A Project Report

On
An Analytical Study of Foreign Direct Investment in India

Submitted by

Pawan Kumar

in partial fulfillment for the award of the degree

of

MASTER OF BUSINESS ADMINISTRATION

SCHOOL OF BUSINESS MANAGEMENT
SHOOLINI UNIVERSITY
OF LIFE SCIENCES AND BUSINESS MANAGEMENT SCIENCES
BAJHOL, SOLAN, HP – 173212

MONTH OF SUBMISSION: April, 2018

 CERTIFICATE

This is to certify that the Project work entitled “An Analytical Study of Foreign Direct
Investment in India” submitted in partial fulfillment of the requirement for the award of degree
of Master of Business Administration to Shoolini University of Biotechnology and
Management Sciences, Bajhol, Solan (H.P.) is a bonafide Project work carried out by Pawan
Kumar (1671401083). No part of this work has been submitted for any other degree or diploma.

Name of Student: Pawan Kumar Name of the guide: Prof. Amar Rao
Signature : Signature :
Place: Solan
Date :
 ACKNOWLEDGEMENT

The assistance and help received during the course of investigation has been duly
acknowledged.

A successful project work is a result of the organized and wellcoordinated teamwork. So I also
get the opportunity to prepare a project on “An Analytical Study of Foreign Direct Investment
in India”. To prepare this project I would like to thanks Prof. Amar Rao for their constant
support and inspiration throughout the lifespan of the project. I express my deep sense of
gratitude and sincere thanks to my project guide for his constant guidance, co-operation and
advice which helped me in completing the project successfully. Last but not the least, I would
like to thanksall my family members and friends for their constant co-operation and inspiration
and direct or indirect help without which this project could not be completed.

Name of Student :Pawan Kumar

Signature :
 TABLE OF CONTENTS

Sr. No. Topic Page No.

1 Executive Summary

2 Introduction

3 Research Methodology

4 Data Analysis & Interpretation

5 Finding

Conclusion
6

7 Suggestions

8 Bibliography
 EXECUTIVE SUMMARY

Foreign Direct Investment play 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 saving and
investment. India can attract much larger foreign investment than it has done in the past. The
present study has focused on the trends of FDI Flow in India during 2000 to 2017.
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 2017. The study has based on Secondary
data which has been collected through reports of the Ministry of Commerce and Industry,
Development of Industrial Promotion and Policy, Government of India, Reserve bank of India,
and world investment of report. The study concludes the Mauritius emerged as the most
dominant source of FDI contributing. It is because the India has Double Taxation Avoidance
Agreement with Mauritius and most of the foreign countries like to invest in service sector.
 INTRODUCTION AND ORGANIZATIONAL PROFILE

What is Foreign Direct Investment?

Meaning:
These three letters stand for foreign direct investment. The simplest explanation of FDI would
be direct investment by a corporation in a commercial venture in another country. A key to
separating this action from involvement in other venture in a foreign country is that the
business enterprise operates completely outside the economyof the corporation’s home country.
This investing corporation must control 10 percent or more of the voting power of the new
venture.

According to history the United State was the leader in the FDI activity dating back as far as
the end of World War II. Business from other nations have taken up the flag of FDI, including
many who were not in a financial position to do so just a few year ago.

The practice has grown significantly in the last couple of decade, to the point that FDI has
generated quite a bit of opposition from group such as labor unions. These organizations have
expressed concern that investing at such a level in another country eliminates jobs. Legislation
was introduced in the early 1970s that would have put an end to the tax incentives of FDI. But
members of the Nixon administration congress and business interest railed to make sure that
this attack on their expansion plans was not successful. One key to understand FDI is to get a
mental picture of the global scale of corporation able to make such investment. A carefully
planned FDI can provide a huge new market for the company, perhaps introducing products
and services to an area where they have never been available. Not only that, but such an
investment may also be more profitable if construction costs and labor costs are less in the host
country.

FDI growth has been a key factor in the “International” nature of business that many are
familiar with in the 21st century. This growth has been facilitated by changes in regulations
both in the originating country and in the country where the new installation is to be built.
Corporations from some of the countries that lead the world’s economy have found fertile soil
for FDI in nations where commercial development was limited, if it existed at all. The dollars
invested in such developing country projects increased 40 times over in less than 30 year. The
financial strength of the investing corporations has sometimes meant failure for smaller
competitors in the target country. One of the reason is that foreign direct investment in building
and equipment still accounts for a vast majority of FDI activity. Corporations from the
originating country gain a significant financial foothold in the host country. Even with this
factor, host countries may welcome FDI because of the positive impact it has on the smaller
economy.

