India's Economic Growth and the Role of Foreign Direct Investment ABSTRACT The Indian economy has reached

in the orbit of high rate of economic growth. It is being widely acclaimed and considered as an emerging global economic power. T he rate of growth recorded during the period 1950-51 to 2006-07 clearly indicate d a tendency of steady upward trend. However, the decade of 80's emerged as a be ginning of the high rate of economic growth or at least a dramatic departure fro m the past growth performance. This tendency had continued in the nineties and f urther growth stimulus has occurred in the early 21st century. Foreign direct investment is an investment made by a foreign individual or compa ny in productive capacity of another country. It is the movement of capital acro ss national frontiers in a way that grants the investor control over the acquire d asset. As the third-largest economy in the world in PPP terms, India is a preferred des tination for foreign direct investments (FDI). India's recently liberalised FDI policy permits up to a 100% FDI stake in ventures. Industrial policy reforms ha ve substantially reduced industrial licensing requirements, removed restrictions on expansion and facilitated easy access to foreign technology and FDI. The upw ard moving growth curve of the real-estate sector owes some credit to a booming economy and liberalized FDI regime. A number of changes were approved on the FDI policy to remove the cap in most of the sectors. Restrictions will be relaxed i n sectors as diverse as civil aviation, construction development, industrial par ks, commodity exchanges, petroleum and natural gas, credit-information services, Mining etc. The future of Indian economy is brighter because of its huge human resources, rapidly upcoming service sector, availability of large number of com petent professionals, vast market for every product, increasing impact of consum erism, absence of controls and licenses, interest of foreign entrepreneurs in In dia and existence of four hundred million middle class people. Today, India pro vides highest returns on FDI than any other country in the world. Introduction The Indian economy is the third largest in the world as measured by Purchasing P ower Parity, with a gross domestic product of US $3.611 trillion. When measured in USD exchange-rate terms, it is the 10th largest in the world, with a GDP of U S $800.8 billion (2006). India is the second fastest growing major economy in th e world, with a GDP growth rate of 8.9% at the end of the first quarter of 20062007. However, India's huge population results in a per capita income of $3,300 at PPP and $714 at nominal. The Indian economy is diverse and encompasses agriculture, handicrafts, manufact uring, textile, and a multitude of services. Although two-thirds of the Indian w orkforce still earn their livelihood directly or indirectly through agriculture, service sector is a growing one and are play an increasingly important role o f India's economy. The advent of the digital age, and the large number of young and educated populace fluent in English, is gradually transforming India as an i mportant 'back office' destination for global (multinational) companies for the outsourcing of their customer services and technical support. India is a major e xporter of highly talented workforce in software and financial services, and sof tware engineering. India adopted a socialist-inspired approach for most of its independent history, with strict government control over private sector participation, foreign trade , and foreign direct investment. However, since the early nineties, India has gr adually opened up its markets through economic reforms by reducing government co ntrols on foreign investment. The privatization of publicly owned industries and the opening up of some sectors to private and foreign investors has proceeded s lowly amid political debate. India faces a burgeoning population and the challenge of reducing social and eco nomic inequality. Even though Poverty remains a serious problem, it has declined considerably since independence, mainly due to the green revolution and economi c reforms. FDI up to 100% is allowed under the automatic route in all activities/sectors ex

cept the sectors, which will require approval of the Government. The question that begs for an elaboration is that is high growth and inflows of FDI solve structural imbalance of Indian economy and will it succeed in improvin g the lot of bottom section of the Indian economy, which are living in abysmally poor socio-economic conditions in the countryside. The employment elasticity in the agriculture and industrial sector has gone down in the post-reform period, therefore, the creation of employment opportunities will be a gigantic task for the policy makers. FDI has come in the most capital-intensive sectors; therefore , the required employment opportunities could not be created especially for the manual and the semi skilled labor. High skilled workforce gained substantially. That is why high growth is called urban centric and thus has developed a wedge b etween the urban and rural economy. There is urgent need to fill this void. The process of Policymaking has matured in the democratic Indian polity since the in dependence. It is thus predicted that the growing problems will receive mature r esponse and policy will be articulated in such a way to use FDI the way China ha s used to enhance economic growth while taking more and more investment to indus trialize the rural sector of the Indian economy. Foreign direct investment in India As the third-largest economy in the world in PPP terms, India is a preferred des tination for foreign direct investments (FDI); India has strengths in informatio n technology and other important areas such as