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Economy
India is one of the fastest growing major economies in the world and third largest by purchasing
power parity. Foreign Direct Investment is an important issue for the Indian economy. Foreign
Direct Investment (FDI) is one major instrument for attracting foreign funds in any economy. It
serves as a link between investment and savings. India is facing the deficit of savings. This
problem can be solved with the help of Foreign Direct Investment. This research papers aims to
analyze investment pattern of FDI in different sectors of Indian economy from 2010 to 2015.
Recently the government of India increased the limits of FDI inflows in various sectors of the
economy to boost new life in the system. Foreign investment flow supplements the scare
domestic investments in India. Further this paper recommends that government should welcome
the inflow of foreign investment because it enables us to achieve our goals like favorable balance
of payment, rapid economic development, removal of poverty and internal personal disparity.
Key words: - FDI, FII, Foreign Trade, Imports, Exports, Balance of Payments.
* Professor & Head, Department of Commerce, Dean Faculty of Commerce, Chairman of Board
Introduction
FDI is one of the major sources of non-debt financial resource for the economic. Foreign
companies invest in India to take advantage of relatively lower wages, special investment
privileges such as tax exemptions, etc. For a country where foreign investments are being made,
it also means achieving technical know-how and generating employment. According to the
BPM5, FDI refers to an investment made to acquire lasting interest in enterprises operating
outside of the economy of the investor. Further, in case of FDI, the investor´s purpose is to gain
an effective voice in the management of the enterprise. India has the potential to be the fastest
growing economy over the coming decade. India tops the global list for predicted annual growth
rate as 7.0 per cent for the coming decade. FDI not only means making investment in another
country but it also includes building of new facilities, merger and acquisition and reinvesting
profits earned from the investment companies. In 1991 foreign investment was introduced by
former finance minister Manmohan singh under FEMA (Foreign Exchange Management Act). In
2015, India emerged as top FDI destination surpassing china and the US. The idea behind
introduce FDI to harmonize domestic investment with the overseas operations and to built the
that reflects the objective of a resident in one economy (the direct investor) obtaining interest in
an enterprise resident in another economy (the direct investment enterprise). The lasting interest
implies the existence of a long-term relationship between investor and the direct investment
enterprise, and a significant degree of influence by the investor on the management of the
enterprise. A direct investment relationship is established when the direct investor has acquired
10 percent or more of the ordinary shares or voting power of an enterprise. There are number of
sectors in India where FDI is permissible such as tourism sector, Insurance sector,
Telecommunication sector, Trading, Non-Banking financial companies, Construction and
FDI in India is governed by the FDI policy framed and announced by the ministry of commerce
and industry, Government of India, FEMA (1999) and by the Reserve Bank of India. Foreign
Institutional Investors (FII) also contributes for economic development of any nation. Many big
foreign companies invest their money in Indian markets. In the present context SEBI (security
exchange board of India) has over 1450 foreign institutional investors registered with it. In this
regard investment banks and mutual fund houses lead the investment.
Recently government of India eased FDI norms in 15 major sectors by raising the foreign
investment limit from Rs.3000 crore to Rs.5000 crore. By introducing these 15 sectors the prime
minister said that FDI in these sectors will definitely be beneficial for the economic development
of the country. In defense sector the government of India allowed foreign investment up to 49%
under the automatic route. In pension, civil aviation and the insurance sector government of India
allowed 49%. In multi brand the government allowed 51% and in single brand retail company
such as IKEA government allowed 100% FDI through automatic route. In public sector banks
government allowed 20% FDI limits. In private sector banks government allowed 74% FDI. In
insurance sector 100% FDI is permissible by the government. In addition to this manufacturer
are allowed to sell their products through e-commerce without government approval. Finance
minister also emphasized on the construction sector. According to him there has been a slow
down here and the interest rates have started coming down, these sectors will hopefully pickup
from here.
