FOREIGN DIRECT

INVESTMENT AND INDIAN

ECONOMY
Dr. Shoukat ali M Magalmani
HOD and Associate Professor
Department of Economics
JSS Banashankari Arts, Commerce and S K
Gubbi Science College, Vidyagiri
Dharwad. 580004
E-mail: smmegalmani@yahoo.co.in
Mob. 9448529867

INTRODUCTION
FDI means cross-border investment by a resident
entity in one economy with the objective of obtaining a
lasting interest in an enterprise resident in another
economy.
Or capital inflows from abroad that is invested in or to
enhance the production capacity of the economy.
FDI is considered to be the life blood for developing nations.
It provides opportunity for technological transfer and up
gradation and others.
It helps in broaden the market accessibility for both host and
home countries.
It helps in invention and innovation of international markets

BENEFITS OF FDI FOR

HOST COUNTRIES
Both host country and home get
benefit from FDI
Host country means that country
which accept the FDI from other
countries and use this for its
economic development
Home country means that country
which
supply
its
abundance
resources and widen its market.

BENEFITS OF FDI FOR

HOST COUNTRIES
1. Policy framework for FDI

Economic, political, and social stability

Rules regarding entry and operations
Standards of treatment of foreign affiliates
Policies on functioning and structure of markets
(especially competition and policies governing mergers
and acquisitions)
International agreements on FDI
Privatization policy
Trade policy (tariffs and nontariff barriers) and
coherence of FDI and trade policies
Tax policy

BENEFITS OF FDI FOR

HOST COUNTRIES
2.
Economic
determinants&
Business facilitation
Investment promotion
Investment incentives
Hassle costs (related to corruption
and administrative efficiency)
Social amenities

BENEFITS OF FDI FOR

HOST COUNTRIES
3. Market-seeking
Market size and per capita income
Market growth
Access to regional and global markets
Country-specific consumer preferences
Structure of markets
4. Resource/asset-seeking
Raw materials
Low-cost unskilled labor
Skilled labor
Technological, innovative, and other created assets (for
example, brand names), including as embodied in
individuals, firms, and clusters
Physical infrastructure (ports, roads, power,
telecommunications)

BENEFITS OF FDI FOR

HOST COUNTRIES
5. Efficiency seeking
Cost of resources and assets listed above,
adjusted for labor productivity
Other input costs, such as transport and
communication costs to/from and within
host economy and other intermediate
products
Membership of a regional integration
agreement conducive to the establishment
of regional corporate networks

OBJECTIVES OF THE STUDY

To know the historical growth of FDI

inflow into India.
To distinguish the flow of FDI pre and
post reform period.
To identify the flow of FDI from across
the countries and states.
To analyse the sector wise flow of FDI.
To point out the findings and policy
suggestions.

REVIEW OF LITERATURE
The various studies interrelated economic growth and FDI in
developing courtiers.
Lipsey (2002) identifies the effect of inward FDI on the economic
growth of host country. FDI helps domestic firms to achieve higher
productivity.
Alfro (2003) study concluded that FDI flows into the different
sectors of the economy (namely primary, manufacturing, and
services) exert different effects on economy.
Jiang et.al. (2010) concluded that FDI from Japan and Singapore
has a significantly positive effect on the degree of in-group
collectivism.
Ramasamy and Yeung (2010) examined the relation between FDI,
wages and productivity in china. It was found that FDI inflow
influenced the wage rates and has a positive effect on productivity.
Hausmann and Fernandez-Arias (2000) explored the limitation
attach with FDI. The study recommended that the foreign
companies will bring minimize new technology because of fear of
acceptance and also do not want to leakage their technology.
others

Historical Gross Inflow of FDI to

India from 1948 to 2014
Sl. N o.

1
2
3
4
5
6
7
8

Year (End Inflow of

of the
FDI (Rs.
March)
in
Crores)
1948
256
1964
565.5
1974
916
1980
933.2
1990
2705
2000
18486
2010
123378
2014
147518

Cumulati
ve
increase
256
821.5
1737.5
2670.7
5375.7
23861.7
147239.7
294757.7

Gross Inflow of FDI to India from 1948 to 2014

160000
140000
120000
100000
80000
60000
40000
20000
0
1

Year (End of the March)

Inflow of FDI (Rs. in Crores)

Sl, No.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24

Years

FDI inflows Post Reform Period (Rs.

in Crores )
1991-92
409
1992-93
1094
1993-94
2018
1994-95
4312
1995-96
6916
1996-97
9654
1997-98
13548
1998-99
12343
1999-00
10311
2000-01
10,733
2001-02
18,654
2002-03
12,871
2003-04
10,064
2004-05
14,653
2005-06
24,584
2006-07
56,390
2007-08
98,642
2008-09 * 142,829
2009-10 # 123,120
2010-11 #
2011-12 #
^
2012-13 #
2013-14
2014-15

97,320
165,146
121,907
147,518
64,193

Post Reform FDI inflow in

India
Chart Title

Inflow of FDI

180000
160000
140000
120000
100000
80000
60000
40000
20000
0

Years

Top Ten Country-wise FDI Equity Inflows to India from

April, 2000 to July, 2014

S.No

Name of the
Country

Amount of FDI
Inflows (Rs. in
crore)

%age with total

FDI Inflows (+)

