The Indian Institute of Planning And Management.

Satbari, New-Delhi

A REPORT ON FOREIGN DIRECT INVESTMENT IN INDIA

Submitted to Prof.Vaid Section-P1 Session- FW 2007-09

The Indian Institute of Planning And Management. Satbari, New-Delhi

Submitted by:
S.NO: 1 2 3 4 5 6 7 8 9 10 NAME: TARUN BHANDARI POOJA AHUJA YOGESH SHARMA SAHIL RAVISH NIKHIL NAGAR SHEEBA AGA KHAN ASHISH BHAMBANI PRIYANKA KAKRAN NEHA MAHAJAN SANDEEP VERMA ROLL.NO : 71 39 74 54 38 60 13 43 37 56 TOPIC INTRODUCTION PRE LIBERALIZATION POST LIBERALIZATION AND CURRENT SENARIO FDI IN TELECOM SECTOR FDI IN IT SECTOR FDI IN AGRICULTURE FDI IN AVIATION SECTOR FDI IN RETAIL SECTOR COMPARISION BETWEEN INDIA AND CHINA FUTURE SCOPE OF FDI IN INDIA SIGN:

The Indian Institute of Planning And Management. Satbari, New-Delhi

INTRODUCTION- Tarun Bhandari (71)

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 28 percent of global GDP. Foreign direct investment (FDI) in its classic definition is defined as a company from one country making a physical investment into building a factory in another country. Its definition can be extended to include investments made to acquire lasting interest in enterprises operating outside of the economy of the investor. The FDI relationship consists of a parent enterprise and a foreign affiliate which together form a Multinational corporation (MNC). In order to qualify as FDI the investment must afford the parent enterprise control over its foreign affiliate. The IMF defines control in this case as owning 10% or more of the ordinary shares or voting power of an incorporated firm or its equivalent for an unincorporated firm; lower ownership shares are known as portfolio investment. Foreign direct investment (FDI) in its classic definition is defined as a company from one country making a physical investment into building a factory in another country. Its definition can be extended to include investments made to acquire lasting interest in enterprises operating outside of the economy of the investor. The FDI relationship consists of a parent enterprise and a foreign affiliate which together form a Multinational corporation (MNC). In order to qualify as FDI the investment must afford the parent enterprise control over its foreign affiliate. The IMF defines control in this case as owning 10% or more of the ordinary shares or voting power of an incorporated firm or its equivalent for an unincorporated firm; lower ownership shares are known as portfolio investment.

The Indian Institute of Planning And Management. Satbari, New-Delhi List of countries of the world sorted by received foreign direct investment (FDI) stock, the level of accumulated FDI in a country. The US dollar estimates presented here are calculated at market or government official exchange rates.

RANK
1 2 3 4 5 35

COUNTRY
UNITED STATES UNITED KINGDOM HONG KONG FRANCE BELGIUM INIDA

FDI(millions of USD)
2,093,049 1,347,688 1,184,471 1,026,081 748,110 76,226

Source: UNCTAD list 2007.

The Indian Institute of Planning And Management. Satbari, New-Delhi

Foreign Direct Investment before LiberalizationPooja Ahuja (39) In year 1947 i.e. after Independence India lost its status of golden sparrow because massive control of British people over us. We were restricted rather afraid of welcoming any foreign player into our economy; as a result we throw out COCA COLA first foreign company who believed in us and our economy. But it was us who didnt have confidence in than. As a result a negative wave grow against India leading to all big players pulling back to enter into Indian market pushing Indian economy on the back foot. For the first four decades after achieving independence from British colonial rule, the economic polices of the Indian government were characterized by planning, control and regulation. There were periodic attempts at market 5

