A PROJECT REPORT ON

FOREIGN CAPITAL INFLOWS IN INDIA AND EMERGING ECONOMIES

SUBMITTED

TO THE UNIVERSITY OF MUMBAI

AS A PARTIAL REQUIREMENT FOR COMPLETING POST GRADUATION OF

M.COM (BANKING AND FINANCE) SEMESTER 2

SUBMITTED BY:

UNDER THE GUIDANCE OF

DR. NEELIMA DIWAKAR

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SIES COLLEGE OF COMMERCE AND ECONOMICS,

PLOT NO. 71/72, SION MATUNGA ESTATE

T.V. CHIDAMBARAM MARG,

SION (EAST), MUMBAI – 400022.

CERTIFICATE

This is to certify that Ms. ------------ of M.Com (Banking and Finance) Semester II (academic year 2013-2014) has successfully completed the project on FOREIGN

CAPITAL INFLOWS IN INDIA AND EMERGING ECONOMIES under the guidance of DR. NEELIMA DIWAKAR

_________________ ___________________

(Project Guide) (Course Co-ordinator)

___________________ ___________________

(External Examiner) (Principal)

Place: MUMBAI

Date: ___________

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DECLARATION

I, ---------- Student M.Com (Banking and Finance) Semester I (academic year 2014-2015) hereby declare that, I have completed the project on FOREIGN CAPITAL INFLOWS IN INDIA AND EMERGING ECONOMIES

The information presented in this project is true and original to the best of my knowledge.

Place: MUMBAI

Date: _________

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_____________

Name:

Roll No.:

ACKNOWLEDGEMENT

I would like to thank the University of Mumbai, for introducing M.Com (Banking and Finance) course, thereby giving its students a platform to be abreast with changing business scenario, with the help of theory as a base and practical as a solution.

I am indebted to the reviewer of the project DR. NEELIMA DIWAKAR my project guide who is also our principal, for her support and guidance. I would

sincerely like to thank her for all her efforts.

Last but not the least; I would like to thank my parents for giving the best education and for their support and contribution without which this project would not have been possible.

________________ Name:

Roll no:

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SR.NO. CONTENTS PG.NO.

1. INTRODUCTION 7

2. WHAT ARE THE MAJOR BENEFITS OF

FDI?

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3. INDIA AND FDI 9

4. FDI FLOWS IN INDIA 11

5. TRENDS IN FDI FLOWS IN INDIA 13

6. FDI POLICY FRAMEWORK IN INDIA 14

7. FDI IN: AUTOMOTIVE SECTOR, TECHNOLOGY, FINANCIAL SERVICES,

INDIAN BANKING, RETAIL, CONSUMER PRODUCTS, MANUFACTURING SECTOR

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8 POLITICAL IMPACT OFLARGER FDI26

9. LIMITATIONS 28

10. REASON FOR DIS SATISFACTION 30

11. CONCLUSION 31

12. BIBLOGRAPHY 33

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INTRODUCTION Foreign capital has significant role for every national economy regardless of its level of development. For the developed countries it is necessary to support sustainable development. For the developing countries, it is used to increase accumulation and rate of investments to create conditions for more intensive economic growth. For the transition countries it is useful to carry out the reforms and cross to open economy, to cross the past long term problems and to create conditions for stable and continuous growth of GDP as well as integration in world economy. But, capital flows from developed to developing countries are worth studying for a number of reasons. Capital inflow can help developing countries with economic development by furnishing them with necessary capital and technology. Capital flows contribute in filling the resource gap in countries where domestic savings are inadequate to finance investment. Neoclassical economists support the view that capital inflows are beneficial because they create new resources for capital accumulation and stimulate growth in developing economies with capital shortage. Capital inflows allow the recipient country to invest and consume more than it produces when the marginal productivity of capital within its borders is higher than in the capital-rich regions of the world. Foreign capital can finance investment and stimulate economic growth, thus helping increase the standard of living in the developing world. Capital flows can increase welfare by enabling household to smooth out their consumption over time and achieve higher levels of consumption. Capital flows can help developed countries achieve a better international diversification of their portfolios and also provide support for pension funds and retirement accounts into the twenty-first century. Capital inflows facilitate the attainment of the millennium development goals and the objective of national economic, empowerment and development strategy. As the economy becomes more open and integrated with the rest of the world, capital flows will contribute significantly to the transformation of the developing economy. However, large capital inflows can also have less desirable macroeconomic effects, including rapid monetary expansion, inflationary pressures, and real exchange rate appreciation and widening current account deficits. Hence, a surge in inflows of the magnitudes seen in recent years may pose serious dilemmas and tradeoffs for economic policy, especially in the present environment of high capital mobility. History has also shown that the global factors affecting foreign investment.

