EXECUTIVE SUMMARYForeign direct investment (FDI) has played an important role in the process of globalisation during the past two decades. The rapid expansion in FDI by multinational enterprises since the mid-eighties may be attributed to significant changes in technologies, greater liberalisation of trade and investment regimes, and deregulation and privatisation of markets in developing countries like India. The title of the empirical study is “FDI inflows and its impact in India” during 2007 to 2011. The present study aims at providing detailed information about FDI inflows in India during the subsequent years.
The analysis is fully based on secondary data collected through different website and journals. The project aims at providing information of present FDI policy, year wise FDI inflows, sector wise FDI inflows, countries contribution to maximum of FDI inflows, state wise FDI inflows, trends and patterns of FDI inflows in different sector, FDI comparison between India and China and so on.From the study it has been found out that total FDI inflows are estimated at US$19.43 billion during April 2010 to March 2017 and cumulative FDI inflows from 1991-2017 was $146319 million. The services sector, computer hardware & software, telecommunications, real estate, construction received maximum FDI inflows in India and Mauritius is the main source followed by Singapore, the US, the UK, the Netherlands and Japan for FDI inflows in India. From the hypothesis it has been found out that there is a positive relationship between FDI and economy growth of India.
And thus different suggestion and recommendation are given to improve the present condition of FDI in India.CHATER IINTRADUCTION1.0 INTRODUCITON TO FDIForeign Direct Investment (FDI) broadly encompasses any long-term investments by an entity that is not a resident of the host country.
Typically, the investment is over a long duration of time and the idea is to make an initial investment and then subsequently keep investing to leverage the host country’s advantages which could be in the form of access to better (and cheaper) resources, access to a consumer market or access to talent specific to the host country – which results in the enhancement of efficiency. This long-term relationship benefits both the investor as well as the host country. The investor benefits in getting higher returns for his investment than he would have gotten for the same investment in his country and the host country can benefit by the increased know how or technology transfer to its workers, increased pressure on its domestic industry to compete with the foreign entity thus making the industry improve as a whole or by having a demonstration effect on other entities thinking about investing in the host country.1.1 TYPES OF FDI’S;Outward FDI:An outward-bound FDI is backed by the government against all types of associated risks. This form of FDI is subject to tax incentives as well as disincentives of various forms.
Risk coverage provided to the domestic industries and subsidies granted to the local firms stand in the way of outward FDIs, which are also known as ‘direct investments abroad.’Inward FDIs:Different economic factors encourage inward FDIs. These include interest loans, tax breaks, subsidies, and the removal of restrictions and limitations. Factors detrimental to the growth of FDIs include necessities of differential performance and limitations related with ownership patterns.Horizontal FDI- Investment in the same industry abroad as a firm operates in at home.Vertical FDI Backward Vertical FDI: Where an industry abroad provides inputs for a firm’s domestic production process.Forward Vertical FDI: Where an industry abroad sells the outputs of a firm’s domestic production.
BY TARGETGreenfield investment: – Direct investment in new facilities or the expansion of existing facilities. Greenfield investments are the primary target of a host nation’s promotional efforts because they create new production capacity and jobs, transfer technology and know-how, and can lead to linkages to the global marketplace. The Organization for International Investment cites the benefits of Greenfield investment (or in sourcing) for regional and national economies to include increased employment (often at higher wages than domestic firms); investments in research and development; and additional capital investments. Disadvantage of Greenfield investments include the loss of market share for competing domestic firms. Another criticism of Greenfield investment is that profits are perceived to bypass local economies, and instead flow back entirely to the multinational’s home economy.
Critics contrast this to local industries whose profits are seen to flow back entirely into the domestic economy.Mergers and AcquisitionsTransfers of existing assets from local firms to foreign firm takes place; the primary type of FDI. Cross-border mergers occur when the assets and operation of firms from different countries are combined to establish a new legal entity. Cross-border acquisitions occur when the control of assets and operations is transferred from a local to a foreign company, with the local company becoming an affiliate of the foreign company. Nevertheless, mergers and acquisitions are a significant form of FDI and until around 1997, accounted for nearly 90% of the FDI flow into the United States. Mergers are the most common way for multinationals to do FDI.BY MOTIVEFDI can also be categorized based on the motive behind the investment from the perspective of the investing firm: Resource-SeekingInvestments which seek to acquire factors of production those are more efficient than those obtainable in the home economy of the firm.
In some cases, these resources may not be available in the home economy at all. For example seeking natural resources in the Middle East and Africa, or cheap labour in Southeast Asia and Eastern Europe.Market-SeekingInvestments which aim at either penetrating new markets or maintaining existing ones.FDI of this kind may also be employed as defensive strategy; it is argued that businesses are more likely to be pushed towards this type of investment out of fear of losing a market rather than discovering a new one.
This type of FDI can be characterized by the foreign Mergers and Acquisitions in the 1980’s Accounting, Advertising and Law firms.Efficiency-SeekingInvestments which firms hope will increase their efficiency by exploiting the benefits of economies of scale and scope, and also those of common ownership. It is suggested that this type of FDI comes after either resource or market seeking investments have been realized, with the expectation that it further increases the profitability of the firm 1.2 Methods of Foreign Direct InvestmentsThe foreign direct investor may acquire 10% or more of the voting power of an enterprise in an economy through any of the following methods:By incorporating a wholly owned subsidiary or companyBy acquiring shares in an associated enterpriseThrough a merger or an acquisition of an unrelated enterpriseParticipating in an equity joint venture with another investor or enterprise Foreign direct investment incentives may take the following forms;Low corporate tax and income tax ratesTax holidaysPreferential tariffsSpecial economic zonesInvestment financial subsidiesSoft loan or loan guaranteesFree land or land subsidiesRelocation ; expatriation subsidiesJob training ; employment subsidiesInfrastructure subsidiesR;D support. 1.3 HISTORY OF FDI IN INDIAIndia intent to open its markets to foreign investment can be traced back to the economic reforms adopted during two prime periods- pre- independence and post independence.
Pre- independence, India was the supplier of foodstuff and raw materials to the industrialised economies of the world and was the exporter of finished products- the economy lacked the skill and means to convert raw materials to finished products. Post independence with the advent of economic planning and reforms in 1951, the traditional role played changes and there was remarkable economic growth and development. International trade grew with the establishment of the WTO.
India is now a part of the global economy. Every sector of the Indian economy is now linked with the world outside either through direct involvement in international trade or through direct linkages with export and import. Development pattern during the 1950-1980 periods was characterised by strong centralised planning, government ownership of basic and key industries, excessive regulation and control of private enterprise, trade protectionism through tariff and non-tariff barriers and a cautious and selective approach towards foreign capital. It was a quota, permit, licence regime which was guided and controlled by a bureaucracy trained in colonial style. This inward thinking, import substitution strategy of economic development and growth was widely questioned in the 1980’s. India’s economic policy makers started realising the drawbacks of this strategy which inhibited competitiveness and efficiency and produced a much lower growth rate that was expected. Consequently economic reforms were introduced initially on a moderate scale and controls on industries were substantially reduced by 1985 industrial policy.
This set the trend for more innovative economic reforms and they got a boost with the announcement of the landmark economic reforms in 1991. After nearly five decades of insulation from world markets, state controls and slow growth, India in 1991 embarked on an accelerated process of liberalization. The 1991 reforms ensured that the way for India to progress will be through globalization, privatisation, and liberalisation. In this new regime, the government is now assuming the role of a promoter, facilitator and catalyst agent instead of the regulator andIndia has a number of advantages which make it an attractive market for foreign capital namely, political stability in democratic polity, steady and sustained economic growth and development, significantly huge domestic market, access to skilled and technical manpower at competitive rates, fairly well developed infrastructure.
FDI has attained the status of being of global importance because of its beneficial use as an instrument for global economic integration.Pre-Independence Reforms:Under the British colonial rule, the Indian economy suffered a major set-back. An economy with rich natural resources was left plundered and exploited to the hilt under the English regime. India is originally an agrarian economy. India’s cottage industries and trade were abused and exploited as means to pave the way for European manufactured goods. Under the British rule the economy stagnated and on the eve of independence India was left with a poor economy and the textile industry as the only life support of the industrial economy.Post-Independence Reforms: India’s struggle post independence has been an excruciating financial battle with a slow economic growth and development which were largely due to the political climate and impact of the economic reforms.
The country began it transformation from a native agrarian to industrial to commercial and open economy in the post independence era. India in the post independence era followed what can be best called as a ‘trial and error’ path. During the post independence era, the Indian Economy geared up in favour of central planning and resource allocation. The government tailored policies that focussed a great deal on achieving overall economic self-reliance in each state and at the same time exploit its natural resource. In order to augment trade and investments, the government sought to play the role of custodian and trustee by intervening in the practice of crucial sectors such as aviation, telecommunication, banking, energy mainly electricity, petrol and gas.
The policy of central planning adopted by the government sought to ensure that the government laid down marked goals to be achieved by the economy thereby establishing a regime of checks and balances. The government also encouraged self sufficiency with the intent to encourage the domestic industries and enterprises, thereby reducing the dependence on foreign trade. Although, initially these policies were extremely successful as the economy did have a steady economic growth and development, they weren’t sustained. In the early, 1970’s, India had achieved self sufficiency in food production. During the 1970’s, the government still continued to retain and wield a significant spectre of control over keyIn the Early 1980’s-Macro-Economic Policies were conservative.
Government control of industries continued. There was marginal economic growth ; development courtesy of the development projects funded by foreign loans. The financial crisis of 1991 compelled drafting and implementation of economic reforms. The government approached the World Bank and the IMF for funding. In keeping with their policies there was expectation of devaluation of the rupee. This lead to a lack of confidence in the investors and foreign exchange reserves declined.
