“TRENDS ANALYSIS OF FDI IN INDIA

(MANUFACTURING SECTOR AND SERVICE

SECTOR)”

Introduction: Foreign direct investment (FDI) is probably one of the most

significant factors leading to the globalization of the international economy. FDI
inflows to the developing countries increased remarkably in the 1990s and now
accounts for about 40 per cent of global FDI.

Similar trends have also been observed in India. Foreign direct investment in India
has expanded rapidly following the liberalization program initiated in the early 1990s.
The immediate challenge before the Congress Government constituted in 1991 was to
overcome the severe economic crises and direct the economy towards a sustained
growth. Accelerating economic growth through liberalization and globalization
necessitated not only dismantling the stringent rules and regulations but also inviting
foreign capital and technology. It also meant restructuring its trade regime to prepare
the economy for greater integration with the global economy.

In this study I have taken into account the data of 2000-2010 because before the
period of 2000 the growth rate of FDI in India was very slow. There were only 29
countries in 1991whose by FDI was approved by the Indian which increased to 86
countries in 2000 and the increased to 106 countries in 2003. It was due to many
factors like US sanctions imposed in the aftermath of neuclear tests, the East Asian
melt down and the perceived Swadesh image of Bharathi Janatha party which was
ruling govt during this period in India.

Objectives of the study

To study the sector wise trend in India

To identify which sector attracts highest FDI inflows

Scope of Study :

This study is confined only to two sectors and for this purpose the data for the period
of 2000-10 has been taken into account.

Research Methodology :

Type of Research :

The research type is descriptive

Collection of data : Secondary data has been considered for this purpose

Secondary Data :

Secondary data has been collected from websites, books and journals.

Review of Literature :

Hymer(1960), Caves(1996), Dunning(1993) found that MNEs have both tangible and
intangible resources or explicit and tacit knowledge, in the form of technology,
managerial skill, international network, capital and brand names and goodwill.

Teece(1977) stated that the MNEs can supply these resources to local firms in equity
joint ventures( intra firm), in non-equity strategic alliances or in arm’s –length
transactions through the external market. The transfer mechanism through the market
or intra firm depends on transaction costs.

Lucas(1990) has also analysed the issue by examining the question of why capital
does not flow from rich to poor countries and critically explored some candidates
answers that are based on human capital and capital market imperfections. With
regard to human capital, he shows that the rich country’s optimal policy is to retard
country. As far as capital market imperfections are concerned, Lucas’s paper analyses
a borrowing contract between poor and rich countries. In this paper, the focus is on
linkages and on rtional behaviour of different foreign investors in the face of reform
uncertainty.

Cheng(1993) noted the growing importance of cross-border R & D activities and

suggested that additional research on FDI should be done on why firms
internationalize their R & D.

Anand and Delios(1996) documented that the relatively slow growth of FDI from
Japanese MNCs in India as compared to China is attributed to the desire to gain only
market asses in India.