auto components, apparels, chemic als, pharmaceuticals, jewellery and so on. Although India has always held promis e for global investors, but its rigid FDI policies were a significant hindrance in this context. However, as a result of a series of ambitious and positive econ omic reforms aimed at deregulating the economy and stimulating foreign investmen t, India has positioned(projected) itself as one of the front-runners in Asia P acific Region. India has a large pool of skilled managerial and technical expert ise. The size of the middle-class population at 300 million exceeds the populati on of both the US and the EU, and represents a powerful consumer market. India's recently liberalised FDI policy permits up to a 100% FDI stake in ventur es. Industrial policy reforms have substantially reduced industrial licensing re quirements, removed restrictions on expansion and facilitated easy access to for eign technology and FDI. The upward moving growth curve of the real-estate secto r owes some credit to a booming economy and liberalized FDI regime. A number of changes were approved on the FDI policy to remove the cap in most of the sectors . Restrictions will be relaxed in sectors as diverse as civil aviation, construc tion development, industrial parks, commodity exchanges, petroleum and natural g as, credit-information services, Mining and so on. But this still leaves an unfi nished agenda of permitting greater foreign investment in politically sensitive areas like insurance and retailing. According to the government's Secretariat fo r Industrial Assistance, FDI inflows into India reached a record US$19.5bn in fi scal year 2006/07 (April-March). This was more than double the total of US$7.8bn in the previous fiscal year. Between April and September 2007, FDI inflows were US$8.2bn. There is no doubt about the fact that there has been a worldwide stir about fore ign direct investment in India. India's growth rate of 8% certainly owes a lot t o foreign equity capital and foreign direct investment. Here are the highlights of the latest trend figures concerned with FDI in India: * * * * * Increase in total FDI: 46.8% Rise in foreign equity: 36% Reinvested foreign earnings and other capital: $3.2 billion Total FDI earnings (inward) in Apr-Jan 2005-06: $5.7 billion Total FDI earnings (outward) increase: 2000-01: $757 million 2004-05: $2.4 billion In the backdrop of this flourishing Indian economy The Associated Chambers of Co mmerce and Industry of India (ASSOCHAM) has projected India to double its GDP re aching a phenomenal USD 1100 billion from present USD 550 billion by 2010. Why d o you think so? Well statistics also say that an average Indian will be growing richer as per capita income rises from USD 600 per annum to USD 1200 per annum b

y 2010. The GDP investments will likewise increase from current 5% to 35% by 2010. No wo nder India has tremendous potential to attract USD 50 billion FDI in the next 5 years. With so much of visibility of MNCs, JVs, foreign investors etc it is litt le contradictory to say that the current flow of foreign direct investment India has been only 0.8% of GDP, compared to other nations of south-east Asia like Ma laysia and Thailand with a FDI flow of 3% of GDP. Hence with more liberalization and opening of other sectors of the economy like the latest relaxation in FDI p olicies in real estate or direct foreign investment in real estate India etc, FD I will increase by at least 1.6% of GDP in the next 5 years. Indian Government has a key role to play as far as investment laws are concerned . In this regard it is noteworthy to highlight some of the positive reforms that have brought a positive growth in the Indian economy in terms of GDP growth. 1. Govt. has removed 10% voting limit in banks. 2. Higher ceiling in FDI in airport revamp ventures and real estate investment. 3. Revisit foreign shareholding norms in telecom is welcome change. 4. Removal of unwarranted restrictions on hindrances to foreign investments has exceptionally increased FDI in India. 5. Govt. of India has already allowed FDI up to 51% with prior government approv al in the retail trade of "single brand" products. Foreign Direct Investment - Concept & Policy Foreign direct investment is an investment made by a foreign individual or compa ny in productive capacity of another country. It is the movement of capital acro ss national frontiers in a way that grants the investor control over the acquire d asset. Types of FDI There are two types of FDI: * Greenfield investment: It is the direct investment in new facilities or the ex pansion of existing facilities. It is the principal mode of investing in develop ing countries like India. * Mergers and Acquisition: It occurs when a transfer of existing assets from loc al firms takes place. Forbidden Territories: FDI is not permitted in the following industrial sectors: * Arms and ammunition. * Atomic Energy. * Railway Transport. * Coal and lignite. * Mining of iron, manganese, chrome, gypsum, sulphur, gold, diamonds, copper, zi nc. Investment in India Government of India accepts the key role of Foreign Direct Investment (FDI) in e conomic development not only as an addition to domestic capital but also as an i mportant source of technology and global best practices. The Government of India has put in place a liberal and Transparent FDI policy. FDI up to 100% is allowed under the automatic route in most sectors/activities. FDI policy in India is reckoned to be among the most liberal in emerging economi es. FDI Policy permits FDI up to 100 % from foreign/NRI investor without prior a pproval in most of the sectors including the services sector under automatic rou te. FDI in sectors/activities under automatic route does not require any prior a pproval either by the Government or the RBI.

