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FOREIGN DIRECT INVESTMENT 
AND INDIAN ECONOMY 
Dr. Shoukat ali M Magalmani 
HOD and Associate Professor 
Department of Economics 
JSS Banashankari Arts, Commerce and S K Gubbi 
Science College, Vidyagiri 
Dharwad. 580004 
E-mail: smmegalmani@yahoo.co.in 
Mob. 9448529867
INTRODUCTION 
 FDI means “cross-border investment by a resident entity 
in one economy with the objective of obtaining a lasting 
interest in an enterprise resident in another economy”. 
 Or ‘capital inflows from abroad that is invested in or to 
enhance the production capacity of the economy’. 
 FDI is considered to be the life blood for developing 
nations. 
 It provides opportunity for technological transfer and up 
gradation and others. 
 It helps in broaden the market accessibility for both host 
and home countries. 
 It helps in invention and innovation of international 
markets
BENEFITS OF FDI FOR HOST COUNTRIES 
• Both host country and home get benefit from 
FDI 
• Host country means that country which accept 
the FDI from other countries and use this for 
its economic development 
• Home country means that country which 
supply its abundance resources and widen its 
market.
BENEFITS OF FDI FOR HOST COUNTRIES 
1. Policy framework for FDI 
• Economic, political, and social stability 
• Rules regarding entry and operations 
• Standards of treatment of foreign affiliates 
• Policies on functioning and structure of markets (especially 
competition and policies governing mergers and 
acquisitions) 
• International agreements on FDI 
• Privatization policy 
• Trade policy (tariffs and nontariff barriers) and coherence 
of FDI and trade policies 
• Tax policy
BENEFITS OF FDI FOR HOST COUNTRIES 
2. Economic determinants & Business 
facilitation 
• Investment promotion 
• Investment incentives 
• Hassle costs (related to corruption and 
administrative efficiency) 
• Social amenities
BENEFITS OF FDI FOR HOST COUNTRIES 
3. Market-seeking 
• Market size and per capita income 
• Market growth 
• Access to regional and global markets 
• Country-specific consumer preferences 
• Structure of markets 
4. Resource/asset-seeking 
• Raw materials 
• Low-cost unskilled labor 
• Skilled labor 
• Technological, innovative, and other created assets (for example, 
brand names), including as embodied in individuals, firms, and 
clusters 
• Physical infrastructure (ports, roads, power, telecommunications)
BENEFITS OF FDI FOR HOST COUNTRIES 
5. Efficiency seeking 
• Cost of resources and assets listed above, 
adjusted for labor productivity 
• Other input costs, such as transport and 
communication costs to/from and within host 
economy and other intermediate products 
• Membership of a regional integration 
agreement conducive to the establishment of 
regional corporate networks
OBJECTIVES OF THE STUDY 
• To know the historical growth of FDI inflow 
into India. 
• To distinguish the flow of FDI pre and post 
reform period. 
• To identify the flow of FDI from across the 
countries and states. 
• To analyse the sector wise flow of FDI. 
• To point out the findings and policy 
suggestions.
REVIEW OF LITERATURE 
• The various studies interrelated economic growth and FDI in 
developing courtiers. 
• Lipsey (2002) identifies the effect of inward FDI on the economic 
growth of host country. FDI helps domestic firms to achieve higher 
productivity. 
• Alfro (2003) study concluded that FDI flows into the different 
sectors of the economy (namely primary, manufacturing, and 
services) exert different effects on economy. 
• Jiang et.al. (2010) concluded that FDI from Japan and Singapore has 
a significantly positive effect on the degree of in-group collectivism. 
• Ramasamy and Yeung (2010) examined the relation between FDI, 
wages and productivity in china. It was found that FDI inflow 
influenced the wage rates and has a positive effect on productivity. 
• Hausmann and Fernandez-Arias (2000) explored the limitation 
attach with FDI. The study recommended that the foreign 
companies will bring minimize new technology because of fear of 
acceptance and also do not want to leakage their technology. 
