FOREIGN DIRECT INVESTMENT FLOWS IN INDIA –

AN EMPIRICAL ASSESSMENT

BY: M SAIRAM

Siva Sivani Institute of Management

IMPORTANCE OF STUDY

As Foreign Direct Investment (FDI) is one and only major instrument of attracting economic integration in any economy.

OBJECTIVES OF STUDY

RESEARCH OF METHODALAGY

This study covers the following objectives:

To study the trends and pattern of flow of FDI. To identify the factors which influence the flow of FDI in India.

The data is collected from secondary sources and RBI website. The magnitude of FDI inflows is analyzed for a period from 2000 to

2014. The factors which influence the flow of FDI into the country is analyzed during post period i.e., 2000 to 2014.

FOREIGN DIRECT INVESTMENT

Foreign direct investment (FDI) is an investment in a business by an investor from another country for which the foreign investor has control over the company purchased.

Economic Growth

Trade

Employment and skill levels

Technology diffusion and knowledge

transfer

Linkages and spillover to

domestic firms

WHY FDI ?

Foreign investment was introduced in 1991 under Foreign Exchange Management Act (FEMA), driven by then finance minister Manmohan Singh.

FDI IN INDIA

Foreign investments provide a great stimulus for growth to the Indian economy.

FLOW OF FDI

FDI Portfolio

Wholly owned subsidiaries

Joint ventures

Acquisitions

Investments inGDR’S &FCCB’s

FII

Engineering & Manufacturing sectors

Roads & Highways, Ports and Harbors

Industrial model towns/industrial parks

Hotels & Tourism

Pollution Control and Management

Advertising & Film industry

Power generation (hydro-electric, coal/lignite, oil or gas based)

Information Technology including E-Commerce

100% FDI ALLOWED SECTORS

SECTORS WERE FDI IS NOT ALLOWED

Atomic Energy Lottery Business Gambling and Betting Business of Chit Fund Nidhi Company. Agricultural (excluding Floriculture, Horticulture, Development of seeds,

Animal Husbandry, Pisciculture and cultivation of vegetables, mushrooms, etc. )

Housing and Real Estate business (except development of townships, construction of residen tial/commercial premises, roads or bridges etc..,)

Trading in Transferable Development Rights (TDRs). Manufacture of cigars, cheroots, cigarillos and cigarettes, of tobacco or of

tobacco substitutes.

COUNTRIES INVESTING IN INDIA

42%

14%11%

9%

6%

6%

4%

4%

2% 1%

MAURITIUS

SINGAPORE

U.K.

JAPAN

U.S.A.

NETHERLANDS

CYPRUS

GERMANY

FRANCE

SWITZERLAND

71%

25%

4%

equity Re invested earnings other capital

DIRECT INVESTMENTS TO INDIA

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-130.00

500.00

1000.00

1500.00

2000.00

2500.00

184.04292.45

243.97 198.30 269.47

394.57

1026.52

1394.21

1907.00

1578.00

1324.00

1548.16 1465.82

Direct Investment to India Rupees Billion

Direct Investment to India Rupees Billion

FDI BY INDIA & TO INDIA

2000-01

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

2009-10

2010-11

2011-12

2012-13

(blank)0

500

1000

1500

2000

2500

Sum of Direct Investment to IndiaSum of FDI by India

INVESTMENTS IN SECTORS

27%

15%

11%

8%

8%

7%

6%

6%

5%

5%

SERVICES SECTOR

CONSTRUCTION DEVELOPMENT

TELECOMMUNICATIONS

COMPUTER SOFTWARE & HARDWARE

DRUGS & PHARMACEUTICALS

AUTOMOBILE INDUSTRY

CHEMICALS (OTHER THAN FERTILIZERS)

POWER

METALLURGICAL INDUSTRIES

HOTEL & TOURISM

FACTORS AFFECTING FDI

Cost of production

Economic conditions

Government policies

Political factors

Profitability

Ease of doing business