INTRODUCTION

FDI is where foreign investors invest directly in the economic infrastructure of any foreign
country, means they invest their money to establish some institution, concerns, production units
or in infrastructural units. This investment contributes directly to the economy of the host
country thats why it is a direct investment.

DIRECT FOREIGN INVESTMENT:

A direct foreign investment is a domestically controlled foreign production facility. This does not
mean that firms own a majority of the operation. In some cases, less than 50% ownership can
constitute effective control because the stock ownership is widely dispersed. On the other hand,
the entrepreneur may dictate whom a firm may hire, what pricing structure the firm must use,
and how earnings will be distributed. This causes some concerns as to exactly who is in control
of the organization. Because of the difficulty of identifying direct investments, governmental
agencies have had to establish arbitrary definitions of the term. A direct foreign investment
typically involves ownership of 10% to 25% of the voting stock in a foreign enterprise. A firm
can make a direct foreign investment by several methods. One is to acquire an interest in an
ongoing foreign operation. This initially may be a minority interest in the firm but enough to
exert influence on the management of the operation. A second method is to obtain a majority
interest in the foreign company. In this case, the company becomes a subsidiary of the acquiring
firm. Third, the acquiring firm may simply purchase part of the assets of a foreign concern in
order to establish a direct investment. An additional alternative is to build a facility in the foreign
country.

HISTORY OF FDI IN INDIA.

At the time of independence, the attitude towards foreign capital was one of fear and suspicion.
This was natural on account of the previous exploitative role played by it in draining away
resources from this country. The suspicion and hostility found expression in the Industrial Policy
of 1948 which, though recognizing the role of private foreign investment in the country,
emphasized that its regulation was necessary in the national interest. Because of this attitude
expressed in the 1948 resolution, foreign capitalists got dissatisfied and as a result, the flow of
imports of capital goods got obstructed. As a result, the prime minister had to give following
assurances to the foreign capitalists in 1949:
1. No discrimination between foreign and Indian capital. The government o India will not
differentiate between the foreign and Indian capital. The implication was that the government
would not place any restrictions or impose any conditions on foreign enterprise which were not
applicable to similar Indian enterprises.
2. Full opportunities to earn profits. The foreign interests operating in India would be permitted
to earn profits without subjecting them to undue controls. Only such restrictions would be
imposed which also apply to the Indian enterprises.
3. Guarantee of compensation. If and when foreign enterprises are compulsorily acquired,
compensation will be paid on a fair and equitable basis as already announced in governments
statement of policy.
4.The foreign capital investments and technical collaborations were required to be so regulated
as to fit into the overall framework of the plans. In those industries where foreign technicians and
managers were allowed to operate as Indians with requisite skills and experience were not
available, vital importance was to be accorded to the training and employment of Indians in the
quickest possible manner.

ADVANTAGES OF FDI
Foreign Direct Investment plays a pivotal role in the development of India's economy. It is an
integral part of the global economic system. Advantages of FDI can be enjoyed to full extent
through various national policies and international investment architecture. Both the factors
contribute enormously to the maximum FDI inflows in India, which stimulates the economic
development of the country.
Foreign Direct Investment in India is allowed through four basic routes namely, financial
collaborations, technical collaborations and joint ventures, capital markets via Euro issues, and
private placements or preferential allotments.
FDI inflow helps the developing countries to develop a transparent, broad, and
effective policy environment for investment issues as well as, builds human and
institutional capacities to execute the same.
Benefits of Foreign Direct InvestmentAttracting foreign direct investment has become an integral part of the economic development
strategies for India. FDI ensures a huge amount of domestic capital, production level, and
employment opportunities in the developing countries, which is a major step towards the
economic growth of the country. FDI has been a booming factor that has bolstered the economic
life of India, but on the other hand it is also being blamed for ousting domestic inflows. FDI is
also claimed to have lowered few regulatory standards in terms of investment patterns. The
effects of FDI are by and large transformative. The incorporation of a range of well-composed
and relevant policies will boost up the profit ratio from Foreign Direct Investment higher. Some
of the biggest advantages of FDI enjoyed by India have been listed as under:
Economic growth- This is one of the major sectors, which is enormously benefited from foreign
direct investment. A remarkable inflow of FDI in various industrial units in India has boosted the
economic life of country.
Trade- Foreign Direct Investments have opened a wide spectrum of opportunities in the trading
of goods and services in India both in terms of import and export production. Products of
superior quality are manufactured by various industries in India due to greater amount of FDI
inflows in the country.