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DEFINITIONForeign ExchangeAny type of financial instrument that is used to make payments between countries is considered foreign exchange. Examples of foreign exchange assets include foreign currency notes, deposits held in foreign banks, debt obligations of foreign governments and foreign banks, monetary gold, and SDRs.

Foreign Capital

Is the source, amount or amount of goods that is introduced in a host country by a foreign country. Getting resources from another country or from outside the boundary of our country.

Foreign Capital Inflow

Increase in the amount of money available from external or foreign sources for the purchase of local capital assets such buildings, land, machines.

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EMERGING ECONOMIESAn emerging market is a country that has some characteristics of a developed market, but does not meet standards to be a developed market. This includes countries that may be developed markets in the future or were in the past. The term "frontier market" is used for developing countries with slower economies than "emerging". The economies of China and India are considered to be the largest.

 The 7 countries with emerging economies are as follows:

China, Russia, India, Indonesia, Mexico, Brazil and South Korea.

An emerging market economy (EME) is defined as an economy with low to middle per capita income. Such countries constitute approximately 80% of the global population, and represent about 20% of the world's economies. The term was coined in 1981 by Antoine W. Van Agtmael of the International Finance Corporation of the World Bank.

Although the term "emerging market" is loosely defined, countries that fall into this category, varying from very big to very small, are usually considered emerging because of their developments and reforms. Hence, even though China is deemed one of the world's economic powerhouses, it is lumped into the category alongside much smaller economies with a great deal less resources, like Tunisia. Both China and Tunisia belong to this category because both have embarked on economic development and reform programs, and have begun to open up their markets and "emerge" onto the global scene. EMEs are considered to be fast-growing economies.

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What an EME Looks Like?

EMEs are characterized as transitional, meaning they are in the process of moving from a closed economy to an open market economy while building accountability

within the system. Examples include the former Soviet Union and Eastern bloc countries. As an emerging market, a country is embarking on an economic reform program that will lead it to stronger and more responsible economic performance levels, as well as transparency and efficiency in the capital market. An EME will

also reform its exchange rate system because a stable local currency builds confidence in an economy, especially when foreigners are considering investing.

Exchange rate reforms also reduce the desire for local investors to send their capital abroad (capital flight). Besides implementing reforms, an EME is also most

likely receiving aid and guidance from large donor countries and/or world organizations such as the World Bank and International Monetary Fund.

One key characteristic of the EME is an increase in both local and foreign investment (portfolio and direct). A growth in investment in a country often indicates that the country has been able to build confidence in the local economy. Moreover, foreign investment is a signal that the world has begun to take notice of the emerging market, and when international capital flows are directed toward an EME, the injection of foreign currency into the local economy adds volume to the country's stock market and long-term investment to the infrastructure.

For foreign investors or developed-economy businesses, an EME provides an outlet for expansion by serving, for example, as a new place for a new factory or for new sources of revenue. For the recipient country, employment levels rise, labor and managerial skills become more refined, and a sharing and transfer of technology occurs. In the long-run, the EME's overall production levels should rise, increasing its gross domestic product and eventually lessening the gap between the emerged and emerging worlds.

