreign Direct Investment has played a crucial role in the economic development of the country.

Keywords : domestic capital, business enterprise, economic growth

ShuchiResearch Scholar

University Department of Commerce & Business ManagementRanchi University, Ranchi

Dr Arun Kumar SinhaP G Head & Dean, Department of Commerce

St Xavier’s College, Ranchi

Introduction

Foreign Direct Investment (FDI) is a type of investment in to an enterprises in a country by another enterprises located in another country by buying a company in the target country or by expanding operations of an existing business in that country. In the era of globalization FDI takes vital part in the development of both developing and developed countries.

If country is interested in rapid economic development, they will have to import machinery, technical know-how, entrepreneurship, and foreign investment. One of the methods of paying for the imports is to set up exports or second alternative is getting foreign technology and equipment and it also depends upon foreign assistance in some forms or the other.

Most countries of the world which embarked on the road to economic development had to depend on foreign capital to some extent. The fact cannot be denied that the foreign capital contributed in many important ways to the process of economic growth and industrialization.

As India is a developing country, capital has been one of the scare resources that are usually required for economic development. Capital is limited and there are many issues such as Health, poverty, employment, education, research and development, technology obsolesce, global competition. The flow of FDI in India from across the world will help in acquiring the funds at cheaper cost, better technology, employment generation,

20 Impact of FDI in the Socio-Economic Development of India

Khushboo RaiDr. B.M. Sahu

114

21 Bottleneks in Ariving Foreign Direct Investment in India and Suggestions to Overcome them

CS. Mala Kumari Upadhyay

118

22 Challenges and Future Prospects of FDI in Automobile Industry in India

Gaurav Srivastava 127

23 FDI and Its Impact on Jharkhand’s Socio-Economic Development

Nirmala KhessDr Sanjeev Chaturvedi

131

24 Problems and Prospects of FDI in Indian Retail Sector

Binay Kumar PanjiyarDr. Shravan Kumar

136

25 FDI in Insurance Sector Pervez WahabDr Nayeem Akhatar

142

26 Foreign Direct Investment in India Priyanka ChaturvediDr. H.B Singh

148

27 FDI in Indian Retail Sector Opportunities and Challenges

Priyanka Pandey Dr. D.L Maurya

154

28 Present Scenario of FDI in India Rachana Kumari 161

29 The Opportunities and Challenges for FDI in Retail in India

Ruchi Kumari 166

30 Growth of FDI in Indian Telecom Sector Sagorika RakshitDr. Subhas Kumar

174

31 FDI - An Opportunity to Indian Economy Shradha VermaAnamika Kumari

184

32 Impact of Demonetization on Foreign Portfolio Investment & Return in Stock Market

Sitaram PandeyDr. Amitava Samanta

188

33 Effect of Foreign Direct Investment and Human Capital Formation on Labour Markets in India

Dr. Abha Kumari Sheela Kumari Gupta

197

34 The Impact of FDI & FPI on Human Welfare AmarnathDr. Amitava Samanta

202

35 FDI in Energy Infrastructure – Power Generation & Distribution

Dr. Madan Kumar Singh 207

36 Role of FDI in Economic Growth of India Mantosh Kumar Singh 212

37 FDI in Retail Sector: Opportunities and Challenges Ahead

Dr. Bijay Kumar SinhaMritunjay Kumar Mishra

215

38 Foreign Direct Investment (FDI) in Indian Service Sector

Rajiv Ranjan Sinha 219

39 Role of FDI in Indian Economy and its Problems Dr. Sanjay PrasadProf. Srinath Koley

223

40 Present Scenario of FDI in India Sheela Kumari Gupta 229

-2- Anusandhanika /Special Issue on FDI in India/ October 2017

and upgraded technology transfer, scope for more trade, linkages and spill over to domestic firms.

The need for Foreign Direct Investment for a developing country like India can arise on account of the following reasons:

i. Sustaining a high level of investment: As all the under-developed and the developing countries want to industrialize and develop themselves, therefore it becomes necessary to raise the level to investment substantially. Due to poverty and low GDP the saving are low. Therefore there is a need to fill the gap between income and savings through foreign direct investments.

ii. Technological gap: In Indian scenario we need technical assistance from foreign source for provision if expert services, training of Indian personnel and educational, research and training institutions in the industry. It only comes through private foreign investment or foreign collaborations.

iii. Exploitation of natural resources: In India we have abundant natural resources such as coal, iron and steel but to extract the resources we require foreign collaboration.

iv. Understanding the initial risk: In developing countries as capital is a scare resource, the risk of investments in new ventures or projects for industrialization is high. Therefore foreign capital helps in these investments which require high risk.

v. Development of basic economic infrastructure: In the recent years foreign financial institutions and government of advanced countries have made substantial capital available to the under developed countries. FDI will help in developing the infrastructure by establishing firm’s different parts of the country. There are special economic zones which have been developed by government for improvising the industrial growth.

vi. Improvement in the balance of payments position: The inflow FDI will help in improving the balance of payment. Firms which feel that the goods produced in India will have a low cost, will produce the goods and export the same to other country. This helps in increasing the exports.

vii. Foreign firm’s helps in increasing the competition: Foreign firms have always come up with better technology, process, and innovations comparing with the domestic firms. They develop a completion in which the domestic firms will perform better it survive in the market.

Supporters of private foreign investment argue that, the foreign investment brings with it new technology, better management and organization, superior marketing and sometimes cheaper finance. The arguments in favour of private foreign investment are the following:

i. Foreign investment constitutes a net addition to investible resources in host countries and as such raises their rates of growth;

ii. Foreign investment results in a pattern of growth which is desirable from the point of view of underdeveloped countries since new products are introduced and marketed, new tastes are created and specific needs of the host country are met; and

iii. Free flow of capital is conducive for the welfare of both the individual country and the world at large. The operations of foreign firms, especially of modern multinational firms, knit countries together and closer into the web of international commerce, both by(vertical and horizontal) economic integration and by the transmission of tastes, designs, ideas and technology.

Industrial studies have revealed that as foreign investors’ confidence in the Indian government will increase, their levels of investment in India will also go up. In the 2015-2016 fiscal years,


it is expected that FDI will exceed 60 billion US dollars. In the 2013-14 fiscal years, the aggregate foreign investment amounted to 29 billion dollars. This increase owes a lot to the high expectations that foreign investors. It has been estimated that in the ongoing Twelfth Five Year Plan, which continues till 2017, India will need almost a trillion US dollars in FDI. This money will be used to develop infrastructure such as highways, airways and ports.

Materials and Methods

For the purpose of in depth study the contents have been taken from interview, relevant books and articles from journals and websites. The method used is analytical and descriptive. Both primary as well as secondary source of Information have been taken.

Results and Discussions

FDI incorporates an important role within the economic progression and development of India. FDI in India in numerous sectors will attain sustained economic growth and development through creation of jobs, growth of existing producing industries. There are various economic factors which affect the inflows of FDI. Even despite the fact that of many factors Indian economy has succeeded to attract FDI inflows. India due to variability and many FDI caps provided by the government and other factors hoard and providing opportunities to many foreign investor countries. India is the second fastest growing economy in the world with a GDP growth rate of 7.6% in the FY16. In terms of GDP it is the 10th largest economy in the world and in terms PPP (Purchasing Power Parity) it is the 3rd largest economy in the world. To maintain this growth rate and rank India requires huge foreign investment. Government of India has taken many initiatives to attract foreign investment into India. One of such initiative is “Make in India”, programme to make India a ‘Manufacturing Hub’ of the world.

A Foreign Direct Investment (FDI) is an investment made by a company or entity based in one country, into a company or entity based in another country. A foreign direct investment is a controlling ownership

in a business enterprise in one country by an entity based in another country. Foreign Direct Investment (FDI) has played a crucial role in the economic growth and development of the country. FDI inflows not only bring capital in the country but also bring technological know-how and managerial skills.

It has been witnessed that with the increase in FDI inflows in India from $0.13 billion to $30.3 billion in 2010-11, the GDP growth rate of the country has accelerated from 1.43 percent in 1990-91 to 7.6 percent in 2015-16. It shows that India’s GDP has increased four times since 1990-91. FDI act as a catalyst in various sectors mainly in manufacturing and service sectors. With the new government in power, there are many reforms to attract FDI inflows in the country. FDI inflows in 2015-16 are more in the areas of service sectors (18%), construction development (10%), telecommunication (7%), computer software and hardware (6%) etc. While the share of industry in GDP remained stagnant, noteworthy over the period there was structural transformation in manufacturing sector. With FDI inflows there are development in many areas like infrastructure, per capita income and standard of living of the people has increased, poverty has declined in absolute terms, unemployment has reduced by 3 times since 1990-91 to 2013-14, clean technology has installed, roads, dams, bridges, schools, colleges, hospitals has been built with new technology. Thereby, overall development has shown in all over India.

For the economic growth and development of the country India requires huge capital. To compensate this domestic capital requirement, FDI inflows are one of the important pre-requisite. FDI is helping developing countries in capital formation by bringing fresh capitals.

Developing countries are lacking technological know-how. With the opening up of their economies for FDI, they will get the access to sophisticated technology from the foreign firms which will enhance their productivity and quality of the products.

FDI inflows are not only helping in capital formation but also help in developing


managerial skills. FDI inflows have increased the competitive environment for the domestic firms consequently benefitting the consumers by accessing with better quality products at a lesser price.

With the transfer of technology and enhancement of production techniques, marketing expertise and modern managerial techniques possibilities of export promotion has also been opened up in new areas. With better quality product at a lower price the demand increased for Indian goods and services abroad consequently there is increase in exports. Therefore, exports have increased from $18 billion to $245 billion. With the enhancement in exports BOP deficits has declined. Government of India has also taken many measures to attract FDI to boost exports.

With FDI inflows into the country new job opportunities has been created in various sectors. As more employment opportunities are generated mainly in metropolitan cities where FDI inflows are maximum i.e., Delhi and Mumbai. Therefore more rural-urban migrations are in these cities. India is the second largest populated country in the world. With increase in employment opportunities there is reduction in absolute poverty in India. But as the population base is very high in actual terms poverty has increased. So government has to take measures to attract more FDI and create more employment opportunities to reduce poverty from the country.

With the new reforms to boost FDI inflows in India, the PSU’s reserved areas i.e, where the state have exclusive rights to produce are opened up for Foreign Direct Investments. Earlier Railways and Defence were reserved for PSU’s and now FDI is allowed in these sectors. 100 percent FDI is allowed under automatic route in most of the areas of Indian Railways such as in bullet train, passenger terminal, railway electrification, mass rapid transport systems and IRCTC. 49 percent FDI is allowed in Defence sector but Atomic energy are still under PSU’s reserved areas. To get access to more sophisticated technology in Defence area we have to increase the FDI limit.

In India, the primary sector is in dire needs of foreign investment especially in the areas of agricultural, livestock farming, forestry, fishing etc. FDI inflows into agricultural and allied sectors are still negative despite that 58 percent of Indians are still dependent on agricultural and allied sectors for their livelihood and their contributions to country’s GDP has also declined from 56.5 percent in 1950-51 to 16 percent in 2015-16. To attract FDI’s into this sector government has to make land reforms and ease in the entry of FDI into this area. Therefore, it has been witnessed that FDI inflows are not even in terms of various sectors and regions.

FDI in India has a significant impact on development of India. FDI in India to various sectors can attain sustained economic growth and development through creation of jobs, expansion of existing manufacturing industries. The inflow of FDI in service sectors and construction and development sector, from April, 2000 to March, 2016 attained substantial sustained economic growth and development through creation of jobs in India. Computer, Software & Hardware and Drugs & Pharmaceuticals sector were the other sectors to which attention was shown by Foreign Direct Investors (FDI).

FDI plays a crucial role in enhancing the economic growth and development of the country. Moreover, FDI as a strategic component of investment is needed by India for achieving the objectives of its second generation of economic reforms and maintaining this pace of growth and development of the economy. Hence FDI is a significant factor which influences the level of economic growth in India. It provides a sound base for economic growth and development by enhancing the financial position of the country. It also contributes to the GDP and foreign exchange reserves of the country. India attracted FDI worth US$ 22.42 billion. Tourism, pharmaceuticals services, chemicals and construction were among the biggest beneficiaries. For Indian economy which has tremendous potential, FDI has had a positive impact. FDI inflow supplements domestic


capital, as well as technology and skills of existing companies. It also helps to establish new companies. All of these contribute to economic growth of the Indian Economy. India’s Foreign Direct Investment (FDI) policy has been gradually liberalised to make the market more investor friendly. The results have been encouraging. These days, the country is consistently ranked among the top three global investment destinations by all international bodies, including the World Bank.

Conclusion

FDI in India has a significant role in the economic growth and development of India. FDI in India to various sectors can attain sustained economic growth and development through creation of jobs, expansion of existing manufacturing industries. The inflow of FDI in service sectors and construction and development sector attained substantial sustained economic growth and development through creation of jobs in India. Computer, Software & Hardware and Drugs & Pharmaceuticals sector were the other sectors to which attention was shown by Foreign Direct Investors (FDI). The other sectors in Indian economy the Foreign Direct Investors interest was, in fact has been quite poor.

FDI has helped to raise the output, productivity and employment in some sectors especially in service sector. Indian service sector is generating the proper employment options for skilled worker with high perks. On the other side banking and insurance sector help in providing the strength to the Indian economic condition and develop the foreign exchange system in country. FDI is always helps to create employment in the country and also support the small scale industries also and helps country to put an impression on the world wide level through liberalization and globalization.

References

1. Kumar Nagesh, Globalization and the Quality of FDI, Oxford University Press, New Delhi, 2015

2. Khan A.Q., Strategy for Foreign Investment Management in 21st century, Kitab Mahal Publication, New Delhi, 2015

3. Shandilya T.K., Thakur A.K., Foreign Direct Investment in India: Problems and Prospects, Deep and Deep Publication, New Delhi, 2014

4. Narayanana M. R., Inflow of Foreign Direct Investment in India- Patterns, Performance, Implications, Foreign Trade Review, Vol. XXXIV, 2015, p 3

5. Grubaugh S.J., Determinants of Direct Foreign Investment, Review of Economics & Statistics, November, 2015


7. Roy Tirthankar, The Economy of India, Oxford University Press, New Delhi, 2015

8. Srivastava Sadhana, What Is the True Level of FDI Flows to India?, Economic and Political Weekly February 15, 2003

9. Kumar Raj Kapila, A Decade of Economic Reforms in India, published by Academic Foundation, Delhi, 1998

10. Mello Junior Luiz, R., Foreign Direct Investment led growth, Evidence from Time Series and Panel Data, Oxford Economic Papers, 1999

11. Bailliu Jeanine N, Foreign Capital Flows, Financial Development and Economic Growth in Developing Countries, Working Paper Bank of Canada, 2000

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ISSN 0974 - 200XAnusandhanika /Special Issue on FDI in India/ October 2017/ pp 6-10

Foreign Direct Investment (FDI) in India & its impact on Indian Economy

Abstract

Nations’ progress and prosperity is reflected by the pace of its sustained economic growth and development. Investment provides the base and pre-requisite for economic growth and development. Developed economies consider FDI as an engine of market access in developing and less developed countries vis-à-vis for their own technological progress and in maintaining their own economic growth and development. Developing nations looks at FDI as a source of filling the savings, foreign exchange reserves, revenue, trade deficit, management and technological gaps. FDI is considered as an instrument of international economic integration as it brings a package of assets including capital, technology, managerial skills and capacity and access to foreign markets. The impact of FDI depends on the country’s domestic policy and foreign policy. As a result FDI has a wide range of impact on the country’s economic policy. In order to study the impact of foreign direct investment on economic growth, two models were framed and fitted. The foreign direct investment model shows the factors influencing the foreign direct investment in India. The economic growth model depicts the contribution of foreign direct investment to economic growth.

Keywords : vital component, development strategy, managerial skills

Dr. I. J. KhalkhoAssociate Professor

Department of CommerceGossner College, Ranchi

Introduction

One of the most striking developments during the last two decades is the spectacular growth of FDI in the global economic landscape. This unprecedented growth of global FDI in 1990 around the world make FDI an important and vital component of development strategy in both developed and developing nations and policies are designed in order to stimulate inward flows. In fact, FDI provides a win – win situation to the host and the home countries. Both countries are directly interested in inviting FDI, because they benefit a lot from such type of investment. The ‘home’ countries want to take the advantage of the vast markets opened by industrial growth. On the other hand the ‘host’ countries want to acquire technological and managerial skills and supplement domestic savings and foreign exchange. Moreover, the paucity of all types of resources viz. financial, capital, entrepreneurship, technological know- how, skills and practices, access to markets- abroad- in their economic development, developing nations accepted FDI as a sole

visible panacea for all their scarcities. Further, the integration of global financial markets paves ways to this explosive growth of FDI around the globe.

Apart from being a critical driver of economic growth, Foreign Direct Investment (FDI) is a major source of non-debt financial resource for the economic development of India. Foreign companies invest in India to take advantage of relatively lower wages, special investment privileges such as tax exemptions, etc. For a country where foreign investments are being made, it also means achieving technical know-how and generating employment. The Indian Government’s favourable policy regime and robust business environment have ensured that foreign capital keeps flowing into the country. The government has taken many initiatives in recent years such as relaxing FDI norms across sectors such as defence, PSU oil refineries, telecom, power exchanges, and stock exchanges, among others. According to Department of Industrial Policy and Promotion (DIPP), the total FDI investments India


received in FY 2015-16 was US$ 40 billion, indicating that government’s effort to improve ease of doing business and relaxation in FDI norms is yielding results

FDI has been associated with improved economic growth and development in the host countries which has led to the emergence of global competition to attract FDI.

Foreign Direct Investment (FDI) is considered as an engine of economic growth. Before the Economic reforms the flow of foreign direct investment to India has been comparatively limited because of the type of industrial development strategy and the various foreign investment policy followed by the nation Not only India but much heralded FDI boom worldwide constitutes a major element of economic globalization Foreign investment was normally permitted only in high technology industries in priority areas and in export oriented areas. So the inflow of FDI before 1990’s was very low. To fully utilize the country’s immense economic potential, the government launched Economic reforms in 1991. The new Government policies are simple, transparent and promote domestic and foreign investment. India’s abundant and diversified natural resources, its sound economic policy, good market condition and high skilled human resources make it a proper destination for FDI. After long years of journey FDI was also introduced in various sectors and states in India. The Investment of FDI in various states and sectors leads to rapid growth of Indian economy Foreign Direct Investment in India is allowed through four basic routes namely financial collaborations, technical collaborations & joint ventures, capital markets via Euro issues, and private placement or preferential allotments. India has opened up its economy & allowed MNEs in core sectors such as Power & Fuels, Electrical Equipments, Transport, Chemicals, Food Processing, Drugs & Pharmaceuticals, Textiles, Industrial Machinery, insurance as well as telecommunication.

India has already marked its presence as one of the fastest growing economies of the world. It has been ranked among the top 3 attractive

destinations for inbound investments. Since 1991, the regulatory environment in terms of foreign investment has been consistently eased to make it investor-friendly.

In the critical face of Indian economy the government of India with the help of World Bank and IMF introduced the macro-economic stabilization and structural adjustment program. As a result of these reforms India open its door to FDI inflows and adopted a more liberal foreign policy in order to restore the confidence of foreign investors. Further, under the new foreign investment policy Government of India constituted FIPB (Foreign Investment Promotion Board) whose main function was to invite and facilitate foreign investment Starting from a baseline of less than USD 1 billion in 1990, a recent UNCTAD survey projected India as the second most important FDI destination (after China) for transnational corporations. As per the data, the sectors which attracted higher inflows were services, telecommunication, construction activities and computer software and hardware. Mauritius, Singapore, the US and the UK were among the leading sources of FDI to the country.

India attracted FDI worth US$ 22.42 billion. Tourism, pharmaceuticals, services, chemicals and construction were among the biggest beneficiaries. For Indian economy which has tremendous potential, FDI has had a positive impact. FDI inflow supplements domestic capital, as well as technology and skills of existing companies. It also helps to establish new companies. All of these contribute to economic growth of the Indian Economy. India’s Foreign Direct Investment (FDI) policy has been gradually liberalised to make the market more investor friendly. The results have been encouraging. These days, the country is consistently ranked among the top three global investment destinations by all international bodies, including the World Bank.


For the purpose of in depth study the contents have been taken from interview, relevant books and articles from journals and websites. The method used is analytical and descriptive.


Both primary as well as secondary source of Information have been taken.


Foreign investment plays a significant role in development of any economy as like India. Many countries provide many incentives for attracting the Foreign Direct Investment (FDI). Need of FDI depends on saving and investment rate in any country. Foreign Direct investment acts as a bridge to fulfill the gap between investment and saving. In the process of economic development foreign capital helps to cover the domestic saving constraint and provide access to the superior technology that promote efficiency and productivity of the existing production capacity and generate new production opportunity.

India’s recorded GDP growth throughout the last decade has lifted millions out of poverty & made the country a favoured destination for foreign direct investment. A recent UNCTAD survey projected India as the second most important FDI destination after China for transnational corporations during 2010-2015. Services, telecommunication, construction activities, computer software & hardware and automobile are major sectors which attracted higher inflows of FDI in India. Countries like Mauritius, Singapore, US & UK were among the leading sources of FDI in India.

The Economy of India is the seventh-largest economy in the world measured by nominal GDP and the third-largest by purchasing (PPP). The country is classified as a newly industrialized country, one of the G-20 major economies, a member of BRICS and a developing economy with an average growth rate of approximately 7% over the last two decades. Maharashtra is the wealthiest Indian state and has an annual GDP of US$220 billion, nearly equal to that of Portugal, and accounts for 12% of the Indian GDP followed by the states of Tamil Nadu (US$140 billion) and Uttar Pradesh (US$130 billion). India’s economy became the world’s fastest growing major economy from the last quarter of 2014, replacing the People’s Republic of China.

The long-term growth prospective of the Indian economy is positive due to its young population, corresponding low dependency ratio, healthy savings and investment rates, and increasing integration into the global economy. The Indian economy has the potential to become the world’s 3rd largest economy by the next decade, and one of the largest economies by mid-century. And the outlook for short-term growth is also good as according to the IMF, the Indian economy is the “bright spot” in the global landscape. India also topped the World Bank’s growth outlook for 2015-16 for the first time with the economy having grown 7.6% in 2015-16 and expected to grow 8.0 % + in 2016-17.

India has the one of fastest growing service sectors in the world with annual growth rate of above 9% since 2001, which contributed to 57% of GDP in 2012-13. India has become a major exporter of IT services, BPO services, and software services with $167.0 billion worth of service exports in 2013-14. It is also the fastest-growing part of the economy. The IT industry continues to be the largest private sector employer in India. India is also the fourth largest start-up hub in the world with over 3,100 technology start-ups in 2014-15. The agricultural sector is the largest employer in India’s economy but contributes to a declining share of its GDP (17% in 2013-14). India ranks second worldwide in farm output. The Industry sector has held a constant share of its economic contribution (26% of GDP in 2013-14). The Indian auto mobile industry is one of the largest in the world with an annual production of 21.48 million vehicles (mostly two and three wheelers) in FY 2013-14. India has $600 billion worth of retail market in 2015 and one of world’s fastest growing E-Commerce markets.

India’s two major stock exchanges, Bombay Stock Exchange and National Stock Exchange of India, had a market capitalization of US$1.71 trillion and US$1.68 trillion respectively as of Feb 2015, which ranks 11th & 12 largest in the world respectively according to the World Federation of Exchanges. India is a member of the Commonwealth of Nations, the South


Asian Association for Regional Cooperation, the Non Aligned Movement, the G20, the G8+5, the International Monetary Fund, the World Bank, the World Trade Organisation, the United Nations, the Shanghai Cooperation Organisation, the New Development BRICS Bank the Asian Infrastructure Investment Bank and Missile Technology Control Regime.

Impact of FDI on Indian Economy

India is the second fastest growing economy in the world with a GDP growth rate of 7.6% in the FY16. In terms of GDP it is the 10th largest economy in the world and in terms PPP (Purchasing Power Parity) it is the 3rd largest economy in the world. To maintain this growth rate and rank India requires huge foreign investment. Government of India has taken many initiatives to attract foreign investment into India. One of such initiative is “Make in India”, programme to make India a ‘Manufacturing Hub’ of the world.

A Foreign Direct Investment (FDI) is an investment made by a company or entity based in one country, into a company or entity based in another country. A foreign direct investment is a controlling ownership in a business enterprise in one country by an entity based in another country. Foreign Direct Investment (FDI) has played a crucial role in the economic growth and development of the country. FDI inflows not only bring capital in the country but also bring technological know-how and managerial skills.

Accelerated Economic Growth

It has been witnessed that with the increase in FDI inflows in India from $0.13 billion to $30.3 billion in 2010-11, the GDP growth rate of the country has accelerated from 1.43 percent in 1990-91 to 7.6 percent in 2015-16. It shows that India’s GDP has increased four times since 1990-91.

Accelerated Economic Development

FDI act as a catalyst in various sectors mainly in manufacturing and service sectors. With the new government in power, there are many reforms to attract FDI inflows in the

country. FDI inflows in 2015-16 are more in the areas of service sectors (18%), construction development (10%), telecommunication (7%), computer software and hardware (6%) etc. While the share of industry in GDP remained stagnant, noteworthy over the period there was structural transformation in manufacturing sector. With FDI inflows there are development in many areas like infrastructure, per capita income and standard of living of the people has increased, poverty has declined in absolute terms, unemployment has reduced by 3 times since 1990-91 to 2013-14, clean technology has installed, roads, dams, bridges, schools, colleges, hospitals has been built with new technology. Thereby, overall development has shown in all over India.

Capital

For the economic growth and development of the country India requires huge capital. To compensate this domestic capital requirement, FDI inflows are one of the important pre-requisite. FDI is helping developing countries in capital formation by bringing fresh capitals.

Technology

Developing countries are lacking technological know-how. With the opening up of their economies for FDI, they will get the access to sophisticated technology from the foreign firms which will enhance their productivity and quality of the products.Managerial SkillsFDI inflows are not only helping in capital formation but also help in developing managerial skills.Competitive EnvironmentFDI inflows have increased the competitive environment for the domestic firms consequently benefitting the consumers by accessing with better quality products at a lesser price.Reduction in Balance of Payment DeficitWith the transfer of technology and enhancement of production techniques, marketing expertise and modern managerial techniques possibilities of export promotion


has also been opened up in new areas. With better quality product at a lower price the demand increased for Indian goods and services abroad consequently there is increase in exports. Therefore, exports have increased from $18 billion to $245 billion. With the enhancement in exports BOP deficits has declined. Government of India has also taken many measures to attract FDI to boost exports.Employment GenerationWith FDI inflows into the country new job opportunities has been created in various sectors. As more employment opportunities are generated mainly in metropolitan cities where FDI inflows are maximum i.e., Delhi and Mumbai. Therefore more rural-urban migrations are in these cities.Poverty AlleviationIndia is the second largest populated country in the world. With increase in employment opportunities there is reduction in absolute poverty in India. But as the population base is very high in actual terms poverty has increased. So government has to take measures to attract more FDI and create more employment opportunities to reduce poverty from the country.Opened up Reserved AreaWith the new reforms to boost FDI inflows in India, the PSU’s reserved areas i.e, where the state have exclusive rights to produce are opened up for Foreign Direct Investments. Earlier Railways and Defence were reserved for PSU’s and now FDI is allowed in these sectors. 100 percent FDI is allowed under automatic route in most of the areas of Indian Railways such as in bullet train, passenger terminal, railway electrification, mass rapid transport systems and IRCTC. 49 percent FDI is allowed in Defence sector but Atomic energy are still under PSU’s reserved areas. To get access to more sophisticated technology in Defence area we have to increase the FDI limit.Conclusion

FDI incorporates an important role within the economic progression and development of

India. FDI in India in numerous sectors will attain sustained economic growth and development through creation of jobs, growth of existing producing industries. There are various economic factors which affect the inflows of FDI. Even despite the fact that of many factors Indian economy has succeeded to attract FDI inflows. India due to variability and many FDI caps provided by the government and other factors hoard and providing opportunities to many foreign investor countries. The invasion of FDI in service sectors and construction and development sector earned substantial, sustained economic progression through creation of jobs in Indian economy. FDI has helped to raise the output, productivity and employment in some sectors especially in service sector. Indian service sector is generating the proper employment options for skilled worker with high perks.

References1. Prasanna N, FDI in India: Issues and

Challenges, Regal Publications, New Delhi, 2014

2. Chaudhuri Sarbajit, Mukhopadhyay Ujjaini, Foreign Direct Investment in Developing Countries, Springer India, New Delhi, 2015

3. Roy Tirthankar, The Economy of India, Oxford University Press, New Delhi, 2015

4. Kumar Raj Kapila, A Decade of Economic Reforms in India, Academic Foundation, Delhi, 2015

5. Chakraborty S. and Basu P., Foreign Direct Investment and Growth in India: A Co integration Approach, Applied Economics, Vol. 34, 2014

6. https://en.wikipedia.org/wiki/Economy_of_India

7. Narayanana M. R., Inflow of Foreign Direct Investment in India- Patterns, Performance, Implications, Foreign Trade Review, Vol. XXXIV, 2015, p 3

8. Bhasin Nitin, Foreign Direct Investment (FDI) in India, New Century Publications, New Delhi, 2012

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Anusandhanika /Special Issue on FDI in India/ October 2017/ pp 11-15 ISSN 0974 - 200X

FDI in India: An Analysis

Abstract

The economic development witnessed during the past two decades in India rests to a great extent on Foreign Direct Investment (FDI). FDI has been a vital non-debt financial force behind the economic upsurge in India. Special investment vantages like cheap cost wages and tax exemptions on the amount being invested attract foreign companies to invest in India. FDI in India is done across a wide range of industries and its relentless influx reflects the tremendous scope, faith and trust that foreign investors have in the Indian economy. To ensure an uninterrupted inflow of FDI in India, the Indian government has created conducive trade atmosphere and effective business policy measures in place. This strategy is reflected in the steps taken by the government, such as easing out the restrictions levied on sectors like stock exchanges, power exchanges, defence and telecommunications.

Keywords : tax exemptions, trade policies, financial stability

Dr. Vijay PrakashDepartment of Commerce

Gyan Chand Jain Commerce College, Chaibasa

Introduction

FDI have helped India to attain a financial stability and economic growth with the help of investments in different sectors. FDI has boosted the economic life of India and on the other hand there are critics who have blamed the government for ousting the domestic inflows. After liberalization of Trade policies in India, there has been a positive GDP growth rate in Indian economy. Foreign direct investments helps in developing the economy by generating employment to the unemployed, Generating revenues in the form of tax and incomes, Financial stability to the government, development of infrastructure, backward and forward linkages to the domestic firms for the requirements of raw materials, tools, business infrastructure, and act as support for financial system. Forward and back ward linkages are developed to support the foreign firm with supply of raw and other requirements. It helps in generation of employment and also helps poverty eradication. There are many businesses or individuals who would earn their lively hood through the foreign investments. There are legal and financial consultants who also guide in the early stage of establishment of firm.

Foreign investments mean both foreign portfolio investments and foreign direct

investments (FDI). FDI brings better technology and management, marketing networks and offers competition, the latter helping Indian companies improve, quite apart from being good for consumers. Alongside opening up of the FDI regime, steps were taken to allow foreign portfolio investments into the Indian stock market through the mechanism of foreign institutional investors. The objective was not only to facilitate non-debt creating foreign capital inflows but also to develop the stock market in India, lower the cost of capital for Indian enterprises and indirectly improve corporate governance structures. On their part, large Indian companies have been allowed to raise capital directly from international capital markets through commercial borrowings and depository receipts having underlying Indian equity. Thus the country adopted a two-pronged strategy: one to attract FDI which is associated with multiple attendant benefits of technology, access to export markets, skills, management techniques, etc. and two to encourage portfolio capital flows which ease the financing constraints of Indian enterprises.

FDI Policy Framework in India

Policy regime is one of the key factors driving investment flows to a country. Apart from underlying overall fundamentals, ability of a nation to attract foreign investment essentially


depends upon its policy regime - whether it promotes or restrains the foreign investment flows. This section undertakes a review of India’s FDI policy framework. There has been a sea change in India’s approach to foreign investment from the early 1990s when it began structural economic reforms about almost all the sectors of the economy.

Historically, India had followed an extremely careful and selective approach while formulating FDI policy in view of the governance of „import-substitution strategy‟ of industrialisation. The regulatory framework was consolidated through the enactment of Foreign Exchange Regulation Act (FERA), 1973 wherein foreign equity holding in a joint venture was allowed only up to 40 per cent. Subsequently, various exemptions were extended to foreign companies engaged in export oriented businesses and high technology and high priority areas including allowing equity holdings of over 40 per cent. Moreover, drawing from successes of other country experiences in Asia, Government not only established Special Economic Zones (SEZs) but also designed liberal policy and provided incentives for promoting FDI in these zones with a view to promote exports. The announcements of Industrial Policy (1980 and 1982) and Technology Policy (1983) provided for a liberal attitude towards foreign investments in terms of changes in policy directions. The policy was characterised by de-licensing of some of the industrial rules and promotion of Indian manufacturing exports as well as emphasising on modernisation of industries through liberalised imports of capital goods and technology. This was supported by trade liberalisation measures in the form of tariff reduction and shifting of large number of items from import licensing to Open General Licensing (OGL).

A major shift occurred when India embarked upon economic liberalisation and reforms program in 1991 aiming to raise its growth potential and integrating with the world economy. Industrial policy reforms slowly but surely removed restrictions on investment projects and business expansion on the one

hand and allowed increased access to foreign technology and funding on the other. A series of measures that were directed towards liberalizing foreign investment included:

� Introduction of dual route of approval of FDI– RBI’s automatic route and Government’s approval (SIA/FIPB) route.

� Automatic permission for technology agreements in high priority industries and removal of restriction of FDI in low technology areas as well as liberalisation of technology imports.

� Permission to Non-resident Indians (NRIs) and Overseas Corporate Bodies (OCBs) to invest up to 100 per cent in high priorities sectors.

� Hike in the foreign equity participation limits to 51 per cent for existing companies and liberalisation of the use of foreign ‘brands name’.

� Signing the Convention of Multilateral Investment Guarantee Agency (MIGA) for protection of foreign Investments.

These efforts were boosted by the enactment of Foreign Exchange Management Act (FEMA), 1999 [that replaced the Foreign Exchange Regulation Act (FERA), 1973] which was less stringent. In 1997, Indian Government allowed 100% FDI in cash and carry wholesale and FDI in single brand retailing was allowed 51% in June, 2006. After a long debate, further amendment was made in December, 2012 which led FDI to 100% in single brand retailing and 51% in multiple brand retailing.




India is a developing country; capital has been one of the scare resources that are usually required for economic development. Capital


is limited and there are many issues such as Health, poverty, employment, education, research and development, technology obsolesce, global competition. The flow of FDI in India from across the world will help in acquiring the funds at cheaper cost, better technology, employment generation, and upgraded technology transfer, scope for more trade, linkages to domestic firms. The following arguments are advanced in favour of foreign capital.

As per the International Monetary Fund (IMF), Foreign Direct Investment, commonly referred to as FDI is an investment made to acquire lasting or long-term interest in enterprises operating outside of the economy of the investor. It is not ‘portfolio foreign investment (supine investment in another country’s securities like bonds and stocks)’. Inorganically or organically done investment in another country is not FDI. To understand the difference better, a British daily, the Financial Times puts it this way: “Standard definitions of control use the internationally agreed 10 percent threshold of voting shares, but this is a grey area as often a smaller block of shares will give control in widely held companies. Moreover, control of technology, management, even crucial inputs can confer de facto control. Ever since coming to power, the NDA government has taken a number of steps to bolster the FDI scenario in India. It has enabled international entities like Carrefour and Walmart to come and invest in the multi-brand retail market in India. The retail market in India has been growing at a substantial rate and at present, it is worth somewhere around 28 billion dollars. It is expected that in 2020, this value will reach approximately 260 billion dollars. However, there are certain conditions that need to be fulfilled by international entities that are thinking of coming and investing in the retail market in India. The minimum amount that needs to be invested by a foreign entity to gain entry in India’s retail market is 100 million dollars. There are also some restrictions in choosing the place where their stores can be opened. They can only start stores in cities where the population is at least 1 million. At

least half of their investment should be for back-end infrastructure such as warehouses. They will also need to get permission from the state government where they wish to open their stores.

The last fiscal (2014-15) year saw a considerable increase in the FDI made in India. India’s pro-growth business policies have contributed a great deal in making this possible. The first five months of the 2014-15 fiscal year noticed a net inflow of US$ 14.1 million FDI in India, amounting to a good 33.5 percent rise in the FDI influx registered for the corresponding period during the previous fiscal year. With an aggregate investment of US$ 353,963 million between April 2000 and November 2014, neighbouring country Mauritius has become the country with the largest Foreign Direct Investment (FDI) inflow into India.

There are several benefits of increasing foreign direct investment in India. First of all, with more FDI, consumers will be able to save 5 to 10 percent on their expenses because products will be available at much less rates and to top it all, the quality will be better as well. In short, it will be a win-win situation for the buyers. It is also expected that the farmers who face a lot of economic problems will also get better payment for their produce. This is a major benefit considering how many farmers have been giving up their lives lately. It is expected that their earnings will increase by 10 to 30 percent. FDI is also supposed to have a positive effect on the employment scenario by generating approximately 4 million job opportunities. Areas like logistics will be benefited as well because of FDI and it is assumed that 6 million jobs will be created. The governments – both central and state – will be benefited because of FDI. An addition of 25-30 billion dollars to the national treasury is also expected. This is a substantial amount and can really play a major role in the development of Indian economy in the long term.

Steps Taken by Government to Promote FDI

The Indian Government has taken a number of steps to show its willingness to allow more


foreign direct investment in the country. In the infrastructure development sector, it has relaxed the norms pertaining to area restriction, the laws regarding gaining a comfortable exit from a particular project and the requirements relating to minimum capitalization. If companies are ready to commit 30 percent of their investments for affordable housing, then the rules for minimum capitalization and area restriction will be waived off. It is expected that this will benefit the construction sector a lot, especially in the form of greater investment inflow. The situation will only get better once sectoral conditions are further relaxed and the terms that have been used in the policy are clarified up to a greater extent. This is likely to get more investment especially in the newer areas. This will also act as a fillip for entities eagerly interested in developing plots for serviced housing. This is going to be a major development considering the fact that the land in the urban areas is inadequate. One also needs to factor in the high costs of land in this regard. It will also lead to the creation of cost-beneficial, affordable houses. It will help with the ‘Smart Cities’ programme as well. In the insurance sector too, the government has increased the upper limit of FDI from 26 percent to 49 percent. It is an amalgamation of different areas of investment such as:

� Foreign portfolio investment

� Foreign venture capital investment

� Foreign institutional investment

� Non-resident investment

� Qualified foreign investment

The Indian Ministry of Finance has also proposed that 100 percent FDI will be allowed in railways-related infrastructure. However, this does not include the operational aspects. While it is true that the foreign investors will not be allowed to intervene in railway operations, they will be able to provide for high-speed trains, such as bullet train, and enhance the overall network in the process.

Investments in India during 2015-16

The Government in the centre has announced

a lot of relaxations for FDI and the business done under the FDI umbrella in India. The Union Budget presented in the Lok Sabha mentioned that the procedures through which the corporate houses attract foreign investment into India will be simplified and made uncomplicated. From now onwards, there will hardly be any difference between ‘Portfolio Foreign Investment’ and ‘Foreign Direct Investment’. The composite cap has replaced the concept of individual cap; for instance, there is now a composite cap of 49 percent foreign investors allowed in the insurance sector. The Indian government, during the 2014-15 fiscal year, announced that it would allow FDI worth US$ 14.65 billion into the railways infrastructure. Some of the most expensive and largest railway projects will be carried out under these investments. During the next three years, ADAMA Agrochemicals, an Israeli firm, has set its targets to spend US$ 50 million in India. The company plans to enhance R&D and manufacturing facilities in India to grow at a better rate than the current industry growth rate. Hundred percent FDI into the health sector will be allowed by the Department of Industrial Policy and Promotion (DIPP) to enable indigenous manufacturing and reduce imports of medical devices. By the next fiscal year, the value of medical devices in the world market will be worth US$ 400 billion. The equity investment in the real estate is expected to go twofold as the Indian government has allowed 100 percent FDI into the construction sector. As per the real estate experts’ beliefs, the demand from foreign property buyers will rise. Currently valued at US$ 1.5 billion, the real estate equity will reach a value of US$ 3 billion in a few years, the experts and analysts opine.

Conclusion

The sectoral level of the Indian economy, FDI has helped to raise the output, productivity and employment in some sectors especially in service sector. Indian service sector is generating the proper employment options for skilled worker with high perks. On the other side banking and insurance sector help in providing the strength to the Indian economic


condition and develop the foreign exchange system in country. FDI is always helps to create employment in the country and also support the small scale industries also and helps country to put an impression on the world wide level through liberalization and globalization.

References

1. Singh Rampal, FDI in India: Issues and Challenges, Regal Publications, New Delhi, 2014

2. Thakur Pooja and Burange L.G., An Analysis of Productivity Spillovers from FDI in India’s Services Sector, Foreign Trade Review, SAGE Publications, New Delhi, 2014

3. Consolidated FDI Policy, Department of Industrial Policy and Promotion, Ministry of Commerce and Industry, Government of India, 2015

4. http://en.wikipedia.org/wiki/Foreign_direct_investment_in_India

5. Ghosh, Rajarshi, Foreign Direct Investment – Policies and Experiences, ICFAI University Press, Hyderabad, 2015

6. Pradhan Rudra and Prakash P, ICFAI Journal of Financial Economics, Vol. 6, Issue 2, 2014

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Problems and Prospects of Foreign Direct Investment in India

Abstract

Foreign Direct Investment (FDI) in India has played an important role in the development of the Indian economy. It has in lot of ways facilitated India to achieve a certain degree of financial stability, growth and development. It is the objective of the Government of India to attract and promote foreign direct investment in order to supplement domestic capital, technology and skills, for accelerated economic growth. Foreign Direct Investment (FDI) and trade are often seen as important catalysts for economic growth in the developing countries. FDI is an important vehicle of technology transfer from developed countries to developing countries. FDI is one example of international factor movement. An investment abroad, usually where the company being invested in is controlled by the foreign corporation. The simplest explanation of FDI would be a direct investment by a corporation in a commercial venture in another country. A key to separating this action from involvement in other venture in foreign country is that the business enterprise operates completely outside the economy of the corporation’s home country.

Keywords : domestic investment, emerging economies, privatization of markets

Darshana Gopa MinzResearch Scholar


Introduction

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 many countries including developing countries like India. FDI is not permitted in the arms, nuclear, railway, coal or mining industries. The objective behind allowing FDI is to harmonize and complement domestic investment, for achieving a higher level of economic development and providing more opportunities for up gradation of technologies as well as to have an access to global managerial skills and practices.

FDI is as an engine of capital, technology, managerial skills, technological progress & capacity, access to foreign markets and in maintaining economic growth and development for developing countries, where as for developed countries it is considered as a tool for accessing the market of emerging economies. Foreign investors showed keen

interest in Indian economy because of liberalized regime pursued and followed by Indian economy. This may be due to the low flow of FDI into India both at the macro level as well as at the sartorial level. It implies that the spirit in which the economy has been liberalized and exposed to the world economy at the late eighties and early nineties has not been achieved after so many years. This calls for a judicious policy decision towards FDI at the sartorial level. A large number of changes that were introduced in the country`s 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. It might be interest to note that more than 50 per cent of the total FDI inflows received in India come from Mauritius, Singapore and the USA. 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.


Among the different sectors, the service sector had received the larger proportion followed by computer software and hardware sector and then telecommunication sector. The process of economic reforms which was initiated in July 1991 to liberalize and globalize the economy had gradually opened up many sectors of its economy for the foreign investors.

Foreign Direct Investment (FDI) is a type of investment in to an enterprises in a country by another enterprises located in another country by buying a company in the target country or by expanding operations of an existing business in that country. In the era of globalization FDI takes vital part in the development of both developing and developed countries. FDI has been associated with improved economic growth and development in the host countries which has led to the emergence of global competition to attract FDI.

Foreign Direct Investment (FDI) is considered as an engine of economic growth. Before the Economic reforms the flow of foreign direct investment to India has been comparatively limited because of the type of industrial development strategy and the various foreign investment policy followed by the nation Not only India but much heralded FDI boom worldwide constitutes a major element of economic globalization Foreign investment was normally permitted only in high technology industries in priority areas and in export oriented areas. So the inflow of FDI before 1990’s was very low. To fully utilize the country’s immense economic potential, the government launched Economic reforms in 1991. The new Government policies are simple, transparent and promote domestic and foreign investment. India’s abundant and diversified natural resources, its sound economic policy, good market condition and high skilled human resources make it a proper destination for FDI. After long years of journey FDI was also introduced in various sectors and states in India. The Investment of FDI in various states and sectors leads to rapid growth of Indian economy Foreign Direct Investment in India is allowed through four basic routes namely financial collaborations,

technical collaborations & joint ventures, capital markets via Euro issues, and private placement or preferential allotments. India has opened up its economy & allowed MNEs in core sectors such as Power & Fuels, Electrical Equipments, Transport, Chemicals, Food Processing, Drugs & Pharmaceuticals, Textiles, Industrial Machinery, insurance as well as telecommunication.




Foreign direct investment refers to the investment in a business from another country for which the foreign investor has control over the company purchased According to Organization of Economic Cooperation & Development (OECD) for an FDI control should be 10 % or more of business A parent business enterprise & its foreign affiliates are the two sides of the FDI relationship Together they comprise an MNC or MNEs The parent enterprise through its foreign direct investment effort seeks to exercise substantial control over the foreign affiliate company Control as defined by UN is ownership of greater than or equal to 10% of the ordinary shares or access to voting rights in an incorporated firm Ownership share amounting to less than that stated above is termed as portfolio investment & is not categorized as FDI

India has already marked its presence as one of the fastest growing economies of the world. It has been ranked among the top 3 attractive destinations for inbound investments. Since 1991, the regulatory environment in terms of foreign investment has been consistently eased to make it investor-friendly.

The historical background of FDI in India can be traced back with the establishment of East India Company of Britain. British capital came to India during the colonial era of Britain in India.


The industrial policy of 1965, allowed MNCs to venture through technical collaboration in India. Therefore, the government adopted a liberal attitude by allowing more frequent equity.

In the critical face of Indian economy the government of India with the help of World Bank and IMF introduced the macro-economic stabilization and structural adjustment program. As a result of these reforms India open its door to FDI inflows and adopted a more liberal foreign policy in order to restore the confidence of foreign investors. Further, under the new foreign investment policy Government of India constituted FIPB (Foreign Investment Promotion Board) whose main function was to invite and facilitate foreign investment Starting from a baseline of less than USD 1 billion in 1990, a recent UNCTAD survey projected India as the second most important FDI destination (after China) for transnational corporations. As per the data, the sectors which attracted higher inflows were services, telecommunication, construction activities and computer software and hardware. Mauritius, Singapore, the US and the UK were among the leading sources of FDI to the country.

India attracted FDI worth US$ 22.42 billion. Tourism, pharmaceuticals, services, chemicals and construction were among the biggest beneficiaries. For Indian economy which has tremendous potential, FDI has had a positive impact. FDI inflow supplements domestic capital, as well as technology and skills of existing companies. It also helps to establish new companies. All of these contribute to economic growth of the Indian Economy. India’s Foreign Direct Investment (FDI) policy has been gradually liberalised to make the market more investor friendly. The results have been encouraging. These days, the country is consistently ranked among the top three global investment destinations by all international bodies, including the World Bank.

Problems of FDI in India

India, the largest democratic country with the second largest population in the world, with rule of law and a highly educated English

speaking work force, the country is considered as a safe haven for foreign investors.

Yet, India seems to be suffering from a host of self-imposed restrictions and problems regarding opening its markets completely too global investors by implementing full scale economic reforms. Some of the major impediments for India’s poor performance in the area of FDI are: political instability, poor infrastructure, confusing tax and tariff policies, Draconian labour laws, well entrenched corruption and governmental regulations.

Lack of adequate infrastructure: It is cited as a major hurdle for FDI inflows into India. This bottleneck in the form of poor infrastructure discourages foreign investors in investing in India. India’s age old and biggest infrastructure problem is the supply of electricity. Power cuts are considered as a common problem and many industries are forced to close their business.

Stringent labor laws: Large firms in India are not allowed to retrench or layoff any workers, or close down the unit without the permission of the state government. These laws protect the workers and thwart legitimate attempts to restructure business. To retrench unnecessary workers, firms require approval from both employees and state governments-approval that is rarely given. Further, Trade Unions extort huge sums from companies through over-generous voluntary retirement schemes.

Corruption: Corruption is found in nearly every public service, from defense to distribution of subsidized food to the poor people, to the generation and transmission of electric power. The combination of legal hurdles, lack of institutional reforms, bureaucratic decision-making and the allegations of corruption at the top have turned foreign investors away from India.

Lack of decision making authority with the state Governments: The reform process of liberalizing the economy is concentrated mainly in the Centre and the State Governments are not given much power. In most key infrastructure areas, the central government


remains in control. Brazil, China, and Russia are examples where regional governments take the lead in pushing reforms and prompting further actions by the central government.

Limited scale of export processing zones: India’s export processing zones have lacked dynamism because of several reasons, such as their relatively limited scale; the Government’s general ambivalence about attracting FDI; the unclear and changing incentive packages attached to the zones; and the power of the central government in the regulation of the zones. India which established its first Export Processing Zone (EPZ) in 1965 has failed to develop the zones when compared to China which took initiative for establishment only in 1980.

High corporate tax rates: Corporate tax rates in East Asia are generally in the range of 15 to 30 percent, compared with a rate of 48 percent for foreign companies in India. High corporate tax rate is definitely a major disincentive to foreign corporate investment in India.

Indecisive government and political instability: There were too many anomalies on the government side during past two decades and they are still affecting the direct inflow of FDI in India such as mismanagement and oppression by the different company, which affect the image of the country and also deject the prospective investor, who is very much conscious about safety and constant return on their investment.

Prospects of FDI in India

Stable Policies: India stable economic and socio policies have attracted investors across border. Investors prefer countries which stable economic policies. If the government makes changes in policies which will have effect on the business. The business requires a lot of funds to be deployed and any change in policy against the investor will have a negative effect.

Economic Factors: Different economic factors encourage inward FDI. These include interest loans, tax breaks, grants, subsidies and the removal of restrictions and limitation. The government of India has given many

tax exemption and subsidies to the foreign investors who would help in developing the economy.

Cheap and Labour: There is abundant labour available in India in terms of skilled and unskilled human resources. Foreign investors will to take advantage of the difference in the cost of labour as we have cheap and skilled labours. Example: Foreign firms have invested in BPO’s in India which require skilled labour and we have been providing the same.

Basic Infrastructure: India though is a developing country, it has developed special economic zone where there have focused to build required infrastructure such as roads, effective transportation and registered carrier departure worldwide, Information and communication network/technology, powers, financial institutions, and legal system and other basic amenities which are must for the success of the business. A sound legal system and modern infrastructure supporting an efficient distribution of goods and services in the host country

Unexplored Markets: In India there is large scope for the investors because there is a large section of markets have not explored or unutilized. In India there is enormous potential customer market with large middle class income group who would be target group for new markets. Example: BPO was one sector where the investors had large scope exploring the markets where the service was provided with just a call, with almost customer satisfaction.

Conclusion

Foreign capital consists of private foreign capital and public foreign capital. Public foreign capital is otherwise known as foreign aid where as private foreign capital consists of either foreign direct investment or indirect foreign investment. Further, indirect foreign investment is otherwise termed as portfolio investment. Foreign portfolio investment is an investment in the share and debt securities of companies abroad in the secondary market nearly for sake of returns and not in the


interests of the management of a company. In case of foreign direct investment (FDI), the private foreign investor either sets up a branch or a subsidiary in the recipient country. The private foreign investors exercise almost complete control over the assets created by them in the developing countries in which private foreign capital has been invested. In the liberalized environment as economies become increasingly open, and trade between countries expand, financial transactions become global through financing trade of goods and services. Capital is the engine of economic development and this statement is gaining importance in the recent times. Traditionally, the various source of capital for developing countries were either the demand for their output by industrial countries or foreign aid, or loan from foreign banks. In today’s scenario, where official development assistance flows are steadily declining, high bank interest rates and portfolio investment involve risks. Foreign direct investment is considered to be a major source of funds which may contribute in increasing the economic growth rate of the developing countries. MNCs account for 2/3rd of the world trade in services and goods. Recently the governments’ liberal and open policy reform in foreign direct investment (FDI) aims to integrate the Indian economy to this world economy. Foreign direct investment (FDI) helps to overtake the problem of low capital, low growth rate, untapped natural and human resources, high rate of inflation, unemployment, balance of payment and

other structural and administrative rigidities. Its ability to deal with the major obstacles namely shortages of financial resources and technology and skills, has made of the centre of attention for developing countries. It is the reason most of the countries especially developing countries like India are battling for attracting more and more foreign direct investment (FDI).

References

1. Pant Manoj, FDI in India, Orient Blackswan Private Limited, New Delhi, 2015

2. Basu Nirmal, Reports on Investment Approval and FDI in India, Academic Foundation. New Delhi, 2014


4. Ahmed Shahid, Foreign Direct Investment, Trade and Economic Growth: Challenges and Opportunities, Routledge India, New Delhi, 2013

5. Deepti, Foreign Direct Investment in Different Sectors of Indian Economy, Deep & Deep Publications, New Delhi, 2012

6. Shandilya T.K., Thakur A.K., Foreign Direct Investment in India: Problems and Prospects, Deep and Deep Publication, New Delhi, 2014

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Opportunities and Challenges of FDI in the Indian Telecommunication Sector

Abstract

FDI is considered as the life blood and an important vehicle for economic development as far as the developing nations are concerned. Encouraging FDI in the form of technology due to rising demand for a wide range of telecom equipment, particularly in the area of mobile telecommunications, has provided excellent opportunities to domestic and foreign investors in the manufacturing sector .The following paper will examine the current status of foreign direct investment (FDI) in the Indian telecommunication sector and the issues faced by foreign companies seeking to invest in the Indian telecommunications sector. Indian telecom industry is growing at a great pace & India is expected to become a manufacturing hub for telecom equipment and is set to become one of the largest sectors globally by 2020. The Indian Telecommunications network with 621 million connections is the third largest in the world. The rapid strides in the telecom sector have been facilitated by liberal policies of the Government that provides easy market access for telecom equipment and a fair regulatory framework for offering telecom services to the Indian consumers at affordable prices. Despite of having all such opportunities foreign investors in the Indian telecommunication sector face some challenges too. Though the telecom sector at present is going through the difficult phase of policies re enactment and clarity but has immense growth opportunities. There is big market to address telephony, data and internet services. The demography due to large young population is promising and internet services are bound to increase. It is still an attractive market for new entrants.

Keywords : manufactures hub, competitive, employment opportunities

Tanuj KhatriResearch Scholar

University Department of Commerce & Business Management Ranchi University, Ranchi

Dr. S.N.L. DasProfessor


Introduction

Indian telecom industry is growing at a great pace and India is expected to become a manufacturing hub for telecom equipment. Indian telecom equipment manufacturing sector is set to become one of the largest sectors globally by 2010. Due to rising demand for a wide range of telecom equipment, particularly in the area of mobile telecommunications, has provided excellent opportunities to domestic and foreign investors in the manufacturing sector.From the viewpoint of foreign investment FDI is considered as an important vehicle for economic development as far as the developing nations are concerned. The important effect of FDI is its contribution

towards the growth of the economy. FDI has an important impact on country‟s trade balance, increasing labor standards and skills, transfer of technology and innovative ideas, skills and the general business climate. FDI also provides opportunity for technological transfer and up gradation, access to global managerial skills and practices, optimal utilization of human capabilities and natural resources, making industry internationally competitive, opening up export markets, access to international quality goods and services and augmenting employment opportunities.The role of Foreign Direct Investment in an economy goes beyond simply easing financial constraints. FDI inflows are associated with multiple benefits such as technology transfer, market access and


organisational skills. Consequently, there is an increasing and intense competition between countries to maximize the quantity of FDI inflows. Any successful policy for attracting FDI has to keep this competitive scenario in mind. New international players are today entering the Indian market and while they may have not seen immediate success, their strategy seems to be one of providing better quality which will definitely find takers especially after the coming in of mobile number portability, introduction of 3G and expected roll out of BWA and 4G technology in India.. Indian economy is now firmly developed as one of the world’s foremost destinations for FDI. FDI in Telecommunication in India undoubtedly continues to be one of the most dynamic and fastest growing major telecommunication markets in the world.


Resources have been taken from both primary and secondary data or information. The study area is the service(telecom) sectors of the economy both rural and urban comprising of all the states and the Union territories of India. For the purpose of in depth study the contents have been taken from relevant books, articles, journals, newspapers and websites. The data obtained is compiled and analyzed.


The Indian Telecommunications network with 621 million connections is the third largest in the world. The sector is growing at a speed of 45% during the recent years. This rapid growth is possible due to various proactive and positive decisions of the Government and contribution of both by the public and the private sectors. The rapid strides in the telecom sector have been facilitated by liberal policies of the Government that provides easy market access for telecom equipment and a fair regulatory framework for offering telecom services to the Indian consumers at affordable prices. Presently, all the telecom services have been opened for private participation.

India is the 2nd largest Telecom Market in the World. So there is Plenty of Career Opportunities for young generation. MIT

School of Telecom Management Pune, is a Institute which provides world- class telecom business leaders to cope up with the changing scenario in the corporate world. As there is huge growth in telecom in India, We need telecom managers and we must rise to this challenge. As Telecommunications technology continues to grow and change. This technical knowledge should be gained by education. This course will provide you with technical training on various technologies used to provide voice and data communication networks as well as providing you with training in the management and accounting skills needed by a manager.

Opportunities

The Indian telecom market is expected to grow three fold by 2017 and market size over US $ 8 billion. Moreover the government has set a target of 20 million broadband connections by 2018. The National Telecom Policy 1999 targets tele-density at 15 per cent by 2010. This will entail an investment of US $ 40- 50 billion over the next 6-8 years. There is an immense opportunity for DTH in the Indian market which is almost 10 times compared to the developed countries like the US and Europe. For every channel there is a scope for broadcasting it in at least ten different languages. So every channe l multiplied by ten that is the kind of scope for DTH in the country. India‟s media players have all the ingredients to develop a successful DTH industry. So currently there is a lot of pent-up demand in the Indian market for DTH. It is expected that by the year 2010 there will be over 500 million subscribers in the Indian telecom market. Cellular subscriber base is projected to grow at a CAGR (Compounded Annual Growth Rate) of 48 per cent & expected to reach 100 million in 2017. Over 150% growth in telecom services is projected in 5 years. India will require large investments in network infrastructure & India expected to be fasted growing telecom market in the world.Total estimate of investment opportunity of USS 22 billion expected over the next five years. Investment opportunity of $22 billion across many areas: Telecom Devices and Software for Internet Broadband and Direct To Home Services Gateway exchange Set top


box Modem Mobile handsets and consumer premise equipments Gaming devices EPABX Telecom Software Telecom Services for voice and data via a range of technologies. With the rapid growth of the telecom network, there are further opportunities to expand the telecom infrastructure and research and development.

1. Strong mobile subscriber growth is continuing, with the market benefiting from a healthy degree of competition.

2. The mobile market plays host to a large number of strategic investors including Singapore Telecommunications, Vodafone, Malaysia’s Maxis, Norway’s Telenor, Japan’s NTT DoCoMo and Russia’s Sistema.

3. Demand for mobile value-added services is strong and expected to grow.

4. Healthy competition exists in the broadband sector, where state-owned operators Bharat Sanchar Nigam (BSNL) and Mahanagar Telephone Nigam (MTNL) compete against a number of privately owned operators, including Bharti Airtel, Hathway Cable and Tata Communications.

5. Fixed internet broadband subscription growth is strong, with the market registering an estimated 45 million subscriptors in 2017, hence a penetration just above 1% of the population.

6. In total 25 million internet supsciptions makes India the 3rd biggest market in the world and rapid growth is expected. By 2017, the number is expected to reach 243 million with a penetration rate of 16,2%.

7. The issuance of several international long-distance and national longdistance licences has created opportunities for new companies to develop a market presence. Strong demand exists among businesses for fixed voice and data services.

8. Significant opportunities exist to develop a wide range of alternative broadband technologies, including WiMAX and fibre.

Launch of IP-based television services by several operators has the potential to stimulate demand for broadband services.

9. Other avaenues of opportunities are as m-Banking, m-Education, mGovernance, m-Health and Location-based services (LBS).

Major Challenges

There are many challenges for the companies as:-

1. Uncertainty as to whether spectrum allocations for 3G services will be sufficient; severe lack of spectrum in nine of the 22 calling circles.

2. Network capacity, particularly in the mobile market, could struggle to keep up with demand.

3. MNP will make migration between operators easier, thus adding pressure on operators to retain existing customers.

4. Although operators have started to increase tariff rates, it would be some time before a significant improvement in profitability could be seen.

5. Mobile market is still highly skewed towards prepaid users, with around 30% of total subscriptions calculated to be inactive.

6. Disagreements between the Telecom Regulatory Authority of India and government ministries have led to delayed policy implementation in a number of areas.

7. The country’s regulatory framework has been under intense spotlight amid corruption and mismanagement scandals, which could affect investor confidence in the long term.

8. Despite major ongoing investments, mobile network infrastructures in rural areas remain limited.

9. Fixed-line sector may decline at a more rapid rate than envisaged, with potentially


negative consequences for ADSL growth.

10. Danger that the development of IPTV services will be hampered by high costs, low broadband usage and slow speeds.

11. Potential of VoIP services to be banned due to security threat posed, as India’s Intelligence Bureau remains unable to track calls as of yet.KEY

Major Findings

1. The study found that there is a significant telecom equipment-manufacturing base in the country and there has been steady growth of the manufacturing sector during the past few years. The figures for production of telecom equipment show three time increase in production from Rs. 14400 crore to Rs. 50000 crore during the study period.Similarly export of telecommunication equipments has been increased from Rs. 402 crore to Rs. 13500 crore during the same period. Rising demand for a wide range of telecom equipment, particularly in the area of mobile telecommunication, has provided excellent opportunities to domestic and foreign investors in the manufacturing sector. The last five years saw many renowned telecom companies setting up their manufacturing base in India. Ericsson set up GSM Radio Base Station Manufacturing facility in Jaipur. Elcoteq set up handset manufacturing facilities in Bangalore. Nokia and Nokia Siemens Networks have set up their manufacturing plant in Chennai. LG Electronics set up plant of manufacturing GSM mobile phones near Pune. Ericsson launched their R&D Centre in Chennai. Flextronics set up an SEZ in Chennai. Other major companies like Foxconn, Aspcom, Solectron etc have decided to set up their manufacturing bases in India.

2. The following are the major impact of FDI in Telecommunication:

Faster economic growth. Increase in trade, Employment and skills levels, Technology

diffusion and knowledge transfer; and linkages and spillover to domestic firms.

3. The co-efficient of correlation between FDI flows and GDP states that there is a high degree of relationship between the FDI flows and GDP. Hence the recent changes in the Indian economic policies have made India as one of the most prosperous economy of the developing world. Indian economy is one of the most preferred destinations for the foreign direct investments. The evidence shows us that there was indeed a connection between economic development and investment in telecommunications. FDI brings the promotion of economic growth, technology transfer and the creation of employment. Foreign investment in telecommunications brings technology transfer, huge capital, and increased market competition, which help national telecommunications development. The implementation of liberalized telecommunication investment produces considerable benefits not only within the country’s telecommunication sector but also for the national economy as a whole. We find that a stable, transparent and non-discriminatory regulatory system is the best way to attract more foreign investment.

Conclusion

New international players are today entering the Indian market and while they may have not seen immediate success, their strategy seems to be one of providing better quality which will definitely find takers especially after the coming in of mobile number portability, introduction of 3G and expected roll out of BWA and 4G technology in India. Rising demand for a wide range of telecom equipment has provided excellent opportunities for investors in the manufacturing sector.Though the telecom sector at present is going through the difficlut phase of policies reenactment and clarity but has immense growth opporuntites. There is big market to address telephony, data and internet services. The demography due to large young population is promising and internet services


are bound to increase. It is still an attractive market for new entrants. Opportuties in allied sector related to telecommunication opens many potential areas for the companies to enter and sustain in growting Indian market. Provision of telecom services to the rural areas in India has been recognized as another thrust area by Government.which also helps for the enormous opportunities in this sector. Therefore telecom sector in India is one of the fastest growing sectors in the country and has been zooming up the growth curve at a feverish pace in the past few years. And even the Indian Wireless Market is booming which has plenty of room for growth. Thus the foreign direct investment is very effective in the development of any country. Indian economy is now firmly developed as one of the world‟s foremost destinations for FDI. Telecommunication is playing an important role in the inflow of FDI than the other sectors. As above data shows that the FDI in Telecommunication in India without a doubt continues to be one of the most dynamic and fastest growing major telecommunication markets in the world.

References

1. Dua, P. and A.I. Rasheed, Foreign Direct Investment and Economic Activity in India, 1998

2. Rajana Ramkishen S., Rongalab Sunil and Ghosh Ramya, Attracting Foreign Direct Investment (FDI) to India April 2008

3. Chaudhary Vaibhav and Chaudhar Deeksha, The New Consolidated Foreign Direct Investment Policy 2011: Whether Will Prove a Game Changer in Boosting Investor Confidence? Article for Blog Post Writing Competition, 2011

4. Singh Kulwindar, Foreign Direct Investment in India: A Critical Analysis of FDI from 1991-2005

5. http://www.prointelecto.com/mortgage-credit/list-of-government-companies-intelecom-sector-2011-india/

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FDI in Broadcasting Sector

Abstract

In a broad sweep, on 20th June, 2016, the government opened up India’s broadcasting sector, increasing the foreign direct investment (FDI) limit in television news channels and private FM radio, and permitting 100% overseas ownership of digital cable and direct-to-home (DTH) services. In a review of the foreign direct investment (FDI) policy for 15 sectors, the government raised the FDI limit in news channels and FM radio to 49%, up from the existing cap of 26%. Foreign investment limit in DTH, digital cable networks and so-called Headend in the Sky services (HITS) a satellite based system to deliver TV channels to cable operators was raised to 100% from 74% to allow foreign strategic investors to look at Indian companies favourably. To be sure, only up to 49% FDI has been allowed in the cable, DTH and HITS services through the automatic route. For 100% FDI, companies will need to seek approval from the foreign investment promotion board (FIPB). Similarly, companies would require government approval for 49% FDI in news channels. But 100% foreign investment in non-news channels or entertainment broadcasters will be allowed through the automatic route. There is no change in the foreign ownership norms for print media, in which FDI remains capped at 26%. A government statement said these measures are meant to ease, rationalize and simplify the process of foreign investment and to allow more FDI proposals through the automatic route rather than having to go through the FIPB, which consumes the time and energy of investors.

Keywords : digital cable, broadcasting sector, automatic route

Dr. Shravan KumarAssociate Professor, Department of Commerce

J.N College, Ranchi

Introduction

With more than 600 television channels, 100 million pay TV households, 70,000 newspapers and 1,000 films produced annually, India’s vibrant media and entertainment (M&E) industry provides attractive growth opportunities for global corporations. In recent years, with near double-digit annual growth and a fast-growing middle class, there has been a renewed surge in investments into the country by multinational companies.

At present, India has probably one of the most liberal investment regimes amongst the emerging economies with a conducive foreign direct investment (FDI) environment. The M&E industry has significantly benefited from this liberal regime and most sectors of the M&E industry today allow foreign investment. The government (GOI) has recently further liberalised the FDI caps in key sectors (including Direct-To-Home (DTH), print media and radio) and entry restrictions for foreign companies have been relaxed for most segments of the M&E industry.


For the purpose of in depth study the contents have been taken from relevant books and articles from journals government reports. The methods used are descriptive and analytical. Consultation with eminent scholars in this field has shaped the present discussion.


Indian Broadcasting sector is a sunrise sector for the economy making high growth strides. Indian media industry is on the cusp of a strong phase of growth, backed by rising consumer demand and improving advertising revenues. The Foreign Direct Investment (FDI) inflows in the Information and Broadcasting sector (including Print Media) in the period April 2000 – March 2016 stood at USD 4.98 billion, as per data released by Department of Industrial Policy and Promotion (DIPP). The government has been steadily liberalising FDI framework for this sector to move towards a digital addressable system because the higher FDI permission would mean higher


investments for ensuring digitalization. Press Note 5 of 2016 has significantly opened up the sector for FDI and now up to 100percentFDI is allowed in Teleports (setting up of uplinking HUBs/ Teleports), DTH, Cable Networks (Multi System Operators (MSOs) undertaking upgradation of networks towards digitalization and addressability), Mobile TV, Headend-in the Sky (HITS) and in Cable Networks comprising of other MSO’s not undertaking upgradation of networks towards digitalization and addressability and Local Cable Operators. FDI up to 49percentby way of Government route is permitted in the Broadcasting Content Services in case of Terrestrial Broadcasting FM (FM radio) and in Up-linking of ‘News and Current affairs’ TV channels. FDI up to 100percentunder automatic route is permitted in Up-linking of ‘Non-News and Current Affairs’ TV channels. Foreign Investment Promotion Board (FIPB) approval however, is required in situations where the license already exists in the Company and it is going approval would however, be required in situations where the license already exists in the Company and it is going for either foreign investment resulting in change in the ownership pattern, or where there is transfer of stake by existing investor to a new foreign investor.

Some likely advantages of the FDI policy change(i) employment generation in the

broadcasting sector;(ii) boosting forex reserves;(iii) wider choice for Indian consumers in

Carriage and Content Services.Additionally, FDI policy liberalization will incentivize for cable networks who have been bearing the brunt of the costs of digitization as pushed by the government in the last few years. Also, fully liberalizing the broadcasting sector has opened up a lot of avenues for strategic investors from developed countries to invest in Indian economy. Due to the major reforms in the policy, the revenue from advertising is expected to grow at a CAGR of 13percentand expected to exceed Rs. 81,600 crore (USUSD 12.09 billion) in 2019 from Rs 41,400 crore (USUSD

6.17 billion) in 2015. This could also result in expanding opportunities for educational and cultural development. The increased FDI limit is also likely to provide financial support to the news industry (particularly broadcast news). Therefore, it may be a win -win situation both for foreign investors and the Indian economy.

The Indian Media and Entertainment (M&E) industry is a sunrise sector for the economy and is making high growth strides. Proving its resilience to the world, the Indian M&E industry is on the cusp of a strong phase of growth, backed by rising consumer demand and improving advertising revenues.

The industry has been largely driven by increasing digitisation and higher internet usage over the last decade. Internet has almost become a mainstream media for entertainment for most of the people.

Market Dynamics

The Indian media & entertainment sector is expected to grow at a Compound Annual Growth Rate (CAGR) of 14.3 per cent to touch Rs 2.26 trillion (US$ 33.7 billion) by 2020, while revenues from advertising is expected to grow at 15.9 per cent to Rs 99,400 crore (US$ 14.82 billion).

Over FY 2015-20, radio will likely grow at a CAGR of 16.9 per cent, while digital advertising will grow at 33.5 per cent. The largest segment, India’s television industry, is expected to grow at a CAGR of 15 per cent, while print media is expected to grow at a CAGR of 8.6 per cent.!

India is one of the highest spending and fastest growing advertising market globally. The country’s expenditure on advertising is expected to grow more than 12 per cent in 2016, and accelerate to 13.9 per cent in 2017, based on various media events like T20 Cricket World Cup, the Indian Premier League (IPL) and State elections. Television segment, which continues to hold highest share of spending, is expected to grow by 12.3 per cent in 2016 and 12.5 per cent in 2017, led by increased spending by packaged consumer goods brands and e-commerce companies.$


The Foreign Direct Investment (FDI) inflows in the Information and Broadcasting (I&B) sector (including Print Media) in the period April 2000 – March 2016 stood at US$ 4.98 billion, as per data released by Department of Industrial Policy and Promotion (DIPP).

Government Initiatives

The Government of India has supported Media and Entertainment industry’s growth by taking various initiatives such as digitising the cable distribution sector to attract greater institutional funding, increasing FDI limit from 74 per cent to 100 per cent in cable and DTH satellite platforms, and granting industry status to the film industry for easy access to institutional finance.

Mr Venkaiah Naidu, Union Minister for Housing and Urban Poverty Alleviation and Information & Broadcasting, outlined the Ministry’s plans of introducing a National Communication Policy and stated that the government has allocated Rs 100 crore (US$ 14.91 million) to revive community radios stations across the country.

The Union Cabinet has approved the model Shops and Establishment Act, aimed at generating employment prospects by allowing cinema halls, restaurants, shops, banks and other such workplaces to remain open round the clock.

The Ministry of Information and Broadcasting (I&B) is working towards promoting ease of doing business, which will ensure less regulation and facilitate India to become the hub of media and entertainment industry.

The Government is planning to set up a National Centre of Excellence for media, which will provide training to the industry professionals, and has also decided to fund movies, including Bollywood and regional films, for participating in foreign film festivals.

The Union Budget 2016-17 has proposed basic custom duty exemption on newsprint. The customs duty on wood in chips or particles for manufacture of paper, paperboard and newsprint has been reduced to 0 per cent from 5 per cent.

Recently, the Indian and Canadian governments have signed an audio-visual co-production deal that would help producers from both countries to explore their technical, creative, artistic, financial and marketing resources for co-productions and, subsequently, lead to exchange of culture and art amongst them.

Furthermore, the Centre has given the go-ahead for licences to 45 new news and entertainment channels in India. Among those who have secured the licenses include established names such as Star, Sony, Viacom and Zee. Presently, there are 350 broadcasters which cater to 780 channels. “We want more competition and we wanted to open it up for the public. So far, we have approved the licences of 45 new channels. It’s a mix of both news and non-news channels,” said Mr Bimal Julka, Secretary, Ministry of I&B, Government of India.

The Union Cabinet chaired by the Prime Minister, Mr Narendra Modi, has given its approval for entering into an Audio-Visual Co-Production Agreement between India and the Republic of Korea (RoK) and to complete internal ratification procedure, to enable the agreement to come into force. Cooperation between the film industries of the two countries will not only promote export of Indian films but would also act as a catalyst towards creating awareness about India and its culture.

