FOREIGN DIRECT INVESTMENT AND ITS GROWTH IN INDIA

FOREIGN DIRECT INVESTMENT AND ITS GROWTH IN INDIA

 

 

 

ABSTRACT

 

Foreign direct investment(FDI) in all over the world in general and in India in particular after the opening up of our market with the adoption of the policies namely globalization, privatization and liberalization has no doubt emerged as one of the most significant source and contributor of external inflow of resources and is one of the most crucial contributors to the capital formation despite their share in the world arena still catching up. When we talk about the term FDI we are talking about a bundle of resources that usually flow into a country including besides capital, production technology, global managerial skills, innovative marketing strategies and access to new markets.

 

             In this project it has been tried to provide a comprehensive picture about the foreign direct investment ranging from its conception as a potent source of investment the world over, its various types, the methodology adopted top FDI countries and agencies engaged and other important aspects.

 

             A cumulative and an exhaustive study of the over all scenario of FDI in India starting from the introduction of FDI in the country, share of top investing countries, sectors attracting highest FDI flows, sector wise technology transfer and approvals.

 

             We will also look at the determinants for attracting FDI in the country and also the causes for low flow of FDI and the mechanisms that can be undertaken to make our country attractive enough for investors. This study entirely relies on secondary data collected after a thorough and exhaustive study of various websites, text books, journals, newspapers, magazines and great inputs form various professors and professionals specializing In this area.

 

             Though the policy is reviewed frequently we lack when compared with countries like china, so it’s high time the government takes steps to further liberalize the economy and streamline and liberalize the policies to make India the most preferred FDI destination in the world.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ACKNOWLEDGEMENT

 

I take this opportunity to thank all those who have been of help to me in the completion of this project.

 

I would like to appreciate the guidance and co-operation provided to me by our project guide Mr. V. XXXXX (faculty of Business Management) in the completion of this project.

 

I am also grateful to XXXX, Director XXX and all the faculty members who have directly or indirectly helped me in preparing this project report.

 

 

TABLE OF CONTENTS:

1.  LIST OF TABLES

2.  LIST OF FIGURES

3. INTRODUCTION

4. REVIEW OF LITERATURE

5. DATA ANALYSIS AND PRESENTATION

6. SUMMARY AND CONCLUSION

7. BIBLOGRAPHY

                                                     

 

 

 

 

 

 

                                        

OBJECTIVES

  1. To study the trends in the inflow of foreign direct investment
  2. To study the share of top investing countries of FDI during the period 2003-2006.
  3. The sector attracting highest FDI equity inflow
  4. Foreign technology transfer
  5. Country wise technology transfer
  6. Country wise technology transfer approvals
  7. Sector wise technology transfer approvals
  8. To study the causes and reasons for low FDI inflow in the country
  9. To study the determinants for attracting the FDI
  10. To study and understand mechanism of approvals of FDI by RBI and FIPB
  11. To study the FDI policy in brief.

 

 

 

 

 

 

 

METHODOLOGY:

This project is entirely based on freelance work done by the student and therefore no organisation has been taken as a base for doing the project. AN exhaustive amount of data available on the internet, from the text books, news papers, and various magazines and suggestions from a few experts in the field has been taken in doing this project.

As this is a free lance project, the data has been entirely collected from secondary sources and therefore its authenticity can be vouched for only by going through the same literature which has been used.

SCOPE OF THE STUDY

as this study is aimed to analyze the trends in the FDI inflows, the main focus is given on the recent trends in the inward FDI inflows, sectors attracting highest FDI, and the share of top investing countries, it covers only equity capital components. The scope is limited to the availability of the secondary data.

LIMITATIONS OF THE STUDY

the study is conducted in a short period, which was not detailed in all aspects.

Non-availability of accurate data to FDI

Data in one secondary source do not match with that of another source.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FOREIGN DIRECT INVESTMENT

 

INTRODUCTION:

 

Foreign direct investment (FDI) is defined as "investment made to acquire lasting interest in enterprises operating outside of the economy of the investor." The FDI relationship consists of a parent enterprise and a foreign affiliate which together form a Multinational corporation (MNC). In order to qualify as FDI the investment must afford the parent enterprise control over its foreign affiliate. The UN defines control in this case as owning 10% or more of the ordinary shares or voting power of an incorporated firm or its equivalent for an unincorporated firm; lower ownership shares are known as portfolio investment.

 

HISTORY:

 

In the years after the Second World War global FDI was dominated by the United States, as much of the world recovered from the destruction brought by the conflict. The US accounted for around three-quarters of new FDI (including reinvested profits) between 1945 and 1960. Since that time FDI has spread to become a truly global phenomenon, no longer the exclusive preserve of OECD countries. FDI has grown in importance in the global economy with FDI stocks now constituting over 20 percent of global GDP.

 

TYPES OF FOREIGN DIRECT INVESTMENT:

 

BY DIRECTION:

Inward

Inward foreign direct investment is when foreign capital is invested in local resources.

Inward FDI is encouraged by:
> Tax breaks, subsidies, low interest loans, grants, lifting of certain restrictions
> The thought is that the long term gain is worth short term loss of income

Inward FDI is restricted by:
> Ownership restraints or limits
> Differential performance requirements.

OUTWARD

Outward foreign direct investment, sometimes called "direct investment abroad", is when local capital is invested in foreign resources. Yet it can also be used to invest in imports and exports from a foreign commodity country.

Outward FDI is encouraged by:
> Government-backed insurance to cover risk

Outward FDI is restricted by:
> Tax incentives or disincentives on firms that invest outside of the home country or on repatriated profits
> Subsidies for local businesses
Leftist government policies that support the nationalization of industries (or at least a modicum of government control) Self-interested lobby groups and societal sectors who are supported by inward FDI or state investment, for example labour markets and agriculture. Security industries are often kept safe from outwards FDI to ensure the localised state control of the military industrial complex.

BY TARGET:

Greenfield investment

Direct investment in new facilities or the expansion of existing facilities. Greenfield investments are the primary target of a host nation’s promotional efforts because they create new production capacity and jobs, transfer technology and know-how, and can lead to linkages to the global marketplace. The Organization for International Investment cites the benefits of greenfield investment (or insourcing) for regional and national economies to include increased employment (often at higher wages than domestic firms); investments in research and development; and additional capital investments. Criticism of the efficiencies obtained from greenfield investments include the loss of market share for competing domestic firms. Another criticism of greenfield investment is that profits are perceived to bypass local economies, and instead flow back entirely to the multinational's home economy. Critics contrast this to local industries whose profits are seen to flow back entirely into the domestic economy.

 Mergers and Acquisitions

Transfers of existing assets from local firms to foreign firms takes place; the primary type of FDI. Cross-border mergers occur when the assets and operation of firms from different countries are combined to establish a new legal entity. Cross-border acquisitions occur when the control of assets and operations is transferred from a local to a foreign company, with the local company becoming an affiliate of the foreign company. Unlike greenfield investment, acquisitions provide no long term benefits to the local economy-- even in most deals the owners of the local firm are paid in stock from the acquiring firm, meaning that the money from the sale could never reach the local economy. Nevertheless, mergers and acquisitions are a significant form of FDI and until around 1997, accounted for nearly 90% of the FDI flow into the United States. Mergers are the most common way for multinationals to do FDI.

 Horizontal FDI

Investment in the same industry abroad as a firm operates in at home.

 Vertical FDI

 Backward Vertical FDI

Where an industry abroad provides inputs for a firm's domestic production process.

 Forward Vertical FDI

Where an industry abroad sells the outputs of a firm's domestic production.