There was a withdrawal of loans by Non Resident Indians.Economic reforms of 1991: India has been having a robust economic growth since 1991 when the government of India decided to reverse its socially inspired policy of a retaining a larger public sector with comprehensive controls on the private sector and eventually treaded on the path of liberalization, privatisation and globalisation.During early 1991, the government realised that the sole path to India enjoying any status on the global map was by only reducing the intensity of government control and progressively retreating from any sort of intervention in the economy – thereby promoting free market and a capitalist regime which will ensure the entry of foreign players in the market leading to progressive encouragement of competition and efficiency in the private sector. In this process, the government reduced its control and stake in nationalized and state owned industries and enterprises, while simultaneously lowered and deescalated the import tariffs.
All of the reforms addressed macroeconomic policies and affected balance of payments. There was fiscal consolidation of the central and state governments which lead to the country viewing its finances as a whole. There were limited tax reforms which favoured industrial growth. There was a removal of controls on industrial investments and imports, reduction in import tariffs. All of this created a favourable environment for foreign capital investment.
As a result of economic reforms of 1991, trade increased by leaps and bounds. India has become an attractive destination for foreign direct and portfolio investment. Government Approvals for Foreign Companies Doing Business in India;Government Approvals for Foreign Companies Doing Business in India or Investment Routes for Investing in India, Entry Strategies for Foreign Investors India’s foreign trade policy has been formulated with a view to invite and encourage FDI in India. The Reserve Bank of India has prescribed the administrative and compliance aspects of FDI. A foreign company planning to set up business operations in India has the following options:1. Automatic approval by RBI:The Reserve Bank of India accords automatic approval within a period of two weeks (subject to compliance of norms) to all proposals and permits foreign equity up to 24%; 50%; 51%; 74% and 100% is allowed depending on the category of industries and the sectoral caps applicable. The lists are comprehensive and cover most industries of interest to foreign companies.
Investments in high-priority industries or for trading companies primarily engaged in exporting are given almost automatic approval by the RBI.2. The FIPB Route – Processing of non-automatic approval cases:FIPB stands for Foreign Investment Promotion Board which approves all other cases where the parameters of automatic approval are not met. Normal processing time is 4 to 6 weeks. Its approach is liberal for all sectors and all types of proposals, and rejections are few.
It is not necessary for foreign investors to have a local partner, even when the foreign investor wishes to hold less than the entire equity of the company. The portion of the equity not proposed to be held by the foreign investor can be offered to the public.1.4 FOREIGN DIRECT INVESTMENT POLICY IN INDIAFDI is prohibited in sectors like:Lottery Business including Government /private lottery, online lotteries, etc. Gambling and Betting including casinos etc.
Chit funds Nidhi Company Trading in Transferable Development Rights (TDRs) Real Estate Business or Construction of Farm Houses Manufacturing of Cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes Activities / sectors not open to private sector investment e.g. Atomic Energy and Railway Transport (other than Mass Rapid Transport Systems). Foreign technology collaboration in any form including licensing for franchise, trademark, brand name, management contract is also prohibited for Lottery Business and Gambling and Betting activities. PERMITTED SECTORSIn the following sectors/activities, FDI up to the limit indicated against each sector/activity is allowed, subject to applicable laws/ regulations; security and other conditionality. In sectors/activities not listed below, FDI is permitted upto 100% on the automatic route, subject to applicable laws/ regulations; security and other conditionality. Wherever there is a requirement of minimum capitalization, it shall include share premium received along with the face value of the share, only when it is received by the company upon issue of the shares to the non-resident investor.
Amount paid by the transferee during post-issue transfer of shares beyond the issue price of the share, cannot be taken into account while calculating minimum capitalization requirement; Table 1FDI POLICIES IN PERMITTED SECTORS IN INDIASECTOR FDI LIMITENTRY ROUTE & REMARKSAgriculture & Animal Husbandry• Floriculture, Horticulture, Apiculture And Cultivation Of Vegetables & Mushrooms Under Controlled Conditions• Development And Production Of Seeds And Planting Material• Animal Husbandry(Including Breeding Of Dogs), Pisciculture, Aquaculture• Services Related To Agro And Allied Sectors 100% AutomaticPlantation Sector• Tea Sector Including Tea Plantations• Coffee Plantations• Rubber Plantations• Cardamom Plantations• Palm Oil Tree Plantations• Olive Oil Tree Plantations 100%AutomaticMiningMining And Exploration Of Metal And Non-Metal Ores Including Diamond, Gold, Silver And Precious Ores But Excluding Titanium Bearing Minerals And Its Ores 100%AutomaticMining (Coal & Lignite)100%AutomaticMiningMining And Mineral Separation Of Titanium Bearing Minerals And Ores, Its Value Addition And Integrated Activities 100%GovernmentPetroleum & Natural GasExploration Activities Of Oil And Natural Gas Fields, Infrastructure Related To Marketing Of Petroleum Products And Natural Gas, Marketing Of Natural Gas And Petroleum Products Etc 100%AutomaticPetroleum & Natural GasPetroleum Refining By The Public Sector Undertakings (Psu), Without Any Disinvestment Or Dilution Of Domestic Equity In The Existing Psus. AutomaticDefence Manufacturing 100%Automatic Up To 49%Above 49% Under Government Route In Cases Resulting In Access To Modern Technology In The CountryBroadcasting• Teleports(Setting Up Of Up-Linking Hubs/Teleports)• Direct To Home (Dth)• Cable Networks (Multi System Operators (Msos) Operating At National Or State Or District Level And Undertaking Upgradation Of Networks Towards Digitalization And Addressability• Mobile Tv• Head End-In-The Sky Broadcasting Service(Hits) 100%AutomaticBroadcastingCable Networks (Other Msos Not Undertaking Up Gradation Of Networks Towards Digitalization And Addressability And Local Cable Operators (Lcos)) 100%AutomaticBroadcasting Content Services• Terrestrial Broadcasting Fm(Fm Radio)• Up-Linking Of ‘News ; Current Affairs’ Tv Channels 49% GovernmentUp-Linking Of Non-‘News ; Current Affairs’ Tv Channels/ Down-Linking Of Tv Channels 100%AutomaticPrint Media• Publishing Of Newspaper And Periodicals Dealing With News And Current Affairs• Publication Of Indian Editions Of Foreign Magazines Dealing With News And Current Affairs 26% GovernmentPublishing/Printing Of Scientific And Technical Magazines/Specialty Journals/ Periodicals, Subject To Compliance With The Legal Framework As Applicable And Guidelines Issued In This Regard From Time To Time By Ministry Of Information And Broadcasting. 100%GovernmentPublication Of Facsimile Edition Of Foreign Newspapers 100%GovernmentCivil Aviation – AirportsGreen Field Projects & Existing Projects 100%AutomaticCivil Aviation – Air Transport Services• Scheduled Air Transport Service/ Domestic Scheduled Passenger Airline• Regional Air Transport Service(Foreign Airlines Are Barred From Investing In Air India)100%AutomaticCivil Aviation• Non-Scheduled Air Transport Service• Helicopter Services/Seaplane Services Requiring Dgca Approval• Ground Handling Services Subject To Sectoral Regulations And Security Clearance• Maintenance And Repair Organizations; Flying Training Institutes; And Technical Training Institutions 100%Automatic Up To 49%Above 49% Under Government Route100% Automatic For NrisConstruction Development: Townships, Housing, Built-Up Infrastructure 100%AutomaticIndustrial Parks (New & Existing)100%AutomaticSatellites- Establishment And Operation, Subject To The Sectoral Guidelines Of Department Of Space/Isro100%AutomaticPrivate Security Agencies74% GovernmentTelecom ServicesCash & Carry Wholesale Trading100%Automatic Up To 49%Above 49% Under Government RouteE-Commerce Activities (E-Commerce Entities Would Engage Only In Business To Business (B2b) E-Commerce And Not In Business To Consumer (B2c) E-Commerce.
)100%AutomaticSingle Brand Retail TradingLocal Sourcing Norms Will Be Relaxed Up To Three Years And A Relaxed Sourcing Regime For Another Five Years For Entities Undertaking Single Brand Retail Trading Of Products Having ‘State-Of-Art’ And ‘Cutting Edge’ Technology. 100%AutomaticMulti Brand Retail Trading100%Automatic Automatic Up To 49%Above 49% Under Government RouteDuty Free Shops51% GovernmentRailway InfrastructureConstruction, Operation And Maintenance Of The Following• Suburban Corridor Projects Through Ppp• High Speed Train Projects• Dedicated Freight Lines• Rolling Stock Including Train Sets, And Locomotives/Coaches Manufacturing And Maintenance Facilities• Railway Electrification• Signaling Systems• Freight Terminals• Passenger Terminals• Infrastructure In Industrial Park Pertaining To Railway Line/Sidings Including Electrified Railway Lines And Connectivities To Main Railway Line• Mass Rapid Transport Systems. 100%AutomaticAsset Reconstruction Companies 100%AutomaticBanking- Private Sector74% Automatic Up To 49%Above 49% & Up To 74% Under Government RouteBanking- Public Sector20% Automatic Up To 49%Above 49% & Up To 74% Under Government RouteCredit Information Companies (Cic)100% GovernmentInfrastructure Company In The Securities Market49% AutomaticInsurance• Insurance Company• Insurance Brokers• Third Party Administrators• Surveyors And Loss Assessors• Other Insurance Intermediaries 49% AutomaticPension Sector49% AutomaticPower Exchanges49% AutomaticWhite Label Atm Operations100%AutomaticFinancial Services Activities Regulated By Rbi, Sebi, Irda Or Any Other Regulator100%AutomaticPharmaceuticals(Green Field)100%AutomaticPharmaceuticals(Brown Field)100%Automatic Up To 74%Above 74% UnderGovernment RouteFood Products Manufactured Or Produced In IndiaTrading, Including Through E-Commerce, In Respect Of Food Products Manufactured Or Produced In India. 100%GovernmentFDI promotion initiatives On the policy front, the FDI policy is already very liberal & it is being further progressively rationalized, on the basis of an exercise initiated for integration of all prior regulations on FDI, contained in FEMA, RBI circulars, various Press Notes etc.
