role of fdi in sme

8/17/2019 role of FDI in SME

1/94

A

Research Project Report

ON

“ROLE OF FDI IN SME”

TO BE SUBMITTED TO DR. APJ ABDUL KALAMTECHNICAL UNIVERSITY, LUCKNOW

IN THE PARTIAL FULFILLMENT OF THE REQUIREMENT FOR THE DEGREE

OF

MASTER OF BUSINESS ADMINISTRATIONBatch 2014-16

Submitted to : Submitted By :

Dr. NEHA VERMAFaculty ! Ma"a#$%$"t

SA&SHI 'AR'MBA-IV SEMRO(( NO.140)4)00))

DEWAN INSTITUTE OF MANAGEMENT STUDIESDEWAN INSTITUTE OF MANAGEMENT STUDIES

Meerut By-Pass Road, Partapur, Meerut.(U.P.) INDIA Pin-250 10Ph.!"1-121-2##015, 2##0$5, Fax: "1-121-2##0$

Email!in%o&de'ninstitutes.or,We Site: '''.de'aninstitutes.or

1


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!ON"EN"S

#$ A!%NOWLED&EMEN" '

($ IN"ROD)!"ION *

+$ FOREI&N DIRE!" IN,ES"MEN" -

'$ FOREI&N DIRE!" IN,ES"MEN" IN INDIA #'

*$ SE!"OR SPE!IFI! FOREI&N DIRE!" IN,ES"MEN"

IN INDIA *.

/$ O01E!"I,E OF "2E S")D3 *45$ P)RPOSE OF "2IS S")D3 /.

-$ S"A"EMEN" OF PRO0LEM /#

4$ RESEAR!2 ME"2ODOLO&3 /'

#.$ DA"A ANAL3SIS 5.

##$ !ON!L)SION -5

#($ RE!OMMENDA"IONS 4#

#+$ 0I0LIO&RAP23 4'

2


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FOREI&N DIRE!" IN,ES"MEN"

http://images.google.co.in/imgres?imgurl=http://www.transfuture.net/transart/future_city_249.jpg&imgrefurl=http://www.positivedetroit.net/2009_06_21_archive.html&usg=__AV2ueiTxnevX2qLo2K9pLVkeVxo=&h=800&w=1280&sz=951&hl=en&start=177&um=1&tbnid=kRK2MkVOdLUX2M:&tbnh=94&tbnw=150&prev=/images%3Fq%3Dforeign%2Bdirect%2Binvestment%26ndsp%3D20%26hl%3Den%26sa%3DN%26start%3D160%26um%3D1http://images.google.co.in/imgres?imgurl=http://propertybytes.indiaproperty.com/Images/Nov06/funds%25202.bmp&imgrefurl=http://propertybytes.indiaproperty.com/index.php/newsbytes/foreign-direct-investments-fdi-in-the-indian-resl-estate&usg=__79n69uT0zzQ8h9LBWf5ZZztmdvo=&h=225&w=300&sz=198&hl=en&start=8&um=1&tbnid=1W6GgysKt9DONM:&tbnh=87&tbnw=116&prev=/images%3Fq%3Dforeign%2Bdirect%2Binvestment%26hl%3Den%26sa%3DN%26um%3D1http://images.google.co.in/imgres?imgurl=http://www.thehindu.com/pp/2006/06/24/images/2006062400050101.jpg&imgrefurl=http://www.thehindu.com/pp/2006/06/24/stories/2006062400050100.htm&usg=__9HcTIkrKuxdyx_4mcA1M3Izmug4=&h=363&w=351&sz=23&hl=en&start=1&um=1&tbnid=tvIGakDd1YskzM:&tbnh=121&tbnw=117&prev=/images%3Fq%3Dforeign%2Bdirect%2Binvestment%26hl%3Den%26sa%3DN%26um%3D1http://images.google.co.in/imgres?imgurl=http://ucatlas.ucsc.edu/lgraphics/Fdi_2000.gif&imgrefurl=http://gibsdiscussions.blogspot.com/2007/02/different-version-on-foreign-direct.html&usg=__6a6P9GHPbF-bBzB5wkkchrC0YqY=&h=557&w=720&sz=39&hl=en&start=2&um=1&tbnid=g8cPrpxgJ8w2xM:&tbnh=108&tbnw=140&prev=/images%3Fq%3Dforeign%2Bdirect%2Binvestment%26hl%3Den%26sa%3DN%26um%3D1http://images.google.co.in/imgres?imgurl=http://www.rajkishoreassociates.com/images/fdi.jpg&imgrefurl=http://www.rajkishoreassociates.com/fdi.htm&usg=__zyMUDXRyGcL-j3uDWZuNofSM6_Y=&h=199&w=180&sz=20&hl=en&start=3&um=1&tbnid=mObhs-Cpmr0CQM:&tbnh=104&tbnw=94&prev=/images%3Fq%3Dforeign%2Bdirect%2Binvestment%26hl%3Den%26sa%3DN%26um%3D1


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STUDENT DECLARATION

I undersign SAKSHI GARG student of MBA- IV here by declared that the

research report entitled “ROLE OF FDI IN SME” is completed and submitted

under the guidance of Dr. NEHA VERMA , Faculty ! Ma"a#$%$"t, DIMS

M$$rut is my original work. The imperial finding in this report is based on the

data collected by me. I have not submitted this proect report to MIT! Meerut or

any other "niversity for the purpose of compliance of any re#uirement of any

e$amination or degree.

DATE&

SAKSHI GARG

'LACE& Ro No. 1#0$#$00$$

MBA I* +e

#


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A!%NOWLED&EMEN"

I epress y sinerest ratitude and t/ans to Dr. NEHA VERMA ,

Faculty ! Ma"a#$%$"t, DIMS M$$rut, %or '/ose indness I /ad t/e preious

opportunity o% attainin resear/. Under /is riiant untirin uidane I

oud opete t/e proet ein undertaen on t/e “ROLE OF FOREI&N

DIRE!" IN,ES"MEN" IN SME” suess%uy in tie. 3is etiuous

attention and in4auae suestions /a4e /eped e in sipi%yin t/e

proe in4o4ed in t/e 'or.

SA%S2I &AR&

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IN"ROD)!"ION

&e6eral 0ac78ro96

In t/e reent years, orein Diret In4estent (DI) poiies /as eoe one o% t/e

entra eonoi poiies %or t/e de4eopin ountries, earned %ro t/e eperienes o%

ne'y industriaised ountries (NI6s) ie India, +inapore, 3on 7on and 8ai'an

'/i/ prooted DI as t/e atayst o% rapid eonoi ro't/ in t/e eary staes o% t/eir

eonoi de4eopent. 9piria studies on t/e ipat o% DI on eonoi ro't/

/a4e s/o'n positi4e ipat in t/e /ost ountries. 3ene, it /as eoe an area o% reat

interest 'it/ epiria deterinants o% poiy ipiations %or en/aned DI in%o's and

t/e e/anis t/rou/ '/i/ it %aiitates ro't/ and strutura /ane in reipient

ountries.

8/e roe o% DI in eonoi ro't/ in t/e de4eopin ountries is t/at DI enerate

ore ene%its to t/e reipient ountries rat/er t/an ust %u %iin t/e s/ort-ter apita

de%iieny proes. 8rans%er o% te/nooies and its spi o4er e%%et to t/e oa %irs

'i ae t/e oa %irs ore opetiti4e and /i/ standards '/i/ is neessary to

opete 'it/ t/e %orein produts. Anot/er, spi o4er e%%et o% MN9s is t/at MN9s ay

pro4ide trainin and aour anaeent '/i/ ay ae t/e a4aiae to t/e eonoy

in enera. 8/e trainin to oa suppiers y MN9s ay inrease t/e /i/ standard

prodution and anaeria standards.

8/e reations/ip et'een %orein diret in4estent and eonoi ro't/ is one t/e 'e

studied suet in t/e %ied o% de4eopent eonois. 9speiay, a%ter t/e ad4ent o%

endoenous ro't/ ode (Boren:teins, et al , 1""5, Baasuraanya, et al , 1"";)

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ade t/is reations/ip ore 4ita %or on run eonoi ro't/. 8/e resear/ interest in

t/is %ied /as inreased a%ter 1""0s 'a4e o% oaisation and assi4ey inreased DI

aross t/e oe and eonoi ro't/ o% DI reei4in ountries.

UN68AD (200


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In%o's o% DI an e iportant 4e/ie %or te/nooia /ane and /uan apita.

Bostro et al (1""#, 1"";) ep/asi:ed DI t/at indued /uan apita auentation

and eonoi ro't/ y t/e /ep o% t/e te/nooy trans%er, auuation o% /uan

apita and no'ede spi o4er in t/e DI reei4in ountries.

8/ere are t'o 'ays to dei4er oods and ser4ies to %orein arets! internationa

prodution and trade. 8/is eans t/at t/ere s/oud e soe interreations/ip et'een t/e

t'o. 8/is is on%ired y t/e positi4e orreation et'een 'ord orein Diret

In4estent (DI) and 'ord eports. 8/us, eonoi ro't/ and trade and in4estents

are interonneted.


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History

Forei86 irect i6;estme6t (DI) is a easure o% -4 C 20;.2$ n C 2".2 n - C 122."; n

#44.>44 C "50.#$ n C "0$.# n C #.1 n

(...>.5 C 1,;2".05 n C 1,#21.1 n C 20$.$# n

"otal C 2,"50.;" n C 2,$0.


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• a roup o% reated enterprisesE

• a o4ernent odyE

• an estate (a'), trust or ot/er soieta oranisationE or

• any oination o% t/e ao4e.

10

http://en.wikipedia.org/wiki/Estate_(law)http://en.wikipedia.org/wiki/Trusthttp://en.wikipedia.org/wiki/Estate_(law)http://en.wikipedia.org/wiki/Trust


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Methos o< Forei86 Direct I6;estme6ts

8/e


12/94

Debates about the benefits of FDI for low-income countries

+oe ountries /a4e put restritions on DI in ertain setors. India, 'it/ its restrition

on DI in t/e retai setor is a ood eape.In a ountry ie India, t/e 'aarti:ationJ

o% t/e ountry oud /a4e sini%iant neati4e e%%ets on t/e o4era eonoy y reduin

t/e nuer o% peope epoyed in t/e retai setor (urrenty t/e seond arest

epoyent setor nationay) and depressin t/e inoe o% peope in4o4ed in t/e

ariuture setor (urrenty t/e arest epoyent setor nationay).

12


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Forei86 Direct I6;estme6t (DI) is noray de%ined as a %or o% i6;estme6t ade in

order to ain un'a4erin and on-astin interest in enterprises t/at are operated outside

o% t/e eonoy o% t/e s/are/oderK depositor. In DI, t/ere is a parent enterprise and a


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Forei86 Direct I6;estme6t i6 I6ia is 6ot allo=e 96er the


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FOREI&N DIRE!" IN,ES"MEN" IN INDIA

I6tro9ctio6

+ine 1""1-"2 India /as een tryin to attrat %orein apita to ride t/e ap

et'een intended in4estent and atua sa4in o% t/e ountry. 8o inrease t/e rate o%

ro't/ o% >DP in t/e rane o% $ per ent, t/e rate o% net apita %oration s/oud e

inreased in t/e 4iinity o% 2< to 0G. 8/e sa4ins o% t/e ountry /as een /anin

around 2#G. 8/ere is a ap and t/is ap is to e rided y (a) Port%oio in4estent y

%orein %inania institutions () endin y %orein ans and ot/er institutions and ()

orein Diret In4estent. L% t/ese t/ree routes, de4eopin ountries pre%er t/e t/ird

t/at is orein Diret In4estent, as t/is i4es ertain ad4antaes to t/e /ost ountry.

