Final Draft- FDI Project DLA

A STUDY RELATING TO FOREIGN DIRECT

INVESTMENT AND ITS IMPACT ON

PHARMACEUTICAL,INFRASTRUCTURE AND FAST

MOVING CONSUMER GOODS

A Report submitted in partial fulfillment of the requirements for the

Degree of Bachelor of Commerce in CHRIST UNIVERSITY.

Submitted by

Mr. Damodhar Janarthanan

Register Number- 1310609

Ms. Lisha Murali

Register Number-1310656

Mr. Aravind Swamy

Register Number-1310661

Under the Guidance of

Prof. Jerlin Jose,

CERTIFICATE BY HOD

This is to certify that Mr. DamodharJanarthanan; Register Number: 1310609,

Ms. Lisha Murali; Register Number: 1310656, Mr. Aravind Swamy; Register

Number: 1310661 are bona fide students of B.Com F&A program studying in

this UNIVERSITY. They have prepared and submitted a project titled “A Study

Of Foreign Direct Investment & The Indian Economy” in partial fulfillment for

the requirement of Bachelor of Commerce Program of Christ University, for the

academic year 2015-2016.

Place: Bangalore Prof. Biju Toms

HOD

Date: Department of Professional Studies

CERTIFICATE BY GUIDE

This is to certify that this project titled “A Study Of Foreign Direct Investment

& The Indian Economy” submitted to Christ University in partial fulfilment for

the requirement of Bachelor of Commerce and is an original and independent

work carried out by Mr. DamodharJanarthanan; Register Number: 1310609,

Ms. Lisha Murali; Register Number: 1310656, Mr. Aravind Swamy; Register

Number: 1310661 Under my guidance and supervision.

This has not been previously formed the basis of the award of any degree,

diploma of other similar title of recognition.

Place: Bangalore Jerlin Jose

Assistant Professor

Date: Department of Professional studies.

DEPARTMENT OF PROFESSIONAL STUDIES, CHRIST UNIVERSITY

HOSUR ROAD BANGALORE – 560029.

(2015-16)

Declaration

I, DamodharJanarthanan; (Register Number: 1310609) hereby declare that this

project titled “A Study Of Foreign Direct Investment & The Indian Economy ”

is an original project study, conducted under the guidance of Prof. Jerlin Jose,

Department of Professional Studies, Christ University.

I further declare that this has not been previously formed the bases of the award

of any degree, diploma or other similar title of recognition.

Place: Bangalore Damodhar Janardhanan

Date: 1310609

Declaration

I, Lisha Murali; (Register Number: 1310656) hereby declare that this project

titled “A Study Of Foreign Direct Investment & The Indian Economy ” is an

original project study, conducted under the guidance of Prof. Jerlin Jose,




Place: Bangalore Lisha Murali

Date: 1310656

Declaration

I, Aravind Swamy; (Register Number: 1310661) hereby declare that this project

titled “A Study Of Foreign Direct Investment & The Indian Economy ” is an

original project study, conducted under the guidance of Prof. Jerlin Jose,




Place: Bangalore Aravind Swamy

Date: 1310661

ACKNOWLEDGEMENT

The writing of this research project has been one of the most significant challenges we have ever had to face.

We Thank The Almighty For His Guiding Presence Throughout This

Project. We thank Christ University & the Department of Professional Studies

for giving us this challenging opportunity to complete our Bachelor’s

degree.

We are grateful to Prof. Jerlin Jose for his guidance on the successful

completion of this research project.

We are indebted to our Coordinator, Prof. Ravi Thangjam for helping us complete the project on time

Most importantly, we thank our parents for their encouragement &

profound understanding.

TABLE OF CONTENTS

SL NO. CONTENTS PAGE

NO.

I Certificate By HOD

II Certificate By Guide

III Declaration

IV Acknowledgement

V Abstract

1. Introduction 11

1.1 An Overall View 14

1.2 India Post Reform Era 15

1.3 Main Objectives Of FDI 16

2. Review Of Literature 17

3. Research Methodology 25

3.1 Objective Of Research 27

3.2 Collection Of Data 27

3.3 Limitations Of Research 27

3.4 Analytical Tools 28

4. Data Analysis 29

4.1 Nifty 50 30

4.1.1 Table showing Avg rate of

return of Nifty 50

30

4.1.2 Line graph on annual growth

rate

31

4.1.3 Regression Analysis 31

4.1.4 Anova Analysis 32

4.2 Nifty FMCG 32


return of Nifty FMCG

33


rate

33



4.3 Nifty Pharma 35


return of Nifty Pharma

35


rate

36



4.4 Nifty Infra 37


return of Nifty Infra

38


rate

38



4.5 Combined Analysis 40

5. Findings & Suggestions 42

6. Conclusions 44

7. Bibliography 46

ABSTRACT

Foreign Direct Investment is one and only major instrument of attracting International Economic

Integration in any economy. It serves as a link between investment and saving. Many developing

countries like India, are facing the deficit of savings. This problem can be solved with the help of

Foreign Direct Investment. Foreign investment helps in reducing the defect of BOP. The flow of foreign

investment is a profit making industry like Pharmaceuticals ,Infrastructure ,FastmovingConsumerGoods

The present study is based on the objectives like (a) to know the requirement of amount of foreign

investment by India, for its economic Development and (b) to analyze the trend and role of FDI .To

analyze all these objectives data has been gathered through secondary sources like reports and

publication of Govt. and RBI relating to foreign Investment.Foreign investment flows are supplementing

the scare domestic investments in developing countries particularly in India. Further this paper

recommends that we should welcome the inflow of foreign investment because it enable us to achieve

our cherished goal like making favorable the balance of payment, rapid economic development, removal

of poverty, and internal personal disparity in the development and also it is very much convenient and

favorable for Indian economy

A cumulative and an exhaustive study of the three sector of FDI in India starting from the introduction of

FDI in the country, impact in Nifity50 and impact of FDI on the chosen sector

1.0 INTRODUCTION

The most striking developments during the last twenty years is the spectacular growth of FDI

in the Indian economic landscape is the growth of global FDI ; FDI is an important and vital

component of development strategy in both developed and developing nations and policies

are designed to result an inward flows. In fact, FDI provides a economic gain scenario to

both the foreign and the home economy. Both countries are directly interested in inviting

FDI, because they benefit a lot from such type of venture. The home countries want to take

advantage of the vast markets opened by industrial growth which yields economic benefit on

a later period. On the other hand the ‘host’ countries want to get technological and

managerial skills and the supplement domestic savings and foreign exchange. Developing

nations accepted FDI as a sole visible solution for all their scarcities and help them in their

economic development.

