Foreign Direct Investment in India

Foreign Direct Investment and It's Impact On Indian Economy

CONTENT:

1) Abstract

2) Introduction

3) How FDI has come to India

4) Foreign Direct Investment and Economic Growth

5) Current Trend in FDI

6) FDI Inflow

7) Financial Year Wise FDI Equity Inflow

8) Sector wise analysis of FDI inflow

9) FDI and Trade

10) FDI policy and framework

11) Comparison of FDI between India and China

12) Conclusion

Abstract:

Foreign direct investment (FDI) has boomed in post-reform India.

Moreover, the composition and type of FDI has changed considerably since

India has opened up to world markets. This has fuelled high expectations that

FDI may serve as a catalyst to higher economic growth. We assess the growth

implications of FDI in India by subjecting industry-specific FDI and output data

to Granger causality tests within a panel co integration framework. It turns out

that the growth effects of FDI vary widely across sectors. FDI stocks and output

are mutually reinforcing in the manufacturing sector. In sharp contrast, any

causal relationship is absent in the primary sector. Most strikingly, we find only

transitory effects of FDI on output in the services sector, which attracted the

bulk of FDI in the post-reform era. These differences in the FDI-growth

relationship suggest that FDI is unlikely to work wonders in India if only

remaining regulations were relaxed and still more industries opened up to FDI.

INTRODUCTION:

Foreign direct investment (FDI) in its classic form is defined as a company from one country making a physical investment into building a factory in another country. It is the establishment of an enterprise by a foreigner. Its definition can be extended to include investments made to acquire lasting interest in enterprises operating outside of the economy of the investor. The FDI relationship consists of a parent enterprise and a foreign affiliate which together form an international business or a multinational corporation (MNC). In order to qualify as FDI the investment must afford the parent enterprise control over its foreign affiliate. The IMF defines control in this case as owning 10% or more of the ordinary shares or voting power of an incorporated firm or its equivalent for an unincorporated firm; lower ownership shares are known as portfolio investment. Foreign direct investment (FDI) is a measure of foreign ownership of productive assets, such as factories, mines and land. Increasing foreign investment can be used as one measure of growing economic globalization. The largest flows of foreign investment occur between the industrialized countries (North America, North West Europe and Japan). But flows to non-industrialized countries are increasing.

Type of Foreign Direct Investors

A foreign direct investor may be classified in any sector of the economy and could be any one of the following:

• an individual;

• a group of related individuals;

• an incorporated or unincorporated entity;

• a public company or private company;

• a group of related enterprises;

• a government body;

• an estate (law), trust or other societal organization; or

• any combination of the above.

HOW FDI HAS COME TO INDIA:

Compared to most industrializing economies, India followed a fairly restrictive foreign private investment policy until 1991 – relying more on bilateral and multilateral loans with long maturities. Inward foreign direct investment (FDI, or foreign investment, or foreign capital