8/e ad4antaes o% %orein diret in4estent (DI) are!

i) It inreases apita %or in4estent autoatiay. I% 'e opare t/is 'it/ t/e

aFuisition route, 'e see t/at %orein apita repaes t/e doesti apita y a

tae o4er or pur/ase. 8/e reeased doesti apita ay e in4ested in soe

ot/er setors o% t/e eonoy.

ii) DI in reen %ied 4entures rins ne' te/nooy and odern anaeent

te/niFue. In t/ese areas, de4eopin ountries are ain e/ind.

iii) orein apita in%o' t/rou/ DI route reates a peranent stae o% %orein

apita in t/e doesti eonoy. 8/is ay e ene%iia %or t/e /ost ountry in

t/e sense t/at it rins a staii:in %ore in t/e eonoy.

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8/e 'ord in4estent report 2000 re4eas t/at in t/e ine o% ountries reei4in

%orein diret in4estent, India rans 1$ t/ t/at eans t/at 1; ountries are a/ead o% India

reardin t/eir aiity to attrat DI. 6ountries ie *ietna are aso a/ead o% India.

Indias s/are o% tota DI in%o' into de4eopin ountries %or t/e period 1""$ to 2000 is

1.#G ony. 8/ere is no point o% oparison 'it/ 6/ina and t/is is %or t'o reasons.

1) 6/ina oud attrat aout 25G o% tota DI in%o' into t/e de4eopin ountries.

8/e net ountry in t/e ine, t/at is, Bra:i oud attrat ony 10G. 8/e

predoinant position o% 6/ina in attratin DI %ro 1""5 on'ards annot e

epained y nora eonoi paraeters.

2) +eond, soe eonoists point out /ue aount o% apita %i/t %ro 6/ina t/at

is 4ery /i/ opared to ountries o% t/e siiar situations. 8/is reinds one t/e

re4o4in door situations o% soe ountries su%%erin %ro apita %i/t.

1;


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8/e ountrys arest retaiersuture >roup, +peners Retai and +/oppers +top/a4e

ined up in4estents o% at east U+C 12


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• Met/odooy %or auation o% indiret %orein in4estent in Indian opanies

/as een eary de%ined.

• 6opete ieraisation o% priin and payent o% te/nooy trans%er %ee and

tradear, rand nae and royaty payents.

urt/erore, t/e o4ernent /as ao'ed t/e orein In4estent Prootion Board

(IPB), under t/e Ministry o% 6oere and Industry, to ear DI proposas o% up to

U+C 5


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APPROA!2 "OWARDS FDI IN INDIA

8/e eat position o% DI in India 'i e put up %irst at t/ree e4esE at t/e e4e

o% t/e +tate, at t/e e4e o% t/e setor and at t/e e4e o% t/e industry. 8/e oeti4e o%

doin t/is is to eaine se4era /ypot/eses ie t/e roe o% in%rastruture in attratin

DI, t/e roe o% aor situation, t/e roe o% a' and order et. ?e are to see aso '/et/er

t/e in%o' o% DI in India /as ertain %a4ourae destination - reion 'ise or setor 'ise.

A road epanation o% t/e ao4e 'i enae us to :ero in to ertain areas t/at

oud e epored %urt/er to asertain t/e auses o% a so' in%o' o% DI. It an %aiitate

t/e dra'in o% our onusion.

Role o< I6


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uture and a oon ro't/ oriented /uan psy/ooy. In any de4eopin

ountries t/e 'or uture ay e not ondui4e to odern ae industria soiety.

Aso t/e o4er a ipression reardin t/e 'or uture on t/e ind o% t/e

potentia in4estors is iportant.

8/e roe o% >o4ernent in t/e de4eopent o% t/e eonoy is iportant %ator in

t/e seond ateory o% in%rastruture. ?/ie >o4ernent as a %aiitator is appreiated

e4ery'/ere as it /eps rapid eonoi de4eopent, too u/ >o4ernent ontro, and

partiuary ureaurati red-tapis is not ied y %orein in4estors.

In spite o% panned eonoi de4eopent in India durin t/e ast %i4e deades,

t/e de4eopent o% in%rastruture /as not een uni%or in 2< +tatesKReions o% t/e

ountry. Lne study paes t/e situation o% in%rastruture in t/e %or o% an inde. 8ain

t/e a4erae India situation as a /undred, t/e study s/o's t/e inde o% De/i $0, 7eraa

1;2, Puna 1$2 ,8ai Nadu 1"5, '/ie >uarat is 105 ?est Bena 102. +tates ie

Raast/an, Me/aaya, Manipur are ain e/ind as t/eir inde is %ar eo' 100. ?/en

'e pae t/e %o' o% DI in di%%erent +tates in ontrast to t/e indies o% in%rastruture o%

di%%erent states, 'e %ind t/at '/ie t/e states suess%uy attratin DI are eneray t/e

states t/at /a4e ood in%rastruture, ut t/e on4erse is not true. 8/e +tates /a4in ood

in%rastruture inde /a4e not een ae to attrat DI.

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8/is is t/e usae side o% DI. ?e are to see aso t/e soure side. +o %ar DI

in%o' into India is onerned, t/e U+A and t/e 9uropean Indian pro4ides t/e ions s/are

o% DI to India. @apan oes net in iportane o% soure. or soe years Mauritius

eae iportant and t/e roe o% Non-Residents Indians (NRI) is a it ope. +oe

peope arue t/at any NRIs are tain ad4antae o% t/e Mauritius route reardin t/e

suppy side o% DI. 8/ere is anot/er proe and t/is is t/e 'idenin ap et'een t/e

appro4a and atua in%o' o% DI. I% 'e see t/e internationa situation, 'e %ind t/at t/ere

is noray a ap o% 0G et'een t/e appro4a and t/e atua in%o'. But, in India t/e

ap is u/ 'ider and soeties it eoes di%%iut to i4e epanation %or t/at ap.

8/ere /a4e een soe studies on t/e deterinants o% DI in%o' into t/e /ost

ountries in t/e iterature. 8/e eonoi paraeters o%ten ention as epanatory

4ariaes are ! >ro't/ rate o% >DP, state o% in%rastruture, e/ane rate staiity,

eFuitae 4aue o% t/e e/ane rate, openness o% t/e eonoy, ea struture o% t/e /ost

ountry and t/e attitude o% t/e >o4ernent. 8/e odes, '/i/ are ipiit in t/e study

o% t/ese 4ariaes, are ased on a aret eonoy %rae'or. In India t/e paradi

s/i%t ourred %ro 1""1-"2, t/at is, t/e Indian t/in-tan eae austoed to epore

t/e roe o% aret e/anis in epainin t/e o4eent o% eonoi 4ariaes. 8/is

/appened %ro 1""1-"2 on'ards. A road setion o% peope - eeuti4es in t/e

orporate, o%%iias o% %orein 9assies, aadeiians, independent onsutants and

industriaists - o%ten epress t/e opinion t/at India /as a reat proe reardin t/e

ind set, t/at is, a popuar eie% is t/at %orein apita in%o' eads to t/e epoitation o%

t/e doesti eonoy y t/e o'ners o% %orein apita. 8/ere is anot/er popuar eie%

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t/at India su%%ers %ro too u/ o4ernent +yndroe. 8/e atter eans t/at t/e roe

o% o4ernent in India is spread e4ery'/ere, ut ironiay t/e o4ernane is 'ea in

areas '/ere it is aed %or. 8/e atter are areas o% eterna seurity, true sa%euards o% t/e

do'ntrodden peope, preser4ation o% t/e en4ironent and a true re%or in t/e %inania

setor. 8/e pereption is party Fuaitati4e in nature. 8/e etent to '/i/ t/is pereption

eists an e easured ony y a sur4ey et/od, and t/is is eyond t/e sope o% t/is

/apter

22


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IND)S"RIES RESER,ED FOR SMALL AND MEDI)M

EN"ERPRISES

"ech6olo8? "ra6s


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1"$0s. 8/e nature o% DI %o's /aned 'it/ t/e ipro4eent o% ouniation

and ad4ane o% in%oration te/nooy. ?/ene4er ost o% aret transations o%

intanie assets eoe 4ery /i/, %irs tend to a4oid t/ese osts y internai:in

t/e transations o% t/e intanie assets. 8/is is done t/rou/ orein Diret

In4estent aso.

Oiterature aso re4eas t/at eportin oodities direty %ro t/e /oe ase and

prodution o% t/e sae in %orein ountries to ser4e t/e %orein arets eit/er

t/rou/ iensin or orein Diret In4estent are t'o aternati4e odes o% o4erseas

operations. ro t/is ane it eoes o4ious t/at i% trade ierai:ation eoes

etree, t/e oation ad4antae o% t/e ountry %or t/e oa aret ay e ost.

I6ter>I69str? ,ariatio6 i6 FDI

8/e /ypot/esis t/at soe industries in t/e /ost ountry oud ontrat ore DI

t/an ot/ers /as een tested epiriay in t/e iterature. 8/ese studies /a4e inored

t/e possiiity o% disriination in iensin and /a4e onentrated on e/a4iour o%

DI reardin its destination to partiuar industries. 8/e oon eeents o% t/e

study inude DI intensity to 4ary positi4ey 'it/ t/e intensity o% ad4ertiseent,

si intensity, RHD ependiture, apita output ratio and ertain ot/er %ators. Aso

in t/e asene o% any partiuar stron poiy %ator, t/e /oie et'een DI and

iensin 'i e deterined y t/e transation ost. +ine transation ost are Fuite

/i/ %or randed onsuer oods, t/ere a pronouned tendeny t/at DI 'i e

2#


25/94

onentrate in t/ose industries. 8/is %indin /as one ipiation and t/is is as

%oo's!

A de4eopin ountry 'it/ t/e desire to ontrat ore DI s/oud %oo' a

ierai:ation poiy in su/ a 'ay t/at it aes t/e a%%ets o% intanie asset and

internai:ation inenti4es to e ore pronouned.

FDI and Economic Growth! 8/ere is a oon /ypot/esis in t/e iterature t/at

/i/er rate o% >ross Doesti Produt needs to a /i/er in%o' o% DI. 8/e iterature

aso opares t/e reati4e produti4ity o% DI 4is-Q-4is doesti apita. +o %ar as

DI inreases t/e a4aiaiity o% apita, t/is s/oud inrease t/e rate o% ro't/ o%

>DP. 8/us 'e /a4e a iruarity and it is '/et/er /i/er ro't/ rate eads to /i/er

in%o' o% DI, or /i/er in%o' DI eads to /i/er ro't/ rate. 8/is is a standard

ausaity proe in eonoetris iterature. Many studies /a4e epiriay tried to

see t/e diretion o% ausaity and resut is a ied one.

