Trend of FDI in India Monika Chahal 1, Garima Hooda 2, Tarun Dalal 3 1, 2, 3 Asstt. Prof., Maturam Institute of Management, Rohtak, Haryana (India) Abstract With the beginning of new economic policy in 1991 and succeeding reforms process, India has witnessed a change in the flow and direction of foreign direct investment (FDI) into the country. In this research paper the trend of FDI equity inflow from 1991 to 2010 has been analyzed and the future trend has been depicted. The areas where equity inflow was more been emphasized also the major countries which invested in India heavily have been undermined. Keywords: FDI, Factors Attracting FDI, FDI Policy in India. Introduction of FDI FDI consists of the acquisition or creation of assets (e.g. firm equity, land, houses, oil drillings...) undertaken by foreigners. Foreign direct investment includes "mergers and acquisitions, building new facilities, reinvesting profits earned from overseas operations and intra company loans". In a narrow sense, foreign direct investment refers just too building new facilities. FDI is defined as the net inflows of investment (inflow minus outflow) to acquire a lasting management interest (10 percent or more of voting stock) in an enterprise operating in an economy other than that of the investor.fdi is the sum of equity capital, other long-term capital, and short-term capital as shown the balance of payments. FDI usually involves participation in management, jointventure, transfer of technology and expertise. There are two types of FDI: inward and outward, resulting in a net FDI inflow (positive or negative) and "stock of foreign direct investment", which is the cumulative number for a given period. Direct investment excludes investment through purchase of shares. Factors Attracting FDI There are so many factors which affect inflow of FDI in a particular country Large GDP and market potential; advanced know-how; Skilled work-force; Low labour cost and wages; Low taxation; Lower environmental protection; High tariff protection; Favourable laws and public incentives; Determinants of FDI At investor's level, a firm can decide to make a foreign investment because of many factors, including: Size of the Market Political stability Economic environment Legal and regulatory framework Access to Basic Input FDI Policy in India Foreign Investment in India is governed by the Reserve Bank of India and the Foreign Investment Promotion Board. The Reserve Bank of India gives approval within the time period of two weeks. FDI Approval in India is also done by the Foreign Investment Promotion Board (FIPB), which processes cases of non- automatic approval. The time taken by Foreign Investment Promotion Board for approving the proposals for foreign direct investment in India is between four to six weeks. The approach of FIPB is liberal as a result of which it accepts most of the proposals and rejects very few. The Ministry of Commerce and Industry, is the nodal agency for motoring and reviewing the FDI policy on continued basis and changes in sectoral policy/ sectoral equity cap. The FDI policy is notified through Press Notes by the Secretariat for Industrial Assistance (SIA), Department of Industrial Policy and Promotion (DIPP). Route of FDI Approval in India FDI Policy under Automatic Route Sectors working under automatic route do not require any prior approval of the Central Government of RBI to attract Foreign Direct 44
Investment. The foreign investors are only required to inform the Regional Office concerned of RBI within thirty days receiving of inward payments and submit the required documents in that Office again within thirty days of the issuing of the shares of foreign institutional investors. FDI Policy under Government Approval The proposals which involve foreign investment or foreign technical collaboration are granted permission by the Foreign Investment Promotion Board (FIPB). All the proposals for FDI are to be submitted to the FIPB Unit and those of Non- Resident Indian (NRI) investments and 100% Export Oriented Units (EOUs) should be submitted to SIA in Department of Industrial Policy and Promotion. Restricted list of sector Atomic Energy Gambling and betting Lottery Business Agricultural or plantation activities of Agriculture Objective of the Research Data Analysis & Interpretation FDI Inflows in Different Sectors in India S.No Sector FDI Inflows 2000-2012 To determine the trend of FDI in India for the coming years. To determine the critical factors contributed in Increase FDI Flow in