, into one consolidated document, so as to reflect the current regulatory framework. The latest consolidated FDI policy document has been launched by Department of Industrial Policy & Promotion on 30.09.2010, which is available at DIPP’s website (www.
dipp.nic.in) for public domain.
On the investment promotion front, the Department organises ‘Destination India’ and ‘Invest India’ events in association with CII and FICCI.DIPP has been undertaking concerted efforts for improving the business environment in the country. The business reforms aimed at improving the business environment include setting up of single windows, online registrations, computerization of information, simplification of taxes and payments, reduction of documents through developing single forms for various licences/permissions and reduction of inspections etc.
As a step towards promoting an online single window at the national level for business users, the Department has undertaking e-Biz project, which is one of Mission Mode Projects (MMPs) under the National eGovernance Plan (NeGP). The objectives of setting up of the e-Biz Portal are to provide a number of services to business users covering the entire life cycle on their operations. The project aims at enhancing India’s business competitiveness through a service oriented, event-driven G2B interaction.
The National Manufacturing Competitiveness Council (NMCC) has been set up to provide a continuing forum for policy dialogue to energise and sustain the growth of manufacturing industries.The Department has regular interaction with foreign investors. Such interactions have been held in bilateral/regional/international meets such as Indo-ASEAN, Indo-EU, Indo-Japan, etc. Meetings with individual investors were also held on a regular basis.The Department website (www.dipp.nic.
in) has been made both comprehensive and informative, with an online chat facility.CHAPTER IIRESEARCH OBJECTIVE2.0 Objectives of the research:The study covers the following objectiveTo study the trends and patterns of flow of FDI.To evaluate the impact of FDI on the economy.2.
1 Scope of the study:The study is aimed to understand the flow of FDI in the Indian economy.Finding out the reason for the difference in FDI inflowsHow FDI is affecting various sector of economy.Limitations of the study:It’s not only FDI that effects the growth of economy there are other factors such as FII, monetary policy and government policies.FDI data keeps on changing.
Time limitationTable 2Financial year-wise FDI Equity Inflows:Financial Year (Apr-Mar) Amount of FDI Equity Inflows %age growth over the previous yearin Rupees Crore in US$ million 2000-01 10,733 2,463 -2001-02 18,654 4,065 ( + ) 65 %2002-03 12,871 2,705 ( – ) 33 %2003-04 10,064 2,188 ( – ) 19 %2004-05 14,653 3,219 ( + ) 47 %2005-06 24,584 5,540 ( + ) 72 %2006-07 56,390 12,492 (+ )125 %2007-08 98,642 24,575 ( + ) 97 %2008-09 142,829 31,396 ( + ) 28 %2009-10 123,120 25,834 ( – ) 18 %2010-11 97,320 21,383 ( – ) 17 %2011-12 165,146 35,121 (+) 64 %2012-13 121,907 22,423 (-) 36 %2013-14 147,518 24,299 (+) 8%2014-15 189,107 30,931 (+) 27%2015-16 262,322 40,001 (+) 29%CUMULATIVE TOTAL(from April 2000 to March 2016) 1,495,860 288,635 -Note: The amount of FDI inflows includes for Govt. route (FIPB/SIA), RBI?s automatic route, acquisition of shares and amount remitted through RBI?s-NRI Schemes.Foreign direct investment (FDI) is an investment made by an organization/entity in one country in an industrial/business activity in another country. FDI can take place in the form of establishing new business operations from scratch or acquiring existing business assets in the other country. FDI includes mergers and acquisitions, building new facilities, expansion of existing production capacity, etc. FDI usually involves control/participation in management, joint-venture, management expertise and technology transfer.
It excludes investment through purchase of securities or portfolio foreign investment, a passive investment in the securities of another country e.g. shares and bonds.Total FDI Equity inflow in India from various sectors was USD 2378.68 million in 2000-01, USD 4027.69 million in 2001-02, USD 2704.34 million in 2002-03, USD 2187.
85 million in 2003-04, USD 3218.69 million in 2004-05, USD 5539.72 million in 2005-06, USD 12491.77 million in 2006-07, USD 24575.43 million in 2007-08, USD 31395.
97 million in 2008-09, USD 25834.41 million in 2009-10, USD 21383.05 million in 2010-11, USD 35120.8 million in 201-12, USD 22423.58 million in 2012-13, USD 24299.
33 million in 2010-14, USD 30930.5 million in 2014-15, USD 40000.98 million in 2015-16 and USD 43478.27 million in 2016-17, respectively.There was a decline in growth of total FDI Equity Inflow of -36.15% during 2012-13 over 2011-12 in India.
There was a growth of total FDI Equity Inflow of 8.37% during 2013-14 over 2012-13 in India. There was a growth of total FDI Equity Inflow of 27.29% during 2014-15 over 2013-14 in India.
There was a growth of total FDI Equity Inflow of 29.33% during 2015-16 over 2014-15 in India. There was a growth of total FDI Equity Inflow of 8.69% during 2016-17 over 2015-16 in India.Note: Amount in USD million.Table 3FOREIGN DIRECT INVESTMENT FLOWS TO INDIA: COUNTRY-WISE AND INDUSTRY-WISE(US $ million)Source/Industry 2012-13 2013-14 2014-15 2015-16 2016-17 P1 2 3 4 5 6Total FDI 18,286 16,054 24,748 36,068 36,317Country-wise Inflows Mauritius 8,059 3,695 5,878 7,452 13,383Singapore 1,605 4,415 5,137 12,479 6,529Japan 1,340 1,795 2,019 1,818 4,237Netherlands 1,700 1,157 2,154 2,330 3,234U.S.
A. 478 617 1,981 4,124 2,138United Kingdom 1,022 111 1,891 842 1,301Germany 467 650 942 927 845U.A.E. 173 239 327 961 645Switzerland 268 356 292 195 502France 547 229 347 392 487South Korea 224 189 138 241 466Italy 63 185 167 279 364Cyprus 415 546 737 488 282Spain 348 181 401 141 213British Virgin Islands 3 0 30 203 212China 148 121 505 461 198Belgium 33 66 47 57 172Others 1,394 1,501 1,754 2,677 1,109Sector-wise Inflows Manufacturing 6,528 6,381 9,613 8,439 11,972Communication Services 92 1,256 1,075 2,638 5,876Financial Services 2,760 1,026 3,075 3,547 3,732Retail ; Wholesale Trade 551 1,139 2,551 3,998 2,771Business Services 643 521 680 3,031 2,684Computer Services 247 934 2,154 4,319 1,937Miscellaneous Services 552 941 586 1,022 1,816Electricity and other Energy Generation, Distribution ; Transmission 1,653 1,284 1,284 1,364 1,722Construction 1,319 1,276 1,640 4,141 1,564Transport 213 311 482 1,363 891Restaurants and Hotels 3,129 361 686 889 430Education, Research ; Development 150 107 131 394 205Mining 69 24 129 596 141Real Estate Activities 197 201 202 112 105Trading 140 0 228 0 0Others 43 292 232 215 470Mauritius: Mauritius have always topped the position for FDI inflows in India with FDI on 2011-12 standing at 26634 US $ million, consisting of 41% of total FDI inflows.
The inordinately high investment from Mauritius is due to routing of international funds through the country given significant tax advantages; double taxation is avoided due to a tax treaty between India and Mauritius, and Mauritius is a capital gains tax haven, effectively creating a zero-taxation FDI channel. The India-Mauritius Double Taxation Avoidance Agreement (DTAA) was signed in 1982 and has played an important role in facilitating foreign investment in India via Mauritius. It has emerged as the largest source of foreign direct investment (FDI) in India, accounting for 50 per cent of inflows.
A large number of foreign institutional investors (FIIs) who trade on the Indian stock markets operate from Mauritius. According to the DTAA between India and Mauritius, capital gains arising from the sale of shares are taxable in the country of residence of the shareholder and not in the country of residence of the company whose shares have been sold. Therefore, a Company resident in Mauritius selling shares of an Indian company will not pay tax in India. Since there is no capital gains tax in Mauritius, the gain will escape tax altogether.
The DTAA has, however, recently been in the news, with Indian left-wing parties demanding a review of the treaty. They argue that businessmen are misusing the provisions of the treaty to evade taxes.The Mauritius stock market was opened to foreign investors following the lifting of foreign exchange controls in 1994. No approval is required for the trading of shares by foreign investors, unless investment is for the purpose of legal and management control of a Mauritian company or for the holding of more than 15 per cent in a sugar company. Incentives to foreign investors include free repatriation of revenue from the sale of shares and exemption from tax on dividends and capital gains.Mauritius has an active offshore financial sector, which is a major route for foreign investments into the Asian subcontinent. Foreign direct investment transiting through the Mauritian offshore sector to India has been considerably increasing in the recent years, according to figures released by the Indian Ministry of Commerce and Industry.
Major US corporations use the Mauritius offshore sector to channel their investment to India.Singapore:Singapore has become a rapidly growing source of investment funds to India in the past few years. In fact, the data above shows that investment from Singapore has grown to very high levels. Singapore has become India’s second largest source of FDI inflow for the period April 2011 till August 2011, with a cumulative amount of Rs. 66407 crore.
Its share has gone up from less than 1% of total FDI inflow in 2003-04, to 13% in 2007-08. For the past two years, it has overtaken even large developed economies like US, UK and Japan which are normally viewed as the most important places to look for funds. FDI increased from Rs. 172 crore 2003-04 to Rs. 822 crore in 2014-15, a jump of 378%! A major reason for this, as was seen with Indo- Singaporean trade, probably was the anticipation for CECA’s signing that boosted investment.
30 Another major boost arrived in 2007-08, when FDI increased by 370%. Since 2004-05, Singapore has been consistently in the top few ranks since 2004-05, a situation not seen prior to this. Although FDI inflow from most countries has grown in the past few years, the pace of growth in Singapore’s investment has made others look surprised.U.