Conclusion

The Indian Media and Entertainment industry is on an impressive growth path. The revenue from advertising is expected to grow at a CAGR of 13 per cent and will exceed Rs 81,600 crore (US$ 12.09 billion) in 2019 from Rs 41,400 crore (US$ 6.17 billion) in 2014. Internet access has surpassed the print segment as the second-largest segment contributing to the overall pie of M&E industry revenues.

Television and print are expected to remain the largest contributors to the advertising pie in 2018 as well. Internet advertising will emerge as the third-largest segment, with a share of about 16 per cent in the total M&E advertising pie. The film segment which contributed Rs


12,640 crore (US$ 1.88 billion) in 2014 is projected to grow steadily at a CAGR of 10 per cent on the back of higher domestic and overseas box-office collections as well as cable and satellite rights.

References

1. http://www.broadcastandcablesat.co.in/index.php/4138-fdi-in-indian-broadcasting-sector

2. Media Reports, Press Releases, Press Information Bureau, Department of Industrial Policy and promotion (DIPP), Union Budget 2016-17

3. KPMG-FICCI Media and Entertainment industry report 2016

4. As per the ‘Shaping the Industry at a Time of Disruption’ report by Boston Consulting Group (BCG) and Confederation of Indian Industry (CII)

5. As per a report by Morgan Stanley

6. Carat Ad Spend Report, September 2016

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Recent Challenges and Issues of FDI in Retail Trade for Sustainable Development of Business

Abstract

This paper contributes to the literature on FDI and economic growth. These are predicted to have a impact on sustainable development and economic growth . FDI has a positive effect on growth whereas volatility of FDI has a negative impact. Being encouraged by India’s growing retail boom many multinational companies also started to enter India’s retail market. Investment from abroad has also been hailed by Indian industry, by and large, as the same has been considered to be very vital for adding to domestic investment, addition to capacity, higher growth in manufacturing, trade, business, employment, demand, consumption and income with multiplier effects. Till recently, Government of India allowed 51% FDI in single brand retail and 100% in cash and carry only. But FDI in multi brand retail has not yet been allowed. One of the major steps taken by the Government recently to encourage the organized retailing in the country was the recent decision of the cabinet to allow 51% FDI in multi brand retail and 100% in single brand retail. The recent issues of FDI in Retail Trade and its opportunities and challenges has been discussed in this paper.. These will pave ways for the sustainable development of business and industry.

Keywords : economic retail, growth, multi branded companies

Dr. Sandeep KumarProfessor Incharge

Department of Management StudiesInstitute of Science and Management, Ranchi

Introduction

Retailing is defined as all activities involved in selling goods or services directly to the final consumer for their personal, non-business use via shops, market, door-to-door selling, and mail-order or over the internet where the buyer intends to consume the product. India is a land of retail democracy- hundreds of thousands of weekly haats and bazaars are located across the length and breadth of our country by people‘s own self-organizational capacities and interests. Our streets are bazaars – lively, vibrant, safe and source of livelihood for millions. India has the shop density of 11 outlets per 1000 people and number around 15 million, giving India the highest retail outlet density in the world. But only four per cent of them have larger than 500 square feet area. Food constitutes 70 per cent of retail sector, which means it has a direct link with the rural economy. The Indian retail market, variously estimated at $400-450 billion, is dominated by the highly decentralized unorganized sector. The small retail outlets, most of them family-owned businesses, account for about 95 per

cent of the sales. The creaky, old distribution system that India has lived with is grossly inefficient. The Indian farmer typically gets only a third of what the final consumer pays, instead of the two-thirds that his counterparts do in countries that have organized retailing. India is the second largest producer of fruits and vegetables in the world, but almost 30 per cent of these go waste for want of storage and processing facilities.

Present Economic Scenario

Retailing is the largest private sector industry in the world economy with the global industry size exceeding $6.6 trillion and a latest survey has projected India as the top destination for retail investors. And the further upsurge is ant icipated in the retail sector as the Government of India has already opened up 51% FDI in single brand retail outlets and 100% in cash and carry business.In Nov, 2011, the Cabinet cleared the bill to raise foreign direct investment to 51% in multi-brand retail and 100% in single brand. The decision will be cheered by global retail giants such as Wal-Mart that have long


been eyeing India’s rewarding retail sector which is mainly occupied by small ‘mom & pop’ shops. Currently, organized retail, or large chains, makes up less than 10% of the market. An ASSOCHAM report states that India’s overall retail sector is expected to rise to USD 833 billion by 2013 and to USD 1.3 trillion by 2018, at a compounded annual growth rate of 10% driven by the emergence of shopping centers and malls, and a middle class of close to 300 million people that is growing at nearly 2% a year.Discussing about ―Single brand retailing, its meaning says ‗own label brands’ or they can be described as those which are created and owned by businesses that operate in the distribution channel. These stipulations would prevent third party sourcing and encourage multinationals to set up a manufacturing base in India. Conditions under single brand retailing are as follows:

1. Products to be sold should be of a `single brand’.

2. Products should be sold under the same brand internationally.

3. Single brand’ product retailing would cover only products, which are branded during manufacturing. Examples are of Sony and Nokia .

Present Retail Sector in India

The retail sector is also one of the most crucial and extremely potential sector of the Indian Economy. As of now, the retail sector in India accounts for approximately 33-35% of the GDP with 46% growth rate in past three years. The Indian retail market is one of the top 5 retail markets in the world and employs 7% of the total Indian work-force.

The retail sector in India is divided into two main heads, viz., organised and unorganised sector. Organised Sector Retailers means to include the licensed retailers i.e. those, who have registered themselves for sales tax/VAT, income tax, etc. These are generally privately owned large businesses, like Westside, Tanishq, Croma, Shoppers Stop, Lifestyle, Pantaloons, Reliance World, Max and many more.

On the other hand, unorganised retailing refers to the traditional kirana shops, general/departmental stores, paan/beedi shops, etc.

If we talk about the statistics, the market share of unorganised retail sector is 97% of the total retail sector, as compared to organised retail sector, which accounts for only 2-3%. This data is even after the presence of big corporate giants like Tata, Reliance, K Raheja Corp Group.

There are three different forms through which retail trade is carried out in India, namely:

Mono/Exclusive/Single Brand Retail Shops

Multi-branded Retail Shops Convergence Retail Outlets

Exclusive Showrooms either owned or franchised out by the manufacturer. A complete range of all the products manufactured by the said manufacturer under one brand name.

In these kinds of stores, almost all brands are available for a single product type. The customer has a very wide choice for the kind of product he is willing to buy.

These kinds of products have almost all kinds of products, required by a consumer, in them.

The focus is on the brand name.

The focus is on the nature of product.

The focus is on the diverse consumer needs.

e.g.: Exclusive showroom / franchise outlets of Nike, Liberty, Samsung, Nokia, etc.

e.g.: Max, Shoppers Stop, Croma, etc.

e.g.: Big Bazaar, In & Out, Subhiksha, Grand India Bazaar, etc.


Current FDI Policy in respect of Retail Sector in India

Keeping in mind the ‘welfare’ motive, India has kept the retail sector closed for the foreign investors in order to protect the interest of the 15 million small retail store-owners. Currently, the foreign investor can make investments as per following guidelines:

1. FDI up to 100% for cash and carry wholesale trading and export trading allowed under the automatic route.

2. FDI up to 51% with prior Government approval for retail trade of ‘Single Brand’ products. (now 100% allowed vide notification dated 11/Jan/2012).

3. FDI is not permitted in Multi Brand Retailing in India.

Present entrance routes for the Foreign InvestorsIn view of the restrictive entrance policies for the foreign investors in the retail sector, they followed one or more of the following routes to expand their business in India:

A.Franchise Agreement

B.Cash and Carry Wholesale

Agreement

C. Strategic Licensing

Agreement

D. Manufacturing and Wholly-owned

Subsidiary<>o<>o <>o<>o In this kind of arrangement, foreign brands give exclusive licences and distribution rights to Indian companies. Through these rights, Indian companies can either sell it through their own stores, or enter into shop-in-shop arrangements or distribute the brands to franchisees.

<>o<>o e.g.: Domino’s, Nike, Lacoste, have entered the Indian market through this route

e.g.: Metro AG of Germany was the first significant global player to enter India through this route.

e.g.: <>o<>o e.g.: Levi’s, Reebok, Woodland, have subsidiaries in India who manufacture the products with these brand-name.


The research to be followed is a step by step process. This makes the entire research process systematic as well as easy to handle the work in a right direction. The study has contained both primary as well as secondary sources of data.

The information of this research has been gathered through interview, survey through different people and enterprises. The research work makes use of methodologies, including data and analysis of data. But the mostly contents have been taken from relevant articles, journals, newspapers and websites.


The Indian trading sector, as it has developed over centuries, is very different from that of

the developed countries. In the developed countries, products and services normally reach consumers from the manufacturer/producers through two different channels: (a) via independent retailers (‘vertical separation’) and (b) directly from the producer (‘vertical integration’). In India, however, the above two modes of operation are not very common. Small and medium enterprises dominate the Indian retail scene. The trading sector is highly fragmented, with a large number of intermediaries. So also, wholesale trade in India is marked by the presence of thousands of small commission agents, stockiest and distributors who operate at a strictly local level. The share of organized retailing in India, at around 2%, is too low, compared to 80% in the USA, 40% in Thailand, or 20% in China, thus leaving the huge market potential


largely unexploited. Mounting earning levels, education and an international revelation have contributed to the progression of the Indian middle class purchasing and shopping practices are burgeoning as an outcome

As the government is in a process to initiate a second phase of reforms, it is cautiously exploring the avenues for multi-brand segment. With key parameters like customers entry, same stores sales, average transaction per bill improving at faster pace, the industry expects the reforms to be fast going forward. Most of the front line players who had freezed their spreading out plans are reviving their decisions in the last couple of months.

Moreover, for the 4th time in five years, India has been ranked as the most attractive nation for retail investment among 30 emerging markets by the US-based global management consulting firm, A T Kearney in its 8th annual Global Retail Development Index (GRDI) 2009. India remains among the leaders in the 2010 GRDI and presents major retail opportunities. India’s retail market is expected to be worth about US$ 410 billion, with 5 per cent of sales through organized retail, meaning that the opportunity in India remains immense. Retail should continue to grow rapidly—up to US$ 535 billion in 2013, with 10 per cent coming from organized retail, reflecting a fast-growing middle class, demanding higher quality shopping environments and stronger brands, the report added. Foreign direct investment (FDI) inflows between April 2000 and April 2010, in single-brand retail trading, stood at US$ 194.69 million, according to the Department of Industrial Policy and Promotion.

The Road Ahead

According to industry experts, the next phase of growth is expected to come from rural and semi-rural markets . According to a market research report published in June 20093 by RNCOS titled, ‘Booming Retail Sector in India’, organized retail market in India is expected to reach US$ 50 billion by 2011. The key findings of the report are:

Number of shopping malls is expected to

increase at a CAGR of more than 18.9 per cent from 2007 to 2016 Rural and semi-rural market is projected to dominate the retail industry landscape in India by 2012 with total market share of above 50 per cent Driven by the expanding retail market, the third party logistics market is forecasted to reach US$ 20 billion by 2012 Apparel, along with food and grocery, will lead organized retailing in India.

Leading watchmaker Titan Industries Limited plans to invest about US$ 21.83 million for opening 50 premium watch outlets Helios in next five years to attain a sales target of US$ 87.31 million. “We are looking to open Helios outlets in Mumbai, Delhi, Hyderabad, Kolkata, Chennai, Pune, Ahmedabad etc in next 12 months,” said Ajoy Chawla, Vice President (Retail), Titan. Bharti Retail strengthened its position in northern India by opening 59 stores, Bharti Wal-Mart is expected to open 10 to 15 wholesale locations in the next three years. Established retailers are tapping into the growing retail market by introducing innovative store formats. Spencer’s Retail, More (owned by Aditya Birla Group) and Shoppers Stop (owned by K Raheja Group) already plan to expand

Challenges facing FDI

The challenges facing FDI in India are in spite of the fact that more than 100 of Fortune 500 companies are already investing in India. These FDIs are already generating employment opportunities, income, technology transfer and economic stability. India is focusing on maximizing political and social stability along with a regulatory environment. In spite of the obvious advantages of FDIs, there are quite a few challenges facing larger FDIs in India, such as:

1. Resource Challenge: India is known to have enormous amounts of resources. There is manpower and significant availability of fixed and working capital. At the same time, there are some underexploited or unexploited resources. The resources are well available in the rural as well as the urban areas. The focus is to increase infrastructure 10 years down


the line, for which the requirement will be an amount of about US$ 150 billion. This is the first step to overcome challenges facing larger FDI.

2. Equity Challenge : India is definitely developing in a much faster pace now than before but in spite of that it can be identified that development has taken place unevenly. This means that while the more urban areas have been tapped, the poorer sections are inadequately exploited. To get the complete picture of growth, it is essential to make sure that the rural section has more or less the same amount of development as the urbanized ones. Thus, fostering social equality and at the same time, a balanced economic growth.

3. Political Challenge: The support of the political structure has to be there towards the investing countries abroad. This can be worked out when foreign investors put forward their persuasion for increasing FDI capital in various sectors like banking, and insurance. So, there has to be a common opinion between the Parliament and the Foreign countries investing in India. This would increase the reforms in the FDI area of the country.

4. Execution Challenge: Very important among the major challenges facing larger FDI, is the need to speed up the implementation of policies, rules, and regulations. The vital part is to keep the accomplishment of policies in all the states of India at par. Thus, asking for equal speed in policy implementation among the states in India is important.

5. India must also focus on areas of poverty reduction, trade liberalization, and banking and insurance liberalization. Challenges facing larger FDI are not just restricted to the ones mentioned above, because trade relations with foreign investors will always bring in new challenges in investments.

Prospected changes in FDI Policy for Retail Sector in IndiaThe government (led by Dr.Manmohan Singh), announced the following prospective reforms

in the retail sector in India:

1. India will allow foreign direct investment of up to 51 per cent in “multi-brand” sector;

2. Single brand retailers, such as Apple and Ikea, can own 100 percent of their Indian stores, up from the previous cap of 51 percent. This has been allowed lately on 11/Jan/2012.

The bill has following important drivers1. The retailers (both single-brand and multi-

brand) will have to source at least 30% of their goods from small and medium sized Indian suppliers.

2. All retail stores can open up their operations in having population over 1 million. Out of approximately 7935 cities and towns in India, 55 cities satisfy such criteria.

3. Multi-brand retailers must bring a minimum investment of US$ 100 millions. Out of this, half of the amount must be invested in back-end infrastructure fac3ilities such as cold chains, refrigeration, transportation, packing, sorting and processing, in order to reduce the post harvest losses and to bring the remunerative prices to farmers.

4. The opening of retail competition (policy) will be within the parameters of state laws and regulations.

Issues/Controverties

Oppositions’ reaction against retail sector reforms

A lot of objections have been raised by the opposition parties and public at large, as a result of which the said bill has been kept on hold.

Those who are criticising these reforms took support of the following points: [Threats]


1. Current Independent stores will be compelled to close, leading to massive job losses. The operations in big stores like Walmart are highly automated and employ very less work-force.

2. Big players can afford to lower the prices in initial stages in order to knock-out the competition and become a monopoly and later on raise the prices. This kind of phenomenon was evident earlier in the case of soft-drinks. Eviction of CampaCola by Pepsi and Coke is one such example.

3. India doesn’t need foreign retailers, since homegrown companies and traditional markets may be able to do the job.

4. Just like in BPO industry, work will be done by Indians, profits will go to foreigners.

5. Remember East India Company. It entered India as a trader and then took over politically.

6. The government hasn’t built consensus.In a politically and culturally diverse country like India, every ECONOMIC issues turns out to become an POLITICAL issue. On December 1, 2011, there was a nation-wide “Bandh” (close all business in protest) was called up by various political parties opposing the retail sector reforms. Many nation-wide newspapers such as the Times of India and the Hindu, claimed that there was a mixed response to that protest. Many stores ignored the shutdown call and remained open also during the whole “bandh” day, whereas many other opened during the second half of the day. This was because of the fact that many of the opposition parties privately supported and encouraged these reforms. As a result of this, these reforms have been kept on hold.A Wall Street Journal article reports that in Uttar Pradesh, Uma Bharti, a senior leader of the opposition Bharatiya Janata Party (BJP), threatened to “set fire to the first Wal-Mart store whenever it opens;” with her colleague Sushma Swaraj busy tweeting up a storm of misinformation about how Wal-Mart allegedly ruined the U.S. economy.

SWOT Analysis

In order to conclude this issue let us draw a SWOT analysis of the situation.

Strengths

1. Major contributor to the GDP: The retail sector in India is hovering 33-35% of the GDP, as compared to around 20% in USA.

2. High growth rate: The retail sector in India enjoys an extremely high growth rate of approximately 46%.

3. High potential: Since the organised portion of retail sector in India is only 2-3%, thereby creating a lot of potential for the future players.

4. High employment generator: The retail sector employs 7% of the total work-force in India, which is rite now limited to unorganised sector only. Once the reforms get implemented this percentage is likely to increase substantially.

Weaknesses

1. Lack of Competition: AT Kearney’s study on global retailing trends found that India is least competitive as well as least saturated markets of the world.

2. Highly unorganised: The unorganised portion of total retails sector is 97% as compared to US, which is only 20%.

3. Low productivity: A McKinsey study claims retail productivity in India is very low as compared to its international peers.

4. Shortage of talented professionals: The retail trade business in India is not considered as a reputed profession and it is mostly carried-out by the family members (self-employment/captive business). Such people are generally not academically and professionally qualified.

5. No ‘Industry’ status, hence creating financial issues for retailers: The retail sector in India do not enjoy the “Industry” status, thereby making difficult for the retailers to raise funds for the expansion projects.


Opportunities (benefits):1. There will be more organization in the

sector. Organized retail will need workers. This is quite evident in Unites States of America, where the 80% of the retail sector is organised and it employs 13-16% of the work-force of that country. Moreover, according to the findings of KPMG, one of the world’s largest audit companies, in China, the employment in both retail and wholesale trade increased from 4% in 1992 to about 7% in 2001, post reforms and innovative competition in the retail sector in that country.

2. Healthy competition will be boosted and their will be an check on the prices (inflation). Retail giants such as Walmart, Carrefour, Tesco, Target, Metro, Coop and 350 other global retail companies are already have operations in many countries for over 30 years. Until now, they have not at all become monopolies, rather they have managed to keep a check on the food inflation through their healthy competitive practices.

3. Create transparency in the system. The intermediaries operating as per mandi norms do not have transparency in their pricing. According to some of the reports, an average Indian farmer realise only one-third of the price, which a final consumer pays.

4. Intermediaries and ‘mandi system’ will be envicted, hence directly benefiting the farmers and producers. The prices of the commodities will automatically checked. For example, according to the Business Standard, Walmart has introduced “Direct Farm Project”at Haider Nagar near Malerkotla in Punjab, where 110 farmers have been connected with Bharti Walmart for sourcing fresh vegetables directly.

5. Quality Control and control over leakage and wastage. Due to organisation of the sector, 40% of the production does not reach the ultimate consumer. According to a news in the Times of India, 42% of

the children below the age group of 5 are malnourished and the Prime Minister Dr.Manmohan Singh has referred to it as “a national shame”. Food often gets rot in farm, in-transit and in antiquated state-run warehouses. Cost-cautious and highly competitive retailers will try to avoid these wastage and looses and it will be their endeavour to make the products available at lowest prices, hence making food available to the weakest and poorest segment of Indian society.

6. Heavy flow of foreign capital will help in building up the infrastructure for the growing population. India is already operating in the budgetary deficit. Neither the Government of India nor the Indian domestic investor are capable to satisfy the growing needs (schools, hospitals, transport, infrastructure) of the ever growing Indian Population. Hence foreign capital inflow will enable us to create a heavy capital base.

7. There will be sustainable development and many other economic issues will be focused upon. Many Indian small shop owners employs many workers, who are not under any contract and make them work for long hours. Many of such employs under-aged workers, thus giving rise to child-labour. Not only this, lack of contract between worker and employer and no registration of such shops boosts corruption at grass-root level and generates black money.

Threats (drawbacks)

Emergence of foreign players in Indian retail sector can give rise to a number of threats also, which are discussed above. Out of the above mentioned drawbacks, most of them are politically created.

Conclusion

In view of the above discussion, if we try to balance the opportunities and prospects attached to the given economic reforms, it will definitely cause good to Indian economy and consequently to the public at large,There is


sincere expectation that the government will open the sector to FDI, and act fast on this front, even if it means opening the sector in a gradual and phased manner.

Since the Indian retail sector is highly fragmented and domestic retailers are in the process of consolidating their position, the opening up of FDI regime should be in a phased manner over 5 to 10 years time frame so as to give the domestic retailers enough time to adjust changes. FDI should not be allowed for multi brand stores in near future, as Indian retailers will not be able to face competition with these stores immediately.

At present it is also not desirable to increase FDI ceiling to more than 51% even for single premium brand stores. It will help us to ensure check and control on business operations of global retailers and to look after the interests of domestic players. However, the limit of equity participation can be increased in due course of time as we did in telecom, banking and insurance sectors. Foreign players should not be allowed to trade in certain sensitive products like arms and ammunition, military equipment, etc. and the list of excluded products should be clearly stated in the FDI policy.

However, it can be said that the advantages of allowing unrestrained FDI in the retail sector evidently outweigh the disadvantages attached to it and the same can be deduced from the examples of successful experiments in countries like Thailand and China; where too the issue of allowing FDI in the retail sector was first met with incessant protests, but later turned out to be one of the most promising political and economical decisions of their governments and led not only to the commendable rise in the level of employment but also led to the enormous development of their country‘s GDP. . I personally believe that instead poking the political game in the economic reform issues like these, all the political parties (ruling party and all other opposition parties also) of India, should work

in symbiosis, not only for their selfish benefits, but for the welfare of the public at large.

References 1. Mukherjee A., Distribution Services: India

and the GATS 2000

2. Business Standard, Economic Times, 28/11/06.

3. Economic Times, Retail Gowth: A boon to job market, 2006

4. Hindu Business Line, November 15, 2003; May 13, 2005

5. Hindu Business Line, October 29, 2005

6. Indian Express, R-day reforms: Single brand retail opened to foreign funds‖, 2006

7. Indian Retailing – Birth Pangs, 2003, www.fitchratings.com

8. Chossudovsky Michel, The Globalisation of Poverty: Impacts of IMF and World Bank Reforms, Indian edition, 1997

9. Manjunath V.S. & Rajesh, C.N.B.Article on Competitive growth & FDI Acharya Institute of Tecnology

10. Guruswamy M., Sharma K., Mohanty J.P., and Korah T., FDI in India‘s Retail Sector – More Bad than Good‖, Economic and Political Weekly, 12/2/05, estimates future job losses as a result of FDI in the retail sector at between 4,32,000 and 6,20,000.

11. Mukherjee A & Patel N, FDI in Retail Sector: India, Academic Foundation in association with ICRIER and Ministry of Consumer Affairs, Food and Public Distribution(Govt. of India), 2008

12. Organized retail in India to triple by 2010: CRISIL‖, www.domain-b.com

13. Rehman M., Impact of FDI in Retail in India. Retrieved August 4, 2010, from http://ezinearticles.com/?Impact-of-FDI-in-Retail-in-India&id=380228, 2006

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Impact of Multinational Corporation on Labour Practices in the Era of Liberalisation, Privatisation

and Globalisation

Abstract

In International business, as in most other activities, human resources are the critical elements. The peculiar problem that international firms face in that people are usually raised, educated and adjusted in one culture, whereas international business management required cross- cultural communication, coordination and supervision. The challenge is to develop managers who can think globally or at least bi-culturally. The multinational firm has various options in choosing a policy that will develop international managers with this ability. It can follow a policy of hiring local nationals to manage its subsidiaries, but it will then have to rely on training programs to internationalize its personal. It will have to invest in training programs to prepare executives and their families for cross national transfers. One of the most perplexing problems faced by multinational companies has been the matter of compensation policies, but with increasing experience most companies have been able to work out reasonably satisfactory solutions even for handling cross national transfers. Business Environment in India is passing through the process for globalization and liberalization and it has been showing increasing, economics integration. India is a large country with a population of more 125 crore and only 62% of our people are literate. India’s Human resources are having the tremendous potential, but due to blackness of visionary mistake of ours we are far behind in the global market. Now the time has come to play decisive role for marketing of Indian Human resources to global. MNCs has advantage of the ability to utilize international network of facilities and expertise in employee development.

Keywords : business environment, cross - cultural, training opportunity, employee development

Dr. Abha KumariHead of the Department of Commerce

Ursuline Inter College, Ranchi

Introduction

In the last 20 years MNCs have played an important role in the Indian economy. They have become a common feature of most developing economies in the world. MNCs as is evident from what we see around us, there are gigantic corporations which have their operation in a number of countries. They do not aim at maximizing profit from one or two products but instead spread their branches all over the world.

This is evident from the fact that the sales of top 200 corporations where equipment to 28.3% of the world’s GDP in 1998. This shows that top 200 MNCs controlled over a quarter of the world economy, therefore, MNCs is in a position to exercise massive control on the world economy because of their capital resources, and world best training facilities.

Managing people in international setting requires human resources to address a broader range of functional areas. It requires more involvements in the employer’s personal life. The firm should establish different geographic location. It must closely watch the moves made by external constituencies including foreign government political and religious group. A host of other issues relating to employee compensation, health, safety, welfare etc., need to be monitored carefully. Employees on international assignment represent valuable assets and hence need to be managed systematically and strategically so that they can easily adapt, survive and flourish in diverse cultures and environment.

As the president of a German Company remarked, “There are no German and American Companies (today). There are only


successful and unsuccessful companies. Ford Motor Co. is an excellent example of a multinational company (MNC). It has design and production facilities around the world.

HRM Policy in Multinational Corporation

Generally speaking there are three sources of employees for an international assignment. The organization might choose to hire.

� Host country nationals (HNCs)

� Parent of home country nationals (PCNs):

� Third country nationals (TCNs)

According to P.V. Morgan, International HRM is the result of interplay amount the three dimensions – human resources activities, types of employees and countries operation. The complexities of operating in various countries and employing different national categories of workers is an important variable that differentiates domestic and international HRM, rather than any major differences between HRM activities performed. Broadly stated, IHRM (International Human Resources Management) is “The process of procuring and effectively utilizing management, allocating and effectively utilizing human resources in a multinational corporation”. When compared to domestic human resources management, the scope of IHRM is very vide.

Procure Allocat Utilize

Host Country National (HCNs)

Parent Country National (PCNs)

Third Country National (TCNs)

Concept of Labour Policy & HRM

Differences in economic system among countries also translate into country differences in HR practices. In free enterprise systems. Companies tend focus on HR policies that value productivity, efficient workers, cost cutting measures in line with market situations.

In countries like India and Pakistan, the

loss of man-days due to disturbances is alarmingly high. Labour productivity is very low. Portuguese workers average about 1980 hours of work annually, while German workers average 1648 hours. In UK and Germany the severance pay is relatively high. Such labour cost differences could influence hiring and firing decisions. Likewise, industrial relations factors also influence HR policies. In Germany codetermination is the rule. In India powerful unions especially in Banking Insurance, Post and Telegraphs, Railways, Coal Steel and Mining Sectors Significantly influence the shape of HR policies. In some states like West Bengal and Kerela, there is support from the Governments too (for various political reasons). In the United States on the other hand HR policies in most matters such as wages and benefits are being decided by the employer alone, of course in consultation with labour unions.

International Selection Labour Policy

International policies are complex and carry a lot of in-built pressures along with them it would be erroneous to assume that the job requires the same set of skills in different locations.

1. General and Technical Criteria : Research findings consistently indicate that MNCs place heavy reliance on relevant technical skills during the expatiate selection process. In addition, the expatiate manager should be a good communicator, and possess management talent, maturity, emotional stability in ample measure.

2. Language Skills : Most researchers argue that knowledge of the host country’s language is an important factor affecting the performance of an expatriate.

3. Cross-Cultural Suitability : Expatriate managers must be able to adapt to change. They must have the ability to translate their technical or managerial skill into meaningful actions plans in a foreign environment.

4. Motivation for a foreign assignment:


The candidate for foreign assignment must believe in the importance of the job and possess a certain amount of idealism or a sense of mission.

5. Family situation : Several items including the adaptability of spouse and family, spouse’s positive opinion, willingness of spouse of life abroad, stable marriage comprises this factor.

Table Expatriate Manager’s Success and Failure

Characteristics of the expatriate manager

High probability for success

Low probability for success

Strong technical Skills

Uncertain Technical Competency

Good Language Skills

Weak Language Skills

Strong Desire to Work Overseas

Unsure about going overseas

Well-adjusted Family Situation

Family Problems

Complete Support of Spouse

Low Spouse Support

Behavioral Flexibility Week Stress Management Skills

Adaptability and Open – mindedness

Poor relational ability

Good Stress Management Skills

Behavioural Rigidit

Source : Human Resource Development, 2nd edition V.S.P. excel book publication, New Delhi, p 689

Selection Process of MNCs in the Global Economy

The Selection process varies widely from country to country. Asian companies use extensive testing procedures and screening techniques. Europeans do not as much as Asians but considerable more than Americans. Testing in the US is not favoured because of its negative impact on equal employment and affirmative, action efforts.

International Training and Development Policy

Careful selection is only the first step in ensuring the foreign assignee’s success. The expatriate may then require proper orientation, cross-cultural training assistance in career planning and development etc. in order to handle the assigned jobs in a competent way.

A. ORIENTATION : International positions require an extensive orientation to familiarize the employee with culture, language and other unique aspects of the assignment.

� Pre-arrival orientation :

(i) Cultural briefing : Explaining the traditions customs, living conditions clothing and housing requirements health situations, etc.

(ii) Assignment briefing : Throwing light on length of assignment, vacations compensation package tax implications, repatriation policy etc.

� Post-arrival orientation

Once global employees arrive in the host country, they will required further assistance in ‘setting in’ some should receive them and help them in obtaining housing accommodation establishing bank accounts, getting driving licenses arranging admissions to school for dependent children etc.

� Cross Cultural Training

Differences in cultural, language and laws may make it difficult for the global employees to be track quickly. In order to lead a normal life, they need cross cultural as well as language training.

International Compensation Policy of MNCS

Due to differences in tax and cost of living as well as often difficult living conditions, pay and benefits for employees living abroad must be decided carefully paying attention to three things.

Additional incentives must offered for accepting


the international assignment (e.g. sign-on bonus percentage increase in base salary, lump-sum payment on successful completion of assignment etc.)

Cultural Differences and HRM

The important global pressures Impacting H.R. practices in MNCs have grown in number, variety and complexity in recent times – thanks to the changes in information technology, dismantling of tariffs, differentiated labour laws; cultural and language barriers, bargaining practices etc. Getting the right people with required skills, motivating them to accept the challenges in foreign locale and extending family support through cultural orientation, language training and education and education assistance have become truly demanding. Let’s examine these more closely.

Need for Cultural Training

One of the important challenges for organization is preparing people to be expatriate employees working in a nation than their home country. Without this preparation, such employees may not be able to take on and successfully complete an overseas assignment.

Westerners should aspect offers of hospitality to visit an Arab’s home and the invitation must be returned. No alcohol should be offered to Arab Guests or Consumed in their presence Arabs are habitually late for appointments (like Indians) as they believe that the such things are in the hands of Allah (they call it insha-Allah;) Contrast this with another example from China. Chinese do not like to be touched even to shake hands, Westerners should know that Chinese do not like loud, boisterous, or aggressive behaviour.

Chinese prefer to meet others in groups. They are more reticent and shy. Appointment with Chinese takes a lot of time. They do not like to conclude anything in a hurry.

The following questions must be looked into carefully before sending managers on a foreign assignment.

1. What is the host country’s business culture like?

2. What is the management skills I will need to?

3. Will this assignment be good for my long-term career growth? Can’t expect to be promoted when I return? How will I be treated if I do not succeed in my overseas job?

4. What is the country like? What are the customs? Will I be able to adjust to the culture?

5. Will my family be able to adjust to the new situations? Will my spouse be able to find suitable employment?

Table

Cross Cultural Training Techniques for Expatriate Managers

(a) Documentary programmes

Trainees read about a foreign country’s history, culture, institutions geography and economics. Videotaped presentations are often used.

(b) Culture Assimilation

Cultural familiarity is achieved through exposure to a series of simulated intercultural incidents or typical problem situations. This technique has been used to quickly train those who are given short notice of a foreign assignment.

(c) Language Instruction

Conversational language skills are taught through a variety of methods. In most multinational companies executives learn various languages in a routine way, so that company in case of short term foreign assignment.


(d) Sensitivity Training

Experiential exercises teach awareness of the impact of impact of one’s actions on others.

(e) Field Experiences

Firsthand exposure to ethic subcultures in one’s own country or to foreign cultures heightens awareness.

(f) Business basis

This covers negotiating cross – culturally working with various types of clients, making presentation etc.

Source : A Guide for Global Training” and Development July 93, Page - 69

International Labour Relations of MNCs

Labour relations structures, laws and practices vary considerably among countries, MNCs, therefore adopt different labour relations strategies relation to the environment factors peculiar to each firm. Some of the important aspects worth considering here may be listed thus.

1. The role of unions : The role of unions varies from country to country due to many factors such as level of employment, homogeneity of labour relations between labour and management.

2. Collective bargaining : Collecting bargaining practices can very widely from country to country depending on the role played by the respective location governments. In the United Kingdom and France, for example, government actively intervenes in all aspects of collective bargaining.

3. Labour Participation : The law takes care of employee representation in many European countries.

4. Health and Safety : Employee Health and Safety Law and Regulations very from country to country ranging from virtually non-existent to more stringent than in India. With more and more expatriates

working internationally in some of the less developed nations, safety – related issued have issues have assumed importance in recent times. In countries like Brazil Nigeria, Phillippines, Russia and New Guinea Street crimes and quite common and kidnapping has become a way of life. In countries like Turkmenistan, Tajikistan, Bangladesh Afghanistan medical facilities are primitive, treatment is not as available and medicines are less easily obtained. Before sending executives abroad therefore the home-office should understand the local environment, local conditions and the level of difficulty in each global assignment.

Objectives

The quality of a firm’s executive is usually the single most important determinant of its success in international business. An aggressive global strategy implies managerial resources of a caliber to think out and implement such polices. In the words of one international executive. Virtually any type of international problem in the final analysis is either created by people or must be solved by people. Hence having the right people in the right place at right time emerges as the key to a company’s international growth. Multinational business brings with it may unique problems in the management of human resources, the most fundamental of which is the necessity for managers raised and experienced in one culture to play bicultural or multicultural roles. According to CEO of Infosys N.R. Narayan Murthy “Our assets walk out of the door each evening we have to make sure that they come back the next morning.”

In this article we have gathered the implementation of the important areas of Multinational Corporations. The areas which have been covered in the study are as under :

1. Encouraging wage Management

2. International Compensation Policy

3. Attractive Training Policies and Procedure

4. Fair Recruitment Polices and Procedure


5. Nice Selection of Expatriate Managers6. Promotion Policy of MNCs7. Demotion in MNCs8. Career Development on MNCs9. Acceptable Communication from top to

the bottom10. Health and Safety11. Employee Welfare12. Social Security13. Employee Grievances and Discipline14. Collective Bargaining15. Participation and Empowerment16. Trade Unions17. Harmonious Industrial Relations and

Industrial Dispute




An MNC and its subsidiaries therefore must carefully balance the demands of strategic global control and local adaptability. For most MNCs, the person assigned to carry out this balancing act between global and local demands has been the expatriate manager. An expatriate manager is a person assigned to carry out this balancing act between global and local demands.

Traditionally, expatriates were employees from the home country of the MNC. However, during the 1980s and 1990s, as MNC operations become more diverse, managers from any country in which the MNC operated were selected to manage its foreign subsidiaries around the world. More recently, the selection and effective utilisation of inpatriates (foreign-country managers brought to an MNC’s home country) has become an important issue for many multinational firms. As a practical matter, however, the choice often depends on the

availability of qualified managers in the host country. Most MNC’s use a greater proportion of PCN’s (Parent Company Nations) in top management positions, Staffing middle and lower management positions with increasing proportions of HCN’s (impatriates) as one moves down the organizational hierarchy.

MNC’s has focused on the problems of selecting and training managers for international assignments and then successfully repatriating them when their foreign stints of duty end. Without exception, all the phases of human resources management should support the desired strategy of the firm. In the staffing phase, having the right people in the right places at the right times is a key ingredient to success in international operations. An effective managerial cadre can be a distinct competitive advantage for a firm.

Types of Selection of Expatriate Assignment

Rayer Swaak has identified several types of expatriate assignments. These are explained below :

1. Developmental Assignment 2. Project Assignments3. Technological Transfer Assignments4. Management Oversight Assignments5. Regional Coordination Assignments6. World Wide AssignmentsExpatriate Failures

Expatriate failure occurs when an expatriate is forced to return to his or her home organisation before the expected duration of the foreign assignment is completed. There are a number of reasons besides poor selection that contribute to expatriate failure. Tile major causes of expatriate failure are given below :1. Selection based on headquarters criteria

rather than assignment needs2. Inadequate preparation, training and

orientation prior to assignment.3. Alienation or lack of support from

headquarters.4. Inability to adapt to local culture and

working environment.


5. Problems with spouse and children – poor adaptation, family unhappiness.

6. Insufficient compensation and financial support.

7. Poor programmes for career support and repatriation.

Table : Reasons for Expatriate Failure

U.S. Firms Japanese FirmsInability of spouse to adjust

Inability of cope with larger international responsibility

Manager’s inability to adjust

Difficulties with new environment

Other family reasons Personal or emotional problems

Manager’s personal or emotional in maturity

Lack of technical competence

Inability to cope with larger international responsibility

Inability of spouse to adjust

Source : Tung “Selection and Training procedures”

Managing an Expatriate

A model of the life cycle of an expatriate assignment involves a process of :

1. Determining the need for an expatriate assignment

2. Identifying and selecting likely candidates

3. Reassignment training

4. Departure

5. Post arrival orientation and training

6. Crisis and adjustment or crises and failure

7. Reassignment abroad and

8. Repatriation and adjustment

MNCs Requirement

The MNCs may consider the proportion of expatriates to local staff when making selection decisions, mainly as an outcome of its staffing philosophy. In some cases however, operations in particular countries may requires the use of more PCNs and HCNs than normally is the

case. This will depend on situational factors.

Language : The ability to speak a second language is an aspect often linked with cross cultural ability. Language skills may be regarded as of critical importance for some expatriate positions, but less in others.

Country-cultural requirements : The cultural environment in which the expatriates operate is an important factor in determining successful performance. Effective skills are defined as the ability to successfully translate the managerial or technical skills into the foreign environment. These include, apart from the obvious technical ability and managerial skills :-

(i) Cultural empathy

(ii) Adaptability

(iii) Diplomacy

(iv) Language ability

(v) Positive attitude, emotional stability, and

(vi) Maturity

Some Methods of Selecting Successful Expatriates Willingness to Go

Ability to do the job : For individuals who may have short-term (one to two weeks) troubleshooting trips overseas, assessments of their performance during those assignments collected.

Ability to adapt : Situational exercises characterized by high levels of ambiguity and some pressure to examine how well the candidate performs under such conditions.

Ability to firm relationships

1. Psychological tests of traits typically associated with relationship development.

2. Assessment of how the individual typically deals with conflict and how that compares with the conflict management norms in the host country.

Ability to Communicate : Situations exercise in which the language ability must be used e.g., explaining a technical procedure to individuals from the host culture using the host language.


Family situation : Interviews with spouse and family members to determine interest and willingness to go overseas.

Conclusion

Multinational Companies provide development of labour by providing additional training opportunity and giving incentives for employees to increase their skills. Introduction of high technology and changes in the system of management by MNC call for resourceful people who are highly responsible to national and global level. Increase of employment in foreign affiliate in recent years has taken place in developing countries in general and India in particular by MNC. India faces a rich human resources unutilized and still have conventional practices. Today in the age of technology, oriented technology oriented economy is our first challenge. It is estimated that multinational corporation provide 73 millions jobs world wise however 60% of these are in developed countries. Hence, the world has become a global village.

The growth of trade, communication and globalization has opened the window of opportunities for the mobilization of human resource from India. A majority of the multinational company operating at global levels placed Indians at the helm of affairs, Americans and Europeans have for long delegated the day today control and management of their Indian subsidiaries to Indian executives. The multinational firm has various options in choosing a policy that will develop international managers with this ability. It can follow a policy of hiring local national to manage its subsidiaries, but it will then have to rely on training programme to internationalize its personnel.

MNCs help the host countries to increases domestic investment and employment generation, boost export transfer technology and accelerate economic growth. So, far as development of multinational, corporations are concerned, the world investment report 1997 states, there are more about 45,000 MNCs with some 2,80,000 affiliates. According to the world Investment report 2001 there were over

63,000 of them with about 8,22,000 affiliates. Only less than 12% of these affricates mere in the developed countries, China was host to about 3.64 lack of the affiliates (i.e. more than 44% of the total) compared to more than 1400 in India. In case of globalization, productivity grows more quickly when country produced goods and services in which they have comparative advantage.

Human Resource need to be reshaped to suit the requirement of global, economy in terms of competence, commitment and costs. A company would have to keep an eye on cost and quality all the time in order that they should be able to share their product even in the domestics market. This would require that organization should keep their employees, trained, education and well motivated all the times of that they are able to generate excellence in a sustained order.

A manager should have certain qualities for the efficient management in the multinational companies in particular and any organization in general, they are an organizer, a controller a diplomat, a father confessor, a friend, a student of human psychology, vitality and endurance decisiveness, persuasiveness, stability of behaviour intellectual capacity, knowledge, Health and physical fitness, Intelligence and technical competence, Initiative, power of judgment and ability to deal. Enthusiasm, courage’s sense of direction judgment, tact courtesy and integrity are also regarded as necessary qualities for a leader to be effective.

References

1. Allen L.A., Management and Organization, TATA MCGraw Hill, New York, 2008

2. Luthaus F., International Management” TATA Mc Graw Hill, New York, 2005

3. Rao V.S.P., Human Resource Development, Excel Book Publishing, House, 2007

4. www.shrm.org5. www.ipma-hr.org 6. www.jobdescription.com

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Foreign Direct Investment in India – Retail Sector

Abstract

Indian retail industry is one of the sunrise sectors with huge growth potential. According to the investment Commission of India, the retail sector is expected to grow three times its current levels, however, in spite of the recent developments in retailing and its immense contribution to the economy, retailing countries to be the least evolved industries and the growth of organized retailing in India has been much slower as compared to rest of the world. Indian retail sector today is valued at $450 billion, and is increasing day by day due to its increasing middle class population and their spending power. Indian retail sector has two parts: organized and unorganized sector. Organized sector which forms around 20 -30 % in other countries , here in India it forms only about 6% while rest is all unorganized consisting of small retailers convenience stores, departmental stores, pavement vendors etc. Organized retail consists of supermarkets, hypermarkets and modern retail outlets, malls, exclusive brand outlets etc which are located in urban areas or metros. Undoubtedly, this dismal situation of the retail sector, despite the ongoing wave of incessant liberalization and globalization stems from the absence of an FDI encouraging policy in the Indian retail sector.

Keywords : growth potential, current label, recent development

Aditi SinghaniaResearch Scholar

Department of Commerce and Business ManagementRanchi University, Ranchi

Priyanka ChaturvediResearch Scholar

Department of Commerce and Business ManagementRanchi University, Ranchi

Introduction

Foreign direct investment (FDI) India is now the last major frontier for globalized retail. In the twenty years since the economic liberalization of 1991, India’s middle class has greatly expanded, and so has its purchasing power. But over the years, unlike other major emerging economies, India has been slow to open its retail sector to foreign investment. Recent signals from the government however suggest that this maybe about to change: global supermarket chain stores such as Wal-Mart (United States), Carrefour(France), Marks & Spencer and Tesco (United Kingdom), and Shoprite (South Africa) may finally be allowed to set up shop in India. It is one of the most important sources of non-debt foreign investment flows in Developing countries like India. After the announcement of new industrial policy, 1991 and the current policies of liberalization, India has been experiencing

an accelerating growth in the flow of foreign investment into the country. During 1992-93, several additional measures were taken by the government to encourage investment flows: direct foreign investment, portfolio investment, NRI investment and deposit and investment in global depository receipts.

Some of these measures are given as follows:

1. The dividend balancing condition earlier applicable to foreign investments up to 51% equity is no longer applied except for consumer goods industries.

2. Existing companies with foreign equity can raise it to 51% subject to certain prescribed guidelines. Foreign direct investment has also been allowed in exploration, production and refining of oil and marketing of gas. Captive coal mines can also be owned and run by private investors in power.


3. India has signed the multilateral investment guarantee agency protocol for foreign investment on 13thApril 1992.

4. Foreign companies have been allowed to use their trademarks on domestic sales from 14th may, 1992.Foreign direct investment is nowadays considered as an important source of investible resources. Developing countries, emerging economies and countries in transition increasingly see FDI as a source of economic development, modernization and employment generation.

Foreign direct investment came into being with effect from the 5thApril, 2013. It came to pass after an upheaval of debate in parliament. With the economy liberalising and market globalising, it was more a necessity than luxury to go for FDI. It was necessity because with the recent increase in GDP, rise in per capita income, increase in disposable income accompanied by proliferation of brands, there have arisen changes in purchasing behaviour of Indian consumer. It is therefore a two-way- traffic for the borderless world. Global investors will be guided by the profitability of the investment and for Indian consumer might be the key determinant of the retail FDI policy; supplementing capital requirements would be the purpose of equity investment.




FDI means investment by non-resident entity/person resident 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. In India, the Ministry of Commerce and Industry acts as a nodal agency for monitoring and reviewing

FDI policy on a continuous basis. The FDI policy is notified through Press Notes released from time to time by Secretariat for Industrial Assistance (SIA), Department of Industrial Policy and Promotion (DIPP). The foreign investors are free to invest, except in few sectors, where prior approval from RBI or FIPB would be required.

Retailing is the last link in the process of Supply Chain Management. Retailer is the person who is in direct contact with the customers because of this it gains its importance for the manufacturer. The word ‘retail’ is derived from the French word ‘retailer’, which means ‘to cut a piece of’ or ‘to break bulk ‘The retailer unlike wholesaler did not buy products for further resale but to provide them to the end consumers. A number of activities are performed by retailers such as assorting, sorting, merchandizing, storing, providing credit facility, packing etc. The sector is facing big transformation from mom & pop stores, local kiryana store to big malls and hypermarkets. The customer is demanding products as never before. They possess good knowledge about pricing strategies, quality of the product and its usage. The consumer is now attracted towards big glitzy malls, eye catching interiors, one stop shopping experience. The concept of e-retailing has resulted in one touch shopping real for customers. The customers are now demanding products from a place which is convenient to them. Therefore, it is becoming difficult for retailers to find loyal customers for themselves. The customers will be attracted towards those stores which tend to offer good quality products at attractive prices with convenience facility, in an attractive manner.

Such Retailing can be broadly divided into two categories-

1. Store retailing- storeretailing is of many kinds, such as, departmental store, speciality store, convenience store, superstore, supermarket etc.

2. Non -store retailing- Non- store retailing are-

� Direct selling or network marketing such as, Eureka Forbes, Amway etc.


� Direct marketing such as, telemarketing and internet selling etc.

� Automatic vending as it is used to sell products like beverages, milk, magazines etc. In whatever name or form we may think of retailing, the name of the game is the retail store which is an independently- owned business enterprise whose volumeof sales stem from retailing.

Corporate Retail Store

Corporate retailing implies exclusive retail marketing in the form and style of corporate chain stores, such as, shoppers stop, food world etc.

� Corporate in chain stores, such as shoppers stop, food world.

� Consumer co-operatives such as supper bazaar, big bazaar etc.

� Franchised organisation like McDonald’s, KFC, Pizza Hut, Dominos, Raymond’s, Vimal outlet etc.

Corporate retail organisations have the blessing of economies of scale, greater purchasing power, wide brand reputation and trained employees.

Impact of FDI in Single Brand Retailing

This sector specific single brand retail activities, percentage of FDI capital required and the entry route for the permitted sector of single brand retail trade are tabulated below.

Sector /activity

% of FDI Capital

Entry Route

Retailing of single product

100% Government

Objective to achieve: The foreign investment in retail trading of single brand product is aimed at

� Attracting investment in production and marketing.

� Improving the availability of such goods for the consumer.

� Encouraging increased sourcing of goods from India

� Enhancing competitiveness of Indian enterprises through access to global designs, technologies and management practices.

Condition to be fulfilled: The FDI in retail trading of single brand product would be subject to fulfilment of the following conditions:

� Products to be sold should be of single brand only.

� Products should be sold under the same brand internationally; at least products should be sold under the same brand in one or more countries other than India.

� Retail trading in single brand product would cover only products which are branded during the stage of manufacturing.

� In case of proposals involving FDI beyond 51%, sourcing of 30% of the value of goods purchased will be done from India, preferably MSME’s, village and cottage industries, artisans and craftsmen, in all sectors.

� Retail trading, in any form by means of E-Commerce would not be permissible for the companies with FDI, engaged in the activity of single brand retail trading.

Application seeking permission of the government of Indian for FDI in retail trade of single brand product would be made to Secretariat for Industrial Assistance (SIA) in the development of industrial policy and promotion.

Impact of FDI in Multi Brand Retail Trading

The sector specific multi brand retail activity, percentage of FDI capital required and the entry route for permitted sector of multi branding retail trading are tabulated below.

Sector / Activity

% of FDI Capital

ENTRY Route

Multi brand retail trading

51% Government


Condition to be fulfilled

Multi brand retail trading is subject to certain conditions such as:

� Fresh agriculture produce (fruits, vegetables, flowers, grains, pulses, fresh Poultry, fishery and meat products) may be unbranded.

� The foreign investor must bring a minimum amount of US $ 100 million for Investment.

� At least 50% of the investment bought should be invested in ‘back-end Infrastructure within three years. Expenditure on land cost and rentals will not be Included in infrastructure development.

� At least 30% of the products purchased must be sourced from Indian micro, small and medium industries (total investment in plant and machinery not exceeding US $ 2.0 Millions)

� Government possess the first right of procurement on agriculture produce.

� Retail outlets are allowed to be set up in cities with a population of more than 10 Lakh as per 2011 census survey, or any other cities as per the decisions of the respectiveState Governments.

� The policy for FDI is an enabling policy; the State Governments are set free forImplementation of the policy.

� Applications are to be processed firstly by DIPP followed by the FIPB for Approval of Government.

� Retail trading in any form by means of e-commerce is not permissible for FDI, engaged in multibrand or single brand retail trading.

The collected primary and secondary data will be analysed with the help of standard statistical tools. In order, the trend of the variables regression analysis will be used. In order to determine the extent of relationship between variables co- relation analysis will be done. Mean and standard deviation of data will

also be calculated.

Advantages of FDI In Retail Sector

1. Growth in Economy

2. Job Opportunities

3. Benefits to farmers

4. Benefits to consumers

5. Cheaper production facilities

6. Availability of new technology

7. Long term cash liquidity

Disadvantages of FDI In Retail Sector

1. Impact on Local Markets (kirana shops)

2. Limited Employment Generation

3. Fear of Lowering prices

4. Negative Impact on Economy

5. Negative Impact on Indian Domestic Market

Challenges of FDI In Retail Sector

The challenges facing larger FDI in India are in spite of the fact that more than 100 of Fortune 500 companies are already investing in India. These FDIs are already generating employment opportunities, income, technology transfer and economic stability.

India is focusing on maximizing political and social stability along with a regulatory environment. In spite of the obvious advantages of FDIs, there are quite a few challenges facing larger FDIs in India, such as:

1. Resource challenge : India is known to have huge amounts of resources. There is manpower and significant availability of fixed and working capital. At the same time, there are some underexploited or unexploited resources. The resources are well available in the rural as well as the urban areas. The focus is to increase infrastructure 10 years down the line, for which the requirement will be an amount of about US$ 150 billion. This is the first step to overcome challenges facing larger FDI.


2. Equity challenge : India is definitely developing in a much faster pace now than before but in spite of that it can be identified that developments have taken place unevenly. This means that while the more urban areas have been tapped, the poorer sections are inadequately exploited. To get the complete picture of growth, it is essential to make sure that the rural section has more or less the same amount of development as the urbanized ones. Thus, fostering social equality and at the same time, a balanced economic growth.

3. Political Challenge : The support of the political structure has to be there towards the investing countries abroad. This can be worked out when foreign investors put forward their persuasion for increasing FDI capital in various sectors like banking, and insurance. So, there has to be a common ground between the Parliament and the Foreign countries investing in India. This would increase the reforms in the FDI area of the country.

4. Federal Challenge : Very important among the major challenges facing larger FDI, is the need to speed up the implementation of policies, rules, and regulations. The vital part is to keep the implementation of policies in all the states of India at par. Thus, asking for equal speed in policy implementation among the states in India is important.

5. India must also focus on areas of poverty reduction, trade liberalization, and banking and insurance liberalization. Challenges facing larger FDI are not just restricted to the ones mentioned above, because trade relations with foreign investors will always bring in new challenges in investments.

Conclusion

India’s retail sector remains off-limits to large international chains especially in multi-brandretailing. A number of concerns have been raised about opening up the retail sector to FDI in India. The first concern is the potential

impact of large foreign firms on employment in the retail sector. A second related concern raised in the DIPP’s report is that opening up FDI would lead to unfair competition and ultimately result in large-scale exit of incumbent domestic retailers, especially the small family-owned business. A third concern raised by domestic incumbent firms in the organized retail sector is that this sector is under-developed and in a nascent stage.

In this paper we argue that the potential benefits from allowing large retailers to enter the

Indian retail market may outweigh the costs.FDI in organized retail could help tackle inflation, particularly with wholesale prices. It is also expected that technical know-how from foreign firms, such as warehousing technologies and distribution systems.

Gone are the days, when customers were dependent on nearby retail store for fulfilling their

Needs. With new concepts like e-tailing, customized product, a big shift is seen in the response of the customers. Positive as well as negative points are attached to the liberalized FDI policy in retail sector. FDI in no doubt is likely to bring improvement in state of Indian economy, but the stake of small retailers must be taken care of while formulating and implementing the policy. With growing awareness and attitudinal shift of customers, it is suggested that it is time for small retailers to spend time to revive the strategies required to attract customers towards their retail stores. The small retailers must concentrate upon innovative concepts of retailing, spend time on CRM practices, bring improvement in SCM, use feedback facility, keep a track record of customers, provide quality products, bring improvement in ambience and most importantly provide a personal touch to the services for attracting customers towards their retail stores. The Government is also required to frame strict policies, taking care of interest of small retailers, so that organized and unorganized sector may co-exist and flourish together.


Reference

1. Chari Anusha and Raghavan T.C.A Madhav, An Article on Foreign Direct Investment in India’s Retail Bazaar – Opportunities and Challenges, March 2011

2. Dutta D.L., Principles of Marketing and Ecommerce, Tee Dee Publications, August 2016, Volume 4, pp 355-379

3. Arora Richa, Mathew Supriya and Suresh Anupama, An Article on Impact of FDI on Indian Retail Sector: Challenges and Opportunities by, January 2014

4. Chowdhury Dr Monoj Kumar, An Article on FDI in Indian Retail Sector: An Analysis by, International Journal of Application or Innovation in Engineering and Management, April 2016

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An Overview of FDI in India and Measures to Increase its Inflow

Abstract

This paper explains the prominent aspects of FDI, its implications for the Indian economy, factors that curtail its inflow in India and suggestions to overcome them. In 1991, the Indian economy was experiencing financial dimness as the government was not able to make repayments on its borrowings from abroad. This eventually led the government to introduce The New Economic Policies (NEP) in 1991. The NEP relaxed the trade barriers to a considerable extent which led to the flow of foreign capital in our nation and simultaneously uplifted the prosperity of the country. Since then, the FDI norms are continuously being further liberalised to attract foreign resources in the Indian system. Initiatives such as Make in India and up to cent percent FDI in many sectors, etc are ambitious strides in this regard. According to the UNCTAD World Investment Report 2016, India acquired 10th slot in the top 10 countries attracting highest FDI inflows globally in 2015. However, certain factors are discouraging the foreign investors to take India as an interesting investment destination. In the present paper an attempt has been made to find out the factors which are restraining the arrival of FDI in India and how those can be tackled effectively keeping in view the interests of the domestic players of the country.

Keywords : economic development, make in india, socio-economic condition

Amit Kumar GuptaAssistant Professor

St. Xavier’s College, Simdega

Introduction

Foreign Direct Investment (FDI) refers to an investment in a business enterprise in a country other than the investor's country designed to acquire a controlling interest in the foreign business enterprise. The Organization of Economic Cooperation and Development (OECD) defines control as owning 10% or more of the business. Whether or not or up to what extent a country needs FDI support depends upon the socio-economic conditions prevailing in the relevant country.

In 1991, foreign exchange reserves dropped to levels that were not sufficient to make repayments on foreign borrowings. This led India to approach The World Bank and The IMF for a loan of $7 billion to manage the crisis. For availing the loan, these international agencies expected India to liberalise and open up the economy by removing restrictions on the private sector, reduce the role of the government in many areas and remove trade restrictions with other countries. India agreed

to the stipulations of The World Bank and The IMF and announced the New Economic Policies (NEP). The NEP laid the foundations for the prominent policies popularly known as LPG (abbreviated form of Liberalisation, Privatisation and Globalisation) which brought about significant turnaround for the nation.

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65

101

73

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US Brazil Canada IndiaHong Kong.China

China Ireland

Net

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FDI RankingsThe US tops in FDI inflows, with China at third place and India at 10th.

FDI inflows (in $ bn)

2014 2015

Source : World Investment Report 2016 by UNCTAD

FDI refers to the net inflows of investment to acquire a lasting management interest (10 per


cent or more of voting stock) in an enterprise operating in an economy other than that of the investor. However, there may be exceptions as often a smaller block of shares will give control in widely held companies. Moreover, control of technology, management and even crucial inputs can confer de facto control. There are two types of FDI: inward foreign direct investment and outward foreign direct investment, resulting in a net FDI inflow (positive or negative.) FDI is one of the major monetary sources for countries in need of funds. According to the World Bank, FDI is one of the critical elements in developing the private sector in lower-income economies and thereby, in reducing poverty. It were P.V. Narasimha Rao and Manmohan Singh, the Prime Minister and Finance Minister respectively at that time who brought FDI in India. Since then, the FDI norms are continuously being further liberalised to attract foreign resources in the Indian system. FDI is a major source of non-debt financial resource for the economic development of India. Foreign companies invest in India to take advantage of relatively lower wages, special investment privileges such as tax exemptions, etc. The government has taken many initiatives in recent years such as relaxing FDI norms across sectors such as defence, railways, telecom, power and civil aviation among others.

Types of FDI

Strategically, FDI comes in three types

� Horizontal : In case of horizontal FDI, the company does all the same activities abroad as at home. For example, Toyota assembles motor cars in Japan and the UK.

� Vertical : In vertical assignments, different types of activities are carried out abroad. In case of forward vertical FDI, the FDI brings the company nearer to a market. For example, Toyota buying a car distributorship in America. In case of backward Vertical FDI, the international integration goes back towards raw materials. For example, Toyota getting

majority stake in a tyre manufacturer or a rubber plantation.

� Conglomerate : In this type of investment, the investment is made to acquire an unrelated business abroad. It is the most surprising form of FDI, as it requires overcoming two barriers simultaneously – one, entering a foreign country and two, working in a new industry.

Forms of FDI

FDI can take place in the following forms :

� Greenfield Entry refers to activities or assembling all the elements right from scratch as Honda did in the UK by investing £2.2 billion for establishing its plant from the ground level.

� Brownfield Entry/Foreign takeover means acquiring an existing foreign company – as Tata’s acquisition of Jaguar Land Rover. Foreign takeover is often called Mergers and Acquisitions (M&A) but internationally, mergers are absolutely small, which accounts for less than 1% of all foreign acquisitions.

Methods of Acquiring Control, i.e., Voting Power

The foreign direct investor may acquire voting power of an enterprise in an economy through any of the following methods:

� by incorporating a wholly owned subsidiary or company anywhere

� 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

The FDI Approval Process in India

� FDI is permitted in Indian companies, partnership firms, venture capital funds and limited liability partnerships. These entities may receive FDI under the automatic route or the government route,


depending on the economic activity/sector.

� FDI in activities not covered under the automatic route requires prior Government approval. Investment proposals are considered by the Foreign Investment Promotion Board (FIPB), a Government body that offers single-window clearance for foreign investments in the country that are not allowed access through the automatic route.

� Information disclosure requirements with the FIPB include the name and address of the Indian company, a description of the existing and proposed activities of the company and a description of the capital structure of the company, as well as its proposed borrowings, export commitments, employment opportunities, amount of foreign equity investment and foreign technology agreements. Additional documents to be submitted to the FIPB include descriptions of Indian JV partners indicating their percentage share, group companies and affiliates; information on the activities of the downstream companies; copies of the JV and/or shareholders agreement and technology transfer and/or trademark agreements; pre- and post-investment shareholding structure of the investee and the investing companies; and, in cases of indirect investment through Indian companies, details on the indirect investment and its shareholders.

� The consolidated FDI Policy stipulates that in all sectors with sectoral caps, the balance equity, i.e. beyond the sectoral foreign investment cap, has to be beneficially owned by resident Indian citizens and Indian companies owned or controlled by resident Indian citizens.

Ways in which FDI can benefit India

� Positive for GDP : FDI serves as fresh capital and will aid in improving the socio-economic condition of the country by utilising the resources to the optimal level

and thus pushing GDP to new levels.

� Uprooting Unemployment and Poverty : FDI will help in creating and/or developing new physical facilities which will open new job opportunities and thus will thwart unemployment and poverty simultaneously.

� Non-debt Fund : FDI is a non-debt capital which will not oblige India for redemption.

� Push Competition to International level : The rush of FDI in the country will force the local producers and service providers to upgrade themselves to international level in order to sustain in the transformed scenario.

� More Forex and Tax Revenues : FDI will boost the forex position and tax revenues for the government which will contribute significantly towards the prosperity of the nation.

Government of India's FDI Initiatives

I. Make in India Initiative : Make in India campaign is structured to attract more FDI to India and make the country a global manufacturing and industrial hub. This campaign has garnered global attention as the initiative has encouraged foreign investors to privatise key sectors such as the railways, defence, civil aviation, food products, pharmaceuticals and so forth.

II. Ease of Doing Business : The government is now trying to pave the way for easy business in India by removing archaic laws. The World Bank has listed India on 130th position in comparison to 142nd position of last year in the light of the improvements made in this regard.

III. Major Recent changes in the FDI Policy of India :

� The government has raised FDI cap in insurance from 26 per cent to 49 per cent.

� 100% FDI under automatic route in Greenfield Pharmaceuticals. Also,


up to 74% FDI under automatic route in Brownfield Pharmaceuticals and beyond that can be acquired through government approval.

� In a major reform move, 100% FDI in railway infrastructure has been allowed.

� In the Defence Sector, FDI beyond 49% has been permitted through government approval route, in cases resulting in access to modern technology in the country or for other reasons, besides permitting foreign investment in manufacturing of small arms and ammunition. The condition of access of state of the art technology has been removed.

� The government has also permitted 100% FDI through automatic route in broadcasting carriage services like teleports, direct-to-home and mobile TV.

� In a significant reform move, the government allowed 100% FDI in airlines and relaxed norms for overseas investments in Brownfield airports.

� The changes in the policy include allowing 100% FDI under government approval route for trading, including through e-commerce, in respect of food products manufactured and/or produced in India.

FDI Flows to India: Country-Wise and Industry-Wise (US $ million)

Source/Industry 2011-12 2012-13 2013-14 2014-15 2015-16 P1 2 3 4 5 6

Total FDI 23,473 18,286 16,054 24,748 36,068Country-wise InflowsSingapore 3,306 1,605 4,415 5,137 12,479Mauritius 8,142 8,059 3,695 5,878 7,452U.S.A. 994 478 617 1,981 4,124Netherlands 1,289 1,700 1,157 2,154 2,330Japan 2,089 1,340 1,795 2,019 1,818UAE 346 173 239 327 961Germany 368 467 650 942 927United Kingdom 2,760 1,022 111 1,891 842Luxembourg 89 34 539 204 784Cyprus 1,568 415 546 737 488China 73 148 121 505 461France 589 547 229 347 392Hongkong 262 66 85 325 344South Korea 226 224 189 138 241Switzerland 211 268 356 292 195Spain 251 348 181 401 141Malaysia 18 238 113 219 73Others 890 1,156 1,015 1,251 2,016Sector-wise Inflows


Source/Industry 2011-12 2012-13 2013-14 2014-15 2015-16 P1 2 3 4 5 6

Manufacturing 9,337 6,528 6,381 9,613 8,439Computer Services 736 247 934 2,154 4,319Construction 2,634 1,319 1,276 1,640 4,141Retail & Wholesale Trade 567 551 1,139 2,551 3,998Financial Services 2,603 2,760 1,026 3,075 3,547Business Services 1,590 643 521 680 3,031Communication Services 1,458 92 1,256 1,075 2,638Electricity and other Energy Generation, Distribution & Transmission

1,395 1,653 1,284 1,284 1,364

Transportation 410 213 311 482 1,363Miscellaneous Services 801 552 941 586 1,022Restaurants and Hotels 870 3,129 361 686 889Mining 204 69 24 129 596Education, Research & Development

103 150 107 131 394

Real Estate Activities 340 197 201 202 112Trading 6 140 0 228 0Others 419 43 292 232 215P: Provisional.Note : Includes FDI through SIA/FIPB and RBI routes only.

Source : RBI Annual Report 2015-16

Bottlenecks associated with FDI in India and Measures to Increase its Inflow

FDI inflow in the country is increasing at a fast pace. However, there are some bottlenecks to FDI which are not letting India to move with full pace in the desired direction of growth and prosperity. These bottlenecks need to be tackled with effective and efficient measures to make sure that optimal level of FDI reaches India. An attempt has been made to list some of these major bottlenecks along with their suggestive measures.

� Ease Of Doing Business in India : Even though India has now improved its rank (from 142 to 130) in the field of Ease of Doing Business, immense efforts are needed to further simply the business prospects in the country. It may have

become easier for Indian businesses to start a business, but their access to credit and ease of paying taxes has worsened, according to the World Bank’s Doing Business Report 2016.

� State of Infrastructure in India : New and innovative plans are required to improve the infrastructure of the economy, facilitate smooth business and navigation and to attract foreigners to invest by means of FDI.

� High Taxation for Registered Entities : India has one of the highest corporate tax rates (30% for domestic companies and 40% for foreign companies). The tax rate for the firms (30%) is also high. There is a need to lower the tax rates to make India an attractive destination for FDI and to


facilitate entrepreneurship in the country at the same time.

� Corruption speaks high in the country: Corruption needs to be checked through implementation of harsh provisions in the laws of the country as it diminishes the status of the country and thereby restricts the flow of foreign funds in the economy.

� Making flat rules for FDI : Indian governance framework is intertwined between the Central and State structures. The com¬panies face several complex bureaucratic procedures and are forced to comply with both state and central rules and regulations. Moreover, duties and levies undergo frequent revisions during the Annual Central and State budget exercise. Flat rules for FDI will save the foreign investors from the unstable political environment of the country and also from the amendments in the Central and State rules.

� Government should open doors to foreign companies in the export–oriented services : which could increase the demand of unskilled workers and low skilled services and also increases the wage level in these services and further increase the forex reserves of India.

� More services sectors should be allowed

through RBI's automatic approval route : More service sectors within the automatic route will straightaway get the attention of foreign investors, raise the level of services in the nation and will prove to be meaningful in increasing the FDI inflow and forex reserves significantly.

� More incentives for FDI in the rural and backward regions : This will serve the country's mission of attaining equity and will help the poor sections of the economy reap the benefits of the resultant economic prosperity.

� More incentives for FDI from friendly nations : India is known for maintaining healthy relationship with others and valuing a country by means of greater incentives for FDI from the same will be another stepping stone in the direction of making the bond even stronger.

� Support in the initial phase : This can be done by insuring their investments to certain limits and appointing native liaison officials to comply with the rules and regulations applicable in the country

� Participation in deciding legal framework for foreign investors : It will make them feel important and safe simultaneously and will contribute significantly towards the inflow of FDI in the Indian economy.

Comparison of Key Indicators

Particulars USA China IndiaFDI Rankings (2015) 1 3 10Net FDI (2015) ($ billions) 380 136 44GDP (2015) ($ billions) 17,946.00 10,866.00 2,073.00 GDP (PPP) Rankings 2 1 3Real GDP Growth Rate 2.6 6.9 7.60Net FDI as % of GDP (Nominal) 2.117 1.252 2.123Population (2015 UN Estimates) (in billions) 0.322 1.376 1.311GDP(Nominal) per Capita ($) 55,732.92 7,896.80 1,581.24 Ease of doing business Index (2015) 7 90 142World Economy Rankings 1 2 5Corruption Perceptions Index (CPI) (2015) 17 84 79


Source : World Investment Report 2016 by UNCTAD, World Bank Doing Business Report 2016, Transparency International (CPI 2015)

Points from the above table

� The economies leading from India, viz., USA and China are able to attract Net FDI higher than eight times and three times respectively in comparison to India.

� GDP of these two economies are also approximately higher than eight times and five times respectively than that of India.

� Of the three economies, USA ranks higher in terms of Ease of Doing Business than China and India. Even China is way ahead than India. As a result, they are able to attract substantially larger FDI than India.

� The two leading economies are better rated in terms of GDP per Capita, economy rankings, exports, imports, unemployment, inflation and more importantly the HDI. It would not be exaggeration to say that the high level of FDI in these two economies is responsible to a substantial extent in uplifting the prosperity of these nations.

� It is therefore concluded that India should also come up in the list of Ease of Doing Business by getting rid of unnecessary barriers which stand in the way of prospective FDI.

Conclusion

The reform process has completed nearly two and a half decades since its introduction. The opening up of the economy from time to time has led to rapid increase in FDI and foreign exchange reserves. India today stands on 8th position in the world in terms of stock of foreign exchanges. According to the World's Bank Doing Business Report 2016, India now

ranks 130 out of the 189 countries in the ease of doing business, moving up from last year's ranking of 142. In the first half of the 2016, India attracted FDI above $20 billion which shows a rise of 30% on year-to-year basis, reflecting that the government's effort to improve ease of doing business, Make in India Initiative and relaxation in FDI norms is proving fruitful. According to United Nations Conference on Trade and Development (UNCTAD) World Investment Report 2016, India acquired 10th slot in the top 10 countries attracting highest FDI inflows globally in 2015. The report also mentioned that among the investment promotion agencies, India has moved up by one rank to become the sixth most preferred investment destination.

Most of the developing economies have opened their doors to FDI in the recent years. The main reason behind this is to benefit from advanced production techniques and processes that accompany FDI. FDI is considered more superior than other forms of foreign investments like FPIs, FIIs, commercial loans, foreign aid etc., as it is more stable. With 7.6% growth rate during the FY 2015-16, India is now one of the world's fastest growing economies. India being a young country (more than 50% of its population is below the age of 25 and more than 65% is below the age of 35) craves for more opportunities which can only be provided when there are more productive facilities in the country to absorb the unemployed mass. FDI can serve this objective well when government provides more incentives for adopting labour incentive sectors. FDI inflows in India can be enhanced to the maximum possible extent by opening up the economy to the optimal level keeping in view the interests of the domestic players simultaneously.

Particulars USA China IndiaShare of world's goods exports 2 1 19Share of world's goods imports 1 2 13Unemployment Rate (Nov 2016) 4.60 4.04 4.90Inflation (November 2016) 1.69 2.3 3.35Human Development Index Rankings (2015) 8 90 130


References

1. Liberalisation, Privatisation and Globalisation : An Appraisal, Indian Economic Development, Unit II, Chapter 3, NCERT Textbook for Class XI, pp 38-52

2. Thakur Pooja and Burange L.G., An Analysis of Productivity Spillovers from FDI in India's Services Sector, Foreign Trade Review, SAGE Publications India Pvt. Ltd., New Delhi, Volume 51, Issue No. 4, November 2016, pp 271-272

3. UNCTAD World Investment Report 20164. Consolidated FDI Policy 2016, Department

of Industrial Policy and Promotion, Ministry of Commerce and Industry, Government of India

5. RBI Annual Report 2015-166. World's Bank Doing Business Report 20167. http://dipp.nic.in/8. http://en.wikipedia.org/wiki/Foreign_

direct_investment_in_India

-60-


Present Scenario of Foreign Direct Investment in India

Abstract

Foreign Direct investment plays a very important role in the development of the nation. Globalization and liberalisation brings lots of new innovative products to the world, Foreign Direct Investment is the one among this, also there are number of different forms of FDI is available currently. The Government has put in place a policy framework on Foreign Direct Investment, which is transparent, predictable and easily comprehensible. This framework is embodied in the Circular on Consolidated FDI Policy, which may be updated every year, to capture and keep pace with the regulatory changes, effected in the interregnum. The BJP led Modi Government liberalized the FDI regime on 20th June 2016. Under this announcement, about 94% of the sectors would be under automatic approval route. This is the second major reform after the last radical changes announced in November 2015. Changes introduced in the policy include increase in sectoral caps, bringing more activities under automatic route and easing of conditionalities for foreign investment. These amendments seek to simplify the FDI regulations in the country and make India an attractive destination for foreign investors. The present study is based on secondary data collected from different sources. This paper also tries to find out the present scenario of Foreign Direct Investment in India.

Keywords : foreign Institutional Investor, economic growth, foreign portfolio investment

Anamika KumariResearch Scholar

University Department of Commerce & Businness Management Ranchi University, Ranchi

Sneha ToppoResearch Scholar

University Department of Commerce & Businness Management Ranchi University, Ranchi

Introduction

In a globalized world today, India’s growth story is intrinsically linked with the story of both Indian entrepreneurship and Foreign Direct Investment (FDI). India’s strong fundamentals of stable macroeconomic and political regime, strong institutions, geographical advantage, and the growing aspirational middle class with appetite for consumption have made India one of the preferred destinations for global investment, full potential of which is gradually being unleashed. UNCTAD and Ernst & Young (EY) have included India in one of the top five attractive locations for investment. Japan Bank for International Cooperation continues to rate India as top most promising country for overseas business operations.

FDI policy and procedures of a country can deliver results within the boundaries of the

sectoral policies and procedures, and it is here that the holistic policy liberalization in the last one year has brought in the maximum thrust. It is not surprising that OECD has termed India’s FDI policy regime today as more liberal than the FDI policy regime in China.