Foreign Direct Investment is a measure of foreign ownership of productive assets, such as

factories, mines and land. Increasing foreign investment can be used as one measure of
growing economic globalization. Figure below show net inflows of foreign direct investment
as a percentage of GDP. The largest flows of foreign investment occur between the
industrialized countries (North America, Western Europe and Japan). Butflows to non –
industrialized countries are increasing sharply. FDI refer to as long term participation by
country A into country B.

It usually involves participation in management, joint venture, transfer of technology and

expertise. There are two types of FDI: inward foreign direct investment and out foreign direct
investment, resulting in a net FDI inflow (positive or negative). FDI reflects the objectives of
obtaining a lasting interest by a resident entity in one economy in an entity resident in an
economy other than that of the investor. Direct investment involves both the initial transaction
between the two entities and all subsequent capital transaction between them and among
affiliated enterprise both incorporated and unincorporated.

 Foreign Direct Investment -When a firm invests directly in production or other facilities,
over which it has effective control, in a foreign country.
 Manufacturing FDI - requires the establishment of production facility.
 Service FDI – require building service facilities or an investment foothold via capital
contributions or building office facilities.
 Foreign subsidiaries – overseas units or entities.
 Host country – the country in which a foreign subsidiary operates.
 Flow of FDI – the amount of FDI undertaken over a given time.
 Stock of FDI – total accumulated value of foreign owned assets.
 Foreign Portfolio Investment – the investment by individual, firms, or public bodies in
foreign financial instruments.
 Stocks, bonds, other forms of debt.
 Differs from FDI, which is the investment in physical assets.
Definition:

Foreign direct investment is that investment, which is made to serve the business interest of the
investor in a company, which is in a different nation distinct from thre investor country of
origin. A parent business enterprise and its foreign affiliate are the two sides of the FDI
relationship. Together they comprise an MNC.

The parent enterprise through its foreign direct investment effort seeks to exercise substantial
control over the foreign affiliate company. ‘Control’ as defined by the UN, is ownership of
greater than or equal to 10% of ordinary shares or access to voting rights in an incorporated
firm. For an unincorporated firm one needs to consider an equivalent criterion. Ownership
share amounting to less than that stated above is termed as portfolio investment and is not
categorized as FDI.

FDI stands for Foreign Direct Investment, a component of a country’s national financial
accounts. Foreign direct investment is investment of foreign assets into domestic structure,
equipment, and organization. It does not include foreign investment into the stock market. FDI
is thought to bemore useful to a country than investments in the equity of its companies
because equity investment are potentially”hot money” which can leave at the first sign of
trouble, whereas FDI is durable and generally useful whether things go well or badly.

History:

In the years after the Second World War global FDI was dominated by the United
States, as much of the world recovered from the destruction brought by the conflict. The US
accounted for around three-quarters of new FDI (including reinvested profits) between 1945
and 1960. Since that time FDI has spread to become a truly global phenomenon, no longer the
exclusive preserve of OECD countries.
FDI has grown in importance in the global economy with FDI stocks now constituting over
20% of global GDP. FDI is measure of foreign ownership of productive assets, such as
factories, mines, and land. IncreasingForeign investment can be used as one measure of
growing economic globalization. The largest flows of foreign investment occur between the
industrialized countries. But flows to non- industrialized countries are increasing sharply.
Foreign Direct Investor:

A foreign direct investor is an individual, an incorporated or unincorporated public or private

enterprise, a government, a group of related incorporated and unincorporated enterprise which
has a direct investment enterprise – that is a subsidiary, associate or branch operating in a
country other than the country or countries of residence of the foreign direct investor or
investors.