Foreign Direct Investment Policy Foreign direct investment (FDI) has become an integral part of national developm ent strategies for almost all the nations globally. Its global popularity and po sitive output in augmenting of domestic capital, productivity and employment; ha s made it an indispensable tool for initiating economic growth for countries. India is evolving as one of the 'most favored destination' for FDI in Asia and t he Pacific. It has displaced US as the second-most favored destination for FDI i n the world after China according to an AT Kearney's FDI Confidence Index. India attracted more than three times foreign investment at US$ 7.96 billion during t he first half of 2005-06 fiscal, as against US$ 2.38 billion during the subseque nt period of 2004-05. FDI in India has contributed effectively to the overall growth of the economy in the recent times. FDI inflow has an impact on India's transfer of new technolog y and innovative ideas; improving infrastructure, thus makes a competitive busin ess environment. FDI policy is reviewed on an ongoing basis and measures for its further liberali zation are taken. Change in sectoral policy/sectoral equity cap is notified from time to time through Press Notes by the Secretariat for Industrial Assistance ( SIA) in the Department of Industrial Policy announcement by SIA are subsequently notified by RBI under FEMA. All Press Notes are available at the website of Dep artment of Industrial Policy & Promotion. FDI Policy permits FDI up to 100 % from foreign/NRI investor without prior appro val in most of the sectors including the services sector under automatic route. FDI in sectors/activities under automatic route does not require any prior appro val either by the Government or the RBI. The investors are required to notify th e Regional office concerned of RBI of receipt of inward remittances within 30 da ys of such receipt and will have to file the required documents with that office within 30 days after issue of shares to foreign investors. Automatic Route All activities which are not covered under the automatic route prior Government approval for FDI/NRI shall be necessary. Areas/sectors/activities hitherto not o pen to FDI/NRI investment shall continue to be so unless otherwise decided and n otified by Government. An investor can make an application for prior Government approval even when the proposed activity is under the automatic route. Procedure for obtaining Government approval- FIPB The Foreign Investment Promotion Board (FIPB) considers approving all proposals for foreign investment, which requires Government approval. The FIPB also grants composite approvals involving foreign investment/foreign technical collaboratio n. For seeking the approval for FDI other than NRI Investments and 100% EOU, applic ations in form FC-IL should be submitted to the Department of Economic Affairs ( DEA), Ministry of Finance. FDI from NRI & for 100% EOU FDI applications with NRI Investments and 100% EOU should be submitted to the Pu blic Relation & Complaint (PR&C) Section of Secretariat of Industrial Assistance (SIA), Department of Industrial Policy & Promotion. Proposals requiring Govt's approval Application for proposals requiring prior Government's approval should be submit ted to FIPB in FC-IL form. Plain paper applications carrying all relevant detail s are also accepted. No fee is payable. The following information should form pa rt of the proposals submitted to FIPB: Whether the applicant has had or has any previous/existing financial/ technical collaboration or trade mark agreement in India in the same or allied field for w hich approval has been sought; and If so, details thereof and the justification

for proposing the new venture/ technical collaboration (including trademarks). Applications can also be submitted with Indian Missions abroad who will forward them to the Department of Economic Affairs for further processing. Foreign inves tment proposals received in the DEA are placed before the Foreign Investment Pro motion Board (FIPB) within 15 days of receipt. The decision of the Government in all cases is usually conveyed by the DEA within 30 days. FDI Prohibited FDI is not permissible in Gambling and Betting, or Lottery Business, Business of chit fund, Nidhi Company, Housing and Real Estate business, Trading in Transfer able Development Rights (TDRs), Retail Trading, Atomic Energy Agricultural or pl antation activities or Agriculture (excluding Floriculture, Horticulture, Develo pment of Seeds, Animal Husbandry, Pisciculture and Cultivation of Vegetables, Mu shrooms etc. under controlled conditions and services related to agro and allied sectors) and Plantations(other than Tea plantations) General permission of RBI under FEMA RBI has granted general permission under Foreign Exchange Management Act (FEMA) in respect of proposals approved by the Government. Indian companies getting for eign investment approval through FIPB route do not require any