Foreign direct investment (FDI) is the movement of capital across national frontiers in a manner that grants the investor control over the acquired asset. FDIs require a business relationship between a parent company and its foreign subsidiary. Out of two primary channels for FDI effects on economic growth, inflows of physical capital and technology spillovers respectively, it is technology spillovers that have the strongest potential to enhance economic growth in the host country. Using panel data analysis the empirical part of the paper finds indications that FDI inflows enhance economic growth in developing economies but not in developed economies. To operate a firm in the intermediate goods sector, entrepreneurs must develop a new variety of intermediate good, a task that requires upfront capital investments. The more developed the local financial markets, the easier it is for credit constrained entrepreneurs to start their own firms. The increase in the number of varieties of intermediate goods leads to positive spillovers to the final goods sector. As a result financial markets allow the backward linkages between foreign and domestic firms to turn into FDI spillovers. FDI provides an inflow of foreign capital and funds, in addition to an increase in the transfer of skills, technology, and job opportunities. Many of the Four Asian Tigers benefited from investment abroad.A recent meta-analysis of the effects of foreign direct investment on local firms in developing and transition countries suggest that foreign investment robustly increases local productivity growth. We propose a mechanism that emphasizes the role of local financial markets in enabling foreign direct investment (FDI) to promote growth through backward linkages, shedding light on this empirical ambiguity. The increase in the number of varieties of intermediate goods leads to positive spillovers to the final goods sector. As a result financial markets allow the backward linkages between foreign and domestic firms to turn into FDI spillovers. Our calibration exercises indicate that a) holding the extent of foreign presence constant, financially well-developed economies experience growth rates that are almost twice those of economies with poor financial markets.

2. Defination of FDI
Foreign direct investment (FDI) occurs when an investor based in
one country (the home country) acquires an asset in another
country ( the host country).
Which factors encourages FDI?
Political stability
Market potential & accessibility
Large economy
Market size

3. 3
FDI
Attracting long-term
foreign capital to
supplement domestic
investment efforts
Developing attractive
Configurations of
locational advantages
at global level
Promoting technology
and other linkages to
enhance domestic industry
competitiveness
Creating skilled employment
Opportunities and Import
of world Class managerial
practices

4. Economic
Growth
Trade
Employment
and skill
levels
Technology
diffusion and
knowledge
transfer
Linkages and
spillover to
domestic
firms

5. The “confidence” called India
One of the fastest growing economies, second only after China.
Fourth-largest economy on purchasing power.
3rd in investor confidence for FDI investments.
India offers the best return on investment among emerging
markets.
“The Time is now..to be in India. This is perhaps the most
optimistic I’ve felt about India in the last 10-15 years that I’ ve
been coming here.” – Jeffrey Immelt

6. 6
India – A Good Place to Put Your Money
Second Largest
Emerging Market
Largest
democracy –
political
stability
Liberal &
transparent
investment
policies
Fourth largest
Economy - A
safe place
to do business
Largest
reservoir of
skilled
manpower
Long-term
sustainable
Competitive
advantage
- High growth rate
economy

7. 0
1000
2000
3000
4000
5000
6000
US$million

8. 31%
13%
12%
11%
10%
6%
6%
4% 4%
3%
Services Sector
Computer Software &
hardware
Telecommunications
Housing & real Estate
Construction Activities
Power
Automobile Industry
Metallurgical Industries
Petroleum & Natural Gas
Chemicals

9. 9
10 year tax holiday for developers of SEZs/Industrial
Parks
100% tax Exemption for 5 Years and 50% thereafter
for two years for SEZ Units
100% Tax holiday for 10 years for infrastructure
undertakings
100% tax deduction for 10 consecutive assessment years to
undertakings providing Telecom services
Investment Opportunities (For Ex.-
Infrastructure )

10.  6th position in the basic metals category
 7th in chemicals and chemical products
 10th in leather, leather products, refined
petroleum products and nuclear fuel
 12th in machinery and equipment and motor
vehicles.
According to a United Nations Industrial Development Organization (UNIDO)

11.  Ranked 2nd most favored destination for foreign
investments after China
 India ranks among the top 12 producers of
manufacturing value added (MVA).
 In textiles, the country is ranked 4th after China, USA
and Italy.
 In electrical machinery and apparatus, it is ranked 5th.
According to a United Nations Industrial Development Organization (UNIDO)

12. Foreign Direct Investment (FDI) up to 100% is
permitted in all manufacturing activities
except:-
Defense
Industry
Cigars &
Cigarette
manufacturi
ng
Where the
foreign
investor has
an existing
joint
venture in
India in the
same field.
Where more
than 24%
foreign
equity is
proposed to
be inducted
for
manufactur
e of
items reserv
ed for Small
Scale sector

16. Current issues
 Very weak linkages of service sector with
the Indian economy(only few cities)
 Employee Welfare in time of crisis
 Telecom Issues: 2G
Scam(Docomo, Telenor)
 Retail: 51 % to multi brand and 100 % to
single brand

17. FDI may provide better access to technologies for the local economy.
FDI can also lead to indirect productivity gains.
Multinational firms may increase the degree of competition in host-country markets
which will force existing inefficient firms to invest more in physical or human capital.
MNCs are provideing training of labor and management.
The increased flow of FDI in a country has given a major boost to the country's economy.
Hence measures must be taken in order to ensure that the flow of FDI in both these
countries continues to grow.

18. Attract
‘Quality’ FDI
Attract
technology
and localize
production
Focus on
Export-
oriented FDI
Target
specific
sectors
Increase ease
of doing
business