India. To analyze the sectors attracting FDI mostly. August in US $ 1 Services Sector 158252 19 2 Construction 97028 12 3 telecommunication 57188 7 4 Computer software and hardware 5 Drugs and Pharmaceuticals 51149 6 45440 5 6 chemical 39468 5 7 Power 34936 4 8 Automobile Industries 34201 4 9 Metallurgical Industries 30142 4 10 Petroleum and Natural Gas 24783 3 Above table clearly indicates the FDI inflows in different sector for the period Of April 2000 August 2012. Most of the foreign countries were liked to invest. Their amount in service sector, Construction Industry, Telecommunications and Computer software and Hardware, because these sectors earn more profit compared to others. % 45
FDI inflows in India (Amount US$ in Millions) S.No Financial Year Total FDI Inflows % Growth over 1 2004-2005 6,051 +40 2 2005-2006 8,961 +48 3 2006-2007 22,826 +146 4 2007-2008 34,362 +51 5 2008-2009 35,168 +2 previous year This table reveals the FDI inflows in India for the period of 2004-05 to 2008-09. The inflows of FDI are increased year by year due to various reasons, Such as Heavy Demand of Indian Consumers, Liberalized Government Policy, Communications facilities. Share of Top Ten Investing Countries FDI Inflows in India Sr. No. country Cumulative FDI inflows (2000-2012 Aug) 1 Mauritius 3,03,262 37 2 Singapore 82,867 10 3 U.K. 77,694 10 4 Japan 64,297 8 5 U.S.A 49,126 6 6 Netherlands 37,319 4 7 Cyprus 31,148 4 8 Germany 23,031 3 9 France 13,871 2 10 U.A.E 10,823 1 total 8,19,586 % of Total Inflows US$ The above Table shows that top ten countries investing in India. Out of this Mauritius plays major role in FDI inflow in India. The main reason for higher levels of investment from Mauritius was that the fact India entered into a double taxations avoidance agreement (DDTA) with Mauritius were protected from taxations in India. Singapore and U. K. equally invest (10per cent) in India during the study period. Japan and U.S.A. following countries 8 per cent and 6 per cent respectively. 46
Projected Equity Inflow in Next four year 25000 Inflow in Millions $ 20000 15000 10000 5000 Inflow in Millions $ 0 Trend Analysis of FDI Inflow in India in Next Decade as well as Next five years Table of projected inflow from 2011-2014 2001-2002 4222 2002-2003 3134 2003-2004 2776 2004-2005 2549 2005-2006 5546 2006-2007 6081 2007-2008 9277 2008-2009 18708 2009-2010 17604 2010-2011 17498.33 2011-2012 19444.73 2012-2013 21391.13 2013-2014 23337.53 Findings India is one of the most favorable investment options to invest in. Due to open market condition & post liberalization reforms it is attracting foreign investors. Both UPA and NDA regime were fruitful for the Indian Economy as there was sharp increment in FDI due to their market friendly policies which attracted the investors. Some sectors of the economies are restricted from the investment like Defence, Atomic 47
Energy, retail, Agriculture there some kinds of reforms are required in this regard. More liberal policies for the investors like increasing FDI cap, demand and supply based exchange rate and reduction of tariff and decreasing tax attracted most of the investors. The most dominated area attracting FDI is the service sector so this may be a competitive edge for the country. Sectors which are deprived from the FDI are those where large market potential is present but these are ignored by the policy makers & poor infrastructure as well as due to high concentration on priority sector also contributed to the cause. Conclusion From this research we have find that more and more investors are investing in India. The equity inflow is increasing extremely due to high GDP growth, low man power cost, scarcity of resources and favorable investment policies of the government. India has been the second biggest and fastest growing economy in the world. During this recession period the GDP continuous to grow because of equity influx, because the exposure of Indian economy for the world was very less so it will remain a favourite destination for investment in future also. References [1] RBI s Bulletin. [2] Monthly data on components of FDI as per expend coverage are not available. [3] Updated by RBI up to October 2010. [4] Foreign Direct Investment Facts and Myths Retrieved on 2010-03-10. [5] Benefits of FDI The International Trade Administration Retrieved on 2010-03-10. [6] FDI inflows plunge by about 60% in August Economic Times (India Times) 2010-10-22. [7] Ministry of Commerce Annual Report. [8] Piana Valentino foreign Direct Investment (2005). 48