DESIRABLE GOVERNMENT SUPPORT FOR FDI IN INDIAN AUTOMOBILE INDUSTRY: AN EMPIRICAL PAPER

Transcription

1 International Journal of Mechanical Engineering and Technology (IJMET) Volume 9, Issue 2, February 2018, pp Article ID: IJMET_09_02_027 Available online at ISSN Print: and ISSN Online: IAEME Publication Scopus Indexed DESIABLE GOVENMENT SUPPOT FO FDI IN INDIAN AUTOMOBILE INDUSTY: AN EMPIICAL PAPE V. Lavanya Full Time esearch Scholar, Department of Management, JNTUA, Ananthapur Dr. D.Pradeep Kumar Professor & Head, Department of Management, MITS, Madanapalle Dr. T.Narayana eddy Assistant Professor & Head, Department of Management, JNT University, Ananthapur ABSTACT A precondition for successful targeting of inward investment is an understanding of its likely impacts. To date, most attempts to assess the Desirable government support of FDI have concentrated on short term impacts. The analysis for factors of desirability has focused on including choosing sample structure of FDI in foreign partners, Determinants of FDI, and Desirable government support for FDI in Indian automobile industry. This article draws on the literature to develop a conceptual framework of Desirable government support on FDI in Indian automobile industry. This framework is then contrasted with one derived from a major empirical study of the effect of FDI in automobile industry. Present 100% Foreign Direct investment (FDI) is allowed under the automatic route in the auto sector, subject to all the applicable regulations and laws.fdi plays a very important role in the development of the country. The world s second most populous country could not attain the expected growth level in automobile sector. The growth of FDI gives opportunity to Indian industry for technological up gradation, gaining access to global managerial skills and practices, optimizing utilization of human and natural resources and competing internationally with higher efficiency. The paper examines the needs of FDI in automobile sector by analyzing the FDI inflows from 2000 to To investigate about the desirable government support over the FDI in Indian automobile industry, two companies as well Maruti Suzuki and Mahindra & Mahindra are taken in the primary data. To compare the primary data these two companies with descriptive statistics, Anova & egression are used 95% significance level. The results obtained are having good impact with a significance value of 0.000(p=.000), which is less than the 0.05 significance value. Hence the results proven that the editor@iaeme.com

2 Desirable Government Support for FDI in Indian Automobile Industry: An Empirical Paper desirable government support is present over the FDI in these two automobile companies. Keywords: Desirable government support, FDI, Automobile industry, significance level, Anova, egression, Maruti Suzuki India Ltd., Mahindra & Mahindra Ltd. Cite this Article: V. Lavanya, Dr. D.Pradeep Kumar and Dr. T.Narayana eddy, Desirable Government Support for FDI in Indian Automobile Industry: An Empirical Paper, International Journal of Mechanical Engineering and Technology 9(2), pp INTODUCTION The Foreign Direct Investment (FDI) in Indian Automobile Industry has opened up new avenues for the development of this important sector of Indian industries. The liberalization of government policies regarding FDI in the automobile industry of India has increased the scope of this industry. Initially, the automobile industry of India was ruled by national vehicle manufacturers like Premier Automobile and Hindustan Motors. The entrance of foreign automobile companies in the market was restricted by the imposition of high import tariffs and other policies and measures. The first FDI player in the Indian automobile industry was Suzuki. In 1980s this company entered into a joint venture with Maruti Udyog, a state run enterprise. Then Indian government permitted this company to enter the Indian automobile market in In 1991, the government of India liberalized its policies regarding the automobile industry of Foreign Direct Investment. In addition, in 1993, FDI was also allowed in the passenger car segment of Indian automobile industry. The liberalization of governance policies with regard to FDI in Indian automobile industry has resulted in the rapid growth of an industrial sector The major global players in the automobile industry have invested in the Indian vehicle manufacture as well as auto component part manufacture. Advantages of FDI in the Automobile Sector in India The basic advantages provided by India in the automobile sector include, advanced technology, cost-effectiveness, and efficient manpower. Besides, India has a well-developed and competent Auto Ancillary Industry along with automobile testing and &D centers. The automobile sector in India ranks third in manufacturing three wheelers and second in manufacturing of two wheelers. Opportunities of FDI in the Automobile Sector in India Opportunities of FDI in the Automobile Sector in India exist in Establishing Engineering Centers Two Wheeler Segment Exports Establishing esearch and Development Centers Heavy truck Segment Passenger Car Segment editor@iaeme.com