The Indian Institute of Planning And Management. Satbari, New-Delhi oriented reform, usually following balance of payments pressures, which induced policy responses that combined exchange rate depreciation and an easing of restrictions on foreign capital inflows. However, the latter were relatively narrow in scope and had little impact on actual inflows, which remained small. Nevertheless, there were foreign shareholdings in many companies, partly as a result of their pre-independence origins. Moreover, in sectors upon which the government placed high priority, domestic firms were allowed to enter into technology licensing arrangements, which often involved an equity stake as well. But, there was a general sense of discomfort with a foreign presence in industry, particularly in non-essential sectors like consumer goods. This culminated in a series of major policy decisions in the late 1970s that forced companies to restrict their foreign shareholdings to a maximum of 40 per cent. Many companies did comply, but two prominent ones who did not, Coca Cola and IBM, were asked to shut down their Indian operations. During the early 1980s, following a serious balance of payments crisis and a large loan from the International Monetary Fund, the Indian government relaxed its foreign investment policy. This engendered a number of joint ventures in the automotive industry, involving both financial and Technical relationships between Indian and Japanese manufacturers. A few years later, Japanese two-wheeler manufacturers entered the domestic market, again through joint ventures with major Indian producers. Here again, the ventures were followed by a series of arrangements between Component manufacturrs in the two countries. Other key sectors, like the computer industry, were also provided a more liberal trade and investment environment. Foreign Direct Investment in India 127 The big opening up came in 1991, following yet another external crisis. This time, the government went much further than before in introducing a series of both domestic and external reforms that fundamentally changed the business environment. One of the key components of this new policy was a significant widening of the range of activities in which foreign firms could enter as well as an easing of the conditions under which they came in. This chapter first outlines the reform progress and the evolving pattern of FDI over the past decade. We go on to report the key results from our FDI survey.

The Indian Institute of Planning And Management. Satbari, New-Delhi

Foreign Direct Investment post 1991

YOGESH SHARMA-(74) The new industrial policy announced in 1991 led to de-licensing of industry, competition, rather than protection as the desired policy environment. The earlier requirement of approvals and licenses for any investments and expansions were abolished for all except 18 industries. Within a few years, only five sectors remained under the ambit of industrial licensing.

The Indian Institute of Planning And Management. Satbari, New-Delhi

Current Scenario
FDI Inflows As the fourth-largest economy in the world in PPP terms, India is a preferred destination for foreign direct investments (FDI); India has strengths in information technology and other significant areas such as auto components, chemicals, apparels, pharmaceuticals, and jewellery. Despite a surge in foreign investments, rigid FDI policies resulted in a significant hindrance.

The Indian Institute of Planning And Management. Satbari, New-Delhi Currently, FDI is allowed in financial services, including the growing credit card business. These services include the non-banking financial services sector. Foreign investors can buy up to 40% of the equity in private banks, although there is condition that stipulates that these banks must be multilateral financial organizations. Up to 45% of the shares of companies in the global mobile personal communication by satellite services (GMPCSS) sector can also be purchased. FDI inflows into India reached a record US$19.5bn in fiscal year 2006/07 (April-March), according to the government's Secretariat for Industrial Assistance. This was more than double the total of US$7.8bn in the previous fiscal year. The FDI inflow for 2007-08 has been reported as $24bn and for 2008-09, it is expected to be above $35 billion. A critical factor in determining India's continued economic growth and realizing the potential to be an economic superpower is going to depend on how the government can create incentives for FDI flow across a large number of sectors in India.

FDI outflows

The Indian Institute of Planning And Management. Satbari, New-Delhi

Indian FDI outflows issued in 2002, 2003, and 2004 represented two thirds of Indian stocks of FDI at the end of 2004. In 2004, Indian FDI outflows amounted to 1.4% of the Gross Fixed Capital Formation: it was less that the average in developing countries (4.2%), but more than the ratio prevailing in a country such as China (0.2%). In 2004, India held the 7th rank among developing countries for its investments in foreign countries (behind Hong Kong, Singapore, Brazil, Taiwan, South Korea, and Mexico). It is particularly interesting to put in parallel the evolution of Indian FDI inflows and outflows.