further clearance from RBI for the purpose of receiving inward remittance and issue of shares to the foreign investors. The companies are, however, required to notify the Regional office concerned of the RBI of receipt of inward remittances within 30 days of such receipt and to f ile the required documents with the concerned Regional offices of the RBI within 30 days after issue of shares to the foreign investors or NRIs. Besides new companies, automatic route for FDI/NRI investment is also available to the existing companies proposing to induct foreign equity. For existing compa nies with an expansion programme, the additional requirements include: The increase in equity level resulting from the expansion of the equity base of the existing company without the acquisition of existing shares by NRI/foreign i nvestors, the money to be remitted should be in foreign currency and proposed ex pansion programme should be in the sector(s) under automatic route. Otherwise, t he proposal would need Government approval through the FIPB. For this a Board Re solution of the existing Indian company must support the proposal. For existing companies without an expansion programme, the additional requiremen ts for eligibility for automatic approval are: that they are engaged in the indu stries under automatic route; the increase in equity level must be from expansio n of the equity base and the foreign equity must be in foreign currency. The earlier SEBI requirement, applicable to public limited companies, that share s allotted on preferential basis shall not be transferable in any manner for a p eriod of 5 years from the date of their allotment has now been modified to the e xtent that not more than 20 per cent of the entire contribution brought in by pr omoter cumulatively in public or preferential issue shall be locked-in. Equity participation by international financial institutions such as ADB, IFC, C DC, DEG, etc. in domestic companies is permitted through automatic route subject to SEBI/RBI regulations and sector specific cap on FDI ADR/GDR An Indian corporate can raise foreign currency resources abroad through the issu e of American Depository Receipts (ADRs) or Global Depository Receipts (GDRs). R egulation 4 of Schedule I of FEMA Notification no. 20 allows an Indian company t o issue its Rupee denominated shares to a person resident outside India being a depository for the purpose of issuing Global Depository Receipts (GDRs) and/ or American Depository Receipts (ADRs), subject to the conditions that: the ADRs/GDRs are issued in accordance with the Scheme for issue of Foreign Curr ency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism ) Scheme, 1993 and guidelines issued by the Central Government there under from time to time The Indian company issuing such shares has an approval from the Min istry of Finance, Government of India to issue such ADRs and/or GDRs or is eligi

ble to issue ADRs/ GDRs in terms of the relevant scheme in force or notification issued by the Ministry of Finance, and There are no end-use restrictions on GDR/ADR issue proceeds, except for an expre ss ban on investment in real estate and stock markets. The FCCB issue proceeds n eed to conform to external commercial borrowing end use requirements; in additio n, 25 per cent of the FCCB proceeds can be used for general corporate restructur ing. Is not otherwise ineligible to issue shares to persons resident outside India in terms of these Regulations. There is no limit upto which an Indian company can raise ADRs/GDRs. However, the Indian company has to be otherwise eligible to rai se foreign equity under the extant FDI policy. A company engaged in the manufacture of items covered under Automatic route, who se direct foreign investment after a proposed GDRs/ADRs/FCCBs issue is likely to exceed the percentage limits under the automatic route, or which is implementin g a project falling under Government approval route, would need to obtain prior Government clearance through FIPB before seeking final approval from the Ministr y of Finance. Foreign currency convertible Bonds FCCBs are issued in accordance with the scheme [the Scheme for issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mecha nism) Scheme, 1993] and subscribed by a non-resident in foreign currency and con vertible into ordinary shares of the issuing company in any manner, either in wh ole, or in part, on the basis of any equity related warrants attached to debt in struments; The eligibility for issue of Convertible Bonds or Ordinary Shares of Issuing Com pany is given as under: An issuing company desirous of raising foreign funds by issuing Foreign Currency Convertible Bonds or ordinary shares for equity issues through Global Depositar y Receipt Can issue FCCBs, upto USD 50 Million under the Automatic route, From USD 50 -100 Million, the companies have to take RBI approval, From USD 100 Milli on and above, prior permission of the Department of Economic Affairs is required . Preference Shares Foreign investment through preference shares is treated as foreign direct invest ment. Proposals are processed either through the automatic route or FIPB as the case may be, as per the following guidelines: Foreign investment in preference share is considered as part of share capital an d fall outside the External Commercial Borrowing (ECB) guidelines/cap. Preferenc e shares to be treated as foreign direct equity for purpose of sectoral caps on foreign equity, where such caps are prescribed, provided they carry a conversion option. Preference shares structured without such conversion option fall outsid e the foreign direct equity cap. Duration for conversion shall be as per the maximum limit prescribed under the C ompanies Act or what has been agreed to in the shareholders agreement whichever is less. The dividend rate would not exceed the limit prescribed by the Ministry of Finance. Issue of preference shares should conform to guidelines prescribed by the SEBI and RBI and other statutory requirements. FDI in EOUs/SEZs/Industrial Park/EHTP/STP Special Economic Zones 100% FDI is permitted under automatic route for setting up of Special Economic Z one. Units in SEZ qualify for approval through automatic route subject to sector al norms. Details about the type of activities permitted are available in the Fo reign Trade Policy issued by Department of Commerce. Proposals not covered under the automatic route require approval by FIPB. Export Oriented Units (EOUs) 100% FDI is permitted under automatic route for setting up 100% EOU, subject to

sectoral norms. Proposals not covered under the automatic route would be conside red and approved by FIPB. Industrial Park 100% FDI is permitted under automatic route for setting up of Industrial Park. Electronic Hardware Technology Park (EHTP) Units All proposals for FDI/NRI inves tment in EHTP Units are eligible for approval under automatic route. For proposa ls not covered under automatic route, the applicant should seek separate approva l of the FIPB. Software Technology Park Units All proposals for FDI/NRI investment in STP Units are eligible for approval unde r automatic route. For proposals not covered under automatic route, the applican t should seek separate approval of the FIPB. Capitalization of Import Payables FDI inflows are required to be under the following modes: By inward remittances through normal banking channels or by debit to the specifi ed account of person concerned maintained in an authorized dealer/authorized ban k. Issue of equity to non-residents against other modes of FDI inflows or in kin d is not permissible. However, Issue of equity shares against lump sum fee, royalty payable and extern al commercial borrowings (ECBs) in convertible foreign currency are permitted, s ubject to meeting all applicable tax liabilities and sector specific guidelines. Exchange Control Management FEMA The Reserve Bank of India's Exchange Control Department, administers Foreign Exc hange Management Act, 1999, (FEMA) which has replaced the earlier act, FERA, wit h effect from June 1, 2000. The new legislation is for "facilitating external tr ade" and "promoting the orderly development and maintenance of foreign exchange market in India". FEMA extends to the whole of India. Under FEMA an Indian compa ny with foreign equity participation is treated at par with other locally incorp orated companies. Accordingly, the exchange control laws and regulations for res idents apply to foreign-invested companies as well. FDI in Indian Company In terms of Section 6(3) (b) of Foreign Exchange Management Act. 1999 Reserve Ba nk regulates transfer or issue of any security by a person resident outside Indi a read with Notification No. FEMA 20/2000-RB dated May 3, 2000 Issue of Rights/ Bonus Shares General permission is available to Indian companies to issue Right/Bonus shares subject to certain conditions. Entitlement of rights shares is not automatically available to investors who have been allotted such shares as OCBs. Such issuing companies would have to seek specific permission from RBI, Foreign Exchange Dep artment, Foreign Investment Division, Central Office, Mumbai for issue of shares on right basis to erstwhile OCBs. However, bonus shares can be issued to OCBs. Issue of shares under ESOS scheme A company may issue shares under this Scheme, to its employees or employees of i ts joint venture or wholly owned subsidiary abroad who are resident outside Indi a, directly or through a Trust subject to the condition that the scheme has been drawn in terms of relevant regulations issued by the SEBI; and face value of th e shares to be allotted under the scheme to the non-resident employees does not exceed 5% of the paid-up capital of the issuing company. Issue of shares under merger/amalgamation An Indian corporate can raise foreign currency resources abroad through the issu