25


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I6ia6 Eco6om? a6 Forei86 !apital

8/e doination o% %orein apita in t/e Indian industria sene ust e%ore

independene 'as t/e resut o% /istory. orein apita in enera and Britis/ apita

in partiuar, payed a ruia roe in t/e de4eopent o% ute teties and enineerin

industries in t/e Indian su-ontinent. 8/e p/iosop/y o% eonoi de4eopent to e

pursued in post independent India /ad /aned radiay and it 'as t/ou/t t/at east

iportane s/oud e atta/ed to t/e roe o% %orein apita in India=s eonoi

ro't/. 8/e resut 'as a soiaist pattern o% industria de4eopent ased on se%-

su%%iieny.

8/e iport-sustitution and in'ard ooin industriai:ation ed to iniu roe o%

%orein apita and t/e pauity o% %orein e/anes indued t/e aut/ority to enat t/e

strinent a' ie orein 9/ane Reuation At ( 9RA), 1"$. 8/e stritness o%

t/is piee o% eisation /ad een responsie %or u/ o% apita %i/t %ro India in

t/e se4enties and ei/ties. Indian panners 'ere so u/ iersed 'it/ se%-deusion

t/at t/ey oud not eie4e t/e reaity o% apita %i/t unti t/e nationa o%%er eae

aost epty in 1""0. 8/e ra4ity o% t/e situation /aned t/e '/oe perspeti4e and

t/e paradi s/i%t /appened. 8/is ed to t/e attept o% eonoi re%ors.

2;


27/94

Forei86 Direct I6;estme6t a6 De;elopme6t

8/e poitia eonoy o% t/e roe o% DI in t/e de4eopent proess o% an

eonoy is %u o% ontro4ersy. 8/e aruents are on ot/ sides. 8/ose '/o

ad4oate a ore iera reie ai t/at DI 'i pro4ide t/e u/-needed

resoures and %orein e/ane %or re4i4in Indian industry, ipro4e t/e ruin

in%rastruture, and ao' India to oderni:e its te/nooia ase. Aso reater

opetition in Indian anu%aturin 'i ene%it t/e Indian onsuer. Ln t/e ot/er

/and, ritis point to t/e poor reord o% utinationa orporations in India, t/eir

eessi4e pro%itaiity. Aso t/ey arue aout t/e ad4erse ipat o% pro%it reittanes

on Indias aane o% payents.

Does %orein in4estent ontriute to ro't/ 9piria in4estiation

does not o%%er any ear ans'er. 6ountries ie 6/ina /a4e eperiened are DI

in%o's and /i/ ro't/ in reent years, '/ie India re' rapidy 'it/out sini%iant

e4es o% %orein apita. In Oatin Aeria, any ountries /a4e periods o% so'

ro't/ despite openness to %orein apita. 94en i% 'e did %ind soe positi4e

orreation et'een DI and ro't/, t/e issue o% ausaity reains unreso4ed

2$


28/94

"ech6olo8?: Polic? a6 Realit?

3ost ountry o4ernents o%ten enourae %orein in4estent in t/e /ope o%

ipro4in t/e produti4ity o% doesti %irs. orein diret in4estent potentiay

rins ne' te/nooies to t/e /ost eonoy. 8e/nooy in%o's an aso ipro4e

t/e produti4ity o% doesti %irs t/rou/ spio4ers, as etter prodution and

anaeent te/niFues di%%use in t/e /ost eonoy. In soe situations %orein

in4estent an e a atayst %or ro't/. 8/e iterature isoates t'o /annes %or t/is

spio4er proess. 8/e ore diseodies aspets o% superior te/nooies used y

%orein %irs an spread to doesti %irs t/rou/ t/e oiity o% trained 'orers

and anaers, and t/rou/ te/nia uidane pro4ided

FDI : A Se8me6te A6al?sis

In t/e %oo'in pararap/s 'e 'i epain t/e urrent position o% DI in India in

di%%erent parts. 8/is et/od o% anaysis 'i /ep us to /a4e an in dept/ anaysis o%

dynais o% t/e %o' o% DI in di%%erent setors o% t/e eonoy.

A Macro ,ie=

8/e soure ountries %ro '/i/ DI %o's into Indian eonoy are are in nuer

ut t/e aor partners are t/e U+A, 8/e 9uropean Union ountries and oupe o%

ountries in Asia ie @apan, India, +inapore, 3on 7on and Mauritius.

Interestin p/enoenon is t/at e4en a%ter t/e aession o% 3on 7on to ainand

2


29/94

6/ina, apita /as %oo'ed %ro 3on 7on into India. A t/e 9uropean Union

ountries, partiuary ountries ie U.7, >erany, rane and Net/erands are

iportant soure ountries o% DI. As a sine ountry outside 9U o, @apan is

4ery iportant as a soure ountry.

8ae 1 re4eas t/at t/ou/ t/e nuer o% ountries %ro '/i/ DI %o's into India

is ipressi4e, ony a /and%u o% ountries are iportant as t/e soure o% DI in%o'.

+oe ountries are reutant to ae in4estent in India, 8ai'an is an eape.

Non-resident Indians (NRI) is a ateory in tae 1 and t/e %at re4eaed in t/e tae is

t/at t/e ontriution o% NRI in t/e DI in4estent in India is not ipressi4e.

2"


30/94

Forei86 Direct I6;estme6t i6 I6ia

orein diret in4estent (DI) in India /as payed an iportant roe in t/e de4eopent

o% t/e Indian eonoy. DI in India /as S in a ot o% 'ays S enaed India to a/ie4e a

ertain deree o% %inania staiity, ro't/ and de4eopent. 8/is oney /as ao'ed

India to %ous on t/e areas t/at ay /a4e needed eonoi attention, and address t/e

4arious proes t/at ontinue to /aene t/e ountry.

India /as ontinuay sou/t to attrat DI %ro t/e 'ord=s aor in4estors. In 1""< and

1""", t/e Indian nationa o4ernent announed a nuer o% re%ors desined to

enourae DI and present a %a4orae senario %or in4estors.

DI in4estents are peritted t/rou/ %inania oaorations, t/rou/ pri4ate eFuity or

pre%erentia aotents, y 'ay o% apita arets t/rou/ 9uro issues, and in oint

4entures. DI is not peritted in t/e ars, nuear, rai'ay, oa H inite or inin

industries.

A nuer o% proets /a4e een announed in areas su/ as eetriity eneration,

distriution and transission, as 'e as t/e de4eopent o% roads and /i/'ays, 'it/

opportunities %or %orein in4estors.

8/e Indian nationa o4ernent aso pro4ided perission to DIs to pro4ide up to 100G

0


31/94

o% t/e %inanin reFuired %or t/e onstrution o% rides and tunnes, ut 'it/ a iit on

%orein eFuity o% INR 1,500 rores, approiatey C52.5.

6urrenty, DI is ao'ed in %inania ser4ies, inudin t/e ro'in redit ard

usiness. 8/ese ser4ies inude t/e non-anin %inania ser4ies setor. orein

in4estors an uy up to #0G o% t/e eFuity in pri4ate ans, at/ou/ t/ere is ondition

t/at stipuates t/at t/ese ans ust e utiatera %inania orani:ations. Up to #5G o%

t/e s/ares o% opanies in t/e oa oie persona ouniation y sateite

ser4ies (>MP6++) setor an aso e pur/ased.

By 200#, India reei4ed C5. iion in DI, i ro't/ opared to pre4ious years, ut

ess t/an 10G o% t/e C;0.; iion t/at %o'ed into 6/ina. ?/y does India, 'it/ a stae

deoray and a soot/er appro4a proess, a so %ar e/ind 6/ina in DI aounts

At/ou/ t/e 6/inese appro4a proess is ope, it inudes ot/ nationa and reiona

appro4a in t/e sae proess.

edera deoray is per4ersey an ipedient %or India. Ooa aut/orities are not part

o% t/e appro4as proess and /a4e t/eir o'n ri/ts, and t/is o%ten eads to proets ettin

oed do'n in red tape and ureauray. India atuay reei4es ess t/an /a% t/e DI

t/at t/e %edera o4ernent appro4es.

1


32/94

Sectors Attracti68 FDI

8/ou/ t/e ser4ies setor in India onstitutes t/e arest s/are in t/e >ross Doesti

Produt, sti it /as %aied to soe etent in attratin ore %unds in t/e %ors o%

in4estents.

Iportant setors o% t/e Indian 9onoy attratin ore in4estents into t/e ountry are

as %oo's!

• 9etria 9Fuipents (Inudin 6oputer +o%t'are H 9etroni)

• 8eeouniations (radio pain, euar oie, asi teep/one ser4ie)

• 8ransportation Industry

• +er4ies +etor (%inania H non-%inania)

• ues (Po'er Li Re%inery)

• 6/eia (ot/er t/an %ertii:ers)

• ood Proessin Industries

• Drus H P/araeutias

• 6eent and >ypsu Produts

• Metauria Industries

FDI I6Wise

Lpenin up o% door poiies adopted y t/e >o4ernent o% India t/rou/ its ne'

eonoi poiies /as attrated ore in4estents in to t/e ountry. Indian Industries

/a4e one oa and in t/e sae diretion t/e in%o' o% DI in to t/e ountry /as

inreased at a %aster rate.

2


33/94

8/e In%o' o% DI into t/e ountry o4er 4arious years is as %oo's!

3ear April>MarchBAmo96t o< FDI i6


34/94

oa eonoy %uy on t/e trade and urrent aount '/ie t/ere is proressi4e

ieraisation o% t/e apita aount, onsistent 'it/ t/e proress in re%ors in t/e

rea, %isa and %inania setors, oser4ed Dr .*.Reddy, >o4ernor o% Indias

entra anin aut/orities, Reser4e Ban o% India (RBI) at t/e ?ord Oeaders oru

in Ne' or in Apri t/is year. 8/e stron aro eonoi %undaentas, ro'in

si:e o% t/e eonoy and ipro4in in4estent iate /as attrated oa

orporation to in4est in India. A aor outoe o% t/e eonoi re%ors proess

aied at openin up t/e eonoy and erain oai:ation /as ed to to

treendous inrease in orein Diret In4estent in%o's into India, says ountrys

po'er%u industry oy 6II.

!)M)LA"I,E FDI E)I"3 INFLOWS

I6 Rs

!rore

I6 )SC

Millio6

!9m9lati;e amo96t o< FDI i6


35/94

!9m9lati;e amo96t o< FDI I6


36/94

2002-0 #$.

200-0#


37/94

MON"2S I6 Rs crore

I6 )SC

Millio6

April (..- #*..* +5'4

Ma? (..- #/*/+ +4+(

196e (..- #.('' (+4(

19l? (..- 4/(5 (('5

A989st (..- 444* (+(-

Septemer (..- ##/5/ (*/(

Octoer (..- 5(-' #'45

No;emer (..- *+.* #.-+

Decemer (..- //(/ #+/(

1a69ar? (..4 #++'5 (5++

3ear (..->.4 )p to 1a69ar? (..4B #.*/5+ (+--*

3ear (..5>.- )p to 1a69ar? (..-B *-(.+ #''//

3O3 &ro=th GB HB -# HB /*

SO)R!E: DIPP@ Feeral Mi6istr? o< !ommerce I69str?@ &o;er6me6t o<

I6ia

$


38/94

In DI eFuity in4estents Mauritius tops t/e ist o% %irst ten in4estin ountries

%oo'ed y U+, U7, +inapore, Net/erands, @apan, >erany, rane, 6yprus and

+'it:erand. Bet'een Apri 2000 and @uy 200< DI in%o's %ro Mauritius stood

at C 0.1< iion %oo'ed y C5.