Types of FDI: An Overview:-

FDI can be broadly classified into two types:

 Outward FDIs
 Inward FDIs
This classification is based on the types of restriction imposed and the various
perequisites required for these investments.
Outward FDI: An outward bound FDI is backed by the government against all types of
associate risks. This form of FDI is subject to tax incentives as well as disincentives of various
forms. Risk coverage provided to the domestic industries and subsidies granted to the local
firm stand in the way of outward FDs, which are also known as direct investment abroad.
Inward FDIs: Different economic factor encourage inward FDIs. These include interest loans,
tax breaks, grants, subsidies, and the removal of restrictions and limitations. Factor detrimental
to the growth of FDIs include necessities of differential performance and limitations related
with ownership patterns.

Other categorizations of FDI: -

Other categorizations of FDI exist as well Vertical Foreign Direct Investment takes place when
a multinational corporation owns some shares of a foreign enterprise, which supplies input for
it or uses the output produced by the MNC.
Horizontal foreign direct investment happens when a multinational company carries out a
similar business operation in different nations.
 Horizontal FDI – the MNE enters a foreign country to produce the same products at
home.
 Conglomerate FDI – the MNE produces products not manufactured at home.
 Vertical FDI – the MNE produce intermediate goods either forward or backward in the
supply stream.
 Liability of foreignness – the costs of doing business abroad resulting in a competing
disadvantage.
Methods of Foreign Direct Investments:-

The foreign direct investor may acquire 10% or more of the voting power of an enterprise in an
economy through any of the following methods:
 By incorporating a wholly owned subsidiary or company
 By acquiring shares in an associated enterprise
 Through a erger or an acquisition of an unrelated enterprise
 Participating in an equity joint venture with another investor or enterprise

Foreign direct investment incentives may take the following forms:

Low corporate tax and income tax rates
 Tax holidays
 Other types of a tax concessions
 Preferential tariffs
 Special economic zones
 Investment financial subsidies
 Soft loan or loan guarantees
 Free land or land subsidies
 Infrastructure subsidies
 R & D support

Entry Mode

 The manner in which a firm choose to enter a foreign market through FDI.
1. International franchising
2. Branches
3. Contractual alliances
4. Equity joint ventures
5. Wholly foreign owned subsidiaries
 Investment approaches:-
1. Greenfield investment ( building a new facility)
2. Cross border mergers
3. Cross border acquisitions
4. Sharing existing facilities
Foreign Direct Investment in India

The economy of India is the third largest in the world as measured by purchasing power parity
(PPP) with a gross domestic product of US $3.611 trillion. In 2015 India overlook China and
the US as the top destination for the foreign direct investment. 2016 – 2017 In first half of the
2015, India attracted investment of $31 billion compared to $28 billion and $27 billion of
China and the US respectively. The government of India has amended FDI policy increase FDI
inflow. In 2014, the government increased foreign investment upper limit from 26% to 49% in
insurance sector. It also launched Make in India initiative in September 2014 under which FDI
policy for 25 sectors was liberalized further. As of April 2015, FDI inflow in India increased
by 48% since the launch of “Make in India” initiative. India was ranking 15Th in the world in
2013 in terms of FDI inflow, it rose up to 9th position in 2014 while in 2015 India became top
destination for foreign direct investment. During 2014 – 2015, India received most of its FDI
from Mauritius, Singapore, Netherland, Japan and the US. On 25 September 2014,
Government of India launched Make in India initiative in which policy statement on 25 sectors
were released with relaxed norms on each sector. 10% of India GDP is based on construction
activity. Indian government has invested $1 trillion on infrastructure from 2012 – 2017. 40% of
this $1 trillion had to be funded by private sector.100% FDI under automatic route is permitted
in construction sector for cities and townships. FDI in automotive sector was increased by 89%
between April 2014 to February 2015. India is 7th largest producer of vehicles in the world
with 17.5 million vehicles annually. 100% FDI is permitted in this sector via automatic route.
Automobiles shares 7% of the India’s GDP. India is making progress turning itself into a
magnet for manufacturers, the aim being to increase the share of manufacturing in India’s GDP
from s stagnant 15 -16%since 1980 to 25% by 2022 and create an additional 100 million jobs.
Indian pharmaceutical market is 3rd largest in terms of volume and 13th largest in terms of
value. Indian pharma industry is expected to grow at 20% compound annual growth rate from
2015 to 2020. 100% FDI is permitted in this sector. FDI in service sector was increased by
46% in 2014- 15. It is US $1.88 billion in 2017. Service sector includes banking, insurance,
outsourcing, research and development, courier and technology testing. FDI limit in insurance
sector was raised from 26% to 49% in 2014. 100% FDI is allowed under automatic route in
most of areas of railway, other than the operation, like high speed train, railway electrification,
passenger terminal, mass rapid transport system etc. Chemical industry of India earned revenue
of $155- 160 billion in 2013. FDi is allowed in chemical sector under automatic route. Expect
Hydrocynic acid, Phosgene, Isocynates and their derivatives, production of all other chemical
is de-licensed in India. India share in globalspecialty chemical industry is expected to rise from
2.8% in 2013 to 6 – 7% in 2023. Textile is one major contributor to India’s export nearly 11%
of India total export is textile. This sector has attracted about $1647 million from April 2000 to
May 2015. 100% FDI is allowed under automatic route. During year 2013 – 14, FDI in textile
sector was increased by 91%.indian textile industry is expected reach up to $141 billion till 202
Investment Risk in India
Sovereign Risk:-
India is an effervescent parliamentary democracy since its political
freedom from British rule more than 50 years ago. The country does not face any real threat of
a serious revolutionary movementwhich might lead to a collapse of state machinery. Sovereign
risk in India is hence nil for both foreign direct investment and foreign portfolio investment.
Many industrial and business houses have restrained themselves from investing in the North-
Eastern part of the country due to unstable conditions. Nonetheless in these parts is lucrative
due to the rich mineralreserves here and high level of literacy.