• others
Historical Gross Inflow of FDI to India 
from 1948 to 2014 
Sl. N o. Year (End of 
the March) 
Inflow of FDI 
(Rs. in 
Crores) 
Cumulative 
increase 
1 1948 256 256 
2 1964 565.5 821.5 
3 1974 916 1737.5 
4 1980 933.2 2670.7 
5 1990 2705 5375.7 
6 2000 18486 23861.7 
7 2010 123378 147239.7 
8 2014 147518 294757.7
Gross Inflow of FDI to India from 1948 
to 2014 
160000 
140000 
120000 
100000 
80000 
60000 
40000 
20000 
0 
1 2 3 4 5 6 7 8 
Year (End of the March) Inflow of FDI (Rs. in Crores)
Sl, No. Years FDI inflows Post Reform Period (Rs. in Crores ) 
1 1991-92 409 
2 1992-93 1094 
3 1993-94 2018 
4 1994-95 4312 
5 1995-96 6916 
6 1996-97 9654 
7 1997-98 13548 
8 1998-99 12343 
9 1999-00 10311 
10 2000-01 10,733 
11 2001-02 18,654 
12 2002-03 12,871 
13 2003-04 10,064 
14 2004-05 14,653 
15 2005-06 24,584 
16 2006-07 56,390 
17 2007-08 98,642 
18 2008-09 ‘*’ 142,829 
19 2009-10 # 123,120 
20 2010-11 # 97,320 
21 2011-12 # ^ 165,146 
22 2012-13 # 121,907 
23 2013-14 147,518 
24 2014-15 (Apr - 
Jul, 2014) 
64,193
Post Reform FDI inflow in India 
0 
20000 
40000 
60000 
80000 
100000 
120000 
140000 
160000 
180000 
Year 
1991-92 
1992-93 
1993-94 
1994-95 
1995-96 
1996-97 
1997-98 
1998-99 
1999-00 
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 # 
2013-14 
Inflow of FDI 
Years
Top Ten Country-wise FDI Equity Inflows to India from 
April, 2000 to July, 2014 
S.No Name of the 
Country 
Amount of FDI 
Inflows (Rs. in 
crore) 
%age with total 
FDI Inflows (+) 
1 Mauritius 390691.18 35.88 
2 Singapore 135784.52 11.88 
3 United Kingdom 105795.83 9.46 
4 Japan 85639.02 7.49 
5 Netherlands 65256.29 5.57 
6 U.S.A 57835.90 5.38 
7 Cyprus 37349.33 3.38 
8 Germany 33486.48 2.99 
9 France 19398.74 1.75 
10 Switzerland 13801.42 1.23
Inflow of FDI from Top 10 Countries in 
the World 
450000 
400000 
350000 
300000 
250000 
200000 
150000 
100000 
50000 
0 
Amount of FDI Inflow 
Countries
S. 
No. 