CONCLUDING COMMENTS
India has come a long way since 1991 in so far as quantum of FDI inflow is concerned. But it is still a mere USD 4 billion per year, and seems to have stagnated at that level. FDI inflow in 2002 was just 3.2 per cent higher than FDI inflows in 2001. The popular wisdom is that MNCs are discouraged from 10

The Indian Institute of Planning And Management. Satbari, New-Delhi investing in India by bureaucratic hurdles and uncertainty about the sincerity of the government(s) about economic reforms. However, to date, there has been very little discussion about two important issues, namely, the experience of MNCs that have invested in India and the relationship between their performance and experience with the operating environment, and the extent of spillovers in the form of transfer of technology and know-how. The importance of the former is that the satisfaction of expectations of the MNCs that are already operational within India is, for obvious reasons, an important pre-condition for growth in FDI inflow. Transfer of technology and know-how, on the other hand, is at least as likely to have an impact on Indias future growth as the quantum of FDI inflow. Indeed, to the extent that Indias future growth will depend on the global competitiveness of its firms, the importance of such spillovers can be paramount.

Foreign Direct Investment in Telecom Sahil Ravish (54) The liberalization measures post-1990 have changed with foreign investments radically, now portfolio as well as Foreign Direct Investment are not only allowed but also actively encouraged. During the decade of the nineties, the 11

The Indian Institute of Planning And Management. Satbari, New-Delhi 'ceilings' on FDI in different sectors were progressively raised. In 2001, 100 per cent foreign investments were allowed in several industrial sectors. Also, 100 per cent Foreign Direct Investment is allowed in almost all the infrastructure sectors. FDI can enter India through two possible channels: * The automatic route under which companies receiving Foreign Direct Investment need to inform the Reserve Bank of India within 30 days of receipt of funds and issuance of shares to the foreign investor * For sectors that are not covered under the automatic route, prior approval is needed from the Foreign Investment Promotion Board (FIPB). The foreign direct investment in telecom has been hiked up from 49% to 74%. This move is positive for the sector, as it requires investments of Rs 700 900 million over the next 5 years. FDI inflow by 2004 was 9950.94 cores in telecom. Countries like Europe, Korea, and Japan telecom are likely to enter India, as India is seen as fastest growing telecom market in world. Their is restrictions related to remote access, transfer of network information outside India and international transit routing of Indian traffic. It has been decided to enchance the FDI in telecom services in areas like basic telecom, cellular unified access services, Nat /intranet, long distance Vast, public mobile, radio service & gmdcs. DOT will have the authority to restrict the license company from operating in any of the sensitive areas of the country. Effect of FDI in telecom

Telecom service at Subsidized prices FDI inflows will allow multiple benefits such as technology transfer, market access, and organizational skills. In India where 70% of population still resides in rural areas, there is a dire need of infrastructure in telecom, which FDI can provide. Foreign currency flowing in the country Harmonious relationship with country from which foreign investment is being made There will be increase in competition with local players, which will benefit consumers It will have a multiplier effect Telecommunication facility at reasonable price, affordable to many 12

The Indian Institute of Planning And Management. Satbari, New-Delhi More technological inflow, will improve voice & data quality Free flow of capital is good for Indian consumer

Doubts in the new FDI regulation

According to the policy, majority of directors and board members including, chairman, MD and CEO will be resident of India. foreign firm owns 74 per cent of the Indian telecom, it still has to appoint the chairman, managing director and CEO "in consultation with serious Indian investors", and a serious Indian investor is defined as someone who owns at least 10 per cent of the firm's equity - why even bother to invest in India if someone else decides who's going to run the firm? At a time when the country's police/investigative arms find it impossible to trace people at times, telecom firms "must provide traceable identity of their subscribers. The policy says "No accounting information will be send outside India" imagine a foreign investor wants to check the usage pattern, clouding, he will not be able do it so India will be seen as a black hole for foreign BPO. It also says that network cannot be managed from overseas & the ironical part is that India is fighting tooth and nil to win Contract to maintain global network out of India

No wonder it has been one year since the announcement of an increase in FDI limits in telecom from 49% to 74% has been made, and there are still no taker.

Foreign Direct Investment in IT-

Nikhil Nagar (38)

With companies such as Intel, Microsoft, Cisco, Nokia and Ericsson outlining ambitious expansion plans for India, the FDI commitment in the telecom and IT sectors combined have touched Rs 80,000 crore over the last 20 months.