Political Risk:
India has enjoyed successive years of elected representative government at
the Union as well as federal level. India suffered political instability for a few years in the
sense there was no single party which won clear majority and hence it led to the formation of
coalition governments. However political stability has firmly returned since the general
election in 1999 with strong and healthy coalition governments emerging.

Commercial Risk:
Commercial risk exists in any business ventures of a country. Not each
and every product or service is profitably accepted in the market. Hence it is advisable to study
the demand/ supply condition for a particular product or service before making any major
investment. As it is entering the consumer market involves some kind of gamble and hence
involves commercial risk.

Risk Due To Terrorism:

In the recent past, India has witnessed several terrorist attacks on
its soil which could have a negative impact on investor confidence. Not only business
environment and return on investment but also the overall security conditions in a nation have
an effect on FDI’s. In the long run it is the macro economic conditions of the Indian economy
that would decide the flow of foreign investment and in this regard India would continue to be
a favorable investment destination.

FDI Policy in India

Foreign Direct Investment Policy:
FDI policy is reviewed on an ongoing basis and measures for its further liberalization are taken.
Change in sectoral policy/ sectoral equity cap is notified from time to time through Press Notes
by the Secretariat for Industrial Assistance in the Department of Industrial Policy
announcement by SIA are subsequently notified by RBI under FEMA. All Press Notes are
available at the websites of Departments of Industrial Policy and Promotion. FDI policy
permits FDI up to 100% foreign investor without prior approval in most of the sectors
including the services sector under automatic route. The investors are required to notify the
Regional office concerned of RBI of receipt of inward remittances within 30 days of such
receipt and will have to file the required documents with that office within 30 days after issue
of shares to foreign investors.

The foreign direct investment scheme and strategy depends on the respective FDI norms and
policies in India. The FDi policy of India has imposed certain foreign direct investment
regulations as per the FDI theory of the Government of India.

General Permission of RBI under FEMA:

Indian companies having foreign investment approval through FIPB route do not require any
further clearance from RBI for receiving inward remittance and issue of shares to the foreign
investors. The companies are required to notify the concerned Regional office of the RBI of
receipt of inward remittance within 30 days of such receipt and within 30 days of issue of
shares to the foreign investors or NRIs.

FDI in Small Scale Sector(SSI) Units:

A small scale unit cannot have more than 24% equity in its paid up capital from any industrial
undertaking either foreign or domestic.
If the equity from another company exceeds 24% even if the investment in a plant and
machinery in the unit does not exceed Rs 10 million the unit loses its small scale status and
shall require an industrial license to manufacture items reserved for small scale sector. FDI in
Small Scale Sector in India Further Liberalized.