./

(../>.5 (..5>.- (..->.4

March@

(..4B

!9m9lati;e

From April

(... to

April

(..4B

G =ith

total

i6


39/94

1apa6

"25

(20


40/94

FDI POLI!IES IN INDIA:

8/e priary ai o% t/ese poiies is to reate a %riendy usiness en4ironent '/ere

%orein in4estors %ee o%ortae 'it/ t/e ea and %inania %rae'or o% t/e ountry,

and /a4e t/e potentia to reap pro%its %ro eonoiay 4iae usinesses. 8/e prospet

o% ne' ro't/ opportunities and outsi:ed pro%its enouraes are apita in%o's aross

a rane o% industry and opportunity types.

In4estors tend to oo %or preditae en4ironents '/ere t/ey understand /o' deision-

ain proesses 'or. >o4ernents t/ere%ore are inenti4i:ed to uid up a tra

reord o% rationa deision ain. 8/e usiness en4ironent o%ten reFuires 'or to

reo4e onerous reuations, redue orruption and enourae transpareny. >o4ernents

o%ten aso see to ipro4e t/eir doesti in%rastruture to eet t/e operationa needs o%

in4estors.

Pro4idin %isa inenti4es %or attratin DI is a suet o% ontro4ersy S anaysts /a4e

arued ot/ in %a4or and aainst t/e idea. A enera onsensus is de4eopin in %a4or o%

ertain inenti4es '/i/ /a4e een pro4en /istoriay to ro' pro%its and t/ere%ore

%orein in4estents.

?/en poiies are e%%eti4e, sini%iant DI in4estents are ineted into ountries t/at

/ep t/e doesti eonoy to ro'. Di%%erent ountries and reions o%%er 4arious inds

o% %isa inenti4es, 'it/ a reated 4ariane in t/e e4e o% DI in4estents attrated.

#0


41/94

>o4ernents are inreasiny settin up prootiona aenies to %oster %orein diret

in4estent. 8/ese aenies proote DI-%riendy poiies, identi%y prospeti4e setors

and in4estors, and struture spei%i deas and inenti4es %or aor %orein in4estors su/

as uti-nationa orporations (MN6s).

>oa trade assoiations aso pay a aor roe in soe o% t/ese in4estent ati4ities.

8/ese assoiations are tased 'it/ reatin a positi4e en4ironent %or %orein diret

in4estors and ensurin t/at ot/ in4estors and reipient ountries enoy a %a4orae

en4ironent.

8/e %oration o% /uan apita is 4ita %or t/e ontinued ro't/ o% DI in%o's. 8o

enae t/e ost ene%iia, te/nooy and IP-dri4en DI, /i/y sied personne are

neessary. >o4ernents ust t/ere%ore enat poiies to pro4ide trainin and sis

upradin to de4eop t/eir 'or%ore and eet t/e epoyent needs o% %orein

in4estors.

&)IDELINES FOR "2E !ONSIDERA"ION OF FDI PROPOSALS 03 "2E

FOREI&N IN,ES"MEN" PROMO"ION 0OARD FIP0B

(8/e >uideines are eant to assist t/e IPB to onsider proposas in an oeti4e and

transparent anner. 8/ese 'oud not in any 'ay restrit t/e %eiiity or ind t/e IPB

%ro onsiderin t/e proposas in t/eir totaity or ain reoendation ased on ot/er

riteria or speia irustanes or %eatures it onsiders ree4ant. Besides t/ese are in t/e

#1


42/94

nature o% adinistrati4e >uideines and 'oud not in any 'ay e eay indin in

respet o% any reoendation to e ade y t/e IPB or deisions to e taen y t/e

>o4ernent in ases in4o4in orein Diret In4estent (DI). 8/ese uideines are

issued 'it/out preudie to t/e >o4ernents ri/t to issue %res/ uideines or /ane t/e

ea pro4isions and poiies '/ene4er onsidered neessary.)

8/ese uideines stand odi%ied to t/e etent /anes /a4e een noti%ied y +eretariat

%or Industria Assistane %ro tie to tie.

8/e %oo'in >uideines are aid-do'n to enae t/e orein In4estent Prootion

Board (IPB) to onsider t/e proposas %or orein Diret In4estent (DI) and

%oruate its reoendations.

A appiations s/oud e put up e%ore t/e IPB y t/e +IA (+eretariat %or

Industria Assistane) 'it/in 15 days and it s/oud e ensured t/at oents o%

t/e adinistrati4e inistries are paed e%ore t/e Board eit/er prior toKor in t/e

eetin o% t/e Board.

Proposas s/oud e onsidered y t/e Board eepin in 4ie' t/e tie %rae o%

0 days %or ouniatin >o4ernent deision (i.e. appro4a o% 6HIMK669A

or reetion as t/e ase ay e).

In ases in '/i/ eit/er t/e proposa is not eared or %urt/er in%oration is

reFuired, in order to o4iate deays presentation y appiant in t/e eetin o% t/e

IPB s/oud e resorted to.

#2


43/94

?/ie onsiderin ases and ain reoendations, IPB s/oud eep in

ind t/e setora reFuireents and t/e setora poiies 4is-a-4is t/e proposa(s).

IPB 'oud onsider ea/ proposa in totaity (i.e. i% it inudes apart %ro

%orein in4estent, te/nia oaorationK industria iene) %or oposite

appro4a or ot/er'ise. 3o'e4er, t/e IPBs reoendation 'oud reate ony to

t/e appro4a %or %orein %inania and te/nia oaoration and t/e %orein

in4estor 'i need to tae ot/er presried earanes separatey.

8/e Board s/oud eaine t/e %oo'in '/ie onsiderin proposas suitted

to it %or onsideration!

• ?/et/er t/e ites o% ati4ity in4o4e industria iene or not and i% so t/e

onsiderations %or rant o% industria iene ust e one intoE

• ?/et/er t/e proposa in4o4es te/nia oaoration and i% so!- (a) t/e soure

and nature o% te/nooy sou/t to e trans%erred.

• ?/et/er t/e proposa in4o4es any andatory reFuireent %or eports and i% so

'/et/er t/e appiant is prepared to undertae su/ oiation (t/is is %or ites

reser4ed %or +MAOO and Mediu 9nterprises as aso %or di4idend aanin, and

%or 100G 9LUsK+9V units)E

• ?/et/er t/e proposa in4o4es any eport proetion and i% so t/e ites o% eport

and t/e proeted destinationsE

•

?/et/er t/e proposa /as onurrent oitent under ot/er s/ees su/ as

9P6> +/ee et.

• In t/e ase o% 9port Lriented Units (9LUs) '/et/er t/e presried iniu

4aue addition nors and t/e iniu turn o4er o% eports are et or notE

#


44/94

• ?/et/er t/e proposa in4o4es reaation o% oationa restritions stipuated in

t/e industria iensin poiyE

• ?/et/er t/e proposa /as any stratei or de%ene reated onsiderations, and

• ?/et/er t/e proposa /as any pre4ious oint 4enture or te/nooy

trans%erKtradear areeent in t/e sae or aied %ied in India, t/e detaied

irustane in '/i/ it is onsidered neessary to set-up a ne' oint entureKenter

into ne' te/nooy trans%er (inudin trade ar), and proo% t/at t/e ne'

proposa 'oud not in any 'ay eopardi:e t/e interest o% t/e eistin oint 4enture

or te/nooyKtrade ar partner or ot/er stae /oders.

?/ie onsiderin proposas t/e %oo'in ay e prioritised.

• ItesKati4ities o4ered under autooti4e route (i.e. t/ose, '/i/ do not Fuai%y

under autoati route).

• Ites %ain in in%rastruture setor.

•

Ites '/i/ /a4e an eport potentia

• Ites '/i/ /a4e are sae epoyent potentia and espeiay %or rura

peope.

• Ites, '/i/ /a4e a diret or a'ard inae 'it/ aro usinessK%ar setor.

• Ite '/i/ /a4e reater soia ree4ane su/ as /ospitas, /uan resoure

de4eopent, i%e sa4in drus and eFuipent.

• Proposas, '/i/ resut in indution o% te/nooy or in%usion o% apita.

8/e %oo'in s/oud e espeiay onsidered durin t/e srutiny and onsideration

o% proposas!

##


45/94

• 8/e etent o% %orein eFuity proposed to e /ed (eepin in 4ie' setora aps i%

any - e.. 2#G %or ++I units, #0G %or air taiKairines operators, #"G in

asiKeuarKpain in 8eeo setor et).

• 9tent o% eFuity 'it/ oposition o% %oreinKNRI ('/i/ ay inude

L6B)Kresident Indians.

• 9tent o% eFuity %ro t/e point o% 4ie' '/et/er t/e proposed proet 'oud

aount to a /odin opanyK'/oy o'ned susidiaryKa opany 'it/ doinant

%orein in4estent (i.e. $5G or ore) oint 4enture.

•

?/et/er t/e proposed %orein eFuity is %or settin up a ne' proet (oint 4enture

or ot/er'ise) or '/et/er it is %or enareent o% %oreinKNRI eFuity or '/et/er it

is %or %res/ indution o% %orein eFuityKNRI eFuity in an eistin Indian opany.

• In t/e ase o% %res/ indution o% %oreinKNRI eFuity andKor ases o% enareent

o% %oreinK NRI eFuity in eistin Indian opanies '/et/er t/ere is a resoution

o% t/e Board o% Diretors supportin t/e said indutionK enareent o%

%oreinKNRI eFuity and '/et/er t/ere is a s/are/oders areeent or not.

• In t/e ase o% indution o% %res/ eFuity in t/e eistin Indian opanies andKor

enareent o% %orein eFuity in eistin Indian opanies, t/e reason '/y t/e

proposa /as een ade and t/e odaity %or indutionK en/aneent i.e.

'/et/er y inrease o% paid up apitaKaut/orised apita, trans%er o% s/ares

(/ostie or ot/er'ise) '/et/er y ri/ts issue, or y '/at odaity.

6ases pertainin to IPB appro4as, '/i/ in4o4e inrease in t/e non-resident

eFuity 'it/in t/e appro4ed perentae o% non-resident eFuity in a oint 4enture

#5


46/94

opany and en/aneent o% paid-up apita in a '/oy o'ned susidiary do not

reFuire IPB appro4a pro4ided t/e intent %or inrease in t/e aount o% %orein

eFuity is duy noti%ied to +IA and %ora douentation y 'ay o% intiation is

ade to +IA 'it/in 0 days o% reeipt o% %unds and aotent o% s/ares (to non-

resident s/are/oders).

• IssueKtrans%erKpriin o% s/ares 'i e as per +9BIKRBI uideines.

• ?/et/er t/e ati4ity is an industria or a ser4ie ati4ity or a oination o% ot/.

• ?/et/er t/e ite o% ati4ity in4o4es any restrition y 'ay o% reser4ation %or t/e

+MAOO and Mediu 9nterprises.

• ?/et/er t/ere are any setora restritions on t/e ati4ity (e.. t/ere is an on

%orein in4estent in rea estate '/ie it is not so %or NRI in4estent).

