project on FDI

8/9/2019 project on FDI

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MACROECONOMICS PROJECT

INFLUENCE OF FDIs ON

THE INDIAN ECONOMY

SUBMITTED BY:-


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ACKNOWLEDGEMENT

I would like to express our sincere gratitude to Prof. K.C.for giving us the opportunity towork on this project, which has helped us in building our knowledge about the subject,that is,Macroeconoics and the !usiness "nvironent, and without whose valuable guidance andencourageent aking the report would have beenunsuccessful.

#fter doing all the research necessary for the copletion of this project I have not onlygained inforation about this particular topic but also an overall insight into the Indian

econoy as a whole.

I thank hi for providing us with all the re$uired otivation needed to coplete the project.


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CONTENT

INTRODUCTION...

REASON FOR TAKING THE

PROJECT..........

OBJECTIVES....

METHODOLOGY.........

RESULT.

DISCUSSION..

CONCLUSION....

REFERENCE...

APPENDIX.


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INTRODUCTION

WHAT IS FDI?

%&I is generally defined as '# for of long ter international capital oveent,

ade for the purpose ofproductive activity and accopanied by the intention of anagerialcontrol or participation in the anageentof foreign fir.(In simp! "#$%s &n' in(!s)m!n) *#"in+ ,$#m #n! -#n)$' )# &n#)/!$ -#n)$'is ,#$!i+n in(!s)m!n). T/! m&n&+!m!n) #, & 0sin!ss !n)!$p$is! in & ,#$!i+n-#n)$' is ,#$!i+n in(!s)m!n).

In%i&n G#(!$nm!n) -&ssi1!s ,#$!i+n in(!s)m!n) in )/! ,##"in+ ,#$m2

For!"# $!r%& !#'s&(#& )FDI*

For!"# !#s&!&+&!o#, !#'s&(#& )FII*

No#-rs!$#& I#$!,# )NRI* !#'s&(#&

Policy on FDI

India has aong the ost liberal and transparent policies on %&I aong the eergingeconoies. %&I up to)**+ is allowed under the autoatic route in all the sectors except thefollowing, which re$uire prior approvalof overnent- ectors prohibited for %&I.

#ctivities that re$uire industrial license.

Proposals in which the foreign collaborator has an existing financial/technical

collaboration in India inthe sae field. Proposals for ac$uisition of shares in an existing Indian Copany in financial service

sector and where"!I regulations, )001 is attracted. #ll proposals falling outside notified sectoral policy in which %&I is not peritted.


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FDI IN INDIA

India, being a capital scarce country, has taken any easures to attract foreigninvestent since the beginning of refors in )00). India is the second largest country in theworld, with a population of over ) billion people. #s a developing country, India2s econoy

is characteri3ed by wage rates that are significantly lower than those in ost developedcountries. 4hese two traits cobine to ake India a natural destination for foreign directinvestent 5%&I6 and foreign institutional investent 5%II6. 7ntil recently, however, India hasattracted only a sall share of global foreign direct investent 5%&I6 and foreign institutionalinvestent 5%II6, priarily due to governent restrictions on foreign involveent in theeconoy. !ut beginning in )00) and accelerating rapidly since 8***, India has liberali3ed itsinvestent regulations and actively encouraged new foreign investent, a sharp reversalfro decades of discouraging econoic integration with the global econoy. 4he world isincreasingly becoing interdependent. In fact, the world has becoe a borderless world.9ith the globali3ation of the various arkets, international financial flows have so far beenin excess for the goods and services aong the trading countries of the world. :f the

different types of financial inflows, the foreign direct investent 5%&I6 and foreigninstitutional investent 5%II66 has played an iportant role in the process of developent ofany econoies. %urther any developing countries consider foreign direct investent5%&I6 and foreign institutional investent 5%II6 as an iportant eleent in their developentstrategy aong the various fors of foreign assistance.4he %oreign direct investent 5%&I6 and foreign institutional investent 5%II6 flows areusually preferred over the other for of external finance, because they are not debt creating,non;volatile in nature and their returns depend upon the projects financed by the investor. 4he%oreign direct investent 5%&I6 and foreign institutional investent 5%II6 would alsofacilitate international trade and transfer of knowledge, skills and technology.4he %oreign direct investent 5%&I6 and foreign institutional investent 5%II6 is the process