It is the intent and objective of the Government of India to attract and promote foreign direct investment in order to supplement domestic capital, technology and skills, for accelerated economic growth. Foreign Direct Investment, as distinguished from portfolio investment, has the connotation of establishing a ‘lasting interest’ in an enterprise that is resident in an economy other than that of the investor.

The Government has put in place a policy framework on Foreign Direct Investment, which is transparent, predictable and easily comprehensible. This framework is embodied


in the Circular on Consolidated FDI Policy, which may be updated every year, to capture and keep pace with the regulatory changes, effected in the interregnum. The Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce & Industry, Government of India makes policy pronouncements on FDI through Press Notes/Press Releases which are notified by the Reserve Bank of India as amendments to the Foreign Exchange Management (Transfer or Issue of Security by Persons Resident Outside India) Regulations, 2000 (notification No.FEMA 20/2000-RB dated May 3, 2000). These notifications take effect from the date of issue of Press Notes/ Press Releases, unless specified otherwise therein. In case of any conflict, the relevant FEMA Notification will prevail. The procedural instructions are issued by the Reserve Bank of India vide A.P. (DIR Series) Circulars. The regulatory framework, over a period of time, thus, consists of Acts, Regulations, Press Notes, Press Releases, Clarifications, etc.

FDI, means “investment by non-resident entity or person resident 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.”

FDI, in its classic definition, is termed as a company of one nation putting up a physical investment into building a facility (factory) in another country. The direct investment made to create the buildings, machinery, and equipment is not in sync with making a portfolio investment, an indirect investment.

Foreign Investment in India is governed by the FDI policy announced by the Government of India and the provision of the Foreign Exchange Management Act (FEMA) 1999. The FDI policy is notified through Press Notes by the Secretariat for Industrial Assistance (SIA), Department of Industrial Policy and Promotion (DIPP). The foreign investors are free to invest in India, except few sectors/activities, where prior approval from the RBI or Foreign Investment Promotion Board (“FIPB‟) would be required. The historical background

of FDI in India can be traced back with the establishment of East India Company of Britain. British capital came to India during the colonial era of Britain in India. After Second World War, Japanese companies entered Indian market and enhanced their trade with India, yet U.K. remained the most dominant investor in India. Therefore, the government adopted a liberal attitude by allowing more frequent equity participation to foreign enterprises, and to accept equity capital in technical collaborations. It is during this period the government encouraged FDI, allowed MNCs to operate in India. Thus, resulting in the partial liberalization of Indian Economy. Indian retail industry is one of the sunrise sectors with huge growth potential. According to the Investment Commission of India, the retail sector is expected to grow almost three times its current levels to $660 billion by 2015.


In pursuance of the above mentioned objective the following methodology was adopted. The present research work is based on secondary data. The secondary data required for the study is collected through the official publication of government of India, various publications of RBI, Planning Report and from official web RBI.


FDI equity inflows during the financial year 2014-2015 and 2015-2016

Financial Year Amount of FDI Equity inflows

(In Rs. Crore)

(In US$ mn)

2015-16 (form April, 2015 to March, 2016)

262,322 40,001

2014-15 (form April, 2014 to March, 2015)

189,107 30,931

%age growth over last year

( + ) 39 % ( + ) 29%


Share of Top Investing Countries FDI equity inflows (Financial years)

Amount Rupees

in crores (US$ in million) Ranks

Country 2013-14 (April - March)

2014-15 (April – March)

2015-16 (April,15 – March,16 )

Cumulative Inflows

(April ’00 - March ‘16)

%age to total Inflows

(in terms of US $)

1. Mauritius 29,360 55,172 54,706 480,363 33 % 2. Singapore 35,625 41,350 89,510 256,667 16 % 3. U.K. 20,426 8,769 5,938 115,592 8 % 4. Japan 10,550 12,752 17,275 110,671 7 % 5. U.S.A. 4,807 11,150 27,695 94,575 6 % 6. Netherlands 13,920 20,960 17,275 94,533 6 % 7. Germany 6,093 6,904 6,361 44,870 3 % 8. Cyprus 3,401 3,634 3,317 42,681 3 % 9 France 1,842 3,881 3,937 26,525 2 % 10. UAE 1,562 2,251 6,528 21,648 1 % Total FDI Inflows from all countries *

147,518 189,107 262,322 1,495,859 -

*Includes inflows under NRI Schemes of RBI. %age worked out in US$ terms & FDI inflows received through FIPB/SIA+ RBI’s Automatic Route + acquisition of existing shares only. Growth of FDI in India

Unctad (United Nations Conference On Trade & Development), in its January 2016 Investment Monitor, estimates that global FDI flows increased by 36% in 2015 to $1700bn. This compares with The FDI Report 2016, which estimates that greenfield capital investment by foreign investors was $700bn in 2015, an 8.6% increase over the previous year. So by how much did the FDI market actually recover in 2015? The answer is in the different ways of measuring FDI. Unctad FDI flows data records all types of FDI, based in most countries on the official OECD (Organization for Economic Cooperation and Development) definition of FDI, while the FDI Markets data published in this report is based on the announcement of greenfield FDI projects only. The year-on-year changes in Greenfield FDI, published yearly in The FDI Report, has closely tracked that of the official FDI flows data published by Unctad. This changed in 2015 due to record levels of M&A, leading to the highest crossborder M&A

(Mergers and Acquisitions) flows since 2007.

As a result, official FDI flows grew substantially in 2015 by more than one-third. Developed economies, and the US in particular, attracted most of the growth in FDI flows in 2015 largely due to inbound M&As. FDI flows to the US in 2015 reached $384bn – nearly three times more than FDI flows to China. While FDI flows emanating from M&As can provide a valuable source of foreign exchange and long-term capital to finance the balance of payments, the economic impact of M&As on the host economy is generally regarded as neutral in terms of the impact on job creation and capital investment; the impact is very much deal specific and depends on what the plans of the foreign investor are for the acquired company – to re-invest and expand or to rationalise or even close down – and if the M&A deal is a successful organizational merger. The economic impact of greenfield FDI is generally regarded as positive – it is new net capital investment and job creation for


the host economy. As published in this report, nearly 2 million jobs were directly created by foreign investors in their new or expanded operations in 2015 based on estimates from FDI Markets. Increased domestic capital investment and job creation through the supply chain and the wealth effect further increases the direct and indirect impact of greenfield FDI. The growth in greenfield FDI by 8.6% in 2015 was therefore very positive for economic development, although nearly all the growth in capital investment and related job creation was in Asia-Pacific, where greenfield FDI increased by more than $70bn. The biggest change in greenfield FDI in 2015 was the near tripling of greenfield FDI into India, with an estimated $63bn. In 2015, India was for the first time the leading country in the world for FDI, overtaking the US (which had $59.6bn of Greenfield FDI) and China ($56.6bn).

Analysis

The rapid growth of greenfield FDI in India shows that while economic development organisations try to attract FDI for the

contribution greenfield FDI can make to employment and GDP, FDI is strongly attracted to high-growth economies. Success breeds success and to attract high volumes of FDI, locations need to create the conditions for strong economic growth and development to take place.

Recent Policies and Initiatives

The government has recently made changes to the Foreign Direct Investment (FDI) policy regime by enhancing FDI limits in various sectors like Defence, Civil Aviation etc. The FDI limit in various sectors is not uniform. Further, FDI is also allowed through two different routes namely, Automatic and through the Foreign Investment Promotion Board (FIPB). In the automatic route, foreign entities do not need the prior approval of the government to invest. However, they have to inform the RBI about the amount of investment within a stipulated time period. In specific sectors, FDI is through the FIPB or the Government route where the FIPB has to approve each foreign investment.

Sector wise FDI Limits

Sector FDI Limit Entry Route & RemarksAgriculture & Animal Husbandry

� Floriculture, Horticulture, Apiculture and Cultivation of Vegetables & Mushrooms under controlled conditions

� Development and Production of seeds and planting material

� Animal Husbandry(including breeding of dogs), Pisciculture, Aquaculture

� Services related to agro and allied sectors

100% Automatic

Plantation Sector

� Tea sector including tea plantations � Coffee plantations

100% Automatic

Mining

Mining and Exploration of metal and non-metal ores including diamond, gold, silver and precious ores but excluding titanium bearing minerals and its ores

100% Automatic


Sector FDI Limit Entry Route & RemarksMining (Coal & Lignite) 100% AutomaticMining

Mining and mineral separation of titanium bearing minerals and ores, its value addition and integrated activities

100% Government

Petroleum & Natural Gas 100% AutomaticPetroleum & Natural Gas

Petroleum refining by the Public Sector Undertakings (PSU), without any disinvestment or dilution of domestic equity in the existing PSUs.

49% Automatic

Defence Manufacturing 100% Automatic up to 49% Above 49% under Government route in cases resulting in access to modern technology in the country

Broadcasting 100% AutomaticBroadcasting

Cable Networks (Other MSOs not undertaking up gradation of networks towards digitalization and addressability and Local Cable Operators (LCOs))

100% Automatic

Broadcasting Content Services

� Terrestrial Broadcasting FM(FM Radio) � Up-linking of ‘News & Current Affairs’ TV

Channels

49% Government

Up-linking of Non-‘News & Current Affairs’ TV Channels/ Down-linking of TV Channels

100% Automatic

Print Media

� Publishing of newspaper and periodicals dealing with news and current affairs

� Publication of Indian editions of foreign magazines dealing with news and current affairs

26% Government

Publishing/printing of scientific and technical magazines/specialty journals/ periodicals

100% Government

Publication of facsimile edition of foreign newspapers

100% Government

Civil Aviation – Airports

Green Field Projects & Existing Projects

100% Automatic


Sector FDI Limit Entry Route & RemarksCivil Aviation – Air Transport Services

� Scheduled Air Transport Service/ Domestic Scheduled Passenger Airline

� Regional Air Transport Service

100% Automatic up to 49%

Above 49% under Government route

100% Automatic for NRIsCivil Aviation 100% AutomaticConstruction Development: Townships, Housing, Built-up Infrastructure

100% Automatic

Industrial Parks 100% AutomaticSatellites- establishment and operation, subject to the sectoral guidelines of Department of Space/ISRO

100% Government

Private Security Agencies 74% Automatic up to 49%

Above 49% & up to 74% under Government route

Telecom Services 100% Automatic up to 49%


Cash & Carry Wholesale Trading 100% AutomaticE-commerce activities (e-commerce entities would engage only in Business to Business (B2B) e-commerce and not in Business to Consumer (B2C) e-commerce.)

100% Automatic

Single Brand retail trading

Local sourcing norms will be relaxed up to three years and a relaxed sourcing regime for another five years for entities undertaking Single Brand Retail Trading of products having ‘state-of-art’ and ‘cutting edge’ technology.

100% Automatic up to 49%


Multi Brand Retail Trading 51% GovernmentDuty Free Shops 100% AutomaticRailway Infrastructure 100% AutomaticAsset Reconstruction Companies 100% AutomaticBanking- Private Sector 74% Automatic up to 49%

Above 49% & up to 74% under Government route

Banking- Public Sector 20% GovernmentCredit Information Companies (CIC) 100% AutomaticInfrastructure Company in the Securities Market 49% AutomaticInsurance 49% Automatic


Sector FDI Limit Entry Route & RemarksPension Sector 49% AutomaticPower Exchanges 49% AutomaticWhite Label ATM Operations 100% AutomaticNon-Banking Finance Companies (NBFC) 100% AutomaticPharmaceuticals(Green Field) 100% AutomaticPharmaceuticals(Brown Field) 100% Automatic up to 74%

Above 74% under

Government routeFood products manufactured or produced in India

Trading, including through e-commerce, in respect of food products manufactured or produced in India.

100% Government

Prohibited Sectors

1. FDI is prohibited in the following sectors

2. Lottery Business including Government/private lottery, online lotteries, etc.

3. Gambling and Betting including casinos etc.

4. Chit funds

5. Nidhi Company

6. Trading in Transferable Development Rights (TDRs)

7. Real Estate Business or Construction of Farm Houses (Real estate business does not include development of townships, construction of residential /commercial premises, roads or bridges ).

8. Manufacturing of cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes

9. Activities/sectors not open to private sector investment e.g. Atomic Energy and Railway operations (other than permitted activities).

Conclusion

The Government has put in place a policy framework on Foreign Direct Investment, which is transparent, predictable and easily

comprehensible. This framework is embodied in the Circular on Consolidated FDI Policy, which may be updated every year, to capture and keep pace with the regulatory changes, effected in the interregnum.

Forecasts with world GDP growth in 2016 being revised downwards and given the continued unrest in the Middle East, the Chinese economic slowdown and the growing impact of Zika on Latin America, we are forecasting greenfield FDI to decline by at least 5% in 2016. Unctad is also forecasting a decline in FDI in 2016, if crossborder M&A does not stay at its 2015 peak levels. Looking at the 2017-20 period, we expect greenfield FDI to slowly recover with annual growth of 3%to 5% per annum over this period.

References

1. Quarterly factsheet on FDI from 2000 to march 2016

2. THE FDI REPORT 2016 Global greenfield investment trends

3. Puri V. K. and Mishra S. K., Indian Economy, Himalaya Publishing House, New Delhi, 2016

4. UNCTAD, World Investment Report, 2015

5. Website: www. rbi.org.in

-67-


Foreign Direct Investment in Aviation

Abstract

The government on June 20, 2016 raised foreign direct investment (FDI ) limit in scheduled commercial airlines to 100 per cent from 49 per cent. Foreign airlines, though, are barred from holding equity stake in Indian carriers above 49 per cent. As per changes in the FDI policy announced by the Prime Minister’s Office, foreign investors can pick up 100 per cent FDI in existing airports under the ‘automatic route’ — a change from past regime where foreigners needed government approval if they wanted to raise equity stake in airport projects from 74 per cent to 100 per cent. India is one of the fastest growing aviation markets and currently the ninth largest civil aviation market in the world. India is projected to be the third largest aviation market by 2020. Foreign investors, barring overseas airlines, can now have up to 100 per cent stake in local carriers. Besides, the norms for foreign direct investment in brownfield airports have been relaxed. Aimed at attracting more funds into the aviation sector which has high growth potential, the NDA government’s latest measure came after the unveiling of the National Civil Aviation Policy. It is against the backdrop of persisting concerns over ownership and control at local carriers where foreign players have a substantial stake. Now, 100 percent foreign investment is allowed in schedule air transport service/domestic scheduled passenger airline and regional air transport service. Only non-airline players will be allowed to bring in 100 per cent FDI in local carriers. With a view to aiding in modernization of the existing airports to establish a high standard and help ease the pressure on the existing airports, it has been decided to permit 100 percent FDI under automatic route in brownfield airport projects.

Keywords : automatic route, aviation policy, local carriers

Anand Kumar ChitlangiaResearch Scholar

Department of Commerce & Business ManagementRanchi University, Ranchi

Introduction

The Civil Aviation Industry in India has been flourishing for last one decade as the Government of India has adopted an “Open Skies Policy.”

India’s civil aviation industry is on a high-growth trajectory. India aims to become the third-largest aviation market by 2020 and the largest by 2030. The Civil Aviation industry has ushered in a new era of expansion, driven by factors such as low-cost carriers (LCCs), modern airports, Foreign Direct Investment (FDI) in domestic airlines, advanced information technology (IT) interventions and growing emphasis on regional connectivity. India is the ninth-largest civil aviation market in the world, with a market size of around US$ 16 billion. India is expected to become the third largest aviation market by 2020 .


Currently India is ninth largest civil aviation market. Total passenger traffic stood at 224 million during 2016. India is expected to have 60 million international passengers by 2017. 81 international airlines connecting over 40 countries. India is projected to be the third largest aviation market by 2020. Indian carriers are expected to have possessions of 800 aircrafts by 2020.


Reasons to Invest

1. India is one of the fastest growing aviation markets and currently the ninth largest civil aviation market in the world.

2. India is projected to be the third largest aviation market by 2020.

3. Total passenger traffic stood at 224


million during 2016. India is one of the least penetrated air markets in the world with 0.04 trips per capita per annum as compared to 0.3 in China and more than 2 in the USA.

4. Indian carriers plan to increase their fleet size to reach 800 aircraft by 2020.

5. The Indian aviation sector is likely to see investments totalling USD 15 billion during 2016-2020 of which USD 10 billion is expected to come from the private sector.

Increase in Freight Traffic

� Total freight traffic registered a CAGR of 6.8 per cent over FY06-16

� During FY06-16, domestic freight traffic increased at a CAGR of 8 per cent, while international freight traffic grew at a CAGR of 6.1 per cent during the same period.

� By 2023, total freight traffic is expected to touch 4.14 million tonnes exhibiting growth at a CAGR of 7.27 per cent between FY2016 and FY23.

920

1023

1147

1149

1271 14

96

1468

1407

1440

1542

1658

.35

852

812

784

840 98

6

1045

.92

484 53

0 568

552 68

9

Freight Traffic in FY 163000

2500

2000

1500

1000

500

0

30%25%20%15%10%

5%0%

-5%-10%

FY 06FY 07

FY 08FY 09

FY 10FY 11

FY 12FY 13

FY 14FY 15

FY 16

International (’000 tonnes)Growth - International (%) Growth - Domestic (%)

Domestic (’000 tonnes)

Source: Airports Authority of India, TechSci Research Note - FY - Indian Financial Year (April - May)

Healthy Growth of Passenger Traffic

� Witnessing a growth of 17.62 per cent over the previous year, total passenger traffic stood at a 223.6 million in FY16, which was recorded at 190.1 million in FY15 in India.

� Growth in passenger traffic has been strong since the new millennium, especially with rising incomes and low-cost aviation; during FY06-16, passenger

traffic grew at a CAGR of 11.8 per cent in the country.

Passenger Traffic in FY 16(millions)250

200

150

100

50

0

Passenger Traffic - LHS Grwoth - RHS

30%

20%

10%

0%

10%

FY 06FY 07

FY 08FY 09

FY 10FY 11

FY 12FY 13

FY 14FY 15

FY 16

73.4

96.5

116.

9

108.

9

123.

8

143.

4

162.

3

159.

4

169.

0

190.

1

223.

6

Source: Association of Private Airport Operators, TechSci Research Note : CAGR - Compound Annual Growth FY - Indian Financial Year (April - May)

Government’s stand

The Government has also allowed for the privatization of the airport development sector in both Greenfield and Brownfield projects. This resulted in the establishment of new airports in Hyderabad & Bengaluru and the redevelopment of the airports in New Delhi and Mumbai.

The FDI policy in the civil aviation sector can be divided into the following 3 subheads:

1. Airports

2. Air Transport Services

3. Other Services under Civil Aviation Sector

As per the GOI’s Consolidated FDI policy of 2016, FDI stipulations are as under:

Airports

1. In Greenfield projects, 100% FDI is allowed through the automatic route.

2. In Brownfield projects, 100% FDI is allowed. Out of this, proposals up to 74% FDI are allowed through the automatic route while FDI beyond 74% requires GOI approval.

Air Transport Services

1. For scheduled air transport services and regional air transport services, FDI is allowed up to 100%. Out of this, up to 49% FDI is allowed through the automatic route whereas proposal for FDI beyond


49% require GOI approval. However, for NRI investors, up to 100% FDI is allowed through the automatic route.

2. For non-scheduled air transport services, up to 100% FDI is allowed through the automatic route.

3. For helicopter and seaplane services, up to 100% FDI is allowed through the automatic route.

Other Services under Civil Aviation Sector

1. Up to 100% FDI through the automatic route in Ground Handling Services.

2. Up to 100% FDI through the automatic route in MROs, flying training institutions and technical training institutions.

Further, some of the conditions attached to the investment in either of the above 3 heads are as under:

1. Air Transport Services would include Domestic Scheduled Passenger Airlines; Non Scheduled Air Transport Services, helicopter and seaplane services.

2. Foreign airlines are allowed to participate in the equity of companies operating Cargo airlines, helicopter and seaplane services, as per the limits and entry routes mentioned above.

3. Foreign airlines are also allowed to invest in the capital of Indian companies, operating scheduled and non-scheduled air transport services, up to the limit of 49% of their paid-up capital. Such investment would be subject to some conditions, like (i) it would be made under GOI approval route, (ii) the 49% limit will subsume FDI and FII/FPI investment, (iii) the investments so made would need to comply with relevant SEBI regulations, as well as other applicable rules and regulations, (iv) the Scheduled Operator’s Permit can be granted only to a company if it has registered its place of business in India; Chairman and at least 2/3rd of the Directors are Indian citizens and substantial ownership and control vests in

Indian nationals, etc.

Benefits of the FDI Policy

1. The primary benefit of this FDI policy is that airport development has now been opened to further investment. As we have seen from the examples of Delhi, Hyderabad, Mumbai, Bengaluru and Kochi, privatization has certainly resulted in improved service standards as these airports have only served to enhance passenger experience. These airports have been consistently rated as the best in the world. Increasing private involvement in the form of FDI will only improve the quality standards of Indian airports.

2. The Indian aviation market is witnessing a period of boom wherein passenger traffic is increasing at a healthy rate. Tier II & III cities are also witnessing increasing frequencies and passenger traffic. Hence, this offers an attractive investment opportunity to any foreign investor since the passenger numbers are very healthy and hence the returns on investment will be very positive.

3. Allowing for FDI in the scheduled airline segment is also an attractive investment opportunity since the passenger traffic is growing at a healthy pace. FDI has already benefitted carriers like Jet Airways, Air Asia India & Vistara.

4. Ground Handling and MRO services are an unchartered territory since majority of the Indian airlines use MRO services of Sri Lanka, Singapore, UAE for the maintenance of their aircraft. India suffers due to the high taxation structure. The MRO industry is estimated to be worth Rs. 50 billion and hence offers another mode of foreign investment. Ground Handling is also dominated by foreign companies majorly. Hence, Ground Handling can also be a major avenue for FDI.

Conclusion

Raising the FDI limit for airlines to 100%, will boost the civil aviation sector, as they are


suffering from shortage of capital. Domestic players who are looking to raise capital or forge an alliance with foreign airlines will benefit from new policy. The opening of FDI will help bring in much needed capital for domestic players.

The FDI relaxation will make existing operating airlines a good vehicle for many overseas companies that will be favourably inclined towards India and will be looking to have or want to increase their exposure in the country. Similarly new norms will attract new players into aviation sector and which will increase the competition. The increased competition will bring down the air prices and enhance air penetration both domestic and international route.

The 100% FDI in airports ties in neatly with the new civil aviation policy’s attempt to boost the construction of airports in Tier-B and C cities. 100% FDI in MRO units will further enhance the MRO activities and it will also generate large scale employment for Indian youths.

Latest round of reforms in FDI in aviation sector will bring useful capital to a beleaguered

sector. It will be one of the big push to enhance the Indian aviation sector. Liberalised FDI norms with first ever national civil aviation policy will take further step ahead in growth and development of Indian civil aviation sector.

References

1. Media Reports, Press Releases, Press Information Bureau, Directorate General of Civil Aviation (DGCA), Airports Authority of India (AAI), Union Budget 2016-17

2. FICCI-KPMG ‘India Aviation Report 2016

3. Airports Authority of India, TechSci Research

4. Association of Private Airport Operators, TechSci Research

5. http://civilaviation.gov.in/

6. http://dgca.nic.in/

7. http://bcasindia.nic.in/

8. http://aera.gov.in/content/

9. http://aai.aero

-71-


Foreign Direct Investment in Infrastructure Sector and its Impact on Economic Growth in India

Abstract

FDI play an important role in economic development of a nation. A country’s technology level and sectoral development is depending upon the level of FDI inflows.Infrastructure is an important item in judging a country’s or region’s development. Infrastructure is the basic physical and organizational structures needed for the operations of a society or enterprise or the services and facilities necessary for an economy to function. It can be generally defined as the set of interconnected structural elements that provide support for the development of the economy. Infrastructure sector covers hard infrastructure and soft infrastructure. The foreign investment in infrastructure remains dim even though Government of India promotes foreign capital and creating an investor friendly environment. Lack of infrastructure adversely affects in growth of other sectors also. This paper discuss the infrastructure deficiency of India, the foreign direct investment in infrastructure sector and the actions which the authorities can take while planning to bridge the infrastructural gap. It also analyze the impact of infrastructure development on output. Overall, the results reveal that infrastructure stocks, labour force and total investment play an important role in economic growth in India. More importantly, we find that infrastructure development in India has a significant positive contribution toward growth than both private and public investments. Further, causality analysis shows that there is unidirectional causality from infrastructure development to output growth. From a policy perspective, there should be greater emphasis on infrastructure development to sustain the high economic growth which the Indian economy has been experiencing for the last few years.

Keywords : infrastructure, economic growth, equity inflows

Avinash KumarResearch Scholar


Fouzia TabassumResearch Scholar


Introduction

Infrastructure sector is a key driver for the Indian economy. The sector is highly responsible for propelling India’s overall development and enjoys intense focus from Government for initiating policies that would ensure time-bound creation of world class infrastructure in the country. MrNitinGadkari, Minister of Road Transport and Highways, and Shipping, has announced the government’s target of Rs 25 trillion (US$ 376.53 billion) investment in infrastructure over a period of three years, which will include Rs 8 trillion (US$ 120.49 billion) for developing 27 industrial clusters and an additional Rs 5 trillion (US$ 75.30 billion) for road, railway and port connectivity

projects.Infrastructure sector includes power, bridges, dams, roads and urban infrastructure development. In August 2016, India jumped 19 places in World Bank’s Logistics Performance Index (LPI) 2016, to rank 35th amongst 160 countries.

Infrasrtucture Investment Scenario in India

India is witnessing significant interest from international investors in the infrastructure space. Many Spanish companies are keen on collaborating with India on infrastructure, high speed trains, renewable energy and developing smart cities.

� The Asian Development Bank (ADB) has approved US$ 631 million loan to


develop the first coastal corridor, namely the Vishakhapatnam-Chennai industrial corridor, which is expected to bring manufacturing and export industries to the east coast.

� Silver Spring Capital Management, a Hong Kong-based equity hedge fund, plans to invest over Rs 2,000 crore (US$ 306 million) in Hyderabad-based infrastructure developer Transstroy India Ltd, for construction of highways in the country.

� Altico Capital, the non-banking finance company (NBFC) of Clearwater Capital Partners LLC, plans to invest around US$150 million in the commercial office properties and infrastructure sector over the next 12-18 months.

� Sovereign wealth funds and global pension funds plan to invest up to US$ 50 billion in Indian infrastructure sector over the next five years.

� Airports Authority of India (AAI) plans to develop city-side infrastructure at 13 regional airports across India, with help from private players for building of hotels, car parks and other facilities, and thereby boost its non-aeronautical revenues.

� The Asian Development Bank (ADB) and Government of India signed a loan agreement of US$ 80 million, which is the third tranche of a US$ 200 million financing facility under the North Eastern Region Capital Cities Development Investment Programme, and will be invested for improving water supply, solid waste management and sanitation in the cities of Agartala and Aizwal, the capital cities of Tripura and Mizoram respectively.

� Maharashtra State Government plans to launch infrastructure projects worth Rs 73,367 crore (US$ 10.78 billion) in Mumbai and neighbouring areas in 2016, which include coastal road, Trans harbour link, metro rail, airport and road projects.

� The Government of India has earmarked

Rs 50,000 crore (US$ 7.34 billion) to develop 100 smart cities across the country. The Government released its list of 98 cities for the smart cities project in August 2015.

� BNP Paribas Lease Group, subsidiary of BNP Paribas Group, has acquired 5 per cent stake in Srei Infrastructure Finance, by selling its entire 50 per cent stake in Srei Equipment Finance Limited (SEFL) to Srei Infrastructure Finance, thus allowing them to play a larger role in the infrastructure finance business.

� Private equity giant Carlyle Group is planning to invest Rs 500 crore (US$ 73.36 million) in Feedback Infra, which could make the US firm a major shareholder in the Gurgaon-based infrastructure services company.

� PTC India Financial Services (PFS) and India Infrastructure Finance Company Limited (IIFCL) have signed a Memorandum of Understanding (MoU) to jointly provide funding for infrastructure projects in India, particularly in the energy sector.

� France has announced a commitment of € 2 billion (US$ 2.17 billion) to convert Chandigarh, Nagpur and Puducherry into smart cities.

� The Construction Industry Development Board (CIDB) of Malaysia has proposed to invest US$ 30 billion in urban development and housing projects in India, such as a mini-smart city adjacent to New Delhi Railway Station, a green city project at Garhmukhteshwar in Uttar Pradesh and the Ganga cleaning projects.

� The Government of India has unveiled plans to invest US$ 137 billion in its rail network over the next five years, heralding Prime Minister NarendraModi’s aggressive approach to building infrastructure needed to unlock faster economic growth.

� The Government of India has announced highway projects worth US$ 93 billion,


which include government flagship National Highways Building Project (NHDP) with total investment of US$ 45 billion over next three years.




FDI investment in infrastructural sector is welcomed by the Government of India. India is more viewed as a financial market. Majority of FDI investments happened in the financial services sector. The growth rate of the economy, working and earning population and financial literacy helped in increasing the FDI base in financial services sector. Other sectors including infrastructure was not in the limelight till now. The recent policy changes has favourablyaffected retailing and educational sector and many players has already expressed their interest in investing in India.

Infrastructure in India is viewed as a tough sector to invest. India needs an investment of US$

1.7 trillion in infrastructure. Only then the country would be able to meet the requirements based on the expected GDP growth. Private- Public Partnerships (PPP) are gaining importance with PPP airport projects at Bangalore, Delhi, Hyderabad and Mumbai and also in power and port sectors. Among the PPP projects only the power sector is on track, achieving 100 % of planned capacity, the airport sector is at 75% and road sectors at 50% including National Highway Development Programme that has achieved only 10% of the planned capacity.

This is followed by the low foreign investments in the infrastructure. One of the main reasonsfor unattractive inflow to infrastructure is the regulatory environment. As a system

we need aclear, stable legal framework for promoting investment in infrastructure. Once we move from State Investments to Transnational Corporations (TNC) we need a legal framework which would meet the international benchmarks. The investor will be always concerned of the clarity of the legal frame work. Policy changes in short run and delay in taking decisions in policy matters has adversely affected the foreign inflow in infrastructure.

Lack of strategic planning in the sector also affected the foreign inflow. Many countries havea very clear plan of the infrastructural requirements of the next 10 years and will be having astrategy to route the money to various divisions based on requirement. In developed nationsinfrastructural sector is viewed as whole and planning is done. But In India each division is considered separately.

Even though India is blessed with abundant labour, the management in infrastructure projectsis viewed in a different angle. Political influence, labour unrest, hostile measures of acquiring land etc. are viewed negatively by international media. This is creating some sort of resistance for a foreign player to invest in infrastructure. The delay in completion of projects due to these factors is keeping the money blocked for a longer period. Majority or players wish to be an FII in infrastructure and reality sector than and FDI.

Among the developing economies, India is considered to be one of the countries where theproject completion time is very high.We are not having a single window system (except in a few cases where it’s more of a state subject). This makes the process too complicated and time consuming. The lack of co-ordination and integration between various Government departments worsen the situation. An infrastructure project which requires approvals for ‘n’number of departments from the starting stage to the completion stage, the investor is forced to comply with the demands of the consultants and bureaucracy.

Political environment in India is also a reason for low foreign investment in infrastructuralsector.


India is having elections every 5 years, and majority of state have new ministry every 5 years. There are many instances where the policy and process of one ministry is diagonally opposite to the next ministry. There are even instances where some projects are cancelled, modified and fresh tenders orders and given. This is creating a policy dilemma and increases the risk of the foreign player.

Attracting FDI in Indian Infrastructure

The growth of others sectors of the economy is now dependent of the growth and investments in infrastructure and which in turn demands the requirement of FDI in the sector. Opening up of retail sector, matured financial services and software sectors, growing educational, reality, pharmaceutical and hospitality sectors provided wide opportunity for growth of the economy. This will become a reality only if all the others sectors can be supported with the basic infrastructure. The following steps from the government can make the infrastructure more lucrative for foreign participation:

1. Developing a strong legal and regulatory framework: Ideally, this is the requirementin the foundation stage itself (before inviting for FDI participation).Significant capital requirements, a long investment time line and the fixed nature of assets make infrastructural investments unique. Beyond the existence of commercial opportunities in the host country markets, foreign infrastructural investments require a transparent and stable policy framework underpinned by the rule of law. Before committing funds to projects, companies consider whether laws and contracts are likely to be properly enforced; rights and responsibilities are well defined. Moving from a state owned system to a TNC requires significant adjustments to the policy framework.

2. Capacity and skills to regulate FDI: Inviting TNC’s to deliver infrastructural servicesoften puts more pressure on public authorities than a State- sponsored plan.Understanding the legal, economic,

financial and political aspects of the infrastructural sector is necessary to perform demanding planning, negotiation and regulatory functions. The existing Government agencies and Departments must be equipped to meet the challenge and undertake the responsibility.

3. Develop a strategic infrastructure plan identifying key needs: The identification of priority infrastructural projects should be informed by the Government’s socioeconomic development objective. The commercial viability of the project is always an important consideration, but cost sharing can also be used to ensure the construction of less profitable projects based on requirement and public interest. Long term planning by the Government allows it to better co-ordinate infrastructural developments and optimize the FDI impact.

4. Open the bidding stage to as many investors as possible: It is better to have a competitive bidding or auctioning process. A highly competitive bidding stage maximizes the benefits accruing to the infrastructural users in specific and the economy as a whole also. It’s important that the process is transparent and favoritism to be avoided.

5. Create a pipeline for pre-assumed, commercially attractive projects that can be actively promoted: After an infrastructural project is identified as eligible for private involvement, there are a number or preparatory steps that the government can take to reduce the risk which the foreign investor is facing particularly in the case of green field investments. Completing necessary feasibility study on environmental and social impacts will reduce the risk of the foreign investor to a greater extend and improve the confidence in investing.

6. Single Window System: A single window system can reduce the delay and make the life easy for any entrepreneur including


a foreign entrepreneur. The current start up time required for all the major projects is crossing more than a year. This can be reduced by single window system without diluting the process and rules.

7. Mitigating political and regulatory risk: Change in ministry can make the project riskier for the investor. Entering in to bilateral agreements with foreign countries having the clause protecting the terms of the contact can be a morale booster. Yet, the Government should remain cautious to avoid unlimited liability and obligations.

8. Monitoring and Follow up in the project implementation stage: Private investments in infrastructure are typically characterized by complex terms and conditions between the investor and government. Positive outcomes depends on government’s efforts to monitor the project’s progress and enforcing the agreement with the infrastructural investor which demands the creation of an independent body with powers to negotiate and enforce the terms. High level reviews are another way of ensuring the project completion as per the terms specified in the contract.

The Road Ahead

The Government of India has made a record allocation Rs 221,246 crore (US$ 33.07 billion) for several infrastructure projects in Union Budget 2016-17, which is expected to provide significant boost to Indian infrastructure sector.

Indian port sector is poised to mark great progress in the years to come. It is forecasted that by the end of 2017 port traffic will amount to 943.06 MT for India’s major ports and 815.20 MT for its minor ports.

Along with that, Indian aviation market is expected to become the third largest across the globe by 2020, according to industry estimates. The sector is projected to handle 336 million domestic and 85 million international passengers with projected investment to the tune of US$ 120 billion. Indian Aviation Industry, which currently accounts for 1.5 per

cent of the gross domestic product (GDP), has been instrumental in the overall economic development of the country. Given the huge gap between potential and current air travel penetration in India, the prospects and possibilities of growth of Indian aviation market are enormous.

Conclusion

The Reserve Bank of India (RBI) has notified 100 per cent foreign direct investment (FDI) under automatic route in the construction development sector. The new limit came into effect in December 2014.The Government of India has relaxed rules for FDI in the construction sector by reducing minimum built-up area as well as capital requirement. It has also liberalised the exit norms. In fact, the Cabinet has also approved the proposal to amend the FDI policy.

FDI in the sector can improve the standard of living, generate employment opportunities, makes others sectors more effective and ultimately results in economic growth and prosperity. A transparent, clear and accessible regulatory system supported by a state run independent monitoring system for project implementation can help in attracting FDI and meeting infrastructure requirements.

Refrences

1. Ghosh Rajarshi, Foreign Direct Investment – Policies and Experiences, Hyderabad, The ICFAI University Press

2. UBCTAD, 2012, World Investment Report 2012

3. TienQuang Tran, ASEAN Economic Bulletin. Apr2009, Vol. 26, Issue 1

4. Pradhan Rudra Prakash P, ICFAI Journal of Financial Economics. Jun2008, Vol. 6, Issue 2

5. CMIE, Monthly Review of Indian Economy, Economic Intelligence Service, July 2010,

6. Xu B., Multinational Enterprises, Technology Diffusion, and Host Country Productivity Growth, Journal of Development Economics, Vol. (62), 2000, pp 477-493


7. Reserve Bank of India (RBI), Handbook of Statistics on Indian Economy, RBI, Mumbai

8. Reserve Bank of India (RBI), Monthly Bulletin, various issues

9. Secretariat for Industrial Assistance (SIA), Department of Industrial Policy and Promotion, Ministry of Commerce and Industry, Government of India, various issues

10. Ministry of Finance, Department of Economic Affairs, Government of India.

11. Annual Survey of Industries, Ministry of Statisitics and Programme Implementation, Government of India, various issues.

12. www.rbi.org

13. www.worldbank.org

14. www.indiabudget.nic.in

15. www.unctad.org

16. www.dipp.gov.in

-77-


Growth of Indian Economy in Foreign Direct Investment

Abstract

The economical history of FDI in India can be traced back with the establishment of East India Company of Britain. After Second World War, Japanese companies entered Indian Market and enhanced their trade with India, yet U.K. remained the most dominant Investor in India. The industrial policy of 1965, allowed MNCs to venture through technical collaboration in India. Therefore, the government adopted a liberal attitude by allowing more frequent equity. In the critical face of Indian economy the government of India with the help of World Bank and IMF introduced the macro-economic stabilization and structural adjustment program. As a result of these reforms India open its door to FDI inflows and adopted a more liberal foreign policy in order to restore the confidence of foreign investors. Further, under the new foreign investment policy Government of India constituted FIPB (Foreign Investment Promotion Board) whose main function was to invite and facilitate foreign investment. India’s recently liberalized FDI policy permits up to a 100% FDI stake in ventures. Industrial policy reforms have substantially reduced industrial licensing requirements, removed restrictions on expansion and facilitated easy access to foreign technology and FDI. India is known to have huge amounts of resources. There is manpower and significant availability of fixed and working capital. At the same time, there are some underexploited or unexploited resources. The resources are well available in the rural as well as the urban areas. The focus is to increase infrastructure 10 years down the line, for which the requirement will be an amount of about US$ 150 billion. This is the first step to overcome challenges facing larger FDI. India must also focus on areas of poverty reduction, trade liberalization, and banking and insurance liberalization. Challenges facing larger FDI are not just restricted to the ones mentioned above, because trade relations with foreign investors will always bring in new challenges in investments.

Keywords : economy, investor, government, liberalization

Badal RakshitGuest Faculty and Research Scholar

Department of CommerceAnnada College, Hazaribag

Introduction

Foreign direct investment is one of those investments which are made for the benefit of the business interest. Foreign direct investment (FDI) in India is the major monetary source for economic development in India. Foreign companies invest directly in fast growing private Indian businesses to take benefits of cheaper wages and changing business environment of India. Economic liberalization started in India in wake of the 1991 economic crisis and since then FDI has steadily increased in India. It were Manmohan Singh and P. V. Narasimha Rao who brought FDI in India, which subsequently generated more than one crore jobs. According to the Financial Times, in 2015 India overtook China and the US as the top destination for the Foreign Direct Investment. In first half of the 2015, India attracted investment of $31 billion compared to $28 billion and $27 billion of China and the US respectively.




Planning commission has favoured further liberalization of the foreign direct investment policy and improvement of business regulations to raise the growth rate of gross domestic product to 9-9.5% in the 12th five year plan (2012-17).

Beside 100 percent relaxation of FDI in real estate, the government policies on FDI also offer opportunities for foreign investors to invest in different sectors. This includes 100 percent in power trading, processing, development of


new airports, laying of natural gas pipelines, petroleum infrastructure and warehousing of coffee and rubber. Limit for telecom services firms have been raised from 49 per cent to 74 per cent.

Another cap to the retailing industry in India is allowing 51% FDI in single brand outlet. The government is now set to initiate a second wave of reforms in the segment by liberalizing investment norms further. And this has also brought about a conspicuous interest by towards investments in the Indian hospitality sector. Industry reports suggest the inflow of about US$ 500 million into the real estate sector over the past six months and is expected to rise to a massive $ seven to eight billion over the next 18-30 months.

Government initiatives

The Government of India has amended FDI policy to increase FDI inflow. In 2014, the government increased foreign investment upper limit from 26% to 49% in insurance sector. It also launched Make in India initiative in September 2014 under which FDI policy for 25 sectors was liberalized further. As of April 2015, FDI inflow in India increased by 48% since the launch of “Make in India” initiative.

India was ranking 15th in the world in 2013 in terms of FDI inflow; it rose up to 9th position in 2014. While in 2015 India became top destination for foreign direct investment

‘’Invest India’’

A joint company of public and private sector named ‘’Invest India “has been constituted for promoting foreign direct investment in the country this country will work on ‘’no profit no loss’’ basis. In this capital of Rs 1000 crore, the government and FICCI have the share of 49: 51

This company will work on three principles-1. To promote FDI in the country2. To provide processing facilities to foreign

investors and act as coordinator among various ministries.

3. To provide feedback to government on industrial policy.

During 2014–15, India received most of its FDI from Mauritius, Singapore, Netherlands, Japan and the US. On 25 September 2014, Government of India launched Make in India initiative in which policy statement on 25 sectors were released with relaxed norms on each sector. Following are some of major sectors where growth of Indian economy in Foreign Direct Investment.

� Infrastructure : 10% of India’s GDP is based on construction activity. Indian government has plans to invest $1 trillion on infrastructure from 2012–2017. 40% of this $1 trillion is to be funded by private sector. 100% FDI under automatic route is permitted in construction sector for cities and townships.

� Automotive : FDI in automotive sector was increased by 89% between April 2014 to February 2015. India is 7th largest producer of vehicles in the world with 17.5 million vehicles annually. 100% FDI is permitted in this sector via automatic route. Automobiles shares 7% of the India’s GDP.

� Pharmaceuticals : Indian pharmaceutical market is 3rd largest in terms of volume and 13th largest in terms of value. Indian pharma industry is expected to grow at 20% compound annual growth rate from 2015 to 2020. 100% FDI is permitted in this sector.

� Service : FDI in service sector was increased by 46% in 2014–15. Service sector includes banking, insurance, outsourcing, research & development, courier and technology testing. FDI limit in insurance sector was raised from 26% to 49% in 2014.

� Railways : 100% FDI is allowed under automatic route in most of areas of railway, other than the operations, like High speed train, railway electrification, passenger terminal, mass rapid transport systems etc. Mumbai-Ahemdabad high speed corridor project is single largest railway project in India, other being CSTM-Panvel


suburban corridor. Foreign investment more than `90,000 crore (US$13 billion) is expected in these projects.

� Chemicals : Chemical industry of India earned revenue of $155–160 billion in 2013. 100% FDI is allowed in Chemical sector under automatic route. Except Hydrocyanic acid, Phosgene, Isocynates and their derivatives, production of all other chemicals is de-licensed in India. India’s share in global specialty chemical industry is expected to rise from 2.8% in 2013 to 6–7% in 2023.

� Textile : Textile is one major contributor to India’s export. Nearly 11% of India’s total export is textile. This sector has attracted about $1647 million from April 2000 to May 2015. 100% FDI is allowed under automatic route. During year 2013–14, FDI in textile sector was increased by 91%. Indian textile industry is expected reach up to $141 billion till 2021.

� Airlines : Foreign investment in a scheduled or regional air transport service or domestic scheduled passenger airline is permitted to 100, with FDI up to 49% permitted under automatic route and beyond 49% through government approval. For airport modernization, 100 % FDI will be allowed for existing airport under automatic route.

Foreign Direct Investment in India

Government of India accepts the key role of Foreign Direct Investment (FDI) in economic development not only as an addition to domestic capital but also as an important source of technology and global best practices. The Government of India has put in place a liberal and Transparent FDI policy.

FDI up to 100% is allowed under the automatic route in most sectors/activities. FDI policy in India is reckoned to be among the most liberal in emerging economies. FDI Policy permits FDI up to 100 % from foreign/NRI investor without prior approval in most of the sectors including the services sector under automatic

route. FDI in sectors/activities under automatic route does not require any prior approval either by the Government or the RBI.

5035

2701

Oct 2015 Jan 2016 April 2016 July 2016

3743

4413

2473

18502092

1547

3305

4739 48764612

5500

5000

4500

4000

3500

3000

2500

2000

1500

Foreign Direct Investment in India increased by 4612 USD Million in September of 2016. Foreign Direct Investment in India averaged 1203.96 USD Million from 1995 until 2016, reaching an all time high of 5670.00 USD Million in February of 2008 and a record low of -60.00 USD Million in February of 2014.

Foreign Investment under ‘MAKE IN INDIA’ Programme

The `Make in India’ initiative was launched in September, 2014 with the aims of promoting India as an important investment destination and a global hub for manufacturing, design, and innovation. Thereafter, during the period October, 2014 to May, 2016, the FDI equity inflow has increased by 46%, i.e. from US$ 42.31 billion to US$ 61.58 billion in comparison to previous 20 months (February, 2013 to September, 2014). FDI inflow has also increased by 37% from US$ 62.39 billion to US$ 85.75 billion. India has been ranked 3rd in the list of top prospective host economies for 2016-18 in the World Investment Report (WIR) 2016 of UNCTAD.

To further boost the entire investment environment and to bring in foreign investments in the country, the Government is taking various measures like opening up FDI in many sectors; carrying out FDI related reforms and liberalization and improving ease of doing business in the country. Steps are being taken for development of support infrastructure to facilitate setting up of industries such as transport infrastructure, utility infrastructure etc. The Department of Industrial Policy and Promotion has advised Ministries and State


Governments to simplify and rationalize the regulatory environment through business process reengineering and use of information technology.

Sector-wise details of investment received through Foreign Direct Investment (FDI) equity inflows after launch of `Make in India’ programme in September, 2014, are at Annexure-I.

Year wise details of the increase in FDI inflow during the last three financial years are as

follows:

Sl. No.

Financial Year

Total FDI inflow (in US$

billion)

Growth

1 2013-14 36.05 5%2 2014-15 45.15 25%3 2015-16 55.46 23%

All figures are provisional subject to reconciliation with RBI. Compared with figures of Financial Year 2012-13 i.e. US$ 34.30 billion.

Sector-wise FDI equity inflows fdi equity inflows From October 2014 to May 2016

Amount in US$ million

Sl No

Sector 2014-15 Oct-14 to Mar-15

2015-16 Apr-Mar

2016-17 Apr-16 to May-16

Total

1 Metallurgical Industries 162.64 456.31 79.51 698.462 Mining 227.53 520.67 0.77 748.983 Power 258.27 868.80 19.01 1,146.084 Non-Conventional Energy 239.50 776.51 126.45 1,142.465 Petroleum & Natural Gas 58.08 103.02 8.23 169.346 Boilers And Steam Generating Plants 0.00 77.91 4.48 82.407 Prime Mover (Other Than Electrical

Generators)136.72 159.13 16.60 312.45

8 Electrical Equipments 165.06 444.88 43.14 653.089 Computer Software & Hardware 1,874.19 5,904.36 282.66 8,061.2110 Electronics 23.91 208.39 18.07 250.3611 Telecommunications 424.05 1,324.40 888.62 2,637.0812 Information & Broadcasting (Including

Print Media)205.22 1,009.34 39.20 1,253.76

13 Automobile Industry 1,689.92 2,526.82 297.42 4,514.1714 Air Transport (Including Air Freight) 32.76 361.25 5.65 399.6615 Sea Transport 199.38 429.30 9.31 637.9816 Railway Related Components 7.99 73.99 0.00 81.9817 Industrial Machinery 378.91 568.26 48.03 995.2018 Machine Tools 11.89 126.38 12.03 150.3019 Agricultural Machinery 51.22 16.44 3.38 71.0320 Earth-Moving Machinery 17.08 97.66 16.43 131.1721 Miscellaneous Mechanical &

Engineering Industries149.51 274.57 23.76 447.84


Sl No


2015-16 Apr-Mar

2016-17 Apr-16 to May-16

Total

22 Commercial, Office & Household Equipments

11.79 36.68 0.12 48.59

23 Medical And Surgical Appliances 52.29 173.26 0.43 225.9824 Industrial Instruments 0.85 7.42 0.00 8.2725 Scientific Instruments 1.44 6.36 0.19 8.0026 Fertilizers 224.30 20.93 0.08 245.3127 Chemicals (Other Than Fertilizers) 348.66 1,469.95 92.34 1,910.9528 Dye-Stuffs 0.00 3.32 0.00 3.3229 Drugs & Pharmaceuticals 405.15 754.26 452.86 1,612.2630 Textiles (Including Dyed,Printed) 127.27 230.13 9.50 366.9031 Paper And Pulp (Including Paper

Products)112.02 85.21 6.56 203.79

32 Sugar 26.77 105.85 0.60 133.2233 Fermentation Industries 118.00 202.36 28.86 349.2134 Food Processing Industries 233.23 505.88 121.19 860.3035 Vegetable Oils And Vanaspati 111.87 34.22 19.65 165.7436 Soaps, Cosmetics & Toilet

Preparations85.03 193.26 0.77 279.05

37 Rubber Goods 162.09 296.15 53.61 511.8638 Leather,Leather Goods And Pickers 18.01 17.13 0.00 35.1439 Glue And Gelatin 4.57 0.82 7.08 12.4740 Glass 39.70 25.78 0.03 65.5141 Ceramics 26.94 51.21 1.22 79.3642 Cement And Gypsum Products 105.14 19.69 0.10 124.9343 Timber Products 7.88 53.17 0.14 61.2044 Defence Industries 0.08 0.10 0.00 0.1745 Consultancy Services 157.02 517.47 61.89 736.3846 Services Sector (Fin.,

Banking, Insurance, Non Fin/Business,Outsourcing, R&D, Courier, Tech. Testing a nd Analysis, Other)

3,201.67 6,889.46 1,862.19 11,953.32

47 Hospital & Diagnostic Centres 354.74 742.35 74.28 1,171.3748 Education 61.27 230.78 19.86 311.9149 Hotel & Tourism 360.07 1,332.69 119.47 1,812.2350 Trading 1,751.91 3,845.32 117.71 5,714.9451 Retail Trading 1.20 262.24 7.94 271.3852 Agriculture Services 30.53 84.65 1.82 117.00


Sl No


2015-16 Apr-Mar

2016-17 Apr-16 to May-16

Total

53 Diamond,Gold Ornaments 254.66 58.54 64.27 377.4754 Tea And Coffee (Processing &

Warehousing Coffee & Rubber)1.41 1.12 0.00 2.54

55 Printing Of Books (Including Litho Printing Industry)

37.97 122.81 4.64 165.42

56 Construction (Infrastructure) Activities 744.20 4,510.71 196.38 5,451.2957 Construction Development: Townships,

Housing, Built-Up Infrastructure And Construction-Development Projects

189.59 112.55 16.12 318.26

58 Miscellaneous Industries 555.97 668.77 60.54 1,285.28 Grand Total 16,239.13 40,000.98 5,345.21 61,585.32

Effect of Demonetization on Foreign Direct Investment in India

� Real Estate : According to market experts that demonetization will revive the currently sluggish housing sector. But the big question is what effect positive or negative ban of 500 and 1000 notes will have on foreign investment in real estate sector. The effect will surely be a positive one, as it will increase transparency in the sector. Further, in future, more global clients will enter the real estate sector owing to demonetization and other recent updates that came in the form of 2016 Real Estate Regulatory Act, improvement in policy framework of foreign direct investment and real estate investment trust regulation.

� Export Import Business : Economy Growth of any Country depends up on its Export Import Trade. Indeed it is very crucial for India too. Especially after demonetization the Exports have slowed down due to currency crunch. True to its core that instability in the Exports leads to inflation and that in turn leads to an uncertainty of internal purchasing power and unstable economy.

8th November 2016 marked in history when India announced demonetization of its large currencies India’s import and export

business is hugely affected by the recent and shocking announcement of demonetization. The Foreign Trade industry is suffering in the aftershocks and shall continue to suffer for a further period, though for limited time. However the influx of money from the black market shall certainly improve to be beneficial in the long run for Export Import Trade. The fact lies at the moment that plunge in money supply with overflowing bank deposits ring an alarm in consumption demands, means decline in imports. The Indian Government has always paid incentives and promoted Export with easy policies. Nonetheless the Exports market is taking a toll at the moment. Make in India projects need easy flow of currency for manufacturing, hence the Import and Export both trade have got their bottlenecks. This has changed the algorithm in today’s economical situation. However stable exchange rate is an idle situation as Volatility vitiates the Trade for India.

For a few months India’s Exports may be slow but consider that for any acceleration, the vehicle must be slow to begin with. Am sure India shall come out with higher GDP and influx of foreign exchange with prosperous Exports, in sooner times than thought of.

In Modi’s “Swachh Bharat” mission, Exports is the best answer to bring in Foreign Exchange and make India prosper with “clean” business, a scene without black or unaccounted money


Conclusion

The future of Indian economy is brighter because of its huge human resources, rapidly upcoming service sector, availability of large number of competent professionals, vast market for every product, increasing impact of consumerism, absence of controls and licenses, interest of foreign entrepreneurs in India and existence of four hundred million middle class people. Even today, India is producing largest number of billionaires in a year, take over by Indian multinationals is amazing, the craze of Indians to go abroad is rapidly diminishing, and the Rupee is becoming stronger and stronger in relation to Dollar. India’s say in the international diplomacy and political affairs has now become meaningful, thousands of foreigners are working as executives in India, packages are becoming lucrative and competitive and annual rate of growth is highest. This present picture gives some reflections of the future. But this is all in the absolute sense and not in the relative terms. A country can only grow if the Govt. policies allow more participation and is able to attract more and more foreign direct investment in India. Today, India provides highest returns on FDI than any other country in the world. India is poised for further growth in manufacturing, infrastructure, automobiles, auto components, food processing sectors,

real estate development etc. In this context it is also worth mentioning that savings rate has also increased from 23% to 31% over the last year to this year. India’s continuing ambivalence on FDI, as a result, exacts a heavy toll on the economy. Undoubtedly, India is ceding billions of dollars of FDI to its neighbors each year. While China achieved actual FDI inflows of around $45.3 billion in 1997, India settled for a mere $3.2 billion. India therefore stands to win in the next few years.

References

1. www.wikipedia.org

2. Indian Pharmaceutical Industry, Pharmaceutical Industry In India, Pharma

3. Textile Industry in India, Indian Textile Industry, Garment Industry, Ibef.org. Retrieved 2015-16

4. FDI inflows in services sector increased by 46 per cent in 2014–15: Department of Industrial Policy and Promotion data, The Economic Times. 15 June 2015. Retrieved 11 October 2016

5. International Institute of Import & Export Management.

6. Government of India Ministry of Commerce & Industry

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Impact of FDI in Socio-economic Development of India

Abstract

Foreign Direct investment in India is a crucial factor for the socio-economic development. The pre economic liberalization period was challenge for the Indian economy to grow because there were many constraints to overcome. India’s Foreign Direct Investment (FDI) policy has been gradually liberalised to make the market more investor friendly. The results have been encouraging. These days, the country is consistently ranked among the top three global investment destinations by all international bodies, including the World Bank, according to a United Nations (UN) report. For Indian economy which has tremendous potential, FDI has had a positive impact. FDI inflow supplements domestic capital, as well as technology and skills of existing companies. It also helps to establish new companies. All of these contribute to socio-economic development of India

Keywords : global investment, domestic capital, investor’s freindly

Binita KumariResearch Scholar

Ranchi University, Ranchi

Dr. Sanjiv ChaturvediDepartment of Commerce Doranda College, Ranchi

Introduction

In this Era of global development, where developing nations have taken a step forward to liberalize its policies by welcoming foreign players through FDI, it has been paid more attention, and has become hot topic of academic discussion and research. FDI doesn’t only specify the concept of Foreign investment but indirectly it is associated with the movement of funds, technology, skills and expertise followed by Research and development. It puts socio and economic impact on the host country by exchanging the traditional and cultural values across the nation during its business establishment at local and regional level. FDI strengthens the bond between two nations. Though research shows the FDI impact very complex from a macro and micro perspective. It has been proven to be benefiting the least developing countries by creating Employment, higher production with the available resources, technology spill over. There has been a mixed reaction from various region and nations having distinct geographic, and demographic nature. There are few studies which supports this idea

and has enough evidence,which has proved different positive impact to different countries such as Blomstrom (1994)report has reflected positive impact on increased competition in local firms in Indonesia and Mexico, Where as Smarzynska (2002) states that the local supplier in Lithuania has benefit from the spillover from supplying foreign customer.

Caves (1996) concludes in his research that countries makes various efforts to attract FDI due to its positive impact on developing economy through technology transfer, managerial skills, access to external markets, international production network and increased productivity.

Borensztein (1998) too consider FDI as ways of technology spillovers and contributing to the economic growth.

However many researchers like Hanson (2001) and Lipsey (2002) finds that there are very few positive aspects as it may crowd out the regional and local enterprises and relationship between FDI and economic growth has not been consistent respectively.


The effect depends upon the nature of the host countries sectors and its potential in receiving the FDI for the desired sector.

India being the most attractive destination for FDI in terms of its, demographic, social and geographical location availing cheap labors,skilled manpower and available natural resources may get affected differently.

The study is to demonstrate how FDI can accelerate the pace of social and economic development. The study is done to reveal the significant positive impact that the FDI have had on social economies and wellbeing of residents in different regions and country.


The secondary method of data collection has been used such as international Journals, Government websites, print media etcfor the study about the FDI status and its impact.


India was a closed economy until 1991, then the economic liberalization and globalization have drastically changed the situation for foreign investment. From then till now government have gradually liberalized the foreign investment policies to incentivize foreign players to invest in both national and state level. Hence FDI has been allowed in most of the sectors up to 100 % through automatic route where in FDI is not required to seek any approval or get into agreement with from the Government but the intimation to the RBI within 30 days of inward remittances and issuing shares to non- residents.

The investment which was not covered in automatic route had to seek prior approval which was taken care by the Foreign investment promotion Board (FIPB) a government Body having a single window clearance. The government is still on process of shaping the FDI. The best example can be taken as the Multi Brand Retail store. When we talk about structure there are several inclusions like project office, liaison offices,Branch office and wholly owned subsidiary.

Trends and pattern in FDI

The study of FDI pattern across the world has seen the unprecedented growth of global FDI and it was found that it is considered to be the vital component for the developing nation and hence various policies and reforms have been made to maximize the inward flow of funds, FDI also paves the way for the integration of global financial market it also became the important tool due to the paucity of the available resources such as entrepreneurship, financial capital, technological know-how and access to the world market. FDI can be said as the visible panacea to tackle with all these scarcities.

Risk associated with FDI and attractiveness

Although India has become the most attractive destination for the foreign investors, due to its high potential and governments constant efforts to take it on a large level there has been some negative aspects inthe formof several risk associated to the angel investors such as sovereign risk,political risk, commercial risk and risk of foreign sanctions. However the study by various researches and analyst shows that theserisk doesn’t possess any threat to the foreign investors as India has a very vibrant parliament democracy since the time of its independence and has not witnessed any serious revolutionary movement so far and hence there is no chance for the state to collapse thus have a zero effect on FDI. Even India has suffered the political instability but if the political risk is closely monitored then there has been no such scenario where in any present government has reversed economic policy framed by the past government as liberalization has been accepted as a necessity by all parties of India, Few exception which includes north-east state and Jammu Kashmir due to the terrorist activity is either non-existent or too week to be of any significance and there is no way one can predict of any type of annexation of India by any other power as it would be the height of imagination to visualize any state – disrupting revolution like Bangladesh and Kuwait. Hence the political risk in India is close to non-existent.


Commercial risk can prevail in any country and it can be easily reduced if the market viability is carefully evaluated,studied and analyzed before making any major investment as no product and services can be readily sold.

Business Environment

There are some characteristic of the business climate which encourages the foreign players to invest in the host country. Experts believe that adverse climatic condition and absence of the infrastructure can negatively influence the inflow of FDI. Also some other factors like over- regulation of economic activity such as custom service and licensing is considered as deterrent to foreign investment as it significantly delay the project development also country’s poor judiciary system for litigating commercial matters could add to the negative factors.

However in India after all the recent reforms in the government policies and new initiative programs such Startup India and Make in India have brought a revolutionary change in all the complex procedure, de-regularization to do business which is considered a step towards ease of doing business by end of conventional licensing Raj in India, also liberalizing foreign policies providing single window solution for the all the foreign entity through automatic route with less legal formalities and government’s interventions is said to set a mark.

The socio- economic development of India in various ways

Socio-economic development includes actual inward fund flow through direct investment, introduction of new technologies,to have contracts with local suppliers, to make significant payment of tax. Increase tax revenue contributes in the regional and national budgets. There are lots of social benefits which is rendered by foreign companies as they offer fair and equitable compensation along with ongoing professional training and development, which retains and attract skilled and qualified workers results in bolster human capital in the region.

FDI also makes a dynamic contribution in the development of small scale enterprises

at regional level like purchasing goods and services for organization need like, catering, advertising, transport companies, securities etc. It creates a multiplier effect as the employee of the Multi National Company spends in the region for all kinds of services results in additional demand which consequently adds in the growth and development of small scale business and hence it would add to the GDP growth as per the report by OECD it was forecasted for India to be the one of the bright spot for Investment among all the developing economies. The GDP is expected to boost due to the increased limit of FDI.

Annual GDP Growth (%) As per OECD’s forecast, India is the only

bright spot

2014World United States Euro Area Japan China India Brazil

2016 2017 2016

8

6

4

2

0

-2

-4

876543210-1-2

Source : OECD November 2015 Economic Outlook database

FDI is somewhere directly or indirectly related with GDP growth and National Income as explained above also it boost the export which would reduce the fiscal deficit. However it may not generate perfect competition as foreign companies are lashed with money, technology, marketing skills, holding global experience in business might force the local and small firms to exit from the market, abolishing the major characteristic of market of being perfect competition which is the major criteria due to which the consumer is benefitted.

Tax Payments

The major direct effect which is made by the FDI to any host country is the substantial fiscal contribution of tax payment as it would increase the budget revenues which can be utilized in building infrastructure such as highways, roads,bridges etc. India is still in its developing stage and lacks proper infrastructure for its


huge population. Government can use these funds for the welfare schemes through Direct benefit transfer, providing subsidy to the agriculture and manufacturing sector,creating more public facilities, like public toilets as open defecation is the major hygiene issue India is facing currently, also building hospitals and schools in the rural areas.

Technology transfer, job creation and social development

The FDI would not only benefit host country in monetary terms but it would also facilitate technology spillover. There would be the transfer of business skills and experience providing access to global market. FDI through automatic route in Brown field project would ensure the successful expansion with the advance technology, with the efficient managerial skill the business can be soon turned in more profit generating unit further creating employment opportunities. Especially in the manufacturing sector which is a labor intensive unit, would increase hiring on attractive salary & wages, giving salary hike to the top level managers. All this could enhance the purchasing power ofthe individual. Also Foreign companies pays good remuneration and other perks like medical facilities, accommodation, conveyance and providing financial aid for the kids education, which put direct implication on the standard of living results social development.

Change in Greenfield FDI in 2015 have boosted the foreign investment in Greenfield project with aprox investment of $63 billion. It is expected to make employment and boost the GDP, FDI has the potential to attract high growth economies. According to the firstpost.com The FDI report states that the FDI Job creation has increased from 1.6 lakhs new job in 2013 to 2.25 lakhs in 2015 highest in the world.

Personal growth through Training and Development

Foreign players are the expertise of business techniques as they poses knowledge and experience of operating in global market also spends lot of money on Research and

development which is the ultimate key to rise in any field, however India lacks the fund required for such R&D hence the inward funding would put more impetus in R&D and it would ensure the job for more skilled people also there would be proper training facilities to sharp ones skill along with imparting the values of corporate culture abroad to the host country which would certainly inculcate the quality of professionalism which is the key determinant to any business. This kind of environment helps the employees to have a personal growth and incline them towards their selfdevelopment.

Human development Index

There are certain criteria for measuring HDI are Life expectancy at birth, Average years of schooling per person, Gross National income, per unit of population, the per capita income, all these terms can be enhanced with the human development in terms of standard of living, per capita income, education and life expectancy which depends upon the economic condition of the nation as it ensures good income, avail basic needs at affordable rates, value education for all.For any of the above condition to be achieved a good job is required especially country like India where there are massive youth population exist having no jobs cab be benefitted in statistical terms. All these aspects are inter-related, so it can be said FDI would bring more positive impact on a developing country like India, results may not be seen yet but in future it would definitely be, however it can not be determined how it is going to benefit the consumer incase if their existence violates the perfect competition in the market by crowding out the small business. It would be difficult to speculate the future prospect of the same and how the economy would respond to it in the long run.

Corporate duty under CSR

History witness that when the British East India company acquired Indian market there was less done by the government towards the infrastructure as the company for its own benefit and smooth operations made lot of expenditure on basic infrastructure by building roads, dam, bridges to improve the poor


road connectivity and for the better regional & state linkages for its easy transportation of goods. Company makes so much efforts to utilize the natural resources by installation of new technology machines for the extraction purposes,constructing ponds and reservoirs for the better utilization of natural resources. Most of the time government too uses these infrastructure for its own use and also it provides maximum advantage to the local people of the area. In extractive industry operating in the sparsely populated area, company bears almost all the cost of infrastructure required for their operation.

Present scenario

After the Landmark ‘Make In India’ initiative from the seventh month of its inception FDI soars to 48% which is updated by India’s ministry of commerce and industry including FIIs foreign institutional investment which recorded an unprecedented upsurge of 717% in FDI from October 2014 to April 2015 growing year on year period.

Below is the graphical representation of the change in growth of FDI flow in India from 2014 to 2015.

Foreight Direct Investment

48%growth

42%growth October, 13

to April, 14

October, 14to April, 15

13.41

FDI equity inflow

Amou

nt in

US$

bill

ion

FDI inflow

19.84 20.75

29.4235

30

25

20

15

10

5

0

The recent policy in FDI has increased the FDI limits to 100% in most of the sector is expected to bring more rapid growth in manufacturing sector as currently IT/BPO sector is leading with the highest FDI. The investment in the greenfield project may not show any growth in the employment rate as it would take time for any project to establish and hence the growth in employment rate would reflect after 3 to 4 years of its operations.

Presently FDI limits has been pushed to 100% in almost all the major sector such as Telecommunication sector, FDI in trading companies, Power sector, Drugs& Pharmaceuticals, Roads, highways,ports and Harbors, Pollution control management, Call centers in India and BPO.

Road Ahead

As per the (UNCTAD) United nation conference of trade and commerce world investment report 2016. India has acquired the 10th slot in the top 10 countries attracting highest FDI inflow in 2015, also India moved up in ranking to 6th position for being the most preferred investment destination among investment promotion agency. Also for 12th five year plan (2012-2017), India will require around us$ 1 trillion, for its infrastructure project which covers the sectors such as highways, ports and airways and this would surely require more funding support from FDI that would eventually lead to India’s growth in the competitive field in terms of wages, remuneration and its new policy of Standup India is expected to boost the FDI in coming future.

Conclusion

India has put more emphasis on the attraction of FDI and increase its limit in almost all the potential sectors,to improve and boost both socio-economic development which has surely been noticed in terms of GDP growth and increased job however before reaching to any conclusion the proposal to the greenfield project needs time for its establishment and an accurate employment growth and visible change in per capita income would be seen after 3 to 4 years of its commencement. For the crowd out of the small scale business, by FDI,and Job loss, Government needs to take proper efforts to check the interest of the small business personal by checking major job loss, which can be caused due to entrance of strong competitive companies. Government should also strengthen its domestic players enabling them to survive the competition revising its policy of startup India and framing some separate policies with more financial assistance,subsidy, and tax rebateto small


retailers which are found to be at the risk of loosing their business followed by capital erosion.Along with the FDI It is also very important to ensure perfect competition to avoid the consumer exploitation as discussed above. Hence it is must to protect small retailers.

Economic development can be achieved when the available resources are utilized judiciously focusing on the manufacturing sector, efforts of getting foreign investment in manufacturing sector is not satisfactory and hence ‘Make In India policy’ was an initiative taken by the government to attract investment from abroad and the results of it is yet to evaluated in coming future.

Government should also take care and make some provisions for protecting the interest and rights of the labor in the most labor intensive industry, as the availability of abundance of Man power as major resource are sometimes exploited in terms of cheap wages and below average salary.

References

1. http://www.atimes.com/article/make-in-india-boosts-record-foreign-investments/

2. Borensztein E., J. De Gregorio and J.W. Lee, How Does Foreign Direct Investment Affect, 1998

3. Economic Growth in Journal of International Economics 45, p 115–135

4. http://www.livemint.com/Politics/sYFaCzUi4paE9UCajwYjuO/FDI-inflows-rise-40-on-Make-in-India-initiative-Economic-S.html

5. http://forms.fdiintelligence.com/report2016/files/The_fDi_Report_2016.pdf

6. OECD November 15 economic outlook database.

7. Firstpost/business/india

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Foreign Direct Investment in India : An outline of Develpoment Since 1991

Abstract

Interrelation and interdependency between political and economy has influence the growth no hi of every variables of development. Encouragement of foreign direct investment in India since 1991, has let to increase the capital formation thus leading to development process reach its high pick. The law formulated to manage foreign exchange such as foreign exchange management act 1999, indicates the political o regulate the economic forces. Though there has been improvement to liberalize the market to attract the foreign investment in some areas till date, still there are obstacles like corruption, red tapism, etc., which obstruct complete foreign investment in India. The paper attempts to highlight in brief the determinants of FDI in India which has developed since inception of new economic policy, 1991 and its journey to make in India 2016 and calls for the need of 4G network in the government work and its admiration to monitor the obstacle in the path of foreign direct investment in India. The political instrument like political institution, regulatory structures, micro &macroeconomic policies, political rights, economic freedom and private property rights, economic infrastructure, beneficial policy environment through perfect bureaucratic management, the ability to control element affecting the market forces, etc. Are requirement for developing political economy. The paper outlines importance of political interactivities with economic forces to build the foreign direct investment in India.

Keywords : political institution, regulatory structures, political economy

Christina Deogam Post Graduate Diploma in Rural Development

Student of Indira Gandhi Open University, Ranchi

Dr Arun Kumar SinhaSt Xavier’s College, Ranchi

Introduction

The international financial institution, International monetary fund which is an international organization defines foreign direct investment as an investment made to acquire lasting or long-term interest in enterprises operating outside of the investor. The investment is direct because the investor, which could be a foreign person, company or group of entities, is seeking to control, manage, or have significant influence over the foreign enterprise. A gradual change in investment policies since 1991 through new economic policy have witnessed the thunder of political controversy ongoing in India. In spiteof controversial political climate foreign direct investment has found acceptance as a source of economic development, modernization, employment, advance technology, capital

formation, trade integration, etc. There has been uneven implementation of policy due to opposition from several pressure groups. The anti FDI group has been demanding for swadeshi instead of western imperialism. They accused the government for bringing FDI which would drive out India to be self-reliance. FDI in the country is permitted subject to applicable laws/regulations, security and other conditions. Further, FDI Policy on different sectors are formulated/ reviewed after intensive consultations with stakeholders including Ministries/ Departments concerned, apex industry chambers and other organizations. Today the Indian Government has put in place an enabling and highly liberalized FDI policy, where except in a number of specified sectors, FDI up to 100%, under the automatic route is permitted. The government reviews FDI policy and makes significant changes from time to


time with a view to making it more investor friendly and to ensure that India remains increasingly attractive and investor-friendly. The FDI policy was governed by import substitution strategy industrialization. The FDI was regulated by foreign exchange regulation act FERA 1973 and only up to 40% was allowed in a joint venture foreign equity. The implementation of special economic zones, industrial policy 1980 & 1982, and technology policy 1983 provided for a liberal attitude towards foreign investments. De licensing act through open general licensing, trade liberalization were some major development opening route for FDI before 1991. The major reason to economic reform was due to the economics burning hell of deficiency in foreign trade balance to 10,644 crores of rupees, loan from international monetary fund as a compensatory financial facility, 46 tons of gold as a short term foreign loan from the bank of England, inflation of 12% and fiscal deficit.


The study is based on secondary data collected from various sources. These include publications of various organizations such as department of investment policy and promotion and World Bank, etc. The data has been collected from 1991 to 2017. There is bit information about the FDI status prior to 1991 to have clear understood about the history of FDI prior to1991 and development after that. This paper analyzes the political activity surrounding the FDI in India. An attempt has been made to understand the link between the politics and economics of FDI.


The FDI can only be successful when there is positive investment climate which can be only provided by the government or ruling authority. Along with the beneficial economic policy there is also need of efficient government with capacity to maintain the environment same. Governments must formulate such policies which can provide perfect atmosphere for foreign capital formulation. The ruling authority with open market policy and high level of political exercise clear the international

markets to invest with ease. The open market and political capacity is the important determinants of the FDI. The open market policies provide the political infrastructure which allows the investors to move capital into host economy with easy regulations, and the political capacity refers to the ability of the government to extract the resource needed for the investment environment. The greater investment flows need the policies that strengthen property rights as it stabilizes the courts in favor of the FDI. There is also need of the moderate cost of doing business, stringent regulatory environmentalists, heavy tax burdens, price controls and liberal financial system is needed for capital flow. Feng has reported that political capacity has a modest impact on domestic private investment; it can easily attract the FDI stock.

The Indian government has been sensitive to the impact of reform on votes, rather than economic development. The manifesto of political party during election time indicates the area of working of government towards targets for development. The party is driven with motive to garner more votes to win the power of ruling. Even though congress implemented the FDI in 1991, there was clear definition or understanding of the term or use of it for the development process. In same year, the RSS formed Swadeshi Jagaranmanch[SJM] in November to fight against privatization and globalization. The Swadesi Jagranmanch was formed under the banner of political group which included five national level organizations. Bhartiya Mazdoor Sangh, Akhil bhartiya Vidyarthi, Bhartiya kisan Sangh, Akil Bharitya Grahak Panchayat and Shanker Bharti formed this group to advocate the Swadesi and pressure the government to adopt FDI policy. Today the SJM consists almost 15 political parties. This case was similar even in 1992-93. In 1993-94, there was realization how FDI can bring economic success through real investment, employment and production. By 1995-96 India saw positive result of FDI so the government stated that for higher growth FDI is an instrument for progress and it should be used without hesitation.