1.1 An Overall View

History of FDI in India can be traced back with the setup of 'East India Company ' of Britain;

before independence major amount of FDI came from East India Company. 'British

companies' setup their units in mining sector and in those sectors that suits their own

economic gains and Interest. After Second World War, Japanese companies entered Indian

market and enhanced their trade with India by routing their investments to India.

Further, after Independence issues relating operations of MNCs, gained attention of the

policy makers, keeping in thought the national interests the policy makers designed the FDI

policy aiming to acquiring advanced technology in order mobilize foreign exchange resource.

The first Prime Minister of India considered foreign investment as necessary not only to

supplement domestic capital but also to get scientific, technical, and industrial knowledge. In

Accordance with economic and political regimes there have been changes in the FDI policy.

The Industrial policy of 1965 allowed MNCs to venture Indian economy through technical

collaboration. However, the country faced two major crises in the form of foreign exchange

and financial resource mobilization during the second five year plan Therefore, the

government of India adopted a liberal perspective by permitting a lot of frequent equity

participation to foreign enterprises, and to just accept equity capital in technical

collaborations. the govt. additionally provides several incentives like tax concessions,

simplification of licensing procedures and de- reserving some industries like medicine,

aluminum, serious electrical equipment’s, fertilizers, etc in order to additionally boost the

FDI inflows within the country. This liberal perspective of government towards foreign

capital lures investors from other advanced countries like USA, Japan, and European country,

etc. however as a result of vital outflow of foreign reserves within the type of remittances of

dividends, profits, royalties etc, the govt. has got to adopt tight policy in 1970s. Throughout

this period the govt. adopted a selective and extremely restrictive policy as towards as foreign

capital, type of FDI and ownerships of foreign corporations was involved. Government setup

Foreign Investment Board and enacted foreign exchange Regulation Act so as to control flow

of foreign capital and FDI flow to India. The soaring oil costs continued low exports and

deterioration in Balance of Payment position throughout Eighties forced the govt. to create

necessary changes within the policy. it is during this era the govt. encourages FDI, permit

MNCs to control in India. Thus, leading to the partial liberalization of Indian Economy. The

government introduces reforms within the industrial sector, aiming towards increasing ability,

efficiency and growth in trade through a stable, pragmatic and non-discriminatory policy for

FDI flow.

In fact, the early nineties, Indian economy faced severe Balance of payment crisis. Exports

began to experience serious difficulties. There was a marked increase in crude oil costs owing

to the gulf war. The crippling external debts were debilitative the economy. India was left

with a lot of quantity of exchange reserves which finance its 3 weeks of imports. The

outflowing of foreign currency that was deposited by the Indian NRI’s gave an additional jolt

to Indian economy. The Balance of Payment reached at Rs. ( -) 4471 crores. Inflation reached

at its highest level of 13%. Foreign reserves of the country stood at Rs.11416 crores. The

continuing political uncertainty within the country throughout this period adds more to

worsen the case. As a result, India’s credit rating fell within the international marketplace for

each short- term and long- term borrowing. of these developments place the economy at that

point on the verge of default in respect of external payments liability. In this essential face of

Indian economy the then minister of finance of India Dr. Manmohan Singh with the

assistance of World Bank and IMF introduced the macro – economic stabilization and

structural adjustment program. As a result of these reforms India open its door to FDI inflows

and adopted a lot of liberal policy so as to revive the boldness of foreign investors.

Further, beneath the new foreign investment policy Government of India recognized FIPB

(Foreign Investment Promotion Board) whose main operation was to ask and facilitate

foreign investment through single window system from the Prime Minister’s office. The

foreign equity cap was raised to 51 % for the present companies. Government had allowed

the use of foreign brand names for domestically made merchandise that was restricted earlier.

India conjointly became the member of MIGA (Multilateral Investment Guarantee Agency)

for protection of foreign investments. Government lifted restrictions on the operations of

MNCs by editing the FERA Act 1973. New sectors like mining, banking,

telecommunications, road construction and management were open to foreign investors as

well to private sector.

1.2 FDI INFLOWS IN INDIA IN POST REFORM ERA

India’s economic reforms way back in 1991 has generated strong interest in foreign investors

and turning India into one of the favorite destinations for global FDI flows. According to

A.T. Kearney1, India ranks second in the World in terms of attractiveness for FDI. A.T.

Kearney’s 2007 Global Services Locations Index ranks India as the most preferred

destination in terms of financial attractiveness, people and skills availability and business

environment. Similarly, UNCTAD’s76 World Investment Report, 2005 considers India the

2nd most attractive destination among the TNCS. The positive perceptions among investors

as a result of strong economic fundamentals driven by 18 years of reforms have helped FDI

inflows grow significantly in India. The FDI inflows grow at about 20 times since the

opening up of the economy to foreign investment. India received maximum amount

of FDI from developing economies.

1.3 Main Objectives of FDI in India

When a firm controls (or have a powerful say in) another firm situated abroad, e.g. by owing

over 100% of its equity. Foreign investment plays a major role in development of Indian

economy. Many countries give several incentives for attracting the foreign direct investment

(FDI). Need for * of FDI depends on saving and investment rate in any country Foreign

Direct investment acts as a bridge to meet the gap between investment and saving. in the

method of economic development foreign capital helps the domestic saving constraint and

supply access to the superior technology that promotes potency and productivity of the

present production capability and generate new production chance.

1. Sustaining A High Level Of Investment: Since the underdeveloped countries need to

industrialize themselves within a brief amount of time, it becomes necessary to boost the

amount of investment considerably. this requires, in turn, a high level of savings.

