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Chapter 1 Introduction
Chapter 5 Conclusions
Bibliography
INTRODUCTION
borrowings have their own limitations. Hence foreign capital has come to
The history of advanced countries show that almost all of them to rely on
borrowed from Holland in the 17th and 18th century. But by the 19th and
country is the world. The USA now being the richest country in the world
borrowed heavily in the 19th century and in town called upon to become the
major donor in the 20th century. Japan and Russia are striking examples
Singapore, Taiwan, and Malaysia called Asian Tigers. Most countries of the
with the extent to which domestic resources could be mobilized, the sate of
respective governments etc. But the fact cannot be denied that foreign
guided by the industrial policy statements and five years plans from time to
time.
resources for raising the level of employment and abolishing poverty from
Methodology
To study the above problems and to test the above hypothesis. I have to
mail depend upon the secondary sources for collection of the data and upon
The UDCS like India very much depends foreign capital for
capital can enter a country in the form of private capital and public capital
foreign capital may take the form of direct and indirect investment.
dividend only. In recent years the multi indirect in have been evolved. The
national of a country purchases the bonds of the World Bank floated for
Bilateral soft loans (i.e.) scale of food grains and other farm products
Multi lateral loans (i.e.) contribution to the Aid India Club the
United nations like the IBRD, IFC, IDA, SUNFED, UNDP etc.
Inter Govt. grants foreign aid regress to the public foreign capital on
country.
investing country.
investment and portfolio investment the result of the new policy is quite
Proposals approved in the last decade (1981-90) about 80% of the approvals
were very small being $113 million in 2005-06 of these $107 million was
Under ADRI and GDR route, portfolio investment Far exceeds FDI for
billion of FDI.
there no separate law governing policy of FDI, it has generally been guided
by the industrial policy statement and 5 year plans from time to time. The
basic approach on FDI was first laid down in the industrial policy statement
1948. The thrust of the policy was to welcome foreign Pvt. Investment on a
hard.
achieve the plan targets the Govt. also issued illustrative list of industries in
industrial policy, it was announced that the RBI, would accord automatic
engineering, chemical food processing and tourism sector provided that the
foreign equity covers fully the imports of capital goods and outflow on
period. Foreign companies and investors have also been allowed to own
100% Export Oriented Units (EOU) are allowed to sell up to 30% of prod in
the domestic Traffic Areas (DTA) and 100% EOUs engaged in agriculture
and allied activities are allowed to sell upto 35% of their prod in DTA. The
electronics giants.
export oriented units and selected high technology industries such as hydro
agreements upto certain ceiling covering and high priority areas, No Govt.
permission is necessary for hiring foreign technicians and full power have
been delegated to the RBI existing companies can raise foreign equity upto
Broad (FIPB) has been created in the prime ministers office to invite,
investment Upto Rs. 300 crores. FDI projects involving higher investment
investment In India.
2007.
guarantee Agency Protocol and has become its member along with
9th Jan, 2008 as a result of which companies with more than 40%
tax rate of 20% on dividend and interest, 10% on long term capital gains
On Jan 4th 2017, the union govt. gave its nod to 100% FDI for the
capitalization.
economic zones.
project elsewhere.
The following table shows the FDI approval and inflows in India
up to Nov. 2015.
economic development.
were only two steel plants and some limited development of engineering in
sectors like food & textile and the substantial increase in the prod of new
skill obtained from abroad, not only for efficient operation of highly
complex and sophisticated enterprises, but also for their planning, design
and construction.
Foreign capital has also been instrumental in filling the gap between
domestic saving and the capital needed for development This is revealed by
net aid as percentage of plan expenditure during the second plan, 3rd plan
and the 3 annual plans, its contribution had been very substantial being
food prod. Thus it is on the basis of food imports and increased food
production with in the country, that the govt. has been able to build buffer
and IDA has helped India in expanding and modernizing its irrigation and
Above all, foreign aid has been assisting the Govt. in the
investment regional as envisaged in the new economic policy has been very
These have been sharp increase in approvals of FDI proposals, the value
raising to $ 2.9 billion (Rs. 8987 crores) in 2009 from $ 235 million (Rs.