State-wise Inflows of FDI Cumulative 
FDI ( 2000 to 
2014) 
%age to 
total 
Inflows 
1 MAHARASHTRA, DADRA & NAGAR HAVELI, 
DAMAN & DIU 
328,166 30 
2 DELHI, PART OF UP AND HARYANA 216,274 19 
3 TAMIL NADU, PONDICHERRY 71,017 6 
4 KARNATAKA 63,294 6 
5 GUJARAT 45,627 4 
6 ANDHRA PRADESH 45,160 4 
7 WEST BENGAL, SIKKIM, ANDAMAN & NICOBAR 
ISLANDS 
13,584 1 
8 CHANDIGARH, PUNJAB, HARYANA, HIMACHAL 
PRADESH 
6,227 0.6 
9 RAJASTHAN 6,623 0.5 
10. MADHYA PRADESH, CHATTISGARH 6,095 0.5 
11 KERALA, LAKSHADWEEP 4,893 0.4 
12 GOA 3,710 0.4 
13 UTTAR PRADESH, UTTRANCHAL 1,965 0.2 
14 ORISSA 1,926 0.2 
15 ASSAM, ARUNACHAL PRADESH, MANIPUR, 
MEGHALAYA, MIZORAM, NAGALAND, TRIPURA 
352 0 
16 BIHAR, JHARKHAND 247 0 
17 JAMMU & KASHMIR 26 0 
18 REGIONS NOT INDICATED# 292,906 26.06 
19 TOTAL 1,108,091 100
Sector-wise FDI Equity Inflow from 
April, 2000 to July, 2014 
Sl. No Sectors FDI Inflow (Rs. In 
Crores) 
Percentages of 
Total FDI Inflow 
1 Service 191752.15 17.73 
2 Construction 111127.49 10.40 
3 Telecommunication 80608.47 7.23 
4 Computer Software & 
Hardware 
61707.07 5.76 
5 Drugs &Pharmaceuticals 61340.03 5.47 
6 Automobile Industry 49678.09 4.41 
7 Chemicals (Other than 
Fertilizers) 
47538.99 4.40 
8 Power 44667.08 4.05 
9 Metallurgical Industry 39225.17 3.60 
10 Hotel & Tourism 38030.37 3.25
Sector-wise inflow of FDI 
(Rs. in Crores) 
Service, 
191752.15 
Construction , 
111127.49 
Telecommunicatio 
n , 80608.47 
Power, 44667.08 
Chemicals , 
47538.99 
Automobile 
Industry, 49678.09 
Computer 
Software & 
Hardware, 
61707.07 
Drugs 
&Pharmaceuticals 
, 61340.03 
Metallurgical 
Industry, 39225.17 
Hotel & Tourism, 
38030.37
FINDINGS 
• India is one of the most important countries in the world to 
attract FDI. 
• The FDI inflow to India was not new one, because it was 
prevailed way back during the colonial period. 
• Since introduction of New Economic Policy 1991, FDI inflow 
got greater scope. This is because of open market 
conditions. 
• Service sector, construction, telecommunication etc tertiary 
sector attracting more FDI then agricultural and small scale 
industries. Because we need more fund the primary sector 
but they are deprived from the investment. 
• 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 sectors also contributed to 
the cause.
FINDINGS 
• State- wise FDI inflows show that Maharashtra, 
New Delhi, Karnataka, Gujarat and Tamil Nadu 
received major investment from investors because 
of the infrastructural facilities and favourable 
business environment provided by these states. 
• It is observed that major investment in the above 
sectors came from Mauritius and investments in 
these sectors in India are primarily concentrated in 
Mumbai and New Delhi. 
• It is also observed that the realisation of approved 
FDI into actual disbursement is quite low.
POLICY PRESCRIPTIONS 
• The FDI is one of the important components for economic 
development of our country. Our economic growth has 
maintained higher level. Still government should take some 
important steps for further attracting and utilization of FDI. 
Following are suggestions for further impartment in FDI 
inflow 
• The policy makers should design policies where foreign 
investment can be utilised as means of enhancing domestic 
production, savings, and exports; as medium of 
technological learning and technology diffusion and also in 
providing access to the external market. 
• It is suggested that the government should push for the 
speedy improvement of infrastructure sector’s 
requirements which are important for diversification of 
business activities.
POLICY PRESCRIPTIONS 
• Government should ensure the equitable distribution of FDI 
inflows among states. 
• Government must target at attracting specific types of FDI 
that are able to generate spillovers effects in the overall 
economy. 
• The government must promote policies which allow 
development process starts from within (i.e. through 
productive capacity and by absorptive capacity).. 
• Government must pay attention to the emerging Asian 
continent as the new economic power – house of business 
transaction. 
• It is suggested that the policy makers should ensure optimum 
utilization of funds and timely implementation of projects.