Though the FDI defended, the opposition does not welcome it. As such there was variance in votes in next election. The BJP party criticizes the congress government for license quota permit raj which has remained radical at some level. By now the BJP only welcomed at this instance that it does not minimize the India’s economic sovereignty rather dependency on foreign should be minimize. It called for not westernizing the Indian development. Even the communist party criticizes the BJP of having ideology mixture of swadesi and support to the LPG reform. It can be summarize that by 1996 though there was unsure of acceptance and implementation of the FDI reform, the topic of FDI was major issue in politics.

The importance change in FDI environment was introduction of the foreign investment promotion council and foreign investment promotion board to provide guidelines for the implementation of FDI. The need of FDI was realized and so the list of industries eligible for automatic route were approve to 51% with foreign direct investment flows provided savings without adding to the country’s external dept. in 1998 there was decline in the FDI and change of government to BJP targeted for the FDI in capital stocks, technology, new market practices and employment. FDI was increased in core areas and non priority areas were discouraged. Even the communist party, who had no clear idea of priorities, supported the government stance. While congress party demanded FDI in the power, roads, ports, railways, coal, oil, and gas, mining and telecommunication. In 1999, foreign investment implementation authority was set up for a providing quick communication between foreign investors and the government, and state authorities. In 2002, the ministry of finance’s economic survey that exclusively dealt with FDI outcomes and reserve bank of India stated evaluating the FDI. In May 2002, department of industrial policy & promotion was constituted to maintain FDI data. By 2004, the issue related to the FDI became silent as it was welcomed by both UPA and NDA. But now there was issue on type of policies to be adopted for FDI and to which extended.

The BJP opposed the congress government in retail to 51 % FDI, as they wanted 100% FDI in it. The small retailers were worried about the competition from big business and the some medium sized businesses thought of negative impact on profit earning. The left parties opposed FDI from capitalists countries such as UK, USA and Europe, which was opposed in case of FDI coming from China, Russia, Venezula where leftist rule. The FDI in 2005 was turned to 100% in infrastructure route in townships, housing and construction development projects such as hotels, resorts, hospital, etc. In 2006, the policy of the government of India has tried to maximize the investment by encouraging FDI in every sector. The 2006 policy cleared that FDI under the automatic route does not require prior approval either by the government of India or reserve bank of India. The policy cleared that the FDI in retail trade, except in single brand product retailing; lottery; gambling; and automatic energy. Even in the year 2009 -2014, there was some opposition claims by the opposition group.

In spite of the controversy there has been significant improve in the FDI policy reform and formulation since the 1991. In fulfillment of its commitment to provide greater transparency in decision making, the Government in 1997 announced a set of Guidelines for consideration of foreign direct investment proposals by the Foreign Investment Promotion Board.

Under the 1998 FDI policy,. Indian companies undertaking generation and transmission of electric energy, produced in hydro-electric power plants, coal based power plants, oil based thermal power plants and gas based thermal power plants were eligible for automatic approval up to 74% foreign equity.

Accordingly, projects for electric generation, transmission and distribution were permitted foreign equity participation up to 100% on the automatic approval route provided the foreign equity in any such project does not exceed Rs. 1500 crore. In 1999 Government With a view to expediting disposal of FDI proposals, decided to reduce the time frame for consideration


of proposals related to investment to thirty (30) days from six weeks. In 2014, make in India was launched for manufacturing, design and innovation from foreign. In 2016, the government have opened 100% FDI under automatic route. Make in India, invest India, start up India and e biz mission mode project are other new initiative. The most active organization SJM still remains frame in protesting government against FDI reform. In 2016 when government introduce the FDI reform in e-commerce, food processing and marketing sectors, SJM oppose it, reasoning that it is against the interest of the small Indian shop keeper. On 20 October 2016, RSS boycotted the foreign good especially the Chinese goods in the capital cities.

There was increase in net flows FDI to 44% annual growth during 1991 to 2001. In 1991 there was investment of US $ 0.1 billion of

foreign capital compared with US $ 4.28 billion in 2001. While the share of FDI was only 0.2% in 1990, it increased to 3.98% by 2001, while FDI as a percent of GDP increased from 0.05 percent in 1990 to 0.90 percent in 2001. India’s FDI share in the developing world was only 0.4% in 1991. A marginal improvement was seen by 2001, when the share had increased to 1.7%.

It is interesting that the government always wants to support FDI while the opposition does not. This truth is for every party who aims to collect votes of people. When the UPA was in power it was the NDA which opposed, while now it is other way around. Most of them oppose merely for political motives. The left party only seems to be the only section which opposes FDI due to a conflict with their ideology of opposing any external investment.

FDI in $ billion

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

up

to M

arch

50

40

30

20

10

0FDI in $ billion

Conclusion

The 26 years of the new economic policy since its inception in 1991 has seen many facets of controversy related with the FDI reform. The government have done their will while being in the power. The opposition party have opposed the FDI reform and FDI policies according to own self interest. The game of FDI implementation has worked out well for the Indian economy. Before 1991, foreign investment was negligible. The first year of reform saw a total foreign investment of only $74 million. However investments have raised since then, except between 1997and

2000, and 2008 and 2012. As of March 2016, the country has received total FDI of $371 billion, since 1991. The year 2008 has highest FDI flow of 43.40 billion. The biggest flow was between 2005 to 2006 i.e. 175.54%. As of march 2016, India has attracted $10.55 billion worth of FDI. According to the financial times India overtook China and US as the top destination for FDI. Recently the government on 1stfebuary 2017 has proposed abolition of the foreign investment promotion board. Finance minister Arun Jaitley stated in his budget speech that FIPB has done its work, and now it is the phase to bring more FDI policy which can ease investment process. The SJM


have called for made by India. Nevertheless, India ranks 10thin FDI inflows globally and the forth in developing Asia as per the world investment report 2016 by the United Nations conference for trade and development. It is due to account of the make in India initiative, a liberalization measures and reforms initiated by the national Democratic alliance. But, China is more than three times India’s FDI at $ 136 billion in 2015 is ranked third in terms of FDI flows, which means India is far behind and need to improve its reform related FDI. The issues like land acquisition, goods and service tax, and labour reforms need to be resolves. Still Indian government has done a lot in 10 years to attract FDI in comparison to China. The government initiative through make in India and stand up India is a positive step towards the increase of investment.

References

1. Foreign direct investment in India. Retrieved from https://en.m.wikipedia.org/wiki/foreign_direct_investment_in_india

2. FDI 2005 press note. Government of India. Ministry of industrial policy and promotion. SIA. Http://dipp.nic/English/policy/changes/pn2_2005.pdf

3. Reforms and FDI inflows into India. Chapter 5, Retrieved from http://Shoshana.inflibnet.ac.in/bitstream/10603/12952/12/12_chapter%25205.pdf

4. Sutta M.K Sutta & Dharma G.K., Foreign direct investment in India since 1991: trends, challenges and prospects. Retrieve d from http:// papers.ssrn.com/s013/papers.cfm%3fabstract_id

5. Installed questions no 2410 and unstarred questions no 910.consolidated foreign direct investment in India policy circular of 2016. Department of industrial policy. Retrieved from http://support.nic.in/English/polices/fdi_circular_of_2016.pdf

6. Roy Suranjana, India ranks 10th in FdI inflows : UNCTAD report. Http://www.livemint.com/_india_ranks_10th_in_fdi_inflows_unctad_report.html%

7. What are the some good arguments against allowing FDI in India. Http://www.quora.com/what_are_the_good_argument_against_allowing_FDI_in_india

8. Rao Aprameya & Kadam Kishor, 25 years of liberalisation: a glimpse of India’s growth in 14 charts. July 07, 2016. Retrieved from http://www.firstpost.com/business/25_years_of_liberalisation_a_glimpse_of_india’s_gr owth_in_14_charts_2877654.html.

9. Singh Kulwindar, Foreign direct investment in India: a critical analysis of fdi. Retrieved from http://www.toanewdawn.blogspot.in/2012/09/a_brief_history_of_foreign_direct.html=1

10. Foreign direct investment. Dec. 2016. Retrieved from http://www.ibef.org/economy/foreign_direct_investment.aspx

11. Maharaja R., What has happened since 1991?. http://www.igidr.ac.in/faculty/nag/what%20happened%20aince%201991%20%20assesment%20of%20economics%20reforms.pdf

12. Coan Travis G & killer Tadeuz, The politics of foreign direct investments: an interactive

-95-


A Socio-Economic Analysis of FDI in India

Abstract

The fast and steadily growing economy of India in majority of its sectors, has made India one of the most popular and famous destinations in the whole world for FDI (Foreign Direct Investment).India’s ever expanding markets, liberlisation of trade policies, development in technology & telecommunications, and loosening of diverse foreign investment restrictions, have further collectively made India the apple of investors’ eye for most productive, profitable and secure foreign investment. The economic development of a country depends on its Industries. The developments are easily possible when Foreign Direct Investment (FDI) comes to India. It is an important source of economic development by investing capital in various sectors like manufacturing, infrastructure, transport, technology, services, productivity and hospitality etc. According to a recent survey by the UNCTAD (United Nations Conference on Trade And Development), India has conspicuously emerged out as the second most popular and preferable destination in the entire world after China for highly profitable FDI by investors of countries like US, UK, Mauritius, Singapore, and many others. In this paper, an attempt has been made to present the role and impact of Foreign Direct Investment (FDI) in the socio-economic development of India as a whole since l991.It analyzes the growth of economy and different sectors of Indian Industries due to liberalization of Economic Policy of the Country as well as the policy framed by the honorable Prime Minister Mr. Narendra Damodar Das Modi for the projects like “Make in India and Smart Cities” etc. The present study tries to assess the determinants and impact of FDI in Indian economic factors. Thus, the present study is an endeavour to discuss the trends and patterns of FDI, and its impact on Indian economy

Keywords : gross domestic product, manufacturing sector, infrastructure development

Prof. (Dr.) Himadri Ranjan MishraDepartment of Management Science (MBA)

Balasore College of Engineering & Technology Balasore, Odisha

Introduction

India is an attractive hub for foreign investments in the manufacturing sector. Several mobile phone, luxury and automobile brands, among others, have set up or are looking to establish their manufacturing bases in the country. With impetus on developing industrial corridors and smart cities, the government plans enormous development of the nation. The corridors assist in integrating, monitoring and developing a friendly environment for the industrial development and will promote advance practices in manufacturing. FDI effect could not be gauzed in the past as the flows were limited but in the recent period they have shown a great increase. Further, it was proved that the positive impact of FDI on growth “kicks in” only after financial market development exceeds a threshold level. Until then, the benefit of FDI is non-existent. There have been

studies in the past on sectoral inflows but they do not conduct study on impact on sectors share in GDP. Further the role of government has always been changing. New suggestions have always emerged to increase the FDI flows in India. Foreign direct investment or foreign investment refers to the net inflows of investment to acquire a lasting management interest (10% or more) in an enterprise operating in an economy other than that of the investor. FDI is defined under dictionary of economics as- Investment in a foreign country through the acquisition of a local company or the establishment thereof an operation on a new site. It refers to capital inflow from foreign countries.

There are two types of FDI: (a) Inward foreign direct investment and (b) Outward foreign direct investment.

Single brand- Single brand implies that foreign


companies can sell their products under a single brand; as Reebok, Nokia and Adidas. FDI in single brand retail implies that a retail store with foreign investment can only sell one brand.

Multi brand- FDI in multi brand retail implies that a retail store with a foreign investment can sell multiple brands under one roof.

In 1997, the government allowed 100 percent FDI in “cash and carry” wholesale stores under the automatic route. In 2006, Government allowed 51 percent FDI in single brand retailing, although with prior approval from government. After that, In December 2011, the government fully (100 percent) opened up FDI in single brand retail stores. Many international retail brands such as IKEA and Carrefour were eager to enter the Indian market. 51 percent FDI in Multi-brand retail was proposed in September 2012, with parliamentary approval in December 2012. However on the other side many of small retailers have caused protest against foreign direct investment in retail. According to the Government of India notification, 51 percent of FDI is permitted under following conditions :1. State Acceptance : Stores may be set

up in those states which allow FDI in multi brand retail under this policy. Such stores will be subject to compliance with applicable state laws and regulations.

2. Minimum Investment : The minimum amount that the foreign investors have to invest is US$ 100 billion.

3. Backend Investment : At least 50 percent of total FDI brought in shall be invested in backend infrastructure within three years of first tranche of FDI. Backend infrastructure includes capital expenditure on all activities, excluding that on front –end units, for instance, it includes investment made towards processing,manufacturing, distribution, quality control, design improvement, packaging, logistics, storage, ware house and agriculture market produce. Expenditure on land cost and rentals will not be counted for the purpose of backend infrastructure.

4. Procurement : At least 30 percent of the procurement of manufactured and processed product purchased shall be sourced from small industry globally with investment in plant and machinery not exceeding USD 1 million.

5. Location : Retail sales outlet may be set up in cities with population of more than I million according to 2011census and may also cover area of 10 km around municipal/ urban agglomeration limits of such cities. Only 53cities in India qualify under this criterion.

6. Agriculture produce : First right of procurement lies with the government.

Over the last two decades India opened its market and slowly it becomes second in the world in terms of financial attractiveness. The Prime Minister has launched the ‘Make in India’ campaign to place India on the world map as a manufacturing hub and recognize Indian economy worldwide as a preferred destination for foreign direct Investment. FDI brings a huge capital, technological knowledge, employment opportunities. FDI boosts manufacturing industry by aiding setting up of various manufacturing units in different parts of India. For any country to generate adequate employment, its manufacturing sector’s contribution to GDP has to improve in a faster rate. But this is not the case in Indian manufacturing sector because of its low contribution of 16% to GDP. Research says the manufacturing sector in India has the potential to reach USD 1 trillion by 2025 and contribute approximately 25 percent to India’s GDP. So, it is expected to generate approximately 90 million jobs by 2025. Currently India has a contribution of approximately 2.2 percent of world’s total manufacturing output, which is at par with developed economies.


The data have been collected from secondary sources like published research papers, journals, magazines, websites such as www.tradingeconomics.com RBI websites, Government of India websites, and various


issues of DIPP, Central Statistical Organization, and Handbook of Statistics on Indian Economy. The study carried out is analytical and empirical in nature in which it explores the relationship between the Inflows of FDI and their impact on Indian economic growth.


India replaced China as the top destination for FDI by capital investment following a year of high-value project announcements, specifically across the coal, oil and natural gas and renewable energy sectors. In 2015, India was for the first time the leading country in the world for FDI, overtaking the US (which had $59.6bn of FDI) and China ($56.6bn). The rapid growth of FDI in India shows that while economic development organisations try to attract FDI for the contribution, FDI can make to employment and GDP. FDI is strongly attracted to high-growth economies. Success breeds success and to attract high volumes of FDI, locations need to create the conditions for strong economic growth and development to take place.

A. Metals and mining : The total value of mineral and production including minor minerals but excluding atomic minerals in FY12 and FY13 was about USD 49 billion and USD 43.1 billion, respectively. By 2020, the metals and mining sector in India has the potential to contribute around USD 150 billion to GDP, create new employment for 2.3 million people and contribute USD 40 billion as the government revenues. India ranks fourth globally in terms of iron ore production. The government allows 100 percent FDI under automatic route in the metals and mining sector.

B. Automobile sector : India’s automotive sector is the largest manufacturing sector in India accounting to 22 percent of India’s manufacturing GDP. The auto component sector employs approximately 19 million people (direct and indirect) and the requirement is expected to reach 35

million by 2022.100 percent FDI under automatic route allowing free imports of automotive components and delicensing in the automotive sector has helped in developing the sector.

C. Heavy engineering and construction equipment : This sector derives demand from the infrastructure industry in India. The construction sector’s capacity in India exceeds the domestic demand which shows potential for increasing exports and improving utilization. The construction equipment sector in India was estimated to have generated USD 6.4 billion in revenues in FY13, and is expected to reach USD 22.2 billion in FY 20. India is a preferred destination by global companies for outsourcing work related to the engineering sector as India has a large base of skilled and lower cost labor along with better designing capabilities.

D. Chemical sector : The Indian chemical industry is the 3rd largest producer in Asia in terms of volume of production, and twelfth in the world. The industry accounts for almost 7 percent of world’s production of dyestuff and dye intermediates, particularly for reactive acid and direct dyes. The chemical industry is expected to grow at an annual rate of 15 percent to reach USD 290 billion by 2017.Supportive government policies and the domestic environment including 100 percent FDI under the automatic route and delicensing the manufacturing of most chemical products, has supported the growth of the sector.

E. Electronic components : In India, the demand for electronic component and semiconductor designs exceeded INR 68.1 billion in FY13, with domestic output 40 percent of the total demand. A significant share approximately 30 percent of the component production is exported, leaving only 25 percent for domestic consumption, which is used in


the production of local equipment. The electronic component and semiconductor design market size increased from INR 9.6 billion in 2008 to INR 26.5 billion in 2013 and is estimated to touch INR 62.4 billion by 2022.The organized sector is expected to increase its market share from 80 percent in 2013 to 85 percent in 2022, with increasing competition in the sector expected to drive out small enterprises that constitute the unorganized sector.

F. Cement : The cement production in India has increased at a CAGR of 9.7 percent to reach 272 MT during FY 06-13. Currently, India is the second largest producer of cement in the world having current capacity of around 370 MT which is expected to grow to 550 MT by FY20. The sector comprises 167 large cement plants which constitute about 95 percent of total installed capacity, while the remainder is constituted by the mini-cement plants. The sector is divided into five geographical regions- south, north, east, west and central. Each of these regions has a significant limestone cluster and acts a major production center of cement.

From APRIL, 2000 to MARCH, 2015 (Cumulative FDI flows into India)

1 Cumulative amount of FDI inflows (Equity inflows + RE-invested earnings’ +‘Other capital’)

Rs. 1,718,629 Crore

US$ 368439 Million

2 Cumulative amount of FDI equity inflows (excluding, amount remitted through RBI’s-+NRI Schemes)

Rs. 1233005 Crore

US$ 248512 Million

N.B: The cumulative amount of inflow of FDI was US$ 350,963 million for the period from April, 2000 to November, 2014. While the FDI inflow to India during the financial year 2012-13 was US$ 36,860 million, for 2013-14 was US$ US$ 36,396 million, for 2014-15 (from April, 2014 to November, 2014) was US$ 27,401 million.

The following tables show the amount of FDI equity inflows for particular financial year & sectors attracting highest FDI equity inflows.

FDI inflows during financial year 2012-13 (from April, 2012 to March, 2013)

Financial Year Amount of FDI Equity inflows

(In Rs. Crore)

(In US$ MN)

2014-15 (from April, 2014 to March, 2015)

189107 30931

2013-14 (from April 2013 to March 2014)

147,518 24,299


(+) 28 (+) 27

2012-13(from April, 2012 to March, 2013)

121,907 22,424


(+) 21% (+) 8%

2012-13 (up to March, 2013)

121,907 22,424

2011-12 (up to March, 2012)

165,146 35,121


(-) 28% (-) 38%


Amount of FDI Equity inflows for particular financial year

Ranks Sector 2012-13 ( April - March)

2013-14 (April- March)

2014-15 (April-Mar,

2015)

Cumulative Inflows (April

’2011 - Mar ‘2015)

% age to total Inflows

(In terms of US$)

1 Services sector 26,306 (4,833)

13,294 (2,225)

19,963 (3,253 )

205,532 (42,713)

17%

2 Construction development: Townships, housing, built-up infrastructure

7,248 (1,332)

7,508 (1,226)

4,582 (758)

113,140 (24,064)

10%

3 Telecommunications (radio paging, cellular mobile, basic telephone services)

1,654 (304)

7,987 (1,307)

17,372 (2,895)

84,092 (17,058)

7%

4 Computer software & hardware

2,656 (486)

6,896 (1,126)

13,564 (2,200)

73,235 (15,017)

6%

5 Drugs & pharmaceuticals

6,011 (1,123)

7,191 (1,279)

9,211 (1,523)

65,282 (13,121)

5%

6 Automobile industry 8,384 (1,537)

9,027 (1,517)

15,794 (2,570)

63,991 (12,383)

5%

7 Chemicals (other than fertilizers)

1,596 (292)

4,738 (878)

4,077 (669)

49,310 (10,337

4%

8 Power 2,923 (536)

6,519 (1,066)

3,985 (657)

46,640 (9,557)

4%

9 Metallurgical industries

7,878 (1,466)

3,436 (568)

2,897 (472)

41,147 (8,547)

4%

10 Hotel & tourism 17,777 (3,259)

2,949 (486)

16,962 (2,761)

43,799 (8,060

3%

In a major boost to the ‘Make in India’ initiative, the Government of India has received investment proposals of over Rs 1,10,000 Crore (US$ 16.56 billion) in the last 12 months from various companies including Airbus, Phillips, Thomson, Samsung, LG and Flextronics among others. Some of the major investments and developments in this sector in the recent past are:

� Siemens has announced that it will invest € 1 billion (US$ 1.13 billion) in India to add 4,000 jobs to its existing workforce of 16,000 in the country.

� US-based First Solar Inc and China’s

Trina Solar have plans to set up manufacturing facilities in India. Clean energy investments in India increased to US$ 7.9 billion in 2014, helping the country maintain its position as the seventh largest clean energy investor in the world.

� Samsung Electronics has invested Rs 517 Crore (US$ 77.82 million) towards the expansion of its manufacturing plant in Noida, Uttar Pradesh (UP). “Samsung India Electronics is committed to strengthen its manufacturing infrastructure and will gradually expand capacity at this plant to meet the growing domestic demand for


mobile handsets, as per the company.

� India is currently among the top 10 sourcing countries for IKEA. The plan is to double sourcing from India to €630 million (US$ 711.65 million) by 2020.

� Shantha Biotechnics Private Limited has started building a facility to manufacture Insuman, an insulin product to treat diabetes. Sanofi SA, which acquired Shantha Biotechnics, will invest Rs 460 Crore (US$ 69.24 million) to build the facility.

� BMW and Mercedes-Benz have intensified their localization efforts to be part of ‘Make in India’ initiative. “The localization efforts will reduce the waiting period and accelerate the servicing process of our cars as we had to (previously) depend on our plants overseas for supply and will help us on the pricing front.”

� Suzuki Motor Corp plans to make automobiles for Africa, the company’s next big bet, as well as for India at its upcoming factory in Hansalpur, near Ahmadabad, Gujarat.

� Taiwan-based HTC has decided to manufacture products in India. HTC is believed to have partnered GDN Enterprises, which has an assembly set up in Noida.

� Foxconn is planning an aggressive expansion in India, building up to 12 new factories and employing as many as one million workers by 2020.

� The State Government of Tamil Nadu has signed investment agreements worth Rs 2, 42,160 Crore (US$ 36.45 billion) during a two-day Global Investors Meet in September 2015.

Government Initiatives

Factors such as the lack of progressive FDI reforms, retrospective taxation, excessive permit requisites, centre-state political stalemates, inflexible labour markets, land acquisition issues and inadequate

infrastructure hindered large-scale FDI into India prior to 2013. Subsequently, FDI flows into India increased from $24bn in 2013 to $59bn in 2015. The floodgates had been opened. India’s dramatic ascension in the global FDI rankings has largely been due to a dynamic Modi-led government focusing on ‘big bang’ FDI and labour law reforms. Relative stability within the government coupled with an effort to reduce the stagnating effects of bureaucracy has given foreign investors, across many industries, confidence in India as a remunerative investment opportunity. India announced itself as a global force in the FDI sector as it broke into the top 10 economies in terms of incoming FDI flows in 2014. The iconic ‘Make in India’ campaign is structured to attract more FDI to India and make the country a global manufacturing and industrial hub. This campaign has garnered global attention as the PM has encouraged foreign investors to privatise key sectors such as the railways, defense manufacturing and insurance, as well as the liberalisation of medical devices. Ease of doing business has always been a problem in India, and Mr Modi’s campaign has addressed this by removing archaic laws. The controlled elevation of FDI caps and the elimination of unnecessary red tape restrictions in decision making have gone a long way towards ensuring India’s exponential growth of inward FDI. The campaign and the resultant boost in FDI has resulted in a whopping increase in FDI job creation from 116,000 new jobs in 2013 to 225,000 in 2015 – the highest number in the world. The Government of India has taken several initiatives to promote a healthy environment for the growth of manufacturing sector in the country. Some of the notable initiatives and developments are:

� The Government of India has asked New Delhi’s envoys in over 160 countries to focus on economic diplomacy to help government attract investment and transform the ‘Make in India’ campaign a success to boost growth during the annual heads of missions’ conference. Prime Minister has also utilized the opportunity to brief New Delhi’s envoys about the


Government’s Foreign Policy priority and immediate focus on restoring confidence of foreign investors and augmenting foreign capital inflow to increase growth in manufacturing sector.

� The Government of Uttar Pradesh (UP) has secured investment deals valued at Rs 5,000 Crore (US$ 752.58 million) for setting up mobile manufacturing units in the state.

� The Government of Maharashtra has cleared land allotment for 130 industrial units across the state with an investment of Rs 6,266 Crore (US$ 943.13 million).

� Dr Jitendra Singh, Union Minister of State (Independent Charge) of the Ministry of Development of North Eastern Region (DoNER), MoS PMO, Personnel, Public Grievances and Pensions, Atomic Energy and Space, Government of India, has announced the ‘Make in Northeast’ initiative beginning with a comprehensive tourism plan for the region.

� Government of India has planned to invest US$ 10 billion in two semiconductor plants in order to facilitate electronics manufacturing in the country.

� New Entrepreneurs of small-scale businesses in India will soon be able to avail loans under PradhanMantri MUDRA Yojana (PMMY). The three products available under the PMMY include: Shishu - covering loans up to Rs 50,000 (US$ 752), Kishor - covering loans between Rs 50,000 (US$ 752) to Rs 0.5 million (US$ 7,520), and Tarun - covering loans between Rs 0.5 million (US$ 7,520) and Rs 1 million (US$ 15,052).

The Government of India has an ambitious plan to locally manufacture as many as 181 products. The move could help infrastructure sectors such as power, oil and gas, and automobile manufacturing that require large capital expenditure and revive the Rs 1,85,000 Crore (US$ 27.85 billion) Indian capital goods business.

Conclusion

Foreign direct investment occurs when a business invests in a foreign country by either acquiring a foreign business that it controls or starting a business in the foreign country. Even though global economies are suffering with financial crisis and other economic hurdles, India still stands as a global investment destination. Keeping in view of current requirements and benefits of the nation the government of India comes up with new policies from time to time. Government should design the FDI policy such a way where FDI inflow can be utilized as means of enhancing domestic production, savings and exports through the equitable distribution among states by providing much freedom to states, so that they can attract FDI inflows at their own level. It is observed that Trade, GDP, Reserves GDP, Exchange rate are the main determinants of FDI inflows to the country. In other words, these economic growth factors have a profound impact on the inflows of FDI in India.FDI plays a significant role in enhancing the level of economic growth of the country. India is emerging as a key destination for renewable energy projects, helped by a wider government policy of incentives, infrastructure and programmes designed to attract investment. The country topped the rankings in 2015 with $11.8bn of announced FDI in this sector. This includes Light source Renewable Energy’s plans to invest $3bn to design, install and manage more than 3 gigawatts of solar power within the country. Chinese companies Sany Group and Chint Group are also planning to invest a total of $5bn in the country’s renewable energy sector. A clear cut FDI plan for the logistics sector in India becomes critical considering that the logistics sector in India is currently in the growth stage. China and the US where logistics cost as a percentage of cost of manufacture is much lower, Indian companies still spend nearly 14% of their cost on logistics. This is substantially higher than the 6-7 % that most developed countries spend on logistics due the fact that the logistics infrastructure is much more matured and fine-tuned in these countries. That is where FDI in the logistics


sector along with the strategic, procedural and technical knowhow can be a great value addition. The challenges for FDI in the logistics sector in India are many. But then so is the opportunity. Logistics is already a $400 billion industry and is likely to be a $1 trillion industry in the next 5 years. This is the one area that can promise homogenous growth for foreign investors. Secondly, logistics is the missing piece in catapulting India’s GDP growth from 7.5% to 10%. We have seen in China how infrastructure and logistics can combine to give a major thrust to growth. India is in a similar sweet spot. Thirdly, there is a fairly FDI-friendly regime as far as the logistics sector in India. There are challenges on the ease of doing business but the current government is moving on a war footing to make India more competitive and friendly to foreign investors. It is safe to say that India’s rise in the global FDI inward rankings will not stagnate in the near future. Increasing global investor confidence due to gradual redressal of key hindrance factors will see a further rise in incoming FDI capital over the next five years. This analysis also helps the future aspirants of research scholars to identify the main determinants of FDI at sectoral level. Finally, the study observes that FDI is a significant factor influencing the economic growth in India. It provides a sound base for economic growth and development by enhancing the financial position of the country.

References

1. Mohan CN, Unemployment in an Era of Jobless Growth, 2014

2. Pais J, Growth and Structure of the Services Sector in India, 2014

3. Mohanty N, The Special Category State Conundrum in Odisha, 2013

4. Choudhury PK, Parental Education and Infant Mortality in India: Understanding the Regional Differences, ISID-PHFI Collaborative Research Programme, 2013

5. Hooda SK, Access to and Financing of Healthcare through Health Insurance Intervention in India, ISID-PHFI Collaborative Research Programme, 2013

6. Datta P, Mukhopadhyay I, Selvaraj S, Medical Devices Manufacturing Industry in India: Market Structure, Import Intensity and Regulatory Mechanisms, ISID-PHFI Collaborative Research Programmem, 2013

7. Hooda SK, Changing Pattern of Public Expenditure on Health in India: Issues and Challenges, ISID-PHFI Collaborative Research Programme, 2013

8. Sen S, Currency Concerns under Uncertainty: Case of China, 2013

9. Papola TS, Structural Changes in the Indian Economy. Emerging Patterns and Implications, 2012

10. Bhat TP, Growth and Structural Changes in Indian Industry: Organised Sector, 2013

11. Papola TS, Economic Growth and Employment Linkages: The Indian Experience, 2013

12. Papola TS, Employment Growth in the Post-Reform Period, 2012

13. Mallick J, Estimation of Private Investment in Manufacturing Sector and Determinants in Indian States, 2012

14. Roy S, Regional Disparities in Growth and Human Development in India, 2012

15. Papola TS, Social Exclusion and Discrimination in the Labour Market, 2012

16. Roy S, Changing Factor Incomes in Industries and Occupations: Review of Long Term Trends, 2012

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Foreign Direct Investment in Retail Sector

Abstract

The entry of foreign direct investment in India’s retail sector in inevitable. In January 2012 India allowed 100% FDI investment in single brand stores and on 7th December 2012. India allowed 51% FDI in multiband retail. The process of FDI in retail sector, the Foreign investment Board Ministry of finance will consider the application before providing the final approval. Through FDI in retail sector our country develops in many ways. Such as in integration, economic growth, trade. Increasing competition, more employment opportunities. Improve rural areas infrastructure good quality of good. Government earning by taxes and new technology. Therefore significant challenges as will given that our 90% of trade is conducted through independent local stores challenges include: geographically dispersed, population, little use in IT systems etc. In 2006 FDI was not authorized in retailing in India. In November 2015 Narendra Modi our prime minister put more and more FDI proposals on the automatic route. In 2016. The government has announce that who wants to set up shop in India in single brand like APPLE and LeEco allow relaxed sourcing regims for another five years for entities undertaking single brand retail trading of product . The government allowed 100% FDI in the marketing of food product in India .

Keywords : economic growth, food product, multibrand

Jayshree GangunlyTeacher (Commerce)

Ursuline Inter College Ranchi

Introduction

Foreign direct investment made by a company or individual in one country in business interest in another country, in the form of either establishing business operation or acquiring business assets in the such as ownership or controlling interest in a foreign company.

Meaning of Retail sector: - The part of a country economy that is made up of business that sell goods through stores, on the internet etc.to the public. Share prices in the retail sector have been driven up takeover activity.

In 2011 FDI was not allowed in multiband retail but in January 2012, India allowed 100% FDI investment in single brand store but imposed the requirement that the single brand retailer would have to source so percent of its goods from India. On 7 December 2012, India allowed 51 percent FDI in multiband retail.

Manmohan Singh then the prime minister of India was credited with bringing about this policy change aimed at making India friendlier for businessmen. He thinks it will be beneficial for consumer and farmer. Agricultural making was also expected to be benefited with the introduction of new technology.

Process of FDI in Retail Sector

There is no such procedure for short listing the companies. International companies who are willing to invest in either single or multi brand retail can put in their applications policy and promotion.

Here, the application are reviewed in a effort to determine their suitability as per the stated guidelines, Subsequently, the foreign investment promotion board, Ministry of Finance will consider the applications before providing the final approval.

FDI in retail sector in good food for ouor our country in following points

� Integration into Global Economy: Developing countries, which invite FDI, can gain access to a wider global and better platform in the world economy.

� Trade : Foreign direct investment has given wide scope of opportunities in the Import and export production. Product of superior in India due to greater amount of FDI inflows in the country.

� Economy Growth : This is one of the


major sector, which is benefited from FDI. A remarkable inflow of FDI in various industrial units in India has boosted the economic life of country.

� Increased competition : FDI increase the level of competition in the host country. Other companies will also have to improve their processes and services in order to stay in the market. The maximum amount of the profit gained by the foreign firms through this joint venture is spent on the Indian market.

� Employment : FDI has also ensured a number of employment opportunities by aiding the setting up of industrial unit in various corners of India.

� Improve rural infrastructure : It would help build infrastructure and create a competitive market. Reduce wastage of agricultural produce and farmer get better prices for their crops.

� Reduce the product price : The consumer will get commodities of daily use at reduced prices.

� Government earning : Government too stands to gain by this move through more transparent and accountable monitoring of goods and supply chain management systems. It can expect to receive an additional US$ 25-30 billion by way of taxes.

� Quality control and control over leakage and wastage : Due to organization of the sector, 40% of the does not reach the ultimate consumer. Cost conscious and highly competitive retailer will try to avoid these wastages and losses and it will be their Endeavour to make quality products available at lowest prices, hence making good available to weakest and poorest segment of Indian society.

� Heavy flow of capital will help in building up the infrastructure for the growing population : India is already operating in budgetary deficit. Neither the Government of India nor domestic investors are capable

of satisfying the growing needs of the ever growing Indian population. Hence foreign capital inflow will enable use to create a heavy capital base.

Challenges of FDI in retail Sector

India presents a large. Market opportunity given the number and increasing purchasing power of consumer. There are significant challenges as well given that over 90% of trade is conducted through independent local stores. Challenges include Geographically disposed population small ticket sixes, Complex distribution network, Little use it system, limitations of mass media and existence of counterfeit goods.

Data of FDI in retail sector from 2006 to 2016

� In 2006 to 2009 : On Jan 24, 2006. FDI was not authorized in retailing. However most general players had been operating in the country with other entry routes, such as franchise agreement, strategic licensing agreement, manufacturing and wholly owned subsidiaries, among others. It was not permitted in Multi brand retailing in India.

� In 2010 to 2011 : Though no significant decisions were taken with respect to multi brand retail or single brand retail this year, the Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce circulated a discussion paper in July 2010 seeking the opinions of all stakeholders on allowing FDI in Multi brand retail. The consumer affairs ministry and planning commission gave the green signal for 49% FDI in multi brand retail.

� In 2012 – 2014: The Government allowed 100% PDI in single brand retail. Under the government approval south India 2012. It followed another decision that allowed foreign retailers to own up to 51% in multi¬-brand retail. In September during the same year. The condition for companies for investment at least 50% of the first US $ 100 million into backend


infrastructure such as manufacturing, processing, packaging, distribution, logistics, design, Improvements, quality control, warehouses, storage, and agriculture market.

� In 2015 : During November 2015 Modi announced the simple process of foreign investment in the country and to put more and more FDI Proposals on the automatic route instead of Government route where time and energy of the investors are wasted. In single brand retail the reforms allowed global technology brands such as apple of APPLE of SONY to open fully owned stores in India. The Government also allowed single brand retailing with FDI to conduct online trading in any form. Several large foreign companies such as sportswear retailer ADIDSA, AG and SWISS watch retailer swatch SA have received permission to set up fully owned store in India.

� In 2016 : Just six months into 2015 and government has announced various reforms and policies pertaining to FDI in retail and e-commerce. Government permitted 100 recent FDI in the market place format of e-commerce retailing and also come up with the definition of marketplace and inventory led models of e-commerce in March this year inventory based model of e-commerce adopted by e-grocers like Big Basket has been kept out of the preview of 100 recent FDI.In multi brand the Government unexpected announcement in the budged 2016 that paves the way for retailers such as Walmart and IKEA to sell multi brand food product as long as they are source and manufactured within India.In single brand the announcement definitely indicates brother of three years to brands like Apple and LeEco, who want to set up shop in India. The government allowed 100% FDI in the marketing of foods products made in India.

The Government has decided to have no local sourcing norms up to three Years and allow a

relaxed sourcing regime for another five Years for entities undertaking single brand retail trading of product having state of the art and cutting edge technology.

Conclusion

We know India have strong resources but to lack of finance, knowledge, new technology, education and infrastructure cannot develop our country. Retailer sector are the important part of our country because people get satisfied their needs through then.

FDI plays an important role in retail sector. Thought FDI we can develop in many ways such as in integration, Economic growth, trade, employment generate, to help of product of goods quality and rural areas also help to develop.

According to my view, FDI can introduce world class technology and technical exporters and processes to their existing working process foreign expertise can be an important factor in upgrading the existing technical processes.

FDI is goods for Indian because it helps to utilize the resources of our country, provide for opportunities and help to build. Our country strong in economically through FDI Government expects to receive US$25-30 billion by way of taxes. In a recent presentation FICCI has estimated the total retail business to be Rs 11, 00,000 crore or equivalent to 44 percent of GDP.

So, According to my knowledge FDI is very important and strong able to develop for our country.

References

1. Business in India- maps of India

2. http//www.business.mapsofindia.com>Fdi-india

3. http//www.indiabix.com>group-discussion

4. http//www.en.m.wikipedia.org>wiki>Retail

5. Article,newspaper,journals etc.

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Impact of FDI in the Socio- Economic Development in India

Abstract

Widespread liberalization and deregulation of financial markets, cross-border mergers and acquisitions (M&As), increasing role of investors willing to invest abroad, rapid advances in modern telecommunication and computer network – have all resulted in a tremendous upsurge of international capital flows in India over the last two decades. Among the various forms of foreign investment, foreign direct investment (FDI) flows are usually preferred over other forms of external finance because they are non-debt creating, non-volatile and their returns depends on the performance of projects financed by the investors. Moreover, in order to overcome the deficiencies of all kinds of resources viz. financial, capital, entrepreneurship, technological know- how, skills and practices, access to markets-abroad - in their economic development, developing nations accepted FDI as a sole visible panacea for all their scarcities.

Keywords : entreprenurship, investors, external finance

Dr. Aditendra Nath ShahdeoAssistant Professor, Department of Commerce

Marwari College, Ranchi, Ranchi University, Ranchi

Khaleda RehmanResearch Scholar

Department of Commerce and Business Management Ranchi University, Ranchi

Introduction

FDI plays an important role in the long term development of a country by enhancing the competitiveness of domestic economy through transfer of capital, up gradation of technology, developing managerial skills and capabilities in various sectors, strengthening infrastructure, raising productivity and generating new employment opportunities. India is being looked up by many foreign nations as the scope of investment due to rise in purchasing power, growing consumerism and brand proliferation.

FDI brings both favourable and unfavourable effects to a host country. The favourable effects include an enhanced supply of capital, technology and resources that boost the economic growth rate of a nation. In addition, expansion of business with capital investments through FDI are likely to bring better job opportunities, higher salaries, more choices of goods and services because of competitive markets.

Foreign direct investment (FDI) is an investment made by a company or individual in one country in business interests in another country, in the form of either establishing business operations or acquiring business assets in the other country, such as ownership or controlling interest in a foreign company. Foreign direct investments are distinguished from portfolio investments in which an investor merely purchases equities of foreign-based companies. The key feature of foreign direct investment is that it is an investment made that establishes either effective control of, or at least substantial influence over, the decision making of a foreign business.

The question that begs for an elaboration is that is high growth and inflows of FDI solve structural imbalance of Indian economy and will it succeed in improving the lot of bottom section of the Indian economy, which are living in abysmally poor socioeconomic conditions in the countryside. The employment elasticity in the agriculture and industrial sector has gone down in the post reform period, therefore,


the creation of employment opportunities will be a gigantic task for the policy makers. FDI has come in the most capital intensive sectors; Therefore, the required employment opportunities could not be created especially for the manual and the semi skilled labor. High skilled workforce gained substantially. That is why high growth is called urban centric and thus has developed a wedge between the urban and rural economy. There is urgent need to fill this void. The process of Policymaking has matured in the democratic Indian polity since the independence. It is thus predicted that the growing problems will receive mature response and policy will be articulated in such a way to use FDI the way China has used to enhance economic growth while taking more and more investment to industrialize the rural sector of the Indian economy.


The whole study is based on descriptive arguments, statistical data and analytical logic developed through the understandings from various research papers, reports, books, journals, newspapers and online data bases.


Social economics is a branch of economics that focuses on the relationship between social behaviour and economics, and it examines how social norms, ethics and other social philosophies that influence consumer behaviour shape an economy. It involves the relationship between social and economic factors within a society. These are factors that influence how a particular group, or socioeconomic class, act within society including their actions as consumers.

Development is a multi-dimensional phenomenon. Some of its major dimensions include: the level of economic growth, level of education, level of health services, degree of modernisation, distribution of goods & services and access to communication. In India, the progress of socio-economic development is not uniform across the country and there is wide spread disparity among different states

FDI in India

India, the world’s largest democracy, liberalized its economy in 1991 due to structural imbalances in its external account has made significant progress. The liberalization policies enacted by the Indian government are touted as a great success by policymakers and pundits around the world. One of the major benefits of the economic reforms program has been its ability to attract foreign direct investment (henceforth FDI).

FDI brings both favourable and unfavourable effects to a host country. The favorable effects include an enhanced supply of capital, technology and resources that boost the economic growth rate of a nation. In addition, citizens of the host country are likely to benefit from better job opportunities, higher salaries, more choices of goods and services because of competitive markets. Some of the unfavourable effects of FDI on socio-economic and environmental characteristics include disparity in wages, culture, political corruption, ecology and environment.

Socio-economic factors in FDI flows

A deeper concern is that our developmental priorities, as reflected in drastic FDI relaxations, appear fundamentally misplaced. While ‘ease of doing business’ is a desirable thing, in India’s case it is being promoted at the expense of other more important national objectives such as employment; survival and skill up gradation of agricultural and small manufacturing economies and families dependent on them; expanding on existing domestic capacities in those industries where Indian firms have already demonstrated competence; and development of domestic R&D and manufacturing capability in state-of-the-art technology areas. FDI should be subservient to, and support, these more important socio-economic goals. The ongoing development policy, by promoting FDI at the expense of these goals, is in fact really not for development.

By and large, democracies with high income and low social strife are the ones which have


opened their economies to foreign capital in a major way only after achieving a reasonable degree of domestic economic stability, industrial technological competence and overall prosperity. Opening a large economy to foreign investments without either adequate checks or having a strong domestic economy of suppliers, markets and technological capability is akin to fattening a person by injecting drugs. It is a short cut to growth, but one which will yield an economy that is inherently weak and vulnerable. It is also likely to produce a society beset with economic fault-lines that constantly trigger social conflicts – a phenomenon that might intensify beyond the levels we have witnessed in the past.

Another impact of FDI is that it influences and is influenced by the culture of a host country. Some cultures are supportive to FDI while others are not. In India, traditional culture encompasses a value system that emphasizes on group identity, religious beliefs some of which place greater emphasis on detachment from the material world that discourages entrepreneurial activity, and a rigid caste system that has the potential to limit social mobility along the lines of caste.

Unfavourable impact of FDI

One of the measurements of economic development in a low income economy is the increase in the nation’s level of capital stock. A developing nation may increase the amount of capital stock by incentivising and encouraging capital inflows, and this is generally done through the attraction of FDI. It has been widely discussed and upheld that amongst various forms and modes of capital inflows, FDIs are favoured, because of their long term durability and commitment to a host country’s economy. FDIs are less susceptible to short term changes in market conditions, which ensure a certain level of continuity and stability in the money flow. However, many developing economies have tried to restrict, and even resist, foreign investments because of nationalist sentiments and concerns over foreign economic and political influence. One pertinent reason for this sentiment is that many

developing countries, or at least countries with a history of colonialism, fear that foreign direct investment may result in a form of modern day economic colonialism, exposing host countries and leaving them and their resources vulnerable to the exploitations of the foreign company.

While FDIs may increase the aggregate demand of the host economy in the short run, via productivity improvements and technology transfers, critics have also raised concerns over their supposed benefits. This theory follows the rationale that the long- run balance of payments position of the host economy is jeopardised with the investor outlay. Once the initial investment starts to turn profitable, it is inevitable that capital will return to the country it originated from.

To sum up, FDIs have created tremendous opportunities for India’s development and helped to boost the performance of local firms as well as the globalisation of some of them. This has undeniably raised India’s stature among developing countries. India needs massive investments to sustain high quality economic growth, particularly in the energy and infrastructure sectors. Policymakers are looking at FDI as the primary source of funds. It is important to keep in mind that FDI on its own is not a panacea for rapid growth and development. What India needs is to put in place a comprehensive development strategy, which includes being open to trade and FDI. This should go a long way in fulfilling the ultimate goal of permanently eradicating poverty.

Drawbacks of FDI

Exploitation : Leverages in labour laws combined with unemployment in the developing countries leads to exploitation of workers by multinational corporations. MNEs shift the manufacturing base from higher income nations to lower ones in order to save money nevertheless the working conditions at the new places are anything but good.

Unemployment : FDI will lead to job losses. Small retailers and other small ‘Kirana Store


Owners’ will suffer a large loss. Giant retailers and Supermarkets like Wal-Mart, Carrefour, etc. will displace small retailers. Jobs in the manufacturing sector will be lost because foreign giants will purchase their goods from the international market and not from domestic sources. This has been the experience of most countries which have allowed FDI in retail. Although, our country had made a condition that they must source a minimum of 30% of their goods from Indian micro and small industries, we can’t stop them from purchasing goods from international markets as per WTO law. So after coming to India, they can reduce this 30% by litigating at the WTO.

Draining of Money : In spite of foreign direct investment coming into the country by the company is basically deployed to earn profits from the native customers. Therefore, the net amount earned is transferred to the parent nation.

Loss of business for local companies : International corporations bringing in FDI are awash with funds compared to the local companies. The latter is forced to play second fiddle or wind up after some time because they do not have the required financial muscle. It is an unfortunate situation as the country can never develop a local industrial base. Supermarkets will establish their monopoly in the Indian market. Because of supermarket’s fine tuning, they will get goods on low price and they will sell it on low price than small retailers, it will decrease the sale of small retailers.

Favourable impact of FDI : The historical background of FDI in India can be traced back with the establishment of East India Company of Britain. British capital came to India during the colonial era of Britain in India. After Second World War, Japanese companies entered Indian market and enhanced their trade with India, yet U.K. remained the most dominant investor in India. Further, after Independence issues relating to foreign capital, operations of MNCs, gained attention of the policy makers. Keeping in mind the national interests the policy makers designed the FDI policy which aims FDI as a medium for acquiring advanced

technology and to mobilize foreign exchange resources. With time and as per economic and political regimes there have been changes in the FDI policy too. The industrial policy of 1965, allowed MNCs to venture through technical collaboration in India. Therefore, the government adopted a liberal attitude by allowing more frequent equity.

The government of India with the help of World Bank and IMF introduced the macro-economic stabilization and structural adjustment program. As a result of these reforms India open its door to FDI inflows and adopted a more liberal foreign policy in order to restore the confidence of foreign investors. Further, under the new foreign investment policy Government of India constituted FIPB (Foreign Investment Promotion Board) whose main function was to invite and facilitate foreign investment

Indian economy which has tremendous potential, FDI has had a positive impact. FDI inflow supplements domestic capital, as well as technology and skills of existing companies. It also helps to establish new companies. All of these contribute to economic growth of the Indian Economy.

Advantages of FDI

Global Integration : Developing country, which invites FDI, can gain a greater foothold in the world economy by getting access to a wider global market.

Technology : FDI can introduce world-class technology as well as technical knowhow and processes to developing countries. Foreign expertise can be an important factor in upgrading the existing technical processes in a host country. For example, the nuclear deal between India and the United States would lead to transfer of nuclear energy knowhow between the two countries and allow India to upgrade its civilian nuclear facilities.

Competition : As FDI brings in advances in technology and processes, it increases the competition in the domestic economy of the developing country that has attracted the FDI. Other companies will also have to improve their processes and products in order to stay


competitive in the market. FDI improves the quality of products and services.

Elimination of monopoly : By inviting FDI, the government can eliminate monopoly of the local companies and benefit the customers because they can avail quality products.

Human resources : Employees of a host country in which there is foreign direct investment get exposure to globally valued skills. The training and skills up gradation can enhance the value of the human resources of the host country.

Market size and Inflow of Capital

According to Department of Industrial Policy and Promotion (DIPP), the total FDI investments India received during April - September 2016 rose 30 per cent year-on-year to US$ 21.6 billion, indicating that government’s effort to improve ease of doing business and relaxation in FDI norms is yielding results.

Data for April - September 2016 indicates that the services sector attracted the highest FDI equity inflow of US$ 5.29 billion, followed by telecommunications – US$ 2.79 billion, and trading – US$ 1.48 billion. India received the maximum FDI equity inflows from Mauritius (US$ 5.85 billion), followed by Singapore (US$ 4.68 billion), Japan (US$ 2.79 billion), (US$ 1.62 billion), and USA (US$ 1.44 billion).

Some of the recent significant FDI announcements are as follows

� BSH Home Appliances Group, one of the leading home appliances manufacturers worldwide, opened its first technology centre in India at Adugodi, Bengaluru, which will enable the company to further develop localised technologies for the Indian market.

� Ford Motor Co. plans to invest Rs 1,300 crore (US$ 189.2 million) to build a global technology and business centre in Chennai, which will be designed as a hub for product development, mobility solutions and business services for India and other markets.

� JW Marriott plans to have 175-200 hotels in India over the next four years.

� China based LCD and touch screen panel manufacturer, Holitech Technology, plans to invest up to US$ 1 billion in India next year, as per the company’s CEO Mr Bingshuang Chen.

� Mr Abdul Lahir Hassan, Chairman of UAE-based Gamma Group, outlined plans of investing around Rs 3,000 crore (US$ 436.5 million) in the infrastructure, health and education sectors of Kerala, which is expected to generate around 2,000 indirect and direct jobs in the state.

� Mr Stephane Descarpentries, Director of operations FM Logistic Asia, outlined plans of investing around EUR 50 million (US$ 52.9 million) in India in the next four years, to contribute to a better efficiency of logistics market in the country.

� The first Incredible India Tourism Investment Summit 2016, which was organised from September 21-23, 2016, witnessed signing of 86 Memoranda of Understanding (MoUs) worth around Rs 15,000 crore (US$ 2.18 billion), for the development of tourism and hospitality projects.

� Apple Inc has started its first development centre outside the US in Hyderabad, which will employ over 4,000 people and focus on Apple Maps, the company’s digital maps and navigation service.

� Panasonic Corporation plans to set up a new manufacturing plant for refrigerators in India with an investment of Rs 250 crore (US$ 36.4 million), and also invest around Rs 20 crore (US$ 3 million) on an assembly unit for lithium ion batteries at its existing facility in Jhajjar in the next 8-10 months.

� Vistra Group Ltd, a Hong Kong-based professional services provider, has acquired IL&FS Trust Company Ltd, India’s largest independent corporate trust services provider, which will enable


Vistra to expand the platform to provide a broader suite of corporate and fiduciary services and thereby gain a foothold in the Indian corporate services market.

� Silver Spring Capital Management, a Hong Kong-based equity hedge fund, plans to invest over 2,000 crore (US$ 291.0 million) in Hyderabad-based infrastructure developer Transstroy India Ltd, for construction of highways in the country.

� Global beverage company Pepsi plans to invest Rs 500 crore (US$ 72.8 million) to set up another unit in Maharashtra to make mango, pomegranate and orange-based citrus juices, while biotechnology giant Monsanto plans to set up a seed plant in Buldhana district of Maharashtra.

Impact of FDI in socio economic parameters

With the increasing flow of FDI in India, it is important to analyse its impact on socio economic factors to see how it affects the socio economic development. There are various factors and variables in socio economic development but we have selected five primary key indicators to assess the impact of FDI.

Per Capita Income : With increase in FDI inflow, it is important to assess its impact on growth of income of India and per capita income is best parameters to assess its vitality. As per the Economic Times reports dated 6th January 2017, India’s per capita income, a gauge for measuring living standard, is estimated to cross Rs 1 lakh in 2016-17, up from Rs 93,293 in the previous fiscal. As per the ‘First Advance Estimates of National Income, 2016-17’ released by the Central Statistics Office (CSO), the per capita net national income during 2016-17 is “estimated to be Rs 103,007” at current prices. This is higher by 10.4 per cent compared to Rs 93,293 during 2015-16. “The per capita income in real terms (at 2011-12 prices) during 2016-17 is likely to attain a level of Rs 81,805 as compared to Rs 77,435 for the year 2015-16,” the estimates said. At constant prices, the growth rate in per capita income is estimated at 5.6 per cent

during 2016-17, as against 6.2 per cent in the previous year.

Health care : According to a new index developed to make the assessment of each country’s healthcare achievements, India ranks 143 in a list of 188 countries.

The ranking has been given in the first global analysis that assesses countries on sustainable development goal (SDG) health performance, launched at a special event at the UN General Assembly on 21st September 2016 in the Lancet.

There is lack of infrastructure and investment in healthcare in India and investment in healthcare through FDI will be beneficial for investors and also works towards social and economic improvement in India. There are many positive implications of foreign investment in hospitals. The major impact of Foreign Direct Investment is the creation of the necessary infrastructure. Investments are also needed beyond the metros to expand access to health care. In addition to helping increase physical capacity in the health care sector, such as increasing the number of hospital beds, diagnostic facilities, and increasing the supply speciality and super speciality centres, foreign investment can also help in raising the standards and quality of health care, upgrading technology, and creating employment opportunities, with potential benefits to the health sector and the economy at large. However few things to be kept in mind for achieving success in hospital sector are that the cost of medical care should be affordable most importantly in the tire-II and tier- III locations should concentrate on the ailments which are geography specific. Considering the need of proper health care facilities, it would act as a major boost to the health care sector if the same is included under the ambit of the “infrastructure” sector. Such policy move would allow health care facilities to receive more tax benefits. For the purpose of direct taxation it would be eligible for tax benefits under section 80-IA of the Income Tax Act,1961.This section provides for a ten year tax holiday is to enterprises engaged in the business of


development, operation and maintenance of infrastructure facilities. Such tax holiday may help in reducing the input costs involved in the establishment of a hospital. Such additional money could be used for further investments in to the sector which in turn may result in more people receiving proper health care and more job opportunities for health care workers

Education

Owing to social impact of FDI, India also enhances its educational system. Since 2003, the Indian government has been allowing 100% FDIs in education, which means that foreign schools, colleges, and universities can set up wholly owned subsidiaries in India. Students passing out of these institutes will be awarded foreign degrees and certificates. The social impact of FDI in education is such that the number of foreign students pursuing higher education in India has increased by a large margin. Also, the ‘brain-drain’ issue has also been checked to a significant extent since the number of students going out of India has also reduced. There is implementation of higher education and training for the laborers. India is definitely developing in a much faster pace now than before but in spite of that, it can be identified that developments have taken place unevenly. This means that while the more urban areas have been tapped, the poorer sections are inadequately reached out to. To get the complete picture of growth, it is essential to make sure that the rural section has equal amount of development as the urbanized ones. FDI helps to focus in this area thus, fostering social equality and at the same time a balanced economic growth.

Employment

FDI to India has increased significantly in the last decade. However, the growth in FDI flows has been accompanied by strong regional concentration. The findings of the study reveal that market size, agglomeration effects and size of manufacturing and services base in a state have significant positive impact on the regional distribution of FDI flows in India. The impact of taxation and cost of labour is negative. While the impact of quality of labour

is ambiguous, infrastructure, however, has a significant positive impact on FDI flows. Mining has a positive influence on FDI flows, but lacks statistical significance. The presence of strong agglomeration effect indicates that the states already rich in FDI flows tend to receive more of them which make it more difficult for the other states to attract fresh investments. In view of this difficulty, a conscious and coordinated effort at the national and the state government levels would be essential to make the laggard states more attractive to FDI flows. The direct method to achieve this objective may be to design the national FDI policy in such a way that a sizable portion of FDI flows to India move into the laggard states. The indirect way is to provide a boost to the overall economy of the less advanced states, with special thrust on the manufacturing, services and the infrastructure sectors so that they themselves become attractive to foreign investors.

Infrastructure

Reserve Bank of India has defined infrastructure sector as:i. Power ii. Telecommunicationsiii. Railways iv. Roads including bridges v. Sea port and air port vi. Industrial parks vii. Urban infrastructure (water supply,

sanitation and sewage projects) viii. Mining, exploration and refining, and ix. Cold storage and cold room facility,

including for farm level pre-cooling for preservation or storage of agricultural and allied produce, marine products and meat.

The Index of Eight core industries—crude oil, petroleum refinery products, coal, electricity, cement, steel, fertilizers and natural gas—having a combined weight of 37.90 per cent in the Index of Industrial Production (IIP) stood at 139.5 in September 2012, according to data released by the Union Ministry of Commerce and Industry. During April-September 2012-


13, the cumulative growth rate of the Core industries was 3.2 per cent. The infrastructure sector accounts for 26.7 per cent of India’s industrial output. The Planning Commission has projected that investment in infrastructure would almost double at US$ 1,025 billion in the Twelfth Five Year Plan (2012-17), compared to US$ 514 billion in the Eleventh Plan. Of the US$ 1,025 billion, 50 per cent is expected to come from private sector, whose investment has been 36 per cent in the Eleventh Plan. According to investment banking company Goldman Sachs, India’s infrastructure sector will require US$ 1.7 trillion investment in the next 10-years. With a view to streamlining and simplifying the appraisal and approval process for public private partnership (PPP) projects, a Public Private Partnership Appraisal Committee (PPPAC) has been constituted under the chairmanship of Secretary, Department of Economic Affairs and Secretaries of Planning Commission, Department of Expenditure, Department of Legal Affairs and the concerned Administrative Department as its members.

The project proposals are appraised by the Planning Commission and approved by the PPPAC. Further, India needs to spend US$ 1.7 trillion by 2030 to meet the projected demand of its cities, according to a McKinsey Global Institute Report. Foreign Direct Investment (FDI) in infrastructural sector to be viewed in this context. India’s infrastructure funding has fallen well short of its economic growth. Lack of infrastructure is adversely affecting the growth of secondary sector and the percentage share in GDP is showing a decline. This is making the economy over dependent on service sector and forcing as to increase our imports.

Conclusion

On evaluation of drawback and benefits of FDI in Indian context with analysis of FDI in India with socio economic parameters, it is drawn that FDI has favourable impact on socio economic development in longer term.

For Indian economy which has tremendous potential, FDI inflow supplements domestic capital, as well as technology and skills of existing companies. All of these contribute to improvement in socio economic condition of India.

References

1. http://www.investopedia.com/terms/f/fdi.asp

2. Socio Economic Development in India. Development and Society Vol. 28 No. 2, December 1999 by Abhiman Das(RBI) https://core.ac.uk/download/pdf/9312200.pdf

3. http://www.ibef.org/economy/foreign-direct-investment.aspx

4. http://www.ripublication.com/gjbmit/gjbmitv4n1_03.pdf

5. https://www.quora.com/What-are-the-positive-and-negative-effects-of-foreign-direct-investment-on-the-economy-of-a-country by Amarjeet Singh Deo

6. RBI Master Circular No. 12/2012-13 dated July 02, 2012

7. http://business.mapsofindia.com

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Impact of FDI in the Socio-Economic Development of India

Abstract

The advent of foreign investment in India has made a positive impact on the socio-economic development of the region in various ways which include the arrival of foreign capital inflow, job creation, increase in GDP and National Income, contracting with local suppliers and the introduction of new and innovative technologies, foster relations, co-operation, and harmony between India and foreign countries. The social impact of larger FDI include the product market as well as many new products are coming into the market due to which the people of India are enjoying unprecedented exposure to branded and quality goods which has improved the living standard of the people and has increased the economical condition of the suppliers. FDI has enhanced India’s educational system too. Since 2003, the Indian government has been allowing 100% FDIs in education, through which foreign schools, colleges, and universities can set up wholly owned subsidiaries in India. Also, the ‘brain-drain’ issue has also been checked to a significant extent since the number of students going out of India has also reduced. The increase in FDI in India is also helping in the liberalization of labour through which the inequality in wage earnings will be reduced. There is implementation of higher education, training and skill development for the labourers too. The health facilities also increase with better and sophisticated products and processes. India is definitely developing in a much faster pace now than before but in spite of that, it can be identified that developments have taken place unevenly. In order to get the complete picture of growth, it is essential to make sure that the rural section has equal amount of development as the urbanized ones. FDI helps to focus in this area thus, fostering social equality with balanced economic growth of India in a sustained manner.

Keywords : national income, foreign capital, capital inflow

Khushboo RaiResearch Scholar


Dr. B.M. SahuEx-Head and Dean


Introduction

The impact of FDI on the Indian economy, particularly after two decades of economic reforms has witnessed favourable impact on the Indian. Foreign investment plays a significant role in development of Indian economy. In the critical face of Indian economy the government of India with the help of World Bank and IMF introduced the macro-economic stabilization and structural adjustment program. As a result of these reforms India opened its door to FDI inflows and adopted a more liberal foreign policy in order to restore the confidence of

foreign investors. Further, under the new foreign investment policy Government of India constituted FIPB (Foreign Investment Promotion Board) whose main function was to invite and facilitate foreign investment. Many countries provide many incentives for attracting the foreign direct investment (FDI). Need of FDI depends on saving and investment rate in any country. Foreign Direct investment acts as a bridge to fulfil the gap between investment and saving. In the process of economic development foreign capital helps to cover the domestic saving constraint and provide access to the superior technology


that promotes efficiency and productivity of the existing production capacity and generate new production opportunity. The social impact of FDI is dependent on India’s policies and institutions. The flexibility of the labour market would determine employment opportunities. The extent to which the lower income groups can take advantage of the growth policies determine the growth-poverty relationship. The production in the fields of physical and social infrastructure determines the regional developments. The Indian industries are predominantly labour based but there are also many capital based companies. Capital intensive set up is an expensive proposition but India can look forward to more professional and sophisticated number of workers and employees at all levels. Human capital in terms of quantity was never a big problem in India due to its huge population added emphasis must be laid on the quality and efficiency in work. This is brought about by MNCs. Foreign Direct Investments foster relations, co-operation, and harmony between India and foreign countries. The social impacts of FDI include the product market as well because many new products come into the market as a consequence of FDIs. As a result, the people of India enjoy unprecedented exposure to branded and quality goods. In fact, various training methods, personality grooming, and soft skills are given by multinational corporations which impart value to human resources. Even the civil society can work with the government and help in reducing bureaucratic hassles and interferences. The increase in FDI in India is also helping in the liberalization of labour through which the inequality in wage earnings will be reduced.


Extensive literature survey regarding the topic and related concepts has been done. Resources have been taken from either primary and secondary data or information. Secondary data inclusive of quantitative and qualitative data as well collected from various sources including books, research papers, newspapers, magazines, and websites is used for the purpose of study. The data obtained is

compiled and analyzed. The study has been done keeping in mind the cultural diversity of India, FDI undertakes all its initiatives sensitively with special on the upliftment of schedule castes/tribes and preserving the culture and heritage along with economic development.


In the process of economic development foreign capital helps to cover the domestic saving constraint and provide access to the superior technology that promotes efficiency and productivity of the existing production capacity and generate new production opportunity. Starting from a baseline of less than USD 1 billion in 1990, a recent UNCTAD survey projected India as the second most important FDI destination (after China) for transnational corporations during 2010-2012. As per the data, the sectors which attracted higher inflows were services, telecommunication, construction activities and computer software and hardware. Mauritius, Singapore, the US and the UK were among the leading sources of FDI to the country. According to GYANPRATHA – ACCMAN (Journal of Management, Volume 5 Issue 1, 2013) FDI for 2009-10 at US$ 25.88 billion was lower by five per cent from US$ 27.33 billion in the previous fiscal. Foreign direct investment in August dipped by about 60 per cent to approx. US$ 34 billion, the lowest in 2010 fiscal, industry department data released showed. In the first two months of 2010-11 fiscal. FDI inflow into India was at an all-time high of $7.78 billion up 77%from $4.4 billion during the corresponding period in the previous year. In 2013, the government relaxed FDI norms in several sectors, including telecom, defence, PSU oil refineries, power exchanges and stock exchanges, among others. In retail, UK-based Tesco submitted its application to initially invest US$ 110 million to start a supermarket chain in collaboration with Tata Group’s Trent. In civil aviation, Malaysia-based Air Asia and Singapore Airlines teamed up with Tata Group to launch two new airline services. Also, Abu Dhabi-based Eti had picked up a 24 per cent stake in Jet Airways that was worth over Rs 2, 000 crore (US$


319.39 million). India has received total foreign investment of US$ 306.88 billion since 2000 with 94 per cent of the amount coming during the last nine years. In the period 1999–2004, India received US$ 19.52 billion of foreign investment. In the period 2004–09, foreign investment in the country touched US$ 114.55 billion, further increasing to US$ 172.82 billion between 2009–September, 2013. During FY 2012–13, India attracted FDI worth US$ 22.42 billion. Tourism, pharmaceuticals, services, chemicals and construction were among the biggest beneficiaries. The January–November period in 2013 witnessed mergers and acquisitions deals worth US $ 26.76 billion in India, according to a survey by tax advisory firm Grant Thornton.

The Ministry of Home Affairs has finally given the approval to the proposal of allowing FDI in railways. The Cabinet Committee on Economic Affairs (CCEA) is expected to consider the proposal. Foreign investors can invest only in construction and maintenance of railway projects, and not in operations. India’s Prime Minister Mr Manmohan Singh has sought increased Japanese investment in the country. The two countries are already looking at the possibility of concrete cooperation in areas such as manufacturing and research and development in the electronic industry and energy efficient and energy saving technologies. “I believe there is enormous untapped potential in our business ties,” Mr Singh said following the annual summit level meeting between Japan and India. The presence of Japanese companies in India increased by 16 per cent in 2013. In an effort to improve capital flows into the country, the Indian government has allowed 100 per cent FDI under automatic route in storage and warehousing, which includes warehousing of agriculture products with refrigeration. The government has also set up National Centre for Cold Chain Development (NCCD) which will look at standards and protocols for cold chain infrastructure. Based on the recommendations of Foreign Investment Promotion Board (FIPB) made on December 30, 2013, the Indian government has agreed to five FDI proposals

amounting to Rs 1133.41 crore (US$ 180.16 million) approximately. On November 13, 2013, it had approved 12 proposals of FDI amounting to Rs 821.63 crore (US$ 130.73 million) approximately. The FIPB has also approved Swedish clothing major Hennes & Mauritz (H&M) AB’s proposal to open 50 stores across India. The investment will be around Rs 720 crore (US$ 114.61 million).

The social impact of larger FDI brings about a more broadminded outlook in the Indian society, leaving alone a few who would be a bit conservative. However, the condition of the Indian urban sector has improved drastically thereafter, which we still await the developments from other areas of the Indian economy. India also enhances its educational system. Since 2003, the Indian government has been allowing 100% FDIs in education, which means that foreign schools, colleges, and universities can set up wholly owned subsidiaries in India. Students passing out of these institutes will be awarded foreign degrees and certificates. The social impact of larger FDI in education is such that the number of foreign students pursuing higher education in India has increased by a large margin. Also, the ‘brain-drain’ issue has also been checked to a significant extent since the number of students going out of India has also reduced.

Current challenges and recommendationsIndia is one of the most favourite for FDI, but there are certainly some challenges and areas for improvement still present. India is focusing on maximizing political and social stability along with a regulatory environment. In spite of the obvious advantages of FDIs, there are quite a few challenges facing FDIs in India, are 1. Challenge of Resource: India is known to

have huge amounts of resources. There is manpower and significant availability of fixed and working capital. At the same time, there are some underexploited or unexploited resources. The Foreign Direct Investment: Impact on Indian Economy 23 resources are well available in the rural as well as the urban areas. The focus is to increase infrastructure 10 years down


the line, for which the requirement will be an amount of about US$ 150 billion. This is the first step to overcome challenges facing larger FDI.

2. Challenge for Equity: India is definitely developing in a much faster pace now than before but in spite of that it can be identified that developments have taken place unevenly. This means that while the more urban areas have been tapped, the poorer sections are inadequately exploited. To get the complete picture of growth, it is essential to make sure that the rural section has more or less the same amount of development as the urbanized ones. Thus, fostering social equality and at the same time, a balanced economic growth.

3. Political Challenges: The support of the political structure has to be there towards the investing countries abroad. This can be worked out when foreign investors put forward their persuasion for increasing FDI capital in various sectors like banking, and insurance. So, there has to be a common ground between the Parliament and the foreign countries investing in India. This would increase the reforms in the FDI area of the country.

4. Federal Challenge: Very important among the major challenges facing larger FDI, is the need to speed up the implementation of policies, rules, and regulations. The vital part is to keep the implementation of policies in all the states of India at par. Thus, asking for equal speed in policy implementation among the states in India is important.

5. Economical challenges: India must also focus on areas of poverty reduction, trade liberalization, and banking and insurance liberalization. Challenges facing larger FDI are not just restricted to the ones mentioned above, because trade relations with foreign investors will always bring in new challenges in investments.

ConclusionIndia’s Foreign Direct Investment (FDI) policy has been gradually liberalised to make the market more investor friendly. The results

have been encouraging. These days, the country is consistently ranked among the top three global investment destinations by all international bodies, including the World Bank, according to a United Nations (UN) report. For Indian economy which has tremendous potential, FDI has had a positive impact. FDI inflow supplements domestic capital, as well as technology and skills of existing companies. It also helps to establish new companies. All of these contribute to economic growth of the Indian Economy. India is estimated to require around US$ 1 trillion during the 12th Five-Year Plan period (2012–17), to fund infrastructure in sectors such as roads, airports and ports. The government is in the process of liberalising FDI norms in construction activities and railways, which could bring in investments to meet the target. The government is also relaxing FDI norms in other sectors for foreign investors to invest. FDI in multi-brand retail has been allowed up to 51 per cent. The minimum requirement for the FDI is US$ 100 million, of which at least 50 per cent must be invested in ‘backend infrastructure’ within three years following the initiation of the FDI. FDI limit in single-brand retail has been increased to 100 per cent; 49 per cent will be under the automatic route and the rest through the FIPB route.. India is definitely developing in a much faster pace now than before but in spite of that, it can be identified that developments have taken place unevenly. This means that while the more urban areas have been tapped, the poorer sections are inadequately reached out to. To get the complete picture of growth, it is essential to make sure that the rural section has equal amount of development as the urbanized ones. FDI helps to focus in this area thus, fostering social equality and at the same time a balanced economic growth.

References1. Balasubramanyam V.N, Sapsford David,

Does India need a lot more FDI, Economic and Political Weekly, 2007

2. Horizon, Indian Economic Review, Vol. XXXXII. No.2

3. Basu P., Nayak N.C, Archana, Foreign Direct Investment in India:Emerging, 2007

4. www.google.co.in5. www.wikipedia.org

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Bottleneks in Ariving Foreign Direct Investment in India and Suggestions to Overcome them

Abstract

Foreign Direct Investment (FDI) in India we can say, is the offspring of Globalization and Liberalisation in the backdrop of the 1991 reforms. India has gradually marked its presence as one of the fastest growing economies of the world. It has been ranked among the top ten attractive destinations for inbound investments. Since 1991, the regulatory environment in terms of foreign investment has been consistently eased to make it investor-friendly. The measures taken by the Government of India (GOI) are directed to open new sectors for Foreign Direct Investment (FDI), increase the sectoral limit of existing sectors and simplifying other conditions of the FDI policy. This paper serves to highlight the present scenario of FDI in India in the contexts of Socio-Economic Development of India; its impact across various sectors it caters to; the roadblocks it has encountered and strives to overcome with suggestions for the same and the manifold opportunities it brings. It also strives to denote the future prospects of FDI. FDI policy reforms are meant to provide ease of doing business and accelerate the pace of foreign investment in the country. India will have to alleviate the challenges which FDI faces to fully imbibe its benefits in the long run.

Keywords : economic growth, investor friendly, socio economic development, dynamic growth

CS. Mala Kumari UpadhyayCompany Secretary and Assistant Professor

St. Xavier’s College and St .Xavier’s College of Management and Technology

Digha, Patna

Introduction

The evolution of corporate law in India can be traced back to the colonial era with several previous companies’ legislation being modelled on parallel English legislation. The influence of colonial laws continued even after decolonization in 1947 when the most significant piece of corporate legislation, the Companies Act, 1956, was modelled on the English Companies Act of 1948. That is the reason why the Indian Companies is called as the replica of the English Corporate Law. Although the Companies Act, 1956 was the result of a classic legal transplant, its evolution thereafter took on a different trajectory. Constant amendments to the Act were necessitated due to legislative requirements that arose due to local conditions and problems that were unique to the Indian corporate setting. Moreover, Indian courts too refused to accept English judgments without adjusting and adapting the legal principles to suit the conditions of Indian society. The

divergence between Indian corporate law and its English counterpart became clearer with India’s economic liberalization in 1991.With the Liberalisation of the Indian Economy leading to the Globalisation, Indian market opened for the whole world, the challenge with the then Congress Government was to convince the foreign investors to invest into the country . Foreign direct investment (FDI)we can say is an investment that is made by a company or individual of one country in business interests in another country. It can be in the form of either establishing business operations or acquiring business assets in the other country, such as ownership or controlling interest in a foreign company. Foreign direct investments are distinguished from portfolio investments in which an investor merely purchases equities of foreign-based companies. Foreign direct investment can be characterised as an investment that is made to establishes either effective control of, or at least substantial influence over, the decision making of a foreign business.