by which the resident of one country5the source country6 ac$uire the ownership of assets forthe purpose of controlling the production, distribution and other productive activities of afir in another country5the host country6. #ccording to the international onetary fund5IM%6, foreign direct investent 5%&I6 and foreign institutional investent 5%II6 is defined as'an investent that is ade to ac$uire a lasting interest in an enterprise operating in aneconoy other than that of investor(. 4he governent of India 5:I6 has also recogni3ed thekey role of the foreign direct investent 5%&I6 and foreign institutional investent 5%II6 in its

process of econoic developent, not only as an addition to its own doestic capital but alsoas an iportant source of technology and other global trade practices. In order to attract there$uired aount of foreign direct investent 5%&I6 and foreign institutional investent 5%II6,

it has bought about a nuber of changes in its econoic policies and has put in its practice aliberal and ore transparent foreign direct investent 5%&I6 and foreign institutionalinvestent 5%II6 policy with a view to attract ore foreign direct investent 5%&I6 andforeign institutional investent 5%II6 inflows into its econoy. 4hese changes have heraldedthe liberali3ation era of the foreign direct investent 5%&I6 and foreign institutionalinvestent 5%II6 policy regie into India and have brought about a structural breakthrough inthe volue of foreign direct investent 5%&I6 and foreign institutional investent 5%II6inflows in the econoy. In this context, this report is going to analy3e the trends and patternsof foreign direct investent 5%&I6 and foreign institutional investent 5%II6 flows into Indiaduring the post liberali3ation period that is )00) to 8**1 year.


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For!"# $!r%& !#'s&(#&: I#$!,# s%#,r!o

%oreign &irect Investent 5%&I6 is peritted as under the following fors of investents ottery !usiness

abling and !etting

!usiness of chit fund.

?idhi Copany

4rading in 4ransferable &evelopent =ights 54&=s6.

#ctivity/sector not opened to private sector investent.

Foreign Investment through GDRs !uro Issues" #

Indian copanies are allowed to raise e$uity capital in the international arketthrough the issue of lobal &epository =eceipt 5&=s6. &= investents are treated as %&Iand are designated in dollars and are not subject to any ceilings on investent. #n applicantcopany seeking overnent@s approval in this regard should have consistent track recordfor good perforance 5financial or otherwise6 for a iniu period of A years. 4hiscondition would be relaxed for infrastructure projects such as power generation,telecounication, petroleu exploration and refining, ports, airports and roads.


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REASON FOR TAKING THE PROJECT

4he ajor reason behind taking up this particular topic as our project for Macroeconoics

and the !usiness "nvironent is the growing iportance of %&I2s and its ipact on the

econoy. 4hus it is essential to get an insight into how the growth in %&I2s affects the

acroeconoic aspect of India.In India, %&I is considered as a developental tool, which can help in achieving self;reliance

in various sectors of the econoy. 9ith the announceent of Industrial Policy in )00), huge

incentives and concessions were granted for the flow of foreign capital to India. India is a

growing country which has large space for consuer as well as capital goods. India2s

abundant and diversified natural resources, its sound

econoic policy, good arket conditions and highly

skilled huan resources, ake it a proper

destination for foreign direct investents.

#s per the recent survey done by the 7nited

?ational Conference on 4rade and &evelopent

57?C4#&6, India will eerge as the third largest

recipient of foreign direct investent 5%&I6 for the

three;year period ending 8*)8 59orld Investent =eport 8*)*6. #s per the study, the sectors

which attracted highest %&I were services, telecounications, construction activities, and

coputer software and hardware. In )00), India liberalised its highly regulated %&I regie.

#long with the virtual abolition of the industrial licensing syste, controls over foreign tradeand %&I were considerably relaxed. 4he refors did result in increased inflows of %&I during

the post refor period. 4he volue of %&I in India is relatively low copared with that in

ost other developing countries.


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%&I plays an iportant role in econoic growth of an econoy. >iterature on factors

deterining %&I inflows into an econoy shows that any factors influences inflows such as

arket si3e, inflation, trade openness, interest rate, wage rate, business environent, etc. 4he

present study exained the factors deterining %&I inflows in India during post refor

period. 4he results of our analysis show that %&I is related positively with real &P and

previous period %&I inflow but inversely related with inflation. It showed that theacroeconoic instability in ters of inflation has been an iportant factor which

influenced the inflow of %&I in India in the post refor period.