S.A:The United States is the third largest source of FDI in India, valued at 44609 crore in cumulative inflows between April 2000 and August 2011. According to the Indian government, the top sectors attracting FDI from the United States to India during 1991–2011 are fuel (36 percent), telecommunications (11 percent), electrical equipment (10 percent), food processing (9 percent), and services (8 percent). According to the available M&A data, the two top sectors attracting FDI inflows from the United States are computer systems design and programming and manufacturing. Since 2002, many of the major U.S. software and computer brands, such as Microsoft, Honeywell, Cisco Systems, Adobe Systems, McAfee, and Intel have established R&D operations in India, primarily in Hyderabad or Bangalore.
The majority of U.S. electronics companies that have announced Greenfield projects in India are concentrated in the semiconductor sector. By far the largest such project is AMD’s chip manufacturing facility in Hyderabad, Andhra Pradesh. The largest share (36 percent) was found in the manufacturing sector, most prominently in the machinery, chemicals, and transportation equipment manufacturing segments. Other important categories of employment are professional, scientific, and technical services; and wholesale trade, with 29 percent and 18 percent of U.
S. affiliate employment, respectively.European Union:Within the European Union, the largest country investors were the United Kingdom and the Netherlands, with 40744 crore and 28834 crore, respectively, of cumulative FDI inflows between April 2000 to August 2011.
The United Kingdom, the Netherlands, Germany and France together accounted for almost 15% of all FDI flows from the EU to India. FDI from the EU to India is primarily concentrated in the power/energy, telecommunications, and transportation sectors. The top sectors attracting FDI from the European Union are similar to FDI from the United States. Manufacturing; information services; and professional, scientific, and technical services have attracted the largest shares of FDI inflows from the EU to India since 2000. Unilever, Reuters Group, P;O Ports Ltd, Vodafone, and Barclays are examples of EU companies investing in India by means of mergers and acquisitions. European companies accounted for 31 percent of the total number and 43 percent of the total value for all reported Greenfield FDI projects. The number of EU Greenfield projects was distributed among four major clusters: ICT (17 percent), heavy industry (16 percent), business and financial services (15 percent), and transport (11 percent).
However, the heavy industry cluster accounted for the majority (68 percent) of the total value of these projects.Japan:Japan was the fifth largest source of cumulative FDI inflows in India between April and August 2011, i.e. the cumulative flow is 31813 crore and it is 5% of total inflow.
FDI inflows to India from most other principal source countries have steadily increased since 2000, but inflows from Japan to India have decreased during this time period. There does not appear to be a single factor that explains the recent decline in FDI inflows from Japan to India. India is, however, one of the largest recipients of Japanese Official Development Assistance (ODA), through which Japan has assisted India in building infrastructure, including electricity generation, transportation, and water supply. It is possible that this Japanese government assistance may crowd out some private sector Japanese investment. The top sectors attracting FDI inflows from Japan to India are transportation (54 percent), electrical equipment (7 percent), telecommunications, and services (3 percent). The available M;A data corresponds with the overall FDI trends in sectors attracting inflows from Japan to India. Companies dealing in the transportation industry, specifically automobiles, and the auto component/peripheral industries dominate M;A activity from Japan to India, including Yamaha Motors, Toyota, Kirloskar Auto Parts Ltd., and Mitsubishi Heavy Industries Ltd. Japanese companies have also invested in an estimated 148 Greenfield FDI projects valued at least at $3.7 billion between 2002 and 2006. In April 2007, Japanese and Indian officials announced a major new collaboration between the two countries to build a new Delhi-Mumbai industrial corridor, to be funded through a public-private partnership and private-sector FDI, primarily from Japanese companies. The project was begun in January 2008 with initial investment of $2 billion from the two countries. The corridor will cross 6 states and extend for 1,483 km, in an area inhabited by 180 million people. At completion in 2015, the corridor is expected to include total FDI of $45–50 billion. A large share of that total is destined for infrastructure, including a 4,000 MW power plant, 3 ports, and 6 airports, along with additional connections to existing ports. Private investment is expected to fund 10-12 new industrial zones, upgrade 5–6 existing airports, and set up 10 logistics parks. The Indian government expects that by 2020, the industrial corridor will contribute to employment growth of 15 percent in the region, 28 percent growth in industrial output, and 38 percent growth in exports.SECTOR WISE FDI INFLOW;The Sector wise Analysis of FDI Inflow in India reveals that maximum FDI has taken place in the service sector including the telecommunication, information technology, travel and many others. The service sector is followed by the computer hardware and software in terms of FDI. High volumes of FDI take place in telecommunication, real estate, construction, power, automobiles, etc.The rapid development of the telecommunication sector was due to the FDI inflows in form of international players entering the market and transfer of advanced technologies. The telecom industry is one of the fastest growing industries in India. With a growth rate of 45%, Indian telecom industry has the highest growth rate in the world. During the year 2009 government had raised the FDI limit in telecom sector from 49 per cent to 74 per, which has contributed to the robust growth of FDI. The telecom sector registered a growth of 103 per cent during fiscal 2008-09 as compared to previous fiscal.FDI inflows to real estate sector in India have developed the sector. The increased flow of foreign direct investment in the real estate sector in India has helped in the growth, development, and expansion of the sector. FDI Inflows to Construction Activities has led to a phenomenal growth in the economic life of the country. India has become one of the most prime destinations in terms of construction activities as well as real estate investment.The FDI in Automobile Industry has experienced huge growth in the past few years. The increase in the demand for cars and other vehicles is powered by the increase in the levels of disposable income in India. The options have increased with quality products from foreign car manufacturers. The introduction of tailor made finance schemes, easy repayment schemes has also helped the growth of the automobile sector. The basic advantages provided by India in the automobile sector include, advanced technology, cost-effectiveness, and efficient work force. Besides, India has a well-developed and competent Auto Ancillary Industry along with automobile testing and R;D centres. The automobile sector in India ranks third in manufacturing three wheelers and second in manufacturing of two wheelers. Opportunities of FDI in the Automobile Sector in India exist in establishing Engineering Centres, Two Wheeler Segment, Exports, Establishing Research and Development Centres, Heavy truck Segment, Passenger Car Segment.The increased FDI Inflows to Metallurgical Industries in India has helped to bring in the latest technology to the industries. Further, the increased FDI Inflows to Metallurgical Industries in India has led to the development, expansion, and growth of the industries. All this has helped in improving the quality of the products of the metallurgical industries in India.The increased FDI Inflows to Chemicals industry in India has helped in the growth and development of the sector. The increased flow of foreign direct investment in the chemicals industry in India has helped in the development, expansion, and growth of the industry. This in its turn has led to the improvement of the quality of the products from the industry. Based upon the data given by department of Industrial Policy and Promotion, in India there are sixty two (62) sectors in which FDI inflows are seen but it is found that top ten sectors attract almost seventy percent (70%) of FDI inflows. The cumulative FDI inflows from the above results reveals that service sector in India attracts the maximum FDI inflows amounting to Rs. 106992 Crores, followed by Computer Software and Hardware amounting to Rs. 44611 Crores. These two sectors collectively attract more than thirty percent (30%) of the total FDI inflows in India. The housing and real estate sector and the construction industry are among the new sectors attracting huge FDI inflows that come under top ten sectors attracting maximum FDI inflows. Thus the sector wise inflows of FDI in India shows a varying trend but acts as a catalyst for growth, quality maintenance and development of Indian Industries to a greater and larger extend. The technology transfer is also seen as one of the major change apart from increase in operational efficiency, managerial efficiency, employment opportunities and infrastructure development.CHAPTER IIICURRENT SCENARIOCURRENT SCENARIO3.0 FOREIGN DIRECT INVESTMENT POLICY, 2017 – 2018:The ability to attract large scale Foreign Direct Investment (FDI) into India has been a key driver for policy making by the Government. Prime Minister Modi seems to be going along the right track, with India receiving FDI inflows worth USD 60.1 billion in 2016-17, which was an all-time high. Hence, the FDI policy of India has always been closely watched and carefully amended over the years.On August 28th, 2017, the Department of Industrial Policy and Promotion (DIPP) had issued the updated and revised Foreign Direct Investment Policy, 2017 – 2018 (FDI Policy 2017). The FDI Policy 2017 incorporated various notifications issued by the Government of India over the past year.Please find below a brief analysis of the key amendments brought by the FDI Policy 2017 to the erstwhile FDI Policy of 2016 and their potential impact on FDI in India:New Streamlined Procedure for Government ApprovalAbolition of the Foreign Investment Promotion Board (FIPB): The most significant amendment to the FDI regime has been the institutional change brought by notification dated June 5th, 2017 issued by the Department of Economic Affairs confirming the abolition of the FIPB (the erstwhile government body authorised to approve proposals for FDI requiring government approval); and the introduction of the ‘Foreign Investment Facilitation Portal’ (FIFP), an administrative body to facilitate FDI applicants.Introduction of ‘Competent Authorities’: The FDI Policy 2017 defines and lists sector-specific administrative ministry / department as ‘Competent Authorities’ empowered to grant government approval for FDI. Competent Authorities listed in the FDI Policy 2017 include the DIPP in respect of applications for FDI in the Single Brand, Multi Brand and Food Product retail trading and the Department of Economic Affairs of India for FDI in the financial services sector.Introduction of ‘Standard Operating Procedure’ (SOP) to process FDI proposals: The DIPP had also issued the SOP which sets out a detailed procedure and timeline for applications as well as the list of ‘competent authorities’ for processing government approvals for FDI in India.Under the SOP, investors are required to make an application on the website of the FIFP, supported by the specified documents which inter alia include relevant charter documents, board resolutions, etc. The application shall then be forwarded to the concerned ‘Competent Authority’ and the Reserve Bank of India (for comments from a foreign exchange law perspective) within 2 (two) days. Proposals requiring security clearance (in sectors such as defence and telecommunication) shall also be forwarded to the Ministry of Home Affairs. The Competent Authority shall process the complete proposal and convey the approval / rejection of such proposal to the applicant in the format prescribed under the SOP.Key provisions likely to benefit applicants with proposals for FDI: Consultation with the DIPP has been made strictly need based, leading to a more streamlined procedure and expeditious timeline (maximum time of 10 weeks) for approval. Moreover, the FDI Policy 2017 also states that the Competent Authority