Table No.1
1 Agriculture 100%
4 Defence 49%
8 Education 100%
11 FM radio 26%
15 Pension 49%
16 Pharma 100%
17 Power 49%
20 Tourism 100%
Foreign direct investment has its own importance in the economic development of the nation.
FDI is one of the important sources for the nation to increase the revenue by the flow of capital.
FDI not only helpful in economic development but it also enhances the productivity to maintain
the balance of payments and increases the employment. Through FDI numbers of industrial units
were funded in different sectors of Indian economy. FDI and FII boost Indian economy to grow
faster. Now Government of India wants to liberalize the FDI limits in major sectors. These
decisions were based on the recommendation of Mayaram committee which suggested relaxing
investment caps in about 20 sectors. Earlier government has prescribed only specific limit of
Review of literature
Andersen P.S and Hainaut, (2004) in their paper titled “Foreign Direct Investment and
Employment in the Industrial Countries” pointed out a possible relationship between foreign
direct investment and employment, in particular between outflows and employment in the source
countries in response to outflows. They also find that high labour costs encourages outflows and
discourage inflows and that such effect can be reinforced by exchange rate movements.
Devajit (2012) conducted the study to find out the impact of foreign direct investments on Indian
economy and concluded that Foreign Direct Investment (FDI) as a strategic component of
investment is needed by India for its sustained economic growth and development through
creation of jobs, expansion of existing manufacturing industries, short and long term project in
the economic growth of developing countries around the world. Attracting FDI inflows with
conductive policies has therefore become a key battleground in the emerging markets. The paper
highlighted the trend of FDI in India after the sector-wise economic reforms.
Sharma Reetu and Khurana Nikita (2013) in their study on the sector-wise distribution of FDI
inflow to know about which has concerned with the chief share, used a data from 1991-92 to
2011-2012 (post-liberalization period). This paper also discusses the problems about foreign
direct investment and suggests some recommendations for the same. In this study they found
that, Indian economy is mostly based on agriculture and allied sectors, so there is vast scope of
FDI in this sector. Govt should also encourage FDI in this sector.
Research Methodology
Research is a continuous process which never ends and research methodology is an approach of
research. In this study I have taken secondary data for analysis and sources of the secondary data
are RBI bulletin, reports of DIPP, economic survey and other statistical documents published by
This research study mainly focuses on analyzing various statistics related to foreign direct
investment in the country. The nature of the research is macro in nature and it is an exploratory
and descriptive research. We also used research tools like mean, Annual growth rate and
• This study is based on the secondary data collected from various published documents and
reports.
India is a developing country and there is scarcity of capital and advanced technology but India
has large amount of natural resources and labour intensity in our economy. Indian economy is
flourishing. It is attractive and also having a large scope for the investors because it has a
potential to be a fastest growing economy in the world. Indian government is also motivated and
used various approaches to attract FDI in our economy. India is introducing various reforms for
easy of doing business in the country and it has been using liberal practices for approval and
India is known to have huge amounts of resources. There is manpower and significant
availability of fixed and working capital. At the same time, there are some underexploited or
unexploited resources. The resources are well available in the rural as well as the urban areas.
India required improving the infrastructure to utilize these resources. India is definitely
developing in a much faster pace now than before but in spite of that it can be identified that
developments have taken place unevenly. This means that while the more urban areas have been
tapped, the poorer sections are inadequately exploited. To get the complete picture of growth, it
is essential to make sure that the rural section has more or less the same amount of development
as the urbanized ones as the primary choice of FDI is to invest in such areas which are more
profitable.