Sector Specific Foreign Direct Investment in India

Hotel & Tourism: FDI in Hotel & Tourism sector in India
100% FDI is permissible in the sector on the automatic route, the term hotel include restaurants,
beach, resorts, and other tourist complexes providing accommodation and catering and food
facility to tourists. Tourism related industry include travel agencies, tour operating agencies
and tourist transport operating agencies, units providing facility for cultural, adventure and
wild life experience to tourists, surface, air and water transport facilities to tourists, leisure,
entertainment, amusement, sports, and health units for tourists and convention units and
organizations.
For foreign technology agreement, automatic approval is granted if
I. Up to 3% of the capital cost of the project is proposed to be paid for technical and
consultancy services including fees for architects, design, supervision, etc.
II. Up to 3% of net turnover is payable for franchising and marketing support fee, and up
to 10% of gross operating profit is payable for management fee, including incentive fee.

Insurance Sector:- FDI in Insurance sector in India :

FDI up to 26% in the insurance sector is allowed on the automatic route subject to obtaining
license from Insurance Regulatory & Development Authority (IRDA)

Telecommunication:-

FDI in Telecommunication sector:-

I. In basic, cellular value added services and global mobile personal communication by
satellite, FDI is limited to 49% subject to licensing and security requirement and
adherence by the companies to the license for foreign equity cap and lock in period for
transfer and addition of equity and other license provision.
II. ISPs with gateway radio paging and end to end bandwidth, FDI is permitted up to 74%
with FDI, beyond 49% requiring Government approval. These services would be
subject to licensing and security requirement.
III. No equity cap is applicable to manufacturing activities.
IV. FDI up to 100% is allowed for the following activities in the telecom sector :
a) ISPs is not providing gateway ( both for satellite and submarine cable)
b) Infrastructure providers providing dark fiber.
c) Electronic Mail.
d) Voice Mail.
e) FDI up to 100% is allowed subject to the condition that such companies would divest
26% of their equity in favor of Indian public in 5 years, if these companies are listed in
other parts of the world.
Trading:-
FDI in Trading companies in India:-
Trading is permitted under automatic route with
FDI up to 51% provided it is primarily export activities, and the undertaking is an export
house/trading. However under the FIPB route:-
I. 100% FDI is permitted in case of trading companies for the following activities.
 Exports
 Bulk imports with export/ex-bonded warehouse sales.
 Cash and carry wholesale trading.
 Other import of goods or services provided at least 75% is for procurement and sale of
goods and services among the companies of the same group and not for third party use
or onward transfer/sales.
II. The following kinds of trading are also permitted, subject to provision of EXIM Policy:
 Domestic trading of products of JVs is permitted at the wholesale level for such trading
companies who wish to market manufactured products on behalf of their joint ventures
in which they have equity participation in India.
 Trading of hi-tech items requiring specialized after sales services.
 Trading of items for social sector.
 Trading of hi-tech, medical and diagnostic items.
 Domestic sourcing of products for exports.

Power:-

FDI In Power Sector in India: Up to 100% FDI allowed in respect of projects relating to
electricity generation, transmission and distribution, other than atomic reactor plants. There is
no limit on the project cost and quantum of foreign direct investment.

Drugs & Pharmaceuticals: FDI up to 100% permitted on the automatic route for
manufacture of drugs and pharmaceutical provided the activity does not attract compulsory
licensing or involve use of recombinant DNA technology and specific cell formulations will
require prior Government approval.

Road, Highway, Ports and Harbors:- FDI up to 100% under automatic route is permitted
in projects for construction and maintenance of roads, highways, vehicular bridges, toll roads,
vehicular tunnels, ports and harbors.

Pollution Control and Management:-FDI up to 100% in both manufacture of pollution

control equipment and consultancy for integration of pollution control system is permitted on
the automatic route.
Foreign Direct Investment in India are approved through two Routes:-
 1. Automatic approval by RBI:- The Reserve Bank of India accords automatic
approval within a period of two weeks to all proposals and permits foreign equity up to
24%, 50%, 51%, 74%, and 100% is allowed depending on the category of industries
and the sectoral caps applicable. Investment In high priority industries or for trading
companies primarily engaged in exporting is given almost automatic approval by the
RBI.
2. The FIPB Route- Processing of non – automatic approval cases:-
FIPB stand for Foreign Investment Promotion Board which approval all other cases
where the parameters of automatic approval are not met. Normal processing time is 4
to 6 weeks. Its approach is liberal for all sectors and all types of proposals, and
rejections are few. The portion of the equity not proposed to be held by the foreign
investor can be offered to the public.

ii) Analysis of sector specific for FDI:-

Mauritius:- Mauritius invested US $ 671,734 in India up to the December 2017, equal to
34% of total FDI inflow. Many companies based outside of India utilize Mauritius holding
companies to take advantage of the India. The Double Taxation Avoidance Agreement
allows foreign firms to bypassIndian capital gains taxes, and may allow some India based
firms to avoid paying certain taxes through a process known a round tripping.