3 V. Lavanya, Dr. D.Pradeep Kumar and Dr. T.Narayana eddy Important Aspects of FDI in Automobile Industry FDI up to 100 percent, has been permitted under automatic route to this sector, which has led to a turnover of USD 12 billion in the Indian auto industry and USD 3 billion in the auto parts industry The manufacturing of automobiles and components are permitted 100 percent FDI under automatic route The automobile industry in India does not belong to the licensed agreement Import of components is allowed without any restrictions and also encouraged S. No. Financial Years to (up to February 2015) Table 1 FDI Equity Inflows from FIPB oute/ BI s Automatic oute/ Acquisition oute Equity Equity capital of unincorporated bodies # FDI Flows into India Total FDI Flows %age growth over previous year (in US$ terms) (+) 52% (-) 18% (-) 14% (+) 40% (+) 48% (+) 146% (+) 53% (+) 20% (-)10% (-)8% (+)34% (-)26% (+) 5% (Apr Feb, 2015) not applicable 2. LITEATUE EVIEW A systematic review of literature is highly important for research activity because it gives relatively inclusive information concerning the problem and provides an improved understanding to make objectives of the research study. Though several empirical studies have been conducted concerning the factors determining FDI. Most of the studies utilize multiple numbers of theories or hypotheses in order to investigate the empirical linkage between FDI and variety of economic, social and political variables. But the key literature includes work by Dunning (1993), who introduced an Ownership-Location-Internalization (OLI) paradigm to explain FDI by Multinational Enterprises. Dining s location advantage theory provides a framework to identify important editor@iaeme.com

4 Desirable Government Support for FDI in Indian Automobile Industry: An Empirical Paper variables that influence FDI using three main categories: (a) economic, (b) social or cultural factors, and (c) the political environment. Overall, Dunning concludes that foreign countries that attract investment by multinational firms have a large and growing market, a high gross domestic product, low production costs, and political stability. Zhang (2001) estimated the effect of location characteristics and government policy on FDI. It was found that China's huge market size, liberalized FDI regime and improving infrastructure are attractive to multinationals. Dunning (1981) determined the effect of three factors such as Ownership, Location, and Internationalization of FDI. Cheng and Kwan (2000) estimated the effects of the determinants of foreign direct investment (FDI) in 29 Chinese regions from 1985 to 1995 and found that large regional market, good infrastructure, and preferential policy had a positive effect but wage cost had a negative effect on FDI. Grubert and Mutti (1991) and Loree and Guisinger (1995) found that investment incentives positively effect inward FDI flows and performance requirements imposed by the host governments gives negative impact on FDI inflows. Devereux and Griffith (1998) revealed that fiscal incentives play primary role in attracting export-oriented FDI, while role played by other incentives was found to be secondary. Objectives To measure the desirable government support and FDI determinants across Indian automobile industry. To measure the Impact of desirable government support and FDI out comes in Indian automobile industry. To identify the factors in desirable government support of FDI on Indian automobile industry. Hypotheses Ho1: There is no significant difference in desirable government support with respect to FDI determinants in Indian automobile industry. Ho2: There is no significant difference in FDI outcomes with respect to desirable government support in Indian automobile industry. 3. ESEACH METHODOLOGY The research study is based on primary data in the form of empirical evidence; it has been collected from 200 employees in the two automobile companies is 1. Maruti Suzuki India Ltd, 2. Mahindra & Mahindra Ltd. Based on the market capitalization the respondents were approached through Convenience sampling. The companies have been selected by four automobile companies. A well-structured and standard questionnaire has been used for collection of data. Liker scale is used in the questionnaire with 1. strongly disagree, 2. disagree, 3. neutral, 4. agree and 5. strongly agree has been used as a scaling technique. By using frequency distribution Descriptive Statistics, Anova and we can find egression- Coefficient Impact of FDI determinants and influencing factors of FDI on Indian Automobile Industry using otated Component Matrix in factor analysis editor@iaeme.com