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FOREIGN CAPITAL FLOWS IN INDIAInternational capital flow such as direct and portfolio flows has huge contribution to influence the economic behavior of the developing countries positively. Prof. John P. Lewis pointed out “that almost every developed country of the world in its developing stage had made the use of foreign capital to make up deficiency of domestic savings”. In the seventeenth and eighteenth century England borrowed from Holland and in the nineteenth and twentieth century England gave loans to almost every other country. United State of America, today the wealthiest country of the world, had borrowed 5 heavily in the nineteenth century16. The half century prior to the First World War was a period uniquely favorable to the free movement of international capital. Even before 1914, certain changes were taking place in the character and in the industrial distribution of the international capital movements. The war not only accelerated this process by dramatically altering the position of lending participants but heralded an era which eventually had a fundamental effect on the whole climate of international capital movements. In the twenties, however there were few signs of upheaval to come and, by 1929, the total investment debt was of the same order as that in 1913. On the face occurred was the emergence of US as the prime lender and the transformation of continental Europe from a substantial creditor into a substantial debtor. Even by 1919, the US had invested $6.5 billion abroad, excluding the large war loans to the allies. In the following decades, her foreign investments rose by US $8.3 billion-about two-thirds of the world total investment raising America’s total capital stake in 1930 to US $15.7 billion. By contrast, most European countries were forced to relinquish large quantities of their foreign assets during the war; UK gave up 15% of hers, France over half of hers and Germany nearly the whole. Since the war, a remarkable resurgence has taken place in the international capital movements, the volume of which has risen much faster than that of world trade and industrial production during the last fifteen years. In the period 1946-1950 the net flow of private long term capital from the traditional capital-exporting countries averaged US $1.8 billion per annum (equals to one-half of the average for the 1920s). In the following decade it rose to US $2.9 billion per annum reaching a peak of US $3.6 billion in 1958; since then it has fallen somewhat to less than US $2 billion in the early 1960s. The 1970s witnessed a remarkable boom of capital flows to emerging economies17. The dramatic surge in international capital flows was triggered by

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the oil shock in 1973-1974, the growth of the Eurodollar market and the remarkable increase in bank lending during 1979-1981. Latin America was the main recipient of this heavy capital inflow, with capital flows to the region peaking at US $44 billion in 1981. Overall, capital inflows to this region, which mostly took the form of syndicated bank loans, reached about 6 per cent of the region’s gross domestic product (GDP). The pace of international lending came to an abrupt end in 1982 with the hike in world real interest rates to levels not seen since the 1930s. Suddenly, emerging countries became the pariahs of international capital markets and they were not only excluded from voluntary capital markets but also forced to run current-account surplus to repay their foreign debts. By the late 1980s, there was a revival of international lending. While flows to Latin America made a tremendous comeback, capital inflows to Asia also surged, with capital flows increasing tenfold from their averages in the early 1980s. India is a developing country, like many other developing countries, international capital flows have significant potential benefit on the Indian economy. The problems of foreign investment in India have been an issue of outstanding importance ever since the days of the East India Company and added significance after Indian 6 Independence in 194718. In the 1950s and 1960s, the dominant form of foreign capital was foreign aid, mainly through government to government transfer of resources. In the late 1960s and early 1970s, foreign direct investment (FDI) came into prominence. The dominant form of foreign capital in the 1970s was the foreign private loan (FPL). In the late 1970s there was hardly any new foreign investment in India: indeed, some firms left the country. Inflows of private capital remained meager in the 1980s: they averaged less than $0.2 billion per year from 1985 to 1990. In the 1990s, as part of wide ranging liberalization of the economy, fresh foreign investment was invited in a range of industries. Inflows to India rose steadily through the 1990s, exceeding $6 billion in 1996-97. The fresh inflows were primarily as portfolio capital in the early years (that is, diversified equity holdings not associated with managerial control), but increasingly, they have come as foreign direct investment (equity investment associated with managerial control). Though dampened by global financial crises after 1997, net direct investment flows to India remain positive. Under the liberalized foreign exchange transactions regime, the results were dramatic.