However, because of general poverty of masses, the savings are often terribly low. Resulting*

emerges a resource gap between investment and savings. This gap must be filled through

foreign capital.

2. Technological Gap - The under developed countries have very low level of technology as

compared to the advanced countries. but they possess strong urge for industrialization to

develop their economies and to wriggle out of the low level equilibrium trap in which they're

caught.

This raises the necessity for importing technology from advanced countries. Such technology

sometimes comes with foreign capital when it assumes the form of private foreign investment

or foreign collaboration. in the Indian case technical help received from abroad has helped in

filling the technological gap through the following three ways:

(a) Provision for expert services

(b) Training of Indian personnel

(c) Education research and coaching establishment within the country

3. Exploitation Of Natural Resources - variety of underdeveloped countries possesses vast

natural resources that await exploitation. These countries themselves don't possess the desired

technical ability and experience to accomplish this task. As a consequence, they have to rely

upon foreign capital to undertake the exploitation of their mineral wealth.

4. Undertaking The Initial Risk - several beneath developed countries suffer from acute

private entrepreneurs. This creates obstacles within the programs of industrialization. an

argument advanced in favor of the foreign capital is that it undertakes the risk of investment

in host countries and therefore provides the much-needed impetus to the process of

industrialization.

Once the programmed of manufacture gets started with the initiative of foreign capital,

domestic industrial activity starts picking up as more and more of the host country enter the

industrial field.

5. Development Of Basic Economic Infrastructure - it has been observed that the domestic

capital of the under developed countries is usually too inadequate to make up the economic

infra structure of its own. so these countries need the help of foreign capital to undertake this

task.

6. Improvement In Balance Of Payments Position - in the initial phase of the economic

development, the under developed countries want a lot of larger imports (in the form of

machinery, capital goods, industrial raw materials, spares and components), then they will

probably export. As a result, the balance of payments usually turns adverse. This creates a

spot between the earnings and foreign exchange. Foreign capital presents short run solution to

the problem.

2.1 Dr.M.Shahul Hameedu (2014); Foreign Direct Investment, the Indian

scenario

Globalization and liberalization brings lots of new innovative products to the world, Foreign

Direct Investment is the one among this, also there are number of different forms of FDI is

available currently. Recently, Government of India allowed FDI in different sectors of Indian

economy. But several opposition parties are making it a political issue in parliament on these

policy decisions and amendments. With a view to infuse globally acceptable best practices,

modern management skills and latest technology, it has been decided to allow foreign

investment in India. The objective of the present study is to provide a skeleton on foreign

direct investment with the scene of different sectors. It also point out the sector-wise

distribution of FDI inflow to know about which has concerned with the chief share. The

present study is based on secondary data collected from different sources. This paper also

tries to find out the scenario and role and Scope of Foreign Direct Investment in India.

2.2 Sumbul Fatima, Zia Afroz (2008); FOREIGN DIRECT INVESTMENT

(FDI) INFLOWS IN INDIA: ITS TRENDS AND SCOPE

Researcher: Indian Economy has adopted the LPG (Liberalization, Privatization and

Globalization) in the year 1991, which has brought dramatic changes into the Indian

Economy impacting its economic growth and its relationship with the outside world. Indian

being one of the most emerging economies of the world, various developmental plans and

schemes has been adopted by Government of India to attract the investments from the other

countries giving a way to FDI inflows. The main focus of this paper is to throw light on the

country wise and sector wise inflows of FDI in India as well as to bring into the knowledge of

the scope of FDI in the Indian context. As regards country wise FDI inflows in India,

Mauritius holds the highest rank with 37% of total FDI inflows. The Sector attracting highest

FDI Equity inflows has been the Services Sector including both financial and non-financial. It

can also be seen that FDI also open opportunities in bringing advance technology, creating

more employment and healthy competition etc. in India.

2.3 Dr. Jasbir Singh, Ms. Sumita Chadha, Dr. Anupama Sharma (2012);

Role of Foreign Direct Investment in India: An Analytical Study

International Economic Integration plays a vital role in Economic Development of any

country. Foreign Direct Investment is one and only major instrument of attracting

International Economic Integration in any economy. It serves as a link between investment

and saving. Many developing countries like India are facing the deficit of savings. This

problem can be solved with the help of Foreign Direct Investment. Foreign investment helps

in reducing the defect of BOP. The flow of foreign investment is a profit making industry like

insurance, real estate and business services and serving as a catalyst for the growth of

economy in India. The present study is based on the objectives like (a) to know the

requirement of amount of foreign investment by India, for its economic Development and (b)

to analyze the trend and role of FDI & FIIs in improving the quality and availability of goods

has been beyond doubt. To analyze all these objectives data has been gathered through

secondary sources like reports and publication of Govt. and RBI relating to foreign

Investment. After analyzing all the facts it may be concluded that maximum global foreign

investment’s flows are attracted by the developed countries rather than developing and under

developing countries. Foreign investment flows are supplementing the scare domestic

investments in developing countries particularly in India. Further this paper recommends that

we should welcome the inflow of foreign investment because it enable us to achieve our

cherished goal like making favorable the balance of payment, rapid economic development,

removal of poverty, and internal personal disparity in the development and also it is very

much convenient and favorable for Indian economy.

2.4 Murali Patibandla (2012); Foreign Direct Investment in India’s Retail

Sector: Some Issues

Foreign direct investment (FDI) plays an important role in India’s growth dynamics. There

are several examples of the benefits of FDI in India. FDI in the retail sector can expand

markets by reducing transaction and transformation costs of business through adoption of

advanced supply chain and benefit consumers, and suppliers (farmers). This also can result in

net gains in employment at the aggregate level. This paper brings forth a few conceptual

issues and analysis of qualitative information, data and stylized facts on these issues.