5 Parameter V. Lavanya, Dr. D.Pradeep Kumar and Dr. T.Narayana eddy Table 1 Descriptive Statistics of Maruti Suzuki India Ltd strongly disagree disagree neutral agree strongly agree weighted average What according to you will be most important measure to reinforce the attractiveness of Governance in India? More transparency in decision making Encourage anti-corruption practices Easier land acquisition Infrastructure Development Simplified Taxation laws More Transparency in process of approvals emove infrastructure related bottlenecks Enhanced State Partnership evised Labour Laws evised Land Acquisition Laws Easy access to capital Increase attractiveness for &D by taking proactive policies Speedy approvals and clearance Improve overall business Milieu Ease Custom Clearances Technical Education system to be mapped to the industrial need What is your view on Doing Business in India - does it improved over the years? What is your satisfaction level with the support you get from Indian Government for taking FDI in Automobile industry. From the above table it is clearly statement that for the all parameters the weighted average values are more than one. It means that most of the respondents are agreed with the Desirable government support in Maruti Suzuki India Ltd. Suzuki Ltd. Parameter What according to you will be most important measure to reinforce the attractiveness of Governance in India? More transparency in decision making Table 2 Descriptive Statistics of Mahindra & Mahindra Ltd. strongly disagree disagree neutral agree strongly agree weighted average Encourage anti-corruption practices Speedy environment related approvals Easier land acquisition editor@iaeme.com

6 Desirable Government Support for FDI in Indian Automobile Industry: An Empirical Paper Infrastructure Development Simplified Taxation laws More Transparency in process of approvals emove infrastructure related bottlenecks Enhanced State Partnership evised Labour Laws evised Land Acquisition Laws Easy access to capital Increase attractiveness for &D by taking proactive policies Speedy approvals and clearance Improve overall business Milieu Ease Custom Clearances Technical Education system to be mapped to the industrial need What is your view on Doing Business in India - does it improved over the years? What is your satisfaction level with the support you get from Indian Government for taking FDI in Automobile industry From the above table it is clearly statement that for the all parameters the weighted average values are more than 1.It means that most of the respondents are agreed with the Desirable government support in Mahindra & Mahindra Ltd. Hypothesis: Ho: There is no significant difference in desirable government support with respect to FDI determinants in Indian automobile industry. Table 3 Anova result of Maruti Suzuki India Ltd Sum of s df ANOVA Total Mean Between Groups Within Groups Total Source: Primary data From the above table, it is observed that the significance value is (p=.000), which is less than Thereby we reject the null hypothesis and accept alternative hypothesis at 95% F Sig editor@iaeme.com

7 Model V. Lavanya, Dr. D.Pradeep Kumar and Dr. T.Narayana eddy significance level. Hence it is concluded that there is significant variation in FDI determinants and desirable government support in Indian automobile industry. Table 4 Anova result of Mahindra & Mahindra Ltd Sum of s ANOVA Total df Mean Between Groups Within Groups Total Source: Primary data From the above table, it is observed that the significance value is (p=.000), which is less than Thereby we reject the null hypothesis and accept alternative hypothesis at 95% significance level. Hence it is concluded that there is significant variation in FDI determinants and desirable government support in Indian automobile industry. Ho: There is no significant difference in FDI outcomes with respect to desirable government support in Indian automobile industry. Table 5 egression- Coefficient Impact of desirable government support and FDI outcomes across Indian automobile industry Table 5 egression Analysis result of Maruti Suzuki India Ltd Adjusted Model Summary b Std. Error of the Estimate Change F Change F Sig. Change Statistics df1 df2 Sig. F Change a a. Predictors: (Constant), advancement, Convenience or easy access, Government Support b. Dependent Variable: DS ANOVA a Model Sum of s df Mean egression b 1 esidual Total a. Dependent Variable: DS b. Predictors: (Constant), advancement, Convenience or easy access, Government Support ANOVA tests whether the model is significantly better at predicting the outcome than using the mean as best guess. From the above ANOVA table 0.000, F value is significant since its sig value is less than It means that there is strong evidence that βi 0; that is the dependent variable desirable government support for FDI is reliable. F Sig editor@iaeme.com