Employment and skill levels- FDI have also ensured a number of employment opportunities by
aiding the setting up of industrial units in various corners of India.
Technology diffusion and knowledge transfer- FDI apparently helps in the outsourcing of
knowledge from India especially in the Information Technology sector. It helps in developing the
know-how process in India in terms of enhancing the technological advancement in India.
Linkages and spillover to domestic firms- Various foreign firms are now occupying a position in
the Indian market through Joint Ventures and collaboration concerns. The maximum amount of
the profits gained by the foreign firms through these joint ventures is spent on the Indian market.

DISADVANTAGES OF FDI
The disadvantages of foreign direct investment occur mostly in case of matters related to
operation, distribution of the profits made on the investment and the personnel. One of the most
indirect disadvantages of foreign direct investment is that the economically backward section of
the host country is always inconvenienced when the stream of foreign direct investment is
negatively affected.
The situations in countries like Ireland, Singapore, Chile and China corroborate such an opinion.
It is normally the responsibility of the host country to limit the extent of impact that may be
made by the foreign direct investment. They should be making sure that the entities that are
making the foreign direct investment in their country adhere to the environmental, governance
and social regulations that have been laid down in the country.
The various disadvantages of foreign direct investment are understood where the host country
has some sort of national secret something that is not meant to be disclosed to the rest of the
world. It has been observed that the defense of a country has faced risks as a result of the foreign
direct investment in the country.

At times it has been observed that certain foreign policies are adopted that are not appreciated by
the workers of the recipient country. Foreign direct investment, at times, is also disadvantageous
for the ones who are making the investment themselves.
Foreign direct investment may entail high travel and communications expenses. The differences
of language and culture that exist between the country of the investor and the host country could
also pose problems in case of foreign direct investment.
Yet another major disadvantage of foreign direct investment is that there is a chance that a
company may lose out on its ownership to an overseas company. This has often caused many
companies to approach foreign direct investment with a certain amount of caution.
At times it has been observed that there is considerable instability in a particular geographical
region. This causes a lot of inconvenience to the investor.
The size of the market, as well as, the condition of the host country could be important factors in
the case of the foreign direct investment. In case the host country is not well connected with their
more advanced neighbors, it poses a lot of challenge for the investors.
At times it has been observed that the governments of the host country are facing problems with
foreign direct investment. It has less control over the functioning of the company that is
functioning as the wholly owned subsidiary of an overseas company.
This leads to serious issues. The investor does not have to be completely obedient to the
economic policies of the country where they have invested the money. At times there have been
adverse effects of foreign direct investment on the balance of payments of a country. Even in
view of the various disadvantages of foreign direct investment it may be said that foreign direct
investment has played an important role in shaping the economic fortunes of a number of
countries around the world.

FOREIGN DIRECT INVESTMENT HOTEL AND TOURISM

The hotel and tourism industry is among the top 10 sectors attracting foreign direct investment
(FDI). According to the
Department of Industrial Policy and Promotion (DIPP), this sector attracted about US$ 7,441
million of FDI between January 2000 and August 2014
Hotel and Tourism industry is presently occupying 3.28% share of total FDI equity inflows
(Table 4). Various international hospitality companies such as Hilton, Accor and the
InterContinental Hotels Group have already announced major venture plans in India, and
hospitality division is expected to see an additional US$ 11.41 billion in inbound investments
over the next two years (Dezan Shira & Associates, 2013). MakeMyTrip Ltd is planning to
invest US$ 15 million with a focus on e-tourism in India.
Given the role of Hotel and Tourism industry in Inclusive growth, this sector is declared as high
priority sector for Investment and 100% foreign direct investment (FDI) is permissible in the
sector on the automatic route. This investment is permitted in construction of hotels and other
tourism related projects and operations such as airport expansion projects. The term hotels
include restaurants, beach resorts, and other tourist complexes providing accommodation and/or
catering and food facilities to tourists. Tourism related industry is also broadly defined that
comprises travel agencies, tour operating agencies, tourist transport operating agencies and other
units providing facilities to tourists. In addition, a five year tax holiday is granted to
organizations that set up hotels, resorts and convention centres at specific destinations.
100% FDI is permissible in the sector on the automatic route,
The term hotels include restaurants, beach resorts, and other tourist complexes providing
accommodation and/or catering and food facilities to tourists. Tourism related industry include
travel agencies, tour operating agencies and tourist transport operating agencies, units providing
facilities 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/Seminar units and organizations.