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FOREIGN CAPITAL FLOW IN INDIA COMPRISES OF:

FOREIGN DIRECT INVESTMENT (FDI)FOREIGN PORTFOLIO INVESTMENT (FPI)EXTERNAL COMMERCIAL BORROWINGS (ECB’s)

FDI

A foreign direct investment (FDI) is a controlling ownership in a business enterprise in one country by an entity based in another country. Foreign direct investment is distinguished from portfolio foreign investment, a passive investment in the securities of another country such as public stocks and bonds, by the element of "control". According to the Financial Times, "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." The origin of the investment does not impact the definition as an FDI, i.e., the investment may be made either "inorganically" by buying a company in the target country or "organically" by expanding operations of an existing business in that country.

FPI

Foreign portfolio investment typically involves short-term positions in financial assets of international markets, and is similar to investing in domestic securities. FPI allows investors to take part in the profitability of firms operating abroad without having to directly manage their operations. This is a similar concept to trading domestically: most investors do not have the capital or expertise required to personally run the firms that they invest in.

Foreign portfolio investment differs from foreign direct investment (FDI), in which a domestic company runs a foreign firm. While FDI allows a company to maintain

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better control over the firm held abroad, it might make it more difficult to later sell the firm at a premium price. This is due to information asymmetry: the company that owns the firm has intimate knowledge of what might be wrong with the firm, while potential investors (especially foreign investors) do not.

The share of FDI in foreign equity flows is greater than FPI in developing countries compared to developed countries, but net FDI inflows tend to be more volatile in developing countries because it is more difficult to sell a directly-owned firm than a passively owned security.

ECB’s

An external commercial borrowing (ECB) is an instrument used in India to facilitate the access to foreign money by Indian corporations and PSUs (public sector undertakings). ECBs include commercial bank loans, buyers' credit, suppliers' credit, securitised instruments such as floating rate notes and fixed rate bonds etc., credit from official export credit agencies and commercial borrowings from the private sector window of multilateral financial Institutions such as International Finance Corporation (Washington), ADB, AFIC, CDC, etc. ECBs cannot be used for investment in stock market or speculation in real estate. The DEA (Department of Economic Affairs), Ministry of Finance, Government of India long with Reserve Bank of India, monitors and regulates ECB guidelines and policies. For infrastructure and greenfield projects, funding up to 50% (through ECB) is allowed. In telecom sector too, up to 50% funding through ECBs is allowed. Recently Government of India[1] allowed borrowings in Chinese currency yuan.Corporate sectors can mobilize USD 750 million via automatic route, whereas service sectors and NGO's for microfinance can mobilize USD 200 million and 10 million respectively.[2]

Borrowers can use 25 per cent of the ECB to repay rupee debt and the remaining 75 per cent should be used for new projects. A borrower cannot refinance its existing rupee loan through ECB. The money raised through ECB is cheaper given near-zero interest rates in the US and Europe, Indian companies can repay their existing expensive loans from that.

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TRENDS IN FCF INFLOWS IN INDIAWith the tripling of the FDI flows to EMEs during the pre-crisis period of the 2000s, India also received large FDI inflows in line with its robust domestic economic performance. The attractiveness of India as a preferred investment destination could be ascertained from the large increase in FDI inflows to India, which rose from around US$ 6 billion in 2001-02 to almost US$ 38 billion in 2008-09. The significant increase in FDI inflows to India reflected the impact of liberalisation of the economy since the early 1990s as well as gradual opening up of the capital account. As part of the capital account liberalisation, FDI was gradually allowed in almost all sectors, except a few on grounds of strategic importance, subject to compliance of sector specific rules and regulations. The large and stable FDI flows also increasingly financed the current account deficit over the period. During the recent global crisis, when there was a significant deceleration in global FDI flows during 2009-10, the decline in FDI flows to India was relatively moderate reflecting robust equity flows on the back of strong rebound in domestic growth ahead of global recovery and steady reinvested earnings (with a share of almost 25 per cent) reflecting better profitability of foreign companies in India. However, when there had been some recovery in global FDI flows, especially driven by flows to Asian EMEs, during 2010-11, gross FDI equity inflows to India witnessed significant moderation. Gross equity FDI flows to India moderated to US$ 20.3 billion during 2010-11 from US$ 27.1 billion in the preceding year.