• ?/et/er t/e ite in4o4es ony tradin ati4ity and i% so '/et/er it in4o4es

eport or ot/ eport and iport, or aso inudes doesti tradin and i%

doesti tradin '/et/er it aso inudes retai tradin.

• ?/et/er t/e proposa in4o4es iport o% ites '/i/ are eit/er /a:ardous,

anned or detrienta to en4ironent (e.. iport o% pasti srap or reyed

pastis).

In respet o% ati4ities to '/i/ eFuity aps appy, IPB ay onsider

reoendin /i/er e4es o% %orein eFuity as opared to t/e presried aps,

eepin in 4ie' t/e speia reFuireents and erits o% ea/ ase.

In respet o% ot/er industriesKati4ities t/e Board ay onsider reoendin 51

per ent %orein eFuity on eaination o% ea/ indi4idua proposa. or /i/er

e4es o% eFuity up to $# per ent t/e Board ay onsider su/ proposas eepin

#;


47/94

in 4ie' onsiderations su/ as t/e etent o% apita needed %or t/e proet, t/e

nature and Fuaity o% te/nooy, t/e reFuireents o% aretin and anaeent

sis and t/e oitent %or eports.

IPB ay onsider reoendin proposas %or 100 perent %orein o'ned

/odinKsusidiary opanies ased on t/e %oo'in riteria!

• '/ere ony /odin operation is in4o4ed a suseFuentKdo'nstrea

in4estents to e arried out 'oud reFuire prior appro4a o% t/e >o4ernentE

• '/ere proprietary te/nooy is sou/t to e proteted or sop/istiated

te/nooy is proposed to e rou/t inE

• '/ere at east 50G o% prodution is to e eportedE

• proposas %or onsutanyE and

• proposas %or industria ode to'nsKindustria pars or estates.

In speia ases, '/ere t/e %orein in4estor is unae initiay to identi%y an Indian

oint 4enture partner, t/e Board ay onsider and reoend proposas

perittin 100 per ent %orein eFuity on a teporary asis on t/e ondition t/at

t/e %orein in4estor 'oud di4est to t/e Indian parties (eit/er indi4idua, oint

4enture partners or enera pui or ot/) at east 2; per ent o% its eFuity 'it/in

a period o% -5 years.

+iiary in t/e ase o% a oint 4enture, '/ere t/e Indian partner is unae to raise

resoures %or epansionK te/nooia upradation o% t/e eistin industria

ati4ity t/e Board ay onsider and reoend inrease in t/e

proportionKperentae (up to 100 per ent) o% t/e %orein eFuity in t/e enterprise.

#$


48/94

In respet o% tradin opanies, 100 per ent %orein eFuity ay e peritted in

t/e ase o% t/e ati4ities in4o4in t/e %oo'in!

•

eportsE

• u iports 'it/ e-portKe-onded 'are/ouse saesE

• as/ and arry '/oesae tradinE

• ot/er iport o% oods or ser4ies pro4ided at east $5G is %or proureent and

sae o% oods and ser4ies aon t/e opanies o% t/e sae roup.

In respet o% t/e opanies in t/e in%rastrutureKser4ies setor '/ere t/ere is a

presried ap %or %orein in4estent, ony t/e diret in4estent s/oud e

onsidered %or t/e presried ap and %orein in4estent in an in4estin opany

s/oud not e set o%% aainst t/is ap pro4ided t/e %orein diret in4estent in

su/ in4estin opany does not eeed #" per ent and t/e anaeent o% t/e

in4estin opany is 'it/ t/e Indian o'ners.

No ondition spei%i to t/e etter o% appro4a issued to a %orein in4estor 'oud

e /aned or additiona ondition iposed suseFuent to t/e issue o% a etter o%

appro4a. 8/is 'oud not pro/iit /anes in enera poiies and reuations

appiae to t/e industria setor.

?/ere in ase o% a proposa (not ein 100G susidiary) %orein diret

in4estent /as een appro4ed up to a desinated perentae o% %orein eFuity in

t/e oint 4enture opany t/e perentae 'oud not e redued '/ie perittin

indution o% additiona apita suseFuenty. Aso in t/e ase o% appro4ed

ati4ities, i% t/e %orein in4estor(s) onerned 'is/ed to rin in additiona apita

#


49/94

on ater dates eepin t/e in4estent to su/ appro4ed ati4ities, IPB 'oud

reoend su/ ases %or appro4a on an autoati asis.

As reards proposa %or pri4ate setor ans, t/e appiation 'oud e onsidered

ony a%ter in prinipe perission is otained %ro t/e Reser4e Ban o% India

(RBI).

8/e restritions presried %or proposas in 4arious setors as otained, at present,

are i4en in t/e anneure - I* and t/ese s/oud e ept in 4ie' '/ie onsiderin

t/e proposas.

#"


50/94

SE!"OR SPE!IFI! FOREI&N DIRE!" IN,ES"MEN" IN

INDIA

FDI i6 I6ia


51/94

!rivate Sector Ban"ing:

#on-Ban"ing Financial $ompanies %#BF$&

#"G DI is ao'ed %ro a soures on t/e autoati route suet to uideines issued

%ro RBI %ro tie to tie.

a. DIKNRIKL6B in4estents ao'ed in t/e %oo'in 1" NB6 ati4ities s/a e

as per e4es indiated eo'!

i. Mer/ant anin

ii. Under'ritin

iii. Port%oio Manaeent +er4ies

i4. In4estent Ad4isory +er4ies

4. inania 6onsutany

4i. +to Broin

4ii. Asset Manaeent

4iii. *enture 6apita

i. 6ustodia +er4ies

. atorin

i. 6redit Re%erene Aenies

ii. 6redit ratin Aenies

iii. Oeasin H inane

i4. 3ousin inane

4. orein 9/ane Broerin

4i. 6redit ard usiness

51


52/94

4ii. Money /anin Business

4iii. Miro 6redit

i. Rura 6redit

. Miniu 6apitai:ation Nors %or %und ased NB6s!

i) or DI up to 51G - U+C 0.5 iion to e rou/t up%ront

ii) or DI ao4e 51G and up to $5G - U+ C 5 iion to e rou/t up%ront

iii) or DI ao4e $5G and up to 100G - U+ C 50 iion out o% '/i/ U+ C $.5

iion to e rou/t up%ront and t/e aane in 2# ont/s

. Miniu apitai:ation nors %or non-%und ased ati4ities!

Miniu apitai:ation nor o% U+ C 0.5 iion is appiae in respet o% a peritted

non-%und ased NB6s 'it/ %orein in4estent.

d. orein in4estors an set up 100G operatin susidiaries 'it/out t/e ondition to

disin4est a iniu o% 25G o% its eFuity to Indian entities, suet to rinin in U+C 50

iion as at ) (iii) ao4e ('it/out any restrition on nuer o% operatin susidiaries

'it/out rinin in additiona apita)

e. @oint *enture operatin NB6s t/at /a4e $5G or ess t/an $5G %orein in4estent

'i aso e ao'ed to set up susidiaries %or undertain ot/er NB6 ati4ities, suet

to t/e susidiaries aso opyin 'it/ t/e appiae iniu apita in%o' i.e. ()(i)

and ()(ii) ao4e.

52


53/94

%. DI in t/e NB6 setor is put on autoati route suet to opiane 'it/

uideines o% t/e Reser4e Ban o% India. RBI 'oud issue appropriate uideines in t/is

reard.

Insurance Sector: FDI in Insurance sector in India

DI up to 2;G in t/e Insurane setor is ao'ed on t/e autoati route suet to

otainin iene %ro Insurane Reuatory H De4eopent Aut/ority (IRDA)

Telecommunication: FDI in Telecommunication sector

i. In asi, euar, 4aue added ser4ies and oa oie persona

ouniations y sateite, DI is iited to #"G suet to iensin and

seurity reFuireents and ad/erene y t/e opanies ('/o are in4estin and t/e

opanies in '/i/ in4estent is ein ade) to t/e iense onditions %or

%orein eFuity ap and o- in period %or trans%er and addition o% eFuity and ot/er

iense pro4isions.

ii. I+Ps 'it/ ate'ays, radio-pain and end-to-end and'idt/, DI is peritted up

to $#G 'it/ DI, eyond #"G reFuirin >o4ernent appro4a. 8/ese ser4ies

'oud e suet to iensin and seurity reFuireents.

iii. No eFuity ap is appiae to anu%aturin ati4ities.

i4. DI up to 100G is ao'ed %or t/e %oo'in ati4ities in t/e teeo setor !

a. I+Ps not pro4idin ate'ays (ot/ %or sateite and suarine aes)E

. In%rastruture Pro4iders pro4idin dar %ier (IP 6ateory 1)E

. 9etroni MaiE and

d. *oie Mai

5


54/94

8/e ao4e 'oud e suet to t/e %oo'in onditions!

e. DI up to 100G is ao'ed suet to t/e ondition t/at su/ opanies

'oud di4est 2;G o% t/eir eFuity in %a4or o% Indian pui in 5 years, i%

t/ese opanies are isted in ot/er parts o% t/e 'ord.

%. 8/e ao4e ser4ies 'oud e suet to iensin and seurity

reFuireents, '/ere4er reFuired.

Proposas %or DI eyond #"G s/a e onsidered y IPB on ase to ase asis.

Trading: FDI in Trading $ompanies in India

8radin is peritted under autoati route 'it/ DI up to 51G pro4ided it is priariy

eport ati4ities, and t/e undertain is an eport /ouseKtradin /ouseKsuper tradin

/ouseKstar tradin /ouse. 3o'e4er, under t/e IPB route!-

i. 100G DI is peritted in ase o% tradin opanies %or t/e %oo'in ati4ities!

• eportsE

• u iports 'it/ e-portKe-onded 'are/ouse saesE

• as/ and arry '/oesae tradinE

• ot/er iport o% oods or ser4ies pro4ided at east $5G is %or proureent and

sae o% oods and ser4ies aon t/e opanies o% t/e sae roup and not %or

t/ird party use or on'ard trans%erKdistriutionKsaes.

ii. 8/e %oo'in inds o% tradin are aso peritted, suet to pro4isions o% 9WIM

Poiy!

5#


55/94

a. 6opanies %or pro4idin a%ter saes ser4ies (t/at is not tradin per se)

. Doesti tradin o% produts o% @*s is peritted at t/e '/oesae e4e %or su/

tradin opanies '/o 'is/ to aret anu%atured produts on e/a% o% t/eir

oint 4entures in '/i/ t/ey /a4e eFuity partiipation in India.

. 8radin o% /i-te/ itesKites reFuirin speiai:ed a%ter saes ser4ie

d. 8radin o% ites %or soia setor

e. 8radin o% /i-te/, edia and dianosti ites.

%. 8radin o% ites soured %ro t/e +MAOO and Mediu 9nterprises under '/i/,

ased on te/nooy pro4ided and aid do'n Fuaity spei%iations, a opany

an aret t/at ite under its rand nae.

. Doesti sourin o% produts %or eports.

/. 8est aretin o% su/ ites %or '/i/ a opany /as appro4a %or anu%ature

pro4ided su/ test aretin %aiity 'i e %or a period o% t'o years, and

in4estent in settin up anu%aturin %aiities oenes siutaneousy 'it/

test aretin.