 Singapore:- Singapore continues to be the single largest investor in India amongst the
Singapore with FDI inflows in to US $374,434 up to December 2017. Sector wise
distribution of FDI inflow received from Singapore the highest inflow has been in the
services sector which accounts for about 17% of FDI inflow from Singapore. Petroleum
and natural gas occupies the second place followed by computer software and hardware,
mining and construction.

 U.S.A:-The United States is the third largest source of FDI in India (6% of the total)
valued at US $121,774 in cumulative inflows up to December 2017. The top sector
attracting FDI from the United States to India are fuel, telecommunication, electrical
equipment, food processing and services.

 U.k:- The United Kingdom is the fourth largest source of FDI in India (7% of the total)
valued at US $130,199 in cumulative inflows up to December 2017. Over 17 UK
companies under the aegis of the Nuclear Industry Association of UK have tied up with
Ficci to identify joint venture and FDI possibilities in the civil nuclear energy sector.
  Netherland: - FDI from Netherlands to India has increased at a very fast pace over
the last few years. Netherlands ranks fifth among all the countries that make
investments in India. The total flow of FDI from Netherlands to India came to US
$132,529 up to December 2017. The total percentage of FDI from Netherlands to India
stood at 6% out of the total foreign direct investment in the country up to December
2017.

Objectives of the Study:-

 To understand the flow of FDI in India.
 To know how can Indian Grow by FDI.
 To know in which sector we can get more foreign currency in terms of FDI in India.

RESEARCH METHODOLOGY
Research methodology is a careful investigation for inquires in a systematic method and
finding solution of a problem. It comprises the defining and redefining of problem, stating the
objectives, collection and reaching to a conclusion.
The first and foremost step in the research process consists of problem identification. Once the
problem is defined, the next step is the research design becomes easier.
The research design is the basic framework, which provides guide line for the rest of the
research process. The research designs the methods of collection of data collection and analysis.

SOURCES OF DATA COLLECTION:-

Secondary data has been collected for the study. Following are few ways in which the data was
collected. E.g Internet, Books, Newspaper, other reports and projects and literatures.

FDI:-
The study is limited to a sample of investing countries e.g. Mauritius, Singapore, USA,
Netherland etc. and sectors e.g. service sector, computer hardware and software,
telecommunications etc. which had attracted larger inflow of FDI from different countries.

HYPOTHESIS:-
Ho: There is no significant relationship between FDI inflows in India and GDP by industry
origin and growth rate of industries in India.
H1: FDI inflows depend on the GDP contribution of industry and growth rate of industries in
India.

SCOPE OF THE STUDY:-

1. The study is aimed to understand the flow of FDI in the Indian economy.
2. Finding out the reason for the difference in FDI inflows.
3. How FDI is affecting various sector of economy.

LIMITATION OF THE STUDY:-

1. It’s not only FDI that effect the growth of economy there are other factors such as FII,
monetary policy and government policies.
2. FDI data keeps on changing.
3. Time limitation Analysis and Interpretation.

DATA ANALYSIS&INTERPRETATION
1) TOP INVESTING COUNTRIES FDI EQUITY INFLOWS :-

Countr Mau Singa Japa U. Neth U.S.A Ger Cy Fra UAE

y ritiu pore n K er- m- pr nce
s land any us
%age to 34% 17% 7% 7% 6% 6% 3% 3% 2% 1%
total
inflows
in terms
of US $
Source :- ( From April 2000 to December 2017)

Cyprus, 3% UAE, 1%
France, 2%
Germany, 3%
U.S.A, 6%

Netherland, 6%
Mauritius, 34%

U.K, 7%

Japan,
7%
Singapore, 17%

Chart No. 3.1: Percentages of Total Inflow from Different Countries in India ( in terms of
US Dollar)