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The Indian Institute of Planning And Management. Satbari, New-Delhi As per the data compiled by the ministry of communications and IT, against 28 companies that outlined their investment plans, 17 have already infused capital. Companies whose units are already operational include Ericsson, Elicited, LG, Nokia, Alcatel, EMC, and Lenities. Six of these companies have committed over $1bn each towards their India operations. This include Ciscos commitment of $1.1bn, Semidries $3bn proposed investment, Intels $1.25bn, Microsofts $1.7bn, IBMs $6bn, and SAP Labs $1bn investment. With India becoming an attractive destination for IT and telecom, the investment committed span both manufacturing as well as research and development activities. Ciscos investment spread across its next generation network (NGN) Lab at Chennai and e-Governance networking projects is currently under implementation, while Semidries ambitious proposal entailing a public-private partnership for advanced semiconductor manufacturing with technology from AMD is yet to take off in the absence of the Governments semiconductor policy which is now being finalized. Chip giant Intels announcement of multi-year investment for India, totaling over $1bn, includes $800m over the next five years towards business expansion, and $250m towards Intel Capital Fund for investment in Indian technology companies. Software major Microsofts $1.7bn investment covers R&D, Education, Governance, and Productivity, and is spread over a period of four years. IBMs investment plans include expansion of software, services and customersupport and also funding the new service delivery centers in Bangalore and a telecom research facility in New Delhi. In the case of SAP Labs India, the investment has been channelized towards R&D Centre for development of software and software solutions, and System applications and products and the units are currently operational. The government said Foreign Direct Investment in IT and telecom sector is expected to go up by more than 100 per cent in 2006. Last year, the global IT and telecom giants announced investment of eight billion dollars in the country over a period of three to five years. He said that hardware sector growth has kept pace with the growth in the software sector. The consumption of electronics equipment in the country is also expected to rise. The growing semiconductor market indicates the need to concentrate on this sector. 14

The Indian Institute of Planning And Management. Satbari, New-Delhi He said the government would strive to promote electronics and hardware manufacturing sector too. Due to recent developments, particularly with respect to provisions related to data protection and privacy in the context of BPO operations, liabilities of network service providers, computer related offences and regulation of cyber cafes, the Act is being amended. Foreign Direct Investment (FDI) into Indias information technology (IT) sector have shown a record increase of over 700% in the last three years, having gone up from Rs.543.66 crore in 2003 to Rs.4206.68 crore in 2005, FDI, apart from bringing in capital, brings in state-of-the-art technology, good management practices and improved skills to our employees, thereby enhancing competitiveness of the domestic industry in the international market. It also generates additional employment opportunities. Software exports have also increased in the IT sector in the last 3 years. FDI unto 100% is allowed under the automatic route in the IT sector and IT-enabled services. No new FDI guidelines have been framed for the IT sector. The extant guidelines were issued in 2000. As per the UNCTAD survey 2004 contained in the UNCTADs World Investment Report 2005, India has a share of 25% of R&D locations among the developing countries. The survey ranks India as the sixth global destination for R&D off shoring.

Foreign Direct Investment in AGRICULTURESHEEBA AGA KHAN (60) The present policy for FDI in Agriculture and Plantation sector is as under:

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The Indian Institute of Planning And Management. Satbari, New-Delhi i. FDI up to 100% is permitted under the automatic route only in the under-mentioned activities viz. Floriculture, Horticulture, Development of Seeds, Animal Husbandry, Pisciculture, Aqua-culture and Cultivation of Vegetables & Mushrooms, under controlled conditions and services related to agro and allied sectors ii. FDI up to 100% with prior Government approval is permitted in Tea plantation subject to the conditions of divestment of 26% equity of the company in favour of an Indian partner/ Indian public within a period of five years; and prior approval of the State Government concerned in case of any future land use change. iii. Besides the above two, FDI is not allowed in any other agricultural sector/activity. Indias exports during August, 2008 were valued at US $ 16005 million which was 26.9 per cent higher than the level of US $ 12614 million during August, 2007. In rupee terms, exports touched Rs.68721 crore, which was 33.5 per cent higher than the value of exports during August, 2007. Cumulative value of exports for the period April- August, 2008 was US$ 81225 million (Rs.342477 crore) as against US$ 60101 million (Rs.246180 crore) registering a growth of 35.1 per cent in Dollar terms and 39.1 per cent in Rupee terms over the same period last year. Indias imports during August, 2008 were valued at US $ 29946 million representing an increase of 51.2 per cent over the level of imports valued at US $ 19805 million in August, 2007. In Rupee terms, imports increased by 59 per cent. Cumulative value of imports for the period April- August, 2008 was US$ 130364 million (Rs.550123 crore) as against US$ 94664 million (Rs.387791 crore) registering a growth of 37.7 per cent in Dollar terms and 41.9 per cent in Rupee terms over the same period last year. Oil imports during August, 2008 were valued at US $ 10962 million which was 76.7 per cent higher than oil imports valued at US $ 6202 million in the corresponding period last year. Oil imports during April- August, 2008 were valued at US$ 45967 million which was 59.6 per cent higher than the oil imports of US$ 28798 million in the corresponding period last year. Non-oil imports during August, 2008 were estimated at US $ 18985 million which was 39.6 per cent higher than non-oil imports of US$ 13603 million in 16