Indian economy receives FDI from different countries like Mauritius, Singapore, United
Table no.2
(US $ million)
Years 2010- % of 2011- % of 2012- % of 2013- % of 2014- % of
11 Total 12 Total 13 Total 14 Total 15 Total
Total FDI 14,939 23,473 18,286 16,054 24,748
Mauritius 5,616 38 8,142 35 8,059 44 3,695 23 5,878 23.75
Singapore 1,540 10 3,306 14 1,605 9 4,415 28 5,137 20.76
U.S.A 1,071 7 994 4 478 3 617 4 1,981 8.00
Cyprus 571 4 1,568 7 415 2 546 3 737 2.98
Japan 1,256 8 2,089 9 1,340 7 1,340 8 2,019 8.16
Netherlands 2,019 14 1,289 5 1,700 9 1,157 7 2,154 8.70
United 1,891 13 2,760 12 2,760 15 111 1 1,891 7.64
Kingdom
Germany 163 1 368 2 467 3 650 4 942 3.81
UAE 188 1 346 1 173 1 239 1 327 1.32
France 486 3 589 3 547 3 229 1 347 1.40
Switzerland 133 1 211 1 268 1 356 2 292 1.18
Hongkong 209 1 262 1 66 0 85 1 325 1.31
Spain 183 1 251 1 348 2 181 1 401 1.62
China 2 0 73 0 148 1 121 1 505 2.04
Malaysia 40 0 18 0 238 1 113 1 219 0.88
South Korea 136 1 226 1 224 1 189 1 138 0.56
Luxembourg 248 2 89 0 34 0 539 3 204 0.82
Others 1142 8 892 4 1154 6 1015 6 1250 5.05
Source: RBI Annual Report: 2014-15
Interpretation: Table no.2 indicates the FDI inflows from various countries. For this analysis
different year’s data has be tabulated to get the relative knowledge about the FDI from various
countries. Through this table it is clear that Mauritius is the country which is the top source of
FDI. Other sources are Singapore, United Kingdom, Japan and Netherland.
From table below it is clear that from last decade foreign direct investors are looking towards
Indian economy and feels free to invest in Indian market. In the January-June period, India has
surpassed US and China as the biggest Foreign Direct Investment (FDI) destination, garnering
$31 billion investments compared with $28 billion attracted by China and $27 billion by the US.
In the first half of 2014, India had received $12 billion worth FDIs, thus more than doubling in
Table no.3
found that in 2001-02 the Annual growth rate of FDI is 52% and in the year 2002-03 growth rate
is decreased to 18%. In 2003-04 again it seems to be declined to 14%. In 2007-08 annual growth
rate of FDI remains 53% but in 2008-09 it declined to 20%. From 2009 to 2011 annual growth
rate of FDI was negative. In 2012 it remains 34% and again it declined to -26%.
Recently government of India changed FDI limits in different sectors. All these various sector
are the pillars on which the growth and development of the nation depends. Such sectors are
service sector, Insurance sector, construction sector, IT sector, Automobile sector, power sector
etc.
Table no.4
Sector wise trends and patterns of FDI Inflows from 2010-2015
(US $ million)
2012- 2013- 2014-
Sectors 2010-11 2011-12
13 14 15
Manufacturing 47939 9337 6528 6381 9613
Construction 1,599 2,634 1,319 1,276 1,640
Financial Services 1353 2603 2760 1026 3075
Real Estate Activities 444 340 197 201 202
Electricity and other Energy
Generation, Distribution & 1338 1395 1653 1284 1284
Transmission
Communication Services 1228 1458 92 1256 1075
Business Services 569 1,590 643 521 680
Miscellaneous Services 509 801 552 941 586
Computer Services 843 736 247 934 2154
Restaurants and Hotels 218 870 3129 361 686
Retail & Wholesale Trade 391 567 551 1139 2551
Mining 592 204 69 24 129
Transportation 344 410 213 311 482
Trading 156 6 140 0 228
Education, Research & Development 56 103 150 107 131
Others 506 419 43 293 232
Source: RBI Annual Report: 2014-15.
Interpretation: Table no.4 indicates the trends of FDI inflows in various sectors from 2010-15.