For foreign technology agreements, 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/publicity support fee,

and up to 10% of gross operating profit is payable for management fee, including incentive fee.

HOTEL & TOURISM

Hotels include restaurants, beach resorts and business ventures providing accommodation and
food facilities to tourist. Tourism would include travel agencies, tour operators, transport
facilities, leisure, entertainment, amusement, sports and health units.
100 per cent FDI is permitted for this sector through the automatic route.
The hotels, catering and tourism sector is one of the fastest growing sectors of the global
economy.
It is also among the top-job creating sectors because its labour intensive nature and the
significant multiplier effect on employment in other related sectors. Yet, the sector has a
reputation of poor working conditions due to a number of factors: it is a fragmented industry
with a majority of employers small and medium sized enterprises with low union density, and
work characterized by low wages and low levels of skill requirements, shift and night work and
seasonality
Hotel & Tourism 100% FDI is permissible in the sector through the automatic route.
The term hotels include restaurants, beach resorts, and other tourist complexes providing
accommodation and/or catering and food facilities to tourists.
Hotel & Tourism Tourism related industry include travel agencies, tour operating
agencies and tourist transport operating agencies, units providing facilities 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/Seminar units and organizations
. Hotel & Tourism For foreign technology agreements, 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/publicity support fee, and up to
10% of gross operating profit is payable for management fee, including incentive fee.
Hotel & Tourism According to the data from the Department of Industrial Policy and
Promotion (DIPP), the hospitality industry had received $ 3.25 billion in 2012- 13
through FDI, second only to the services sector. The Indian tourism industry is
interwoven with the countrys monetary development. As GDP continues to mature, it
increases deals in fundamental infrastructure like transportation systems, which is
necessary to support the tourism industry.
Hotel & Tourism The hotel industry is directly connected to the tourism industry in
India. Over the last decade, India has transformed into one of the most popular tourism
destinations in the world, largely as a result of the governments Incredible India
campaign which showed India in a new light to overseas tourists. In 2005, the
appearance of global tourists improved by 16 percent, leading the resurgence of Indian
tourism.
Hotel & Tourism As new destinations extend the tourist entry is likely to rise.
Numerous improvements have been taken in infrastructure, which will attract Indian
hospitality for overseas guests. Under the automatic route, 100 percent FDI is allowed
in hotels and tourism. Travel and tourism is a US$32 billion business in India with an
input to 5.3 percent of Indian GDP.
Hotel & Tourism Many worldwide hotel groups are setting up their businesses in India
and many global tour operators are establishing operations in the country. With a view to
stimulate domestic and international investments in this sector, the government has
permitted 100 percent FDI through the automatic route allowing full FDI into all
construction development projects including construction of hotels and resorts,
recreational facilities, and city and regional level infrastructure.
Hotel & Tourism 100 percent FDI is now allowed in all airport expansion projects subject
to the condition that FDI for upgradation of existing airports requires Foreign Investment
Promotion Board (FIPB) approval beyond 74 percent. A five year tax holiday has been
given to organizations that set up hotels, resorts and convention centers at specific
destinations, subject to fulfillment of the agreed conditions. Some international
hospitality majors such as Hilton, Accor, Marriott International, Berggruen Hotels,
Cabana Hotels, Premier Travel Inn (PTI) and InterContinental Hotels group have already
announced major venture plans in India in recent years.
Hotel & Tourism It is expected that the hospitality division is expected to see an
additional US$11.41 billion in inbound investments over the next two years.