The Indian Institute of Planning And Management. Satbari, New-Delhi August, 2007. Non-oil imports during April- August, 2008 were valued at US$ 84397 million which was 28.2 per cent higher than the level of such imports valued at US$ 65846 million in April- August, 2007. The trade deficit for April- August, 2008 was estimated at US $ 49139 million which was higher than the deficit at US $ 34543 million during April- August, 2007.

FOREIGN DIRECT INVESTMENT IN RETAIL SECTOR

PRIYANKA KAKRAN (43) Introduction

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The Indian Institute of Planning And Management. Satbari, New-Delhi The Retail Sector is the largest sector in India after agriculture, accounting for over 10 per cent of the countrys GDP and around 8 per cent of the employment, the retail industry is definitely one of the pillars of the Indian economy. Trade or retailing is the single largest component of the services sector in terms of contribution to GDP. India has the most unorganized retail market in the world. Most retailers of the unorganized retail market have their shop in the front and house at the back. The Retail Industry in India is today amongst the fastest growing industries with several players entering the market. Currently, the organized retail sector accounts for only 2 per cent indicating a huge potential market opportunity. India is being seen as most attractive market by retail investors from all over the world. As the contemporary retail sector in India is reflected in sprawling shopping centers, multiplex- malls and huge complexes offer shopping, entertainment and food all under one roof, the concept of shopping has altered in terms of format and consumer buying behavior, ushering in a revolution in shopping in India. This has also contributed to large scale investments in the real estate sector with major national and global players investing in developing the infrastructure and construction of the retailing business. Expected Investments Reliance Retail will invest US$5.5 billion by 2010-2011. Bharti-Wal-Mart will invest US$2.5 billion by 2015. Future Group (Pantaloon Retail) will invest US$260 million by 2008. Metro AG is investing US$400 million over the next three years. Targeting an emerging segment of night shoppers, New Delhi-based roundthe-clock convenience chain Twenty Four Seven Retail Stores Pvt. Ltd plans to invest US$200 million in the next five years. Another credible factor in the prospects of the retail sector in India is the increase in the young working population. In India, hefty pay-packets, nuclear families in urban areas, along with increasing working-women population and emerging opportunities in the services sector. These key factors have been the growth drivers of the organized retail sector in India which now boast of retailing almost all the preferences of life - Apparel & Accessories, Appliances, Electronics, Cosmetics and Toiletries, Home & Office Products, Travel and Leisure and many more. With this the retail sector in India is witnessing a rejuvenation as traditional markets make way for new formats such as departmental stores, hypermarkets, supermarkets and specialty stores. The retailing configuration in India is fast developing as shopping malls are increasingly becoming familiar in large cities. When it comes to development of retail space specially the malls, the Tier II cities are no longer behind in the 18

The Indian Institute of Planning And Management. Satbari, New-Delhi race. If development plans till 2007 is studied it shows the projection of 220 shopping malls, with 139 malls in metros and the remaining 81 in the Tier II cities. The government of states like Delhi and National Capital Region (NCR) are very upbeat about permitting the use of land for commercial development thus increasing the availability of land for retail space; thus making NCR render to 50% of the malls in India. Indias vast middle class and its almost untapped retail industry are key attractions for global retail giants wanting to enter newer markets. Even though India has well over 5 million retail outlets, the country sorely lacks anything that can resemble a retailing industry in the modern sense of the term. This presents international retailing specialists with a great opportunity. The organized retail sector is expected to grow stronger than GDP growth in the next five years driven by changing lifestyles, burgeoning income, and favorable demographic outline.