534 crores) in 2006 the total direct foreign investment Proposal approved
since 2006 to 2010 amount to Rs. 40,000 crores. Against just under $ 1
billion (1274 crores) approved during the whole of the previous decades
1981 to 2005.
Further foreign capital has helped the country in supplying the much
exchange gap equals the difference between imports and exports which can
increased from 4.9% in the 1st plan to a peak of 37.5% in the 3rd plan.
These after, there had been a steady decline during the fourth plan and fifth
plan, when net aid financed 17.6% and 12.9% of imports respectively.
During the 6th plan net aid financed 8.2% of imports and 8% during 7th
plan.
Foreign Capital has been a major factor in India's drive towards self
imports for certain areas like machinery manufacture, crude, oil, and
country has been able to export these services this had been made possible
assistance.
and policy studies. This has helped in upgrading Indian expertise and
food production and raw materials for consumer goods industries, India has
Column
Year Foreigners NRI Subtotal FIIS Others Subtotal
4+7
2006-07 66 63 12 4 0 4 133
has been an acceleration in the flow of foreign capital in India, as per data
to 2015-16, total FDI flow ere of the order of $ 39.07 billion, out of which
about $ 17.82 billion (45.6%) were in the form of FDI and the remaining $
21.25 billion 54.4%) were in the form of portfolio investment This clearly
shows that the preference of foreign firms was more in favor of portfolio
investment And much less in the form of direct investment Moreover out of
the total FDI of the order $ 17.82 billion nearly 6.6% ($2.58 billion) was
direct investment was merely 39% of the total foreign investment Flows.
Euro equities and others raise sharply from $ 244 million is 2007-08 to $
22, 2017. According to it, FDI into the country in calendar 2016 hit a new
low and is threading to the lower than that registered in the previous two
years. During the first eleven months of the year (Jan-Nov.2016), FDI
turns around unlikely given the political instability in the region in the after
the highs of $ 806 million registered in Aug 2016 and $ 444 million in June
2016.
report has termed the India's performance as remarkable. Due to the efforts
compared to $ 1.9 billion of the previous years the country has also became
an attractive FDI location for Asia Trans national companies. The pace of
investment From the Republic of Korea into the country has far outstripped
ever that of the USA and UK. However, the Indian Govt. target of rising
India, the USA has emerged as number one investors in India accounting
for $8.58 billion of FDDI approval, out of a total of $ 33 billion cleared till
The FDI approvals for US investors has shown a spurt in the first
months of 2012 with the figure touching $1.3 billion till march 2012,
and Mauritius $ 264.9 million between 2006 and 2012, the US had invested
But actual inflow till 2011 has been quite niggardly at only $ 532.2 million.
Total FDI inflows between 2006 to 2011 stood at $ 5.6 billion as compared
and Thailand.
report 2000 observed that FDI flow in India is no comparison with China,
which received 8.1 billion dollar in 2005, 7.5 billion dollar in 2006, 11.2
All developing
countries including 51,108 1,11,884 1,79,481
China
Source
United nation, world investment report, 2000 from the above table it
Source Graph
Lok Sabha unstirred question from the above graph it is clear that the
service sector which includes both financial services attract the 3rd highest
with $ 47.8 million where as U.K. account 35.37% was the top investor and
Mauritius with 24.81% and followed by U.S. with 9.44% of total inflow.
can never be ignored as the FDI inflow not only integrates the hast country
close to the world economy but also acts as a developmental resource in the
Besides, a large and quality inward FDI can make relationship between the
investors. The new policy framework not only permits the firm to have
many new sectors to them that were earlier reserved exclusively for the
domestic firms.
attracting large and quality FDI inflow and introducing a number of liberal
of the country's national income and only about 2% of the total investment
in the country. Further more, the rate of realization has also not been
declined sharply from 0.75 percent in 2012- to 0.24 % in 2017 India does
not figure among the top ten investment destinations in the globe. It fares
badly ever when compared with the smaller countries like- Venezuela,
Argentina, Saudi Arabia etc. actual FDI inflow from the European union so
far has been far from the potential worse perhaps is the number of the
infrastructure sector.
service sectors, which together received more than 75% of the total
amount.