2.5 Bhavya Malhotra (2014); Foreign Direct Investments: Impact on Indian

Economy

With the initiation of globalization, developing countries, particularly those in

Asia, have been witnessing a immense surge of FDI inflows during the past

two decades. Even though India has been a latecomer to the FDI scene

compared to other East Asian countries, its considerable market potential and

a liberalized policy regime has sustained its attraction as a favorable

destination for foreign investors. This research paper aims to examine the

impact of FDI on the Indian economy, particularly after two decades of

economic reforms, and analyzes the challenges to position itself favorably in

the global competition for FDI. The paper provides the major policy

Implications from this analysis, besides drawing attention on the complexities

in interpreting FDI data in India.

2.6 K. R. Kaushik, Dr. Kapil Kumar Bansal (2012); Foreign Direct

Investment in Indian Retail Sector Pros and Cons

Researcher: On 20th September, 2012 the Government of India has approved 51% FDI in

Multiband retail and 100% (revised) in Single Brand retail sector through Government Route

with some riders. Govt. of India is firm to implement the FDI in multi Brand Retail’

Agitation and Bandhs have been called by some political parties. Prime Minister of India has

explained to the Nation the necessity and obligation under WTO agreement to allow FDI in

Retail Sector. There is a mixed response about FDI in retail sector. Still some of the states are

either not in favor of the FDI or indecisive on the issue as they feel that FDI in retail is

harmful to local retailers in India. Everyone has the reasons for supporting or opposing the

issue. Retail is one of the largest sectors of Indian economy the unorganized retail sector in

India occupies 97% of the retail business and the rest 3% is contributed by the organized

sector. The unorganized retail sector contributes about 13% to the GDP and absorbs 6% of

our labor force. Hence the issue of displacement of labor consequent to FDI Retail Sector is

of primal importance in India. Also there is divided opinion on the impact of FDI in the retail

sector in India, Some say that FDI in the retail sector in India will lead to economic growth

and creation of new jobs along with rural infrastructure development But the other view point

is that mass scale job loss will happen particularly in manufacturing sector with the entry of

the big MNCs like Wal-Mart and Carrefour, Metro PLC and IKEA etc. This paper highlights

Definition of Retail; Background & Division of Retail Industry, FDI Policy with Regard to

Retailing in India, Foreign Investor’s Concern Regarding FDI in Retail sector, SWOT

Analysis of Indian retail Sector, Govt.’s view point and Conclusion.

2.7 Abhishek Vijaykumar Vyas (2015); An Analytical Study of FDI in India

Foreign Direct investment plays a very important role in the development of the nation.

Sometimes domestically available capital is inadequate for the purpose of overall

development of the country. Foreign capital is seen as a way of filling in gaps between

domestic savings and investment. India can attract much larger foreign investments than it

has done in the past.

The study also highlights country wise approvals of FDI inflows to India and the FDI inflows

in different sector for the period April 2000 to June 2015. The study based on Secondary data

which have been collected through reports of the Ministry of Commerce and Industry,

Department of Industrial Promotion and Policy, Government of India, Reserve Bank of India,

and World Investment Report. The study concludes that Mauritius emerged as the most

dominant source of FDI contributing. It is because the India has Double Taxation Avoidance

Agreement (DTAA) with Mauritius and most of the foreign countries like to invest in service

sector.

2.8 R. ANITHA (2012); FOREIGN DIRECT INVESTMENT AND

ECONOMIC GROWTH IN INDIA

It is very much vital in the case of underdeveloped and developing countries. A typical

characteristic of these developing and underdeveloped economies is the fact that these

economies do not have the needed level of savings and income in order to meet the required

level of investment needed to sustain the growth of the economy. In such cases, foreign direct

investment plays an important role of bridging the gap between the available resources or

funds and the required resources or funds. It plays an important role in the long-term

development of a country not only as a source of capital but also for enhancing

competitiveness of the domestic economy through transfer of technology, strengthening

infrastructure, raising productivity and generating new employment opportunities. In India,

FDI is considered as a developmental tool, which helps in achieving self-reliance in various

sectors and in overall development of the economy. India after liberalizing and globalizing

the economy to the outside world in 1991, there was a massive increase in the flow of foreign

direct investment. The paper tries to examine the various set of factors which influence the

flow of FDI Identifying the causes for low inflow and suggestive remedial measures to

increase the flow of FDI in India with that of other developing nations in the world.

2.9 R.B. Teli (2014); A Critical Analysis of Foreign Direct Investment

Inflows in India

In this paper the researcher analysis the FDI inflows in India. This study is based on

secondary data and period of the study is from 1991 to 2012. Total FDI inflows have been

raised from US $ 133 Million in 1991-92 to US $ 27841 Million in the year 2008-09 and the

share of direct foreign investment through approvals in equity etc. stood at 65.79% and that

of portfolio investment was 34.21%. Projections show that total FDI inflows will be US $

46098 Million in 2015-16. Mauritius and Singapore tops in FDI inflows and the FDI inflows

in service sector were in highest position. They have positive impact on the related economic

indicators on Indian Economy. GOI should attract more FDI through favorable policies and

avoid uncertainties.

2.10 Girish Garg (2013); An Economic Analysis of Foreign Direct

Investment in Retail Sector in India

India has been placed at first position in the category of countries with the best opportunity

for investment in retail sector. The increasing disposable incomes among the Indian middle

class and increasing young population have been cited as the main reasons for such attractive

optimism. Retailing in India is one of the pillars of its economy and accounts for 14 to 15

percent of its GDP. The Indian retail market is estimated to be US $450 billion and one of the

top five retail markets in the world by economic value. India is one of the fastest growing

retail markets in the world, with 1.2 billion people.

After months of discussion with various hurdles on 14 September, 2012 the cabinet approved

the foreign direct investment in retail in India allowed 100% FDI in Single Brand and 51%

FDI in Multiple brand with many preconditions. The minimum FDI limit has been set at $100

million. Half of any investment has to make in infrastructure like cold-storage chains and

warehouses. With at least 30% of the goods to be sold will have to source from local

producers.

This Research Paper makes a modest attempt of developing an insight as to what are the

trends in the Indian Retail Industry and to the benefits and drawbacks of FDI in this sector. It

has also focused on whether this policy will be beneficial for the Indian Economy as a whole

or not.

