Synopsis of End Term Projects On

Title: FDI in India and Sector specific analysis of FDI data of last 5 years

Submitted By: Amit Kumar Class- PGDM-F Roll No.- 79/2010

Proposed Supervisor: Prof Prem Sibbal Area: Finance

(Signature of the Student)

(Signature of the Supervisor)

Lal Bahadur Shastri Institute of Management, Delhi Plot No. 7, Sector 11, Dwarka, New Delhi 175001

FDI in India and Sector specific analysis of FDI data of last 5 years
INTRODUCTION Foreign direct investment (FDI) is considered to be the lifeblood and an important vehicle for economic development as far as the developing nations are concerned. The important effect of FDI is its contribution to the growth of the economy. FDI has an impact on country's trade balance, increasing labour standards and skills, transfer of new technology and innovative ideas, improving infrastructure, skills and the general business climate. This project is focused on the Sector-specific analysis of FDI and the impact of FDI on the economy including the analysis of emerging economy of last five years. Cumulative flow of FDI in India is US$ 193,739. As stated above FDI becomes a preferred route of investment and financing so there are risks attached with it based on the economic condition. Foreign Direct Investment in India is subject to policy guidelines framed by the Government of India from time to time in accordance with its Industrial Policy. The year 1991 saw a major liberalization in the policy by way of the Automatic Route in terms of which cases concerning foreign collaboration in respect of certain priority industries and involving not more than 51 per cent of foreign equity were allowed by the RBI without a reference to the Government of India. After 1991, certain more areas of foreign investments were opened up such as issuance of global depository receipts (GDRs) and investment by foreign institutional investors (FIIs). FDI comes through a) Automatic route and b) Govt approval route. In terms of the guidelines issued in February 2000 and subsequent amendments, except in certain circumstances, foreign investment by way of issue of shares/convertible debentures by Indian residents.

OBJECTIVES OF THE STUDY The objective of the study are : To explore the sector wise distribution of FDI inflows in order to point out the dominating sector with special reference to services, telecom, automobiles and housing and real estate. Identify the measures to improve FDI flow in the selected sectors. To critically analyse the trend in FDI in selected sectors as to paved the way for the efficient implementation of various sectors under the government preview. To explore the opportunities for FDI inflows into various sectors and to find out the benefits of FDI inflows to the various sectors.

Literature Review This section reviews the empirical studies on the relation between FDI and economic activities in the host economy, which could facilitate in identifying the issues relating to the impact of FDI at the sectoral level. In the earlier stage, few studies had shown that FDI has a negative impact on the growth of the developing countries (Singer, 1950; Griffin, 1970; Weisskof, 1972). The main argument of these studies was that FDI flows to Less Developing Countries (LDCs) were mainly directed towards the primary sector, which basically promoted the less market value of this sector. Since these primary products are exported to the developed countries and are processed for import, it receives a lower price for its primary product. This could create a base for the negative impact of FDI flows in the economy. On the other hand, Rodan (1961), Chenery and Strout (1966) in the early 1960s argued that foreign capital inflows have a favorable effect on the economic efficiency and growth towards the developing countries. It has been explained that FDI could have a favorable short-term effect on growth as it expands

the economic activity. However, in the long run it reduces the growth rate due to dependency, particularly due to decapitalization (Bornschier, 1980). This is due to the reason that the foreign investors repatriate their investment by contracting the economic activities in the long run. The studies that used the endogenous growth theory challenged this view in explaining the long run growth rate of the economy by using endogenous variables like technology and human capital (Barro and Martin, 1999; Helpman and Grossman, 1991). FDI is an important vehicle for the transfer of technology and knowledge and it demonstrates that it can have a long run effect on growth by generating increasing return in production via positive externalities and productive spillovers. Thus, FDI can lead to a higher growth by incorporating new inputs and techniques (Feenstra and Markusen, 1994). Kulwinder Singh (2005) has analyzed FDI flows from 1991-2005. A sectoral analysis in his study reveals that while FDI shows a gradual increase has become a staple of success in India, the progress is hollow. The telecommunication and power sector are the reasons for the success of infrastructure. He finds that in the comparative studies the notion of infrastructure has gone a definitional change. FDI in sectors is held up primarily by telecommunication and power is not evenly distributed. In their study on FDI and its economic effects in India, Chandand Chakroborty and Peter Munnen Kamp (2006) assess the growth implications of FDI in India by subjecting industry specific FDI and output to causality tests. Jaya Gupta (2007) in his paper made an attempt to review the change in sectoral trends in India due to FDI Inflows since liberalization. This paper also examines the changed policy implications on sectoral growth and economic development of India as a whole. Jayashree Bose (2007) in his book studied the sectoral experiences faced by India and China in connection with FDI inflows. This book provides information on FDI in India and China, emerging issues, globalization, foreign factors, trends and issues in FDI inflows, FDI inflows in selected sectors. A comparative study has also been conducted on FDI outflows from India and China. This paper stresses the need of FDI in India in retail sector and uses the augment that FDI is allowed in multiple sectors and the effects have been quite good without harming the domestic economy. The study also suggests that FDI in retail sector must be allowed.