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TRENDS IN FOREIGN CAPITAL FLOWS IN EMERGING ECONOMIES THROUGHOUT THE

WORLDForeign direct investment is treated as an important mechanism for channelizing transfer of capital and technology and thus perceived to be a potent factor in promoting economic growth in the host countries. Moreover, multinational corporations consider FDI as an important means to reorganise their production activities across borders in accordance with their corporate strategies and the competitive advantage of host countries. These considerations have been the key motivating elements in the evolution and attitude of EMEs towards investment flows from abroad in the past few decades particularly since the eighties

China

Encouragement to FDI has been an integral part of the China’s economic reform process. It has gradually opened up its economy for foreign businesses and has attracted large amount of direct foreign investment.

Government policies were characterised by setting new regulations to permit joint ventures using foreign capital and setting up Special Economic Zones (SEZs) and Open Cities. The concept of SEZs was extended to fourteen more coastal cities in 1984.Favorable regulations and provisions were used to encourage FDI inflow, especially export-oriented joint ventures and joint ventures using advanced technologies in 1986.

Foreign joint ventures were provided with preferential tax treatment, the freedom to import inputs such as materials and equipment, the right to retain and swap foreign exchange with each other, and simpler licensing procedures in 1986. Additional tax benefits were offered to export-oriented joint ventures and those employing advanced technology.

Priority was given to FDI in the agriculture, energy, transportation, telecommunications, basic raw materials, and high-technology industries, and FDI projects which could take advantage of the rich natural resources and relatively low labour costs in the central and northwest regions.

China’s policies toward FDI have experienced roughly three stages: gradual and limited opening, active promoting through preferential treatment, and promoting FDI in accordance with domestic industrial objectives. These changes in policy priorities inevitably affected the pattern of FDI inflows in China.

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Chile

In Chile, policy framework for foreign investment, embodied in the constitution and in the Foreign Investment Statute, is quite stable and transparent and has been the most important factor in facilitating foreign direct investment. Under this framework, an investor signs a legal contract with the state for the implementation of an individual project and in return receives a number of specific guarantees and rights.

Foreign investors in Chile can own up to 100 per cent of a Chilean based company, and there is no time limit on property rights. They also have access to all productive activities and sectors of the economy, except for a few restrictions in areas that include coastal trade, air transport and the mass media.

Chile attracted investment in mining, services, electricity, gas and water industries and manufacturing.

Investors are guaranteed the right to repatriate capital one year after its entry and to remit profits at any time.

Malaysia

The Malaysian FDI regime is tightly regulated in that all foreign manufacturing activity must be licensed regardless of the nature of their business.

Until 1998, foreign equity share limits were made conditional on performance and conditions set forth by the industrial policy of the time.

In the past, the size of foreign equity share allowed for investment in the manufacturing sector hinged on the share of the products exported in order to support the country's export-oriented industrial policy.

FDI projects that export at least 80 per cent of production or production involving advanced technology are promoted by the state and no equity conditions are imposed. Following the crisis in 1997-98, the restriction was abolished as the country was in need of FDI.

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Korea

The Korean government maintained distinctive foreign investment policies giving preference to loans over direct investment to supplement its low level of domestic savings during the early stage of industrialisation. Korea’s heavy reliance on foreign borrowing to finance its investment requirements is in sharp contrast to other countries.

The Korean Government had emphasised the need to enhance absorptive capacity as well as the indigenisation of foreign technology through reverse engineering at the outset of industrialisation while restricting both FDI and foreign licensing. This facilitated Korean firms to assimilate imported technology, which eventually led to emergence of global brands like Samsung, Hyundai, and LG.

The Korean government pursued liberalised FDI policy regime in the aftermath of the Asian financial crisis in 1997-98 to fulfil the conditionality of the International Monetary Fund (IMF) in exchange for standby credit.