may only reject a proposal, or stipulate conditions in addition to those listed in the FDI Policy 2017 / applicable sectoral laws with the concurrence of the DIPP.Conversion of Limited Liability Partnership’s (LLPs)An LLP, operating in sectors/activities where 100% FDI is allowed under the automatic route (without FDI-linked performance conditions), is permitted to convert into a company. Similarly, conversion of a company into an LLP is also now permitted under the automatic route.Issue of Convertible Notes by Start-upsThe FDI Policy 2017 has introduced the issuance of (a) ‘Convertible Notes’ (instruments representing debt repayable at the option of the holder, or convertible into equity shares within 5 years from issue) by Start-ups to persons resident outside India; and (b) equity or equity linked / debt instruments by Start-ups to Foreign Venture Capital Investors.Issuance of Convertible Notes is, however, subject to the following conditions: (a) Under automatic route, a Non-Resident may purchase Convertible Notes for approximately USD 39,500 or more in a single tranche and the consideration shall be received by inward remittance through normal banking channels or as otherwise permitted under the extant foreign exchange regulations applicable; (b) Start-ups engaged in sectors requiring government approval for FDI may issue Convertible Notes only with government approval; (c) Non-Residents may acquire or transfer Convertible Notes from or to persons resident India or Non-Residents only in accordance with applicable pricing guidelines under the Indian foreign exchange regulations; and (d) Start-ups issuing Convertible Notes must comply with reporting requirements prescribed by the Reserve Bank of India.Revisions to existing provisions of the FDI Policy of 2016The FDI Policy 2017 also incorporates all Press Notes issued by the DIPP during the course of the year. Set out below are the sector-specific significant amendments brought about in the last year:Manufacturing: To further liberalise the manufacturing sector (which allowed 100% FDI under the automatic route), 100% FDI under government approval route was allowed for retail trading, including through e-commerce, in respect of food products manufactured and/or produced in India.Civil Aviation: The threshold for FDI in existing projects under the automatic route was increased from 74% to 100%.Single Brand Retailing: Sourcing norms applicable for FDI were relaxed and will not be applicable up to 3 (three) years from commencement of the business i.e. opening of the first store for entities undertaking single brand retail trading of products having ‘state-of-art’ and ‘cutting-edge’ technology and where local sourcing is not possible.Other Financial Services: The previously applicable capitalisation norms for non-banking financial services companies were struck off, and all financial sector activities by entities already regulated by financial sector regulators fall under the 100% automatic route of investment, with applicability of sectoral laws.Some ThoughtsThe changes in the FDI Policy 2017 display the efforts of the Indian Government to remove of multiple layers of bureaucracy, and to process proposals for FDI under the government approval route in a more streamlined, positive and expeditious manner. The Government has eased 87 FDI rules across 21 sectors in the last 3 years, opening up traditionally conservative sectors like rail infrastructure and defence. Even India’s agriculture sector has received FDI worth INR 515.49 crore in 2016-17.The FDI Policy 2017 for the first time makes specific reference to fund raising through convertible instruments by Start-ups, which should encourage fund raising by Indian Start-ups from FVCI’s and Non-Residents. The definition of Start-ups as provided in the Policy is also proposed to be incorporated in the Patents Rules, 2017. The three year relaxation of the local sourcing norms in single brand retail should make it easier for the likes of iconic investors Apple and Tesla to open shop in India. But further details may be needed before the likes of such investors may commit to India.It is expected that the Government will continue to bring about liberalisation of the FDI regime in India in the months to come. All in all, we intend to maintain our trajectory towards remaining the world’s most attractive destinations for foreign investment.Table 4Trends and Patterns of FDI in different sectors Service Sector:. Market SizeThe services sector is the key driver of India’s economic growth. The sector is estimated to contribute around 54.0 per cent of India’s Gross Value Added in 2017-18 and employed 28.6 per cent of the total population. India’s net services exports during reached US$ 57.60 billion April-December 2017.Nikkei India Services Purchasing Managers Index grew from 47.80 in February 2018 to 50.30 in March 2018, supported by growth in the growth in Information & Communications and Finance & Insurance.As per Ministry of Statistics and Programme Implementation’s second advance estimates of National Income 2017-18, services sector GVA is expected to grow to US$ 1,266.10 million in FY18.According to a report called ‘The India Opportunity’ by leading research firm Market Research Store, the Indian mobile services market is expected to reach $37 billion in 2017 and grow by 10.3 per cent year-on-year to reach US$ 103.9 billion by 2020.Out of overall services sector, the sub-sector comprising financial services, real estate and professional services contributed US$ 305.8 billion or 20.5 per cent to the GDP. The sub-sector of community, social and personal services contributed US$ 188.2 billion or 12.6 per cent to the GDP.InvestmentsThe Indian services sector which includes financial, banking, insurance, non-financial/business, outsourcing, research and development, courier and technical test analysis, has attracted FDI equity inflows in the period April 2000-December 2017, amounting to about US$ 64.10 billion according to the Department of Industrial Policy and Promotion (DIPP).Some of the developments and major investments by companies in the services sector in the recent past are as follows:Private Equity (PE) investments in the hospitality industry rose nearly three-fold to US$ 119 million in 2017 from US$ 43.58 million in 2016. Hotel deals, including mergers and acquisitions, are expected to pick up further in 2018 as many premium hotel properties are up for sale.American fast food chain McDonalds is reopening 84 of its closed restaurants, increasing the total number of operational restaurants across north and east India to 169.National Skill Development Corporation has signed a tripartite Memorandum of Understanding (MoU) with Tourism and Hospitality Sector Skill Council (THSC) and Airbnb to impart hospitality skills training to hospitality micro-entrepreneurs in India.The domestic and foreign logistic companies are optimistic about prospects in the logistics sector in India, and are actively making investments plans to improve earnings and streamline operations.Government InitiativesThe Government of India recognises the importance of promoting growth in services sectors and provides several incentives in wide variety of sectors such as health care, tourism, education, engineering, communications, transportation, information technology, banking, finance, management, among others.Prime Minister Narendra Modi has stated that India’s priority will be to work towards trade facilitation agreement (TFA) for services, which is expected to help in the smooth movement of professionals.The Government of India has adopted a few initiatives in the recent past. Some of these are as follows:Under the Mid-Term Review of Foreign Trade Policy (2015-20), the Central Government increased incentives provided under Services Exports from India Scheme (SEIS) by two per cent.Ministry of Communications, Government of India, has launched DARPAN – “Digital Advancement of Rural Post Office for A New India” which is aimed at improving the quality of services, adding value to services and achieving “financial inclusion” of un-banked rural population.Ministry of Civil Aviation, Government of India, launched ‘DigiYatra’, a digital platform for air travellers that aims to develop a digital ecosystem providing consistent service and a delightful experience at every touch point of the journey.The Ministry of Electronics and Information Technology has launched a services portal, which aims to provide seamless access to government services related to education, health, electricity, water and local services, justice and law, pensions and benefits, through a single window.Road AheadServices sector growth is governed by both domestic and global factors. The Indian facilities management market is expected to grow at 17 per cent CAGR between 2015 and 2020 and surpass the US$19 billion mark supported by booming real estate, retail, and hospitality sectors. The performance of trade, hotels and restaurants, and transport, storage and communication sectors are expected to improve in FY17. The financing, insurance, real estate, and business services sectors are also expected to continue their good run in FY17.The implementation of the Goods and Services Tax (GST) has created a common national market and reduced the overall tax burden on goods. It is expected to reduce costs in the long run on account of availability of GST input credit, which will result in the reduction in prices of services.Exchange Rate Used: INR 1 = US$ 0.015 as on March 01, 2018Table 5Telecommunication:India is currently the world’s second-largest telecommunications market with a subscriber base of 1.19 billion and has registered strong growth in the past decade and half. The Indian mobile economy is growing rapidly and will contribute substantially to India’s Gross Domestic Product (GDP), according to report prepared by GSM Association (GSMA) in collaboration with the Boston Consulting Group (BCG). The country is the fourth largest app economy in the world.The liberal and reformist policies of the Government of India have been instrumental along with strong consumer demand in the rapid growth in the Indian telecom sector. The government has enabled easy market access to telecom equipment and a fair and proactive regulatory framework that has ensured availability of telecom services to consumer at affordable prices. The deregulation of Foreign Direct Investment (FDI) norms has made the sector one of the fastest growing and a top five employment opportunity generator in the country.The Indian telecom sector is expected to generate four million direct and indirect jobs over the next five years according to estimates by Randstad India. The employment opportunities are expected to be created due to combination of government’s efforts to increase penetration in rural areas and the rapid increase in smartphone sales and rising internet usage.Market SizeThe mobile industry is expected to create a total economic value of Rs 14 trillion (US$ 217.37 billion) by the year 2020. It would generate around 3 million direct job opportunities and 2 million indirect jobs during this [email protected] India’s smartphone market grew 14 per cent year-on-year to a total of 124 million shipments in 2017.