The paper will be based on in-depth analysis of data and statistics, collected both from the primary and the secondary sources but main will secondary source

Secondary sources : Secondary sources will include information collected from

1. Journal/Article published

2. Reference Books related to corporate law

3. Publications by the government.

4. Various websites.

The present paper has been written primarily on the basis of readings from the secondary sources

This research is exploratory in nature. It will give a direction to the future researcher for conducting the further research related to the same issue.


The historical background of FDI in India can be traced back with the establishment of East India Company of Britain. British capital came to India during the colonial eraof Britain in India. After Second World War, Japanese companies entered Indianmarket and enhanced their trade with India, yet U.K. remained the most dominant investor in India. Further, after Independence issues relating to foreign capital,operations of MNCs, gained attention of the policy makers. Keeping in mind the national interests the policy makers designed the FDI policy which aims FDI as a medium for acquiring advanced technology and to mobilize foreign exchange resources. With time and as per economic and political regimes there have been changes in the FDI policy too. The industrial policy of 1965, allowed MNCs to venture through technical collaboration in India. Therefore, the government adopted a liberal attitude by allowing more frequent equity. More and more developing countries are competing with each other to attract this investment. Restrictions which were earlier

in place on these investments are now being removed as the importance of FDI is being realized. Thus when we talk about evolution of Foreign Direct Investment, we can say that the first that was between 1948 and 1969 was characterized by a cautious welcome to foreign investment. During this phase foreign firms were encouraged to invest in protected industries. The second phase which moves between between 1969 and 1991 was marked by coming into force of Monopolies and Restrictive Trade Practices Commission (MRTP). Foreign Exchange Regulation Act was enacted in 1973 which limited the extent of foreign equity to 40%, though this limit could be raised to 74% for technology intensive, export intensive and core sector industries. The third and most revolutionary phase between 1991 and 2000 witnessed liberalization of FDI policy. Foreign Investment Promotion Board (FIPB) was constituted to consider cases under government route. The fourth and last phase from 2000 till date was the reflection of increasing globalization of Indian economy. All the activities except for negative list were placed under the automatic route. The year 2010 saw the continuation of rationalization process. All the existing regulations on FDI were consolidated into a single document for ease of reference.

Governments introduction of a string of policy measures to address the prevailing economic situation, by way of economic liberalization, Intended to boost business activity and foreign investment in India. These measures included the reduction of industrial licensing only to a small range of industries, permitting companies to freely issue capital without any restrictions, and gradually opening up various sectors for foreign investment. This new economic outlook naturally triggered a slew of changes to corporate law in India, which operated on different fronts, including (i) amendments to the Companies Act, 1956, (ii) introduction of securities legislation to promote the stock markets, and (iii) adoption of specific measures to Enhance corporate


governance. During the liberalization period, the key changes were the flexibility introduced to companies to raise as well as to restructure capital. This was intended to enable Indian companies to attract investments, particularly from foreign investors. As a result of these reforms India open its door to FDI inflows and adopted a more liberal foreign policy in order to restore the confidence of foreign investors. Further, under the new foreign investment policy Government of India constituted FIPB (Foreign Investment Promotion Board) whose main function was to invite and facilitate foreign investment For example, Indian companies were allowed to issue shares with differential rights as to dividend and voting. Similarly, concepts such as employee stock option and sweat equity that were by then common in the U.S. now received statutory recognition in India. A capital maintenance regime that had previously been extremely stringent was relaxed to permit companies to buy back their own securities.

FDI plays a major role in any developing countries including India. They act as a long term source of capital as well as a source of advanced and developed technologies. The investors also bring along best global practices of management. As large amount of capital comes in through these investments more

and more industries are set up. This helps in increasing employment. FDI also helps in promoting international trade. This investment is a non-debt, non-volatile investment and returns received on these are generally spent on the host country itself thus helping in the development of the country.

Some of the sectors that attract high FDI inflows in India are the hotel and tourism industry, insurance sector, telecommunication, real estate, retail, power, drugs, financial services, infrastructure and pollution control etc.

Negative List Or Restrictions On Foreign Direct Investment:

FDI is not permitted in the following sectors:

1. Railways

2. Atomic energy

3. Defence

4. Coal and lignite

FDI has a major role to play in India’s economic development. The total FDI inflow in our country was US$27 billion in 2010-11. Over the past few years, many sectors have seen the growth of foreign investment. The Government is also coming out with new reforms to promote more and more of this investment.

Data Analysis

Table No. 1 : Total FDI Inflows (From April, 2000 to March, 2013)

Sl No.

Item Amount of FDI

Amount Of FDI

(in ` Crore) (in $ million)

1. Cumulative Amount of FDI Inflows (Equity inflows + Re-invested earnings + Other capital)

------ 290,078

2. Cumulative Amount of FDI Equity Inflows (Excluding, amount remitted through RBI’s-NRI Schemes)

896,380 193,282

Source: FDI Statistics, Department of Industrial Policy& Promotion, Ministry of Commerce & Industry, Government of India. 2013.


Table No. 2 : FDI Inflows during Financial Year 2012-13 (From April, 2012 to March, 2013)

Sl No.

Item Amount of FDI

Amount Of FDI

1. Total FDI Inflows Into India (Equity inflows + Re-invested earnings + ‘\Other capital) 36,860

2. FDI Equity Inflows 121,907 22,423

Source: RBI’s Monthly bulletin dated: 13.05.2013.

Table 3 : Sector-Wise FDI Equity Inflows From April, 2000 to March, 2013

Sl. No.

Sector Amount of FDI Inflow

Amount of FDI Inflow

% with total FDI Inflow (+)

1 Services Sector 172,275.31 37,234.60 19.26 2 Construction Development 101,049.13 22,080.20 11.42 3 Telecommunications 58,732.23 12,856.06 6.65 4 Computer Software & Hardware 52,774.07 11,691.10 6.05 5 Drugs & Pharmaceuticals 48,879.53 10,318.17 5.34 6 Chemicals (Other Than Fertilizers) 40,495.55 8,880.83 4.59 7 Automobile Industry 39,169.94 8,294.85 4.29 8 Power 36,136.88 7,834.22 4.05 9 Metallurgical Industries 34,814.13 7,507.07 3.88 10 Hotel & Tourism 33,260.03 6,631.25 3.43 11 Petroleum & Natural Gas 24,808.41 5,381.48 2.78 12 Trading 18,646.51 3,955.80 2.05 13 Information & Broadcasting (Including Print Media) 15,495.69 3,284.21 1.70 14 Electrical Equipment 14,668.58 3,182.70 1.65 15 Cement and Gypsum Products 11,779.04 2,626.43 1..36 16 Non-Conventional Energy 12,901.12 2,591.22 1.34 17 Miscellaneous Mechanical & Engineering

Industries 10,522.52 2,318.71 1.20

18 Industrial Machinery 11,017.51 2,302.14 1.19 19 Consultancy Services 9,692.72 2,095.13 1.08 20 Construction (Infrastructure) Activities 9,741.06 1.08 1.08 21 Food Processing Industries 8,681.38 1,811.06 0.94 22 Ports 6,717.38 1,635.08 0.85 23 Agriculture Services 7,797.73 1,608.69 0.83 24 Hospital & Diagnostic Centres 7,437.93 1,597.33 0.83 25 Textiles (Including Dyed,Printed) 5,689.76 1,226.02 0.63 26 Electronics 5,466.74 1,198.22 0.62


Sl. No.




27 Sea Transport 5,492.51 1,194.50 0.62 28 Fermentation Industries 5,095.29 1,134.63 0.59 29 Rubber Goods 5,824.46 1,134.44 0.59 30 Mining 4,368.18 998.30 0.52 31 Paper And Pulp (Including Paper Products) 4,056.14 865.54 0.45 32 Prime Mover (Other Than Electrical Generators) 4,131.80 848.68 0.44 33 Education 3,332.97 684.35 0.35 34 Soaps, Cosmetics & Toilet Preparations 3,115.54 632.39 0.33 35 Machine Tools 2,967.09 622.99 0.32 36 Medical And Surgical Appliances 2,913.92 604.47 0.31 37 Ceramics 2,195.59 508.13 0.26 38 Air Transport (Including Air Freight) 2,022.00 449.26 0. 23 39 Diamond &,Gold Ornaments 1,810.74 390.76 0.20 40 Glass 1,942.21 389.07 0.20 41 Vegetable Oils And Vanaspati 1,893.72 384.94 0.20 42 Fertilizers 1,425.53 297.90 0.15 43 Agricultural Machinery 1,423.25 296.42 0.15 44 Printing of Books (Including Litho Printing

Industry) 1,257.51 272.32 0 40.14

45 Railway Related Components 1,246.35 270.33 0.14 46 Commercial, Office & Household Equipment 1,181.76 254.83 0.13 47 Earth-Moving Machinery 769.05 174.95 0.09 48 Leather,Leather Goods And Pickers 527.88 107.43 0.06 49 Tea And Coffee & Rubber (Processing &

Warehousing) 456.01 101.21 0.05

50 Retail Trading (Single Brand) 459.55 9 95.36 0.05 51 Scientific Instruments 496.11 94.48 0.05 52 Timber Products 398.52 79.15 0.04 398.52 79.15 0.04 53 Photographic Raw Film And Paper 269.26 66.54 0.03 54 Industrial Instruments 307.45 66.53 0.03 55 Boilers And Steam Generating Plants 305.75 61.83 0.03 56 Sugar 242.32 51.82 0.03 57 Coal Production 103.11 24.78 0.01 58 Dye-Stuffs 87.32 19.50 0.01 59 Glue And Gelatin 70.56 14.55 0.01 60 Mathematical, Surveying And Drawing

Instruments 39.80 7.98 0.00


Sl. No.




61 Defence Industries 19.89 4.12 0.00 62 Coir 10.37 0.00 60.00 63 Miscellaneous Industries 35,469. 7,843.68 4.10 Sub -Total 896,379.67 193,283.31 100 64 RBI’S- NRI Schemes (2000-2002) 533.06 121.33 - Grand Total 896,912.73 193,404.64 -

Source: FDI Statistics, Department of Industrial Policy& Promotion, Ministry of Commerce& Industry, Government of India. 2013

Eligible investors

1. A non-resident entity can invest in India, subject to the FDI Policy except in those sectors/activities which are prohibited. However, a citizen of Bangladesh or an entity incorporated in Bangladesh can invest only under the Government route. Further, a citizen of Pakistan or an entity incorporated in Pakistan can invest, only under the Government route, in sectors/activities other than defence, space and atomic energy and sectors/activities prohibited for foreign investment.

2. NRIs resident in Nepal and Bhutan as well as citizens of Nepal and Bhutan are permitted to invest in the capital of Indian companies on repatriation basis, subject to the condition that the amount of consideration for such investment shall be paid only by way of inward remittance in free foreign exchange through normal banking channels.

3. OCBs have been derecognized as a class of investors in India with effect from September 16, 2003. Erstwhile OCBs which are incorporated outside India and are not under the adverse notice of RBI can make fresh investments under FDI Policy as incorporated non-resident entities, with the prior approval of Government of India if the investment is through Government route; and with the prior approval of RBI if the investment is through Automatic route.

4. Only registered FIIs/FPIs and NRIs as

per Schedules 2,2A and 3 respectively of Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000, can invest/trade through a registered broker in the capital of Indian Companies on recognised Indian Stock Exchanges.

5. A SEBI registered Foreign Venture Capital Investor (FVCI) may contribute up to 100% of the capital of an Indian company engaged in any activity mentioned in Schedule 6 of Notification No. FEMA 20/2000, including startups irrespective of the sector in which it is engaged, under the automatic routeRanking Of Sector Wise FDI Inflows in India since April 2000- Dec 2011:

Rank of Sector–wise FDI Inflows

Industrial sectors RankService sector 1Computer hardware & software 2Telecommunication 3Housing and real state 4Construction 5Power 6Automobile industry 7Metallurgical industry 8Petroleum and natural gas 9Chemicals 10

Sources: Fact Sheets on FDI, DIPP


Analysis and FindingsGovernment of India has decided to allow 26% FDI and 23% FII investment in commodity exchange, subject to the provision that no single entity will hold more than 5% stake.

Although India`s share in global FDI has increased considerably, but the pace of FDI inflows has been slower than China, Singapore, Brazil and Russia

� Due to continued economic liberalization since 1991, India has seen a decade of 7 plus percent of economic growth. In fact, India`s economy has been growing more than 9 percent for three consecutive years since 2007 which make country make a proficient performer among global economies

� At present India is the 4th largest and 2nd fastest growing economy in the world. It is the 11th largest economy in terms of industrial output and has the 3rd largest pool of scientific and technical manpower.

� There has been a generous flow of FDI in India since 1991 and its overall direction also reminded the same over the years irrespective of the ruling party.

� India has considerably decreased its fiscal deficit form 4.3% in 2002-03 to 2.7% in 2007-08 and 1.15 in year 2009-11.

� FDI plays a crucial role in enhancing the economic growth and development of the country. Moreover, FDI as a strategic component of investment is needed by India for achieving the objectives of its second generation of economic reforms and maintaining sustainable economic growth.

� 49% FDI under automatic route permitted in Insurance and Pension sectors

� Foreign investment up to 49% in defence sector permitted under automatic route. The foreign investment in access of 49% has been allowed on case to case basis with Government approval in cases resulting in access to modern technology in the country or for other reasons to be recorded

� FDI limit of 100% (49% under automatic route, beyond 49% government route) for defence sector made applicable to Manufacturing of Small Arms and Ammunitions covered under Arms Act 1959

� FDI up to 100% under automatic route permitted in Teleports, Direct to Home, Cable Networks, Mobile TV, Headend-in- the Sky Broadcasting Service

� FDI up to 100% under automatic route permitted in Up-linking of Non-‘News & Current Affairs’ TV Channels, Down-linking of TV Channels

� In case of single brand retail trading of ‘state-of-art’ and ‘cutting-edge technology’ products, sourcing norms can be relaxed up to three years and sourcing regime can be relaxed for another 5 years subject to Government approval

� Foreign equity cap of activities of Non-Scheduled Air Transport Service, Ground Handling Services increased from 74% to 100% under the automatic route

� 100% FDI under automatic route permitted in Brownfield Airport projects

� FDI limit for Scheduled Air Transport Service/ Domestic Scheduled Passenger Airline and regional Air Transport Service raised to 100%, with FDI upto 49% permitted under automatic route and FDI beyond 49% through Government approval

� Foreign airlines would continue to be allowed to invest in capital of Indian companies operating scheduled and non scheduled airtransport services up to the limit of 49% of their paid up capital

� In order to provide clarity to the e-commerce sector, the Government has issued guidelines for foreign investment in the sector. 100% FDI under automatic route permitted in the marketplace model of e-commerce


� 100% FDI under Government route for retail trading, including through e-commerce, has been permitted in respect of food products manufactured and/or produced in India

� 100% FDI allowed in Asset Reconstruction Companies under the automatic route

� 74% FDI under automatic route permitted in brownfield pharmaceuticals. FDI beyond 74% will be allowed through government approval route

� FDI limit for Private Security Agencies raised to 74% (49% under automatic route, beyond 49% and upto 74% under government route)

� For establishment of branch office, liaison office or project office or any other place of business in India if the principal business of the applicant is Defence, Telecom, Private Security or Information and Broadcasting, approval of Reserve Bank of India would not be required in cases where FIPB approval or license/permission by the concerned Ministry/Regulator has already been granted

� Requirement of ‘controlled conditions’ for FDI in Animal Husbandry (including breeding of dogs), Pisciculture, Aquaculture and Apiculture has been waived off

Conclusion

This may be due to the low flow of FDI into India both at the macro level as well as at the sartorial level. It implies that the spirit in which the economy has been liberalized and exposed to the world economy at the late eighties and early nineties has not been achieved after so many years. This calls for a judicious policy decision towards FDI at the sartorial level. A large number of changes that were introduced in the country`s 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.

It might be interest to note that more than 50 per cent of the total FDI inflows received in India come from Mauritius, Singapore and the USA.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. Among the different sectors, the service sector had received the larger proportion followed by computer software and hardware sector and then telecommunication sector.

References

1. Kumar Gajendran Lenin, Karthika S, Sectoral performance through inflows of foreign direct investment (FDI), 2010

2. Agarwal J, Khan MA, Impact of FDI on GDP: A comparative study of China and India, Int. J. Business Management 6(10):71-79, 2011

3. Singh S, Foreign direct investment (fdi) and growth of states of india. VISION 2020 - Managerial Strategies and Challenge, Wisdom Publications, Delhi, 2009

4. Sharma RK, FDI in Higher Education: Official Vision Needs Corrections, Economic and Political Weekly, 2006, p 5036

5. Devajit Mahanta, Impact of foreign direct investments on indian economy, Research J. Management Sciences, 1(2):29-31, 2012

6. Balasubramanyam VN, Sapsford David, Does India need a lot more FDI, Economic and Political Weekly, 2007, pp 1549-55

7. Chien Nguyen Dinh and Kezhong Zhang, FDI of vietnam; two-way linkages between FDI and GDP, competition among provinces and effects of laws, iBusiness, 2012, 4:157-163

8. Bajpai Nirupam, Jeffrey D Sachs, Foreign Direct Investment in India: Issues and Problems, Harvard Institute of International Development, Development Discussion Paper No. 759, 2006


9. Department of Industrial Policy and Promotion Ministry of Commerce and Industry Government of India Consolidated FDI Policy (Effective from June 07, 2016), D/o IPP F. No. 5(1)/2016-FC-1 Dated the June 07, 2016

10. Guha Romit, IMF: India Should Resolve ‘Bottlenecks’ By March 13, 2013 6:46 a.m. ET

11. International Journal of Advances in Management and Economics Available online at www.managementjournal.info

12. International Journal of Scientific and Research Publications, Volume 4, Issue 2, February 2014

13. Hameedu Dr. M. Shahul, Foreign Direct Investment, the Indian scenario, Iqbal College, Peringammala. Thiruvananthapuram, Kerala, India

14. FDI Statistics, Department of Industrial Policy & Promotion, Ministry of Commerce & Industry, Government of India, 2013

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16. Aitken B. G. H. Hansen and A. E. Harrison (1997) Spillovers, Foreign Investment and Export Behaviour. Journal of International Economics, 43, pp 103-32

17. Alam M. S., FDI and Economic Growth of India and Bangladesh: A comparative study”, Indian Journal of Economics, vol. Lxxx, part 1 no 316, 1-15, 2000

18. Annual Survey of Industries, CD Rom, Economic and Political Weekly Research Foundation, Mumbai, 2001

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25. Belem Iliana Vasquez Galan, The effect of Trade Liberalization & Foreign Direct Investment in Mexico, etheses.bham.ac.uk/89/1/vasquezgalan06phd.pdf., 2006

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Challenges and Future Prospects of FDI in Automobile Industry in India

Abstract

As india’s economy continues to grow at a rapid pace the automobile industry will be a key benificiary. India has the fastest growing economies and many companies view India as a potentially lucrative market. They see opportunities like stable economic policies, availability of skilled personnel and large internal market. It is expected that the automotive industry will play an important role in helping the economy to continue this growth. Presently The Indian automobile industry is one of the most vibrant industries in the world. This industry accounts for 22 per cent of the country’s manufacturing gross domestic product (GDP).Indian automobile industry is currently the seventh-largest in the world with an average annual production of 17.5 million vehicles..The industry has attracted Foreign Direct Investment (FDI) worth US$ 15.06 billion during the period April 2000 to March 2016, according to data released by Department of Industrial Policy and Promotion (DIPP).Although achieving new heights the industry faces many challenges like regulatory complexities (taxes, slow legal system, environment regulations)weak Infrastructure and even cultural complexities. The paper tries to give an overview of challenges and future prospects Of FDI in automobile industry in India.

Keywords : beneficiary, lucrative, vibrant

Gaurav SrivastavaResearch Scholar

University Department of Commerce and Business Management Ranchi University, Ranchi

Introduction

Foreign Direct Investment (FDI) is an investment made by a company or individual in one country in business interests in another country, in the form of either establishing business operations or acquiring business assets in the other country, such as ownership or controlling interest in a foreign company.FDI gives a win – win situation to the host and the home countries. In fact, both the countries are directly concerned in inviting more and more FDI, as they benefit a lot from these type of investments. The ‘home’ countries have the advantage of the vast markets opened by industrial growth. On the other side, the ‘host’ countries are having the advantage to acquire technological and managerial skills and aid domestic savings and foreign exchange. As a result, Foreign Direct Investment (FDI) is now been a vital driver of growth. Many Emerging Market Economies (EMEs) are looking upon FDI as one of the easiest means to satisfy and fulfil their financial, technical, employment generation and competitive efficiency

requirements. Gradually they also realized that substantial economic growth is inevitable without global integration of business process. This created opportunities for locational advantages and thus facilitated strategic alliances, joint ventures and collaborations over R & D.

In india 100% Foreign Direct investment (FDI) is allowed in the automobile sector under the automatic route in the auto sector, subject to all the applicable regulations and laws.Talking about The Automotive Industry in India, it is one of the largest in the world with an annual production of 23.96 million vehicles in FY 2015-16, following a growth of 2.57 per cent over the last year. The automobile industry accounts for 7.1 per cent of the country’s gross domestic product (GDP). The Two Wheelers segment, with 81 per cent market share, is the leader of the Indian Automobile market, owing to a growing middle class and a young population. Moreover, the growing interest of companies in exploring the rural markets further aided the


growth of the sector. The overall Passenger Vehicle (PV) segment has 13 per cent market share. India is also a prominent auto exporter and has strong export growth expectations for the near future. In FY 2014-15, automobile exports grew by 15 per cent over the last year. In addition, several initiatives by the Government of India and the major automobile players in the Indian market are expected to make India a leader in the Two Wheeler (2W) and Four Wheeler (4W) market in the world by 2020.

FDI in India : History

The historical background of FDI in India can be traced back with the establishment of East India Company of Britain. British capital came to India during the colonial era of Britain in India. However, researchers could not portray the complete history of FDI pouring in India due to lack of abundant and authentic data. Before independence, major amount of FDI came from the British companies. After Second World War, Japanese companies entered Indian market and enhanced their trade with India, yet U.K. remained the most dominant investor in India. Further, after Independence issues relating to foreign capital, operations of MNCs, gained attention of the policy makers. Keeping in mind the national interests the policy makers designed the FDI policy which aims FDI as a medium for acquiring advanced technology and to mobilize foreign exchange resources. The first Prime Minister of India considered foreign investment as “necessary” not only to supplement domestic capital but also to secure scientific, technical, and industrial knowledge and capital equipment. However, the country faced two severe crises in the form of foreign exchange and financial resource mobilization during the second five-year plan (1956 -61). Therefore, the government adopted a liberal attitude by allowing more frequent equity participation to foreign enterprises, and to accept equity capital in technical collaborations. With time and as per economic and political regimes there have been changes in the FDI policy too .The industrial policy of 1965, allowed MNCs to venture through technical collaboration in India. The

government also provided many incentives such as tax concessions, simplification of licensing procedures and de- reserving some industries such as drugs, aluminium, heavy electrical equipment, fertilizers, etc. in order to further boost the FDI inflows in the country. This liberal attitude of government towards foreign capital lures investors from other advanced countries like USA, Japan, and Germany, etc. But due to significant outflow of foreign reserves in the form of remittances of dividends, profits, royalties etc the government had to adopt stringent foreign policy in 1970s. During this period the government adopted a selective and highly restrictive foreign policy as far as foreign capital, type of FDI and ownerships of foreign companies was concerned. The world economy has observed a phenomenal change in volume and pattern of FDI flow from developed nations to EMEs in 1980s and 1990s compared to earlier decades. The hostile attitude of developing nations regarding multinationals investment has become generous during this transition period. FDI was fostered by liberalisation and market- based reforms in EMEs. The financial sector deregulation and reforms in the industrial policy further paved the way for global investments. Some of the most phenomenal developments during the last 20 years is the fabulous growth of FDI in the global economic arena. Starting from a baseline of less than USD 1 billion in 1990, a recent UNCTAD survey projected India as the second most important FDI destination (after China) for transnational corporations during 2010-2012


This study is of analytical nature and makes use of secondary data. The required& relevant secondary data are collected from various publications of Government of India, Publications from Ministry of Commerce, & from the websites of Dept. of Industrial Policy &Promotions (Govt. of India) & Society of Indian Automobile Manufacturers(SIAM)


The industry produced a total 23,960,940 vehicles including passenger vehicles,


commercial vehicles, three wheelers, two wheelers and quadric cycle in April-March 2016 as against 23,358,047 in April-March 2015, registering a marginal growth of 2.58 percent over the same period last year.

Domestic Sales : The sales of Passenger Vehicles grew by 7.24 percent in April-March 2016 over the same period last year. Within the Passenger Vehicles, Passenger Cars, Utility Vehicles and Vans grew by 7.87 percent, 6.25

percent and 3.58 percent respectively during April- March 2016 over the same period last year.

Exports : In April-March 2016, overall automobile exports grew by 1.91 percent. Passenger Vehicles, Commercial Vehicles, Three Wheelers and Two Wheelers registered a growth of 5.24 percent, 16.97 percent (-) 0.78 percent and 0.97 percent respectively in April- March 2016 over April-March 2015.

Automobile Production Trend

Category 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16

Passenger Vehicles 29,82,772 31,46,069 32,31,058 30,87,973 32,21,419 34,13,859

Commercial Vehicles 7,60,735 9,29,136 8,32,649 6,99,035 6,98,298 7,82,814

Three Wheelers 7,99,553 8,79,289 8,39,748 8,30,108 9,49,019 9,33,950

Two Wheelers 1,33,49,349 1,54,27,532 1,57,44,156 1,68,83,049 1,84,89,311 1,88,29,786

Grand Total 1,78,92,409 2,03,82,026 2,06,47,611 2,15,00,165 2,33,58,047 2,39,60,409

Source: Society of Indian automobile manufacturers (SIAM)

Challanges

There are many challenges in front of foreign investors and can be summarised as-

1. Volatility : Government policies are volatile in nature,Dollor to rupee exchange rate is subject to frequent fluctuation,stock market in india is also very sensitive.

2. Cultural Complexity : India is a country with diversity, there are different needs for different societies. No “one size fit for all”can be applied here.

3. Regulatory Complexity : In India,there are many taxes and the rates are high.Slow legal system breakes down the speed of development.environmental and emission regulations are very strict.

4. Weak Infrastrucure : It includes poor road network, lack of proper communication, transportation, electricity etc.

5. Local Competition : Several indigenous automaker companies are expanding their business and can give tiugh competition.

Future Prospects/Opportunities

By 2026, India is expected to be the third largest automotive market by volume in the world.

Tractor sales in the country are expected to grow at Compound Annual Growth Rate (CAGR) of 8-9% in the next five years, enhancing India’s market potential for international brands. Two-wheeler production has grown from 8.5 million units annually to 15.9 million units in the last seven years. Significant opportunities exist in rural markets.

The emergence of large automotive clusters in the country: Delhi-Gurgaon-Faridabad in the north, Mumbai-Pune-Nashik-Aurangabad in the west, Chennai- Bengaluru-Hosur in the south and Jamshedpur-Kolkata in the east.

Global car majors have been ramping up investments in India to cater to growing domestic demand. These manufacturers plan to leverage India’s competitive advantage to set up export-oriented production hubs.

An Research & Development (R&D) hub:


strong support from the government in the setting up of National Automotive Testing and R&D Infrastructure Project (NATRiP) centres. Private players such as Hyundai, Suzuki, GM are keen to set up an R&D base in India.

Electric cars are likely to be a sizeable market segment in the coming decade.

Auto Policy

� Automatic approval for foreign equity investment up to 100% with no minimum investment criteria.

� Manufacturing and imports in this sector are exempt from licensing and approvals.

� The encouragement of R&D by offering rebates on R&D expenditure. Automotive Mission Plan 2016-26:

Salient points of AMP-2026 are

� The Indian Automotive industry to be a top job creator – 65 million additional jobs The Indian Automotive industry to be one of the prime movers of Manufacturing sector and “Make in India” initiative

� The Indian Automotive industry aims to increase exports of vehicles by 5 times and components by 7.5 times

� Specific interventions are envisaged to sustain and improve manufacturing competitiveness and to address challenges of environment and safety

Conclusion

India is expected to become the third largest car market in the world by 2025 with 7.4 million vehicles (Goldman Sachs, 2015). FDI has played a crucial role in the growth of this sector in India till now. It will be interesting to see how it plays out in the coming years in light of the

factors and trends discussed in this paper. The indus try is continually innovating itself to the changing requirements and markets. The automobile are progressing to production of commercial vehicles as the next stage for various reasons. It will be interesting to see whether and to what extent India plays the role of a hub in the passengervehicle segment.As part of efforts to reduce emission output, auto makers are working to make their internal combustion engines more efficient and also use lighter and stronger materials such as aluminum and high tensile steel. More R&D will be needed in future to achieve this. The Govern ment and the industry must ensure that FDI transfers result in win-win situations in terms of as many parameters and all stakeholders concerned.

References

1. Aiyar S., The unintended consequences of FDI, 2003, The Times of India. 28th June 2010.

2. Report of the Committee on Compilation of FDI in India

3. Reserve Bank of India, 2015

4. Athreye S. and Kaput K, Private Foreign Investment in India: Pain or Panacea?. The World Economy. Vol. 34. No. 3., 2001

5. Hand Book of Statistics of Indian Economy- Various Issues.

6. Reserve Bank of India. Reserve Bank of India Bulletin- Various Issues. Reserve Bank of India.

7. Mukerjee Aravindan, The automotive Industry. Indian Institute of Management., 1996,

8. Website: www.rbi.org.in

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FDI and its Impact on Jharkhand’s Socio-Economic Development

Abstract

Jharkhand the eastern state of the country is exceedingly becoming an attractive region from economic point of view, given its major deposits of coal, bauxite, iron, mica and other minerals, which offers considerable advantages for investment and trade. Proving itself as a major emerging investment destination, Jharkhand has been ranked as the 10th highest reciver of Foreign Direct Investment (FDI) proposals in the year 2015, in a ranking of top FDI earning states in India and China. But, the economic development is not enough to improve social development. Social indicators such as poverty, unemployment, income distribution, health and education are the key element which shows the quality of life in the society. This paper aims to trace out the impact of FDI on economic as well as the social development i.e. socio-economic development of the state. The study is descriptive in nature and analyse the contribution of FDI in employment generation, capital investment, rural development and tribal upliftment, foreign exchange earnings, etc. the paper also highlights the sustainability of FDI in Jharkhand and the policies given by the state and central government to promote FDI such as “Make-in-India”, set up of NRI cells, etc. which provide platform and facilitate investors in setting up of industries in Jharkhand.

Keywords : employment generation, capital investment, social upliftment

Nirmala KhessResearch Scholar


Dr Sanjeev Chaturvedi Department of Commerce Doranda College, Ranchi

Introduction

Foreign direct investment is an investment made by a company or individual in one country in business interests in another country, in the form of either establishing business operations or acquiring business assets in the other country, such as ownership or controlling interest in a foreign company. FDI are distinguished from the portfolio investments in which an investor merely purchases equities of foreign based companies. The key feature of foreign direct investment is that it is an investment made that establishes either effective control of, or at least substantial influence over, the decision making of a foreign business. According to the Financial Times, “Standard definitions of control use the internationally agreed 10 percent threshold of voting shares, but this is grey area as often a smaller block of share will give control in widely held companies. Moreover, control of technology, management, even crucial inputs

can confer de facto control.”

Foreign direct investment can be made in a variety of ways, including:

� The opening of a subsidiary or associate company in a foreign country.

� Acquiring a controlling interest in an existing foreign company.

� By means of merger or joint venture with a foreign company.

Foreign direct investments are commonly categorized as being horizontal, vertical or conglomerate in nature. A horizontal direct investment refers to the investor establishing the same type of business operation in a foreign country as it operates in its home country. A vertical investment is one in which different but related business activities from the investor’s main business are established or acquired in a foreign company that supplies parts or raw materials required for the manufacturing


company to make its products. A conglomerate type of foreign direct investment is one where a company or individual makes a foreign investment in a business that is unrelated to its existing business in its home country. Since this type of investment involves entering an industry the investor has no previous experience in, it often takes the form of a joint venture with a foreign company already operating in the industry.


The paper is descriptive is nature, so all the necessary data required are collected from secondary sources. The following are the secondary sources from the datas are collected from News paper.


The economic crises in 1991, give birth to LPG (i.e. liberalisation, privatisation, and globalisation) and after that FDI has a steady growth in India. It were Manmohan singh and P.V.Narshimha Rao who brought FDI in India, which subsequently generated more than one crore jobs. It has been ranked among the top 10 attractive destinations for inbound investments. Since 1991, the regulatory environment in terms of foreign investments

has been consistently eased to make it investor-friendly. The measures taken by the government are directed to open new sectors for foreign direct investment, increase the sectoral limit of existing sectors and simplifying other conditions of the FDI policy. FDI policy reforms are meant to provide ease of doing business and accelerate the pace of foreign investment in the country. In 2015 India overtook China and the US as the top destination for the Foreign Direct Investment. In the first half of the 2015, India attracted investment of $31 billion compared to $28 billion and $27 billion of China and the US respectively. The initiative taken by the government to boost the FDI in India is The Make in India program launched in September 2014 as part of a wider set of nation-building initiatives. It was a powerful, galvanising call to action to India’s citizens and business leaders, and an invitation to potential partners and investors around the world. Under Make in India the FDI policy for 25 sectors was liberalised and government increased foreign investment upper limit from 26% to 49% in insurance sector, resultant there is an increase in inflow of FDI by 48%. The following table shows the different sectors and the policy measures by the government of India :

1.1. Table: Different sectors and their policy measures by government

S. No.

Sectors Policy Measures By Government

1. Infrastructure Indian government has plans to invest $1 trillion on infrastructure from 2012-2017. 40% of this $1 trillion is to be funded by private sector. 100% FDI under automatic route is permitted in construction sector .

2. Automotive FDI in automotive sector was increased by 89% between April 2014 to February 2015 . 100% FDI is permitted in this sector via automatic route.

3. Pharmaceuticals Indian pharma market is 3rd largest in terms of volume and 13th largest in terms of value. Indian pharma industry is expected to grow at 20% compound annual grwth rate from 2015 to 2020 . 100% FDI is permitted in this sector.

4. Service FDI in service sector was increased by 46% in 2014-15. Service sector includes banking, insurance, outsourcing, R&D, courier and technology testing. FDI limit in insurance sector was raised from 26% to 49%.

5. Railways 100% FDI is allowed under automatic route in most of areas of railways, other than the operations, like high speed train, railway electrification, passenger terminal, mass rapid transport system etc.


S. No.

Sectors Policy Measures By Government

6. Airlines Foreign investment in a scheduled or regional air transport service or domestic scheduled passenger airline is permitted to 100,with FDI up to 49% permitted under automatic route and beyond 49% through government approval. For airport modernization, 100% FDI will be allowed for existing airport under automatic route.

Source: self generated table from available sources

There are certain types of investors which are as follows:

1. Individual: � Foreign Venture Capital Investors

(FVCI) � Pension/Provident Fund � Financial Institution

2. Company: � Foreign Trust � Sovereign Wealth Funds � Non Resident Indians (NRIs)/Person

of Indian Origin (POIs)3. Foreign Institutional Investors (FIIs):

� Private Equity Funds � Partnership/Proprietorship Firm � Others.

Foreign Direct Investment (FDI) In Jharkhand

Foreign Direct Investment (FDI) is one of the key indicators for determining the attractiveness of a destination. This is also an important way of transmitting skills, knowledge and technology to the State and an important driver of industrial performance. Proving itself as amajor emerging investment destination, Jharkhand has been ranked as the 10th highest reciver of Foriegn Direct Investment proposals in the year 2015, in a ranking of top FDI earning states in India and China.

With dedicated efforts and steps taken by Cheif Minister Raghubar das led state government to improve business environment, give impetus to industry and make the state more enterprenuer friendly, Jharkhand has been rising up the ranks of favoured business destinations in recent years. The state, which was the 5th highest FDI attracter in India last

year, has been featured in the joint Indo-China list with 5 Chinese states and 4 other Indian states. The release of recent data by the FDI market shows that in the year 2015 Jharkhand rrecived investment proposals worth USD 3.20 billion. The FDI proposals for Jharkhand were mainly directed at Mining and Power sectors.

Earlier, World Bank data ranked Jharkhand as 3rd in the country on ease of doing business. Recently, industries from Russia and Ukraine have envinced interest in inviesting in the coal sector of Jharkhand. The government in Jharkhand is hoping to recive more investment as it has taken number of steps to improve the business friendliness of its market including Single window clearance, incentives for enterprenuers and reform in labour laws. Jharkhand has also actively taken part in the “Make in India” campaign and has launched efforts to boost the manufacturing sector of the state. The state government is also considering an investment proposal by Belarusian company Belaz, to invest in Jamshedpur. Following is bar graph of top 5 states of india dealing with FDI:

Bar graph of leading states for the destination of FDI

Ease of doing of business, Top 5

71.14

Gujarat AndhraPradesh

Jharkhand Chhatisgarh MadhyaPradesh

70.1263.09 62.45 62


Impact of foriegn direct investment (FDI) in socio-economic development of Jharkhand

Cultural and Political : FDI has the positive and negative impact to the local culture of the home country. With the arrival of FDI in Jharkhand, the rapid urbanisation may see as a threat to the local culture, and it has the potential to cause cultural tension between the host and the home country. But, it can also promote or help in promoting the local culture to the whole world. For example: If there is an investment in tourism by foreign investors then it’s a positive and fair side of FDI, as its promoting the opportunities of certain state.

FDI can impact the political environment of the host country. Although underdeveloped countries do not receive the majority of FDI flows, in the absence of a stable political environment, which is more typical of an underdeveloped countries. Political unrest occurs in several ways. As Jharkhand with newly instituted political structures, some people may view foreign investment as an extension of imperialism. Local entrepreneurs might view foreign investors as seizing valuable resources that belong to indigenous people.

Technological : As the entry of FDI in Jharkhand, various foreign companies set and brings new technology to the state, which is beneficial for the growth and development of the state. With the traditional way of producing of product either in agro industry or in manufacturing industry, it’s not that worth in giving return or profit as compare to the new technologies, which came through the FDI channels. The government also initiating by launching certain programs like; ‘Digital India’ where every village and cities are connected with the internet, as FDI is entering through online shopping businesses, so its beneficial for the development of the villages and interior areas.

Employment Opportunities : FDI generates lots of employment opportunities by setting up of industries, which is beneficial for the local people. As there is a flexibility of the labour market, which would determine the

employment opportunities. The extents to which the lower income groups can take advantage of the growth policies determine the growth poverty relationship. With the upcoming of MNCs in Jharkhand the migration of local people to the different states for job is lowered down, which is a positive sign for the state.

Regional Development : FDI inflows help in the regional development or the development of that area where it is set up. As the industries were set up the infrastructure is also get developed like; transportation facilities (roadways, railways, airways), which is not only beneficial for the foreign investors but for the local investors. In Jharkhand mostly agro products are produce, with the development of transportation and infrastructure, it become easier for the export ad import of those products. Some people think that foreign investors might do not compensate for the use of local resources.

Increment in standard of living : FDI inflows can generate employment opportunity which is one of the reason for raising the standard of living. With that as the entry of FDI the import and export of products become easier, so that the general public can easily consume the foreign product, through which also, there is a change in standard, as costlier things are easily available in cheap prices.

Boost the local Entrepreneur : The economic crises of 1991, give rise to LPG policy, which opens the gate for the local businessmen or entrepreneurs for the international trade integration. As FDI will make easier or compatible for the entrepreneur to trade with foreign companies without spending extra on export.

Financial volatility : When financial markets are imperfect and underdeveloped, the result is a scarcity of financial resources that prevents MNCs and domestic corporations from undertaking profitable business opportunities. High investment returns obtained through FDI are based more on interest rate differentials rather than on rudimentary economic variables, investors are finding the problems associated with FDI, which are more difficult to


measure, are not always compensated by the high returns.

Environmental Degradation : FDI has a strong relationship with natural resources use and extraction (agriculture, minerals) especially in Jharkhand because most of the foreign investments are proposed to be done in mining, big industries may cause in the water pollution of rivers and sometimes the natural vegetation also get harmed. There are certain policies regarding the conservation of the eco-system or the environment for FDI which they have to follow.

Steady Growth : FDI increase the growth of the state both economically and socially, as the availability of employment can reduce the burden and per capita income of the individual and their standard of living may increase. There is a development of infrastructure and transportation system through the setting up of industries and easily connected to the metro cities.

In order to complete this study the data collected as a means of secondary data which analysed with the journals, books, newspaper, etc.

Conclusion

In the conclusion, the study shows that FDI has a wide scope in Jharkhand and even Jharkhand can develop with the entry of more foreign investors. The benefits of FDI are numerous but there is a negative impact too. FDI inflows can result in technology transfer, international trade integration, and increase in competitive business environments, enterprise development, economic growth, and improved environmental and social conditions. FDI appears to have the most significant impact on microeconomic growth, which is why the new industrial policies of Jharkhand are welcoming the FDI. If there is numerous benefits of FDI, there are some negative effects like; environmental degradation as, environment degradation is a trend that began with the

earliest forms of industrialisation and create pollution in location. Financial volatility, political conflicts, changes in cultural relationship and etc. the following are some suggestions regarding the impact of FDI in Jharkhand:

References

1. India pips US, China as No.1 foreign direct investment destination, The Times of India, 30 September 2015. Retrieved 11 October 2015

2. India Tops Foreign Investment Ranking ahead of US and China, The Times of India, Rishi Lyengar, 30 September 2015. Retrieved 11 October 2015

3. FDI up 48% since ‘Make in India’ campaign launch”- The Economic Times, 14 July 2015. Retrieved 11 October 2015

4. Self generated table from available sources.

5. 7 major sectors attracting FDI for India” – Yahoo Finance, 13 September 2012. Retrieved 11 October 2015

6. FDI in automobile sector u 89% in April-February FY’15” – The Economic Times, 25 May 2015. Retrieved 11 October 2015

7. Indian Pharmaceutical Industry, Pharmaceutical Industry in India, Pharma, lbef.org. 9 September 2015. Retrieved 17 October 2015

8. Cabinet clears 100% FDI in Railways infrastructure, 49% in defence” – Zeenews.india.com. Retrieved 13October 2015

9. System Changes, Export-Oriented Growth and Women in Hungary, Europe-Asia Studies”, Kiss, Y. (2003). 55(1), 3-37

10. Transnational Corporations: International Citizens or New Sovereigns?, Business and Society Review, Rondinelli, D. (2002). 107(4), 391-413

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Problems and Prospects of FDI in Indian Retail Sector

Abstract

Today India was being looked up by many foreign nations as the scope of investment is seen tobe high in our country for the availability of huge resources. Retail Industry has spotted India for stamping its development which had led to the origin of many retail stores. Though it’s been argued that it may affect the local players, many organized retail stores were brought in and they are running successfully covering standard customers for them. FDI as an important means to reorganize the production facilities globally is regarded as an important vehicle for economic development particularly for developing economies. Indian government promotes FDI in retail sector by providing up to 51% for single brand segment and 100% in wholesale segment. It gives an opportunity for the global retail giants to enter India. This paper focuses on the problems and prospects of FDI in Indian retail sector in multibrand segment which aims to give a brief idea about the implications of foreign investments in retail sectors.

Keywords : organized retail, unorganized retail, multi-brand retail, single brand retail

Binay Kumar PanjiyarResearch Scholar


Dr. Shravan KumarAssociate Professor

Department of CommerceJ. N. College, Dhurwa, Ranchi

Introduction

Though foreign direct investments (FDIs) in India were significant in the 1950s and 1960s, FDI inflows were meager in the 1970s and 1980s. By the mid-1980s, the stagnation and technological obsolescence in Indian industry led to a push for economic reform and deregulation of exchange controls. As a result of the reforms agreed with the IMF, FDI boomed in post reform India and FDIs in India are considered to be a major stimulus in our economic growth as it has the ability to curtail the shortage of financial resources and the shortage of technology and skill consequently. But the researchers are also of the opinion that FDI may exert a negative impact on economic growth of the recipient countries by extracting their labor and other resources.

Trade or retailing is the single largest component of the services sector in terms of contribution to GDP. Its massive share of 10-11% is double the figure of the next largest broad economic activity in the services sector.

Retailing is the largest private sector in India and second to agriculture in employment. After farming, retailing is India’s major occupation (8% of total population). It employs 40 million people. The retail industry is divided into organized and unorganized sectors.

Organized retailing refers to trading activities undertaken by licensed retailers, that is, those who are registered for sales tax, income tax, etc. These include the corporate-backed hypermarkets and retail chains, and also the privately owned large retail businesses. Modern format retailers which include Supermarkets like Foodworld, Hypermarkets like Big Bazaar, HyperCity; Departmental Stores like, Shoppers Stop, Lifestyle, Pantaloons, Piramyds, Westside and Trent, Specialty chains like Ikea the retail furnishing house and entertainment chains like Fun Republic, Fame Adlabs, Inox and PVR. Some of the biggest Indian corporate houses like the Future Group, Raheja Group, Reliance, TATA’s, Aditya Birla Group,Bharti etc. have made massive investments in India’s


organized retail business.

Unorganized retailing, on the other hand, refers to the traditional formats of low-cost retailing, for example, the local kirana shops, owner manned general stores, paan/beedi shops, convenience stores, hand cart and pavement vendors, etc. Unorganized retailing is by far the prevalent form of trade in India – constituting 95% of total trade, while organized trade accounts only for the remaining 5%. Organized retail trade employs roughly 0.5 million people and unorganized 39.5 million.

With India’s growing per capita income and a rising middle class, the retail sector has the potential to be the real growth engine of the country’s economy. While demand for a superior shopping experience is evident in the metropolitan cities, the Tier II and Tier III towns are also rapidly acclimatizing to the changing landscape of the Indian retail market. Growing consumerism, changes in consumers’ tastes and preferences, and heightened brand consciousness has been fast replacing traditional mom and pop stores with organized retail malls that house lifestyle and luxury brands from national and international retailers.

As part of its retail transformation, India has seen substantial increase in mall space in recent years. Over the past decade, such cities as NCR-Delhi, Mumbai and Bangalore have shown prominent growth in retailstock, while Hyderabad, Pune, Chennai, Kolkata and many other Tier III towns are rapidly emerging as the retail growth corridors of the next decade

Changing Indian Consumer Behaviour

There has been an increase in the disposable income of the middle class households in India. Between 1993 and 2003 there was a 20.9% growth in the real disposable income of the Indians. Besides that, there has been a 10% growth in the middle and high income populations in the last decade. Add to that, the falling interest rates, easier consumer credit and a greater variety and quality of goods available at all price points has increased the momentum of consumerism in India. Consumers in particular, the urban consumers

are getting exposed to international lifestyles. They are inclined to own more assets and thus there is an increased tendency to spend. Therefore, contrary to the olden times, shopping is no longer need based. The greater education levels have increased the awareness levels of consumers and they are becoming more demanding and discerning. The age segments of 17- 21 year olds, (which number more than a 100 million in India) tend to spend freely and are highly influenced by international lifestyles. As the contemporary retail sector in India is reflected in sprawling shopping centers, multiplex- malls and huge complexes offer shopping, entertainment and food all under one roof, the concept of shopping has altered in terms of format and consumer buying behavior, ushering in a revolution in shopping in India. This has also contributed to large scale investments in the real estate sector with major national and global players investing in developing the infrastructure and construction of the retailing business. The trends that are driving the growth of the retail sector in India are

� Low share of organized retailing

� Competitive real estate prices

� Increase in disposable income and customer aspirations

� Increase in expenditure for luxury items

Another credible factor in the prospects of the retail sector in India is the increase in the young working population. Hefty pay-packets, nuclear families in urban areas, along with increasing working-women population have also contributed to the growth of retailing in India. These key factors have been the growth drivers of the organized retail sector in India which now boast of retailing almost all the preferences of life -Apparel and Accessories, Appliances, Electronics, Cosmetics and Toiletries, Home and Office Products, Travel and Leisure and many more. With this the retail sector in India is witnessing a rejuvenation as traditional markets make way for new formats such as departmental stores, hypermarkets, supermarkets and specialty


stores. The retailing configuration in India is fast developing as shopping malls are increasingly becoming familiar in large cities. When it comes to development of retail space specially the malls, the Tier II cities are no longer behind in the race. If development plans till 2007 are studied it shows the projection of 220 shopping malls, with 139 malls in metros and the remaining 81 in the Tier II cities.

Foreign direct investment (FDI) or foreign investment refers to the net inflows of investment to acquire a lasting management interest in an enterprise operating in an economy other than that of the investor. It usually involves participation in management, joint-venture, transfer of technology and expertise. There are two types of FDI: inward foreign direct investment and outward foreign direct investment, resulting in a net FDI inflow (positive or negative) and “stock of foreign direct investment”, which is the cumulative number for a given period. Direct investment excludes investment through purchase of shares. Foreign direct investment, in its classic definition, is defined as a company from one country making a physical investment into building a factory in another country. The direct investment in buildings, machinery and equipment is in contrast with making a portfolio investment, which is considered an indirect investment. In recent years, given rapid growth and change in global investment patterns, the definition has been broadened to include the acquisition of a lasting management interest in a company or enterprise outside the investing firm’s home country. As such, it may take many forms, such as a direct acquisition of a foreign firm, construction of a facility, or investment in a joint venture or strategic alliance with a local firm with attendant input of technology, licensing of intellectual property.




Domestic firms that are contemplating to enter the international market require information and knowledge that may be costly to obtain. Foreign firms are an obvious source of such information to enable the host country’s access to the world market. Moreover, Foreign Direct Investment implies an element of risk sharing between the capital owners and the capital importing countries that make this type of capital flow more desirable than loans.

Unlike borrowings from foreign sources which involve contractual obligations from day one, direct foreign investment does not involve any fixed charges. Moreover, dividends would have to be paid only whenthe firms earn profit. FDI can also stimulate employment generation in the host country because everything else being equal, the establishment of foreign firms increases the demand for labor and the demand for intermediate goods and services from local suppliers.

FDI flows are usually preferred over other forms of capital flows because they are non-debt creating and non-volatile. In a world of increased competition and rapid technological changes, their complimentary and catalytic role can be very valuable. FDI can contribute directly and indirectly to building national capabilities. FDI as an important means to reorganize the production facilities globally, it is regarded as an important vehicle for economic development particularly for developing economies. Thus foreign direct investment is considered a desirable route amongst various forms of capital inflows for bridging this gap, as it is not prone to quick reversal unlike portfolio investment. The importance of FDI also lies in the fact that assistance from multilateral and bilateral sources is either stagnant or declining in comparison with FDI inflows. Further, apart from the long-term additional capital that it brings in, FDI also facilitates technology up-gradation and introduction of modern production and management practices.

Determinants of FDI inflows

The volume and the quality of FDI in a country


depend on the following factors:

a) Natural Resources: Availability of natural resources in the host country is a major determinant of FDI. Most foreign investors seek an adequate, reliable and economical source of minerals and other materials. FDI tends to flow in countries which are rich in resources but lack capital, technical skills and infrastructure required for the exploitation of natural resources.

b) National Markets: The market size of a host country in absolute terms as well as in relation to the size and income of its population and market growth isanother major determinant. Large markets can accommodate more firms and can help firms to achieve economies of large scale operations.

c) Availability of Cheap Labor: The availability of low cost and skilled labor has been a major cause of FDI in countries like China and India. Low cost labortogether with availability of cheap raw materials enables foreign investors to minimize costs of production and thereby increase profits.

d) Socio-Economic Conditions: The size of the population of the host country, its infrastructural facilities and income level of the country also influence direct foreign investment.

e) Political Situation: Political stability, legal framework, judicial system, relations with other countries and other political factors prevailing in the country also influence movements of FDI from one country to another.

f) Rate of interest: Differences in the rate of interest prevailing in different countries stimulate foreign investment. Capital tends to move from a country with a low rate of interest to a country where it is higher. FDI is also inspired by foreign exchange rates. Foreign capital is attracted to countries where the return on investment is higher.

g) Government Policies: Policy towards foreign investment, foreign collaborations,

foreign exchange control, remittances, and incentives – both monetary and fiscal offered to foreign investors exercise a significant influence on FDI in a country. For example, Export Processing Zones (EPZs) have been developed in India

Problems of FDI in Indian Retail Sector

Adverse Impact on the Employment : In the absence of any substantial improvement in the employment generating capacity of the manufacturing industries in our country, entry of foreign capital in the retail sector is likely to play havoc with the livelihood of millions. Let alone the average Indian retailer in the unorganized sector, no Indian retailer in the organized sector will be able to meet the onslaught from a firm such as Wal-Mart when it comes in full swing. With it’s incredibly deep pockets Wal-Mart will be able to sustain losses for many years till its immediate competition is wiped out. This is a normal predatory strategy used by large players to drive out small and dispersed competition. This entails job losses by the millions. A back-of-the-envelope calculation can substantiate the point. If we take the case of India, it has 35 towns each with a population over 1 million. If Wal-Mart were to open an average Wal-Mart store in each of these cities and they reached the average Wal-Mart performance per store-we are looking at a turnover of over Rs.80, 330mn with only 10,195 employees. Extrapolating this with average trend in India, it would mean displacing about 4,32,000 persons and if we suppose that the large FDI driven retailers take up 20% of the retail trade in India, it would mean a turnover of Rs. 800 billion and displacement of eight million persons employed in the unorganized retail sector.

Threat on Organized Retail Players : Entry of global players would increase internal rivalry among the players than promoting business of overall industry. Their economies of scale will allow them to reduce their margin to provide value for money products in the beginning to grab the market share which is not possible for domestic players to reduce incomparison to global players because of huge investment.


Majority of the Indian players have not attained even break-even point as organized retail is still at the nascent stage in India.

Huge Spread of Retail Chain Stores : Financially strong giants will spread their function at multiple location to cater to maximum markets with full fledge infrastructure which is not possible for domestic player to cater.

Predatory Practices of the Multinational Retail Chains : FDI in retail is often supported on the basis of the need to develop modern supply chains in India, in terms of the development of storage and warehousing, transportation, logistic and support services, especially in order to meet the requirements of agriculture and food processing industries. While the infrastructure and technology needs are undeniable, the belief that the entry of multinational food retailers is the only way to build such infrastructure is unfounded.

It is often argued that the Indian farmers and manufacturers are going to enjoy access to international markets by supplying commodities to these multinational retailers. However, the experience of the producers, especially those producing primary commodities in the developing world, is not encouraging in this regard. The International market access available to the global retailers do not benefit the producers from the developing countries since they are unable to secure a fair price for their produce in the face of enormous monopsony power wielded by these multinational giants.

Monopoly In The Customer Market And Creation Of Cartels By The Global Players: Foreign players may create monopoly by providing products at discounted rates in the beginning to grab the market share by displacing domestic giants and after getting good market or monopoly in the market may create a cartel of global giants to exploit the customers by inducing price hike and customers would not get any option than to purchase at the available prices.

Setback To The Trade Balance : FDI in retailing can upset the import balance, as large international retailers may prefer to source

majority of their products globally rather than investing in the local markets.

Towering Effect On Real Estate Prices : The entry of global players may have towering impact on the real estate prices. With intensified fight for space in cities, the race may result in steep rise in real estate prices which could be counterproductive for the domestic players.

Distortion of Urban Development and Culture : The promotion of large retail stores with huge retail space also fosters a different kind of urban development than what we have followed in India till date. Large shopping malls with all known retail chains with their showrooms as a part of urban development is familiar in the US where the consumers live in suburbs, drives long distances for his/her shopping and lives in a community that hardly knows each other. The problem with this model is that it neglects the simple Indian reality where most households do not have cars and need local markets. The myth of a huge and fast growing affluent middle class is counter to the reality that this section is still too small to support the remodeling of the urban landscape as is being planned with malls, large retail chains and branded products.

Prospects of FDI in Indian Retail Sector

It Will Improve Competition And Bring Prices Down : Retail trade in India is fragmented, unorganized, un-networked, inefficient and individually small. An all too visible manifestation of the inefficiencies is the huge disparity between the price which he producer gets and the price which the consumer pays— sometimes as high as 10-20 times! Clearly, what is needed is an efficient supply chain backed by improved infrastructure, cold storages, packing and transportation. The traditional system of distribution, ending with the mom and pop or the street-side vegetable seller, is just not capable of creating it.

Investing In Technology and Better Supply Chain Management : The cold storage chains set up by international retailers will solve the perennial problem of wastages. As much as 40 % of India’s fruits and vegetables rot due


to lack of processing facilities. The foreign retail giant houses like Wal-Mart and Carrefour can bring better managerial practices and IT- friendly techniques to cut wastages and set up integrated supply chains to gradually replace the present disorganized and fragmented retail market. According to McKinsey, India wastes nearly Rs. 50,000 crore in the food chain itself. With ITapplication, the modern retail store can cut transaction costs such as due to inventory, delivery and handling. That is precisely how the US based Wal-Mart grew to be a giant because it reduced its distribution costs to 3% of sales compared to 4.5% of others.These international retail outlets can help develop the food processing industry which requires $28 billion of modern technology and infrastructure. Also a more advanced and efficient production and distribution cycle shall evolve. An improved distribution system and better supply chain management shall make an improvement in the product basket from India for exports.

Controlling Inflation : Industry trends for retail sector indicate that organized retailing has major impact in controlling inflation because large organized retailers are able to buy directly from producers at most competitive prices.

Increase In Exports : here are likely to be greater levels of exports due to increased sourcing by major players. Sourcing by Wal-Mart from China improved multifold after FDI was permitted in China.

Manpower and Skill Development : By allowing market-savvy, market-intelligent and best management practices of corporations such as Wal-Mart, Carrefour, Ahold, JC Penny, etc to enter India the know-how and professionalism of Indian employees shall increase. Also there shall be a greater managerial talent inflow from other countries which add to transfer of knowledge and technical know-how.

Better Enforcement of Tax Laws : While there will be increased tax revenue on the one hand, on the other hand there will be better enforcement of tax laws on the organized sector and international players. Tax evasion

by players of the organized sector will not be possible like those of the unorganized sector. Thus, the exchequer of the Govt. shall increase.

Increase In Employment Levels : Employment shall be generated at various levels and across the entire value chain. Retailing industry doesn’t need very high level skill sets. Graduates and school pass outs shall be suitable for the jobs and this is a major unemployed demographic group. It is projected that job generation will be similar to that of the ITES industry. More employment generation shall lead to an increase in the tax paying population.

Better Lifestyle : Greater levels of wages are paid by most international players. The increasing purchasing capacity of consumers shall lead to better lifestyle. International retailers shall offer a better product variety with many new product categories emerging. Also the quality of products shall improve. The newer supermarkets in urban/metropolitan India offer a produce which is cleaner, fresher, well-packed and often cheaper than the vegetable seller on the street.Modern retailing is designed not only to provide consumers with a wide variety of products under one roof, but also of assured home delivery and information feedback between consumers and producers. A modern retail outlet will also make it easy to buy on credit and provide for servicing and repair of products sold.

Tourism Development : The Singapore and Dubai shopping festivals were examples of the possibilities for improving tourism thanks to the retail industry.

Overall Growth and Expansion : FDI would result in market growth and expansion. A greater consumer spending shall lead to greater GDP growth.

Conclusion

Given the WTO regime India is a party to, the entry of FDI in the retail sector is inevitable. But with the instruments of public policy in its hands, the government can create conditions that slow down their entry. Japan has done this quite effectively. In this fashion, the Government


can try to ensure that the domestic and foreign players are approximately on an equal footing and that the domestic traders are not at an especial disadvantage. While it is true that some dislocation of traditional retailers will be felt, the government must ensure that retail does not remain concentrated in a few foreign hands.

References

1. Imtiaz Mohmad, FDI in organized retail in India: look to the multi brand opportunities‖, IJRCM, Volume NO.3, Issue No:12(December), ISSN 0976 – 2183, 2012, pp 122-125

2. Babu S. Harish, Foreign Direct Investment in India and Its Economic Significance‖, IJRCM, Volume no. 1, Issue no. 6 (October) ISSN 2231-4245, 2011pp 140- 145

3. http://www.moneycontrol.com/news/real-estate/fdimulti-brand-retail-is-india-ready-for-it-now_788962.html

4. http://www.mbauniverse.com/article/id/6568/

5. http://blogs.economictimes.indiatimes.com/policypuzzles/entry/why-fdi-won-t-solve-the-problem-of-fiscal-disaster-in-india-fdi

6. h t tp : / / i nd ia today. in today. in /s to ry /retail-fdi-reforms-at-full-throttle-anand-sharma/1/221559.html

7. http://www.coolage.in/2012/09/23/fdi-in-india-pros-and-cons-of-it-top-3/

8. h t t p : / / w w w. r b i . o r g . i n / s c r i p t s / b s _viewcontent.aspx?Id=2513

9. http://www.getmoneyrich.com/prospects-of-fdi-in-retail-in-india/

10. ht tp: / /www.kish. in/know-about-the-prospects-of-foreign-direct-investment-in-the-retail-sector-of-india/

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FDI in Insurance Sector

Abstract

When control on capital accounts relaxed then the economy creates potential for inward and outward movement of capital. These flows usually come in the form of Portfolio, Investment, Foreign Direct Investment, Equity and Debt flows. These flows are oftenly used to promote economic growth in a developing economy. Over the last two decades India has been gradually dismantling capital controls as part of its broader financial liberalization strategy. FDI is one of the tool to accelerate economic growth of India. Till 2015 the total inflow of FDI into India is 1,29,33,03 crores in the different sector. The share of service sector is 17% of the total FDI inflow. Service sector includes financial, banking, Insurance, non financial/ business etc. followed by construction development, at the rate of 9% and telecommunication by 7% and other sector. FDI is a major sources of external financing and thereby provide important means of implementation of sustainable development goals and growth of a developing nation. FDI also contributes to the transfer of technology and improvement of labor and management skills. Insurance is one the beneficiary through FDI. India‘s Insurance market has a high potential due to its large population. There for Developed countries wants to grab this opportunities

Keywords : management skills, capital controls, economic growth

Pervez WahabResearch Scholar

University Department of Applied Economics & CommerceBodh Gaya, Bihar

Dr Nayeem AkhatarAssociate Professor, Department of Commerce

Mirza Ghalib College, Gaya

Introduction

Foreign Direct Investment is one of the measures of growing economic globalization. Investment has always been an issue for the developing economics such as India. All the developing countries are liberalizing their policies for welcoming investment from countries which are abundant in capital resources. FDI offers number of benefits like overture of new technology, innovative products and extension of new markets, opportunities of new employments and introduction of new skills. Which reflect in the growth of income of any nation. The countries which are developed are focusing on new market where there is avability of abundant labors, scope of products, and high profits are achieved. And India is one of the most favorable market

place due to its large uncovered population for the developed countries. In 2015 through Insurance Amendment Bill Parliament has passed a resolution bill to increase FDI in Insurance sector from 26% to 49% with other sector .After the increased rate of FDI in India the total inflow of is INR 12,93,836 crores. India becomes the tenth largest recipient of Foreign Direct Investment in 2015 in the world, grossing $44 billion as per the latest world Investment Report, regulated by the United Nations Conference on Trade and Development. (UNCTAD).

FDI Investment scenario

Through below table we can analyse that how much other countries are interested to invest in India through FDI.


Share of Top Investment Countries FDI equity Inflows ( in crores)

Sl. No

Country 2013-14 2014-15 2015-16 Cumulative inflow

% of Total Inflow

1 Mauritius 29,360 55,172 13,236 4,38,892 35%2 Singapore 35,625 41,350 23,320 190,477 14%3 UK 20,428 8,769 7,55 110,409 9%4 Japan 10,550 12,752 2,916 96,312 7%5 Netherland 13,920 20,960 4,123 81,381 6%6 USA 4,807 11,150 3,959 70,839 6%7 Germany 6,093 6,904 3,497 42,007 3%8 Cyprus 3,401 3,634 608 39,971 3%9 France 1,842 3,881 877 23,465 2%10 Switzerland 2,084 2,066 598 15,812 1%

Total Inflow from all countries

1,47,518 1,89,107 60,298 1,293,836

Source- IRDAI Annual Report 2015

A total 147 countries have invested through FDI including NRI’s contribution in India. According to the fact sheet on foreign direct investment, Mauritius is the highest FDI in equity inflow with 35% of the total inflow followed by Singapore, UK, Japan, and Netherland with 14%, 9%,

7%, and 6% respectively. Service sector is the highest FDI attracting inflows with 17% of the total inflow, followed by construction development, Computer software, with 9% and 7% respectively.

Sector wise FDI equity Inflow ( Rs in Crores)

Sl. No.

Sector 2013-14 2014-15 2015-16 Cumulative inflow

% of total Inflow

1 Service Sector ** 13,294 19,963 4,036 209,578 17%2 Construction

Development: Townships, Housing, Built-Up Infrastructure

7,508 4,582 216 113.355 9%

3 Computer Software & Hardware

6,896 13,564 16,245 89,481 7%

4 Telecommunications (Radio Paging, Cellular Mobile, Basic Telephone Services)

7,987 17,372 2,517 86,609 7%

5 Automobile Industry 9,027 15,794 6,914 70,906 5%6 Drugs &

Pharmaceuticals 7,191 9,211 1,370 66,652 5%

7 Chemicals (Other Than Fertilizers

4,738 4,077 1,598 50,909 4%


Sl. No.

Sector 2013-14 2014-15 2015-16 Cumulative inflow

% of total Inflow

8 Power 6,519 3,985 1,717 48,357 4%9 Trading 8,191 16,962 5,679 49,479 4%10 Metallurgical Industries 3,436 2,897 845 41,992 3%

Note: (i)** Services sector includes Financial, Banking, Insurance, Non-Financial / Business, Outsourcing, R&D, Courier, Tech. Testing and Analysis

(ii) Cumulative Sector- wise FDI equity inflows (from April, 2005to June, 2015).

(iii) FDI Sectoral data has been revalidated / reconciled in line with the RBI, which reflects minor changes in the FDI figures (increase/decrease) as compared to the earlier published sectoral dataMaterials and Methods

In this Study I would investigate the link between FDI Inflow and Insurance Market. Using time series data spanning from 2005 to 2015 for India. The study is divided in Introduction, FDI Investment scenario, an over view of FDI in Insurance sector, Need of FDI in Insurance sector and Conclusion. The data is secondary nature and is collected from different sources and web sites.


Insurance plays a major role to mobalise national savings and channelise them in to investment in different sector of the economy. FDI in Insurance can meet India’s long term capital requirement to fund the building of infrastructure. Insurance sector has the capabilities of raising long term capital from the masses. An increase in FDI in Insurance would indirectly be a boon for the Indian Economy. During the first decade of insurance Industries achieved a strong growth, the sector has reported consistent increase in Insurance penetration from 2.71 percent in 2001 to 5.20% in 2009. However since then the level of penetration has been declining reaching 3.3 percent in 2014.

Insurance Penetration and Density in India

Year Density (USD)

Penetration %

2005 22.7 3.14%2006 38.4 4.80%2007 46.6 4.70%

2008 47.4 4.60%2009 54.3 5.20%2010 64.4 5.10%2011 59.0 4.10%2012 53.2 3.96%2013 52.0 3.90%2014 55.0 3.30%2015 54-7 3.44%

Sources- Swiss re- Sigma

The measures of Insurance penetration and density reflect the level of development of Insurance sector in a country. While Insurance penetration is measured as the percentage of Insurance premium to GDP. Insurance density is calculated as the ratio of premium to population (per capita Income).

Registered Insurance Company in India

Type of Business

Public Sector

Private sector

Total number

Life insurance 1 23 24Non- life insurance

6* 22 28

Re Insurance 1 1 1Total 8 44 53

Including specialized Insurance sector. ECGC and AIC (Export Credit Granted Corporation, Agriculture Insurance Company of India ltd.)

Need of FDI in Insurance Sector

There are ultimate benefit of FDI insurance sector, which can be write down in below


mentioned way.

1. Insurance Product : Private as well as government insurer will get benefit from the hike of FDI. These companies can offer better and wide range of insurance product to customer at large competitive prices.

2. Smaller Companies : FDI will help smaller insurance companies to break even factors and help monetize ( convert in to currency) the holding of the promoters of the older Insurance companies.

3. Capital Inflow : Immediate capital inflow of $2 billion and long term inflow of about $10 billion can be expected.

4. Aggression : The Industry has been cautious in selling which are capital intention, it will be able to become aggressive.

5. Technology : Insurer will not just get capital but also technology and product expertise of the foreign partners who is the domin partner.

6. New Players : We can expect about 100 life and non- life companies to serve a market of our size. Increased FDI could see 25 to 30 new insurer entering the market.

7. Penetration : With the population more than 125 crores , India requires more than any other nation. However , the Insurance penetration in the country is only about 3.3% of our Gross Domestic Product (GDP). India’s insurance market lags behind other economics in the baseline measure of insurance penetration. At only 3.3%, India is well behind the 11.3% for the South Korea, 10.8% for Japan, 10.6% for UK and 9.1% for the France, Italy with 8.6% and for US 7.3%. Increased FDI limits will strengthen the existing companies and will also allow the new players to come in, there by enabling more people to buy life cover.

8. Employment : With more money coming

in , the insurance companies will be able to create more jobs to meet their targets of venturing in to under insured market through improved infrastructure , better operation and more manpower.

Conclusion

The associate Chamber of Commerce and Industry of India in their Executive Summery of foreign Investment said that over INR 12000 crores is expected to land in the country and more than dozen foreign companies are planning to raise their stake in private insurance sector. Soon after the law take place, foreign investor started ploughing capital in to their Indian Joint Ventures. Companies AXA of France, Bupa of the UK, Nippon life Insurance of Japan announced raising stake in their respective joint ventures. About 9 Insurance companies have already applied for regulatory clearance to bring in foreign investment. Re-Insurance sector would also see some fund flow as it has also get a leg-up through the amendment act. According to IRDAI the total FDI in insurance sector as on March.2015 was about Rs.8,031 crores . This figure could well cross Rs 20,000 crore by the end of December this year”. There are 52 insurance companies operating in India, of which 24 are in the life insurance business and 28 in the general insurance. State-owned General Insurance Corporation (GIC), in addition, is the sole national reinsurer. In order to deepen the re-insurance market, IRDAI permitted UK-based Lloyds to set up business in India. Ireland based global Re-insurance firm XL Catlin has announced plan to enter India and has already begun the licencing process. The FDI has opened new vistas and will help deepening the insurance market in the country which is second most populous in the world. Indian Insurance market has huge unexplored potential yet to be explored. . Indian insurance industry has a long way to traverse insurance penetration in the country is quite low compared to global average. The FDI will help to increase penetration level. As we know that insurance penetration is measured as the percentage of insurance premium to GDP. There for we say that FDI in insurance sector plays a important


role in the economic development of India by providing various useful services.

References

1) https/rbi.org.in/scripts/bs fema notification.aspx

2) India FDI June 2015

3) IRDA annual Report

4) www.quora.com

5) www.assocha.org/foreign-investmentflow-in-insurancesector

6) www.swissre.com/sigma

7) www.statica.com

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Foreign Direct Investment in India

Abstract

Foreign Direct Investment is one and only major instrument of attracting International Economic Integration in any economy. It serves as a link between investment and saving. Many developing countries like India are facing the deficit of savings. This problem can be solved with the help of Foreign Direct Investment. Foreign investment helps in reducing the defect of BOP. The flow of foreign investment is a profit making industry like insurance, real estate and business services and serving as a catalyst for the growth of economy in India. Foreign investment flows are supplementing the scare domestic investments in developing countries particularly in India. The inflow of foreign investment because it enable us to achieve our cherished goal like making the balance of payment, rapid economic development, removal of poverty, and internal personal disparity in the development and also it is very much convenient for Indian economy.

Keywords : domestic investment, real estate, profit making

Priyanka ChaturvediResearch Scholar

University Department of Commerce and Business ManagementRanchi University, Ranchi

Dr. H.B SinghAssociate Professor, Department of Commerce

Doranda College, Ranchi

Introduction

Foreign Direct Investment (FDI) is an investment of foreign assets into domestic structures, equipment, and organisations. Foreign companies invest directly in fast growing private Indian businesses to take benefits of cheaper wages and changing business environment in India. The FDI can take any route or form to enter into any nation. The three principal forms of FDI in India are joint ventures, acquisitions of assets in a country and Greenfield ventures. In this era of Globalisation FDI plays a vital role in the development of developing and developed economies. Investment has always been an issue for developing economies like India. Developed countries are focusing on new markets where there is availability of abundant labours, scope for products and higher profits are achieved. Therefore, FDI has emerged as a battle ground of emerging markets.

Countries like Mauritius, Singapore, US and UK have emerged as the leading sources of FDI in India. Indian companies may receive

FDI through following two routes:-

1. Automatic Route: FDI in these sectors do not require any prior approval from either the Government of India or the Reserve Bank of India.

2. Government Route: FDI in these activities require prior approval of Government which are considered by Foreign Investment Promotion Board (FIPB), Department of Economics Affairs, and Ministry of Finance.

Recently, the Government of India in its Annual Budget 2017-18, has announced to abolish or wind up the Foreign Investment Promotion Board (FIPB) and come up with a new mechanism that could include approvals by ministries concerned for expeditious clearance of foreign investment proposals. This will further improve the ease of doing business. Currently, FIPB has a single window clearance for applications on FDI in India under approval route.

Inflow of Foreign Investment comes through


various routes-

1. Equity (Government, RBI, NRI, Acquisition, shares, Equity capital of unincorporated bodies); Reinvested earning or other capital.

2. Portfolio Investment (GDR/ADR, FIIs, OFF shore funds and others): Portfolio Investment does not seek management control, but it is motivated by profit. When individual investors invest mostly through stockbrokers in the stocks of foreign companies in foreign land in search of profit opportunities, it is called Portfolio Investment. They do not exercise a control or significant influence. This is actually a contrast to direct investment, which allows an investor to exercise a certain degree of managerial control over a company.


On the basis of requirements, tools available and limitations, secondary data collection method is used in this paper. Secondary data means data that are already available, that is, referring to data which have already been collected and analysed by someone else. Secondary data may either be published data or unpublished data. Following are the sources of secondary data Journals and Newspapers, Various publications of central, state and local government, Books and Magazines, Websites, Reports prepared by research scholars, universities, economists, etc.


Determinants vary from each other in different countries due to the interest and opportunities for the potential investors. In case of India, following are the determinants of FDI-

1. Cheap and easily available labour supply: India has an abundant supply of both skilled and unskilled labour. Foreign investors, therefore, try to take advantage of this and they invest in India for cheap labour.