DI up to 100G peritted %or e-oere ati4ities suet to t/e ondition t/at su/

opanies 'oud di4est 2;G o% t/eir eFuity in %a4or o% t/e Indian pui in %i4e years, i%

t/ese opanies are isted in ot/er parts o% t/e 'ord. +u/ opanies 'oud enae

ony in usiness to usiness (B2B) e-oere and not in retai tradin.

55


56/94

!ower: FDI In !ower Sector in India

Up to 100G DI ao'ed in respet o% proets reatin to eetriity eneration,

transission and distriution, ot/er t/an atoi reator po'er pants. 8/ere is no iit on

t/e proet ost and Fuantu o% %orein diret in4estent.

Drugs !harmaceuticals

DI up to 100G is peritted on t/e autoati route %or anu%ature o% drus and

p/araeutia, pro4ided t/e ati4ity does not attrat opusory iensin or in4o4e use

o% reoinant DNA te/nooy, and spei%i e K tissue tareted %oruations.

DI proposas %or t/e anu%ature o% iensae drus and p/araeutias and u

drus produed y reoinant DNA te/nooy, and spei%i e K tissue tareted

%oruations 'i reFuire prior >o4ernent appro4a.

'oads( Highways( !orts and Harbors

DI up to 100G under autoati route is peritted in proets %or onstrution and

aintenane o% roads, /i/'ays, 4e/iuar rides, to roads, 4e/iuar tunnes, ports

and /arors.

!ollution $ontrol and )anagement

DI up to 100G in ot/ anu%ature o% poution ontro eFuipent and onsutany %or

interation o% poution ontro systes is peritted on t/e autoati route.

5;


57/94

$all $enters in India * $all $entres in India

DI up to 100G is ao'ed suet to ertain onditions.

Business Proess Lutsourin BPL in India

DI up to 100G is ao'ed suet to ertain onditions.

+peia aiities and Rues %or NRIs and L6Bs

NRIs and L6Bs are ao'ed t/e %oo'in speia %aiities!

1. Diret in4estent in industry, trade, in%rastruture et.

2. Up to 100G eFuity 'it/ %u repatriation %aiity %or apita and di4idends in t/e

%oo'in setors!

i. # 3i/ Priority Industry >roups

ii. 9port 8radin 6opanies

iii. 3otes and 8ouris-reated Proets

i4. 3ospitas, Dianosti 6enters

4. +/ippin

4i. Deep +ea is/in

4ii. Li 9poration

4iii. Po'er

i. 3ousin and Rea 9state De4eopent

. 3i/'ays, Brides and Ports

5$


58/94

i. +i Industria Units

ii. Industries ReFuirin 6opusory Oiensin

iii. Industries Reser4ed %or +MAOO and Mediu 9nterprises

. Up to #0G 9Fuity 'it/ %u repatriation! Ne' Issues o% 9istin 6opanies

raisin 6apita t/rou/ Pui Issue up to #0G o% t/e ne' 6apita Issue.

#. Ln non-repatriation asis! Up to 100G 9Fuity in any Proprietary or Partners/ip

enaed in Industria, 6oeria or 8radin Ati4ity.

5. Port%oio In4estent on repatriation asis! Up to 1G o% t/e Paid up *aue o% t/e

eFuity 6apita or 6on4ertie Deentures o% t/e 6opany y ea/ NRI.

In4estent in >o4ernent +eurities, Units o% U8I, Nationa PanK+a4in

6erti%iates.

;. Ln Non-Repatriation Basis! AFuisition o% s/ares o% an Indian 6opany, t/rou/

a >enera Body Resoution, up to 2#G o% t/e Paid Up *aue o% t/e 6opany.

$. Lt/er aiities! Inoe 8a is at a at Rate o% 20G on Inoe arisin %ro

+/ares or Deentures o% an Indian 6opany.

5


59/94

O01E!"I,E OF "2E S")D3

• 8o %ind out t/e ontriution o% DI aon t/e t/ree setors

• 3o' an t/is ontriution e inreased

• ?/et/er DI is payin a sini%iant roe in t/e eo ro't/ o% india.

5"


60/94

P)RPOSE OF "2IS S")D3

At a t/eoretia e4e, DI rins ot/ apita and te/nooy '/i/ aes t/e oa

%irs ore opetiti4e and enouraes t/e eonoi de4eopent in t/e %aster 'ay. 8/e

spi o4er e%%et o% %orein opanies 'i /a4e a on-ter e%%et in t/e /ost ountries.

In t/e pratia e4e, t/is study epores t/e roe o% DI in eonoi ro't/ in India.

8/is ase study epores, '/et/er DI payed roe in eonoi ro't/ or not Anot/er

reason %or t/e study is 'ord=s i institutions ie IM, ?8L and UN68AD prootin

internationa trade and ati4ities o% Mutinationa ati4ities %or t/e ro't/ o% 'ord

eonoies. India is ae to attrat a sini%iant aount o% DI aon Asian ountries.

8/is study epores t/e DI poiies adopted in India to attrat ore DI o4er t/e years.

+u/ poiy reoendation 'oud e use%u %or t/e de4eopin ountries to attrat ore

DI. urt/er ore, t/is study 4eri%ies t/e t/eoretia ode o% endoenous ro't/ t/eory

o% eonoi ro't/ y usin t/e aro eonoi %iures o% India. 8/e present study

eaines t/e epiria assessent o% t/e ipat o% DI in eonoi ro't/ o% India

o4er t/e period o% 1"


61/94

S"A"EMEN" OF PRO0LEM

8oday, India stands as one o% t/e de4eoped L96D eer ountry in t/e 'ord. 8/e

ountry /as a and o% "


62/94

resoures a4aiae in t/e /ost ountries. 3o' t/e ro't/ is a%%eted y t/ese 4ariaes

Does /i/ e4e o% DI inrease t/e /i/er e4e o% eonoi ro't/ ?/at 'oud e t/e

interation et'een DI and 8rade, /uan apita and doesti in4estent 8/e study

eaines t/e e%%et o% t/is 4ariae in eonoi ro't/.

#$* Research Ojecti;es

8/e ain oeti4e o% t/is study is to epore t/e ipat o% DI on Indian eonoy

ro't/ and spi o4er e%%et o% MN9s to t/e Indian %irs. 8/e study aso re4ie's t/e

India=s %orein diret in4estent poiies and initiati4es %or attratin DI o4er t/e years

%or en/anin eonoi ro't/ and in4estent. 8/e study ais to reoend t/e trade

and in4estent poiies %ro t/e Indian eperienes to t/e de4eopin ountries ie

India.

#$/ Scope o< the St9?

8/is resear/ estiates t/e ipat o% DI on eonoi ro't/ in India o4er t/e period

o% 1"


63/94

#$5 Or8a6iJatio6 o< the issertatio6

8/is dissertation is di4ided in to se4en /apters. 6/apter one epains t/e around o%

t/e study, purpose o% t/e study, stateent o% t/e proe, oeti4es o% t/e study, sope o%

t/e study and orani:ation o% t/e study. 6/apter t'o re4ie's t/e iterature t/e t/eoretia

and epiria resear/ on t/eories o% DI and ipat o% DI on eonoi ro't/ o% t/e

pre4ious resear/ 'ors. 6/apter t/ree (A) pro4ides a rie% /istory and urrent o4er4ie'

o% Indian eonoy '/i/ i4es t/e ipse o% Indian eonoy and 6/apter t/ree (B)

pro4ides an o4er4ie' o% Indiaese eonoy. 6/apter %our eaorates t/e oneptua

%rae'or o% t/is study, detais o% resear/ et/odooy and odes spei%iation %or

eonoetri ode o% t/e study. 6/apter %i4e presents an o4er4ie' o% reent DI in%o'

to India 'it/ re4ie' o% DI poiies o4er t/e study period. 6/apter +i presents t/e

disussion and anaysis o% epiria study. 6/apter se4en presents suary, %indins and

reoendations o% t/is dissertation.

;


64/94

RESEAR!2 ME"2ODOLO&3

Resear/ et/odooy is a systeati 'ay, '/i/ onsists o% series o% ation steps,

neessary to e%%eti4ey arry out resear/ and t/e desired seFuenin to t/ese steps. 8/e

aretin resear/ is a proess o% in4o4es a no. o% inter-reated ati4ities, '/i/ o4erap

and do riidy %oo' a partiuar seFuene. It onsists o% t/e %oo'in steps!-

• oruatin t/e oeti4e o% t/e study

• Desinin t/e et/ods o% data oetion

• +eetin t/e sape pan

• 6oetin t/e data

• Proessin and anay:in t/e data

• Reportin t/e %indins

8/e ain oeti4e o% t/e study is to assess t/e ipat o% DI in Indian eonoy o4er

t/e period o% 1"


65/94

!o6cept9al Frame =or7

Basiay, t/e oneptua %rae 'or o% t/e study is deri4ed %ro t/e Borens:tein, @ose

de >raorio and @o/n-?/a Oee, 1""5. 8/ey /a4e s/o'n t/e ipat o% DI on eonoi

ro't/ in t/e %oo'in inae.

!apital acc9m9latio6

Diret Y DIIndiret Yro'din in o'er ost o% inno4ation

Pro9cti;it? 8ro=th

Maor soure o% inno4ation8e/nooy trans%er

6ontaion e%%etIpat on /uan apita %oration Li67a8esPeuniary (ro'din in)8e/nooia (ontaion, trans%ers)

Aordin to t/eir aruent, orein Diret In4estent aeerates apita auuation

in /ost ountry y inreasin tota in4estent and o'erin t/e ost o% inno4ation and

indirety y ro'din in doesti in4estent and sare resoures o% t/e eonoy and

produti4ity is en/aned y te/nooy trans%er ut it is onstrained y /uan apita in

t/e /ost eonoy. 8/ey arue t/at DI de4eops sto o% /uan apita. 8/ere s/oud e

a inae et'een doesti in4estent and /uan apita to a/ie4e t/e /i/er

produti4ity.

;5

FDI Eco6omic&ro=th


66/94

Research Methoolo8? a6 Moel

8/e present study is %oused on t/e e4auatin t/e ipat o% DI in eonoi ro't/ in

India=s eonoy durin t/e period o% 1" Z Per apita >DP ro't/ rate

7 Z Doesti 6apita In4estent

DI Z orein Diret In4estent

36 Z 3uan 6apita

9p Z 9ports

;;


67/94

9p Z 9poyent

8/e 4ariaes 7, DI, and 9ports are easured as perentae o% >DP. 8/e ode is

etended to t/e 'or Borens:tein, >raorio and Oee and inuded ot/er 4ariaes to

oser4e t/e interation et'een DI and 8rade, Doesti In4estent and 3uan

6apita. Past studies /ad s/o'n a positi4e ipat o% DI, 9port, /uan apita and

doesti in4estent on eonoi ro't/.