8 Desirable Government Support for FDI in Indian Automobile Industry: An Empirical Paper Model Unstandardized Coefficients Coefficients a Standardized Coefficients (Constant) w x z a. Dependent Variable: desirable government support Source: Primary data From the above tables, the employees standardized regression coefficients which show the strength of Impact of desirable government support and FDI outcomes across Indian automobile industry its positive/negative opinion. It also comprises of t and significant values to validate the hypothesis framed to measure the significant Impact of major FDI factors affect in Indian Automobile Industry. Model Table 6 egression Analysis result of Mahindra & Mahindra Ltd Adjusted Model Summary b Std. Error of the Estimate Change t Change Statistics F Change df1 df2 Sig. Sig. F Change a a. Predictors: (Constant), advancement, Convenience or easy access, Government Support b. Dependent Variable: desirable government support ANOVA a Model Sum of s df Mean egression b 1 esidual Total a. Dependent Variable: desirable government support b. Predictors: (Constant), advancement, Convenience or easy access, Government Support ANOVA test whether the model is significantly better at predicting the outcome than using the mean as best guess. From the above ANOVA table 0.000, F value is significant since its sig value is less than It means that there is strong evidence that βi 0; that is the dependent variable desirable government support for FDI is reliable. Coefficients a Model Unstandardized Coefficients B Std. Error Standardized Coefficients Beta 1 (Constant) F t Sig. Sig editor@iaeme.com

9 V. Lavanya, Dr. D.Pradeep Kumar and Dr. T.Narayana eddy X Y Z a. Dependent Variable: desirable government support From the above tables, the employees standardized regression coefficients which show the strength of Impact of desirable government support and FDI outcomes across Indian automobile industry its positive opinion. It is also comprises of t and significant values to validate the hypothesis framed to measure the significant Impact of major FDI factors affect in Indian Automobile Industry. Ho: There is a significant relationship between the factors influence of FDI in Indian automobile industry. 4. FACTO ANALYSIS ESULT Table 7 The following are the influencing factors of FDI on Indian Automobile Industry using otated Component Matrix Factor Analysis result of Maruti Suzuki India Ltd. otated Component Matrix a Component Ease Custom Clearances.796 Enhanced State Partnership.580 emove infrastructure related bottlenecks.579 Infrastructure Development.771 Technical Education system to be mapped to the industrial need.666 Easier land acquisition.621 Easy access to capital.740 Increase attractiveness for &D by taking proactive policies.717 Speedy approvals and clearance.573 Encourage anti-corruption practices.766 Speedy environment related approvals.756 What is your view on Doing Business in India - does it.811 improved over the years? What is your satisfaction level with the support you get from Indian Government for taking.667 FDI in Automobile industry. Source: Primary data From the above table, the factors have been highlighted in table of otated Component Matrix, which is grouped in to 6 factors by 13 parameters editor@iaeme.com

10 Desirable Government Support for FDI in Indian Automobile Industry: An Empirical Paper otated Component Matrix a Component Ease Custom Clearances Enhanced State Partnership 0.58 emove infrastructure related bottlenecks Infrastructure Development Technical Education system to be mapped to the industrial need Easier land acquisition Easy access to capital 0.74 Increase attractiveness for &D by taking proactive policies Speedy approvals and clearance Encourage anti-corruption practices Speedy environment related approvals What is your view on Doing Business in India - does it improved over the years? What is your satisfaction level with the support you get from Indian Government for taking FDI in Automobile industry. advancement Development Convenience or easy access healthy environment government support Based on the data analysis of the factors which have emerged as the most important determinants of desirable government support for FDI advancement, development, convince or easy access, healthy environment, government support Maruti Suzuki India Ltd. Table 8 Factor Analysis of Mahindra & Mahindra Ltd otated Component Matrix a Component Ease Custom Clearances.762 Enhanced State Partnership.646 Improve overall business Milieu.623 emove infrastructure related bottlenecks.584 More Transparency in process of approvals.503 Increase attractiveness for &D by taking proactive policies.729 evised Labour Laws.700 Speedy approvals and clearance.611 Technical Education system to be mapped to the industrial need.456 What is your view on Doing Business in India - does it improved over the years?.819 What is your satisfaction level with the support you get from Indian Government for taking FDI in Automobile industry editor@iaeme.com