COMPARISION BETWEEN China vs. India

NEHA MAHAJAN (37) Foreign Direct Investment (FDI) is on the rise again. But the corporate savings overhang and investor pessimism about the global economy could dull the recovery of cross-border corporate investment. Concerns over corporate 19

The Indian Institute of Planning And Management. Satbari, New-Delhi financial health, an unexpected economic downturn, shareholder activism, and the risks associated with engaging in FDI have caused investors to hoard cash over the past four years. As investors face more intense competition and the lure of higher returns overseas, they are cautiously unloading their accumulated war chests. Emerging market countries are the 1st and 2nd most attractive foreign direct investment (FDI) locations in the world. Led by China and India, emerging markets have achieved unprecedented levels of investor confidence. India and China are among the top destinations for Foreign Direct Investments while the world's centre of power continues its "perceptible shift" from developed to developing markets, according to a report released on Thursday by a global management consulting firm. The two South Asian neighbors are among the 25 most attractive FDI destinations, according to Foreign Direct Investment (FDI) Confidence Index by AT Kearney.

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The Indian Institute of Planning And Management. Satbari, New-Delhi

MAJOR FINDINGS
India Joins China at the Center of the FDI Radar Screen Investor enthusiasm for China and India is at an all-time high, with roughly 45 percent of global investors more upbeat about China and India compared to last year. This is nearly twice the number recorded for the next three most positively viewed marketsBrazil, Poland and Russia. China achieved its highest-ever score in this year's Index, while India's score has been surpassed 21

The Indian Institute of Planning And Management. Satbari, New-Delhi only by China and the United States in previous years. China and India took the 1st and 2nd positions across nearly all broad sector categories While China has held the top spot since 2002, strong investor interest in India is a more recent development. Despite India's successful positioning as a business-processing and IT outsourcing hub, these activities often translate into service-sector exportsrather than FDI flows into India. Last year, India received just $5.3 billion in FDI, compared with China's $60.6 billion. This is partly because China attracts more capital-intensive manufacturing and logistics functions

Conclusion 22

The Indian Institute of Planning And Management. Satbari, New-Delhi India has yet to build critical mass in FDI, mostly because it did not initiate investment-attracting reforms until 1991. By contrast, China's pro-FDI regime has been in place since 1979. Indeed, China's entire competitive manufacturing base has been largely established by foreign multinational companies. We expect this trend to continue over the next three years as more functions are sent overseas. India appears to be on the cusp of an FDI takeoff. We expect the country's attractiveness to increase as long as the government maintains its focus on reforms, overcomes narrow business interests, and continues to address the country's infrastructure, logistics, and regulatory barriers.

Foreign Direct Investment in Aviation Industry

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The Indian Institute of Planning And Management. Satbari, New-Delhi Ashish Bhambhani-(13)

In a major fillip to the high-growth aviation sector, the government on Wednesday approved an almost complete overhaul of the foreign direct investment (FDI) policy for the sector. The move will help the sector attract around $50-$70billion investments over the next few years, which is civil aviation minister Praful Patels one of the goals. FDI percentage will be 26% and the investment component of FIIs at 23%, information and broadcasting minister PR Dasmunsi said announcing the governments decision. The government has capped the FDI in air transport services to 49% on the automatic route and reclassified it as domestic scheduled passenger airline sector. This sector consists of all the domestic airlines that publish fares and transport passengers. The FDI in non-scheduled airlines, chartered airlines and cargo airlines, has been capped at 74% on the automatic route as long as no foreign airlines are participants. This is fantastic for the industry and it will definitely raise the standards, Manav Singh, MD of domestic chartered airline company Club One Air said. He pegs the industry size at around Rs 350 crore and growing at 30 to 40% annually. The cargo industry is also set for a boost with most existing airlines like Spice jet and the national carrier Air India getting heavily into cargo. The ministry estimates that India will carry around 4 million tone cargo by 2010. FDI in groundhandling services has been hiked to 74% on the automatic route, subject to sectoral regulations and security clearance. This will lead to many more players in the ground-handling arena, leading to lower costs for the airlines and therefore result in better margins for the loss making aviation industry. The FDI norms for scheduled and non-scheduled air services, cargo, and ground handling are allows non-resident Indians (NRI) 100% investment. The norm that all no direct or indirect
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The Indian Institute of Planning And Management. Satbari, New-Delhi