Interpretation :-
The largest inflows of FDI’s over the period of April 2000 to December 2017 have been
received from Mauritius, its share in these inflows have being as high as 34%. Singapore is
second with a share of 17%. The other major sources of foreign direct investment are from
Japan, U.K, Netherland, U.S.A, Germany, Cyprus, France, UAE and their respective share
of inflow of FDI are 7%, 7%, 6%, 6%, 3%, 3%, 2%, and 1% respectively. The inflows
from U.S.A are routed through Mauritius due to tax advantage. The tax advantage
emanates from the double tax avoidance agreement that India has with that country USA.
This agreement mean that any foreign investor has the option of paying tax either in India
or in Maurities.
2) SECTOR ATTRACTING HIGHEST FDI EQUITY INFLOWS:-

SECTOR %age to Total Inflow (in terms of US $)

Service Sector 17%
Telecommunication 8%
Computer Software & Hardware 8%
Construction Development 7%
Automobile Industry 5%
Trading 4%
Drug & Pharmaceuticals 4%
Chemicals 4%
Power 4%
Construction Activity 3%
Source :- ( April 2000 to December 2017)

Constuction
activity, 3%

Chemical, 4% Power,
4%

Pharmaceutical,
4% Service sector,
17%
Trading, 4%

Telecom, 8%

Automobile
industry, 5% Computer
S& F, 8%
Construction
Develop, 7%

Chart No. 3.2 : Sector Wise Cumulative FDI Inflows in India (in terms of US Dollar)

Interpretation:-
The Sectoral composition of FDI over the period of April 2000 to December 2017, we can
find that the largest recipient of such investment in service sector ( Financial or non-
financial services) the share of this sector in cumulative FDI flows is 17% of the inflow
total foreign direct investment. The foreign investors are interested in mainly financial
services due its profit generating advantage. The second recipient is telecommunication and
computer software & hardware sector which share 8% of total FDI. Construction
development, Automobile industry, Trading, Pharmaceutical, Chemical, Power and
construction activity contribute 7%, 5%, 4%, 4%, 4%, 4%, and 3% respectively.
3) FDI EQUITY INFLOWS ( MONTH WISE) DURING THE FINANCIAL YEAR 2017
– 18
 Months ( Financial year) FDI Equity Inflow (in Rs. Crore)
April 20,826
May 26,159
June 20,101

FDI Equity Inflow

30,000

25,000

20,000

15,000
FDI Equity Inflow

10,000

5,000

0
April May June

Chart No. 3.3: FDI Equity Inflows (Month Wise) During The Financial Year 2017- 2018.

Interpretation:-
This chart show that it represent the amount of FDI inflows from April 2017 to June 2017.
It shows the amount in Crore. The highest FDI inflows in the country is in the month May
2017 i.e 26,159 in RsCrore and 4,060 in US $ mn. Other months shows the fluctuating
trend.

4) RBI’S REGIONAL OFFICE ( WITH STATE COVERED) RECEIVED FDI

EQUITY INFLOWS ( From April,2000 to December, 2017) :
 RBI’s- Regional Office %age to Total Inflow ( in terms of US $)
Mumbai 31%
New Delhi 20%
Bangalore 8%
Chennai 7%
Ahmedabad 5%
Source :- ( April 2000 to December 2017)

Ahmedabad, 5%

Chennai, 7%

Mumbai, 31%
Bangalore, 8%

New Delhi, 20%

Chart No. 3.4: Top 5 FDI Inflows RBI’s Regional Office in India

Interpretation:-
The above figure shows that the top five regions in India attracting FDI. It shows that out
of 621,855 of cumulative FDi inflows in the financial year 2017, 31% share of the total
investment is carried by Mumbai region; also it continues to attract maximum foreign
investments followed by 20%- New Delhi, 8% Bangalore, 7%- Channai, and 5%-
Ahmedabad.