2.11 Iyare Sunday O, Bhaumik Pradip K, Banik Arindam (2010);

“Explaining FDI Inflows to India, China and the Caribbean: An Extended

Neighborhood Approach”

It’s find out that FDI flows are generally believed to be influenced by economic indicators

like market size, export intensity, institutions, etc, irrespective of the source and destination

countries. This paper looks at FDI inflows in an alternative approach based on the concepts of

neighborhood and extended neighborhood. The study shows that the neighborhood concepts

are widely applicable in different contexts particularly for China and India, and partly in the

case of the Caribbean. There are significant common factors in explaining FDI inflows in

select regions. While a substantial fraction of FDI inflows may be explained by select

economic variables, country – specific factors and the idiosyncratic component account for

more of the investment inflows in Europe, China, and India.

2.12 Alhijazi, Tahya Z (2009); “Developing Countries and Foreign Direct

Investment”

It analyzed the pros and cons of FDI for developing countries and other interested parties.

This thesis scrutinizes the regulation of FDI as a means to balance the interests of the

concerned parties, giving an assessment of the balance of interests in some existing and

potential FDI regulations. The study also highlights the case against the deregulation of FDI

and its consequences for developing countries. The study concludes by formulating

regulatory FDI guidelines for developing countries.

2.13 CONCLUSIONS

The above review of literature helps in identifying the research issues and gaps for the

present study. The foregoing review of empirical literature confirms/highlights the

following facts

Institutional infrastructure and development are the main determinants of FDI inflows

in the European transition economies. Institutional environment (comprising both

institutional strategies and policies of organizations relating to these institutions) plays

critical role in reducing the transaction costs of both domestic and cross border

business activity.

FDI plays a crucial role in employment generation/ preservation in Central Europe.

It is found that bigger diversity of types of FDI lead to more diverse type’s of

spillovers and skill transfers which proves more favorable for the host economy.

It is also found that apart from market size, exports, infrastructure facilities,

institutions, source and destination countries, the concept of neighborhood and

extended neighborhood is also gaining importance especially in Europe, China and

India.

In industrial countries high labor costs encourage outflows and discourage inflows of

FDI. The principle determinants of FDI in these countries are IT – related

investments, trade and cross – border mergers and acquisitions.

It is observed that countries pursuing export – led growth strategies reaps enormous

benefits from FDI.

The main determinants of FDI in developing countries are inflation, infrastructural

facilities, debts, burden, exchange rate, FDI spillovers, stable political environment

etc.

It is found that firms in cluster gain significantly from FDI in their region, within

industry and across other industries in the region.

It is also observed that FDI have both short – run and long – run effect on the

economy. So, regulatory FDI guidelines must be formulated in order to protect

developing economies from the consequences of FDI flows.

2.14 Research Gaps & Research Issues

The above review of literature proves beneficial in identifying the research issues and

the research gaps, which are mainly the edifices on which the objectives of the present study

are based on. There is hardly any study in India which has taken macroeconomic variables

like foreign exchange reserves, total trade, financial position, research and development

expenditure while assessing the determinants and impact of FDI on Indian economy. The

present study tries to include these above said variables in assessing the determinants and

impact of FDI in India at the macro – level.

Further, there is hardly any study in India, which documents the trends and patterns of

FDI at world level, Asian level and Indian level. Thus, the present study is an endeavor to

discuss the trends and patterns of FDI, its determinants and its impact on Indian economy.

The present study differs from the early studies in many ways and enriches the existing

literature in the following ways:

Firstly, it has included variables other than the variables included by other scholars.

Secondly, the present study documents the trends and patterns of FDI at World, Asian

and Indian level.

Thirdly, the present study tries to highlight the changing attitude of developing

countries towards FDI and attitude change of developed countries towards developing

countries in understanding their contribution in contemporary international relations and

development process.

Fourthly, the study presents the experiences of first and second generation of

economic reforms on Indian economy.

3.1 Objectives Of Research

To study the current status of FDI.

To analyze the FMCG sector, the Infrastructure sector and the Pharmaceutical sector.

To study the impact of FDI in India.

3.2 Collection of Data

Data collected is of two types: Primary Data and Secondary Data

Primary data have been computed on our own selecting data’s from the year 2010 until 2015.

The data have been computed using excel sheets and through different statistical tools to

compute the daily returns of stocks, the average returns of stocks, and to

Secondary data is one of the parts of research methodology through which information about

the project can be collected. The required data have been collected from various sources

which are as follows

World Investment Reports

Asian Development Bank’s Reports

various Bulletins of Reserve Bank of India

publications from Ministry of Commerce, Govt. of India

Economic and Social Survey of Asia and the Pacific

United Nations

Asian Development Outlook,

Country Reports on Economic Policy

Trade Practice Bureau of Economic

Business Affairs

US Department of State

And from websites of World Bank, IMF, WTO, RBI, UNCTAD, EXIM Bank, etc.

3.3 Limitation of Research

All the economic / scientific studies are faced with various limitations and this study is no

exception to the phenomena. The various limitations of the study are:

At various stages, the basic objective of our research is suffered due to inadequacy of

time series data from related agencies. But they were minimal to an extent for

chapter-4 Data Analysis as we used the help of relative data’s of the 3 sectors in

order to come to our conclusion based on our research.

We also faced problem s with sufficient homogenous data we had from different

sources. For example, the time series used for different variables, the averages are

used at certain occasions. Therefore, the trends, growth rates and estimated

regression coefficients may deviate from the true ones.

The assumption that FDI was the only cause for development of Indian economy in

the post liberalized period is debatable. No proper methods were available to

segregate the effect of FDI to support the validity of this assumption

FDI is not the only source of impact on the Indian Economy.

3.4 ANALYTICAL TOOLS

For analysis purposes, we have used the concept of Hypothesis Testing through the

techniques of ANNOVA and the correlation between FDI Inflow, Nifty 50 and the chosen 3

sectors.