Mauritius

390691.18

35.88

Singapore

135784.52

11.88

United Kingdom 105795.83

9.46

Japan

85639.02

7.49

Netherlands

65256.29

5.57

U.S.A

57835.90

5.38

Cyprus

37349.33

3.38

Germany

33486.48

2.99

France

19398.74

1.75

10

Switzerland

13801.42

1.23

Inflow of FDI from Top 10 Countries in the World

Amount of FDI Inflow

450000
400000
350000
300000
250000
200000
150000
100000
50000
0

Countries

S.
No.

State-wise Inflows of FDI

Cumulative
%age to
FDI ( 2000 to total
Inflows
2014)

MAHARASHTRA, DADRA & NAGAR HAVELI,

DAMAN & DIU
DELHI, PART OF UP AND HARYANA
TAMIL NADU, PONDICHERRY
KARNATAKA
GUJARAT
ANDHRA PRADESH
WEST BENGAL, SIKKIM, ANDAMAN & NICOBAR
ISLANDS
CHANDIGARH, PUNJAB, HARYANA, HIMACHAL
PRADESH
RAJASTHAN
MADHYA PRADESH, CHATTISGARH
KERALA, LAKSHADWEEP
GOA
UTTAR PRADESH, UTTRANCHAL
ORISSA
ASSAM, ARUNACHAL PRADESH, MANIPUR,
MEGHALAYA, MIZORAM, NAGALAND, TRIPURA
BIHAR, JHARKHAND
JAMMU & KASHMIR
REGIONS NOT INDICATED#
TOTAL

328,166

30

216,274
71,017
63,294
45,627
45,160
13,584

19
6
6
4
4
1

6,227

0.6

6,623
6,095
4,893
3,710
1,965
1,926
352

0.5
0.5
0.4
0.4
0.2
0.2
0

247
26
292,906
1,108,091

0
0
26.06
100

2
3
4
5
6
7
8
9
10.
11
12
13
14
15
16
17
18
19

Sector-wise FDI Equity Inflow

from April, 2000 to July, 2014
Sl. No

Sectors

FDI Inflow (Rs. In

Crores)

Percentages of
Total FDI Inflow

Service

191752.15

17.73

Construction

111127.49

10.40

Telecommunication

80608.47

7.23

61707.07

5.76

Computer Software &

Hardware
Drugs &Pharmaceuticals

61340.03

5.47

Automobile Industry

49678.09

4.41

47538.99

4.40

Chemicals (Other than

Fertilizers)
Power

44667.08

4.05

Metallurgical Industry

39225.17

3.60

10

Hotel & Tourism

38030.37

3.25

Sector-wise inflow of FDI

(Rs. in Crores)

Hotel & Tourism; 38030.37

Metallurgical Industry; 39225.17
Service; 191752.15
Power; 44667.08
Chemicals ; 47538.99
Automobile Industry; 49678.09
Construction
Drugs &Pharmaceuticals;
61340.03; 111127.49
Computer Software
& Hardware;; 80608.47
61707.07
Telecommunication

FINDINGS
India is one of the most important countries in the world
to attract FDI.
The FDI inflow to India was not new one, because it was
prevailed way back during the colonial period.
Since introduction of New Economic Policy 1991, FDI
inflow got greater scope. This is because of open market
conditions.
Service sector, construction, telecommunication etc
tertiary sector attracting more FDI then agricultural and
small scale industries. Because we need more fund the
primary sector but they are deprived from the investment.
Sectors which are deprived from the FDI are those where
large market potential is present but these are ignored by
the policy makers & poor infrastructure as well as due to
high concentration on priority sectors also contributed to
the cause.

FINDINGS
State- wise FDI inflows show that Maharashtra,
New Delhi, Karnataka, Gujarat and Tamil Nadu
received major investment from investors because
of the infrastructural facilities and favourable
business environment provided by these states.
It is observed that major investment in the above
sectors came from Mauritius and investments in
these sectors in India are primarily concentrated
in Mumbai and New Delhi.
It is also observed that the realisation of approved
FDI into actual disbursement is quite low.

POLICY PRESCRIPTIONS
The FDI is one of the important components for
economic development of our country. Our economic
growth has maintained higher level. Still government
should take some important steps for further
attracting and utilization of FDI. Following are
suggestions for further impartment in FDI inflow
The policy makers should design policies where
foreign investment can be utilised as means of
enhancing domestic production, savings, and exports;
as medium of technological learning and technology
diffusion and also in providing access to the external
market.
It is suggested that the government should push for
the speedy improvement of infrastructure sectors
requirements which are important for diversification
of business activities.

POLICY PRESCRIPTIONS
Government should ensure the equitable
distribution of FDI inflows among states.
Government must target at attracting
specific types of FDI that are able to
generate spillovers effects in the overall
economy.
The government must promote policies
which allow development process starts from
within (i.e. through productive capacity and
by absorptive capacity)..
Government must pay attention to the
emerging Asian continent as the new
economic power house of business
transaction.

CONCLUSIONS
A large number of changes were introduced in the
country after LPG era after 1991. India brought about a
structural breakthrough in the volume of the FDI
inflows into the economy maintained a fluctuating and
unsteady trend during reform period. It might be
interest to note that more than 50 per cent of the total
FDI inflows received in India come from Mauritius,
Singapore and the USA. The main reason for higher
levels of investment from Mauritius was that the fact
that India entered into a double taxation avoidance
agreement (DTAA) with Mauritius were protected from
taxation in India. Among the different sectors, the
service sector had received the larger proportion
followed by computer software and hardware sector
and then telecommunication sector

Thank you