%Rise in mobile-phone penetration and decline in data costs will add 500 million new internet users in India over the next five years, creating opportunities for new businesses. The monthly data usage per smartphone in India is expected to increase from 3.9 GB in 2017 to 18 GB by 2023.Data usage on Indian telecom operators’ networks (excluding Reliance Jio), doubled in six months to 359 petabytes or 3.7 million gigabytes per month as 4G data usage share increased to 34 per cent by the end of June 2017$. According to a report by leading research firm Market Research Store, the Indian telecommunication services market will likely grow by 10.3 per cent year-on-year to reach US$ 103.9 billion by 2020.Investment/Major developmentWith daily increasing subscriber base, there have been a lot of investments and developments in the sector. The industry has attracted FDI worth US$ 30.08 billion during the period April 2000 to December 2017, according to the data released by Department of Industrial Policy and Promotion (DIPP).Some of the developments in the recent past are:Finnish telecommunication company Nokia, is going to collaborate with Indian telecom companies Bharti Airtel and BSNL to work on the roadmap for development of 5G technology and creating a conducive ecosystem for 5G in India.The Government of India is working to digitally connect the rural and remote regions in the country and has decided a new affordable tariff structure with the principle of more you use, less you pay. The changes will soon be reflected in tariff changes by service providers in the country.India telecommunication companies will be investing US$ 20 billion over the next two years for expansion of network and operations, stated Mr Akhil Gupta, Vice Chairman, Bharti Enterprise.Government InitiativesThe government has fast-tracked reforms in the telecom sector and continues to be proactive in providing room for growth for telecom companies. Some of the other major initiatives taken by the government are as follows:The Government of India is soon going to come out with a new National Telecom Policy 2018 in lieu of rapid technological advancement in the sector over the past few years.The Government of India is working to digitally connect the rural and remote regions in the country and has decided a new affordable tariff structure with the principle of more you use, less you pay. The changes will soon be reflected in tariff changes by service providers in the country.The Government of Telangana is targeting to provide broadband connection to every household in the state by 2018, which is expected to lead to revolutionary changes in the education and health sectors.Mr Manoj Sinha, Union Minister of Communications, Government of India, stated that the government will provide the required support for achieving the dream of a fully connected and truly empowered India soon, while inaugurating a national conference on ‘BharatNet and its utilisation with states’.Road AheadIndia will emerge as a leading player in the virtual world by having 700 million internet users of the 4.7 billion global users by 2025, as per a Microsoft report. Internet economy expected to touch Rs 10 trillion (US$ 155 billion) by 2018, contributing around 5 per cent to the country’s GDP. With the government’s favourable regulation policies and 4G services hitting the market, the Indian telecommunication sector is expected to witness fast growth in the next few years. The Government of India also plans to auction the 5G spectrum in bands like 3,300 MHz and 3,400 MHz to promote initiatives like Internet of Things (IoT), machine-to-machine communications, instant high definition video transfer as well as its Smart Cities initiative. The Indian mobile phone industry expects that the Government of India’s boost to production of battery chargers will result in setting up of 365 factories, thereby generating 800,000 jobs by 2025Telecom is one of the fastest growing industries in India, and everyone, including foreign players and investors, are eager to be a part of this growth. The last few years have witnessed many activities on the foreign direct investment front with world’s leading telecom operators picking up large stakes in domestic operators.The telecom services industry registered a growth of 20.7 percent clocking revenues of 1, 57,542 crore in 2008-09 compared to Rs 130561 Crore in the previous year. During the year 2005, government had raised the FDI limit in telecom sector from 49 percent to 74 percent, which has contributed to the robust growth of FDI in the sector. In February 2009, the Government has further revised the methodology of calculation of indirect foreign investment, according to which FDI of less than 50% in investing company is not counted in the licensee company if the investing company is ‘owned’ and ‘controlled’ by resident Indian citizens. This change of methodology of calculation of indirect foreign investment from earlier proportionate basis to ‘owned’ and ‘controlled’ basis has brought down composite FDI in some of the licensee companies and have given more room to bring in further investment. However, actual foreign investment requirement of a licensee company depends on its business case. FDI in Indian Telecommunications Industry is one of the most crucial parts that have caused such a hike in the telecom market so far. Inflow of FDI into India’s telecom sector during April 2000 to Dec. 2010 was about US $ 57035 million which constitute 8% of total FDI inflows and is second after FDI in services (with reference to table 4.3). The trend in telecom sector due to above reasons remains almost stable in 2008-10 but declines in 2011 due to 2G scam and again increases in 2012.Table 6Housing and Real Estate:The real estate sector is one of the most globally recognized sectors. In India, real estate is the second largest employer after agriculture and is slated to grow at 30 per cent over the next decade. The real estate sector comprises four sub sectors – housing, retail, hospitality, and commercial. The growth of this sector is well complemented by the growth of the corporate environment and the demand for office space as well as urban and semi-urban accommodations. The construction industry ranks third among the 14 major sectors in terms of direct, indirect and induced effects in all sectors of the economy.It is also expected that this sector will incur more non-resident Indian (NRI) investments in both the short term and the long term. Bengaluru is expected to be the most favoured property investment destination for NRIs, followed by Ahmedabad, Pune, Chennai, Goa, Delhi and Dehradun.India’s rank in the Global House Price Index has jumped 13* spots to reach the ninth position among 55 international markets, on the back of increasing prices in mainstream residential sector.Market SizeThe Indian real estate market is expected to touch US$ 180 billion by 2020. Housing sector is expected to contribute around 11 per cent to India’s GDP by 2020. In the period FY2008-2020, the market size of this sector is expected to increase at a Compound Annual Growth Rate (CAGR) of 11.2 per cent. Retail, hospitality and commercial real estate are also growing significantly, providing the much-needed infrastructure for India’s growing needs.Private equity and debt investments in India’s real estate sector grew 12 per cent year-on-year to US$ 4.18 billion across 79 transactions in 2017. In 2017, M&A deals worth US$ 3.26 billion were made in India’s real estate sector. Private equity investments in Indian retail assets increased 15 per cent in CY 2017 to reach US$ 800 million. India is expected to witness an upward rise in the number of real estate deals in 2018, on the back of policy changes that have made the market more transparent.Sectors such as IT and ITeS, retail, consulting and e-commerce have registered high demand for office space in recent times. The office space absorption in 2017 across the top eight cities amounted to 18 million square feet (msf) as of September 2017. Private equity inflows in office and IT/ITES real estate have grown 150 per cent between 2014 and 2017 backed by a strong attraction towards office sector. In 2017, new retail space of 6.4 million has finished and supply of around 20 mn sq ft is expected in 2019.Investments/DevelopmentsThe Indian real estate sector has witnessed high growth in recent times with the rise in demand for office as well as residential spaces. Private equity investments in real estate are estimated to grow to US$ 100 billion by 2026 with tier 1 and 2 cities being the prime beneficiaries. India stood third in the US Green Building Council’s (USGBC) ranking of the top 10 countries for Leadership in Energy and Environmental Design (LEED) certified buildings, with over 752 LEED-certified projects across 20.28 million gross square meters of space. According to data released by Department of Industrial Policy and Promotion (DIPP), the construction development sector in India has received Foreign Direct Investment (FDI) equity inflows to the tune of US$ 24.67 billion in the period April 2000-December 2017.Some of the major investments in this sector are as follows:In February 2018, DLF bought 11.76 acres of land for Rs 15 billion (US$ 231.7 million) for its expansion in Gurugram, Haryana.In February 2018, Japanese conglomerate Sumitomo Corporation announced its US$ 2 billion partnership with Krishna Group to develop real estate projects in the country.KKR India Asset Finance Pvt Ltd has invested over US$ 500 million in residential real estate projects in India in 2017, taking its total investments in real estate projects in India to US$ 1 billion.Government InitiativesThe Government of India along with the governments of the respective states has taken several initiatives to encourage the development in the sector. The Smart City Project, where there is a plan to build 100 smart cities, is a prime opportunity for the real estate companies. Below are some of the other major Government Initiatives:In February 2018, creation of National Urban Housing Fund was approved with an outlay of Rs 60,000 crore (US$ 9.27 billion).Under the Pradhan Mantri Awas Yojana (PMAY) Urban 1,427,486 houses have been sanctioned in 2017-18. In March 2018, construction of additional 3,21,567 affordable houses was sanctioned under the scheme. Road AheadThe Securities and Exchange Board of India (SEBI) has given its approval for the Real Estate Investment Trust (REIT) platform which will help in allowing all kinds of investors to invest in the Indian real estate market. It would create an opportunity worth Rs 1.25 trillion (US$ 19.65 billion) in the Indian market over the years. Responding to an increasingly well-informed consumer base and, bearing in mind the aspect of globalisation, Indian real estate developers have shifted gears and accepted fresh challenges. The most marked change has been the shift from family owned businesses to that of professionally managed ones. Real estate developers, in meeting the growing need for managing multiple projects across cities, are also investing in centralised processes to source material and organise manpower and hiring qualified professionals in areas like project management, architecture and engineering3.1 FDI and Economic DevelopmentFDI is considered to be the lifeblood and an important vehicle of for economic development as far as the developing nations are concerned. The important effect of FDI is its contribution to the growth of the economy.FDI has an important impact on country’s trade balance, increasing labour standards and skills, transfer of technology and innovative ideas, skills and the general business climate. FDI also provides opportunity for technological transfer and up gradation, access to global managerial skills and practices, optimal utilization of human capabilities and natural resources, making industry internationally competitive, opening up export markets, access to international quality goods and services and augmenting employment opportunities.CHAPTER IVPROPOSITION4.0 PropositionIn the present era growing importance of FDI in developing nations has led to the result to keep in mind that the benefits coming here from MNCs (in the form of technology spillover, collaboration and competition) to local firms is not a direct consequence of foreign investment. These benefits can only be realized if local firms achieve minimum threshold level for absorbing spillover from MNCs, and if there exists effective intervention of state policy to streamline the spillover from MNCs to domestic producers. Moreover, it depends on the factor endowment in the country. For instance, the availability of quality infrastructure, scientific knowledge, human capital, research and development activities, etc., play a critical role in the trickle down process from MNCs to local firms . In the absence of adequate factor endowment and effective intervention of the regulatory authority, the entry of foreign investment may crowd out the local investment and lead to market concentration.Against this backdrop, the present study attempts to analyze the inflows of FDI into India in response to various liberalization measures announced by the Government of India since 1991. To be more specific, the objectives of the study are:Policy OverviewIn the early years of independence, India’s development strategy was inward-oriented. The government emphasized on self-reliance to build a strong industrial base, especially after the Second Industrial Policy Resolution of 1956. Subramanian (1996) identified four phases in the evolution of India’s FDI policy. The first phase of FDI was from 1948 to mid-1960. In this period, the Government of India announced two industrial policy resolutions (1948 and 1956), where the entry of FDI was marked by cautious welcome. The controlling interest was expected to be with the Indians. During this period, the government introduced the Industries (Development and Regulation) Act, 1951 to regulate and control the development of private sector. The basic objective was to save scarce capital resources and to utilize these resources for development of priorities. The second phase began by the mid-1960 and lasted till the late 1970s.Monopolies and Restrictive Trade Practices (MRTP) Act was introduced in 1969 to prevent concentration of economic power and to control monopoly. Thereafter, the Industrial Policy Statement (1973) was formulated which made licensing compulsory for all the firms above certain size. In this period, external balance was not favorable and FDI outflows through transfer payment further deepened the situation. Therefore, the Government of India in 1973 formulated the Foreign Exchange Regulatory Act (FERA)3 that came into effect in January 1, 1974, to curtail the outflow of foreign exchange. With tightening of restrictions, this phase saw the exit of many leading MNCs, like IBM, Coca-Cola, etc., from India.By late 1970s, the country entered into the third phase with partial liberalization policy marked by selective relaxation of controls in line with the recommendation of various committees set up by the government in the context of industrial stagnation since the mid- 1960s. In this phase, particularly in the 1980s, foreign firms were allowed to invest in India, but in collaboration with Indian firms. 