Hypothesis Testing:

Hypothesis testing basically means drawing assumptions. Hypothesis testing is done only to

validate Null Hypothesis (Ho). There are 2 types to Hypothesis testing which are as follows

a) Null Hypothesis – Ho: There is no relationship between the FDI Inflow and the

Market index of Bombay Stock Exchange.

b) Alternative Hypothesis – H1: There is a relationship between the FDI Inflow and the

Market Index of Bombay Stock Exchange.

For our research purposes we have taken the significant level of 5% (Error up to 5% is

invariable) and the Confidence level being 95%.

Interpretation:

Based on 5% significant level,

Ho will be rejected if the pvalue is less than 0.05

Ho will be accepted if the pvalue is more than 0.05

Our data analysis is based on the information we collected for the Top Nifty 50 stocks, Nifty

Infra, Nifty FMCG and Nifty Pharmaceuticals and computed their daily returns, yearly

returns and found out their relationship with Nifty using Hypothesis testing and its tools of T-

test, ANNOVA and computed the results based on correlation

From the below analysis the FDI Inflow in an economy carries a very positive uptrend for

any of the sectors irrespective of the amount of investment made. 2014 and 2015 has drawn a

great amount of FDI around the globe.

4.0 NIFTY 50

Introduction

The Nifty50 index is a NSE’s stock market index for the Indian Equity Market. Nifty

diversifies 50 stock index’s accounting for 22 sectors of the economy. Nifty is used for

various purposes like index based derivatives, index funds and benchmarking fund portfolios.

It covers all the 22 sectors at once and provides a complete exposure for investment managers

of the Indian market in one portfolio. Nifty50 index is considered to be the largest single

financial product in India, with an ecosystem comprising: exchange traded funds, exchange-

traded futures and options, other index funds and OTC derivatives. The NIFTY 50 is a free

float market capitalization weighted index. The index was initially calculated on full market

capitalization methodology. From June 26, 2009, the computation was changed to free float

methodology.

4.0.2 TABLE SHOWING AVERAGE RETURN OF NIFTY50 FOR PAST

5 YEARS

YEAR

AVERAGE RETURN

2010-2011

0.000419

2011-2012

-0.0003

2012-2013

0.000301

2013-2014

0.000709

2014-2015

0.001008

https://en.wikipedia.org/wiki/Capitalization-weighted_index

https://en.wikipedia.org/wiki/Capitalization-weighted_index

-0.0004

-0.0002

0

0.0002

0.0004

0.0006

0.0008

0.001

0.0012

2010-2011 2011-2012 2012-2013 2013-2014 2014-2015

Nifty 50 Growth

Nifty 50 growth

4.0.3 LINE GRAPH DEPICTING ANNUAL GROWTH OF NIFTY50

(2010-2015)

The above table and graph shows the average returns of NIFTY50 as a whole computed using

the data collected from National Stock Exchange for the past five years (2010 -2015) daily

return average.

After computing the average return, it is evident that the flushing in of Foreign Direct

Investment has boosted the market to a considerable rate showing a constant increase in the

average annual return of the market.

4.0.4 REGRESSION ANALYSIS

Regression Statistics

Multiple R 0.222787

R Square 0.049634

Adjusted R Square -0.42555

Standard Error 7364.08

Observations 4

PROBABILITY OUTPUT

Percentile 34847

12.5 34298

37.5 36046

62.5 44877

87.5 46556

4.0.5 ANOVA ANALYSIS

df SS MS F Significance

F

Regression 1 5664403.126 5664403 0.104452095 0.777213406

Residual 2 108459349.6 54229675

Total 3 114123752.8

Coefficie

nts Standard

Error t Stat P-value Lower 95%

Upper 95%

Lower 95.0%

Upper 95.0%

Intercept

41486.74386

4895.112436

8.475136

0.013638007

20424.77497

62548.71274

20424.77497

62548.71274

0.000419

-2427226

.68 7510204.

458

-0.323

19 0.77721

3406

-3474102

8.39 2988657

5.03

-3474102

8.39 2988657

5.03

4.1 NIFTY FMCG

4.1.1 Introduction

According to third quarter of the calendar year 2015 (Q3) India’s consumer confidence

continues to be the highest all over the world compared to the other countries. India has

continuously achieved the highest consumer confidence for the last 8 quarters. The FMCG

sector has seen a gain of 11% over the last decade. The major growth drivers for the

consumer market are:

a) Policies & regulatory frameworks such as relaxation of license rules by the

Government of India.

b) Approval of 51 per cent foreign direct investment (FDI) in multi-brand.

c) 100 per cent in single-brand retail.

d) 100 per cent Foreign Direct Investment (FDI) in the electronics hardware-

manufacturing sector through the automatic route.

0

0.0005

0.001

0.0015

0.002

0.0025

2010-2011 2011-2012 2012-2013 2013-2014 2014-2015

NIFTY FMCG GROWTH

Series 1

4.1.2 TABLE SHOWING AVERAGE RETURN OF NIFTY FMCG FOR

PAST 5 YEARS

4.1.3 LINE GRAPH DEPICTING ANNUAL GROWTH OF NIFTY

FMCG (2010-2015)

Year Average

2010-2011 0.00196151

2011-2012 0.00096424

2012-2013 0.00170532

2013-2014 0.00057184

2014-2015 0.00063767

The above table and graph shows the average returns of NIFTY FMCG as a whole computed

using the data collected from National Stock Exchange for the past five years (2010 -2015)

daily return average.

In the above graph, irrespective of the FDI inflow the policies and decisions of the

government has certainly boosted its growth in the last 3 years but largely there isn’t much of

money inflow in the economy breakdown around the globe. The recent Walmart example in

India has setup shocking example for many of the retail players.


PROBABILITY OUTPUT

Percentile 34847

12.5 34298

37.5 36046

62.5 44877

87.5 46556


Coefficie

nts Standard


Upper 95%

Lower 95.0%

Upper 95.0%

Intercept

45566.25192

8037.440429

5.669249

0.029732844

10983.93692

80148.56693

10983.93692

80148.56693

0.00196151

-5281680.

325 7518279.