2. Stable policies : The foreign investors prefer those countries for investment which have stable economic conditions

and policies. Frequent changes in policies by the Government have adverse impact on the business. A business requires a lot of fund for its continuation and change in policies may have a negative impact on the potential investor. As a matter of fact, India’s stable economic and socio-policies have attracted a lot of investors across borders.

3. Basic infrastructure : India has developed special economic zones which require infrastructure such as roads, effective transportation and registered carrier departure worldwide, information and network technology, powers, financial institutions and legal system and other basic amenities which are must for the successful running of a business. Now if there is a sound legal system and modern infrastructure in the host country, it attracts foreign capital.

4. Economic factors : Different economic factors such as interest loans, tax breaks, grants subsidies and the removal of restrictions and limitations attract FDI. The Government of India has given many tax exemptions and subsidies to the foreign investors. For example, the Start up India campaign of the current NDA Government has provided for capital gain tax exemption to foreign investors.

5. Availability of natural resources : The foreign investors have advanced technology and capital which can be used in the process of production and India has ample amount of unexploited natural resources like coal, iron and steel. These natural resources can readily be used by foreign investors in process of production by extracting them from mines. This requires foreign collaborations for economic development of the host country.

6. Unexplored markets : India has a large market scope which is unutilised. This can be used by the potential foreign investors giving them profit opportunities.


This is being practised in the BPOs where investors have large scope of exploring the market where service can be provided only through a call anywhere at any time.

Problems of Foreign Direct Investment flow in India

The largest democracy of the world-India, with the second largest population (65 percent of its population being 35 or under, and half of the country’s population being under the age of 25), with rules, laws and a highly English speaking workforce is an ideal place for foreign investors. Still, India suffers a lot of problems in attracting FDI due the restrictions regarding the market. Following are some of the major problems in the inflow of FDI in India-

1. Stringent labour laws : India is a federal form of Government and because labour is a subject of the concurrent list of the Indian Constitution, labour matters are both in the jurisdiction of State and the Central Governments. Since both of them can enact laws on the labour relations and employment issues, therefore, the labour laws are too strict and precise in India.

� Large firms in India are not allowed to retrench or lay off unnecessary workers from the industry without prior approval of the State Government and the employees. Therefore, these approvals are rarely given.

� They cannot just close down the work unit without prior approval of the State Government.

� The presence of the over generous voluntary retirement policies and schemes pave a way for the Trade Unions to extort huge sums from the companies.

Due to some of these restrictions mentioned above, inflow of FDI sometimes becomes difficult.

2. Corruption : Corruption in a country affects investors in many ways.

� First, it increases cost of doing

business in a country.

� Second, if obtaining certain business licenses in India involves politicians and bureaucrats interference, then it creates uncertainty for the corporation.

� Third, it encourages the middlemen to get involved in corrupt activities.

� Fourth, the investor may have to face legal implications like going to jail, if they are caught.

� Fifth, the foreign investors may be blacklisted by the host country and many other countries if the malpractices come into light.

� Sixth, the attraction of talented people in the host country may become difficult for the investing corporation.

� Seventh, the public or customer’s perception about unethical conduct of the investor may harm his brand image and reputation in the host country as well as in the home country.

� Eight, it may also result in financial damages in terms of fine imposed even when the guilt is not admitted by the company.

Some of the companies affected by corruption are JP Morgan Chase and Company, the biggest US Bank and Avon Products Inc; a cosmetic company are still facing investigation by US and Chinese authorities. Another multinational drug manufacturer, Pfizer had to pay a huge amount of money to settle its claim regarding payment of bribe to doctors in China.

3. Lack of adequate infrastructure : Lack of adequate infrastructure acts as a major hurdle in the easy FDI inflow into India. The biggest problem in India is Electricity. There are frequent power cuts and many industries are forced to close down. Thus, the poor form of infrastructure discourages foreign investment into India.


4. Lack of decision making capabilities : In case of decision making, the Centre and the State are not given much power. At some places the power vests with the State Government and in some cases with the Centre. If the decision is not timely taken, it is of no use and its gives a bad image to the prospective investors, who is very conscious about safety and constant return on their investment in the host country.

5. High Corporate taxes : High rates of corporate taxes are definitely a problem for the foreign investors. It acts as a barrier in the process of foreign investment. The corporate tax rates in East Asia vary between 15-30 percent and 48 percent for foreign companies in India.

6. Political instability : The potential investors are always attracted to the countries where there is political stability because this leads to stable economic policy framework which affects the business. High degree of political turmoil leads to less inflow of FDI in a country.

Current Scenario of Foreign Direct Investment in India

Economic Liberalisation started in India in the wake of the 1991 economic crisis since then FDI has steadily increased in India. It was the then the Finance Minister, Mr.Manmohan Singh and the then, the Prime Minister, Mr.P.V Narasimha Rao, who brought FDI in India, which subsequently generated more than one crore jobs.

As the third largest economy of the world in terms of purchasing power parity (PPP), India is a preferred destination for foreign investment. Historically, India had followed an extremely careful and selective approach in the Pre-liberalisation period. The regulatory framework was consolidated through the enactment of Foreign Exchange Regulation Act (FERA), 1973 where foreign equity holding was allowed only up to 40 percent in joint venture. The announcement of the Industrial Policy (1980 and 1982) and Technology Policy provided a

liberal attitude towards foreign investors.

A major shift took place in 1991 at the time of Liberalisation aiming to raise its growth potential and integrating with the world economy. It allowed an increased access to foreign technology and capital. Introduction of the dual routes of approval by RBI –automatic and Government approval, removal on restrictions on FDI, boosted the replacement of the Foreign Exchange Regulation Act (FERA), 1973 by the Foreign Exchange Management Act (FEMA), 1999. Government of India, in June 2006, allowed 51 percent FDI in the single brand retailing. Furthermore, in December 2012, Government of India approved 100 percent FDI in single brand retailing and 51 percent in multi brand retailing.

� FDI has been allowed up to 100 percent under Government approval route for trading, including through e-commerce, in terms of food products manufactured or produced in India, in the Budget 2016-17.

� The Government permitted 74 percent FDI in pharmaceutical sector under automatic route. It added that the Government approval will be required beyond 74 percent up to 100 percent in brown-field pharmacy.

� 100 percent FDI has been permitted in India based Airlines. However, a foreign carrier can only own up to 49 percent stake in the venture, and rest can come from a private investors including those based overseas.100 percent FDI is allowed in airport development projects without any approval of the Government from 74 percent permitted so far.

� 49 percent FDI allowed under automatic route in Insurance and Pension sectors.

� Foreign investment up to 49 percent in defence sector permitted under automatic route and Government approval in excess of 49 percent.

� FDI limit of 100 percent in Manufacturing of Small Arms and Ammunitions covered under Arms Act 1959. (49%


under automatic route and beyond that government’s approval.)

� 100 percent FDI in cable networks, teleports, direct to home benefits, television channels.

� 100 percent FDI allowed in Asset Reconstruction Companies under automatic route.FDI limit of Foreign Security Agencies raised to 74%.

� Railways Infrastructure-100 percent.

� Tourism -100 percent.

FDI and the MAKE IN INDIA programme

The Make in India campaign was launched by Prime Minister Mr.Narendra Modi on 25th September 2014, to encourage companies to manufacture their products in India. The aim of this ambitious campaign to turn India into a global manufacturing hub. Ease of doing business, focus on Public-Private partnerships, harnessing the potential of Democracy, Demography and Demand- that’s what forms the key focus of the MAKE IN INDIA programme. There is a high correlation between Industrial Production and FDI inflows. The effect of economic development ranges from increased productivity to greater technology transfer. The measures taken by the Government are directed to open new sectors for FDI, increase in sectoral limits of existing sectors and simplifying the FDI policy. FDI policy reforms are meant to provide ease of doing business and accelerate the pace of foreign investment in the country.

The Recent Policy measures taken in this campaign have already been discussed above along with the permissible limits in different sectors. Now we see the different types of investors-

1. Individual:

� Foreign Venture Capital Investors

� Pension/Provident Fund

� Financial Institutions

2. Company:

� Foreign Trust

� Sovereign Wealth Funds

� Non –resident Indians /Persons of Indian origin

3. Foreign Institutional Investors:

� Private equity funds

� Partnership/proprietorship firm

� Others

The following steps are involved in the Investment made under this Programme:-

� Identification of structure. � Approval of Central Government, if

required. � Incorporating the structure. � Inflow of funds. � Meeting RBI’s guidelines or

requirements. � Registration process. � Project approval from State or Union

Territory. � Finding ideal space for business

activities. � Acquiring Industrial license. � Construction of the unit. � Hiring manpower. � Obtaining license, if any. � Other formalities like state and central

level registrations. � Meeting annual requirements like

payment of taxes.Certain incentives are provided by the Government of India in terms of foreign investment made under the Make in India campaign. Some of them are-

Central Government Incentives

� Investment allowance up to 15 percent to manufacturing companies that invest more than INR 1 billion in plant and


machinery available till March 31st, 2105.

� Export incentives like duty exemption.

� Area based incentives like those regions which are in North- Himachal Pradesh, Jammu and Kashmir, and Uttarakhand.

� Sector specific incentives like Modified Special Incentive Package Scheme in electronics.

State Government Incentives

� Each state has its own incentive policy which is based upon amount of investment, project location, employment generation, etc. These incentives differ from state to state.

� Other state incentives include stamp duty exemption for land acquisition, refund or exemption from payment of electricity duty etc.

Conclusion

Foreign Direct Investment plays a significant role in the development of economy like India. Foreign Direct Investment acts as a bridge to fulfil the gap between investment and saving.

It helps in creation of jobs and expansion of manufacturing sector. In the process of economic development, foreign capital acts as a catalyst providing superior technology, promoting efficient production and improving profit opportunity.

References

1. Singh Dr. Jasbir, Chadha Sumita and Sharma Dr. Anupam, Role of Foreign Direct Investment in India : an analytical study, International Journal of Engineering and Science, Volume 1, Issue 5, October 2012, pp 34-42

2. Ravi Siva Prasad, Does Corruption in a country affect the Foreign Direct Investment? A study of Rising Economic Super Powers China and India, Open Journal of Social Sciences, 2015, Volume 3, pp 99-104

3. Vyas Abhishek Vijay kumar, An analytical study of FDI in India (2000-2015), International Journal of Scientific and Research Publications, Volume 5, Issue 10, October 2015

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FDI in Indian Retail Sector Opportunities and Challenges

Abstract

As we know that India is the third-largest economy in world preferred destination for Foreign Direct Investment (FDI). The rapid growth of world population since 1950 has occurred mostly in developing countries like India. This growth has been matched by more rapid increases in gross domestic product and thus income per capita has increased in most countries around the world since 1950. FDI is a major source of non-debt financial resource for the economic development of India. Foreign companies invest in India to take advantage of cheaper wages, special investment privileges like tax exemptions, are being made, it also means achieving technical knowhow and generation of employment. Economic liberalization started in India in wake of the 1991 economic crisis and since then FDI has steadily increased in India. FDI is an investment made by an organization or individual in another country in business interests in another country in the form of either establishing business operations or acquiring business assets in other country such as ownership or controlling interest in a foreign company. Retailing in India is one of the pillars of economy and accounts for about 15% of its GDP. The retail industry is the sector of economy which is consisted of individuals stores commercial complex, agencies, companies and organization etc involved in the business of selling and merchandizing diverse finished products or goods to the end-user consumers directly and indirectly. The union govt. has “radically liberalized”, the FDI regime and opened up multiple sectors for 100 percent FDI. Most of the sectors would be under automatic approval route, except a small negative list. With these changes, India is now the most open economy in the world for FDI.

Keywords : economic liberalization, economic development, commerical complex

Priyanka Pandey Research Scholar


Dr. D.L Maurya Associate Professor Previous HOD & Dean


Introduction

Globalization and liberalization brings lots of latest products to the world, Foreign Direct Investment is the one among this, also there are number of different forms of FDI is available currently. Recently, Government of India allowed FDI in different sectors of Indian economy. But several opposition parties are making it a political issue in parliament on these policy decisions and amendments. With a view to infuse globally acceptable best practices, modern management skills and latest technology, it has been decided to allow foreign investment in India. FDI play a vital role in acquiring investments and grow the

local market with foreign financers when local investment is unavailable. There are various formats of FDI and companies investing in a foreign country. It has been proved that FDI can be a win win situation for both the parties involved. The investor can gain cheaper access to products/ services and the host country can get valuable investment unattainable locally. As we know that India is the third-largest economy in world preferred destination for Foreign Direct Investment (FDI). The rapid growth of world population since 1950 has occurred mostly in developing countries like India. This growth has been matched by more rapid increases in gross domestic product and thus income per capita has increased in


most countries around the world since 1950. FDI is a major source of non-debt financial resource for the economic development of India. Foreign companies invest in India to take advantage of cheaper wages, special investment privileges like tax exemptions, are being made, it also means achieving technical knowhow and generation of employment. Economic liberalization started in India in wake of the 1991 economic crisis and since then FDI has steadily increased in India. It was Manmohan Singh and P. V. Narasimha Rao who brought FDI in India, which subsequently generated more than one crore jobs.

FDI is considered to be the most attractive type of capital flow for emerging economies as it is expected to bring latest technology and enhance production capabilities of the economy.

FDI is a major source of external finance which means that countries with limited amounts of capital can receive finance beyond national borders from wealthier countries. Exports and FDI have been the two key ingredients in China’s rapid economic growth. According to the World Bank, FDI and small business growth are the two critical elements in developing the private sector in lower-income economies and reducing poverty.


The whole paper is based on secondary data from various research papers, reports, books, journals, newspapers and online data bases.


Broadly, foreign direct investment includes “mergers and acquisitions, building new facilities, reinvesting profits earned from overseas operations and intra company loans”. FDI is an investment made by an organization or individual in another country in business interests in another country in the form of either establishing business operations or acquiring business assets in other country such as ownership or controlling interest in a foreign company.

� Foreign direct investment (FDI) is an

investment in a business by an investor from another country for which the foreign investor has control over the company purchased. The Organization of Economic Cooperation and Development (OECD) defines control as owning 10% or more of the business. Businesses that make foreign direct investments are often called multinational corporations (MNCs) or multinational enterprises (MNEs). A MNE may make a direct investment by creating a new foreign enterprise, which is called a greenfield investment, or by the acquisition of a foreign firm, either called an acquisition or brownfield investment.

� According to the International Monetary Fund, foreign direct investment, commonly known as FDI, “...refers to an investment made to acquire lasting or long-term interest in enterprises operating outside of the economy of the investor.” The investment is direct because the investor, which could be a foreign person, company or group of entities, is seeking to control, manage, or have significant influence over the foreign enterprise.

FDI% means how much shares can be issued to foreign investors, or in other words what is the percentage of ownership that can be legitimately belongs to a foreign investor.

Importance of FDI

FDI is an important factor in acquiring investments and grow the local market with foreign finances when local investment is unavailable. There are various formats of FDI and companies should do a good research before actually investing in a foreign country. An FDI may provide some great advantages for the MNE but not for the foreign country where the investment is made FDI also offers some advantages for foreign countries. For starters, FDI offers a source of external capital and increased revenue. It can be a tremendous source of external capital for a developing country, which can lead to economic development.

For example, if a large factory is constructed


in a small developing country, the country will typically have to utilize at least some local labor, equipment, and materials to construct it. This will result in new jobs and foreign money being pumped into the economy. Once the factory is constructed, the factory will have to hire local employees and will probably utilize at least some local materials and services. This will create further jobs and maybe even some new businesses. These new jobs mean that locals have more money to spend, thereby creating even more jobs. Additionally, tax revenue is generated from the products and activities of the factory, taxes imposed on factory employee income and purchases, and taxes on the income and purchases now possible because of the added economic activity created by the factory. Developing governments can use this capital infusion and revenue from economic growth to create and improve its physical and economic infrastructure such as building roads, communication systems, educational institutions, and subsidizing the creation of new domestic industries.

Forms of FDI

Horizontal : In case of horizontal FDI, the company does all the same activities abroad as at home. For example, Toyota assembles motor cars in Japan and the UK.

Vertical : in vertical assignments, different types of activities are carried out abroad. In case of forward vertical FDI, the FDI brings the company nearer to a market (for example, Toyota buying a car distributorship in America). In case of backward Vertical FDI, the international integration goes back towards raw materials (for example, Toyota getting majority stake in a tyre manufacturer or a rubber plantation).

Conglomerate : In this type of investment, the investment is made to acquire an unrelated business abroad. It is the most surprising form of FDI, as it requires overcoming two barriers simultaneously – one, entering a foreign country and two, working in a new industry.

About Indian Retail Sector

Retailing in India is one of the pillars of our

economy and accounts for about 15% of its GDP. The retail industry is the sector of economy which is consisted of individuals stores commercial complex, agencies, companies and organization etc involved in the business of selling and merchandizing diverse finished products or goods to the end-user consumers directly and indirectly.

Indian Retail Sector

Meaning of retail : It is defined as all activities involved in selling goods or services directly to the final consumer for their personal, non-business use via shops, market, door-to-door selling, and mail-order or over the internet where the buyer intends to consume the product. In 2004, The High Court of Delhi defined the term „retail‟ as a sale for final consumption in contrast to a sale for further sale or processing. Retailing involves a direct interface with the customer and the coordination of business activities from end to end- right from the concept or design stage of a product or offering, to its delivery and post-delivery service to the customer.

Evolution of Indian Retail Industry : It is interesting to focus on the evolution of the retail sector in India. Historically they evolved as a source of entertainment (in the form of village fairs, melas etc.) which was within the rural reach. Later on these were transformed Mom and Pop/ Kirana stores which are of traditional variety neighborhood shops. Then came the government supported PDS outlets, khadi stores, cooperatives etc. Finally shopping malls, supermarkets, departmental stores etc has brought a great revolution to the Indian retail market

Forms of Indian Retail Industry

Organized Retailing : refers to trading activities undertaken by licensed retailers, that is, those who are registered for sales tax, income tax, etc. These include the corporate-backed hypermarkets and retail chains, and also the privately owned large retail businesses.

Unorganized Retailing : refers to the traditional formats of low-cost retailing, for


example, the local kirana shops, owner manned general stores, paan/beedi shops, convenience stores, hand cart and pavement vendors, etc.

Types of Retailing in India

Single Brand : Single brand implies that foreign companies would be allowed to sell goods sold internationally under a „single brand‟, viz., Reebok, Nokia and Adidas. FDI in „Single brand‟ retail implies that a retail store with foreign investment can only sell one brand. For example, if Adidas were to obtain permission to retail its flagship brand in India, those retail outlets could only sell products under the Adidas brand and not the Reebok brand, for which separate permission is required. If granted permission, Adidas could sell products under the Reebok brand in separate outlets.

Multi Brand : FDI in Multi Brand retail implies that a retail store with a foreign investment can sell multiple brands under one roof. Opening up FDI in multi-brand retail will mean that global retailers including Wal-Mart, Carrefour and Tesco can open stores offering a range of household items and grocery directly to consumers in the same way as the ubiquitous ‟kirana‟ store.

FDI in retail would have been an opportunity to attract inflow of funds which would have resulted in major benefits for the Indian economy

� Elimination of Food Wastage

� Supports improved standard of living

� Enhanced competition and reduced prices

� Enhanced shopping environment and experience

� Growth in allied industries

� Improvement of govt. revenues

Benefits to consumers

� Consumers have increased the competitiveness of domestic players.

� The growth in the sector assisted the

development of the auto component industry which not only produces products of global standards but has also resulted in increased employment.

� The productivity levels within the sector have improved as a result of following globally recognized models of manufacturing.

� The technological capability of Indian firms has also seen improvements over the years. FDI bought the required capital into the sector which assisted players in scaling up their supply thereby assisting their overall efficiency and growth.

� Consumer choices have increased by many folds both in terms of product range within a price range as well as across price range.

� The Indian consumer today has access to global brands

� The quality of products in terms of customer experience as well as other parameters such as safety, accessories have improved tremendously. Over the years there have been new product categories that have been created keeping in mind the change in customer preferences. The recent surge in demand for luxury and high end automobiles has been noticed by various international brands which have now started looking at India as a future growth driver.

� Creation of More and Better Employment Opportunities- The entry of foreign companies into Indian Retailing will not only create many employment opportunities but, will also ensure quality in them. This helps the Indian human resource to find better quality jobs and to improve their standard of living and life styles on par with that of the citizens of developed nations.

Challenges before Indian retail sector

FDI in unorganized retail sector would adversely affect the small retailers, farmers


and consumers and give rise to monopolies of large corporate houses which can adversely affect the pricing and availability of goods. They also contend that the retail sector in India is one of the major employment providers and permitting FDI in this sector can displace the unorganized retailers leading to loss of livelihood. The major threats to the domestic retailers in India are specified below:

1.. Domination of Organized Retailers : FDI in single-brand retail will strengthen organized retail in the country. These organized retailers will tend to dominate the entire consumer market. It would lead to unfair competition and ultimately result in large-scale exit of domestic retailers, especially the small family managed outlets (local “mom and pop” stores will be compelled to close down).

2. Create Unemployment : Retail in India has tremendous growth potential and it is the second largest employer in India. Any changes by bringing major foreign retailers who will be directly procuring from the main supplier will not only create unemployment on the front end retail but also the middleman who have been working in this industry will be thrown out of their jobs.

3. Loss of Self Competitive Strength : the Indian retail sector, particularly organized retail is still underdeveloped and in a nascent stage and that, therefore the companies may not be able to compete with big global giants. If the existing firms collaborate with the global biggies they might have to give up at the global front by losing their self competitive strength.

4. Indirectly Leads to Increase in Real Estate Cost : It is obvious that the foreign companies which enter into India to open up their malls and stores will certainly look for places in the heart of the cities. There shall be a war for place, initiated among such companies. It will result in increase in the cost of real estate in the cities that will eventually affect the interest of the

ordinary people who desire to own their houses within the limit of the cities.

5. Distortion of Culture : Though FDI in Indian retail will indirectly or directly contribute for the enhancement of Tourism, Hospitality and few other Industries, the culture of the people in India will slowly be changed. The youth will easily imbibe certain negative aspects of foreign culture and lifestyles and develop inappropriate consumption pattern, not suited to our cultural environment

Combination of Indian Retail Market

23%

31%

31%

15%

Big Retailers

Small Retailers

Hawkers

Push CartVendors

Retail Industry

Clothing andtextile9.31%

Consumerdurable4.87%

Home decorand furnishing

3.04%

Beauty Care (Products)2.20%

Total Retail Market (Rs. 12,781 bn)

Footwear1.05% Books, music and gifts

0.84%

Food and beverages74.41%

Jewellery and watches

4.30%

Sources: article times of India, Indiatimes.com2011 Nov.(author compilation)

Literature review

The salient features of FDI is that it is an investment made that establishes either effective control of, or at least substantial influence over the decision making of a foreign business.

During the literature review, it is noticed that the term”FDI in retail sector” has used in different séances by researchers from India and another country.


� According to the International Monetary Fund, foreign direct investment, commonly known as FDI, “... refers to an investment made to acquire lasting or long-term interest in enterprises operating outside of the economy of the investor.” The investment is direct because the investor, which could be a foreign person, company or group of entities, is seeking to control, manage, or have significant influence over the foreign enterprise.

� Moghe (2012) critically analyzed the decision of Indian government to open retail sector for FDI in single-brand and multi-brand category and it’s likely to have an adverse impact on various components of Indian economy.

� Jain (2013) examined that retailing is the interface between the producer and the individual consumer buying for personal consumption. As such, retailing is the last link that connects the individual consumer with the manufacturing and distribution chain. Indian retail industry is one of the sunrise sectors with huge growth potential.

� Jain and Sukhlecha (2012) studied FDI in multi-brand retail and tried to establish the need of the retail community to invite FDI in multi-brand retailing.

� Kumar (2013) examined the decision of government to allow 51 percent FDI in multi brand retail. India came under serious flake due to many reasons, loss of employment being one of them.

� Mahadevaswamy and Nalini (2013) analyzed the perceptions of the common man about foreign direct investment (FDI) in multi-brand retailing (MBR)

Some of the Major Players in Indian Retail Sector

Major domestic players in India are - Pantaloon Retail Ltd., Shoppers Stop Ltd., Spencer’s Retail, and Lifestyle Retail, Landmark group venture, Bharti Retail, Tata Trent, Globus, Aditya Birla, More and Reliance retail.

Major foreign players who have entered the segment in India are.

� Carrefour which opened its first cash and carry store in India in New Delhi.

� Germany based Metro cash and carry which opened six wholesale centers in the country.

� Wal-Mart in a JV with ‘Bharti Retail’, owner of easy day store - plans to invest about US $ 2.5 billion over the next five years to add about 10 million sq. ft. of retails space in the country.

� British retailer Tesco PIC (TSCO) in 2008 signed an agreement with Trent Ltd. (TRENT) the retail arm.

� Marks & Spencers have a JV with Reliance retail.

After Studying FDI in Indian Retail sector I came to known that FDI is one of the major sources of investments for a developing country like India wherein it expects huge investments from multinational companies to improve the countries growth rate, create jobs, share their expertise, back-end infrastructure and research & development in the country. FDI also plays an extraordinary and growing role in global business. It can provide a firm with new markets and marketing channels cheaper production facilities access to new technology, products, skills and financing.FDI in retail provide more discount to consumer, less wastage, more money to farmers, marketing platform for small industries, no more adulterated/ spurious drugs and milk trickle down effects on entire economy inspite of this the threats which are unemployment, predatory pricing, India becomes dumping grounds for Chinese products. When Indian retailers take challenges as opportunities, they can beat the global players and even Wal-Mart is no exception to it.

Conclusion

After analysis it can be observed that FDI is one of the major sources of investments for a developing country like India. India is one of the fastest growing retail markets in the world with


1.2 billion people. The retail sector of India is vast, and has huge potential for development, as the majority of its constituents are un-organized. Increasing FDI can be used as one measure of growing economic globalization. India is the second most FDI destination as per the survey by UNCTAD after China. The foreign direct investment involves the transfer of technology and expertise, and participation in the joint venture and management. It provides highly productive advantages both governmental and private companies and organizations of all over the world. It is profitable both to the country receiving investment (foreign capital and funds) and the investors. Despite the current policy and regulatory environment not being ‘perfect’ for foreign investors, there are clearly moves towards improving the current position and facilitating FDI inflows without having a detrimental impact on various sectors of the economy.FDI in retail sector raise the employment, less wastage more money to farmers, marketing platform for small industries, option for customers and many more. The retail sector in India is the largest source of employment after agriculture and has deep penetration into rural India generating more than 10% of India’s GDP.

References

1. Moghe, D., Critical Study of Foreign Direct Investment in Indian Retail Sector with Special Reference to Multi Brand Retail Sector. Journal of Research in Commerce and Management, Vol. 1(3), 2012, 29-39

2. Singh and Dave, FDI in multi brand retail: An empirical study of consumers in NCR Region (India) International Journal of Indian Culture and Business Management, Vol. 7(1), 2013

3. Muley S. S., Indian retail industry - An overview. Excel Journal of Engineering Technology and Management Science,

Vol. 1(6), 2014

4. Qureshi Nassir Z. & Amin, FDI in Indian retail sector: Prospects and hurdles. Indian Journal of Commerce, Vol. 60(4), 2007

5. Gupta S.K. and Batra A., FDI in retail sector in India – A boon or bane. International Journal of Research in IT & Management, Vol. 1(8), 2011

6. Ritika and Dangi N., FDI in retail sector: Opportunities and challenges. Innovative Journal of Business and Management, vol. 2(5), 2013

7. Bhattacharyya R., The Opportunities and Challenges of FDI in Retail in India. IOSR Journal of Humanities and Social Science, vol. 5(5), 2012

8. Mukherjee and N. Patel, FDI in retail sector, India: Academic Foundation, 2005

9. Guruswamy M., Sharma K., Mohanty J. P., and Korah T. J., FDI in India’s Retail Sector: More Bad than Good?, Economic and Political Weekly, pp 619-623, 2005

10. Kalhan A., Impact of Malls on Small Shops and Hawkers, Economic and Political and Weekely, June 2, 2007.

11. Sarma E. A. S., Need for Caution in Retail FDI, Economic and Political and Weekely, November 12 2005

12. www.dipp.nic.in

13. www.unctad.org

14. www.fipbindia.com

15. www.ficci.com

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Present Scenario of FDI in India

Abstract

Foreign Direct Investment (FDI) plays a very important role in the development of the nation and Economy. It is very much vital in the case of underdeveloped and developing countries. It helps in transferring of financial resources, technology and innovative and improved management techniques along with raising productivity. Foreign investments mean both foreign portfolio investments and foreign direct investments (FDI). FDI brings better technology and management, marketing networks and offers competition, the latter helping Indian companies improve, quite apart from being good for consumers. Foreign direct investment (FDI) is a direct investment into production or business in a country by a company in another country, either by buying a company in the target country or by expanding operations of an existing business in that country. Foreign direct investment is in contrast to portfolio investment which is a passive investment in the securities of another country such as stocks and bonds. FDI is a sturdy source of money. This money has allowed India to focus on the areas that needed a boost and economic attention, and address the various problems that continue to challenge the country. Indian government has designed number of reforms to promote investment in India. FDI are permitted through financial collaborations, through private equity or preferential allotments, by way of capital markets through euro issues and in joint ventures. FDI is not permitted in the arms, nuclear, railway, coal or mining industries. FDI can work in number of areas like electricity generation its distribution and transmission. FDI finds difficulty in doing business because of the large beauracratic structure of central government. They find the red tape paper work very inefficient and slow. Nowadays FDI is witnessing a gradual shift with liberalized reforms over the last few years and attractive Investment Climate making positive Impact on the inflow. My study is based on present scenario of FDI in India. To understand the importance of FDI in India.

Keywords : financial collaborations, joint ventures, capital market

Rachana KumariResearch Scholar

University Department of Commerce and Business ManagementRanchi University, Ranchi

Introduction

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 many countries including developing countries like India. Capital formation is an important determinant of economic growth. While domestic investments add to the capital stock in an economy, FDI plays a complementary role in overall capital formation and in filling the gap between domestic savings and investment. At the macro-level, FDI is a non-debt-creating source of additional external finances. At the micro-level, FDI is expected to boost output,

technology, skill levels, employment and linkages with other sectors and regions of the host economy.

Foreign direct investment (FDI) is direct investment by a company located in another country either by buying a company in the country or by expanding operations of an existing business in the country. Foreign direct investment is done for many reasons including to take advantage of cheaper wages in the country, special investment privileges such as tax exemptions offered by the country as an incentive to gain tariff-free access to the markets of the country or the region.

Foreign direct investment is a passive investment in the securities of another country such as stocks and bonds and also known as portfolio investment. FDI explains about the net inflows of investment to acquire a management


interest and also management control and profit sharing as a part of the national accounts of a country. It usually refers to a measure of foreign ownership of productive assets, such as factories, mines and land. Increasing foreign direct investment can be used as one measure of growing economic globalization.

The foreign direct investment involves the transfer of technology and expertise, and participation in the joint venture and management. Foreign direct investment provides highly productive advantages to both governmental and private companies and organizations of all over the world. Foreign direct investment is profitable both to the country receiving investment (foreign capital and funds) and the investors.

FDI have helped India to attain a financial stability and economic growth with the help of investments in different sectors. FDI has boosted the economic life of India and on the other hand there are critics who have blamed the government for ousting the domestic inflows. After liberalization of Trade policies in India, there has been a positive GDP growth rate in Indian economy. Foreign investments mean both foreign portfolio investments and foreign direct investments (FDI). FDI brings better technology and management, marketing networks and offers competition, the latter helping Indian companies improve, quite apart from being good for consumers. Alongside opening up of the FDI regime, steps were taken to allow foreign portfolio investments into the Indian stock market through the mechanism of foreign institutional investors.

Foreign direct investment (FDI) is a direct investment into production or business in a country by a company in another country, either by buying a company in the target country or by expanding operations of an existing business in that country. Foreign direct investment is in contrast to portfolio investment which is a passive investment in the securities of another country such as stocks and bonds. FDI is a sturdy source of money. This money has allowed India to focus on the areas that needed a boost and economic attention, and

address the various problems that continue to challenge the country.

FDI are permitted through financial collaborations, through private equity or preferential allotments , by way of capital markets through euro issues and in joint ventures. FDI finds difficulty in doing business because of the large beauracratic structure of central government. They find the red tape paper work very inefficient and slow.

Classification of Foreign Direct Investment

Foreign investment considered in several types such as

� Portfolio investment,

� Foreign loans and

� Foreign direct investment

These are the three important classifications. Out of these foreign direct investments in industry and services are the most useful.

Foreign direct investments help in developing the economy by

� Generating employment to the unemployed,

� Generating revenues in the form of tax and incomes,

� Financial stability to the government,

� Development of infrastructure,

� Backward and forward linkages to the domestic firms for the requirements of raw materials, tools and business infrastructure,

� It act as support for financial system.

Forward and back ward linkages are developed to support the foreign firm with supply of raw material and other requirements. It helps in generation of employment and also helps poverty eradication.

There are many businesses or individuals who would earn their lively hood through the foreign investments. There are legal and financial consultants who also guide in the early stage of establishment of firm.


The objective of Foreign Direct Investment was not only to facilitate non-debt creating foreign capital inflows but also to develop the stock market in India, lower the cost of capital for Indian enterprises and indirectly improve corporate governance structures. On their part, large Indian companies have been allowed to raise capital directly from international capital markets through commercial borrowings and depository receipts having underlying Indian equity.

Strategy Adopted

Thus the country adopted a two pronged strategy:

1. One to attract FDI which is associated with multiple attendant benefits of technology, access to export markets, skills, management techniques, etc.

2. Two to encourage portfolio capital flows which ease the financing constraints of Indian enterprises.

Foreign technology induction can be encouraged through FDI and through foreign technology collaboration agreements. The sectors which have resources but do not have the required technology acquire foreign technology collaboration through RBI or Government approvals.

An Indian company may receive Foreign Direct Investment under the two routes as given under:

1. Automatic Route: FDI in sectors /activities to the extent permitted under the automatic route does not require any prior approval either of the Government or the Reserve Bank of India.

2. Government Route: FDI in activities not covered under the automatic route requires prior approval of the Government which are considered by the Foreign Investment Promotion Board (FIPB), Department of Economic Affairs, Ministry of Finance.

FDI is not permitted in the following industrial sectors:

1. Arms and ammunition.

2. Atomic Energy.

3. Railway Transport

4. Coal and lignite.

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

6. Lottery Business

7. Gambling and Betting

8. Business of Chit Fund

9. Agricultural (excluding Floriculture, Horticulture, Development of seeds, Animal Husbandry, Pisciculture and cultivation of vegetables, mushrooms, etc. under controlled conditions and services related to agro and allied sectors) and Plantations activities (other than Tea Plantations) .

10. Housing and Real Estate business.

11. Trading in Transferable Development Rights (TDRs).

12. Manufacture of cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes.

Pros in FDI

1. It reduces the gap between farm prices and retail prices.

2. Gives best management practices from all over the world.

3. It makes market intelligent and also provides good understanding and practical knowledge to he domestic retailers.

4. To achieve expected growth in India GDP: India is targeting for its GDP to grow by 8 to10 percent per year. This requires raising the rate of investment as well as generating demand for the increased goods and services produced.

5. Provide an aid to Indian agriculture to become lowest cost source of farm produce.

6. To bring trade balance and to increase


liquidity by the way of foreign exchange reserves.

7. status of the human resources in a country is also instrumental in attracting direct investment from overseas. Countries like China that have taken an active interest in increasing the quality of their workers and have made compulsory for every Chinese citizen to receive at least nine ears of education. This has helped in enhancing the standards of the laborers in China.

8. If a particular country has plenty of natural resources it always finds investors willing to put their money in them. A good example would be Saudi Arabia and other oil rich countries that have had overseas companies investing in them in order to tap the unlimited oil resources at their disposal.

9. Infrastructure is very important for FDI. So if a country keens to have overseas investors they have to focus on infrastructure.

CONS of FDI

1. Threats on organized and unorganized retail players.

2. Replacement of established national brands by the brands of the retail gains. For e.g Wal-Mart is committed to buying the best goods at the cheapest prices to give its customers the best value for money. That is why it sources so heavily from China. 70% of merchandise in Wal-Mart contains components made in China. Even though Wal-mart may not continue heavy operations in china but would continue heavy sourcing from china market to cater to the world markets at lower prices. Low prices of Chinese products can easily convince Indian price consciousness mentality. Acceptance towards Chinese brands can create a direct threat on Indian established brands providing best quality products with reasonable prices.

3. While the levels of FDI tend to be resilient

during periods of economic uncertainty, it has the potential of adversely affecting the net capital flow of a developing economy especially if it does not have a healthy and sustainable FDI schedule.

4. FDIs may enter the host country for unique strategic reasons but there is ultimately the need to achieve returns on investments. For e.g. paying a premium for the price of labor may improve the consumption power of workers, but it also has the detrimental ability of disrupting the local employment market. When prices rise, supply increases while demand falls. Similarly, when the price of labor increase, wage premiums in this case, this creates a distortion and creates disequilibrium in the labor market. Job matching stops being efficient and may even create unemployment.

Current Investment scenario in India: Inward and Outward

Globalization and Foreign Direct Investment (FDI) is playing an important role in the development of developed, developing as well as underdeveloped economies. The reasons are simple like introduction of new products, new skills, easy approachable markets and modern technology to the host countries. Every country around the world is playing a important role in the encouragement of foreign and overseas investors and their investments. India is being ranked as the second most favored destination for foreign investments after China by showing a growth year after year.

Government on time to time has taken various initiatives to liberalize FDI policies so as to receive maximum investment keeping in mind that domestic products should not get blemished. The FDI outflow from India has also been increased and expected to reach to very high mark.

Conclusion

On the basis of above research and discussion FDI has both positive and negative impact on India Economy. Government should promote


FDI and in order to lower down its negative impact it should have redesigned framework for the local players. Government should encourage FDI on gradual basis depending on products from one area to other Product category wise clauses should be developed to allow FDI. India needs inflows to drive investment in infrastructure, a lack of which is often cited as restricting the country’s economic growth.

FDI plays an important role in the long-term development of a country not only as a source of capital but also for enhancing competitiveness of the domestic economy through transfer of technology, strengthening infrastructure, raising productivity and generating new employment opportunities. The huge market size, availability of highly skilled human resources, sound economic policy, abundant and diversified natural resources all these factors enable India to attract FDI. Further, it was found that even though there has been increased flow of FDI into the country during the post liberalization period, the global share of FDI in India is very less when it is compared to other developing countries. Lack of proper infrastructure, instable government and political environment, high corporate tax rates and limited export processing zones are considered to be the major problems for low FDI into the country. To overcome this situation, the Government should revise the sectoral cap and bring more sectors under the automatic route. Further, India should sign the agreement of Double Taxation treaties with other countries in order to increase bilateral trade. Therefore, there is an urgent need to adopt innovative policies and good corporate governance practices on par with international

standards, by the Government of India, to attract more and more foreign capital in various sectors of the economy to make India a developed economy.

Major economic reforms were undertaken in India in the early 1990s. This led to the liberalization and deregulation of the Indian Economy and also opened the country’s markets to Foreign Direct Investment (FDI). In India foreign direct investments are allowed through collaborations that are of financial nature, joint venture collaborations, through preferential allotments and also through Euro issues. Regulatory reforms were undertaken in India in the early 1990s to encourage FDI inflows to the country. FDI is allowed through joint ventures, preferential allotments, capital markets, and financial collaborations.

References

1. Review of Economic Statistics, Vol. 87, No. 1, Pages 174-183.

2. Reserve Bank of India (RBI), Handbook of Statistics on Indian Economy

3. Reserve Bank of India (RBI), Monthly Bulletin, various issues.

4. Ministry of Finance, Department of Economic Affairs, Government of India.

5. Agarwal J, Khan MA (2011) Impact of FDI on GDP: A comparative study of China and India, Int. J. Business Management 6(10):71-79.

6. www.fdi.gov.in

7. www.org.in

8. www.sebi.gov.in

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The Opportunities and Challenges for FDI in Retail in India

Abstract

India is fast becoming the retail destination of the world ,India has emerged as the fourteenth most favourable destination for international retailers according the GRDI 2013 report. The Indian retail is poised to become a $ 1.3 billion opportunity by 2020 with the current market size estimated at $ 500 billion this translates to an additional $800 billion in the next eight year said President of the FICCI. Despite these encouraging signs India’s retail markets remain largely off limits to large international retailers like Wal-Mart and Carrefour opposition to liberalizing FDI in this sector raised concerns about employment losses unfair competition resulting in large scale exit of incumbent domestic and the death know on the small traders who will bein no position to compete with the pig players. Thus it will kill the small entrepreneurs initiatives as these traders do not have the capital and expertise to compete with big retail chains. The bulk of the Indian economy would gain significantly from the emergency of a well capitalized retail industry that brings the latest technology and management practices to build modern supply chains in India, connecting country and town connecting small producers with national and even global markets. In this paper I will explain the policy and reforms latest policy change on FDI on retail industry by the government of India, the entry of foreign retailers into the market further the paper will focus on the strategies, strength issues and opportunities of retail industry and its recent / future trends.

Keywords : liberalization, global markets, latest technology

Ruchi KumariResearch Scholar

P.G Department of Commerce and Business AdministrationT.M. Bhagalpur University, Bhagalpur

Introduction

Consumersbuying preference in India is almost changing and creating a tremendous potential for the retail industry to look for innovative ideas and bring in new products with creative marketing approach to tap the huge working population with the age group of 21-30 years. New modern retailing concepts of western trends has entered into the retail market in India, in the form of bustling shopping centers, multi storied malls and the huge complexes that offer shopping, entertainment and food all under one roof.

The retail industry in India is expected to grow at a rate of 14% by 2013. The first step towards allowing Foreign Direct investment in retail was taken in the year 2006. Since then 54 FDI approvals have been granted by the government and the country has received a cash inflow to the tune of about Rs. 901.64 crore.

The scenario at present is

� 100% FDI is allowed in wholesale cash and carry trade.

� 51% FDI, in single Brand Retail.

� Few FDI in Multi Brand Retail

Some of the concerns against allowing of foreign direct investment in multi brand retail were that FDI would lead to unfair competition and result in large scale exit of domestic retailers, especially, the small family managed outlets.

Another concern was that organized retail is still under developed and in its nascent stage, and there for it is important that the domestic retail sector is allowed to grow and consolidate first and then this sector should be opened to foreign investors.

As per the report prepared by FICCI and ICICI Property services in Feb 2005, FDI can


be a powerful catalyst to spur competition in the retail industry. It can bring about the improvement in various areas such as:-

� Supply chain Improvement � Investment in Technology � Manpower and skill development � Tourism Development � Up gradation in Agriculture � Efficient small and medium scale

Industries � Growth in market size � Greater Productivity � Benefits to government through greater

GDP. � Tax income and employment generation

The arrival of foreign companies into the Indian retail sector is a sensitive issue, as small shopkeepers fear being driven out of business by multinationals. Industry bodies want the retail sales sector to be liberalized gradually but calls for the market to be opened up to foreign competition have increased in recent months, notably during visits by western leaders. Both US President Barack Obama and hisfrench counterpart nicolas Sarkozy urged India to remove restrictions on foreign trade and investment.

Definition of Retail

In 2004, The High Court of Delhi defined the tern “retail” as a sale for final consumption in contrast to a sale for further sale or processing (i.e. wholesale).Thus, retailing can be said to be the interface between the producer and the individual consumer buying for personal consumption. This excludes direct interface between the manufacturer and institutional buyers such as the government and other bulk customers. Retailing is the last link that connects the individual consumer with the manufacturing and distribution chains A retailer is involved in the act of selling goods to the individual consumer at a margin of profit.

FDI in Retail Sector

Until 2011, Foreign Direct Investment (FDI) was not allowed in multi brand retail, forbidding

foreign companies from any ownership in supermarkets, convenience stores or any retail outlets. Even single brand retail was limited to 51 percent ownership. In January 2012, India allowed 100 percent FDI investment in single brand stores, but imposed the requirement that the single brand retailer would have to source 30 percent of its goods from India. On 7 December 2012, India allowed 51 percent FDI in multi brand retail. Manmohan Singh, the then prime minister of India, felt that this would be beneficial for both consumers and farmers. Agricultural marketing was also expected to be benefited with the introduction of new technologies.

Dr. Manmohan Singh was credited with bringing about this policy change aimed at making India friendlier for businessmen.With this decision. International companies, especially the supermarkets, were able to increase their presence in the multi brand retail sector of India. However,they were not allowed to own more than 51 percent stakes in these establishments. This step was regarded as the most important one in the last two decades especially with regard to reforms in India.

Retail Sector in India

Retailing in defined as a set of all activities involved in selling goods or services directly to the final consumer for their personal, non-business use by the way of shops, market, door to door selling. and mail –order or over the internet where the buyer intends to consume the product. “Retail ” term came up in 2004 when the High Court of Delhi defined the term retail “as a sale for final consumption compared to a sale for further Sale or processing.

The phenomena of retailing involve a direct interface with the customer and the coordination of business activities from end to end from the concept or design stage of a product to its delivery and post delivery service to the customer.

Evlution of Indian Retail Industry

Historically retailing evolved as a source of entertainment ( in the form of village fairs, melas etc.) which was within the rural reach.


Later on definitions and meanings were transformed. Mom and Pop/Kirana stores which are of traditional variety neighbourhood shops.Then Came the government supported PDS outlets, khadi stores, cooperatives etc. Last of all shopping malls, supermarkets, departmental stores etc has brought a huge charge to the Indian retail market.

Retailing in India is one of the pillars of economy and accounts for 14 to 15 percent of its GDP. The Indian Retail market is estimated to be US $ 500 billion and one of the top five retail markets in the world by economic value. India is one of the fastest growing retail markets in the world. with 1, 2 billion people.

As of 2013, India’s retailing industry was essentially owner manned small shops In 2010, larger format convenience stores and supermarkets accounted for about 4 percent of the industry, and these were present only in large urban centres. India’s retail and logistics industry employs about 40 million Indians(3.3 % of Indian population)

The retail industry in India is of late often being hailed as one of the sunrise sectors in the economy. The Indian retail sector is very different from that of the developed countries In the developed countries, products and services normally reach consumers from the manufacturer/ producers through two different channels:

(a) Via independent retailers (vertical separation)

(b) Directly from the producers (vertical integration)

In the latter case, the producers establish their own chains of retail outlets, or develop franchises. On the other hand, Indian retail industry is divided into organized and unorganized sectors. Organized retailing refers ot trading activities undertaken by licensed retailers, that is those who are registered for sales tax, income tax etc.

Division of Indian Retail Industry

The Indian retail industry is generally divided into two major segments-organized retailing

and unorganized retailing.

(a) Organized Retailing : Refers to trading activities undertaken by licensed retailers, that is, those who are registered for sales tax, income tax etc. These include the corporate backed hypermarkets and retail chains, and also the privately owned large retail businesses.

(b) Unorganized Retailing : Refers to the traditional formats of low cost retailing for example, the local kirana shops, owner manned general stores, paan / beedi shops, convenience stores, hand card and pavement vendors etc.

Type of Retailing in India

The retail sector in india is organized into three categories, namely “ single brand “,”Multi brand “ and cash and carry retail.

(a) Single Brand : Single brand retail comprises those retailers selling product of a “Single brand” only, such that products should be sold under the same brand internationally and single brand product retailing covers only products which are branded during manufacturing, FDI in “Single Brand” implies that a retail store with foreign investment can only sell one brand. for example if Adidas were to obtain permission to retail its flagship brand in India, those retail outlets could only sell products under the Adidas brand and not the Reebok Brand for which separate permission is required. If granted permission, Adidas could sell products under the Reebok brand in separate outlets.

(b) Multi – Brand : FDI in Multi brand retail implies that a retail store with a foreign investment can sell multiple brands under one roof. No FDI is allowed in the multi brand retail category. This includes all firms in organized retail that seek to stock and sell multiple brands, such as large international retailers like Wal-Mart and Carrefour. This is the sector that is most under dispute.


(c) Cash and Carry : The third segment, called “Cash and Carry” refers to wholesale retail The government defines this segment as the “ sale of goods and merchandise to retailers, industrial, commercial, institutional or other professional business users or to other wholesalers and related subordinated service providers” In India, FDI of 100 percent is permitted in this segment. As per the cash and carry structure commonly employed in India. The wholesale and retail entities are maintained as separate entities without any cross sharehodings.The retail entity is owned and controlled by the Indian partner while the wholesale entity can be owned by the foreign partner up to 100 percent. Wal-Mart, for example, has already established a successful presence in this category of wholesale operations by entering into a joint venture with Bharati Enterprises Ltd. of India. The new entity, Bharti Wal-Mart, is in operation with stores opening around the country.

Entry Options for foreign Players Prior to FDI Policy (2006)

Although prior to Jan 24, 2006. FDI was not authorized in retailing most general players had been operating in the country. Some of entrance routes used by them have been discussed in sum as below:-

(a) Franchise Agreements : It is an easiest track to come in the Indian market. In franchising and commission agents services. FDI (unless otherwiseProhibited) is allowed with the approval of the Reserve Bank of India (RBI) under the Foreign Exchange Management Act. This is a most usual mode for entrance of quick food bondage opposite a world. Apart from quick food bondage identical to Pizza Hut, players such as Lacoste, Mango, Nike as good as Marks as good as Spencer,have entered Indian marketplace by this route.

(b) Cash and Carry Wholesale Trading: 100% FDI is allowed in wholesale trading which involves building of a large

distribution infrastructure to, assist local manufacturers. The wholesaler deals only with smaller retailers and not consumers. Metro AG of Germany was the first significant global player to enter India through this route.

(c) Strategic Licensing Agreements : Some foreign brands give exclusive licenses and distribution rights to Indian companies Through these rights, Indian companies can either sell it through their own stores., or enter into shop in shop arrangements or distribute the brands to franchises. Mango, the Spanish apparel Brand has entered India through this route with an agreement with Piramyd. Mumbai SPAR entered into a similar agreement with Radhakrishna foodlands Pvt. Ltd.

(d) Manufacturing and wholly owned subsidiaries : The foreign brands such as Nike, Reebok, Adidas etc. That have wholly-owned Subsidiaries in manufacturing are treated as Indian companies and are, therefore allowed, to do retail. These companies have been authorized to sell products to Indian consumers by franchising, internal distributors, existent Indian retailers, own outlets, etc. For instance, Nike entered through an exclusive licensing agreement with sierra enterprises but now has a wholly owned subsidiary,Nike Indian Private Limited.

Opportunities and Challenges of FDI in Retail in India

Opportunities : The following may be regarded as major perceived benefits of allowing FDI in retail in india:

(a) Capital Infusion : This would provide an opportunity for cash –deficient domestic retailers to bridge the gap between capital required and raised In fact FDI is one of the major sources of investments for a developing country like India wherein it expects investments from Multinational companies to improve the countries growth rate, create jobs, share their


expertise, back –end infrastructure and research and development in the host country.

(b) Boost Healthy Competition and Check Inflation : Supporters of FDI argue that entry fo the many multinational corporations will obviously promise intensive competition between the different companies offering their brands in a particular product market and this will result in availability of many varieties reduced prices, and convenient distribution of the marketing offers.

(c) Improvement in supply Chain : Improvement of supply chain distribution efficiencies, coupled with capacity building and introduction fo modern technology will help arrest wastages (in the present situation improper storage facilities and lack of investment in logistics have been creating inefficiencies in food supply chain, leading to significant wastages).

(d) Improvement in Customer Satisfaction: Consumers in the organized retail will have the opportunity to choose between a numbers of internationally famous brands with pleasant shopping environment, huge space for product display, maintenance of hygiene and better customer care. There is a large segment of the population which feels that there is a difference in the quality of the products sold to foreign retailers and the same products sold in the Indian market. There is an increasing tendency to pay for quality and ease and access to a “one-stop shop” which will have a wide range of different products. If the market is opened, then the pricing could also chage and the monopoly of certain domestic Indian companies will be changed.

(e) Improved technology and logistics: Improved technology in the sphere of processing, grading, handling and packaging of goods and further technical developments in areas like electronic weighing,billing, barcode scanning etc. could be a direct consequence of foreign companies opening retail shops in India.

Further, transportation facilities can get a boost, in the form of increased numberof refrigerated vans and pre-cooling chambers which can help bring down wastage of goods.

(f) Benefits for the Farmers : Presumably, with the onset of multi- brand retail, the food and packaging industry will also get an impetus, Though India is the second largest producer of fruits and vegetables. It has a very limited integrated cold chain infrastructure. Lack of adequate storage facilities causes heavy losses to farmers, in terms of wastage in quality and quantity of produce in general, and of fruits and vegetables in particular. With liberalization, there could be a complete overhaul of the currently fragmented supply chain infrastructure. Extensive backward integration by multinational retailers,coupled with their technical and operational expertise, can hopefully remedy such structural flaws Also, farmers can benefit with the “farm to fork ventures with retailers which helps”

I. To cut down intermediaries

II. Give better prices to farmers, and

III. Provide stability and economics of scale which will benefit, in the ultimate analysis, both the farmers and consumers.

(g) Creation of More and Better Employment Opportunities : The Entry of foreign companies into Indian Retailing will not only create many employment opportunities but will aslo ensure quality in them. This helps the Indian human resource to find better quality jobs and to improve their standard of living and life style on par with that of the citizens of developed nations.

Challenges

(a) Supply Chain : Finance Minister Mr. Pranab Mukherjee in his 2010-11 budget speech had emphasized on the reduction of wastages estimated at 40 percent of


National produce in storage as wll as in the operations of the existing food. Supply chains in the country, catering to people in 35 states and union territories is equivalent to catering to people in 35 countries, leading to complexities in merchandise / inventory management.

Infrastructure has been developing at a rapid pace over the past decade but has still a significant ground to cover; the planned expenditure of US $ 1 trillion in the 12th five year plan will help bridging this gap.

(b) Location and Rental : Finding the right location with the right rental for stores has been a challenge for all retailers. Rent forms a large portion of the total expenditure (6 to 11 percent of the revenue) in retailer’s income statement and can more often than not convert a profitable store into loss making the challenge for a retailer would be to find the right location for their stores either in malls or as a standalone store to be able to generate enough footfalls.

(c) Channel Conflicts : The retailers need to maintain a direct relationship with their suppliers. Due to the complex taxation structure and geographic spread of the country, most FMCG companies have developed regional distribution and re-distribution network, cutting out the distribution network will hurt operating structures of distibutors, who as an industry body in the past have opposed FMCG companies selling directly to retailers.

(d) Regulatory : Currently indirect taxation structure is complex in India with varying tax rates, multiplicity of taxes and multiple tax enfor cement authorities. Goods and service Tax likely to be implemented in 2011 will replace a host of levies like excise, sales tax, value- added tax, entertainment tax and luxury tax. Opening new store requires a lot of licenses, which have to be obtained from different government

departments leading to considerable lead time in opening up of the stores. A push has been made by existing retailers to get the government to have a single window clearance for getting all the licenses at one place to speed up the process.

(e) Unique Indian Customer : The Indian consumer experiencing modern retail has now warmed up to this idea. Buying habits have still not changed, where people prefer to buy most of the fruits and vegetables on a daily basis.

Conclusion

Debates, discussions and conflicting views exit among policy makers, economists and social thinkers on the issue of estimating the costs and benefits of allowing FDI in both single and multi brand retail in India. A recent study by University of North Carolina economist shows that the potential benefits of allowing large retailers into the country significantly outweigh the costs. These benefits largely accumulate through productivity gains. With respect to the impact of entry by big box stores such as Wal-Mart on retail employment and earnings, evidence from the United states is mixed. Using country level data, a recent study finds that Wal-Mart entry increases retail employment in the year of entry (Basker 2005) a while contrasting evidence indicates that each Wal-Mart worker replaces approximately 1.4 retail workers representing a 2.7 percent reduction in average retail employment (Neumark, Zhang and Ciccarella. 2008), while describing the retail experience in Thailand Sarma (2005) shows how traditional shopkeeper continued to suffer even when the thai economy recovered, after the Asian crisis of the late 1990s. Foreign owned retailers, he argues, “grabbed a big share of the retail market, often through” unethical means.

The UK competition commission found in a 2006 study of major retail chins including Marks and Spencer,Sainshury and Tesco that the burden of cost increases in the supply chain has fallen disproportionately heavily on small suppliers such as farmers “Apart from prices, the report states that smaller


farmers came under servere pressure from supermarkets due to the latters requirement for large valumes of each product,pushing farmers to grow single crops rather then the multiple produce they would usually grow to minimize risk.

Observed supermarket practices too may work against the interests of incumbent retailers even organized ones. Supermarket chains routinely sell some products at lower than market prices, which appears to benefit consumers, but this puts pressure, on small local stores and has an adverse impact on low income and elderly consumers who rely on local shops.

The Indian government, however, recommends that retail firms source a percentage of manufactured products from the small and medium domestic enterprises(DIPP Report, 2010) with a restriction of this sort the opening up of the retail sector of FDI could therefore provide a boost to small and medium enterprises Moreover, expansion in the retail sector could also generate significant employment potential, especially among rural and semi-urban youth. So it is very difficult to predict the future of Indian retail sector. But the government of India must be cautious about the apprehensions raised by the critics and adequate safeguards must be taken so that the positive effects may outweigh the negative ones and the traditional retailers coexist even after big foreign retailers enter the market.

References

1. Nielsen AC, Consumer and Designer Brands AC Nielsen April 2008

2. Kearney A.T, Retail Global Expansion: A portfolio of opportunities, Global retail Development Index, 2011

3. CBRE, How global is the business of retail CB Richard Ellis, Global Research and consulting, 2011

4. Department of Industrial Policy and promotion 2010, Foreign Direct Investment (FDI) in Mutti Brand Retail Trading, Discussion Paper Available at

http:// www. dipp.nic.in ”

5. Basker Emek, A Job creation on Destruction? Labour market effects of Wal-Mart Expansion, 2005

6. Review of economic statistics vol 87 No.1, pp 174-183

7. Basker Emek, Selling a cheaper Mousetrap : Wal-Marts effect on Retail Prices Journal of urban economics vol 58 No. 2, 2005, pp 203 229

8. Chari Anusha and TCA, Madhav Raghavanj, Foreign Direct Investment in India’s Retail Bazaar opportunities and challenges, March 2011

9. Confederation of Indian Industry, The Impact of FDI in Retail on SME Sector: A survey Report, 2012

10. Joseph M.N. Soundararajan, M. Gupta, Impact of organized Retailing on the Unorganized sector, ICRIER, May 2008

11. Joseph M. and Nirupama Soundararajan, Retailingin India: A cntical Assessment, Academic foundation, New Delhi, 2009

12. Kalhan Anuradha, Impact of malls on small shops and hawkers” Economic and political weekly vol 42, No. 22, 2007, pp 2063-66

13. Kalhan Anuradha and Martin Franz, Regulation of Retail : Comparative experience economic and political weekly vol 44, no 32, 2009, pp 56-64

14. Kulkarni Keerti, Kulkarni ramakant and Kulkarni Gururaj A, Foreign Direct Investment in Indian retail sector: Issues And Implication, Indian journal of Engineering and Management Sciences 2012 vol 3(3)

15. Mc Kinsey and company, The Bird of Gold : The Rise of Indias consumer Market, Mckinsey global Institute, 2007

16. Mukherjee A.D. Satya, T.M Goval, M.K Mantrala and S.Zou, Impact of the FDI Retail policy on Indian consumer and the


way forward, ICRIER Policy series Aug 2011, No. 5

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18. Neumark David, Junfu Zhang, and Stephen Ciccarella, 2008 The effects of Wal-Mart on local labour markets “ jounal of urban economics vol 63 No. 2, 2005, pp 405-430

19. Sarma E.A.S, Need for caution in retail FDI, Economic and Political weekly, vol 40 No. 46, 2005, pp 4795-98

20. Sarthaksarin (Nov 23,2010) foreign Direct Investment in retail sector http://www. Legalindia.in/foreign –direct-investment in retail –sector –others –surmounting –india-napping

21. Soundararaj J., 100% FDI in single brand Retail of india –A Boon or a Bane International Journal of multi-disciplinary Management studies may 2012 vol 2 issue 5, 2012

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Growth of FDI in Indian Telecom Sector

Abstract

Foreign Direct Investment is a profiler for the economic development of the country. Inadequacy of foreign direct investment retained many countries as poor country. Encouraging FDI in the form of technology, direct currency loan, consultancies have put the poor state of economy in the path of development. There is sufficient evidence to prove this. This yet another attempt how far FDI put the Indian telecom sector on the way of growth path of the ladder. This paper will examine the current status of foreign direct investment (FDI) in the Indian telecommunication sector and the issues facing foreign companies seeking to invest in the Indian telecommunications sector. The telecommunications sector is growing at a speed of 45% during the recent years. This rapid growth is possible due to various proactive and positive decisions of the Government and contribution of both by the public and the private sectors. The paper concludes with a brief econometric examination of the factors influencing the level of FDI, how Go-Green entered in FDI, Telecom and IT in the Indian telecommunication sector.

Keywords : rapid growth, currency loan, poor country

Sagorika RakshitResearch Scholar

Department of CommerceVinoba Bhave University, Hazaribag

Dr. Subhas KumarHOD, Annanda College, Hazaribag

Introduction

The telecom services have been recognized the world-over as an important tool for socio-economic development for a nation. It is one of the prime support services needed for rapid growth and modernization of various sectors of the economy. Indian telecommunication sector has undergone a major process of transformation through significant policy reforms, particularly beginning with the announcement of NTP 1994 and was subsequently re-emphasized and carried forward under NTP 1999. Driven by various policy initiatives, the Indian telecom sector witnessed a complete transformation in the last decade. It has achieved a phenomenal growth during the last few years and is poised to take a big leap in the future also.

The Indian Telecommunications network with 621 million connections (as on March 2016) is the third largest in the world. The sector is growing at a speed of 45% during the recent years. This rapid growth is possible due to

various proactive and positive decisions of the Government and contribution of both by the public and the private sectors. The rapid strides in the telecom sector have been facilitated by liberal policies of the Government that provides easy market access for telecom equipment and a fair regulatory framework for offering telecom services to the Indian consumers at affordable prices. Presently, all the telecom services have been opened for private participation. The Government has taken following main initiatives for the growth of the Telecom Sector:

Foreign Direct Investment (FDI)

In Basic, Cellular Mobile, Paging and Value Added Service, and Global Mobile Personal Communications by Satellite, Composite FDI permitted is 74% (49% under automatic route) subject to grant of license from Department of Telecommunications subject to security and license conditions. (para 5.38.1 to 5.38.4 of consolidate FDI Policy circular 1/2016 of DIPP)FDI upto 74% (49% under automatic route) is


also permitted of the Following:-

� Radio Paging Service

� Internet Service Providers (ISP’s)

� FDI upto 100% permitted in respect of the following telecom services:

� Infrastructure Providers providing dark fibre (IP Category I);

� Electronic Mail; and

� Voice Mail

Subject to the conditions that such companies would divest 26% of their equity in favor of Indian public in 5 years, if these companies were listed in other parts of the world.

� In telecom manufacturing sector 100% FDI is permitted under automatic route.

� The Government has modified method of calculation of Direct and Indirect Foreign Investment in sector with caps (para 4.1 of consolidate FDI Policy circular 1/2016 of DIPP) and have also issued guidelines on downstream investment by Indian Companies. (para 4.6 of consolidate FDI Policy circular 1/2016 of DIPP)

� Guidelines for transfer of ownership or control of Indian companies in sectors with caps from resident Indian citizens to non-resident entities have been issued (para 4.2.3 of consolidate FDI Policy circular 1/2016 of DIPP)

Investment Opportunities and Incentives

An attractive trade and investment policy and lucrative incentives for foreign collaborations have made India one of the world’s most attractive markets for the telecom equipment suppliers and service providers.

� No industrial license required for setting up manufacturing units for telecom equipment.

� 100% Foreign Direct Investment (FDI) is allowed through automatic route for manufacturing of telecom equipments.

� Payments for royalty, lumpsum fee for

transfer of technology and payments for use of trademark/brand name on the automatic route.

� Foreign equity of 74% (49 % under automatic route) permitted for telecom services - basic, cellular mobile, paging, value added services, NLD, ILD, ISPs - and global mobile personal communications by satellite.

� Full repatriability of dividend income and capital invested in the telecom sector.

Liberalization

The process of liberalization in the country began in the right earnest with the announcement of the New Economic Policy in July 1991. Telecom equipment manufacturing was delicensed in 1991 and value added services were declared open to the private sector in 1992, following which radio paging, cellular mobile and other value added services were opened gradually to the private sector. This has resulted in large number of manufacturing units been set up in the country. As a result most of the equipment used in telecom area is being manufactured within the country. A major breakthrough was the clear enunciation of the government’s intention of liberalizing the telecom sector in the National Telecom Policy resolution of 13th May 1994.

Telecom Regulatory Authority of India (TRAI)

The entry of private service providers brought with it the inevitable need for independent regulation. The Telecom Regulatory Authority of India (TRAI) was, thus, established with effect from 20th February 1997 by an Act of Parliament, called the Telecom Regulatory Authority of India Act, 1997, to regulate telecom services, including fixation/revision of tariffs for telecom services which were earlier vested in the Central Government.

TRAI’s mission is to create and nurture conditions for growth of telecommunications in the country in manner and at a pace, which will enable India to play a leading role in emerging global information society. One of the main objectives of TRAI is to provide a


fair and transparent policy environment, which promotes a level playing field and facilitates fair competition. In pursuance of above objective TRAI has issued from time to time a large number of regulations, orders and directives to deal with issues coming before it and provided the required direction to the evolution of Indian telecom market from a Government owned monopoly to a multi operator multi service open competitive market. The directions, orders and regulations issued cover a wide range of subjects including tariff, interconnection and quality of service as well as governance of the Authority.

The TRAI Act was amended by an ordinance, effective from 24 January 2000, establishing a Telecommunications Dispute Settlement and Appellate Tribunal (TDSAT) to take over the adjudicatory and disputes functions from TRAI. TDSAT was set up to adjudicate any dispute between a licensor and a licensee, between two or more service providers, between a service provider and a group of consumers, and to hear and dispose of appeals against any direction, decision or order of TRAI.

New Telecom Policy 1999

The most important milestone and instrument of telecom reforms in India is the New Telecom Policy 1999 (NTP 99). The New Telecom Policy, 1999 (NTP-99) was approved on 26th March 1999, to become effective from 1st April 1999. NTP-99 laid down a clear roadmap for future reforms, contemplating the opening up of all the segments of the telecom sector for private sector participation. It clearly recognized the need for strengthening the regulatory regime as well as restructuring the departmental telecom services to that of a public sector corporation so as to separate the licensing and policy functions of the Government from that of being an operator. It also recognized the need for resolving the prevailing problems faced by the operators so as to restore their confidence and improve the investment climate.

Key features of the NTP 99 include:

Strengthening of Regulator

� National long distance services opened to

private operators.

� International Long Distance Services opened to private sectors.

� Private telecom operators licensed on a revenue sharing basis, plus a one-time entry fee. Resolution of problems of existing operators envisaged.

� Direct interconnectivity and sharing of network with other telecom operators within the service area was permitted.

� Department of Telecommunication Services (DTS) corporatised in 2000.

� Spectrum Management made transparent and more efficient.

All the commitments made under NTP 99 have been fulfilled; each one of them, in letter and spirit, some even ahead of schedule, and the reform process is now complete with all the sectors in telecommunications opened for private competition.

National Long Distance

National Long Distance opened for private participation. The Government announced on 13.08.2000 the guidelines for entry of private sector in National Long Distance Services without any restriction on the number of operators. The DOT guidelines of license for the National Long Distance operations were also issued.

Highlights - NLD Guidelines

Unlimited entry for carrying both inter-circle and intra-circle calls.

Total foreign equity (including equity of NRIs and international funding agencies) must not exceed 74%. Promoters must have a combined net worth of Rs.25 million.

� Private operators will have to enter into an arrangement with fixed-service providers within a circle for traffic between long-distance and short-distance charging centres.

� Seven years time frame set for rollout of network, spread over four phases. Any


shortfall in network coverage would result in encashment and forfeiture of bank guarantee of that phase.

� Private operators to pay one-time entry fee of Rs.25 million plus a Financial Bank Guarantee (FBG) of Rs.200 million. The revenue sharing agreement would be to the extent of 6%.

� Private operators allowed to set up landing facilities that access submarine cables and use excess bandwidth available.

� Licence period would be for 20 years and extendable by 10 years.

International Long Distance

In the field of international telephony, India had agreed under the GATS to review its opening up in 2004. However, open competition in this sector was allowed with effect from April 2002 itself. There is now no limit on the number of service providers in this sector. The licence for ILD service is issued initially for a period of 20 years, with automatic extension of the licence by a period of 5 years. The applicant company pays one-time non-refundable entry fee of Rs.25 million plus a bank guarantee of Rs.250 million, which will be released on fulfillment of the roll out obligations. The annual licence fee including USO contribution is @ 6% of the Adjusted Gross Revenue and the fee/royalty for the use of spectrum and possession of wireless telegraphy equipment are payable separately. At present 24 ILD service providers (22 Private and 2 Public Sector Undertaking) are there. As per current roll out obligations under ILD license, the licensee undertakes to fulfill the minimum network roll out obligations for installing at least one Gateway Switch having appropriate interconnections with at least one National Long Distance service licensee. There is no bar in setting up of Point of Presence (PoP) or Gateway switches in remaining location of Level I Tax’s. Preferably, these PoPs should conform to Open Network Architecture (ONA) i.e. should be based on internationally accepted standards to ensure seamless working with other Carrier’s Network.

Universal Service Obligation Fund

Another major step was to set up the Universal Service Obligation Fund with effect from April 1, 2002. An administrator was appointed for this purpose. Subsequently, the Indian Telegraph (Amendment) Act, 2003 giving statutory status to the Universal Service Obligation Fund (USOF) was passed by both Houses of Parliament in December 2003. The Fund is to be utilized exclusively for meeting the Universal Service Obligation and the balance to the credit of the Fund will not lapse at the end of the financial year. Credits to the Fund shall be through Parliamentary approvals. The Rules for administration of the Fund known as Indian Telegraph (Amendment) Rules, 2004 were notified on 26.03.2004.

The resources for implementation of USO are raised through a Universal Service Levy (USL) which has presently been fixed at 5% of the Adjusted Gross Revenue (AGR) of all Telecom Service Providers except the pure value added service providers like Internet, Voice Mail, E-Mail service providers etc. In addition, the Central Govt. may also give grants and loans. An Ordinance was promulgated on 30.10.2006 as the Indian Telegraph (Amendment) Ordinance 2006 to amend the Indian Telegraph Act, 1885 in order to enable support for mobile services, broadband connectivity, general infrastructure and pilot project for new technological developments in rural and remote areas of the country. Subsequently, an Act has been passed on 29.12.2006 as the Indian Telegraph (Amendment) Act 2006 to amend the Indian Telegraph Act, 1885.

USFO has initiated action to bring mobile services within the ambit of Universal Service Obligation Fund (USOF) activities. Under this initiative, 7387 mobile infrastructure sites are being rolled out, in the first phase, across 500 districts and 27 states of India. This scheme will provide mobile services to approximately 0.2 million villages which where hitherto deprived of the same. As on 30th June 2016, 7183 shared towers have been set up under the First Phase of the scheme. The USOFof DOT has proposed to set up about 10,128


additional towers in order to extend the mobile coverage in other uncovered areas under the Second Phase of the Scheme.

Unified Access Services

Unified access license regime was introduced in November 2003. Unified Access Services operators are free to provide, within their area of operation, services, which cover collection, carriage, transmission and delivery of voice and/or non-voice messages over Licensee’s network by deploying circuit, and/or packet switched equipment. Further, the Licensee can also provide Voice Mail, Audiotex services, Video Conferencing, Videotex, E-Mail, Closed User Group (CUG) as Value Added Services over its network to the subscribers falling within its service area on non-discriminatory basis. The country is divided into 23 Service Areas consisting of 19 Telecom Circle and 4 Metro Service Areas for providing Unified Access Services (UAS). The licence for Unified Access Services is issued on non-exclusive basis, for a period of 20 years, extendable by 10 years at one time within the territorial jurisdiction of a licensed Service Area. The licence Fee is 10%, 8% & 6% of Adjusted Gross Revenue (AGR) for Metro and Category ‘A’, Category ‘B’ and Category ‘C’ Service Areas, respectively. Revenue and the fee/royalty for the use of spectrum and possession of wireless telegraphy equipment are payable separately. The frequencies are assigned by WPC wing of the Department of Telecommunications from the frequency bands earmarked in the applicable National Frequency Allocation Plan and in coordination with various users subject to availability of scarce spectrum.

Internet Service Providers (ISPs)

Internet service was opened for private participation in 1998 with a view to encourage growth of Internet and increase its penetration. The sector has seen tremendous technological advancement for a period of time and has necessitated taking steps to facilitate technological ingenuity and provision of various services. The Government in the public interest in general, and consumer interest in particular, and for proper conduct of telegraph

and telecom services has decided to issue the new guidelines(Details) for grant of licence of Internet services on non-exclusive basis. Any Indian company with a maximum foreign equity of 74% is eligible for grant of licence.

Broadband Policy 2004

Recognizing the potential of ubiquitous Broadband service in growth of GDP and enhancement in quality of life through societal applications including tele-education, tele-medicine, e-governance, entertainment as well as employment generation by way of high-speed access to information and web based communication; Government has announced Broadband Policy in October 2004. The main emphasis is on the creation of infrastructure through various technologies that can contribute to the growth of broadband services. These technologies include optical fibre, Asymmetric Digital Subscriber Lines (ADSL), cable TV network; DTH etc. Broadband connectivity has been defined as Always On with the minimum speed of 256 kbps. It is estimated that the number of broadband subscribers would be 20 million by 2016. With a view to encourage Broadband Connectivity, both outdoor and indoor usage of low power Wi-Fi and Wi-Max systems in 2.4 GHz-2.4835 GHz band has been delicensed. The use of low power indoor systems in 5.15-5.35 GHz and 5.725-5.875 GHz bands has also been delicensed in January 05. The SACFA/WPC clearance has been simplified. The setting up of National Internet Exchange of India (NIXI) would enable bringing down the international bandwidth cost substantially, thus making the broadband connectivity more affordable.