participation by foreign airlines occurs has remained as the ministry still believes that domestic airlines need to become stronger before being exposed to foreign carriers. Under current regulations, the foreign direct investment (FDI) limit in domestic airlines is 49% through the automatic route, although foreign airlines are not permitted to hold equity. Nonresident Indians may invest up to 100%. The Ministry of Civil Aviation is reviewing a proposal to increase the foreign direct investment limit to 74% in the non-scheduled and ancillary sector. For Greenfield airport projects, 100% FDI is permitted through the automatic route. For existing airport facilities, there is 100% FDI, with the Foreign Investment Promotion Boards approval required for FDI beyond 74%, for air transport services, there is an FDI cap of 49% through the automatic route and 100% for Non-Resident Indian investment through the automatic route. The Ministry of Civil Aviation proposes to liberalize the FDI policy further in most sectors, details of which are under consideration

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The Indian Institute of Planning And Management. Satbari, New-Delhi

FUTURE GROWTH IN FORIGN DIRECT INVESTMENT

Sandeep Verma-(56) India has retained its position as the second most-preferred global location for foreign investment in 2008 and will continue to do so till 2010, lagging only behind China, the United Nations Conference on Trade and Development (UNCTADs) has said in World Investment Report 2008. Foreign direct investment (FDI) inflows into the country will continue to show the robustness seen in the past couple of years despite the global financial crisis that many feel will impact economies across the world. The report also mentions a survey by the Japan Bank for International Cooperation (JBIC), in which Japanese transnational manufacturing companies have rated India higher than China for establishing business operations. Going by my personal interactions with industry, it could be said that the Indian governments FDI target of $35 billion for 2008-09 can be achieved. However, we may not see any big inflows into the country. Inflows may be low for sectors like infrastructure, but other sectors are likely to see enough growth, said UNCTADs policy expert Premila Nazareth Satyanand, who released the report in India today. However, other experts believe that the global liquidity crunch may impact FDI inflows into the country. It is possible that the projected FDI inflows may not happen in 2009-09 and get deferred to the next fiscal, said Partha Mukhopadhyay of the Centre for Policy Research. The report also points that India has improved its ranking in the inward FDI performance index (which measures the flow of foreign investment into a country relative to its GDP) from 110 in 2006 to 106 in 2007, which is below that of Hong Kong, Indonesia and even Guatemala, but above Germany and Taiwan. Within Asia, India received the fourth largest amount of FDI inflows in 2007 (after China, Hong Kong and Singapore), which stood at $22.95 billion, translating into a growth of 16.73 per cent over $ 19.66 billion in 2006. 26

The Indian Institute of Planning And Management. Satbari, New-Delhi Significantly, India is bridging the gap with Singapore as a destination for FDI inflows, added Satyanand. The growth has been attributed to further opening up of telecommunications, single-brand retail, as well as increasing cross-border merger and acquisitions. More than a quarter of 300 international retailers told UNCTADs that they have either opened their first store in India during 2007 or are planning to do so in the near future. India was also recognised as the fourth-largest source of FDI in Asia, as Indian companies invested $13.64 billion abroad in 2007, as against $ 12.84 billion in the previous year, an increase of 6.23 per cent. New research by the McKinsey Global Institute indicates that the foreign direct investment that did find its way to India has had an overwhelmingly positive impact. The introduction of foreign competition in IT, business-process outsourcing, and the automotive industry has prompted Indian companies to revamp their operations and boost productivity, to the extent that some have become formidable global competitors. Thousands of new jobs have been created in these industries and consumers benefit from lower prices, better quality and a wider selection of products and services. Domestic demand has also soared in response to these lower prices.

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