RBI WANTS LOCK-IN PERIOD FOR FDI IN HOTELS &

TOURISM
Fears funds diversion may be creating real estate bubble.
The Reserve Bank of India (RBI) has advised the government to impose strict new riders and set
up a monitoring mechanism to prevent a real estate bubble. That, the central bank fears, may be
created due to diversion of foreign funds meant for hotels and tourism to acquisition of
immovable property, circumventing foreign direct investment (FDI) rules.
At present 100 per cent FDI is allowed in the hotel and tourism sector through the automatic
route.
The new riders suggested by RBI include a lock-in period for the original investment, which
means foreign investors cannot sell and walk out of the Indian company whenever they choose.
In telecom, new operators which were given unifiedaccess services licences in 2008 had to agree
to the clause that they would not sell their stake for three years. This was applicable to both
foreign as well as Indian companies.
For hotels and tourism, RBI has also suggested a quarterly or annual reporting on the receipt and
usage of foreign inward remittance, granting permission or licence for running a hotel under
which construction of the hotel should be completed within a stimulated period, and clauses
under which the investor or the investee company would not be allowed to sell undeveloped
plots.
There are numerous restrictions on buying of property by non-residents. If they are setting up an
office in India, which is not merely a liaison office, RBI allows them to acquire immovable
property. However, in such cases, a declaration is required to be filed with RBI within 90 days of
acquiring the property.

Foreign nationals of non-Indian origin who have acquired immovable property in India cannot
transfer the property without RBIs permission.
The central bank has stated that, as regards FDI in hotels and tourism, once the inward
remittance received by the Indian company has been taken on record, there is no mechanism
neither under the FDI policy nor under the Foreign Exchange Management Act (Fema) to
monitor the end use as such investments are spread across the country.
RBI believes that non-residents set up companies for building hotels or tourism-related
infrastructure and divert the money coming as FDI to buy immovable property in India, which is
not allowed. This leads to macroeconomic concerns and creates an asset bubble in real estate by
pushing prices up artificially. This, according to the central bank, can be detrimental to the
domestic economy. It has called for post-investment monitoring of FDI, or suitable tweaking of
the policy, as reporting under Fema does not capture intentional violations.
The central bank adds that a violation of FEMA (which it is in this case) can be dealt with by
compounding (by the RBI as well as the Department of Economic Affairs), since RBI does not
monitor the end use and only looks at cases which have been bought to its notice.
RBI points out that in order to curtail arbitrage the government should put the onus of checking
FDI violations in hotels and tourism on the administrative ministry or the states concerned, as
has been done in certain other sectors. FDI in power, for instance, is in the automatic list but
subject to the provisions of the Electricity Act. The same applies to distillation and brewing of
alcoholic beverages, where a licence has to be obtained.

GUIDELINES FOR FDI IN HOTELS AND TOURISM

Sectors Receiving the Maximum FDI Inflows in Hotel & Tourism Industry in IndiaHotel and Tourism is one of the most booming sectors in Indian economy. It has contributed
heavily in the Gross Domestic Product of India.
100 percent FDI is permitted in the Hotel and Tourism in India under various approvals. Under
Automatic route, FDI is allowed only up to 51 percent in this industry. As per FDI guidelines for
hotel and tourism industry in India, following are the sectors, in hotels, which have been
receiving the maximum amount of FDI Inflows for the past few years:
Restaurants
Beach resorts
Tourist complexes which facilitates accommodation and catering to the tourists
As per FDI guidelines for hotel and tourism industry in India, following are the sectors in
tourism which have been receiving the maximum amount of FDI Inflows for the past few years:
Travel agencies
Tour operating agencies and Tourist transport operating agencies
Units which facilitates cultural, adventure and wild life experience to tourists
Units providing surface, air and water transport facilities to tourists
Sectors which offers leisure, entertainment, amusement, sports, and health related facilities to the
tourists
Convention/Seminar units and organizations
FDI in Hotels and Tourism Industries in India100 percent FDI is permitted in the hotel and tourism industry in India under various approvals
Hotels offer restaurants, beach resorts, and other tourist complexes which provide
accommodation or catering and food facilities to tourists

Tourism Sector includes tour operating agencies and tourist transport operating agencies, units
which offer cultural, adventurous and wild life experiences to tourists, and various other
entertainment programs which include, water sport activities, leisure games, amusement parks as
well as the health care units. Automatic approval for foreign technology in the hotel and tourism
sector will be availed if 3 percent of the total expense of the project occupies infrastructural
developments.
Up to 3 percent of the net turn over is payable as marketing fee under automatic route.
10 percent of the gross operating profit is payable as management fee under automatic route

RESEARCH METHODOLOGY
In order to accomplish this project successfully we will take following steps.

DATA COLLECTION:
Secondary Data:
Internet, Books , newspapers, journals and books, other reports and projects, literatures

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

LITERATURE REVIEW
Institutional investors have grown in importance in the mature economies in recent
years and come to supplant banks as the primary custodians of people's savings.
-

T .T Ram Mohan,
Economic and Political Weekly

It is time to realize that in spite of the impression given by the financial media, the
movements on the stock markets and the Sensex do not necessarily imply any
fundamental changes in the economy and these movements affect a very small
-

minority of the country's population.