The prime consideration guiding the Policy includes affordability and reliability of Broadband services, incentives for creation of additional infrastructure, employment opportunities, induction of latest technologies, national security and brings in competitive environment so as to reduce regulatory interventions.

By this new policy, the Government intends to make available transponder capacity for VSAT services at competitive rates after taking


into consideration the security requirements. The service providers permitted to enter into franchisee agreement with cable TV network operators. However, the Licensee shall be responsible for compliance of the terms and conditions of the licence. Further in the case of DTH services, the service providers permitted to provide Receive-Only-Internet Service. The role of other facilitators such as electricity authorities, Departments of ITs of various State Governments, Departments of Local Self Governments, Panchayats, Departments of Health and Family Welfare, Departments of Education is very important to carry the advantage of broadband services to the users particularly in rural areas.

Target has been set for 20 million broadband connections by 2016 and providing Broadband connectivity to all secondary and higher secondary schools, public health institutions and panchayats by 2016.

In rural areas, connectivity of 512 KBPS with ADSL 2 plus technology (on wire) will be provided from about 20,000 existing exchanges in rural areas having optical fibre connectivity. Community Service Centres, secondary schools, banks, health centres, Panchayats, police stations etc. can be provided with this connectivity in the vicinity of above-mentioned 20,000 exchanges in rural areas. DOT will be subsidizing the infrastructure cost of Broadband network through support from USO Fund to ensure that Broadband services are available to users at affordable tariffs.

Tariff Changes

The Indian Telecom Sector has witnessed major changes in the tariff structure. The Telecommunication Tariff Order (TTO) 1999, issued by regulator (TRAI), had begun the process of tariff balancing with a view to bring them closer to the costs. This supplemented by Calling Party Pay (CPP), reduction in ADC and the increased competition, has resulted in a dramatic fall in the tariffs. ADC has been abolished for all calls w.e.f. 1st October 2008.

� The peak National Long Distance tariff for above 1000 Kms. in 2000 has come down

from US$ 0.67 per minute to US$ 0.02 per minute in 2009.

� The International Long Distance tariff from US$ 1.36 per minute in 2000 to US$ 0.16 per minute in 2009 for USA, Canada & UK.

� The mobile tariff for local calls has reduced from US$0.36 per minute in 1999 to US$ 0.009 - US$ 0.04 per minute in 2009.

� The Average Revenue Per User of mobile is between US$ 5.06 - US$ 7.82 per month

Network Expansion

The telecom sector has shown robust growth during the past few years. It has also undergone a substantial change in terms of mobile versus fixed phones and public versus private participation. The following table shows the growth trend of telecom sector from last five years:

The number of telephones has increased from 54.63 million as on 31.03.2003 to 621.28 million as on 31.03.2016. Wireless subscribers increased from 13.3 million as on 31.03.2003 to 584.32 million as on 31.03.2016. Whereas, the fixed line subscribers decreased from 41.33 million in 31.03.2003 to 36.95 million in 31.03.2016. The broadband subscribers grew from a meager 0.18 million to 8.76 million as on 31.03.2016.

Trend in Tele-density

Tele-density in the country increased from 5.11% in 2003 to 52.74 % in March 2016. In the rural area teledensity increased from 1.49% in Mar 2003 to 24.31% in March 2016 and in the urban areas it is increased from 14.32% in Mar 2003 to119.45% in March 2016.This indicates a rising trend of Indian telecom subscribers.

Rural Telephony

Apart from the 200.77million fixed and WLL connections on March 2016 provided in the rural areas, 570000 uncovered VPTs have been provided as on March 2016. Thus, 96% of the villages in India have been covered by the VPTs. More than 3 lakh PCOs are also providing community access in the rural


areas. Further, Mobile Gramin Sanchar Sewak Scheme (GSS) a mobile Public Call Office (PCO) service is provided at the doorstep of villagers. At present, 2772 GSSs are covering 12043 villages. Also, to provide Internet service, Sanchar Dhabas (Internet Kiosks) have been provided in more than 3500 Block Headquarters out of the total 6337 Blocks in the country. The target of 80 million rural connections by 2016 have already met during year 2008 itself. USOF subsidy support scheme is also being utilized for sharing wireless infrastructure in rural areas with about 19,000 towers by 2016.

Performance of telecom equipment manufacturing sector

As a result of Government policy, progress has been achieved in the manufacturing of telecom equipment in the country. There is a significant telecom equipment-manufacturing base in the country and there has been steady growth of the manufacturing sector during the past few years. The figures for production and export of telecom equipment are shown in table given below: (Rs. in crore)

Figures for production and export

Year Production Export2008-09 14400 4022009-10 14000 2502010-11 16090 4002011-12 17833 15002012-13 23656 18982013-14 41270 81312014-15 488800 11000

20015-16 50000 13500 (Projected @

18%)(Projected @

25%)

Rising demand for a wide range of telecom equipment, particularly in the area of mobile telecommunication, has provided excellent opportunities to domestic and foreign investors in the manufacturing sector. The last two years saw many renowned telecom companies setting up their manufacturing base in India.

Ericsson set up GSM Radio Base Station Manufacturing facility in Jaipur. Elcoteq set up handset manufacturing facilities in Bangalore. Nokia and Nokia Siemens Networks have set up their manufacturing plant in Chennai. LG Electronics set up plant of manufacturing GSM mobile phones near Pune. Ericsson launched their R&D Centre in Chennai. Flextronics set up an SEZ in Chennai. Other major companies like Foxconn, Aspcom, Solectron etc have decided to set up their manufacturing bases in India.

The Government has already set up Telecom Equipment and Services Export Promotion Council and Telecom Testing and Security Certification Centre (TETC). A large number of companies like Alcatel, Cisco have also shown interest in setting up their R&D centers in India. With above initiatives India is expected to be a manufacturing hub for the telecom equipment.

Opportunities

India offers an unprecedented opportunity for telecom service operators, infrastructure vendors, manufacturers and associated services companies. A host of factors are contributing to enlarged opportunities for growth and investment in telecom sector:

� An expanding Indian economy with increased focus on the services sector

� Population mix moving favorably towards a younger age profile

� Urbanization with increasing incomes

Investors can look to capture the gains of the Indian telecom boom and diversify their operations outside developed economies that are marked by saturated telecom markets and lower GDP growth rates.

Inflow of FDI into India’s telecom sector during April 2000 to Feb. 2016 was about Rs 405,460 million. Also, more than 8 per cent of the approved FDI in the country is related to the telecom sector.

Research & Development

India has proven its dominance as a technology solution provider. Efforts are being


continuously made to develop affordable technology for masses, as also comprehensive security infrastructure for telecom network. Research is on for the preparation of tested infrastructure for enabling interoperability in Next Generation Network. It is expected that the telecom equipment R & D shall be doubled by 2016 from present level of 15%. Modern technologies inductions are being promoted. Pilot projects on the existing and emerging technologies have been undertaken including WiMax, 3G etc. Emphasis is being given to technologies having potential to improve rural connectivity. Also to beef up R& D infrastructure in the telecom sector and bridge the digital divide, cellular operators, top academic institutes and the Government of India together set up the Telecom Centres of Excellence (COEs). The main objectives of the COEs are as follows:

� Achieve Telecom Vision 2016 that stipulates a definite growth model and take it beyond.

� Secure Information Infrastructure that is vital for country’s security.

� Capacity Building through Knowledge for a sustained growth.

� Support Planned Predictive Growth for stability.

� Reduce Rural Urban Digital Divide to reach out to masses.

� Utilize available talent pool and create environment for innovation.

� Management of National Information Infrastructure (NII) during Disaster

� Cater the requirement of South East Asia as Regional Telecom Leader

To achieve these objectives seven Centre of Excellences in various field of Telecom have been set up with the support of Government and the participation of private/public telecom operators as sponsors, at the selected academic institutions of India. The details of COEs are enumerated below: -

TCOEs Centres

Sr. No.

Associate Institute Sponsor Work Assigned

1 IIT Kharagpur Vodafone Essar & Texas Instruments

Next Generation Network (NGN) & Network Technology

2 IIT Delhi Bharti Airtel Telecom technology and management of Infrastructure

3 IISC (Indian Institute of Science), Bangalore,

Aircel & Texas instrument Information Security & Disaster Management of Infrastructure

4 IIT Kanpur BSNL & Alphion Technology Integration, Multimedia & Computational Mathematics

5 IIT Chennai BSNL & Alphion Telecom Infrastructure & Energy6 IIT Mumbai TTeleservices Rural Applications7 IIM Ahmedabad Idea Cellular Policy, Regulation, Governance,

Customer care &; Marketing

3G & Broadband Wireless Services (BWA)

The government has in a pioneering decision, decided to auction 3G & BWA spectrum. The broad policy guidelines for 3G & BWA have already been issued on 1stAugust 2008 and allotment of spectrum has been planned through simultaneously ascending e-auction process by a specialized agency. New players

would also be able to bid thus leading to technology innovation, more competition, faster roll out and ultimately greater choice for customers at competitive tariffs. The 3G will allow telecom companies to offer additional value added services such as high resolution video and multimedia services in addition to voice, fax and conventional data services


with high data rate transmission capabilities. BWA will become a predominant platform for broadband roll out services. It is also an effective tool for undertaking social initiatives of the Government such as e-education, telemedicine, e-health and e-Governance. Providing affordable broadband, especially to the suburban and rural communities is the next focus area of the Department.

BSNL & MTNL have already been allotted 3G BWA spectrum with a view to ensuring early roll out of 3G & WiMax services in the country. They will pay the same price for the spectrum as discovered through the auction. While, Honble Prime Minister launched the MTNL’s 3G mobile services on the inaugural function of India Telecom 2008 held on 11th December 2008, BSNL launched its countrywide 3G services from Chennai, in the southern Tamil Nadu state on 22nd February 2009.

4G market

Reliance Jio 4G services launched in India in 2015. The launch of Jio lead to multiple things simultaneously:

� We expect data price wars between Airtel and Jio thereby benefitting the customers

� Wide availability of 4G will lead to its wider adoption thereby increasing the 4G subscriber base

� There will an influx of 4G handsets at entry and mid-segments levels due to increased demand for 4G devices

� To incentivise 4G, stress will be laid by operators on different forms of content right from music, videos, images, gaming etc

Tariffs : With respect to tariffs we expect the following from the industry:

� Increase in 2G data tariffs to bridge the gap between prices thereby prompting subscribers to adopt 3G and 4G

� Increase in 3G data tariffs and reduction of 4G data tariffs to promote 4G by select operators

� Voice tariffs might increase due to factors like aggressive bidding by operators in the upcoming spectrum auction.

Mobile Number Portability (MNP)

Mobile Number Portability (MNP) allows subscribers to retain their existing telephone number when they switch from one access service provider to another irrespective of mobile technology or from one technology to another of the same or any other access service provider. The Government has announced the guidelines for Mobile Number Portability (MNP) Service Licence in the country on 1st August 2008 and has issued a separate Licence for MNP service w.e.f. 20.03.2009. The Department of Telecommunication (DoT) has already issued licences to two global companies (M/s Syniverse Technologies Pvt. Ltd. and M/s MNP Interconnection Telecom Solutions India Pvt. Ltd.) for implementing the service. MNP is to be implemented in whole country in one go by 31.10.2016

Targets Set By the Government

1. Network expansion

� 800 million connections by the year 2012.

2. Rural telephony

� 200 million rural subscribers by 2012

� Reduce urban-rural digital divide from present 25:1 to 5:1 by 2016.

3. Broadband

20 million Broadband connections by 2016

� Broadband with minimum speed of 1 mbps.

� Broadband coverage for all secondary & higher secondary schools and public health care centers by the end of year 2016.

� Broadband coverage for all Grampanchayats by the year 2016

� Broadband on demand is every village by 2012


4. Manufacturing � Making India a hub for telecom

manufacturing by facilitating more and more telecom specific SEZs.

� Quadrupling production in 2016. � Achieving exports of 10 billion during

11th Five year plan.5. Research & Development6. International Bandwidth

Indian Telecommunications at a glance (As on 31st March 2016)

Rank in world in network size 3rdTele density (per hundred populations)

52.74

Telephone connection (In million)Fixed 36.95Mobile 548.32Total 621.28Village Public Telephones inhabited (Out of 5,93,601 uncovered villages)

5,69,385

Foreign Direct Investment (in million) (from April 2000 till March 2016)

4070

Licenses issuedBasic 2CMTS 38UAS 241Infrastructure Provider I 219ISP (Internet) 371National Long distance 29International Long distance 24

� Pre-eminence of India as a technology solution provider.

� Comprehensive security infrastructure for telecom network.

� Tested infrastructure for enabling interoperability in Next Generation Network.

� Facilitating availability of adequate international bandwidth at competitive prices to drive ITES sector at faster growth.

Conclusion

FDI is the main source for capital formation in India. Since the entry of FDI government of India make such source to penetration into almost all sectors including telecommunication sector. The study by analysis found that in the trend of FDI flows in India and telecommunication sector is significant different because the total flow into telecommunication sector was just 4.3% over the total FDI flows in India over the 10 years period of time that spans over 10 years. Hence, the impact of growth in FDI on the growth of subscriber of in number in telecommunication sector is in significant. It does mean to say that FDI is playing a submissive role in telecommunication sector as it is working as only a focal source of capital and not able to create any difference. It is also caused by less utilization of FDI give cost of FDI.

References

1. Agosin M.R. and Machado R., FDI in Developing Countries: Does it Crowd in Domestic Investment? Oxford Development Studies, 33 (2), 2005, 149-162, UNCTAD, 2003

2. Ankilo A.E., Foreign Direct Investment And Economic Growth In Sub-Saharan AFrica. International Review of Economics and Business, 50(4), 2003, pp 569-580

3. Telecom Regulatory Authori ty of India (2013). Annual Report 2012-2013. http://www.trai.gov.in

4. Telecom: Enabling growth and serving the masses. Deloitte report(2014) http://www2.deloitte.com/content/dam/Deloitte/in/Documents/technology-media-telecommunications/ in-tmttelecom-enabl ing-growth-and-serving-the-masses-noexp.pdf

5. Ovum Analyst, Shiv Putcha India’s first drop in mobile subscriber base just a blip ht tp:/ /www.zdnet .com/in/indiasfirst-drop-in-mobile-subscriber-base-just-a-blip-7000004271

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FDI - An Opportunity to Indian Economy

Abstract

FDI have helped India to attain a financial stability and economic growth with the help of investments in different sectors. FDI has boosted the economic life of India and on the other hand there are critics who have blamed the government for ousting the domestic inflows. After liberalization of Trade policies in India, there has been a positive GDP growth rate in Indian economy. Foreign direct investments helps in developing the economy by generating employment to the unemployed, Generating revenues in the form of tax and incomes, Financial stability to the government, development of infrastructure, backward and forward linkages to the domestic firms for the requirements of raw materials, tools, business infrastructure, and act as support for financial system. Forward and back ward linkages are developed to support the foreign firm with supply of raw and other requirements. It helps in generation of employment and also helps poverty eradication.

Keywords : domestic inflows, trade policies, financial stability

Shradha VermaResearch Scholar


Anamika KumariReserch Scholar


Introduction

Foreign Direct Investment or FDI is an investment in a business by an investor from another country for which the foreign investor has control over the company purchased.

According to International Monetary Fund, Foreign Direct Investment, commonly known as FDI, refers to an investment, made to acquire lasting or long term interest in enterprise operating outside of the economy of the investor.

It is seen as an important catalyst for economic growth in the developing countries as it provides capital, technical, fusion, creates job, brings managerial skills etc, that overall raises the bar of economy of a host country. With it there comes some drawbacks of FDI too. Like, at time it creates hindrances to domestic investment, creates destruction of small domestic entrepreneurs, shrinking of job etc.

But when the overall analysis of advantages and disadvantages of FDI is done, it is concluded that even though FDI carries some demerits but is very essential for market, industry and economy of a country

for country’s overall development. This is the reason that government today is working towards promotion of FDI .


The present study is based on the objectives like to analyse the merits and demerits of FDI, to explore and analyse the present promotional scheme for FDI and to study the opportunities provided by FDI.

To fulfill all above objectives, data has been gathered from secondary source like reports and publications of government, reports and publications of Department of Industrial Policy and Promotion and RBI reports relating to foreign investment, Economic Journals, books magazines and internet etc.

The study is descriptive in nature and therefore the information presented is based on secondary data. Secondary information has been collected from various documents such as books, newsletters, reports, magazines journals, daily newspapers etc.


100% FDI rule in India, 2015 : The Union


government permitted 100% FDI under government, approval route for almost every sector, including defense.

In November, 2015, the Narendra Modi government has made certain changes in FDI policy and had opened up FDI for many sectors like defense, retail, construction and banking.

Change in FDI policy 2016 : On 20 June, 2016, The government opened up the economy even more to foreign investments .

Data for new FDI policy

1. As per the new policy most of the sectors is to be opened up to FDI under automatic route .

2. Approval for 100% FDI in defense sector got easier.

3. 100% FDI is allowed for Airport development.

4. 100% automatic FDI has been allowed in some new sectors like – DTH, cable networks, teleports ,mobile, T.V. etc.

5. For Pharma sector it allowed FDI upto 74% through automatic route and approval is needed for anything beyond that.

In the above points, automotive route means that no prior approval of the government or RBI is required to invest the money, while approval route means that stipulated approval need to be taken before investment beings.

Advantages of FDI

1. Creation of employment.

2. Eliminates monopoly of local companies.

3. FDI in the economy of a country helps to make it more competitive.

4. Customer centric services are invented.

5. Generates huge capital that helps in upgrading the infrastructure in construction and power Industries.

6. Enhances productivity of employees.

7. Foreign companies trains the local human resources by enhancing skill.

8. A developing nation can improve its economy apart from becoming major export destination. 9. Organization with FDI uses local employees this proves to be cost effective and provide quality product at low cost.

10. Creates technical advancement through technology transfer from foreign company.

Disadvantages of FDI

1. Native human recourse might get exploited.

2. There might be unemployment due to closure of some small domestic companies.

3. The net amount earned is transferred to foreign nation.

4. Foreign company may diploy to earn profits from native customers and so profit is transferred to foreign country.

Analysis of imapact of FDI

On analysing the advantages and disadvantages of FDI, it gets clear that even though it carries some drawbacks with it but it acts as a boon for effective and instant growth of developing country’s economy. That is lacking financially and technically far behind the developed nations.

The stated objective of 100% FDI and other relaxation will promote employment and will improve infrastructure along with greater FDI inflows and the ease of doing business in India.

There is a risk too, that the FDI relaxations might accelerate the ongoing trend of jobless growth and rising inequality and, with 100% FDI relaxation, greater share of return on investment will go outside India. In case of infrastructure, investment from outside nation was not required, growth would also have been achieved through joint venture mechanism.

The government has been seeking to drum up investment as part of Prime Minister Modi’s “Make in India” initiative that aims at turning the country into a global manufacturing hub to generate job, raise incomes and drive growth.


Reality check of pros and cons of 100% FDI will be evident only after few years of its implementation. Thus it is very rightly said that in order to learn how to swim, you need to jump into the water. There is no other way around. So, let’s just hope for the best.

Monthly Investment in India, 2015 and 2014

According to Saugata Bhattacharya, Chief Economist, Axis Bank.

Month Drat Investment to

India

Net portfolio

investment Nov 2015 3358 -3774

Oct 2015 5611 4488

Sept 2015 3253 -2409

Aug 2015 2576 -3493

Jul 2015 2363 -541

June 2015 2714 -3011

May 2015 4510 -2749

Apr 2015 4265 3458

Mar 2015 2318 3308

Feb 2015 3489 3774

Jan 2015 4681 6640

Dec 2014 2608 -361

Nov 2014 1978 4876

Oct 2014 3096 1765

Sept 2014 3137 2327

Aug 2014 1734 2055

Portfolio investment are held directly by an investor or managed by financial professionals. It is the entry of funds into a country where foreigners deposit money in a country’s bank or make purchases in the country’s stock and bond markets sometime for speculation.

FDI and portfolio flows over the past years and a half, suggest that conscious efforts of the government to encourage more stable direct investments are yielding results. This is more than triple the amount of net portfolio inflows of $14.3 billion in the same period.

An analysis of monthly trend in foreign investment inflows shows that in most month stable long term FDI has been more than portfolio inflows. This must be largely due to several initiatives by the government to attract investment on the manufacturing sector. So the government actions are yielding results.

According to Amitabh Kant, secretary at the Department of Industrial policy and Promotion, the surge in FDI in India is significant given that investment across the world has fallen by 16%. Though sizeable amount is estimated to have gone to manufacturing sector, including consumer goods and food processing, among others, a sector of the market feels that the portion of the FDI inflows could have come through private equity.

The seldom find its way into Greenfield projects but at the same time provide an important source of finance for entrepreneurs.

Conclusion

Market oriented policies of FDI are boosting economic activity, all round development and economic growth rate. As the Indian economy gears up for competition in the international market, overseas investor clearly see the potential for attractive returns from investment an India, which is also evident from the already achieved FDI success stories.

On the negative side FDI leads to inefficient use of local resources and at times subtracts form local economic welfare as profit of the investment goes back to the investing foreign company.

References

1. Blonigen B, A review of the empirical literature on FDI determinants, Atlantic Economic Journal, 33(4):383-403, 2005

2. Nil sury, Foreign Direct Investment global and India Aspects, New century publication, New Delhi, 2004.

3. Gopinath T., Foreign Investment in India : Policy issues, Trends and prospects, RBI- Occassional Papers, vol. 18, no. 2 and 3 , 1997


4. Nambiar Kutty Krishnan, Performance of FDI Companies in India, Productivity vol. 46, no. 2 and 3 July- Dec, 2005

5. Neera Verma, Sillovers form FDI: A survey of recent literature, Arth Anveson, vol. 4 no. 2-1, 2007

6. Reserve Bank of India, RBI, Handbook of Statistic on Indian Economy, 2001

7. www.businesseconomices.com > Foreign-direct- investment.

8. www.livemint.com > Politics > Policy.

9. dipp.nic.in>English > acts- rules>press Note.

10. fipb.gov.in.

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Impact of Demonetization on Foreign Portfolio Investment & Return in Stock Market

Abstract

This study examines the impact of demonetization on the returns of stock market and pattern of net inflows of foreign portfolio investment in cash segment of stock market in India for a very short period of time. The study examines the daily data of pre and post demonetization periods. This is a new aspect that has been experimented by the existing government to eradicate black money, counter tax-evasion and destroy counterfeit currency from the Indian economy. The paper is basically concentrating on the effect of this government strategy on the FDI in capital market and its return.There is a mixed reaction on demonetization announcement among the different stakeholders of the economy. The present study attempts to contribute to the understanding of the behavior of FPI in Indian capital market after demonetization. A standard event study methodology has been adopted to examine the pattern of changes that has taken place in FPI net inflow surrounding 50 days of the announcement date.

Keywords : nifty returns, demonetization, event study

Sitaram PandeyAssistant Professor, Department of MBA

Cambridge Institute of Technology, Ranchi

Dr. Amitava Samanta Assistant Professor, Department of Commerce & Management

Vinoba Bhave University, Hazaribag

Introduction

Foreign direct investment is one of the most important mode of development in the developing countries. Research on foreign direct investment (FDI) has attracted the attention of scholars in the fields of international business and economics over the last decade. India continues to be among the top ten countries in terms of foreign direct investment (FDI) inflows globally and the fourth in developing Asia, as per the World Investment Report 2016 by the United Nations Conference for Trade and Development (UNCTAD)1. Some initiatives taken by the current government such as Make in India, Stand UpIndia, Land acquisition measures, GST and labor reforms has surged the investments in India by making it an attractive destination but the withdrawal of high denominations notes ranks amongst the most significant economic measures taken by the government. The audacious move has been experimented by the government to eradicate black money, counter tax-evasion

and destroy counterfeit currency from the Indian economy. It is also being lauded for its potential to convert India into a cashless economy.

In this paper, It is trying to find impact of this historic move on FDI in capital market and its effect on the return of the stock market. Before talking further, let us try to understand the concept of demonetization and its impact on the economy.Demonetization is the mechanism by which the government states to withdraw the money which is current legal tender. The effect of this announcement is that the currency notes in circulation will now cease to be valid tender and can only be exchanged at the banks. Demonetization is a one step to unearth black money from the economy. Black money refers to illegal money earned from illegal sources which has not been disclosed to the government. In short, it uses all the resources of the economy but does not pay the costs. There are various researches done by National Institute of Public finance and


policy& Ministry of Finance on black money. The estimates of black money, including from other sources, vary from 15% to 45% of the total economy. The strategies which have been found out through various researches are establishing identity of persons operating in the country (through PAN card, Aadhar Card, etc);Reform the avenues of cashless transactions through various e-payment modes(e-wallet, paytm, NEFT etc.); Reform tax system so that cost of compliance is lower than cost of tax evasion ( Saral forms, e-filing, etc.) ; Harsh regulations for black money hoarders (prevention of Corruption Act) ; Control of holding of cash and physical money including Indian and foreign money ( FEMA, Demonetization, etc.)

So, out of all the above mentioned approaches, the government has tried almost all the approaches to remove black money from the Indian economy but here we will discuss the approach of demonetization and its impact on FDI and return in stock market.

It is not the first time that demonetization has taken place in India rather it is the third time. The first demonetization took place in 1946 and Rs. 1000 and Rs. 10,000 notes were demonetized. Later in 1978, Rs. 1000, Rs. 5000 and Rs. 10,000 were demonetized.

An overview of Foreign Portfolio Investment in Indian Capital Market

Foreign portfolio Investment (FPI) is investment by non-residents in Indian securities including shares, government bonds, corporate bonds, convertible securities, infrastructure securities etc. Theclasses of investors who make investment in these securities are known as foreign portfolio investors. As opposed to FDI (Foreign Direct Investment),FPI (foreign portfolio investment) is an investment into traded equities of a company rather than into a company. The FPI in a stock market refers to the net investment- that is gross purchase minus gross sales. The FPI values considered here include both the equity and the debt segments. In fiscal 2015, 2016, the Indian government took several measures to boost foreign investments. The government’s

endeavors included attempts to clarify the tax treatment of gain in securities market transactions as well as the retrospective tax treatment. Fiscal 2013 was the lowest in terms of market capitalization in the past five years. However, the foreign portfolio witnessed impressive growth of about 80% in fiscal 2013 over the previous year. In fiscal 2014, the FPI fell sharply- about 69% over the previous year. It rose again by 284% in fiscal 2015.The data for the last five years show that the net FPI investment has been more in equity rather than in debt except some months.

The present study adds to the existing literature on determinants of FDI by empirically examining the response of FDI inflows to government policies (namely demonetization) and its impact on returns of stock market. So, the present study attempts to empirically examine the differential response of FPI due to demonetization.

The rest of the paperis organized as follows: Section 2 examines the literature review. Section 3 presents the objective and hypotheses of the study. Section 4 discusses the variables, data sources,research design &methodology. Section 5 presents the data analysis & discussion and Section 6 summarizes and concludes.


The data for present study has been collected from National Stock Exchange. In order to estimate the impact of the demonetization on the return of stock market, daily closing prices of FPI in equity and debt &S&P CNX Nifty Index is collected for 50 days pre and post demonetization. NSE accounts for about 99.5% of the total trading volume in the derivatives segment; therefore we use the S&P CNX Nifty Index as a proxy to study the return behavior of the market. The CNX Nifty Index represents about 65% of the free float market capitalization of the stocks listed on NSE on March 31, 2016. Hence the present study analyses the effect of demonetization on the FPI pattern and its effect on returns of the Indian stock market by dividing the time periods into:


1. Pre-demonetization period (19-09-2016 to 7-11-2016)

2. Post- demonetization period ( 09-11-2016 to 28-12-2016)

The study calculated daily returns using the equation Rt = ln (Pt / P t-1) * 100 where Rtis the daily returns , Pt is the closing price of the stock at time t, Pt-1 is the closing price at t-1.

Analytical Tools & Techniques

In order to analyze the collected data the statistical tools such as Graph, Descriptive statistics which are used to evaluate the mean, standard deviation, median, skewness and probability of the variables that are under consideration in there search. Along side the variance of data, these values show the distribution of error terms, Correlation & Multi regression OLS model is used. Correlation coefficient is a statistical measure that determines the degree to which two variable’s movements are associated. Correlation coefficient value ranges from -1 to +1. Negative value of correlation indicates: if one variable increases in its value, the other variable decreases in its value and positive value indicates:if one variable increases in its value, the other variable also increases in its value. In the current study to study the linear relationship between variables such as FPI in equity &FPI in debtand Nifty correlation is applied.The multiple regression analysis is a statistical technique used to evaluate the effects of two or more independent variables on a single dependent variable. In the current paper attempt is made to study the impact of demonetization on FPI & market return. We are considering equity FPI & debt FPI as the two independent variables and nifty returns as the dependent variable.

In this study we have used “Event study method” to analyze the impact of demonetization on market returns.According to McWilliams andSiegel , ‘Event study is a statistical method to assess the impact of an event on the value of firm’. Here instead of value of firm we are using market return and this method is gaining popularity in analyzing many situations. For

example, the announcement of merger , a takeover, issue of dividend payment etc to analyze their effect on company’s share prices.There are nine steps to follow for performing a short-term event study. These steps are

1) Identify specific calendar event dates of a company and set it as an event date point.

2) Determine the length of both event period and estimation period.

3) Download the historical files of both share price and stock market index data. The data files should contain the calendar dates of both estimation period and event period.

4) Calculate the daily returns of both individual share price and market index data. Normally, daily returns are used,so the returns shall be daily returns. These are actual returns.

5) Calculate the two parameter estimates Alpha and Beta by using the return generating model to the data from the estimation period.

6) Get back to event period and use the two parameters estimates get from the estimation period to determine the (daily) expected return of the share price in event period.

7) Determine the estimation and event window: The event window is the period of trading days over which you want to calculate abnormal returns. In this study we have chosen the event window of 41trading days symmetrically surrounding the identified event day, [-20, +20].

8) Calculate cumulative (average) abnormal returns or buy-and-hold abnormal returns : The respective CAR is just the sum of the firm’s abnormal returns on the day before the event , the event day itself, and the day after the event. The average of each firm’s AR and CAR over a certain period of trading days in the event window is called average abnormal return (AAR) (for the event day) and cumulative average


abnormal return (CAAR) (for several days in the event window), respectively.

9) Test for statistical significance.


Graphical representation : The graph is clearly indicates that market return is almost same throughout the study period but there

is lot of fluctuation in the foreign portfolio investment after demonetization in the negative side. This is clearly indicating negative impact of demonetization on foreign investors. So, the pattern of FPI after demonetization has decreased to a greater extent. Government has to revive the sentiments of foreign investors to increase FPI in Indian stock market.

Graph1

09-0

9-20

16

19-1

0-20

16

19-1

1-20

16

19-1

2-20

16

3000.000

2000.000

1000.000

0.000

-1000.000

-2000.000

-3000.000

-4000.000

-5000.000

Nifty Return

% change in FPI

Analysis of Descriptive Statistics : The following table 1 presents the amount of flow of total FPI in India in terms of (Rs.Crore) and Market return ( in %) for 50 days before demonetization and 50 days after demonetization. The overall investment has decreased to a great extent after

demonetization whereas market return is almost same in both periods.There is a significant difference in average investment by foreign investor’s between pre and post demonetization period.Fluctuations have also increased in the investment pattern of FPI in post demonetization period.

Table 1: Descriptive Statistics

Pre Demonetization Post DemonetizationFPI Investment

(Rs. Crores)Market Return

(in %)FPI Investment

(Rs. Crores)Market Return

Mean 94.25 -0.140 -1901.11 -0.141Standard Dev 1475.20 0.716 2337.83 1.033Kurtosis 2.105 1.440 4.51 0.348Skewness 0.823 0.0315 -1.944 -0.255Range 7541.97 3.608 10664 4.559Minimum -2726.09 -1.759 -9807.59 -2.691Maximum 4815.88 1.848 856.41 1.868

Correlation Analysis

Correlation is applied to study the statistical relationship of the variables FPI equity, FPI debt & CNX Nifty return. The following Table 2presents the output, when correlation is run

for to the 100 days daily data considered. Based on the results it can be concluded that the relationship changed after demonetization.The relationship is not significant at 1% level of significance.


Table 2 : Correlation Coefficients

Nifty Return

% change in FPI Equity

% change in FPI Debt

Pre-demonetization Period

Nifty Return 1 % change in FPI Equity -0.0160 1 % change in FPI Debt -0.0361 0.1517 1

Post-demonetization Period

Nifty Return 1% change in FPI Equity -0.1263 1% change in FPI Debt 0.0348 0.1253 1

Event Study Analysis

The tests involved estimating and examining abnormal returns for foreign portfolio investment (FPI) & Market return before and after demonetization for 50 days before and after event date. Each announcement date in the sample was labeled time zero ;points in time after the announcements were labeled +1,+2,+3,…..,+6.At each point in event time , the market abnormal returns and the average abnormal returns across market return was calculated. The average abnormal returns were cumulatively summed up over the event time and presented on a graph.

Table 3 :Summary Output

Regression Statistics Multiple R 0.0929R Square 0.0086Adjusted R Square -0.0087Standard Error 0.9137Observations 59

The table 3 is the model summary reports the strength of the relationship between the model and the dependent variable R, the multiple correlation coefficients, is the linear correlation between the observed and model predicted values of the dependent variable. The value of R2 is 0.0929; it shows that FPI explains only 9.29% of the variation in market return.

Table 4 : ANOVA

df SS MS F Significance FRegression 1 0.4146 0.4146 0.4966 0.4838Residual 57 47.595 0.8350 Total 58 48.009 Coefficients Standard

Errort Stat P-value

Intercept -0.1375 0.1244 -0.8333 0.4081% in equity FPI -0.000098 0.000139 0.7047 0.4838

The ANOVA table 4, tests the acceptability of the model from a statistical perspective. However , F-statistic is not found significant , so the impact of FPI on variation of market return in pre & post demonetization period is nil, since the p-value is very much greater than

0.05.

α =-0.1037 , β = -0.000098

E(Ri)= α + β Rm

Abnormal return = Actual return – Estimated return


Results reported in this paper are obtained in terms of the event study methodology wherein the abnormal return of every day is calculated through Sharpe model with a view to study the informational efficiency of the market. In order to investigate the difference between Pre and Post demonetization period, Average Abnormal Return (AAR) and Cumulative Average Abnormal Returns (CAAR) related to

the demonetization announcement date were obtained for the study period. The abnormal returns were condensed for 101 days event window comprising 50 days prior and 50 days post to the announcement of demonetization. Table 5 presents statistical significance of the difference between CAARs of the market return for Pre and Post demonetization period.

Table 5 :T-test of CAARs of the market return for Pre and post demonetization period

Pre-demonetization Period Post- demonetization PeriodMean -730.916 -1179.750Variance 675306.584 643563.728Observations 42 36Hypothesized Mean Diff 0 df 75 t Stat 2.435 P(T<=t) one-tail 0.008 t Critical one-tail 1.665 P(T<=t) two-tail 0.017 t Critical two-tail 1.992

Testing the hypothesis

1) NH01: There is no impact of demonetization on theinvestment pattern of foreign portfolio investment in Indian stock market.

The p-value related to demonetization is shown in table 5, is .017less than 0.05 so null hypothesis is rejected. Hence it is concluded that demonetization has impacted the investment pattern of foreign portfolio investment in Indian stock market.

2) NH02: There is no effect of demonetization on return of the stock market.

The p-value related to demonetization is shown in table 5, is greater than 0.05 so null hypothesis is accepted. Hence it is concluded that demonetization has no effect on return of the stock market.

It is clear from above analysis that the investment sentiments have been significantly affected due to demonetization which is need to be revived but the market return is almost same in both the short term periods as suggested by their t-values and p-values.

Annexure 1

Date FPI in Equity (Rs. Cr)

FPI in Debt (Rs. Cr)

Total FPI Nifty Return

19-09-2016 540.9 511.27 1052.17 0.32520-09-2016 964.33 523.16 1487.49 -0.36921-09-2016 1105.71 65.88 1171.59 0.01422-09-2016 508.05 -779.71 -271.66 1.029





23-09-2016 401.99 -82.99 319 -0.40526-09-2016 -247.71 549.39 301.68 -1.22927-09-2016 -143.61 1128.12 984.51 -0.19128-09-2016 805.59 1724.58 2530.17 0.44529-09-2016 974.5 1076.89 2051.39 -1.76030-09-2016 3411.03 1404.85 4815.88 0.23203-10-2016 -183.83 46.43 -137.4 0.35504-10-2016 108.78 -1047.95 -939.17 -0.28705-10-2016 503.72 601.77 1105.49 -0.39306-10-2016 655.65 -2342.58 -1686.93 -0.13707-10-2016 360.55 -948.1 -587.55 0.12910-10-2016 65 -1018.09 -953.09 -1.55513-10-2016 -484.1 642.78 158.68 0.11714-10-2016 -846 -1880.09 -2726.09 -0.73417-10-2016 -945.41 -607.4 -1552.81 1.84918-10-2016 -219.66 -1056.71 -1276.37 -0.21719-10-2016 373.88 -132.66 241.22 0.46520-10-2016 -295.54 -151.71 -447.25 -0.07321-10-2016 341.17 965.46 1306.63 0.18324-10-2016 -221.94 212.51 -9.43 -0.20325-10-2016 -391.91 763.82 371.91 -0.87526-10-2016 -505.01 547.73 42.72 0.00027-10-2016 -1512.78 -147.13 -1659.91 0.26428-10-2016 -1108.83 -448.04 -1556.87 -0.14201-11-2016 -867.69 -1105.49 -1973.18 0.00602-11-2016 -95.99 312.23 216.24 -1.30103-11-2016 -613.77 120.24 -493.53 -0.34104-11-2016 73.03 176.7 249.73 -0.60307-11-2016 492.58 482.73 975.31 0.75108-11-2016 191.5 117.97 309.47 0.54709-11-2016 319.6 251.74 571.34 -1.30610-11-2016 -2044.52 -2044.52 -4089.04 1.11211-11-2016 -629.87 1486.28 856.41 -2.69115-11-2016 -1432.34 -1096.48 -2528.82 -2.26416-11-2016 -2325.7 -2290.62 -4616.32 0.03917-11-2016 -1960.25 -7045.11 -9005.36 -0.39018-11-2016 -947.82 -1734.05 -2681.87 -0.072





21-11-2016 -873.11 -1787.56 -2660.67 -1.79622-11-2016 -1241.01 -97.63 -1338.64 0.92323-11-2016 -674.6 -644.9 -1319.5 0.38724-11-2016 -1095.1 -2944.33 -4039.43 -0.84425-11-2016 -2038.3 -960.09 -2998.39 1.86828-11-2016 -461.29 -487.34 -948.63 0.15529-11-2016 -1366.85 -3522.25 -4889.1 0.18830-11-2016 -652.75 -988 -1640.75 1.01101-12-2016 -360.39 443.27 82.88 -0.38402-12-2016 -401.04 -1010.45 -1411.49 -1.29505-12-2016 -125.25 -410.8 -536.05 0.51906-12-2016 -278.55 -9529.04 -9807.59 0.17707-12-2016 206.19 -2412.37 -2206.18 -0.50508-12-2016 354.4 -2070.99 -1716.59 1.78709-12-2016 743.18 -2401.05 -1657.87 0.18113-12-2016 334.03 -245.64 88.39 -1.10114-12-2016 -731.86 -411.44 -1143.3 0.62415-12-2016 -477.07 126.74 -350.33 -0.47916-12-2016 -405.66 -530.1 -935.76 -0.35319-12-2016 254.86 -1207.61 -952.75 -0.17420-12-2016 -554.06 -413.64 -967.7 -0.43121-12-2016 -621.37 -945.87 -1567.24 -0.27122-12-2016 -1108.15 1045.68 -62.47 -0.26123-12-2016 -573.53 946.59 373.06 -1.02026-12-2016 -1460.65 -494.23 -1954.88 0.08327-12-2016 -1099.84 -818.27 -1918.11 -0.97028-12-2016 -683.85 11.69 -672.16 1.57629-12-2016 -526.38 1101.75 575.37 0.025

Conclusion

By using graph, descriptive statistics, correlation coefficients and event study methodology it is found that the demonetization has affected the FPI in Indian stock market in both equity and debt segment. The FPI investment has decreased significantly post demonetization. The range , standard deviation & skewness of FPI has increased post-demonetization. The graph has clearly captured the variation that has taken place in pattern of FPI. The

correlation analysis has proved that any relationship between FPI, Demonetization & Market return is not significant.The short term event study has clearly rejected the first null hypothesis and proved that the demonetization has impacted the investment pattern of foreign portfolio investment in Indian stock market. The graph and short term event study has accepted the second null hypothesis and proved that the demonetization has no effect on return of the stock market.


References

1. Asamoah G. N., The impact of dividend announcement on share price behaviour in Ghana. Journal of Business & Economics Research, 8(4), 47, 2010

2. Banga R., Impact of government policies and investment agreements on FDI inflows. Indian council for research on international economic relations, 1-43, 2003

3. Buckley P. J., Clegg J. & Wang, C., Is the relationship between inward FDI and spillover effects linear? An empirical examination of the case of China. Journal of International Business Studies, 2007, 38(3), 447-459.

4. Deodhar, R. P., Black Money and Demonetisation. Browser Download This Paper, 2016

5. Devajit M., Impact of foreign direct investment on Indian economy. Research Journal of Management Sciences ISSN, 2319, 1171, 2012

6. Dzokoto V. A. A. & Mensah E. C., Making sense of a new currency: An exploration of Ghanaian adaptation to the New Ghana Cedi. The Journal of Applied Business and Economics, 2010, 10(5), 11

7. Eniekezimene F. A., The impact of foreign portfolio investment on capital market growth: evidence from Nigeria. Global Business and Economics Research Journal, 2(8), 13-30, 2013

8. Garg R. & Dua P., Foreign portfolio investment flows to India: determinants and analysis. World Development, 2014, 59, 16-28

9. Marin D., Trust versus illusion: What is driving demonetization in the former Soviet Union?, Economics of Transition, 2002, 10, 173-200

10. Pal P., Foreign portfolio investment, stock market and economic development: a case study of India, 2014

11. Pan Y., The inflow of foreign direct investment to China: the impact of country-specific factors. Journal of Business research, 2003, 56(10), 829-833.

12. Prasad E., Rogoff K., Wei S. J. & Kose M. A., Effects of financial globalization on developing countries: some empirical evidence. In India’s and China’s Recent Experience with Reform and Growth, Palgrave Macmillan UK, 2005, pp 201-228

13. Roy N. V. P., Foreign Portfolio Capital flows into India: An Exploration into its Openness and basic motives. Retrieved January 30, 2011

14. Sarkar S., The parallel economy in India: causes, impacts and governement initiatives. Economic Journal of Development Issues, 11, 2012, 124-134

15. Sethi N., Causal Relationship between Foreign Capital Inflows and Economic Growth: Empirical Evidence from India. International Journal, 2(1), 2013

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17. Srikanth M. & Kishore B., Net FII Flows into India: A Cause and Effect Study. ASCI Journal of management, 2012, 41(2), 107-120

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Effect of Foreign Direct Investment and Human Capital Formation on Labour Markets in India

Abstract

Foreign Direct Investment (FDI) and human capital formation’s interaction has strong implications for labour demand and supply factor in developing economics. Multinational Enterprises invest in their employees through provision of training, direct technological diffusion and up-gradation innovation and imitation. They also tend to affect the scale and composition of labour demand in economy. Indian economy has featured rising wage inequality and demographic dividend simultaneously since the last decade. In our first attempt to empirically assess the human capital formation effect of foreign Direct Investment in India manufacturing firms, we use unbalanced panel data for 568 firms for the period 2001-2013. FDI is found out to be stirring up wage inequality. We find an evidence of negative relation between relative wages and interaction term of training and foreign direct investment suggestive of positive human capital formation effect of FDI only through this channel. Results are the same when we do it for sb-classifications of industries.

Keywords : labour supply wages, human capital, labour market

Dr. Abha Kumari Head of the Department of Commerce


Sheela Kumari Gupta Faculty of Economics


Introduction

For ensuring the unremitting economic growth and trade competitiveness skill labor forces and foreign direct investment play an inevitable role both for developed and developing country. Macroeconomic variable like income, investment and employment ameliorate due to the inflow of FDI in the host country. FDI has a positive effect on economic growth because foreign MNCs are transferring modern technology and that escalate the efficiency of the host countries labor forces that are significant to establishing the trade competitiveness. Host country with having the accumulation of ambidextrous skill labor forces magnetize a vast amount of technology intensive FDI that ameliorate the economic advancement of a country along with the enhancing the adaptability and capabilities of the workforces. Multinational enterprise (MNE) plays a pivotal role for introduction of new knowledge and wisdom facilities, transferring new technology and information for the host countries. This complementary process

gives a hand to expand the capabilities of the domestic entrepreneur along with the interest of the foreign firms. Structural and counteractive transition of framework completed by the host countries government facilitate the flow of investment from the world, alleviate multitudinous dilemma. Due to the labor inefficiencies always cumulating demand for the skill labor forces in the developing country and that leads to originate gigantic wages disparity. In a country where there is an availability of adroit and competent workforces then there is an accumulation of considerable amount of FDI especially in high value added products. FDI effect the labour market through changes in employment and wage structure of labour forces. Most of the developing country has pitiable infrastructure and poor research facility and also the lack of protection of intellectual property rights (patent, copyrights and trade mark). Because of the unavailability of the resources the developing country countenances paramount problems. Due to the conception of the market liberalization


policy the developing countries are able to interrelate with the develop countries and through the concept of transferring the modern technology assist to heighten the capacity building approach, thriving technical experience, management knowhow and marketing knowledge.

There are three benefits of human capital accumulation for developing countries to be able to absorb new technologies. First, human capital accumulation leads to higher productivity and profitability as a direct effect. Second, employees are better qualified to absorb and use codified and tacit knowledge. And thirdly, human capital accumulation improves the willingness, commitment and motivation of employees.

Higher productivity and better absorbing capacity of modern technology generates the wage disparity among the workers in the host countries. With the substantial flow of FDI assists to upgrade and accelerate the efficiency level of the labour forces in developing country through schooling, training and compelling layoffs. FDI leads human capital formation through upgrading the skills of human capital of host countries by provision off formal training, schooling and spill-over effects of layoffs and turnover of labor force from international firm to domestic firms.

The particular focus is on the impact of FDI on human capital enhancement in developing countries. While there are of course vast literatures on both FDI and human capital enhancement, the specific issue of how, if at all, the behaviour of TNCs impact on human capital enhancement in developing countries has not as yet been explicitly researched in any great detail.

Reflecting on forty years of development experience, the World Bank (1991) concluded that the state has a crucial role in supporting key functions such as the provision of basic education. That report identified what it saw as the lessons from the more successful developing countries, one of which was their investing in people, including through education. Conversely, the potential benefits

of FDI for host countries include human capital development.

FDI and Economic Development

The bulk of FDI goes, of course, not to developing countries but to developed, OECD countries; in 1999 77 per cent of total FDI inflows went to OECD countries (UNCTAD, 2000a). And even the minority of FDI that does go to developing countries is spread very unevenly, with two-thirds of total OECD FDI flows to non-OECD countries going to Asia and Latin American. However, these FDI inflows do represent significant sums for many developing countries.

The nature of these inflows has altered, though, with more going into mergers and acquisitions rather than on greenfield investment. Of course, mergers and acquisitions may lead to human capital development, but it may not, and it may even lead to the opposite, while greenfield investment would be expected to lead to at least some positive impact on human capital development. This increasing role of mergers and acquisitions may therefore undermine the extent to which incoming FDI enhances human capital development. However, it is impossible to predict either the motives or outcomes of mergers and acquisitions – which in both cases are in any case extremely mixed – and it may be that over time there is little difference according to what form any given investment started out as.

The potentially positive effects of FDI include inducing incumbent firms to upgrade their technology, and spill-over benefits so that local competitors can learn from MNCs’ technological and managerial practices.

The potentially negative effects include the possibility of MNCs deliberately raising concentration levels, forcing competitors out of business by predatory pricing, taking away skilled labour and R&D staff from local firms, or engaging in restrictive business practices which, among other things, may deter technological development.

A well educated and trained workforce is one of the location advantages that host countries


can provide to attract and retain inward FDI.

Human Capital Enhancement

Developing countries need to have reached a certain threshold of development to be able to fully absorb new technologies. Enhancing human capital can therefore have a number of beneficial effects, both direct and indirect, for the companies concerned and also for the wider economy.

Firstly, human capital enhancement can be expected to lead to higher productivity and profitability as a direct result of the increased capacity of the employees to perform their tasks.

Secondly, there is the indirect effect of companies getting a greater payback than would otherwise be the case from investment in new technologies and process innovations, as the employees are better equipped to absorb and utilise both the codified and tacit knowledge through which the benefits of such investment are largely delivered.

Thirdly, human capital enhancement may improve not just the ability of employees to deliver greater productivity, but also their willingness, commitment and motivation so to do.

The above effects will be beneficial to the firms in which the employees work, and thereby to the economy generally. This wider economic benefit derives not just from the direct contribution of increased output to national income, but also through vertical linkages with suppliers and others. Labour turnover, on the other hand, may have rather different implications for the individual firm on the one hand, and the wider economy on the other. For the individual firm, some degree of labour stability will be required to ensure that the benefits from training flow back to the firm rather than moving on to rival firms. For the economy as a whole, however, such movement may generate positive spill-over effects. To some extent the successful creation of industrial districts can internalise what would otherwise be externalities to the firm, so that labour turnover becomes less costly, as

the firm becomes more likely to benefit from recruiting already skilled labour, and will also benefit from the fact that other firms within the region are operating at or near the relevant technological frontier.

FDI, Human Capital Enhancement, and Development

Developing countries have increased their share of public resources spent on education over the past two decades. However, comparisons across countries ‘reveal little relationship between public spending on education … and outcomes … once country income levels are taken into account’. One reason for this is that spending levels will cover a range of quality outcomes and also of distributional outcomes. After controlling for labour and physical capital, unequal distribution of education tends to have a negative impact on per capita income in most countries

Regarding FDI, the evidence on OECD countries shows that foreign affiliates of MNEs have a higher labour productivity compared to local firms.6 However, Cortes et al. (1998) found that TNCs in Thailand had lower shares of skilled employment in total employment than did locally-owned firms across a variety of industries, such as electrical and computer industries, with the share of skilled employees in total employment of US and European affiliates being sixteen per cent, in Japanese affiliates fifteen percent, and in Asian newly industrializing enterprises’ affiliates ten per cent, as opposed to eighteen per cent for local firms. This is probably due to the low-technology nature of assembly operations in ostensibly high-technology industries (UNCTAD, 1999: 287).

Implications for economic growth, wages, and equity

Income inequality and development was reviewed in UNCTAD (1997), and the picture is unlikely to have changed significantly since then, other than inequality having most likely been exacerbated by the Asian crisis.

The impact of TNC activities on the generation and upgrading of employment and on the


building up of skills in host countries varies ‘according to the type or motivation of FDI, the industries in which TNCs invest, the strategies they adopt, and host country conditions. They also depend significantly on the policies of host countries on FDI for increasing employment quantity, improving employment quality and strengthening human resource capabilities and for minimizing any negative effects that FDI may have in these respects.’ (UNCTAD, 1999: 258).

Developed country experience

The experience of developed countries is clearly different from that of developing countries, as the motivation for attracting inward investment is rather different. In overall terms there are the same goals, in terms of contributing to employment creation, the balance of trade and so forth. But regarding the specific aim of enhancing human capital development, this is clearly less of an issue, or at least is of a different nature, with developed countries being more interested in the spreading of best practice, technological spill-overs and so forth. With that caveat, it is worth considering the relevance of developed country experience since some of the broader aims are indeed similar, such as hoping for productive linkages with existing supplier and other domestic companies, and the creation of new spin-off companies. And the success or otherwise in achieving these goals will depend in part at least on human capital issues.

Policy Implications

However, it is clear that public policy has in several countries impacted positively upon human resource development in the context of inward investment. The obvious route through which public policy might aim to achieve such goals would be to pursue policies such as tax and other incentives to attract inward investment which would, by hiring and training local employees, thereby enhance human resource development. Ironically, though, this appears not generally to have been the case. Instead, human resources have more often been developed not so much by the MNEs that have established plants in the countries

concerned – although clearly this does of necessity occur – but rather by the domestic governments themselves as a way of attracting that inward investment. Thus rather than inward investment enhancing human capital, the causal process has been the enhancement of human capital to attract inward investment. The end result is of course the same in the sense that both processes occur - human capital enhancement and inward investment - even if the nature of the human capital enhancement may be affected by whether the education and training has come from the domestic government or the inward investor.

Finding and Suggestion

The UNCTAD conclusion from ten years ago quoted above went on as follows:

In an increasingly competitive environment for foreign investment capital, least developed countries should pay greater attention to the development of infrastructure, human resources and entrepreneurship which have a significant bearing on the locational choice of transnational corporations.

While the same anachronistic balance of responsibility is evident – on the least developed countries rather then the TNCs – the key issue is already raised, namely the importance of human resources to the investment decisions of TNCs.

Human capital enhancement may be related in various ways to the issue of the transfer of technical knowledge. Low level of transfer of both technical knowledge and management technique, and also of training in general, for two main reasons. Firstly, the majority of FDI inflows has been in low to medium technology industry that does not require much skill, with a concomitantly low requirement for MNCs to invest in human resources. Secondly, even in the high technology sectors, the wide technology gap has inhibited the ability of the local employees to learn, either because the gap is so great that it is hard to bridge, or because the perceived gap simply deters MNCs from attempting to bridge it – and most likely a combination of the two.


The key developments as having been on the one hand the decision to try to attract in Multinational Corporations and on the other hand the question of skill levels, and in particular the interaction and dynamics of these two factors. As always with economic and industrial processes, the links are complex. Firstly, there was the need to massively increase skill levels. On the direct effect of MNCs on the skill levels of the workforce as a result of the MNCs’ own efforts, there is no doubt that any such positive effect has been relatively limited – certainly relative to the scale of the task in the case of Malaysia. The major education and training effort came from Government. This public policy action plays an important part in the effort to attract companies. There is still an open question, though, of what becomes to the workers once they enter the MNCs, in two senses. Firstly, to what extent do the MNCs further develop the skills of the workforce? And secondly, to what extend does that workforce tend to remain within the MNC, rather than moving on to work in domestic companies? This latter pattern can have important effects on the domestic economy through knowledge spill-overs. The presence and activities of the MNCs may also have two other beneficial effects. Firstly, through influencing the behaviour of domestic firms in addition to the effect just mentioned of knowledge transfer through labour turnover. And secondly by employees within the MNCs moving not to existing domestic companies but to start up their own companies. Government policies have been successful; but Best warns that they risk being trapped in relatively low value added sectors.

Conclusion

The question is how to encourage MNEs to invest in human capital enhancement. The key mechanisms, it is suggested, are those already being pursued, not all of which are obviously connected with human capital. Thus public education is vital. But so are policies to enhance technological diffusion. Firstly such policies will inevitably lead to further intervention from government and other public agencies to enhance human capital

as requirements and opportunities become uncovered. Secondly, technological diffusion will increase the incentives for companies to take advantage of these technologies, which will in turn require human capital enhancement. And thirdly it will be an attractor not only to further FDI, but to FDI going into relatively high value added areas.

References

1. Best, M.H., The New Competitive Advantage: The Renewal of American Industry, Oxford University Press, London, 2001

2. Chang, H.-J., Kicking Away the Ladder, 2002

3. DeMartino G.F., Global Economy, Global Justice: Theoretical Objections and Policy Alternatives to Neoliberalism, Routledg, London, 2000

4. Fransman, M., The Relevance of East Asian Institutions Designed to Support Industrial and Technological Development in Southern African Countries, UNCTAD, Geneva, 1998

5. International Labour Organisation (ILO), World Employment, An ILO Report, International Labour Office, Geneva, 1995

6. Lee E., Globalization and labour standards: a review of the issues, International Labour Review, ILO, Geneva, 1997, 136(2): 173-189

7. Maher Maria, The Benefits and Costs of Foreign Direct Investment: A Survey, OECD Directorate for Financial, Fiscal and Enterprise Affairs’ Committee on International Investment and Multinational Enterprises, DAFFE/IME, 2001, 21

8. OECD, Foreign direct investment and recovery in Southeast Asia, OECD, Paris, 1999

9. Sengenberger W. and Wilkinson F., Globalization and Labour Standards, in J. Michie and J. Grieve Smith (eds), Managing the Global Economy, Oxford: Oxford University Press, London, 1995

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The Impact of FDI & FPI on Human Welfare

Abstract

Capital is a vital component for economic growth, and most nations cannot meet their total capital requirements from internal resources alone, they turn to foreign investors to supply capital.Foreign direct investment and foreign portfolio investment are two of the most common routes for overseas investors to invest in an economy. Financial flow is captured by the foreign investment while the capital flow is acted by the Portfolio investment. The human welfare was proxied by human development index, (HDI-a composite of three indicators: life expectancy at birth, mean year of schooling and income per head), access to basic necessities such as water, sanitation and health services were also used as alternative measure of human welfare while Governance index was considered as a control variable which stimulates globalisation and human welfare.One line of approach is through globalization ,which could affect the welfare of the poor is through financial liberalization, which has increased the growth for capital. Greater financial integration contributes to higher growth by expanding access to capital, expanding access to new technology, stimulate domestic financial sector development, reducing transaction cost, and access to international capital markets should allow countries to smooth consumption shocks, reduce consumption volatility and increase real wages.

Keywords : capital flow, financial flow, portfolio investment, human development index

AmarnathResearch Scholor, Department of Commerce,

Vinoba Bhave University, Hazaribagh, Jharkhand

Dr. Amitava SamantaAssistant Professor, Department of Commerce

Vinoba Bhave University, Hazaribagh, Jharkhand

Introduction

International equity flows are the main feature of the recent globalization of capital markets both in developing and in developed economies. These flows take two major forms: Foreign Direct Investments (FDI) and Foreign Portfolio Investments (FPI). An empirical regularity is that the share of FDI in total foreign equity flows is larger for developing countries than for developed. Difference between the two types of investment: FDI investors, who take both ownership and control positions in the domestic firms, are in effect the managers of the firms under their control; whereas FPI investors, who gain ownership without control of domestic firms, must delegate decisions to managers, but limit their freedom to make decisions because the managers’ agenda may not be always consistent with that of the owners. Consequently, due to an agency problem between managers and owners,

portfolio investment projects are managed less efficiently than direct investment projects.Tobe more specific, direct investors, who act effectively as managers of their own projects, are more informed than portfolio investors regarding changes in the prospects of their projects. This information enables them to manage their projects more efficiently. This effect generates an advantage, with an added value in the capital markets, to direct investments relative to portfolio investments. There are, however, costs to direct investments. We specify two types of costs. The first type reflects the initial cost that an FDI investor has to incur in order to acquire the expertise to manage the project directly. This cost is exogenously given in the model. The second type, an information based cost, is derived endogenously in the model. It results from the possibility that investors need to sell their investments before maturity because they


face liquidity shocks. In such circumstances, the price they can get will be lower if they have more information on the economic fundamentals of the investment project. This is because when potential buyers know that the seller has more information, they may suspect that the sale results from bad information on the prospects of the investment, and will thus be willing to pay a lower price. Thus, if they invest directly, the investors bear the cost of getting a lower price if and when they are forced to sell the project before maturity. The endogeneous growth theory provided the theoretical framework for this study. Financial flow is capturedby the foreign investment while the capital flow is proxied by the Portfolio investment. The human welfare was proxied by human development index, (HDI-a composite of three indicators: life expectancy at birth, mean year of schooling and income per head), access to basic necessities such as water, sanitation and health services were also used as alternative measure of human welfare while Governance index (GI) was considered as a control variable which stimulates globalization and human welfare.

The Globalization-Capital Flows-Growth-Human Welfare

One major avenue through which globalization could affect the welfare of the poor is through financial liberalization, which has increased the growth for capital to flow to developing countries (Harrison, 2006). In theory, openness to capital flows (financial globalization) could enhance human welfare state and alleviate poverty through several channels. If greater financial integration contributes to higher growth by expanding access to capital, expanding access to new technology ,stimulate domestic financial sector development, reducing transaction cost, and access to international capital markets should allow countries to smooth consumption shocks, reduce consumption volatility and increase real wages through output and investment growth. Then such growth should enhance human welfare. This suggests that the impact of financial integration on human welfare-via possible growth effects- is likely to be small. They also explore another link

whether financial integration has smoothed or exacerbated output and consumption volatility. They pointed out that greater macroeconomic volatility probably increases human welfare deterioration, particularly when there are financial crises. Since the poor are likely to be hurt in periods of consumption. Capital is a vital ingredient for economic growth, but since most nations cannot meet their total capital requirements from internal resources alone, they turn to foreign investors to supply capital. Foreign direct investment (FDI) and foreign portfolio investment (FPI) are two of the most common routes for overseas investors to invest in an economy. FDI implies investment by foreign investors directly in the productive assets of another nation. FPI means investing by investors in financial assets such as stocks and bonds of entities located in another country. FDI and FPI are similar in some respects but very different in others. As retail investors increasingly invest overseas, they should be clearly aware of the differences between FDI and FPI, since nations with a high level of FPI can encounter heightened market volatility and currency turmoil during times of uncertainty.

Evaluating Attractiveness for FDI / FPI

Capital is always in short supply and is highly mobile, foreign investors have standard criteria when evaluating the desirability of an overseas destination for FDI and FPI, which include:

� Economic factors : the strength of the economy, GDP growth trends, infrastructure, inflation, currency risk, foreign exchange controls etc.

� Political factors : political stability, government’s business philosophy, track record, and so on.

� Incentives for foreign investors : taxation levels, tax incentives, property rights, etc.

� Other factors : education and skills of the labor force, business opportunities, local competition etc.

FDI versus FPI

Although FDI and FPI are similar in that they


both originate from foreign investors, there are some very fundamental differences between the two.

The first difference arises in the degree of control exercised by the foreign investor. FDI investors typically take controlling positions in domestic firms or joint ventures, and are actively involved in their management. FPI investors, on the other hand, are generally passive investors who are not actively involved in the day-to-day operations and strategic plans of domestic companies, even if they have a controlling interest in them.

The second difference is that FDI investors perforce have to take a long-term approach to their investments, since it can take years from the planning stage to project implementation. On the other hand, FPI investors may profess to be in for the long haul but often have a much shorter investment horizon, especially when the local economy encounters some turbulence.Which brings us to the final point. FDI investors cannot easily liquidate their assets and depart from a nation, since such assets may be very large and quite illiquid. FPI investors have an advantage here in that they can exit a nation literally with a few mouse clicks, as financial assets are highly liquid and widely traded.

Cautionary Signs for Investors

Investors should be cautious about investing heavily in nations with high levels of FPI, and deteriorating economic fundamentals. Financial uncertainty can cause foreign investors to head for the exits, with this capital flight putting downward pressure on the domestic currency and leading to economic instability. The Asian crisis of 1997 remains the textbook example of such a situation. The plunge in currencies like the Indian rupee and Indonesian rupiah in the summer of 2013 is another recent example of the havoc caused by “hot money” outflows. In May 2013, after Federal Reserve chairman Ben Bernanke hinted at the possibility of winding down the Fed’s massive bond-buying program, foreign investors began closing out their positions in emerging markets, since the era of near-zero

interest rates (the source of cheap money) appeared to be coming to an end.

Foreign portfolio managers first focused on nations like India and Indonesia, which were perceived to be more vulnerable because of their widening current account deficits and high inflation. As this hot money flowed out, the rupee sank to record lows against the U.S. dollar, forcing the Reserve Bank of India to step in and defend the currency. Although the rupee had recovered to some extent by year-end, its steep depreciation in 2013 substantially eroded returns for foreign investors who had invested in Indian financial assets.

The Bottom Line

While FDI and FPI can be sources of much-needed capital for an economy, FPI is much more volatile, and this volatility can aggravate economic problems during uncertain times. Since this volatility can have a significant negative impact on their investment portfolios, retail investors should familiarize themselves with the differences between these two key sources of foreign investment. In order to harmonize the various available routes for foreign portfolio investment in India, the Indian securities market regulator i.e. Securities Exchange Board of India (“SEBI”) has introduced a new class of foreign investors in India known as the Foreign Portfolio Investors (“FPIs”). This class has been formed by merging the existing classes of investors through which portfolio investments were previously made in India namely, the Foreign Institutional Investors 1 (“FIIs”), Qualified Foreign Investors 2 (“QFIs”) and sub-accounts3 of the FIIs. Previously portfolio investment was governed under different laws i.e. the SEBI (Foreign Institutional Investors) Regulations, 1995 (“FII Regulations”) for FIIs and their subaccounts and SEBI circulars dated August 09, 2011 and January 13, 2012 governing QFIs, which are now repealed under the SEBI (Foreign Portfolio Investors) Regulations (“FPI Regulations”) that govern FPIs. SEBI has, thus, intended to simplify the overall operation of making foreign portfolio investments in India.


Human development index

The theoretical framework relating to FDI and human development can be traced from welfare and economic growth literature. Nobel Laureate, Amartya Sen’s work pertaining to welfare economics has stressed the importance of several economic and societal variables bringing about notable changes and generally improving the quality of life of an individual (Sen 1987, 1997 and 1998). In some of his earlier works, Sen (1987 and 1992) has expressed that “while economic analyses have often concentrated on incomes and commodities to judge a person’s advantage, misery and deprivation, there is a need to shift attention to things that people have reason to value intrinsically.” In line with these views, we pursue this matter forward by considering FDI having an influential role for the betterment of individual well being. Reducing the state of misery and deprivation and improving overall human welfare of the large proportion of the world’s deprived population is certainly an issue of prime concern for many poor countries. The welfare of poorer nations is of equal concern to foreign investors, as their contributions such as employment creation, skill development, income generation and technological improvements can have direct effects in reducing the level of sufferings of the poorer nations. Technological progress has been noted to have an influential effect on societal progress. For example, Solow (1956) emphasised the importance of technological progress as the ultimate driving-force behind sustained economic growth. While the role of human capital has recently received extensive attention in recent times, it should be noted that attempts to quantify the contribution of human capital to a country’s rate of economic growth could be traced at least as The endogenous growth theory has certainly re-awakened interest in the role of human capital, providing ample evidence that technology and human capital play an essential role in a country’s development (Barro, 1991 and Easterly, et al., 1994).Because several factors contribute to higher levels of human capital, hence improvements in human development, this

aspect is of prime importance. For example, the new-growth theory gives significant weight to human capital –creating agents who can become more productive through their acquisition of knowledge, increased skills and better health and nutrition. Foreign investors play a positive role in the enhancement of such attributes. Thus, higher levels of individual well being are likely to represent an increase in human capital, hence contributing to higher levels of aggregate output. Increased output generates higher incomes and improves per capita incomes, inducing overall well being. Ranis, Stewart and Ramirez (2000) point out that there exists a strong connection between economic growth and human development: economic growth provides the resources to permit sustained improvements in human development while improvements in the quality of the labour force are important contributors to economic growth. For sustained levels of human development, technology is equally important in nation building generate productivity gains and is an essential component behind sustained economic growth. Other, than investments in technology by host governments, FDI brings in much needed technology as well as technology of a high calibre. Several factors contributing to economic well being have been identified in previous studies (Sen, 1998 and 2002; Anand&Sen, 2000; Meier & Stiglitz, 2001). For example, Sen (2002) has emphasised that “the importance of global contact and interaction applies to economic relations among others and that there is much evidence that global economy has brought prosperity to many different areas of the globe and in overcoming pervasive poverty.” Foreign investors play a significant role in enhancing global contacts through direct capital investment and international trade.

Conclusion

Liberalization policies have led to rapid growth in FDI flows in recent years. Basing on the benefits associated with FDI several developing, as well developed countries, compete fiercely for FDI. They try to attract foreign investors by providing financial and


fiscal incentives, undertaking corporate restructuring and economic reforms and inviting foreign investors in the privatization of state-run units. In 2001, for example, 71 countries made 208 changes in their FDI regulatory regimes, out of which 194 have done to attract higher FDI. The investing countries usually supply superior technologies to the host countries. At the initial stages, however, the less developed countries (LDC) lack not only the necessary skills and infrastructure to attract FDI in high technology sector but also the knowledge for proper implementation of technology. Since this requires less technical capabilities, skill building in the host LDC is less. However, such skill building, even though small, creates a platform for the LDC to develop their existing technology and capital productivity. This helps in improving the human capital of the country by facilitating education and technical training to a greater mass of people. Capital is a vital component for economic growth, and most nations cannot meet their total capital requirements from internal resources alone, they turn to foreign investors to supply capital.Foreign direct investment and foreign portfolio investment are two of the most common routes for overseas investors to invest in an economy. Financial flow is captured by the foreign investment while the capital flow is acted by the Portfolio investment. The human welfare was proxied by human development index, (HDI-a composite of three indicators: life expectancy at birth, mean year of schooling and income per head), access to basic necessities such as water, sanitation and health services were also used as alternative measure of human welfare while Governance index was considered as a control variable which stimulates globalisation and human welfare.

Reference

1. Eyeing big-billions in 2015, government rolls out FDI red carpet. The Economic Times. 28 December 2014. Retrieved 11 October 2015

2. Foreign direct investment, net inflows (BoP, current US$) | Data | Table”. Data.worldbank.org. Retrieved 17 November 2012

3. How the Indian economy changed in 1991–2011. The Economic Times. 24 July 2011. Retrieved 11 October 2015

4. India pips US, China as No. 1 foreign direct investment destination”. The Times of India. 30 September 2015. Retrieved 11 October 2015

5. India grabs investment league pole position”. Financial Times

6. India Pips China, US to Emerge as Favourite Foreign Investment Destination: Report”. NDTV Profit. Retrieved 1 October 2015

7. Iyengar Rishi, (30 September 2015). India Tops Foreign Investment Ranking Ahead of U.S and China, Time. Retrieved 11 October 2015.

8. Reserve Bank of India – Frequently Asked Questions. Reserve Bank of India. Retrieved 11 October 2015.

9. Nagaraji R, What Has Happened since 1991? : Assessment of India’s Economic Reforms” (PDF). Igidr.ac.in. Retrieved 2015-10-12

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FDI in Energy Infrastructure – Power Generation & Distribution

Abstract

Infrastructure is one of the crucial pillars of productivity in any economy. It not only attracts foreign direct investment, but also affects economic growth and reduces poverty in India. Infrastructure is the basic physical and organizational structures needed for the operations of a society or enterprise or the services and facilities necessary for an economy to function. The foreign investment in infrastructure remains dim even though Government of India promotes foreign capital and creating an investor friendly environment. Lack of infrastructure adversely affects in growth of other sectors also. This paper identifies that inadequate allocation of fuel to the power stations, delay in environment clearances, issues in the land acquisition and absence of credible dispute resolution mechanism are the technical barriers of investment in infrastructure. This paper also discusses the energy infrastructure deficiency of India, the foreign direct investment in energy infrastructure sector and the actions which the authorities can take while planning to bridge the infrastructural gap. Energy Infrastructure is an important item in judging a country’s or region’s development. Sustained economic growth continues to drive electricity demand in India. The Government of India’s focus on attaining ‘Power for all’ has accelerated capacity addition in the country. Total installed capacity of power stations in India stood at 305,554.25 Megawatt (MW) as of August 31, 2016. The Planning Commission’s 12th Five-Year Plan estimates total domestic energy production to reach 669.6 Million Tonnes of Oil Equivalent (MTOE) by 2016–17 and 844 MTOE by 2021–22. The initiative would entail an investment of about US$ 310–350 billion. The Government of India has been supportive to growth in the power sector. It has de-licensed the electrical machinery industry and also allowed 100 per cent Foreign Direct Investment (FDI) in the sector. Total FDI inflows in the power sector touched US$ 10.48 billion during the period April 2000 to March 2016.

Keywords : economic growth, infrastructural Gap, sustained economic growth

Dr. Madan Kumar SinghResearch Scholar, D. Litt.

Faculty of CommerceRanchi University, Ranchi

Introduction

Since the mid-1980s, governments around the world have pursued policies to encourage private sector participation in the financing and delivery of infrastructure services. The natural monopoly characteristics of infrastructure utilities mean, however, that the privatization of these industries risks the creation of private-sector monopolies. Therefore, governments need to develop strong regulatory capabilities to police the revenues and costs of the privatized utility firms, while, at the same time, establishing regulatory credibility among investors. Infrastructure is the basic physical and organizational structures needed for the operations of a society or enterprise or the services and facilities necessary for an

economy to function. It can be generally defined as the set of interconnected structural elements that provide support for the development of the economy. The foreign investment in infrastructure remains dim even though Government of India promotes foreign capital and creating an investor friendly environment. Lack of infrastructure adversely affects in growth of other sectors also. This paper discuss the infrastructure deficiency of India, the foreign direct investment in infrastructure sector and the actions which the authorities can take while planning to bridge the infrastructural gap.

Infrastructure is an important item in judging a country’s or region’s development. Infrastructure sector covers hard infrastructure


and soft infrastructure. Hard infrastructure includes transport infrastructure, energy infrastructure, water management infrastructure, communication infrastructure, solid waste management, earth monitoring and measurement networks. Governance infrastructure, economic infrastructure, social infrastructure, cultural, sports and recreational infrastructure comes under the soft infrastructure. Before 1700, infrastructural sector covered only roads and canals. Railways and telegraph services are included in the category from 1700 to 1870. Electricity, water distribution and sewers and subways are added to the sector after 1870. Since 1920 communication facilities and technology infrastructure is considered as the prime additions to the sector.

Reserve Bank of India has defined infrastructure sector as:

i. Power

ii. Telecommunications

iii. Railways

iv. Roads including bridges

v. Sea port and air port

vi. Industrial parks

vii. Urban infrastructure (water supply, sanitation and sewage projects)

viii. Mining, exploration and refining, and

ix. Cold storage and cold room facility, including for farm level pre-cooling for preservation or storage of agricultural and allied produce, marine products and meat.

The Index of Eight core industries—crude oil, petroleum refinery products, coal, electricity, cement, steel, fertilizers and natural gas—having a combined weight of 37.90 per cent in the Index of Industrial Production (IIP) stood at 139.5 in September 2012, according to data released by the Union Ministry of Commerce and Industry. During April-September 2012-13, the cumulative growth rate of the Core industries was 3.2 per cent. The infrastructure sector accounts for 26.7 per cent of India’s

industrial output. The Planning Commission has projected that investment in infrastructure would almost double at US$ 1,025 billion in the Twelfth Five Year Plan (2012-17), compared to US$ 514 billion in the Eleventh Plan. Of the US$ 1,025 billion, 50 per cent is expected to come from private sector, whose investment has been 36 per cent in the Eleventh Plan.