4here are any past studies which have ephasi3ed the role of &P growth, wage rate, traderate, real interest rates, inflation, and stock of %&I, doestic investent in attracting %&I into

a country. !esides, it is also understood that the ain deterinants of %&I inflows are the

inflation rate, the interest rate, the growth rate and the trade 5openness6 rate.


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OBJECTI.E

4he basic objective of the project is to deterine the relation of %&I with Macroeconoics.

$b%ective &

4o exaine the trends and pattern in the foreign direct investent 5%&I6 across different

sectors of Macroeconoics in Indian context during )00);8**1 period eans during post

liberali3ation period.

$b%ective '

#nd oreover to see the ipact of %&I post liberali3ation and copare it with pre

liberali3ation of Indian "conoy. #fter the overview, the ain objective would be to get a

pre assuption about the ipact of %&I in retail industry, in India.


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METHODOLOGY

4he lifeblood of business and coerce in the odern world is inforation. 4he ability to

gather, analy3e, evaluate, present and utili3e inforation is therefore is a vital skill for the

anagerof today.

In order to accoplish this project successfully I have taken following steps.

)6D(t( )ollection*

4he analysis is done with the help econdary data 5fro internet site and journals6.

86An(lysis*

#ppropriate tatistical tools like correlation, regression and 4ie series are used to analy3e

the data.

A6 Di(gr(m*

uitable diagras are used where necessary for better interpretation and understanding.

B6 Pictures*

Pictures tells a lot then words, keeping this in ind any tables pictures are also used for

better understanding.

54he analysis is done with the available data fro the tie period )0B1;)00) for pre;

liberali3ation and )00);)001 for post liberali3ation. #nd the correlation, regression and 4ieseries analysis is done on the data of 8**;8**0.6


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RESULT AND DISCUSSION

RELATIONSHIP OF FOREIGN IN.ESTMENTWITH MACRO ECONOMIC FACTORS IN INDIA

F$R!IG+ I+,!ST!+T A+D GDP $F I+DIA

%oreign investent shows a strong correlation 5polynoial6 with &P in the lastdecade 5)00;8**6. The R' v(lue .or the s(me is /011&. Please refer to section D#.)2 of the#nnexure for detailed data. %&I shows a strong linear correlation with the &P of India. R'v(lue o. /02/3 shows the strength of the correlation between the two paraeters. %or detaileddata analysis, please refer to the section D#.82 of #nnexure.

FDI A+D I+DIA+ )4RR!+)5

# trend analysis of the %&I inflows to India and the exchange rates prevailing in the

financial year 8**;*0 shows a trend which doesn2t depict a very strong correlation betweenthe two chosen paraeters. 4he best and strongest fit function for the trend was given by theE;degree polynoial function with R6' v(lue o. /037&. 4he exchange rate taken is takenwith respect to 7 dollar. Please refer to section D#.A2 of #nnexure for further details.

F$R!IG+ I+,!ST!+T A+D !P8$5!+T GR$WTH

4he R6' v(lue is /0&93 for the F;degree polynoial correlation between foreigninvestent in India and eployent. %&I shows a B;degree polynoial correlation witheployent with an R6' v(lue o. /0'73. %or detailed data analysis, please refer to sectionD#.B2 of the #nnexure.

FDI A+D I+F8ATI$+ WPI"4he correlation derived between 9holesale Price Index 59PI6 and %&I based on the

onthly data available for the financial year 8**;*0 shows a trend which is not as strong asseen in the previous sections. 4he =G8 value for the correlation between the two paraeters isonly /0/9:. Please refer to section D#.F2 of the #nnexure for further reference.

F$R!IG+ I+,!ST!+T A+D IIP

4he correlation derived between %oreign Investent and Index for Industrial

Production 5IIP6 shows strong relationship with R6' v(lue o. /02& for a linear correlation.

4he R6' v(lue is /02: for a 8;degree polynoial correlation of %&I with IIP which again

shows a very strong relationship. Please refer to section D#.E2 of the #nnexure for further

reference.