FDI plays a multidimensional role in the overall development of host economies. It is widely discussed in the literature that, besides capital flows, FDI generates considerable benefits. These include employment generation, the acquisition of new technology and knowledge, human capital development, contribution to international trade integration, creation of a more competitive business environment and enhanced local/domestic enterprise development, flows of ideas and global best practice standards and increased tax revenues from corporate profits generated by FDI (Klein et al., 2001; Tambunan, 2005).While FDI is expected to create positive outcomes, it may also generate negative effects on the host economy. The costs to the host economy can arise from the market power of large firms and their associated ability to generate very high profits or by domestic political interference by multinational corporations. But the empirical evidence shows that the negative effects from FDI are inconclusive, while the evidence of positive effects is overwhelming, i.e., its net positive effect on economic welfare (Graham, 1995). Aggarwal (2007) has shown that there are wide variations in the FDI inflow across the states of India. Only seven states accounted for over 97 per cent of the total amount of export-oriented FDI and 83 per cent of total FDI approvals during 1991-2001. The presence of Export Processing Zones was found to be a relevant pull factor in attracting export-oriented FDI. Further, while explaining the sensitivity of FDI to labour market conditions, the study revealed that labour market rigidities and labour costs are more pronounced for export-oriented FDI than for domestic market-seeking FDI. Infrastructure and regional development are found to be key factors in attracting higher FDI, both in the export and domestic market-seeking sectors.

RESEARCH METHODOLOGY Analytical tools and statistical tools will be used according to the requirement of study. Econometric tools will be used to understand issues, other than those Statistical methods like multiple regression, Correlation, will be used using SPSS 16.0 version, Along with that FDIGDP models based to find the impact of FDI on economy & at sectoral level. Finally the suggestions will be given on proposed model and based on their findings.

Tools for data collection, Data source: The study is based on Primary data and the facts and figures collected from various sources such as Fact sheets on FDI, Details of FDI given by RBI, Department of Industrial Policy and promotion (DIPP), Ministry of commerce and Industry, Government of India., Centre for Monitoring Indian Economy, World Investment Report and World Investment Report published by UNCTAD. RBI bulletin, online data base of Indian economy, RBI bulletin, various Economic survey of India. SIGNIFICANCE OF THE STUDY Sectoral analysis is expected to enhance the understanding of industry specific FDI flows and its associated determinants. Thus, the overall significance of the model specified in this study would contribute to a greater understanding of the FDI determinants in the emerging markets, as well as, the findings of this study would also lay emphasis on the importance of liberalisation and economic policy reforms. It can be observed from the above analysis that at the sectoral level of the Indian economy, FDI has helped to raise the output, productivity and export in some sectors & To critically analyse the trend in FDI in select sector as to paved the way for the efficient implementation of various sectors under the government preview. Process Description: 1. Firstly collection of data as secondary data form various sources like Fact sheets on FDI, Details of FDI given by RBI, Ministry of commerce and Industry, Government of India., Centre for Monitoring Indian Economy, World Investment Report published by UNCTAD. Then select and sort appropriate data from the data collected. Apply the mathematical, statistical and analytical tools on the data. Analyze the outcomes and results came from various methodology. Compare the result. Interpret and quote appropriately analyze results, analysis and recommendation.

2. 3. 4. 5. 6.

BIBLIOGRAPHY www.rbi.org.in Economic Survey, (2009-10): Ministry of Finance, Government of India, New Delhi. www.UNCTAD.org Annual Report on FDI by Planning Commission. www.businessmapdsindia.com www.indiastat.com www.ssrn.org Balasubramanyam V.N, Sapsford David (2007): Does India need a lot more FDI, Economic and Political Weekly, pp.1549-1555. Sirari, A. S. and N. S. Bohra, (2011), Foreign Direct Investment (FDI) in India Service Sector (A Study of Post Liberalization), International Journal of Economic Research, Vol 2, Issue 2, pp 10-18. Eichengreen, B. and P. Gupta, (2011), The Service Sector as India's Road to Economic Growth, NBER Working Paper No. w16757. SIA newsletters SIA annual reports NCEAR reports

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