The trend towards greater reliance on the private sector has also seen a growing role for FDI in infrastructure. FDI made up 28% of the total infrastructure investment in developing countries during 1996 – 2008. Moreover they have the greater capacity to mobilize financial resource to meet the huge capital requirements of major infrastructural projects. Opening the infrastructure sector also increases the pool of potential investors, allowing governments to secure higher prices for infrastructural assets.

FDI investment in infrastructural sector is welcomed by the Government of India. India is more viewed as a financial market. Majority of FDI investments happened in the financial services sector. The growth rate of the economy, working and earning population and financial literacy helped in increasing the FDI base in financial services sector. Other sectors including infrastructure was not in the limelight till now. The recent policy changes has favourably affected retailing and educational sector and many players has already expressed their interest in investing in India Infrastructure in India is viewed as a tough sector to invest. India needs an investment of US$ 1.7 trillion in infrastructure. Only then the country would be able to meet the requirements based on the expected GDP growth. Private- Public Partnerships (PPP) are gaining importance with PPP airport projects at Bangalore, Delhi, Hyderabad and Mumbai and also in power and port sectors. Among the PPP projects only the power sector is on track, achieving 100 % of planned capacity, the airport sector is at 75% and road sectors at 50% including National Highway Development Programme that has achieved only 10% of the planned capacity. This is followed by the low foreign investments in the infrastructure. One of the main reasons for unattractive inflow to


infrastructure is the regulatory environment. As a system we need a clear, stable legal framework for promoting investment in infrastructure. Once we move from State Investments to Transnational Corporations (TNC) we need a legal framework which would meet the international benchmarks. The investor will be always concerned of the clarity of the legal frame work. Policy changes in short run and delay in taking decisions in policy matters has adversely affected the foreign inflow in infrastructure.

Political environment in India is also a reason for low foreign investment in infrastructural sector. India is having elections every 5 years, and majority of state have new ministry every 5 years. There are many instances where the policy and process of one ministry is diagonally opposite to the next ministry. There are even instances where some projects are cancelled, modified and fresh tenders orders and given. This is creating a policy dilemma and increases the risk of the foreign player.


The Study will be descriptive analysis of the problem identified. For this research techniques will consists of: Observation, Scanning, Collection of Required Materials/Data, Analysis, and Presentation. The relevant material will be collected mainly from secondary sources content in the form of reports, articles, annual reports, authentic reports of the Ministry of Coal & Energy, Reserve Bank of India Bulletins and Planning Commission Publications will be extensively be used.

The primary sources, however, may consists of a very small portion of research work as when required on the spot study will be made and causes of operational constraints will be ascertained from the concerned officials and engineers.


FDI in the Energy sector can improve the standard of living, generate employment opportunities, makes others sectors more effective and ultimately results in economic

growth and prosperity. A transparent, clear and accessible regulatory system supported by a state run independent monitoring system for project implementation can help in attracting FDI and meeting infrastructure requirements.

The 1990s saw an unprecedented increase in private foreign investment in infrastructure projects in developing countries. Much of this investment was in the telecommunications and electricity industries. For the private sector, infrastructure investment is associated with a sizeable investor risk linked to the long-term sunk cost characteristics of infrastructure projects. For the government, the involvement of the private sector in “natural monopolies” raises new challenges in designing regulatory structures that can control anti-competitive or monopolistic behaviour, while at the same time maintaining the attractiveness of the domestic economy to potential foreign investors in the infrastructure industries.

This article provides an empirical examination of the relationship between the quality of the regulatory framework and foreign direct investment (FDI) in infrastructure in middle and lower income developing countries during the period 1990 to 2002. The results confirm that FDI in infrastructure responded positively to an effective domestic regulatory framework. By implication, where regulatory institutions are weak and vulnerable to “capture” by the government (or the private sector), foreign investors may be more reluctant to make a major commitment to large scale infrastructure projects in developing countries.

In developing countries, an essential requirement for economic growth and sustainable development is the provision of efficient, reliable and affordable infrastructure services, such

as water and sanitation, power, transport and telecommunications. The availability of efficient infrastructure services is an important determinant of the pace of market development and output growth, and, in addition, access to affordable infrastructure services for consumption purposes serves to improve household welfare, particularly among the


poor. In most countries, however, the potential contribution of infrastructure to economic growth and poverty reduction has not been fully realized, and existing infrastructure stock and services fall far short of the requirements.

Traditionally, infrastructure was the exclusive province of the public sector, with large, state-owned enterprises (SOEs) being responsible for investment and service delivery. Typically, SOEs were costly and inefficient providers of infrastructure services in most developing countries. Since the mid-1980s, however, governments around the world have pursued policies to involve the private sector in the delivery and financing of infrastructure services. Encouraged by international organizations such as the World Bank, privatization has been a major component of the economic reform programmes pursued by many developing countries over the past two decades (Parker and Kirkpatrick, 2004). Privatization was thought to promote more efficient operations, expand service delivery, reduce the financial burden on government and increase the level of foreign and domestic private investment (World Bank, 1995). Early privatization measures were, on the whole, concentrated in the manufacturing sector but, in recent years, the private sector has become increasingly involved in the financing and delivery of infrastructure services. A large number of developing countries have introduced private participation into their infrastructure industries and, by the end of 2001, developing countries had received over $755 billion in private investment flows in nearly 2,500 infrastructure projects (World Bank, 2003a).

Utilities such as water supply, gas, electricity and telecommunications and certain modes of transport, e.g. rail, all have natural monopoly characteristics arising from pervasive economies of scale and scope. These characteristics mean that competition is unlikely to develop or, if it develops, it will be uneconomic because of the duplication of assets. Although technological advances, notably in telecommunications, have whittled away some of the natural monopoly characteristics in utilities, permitting economic

competition in certain areas of service delivery, each of the utilities retains some natural monopoly features. As a consequence, privatization of these industries, in whole or in part, risks the introduction of private sector monopolies that will exploit their economic power, leading to supernormal profits (high “producer surplus”) and reduced consumer welfare (a lower “consumer surplus”). Consumers may suffer from no – or a limited choice of – goods and services and face monopoly prices.

To prevent such an outcome, governments need to develop strong regulatory capabilities so that they can police the revenues and costs of production of the privatized utility firms and protect consumers from monopoly exploitation. At the same time, there needs to be commitment on the part of government to the regulatory rules so that they are perceived as credible by investors. Where regulatory credibility is weak or absent, private investment decisions will be adversely affected.

Conclusion

FDI has expanded steadily over the past three decades. The growth in FDI accelerated in the 1990s, rising to $331 billion in 1995 and $1.3 trillion in 2000 (UNCTAD, 2002). As a result, developing countries experienced a sharp increase in the average ratio of FDI to total investment during the 1990s. A principal feature of the growth in FDI has been its rise in the services sector, which is now the dominant sector in global FDI. For developing countries, FDI in services increased at an annual rate of 28% over the period 1988 to 1999, and by 1999, accounted for 37% of total foreign investment inflows.

Private participation in infrastructure in developing countries has been concentrated in the telecommunications industry, which accounted for 44% of the cumulative investment in 1990-2001. Energy, which includes electricity and the transmission and distribution of natural gas, attracted the second largest share of investment, accounting for 28% of the cumulative investment in private infrastructure projects in 1990- 2001. In


contrast, private participation in the water and sewerage industry has been limited, accounting for 5% of cumulative investments over the period 1990-2001. The limited amount of private involvement in water utilities is likely to be a reflection of the inherent difficulties that face privatization in this industry, in terms of the technology of water provision and the nature of the product, transaction costs and regulatory weaknesses.

References

1. Report of Union Minister of Commerce & Industry.

2. UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics).

3. Planning Commission, 2011, Report on Steering Group on Foreign Direct Investment

4. www.wikepedia.com

5. www.rbi.org



8. www.unctad.org

9. www.dipp.gov.in

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Role of FDI in Economic Growth of India

Abstract

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 many countries including developing countries like India. Capital formation is an important determinant of economic growth. While domestic investments add to the capital stock in an economy, FDI plays a complementary role in overall capital formation and in filling the gap between domestic savings and investment. At the macro-level, FDI is a non-debt-creating source of additional external finances. At the micro-level, FDI is expected to boost output, technology, skill levels, employment and linkages with other sectors and regions of the host economy.

Keywords : dynamic growth, private finance, portfolio investment

Mantosh Kumar SinghM.Com, MBA, Research Scholar

Department of Commerce Magadh University, Bodhgaya

Introduction

The role of Foreign Direct Investment (FDI) is stimulecting economic growth in one fo the controversial issues in the development literature. The great promise of foreign direect investment (FDI) by multinational corporations is that capital will stimulate dynamic growth. The part played by foreign direct investiment (FDI) in the development process has undergone several changeS. In the 1960 FDI was seen in most countries as a partner in the development endeavours. India adopted a regime that was perceived to be restrictive towards FDI. The introduction of the Foreign exchange regulation Act (Fera) in 1973 by incorporated in India. The industrial Licening system under the industries Development and Regulation Act, 1951 and the Monopolies and Restrictive Trade practice Act. 1969 sought to channelize their activities into high technology and. exportoriented production.

The limits on foreign shares fostered joint ventures with Indian entrepreneurs. These Policies continued until the policy of creeping liberalisation of the Indian economy was initiated in the 1980. The fast-tracked liberatisation of the Indian economy the process of establishing the venture. The policy change were thus aimed at improving india’s

record in attracting FDI inflows.

The commercial bank debt. crisis and the aid fatigue, in the 1980, FDI became the preferred source once again as countries becamemore attracted towards non-debt creating sources of external private finance.

Now Government of India allowed FDI in different sectors of economy. FDI includes mergers and acquisitions, building new facilities reinvesting profit earned from overseas operations and intra company loans. FDI id in Dissimitanities to portfolio investment which in a pansive investment in the securitics of mother Country such as stock bonds. FDI is defined as the net inflows of investment to acquire a lasting management interest in an enterprise operating in an economy othe than that of the investor. As per the data, the sector that attracted higher inflows were service telecommunication. Construction activities and computer software and Hardware. On 14 September 2012 Government of India allowed FDI in aviation Up to 49% in the broadcast sector up to 74% inmulti-brand retail up to 100% the choice of allowing FDI in Multi-brand retailing up to 51% has been left to each state.

Agrwal and Khanin (2011) in their the study found that 1% increase in FDI would result in


0.07% increase in GDP of China and 0.02% increase in GDP of India. We also found that China’s growth is more affected by FDI. Then India’s growth. Kumar and Karthika (2010) found out in their study that foreign Direct Investment has a major role to play in the economic development of the host country.

Bauasubranyam and spsord 2007 stated in their Anticle “Does India need a lot more FDI” compared the levels of FDI inflows in India and China and found that FDI in India s one tenth of that of China. The paper also concluded that India may not require increased FDI because of the Structure and composition of India’s manufacturing. Service Sectors and her endowments of human capital and the country in a position to unbundle the FDI package effectively and rely and sources other then FDI for its capital requirements. The conclusion of study is that restnricted FDI regime poor quality infrastructure, centralized decision making processe and a very limited scale of export processing zones make India and unattractive investment Location.




Recently in 2016, the Industry Minsitry come out with a consolidated foreign Direct Investment FDI document incorporating. Significant changes in the FDI norms by permitting foreign Institutional investors. According to a notification issued by the department of Industrial policy and promotion’s on consolideated FDI policy, the government has decided to Liberalise the policy.

The Cumulative amount of inflow of FDI was U$$ 290.078 million for the period from April 2000 to March 2013. While the FDI inflow to India during the financial year 2012-13 was U$$ 36.860 million.

Total FDI inflows from April 2000 March 2016.

1. Cumulative amount of FDI inflows (Equity inflows +Re-invested earning + other capital.) Amount of FDI inflow in $ million- 290.078.

2. Cumulative amount of FDI Equity inflows excluding amount remitted through RBI’s NRI Schemes. Amount of FDI inflow in Rs. Crore-896.30 and in $ Million - 193.282.

FDI inflows during the Financial year 2015-16 from Arpil 2015 to March 2016.

1. Total FDI inflows into India (Equity inflows +Re- invested earings + other capital Amount of FDI inflow in $ million. 36,860

2. FDI Equity inflows. Amont of FDI inflows in Rs. Crore- 121.907 and in $ million- 22,423.

Foreign Direct investment FDI as astrategic component of investment in needed by India for its sustained economic growth and development through creation of jobs. Expansion of existing manufacturing industries. Short and long term project in the field of health care, education, research and development through creation of Jobs. Expansion of existing manufacturing industries.

The sector wise inflow of FDI to India for the Period from April 2000 to March 2016 reveal that 28.26 Percentages were on service sector. While 19.45 percentages were in construction development sector. Telecommunications, Computer, Software and Hardware and Drugs and Pharmaceuticals sector were 7.58%, 7.49%, 7.09%, 6.89% and 6.48% respectively.

During this period FDI inflow to sectors namely petroleum and Natural gas. Trading Information and Broadcasting Including print media. Electrical equipment. Cement and Gypsum products. Non- Conventional Energy Miscellaneous Mechanical and Engineering Industries. Industrial Machinery. Consultancy services and construction accounts for one to three Percentage only. While into the other sectors the FDI inflows were less than one percentage.


Conclusion

FDI in India has a significant role in the economic growth and development of India. FDI in India to various sectors can attain sustained economic growth and development through creation of Jobs, expansion of existing manufacturing industries. The inflow of FDI in service sectors and construction and development sectors, from aprial 2000 to march 2016 attained substantial sustained economic growth and development through creation of jobs in India. Computer, Software and Hardware and Drugs and pharmaceuticals sector were the other sectors to which attention was shown by foreign direct investors interest was, In fact has been quite poor.

References

1. Agrwal J, Khan MA, Impact of FDI on GDP. A comparative study of china and india. Int. J.Business Management 6(10) : 71-79, 2011

2. Kumar Gajendran, Lenin Karthika, Sectoral Performance through inflows of foreign direct investment. (FDI), 2010

3. Singh S, Foreign direct investment (FDI) and growth of states of India Vision 2020. Managerial strategies and challenge, wisdom publications, Delhi, 2009

4. Balasubramanym VN., Sapsford David, Does India need a lot more FDI, Economic and political weekly, pp 1549-55, 2007

5. Sharma Reetu, Khurana Nikita, Role of Foreign Direct Investment (FDI) in Different sectors, International Journal of Advances in Management and Economics, Jan- Feb 2013, pp 14-19

6. Nayak DN, Conacdian foreign direct investment in India. Some observations, Poitical Economy J. India, 8:51-56, 1999

7. Srivastava S, What is the True level of FDI flows of India. Economic and political weekly, 1201-1209, 2003

8. www. imf.org

9. www.rbi.org

10. www.dipp.gov.in.

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FDI in Retail Sector: Opportunities and Challenges Ahead

Abstract

FDI in retail sector is not allowed, it is only allowed up to 51 % in single brand and government is still considering the opinion of allowing FDI in multi brand segment.100% FDI is allowed in cash and carry wholesale and export trading, both wall mart and Carrefour have already entered in India in this segment. Many big giants like Wall mart, Carrefour are waiting to earn their fortune in continuously growing market.FDI in retail sector will have both positive and negative effect if allowed. Both organized and unorganized sector will face adverse competition from global players. Wal-Mart has a turnover of $256 billion and growing at an average of 12 -13 % annually. Average size of its stores is 85000sq ft and average turnover is $51 million. Organized sector retail outlets in India like pantaloons, reliance cannot compare with the giant let alone the small retailers. Indian government still fears that if FDI is allowed in retail then unorganized sector will be affected very badly and it will result in a large lot of unemployed retailers and other youth which is employed in the supply chain, this unemployed lot can’t be absorbed in manufacturing or service sector which can ultimately push a large chunk of population below poverty line. In India unorganized retail is a ‘forced employment sector’, there are large number of retail outlets because when youth dose not find enough employment opportunities or is not educated enough then the easiest resort to earn decent money is to save money or get a loan to set up a shop. On an average a retailer earns Rs.186075 annually and only 4% of 12 million retail outlets have area more than 500 square ft. Now if FDI is allowed in such an unorganized sector than many changes can happen which can be positive or negative.

Keywords : adverse competition, employment opportunities, growing market

Dr. Bijay Kumar SinhaAssociate Professor and Head of Department

P G Commerce Department, B. D. College Mithapur, Patna, Bihar

Mritunjay Kumar MishraResearch Scholar, University Department of Applied Economics

& Commerce, Magadh University, Bodh Gaya (Bihar)

Introduction

India is the second fastest growing economy in the world. It is third largest economy in the world in terms of GDP and fourth largest economy in terms of Purchasing Power Parity. India presents a huge opportunity to the world at age, to use as a hub. Standing on the threshold of a retail revolution and witnessing a fast changing retail landscape, India is all set to experience the phenomenon of global village. India is the “promised land” for global brands and Indian retailers A “Vibrant economy”. India tops in the list of emerging market for global retailer and India’s retail sector is expanding and modernizing rapidly in line with India’s economic growth.

The future is promising; the market is growing,

government policies are becoming more favorable and emerging technologies are facilitating operations. Retailing in India is gradually inching its way toward becoming the next boom industry. The whole concept of shopping has altered in terms of format and consumer buying behavior, ushering in a revolution in shopping in India. Modern retail has entered India as seen in sprawling shopping centers, multi-storied malls and huge complexes offer shopping, entertainment and food all under one roof. The Indian retailing sector is at an inflexion point where the growth of organized retailing and growth in the consumption by the Indian population is going to take a higher growth trajectory. The Indian population is witnessing a significant change in its demographics. A large young working


population with median age of 24 years, nuclear families in urban areas, along with increasing working-women population and emerging opportunities in the services sector are going to be the key growth drivers of the retail sector in India.

Growth of Indian Retail Industry in the Last Decade

The Indian Retail Industry is the 5th largest retail destination and the second most attractive market for investment in the globe after Vietnam as reported by AT Kearney‟s seventh annual Globe Retail Development Index (GRDI), in 2008. The growing popularity of Indian Retail sector has resulted in growing awareness of quality products and brands. As a whole Indian retail has made life convenient, easy, quick, and affordable. Indian retail sector, specially organized retail is growing rapidly, with customer spending growing in an unprecedented manner. It is undergoing metamorphosis. Till 1980 retail continued in the form of kiranas that is unorganized retailing. Now big players like Reliance, Tata‟s, Bharti, ITC, and other reputed companies have entered into organized retail business.

Last decade has indeed witnessed tremendous growth in Indian retail industry and has integrated our Indian economy with the world. Retailing in India is progressively inching its way toward becoming the next boom industry. It has emerged as one of the most dynamic and growing paced industries accounting for over 10 percent of the country’s GDP. This growth has become major attraction for foreigners to enter in India.

The challenge to the retail, on the other hand, is the requirement of heavy initial investments which leads to difficulty in achieving break even and this is the reason that many of these players have not tasted success so far.

However, the growing trend of the market, changes in the lifestyle of consumer segment, increasing per capita income, and emerging technologies in operations still promise success in the long run with achievement of economies of scale.

Materials and MethodsThe study is based on secondary sources of data. The main source of data are various Economic Surveys of India and Ministry of Commerce and Industry data, RBI bulletin, online data base of Indian Economy, journals, articles, news papers, etc.

Results and DiscussionsThe Indian retail sector is highly fragmented, consisting predominantly of small, independent, and owner managed shop. The domestic organized retail industry is at a nascent stage. India got started with organized chain retailing just a few years ago. There are just very few categories, the most prominent being apparel, where organized retail chains have had a significant presence for more than 3-4 years. Indian retailers have done very well. Particularly after taking into account the various obstacles and hindrances like real estate costs, lack of trained manpower etc.

Growth of organized sector of retailing will yield efficiencies in the supply chain, enabling better access to markets, to producers and to customers. The strength of organized retail lies in resource availability. It can translate into efficient supply chain management, leading to faster inventory turnaround, resulting in improved button lines. It is anticipated that the further belongs to organized sector in India. India’s organized sector is all set to explode. While the existing players such as future group, Bharti, Reliance Retail, Essar, Shopper’s stop and Aditya Birla group are endeavouring to consolidate their markets, others such as Mohindra & Mohindra, Parsavnath & DLF, Hero Honda & Indiabulls have announced plans to enter the retail sector.

Organised sector is going to grow at a much faster rate of 45-50 percent per annum and quadruple its share in total retail to 16% by 2011-12. Government is also apprehensive about the uncertain future of this sector considering the vote bank attached to retail, political environment is quite willing to take the risk of 100% FDI in retail.

Modern Retail Formats in India

The face of India retail sector is changing;


new & innovative business models are being adopted. The formats prevalent in retail sector are:-

� Hyper Market: Hypermarket offer a large basket of products, ranging from grocery. Fries & processed food, beauty & healthcare products etc. Example – Spencer’s, Big Bazaar .

� Cash & Carry: These are large B2B focused retail formats, buying & selling in bulk for various commodities and carry several thousand stock-keeping. Example – Mito, a Germany based C&G.

� Department Stores: Department stores have a large layout with a wide range of merchandise mix, usually in cohesive categories, such as showed towards garments. Example:- Ebony, Shopper’s stop, Westside

� Speciality Stores: Speciality stores are single category, focusing on individuals and group clusters of the same class with high product loyalty. Examples – Footwear stores, gift stores etc.Examples- Archies, Woodlannd etc.

� Discount Store: A discount store is a retail store offering a wide range of products, mostly branded, at discounted prices or apparel or footwear brands. Example –Subhiksha, Koutons, Nike, Levis

� Convenient Store: A convenience store is a relatively small retail store located near a residential area (closer to consumer), open long hours, 7 days a week and carrying a limited range of staples and groceries. Example – In & Out, Safal, 6ten.

Challenges and Opportunities

Retailing has seen such a transformation over the past decade that its very definition has undergone a sea change. No longer can a manufacturer rely on sales to take place by ensuring mere availability of his product. Today, retailing is about so much more than mere merchandising. As the Indian consumers

have again more insight, they expect more and more at each and every time when they step into a store. For manufacturers and service providers the emerging opportunities in urban markets seem to lie in capturing and delivering better value to the customers through retail. However, manufacturers and service providers will also increasingly face a host of specialist retailers, who are characterized by the use of modern management techniques, backed with seemingly unlimited financial resources. Organized retail appears inevitable. Retailing in India is currently estimated to be a US$ 200 billion industry, of which organized retailing makes up a paltry 3 percent or US$ 6.4 billion.

Challenges before Organized Retail Sector

Organized sector has only recently emerged from its nascent stage and yet has to become a preferred career option for most of India’s educated class. The roadblocks in the success of organized sector are:-

i. Talent shortage & lack of trained manpower.

ii. Supply chains are not yet so efficient and the kind of quality that customers demand is not being provided yet.

iii. There are too many intermediaries. These long intermediaries’ chains are in turn driving up their costs.

iv. A plethora of clearances are required for setting up retail outlet. It limits the expansion of retail outlets at a faster pace.

v. Inadequate infrastructure, such as roads, electricity, cord chains and posts, hampers going for a pan-India network of supplies. Due to this, retailers have to resort to multiple vendors for their requirements which are raising their costs and prices.

vi. Organized sector does not have industry status. It is further making it difficult for the players to raise funds for their expansion plans.

vii. Government restrictions on FDI limit are resulting in limited exposure to international best practices.


Conclusion

India being one of the major economies in the world has been enjoying huge and regular FDI from investor of all around the world. Majority of this FDI in India has been made in the sectors of telecommunication, construction, computer software and hardware etc. FDI in retail sector was permitted to enter in 2006 and gradually it was liberalized and recently in 2011, 100% FDI in single brand retail was permitted and in 2012, 51% FDI in multi brand retail was permitted. This has led to debate regarding implication of this policy. FDI has positive impact on some sectors while negative on others. In our study we hope to see that FDI will bring investment for modernizing farm as well as retail sector and will also improve supply chain. As a result of these factors food inflation will come down and it will benefit consumers as well. In fine, FDI in retail sector may boost the socio economic development of the entire country if implemented wisely and carefully and taking extra care while signing the agreements with the Foreign Investors.

So this is the time to shift gears and accelerate the pace of retail development in India. Finally, of late, there has been a lot of debate about the merits and demerits in liberalizing FDI in retail, insurance, pension, and aviation sectors in India. With the issue of FDI still being hot, it is important for the government to take due care in formulating its FDI policies so as to reduce the regional disparity rather than aggravating it.

References

1. Kalhan Anuradha, Impact of Malls on Small Shops and Hawkers, Economic and Political Weekly, Vol.42, No.22, 2007, pp 2063-66

2. Kalhan Anuradha and Martin Franz, Regulation of Retail : Comparative Experience, Economic and Political Weekly, Vol. 44, No. 32, 2009, pp 56-64

3. Kulkarni Keerti, Kulkarni Ramakant and Kulkarni Gururaj A., Foreign Direct Investment In Indian Retail Sector: Issues and Implications, Indian Journal of

Engineering and management Sciences, 2012; Vol. 3(3)

4. Jadhav Ajit, FDI in Retail Sector- A Boon to Farmers in India. ABHINAV National Monthly Refereed Journal of Research in Commerce & Management, 1(5), 9-14

5. Bisaria G., Foreign Direct Investment in Retail in India. International Journal of Engineering and Management Research, 2012, 2(1), 31-37.

6. Chari A. & Raghavan T., C. A. M., Foreign Direct Investment in India‟s Retail Bazaar: Opportunities and Challenges. The World Economy, 2012, 35(1), 79-90.

7. David G., Retail marketing Management. Pearson Education, 2012, 45-50

8. Fernandes L. M., Banu R., & Simon S., FDI in Multi-Brand Retail: Issues and Implications on Indian Economy. Pacific Business Review International, 5, 2012, 19-28

9. Gupta, S., FDI in Retail: How can it benefit India’s Farm sector? Center for Strategic & International Studies, 2(3), 1-2, 2012

10. Kamaladevi B., The FDI Permit for Multi Brand Retail Trading in India - Green Signal or Red Signal. Business Intelligence Journal, 5(1), 2012,176-186.

11. Kishor K. P., & Pravasinee R., FDI in Indian Retail Market: Problems and Prospects. Indian Streams Research Journal, 3(12), 2014, 1-5

12. Levy W., Retailing Management, Tata McGraw Hills Company Ltd New Delhi, pp 472-502

13. Mandeep, S, Retail in India: Historical Perspective. Spectrum: A Journal of Multidisciplinary Research, 2012, 1(6), 18-29

14. Maruti Rao, N., FDI in Multi-Brand Retailing - Challenges and Opportunities. International Business Management, Elixir Inter. Busi. Mgmt., 2013, 59A, 15611-15617

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Foreign Direct Investment (FDI) in Indian Service Sector

Abstract

The services sector is a vital component of the Indian economy. The sector, which accounts for around 60 per cent of the country’s gross domestic product (GDP), has emerged as one of the largest and fastest-growing sectors not just in the country but in the global landscape; subsequently, its contribution towards global output and employment has been substantial. Sometimes domestically available capital is inadequate for the purpose of overall development of the country. Sometimes domestically available capital is inadequate for the purpose of overall development of the country. Foreign capital is seen as a way of filling in gaps between domestic savings and investment. FDI is a tool for economic growth through its strengthening of domestic capital, productivity and employment. FDI also plays a vital role in the up gradation of technology, skills and managerial capabilities in various sectors of the economy. .The study also looks into the sub-sectoral dynamics and indicates towards the fact that the trade, hotels and restaurants, transport, storage and communications sub-sector contributes the most in the growth of Indian service sector. Therefore FDI can be truly be used as a propagator of economic growth, via its favourable effect on the growth in the services sector. Finally, the study addresses the long running sustainability debate regarding the Indian service sector.

Keywords : managerial capabilities, domestic capital, domestic savings

Rajiv Ranjan SinhaResearch Scholar, Department of Commerce

Magadh University, Gaya, Bihar

Introduction

FDI to developing countries in the 1990s was the leading source of external financing and has become a key component of national development strategies for almost all the countries in the world as a vehicle for technology flows and an important source of non-debt inflows for attaining competitive efficiency by creating a meaningful network of global interconnections. FDI provide opportunities to host countries to enhance their economic development and opens new opportunities to home countries to optimize their earnings by employing their ideal resources. India ranks fifteenth in the services output and it provides employment to around 23% of the total workforce in the country. India’s services sector covers a wide variety of activities such as trade, hotel and restaurants, transport, storage and communication, financing, insurance, real estate, business services, community, social and personal services, and services associated with construction. Indian service sector grew at approximately 8 per cent per annum and contributed to about 64 per cent of India’s GDP in FY 2015-16.

The flow of FDI in Indian service sector is boosting the growth of Indian economy, this sector contributing the large share in the growing GDP of India. This sector is attracting a significant portion of total FDI in Indian economy and it has shown especially in the second decade (2000 - 2010) of economic reforms in India. Is this contribution of FDI in this sector is stimulating the economic growth or not, this knowledge thrust of research scholar create the interest in conducting this study.


The study is based on secondary sources of data. The main source of data are various Economic Surveys of India and Ministry of Commerce and Industry data, RBI bulletin, online data base of Indian Economy, journals, articles, newspapers, etc.


Indian economy stands today as one of the influential and attractive economy. The liberalization move by the Indian Government in 1990s has given a boost to the Indian


economy and put her into a fast track economic growth route. With the beginning of the new millennium, India was considered as an emerging super power. In 2009, Indian GDP based on purchasing power parity (PPP) stood at USD 3.5 trillion making it the fourth largest economy. India’s service industry accounts for 62.5% of the GDP while the industrial sector contributes 20% to the GDP. The agricultural sector which was the back bone of Indian economy post-independence took a back seat in 21st century and contributed only 17.5% to the GDP. India growth rate has been an average of 7% since 1997 and has maintained a growth rate above 5% even in times of global recession. The Information Technology and IT outsourcing services has been the biggest contributor to India’s growth. India’s per capital income (PPP) is not too attractive and stands at USD 4542. India currently accounts for 1.5% of the total Indian trade as per WTO, 2007 publications.

Services Sector contribution to the Indian Economy

The contribution of the Services Sector has increased very rapidly in the India GDP for many foreign consumers have shown interest in the country’s service exports. This is due to the fact that India has a large pool of highly skilled, low cost, and educated workers in the country. This has made sure that the services that are available in the country are of the best quality. The foreign companies seeing this have started outsourcing their work to India especially in the area of business services which includes business process outsourcing and information technology services. This has given a major boost to the Services Sector in India, which in its turn has made the sector contribute more to the India GDP.

Recent trends in Indian service sector

By services sector we mean the tertiary sector, which is the largest of the three constituent sectors in terms of contribution to Gross Domestic Product (GDP) in India. The service sector comprises trade, hotels and restaurants, transport, storage, communication, financing, insurance, real estate and business services,

community services (public administration and defense) and other services. This sector provides services of final consumption nature as well as intermediate nature, the latter accounting for a major share. Substantial parts of services such as transport and communications are in the form of intermediate inputs for production of other goods and services.

Indian service sector grew at approximately 8 per cent per annum and contributed to about 64 per cent of India’s GDP in FY 2015-16.

Market Size

The services sector is the key driver of India’s economic growth. The sector contributed around 66.1 per cent of its Gross Value Added growth in 2015-16, thereby becoming an important net foreign exchange earner and the most attractive sector for FDI (Foreign Direct Investment) inflows.

The Indian telecommunication services market is expected to grow by 10.3 per cent year-on-year to reach US$ 103.9 billion by 2020.

India is the eighth largest services exporter in the world. The services exports have in 2014 stood at US$ 155.6 billion, which constitutes 7.5 per cent of the GDP. The services imports increased at a rate of 3.3 per cent to US$ 81.1 billion in 2014-15. Out of overall services sector, the sub-sector comprising financial services, real estate and professional services contributed 21.6 per cent to the GDP, and grew the fastest among all sub-segments at 10.3 per cent year-on-year in 2015-16. The sub-sector of trade, hotels, transport, communication and services related to broadcasting contributed 12.6 per cent to the GDP. The third-largest sub-segment comprising public administration, defence and other services contributed nearly 12.6 per cent to the GDP.

Investments

The Indian services sector has attracted the highest amount of FDI equity inflows in the period April 2000-March 2016, amounting to about US$ 50.79 billion which is about 18 per cent of the total foreign inflows, according


to the Department of Industrial Policy and Promotion (DIPP).

Some of the developments and major investments by companies in the services sector in the recent past are as follows:

� Meru Cab Company Pvt Ltd, the Mumbai-based radio cab service, has raised Rs150 crore (US$ 22.24 million) from Brand Capital, the investment arm of Bennett Coleman and Co, which will be used to fund advertising and provide user incentives including discounts and loyalty schemes.

� Vistra Group Ltd, a Hong Kong-based professional services provider, has acquired IL&FS Trust Company Ltd, India’s largest independent corporate trust services provider, which will enable Vistra to expand the platform to provide a broader suite of corporate and fiduciary services and thereby gain a foothold in the Indian corporate services market.

� Icertis Inc, a contract management software maker for enterprises based out of Pune and Mumbai in India, has raised US$ 15 million in series B round of funding from Ignition Partners and Eight Roads Ventures, which will be used to invest in marketing and expand its global operations.

� India had the strongest activity in office leasing space in Asia and accounted for half of Asia’s total office leasing in third quarter of 2015, with Delhi being the most active market.

� Amazon, the world’s largest online retailer, plans to invest Rs31700 crore (US$ 4.7 billion) in India in addition to the US$ 2 billion investment it committed two years ago, in expanding its network of warehouses, data centers and increasing its online marketplace, besides launching an instant video and subscription-based ecommerce services for high-end buyers, called Amazon Prime, later this year.

� The Government of India has awarded

a contract worth Rs1,370 crore (US$ 203.09 million) to Ricoh India Ltd and Telecommunications Consultants India Ltd (TCIL) to modernise 129,000 post offices through automation.

� Taxi service aggregator Ola plans to double operations to 200 cities in current fiscal year. The company, which is looking at small towns for growth, also plans to invest in driver eco-system, such as training centers and technology upgrade, besides adding 1,500 to 2,000 women drivers as part of its pink cab service by women for women.

The Government has also adopted a few initiatives in the recent past. Some of these are as follows:

� The Government of India plans to significantly liberalise its visa regime, including allowing multiple-entry tourist and business visas, which is expected to boost India’s services exports.

� The Ministry of Communication and Information Technology has announced plans to increase the number of common service centres or e-Seva centres to 250,000 from 150,000 currently to enable village level entrepreneurs to interact with national experts for guidance, besides serving as a e-services distribution point.

� The Central Government is considering a two-rate structure for the goods and service tax(GST), under which key services will be taxed at a lower rate compared to the standard rate, which will help to minimize the impact on consumers due to increase in service tax.

� The Government of India has proposed provide tax benefits for transactions made electronically through credit/debit cards, mobile wallets, net banking and other means, as part of broader strategy to reduce use of cash and thereby constrain the parallel economy operating outside legitimate financial system.

� The Reserve Bank of India (RBI) has


allowed third-party white label automated teller machines (ATM) to accept international cards, including international prepaid cards, and has also allowed white label ATMs to tie up with any commercial bank for cash supply.

Conclusion

Services sector growth is governed by both domestic and global factors. The sector is expected to perform well in FY17. Some improvement in global growth and recovery in industrial growth will drive the services sector to grow 7.4 per cent in FY17 (FY15: 7.3 per cent). The Indian facilities management market is expected to grow at 17 per cent CAGR between 2015 and 2020 and surpass the $19 billion mark supported by booming real estate, retail, and hospitality sectors. The performance of trade, hotels and restaurants, and transport, storage and communication sectors are expected to improve in FY16. Loss of growth momentum in commodity-producing sectors had adversely impacted transport and storage sectors over the past two years. The financing, insurance, real estate, and business services sectors are also expected to continue their good run in FY16. The growth performance of the community, social and personal services sector is directly linked with government expenditure and we believe that the government will remain committed to fiscal consolidation in FY17. It can be observed that Indian service sector is generating the proper employment options for skilled worker with high perks.

References

1. Narula Rajneesh (Ed.), Trade and Investment in a Globalising World, Series in International Business and Economics, Elsevier Science Ltd., 2001

2. Bohra Narendra Singh, Int. J. Eco. Res., 2011, 2(2), 10-18 ISSN: 2229-6158

3. The World Bank Research Observer, vol 17, no. 2, pp 191-235, Fall 2002

4. Patil-dake Jayashree, Analysis of FDI inflows in India, volume no: 2, 2011

5. Media Reports, Press Releases, DIPP publication, Press Information Bureau, India budget 2015-16, Central Statistical Organisation

6. http://www.sethassociates.com/policy_on_foreign_direct_investment http://dipp.nic.in/

7. http://planningcommission.gov.in/ http://finmin.nic.in/capital_market/capital_market.asp

8. http://business.mapsofindia.com/india-gdp/sectorwise/services-sector growth-rate.html

9. www.unctad.org 10. http://planningcommission.nic.in/data/

datatable/Data0910/tab32.pdf 11. http://dipp.nic.in/fdi_statistics/india_fdi_

index.htm 12. http://indiainbusiness.nic.in/newdesign/

index.php?param=advantage

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Role of FDI in Indian Economy and its Problems

Abstract

Foreign investment is an important economic process during which foreign state and private companies and enterprises invest capital, technology and innovations into the companies of another country. Modern world economy cannot develop successfully without foreign investment. A great number of countries invest their funds to the economy of other countries having a certain income and developing certain branches of industries of such countries. Due to received capital the country receives an opportunity to renew and develop all necessary branches of industries, to increase the effectiveness of production and produce competitive goods and services. Foreign investment is a predominant and vital factor in influencing the global economic development

Keywords : invest capital, corruption, economic stability

Dr. Sanjay PrasadFaculty of Commerce

St. Xavier’s College, Ranchi

Prof. Srinath KoleyFaculty of Commerce

St. Xavier’s College, Ranchi

Introduction

FDI play an important role for the Growth of the country. In the view of Economic Growth FDI investment are most important for the country. So it is most important part that how can encourage foreign investment. Foreign investment has become an integral part of national development strategies for almost all the nations globally.

As the third-largest economy in the world in PPP terms, India is a preferred destination for foreign direct investments (FDI). India’s recently liberalized FDI policy permits up to a 100% FDI stake in ventures. Industrial policy reforms have substantially reduced industrial licensing requirements, removed restrictions on expansion and facilitated easy access to foreign technology and FDI. The upward moving growth curve of the real-estate sector owes some credit to a booming economy and liberalized FDI regime. A number of changes were approved on the FDI policy to remove the cap in most of the sectors. Restrictions will be relaxed in sectors as diverse as civil aviation, construction development, industrial parks, commodity exchanges, petroleum and natural gas, credit-information services,

Mining etc. The future of Indian economy is brighter because of its huge human resources, rapidly upcoming service sector, availability of large number of competent professionals, vast market for every product, increasing impact of consumerism, absence of controls and licenses, interest of foreign entrepreneurs in India and existence of four hundred million middle class people. Today, India provides highest returns on FDI than any other country in the world.

Investment Policy

For encourage the Foreign Investment The regulatory framework and instruction issued by the Reserve Bank of India. This is connected with the Foreign Direct Investment Policy. This part also covers the following areas.

1) Acquisition of Immovable property

2) Establishment of Branch/ Liaison office in India.

3) Investment in capital of Partnership firms or proprietary concern.

This master circular consolidated the existing instructions issued by the Reserve Bank of India through Notification under FEMA.


Foreign direct investment in India

Foreign Investment in India is governed by the FDI policy announced by the Government of India and the provisions of the FEMA 1999. This Notification has been amended from time to time.

The objective of India’s foreign investment policy is to invite and encourage foreign direct investment in India. The regulatory approval process has been substantially liberalized to facilitate investment in India. The administrative and compliance aspect of FDI are embedded in the Foreign Exchange Regulations prescribed by the Reserve Bank of India.

Indian Government has a key role to play as far as investment laws are concerned. In this regard it is noteworthy to highlight some of the positive reforms that have brought a positive growth in the Indian economy in terms of GDP growth.

Foreign direct investment is an investment made by a foreign individual or company in productive capacity of another country. It is the movement of capital across national frontiers in a way that grants the investor control over the acquired asset.

Entry Routes for Investment in India

1) Automatic Route: Under the Automatic Route the foreign investor or the Indian company does not require any approval from the Reserve Bank or Government of India for the Investment.

2) Government Route : Under the government Route, prior approval of the Government of India, Ministry of Finance, Foreign Investment Promotion Board is required.

Eligibility for Investing in India

(i) A person resident outside India (Other than a citizen of Pakistan) or an entity incorporated outside India, (other than an entity incorporated in Pakistan) can invest in India, subject to the FDI Policy of the Government of India. A person who is a citizen of Bangladesh or an entity

incorporated in Bangladesh can invest in India under the FDI Scheme, with prior approval of FIPB.

(ii) Overseas Corporate Bodies (OCBs) are entities established outside India and predominantly owned by NRI (at least 60% of the paid up capital). Erstwhile OCBs which are incorporated outside India and are not under adverse notice of Reserve Bank can make fresh investments under the FDI as incorporated non-resident entities, with the prior approval of Government if the investment is through Government Route and with the prior approval of Reserve Bank if the investment is through Automatic Route.

Investments in Small Scale Industrial unitsNRI can invest in an Indian company which is a small scale industrial unit provided it is not engaged in any activity which is prohibited under the FDI policy. Such investments are subject to a limit of 24 per cent of paid-up capital of the Indian company /SSI Unit.

Investments in Asset Reconstruction Companies (ARCs)Persons resident outside India (other than Foreign Institutional Investors (FIIs)), can invest in the equity capital of Asset Reconstruction Companies (ARCs) registered with Reserve Bank under the Government Route only. Further, FDI is restricted to 49 per cent of the paid-up capital of the ARC.

Investment in infrastructure companies in the Securities Market Foreign investment is permitted in Infrastructure Companies in Securities Markets, namely stock exchanges, depositories and clearing corporations, in compliance with SEBI Regulations and subject to the following conditions:

Foreign investment up to 49 per cent of the paid-up capital is allowed in these companies with a separate FDI cap of 26 per cent and FII cap of 23 per cent;

(i) FDI will be allowed with specific prior approval of FIPB; and


(ii) FII can invest only through purchases in the secondary market.

Investment in Credit Information Companies

Foreign investment in Credit Information Companies is permitted in compliance with the Credit Information Companies (Regulations) Act, 2005 and subject to the following :—

i. The aggregate Foreign Investment in Credit Information Companies is permitted only up to 49 per cent of the paid-up capital.

ii. Foreign Investment up to 49 per cent is allowed only with the prior approval of FIPB and regulatory clearance from RBI.

iii. Investment by SEBI Registered Flls is permitted only through purchases in the secondary market to an extent of 24 per cent.

iv. Investment by SEBI Registered Flls to an extent of 24 per cent should be within the overall limit of 49 per cent for Foreign Investment.

v. No FII can individually hold directly or indirectly more than 10 per cent of the equity.

Investment in Commodity Exchanges

Foreign investment in Commodity Exchanges is permitted subject to the following conditions:-

i. There is a composite ceiling of 49 per cent for Foreign Investment, with a FDI limit of 26 per cent and an FII limit of 23 per cent.

ii. FDI is allowed with specific approval of the Government.

iii. The FII purchases in equity of Commodity Exchanges are restricted to the secondary markets only.

iv. Foreign Investment in Commodity Exchanges is also subject to compliance with the regulations issued, in this regard, by the Forward Market Commission.

Investment in Public Sector banks

FDI and Portfolio Investment in Nationalised

banks are subject to overall statutory limits of 20 per cent as provided under Section 3 (2D) of the Banking Companies (Acquisition & Transfer of Undertakings)-Acts, 1970/80. The same ceiling would also apply in respect of such investments in State Bank of India and its associate banks. not be lower than the price at which such shares are offered to resident shareholders. OCBs have been de-recognized as a class of investors with effect from September 16, 2003. Therefore, companies desiring to issue rights shares to such erstwhile OCBs will have to take specific prior permission from the Reserve Bank.

As such, entitlement of rights shares is not automatically available to OCBs. However, bonus shares can be issued to erstwhile 0CBs without RBI approval.

Conversion of ECB/Lump sum Fee/Royalty/Import of capital goods by SEZs into Equity

1. Indian companies have been granted general permission for conversion of External Commercial Borrowings (ECB) into shares/ preference shares, subject to the following conditions and reporting requirements:

(a) The activity of the company is covered under the Automatic Route for FDI or the company has obtained Government approval for foreign equity in the company,

(b) The foreign equity after conversion of ECB into equity is within the sectoral cap, if any,

(c) Pricing of shares is as per SEBI regulations or erstwhile CCI guidelines in the case of listed or unlisted companies respectively. -

(d) Compliance with the requirements prescribed under any other statute and regulation in force.

2. The conversion facility is available for ECBs availed under the Automatic or Approval Route. This would also be applicable to ECBs, due for payment or not, as well as secured/ unsecured loans


availed from non-resident collaborators. General permission is also available for issue of shares/ preference shares against lump-sum technical know—how fee, royalty, under automatic route or SIA/FIPB route, subject to pricing guidelines of SEBI / CCI and compliance with applicable tax laws.

3. Units in Special Economic Zones (SEZs) are permitted to issue equity shares to non-residents against import of capital goods subject to the valuation done by a Committee consisting of Development Commissioner and the appropriate Customs officials.

4. Reporting Details of issue of shares against conversion of ECB has to be reported to the concerned Regional Office of the Reserve Bank, as indicated below:a. In case of full conversion of ECB into

equity, the company shall report the conversion in form FC-GPR to the concerned Regional Office of the Reserve Bank as well as in form ECB- 2 to the Department of Statistical and Information Management (DSIM), Reserve Bank of India, Bandra-Kurla Complex, Mumbai — 400 051, within seven working days from the close of month to which it relates. The words “ECB wholly converted to equity” shall be clearly indicated on top of the ECB-2 form. Once reported, filing of form ECB-2 in the subsequent months is not necessary.

b. In case of partial conversion of ECB, the company shall report the converted portion in form FC-GPR to the concerned Regional Office as well as in form ECB-2 clearly differentiating the converted portion from the non- converted portion. The words “ECB partially converted to equity” shall be indicated on top of the ECB-2 form. In the subsequent months, the outstanding balance of ECB shall be reported in ECB-2 form to DSIM.

c. The SEZ unit issuing equity as mentioned in Para (iii) above, should report the particulars of the shares issued in the form FC—GPR.

Problems faced while investing in India

� A lot of advice that is offered to investors, including NRIs, is driven by commission. A significant majority of investment consultants recommend schemes which offer them higher commission as against schemes that suit the client needs and objectives. While in a bull market, NRI may not get hurt by getting invested in poorly managed schemes; over a stock market cycle he can almost be sure that the poor choice of fund will reflect in the returns.

� Sometimes, distributors of mutual funds either lack accurate information on taxation or do not pass on the correct information to their NRI clients. To take a case in point, if an NRI decides to shift within a particular mutual fund scheme, from say, the dividend re-investment option to the growth option, and then the same falls under the tax purview for the NRI. This is because such transactions are considered as a sale by the concerned authorities.

� Another issue pertaining to NRIs is the cumbersome paperwork and documentation. For instance, while mutual fund forms are common for both resident and non-resident, refilling them on account of errors made can become a cumbersome proposition in the case of NRIs on account of the distance involved.

� The distributor needs to ensure that his NRI client is guided properly through the form filling process and that the form error free. Failure to follow simple guidelines may sometimes result in money and opportunities lost.

� Another case in point pertaining to documentation, the account statement does not reach the NRI. One way of


tacking this problem is asking for the account statement, that way, the need for physical delivery would be eliminated.

� Also observed is the fact that some NRIS are not, in know, with respect to how to go about making payments from their NRE/NRO back account. For example. If the makes payments from his NRO account, then the investment is allowed. But if the same payments are made from the NRE account, then the investment is allowed to be repatriate. This fact has to be conveyed to the NRI by the distributor so that the NRI is able to plan his investments properly.

� At times, fund house ask for a certificate authenticating the NRIs status; the same has to be procured from the bank through which the NRI has invested his money. This is so even when the NRE/NRO account cheques have a clear mention on the cheque itself of the status of the cheque. The cheque being an NRO/NRE account should act as sufficient proof of the individuals, or the accounts status and that the NRI should not be put through any further hassles before investing.

Evaluation and Finding

� There are different Act and Regulation for defining the Non-resident in India, such as Income Tax Act 1961, FEMA 1999 and foreign contribution Act 1956 etc.

� Provision of Income Tax in the context of NRI is such much critical which is difficult to understand for NRI.

� There are certain Tax Incentives has been given to NRI which are not sufficient to attract the NRI investment.

� Imposition of rate of Taxes on NRI is so much high.

� Investment in India does not clearly identify in the different circular.

Suggestions

1) A uniform Act for Taxes to NRI should be required to Frame in India.

2) Provision of Taxes for NRI in India should be simplified.

3) Investment of NRI should be clearly identified.

4) Addition to above there are following suggestions:-

� The first and foremost thing for NRIs to do is to ensure that they choose their investment advisor/distributor wisely. NRIs must ensure that the advisor they transect with has successfully cleared the Association of Mutual Fund of India (AMFI) accredited examination. Make sure that he has sound knowledge of the financial markets and instrument and manages portfolios soundly keeping the investor asset allocation in mind. This becomes an important creation, as NRIs, like most investor, do not have the time or skill sets to conduct their own investment exercise.

� It would further help if the investment consultant gives value added services like fools and calculator for online tracking of investments. Also, the advisor should provide the NRIs with timely after sales support like servicing transfer and redemption.

� Also ensure that the advisor is updated on the various procedures/ requirements while investing in various instruments, as he will ultimately act as an interface between the NRIs and the financial institution.

� Ensure that the documentation is in order. NRIs should preserve all the statements of accounts and such other documents that concern their investments. Such documents should be photocopied. Ensuring that all cheques have NRE/NRO printed on them also helps.

� NRIs should confirm before investing money into a scheme from any mutual fund house whether they are allowed to invest into the scheme, given their country of residence. Such details are given in the


offer document distributed by the assets management company and a copy of which the distributor also has.

� NRIs should preferably consider the direct credit option while investing into a mutual fund scheme in India. Such an option ensures that when redemption happens, money from the AMC is directly credited to the NRIs bank account. This helps save time and money.

Conclusion

FDI contributes in economic growth significantly after a period of three years. Thus, there is need to encourage foreign direct investment every year to enhance economic growth in Indian economy. For that, Government of India should improve the investment climate for foreign capital through the maintenance of political as well as economic stability along with curbing corruption. Moreover, by providing adequate market size, easy accessibility to export market, developed infrastructure, cost-effectiveness and by other means more FDI can be attracted. Along with this, there is a rationale for the adoption of innovative policies and good governance practices on par with international standards to make India as a most preferred destination for foreign capital. India, the largest democratic country with the second largest population in the world, with rule of law and a highly educated English speaking work force, the country is considered as a safe haven for foreign investors. Yet, India seems

to be suffering from a host of self-imposed restrictions and problems regarding opening its markets completely too global investors by implementing full scale economic reforms. Some of the major problems for India’s poor performance in the area of FDI are: political instability, poor infrastructure, confusing tax and tariff policies, Draconian labour laws, well entrenched corruption and governmental regulations.

References

1. Shanbhag A.N. & Shanbhag Sandeep, In The Wonderland of Investment for NRIs, Popular Prakashan Pvt. Ltd.

2. Chaturvedi Tarun, Handbook for NRI, Commercial Law Publishers (India) Pvt. Ltd.

3. Lakhotia R.N., Tax Planning for NRIs, Vision Books Pvt. Ltd.

4. Jain Dr. D.K. & Jain Ishan, Guide to NRIs and PIOs (Policy, Procedures and Taxation)- Bharat Law House Pvt. Ltd.

5. Mehrotra Dr. H.C., Income Tax Law and Accounts- Sahitya Bhawan Publication

6. Economic Times

7. Hindustan Times

8. NRI Ready Reckoner

9. www.nri in India .com

10. www.nri provision in India.

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Present Scenario of FDI in India

Abstract

Globalization and liberalization brings lots of new innovative products to the world, Foreign Direct investment is one among this, also there are number of different forms of FDI is available currently. An Indian company may receive FDI either through automatic route or government route. Foreign capital refers to the investment of capital by a foreign government, institution, private individual and international organization in the productive activities of a country. It is a direct investment into production in a country by a company located in another country or by expending operation of an existing business in that country. Simply putting the money of your country which is functioning in some other country is FDI. If we invest this way then we are a foreign investor. FDI plays an extraordinary and growing role in global business. It can provide a firm with new markets and marketing channels, cheaper production facilities, access of new technology, products, skills and financing for a host country, which receives the investment. Recently world economy is passing through the global crisis. India is not free from its effect. India is also suffering from inflection and economic crisis. To overcome this situation and make to economy speedy, Indian Government has decided to do economic reforms, as a result, Indian government has taken steps in this direction and make free FDI in some sectors like retail, broad casting, airline etc. Indian government has increased limits of foreign investment in such sectors. Government of India allowed FDI in different sectors of Indian economy.

Keywords : economic development, dynamic growth, economic reform

Sheela Kumari GuptaEconomics Teacher


Introduction

The Economic Survey 2009-10 said that outlook for India’s trade sector in 2010 has brightened with prospects of recovery in world output and trade volumes. The World Bank has forecast real GDP growth rates of 2.7% and 7.5% for the world and India respectively for 2010 and growth in world trade volume of 4.3% and 6.2% in 2010 and 2011, respectively. The International Monetary Fund (IMF) projections are a tad better than the World Bank estimates, with projections of output growth for the world and India at 3.9% and 7.7% respectively. The world trade volume growth projections are also higher at 5.8% and 6.3% in 2010 and 2011 respectively. This is a remarkable improvement compared to the fall in world trade volumes by 12.3% in 2009. Following are the main highlights of Indian economy in 2009 – 10: After two successive months of slow down in the 2010-11 (August and September), the Index of Industrial Production (IIP) rose sharply in October 2010. The overall growth in IIP was 10.8 per cent during the month as

compared to 10.1 per cent in October 2009. The highest growth has been coming from manufacturing sector followed by electricity and mining. Core infrastructure sectors grew by 7.0 per cent in October 2010 as compared to the growth of 3.9 per cent in October 2009. The October growth has been recorded as the highest so far in the current fiscal 2010-11. Except the sectors like petroleum refinery and coal, all major infrastructure industries have displayed much improvement in output expansion during the month. The headline inflation has somewhat eased in October 2010. On y-o-y basis WPI growth remained high, but the monthly trend of inflation revealed decline in the month of October 2010 compared to the recorded inflation in the previous month. WPI growth under three major heads namely primary articles, fuel & power and manufactured products eased a bit in October compared to September 2010. In RBI‘s assessment, the current rate of inflation is still well above the comfort zone. Food inflation continues to remain a matter of concern on


account of rising prices of vegetables in the recent months. The broad money supply in the economy expanded by 8.4 percent calculated October over April 2010-11. The net bank credit to the commercial sector was also observed to grow well during the period; only bank’s Investments in government and other approved securities experienced setback in October 2010 compared to better growth seen in the same month of 2009. The fiscal performance of Central government during October 2010 continued to accomplish higher revenue growth vis-a-vis the expenditure growth during the month. Consequently, the fiscal deficit has narrowed down during April to October in 2010 -11 as compared to the previous fiscal. India’s cumulative merchandise exports during April to October in 2010-11 were valued at USD 121.4 billion which was substantially higher than USD 95.6 billion during the same period of 2009-10. The aggregate trade deficit magnified to the level of USD 72.8 billion during April to October in 2010-11 as against the amount of USD 58.3 billion during the same period of 2009- 10. India saw greater volume of foreign capital inflows in the recent months. In October 2010, total foreign investment witnessed almost a six fold increase from the level observed during October 2009. The capital surge is continued driven by FII flows. According to planning commission, the inflow would not destabilize the economy as India’s large current account deficit can absorb capital flows to some extent.

Consolidated Foreign Direct Investment Policy of India

The Government of India released the new document on FDI policy on March 31, 2010 whereby this document now consolidates all existing regulations related to FDI contained in the Foreign Exchange Management Act (FEMA), RBI Circulars and various press notes issued at various points in time. The comprehensive policy document came into effect from April 1, 2010 and would be replaced every 6 months after incorporating the changes which have been effected during the said period. This is a good move considering that this would bring clarity in understanding the foreign

investment rules among investors resulting ultimately in simplification of the policy. This is also expected to improve transparency and boost global investors’ confidence. 100% FDI is permitted under the automatic route in most of the sectors while there are Sectoral caps in the case of Banking (74%), Insurance (26%), Telecom (49%), Aviation (74%) and Single brand retail (51%) etc. In certain sectors like Atomic Energy, Lottery, Gambling and Betting, Multi Brand Retail, Nidhi company etc, FDI is not permitted. The Government is looking to allow FDI in media and also looking to amend the Press and Registration of Books Act 1867 to facilitate the entry of foreign newspapers or Indian editions of foreign newspapers being printed. The present FDI limit is 26% under Government approval. Currently, 100% FDI is allowed in facsimile publication of foreign newspapers by an entity incorporated or registered in India. FDI in multi-brand retail is another sector where FDI is currently not permitted though the Government Says that the current retail infrastructure including the backend (from the farm to the store) needs to be strengthened. The entry of large Indian retail chains has in general been positive allowing farmers to get better prices for their produce and giving multiple Choices to the end user. Banking and Insurance sectors could also do with a hike in the FDI limits while this is being monitored after the global meltdown where some of the largest banks and financial institutions went bust. The Government might encourage investments by foreign insurance companies in health and weather (floods, famines) to farmers and rural residents and for banks to be set up in rural areas where this is a Greenfield project.

The flow of FDI in Indian service sector is boosting the growth of Indian economy, this sector contributing the large share in the growing GDP of India. This sector attracting a significant portion of total FDI in Indian economy and it has shown especially in the second decade (2000 - 2010) of economic reforms in India. Is this contribution of FDI in this sector is stimulating the economic growth or not, this knowledge thrust of research


scholar create the interest in conducting this study.


The objective of our study is to analyze the current scenario in India, investigate the controversial views of the various stakeholders and evaluate the current scenario of FDI in India. The study is based on comparative study and analytical logic developed through the understandings from various research papers, reports, books, journals, newspapers and online data bases.


The historical background of FDI in India can be traced back with the establishment of East India Company of Britain. British capital came to India during the colonial era of Britain in India. After Second World War, Japanese companies entered Indian market and enhanced their trade with India, yet U.K. remained the most dominant investor in India. Further, after Independence issues relating to foreign capital, operations of MNCs, gained attention of the policy makers. Keeping in mind the national interests the policy makers designed the FDI policy which aims FDI as a medium for acquiring advanced technology and to mobilize foreign exchange resources. With time and as per economic and political regimes there have been changes in the FDI policy too. The industrial policy of 1965, allowed MNCs to venture through technical collaboration in India. Therefore, the government adopted a liberal attitude by allowing more frequent equity participation to foreign enterprises, and to accept equity capital in technical collaborations. But due to Significant outflow of foreign reserves in the form of remittances of dividends, profits, royalties etc, and the government has to adopt stringent foreign policy in 1970s. During this period the government adopted a selective and highly restrictive foreign policy as far as foreign capital, type of FDI and ownerships of foreign companies was concerned.

Changes in FDI Policy (March 31, 2011)

To give a fillip to flagging foreign direct

investment, the Department of Industrial Policy and Promotion has announced a slew of changes in its policies, including allowing overseas firms in existing joint ventures to operate simultaneously in the same business segments. Earlier, overseas companies needed the prior approval of their Indian partners. The nodal agency has also classified companies into two categories

1. Companies owned or controlled by foreign investors’

2. Companies owned and controlled by Indian investors’.

Following are the changes in Indian FDI Policy

Foreign Companies need not get permission from their Indian joint venture partner; they plan to set up new units in “Same Field” of wish to partner with another Indian firm. Companies to prescribe a formula for transforming for convertible instruments (like debenture, partially paid shares, preferential shares, among other), in to equity at market conversion. Equity permitted to exchange import of capital goods, machinery and equipments.

FDI allowed in development and production of seeds and plantation material without stipulation like controlled conditions. No changes in retail policy, FDI in multi brand retailing is remaining same.

FDI issues and Policy Recommendation

India is striving hard to achieve a growth rate of 10%. Improving the level of productivity can be instrumental in achieving this target as growth rate is positively related to rates of return. The available data on FDI reveals that India’s volume of FDI has increase largely due to Merger and Acquisitions (M&As) rather than large Greenfield’s projects. M&As not necessarily imply infusion of new capital into a country if it is through reinvested earnings and intra-company loans. Business friendly environment must be created on priority to attract large Greenfields projects. Regulations should be simplified so that realization ratio is improved (Percentage of FDI approvals


to actual flows). To maximize the benefits of FDI persistently India should also focus on developing human capital and technology.

India has failed to evolve as inward FDI manufacturing destination which is sweetest of all sources of FDI. Manufacturing investment has potentiality to develop ancillary industries also. There is a wide spread under employment in agriculture. Manufacturing sector has greater scope of low end, labour intensive manufacturing jobs for unskilled population when compared with service sector. It is widely reported in large number of studies that India lags behind in terms of business environment (ranked 72 of 82 countries by EIU, 2007) which is not conducive for doing business. These factors are acute labour market rigidities, lack of world class ports, airports, road and on an average 6-7 hours of power cuts. Other problems are that of norms of registering property, protection of investors, excessive bureaucracy, lack of rationale tax structure, competition rules and time taken in enforcing contracts (1420 days with a cost average cost of twofifth of claim). The issues of geographical disparities of FDI in India need to address on priority. India is a federal country consisting of States and Union Territories. States are also partners in the economic reforms. Many states are making serious efforts to simplify regulations for setting up and operating the industrial units. In order to attract foreign investors in their states, many of them are offering packages in the form of tax rebates, capital and interest subsidies, reduced power tariff, etc. However, efforts by many state governments are still not encouraging. Even the state like West Bengal which was once called Manchester of India attracts only 1.2% of FDI inflow in the country. West Bengal, Bihar, Jharkhand, Chhattisgarh are endowed with rich minerals but due to lack of proper initiatives by governments of these states, they fail to attract FDI.India is striving hard to achieve a growth rate of 10%. Improving the level of productivity can be instrumental in achieving this target as growth rate is positively related to rates of return. The available data on FDI reveals that India’s volume of FDI has

increase largely due to Merger and Acquisitions (M&As) rather than large Greenfields projects. M&As not necessarily imply infusion of new capital into a country if it is through reinvested earnings and intracompany loans. Business friendly environment must be created on priority to attract large Greenfields projects. Regulations should be simplified so that realization ratio is improved (Percentageof FDI approvals to actual flows). To maximize the benefits of FDI persistently India should also focus on developing human capital and technology. Mauritius contributes about 44% of FDI inflow in the country. Such a high level of FDI contributed by a low tax country like Mauritius indicates that all is not well. Mauritius has agreement with India on avoidance of double taxation. There are likely chances that many MNCs may be first dummy companies in Mauritius before investing in India. This is not good for financial stability of the countr and is also a reason for loss to state exchequers. FDI can be instrumental in developing rural economy. There is abundance opportunity in Greenfield Projects. But the issue of land acquisition and steps taken to protect local interests by the various state governments are not encouraging. MOU Arecelor-Mittal controversy is one of the best examples of such disputes. India has a huge pool of working population. However, due to poor quality primary education and higher there is still an acute shortage of talent. This factor has negative repercussion on domestic and foreign business. FDI in Education Sector is less than 1%. Given the status of primary and higher education in the country, FDI in this sector must be encouraged. However, appropriate measure must be taken to ensure quality. The issues of commercialization of education, regional gap and structural gap have to be addressed on priority. Indian economy is largely agriculture based. There is plenty of scope in food processing, agriculture services and agriculture machinery. FDI in this sector should be encouraged. The issue of food security, interest of small farmers and marginal farmers need cannot be ignored for the shake of mobilization of foreign funds for development.


India has a well developed equity market but does not have a well developed debt market. Steps should be taken to improve the depth and liquidity of debt market as many companies may prefer leveraged investment rather than investing their own cash. Looking for debt funds in their own country invites exchange rate risk. In order to improve technological competitiveness of India, FDI into R&D should be promoted. Various issues pending relating to Intellectual Property Rights, Copy Rights and Patents need to be addressed on priority. Special package can be also instrumental in mobilizing FDI in R&D.

Though service sector is one of the major sources of mobilizing FDI to India, plenty of scope exists. Still we find the financial inclusion is missing. Large part of population still doesn’t have bank accounts, insurance of any kind, underinsurance etc. These problems could be addressed by making service sector more competitive.

Current Challenges and Improvement Areas

As explained above, India is definitely a lucrative place for FDI, but there are certainly some challenges and areas for improvement still present. Until, these areas are honed to perfection, India will not become the number one place for FDI. Some of the key areas are listed below:

a) Political risk : Amongst the top items is the political instability of the country. On one hand the fact that India is the world’s largest democracy does add a sense of pride and security, but the hard reality is that there is insurmountable instability present. Just the fact that the past two governments have been based on coalitions between a few parties is reason enough to be skeptical. Moreover, each new government has certain policies which are different from the ruling government and if there is frequent change in government, this will lead to changes in policy and increased uncertainty. Just take the example of the last elections in 2004, where by a sudden change of

event the Indian National Congress was able to come into power by forming a coalition government, by soliciting the vast majority of the poor people of the country, surprising the incumbent government which was relying heavily on a fast growing economy, increased privatization and a thriving middle class.

b) Bureaucracy : Another very important factor that affects India’s competitiveness on the world standing is the Bureaucracy. Particularly in the FDI process the Indian Government has already invested a lot of time and effort but there is still a lot of room for improvement in the identification, approval and implementation process e.g. creating more centres for assistance, more user friendly processes, effective use of technology, being as clear as possible leaving no room for interpretation, assisting in identifying new areas for investment etc.

c) Security risk: Another important factor that needs to be handled with care and worked upon is the ever present security risk. This risk includes the geopolitical risk with Pakistan and the ongoing dispute over the Kashmir issue, which on numerous occasions has brought these two countries armed with nuclear weapons to the brink of war. The other security risks would include incidences of domestic terrorism, not only in the Kashmir valley but also in Assam, Manipur and Nagaland, where numerous separatists group operate.

d) Cost advantage : One of the attractions of India is the lower cost advantage as compared to most western economies. The Indian Government would have to work on creating an atmosphere where this advantage can be maintained else it might result in India not seem as attractive. One of the key drivers would be to try and control inflation because if there is increased level of inflation then there would be increased costs and reduced returns. Other factors which would act in similar respects would be increased tax


incentives and reduced tariffs.

e) Intellectual Property (IP) Rights & Piracy: With the increased instances of Piracy around the world and the extreme importance placed by Investors on maintaining their IP rights, this is definitely an area which needs improvement in India. India has begun instilling intellectual property rules and regulations into the country but there is still a long road ahead.

Key Drawbacks

1. Domination of Organized Sector Retailers- FDI in single-brand retail will Strengthen organized retail in the country. These organized retailers will tend to dominate the entire consumer market. It would lead to unfair competition and ultimately result in large-scale exit of domestic retailers, especially the small family managed outlets , stores will be compelled to close down.

2. Leads to Increase in Real Estate Cost- It is obvious that the foreign companies which enter into India to open up their malls and stores will certainly look for places in the heart of the cities. There shall be a war for place, initiated among such companies. It will result in increase in the cost of real estate in the cities that will eventually affect the interest of the ordinary people who desire to own their houses within the limit of the cities.

3. Change in lifestyle and Culture: Though FDI in Indian retail will indirectly or directly contribute for the enhancement of Tourism, Hospitality and few other Industries, the culture of the people in India will slowly be changed. The youth will easily imbibe certain negative aspects of foreign culture and lifestyles and develop inappropriate consumption pattern, not suited to our cultural environment.

Economic Growth 2014-15

The growth rate of Gross Domestic Product (GDP) at constant (2011-12) market prices increased from 5.1 per cent in 2012-13 to

6.9 per cent in 2013-14 and further to 7.3 per cent in 2014-15 (Provisional Estimates). The growth in Gross Value Added (GVA) at basic prices for agriculture & allied sectors, industry sector and services sector has been estimated at 0.2 per cent, 6.1 per cent and 10.2 per cent respectively in 2014-15, as compared to the corresponding rates of 3.7 per cent, 4.5 per cent and 9.1 per cent respectively in 2013-142.

� Overall industrial growth was 2.8 percent in the year 2014-15 as compared to contraction of 0.1 percent in 2013-14. Eight core infrastructure industries grew by 3.5 percent in 2014-15, lesser than 4.2 percent registered in 2013-143.

� As per the 4th Advance Estimates for 2014-15, production of total foodgrains during 2014-15 is estimated at 252.68 million tonnes which is lower than 265.04 million tonnes recorded in 2013-14.

� Gross fixed capital formation as a percentage of GDP declined from 31.4 per cent in 2012-13 to 29.7 per cent in 2013-14 to 28.7 per cent in 2014-15.

� Wholesale Price Index(WPI) inflation for all commodities in the year 2014-15. declined sharply to 2 per cent, as compared to an average of 6.0 per cent during 2013-14.

� The inflation as per the Consumer Price Index(CPI) (Combined) declined from 9.5 per cent in 2013-14 to 6.0 per cent in 2014-154.

Understanding Indian Economy

Indian economy stands today as one of the influential and attractive economy. The liberalization move by the Indian Government in 1990s has given a boost to the Indian economy and put her into a fast track economic growth route. With the beginning of the new millennium, India was considered as an emerging super power. In 2009, Indian GDP based on purchasing power parity (PPP) stood at USD 3.5 trillion making it the fourth largest economy. India’s service industry accounts for 62.5% of the GDP while the industrial sector


contributes 20% to the GDP. The agricultural sector which was the back bone of Indian economy post-independence took a back seat in 21st century and contributed only 17.5% to the GDP. India growth rate has been an average of 7% since 1997 and has maintained a growth rate above 5% even in times of global recession. The Information Technology and IT outsourcing services has been the biggest contributor to India’s growth. India’s per capital income (PPP) is not too attractive and stands at USD 4542. India currently accounts for 1.5% of the total Indian trade as per WTO, 2007 publications. Services Sector contribution to the Indian Economy The Services Sector contributes the most to the Indian GDP. The Sector of Services in India has the biggest share in the country’s GDP for it accounts for around 53.8% in 2005. The contribution of the Services Sector in India GDP has increased a lot in the last few years. The Services Sector contributed only 15% to the Indian GDP in 1950. Further the Indian Services Sector’s share in the country’s GDP has increased from 43.695 in 1990- 1991 to around 51.16% in 1998- 1999. This shows that the Services Sector in India accounts for over half of the country’s GDP. The contribution of the Services Sector has increased very rapidly in the India GDP for many foreign consumers have shown interest in the country’s service exports. This is due to the fact that India has a large pool of highly skilled, low cost, and educated workers in the country. This has made sure that the services that are available in the country are of the best quality. The foreign companies seeing this have started outsourcing their work to India especially in the area of business services which includes business process outsourcing and information technology services. This has given a major boost to the Services Sector in India, which in its turn has made the sector contribute more to the India GDP. Recent trends in Indian service sector By services sector we mean the tertiary sector, which is the largest of the three constituent sectors in terms of contribution to Gross Domestic Product (GDP) in India. The service sector comprises trade, hotels and restaurants, transport,

storage, communication, financing, insurance, real estate and business services, community services (public administration and defense) and other services. This sector provides services of final consumption nature as well as intermediate nature, the latter accounting for a major share. Substantial parts of services such as transport and communications are in the form of intermediate inputs for production of other goods and services.

Performance of Service Sector

The performance table of services sector gives figures of the annual growth rates of GDP at factor cost and the services sector and its three constituent categories from 2001-02 onwards - that is the growth rates recorded by the three components of services:

A. Trade, hotel, transport and communication,

B. Financing, insurance, real estate, and

C. Community, social and personal services.

Thus, shows the growth of the service sector. The service sector had higher aggregate rates of growth than that observed in GDP. ‘Trade, hotels, transport and communications’ segment has continuously registered higher growth rates than the other two segments of service. ‘Community, social and personal services’ segment has witnessed relatively lower rates of growth among the three segments.

Conclusion

Foreign Direct Investment as a strategic component of investment is needed by India for its sustained economic growth and development through creation of jobs, expansion of existing manufacturing industries, education and research and development etc. Government should design the FDI policy such a way where FDI inflows can be utilized as means of enhancing domestic production, savings and exports through the equitable distribution among states so that they can attract FDI inflows at their own level. FDI can help to raise the output, production and export at the sectored level of the Indian economy. It is advisable to open up the export oriented sectors and higher growth of economy could be


achieved through the growth of these sectors.

Keeping in mind the humble beginning of India and the stage at which it is right now goes to show how much potential is present in this country and if the Indian government works on the areas for improvement mentioned above and continues to support and assist the encouragement of FDI into India, there is no stopping India into becoming the number one destination for FDI in the world, far beyond China.

References

1. From crisis to recovery, India’s experience with economic reforms of 1990’s, K.G Sahadevan, http://ganga.iiml.ac.in/~devan/ecolib-sajm.pdf

2. Pohit Dr Sanjib and Subramaniam Shalini, Investment policy in India – performance and perceptions, CUTS Centre for Competition, Investment & Economic Regulation, 2002

3. Reserve bank of India website

4. World Development Indicators database, World Bank. http://www.worldbank.org/data/quickreference/quickref.html

5. UNCTAD, FDI Database On-Line,

6. http://www.randstad.com/the-world-of-work/employment-rises-in-indias-service-sector?c=4374


8. http://www.sethassociates.com/policy_on_foreign_direct_investment

9. www.unctad.org

10. http://www.sebi.gov.in/Index.jsp?contentDisp=FIITrends

11. http://dipp.nic.in/

12. www.indiaonestop.com/economy-macro-issues.htm

13. http://planningcommission.nic.in/data/datatable/Data0910/tab32.pdf

14. http://dipp.nic.in/fdi_statistics/india_fdi_index.htm

15. http://www.startbizindia.in/india_fdi_trend.php

16. http://planningcommission.gov.in/

17. http://finmin.nic.in/capital_market/capital_market.asp

Research Journal of Commerce & Business ManagementPublished by

VICHAYA EDUCATIONAL TRUSTRanchi, Jharkhand, Indiawww.anusandhanika.co.in

ISSN 0974 - 200X

Special Issue on FDI in India June 2017


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