TI! S!RI!S A+A85SIS $F F$R!IG+ I+,!ST!+T A+D FDI I+ I+DIA

4he best fit e$uation derived fro the tie series analysis of .oreign investment in

India is given by the following 8;degree polynoial e$uation- < y H AFF.Fx8 ; )"*Ex

)"*0 9here, x represents tie 5year6 and y represents the foreign investent ade in 7

Jillions. 4he =8 value obtained for the above e$uation is *.0BF. 4he best fit e$uation

derived fro the tie series analysis of FDI in India is given by the following A;degree

polynoial e$uation- y H E).*)xA ; AEF08x8 1"*x ; F")) 9here, x represents tie


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5year6 and y represents %&I in 7 Jillions. 4he =8 value obtained for the above e$uation is

*.1*.

H$W D$!S G$,!R+!+T ATTRA)TS A+D $+IT$RS FDI?

Foreign Investment Promotion Board FIPB:

4his specially epowered !oard in the office of the Prie Minister is the only agencydealing with atters relating to %&I as well as prooting investent into the country. It ischaired by ecretary Industry 5&epartent of Industrial Policy Prootion6. It prootes%&I into India by undertaking investent prootion activities in India and abroad byfacilitating investent in the country through international copanies, non;resident Indians

and other foreign investors.

Foreign Investment Promotion Council FIPC:

4he overnent has constituted a %oreign Investent Prootion Council 5%IPC6under the chairanship of Chairan ICICI, to undertake vigorous investent prootion andarketing activities. 4he Presidents of the three apex business associations such as#:CL#M, CII and %ICCI will be ebers of the Council. Ministry of Industry personnelwill be Meber;ecretary.

Foreign Investment Implementation Authority FIIA:

%oreign Investent Ipleentation #uthority 5%II#6 has been set up by thegovernent of India in order to encourage the ipleentation of the proposals for %&I in thecountry. !y doing this, %oreign Investent Ipleentation #uthority 5%II#6 has given aajor boost to the Indian econoy.

=ole of %oreign Investent Ipleentation #uthority 5%II#6-

4o understand and solve the probles of the investors

4o understand and solve the probles of the approving authorities

4o refer the cases that have not been resolved at the level of %I# to the agencies at the

higher levels

4o start consultations with ultiple agencies


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WHAT D!T!RI+!S TH! FDI I+ TH! !)$+$5?

Gro;th o. the economy*

o 4he growth rate of the hoe econoy is an iportant deterinant of %&I into the country. Sienness o. the economy*

o #ny %&I investent into a country depends upon how Dopen2 the econoy is towardsforeign trade 5both iports and exports6. 9e have captured the Dopenness2 of the econoythrough the proxy variable, &: 5&egree of :penness6 where it is given by&: H 5Iports "xports6/&P

Incorporating all these factors as deterinants of %&I, we get the following odel-

FDIt ( @b GDPt @ c GDPt @ d D$t@ e R!!Rt@ ut

9here,%&It H %oreign &irect Investent in Period t.&Pt H ross &oestic Product in Period t.

&Pt H &Pt ;&Pt;)&:t H &egree of :penness in Period t and is e$ual to ratio of u of "xports and Iports to&Pt.=""=t H =eal "ffective "xchange =ate in Period t.ut H "rror 4er 7sing the tie series data,

we ran a ulti;variate regression of the above e$uation to estiate the values of thecoefficients and to check their significance levels. 9e obtained an adjusted = s$uare valueof .1A which shows that the odel explains ore than 1*+ of the data.FDIt -1B&&/ @ 0/&& GDPt @ 0/' GDPt @ 7729/ D$t@ 7BB0: R!!Rt

#lso, we note that all the coefficients are positive which is as expected and the t statistic

values indicate that all coefficients are significant.


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#n open;arket operation where the =!I decides to buy governent bonds fro the public

will result in the expansion of the oney supply. %ro the above graph, we can see that the

increase in the oney supply decreases the interest rate fro i) to i8. 4he decrease in the

interest rate increases the exchange rate 5as the deand for foreign currency N supply of

foreign currency6. #s a result, the %&I increases in the host country. #lso, the decrease in the

interest rate eans the cost of capital decreases since national incoe identity suggests thatan increase in doestic investent will positively ipact on doestic output.

Y = C + I + G + X M).

:pen;arket operations are likely to do a better job in attracting ore flows of %&I than

other type of onetary policy. 4he reason is because they ipact on two deterinants of %&I

inflows ; exchange rate and &P.