Several new institutions came into being in Korea immediately after the crisis. Invest Korea is Korea’s national investment promotion agency mandated to offer one-stop service as a means of attracting foreign direct investment, while the Office of the Investment Ombudsman was established to provide investment after-care services to foreign-invested companies in Korea. These are affiliated to the Korea Trade Investment Promotion Agency.

Korea enacted a new foreign investment promotion act in 1998 to provide foreign investors incentives which include tax exemptions and reductions, financial support for employment and training, cash grants for R&D projects, and exemptions or reductions of leasing costs for land for factory and business operations for a specified period.

One of the central reasons for the delays in the construction process in Korea is said to be the lengthy environmental and cultural due diligence on proposed industrial park sites. (OECD, 2008).

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Thailand

Thailand followed a traditional import-substitution strategy, imposing tariffs on imports, particularly on finished products in the 1960s. The role of state enterprises was greatly reduced from the 1950s and investment in infrastructure was raised. Attention was given to nurturing the institutional system necessary for industrial development. Major policy shift towards export promotion took place by early 1970s due to balance of payments problems since most of components, raw materials, and machinery to support the production process, had to be imported.

On the FDI front, in 1977 a new Investment Promotion Law was passed which provided the Board of Investment (BOI) with more power to provide incentives to priority areas and remove obstacles faced by private investors (Table 4). After the East Asian financial crisis, the Thai government has taken a very favourable approach towards FDI with a number of initiatives to develop the industrial base and exports and progressive liberalisation of laws and regulations constraining foreign ownership in specified economic activities.

The Alien Business Law, which was enacted in 1972 and restricted majority foreign ownership in certain activities, was amended in 1999. The new law relaxed limits on foreign participation in several professions such as law, accounting, advertising and most types of construction, which have been moved from a completely prohibited list to the less restrictive list of businesses.

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CROSS - COUNTRY COMPARISON OF POLICIES – WHERE DOES INDIA STAND?

A true comparison of the policies could be attempted if the varied policies across countries could be reduced to a common comparable index or a measure. Therefore, with a view to examine and analyse ‘where does India stand’ vis-a-vis other countries at the current juncture in terms of FDI policy framework, the present section draws largely from the results of a survey of 87 economies undertaken by the World Bank in 2009 and published in its latest publication titled ‘Investing Across Borders’.

The survey has considered four indicators, viz., ‘Investing across Borders’, ‘Starting a Foreign Business’, ‘Accessing Industrial Land’, and ‘Arbitrating Commercial Disputes’ to provide assessment about FDI climate in a particular country. Investing across Borders indicator measures the degree to which domestic laws allow foreign companies to establish or acquire local firms. Starting foreign business indicator record the time, procedures, and regulations involved in establishing a local subsidiary of a foreign company. Accessing industrial land indicator evaluates legal options for foreign companies seeking to lease or buy land in a host economy, the availability of information about land plots, and the steps involved in leasing land. Arbitrating commercial disputes indicator assesses the strength of legal frameworks for alternative dispute resolution, rules for arbitration, and the extent to which the judiciary supports and facilitates arbitration.

Following key observations could be made from this comparison:

A comparative analysis among the select countries reveals that countries such as Argentina, Brazil, Chile and the Russian Federation have sectoral caps higher than those of India implying that their FDI policy is more liberal.

The sectoral caps are lower in China than in India in most of the sectors barring agriculture and forestry and insurance. A noteworthy aspect is that China permits 100 per cent FDI in agriculture while completely prohibits FDI in media. In India, on the other hand, foreign ownership is allowed up to 100 per cent in sectors like ‘mining, oil and gas’, electricity and ‘healthcare and waste management’.