Parthapratim Pal
Economic and Political Weekly

The main emerging feature of India's equity market is its gradual integration with the
global market and its consequent problems due to the hot money movement by
-

Foreign Institutional Investors (FIIs).

Kishore C. Samal
Economic and Political Weekly

INVESTMENT RISKS 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 movement
which 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
investing in these parts is lucrative due to the rich mineral reserves here and high level ofliteracy.
Kashmir on the northern tip is a militancy affected area and hence investment in the state of
Kashmir are restricted by law

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 elections in 1999, with strong
and healthy coalition governments emerging. Nonetheless, political instability did not change
India's bright economic course though it delayed certain decisions relating to the economy.
Economic liberalization which mostly interested foreign investors has been accepted as essential
by all political parties including the Communist Party of India Though there are bleak chances of
political instability in the future, even if such a situation arises the economic policy of India
would hardly be affected.. Being a strong democratic nation the chances of an army coup or
foreign dictatorship are minimal. Hence, political risk in India is practically absent.

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. In India one
can avail the facilities of a large number of market research firms in exchange for a professional
fee to study the state of demand / supply for any product. As it is, entering the consumer market
involves some kind of gamble and hence involves commercial risk

OBJECTIVE OF THE STUDY:

To know the flow of investment in India

To know how can India Grow by Investment .

To Examine the trends and patterns in the FDI across different sectors and from
different countries in India

To know in which sector we can get more foreign currency in terms of investment in
India

To know which country s safe to invest .

To know how much to invest in a developed country or in a developing.

To know Which sector is good for investment .

To know which country in investing in which country

To know the reason for investment in India

ENTRY MODE

 The manner in which a firm chooses to enter a foreign market through FDI.
International franchising
Branches
Contractual alliances
Equity joint ventures
Wholly foreign-owned subsidiaries

Investment approaches:
Greenfield investment (building a new facility)
Cross-border mergers
Cross-border acquisitions
Sharing existing facilities

INVESTMENT SCENARIO
CUMULATIVE FDI INFLOWS IN HOTEL & TOURISM:
SUB SECTORS OF FDI EQUITY INFLOWS IN HOTEL & TOURISM (From January,
2000 to December, 2015):
Sub Sectors

Amount of FDI equity inflows %age with total

Rs crore

US$ million

FDI inflows

Hotel & Restaurants

32,514.93

6,398.87

3.04

Tourism

2,027.57

426.41

0.20

Other (Hotel & Tourism)

383.28

84.90

0.04

Total of above

34,925.78

6,910.19

3.28

SHARE OF TOP FIVE RBIS REGION-WISE 9WITH STATES COVERED) IN

FDI EQUITY INFLOWS FOR HOTEL & TOURISM
(From January, 2000 to December, 2015)
Amount of FDI
States Covered equity
%age with
inflows
total FDI
Rs crore US$ million inflows for
Hotel &
Tourism
Maharashtra, Dadra
1.
Mumbai
&
20,821.71 3,949.79
57.16
Nagar Haveli, Daman
&
Diu
Delhi, Part Of Up
6,733.47 1,420.45
20.56
2.
New Delhi And
Haryana
3.
Bangalore Karnataka
1,849.07 370.22
5.36
704.53
150.98
2.18
4.
Hyderabad Andhra Pradesh
5.
Chennai
Tamil Nadu,
657.09
135.04
1.95
Pondicherry
Total of above
30,765.87 6,026.48
87.21
Ranks RBIs
Regional
Office

CONCLUSIONS
In the end we can say that FDI will give boost to Indian economy if proper uses are made by
introducing fdi in those sectors where has not expanded and lack in technology.FDI will also
increase the competition in the market and the customers will get good quality products at
reasonable prices .

Fdi also helps to introduce the new technology, superior quality designs in so many sectors. FDI
also helps in the up gradation of the backward area it means the development on the country is
going on. It will also help to increases the GDP of the county and also provides employment
opportunities to the peoples.

It also helps in the best possible utilization of resources in the country. Infrastructural growth will
also increases due to FDI. So we can say that the FDI is very helpful for our country if the
government has total control on in it otherwise it will start to exploit the resources of the country.