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Pr-!/r,!s,&!o# 0r!o$ )123451221*

Indian econoic policyafter independence was influenced by the colonial experience,which was seen by Indian leaders as exploitative, and by those leaders@ exposure to

deocratic socialis as well as the progress achieved by the econoy of the oviet7nion. &oestic policy tended towards protectionis, with a strong ephasis on iportsubstitution industrialisation,econoic interventionis, a largepublic sector,businessregulation, andcentral planning,while trade and foreign investent policies were relativelyliberal. %ive;Oear Plans of Indiaresebled central planning in the oviet 7nion. teel,ining, achine tools, telecounications, insurance, and power plants, aong otherindustries, were effectively nationalised in the id;)0F*s.

awaharlal ?ehru, the firstprie inister of India, along with the statisticianPrasantaChandra Mahalanobis, forulated and oversaw econoic policy during the initial years ofthe country@s existence. 4hey expected favourable outcoes fro their strategy, involving the

rapid developent ofheavy industryby both public andprivate sectors, and based on directand indirect state intervention, rather than the ore extree oviet;stylecentral coandsyste.4he policy of concentrating siultaneously on capital; and technology;intensiveheavy industry and subsidising anual, low;skillcottage industrieswas criticised byeconoist Milton %riedan, who thought it would waste capital and labour, and retard thedevelopent of sall anufacturers.4he rate of growth of the Indian econoy in the firstthree decades after independence was derisively referred to as the Lindu rate of growthbyeconoists, because of the unfavourable coparison with growth rates in other #siancountries.

ince )0EF, the use of high;yielding varieties of seeds, increased fertilisersand

iproved irrigationfacilities collectively contributed to the reen =evolution in India, whichiproved the condition of agriculture by increasing crop productivity, iproving croppatterns and strengthening forward and backward linkages between agriculture andindustry. Lowever, it has also been criticised as an unsustainable effort, resulting in thegrowth of capitalistic faring, ignoring institutional refors and widening incoedisparities.4he year wise &P with 7 "xchange rate are given below-

O"#= =: &:M"4IC P=:&7C4 7 "QCL#?" =#4"

)0F*)**,F* B.10 Indian =upees

)0FF))*,A** B.10 Indian =upees

)0E*)1B,*1* B.11 Indian =upees

)0EF8*,)E* B.1 Indian =upees

)01*BE8,B0* 1.FE Indian =upees

)01FB8,8)* .A0 Indian =upees

Pos&-!/r,!s,&!o# 0r!o$ )s!#%1221*
http://en.wikipedia.org/wiki/Economic_policyhttp://en.wikipedia.org/wiki/Economy_of_the_Soviet_Unionhttp://en.wikipedia.org/wiki/Economy_of_the_Soviet_Unionhttp://en.wikipedia.org/wiki/Import_substitution_industrialisationhttp://en.wikipedia.org/wiki/Import_substitution_industrialisationhttp://en.wikipedia.org/wiki/Import_substitution_industrialisationhttp://en.wikipedia.org/wiki/Economic_interventionismhttp://en.wikipedia.org/wiki/Public_sectorhttp://en.wikipedia.org/wiki/Regulation_(socio-legal_concept)http://en.wikipedia.org/wiki/Regulation_(socio-legal_concept)http://en.wikipedia.org/wiki/Regulation_(socio-legal_concept)http://en.wikipedia.org/wiki/Central_planninghttp://en.wikipedia.org/wiki/Central_planninghttp://en.wikipedia.org/wiki/Five-Year_Plans_of_Indiahttp://en.wikipedia.org/wiki/Soviet_Unionhttp://en.wikipedia.org/wiki/Jawaharlal_Nehruhttp://en.wikipedia.org/wiki/Prime_minister_of_Indiahttp://en.wikipedia.org/wiki/Prime_minister_of_Indiahttp://en.wikipedia.org/wiki/Prasanta_Chandra_Mahalanobishttp://en.wikipedia.org/wiki/Prasanta_Chandra_Mahalanobishttp://en.wikipedia.org/wiki/Prasanta_Chandra_Mahalanobishttp://en.wikipedia.org/wiki/Heavy_industryhttp://en.wikipedia.org/wiki/Heavy_industryhttp://en.wikipedia.org/wiki/Private_sectorhttp://en.wikipedia.org/wiki/Economy_of_the_Soviet_Unionhttp://en.wikipedia.org/wiki/Cottage_industrieshttp://en.wikipedia.org/wiki/Milton_Friedmanhttp://en.wikipedia.org/wiki/Hindu_rate_of_growthhttp://en.wikipedia.org/wiki/Hindu_rate_of_growthhttp://en.wikipedia.org/wiki/Hybrid_seedhttp://en.wikipedia.org/wiki/Fertilisershttp://en.wikipedia.org/wiki/Irrigationhttp://en.wikipedia.org/wiki/Green_Revolution_in_Indiahttp://en.wikipedia.org/wiki/Economy_of_the_Soviet_Unionhttp://en.wikipedia.org/wiki/Economy_of_the_Soviet_Unionhttp://en.wikipedia.org/wiki/Import_substitution_industrialisationhttp://en.wikipedia.org/wiki/Import_substitution_industrialisationhttp://en.wikipedia.org/wiki/Economic_interventionismhttp://en.wikipedia.org/wiki/Public_sectorhttp://en.wikipedia.org/wiki/Regulation_(socio-legal_concept)http://en.wikipedia.org/wiki/Regulation_(socio-legal_concept)http://en.wikipedia.org/wiki/Central_planninghttp://en.wikipedia.org/wiki/Five-Year_Plans_of_Indiahttp://en.wikipedia.org/wiki/Soviet_Unionhttp://en.wikipedia.org/wiki/Jawaharlal_Nehruhttp://en.wikipedia.org/wiki/Prime_minister_of_Indiahttp://en.wikipedia.org/wiki/Prasanta_Chandra_Mahalanobishttp://en.wikipedia.org/wiki/Prasanta_Chandra_Mahalanobishttp://en.wikipedia.org/wiki/Heavy_industryhttp://en.wikipedia.org/wiki/Private_sectorhttp://en.wikipedia.org/wiki/Economy_of_the_Soviet_Unionhttp://en.wikipedia.org/wiki/Cottage_industrieshttp://en.wikipedia.org/wiki/Milton_Friedmanhttp://en.wikipedia.org/wiki/Hindu_rate_of_growthhttp://en.wikipedia.org/wiki/Hybrid_seedhttp://en.wikipedia.org/wiki/Fertilisershttp://en.wikipedia.org/wiki/Irrigationhttp://en.wikipedia.org/wiki/Green_Revolution_in_Indiahttp://en.wikipedia.org/wiki/Economic_policy