11 V. Lavanya, Dr. D.Pradeep Kumar and Dr. T.Narayana eddy From the above table, the factors have been highlighted in table of otated Component Matrix, which is grouped in to factors by 11 parameters. otated Component Matrix a Component Ease Custom Clearances Enhanced State Partnership Improve overall business Milieu advancement emove infrastructure related bottlenecks More Transparency in process of approvals Increase attractiveness for &D by taking proactive policies evised Labour Laws 0.7 Speedy approvals and clearance Improvement Technical Education system to be mapped to the industrial need What is your view on Doing Business in India - does it improved over the years? What is your satisfaction level with the Government Support support you get from Indian Government for taking FDI in Automobile industry Based on the data analysis the factors which have emerged as the most important determinants of desirable government support for FDI advancement, improvement, and Desirable government support Mahindra & Mahindra Ltd. 5. CONCLUSION AND SUGGESTIONS: Notwithstanding the ongoing pains of demonetization that caused a temporary decline in sales in December 2016, the Indian government s Make in India drive and its sectoral policy are both highly encouraging for the future outlook of the Indian automotive industry. Diversified segments and the presence of global automotive manufacturers strengthen the sector s ecosystem in India. This is important as India seeks to be the third largest auto market by the end of Forward looking government incentives such as reduced duty on hybrid and electric cars also boost the future of the industry. Lastly, the current government s probusiness sentiment is shaping its reforms focus on regulatory easing, infrastructure development, logistics improvements through rail, road, and sea cargo, and expanding FDI limits, all of which bodes well for foreign investors. To investigate about the desirable government support over the FDI in Indian automobile industry, two companies as well Maruti Suzuki and Mahindra & Mahindra are taken in the primary data. To compare the primary data these two companies descriptive statics, Anova & egression are used 95% significance level. The results obtained are having good impact with a significance value of 0.000(p=.000), which is less than the 0.05 significance value. Hence the results proven that the desirable government support is present over the FDI in these two automobile companies editor@iaeme.com

12 Desirable Government Support for FDI in Indian Automobile Industry: An Empirical Paper EFEENCES [1] Dr. Laxmi Narayan (2014) Determinants of Foreign Direct Investment in India, International Journal of esearch (IJ) Vol-1, Issue-7, August 2014 ISSN [2] V. Lavanya, Dr. D.Pradeep Kumar & Dr. T.Narayana eddy, Impact Of Foreign Direct Investment On India s Automobile Companies With eference To Maruti Suzuki And Tata Motors, Asia Pacific Journal Of esearch, Issn Special Issue January [3] Asiedu, E. (2002), On the Determinants of Foreign Direct Investment Developing Counties: Is Africa Different? World Development, Vol. 30 (1), pp [4] Bevan, A.A. and Estrin, S.(2000), The Determinants of Foreign Direct Investment in Transition Economies, William Davidson Institute Working Paper No [5] Purfield, C. (2006). Mind the Gap Is Economic Growth in India Leaving Some States Behind? International Monetary Fund, IMF Working Paper WP/06/13. Washington, D.C. [6] Sahoo, P.(2006) Foreign Direct Investment in South Asia: Policy, Trends, Impact and Determinants. ADB Institute. Discussion Paper No. 56 available online at [7] Schneider, F and B. Frey (1985), Economic and Political Determinants of Foreign Direct Investment, World Development, Vol.13, No. 2, pp [8] V. Lavanya, Dr. D.Pradeep Kumar And Dr. T.Narayana eddy, Impact Of FDI In Automobile Industry In India, Anveshana s International Journal Of esearch In egional Studies. Law, Social Sciences, Journalism and Management Practices, Volume 2, Issue 2 (2017, Feb) (Issn ) Online. [9] [10] html [11] [12] [13] Syed Shaaz and Dr. J. N. V. aghuram, FDI Inflow-Trend Analysis, International Journal of Mechanical Engineering and Technology 8(12), 2017, pp [14] Dr. Twinkle Prusty and achana Vishwakarma, Inquest of Fdi Amplified Approach- An Empirical Study, International Journal of Management (IJM), Volume 5, Issue 2, February (2014), pp [15] Dr. Vinit Dani, Mrs. Vanishree Pabalkar, Impact of Fdi: Banana epublic Or Miracle Growth, International Journal of Management (IJM), Volume 4, Issue 1, January- February (2013), pp [16] A. amaraju, Impact of Fdi on Stock Market Development: An Empirical Investigation, International Journal of Management (IJM), Volume 2, Number 1, Jan- April (2011), pp [17] Dr. amesh Sardar, FDI IN E-COMMECE: POS & CONS, International Journal of Management (IJM), Volume 5, Issue 2, February (2014), pp [18] K.Venkateswara aju, Dr. SVSS Srinivasa aju, Dr. D.Prasanna Kumar, Benefits of Fdi in Indian etail Sector and Customer Perception of Organized etail Outlets in Hyderabad, International Journal of Management (IJM), Volume 4, Issue 4, July-August (2013), pp editor@iaeme.com