Manufacturing sector indicates the highest volume of FDI inflows than other sectors. Second is
Export and Import is the life blood of the Indian trade. It helps to grow national economies and
expands the global market in large scale. Every country is endowed with certain advantages in
resources and skills. For example, some countries are rich in natural resources; some countries
have highly developed infrastructures, educational systems and capital markets that permit them
not. The trend of export and import has its great influence on FDI.
Table no.5
Trends and pattern of Export and Import
Trade
Year Exports Growth (%) Imports Growth (%)
Balance
2004-05 375340 27.94 501065 39.53 -125725
2005-06 456418 21.6 660409 31.8 -203991
2006-07 571779 25.28 840506 27.27 -268727
2007-08 655864 14.71 1012312 20.44 -356448
2008-09 840755 28.19 1374436 35.77 -533680
2009-10 845534 0.57 1363736 -0.78 -518202
2010-11 1142922 35.17 1683467 23.45 -540545
2011-12 1465959 28.26 2345463 39.32 -879504
2012-13 1634318 11.48 2669162 13.8 -1034844
2013-14 1905011 16.56 2715434 1.73 -810423
2013- 1562119 2253985 -691866
14(April-Jan)
2014-15 1613789 3.31 2334685 3.58 -720896
(April-Jan)
Source: www.dipp.com
Interpretation: Table no.5 indicates the export and import trends of various years. Through this
analysis it is clear that growth percent of imports is more than the exports. The trade balance
seems to be negative year by year which is not a sign for Indian economy.
After analysis and discussion on FDI in Indian economy we have reached to some findings.
Lack of adequate infrastructure is cited as a major hurdle for FDI inflows into India. This
bottleneck in the form of poor infrastructure discourages foreign investors in investing in India.
India’s age old and biggest infrastructure problem is the supply of electricity. Power cuts are
considered as a common problem and many industries are forced to close their business.
Table no.1 indicates that increasing the limits of the FDI in various sectors that indicate good
sign for the economic development of the country because it will attract more FDI which will
lead to increase job opportunities, proper utilization of natural resources and employment
generation etc.
The maximum inflow of foreign capital mainly comes from Mauritius, Singapore, U.K., Japan,
Netherland and USA. It is observed that the flow of money comes from the various countries
which will be a good sign for the country because the Indian economy does not depend on one
country. These countries are attracted towards the Indian economy because Indian economy is a
faster growing major economy in the world as well as having a large amount of natural
Table no.3 reveals that the flow of FDI has been fluctuated during the period. In the beginning of
the study the annual growth rate was 52% than after it has decreased in 2004 than again decrease
up to 2008-09 than again decrease up to 2011. The total money come through FDI from various
Table no.4 reveals that FDI has been investing in fruitful sector like service, communication,
such type of investing pattern is not beneficial for the Indian economy because other sectors also
need capital and there are thrust areas which need attention and investment for the overall
The Indian government expected that after good FDI in India large number of jobs will be
created and it will also increase the exports of the country but the actual position is totally
different, the balance of payment has been negative continuously and gap between the exports
Suggestions
• The Indian government has increased FDI limits in profitable areas, which is not
beneficial for the country. Although they also increased FDI limit in agriculture sector to
100% but rest of the sector are more profitable and they should be restricted.
• FDI limit in multi brand retail should be reconsidered as it may affect domestic retailers.
• FDI should be promoting in the areas which could increase our exports and also should
try to reduce import of the goods. This would have positive impact of the balance of
labour reforms take place. The country should take initiatives to adopt more flexible
labour laws.
• India should consciously work towards attracting greater FDI into R&D as a means of
References
• Pradhan Surendra (2000), "Foreign Direct Investment: Risk, Return and Host Country's
• Radhakrishnan, K.G. and Pradhan Jaya Prakash (2000). "Foreign Direct Investment in
India Policy, Trends and Determinants", Productivity, Vol. 41, No. 3, Oct.-Nov., pp. 454-
462.
• Srivastava, S. (2003). What is the true level of FDI flows to India?. Economic and