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In the late )01*s, the governent led byMorarji &esaieased restrictions on capacityexpansion for incubent copanies, reoved price controls, reduced corporate taxes and

prooted the creation of sall scale industries in large nubers. Le also raised the incoetax levels at one point to a axiu of 01.F+, a record in the world for non;counisteconoies. Lowever, the subse$uent governent policy of%abian socialishapered the

benefits of the econoy, leading to high fiscal deficits and a worsening current account. 4he

collapse of the oviet 7nion, which was India@s ajor trading partner, and the ulf 9ar,which caused a spike in oil prices, resulted in a ajor balance;of;payents crisis for India,which found itself facing the prospect of defaulting on its loans. India asked for a J). billion

bailout loan fro the International Monetary %und5IM%6, which in return deanded refors.

In response, Prie Minister?arasiha=ao, along with his finance inister Manohaningh, initiated the econoic liberalisation of )00). 4he refors did away with the >icence=aj, reduced tariffs and interest rates and ended any public onopolies, allowing autoaticapproval offoreign direct investentin any sectors. ince then, the overall thrust ofliberalisation has reained the sae, although no governent has tried to take on powerfullobbies such as trade unions and farers, on contentious issues such as reforing labour laws

and reducing agricultural subsidies. !y the turn of the 8*th century, India had progressedtowards a free;arket econoy, with a substantial reduction in state control of the econoyand increased financial liberalisation. 4his has been accopanied by increases in lifeexpectancy, literacy rates and food security, although the beneficiaries have largely beenurban residents.

9hile the credit rating of India was hit by itsnuclear weapons tests in )00, it has since beenraised to investent level in 8**A by P and Moody@s. In 8**A, oldan achspredictedthat India@s &P in current prices would overtake %rance and Italy by 8*8*, erany, 7Kand =ussia by 8*8F and apan by 8*AF, aking it the third largest econoy of the world,

behind the 7 and China. India is often seen by ost econoists as a rising econoicsuperpower and is believed to play a ajor role in the global econoy in the 8)st century.