Growing Indian Economy:-

 India has become the fastest growing investment region for
foreign investors in 2016, led by an increase in investment in real estate and infrastructure
sectors. According to Department of Industrial Policy and Promotion the total FDI investments
in India during April – December 2017 stood at US$ 30.94 billion, indicating that
government’s effort to improve ease of doing business and relaxation in FDI norms is yielding
results. Data for April – December 2017 indicates that the telecommunications sector attracted
the highest FDI equity inflow of US$ 6.14 billion, followed bycomputer software and hardware
– US$ 5.16 billion and services – US$ 4.62 billion. Most recently the total FDI equity inflows
for the month of December 2017 touched US$ 4082 billion. During April – December 2017,
India received the maximum FDI equity inflows from Mauritius ( US$ 13.35 billion), followed
by Singapore ( US$ 9.21 billion), Netherlands ( US$ 2.38 billion), USA ( US$ 1.74 billion),
and Japan ( US$ 1.26 billion). Indian impact investments may grow 26% annually to US$ 40
billion from US$ 4 billion by 2025.

FINDINGS

 FDI is an important stimulus for the economic growth of India.

 Service sector is first and banking and insurance sector is second segment of which
pick the growth in second decade of reforms.
 FDI create high perks jobs for skilled employees in Indian service sector.
 Mauritius and Singapore is the 2 top countries which has maximum FDI in India.
 FDI play an important role in the development of infrastructure because many
countries invest in the infrastructure sector and service and banking finance sectors.
 Atomic Energy and Railway Transport are some important and life line of any country.
Therefore India also restricted FDI in this sector.
 After above analysis, we can say that FDI has good future growth in Retailing and Real
estate sector in India.

SUGGESTION
  Flexible labour laws needed:-
China gets maximum FDI in the manufacturing
sector, which has helped the country become the manufacturing hub of the world. In
India the manufacturing sector can grow if infrastructure facilities are improved and
labour reforms take place. The country should take initiatives to adopt more flexible
labor laws.
 Re look at sectoral caps:-
Through the Government has hiked the sectoral cap for
FDI over the years, it is time to revisit issues pertaining to limits in such sectors as coal
mining, insurance, real estate, and retail trade, apart from the small scale sector.
Government should also more investment into the country under automatic route.
 Promote Greenfield projects:-
India’s volume of FDI has increased largely due to Merger And Acquisitions rather
than large Greenfield projects. M&A’s not necessarily imply infusion of new capital
into a country if it is through reinvested earning and intra company loans. Business
friendly environment must be created on priority to attract large Greenfield projects.
 Develop debt market:-
India has a well developed equity market but does not have a well developed debt
markets. Steps should be taken to improve the depth and liquidity of debt market as
many companies may prefer leveraged investment rather than investing their own cash.
 Education sector should be opened to FDI:-
India has a huge pool of working
population. However, due to poor quality primary education and higher education, there
is still an acute shortage of talent. FDI in Education Sector is lesser than one percent.
By giving the status of primary and higher education in the country. However
appropriate measure must be taken to ensure quality education. The issues of
commercialization of education, regional gap and structural gap have to be addressed
on priority.
 Strengthen research and development in the country:-
India should
consciously work towards attracting greater FDI into R&D as a means of strengthening
the country’s technological prowess and competitiveness.
CONCLUSION

FDI in India has a significant role in the economic growth and development of India. FDI in
India to various sectors can attain sustained economic growth and development through
creation of jobs, expansion of existing manufacturing industries. The Inflow of FDI in service
sectors and construction and development sectors from April, 2000 to December 2017 attained
substantial sustained economic growth and development through creation of jobs in India.

Computer, Software & hardware and Drugs & Pharmaceuticals sector were the other sectors to
which attention was shown by Foreign Direct Investment. The other sectors in Indian economy
the Foreign Direct Investors interest was in fact has been quite poor.

FDI has helped to raise the output, productivity and employment in some sectors especially in
service sector. Indian service sector is generating the proper employment options for skilled
worker with high perks. On the other side banking and insurance sector help in providing the
strength to the Indian economic condition and develop the foreign exchange system in country.

So, we can conclude that FDI is always helps to create employment in the country and also
support the small scale industries also and helps country to put an impression on the world
wide level through liberalization and globalization.

BIBLIOGRAPHY AND REFERENCE

 www.researchgate.net
 www.rbi.org.in
 www.sebi.govt.in
 www.dipp.nic.in
 www.answer.com/topic/foreign-direct-investment#History
 www.docs.google.com
 UNCTAD (2017) world investment report.
 Department of industrial policy and promotion ( April 2000 to June 2017) annual report.
 http://indiahigh.com-mauritius.org.