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Ramkiran NanduriRoll No 05/2001 .14 Oct 12 .

EEB Assignment

Question. Is India an attractive site for FDI? Give reasons with a focus on SpecificSectors.

Answer.

India an ideal FDI destination

1. India with the sudden pace of economic reforms now offers attractive investmentopportunities for foreign companies and has adopted a number of policies to attractforeign direct investment into the country and the country seems to offer perhaps one of

the most liberal FDI regimes in Asia. As a result, the FDI inflows in India has increasedconsiderably from US$ 4 Billion in 2000-01 to 47 Billion in 2011-12 with an expectanceof further increase to 100 Billion in 2012-13.

2. A recent UNCTAD survey projected India as the second most important FDIdestination (after China) for transnational corporations during 20102012. India hasseen an eightfold increase in its FDI in March 2012. As per the data, the sectors whichattracted higher inflows were services, telecommunication, construction activitiesand computer softwareand hardware. Mauritius, Singapore, US and UK were amongthe leading sources of FDI for India.

FDI in Semiconductor Industry.

3. FDI in the semiconductor industry primarily was from the USA. Globally the firstFDI in Semiconductor industry was in South-East Asian countries due to cheap labourand material in the years 1960-70. The second phase, in the 1970s consisted ofacquisitions and mergers with the entry of European and Japanese firms in the US. Thethird wave consisted of consolidation research facilities in the USA. Now is the fourthphase of FDI where there is a need for specialized talent and educated manpower fordesign and research. India with its vast population of IT and electronic engineers is anideal destination for FDI in semiconductor research.

4. With an aim to create a globally competitive electronics design andmanufacturing industry to meet the country's needs and serve the international market,the National Policy of Electronics (NPE) (2011) was formulated. It aims to providesimpetus to fast expansion of the Semiconductor Industry with an aim to get US$ 100Billion FDI by 2020. The highlights of the policy are:-

(a) To promote indigenous manufacturing in the entire value-chain of ESDMfor economic development.

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(b) To develop capacities for manufacture of strategic electronics within thecountry.

(c) To promote a vibrant and sustainable ecosystem of R&D, design andengineering and innovation in Electronics.

(d) To develop high-quality electronic products at affordable prices forinclusive adoption and deployment to improve productivity, efficiency and ease ofoperations in other sectors.

(e) To promote environmentally friendly global best practices in the use anddisposal of electronic products.

5. This NPE 2000 will create an eco-system for a globally competitive ESDM sectorin the country to achieve a turnover of about USD 400 Billion by 2020 involvinginvestment of about USD 100 Billion and employment to around 28 Million people at

various levels. The country is being seen as an emerging chip design and embeddedsoftware industry to achieve global leadership in VLSI, chip design and other frontiertechnical areas.

FDI in Aviation

6. The Aviation industry in India though passing through difficult phase has a verybright future ahead. With a growth rate of 18 percent per annum over that decade, theindustry will see rapid expansion in terms of players as well as the number of aircrafts.The strength of the Indian fleet was 500-550 in 2010. Cargo transportation is likely totouch 5 million tonnes in 2012. 480 additional aircrafts were planned for delivered by2012. The total number of passengers is expected to touch 400 million by 2020.

7. However, even though the Aviation Industry has bright prospects, it is facing anacute financial crunch and presents an ideal environment for Foreign Direct Investment.Higher foreign investment inflows are necessary at the present juncture in order tostrengthen the sector, as most Airlines like King Fisher, Jet etc are facing a " a hugefinancial crunch. Except IndiGo, all airlines have posted losses in the financial yearending on March 31.

8. In a move aimed at boosting the cash-strapped aviation sector, the governmentdecided to allow foreign airlines to pick stakes up to 49 percent in private Indiancarriers, which was immediately welcomed by the industry. The decision of CabinetCommittee on Economic Affairs to permit foreign airlines to invest in scheduled andnon-scheduled air transport services would pave way for much-needed equity infusioninto Indian carriers which are in dire need of funds for operations.