CONCLUSIONS 
• A large number of changes were introduced in the country 
after LPG era after 1991. India brought about a structural 
breakthrough in the volume of the FDI inflows into the 
economy maintained a fluctuating and unsteady trend 
during reform period. It might be interest to note that 
more than 50 per cent of the total FDI inflows received in 
India come from Mauritius, Singapore and the USA. The 
main reason for higher levels of investment from 
Mauritius was that the fact that India entered into a 
double taxation avoidance agreement (DTAA) with 
Mauritius were protected from taxation in India. Among 
the different sectors, the service sector had received the 
larger proportion followed by computer software and 
hardware sector and then telecommunication sector
Thank you

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Foreign Direct Investment and Indian Economy ppt

  • 1. FOREIGN DIRECT INVESTMENT AND INDIAN ECONOMY Dr. Shoukat ali M Magalmani HOD and Associate Professor Department of Economics JSS Banashankari Arts, Commerce and S K Gubbi Science College, Vidyagiri Dharwad. 580004 E-mail: smmegalmani@yahoo.co.in Mob. 9448529867
  • 2. INTRODUCTION  FDI means “cross-border investment by a resident entity in one economy with the objective of obtaining a lasting interest in an enterprise resident in another economy”.  Or ‘capital inflows from abroad that is invested in or to enhance the production capacity of the economy’.  FDI is considered to be the life blood for developing nations.  It provides opportunity for technological transfer and up gradation and others.  It helps in broaden the market accessibility for both host and home countries.  It helps in invention and innovation of international markets
  • 3. BENEFITS OF FDI FOR HOST COUNTRIES • Both host country and home get benefit from FDI • Host country means that country which accept the FDI from other countries and use this for its economic development • Home country means that country which supply its abundance resources and widen its market.
  • 4. BENEFITS OF FDI FOR HOST COUNTRIES 1. Policy framework for FDI • Economic, political, and social stability • Rules regarding entry and operations • Standards of treatment of foreign affiliates • Policies on functioning and structure of markets (especially competition and policies governing mergers and acquisitions) • International agreements on FDI • Privatization policy • Trade policy (tariffs and nontariff barriers) and coherence of FDI and trade policies • Tax policy
  • 5. BENEFITS OF FDI FOR HOST COUNTRIES 2. Economic determinants & Business facilitation • Investment promotion • Investment incentives • Hassle costs (related to corruption and administrative efficiency) • Social amenities
  • 6. BENEFITS OF FDI FOR HOST COUNTRIES 3. Market-seeking • Market size and per capita income • Market growth • Access to regional and global markets • Country-specific consumer preferences • Structure of markets 4. Resource/asset-seeking • Raw materials • Low-cost unskilled labor • Skilled labor • Technological, innovative, and other created assets (for example, brand names), including as embodied in individuals, firms, and clusters • Physical infrastructure (ports, roads, power, telecommunications)
  • 7. BENEFITS OF FDI FOR HOST COUNTRIES 5. Efficiency seeking • Cost of resources and assets listed above, adjusted for labor productivity • Other input costs, such as transport and communication costs to/from and within host economy and other intermediate products • Membership of a regional integration agreement conducive to the establishment of regional corporate networks
  • 8. OBJECTIVES OF THE STUDY • To know the historical growth of FDI inflow into India. • To distinguish the flow of FDI pre and post reform period. • To identify the flow of FDI from across the countries and states. • To analyse the sector wise flow of FDI. • To point out the findings and policy suggestions.