096

-0.702

51 0.55511

5797

-3763022

4.4 2706686

3.75

-3763022

4.4 2706686

3.75


Multiple R 0.444884203

R Square 0.197921954

Adjusted R Square -

0.203117069


Observations 4


F

Regression 1 22587596.14 22587596 0.493522931 0.555115797

Residual 2 91536156.61 45768078

Total 3 114123752.8

4.2 NIFTY PHARMA

4.2.1 Introduction

The pharmaceuticals market of India is considered to be the third largest in terms of volume

and thirteen largest in terms of value as per the report submitted by Equity Master. India as a

nation enjoys a vital position in the Global Pharmaceuticals Market. Our country has built

potential engineers and scientists to steer the industry ahead to an even higher level. Major

initiatives taken by the government to promote the pharmaceutical sector in India are as

follows:

a) Department of Pharma has planned to launch a venture capital by funding 1000 crores

to startups for their research and development in the pharma and biotech industry.

b) Telangana has proposed to set its state as India's largest integrated pharmaceutical

city.

c) The Department of Pharmaceuticals has set up an inter-ministerial co-ordination

committee in India, which helps them to periodically review, coordinate and facilitate

the resolution of the issues and roadblocks faced by the Indian pharmaceutical

companies and use necessary techniques in order to resolve the issues and roadblocks

faced by the department.

4.2.2 TABLE SHOWING AVERAGE RETURN OF NIFTY PHARMA

FOR PAST 5 YEARS

Year Average

2010-2011 0.00045026

2011-2012 -0.00020135

2012-2013 0.0011178

2013-2014 0.00112934

2014-2015 0.00285512

-0.0005

0

0.0005

0.001

0.0015

0.002

0.0025

0.003

0.0035

2010-2011 2011-2012 2012-2013 2013-2014 2014-2015

NIFTY PHARMA

Series 1


PHARMA (2010-2015)

The above table and graph shows the average returns of NIFTY PHARMA as a whole

computed using the data collected from National Stock Exchange for the past five years

(2010 -2015) daily return average.

From the above analysis it is certain that there has been a tremendous increase in earnings in

the last 5 years in the pharmaceuticals sector. Few of the notable companies that was a part of

pharma revolution in India are GSK, Ranbaxy, Sun-Pharma and Aurobindo Pharma.



Multiple R 0.017764

R Square 0.000316

Adjusted R Square -0.49953


Observations 4

PROBABILITY OUTPUT

Percentile 34847

12.5 34298

37.5 36046

62.5 44877

87.5 46556



F

Regression 1 36014.63309 36014.63 0.00063135 0.982235562

Residual 2 114087738.1 57043869

Total 3 114123752.8

Coefficie

nts Standard


Upper 95%

Lower 95.0%

Upper 95.0%

Intercept

40551.36118

5694.983296

7.120541

0.019158092

16047.82575

65054.8966

16047.82575

65054.8966

0.00045026

-87421.4

599 3479229.

24

-0.025

13 0.98223

5562

-1505733

6.65 1488249

3.73

-1505733

6.65 1488249

3.73

4.3 NIFTY INFRASTRUCTURE

4.3.1 Introduction

Infrastructure sector in India is one of the key drivers for the Indian economy. The

infrastructure sector in India is highly responsible for progressing India’s overall

development and it very well enjoys an intense focus from the Government for initiating

policies that would ensure time-bound creation of world class infrastructure in the country.

Infrastructure sector includes power, bridges, dams, roads and urban infrastructure

development.

During the first half of 2014, the infrastructure sector remained clogged up with policy-

paralysis, the expectations for the infrastructure sector ran unreasonably high in the second

half. This sector was still undergoing financial stress with land acquisition of new projects

that remained unsolved. With this kind of backdrop, the expectations from the Budget 2015

for the infrastructure sector should be cautiously optimistic, and not euphoric. If in the year

2015 is used well for preparing the ground, comparatively there could be a significant

investment uptick in 2016. Few top expectations of Infrastructure sector from Budget 2015

are as follows:

a) Tendering of EPC contracts for road projects has started, but private investment can

return only as financial stress gets addressed.

b) The Sagamala initiative was highlighted in the budget 2015 with the main focus on its

port connectivity and its funding.

c) Smart Cities scheme, or next version of National Urban Renewal Mission, were long

overdue, and as per discussed in the budget , the list of smart cities were announced

very recently.

d) Harmonization of regulations across SEZs, NIMZs, EPZs, SIRs, etc, with a truly

competitive tax regime, remains tobe a key requirement for the infrastructure sector.

-0.0015

-0.001

-0.0005

0

0.0005

0.001

0.0015

0.002

2010-2011 2011-2012 2012-2013 2013-2014 2014-2015

NIFTY INFRASTRUCTURE

Series 1

4.3.2 TABLE SHOWING AVERAGE RETURN OF NIFTY

INFRASTRUCTURE FOR PAST 5 YEARS


PHARMA (2010-2015)

Year Average

2010-2011 0.00016824

2011-2012 -0.00119541

2012-2013 -0.00077538

2013-2014 -0.00121026

2014-2015 0.00183523

The above table and graph shows the average returns of NIFTY INFRASTRUCTURE as a

whole computed using the data collected from National Stock Exchange for the past five

years (2010 -2015) daily return average.

The recent drop in the oil prices have certainly been a great help to cut down on the operation

cost for the companies and has drawn doors open for companies to do domestic project,

turnkey project at a very compete able price.

But at the same time, it is understood that if the drastic price drop of oil continues Indian

Infra companies may not enjoy revenue from Middle East in terms of construction contracts.