8/e sto o% e%%iient /uan apita is reFuired to asor t/e te/nooies rou/t y

DI and it deterines '/et/er t/e potentia spio4er e%%et is reai:ed. 8/e /ost ountry

reFuires su%%iient nuer o% /uan apita to utii:e t/e te/nooies rou/t y DI,

eanin t/at /i/er t/e e4e o% /uan apita in t/e /ost ountry, /i/er t/e e%%et o%

DI in eonoi ro't/ o% t/e /ost ountry. 8/e study assues a positi4e reations/ip

et'een DI and >DP ro't/ rate as 'e as a positi4e interation et'een DI and

/uan apita in aeeratin t/e eonoi ro't/. 8/e issue reatin to t/e interation

et'een DI and doesti in4estentE it is assued t/at t/ere is positi4e interation

et'een DI and doesti in4estent eause DI /as is onsidered as an iportant

ediu %or trans%errin apita, te/nooies and /ost ountries t/at enouraes t/e

doesti in4estent e4e. 8/e interation ter estiates t/e oined e%%et o% DI and

doesti in4estent in eonoi ro't/ and a positi4e oe%%iient %or t/e interation

ter 'oud indiate t/at DI and doesti in4estent rein%ore (opeentary) to ea/

ot/er.

;$


68/94

8/is study uses t/e tie series data %or t/e period o% 1"


69/94

3ypot/esis o% t/e study as pursued in t/e /apter

?e are tryin to test t/e %oo'in /ypot/eses!

1) orein Diret In4estent %o's to t/e reion '/ere returns on apita

are /i/er. 8/is is true ot/ in t/e ase o% inter-ountry oparison and intra-ountry

reions. Lne iportant %ator in t/is study is t/e rate o% ro't/ o% >ross Doesti

Produt. 8/e atter /as anot/er iportant roe and t/is is t/at a /i/er ro't/ rate o%

>DP ensures /i/er asorption apaity o% t/e eonoy. It ipies t/at t/e neessary

ondition %or attratin /i/er 4oue o% DI is t/e /i/er ro't/ rate o% ross doesti

produt in t/e reion.

(2) ?/ie t/e %irst /ypot/esis s/o's t/e neessary ondition %or in%o' o% DI in a

reion, t/is ay not e su%%iient. 8/e su%%iient ondition is t/e eistene o% ot/

in%rastruture in t/e reion t/at an %aiitate t/e pro%itae in4estent and a on ter

sustenane o% t/e in4estent proedure. By in%rastruture 'e put ep/asis on t/e 'ay

'e /a4e de%ined in%rastruture in a Fuaitati4e 'ay. It ipies t/at '/ie t/e eistene o%

ood p/ysia in%rastruture is iportant, t/e ot/er aspets o% non-p/ysia in%rastruture

as epained e%ore are aso iportant.

?e 'i test t/e ao4e t'o /ypot/eses 'it/ t/e /ep o% anaysis t/rou/ taes, diaras

and aso 'it/ soe riorous anaysis in t/e %or o% testin o% odes.

;"


70/94

DA"A ANAL3SIS

FDI: A Moel i6 the ma7i68:

orein Diret In4estent is one aspet o% %orein apita %o' in t/e doesti eonoy.

In t/e open eonoy set-up, apita %unds %o' 'i aintain eFuiiriu y adustent

in t/e rea 4ariaes in t/e eterna setors.

In an open eonoy areate deand AD 'i e

ADZ 6 I > W 8T , '/ere, 6, I, >, and W are

onsuption, in4estent,

o4ernent ependiture and eport

respeti4ey. 8T is trans%er o% %unds

aroad.

8/e areate suppy A+ 'i e

A+ Z 6 + 8 M 8rT, '/ere, 6, +, M and 8 are

onsuption, sa4ins, iport and

taation respeti4ey. 8rT is t/e %unds

trans%er in%o' in t/e ountry.

$0


71/94

Usin traditiona aroeonoi assuptions t/at o4ernent udet is aaned, '/i/

eans > Z8, and onsuption pan is a'ays satis%ied, t/at eans 'e an eiinate 6

%ro ot/ sides 'e an 'rite a%ter imposing equilibrium in the economy,

I W 8T Z + M 8rT,

Lr, 8T - 8rT Z (+ - I) ( M - W)

Lr, 8rT - 8T Z ( I -+ ) ( W -M ) [[.. 15.1

In our s/ee o% t/ins, 8rT - 8T is t/e eess %unds in%o' into t/e ountry t/at an e

taen as t/e %orein diret in4estent DI. Bot/ + and I are %untions o% inoe and

rate o% interest r. Aain, W and M are %untions o% doesti prie P, %orein prie PT and

e/ane rate e$ Aso,

P Z e $ PT [[.. 15.2

ro 1 'e an 'rite usin %untions,

DI Z \ I( , r) - + ( , r)] \ W( P@ e ) - M ( P, e )]

Lr, DI Z % ( , r , e @ P ) [[. 15.

$1


72/94

+ine noina e/ane rate and prie e4e o4e in t/e sae diretion e is t/e prie o%

%orein urreny in ters o% doesti urreny, and noina interest rate inudes

in%ation epetations, eepin a t/e t/ree-- noina interest rate, e/ane rate and

prie e4e--- ay ead to uti-oinearity, a partiuar proe in eonoetris '/en

soe o% t/e independent 4ariaes are orreated aon t/ese4es. +o 'e drop prie

e4e %or t/e purpose o% eonoetri estiation. +o eFuation 15. in estiae %or

oos ie t/rou/ oarit/i trans%oration,

Oo DI Z a0 a1 o a2 o e a r u [[. 15. #

8/eoretia 4aue 'i e a1 ^ 0, a2 _ 0, a ^ 0

8/e estiation an e ade in e4e %or aso. 8/at s/o's t/e reati4e strent/ o%

di%%erent deterinants o% DI in a de4eopin ountry.

8/e 4ariae 'i apture t/e iportane o% t/e asorption apaity o% t/e eonoy. It

is epeted t/at a %aster ro't/ an asor arer aount o% apita, doesti or %orein,

into t/e eonoy. 8/e e/ane rate taes are ot/ t/e potentia return and opportunity

ost o% in4estent. Aain, t/e interest rate re4eas t/e re%erene rate o% t/e %easie return

on apita and aso t/e ost o% doesti apita.

$2


73/94

Empirical Exercise

8/e data on DI in India an e /ad ony %ro 1""1 on'ards and as su/ t/e

data ase is 'ea. ?e /a4e taen t/e tie series 1""1 to 1""$ %or t/e eonoetri

estiation o% t/e ode (9Fuation 15.#). 8/e resuts %or India and Maaysia are paed

eo'. ?e %ind t/at t/e oe%%iient o% o e i4es 'ron sin t/ou/ t/e t-4aue is not

satis%atory. Lt/er oe%%iients are o% orret sins.

I6ia6 case o< re8ressio6 res9lts$

Dependent *ariae!

DIMet/od! Oeast +FuaresDate! 0$K0;K00 8ie!

1$!10+ape! 1""1 1""$Inuded oser4ations!

$

*ariae 6oe%%iient +td. 9rror t-+tatisti Pro.

6 -""$.50 55;DP 0.00;"; 0.00


74/94

+.9. o%

reressio

n

##0.52 Aaie in%o

riterion

15.0";

+u

sFuared

resid

5


75/94

1""0 101< #2


76/94

+u

sFuared

resid

20" +/'ar: riterion 1;.2$""

Oo

iei/oo

d

-;


77/94

#ature of FDI Inflow

As indiated in t/e ao4e pararap/s t/e nature o% DI in%o' into India is not

uni%or o% t/e t'o routes o% DI in%o', autoati route and >o4ernent route. 8/ere

/as een a steady rise %ro 1""1 S 1""$, ut a%ter t/ere /as een a perspeti4e deine

in%o' to DI into India. 8/is aspet is re4eaed in e/iit 1 s/oud e in4estiated t/e

%ators responsie %or t/e deeeration o% DI in%o's into India %ro 1""$. 8/e sae

piture in a di%%erent %orat is presented in e/iit .

Exhiit #: FDI I6


78/94

Exhiit (: Shares o< A9tomatic Ro9te a6 &o;er6me6t Ro9te i6 the "otal I6


79/94

Exhiit +: FDI i6 I6ia > Appro;e to Act9al

Bet'een t/e t'o routes o% DI in%o' into India t/e >o4ernent route is

predoinant as t/e perentae o% s/ares t/rou/ t/e >o4ernent route is u/ /i/er

opared to t/e autoati route. 8/is aspet is re4eaed in e/iit 2.

8/ou/ t/e nuer o% soure ountries %ro '/i/ DI in%o's into India

/appens is ipressi4e, t/e prinipa soures are E U+A, U7, @apan, >erany, rane,

India, Mauritius and NRI. 8/is aspet /as een re4eaed in e/iit #.

$"

#orei)n Direct !nvestment in !ndia * Actua and A++roved

0

500000

1000000

1500000

2000000

2500000

3000000

3500000

1991 1992 1993 1994 1995 1996 1997 1998 1999

F D I "

A # t u a l a n d A $ $ % o & d "

R s M i l l i o n

0

5

10

15

20

25

30

( ' a % & ) o f A # t u a l t o A $ $ % o & d

A#tl

A$$%

'a%&


80/94

Exhiit ': FDI I6


81/94

Exhiit *


82/94

Exhiit 5$


83/94

Exhiit -

Exhiit 4


84/94

Exhiit #.

Exhiit ##

ost

*

'

'*

(

(*

+

. *. '. '*. (. (*. +. +*. ,.

9 Ma"+ay( l(t

F D I A ) ) r * $ +

)&I

=elationship between 8tate level )&I and "rbanaisation -rowth

*

'

'*

(

(*

+

-, -( ( , 1 / ' '(

Ur5a"a2(at2" Gr1t4

F D I A ) ) r * $ +

)&I


85/94

Atua in%o' o% DI as a perentae tota appro4a %or t/e period 1""1-1""" is

not uni%or ountry 'ise and t/is interestin aspet is re4eaed in e/iit 5. ?e see t/at

t/e perentae is Fuite /i/ %or ountries ie Russia, Net/erands, Mauritius and 3on

7on. But ountries ie U7, U+A, 6anada s/o' 4ery o' perentae o% atua in%o'

as a perentae o% t/e tota appro4a. Lne epanation ay e t/at tota 4oue o% in%o'

%ro t/ese ountries is 4ery /i/ opared to ot/er ountries t/at reister /i/er

perentae, ut t/is %es to i4e t/e tota epanation.=

?e /a4e seen earier t/at DI in%o's in aor setors in India durin t/e period

1""1 S 1""" is not uni%or and t/e distriution is 4ery se'ed. 8/is is re4eaed in

e/iit ;. ?e see t/at '/ie transportation industry oents $.G, teeouniation

5.


86/94

CONCLUSION

8/e de4eopin ountries 'i need DI to suppeent t/e inadeFuate doesti

sa4ins in %ae o% ro'in reFuireent o% apita to aintain a ruia rate o% eonoi

ro't/ so t/at t/e peope eo' t/e po4erty ine an e i%ted 'it/in a reasonae tie.

?e /a4e seen t/at t/e s/are o% DI in%o' in t/e de4eopin ountries is 4ery u/ /i/,

'it/ soe ountries ie 6/ina /a4e een ae to attrat /ue aount on %orein apita.