e of ADRs or GDRs. Regulation 4 of Schedule I of FEMA Notification no. 20 allows an Indian company to issue its Rupee denominated shares to a person resident ou tside India being a depository for the purpose of issuing GDRs and/ or ADRs, sub ject to the conditions that: the ADRs/GDRs are issued in accordance with the Scheme for issue of Foreign Curr ency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism ) Scheme, 1993 and guidelines issued by the Central Government there under from time to time. The Indian company issuing such shares has an approval from the Ministry of Fina nce, Government of India to issue such ADRs and/or GDRs or is eligible to issue ADRs/ GDRs in terms of the relevant scheme in force or notification issued by th e Ministry of Finance, and Is not otherwise ineligible to issue shares to person s resident outside India in terms of these Regulations. Repatriation of investment Capital and profits Earned in India All foreign investments are freely repatriable except for the cases where NRIs c hoose to invest specifically under non-repatriable schemes. Dividends declared o n foreign investments can be remitted freely through an Authorised Dealer. Non-residents can sell shares on stock exchange without prior approval of RBI an d repatriate through a bank the sale proceeds if they hold the shares on repatri ation basis and if they have necessary NOC/tax clearance certificate issued by I ncome Tax authorities. For sale of shares through private arrangements, Regional offices of RBI grant permission for recognized units of foreign equity in India n company in terms of guidelines indicated in Regulation 10.B of Notification No . FEMA.20/2000 RB dated 3rd May 2000. The sale price of shares on recognised uni ts is to be determined in accordance with the guidelines prescribed under Regula tion 10B (2) of the above Notification. Profits, dividends, etc. (which are remittances classified as current account tr ansactions) can be freely repatriated. Transfer of shares/debentures A person resident outside India (Other than NRI and OCB) may transfer by way of sale or gift the shares or convertible debentures to any person resident outside India (including NRIs); provided transferee has obtained prior permission of SI A/FIPB to acquire the shares if he has previous venture or tie-up in India in sa me field or allied field NRI or OCB may transfer by way of sale or gift the shares or convertible debentu res held by him or it to another non-resident Indian; provided transferee has ob tained prior permission of Central Government to acquire the shares if he has pr evious venture or tie-up in India in the same field or allied field The person resident outside India may transfer any security to a person resident in India by way of gift. A person resident outside India may sell the shares an d convertible debentures of an Indian company on a recognized Stock Exchange in India through a registered broker. Current Account transactions Prior approval of the RBI is required for acquiring foreign currency above certa in limits for the following purposes: Holiday travel over US$ 10,000 p.a. Gift / donation over US$ 5,000 / US$ 10,000 per beneficiary p.a. Business travel over US$ 25,000 per person Foreign studies as per estimate of institution or US$ 100,000 per academic year Architectural / consultancy services procured from abroad over US$ 1,000,000 per project Remittance for purchase of Trade Mark / Franchise Reimbursement of pre incorporation expenses over US$ 100,000 Remittances exceeding US$ 25,000 p.a. (over and above ceilings prescribed for ot her remittances mentioned above) by a resident individual for any current accoun

t or capital account transaction. In certain specified cases, prior approval of the ministry concerned is needed f or withdrawal of foreign exchange, such as: Remittance of freight of vessel chartered by a PSU, Payment of import through ocean transport by a Govt. Department or a PSU on C.I. F basis, Multi-modal transport operators making remittance to their agents abroad. Acquisition of Immovable property by Non-resident A person resident outside India, who has been permitted by Reserve Bank to estab lish a branch, or office, or place of business in India (excluding a Liaison Off ice), has general permission of Reserve Bank to acquire immovable property in In dia, which is necessary for, or incidental to, the activity. However, in such ca ses a declaration, in prescribed form (IPI), is required to be filed with the Re serve Bank, within 90 days of the acquisition of immovable property. Foreign nationals of non-Indian origin who have acquired immovable property in I ndia with the specific approval of the Reserve Bank cannot transfer such propert y without prior permission from the Reserve Bank of India. Acquisition of Immovable property by NRI An Indian citizen resident outside India (NRI) can acquire by way of purchase an y immovable property in India other than agricultural/ plantation /farm house. H e may transfer any immovable property other than agricultural or plantation