GDP $F I+DIA SI+)! &2:/ T$ '/&/
http://en.wikipedia.org/wiki/Morarji_Desaihttp://en.wikipedia.org/wiki/Morarji_Desaihttp://en.wikipedia.org/wiki/Morarji_Desaihttp://en.wikipedia.org/wiki/Incumbent#In_businesshttp://en.wikipedia.org/wiki/Incumbent#In_businesshttp://en.wikipedia.org/wiki/Fabian_socialismhttp://en.wikipedia.org/wiki/Fabian_socialismhttp://en.wikipedia.org/wiki/Gulf_Warhttp://en.wikipedia.org/wiki/International_Monetary_Fundhttp://en.wikipedia.org/wiki/Narasimha_Raohttp://en.wikipedia.org/wiki/Manmohan_Singhhttp://en.wikipedia.org/wiki/Manmohan_Singhhttp://en.wikipedia.org/wiki/Economic_reforms_in_Indiahttp://en.wikipedia.org/wiki/Licence_Rajhttp://en.wikipedia.org/wiki/Licence_Rajhttp://en.wikipedia.org/wiki/Foreign_direct_investmenthttp://en.wikipedia.org/wiki/Pokhran-IIhttp://en.wikipedia.org/wiki/Pokhran-IIhttp://en.wikipedia.org/wiki/Goldman_Sachshttp://en.wikipedia.org/wiki/Morarji_Desaihttp://en.wikipedia.org/wiki/Incumbent#In_businesshttp://en.wikipedia.org/wiki/Fabian_socialismhttp://en.wikipedia.org/wiki/Gulf_Warhttp://en.wikipedia.org/wiki/International_Monetary_Fundhttp://en.wikipedia.org/wiki/Narasimha_Raohttp://en.wikipedia.org/wiki/Manmohan_Singhhttp://en.wikipedia.org/wiki/Manmohan_Singhhttp://en.wikipedia.org/wiki/Economic_reforms_in_Indiahttp://en.wikipedia.org/wiki/Licence_Rajhttp://en.wikipedia.org/wiki/Licence_Rajhttp://en.wikipedia.org/wiki/Foreign_direct_investmenthttp://en.wikipedia.org/wiki/Pokhran-IIhttp://en.wikipedia.org/wiki/Goldman_Sachs


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FDI IN RETAIL SECTOR IN INDIA

Just back from first frenzied shopping experience in the UK, a four year old

ever-inquisitive daughter asked to her father, hy do !e not have a "arrods

in "yderabad# $hopping there is so much fun%& $imple question for a four-year-old, but not so simple for her father to explain'

#s per the current regulatory regie, retail trading 5except under single;brand product

retailing R %&I up to F) per cent, under the overnent route6 is prohibited in India. iply

put, for a copany to be able to get foreign funding, products sold by it to the general public

should only be of a Dsingle;brand2S this condition being in addition to a few other conditions

to be adhered to. 4hat explains why we do not have a Larrods in Lyderabad.

India being a signatory to 9orld 4rade :rganisation2s eneral #greeent on 4rade in

ervices, which include wholesale and retailing services, had to open up the retail trade sector

to foreign investent. 4here were initial reservations towards opening up of retail sector

arising fro fear of job losses, procureent fro international arket, copetition and loss

of entrepreneurial opportunities. Lowever, the governent in a series of oves has opened

up the retail sector slowly to %oreign &irect Investent 5'%&I(6. In )001, %&I in cash and

carry 5wholesale6 with )** percent ownership was allowed under the overnent approval

route. It was brought under the autoatic route in 8**E. F) percent investent in a single

brand retail outlet was also peritted in 8**E. %&I in Multi;!rand retailing is prohibited in

India.

The Question of Foreign Direct Investment (FDI in !etail:

iven this backdrop, the recent claour about opening up the retail sector to %oreign

&irect Investent 5%&I6 becoes a very sensitive issue, with arguents to support both sides

of the debate. It is widely acknowledged that %&I can have soe positive results on the

econoy, triggering a series of reactions that in the long run can lead to greater efficiency and

iproveent of living standards, apart fro greater integration into the global econoy.

upporters of %&I in retail trade talk of how ultiately the consuer is benefited by

both price reductions and iproved selection, brought about by the technology and know;

how of foreign players in the arket. 4his in turn can lead to greater output and doestic

consuption.

!ut the ost iportant factor against %&I driven 'odern

retailing( is that it is labour displacing to the extent that it can only

expand by destroying the traditional retail sector. 4ill such tie we

are in a position to create jobs on a large scale inanufacturing, it

would ake einent sense that any policy that results in the

eliination of jobs in the unorganised retail sector should be kept

on hold.