  • 9. REVIEW OF LITERATURE • The various studies interrelated economic growth and FDI in developing courtiers. • Lipsey (2002) identifies the effect of inward FDI on the economic growth of host country. FDI helps domestic firms to achieve higher productivity. • Alfro (2003) study concluded that FDI flows into the different sectors of the economy (namely primary, manufacturing, and services) exert different effects on economy. • Jiang et.al. (2010) concluded that FDI from Japan and Singapore has a significantly positive effect on the degree of in-group collectivism. • Ramasamy and Yeung (2010) examined the relation between FDI, wages and productivity in china. It was found that FDI inflow influenced the wage rates and has a positive effect on productivity. • Hausmann and Fernandez-Arias (2000) explored the limitation attach with FDI. The study recommended that the foreign companies will bring minimize new technology because of fear of acceptance and also do not want to leakage their technology. • others
  • 10. Historical Gross Inflow of FDI to India from 1948 to 2014 Sl. N o. Year (End of the March) Inflow of FDI (Rs. in Crores) Cumulative increase 1 1948 256 256 2 1964 565.5 821.5 3 1974 916 1737.5 4 1980 933.2 2670.7 5 1990 2705 5375.7 6 2000 18486 23861.7 7 2010 123378 147239.7 8 2014 147518 294757.7
  • 11. Gross Inflow of FDI to India from 1948 to 2014 160000 140000 120000 100000 80000 60000 40000 20000 0 1 2 3 4 5 6 7 8 Year (End of the March) Inflow of FDI (Rs. in Crores)
  • 12. Sl, No. Years FDI inflows Post Reform Period (Rs. in Crores ) 1 1991-92 409 2 1992-93 1094 3 1993-94 2018 4 1994-95 4312 5 1995-96 6916 6 1996-97 9654 7 1997-98 13548 8 1998-99 12343 9 1999-00 10311 10 2000-01 10,733 11 2001-02 18,654 12 2002-03 12,871 13 2003-04 10,064 14 2004-05 14,653 15 2005-06 24,584 16 2006-07 56,390 17 2007-08 98,642 18 2008-09 ‘*’ 142,829 19 2009-10 # 123,120 20 2010-11 # 97,320 21 2011-12 # ^ 165,146 22 2012-13 # 121,907 23 2013-14 147,518 24 2014-15 (Apr - Jul, 2014) 64,193
  • 13. Post Reform FDI inflow in India 0 20000 40000 60000 80000 100000 120000 140000 160000 180000 Year 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 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 # 2013-14 Inflow of FDI Years
  • 14. Top Ten Country-wise FDI Equity Inflows to India from April, 2000 to July, 2014 S.No Name of the Country Amount of FDI Inflows (Rs. in crore) %age with total FDI Inflows (+) 1 Mauritius 390691.18 35.88 2 Singapore 135784.52 11.88 3 United Kingdom 105795.83 9.46 4 Japan 85639.02 7.49 5 Netherlands 65256.29 5.57 6 U.S.A 57835.90 5.38 7 Cyprus 37349.33 3.38 8 Germany 33486.48 2.99 9 France 19398.74 1.75 10 Switzerland 13801.42 1.23
  • 15. Inflow of FDI from Top 10 Countries in the World 450000 400000 350000 300000 250000 200000 150000 100000 50000 0 Amount of FDI Inflow Countries
  • 16. S. No. State-wise Inflows of FDI Cumulative FDI ( 2000 to 2014) %age to total Inflows 1 MAHARASHTRA, DADRA & NAGAR HAVELI, DAMAN & DIU 328,166 30 2 DELHI, PART OF UP AND HARYANA 216,274 19 3 TAMIL NADU, PONDICHERRY 71,017 6 4 KARNATAKA 63,294 6 5 GUJARAT 45,627 4 6 ANDHRA PRADESH 45,160 4 7 WEST BENGAL, SIKKIM, ANDAMAN & NICOBAR ISLANDS 13,584 1 8 CHANDIGARH, PUNJAB, HARYANA, HIMACHAL PRADESH 6,227 0.6 9 RAJASTHAN 6,623 0.5 10. MADHYA PRADESH, CHATTISGARH 6,095 0.5 11 KERALA, LAKSHADWEEP 4,893 0.4 12 GOA 3,710 0.4 13 UTTAR PRADESH, UTTRANCHAL 1,965 0.2 14 ORISSA 1,926 0.2 15 ASSAM, ARUNACHAL PRADESH, MANIPUR, MEGHALAYA, MIZORAM, NAGALAND, TRIPURA 352 0 16 BIHAR, JHARKHAND 247 0 17 JAMMU & KASHMIR 26 0 18 REGIONS NOT INDICATED# 292,906 26.06 19 TOTAL 1,108,091 100
  • 17. Sector-wise FDI Equity Inflow from April, 2000 to July, 2014 Sl. No Sectors FDI Inflow (Rs. In Crores) Percentages of Total FDI Inflow 1 Service 191752.15 17.73 2 Construction 111127.49 10.40 3 Telecommunication 80608.47 7.23 4 Computer Software & Hardware 61707.07 5.76 5 Drugs &Pharmaceuticals 61340.03 5.47 6 Automobile Industry 49678.09 4.41 7 Chemicals (Other than Fertilizers) 47538.99 4.40 8 Power 44667.08 4.05 9 Metallurgical Industry 39225.17 3.60 10 Hotel & Tourism 38030.37 3.25