100% foreign-owned firms were permitted only in highly export-oriented industries. Industrial Policy, 1980 was drafted with the aim to improve the competitiveness of domestic firms along with technological up-gradation and modernization. Likewise, MRTP Act was amended in 1985, the maximum asset limit for identified monopolies was raised and large businesses were permitted to invest in some restrictive sectors. A number of policy and procedural changes were announced in 1985 and subsequent years, with the objective to overcome the inefficiency developed in Indian industries during the restrictive policy regime. Following this partial liberalization phase, the Government of India announced a series of liberalization measures in the early 1990s with the aim of improving industrial competitiveness as well as to prepare Indian industries to stand on their own to face international competition.In line with the liberalization measures announced during the 1980s, the Government of India announced ‘New Industrial Policy’ (NIP) on July 24, 1991 as a part of ‘New Economic Policy’. With the announcement of 1991 reform packages, India entered into the fourth phase known as the period of ‘open door policy’ or ‘market-led development strategy’. The NIP deregulated the industrial economy in a substantial manner. Among others, the fundamental aim of 1991 industrial policy was to improve efficiency and thereby to attain international competitiveness by improving competitiveness of Indian industries (Government of India, 2001). To attain these objectives, the government introduced a series of initiatives with regard to policies such as industrial licensing, public sector policy,MRTP Act, 1969, foreign investment and technology collaboration, industrial location policy, phased manufacturing programs for new projects, and FERA.The royalty payment limits were increased to encourage technology import. Moreover, foreign equity holding level was raised to 50%, 74% and 100%. Thereafter, the government allowed free repatriability, except where FDI approval was subject to specific conditions. In the light of the above discussion, one can say that India’s FDI policy became highly liberal in the post-reform period. Now, FDI in India is approved through two routes: automatic and case-by-case government approval.In order to mobilize investment from the NRIs Overseas Corporate Bodies , the government has allowed them to invest in housing and real estate development sector. Furthermore, government has allowed them to hold up to 100% equity in civil aviation companies, where earlier only up to 40% foreign equity was allowed. As a result of the liberalization of India’s highly regulated FDI policy, there has been a voluminous increase in the inflow of FDI into our country.Data Sources and MethodologyThe data on FDI inflows were taken from various secondary sources such as Indiastat.com and Secretariat for Industrial Assistance (SIA). SIA is published by Ministry of Commerce and Industry and it provides data on FDI inflows at sector/industry level as well as the information on FDI by source country is also available. But the information on FDI inflows across country is not available. Therefore, the data on FDI inflows of other countries were collected from World Investment Report, annually published by UNCTAD (united nations agency). From World Investment Report, we can get country-wise trends in FDI inflows and outflows.To obtain the trends and patterns of FDI in India, we calculated the compound average annual growth rate of FDI in various manufacturing industries. Further, the ratios of India’s FDI inflows to the world FDI and to India’s GDP were also calculated.4.1 Observed Trends and Patterns of FDIIt is observed from the aforementioned discussion, that the Government of India has initiated various liberalization measures to attract FDI inflows into India. As a result of these policy, The 1956 industrial policy had reserved 17 industries for the public sector. The 1991 industrial policy reduced this number to eight. By May 2001, only three industries were reserved exclusively for public sector. With the amendment of FERA 1973, the ceiling limit of 40% foreign equity was removed. FERA was later replaced by FEMA.Through automatic route, the foreign investor does not require prior approval from the government. Investment can increase through automatic route and there is a need to inform the regional branch of the Central Bank of India about the investment within 60 days of investment.8 Industries that do not fall under automatic approval can get their proposals cleared through Foreign Investment Promotion Board.Given the policy initiatives announced by the Government of India, the FDI inflows into India increased sharply in the post-reform period (Table 1). It is worth noting that the data since 2000-01 are not comparable to the data prior to it. This is because of the change in the definition of FDI to bring it in line with the international practices. In an effort to bring the Indian definition in line with that of IMF, the coverage of FDI since 2011-12 includes, besides equity capital (i.e., RBI automatic route, SIA/FIPB route, NRI acquisition of shares, etc.), reinvestment earnings (including earnings of FDI companies), and other direct capital (like, intercorporate debt transactions between related entities).On account of the removal of restrictions on FDI inflows by most of the developing economies since the late 1970s, it is not only important, but also worthwhile to compare the FDI inflows into India with that of the other developing economies (Table 1). It is noticed that the FDI inflows into developing economies grew rapidly during the post-reform era. Comparing India’s FDI trend with that of China and other countries reveals that it is not so remarkable, but compared to India’s past FDI inflows, it has increased at an unprecedented rate in the recent period.Furthermore, the interesting point to be noted here is that the FDI inflow into India has improved at much faster pace in comparison to that of the other developing countries since 2000 (see Table 1). For instance, the FDI inflow into India increased from $7.61 bn in 2015 to $22.95 bn in 2017. As per UNCTAD (2017), India emerged as the second most important destination after China for foreign investors.Table 2 presents the share of India’s FDI in world FDI. It is evident that India’s share in world FDI has increased considerably during the liberalization period. For instance, India’s share in world FDI increased from 0.11% in 1990 to 0.79% in 2015, and subsequently to 1.25% in 2017. However, it is observed that FDI inflows into India have fallen in 2000. This slowdown in FDI might be attributed to the negative spillover caused by the East Asian Crisis in 1997.Table 3 presents the share of major foreign investors (countries) in India. It is evident that Mauritius emerged as one of the largest foreign investors in India during the period 1991-2007. The firms based in Mauritius accounted for about 41% of total FDI inflows into India during the period August 1991-March 2007. The US (11.39%), the Netherlands (5.67%), and Japan (5.02%) followed at second, third and fourth positions, respectively.The major chunk of FDI inflows into India from the top investors is primarily invested in fuels, electrical equipment, telecommunications, food processing, service, power, and transportation sectors. Indeed, it needs to be pointed out that the FDI inflow from Mauritius to India is misleading. This is so because Mauritius has a very low rates of taxation and it has entered into an agreement with India to avoid double-taxation for corporations. In order to get benefits out of the low tax agreement between Mauritius and India, large number of foreign firms and even some Indian firms started dummy companies in Mauritius, and then invested in India via Mauritius.FDI inflow further increased from 0.96% in 2000-01 to 2.36% in 2016-17. The observed rise in FDI inflows was approximately 79 times between 1990-91 and 2006-07. This implies that FDI inflow as percentage of GDP has improved significantly during the liberalization era.Some researchers state that the sudden rise in FDI was the result of liberalization of India’s highly regulated FDI policy and improvement in structural factors, such as market size, quality of infrastructure, tax concession etc.The change in approvals and the percentages of realization of FDI over time indicates that India’s approach (policy and procedures) toward FDI has undergone significant changes.Table 5 shows that FDI approvals were much higher than the actual realization of FDI inflows in the early years of economic reforms in India. This may be because FDI approval took time for actual realization.9 Since 2002, the realization of FDI inflow has been more than that of approval of FDI. For instance, actual realization of FDI inflow increased from 18.1% in 1992 to 71.67% in 2000 and further to 218% in 2006. This is because of the setting up of the Foreign Investment Implementation Authority for quick transformation of FDI approvals into realizations. Further, routing most of the FDI through automatic approval, enabled India to turn FDI approvals into actual inflows of FDI.Table 6 shows the compound growth rate of FDI inflows in some selected manufacturing industries of India. The growth rate of FDI inflows was found to be positive in selected manufacturing industries, which indicated that the inflow of foreign investment rose across various industries during the period 1996-2006. However, the growth rate of FDI inflow differs from industry to industry. Some industries such as electrical equipment, transportation, telecommunications, metallurgical, and drugs and pharmaceuticals, showed very high rate of growth of foreign investment compared to the fuel and chemical industries.The main objective of the study was to explore the emerging trends of FDI inflows into India against the backdrop of a series of liberalization measures introduced in mid-1980s and further in 1991.The major findings of the study are as follows: Firstly, it is observed that India’s FDI policy has passed through four major phases. A major change has been observed in the fourth phase (started in 1991) of FDI policy, wherein the restrictions on FDI inflows were eliminated to a considerable extent. Now, FDI in India gets approved through two routes: automatic and case-by-case approvals. Secondly, the FDI inflow into India has increased sharply during the post-reform period. India’s share in world’s total FDI inflow also experienced a positive trend and increased by 11.36 times between 1990 and 2017.Further, in comparison to China and other East Asian economies, the trend of FDI inflow into India was not very impressive till late 1990s, but improved remarkably in the subsequent period particularly after 2000. As per World Investment Report (2007), India emerged as the second most important destination after China, for foreign investors in the recent period.Thirdly, the ratio of India’s FDI inflows to GDP also increased between 1990-91 and 2006-07, from 0.03% in 1990-91 to 2.36% in 2006-07. Furthermore, the percentage of actual realization of FDI inflow to approval has improved amazingly after 2000. The setting up of the Foreign Investment Implementation Authority for quick transformation of FDI approvals into realization and routing most of the FDI through automatic approval enabled India to turn FDI approvals into actual inflows of FDI . Nonetheless, the growth rate of FDI inflows in selected manufacturing industries was also found to be positive though it varied from industry to industry. The concentration of FDI has shifted from manufacturing sector to services sector as India’s service sector has experienced high growth in the recent years.From