prop erty or farm house to a person resident outside India who is a citizen of India or to a person of Indian origin resident outside India or a person resident in I ndia. Liberalization of FDI Beside 100 percent relaxation of FDI in real estate, the government policies on FDI also offer opportunities for foreign investors to invest in different sector s. This includes 100 percent in power trading, processing, development of new ai rports, laying of natural gas pipelines, petroleum infrastructure and warehousin g of coffee and rubber. Limit for telecom services firms have been raised from 4 9 per cent to 74 per cent. Another cap to the retailing industry in India is allowing 51% FDI in single bra nd outlet. The government is now set to initiate a second wave of reforms in the segment by liberalizing investment norms further. And this has also brought abo ut a conspicuous interest by towards investments in the Indian hospitality secto r. Industry reports suggest the inflow of about US$ 500 million into the real es tate sector over the past six months and is expected to rise to a massive $ seve n to eight billion over the next 18-30 months. The FDI boom in India * India is now the third most favoured destination for Foreign Direct Investment (FDI), behind China and the USA, according to an AT Kearney survey that tracked investor confidence among global executives to decide their order of preference s. * India's share of global FDI flows rose from 1.8 per cent in 1996 to 2.2 percen t in 1997. * FDI in India in 1997-98 was lower at U.S.$ 5,025 million compared to U.S.$ 6,0 08 million in 1996-97 because of a decline in portfolio investment. Although for eign direct investment (FDI) increased by 18.6 per cent from U.S.$ 2,696 million in 1996-97 to U.S.$ 3,197 million in 1997- 98 * International developments continue to attract capital flows into India in 199 8-99 as well. * Mauritius, as in the previous two years, was the dominant source of FDI inflow s in 1997- 98. U.S.A. and S. Korea were, respectively, the second and third larg est sources of FDI. * S. Korea increased its flow of investment in India from a meager U.S.$ 6.3 mil lion in 1996-97 (0.2 per cent of total FDI) to U.S.$ 333.1 million in 1997-98 (1

0.4 per cent share). * There has been a sharp rise in the number of FDIs approved in 2004. * During the first seven months of 2004, between January and July, Rs. 5,220 cro re worth of FDI was approved. * Almost a third share of the investment in India is by NRI. * According to the latest Reserve Bank of India figures, outflows through variou s NRI deposits schemes amounted to $903 million since May 2004, as against net i nflows of $1.2 billion in the corresponding period last year.

A recent international agency report has explained that the Indian economy will become one of the world's largest by 2050 A.D. With a GDP growth rate of 8 per c ent since 2003 starting with a rebound in the Indian agriculture initially but n ow followed with a boom in production and service sectors similar to that of Chi na. In the last couple of months there has been a series of announcements of huge in vestments by giant foreign and NRI companies. Bill Gates in recent visit to Indi a announced that the Microsoft will invest around $ 1.7 billion over the next f ew years in India. Intel, the world's largest computer chips company has planned to invest over $ 1 billion in India. CISCO has announced plans to spend $ 1.1 b illion over the next few years in India. And for Microsoft, India is emerging as a big market to exploit as Microsoft doesn't have much in stake in China. Purch asing of shares to the tune of $ 1.5 Billion in Bharti Tele ventures by Vodaphon e is another big FDI inflow into the country. To be a genuine competitor of Chin a in FDI, India should attain an annual growth rate of 10 %. So far India has no t attracted more then $ 3-4 Billion annually when compared to FDI inflows of $ 5 5- 60 Billion for China. The number of foreign and NRI equities which have inves ted in India between Aug' 1991 Nov' 2002 is 15761 with a total foreign investment of Rs. 283447 Crores. However things are changing and improving in India too. FD I investment in India has nearly doubled to $2.9 billion during April July 2006 fro m $ 1.5 billion for the same period last year (2007) representing a growth rate of 259 %. According to the RBI, it is inferred that India has received $50.1 bil lion since 1991 of which $16 billion or 32% of it came since April 2004. The negative side of this bouncing FDI and NRI inflow is the constraints of Indi an economic growth which are internal and not external .Ups and downs in Indian agriculture plays a major role in constraining Indian growth rate coupled with u nhealthy infrastructure like pot holed roads, incomplete flyovers, undeveloped a irport facilities etc are the main constraints in the growth of the Indian econo my. Again lopsided regional variation in the economic growth of the country is