Most of the recent FDI inflows seem to be for taking over of the
Until 2005 almost all the FDI inflows in the country took the form of
green field investment, about 40% if that was through mergers and
inflows were for take over purpose. This increasing tendency of FDI
inflows in the form of M& as might have limited the economy from its very
The failure of the neo liberal economy in attracting large and quality
shows that the magnitude of FDI inflow into an economy is largely driver
seems to be one of the major cause for the slow inflow of FDI into
the country. The erratic economic growth since the latter half of the
invest in the country with the recession of the domestic and domestic
have under mined the confidence as well as risk taking attitude of the
opening up new ones and forces them to take the relatively safe route
(iii) Poor an inefficient infrastructions: It goes with out saying that for
while the major ports ate still over utilized and hence cast inefficient
and quality inflow of FDI for many economies, the imperfections and
This, ever after a decade or so since the NIP was introduced, India
has failed to appear as one of the hat destination for the green field
consistencies in the policy measures that have made the investment Climate
more rather than less certain coupled with economic slowdown, poor
country.
failing which the Indian industry sector will lose much in the present era of
in removing the imperfections and making the policy frame work more
seems to be one of the major factors responsible for the sorry state of FDI
economy continuing and the rate of inflation being very low it is very
unlikely that the situation will reverse in mean future unless appropriate
iv. Inconsistent and imperfect policy frame work: The liberal policies do
not guarantee a bigger and quality inflow of FDI for many economics. The
perfection and inconsistencies there is the policy pose theat in the way of
and making a perfect policy frame work we can increase the flow of FDI.
vii. Entry of MNGS in soft areas: By restricting the entry of MNCS in the
soft we can increase the flow of FDI in India. The entry of MNCS in soft
employment.
Thus there are also some other measures to promote the flow of FDI
On the other hand 26% FDI is allowed in news and current affairs
present that the editorial and management control remained in Indian hands.
Decisions have also been made to allow 100% FDI is tea plantation
case approval.
Decisions have been taken by the govt. not to raise FDI limit over
26% in insurance. The N.K. SINGH, committee has recently giver the FDI
developed country. There are many critical factors for future flow. These
3. Market Growth.
4. Man Power.
The future of the FDI in India holds good of several recent policy
first the reforms of India's intellectual property legislation and country '
where brand name recognisation and the ability to protect IPRSs play an
consumer oriented credit facilities will also make India a more attractive
Conclusion
In conclusion we can say that FDI in India is absolutely necessary to fill the
resource and technology gap, which hinder our economic development. After
opening of the economy, the process in this field has been remarkable but when we
compare the flows of FDI in India with the East Asian tigers particularly china,
India stands no where. The World Bank report 2015 observed that china received
44.2 billion dollar FDI in 2012 and 40.4 billion dollar in 2014. This shows that in
the area of FDI, India has long away to go. Various obstacles in this field will have
which acts as a hindrance to FDI. However the Govt. has taken several steps in
recent years to improve the prospect of FDI. The N.K. Singh committee report has
suggested 100% FDI in the spare of bank, real estate, oil refineries and airport,
while recommending 74% FDI in telecom sector and increasing FDI from 26% to
40% in insurance sector. The recommendations are being debated in the press and
political circles. There is growing apprehension among the opposition parties that
the new policy may make the multi national corporations to dominate the economy
pointed out that we should not invite foreign investment to those areas in which
our domestic entrepreneur can deliver the goods. These issues must be clearly kept
in the mind while formulating policies for FDI in our country. The alternative
hypothesis is accepted that FDI has positive upon the industrial development in
India.
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