18/27

4hough ost of the high decibel arguents in favour of %&I in the retail sector are not without

soe erit, it is not fully applicable to the retailing sector in India, or at least, not yet. 4his is because

the priary task of governent in India is still to provide livelihoods and not create so called

efficiencies of scale by creating redundancies. #s per present regulations, no %&I is peritted in retail

trade in India. #llowing B0+ or 8E+ %&I 5which have been the proposed figures till date6 will have

iediate and dire conse$uences. "ntry of foreign players now will ost definitely disrupt the currentbalance of the econoy, will render illions of sall retailers jobless by closing the sall slit of

opportunity available to the.

PR!SS +$T!S


19/27

CONCLUSION

4he process of econoic refors which was initiated in uly )00) to liberali3e and globali3e

the econoy had gradually opened up any sectors of its econoy for the foreign investors.

# large nuber of changes that were introduced in the country2s regulatory econoic policies

heralded the liberali3ation era of the %&I policy regie in India and brought about a

structural breakthrough in the volue of the %&I inflows into the econoy aintained a

fluctuating and unsteady trend during the study period.


20/27

!efore liberali3ation the whole scenario was different and the country was suffering fro

uneployent, debts etc. . !ut after liberali3ation the whole scenario has changed drastically.

4here has been developent in each and every sector which solved any of the

acroeconoics probles. o in the end we can say that %&I affected India in both the ways

i.e. positive as well as negative , but I can say that ore of positive. !ecause of %&I2s only

our econoy is developing at a faster rate.ANNE6UREA.34 For!"# !#'s&(#& !# I#$!, ,#$ I#$!,s GDP:

Y,r For!"# I#'s&(#&)7888 US 9 (!!o#s*

GDP )788888 I#RsCror*

3556755 8.9:3 3;.6< =:.8>9

A;* FDI !# I#$!, ,#$ I#$!,s GDP:

Y,r FDI )7888 US 9(!!o#s*

GDP )788888I# RsCror*

3556755 8.963;38::>7:9 9.>88 86.;;;:9.> 8:.5=

Jn7:5 8>= 8=.68J7:5 8>6.9 >=.38.


24/27

A* For!"# I#'s&(#& ,#$ I#$@ or I#$+s&r!, Pro$+%&!o# )IIP*

Ann& A(!$&+! IIP ?Ap$7M&$4 In%i-!s

Y!&$ B&si-G##%s

C&pi)&G##%s

In)!$m!%i&)!G##%s

T#)& D$&0!s

N#nD$&0!s

G!n!$& In%!

355=759.> 3=8.5 3>:.8 3>:.6

355;756

3>>.< 3>=.< 39=.6 3=8.; 3==.6 399.6 3;9.3 3>6.3 39=.8

35557::

39>.> 3.> 3.: 356.; 398.= 3=9.5

8:::7

:3

396.< 3


25/27

355578::: 83== =3638:::7:3 9:85 =:>= 7:9 9>88 3==

8::>7:9 9>888::97:=


26/27


27/27

REFERENCE

W!C8I+S*-

/))p2""".!+&in%i&.in,#$!i+n7%i$!-)7in(!s)m!n)7in7in%i&n7$!)&i7s!-)#$7

E86:5>7&n7&n&'sis

/))p2""".in%i&,%i"&)-/.#$+1!&%minIn%i&si)!3:7FDI7R!)&i7m#$!70&%.p%,

/))p2!n."iip!%i&.#$+"iiF#$!i+n%i$!-)in(!s)m!n)

/))p2!n."iip!%i&.#$+"iiG#0&is&)i#ninIn%i&

/))p2!n."iip!%i&.#$+"iiR!)&iin+inIn%i&

/))p2""".in%i&s)&).-#min%s)$i!s36,#$!i+n%i$!-)in(!s)m!n)3;=;6s)&)!$0i$!

+i#n"is!,#$!i+n%i$!-)in(!s)m!n)995==6s)&)s.&sp

/))p2""".$0i.#$+.ins-$ip)sP0i-&)i#nR!p#$)D!)&is.&spU$P&+!ID>>;

/))p2""".)$&%in+!-#n#mi-s.-#min%i&,#$!i+n7%i$!-)7in(!s)m!n)
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