8/ou/ t/e oparison 'it/ 6/ina reardin t/e in%o' o% DI is not truy usti%ied,

India s/oud /a4e een ae to attrat t/e reati4ey arer 4oue o% orein 6apita t/an

'/at s/e /as done so %ar. In t/e earier pararap/s attepts /a4e een ade to point out

t/e %ators '/i/ are responsie %or t/e in%o' o% DI. In ertain Fuarters studies /a4e

een ade to anay:e t/e nature o% DI in%o' in de4eopin ountries partiuary in

Asian and Oatin Aerian ountries. iterin do'n t/e studies a4aiae in t/e iterature

/ep us to identi%y ertain %ators, '/i/ are aso ree4ant in Indian situation. ?e s/oud

e ear t/at soe o% t/ese 4ariaes are Fuaitati4e in nature and t/ose are entioned

o%ten in aadei iterature to 8/aiand. But 6/ina is an eape /o' eport orientation

an e propery utii:ed to attrat %orein apita and aso to aii:e t/e ro't/

proess. Not ony t/at 6/ina /as een ae to use DI on a seeti4e asis to aii:e

t/e rate o% ro't/, ut 6/ina /as one uniFue ad4antae, '/i/ India is ain and t/is

s/oud e entioned to eep t/e oparison strai/t.

6/ina is uy to /a4e t'o /i/y de4eoped reions ie 3on-7on and 8ai'an.

8/e %irst it /as otained %ro t/e United 7indo in 1""$ and a are /un o% DI in

6/ina is %ro 3on-7on. 8ai'an is a reaa'ay pro4ine o% 6/ina and in spite o%

poitia ro', 8ai'an in4ests /ue aount o% apita in 6/ina. Apart %ro t/ese t'o


87/94

/i/y de4eoped reions and a are suppier o% %orein apita 6/ina /as a are et/ni

Diaspora in Asian ountries. 8/is roup is %inaniay 4ery ri/ and t/ey in4est /ue

aount in t/e ainand.

8/ese t'o %ators i.e. t/e eistene o% 3on-7on and 8ai'an and a are

6/inese Diaspora /a4in stron eonoi inae ae 6/ina uniFue aon t/e

de4eopin ountries reardin t/e in%o' o% DI. 8/is is true in spite o% a poitia

reie '/i/ is totay opposite o% t/e apitaist syste. 8/is aspet is interestin. 6/ina

/as eoe a apitaist eonoi syste 'it/ a totaitarian poitia set-up as ony

6/inese 6ounist Party is t/e eitiate poitia party t/ere.

8/e in%o' o% DI is soeties assoiated 'it/ t/e e4e o% te/nooia

de4eopent in t/e ountry. In t/is ase aain t/e 6/ina eape s/oud e entioned.

+o on as %orein apita is %o'in in and partiuary in areas '/ere 6/ina is ain,

t/e 6/inese aut/ority is not ot/ered aout t/e type o% te/nooy t/e %orein in4estor is

rinin. 8/e syste is reiented and it /as rued aout a deate in poitia ires

'/i/ are 4ery oon in a deorati set up in India. 8/is type o% syste /as een

%ound to e 4ery suitae %or t/e %orein in4estors. India aso /as een ae to iport

odern te/nooy in ruia industries so t/at it an aintain opetiti4e ede in t/e

eport %ront.

+oeties t/e eport per%orane reFuireents are taed 'it/ t/e in%o' o% DI

and aut/ority o% de4eopin ountries puts ep/asis on t/is aspet. Ln t/is point se4era

Fuestions are iportant.


88/94

1. 3o' 'e do internationa arets 'or in apportionin DI in ine 'it/ oparati4e

ad4antae

2. ?/at in4estent di4ertin ations are ein taen y ot/er ountries to set a oation

o% internationa anu%aturin prodution in t/eir o'n diretions

. ?/at ostaes in/iit internationa arets %ro %untionin ore e%%eti4ey.

8/ese Fuestions are ruia to understand t/e nature o% DI in%o' in de4eopin

ountries. It is a %at t/at t/e de4eopin ountries are opetin aon t/ese4es to

attrat %orein apita.

+oeties t/e oation issue eoes iportant %or t/e in%o' o% DI and t/e

nature o% industry eoes reated to t/at. +oe partiuar industries ie autooie,

petro/eia and eetronis are entioned %or t/e initia p/ase o% in4estent. 8/e

soures o% inputs and oation o% /eap aour eoes iportant soeties in t/e

deterination o% oation o% partiuar industries.

Anot/er iportant issue /as oe in a study reated to t/e dynais o% DI in

de4eopin ountries. ?/ie t/e /ost o4ernent tries to on4ine t/e internationa

in4estor to oit apita to de4eop a ne' prodution side, a ountry 'oud /a4e to

spend ore resoures to uid up a in%rastruture so t/at %orein %irs oitent

reains. But t/e onern o% t/e /ost ountry does not end /ere. Oiterature in t/is

partiuar areas /as identi%ied %i4e road ateories o% onern in de4eopin ountries

'/i/ are in t/e proess o% transition!


89/94

1. 6utura ators ('orers oti4ation, utura preparation)

2. Oaour reuations (eiiity in /irin and ayin o% 'orers)

. Responsi4eness o% t/e surroundin eonoy in pro4idin supportin oods and

ser4ies

#. Institutiona ase o% oeria a' to i4e uidane '/en dispute arises

5. 8/e rediiity o% pui setor oitents aout taes, in%rastruture and ot/er

reuatory issues.

Oiterature aso re4eas t/e onern o% %orein in4estors reardin t/e rediiity o%

proises o% t/e /ost o4ernent and t/e institutiona %ators ie t/e udiia systes o%

seurity. 8/ese are t/e pattern o% in%oration ap '/i/ t/e %orein opanies desire to

ride in order to e4auate t/e returns assoiated 'it/ t/e in4estent opportunity. 8/e

MN6s are ost o%ten oiopoies and t/e ountries '/ere t/ey are /a4in /ead Fuarters

e/a4e aso as oiopoies. 8/ey introdue entry arriers and trans%er no'ede ony

'/en it eoes a pui ood. In ost ases te/nooia no'ede is strity ept

under ontro. 8/is pratie pre4ents disseination o% atest te/nooy in t/e /ost

ountry. In t/is ase eperiene 'it/ a t/e ountries is not t/e sae.


90/94

RE!OMMENDA"IONS

8/e study %oused on t/e roe o% roe o% DI in eonoi ro't/ in India. Despite t/e

Fuaitati4e e4idenes o% roe o% DI in t/e eonoi ro't/ in India, Fuantitati4e

reression anaysis s/o'ed neiie ipat o% DI in eonoi ro't/. Indian poiy

aers direted t/e %orein diret in4estent in t/e priority setor o% t/e de4eopent at

t/e tie o% tain o%% eonoi p/ase. Basiay, eonoi and trade poiies s/oud e

are%uy de4eoped %or a on ter and eonoi ro't/ in t/e ountries espeiay

de4eopin ountries. aster eonoi ro't/ is t/e reFuireent o% east de4eoped

ountries (OD6s). Indian ode o% eonoi ro't/ oud e use%u %or de4eopin

eonoies ie India. ousin on DI and eonoi ro't/ in India, DI 'as one o%

t/e /ane aents %or industria re%ors. 8/e are%u poiy %oruation and openin o%

su-setors /eped to uprade opetiti4e positions o% oa %irs in India. 8/e study

reoends t/e %oo'in aor points to t/e Indian poiy aers %or eep ro'in its

eonoy and to aeerate t/e Indiaese eonoi ro't/ 4ia %orein diret in4estent.

"o I6ia6 polic? ma7ers:

1. orein diret in4estent s/oud e enouraed espeiay in t/e /i/-te/

industries and 4aue added produts eause India an not opete 'it/

nei/ourin ountry in ters o% ost and oa arets.

2. India /as attrated 4ery sa aount o% in P/araeutia and io-edia

setors. More DI s/oud e attrated in t/ese setors to ead in t/is industry in

t/e reion.

"0


91/94

. DI in RHD ati4ities is 4ery neiie in India. MN9s 'orin in R H D

s/oud e enouraed to estais/ in India.

#. DI in eetriity and as setors /as een neati4e DI in t/e reent years.

Indian poiy aers s/oud pro4ide %a4ourae en4ironent %or MN9s to retain

t/eir in4estent and inrease t/e in4estent in t/e enery setors.

For e;elopi68 co96tries li7e I6ia:

DI payed iportant roe on /anin t/e industria patterns o% Indian %irs to

a/ie4e internationa opetiti4eness '/i/ /eped to a/ie4e rapid eonoi

de4eopent in India. Basiay, Indian %irs earned t/e te/nooies and sis

%ro MN9s '/i/ ade Indian %irs opetiti4e. De4eopin ountries ie India

an earn %ro t/e Indian eperienes reardin DI poiies to aeerate t/e

eonoi ro't/. 8/e Indian eperienes and soe iterature s/o' eport-ed

eonoi ro't/. 3o'e4er, 'ord %inania risis o% 200< /aened t/is /ypot/esis

due to deine o% oods and ser4ies in t/e internationa arets. 3ene, India an

earn %ro t/ese eperienes t/at eport-ed ro't/ ay e s/ort ter ro't/.

1. Identi%y t/e setors %or DI '/ere o4ernent=s stratei eonoi pan is

direted and /annei:es t/e in%o' o% DI in t/e eary stae o% eonoi

de4eopent.

2. India is ri/ in 'ater resoures. >o4ernent s/oud attrat ore DI in t/is setor

to trans%or t/e Indiaese eonoy y produin su%%iient enery %or se% and

eport.

"1


92/94

. 8/e natura eauties and 3iaayan ranes /as /ue potentia %or touris

industry, /o'e4er, sa aount o% DI /as een attrated in t/ese industry in

India. Indiaese touris industry an trans%or Indiaese eonoy y de4eopin

India as t/e est pae to 4isit in t/e 'ord.

#. Poor In%rastruture and transportation inaessiiity are t/e ottene %or

Indiaese eonoy. DI in >reen%ied in4estors s/oud e enouraed.

5. >o4ernent s/oud de4eop asi in%rastruture and %ree :ones to %aiitate and

attrat DI in di%%erent reions o% t/e ountry.

;. DI inenti4es s/oud e pro4ided t/e %orein in4estors and estais/ rie4ane

/andin institutions to so4e t/e proes y %orein in4estors.

$. Lne stop ser4ies s/oud e pro4ided to t/e %orein in4estors to %aster

estais/ent o% MN9sE so' reistration proess, ureaurati /urdes,

orruptions and poor in%rastruture are t/e ain proes o% %orein in4estors in

t/e de4eopin ountries.


93/94

0I0LIO&RAP23

Aier, R.V (1";"), The International Corporation, edited y 6/ares P. 7indeBerer,

8/e MI8 Press, Massa/usetts, U+.

A/oin, P. and 3o'itt, P. (1""


94/94

Borens:tein, >raorio and Oee (1""5) how does foreign direct inestment affect

economic growth# , Nationa Bureau o% 9onoi Resear/ ?orin paper 505$.

Buey, Peter @. and M 6asson (200), .The Future of the )ultinational Enterprise in

etrospect and $rospect. , @ourna o% Internationa Business +tudies, # (2)! 21"-222

Buey, Peter @., @erey 6e, and 6/enFi ?an (2002) .The Impact of Inward FDI

on The $erformance of Chinese )anufacturing Firms. , @ourna o% Internationa Business

+tudies, (#)! ;$-;55.

role of fdi in sme

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