anoth er major impediment in the economic growth. Truant Left Parties whose support is important for the survival of the UPA government at the center is another major bottleneck in the inflow to FDI investment. However a very reassuring development has been the tremendous boost up which the recent budget has given to industrial infrastructure and FDI investment in Indi a. Positive side of the story is the tremendous resilience of the economy, rapid growth of Indian agriculture, boost up to infrastructural facilities, the treme ndous global outsourcing boom in India and a well-regulated and deep capital mar ket. Looking at the current rate of FDI inflow India can attract a record of $ 1 2 billion FDI inflow this fiscal year. The commerce minister of India feels it i s possible though he has a note of caution, "There is competition not only just from China but also from others like Thailand, Malaysia and so on. We cant lose focus on attracting investments since we cant get inflows by giving lectures but work on ways to get investors." If a comparative analysis of the Indian and Chinese economy is done some interes ting comparison emerges through India lags behind China in so many areas and a l ot needs to be done if India has to catch up with China. The comparative analysi s is given as below:

Basis of Comparison China India Total population 1272 billion 1033 billion Savings rate 50 per cent 26 per cent Labour force 757 billion 451 billion Annual GDP US $ 1159 billion 478 US $ billion Share of agriculture in GDP 15 per cent 27 per cent Share of industry in GDP 52 per cent 27 per cent Share of service sector in GDP 33 per cent 48 per cent Rail routes 56.7 thousand sq kms 62.5 thousand sq kms Motor vehicles per 1000 people 8 7 R& D expenditure 0.1 % of GNP 0.6 % of GNP Internet host 0.6 per 10000 people 0.8 per 10000 people Education expenditure 2.3 per cent of GNP 3.2 per cent of GNP Female adult literacy 85 per cent 45 per cent Undernourished people 9 per cent of the total population 23 per cent of t he total population Thus it is noticed that the overall scene of Indian economy with a booming stock touching almost the 14000 mark, a buoyant Rupee of Rs 43.44 /Dollar and a healt hy growth trend of the major sectors of the Indian economy the environment is ve ry positive for FDI and NRI inflows. However compared to China it is still behin d even though it is marching ahead. A lot more needs to be done. The Indian bull is no doubt energetic now however it has to run fast to overtake the Chinese dr agon which is possible if friendly ground is created. Conclusion It is generally said that future is always uncertain. This saying is correct to some extent. But at the same time it is also said that exceptions are always the re. This exception is about India's certain higher rate of growth in the coming future. The future of Indian economy is brighter because of its huge human resou rces, rapidly upcoming service sector, availability of large number of competent professionals, vast market for every product, increasing impact of consumerism, absence of controls and licenses, interest of foreign entrepreneurs in India an d existence of four hundred million middle class people. Even today, India is pr oducing largest number of billionaires in a year, take over by Indian multinatio nals is amazing, the craze of Indians to go abroad is rapidly diminishing, the R upee is becoming stronger and stronger in relation to Dollar. India's say in the international diplomacy and political affairs has now become meaningful, thousa nds of foreigners are working as executives in India, packages are becoming lucr ative and competitive and annual rate of growth is highest after China. This pre sent picture gives some reflections of the future. But this is all in the absolu te sense and not in the relative terms. A country can only grow if the Govt. p olicies allow more participation and is able to attract more and more foreign di rect investment in India. Today, India provides highest returns on FDI than any other country in the world. India is poised for further growth in manufacturing, infrastructure, automobiles, auto components, food processing sectors, real est ate development etc. In this context it is also worth mentioning that savings ra te has also increased from 23% to 31% over the last year to this year. India's c ontinuing ambivalence on FDI, as a result, exacts a heavy toll on the economy. Undoubtedly, India is ceding billions of dollars of F DI to its neighbours each year. While China achieved actual FDI inflows of aroun d $45.3 billion in 1997, India settled for a mere $3.2 billion. India therefore stands to win in the next few years. Online References http://en.wikipedia.org http://www.indianindustry.com http://www.indianground.com http://dipp.nic.in http://www.rediff.com http://ideas.repec.org http://business.mapsofindia.com

http://www.hinduonet.com http://www.merinews.com http://commerce.nic.in http://www.igidr.ac.in