the above discussion, it is evident that FDI inflow into India increased sharply in the post-reform period. The trend of FDI has been positive in India and at global level in the post-reform period. The increasing inflow of FDI into India is partly attributed to rising inflow of FDI at global level and partly to liberalization policies proclaimed in the late 1980s and early 1990s. Further, the MNCs expanded their activities in other developing countries with the objective of reducing their cost of production on the one hand, and to search for new markets on the other.4.2 Impact Of Fdi On Indian Economy;Foreign Direct Investment (FDI) plays an important role in the growth and development of an economy. It is more important where domestic savings is not sufficient to generate funds for capital investment. Not only it supplements the investment requirements of an economy but also it brings new technology, managerial expertise and adds to foreign exchange reserves. FDI inflow is more beneficial particularly to developing and emerging countries than the developed ones. IMF has defined FDI as “a category of international investment that reflects the objective of a resident entity in one economy (direct investor or parent enterprise) obtaining a lasting interest and control in an enterprise resident in another economy (direct investment enterprise)”.Prior to 1980s, economic theories were not delving extensively on the aspects of foreign direct investment and Multi-lateral enterprises (MNEs). During last three decades globalization has been the key to almost all countries’ economic policies. An important aspect of globalization is FDI inflows from home countries to host countries. Though there is no general rule of developed and developing countries as home and host countries respectively, however, mostly it is seen that FDI flows from developed countries to developing and emerging countries. There has been growing competition among developing and emerging countries to attract FDI. India is not left behind in this regard.FDI is believed to play many important roles in the host countries. It has different effects on different countries based on the host country policies, investment climate and other domestic macroeconomic conditions. The first and foremost is, it acts as a capital supplement to the domestic capital for investment demand. Apart from capital it brings new, innovative technology to the host countries. In many countries it also promotes competition among the domestic firms to improve their level of technology adoption. Effectively, they invest more in research and development (R & D) to upgrade their technology. With increased investment as supplement to domestic capital, it also generates more employment opportunities. With keen interest in the investee firms through FDI, the foreign firms improve their managerial competence, which also improves managerial skills in the country through competition and dissemination of the new ideas and skills.The firms with improved technology and competition produce quality products, which are exportable, thus it improves the level of export and degree of openness of the host countries. With foreign partners, there are better tie ups with the importing firms abroad for potential exportable domestic products. With improvement in exports the foreign exchange earnings of the host countries gets boosted. Capital flow through FDI and improved export earnings can also increase the level of foreign exchange reserve in the host countries.With higher foreign exchange reserve, the demand for domestic currency will go up. Hence the domestic currency of the host country is expected to appreciate as against the basket of foreign currencies mostly of trade partners. FDI is also believed to improve the Gross domestic product (GDP) of the host country through improved production and competition among the domestic firms. With improved production and more employment, it also can improve gross domestic capital formation (GDCF) which cater to the increasing requirement of domestic investment in the country. Further, with competition, improvement in technology, the performance of the investee firms as well as other domestic firms can improve. Thus it can have a positive impact on return on capital and thereby on the stock prices.Keeping in view the above mentioned relationships between inward FDI and other macroeconomic variables, which has already been found by some of the earlier researchers, this study tries to empirically establish the relationship between FDI and other macroeconomic variables in Indian context after undergoing some of the existing work in this area across economies.CHAPTER VCONCUSION AND RECOMMENDATION5.0 Conclusion and Findings Global foreign direct investment (FDI) inflows grew in 2007 to an estimated US$1.5 trillion, surpassing the previous record set in the year 2000. It was due to continuous rise in FDI in all of three groups of economies – in developed countries, developing economies and in South-East Europe.However there was declining of global FDI in 2008 due to financial crisis in US but in 2010 FDI was $1,244 billion, where developing economies contributed to more than 50% of the share in global FDI.From 2004 onwards FDI in India increases tremendously and in 2006-2007 there was a growth of 125% in FDI inflow. The subsequent year was again very good, where investment inflows gained 97%, but due to global financial crisis FDI declined from 2008 onwards. In 2010-11 the decline was 25% due to decline in FDI in service sector because of debt crisis in Europe and US.Mauritius, Singapore, the US, UK, Netherlands, Japan, Cyprus, Germany, France and the UAE, among other countries, are the major investors in India. Where India’s 83% of cumulative FDI is contributed by ten countries while remaining 17 per cent by rest of the world.After 1991-2011, Mauritius have always topped the position for FDI inflows in India with FDI on 2011-12 standing at 26634 US $ million, consisting of 41% of total FDI inflows. The inordinately high investment from Mauritius is due to routing of international funds through the country given significant tax advantages; double taxation is avoided due to a tax treaty between India and Mauritius, and Mauritius is a capital gains tax haven, effectively creating a zero-taxation FDI channel. This is the main reason why most of the countries invest in India through Mauritius.Singapore however was very behind among the major investor in India but during the year 2010-11 it came to second position because of CECA agreement between India ; Singapore.Service Sector contribute maximum of FDI inflow in India of about 20% of total inflow which is followed by tele communications, computer hardware ; software, housing and construction activities.The increase in service sector is because of increase in BPO services, consultancy services and also devaluation of rupee against dollar resulting to more inflows of funds to software industries.There has been decline in computer hardware ; software sector due to global financial crisis and due to greater opportunity in countries like China and Korea.In tele communication sector there has been increase in FDI inflows due to change in FDI limit from 49% to 74%.Due to various government policies as to maintain minimum capitalization requirement, 3 yrs lock in period minimum area requirement had led to decline in housing and real estate sector.However in construction activities due to relaxation of government policies and also due to improvement in infrastructure through agreement between India and Japan there has been increase in FDI inflows.Top three states which got the maximum FDI inflow are Maharashtra, New Delhi and Karnataka. The top 3 Indian Regions attracting the highest FDI (April 2000 to January 2010) have been Mumbai Region (representing with US$ 38,074 million (INR 169,691 Crores) followed by Delhi Region with US$ 21,460 million (INR 97,125 Crores) and Karnataka Region with US$ 6,750 million (INR 29,850 Crores). The three states together have accounted for nearly 62% of the total FDI inflows received over the last 10 years, because of better infrastructure, more number of mergers and acquisition of companies in these regions, more number of software companies.More of FDI inflows are through automatic route because of government policies and enactment of SEZ Act which attracted a lot of foreign companies to India.Because of China adopting policies regarding FDI in various sectors starting from 1978 it is at present a top destination of FDI investment in the world. Because of improved R;D, skilled manpower, technological advancement China is far more ahead than India.FDI in China was 185.08 US billion $ which was very higher than that of India which was only 24.15 billion US $. With metallurgical industries being a top sector attracting FDI followed by chemicals, trading, industrial machinery and computer software and hardware.5.1 Suggestion and Recommendations Thus, it is found that FDI as a strategic component of investment needed by India for its sustained economic growth and development. FDI is necessary for creation of jobs, expansion of existing manufacturing industries and development of the new one. Indeed, it is also needed in the healthcare, education, R;D, infrastructure, retailing and in long- term financial projects. So, the study recommends the following suggestions:This study states that policy makers should focus more on attracting diverse types of FDI. Like the policy makers should design policies where foreign investment can be utilized 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.Indian economy is largely agriculture based. There is plenty of scope in food processing, agriculture services and agriculture machinery. FDI in this sector should be encouraged.India has a huge pool of working population. However, due to poor quality primary education and higher there is still an acute shortage of talent. This factor has negative repercussion on domestic and foreign business. FDI in Education Sector is less than 1%. Given the status of primary and higher education in the country, FDI in this sector must be encouraged. However, appropriate measure must be taken to ensure quality. The issues of commercialization of education, regional gap and structural gap have to be addressed on priority.It can also be suggested that the government should invest more for improvement of infrastructure sectors, R;D activities, human capital, education sector, technological advancement to attract more of FDI.Government should ensure the equitable distribution of FDI inflows among states. The central government must give more freedom to states, so that they can attract FDI inflows at their own level. The government should also provide additional incentives to foreign investors to invest in states where the level of FDI inflows is quite low.India has a well developed equity market but does not have a well developed debt market. Steps should be taken to improve the depth and liquidity of debt market as many companies may prefer leveraged investment rather than investing their own cash. Though service sector is one of the major sources of mobilizing FDI to India, plenty of scope exists. Still we find the financial inclusion is missing. Large part of population still doesn’t have bank accounts, insurance of any kind, underinsurance etc. These problems could be addressed by making service sector more competitive. Removal of sectoral cap in insurance is still awaited.FDI should be guided so as to establish deeper linkages with the economy, which would stabilize the economy (e.g. improves the financial position, facilitates exports, stabilize the exchange rates, supplement domestic savings and foreign reserves, stimulates R&D activities and decrease interest rates and inflation etc.) and providing to investors a sound and reliable macroeconomic environment.FDI can be instrumental in developing rural economy. There is abundant opportunity in Greenfield Projects. But the issue of land acquisition and steps taken to protect local interests by the various state governments are not encouraging. It is also suggested that the government while pursuing prudent policies must also exercise strict control over inefficient bureaucracy and the rampant corruption, so that investor’s confidence can be maintained for attracting more FDI inflows to India.(According to JP Morgan risk index of IndiaBibliography:The necessary data were collected through following websites-www.rbi.org.inwww.ibef.orgwww.tradingeconomics.comwww.worldbank.org.inwww.dipp.nic.inhttp://indiahighcom-mauritius.orgwww.docs.google.comwww.imf.orgwww.uscc.govwww.wikepedia.comwww.ukessays.comwww.questia.comhttps://www.researchgate.nethttps://www.rbi.org.in/scripts/SearchResults.aspx