  • 18. Sector-wise inflow of FDI (Rs. in Crores) Service, 191752.15 Construction , 111127.49 Telecommunicatio n , 80608.47 Power, 44667.08 Chemicals , 47538.99 Automobile Industry, 49678.09 Computer Software & Hardware, 61707.07 Drugs &Pharmaceuticals , 61340.03 Metallurgical Industry, 39225.17 Hotel & Tourism, 38030.37
  • 19. FINDINGS • India is one of the most important countries in the world to attract FDI. • The FDI inflow to India was not new one, because it was prevailed way back during the colonial period. • Since introduction of New Economic Policy 1991, FDI inflow got greater scope. This is because of open market conditions. • Service sector, construction, telecommunication etc tertiary sector attracting more FDI then agricultural and small scale industries. Because we need more fund the primary sector but they are deprived from the investment. • 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 sectors also contributed to the cause.
  • 20. FINDINGS • State- wise FDI inflows show that Maharashtra, New Delhi, Karnataka, Gujarat and Tamil Nadu received major investment from investors because of the infrastructural facilities and favourable business environment provided by these states. • It is observed that major investment in the above sectors came from Mauritius and investments in these sectors in India are primarily concentrated in Mumbai and New Delhi. • It is also observed that the realisation of approved FDI into actual disbursement is quite low.
  • 21. POLICY PRESCRIPTIONS • The FDI is one of the important components for economic development of our country. Our economic growth has maintained higher level. Still government should take some important steps for further attracting and utilization of FDI. Following are suggestions for further impartment in FDI inflow • The policy makers should design policies where foreign investment can be utilised as means of enhancing domestic production, savings, and exports; as medium of technological learning and technology diffusion and also in providing access to the external market. • It is suggested that the government should push for the speedy improvement of infrastructure sector’s requirements which are important for diversification of business activities.
  • 22. POLICY PRESCRIPTIONS • Government should ensure the equitable distribution of FDI inflows among states. • Government must target at attracting specific types of FDI that are able to generate spillovers effects in the overall economy. • The government must promote policies which allow development process starts from within (i.e. through productive capacity and by absorptive capacity).. • Government must pay attention to the emerging Asian continent as the new economic power – house of business transaction. • It is suggested that the policy makers should ensure optimum utilization of funds and timely implementation of projects.
  • 23. CONCLUSIONS • A large number of changes were introduced in the country after LPG era after 1991. India brought about a structural breakthrough in the volume of the FDI inflows into the economy maintained a fluctuating and unsteady trend during reform period. It might be interest to note that more than 50 per cent of the total FDI inflows received in India come from Mauritius, Singapore and the USA. The main reason for higher levels of investment from Mauritius was that the fact that India entered into a double taxation avoidance agreement (DTAA) with Mauritius were protected from taxation in India. Among the different sectors, the service sector had received the larger proportion followed by computer software and hardware sector and then telecommunication sector