F

Regression 1 18594990.7 18594991 0.38930664 0.596345349

Residual 2 95528762.05 47764381

Total 3 114123752.8

Coefficie

nts Standard


Upper 95%

Lower 95.0%

Upper 95.0%

Intercept

41017.29516

3575.555454

11.47159

0.007513406

25632.92172

56401.6686

25632.92172

56401.6686

0.00016824

1703185.151

2729706.515

0.623944

0.596345349

-1004179

4.04 1344816

4.34

-1004179

4.04 1344816

4.34


Multiple R 0.403654651

R Square 0.162937077

Adjusted R Square -

0.255594384


Observations 4

PROBABILITY OUTPUT

Percentile 34847

12.5 34298

37.5 36046

62.5 44877

87.5 46556

-0.0015

-0.001

-0.0005

0

0.0005

0.001

0.0015

0.002

0.0025

0.003

0.0035

2010-2011 2011-2012 2012-2013 2013-2014 2014-2015

FMCG

PHARMA

INFRA

4.4 Combined Data Analysis Of All The 3 Sectors

For our research project, Three vital industries out of the twenty-two sectors have been taken

into consideration to supplement a stable analysis past 5 years growth analysis is been taken

into consideration (2010-2015). From our study it is clearly seen that there is a positive co-

relation between the inflow of FDI and growth of specified sectors.

The industries which are taken into consideration are Pharmaceuticals, Infrastructure and Fast

Moving Consumer Goods. It is also to be noted that for a considerable amount of FDI inflow

in the economy, government policies and patterns play a pivotal role in shaping the sectors

growth. It is also noted, the present government in the year 2015(March-2015 to December-

2015) has brought a tremendous FDI inflow in the economy.

.0Based on our hypothesis analysis we have found the relation between FDI Inflow

(Between 2010-2015) and Nifty50 to be pvalue of 0.01363 which below 0.05. Hence,

Null Hypothesis (Ho) shall be rejected and there is a relation between the FDI Inflow

and the market index of BSE and the correlation is -0.19766

Based on our hypothesis analysis we have found the relation between FDI Inflow

(Between 2010-2015) and Nifty FMCG to be pvalue of 0.02973 which below 0.05.

Hence, Null Hypothesis (Ho) shall be rejected and there is a relation between the FDI

Inflow and Nifty FMCG and the correlation is -0.58478692


(Between 2010-2015) and Nifty Pharmaceuticals to be pvalue of 0.01915 which

below 0.05. Hence, Null Hypothesis (Ho) shall be rejected and there is a relation

between the FDI Inflow and Nifty Pharmaceuticals and the correlation is

0.113752367


(Between 2010-2015) and Nifty Infrastructure to be pvalue of 0.00751 which below

0.05. Hence, Null Hypothesis (Ho) shall be rejected and there is a relation between

the FDI Inflow and the market index of BSE and the correlation is 0.285350755

More pro-active government policies has gone hand in hand with the FDI inflow from

the analysis that we have done for our research project based on the three sectors that

we’ve selected.

There has been a jump of 61.6% in terms of FDI inflows(From 21.6 billion from 2014

to 34.9 billion in 2015)

A high inflow of FDI flushed into an economy will always help in India’s balance of

payments and stabilizes the domestic currency, rupee.

From our research we found that government of India amended the FDI policy

regarding construction development sector. The policy includes easing of area

restriction norms, reduction of minimum capitalization and easy exit from the project.

The analysis from 2010-2015 in the area of construction sector, has shown

tremendous growth thus, validating the above point.

6.0 CONCLUSIONS

It is apparent from the above discussion that FDI is a predominant and vital factor in

influencing the process of Indian economic development. The study attempts to analyse the

important three sector of FDI in India. The study works out the trends and patterns, main

determinants and investment flows to India. The study also examines the role of FDI on

economic growth in India for the FY 2000-2015. It was during July 1991 India opened its

doors to private sector and liberalized its economy .Increase in competition for FDI inflows

particularly among the developing nations china, India. The shift of the power centre from the

western countries to the Asia sub leading to highest manufacturing countries .In the financial

year 2014-2015 the new government has raised an whooping amount of 34.9 billion dollars

and has given a new peak to the Nifty50.

BIBLIOGRAPHY

1. Ministry of Finance, Report of the economic survey, Government of India, New Delhi (2003-04).

2. Weisskof T E (1972), “The Impact of Foreign Capital Inflow on Domestic Savings in

Underdeveloped Countries”, Journal of Interna-tional Economics, Vol. 2, pp. 25-38.

3. Sahoo D Mathiyazhagan M K and Parida P (2002), “Is Foreign Direct Investment an Engine of

Growth?”, Evidence from the Chinese Economy, Savings and Development, Vol. 4, pp. 419-439.

4. Nayak D N (1999), “Canadian Foreign Direct Investment in India: Some Observations”, Political

Economy Journal of India, Vol. 8, pp. 51-56.

5. Srivastava S (2003), “What is the True Level of FDI Flows to India?”, Economic and Political

Weekly, Vol. 19, pp. 1201-1209.

6. Basu P, Nayak N C and Vani A (2007), “Foreign Direct Investment in India: Emerging Horizon”,

Indian Economic Review, Vol. 25, pp. 255-266.

7. Weisskof T E (1997), “The Impact of Foreign Capital inflow on Domestic Savings in

Underdeveloped Countries”, Journal of Interna-tional Economics, Vol. 2, pp. 25-38.

8. Swapna S. Sinha (2007):” Comparative Analysis of FDI in China and India: Can Laggards

Learn from Leaders?”, www.bookpump.com/dps/pdf-b/1123981b.pdf

9. Garrick Blalock (2006): “Technology adoption from Foreign Direct Investment and

Exporting: Evidence from Indonesian Manufacturing”, www.informaworld.com

10. Union Budget (2007-08), Finance Minister’s Speech in Parliament.

11. Reserve Bank of India (RBI), Handbook of Statistics on Indian Economy, RBI, Mumbai 12. Secretariat for Industrial Assistance (SIA), Department of Industrial Policy and Promotion, Ministry of Commerce and Industry, Government of India, various issues. 13. Ministry of Finance, Department of Economic Affairs, Government of India 14. Annual Survey of Industries, Ministry of Statisitics and Programme Implementation, Government of India, various issues. 15. A.S.Shiralashetti & S.S.Huger, ICFAI Journal of Managerial Economics, Vol.VII No.1 16. http://www.dipp.nic.in/ 17. http://www.fdi.gov.in/ 18. http://www.rbi.org.in/ 19. http://www.sebi.com

http://www.dipp.nic.in/

http://www.fdi.gov.in/

http://www.rbi.org.in/

http://www.sebi.com/

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