India positioned well vis-a-vis comparable counterparts in the select countries in terms of the indicator ‘starting a foreign business’. In 2009, starting a foreign business took around 46 days with 16 procedures in India

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as compared with 99 days with 18 procedures in China and 166 days with 17 procedures in Brazil

In terms of another key indicator, viz., ‘accessing industrial land’ India’s position is mixed. While the ranking in terms of indices based on lease rights and ownership rights is quite high, the time to lease private and public land is one of the highest among select countries at 90 days and 295 days, respectively. In China, it takes 59 days to lease private land and 129 days to lease public land. This also has important bearing on the investment decisions by foreign companies.

In terms of the indicator ‘arbitrating commercial disputes’ India is on par with Brazil and the Russian Federation. Although, the strength of laws index is fairly good, the extent of judicial assistance index is moderate.

Investing Across Borders – Sector wise Capitals – 2009

Country

Mining, oil 

and gas

Agriculture andforestry

Light manufact

uring

Telecommunications Electricity Banking Insurance Trans

portation Media

Construction, tourism and retail

Healthcare and

waste management

Argentina 100 100 100 100 100 100 100 79.6 30 100 100

Brazil 100 100 100 100 100 100 100 68 30 100 50

Chile 100 100 100 100 100 100 100 100 100 100 100

China 75 100 75 49 85.4 62.5 50 49 0 83.3 85

India 100 50 81.5 74 100 87 26 59.6 63 83.7 100

Indonesia 97.5 72 68.8 57 95 99 80 49 5 85 82.5

Korea, 100 100 100 49 85.4 100 100 79.6 39.5 100 100

Malaysia 70 85 100 39.5 30 49 49 100 65 90 65

Mexico 50 49 100 74.5 0 100 49 54.4 24.5 100 100

Philippines 40 40 75 40 65.7 60 100 40 0 100 100

Russian 100 100 100 100 100 100 49 79.6 75 100 100

South 74 100 100 70 100 100 100 100 60 100 100

Thailand 49 49 87.3 49 49 49 49 49 27.5 66 49

CONCLUSION

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Although emerging economies may be able to look forward to brighter opportunities and offer new areas of investment for foreign and developed economies, local officials in EMEs need to consider the effects of an open economy on citizens. Furthermore, investors need to determine the risks when considering investing in an EME. The process of emergence may be difficult, slow and often stagnant at times. And even though emerging markets have survived global and local challenges in the past, they had to overcome some large obstacles to do so.

Against this backdrop, it is pertinent to highlight the number of measures announced by the Government of India on April 1, 2011 to further liberalise the FDI policy to promote FDI inflows to India. These measures, inter alia included

(i) allowing issuance of equity shares against non-cash transactions such as import of capital goods under the approval route,

(ii) removal of the condition of prior approval in case of existing joint ventures/technical collaborations in the ‘same field’,

(iii) providing the flexibility to companies to prescribe a conversion formula subject to FEMA/SEBI guidelines instead of specifying the price of convertible instruments upfront,

(iv) simplifying the procedures for classification of companies into two categories – ‘companies owned or controlled by foreign investors’ and ‘companies owned and controlled by Indian residents’ and

(v) Allowing FDI in the development and production of seeds and planting material without the stipulation of ‘under controlled conditions’. These measures are expected to boost India’s image as a preferred investment destination and attract FDI inflows to India in the near future.

BIBLOGRAPHY

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http://www.investopedia.com/articles/03/073003.asp

http://en.wikipedia.org/wiki/E7_%28countries%29

http://shodhganga.inflibnet.ac.in/bitstream/10603/7857/12/12_chapter%201.pdf

http://en.wikipedia.org/wiki/Foreign_portfolio_investment

http://www.investopedia.com/terms/f/foreign-portfolio-investment-fpi.asp

http://en.wikipedia.org/wiki/External_commercial_borrowing_%28India%29

http://www.rbi.org.in/scripts/bs_viewcontent.aspx?Id=2513

http://business.mapsofindia.com/fipb/forms-foreign-capital-flowing.html

http://www.sesrtcic.org/files/article/111.pdf

http://www.federalreserve.gov/pubs/ifdp/2013/1081/ifdp1081.pdf

http://www.imf.org/external/np/speeches/2015/031715.htm

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