Project Report Fdi Final

8/4/2019 Project Report Fdi Final

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PROJECT REPORT

ON

ROLE OF BPO IN BANKING SECTOR

BACHELOR OF COMMERCE

BANKING & INSURANCE

SEMESTERV

SUBMITTED TO,

UNIVERSITY OF MUMBAI

In partial fulfillment of the requirements for the award of

Degree of bachelor of commerce ebanking & insurance

PREPARED BY

KANCHAN RAMESH VALECHAROLL NO. 43

UNDER GUIDANCE OF

PROF. JAYA GEMNANI

SMT. CHANDIBAI HIMATHMAL MANSUKHANI

COLLEGE, ULHASNAGAR - 421003


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DECLARATION

I KANCHAN VALECHA at SMT. C.H.M. COLLEGE, T.Y.

B.COM. Banking & insurance (Semester-v) hereby declare that i have

completed the project on ROLE OF BPO IN BANKING SECTOR

academic year 2011-2012.

The information submitted is true and original to the test at my

knowledge.

SIGNATURE OF THE STUDENT

(KANCHAN VALECHA)

ROLL NO.43.


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SMT. CHANDIBAI HIMATHMAL MANSUKHANI

COLLEGE, ULHASNAGAR- 421003

CERTIFICATE

This is to certify that student MISS. KANCHAN VALECHA

have submitted the report for the project titled ROLE OF BPO IN

BANKING SECTOR in the partial fulfillment of degree of bachelor

of commerce banking & insurance semester-v in the academic year

2011-2012 under the guidance of prof. Jaya Gemnani

COURSE H.O.D PRINCIPAL

PROF. KAJAL BHOJWANI. BHAVNA MOTWANI.

PROJECT GUIDE

PROF. JAYA GEMNANI. INTERNAL EXAMINER.

EXTERNAL EXAMINER.


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ACKNOWLEDGMENT.

It is my pleasure to be indebted to various people, who directly or

indirectly contributed in the development of this project and who

influenced my thinking, behavior and acts during the course of study.

I express my sincere gratitude to the UNIVERSITY OF

MUMBAI and my college for giving me this opportunity for taking this

project, which has enhanced my knowledge about ROLE OF BPO IN

BANKING SECTOR.

It is with my deep gratitude, I would like to thank PROF. JAYA

GEMNANI, under the guidance of whom I was able to complete my

project successfully. I wish to thank her for all useful discussions and

timely suggestions of the related topic and invaluable help during

preceding the project.

I also extend my sincere appreciation to all the people who

helped me to complete this project by their suggestions and valuable

information.

SIGNATURE OF STUDENT

KANCHAN VALECHA.


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CHAPTER-1


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INTRODUCTION:Foreign direct investment (FDI) plays

an extraordinary and growing role in

global business. It can provide a firm

with new markets and marketing

channels, cheaper production facilities,

access to new technology, products,

skills and financing. For a host country

or the foreign firm which receives the

investment, it can provide a source of new technologies, capital,

processes, products, organizational technologies and management skills,

and as such can provide a strong impetus to economic development.

As such, it may take many forms, such as a direct acquisition of a

foreign firm, construction of a facility, or investment in a joint venture or

strategic alliance with a local firm with attendant input of technology,

licensing of intellectual property, in the past decade, FDI has come to

play a major role in the internationalization of business. Reacting to

changes in technology, growing liberalization of the national regulatory

framework governing investment in enterprises, and changes in capital

markets profound changes have occurred in the size, scope and methods

of FDI.

DEFINITION:-

Foreign direct investment (FDI) is defined as an investment

involving a long-term relationship and reflecting a lasting interest and

control by a resident entity in one economy other than that of the foreign

direct investor (FDI enterprise or affiliate enterprise or foreign affiliate).


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NEED OF FOREIGN DIRECT INVESTMANT:

The need for larger FDI is because India is at a stage whrere it needs US

investments, technology, and management policies to sustain and enhanceits economic growth. In 2006, Foreign Direct Investment (FDI) in India

amounted to US$37 billion, out of which only $5 billion was from the

US.

This was not a very encouraging figure in view of the goal of increasingthe GDP by 34-36%. Therefore, there is a need for larger FDIs.

India still requires an FDI component equal to 4% of the GDP. The USneeds to invest more in various sectors of the Indian economy. There is apotential to attract more FDIs in areas like infrastructure, IT hardware,automobiles, leather, textiles, gems, jewelry, and the financial sector. Assuch, India is rated as the 2nd best economy to invest in, after China.Surprisingly, the US is rated 3rd in this domain!

Focus is on the insurance and bankingsector, in context with Foreign Direct

Investments. Only 10% of the insurancesector has been tapped for foreigninvestment. Foreign companies need topersuade the parliament for increasingForeign Direct Investment capital.

The banking sector is in the process ofliberalization which will continue till2009. The insurance sector is looking

forward to increase in the capital as moreand more FDIs happen. So the insurancesector is also planning on liberalization,taking a cue from the banking sector.

The need for larger FDI calls for major issues and areas to be taken intoconsideration, such as:

Market potential and accessibility Political stability Market infrastructure


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Easy currency conversionIndia is the ideal country to make Foreign Direct investments in becauseof its features like :

Developing economy Low salaried employees Low wage workers Abundant human resources Big private economyIndia is looking forward to a high growth rate of almost 16% double

that of the current 8%. Hence, there is a distinct need for larger FDI.

Further, FDI prospects are expected to be bright if liberalization is

initiated in the telecom sector as well. Already, brands like Hutchison,

Vodafone, and SingTel are in the Indian market and thanks to these

investors, the FDI capital in this sector has been raised to 74%. There are

others necessities which a larger FDI will cater to viz., employment

generation, income generation, technology transfer, and economic

stability. Hence, the need for larger FDI is a pressing situation these daysin India. Foreign countries are well aware of this, and many of them are

taking extra initiative to invest in the Indian economy.


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IMPORTANCE OF F FOREIGN DIRECT

INVESTMENT:

Foreign direct investment (FDI) or

foreign investment refers to the net

inflows ofinvestment to acquire a

lasting management interest (10

percent or more of voting stock) in

an enterprise operating in an

economy other than that of the

investor.[1]. It is the sum of equity

capital, reinvestment of earnings, other long-term capital, and short-term

capital as shown in the balance of payments. It usually involves

participation in management, joint-venture, transfer of

technology and expertise. There are two types of FDI: inward foreign

direct investment and outward foreign direct investment, resulting ina net FDI inflow (positive or negative) and "stock of foreign direct

investment", which is the cumulative number for a given period. Direct

investment excludes investment through purchase of shares.
http://en.wikipedia.org/wiki/Investmenthttp://en.wikipedia.org/wiki/Foreign_direct_investment#cite_note-0http://en.wikipedia.org/wiki/Foreign_direct_investment#cite_note-0http://en.wikipedia.org/wiki/Foreign_direct_investment#cite_note-0http://en.wikipedia.org/wiki/Balance_of_paymentshttp://en.wikipedia.org/wiki/Managementhttp://en.wikipedia.org/wiki/Joint-venturehttp://en.wikipedia.org/wiki/Transfer_of_technologyhttp://en.wikipedia.org/wiki/Transfer_of_technologyhttp://en.wikipedia.org/wiki/Expertisehttp://en.wikipedia.org/wiki/Investmenthttp://en.wikipedia.org/wiki/Foreign_portfolio_investmenthttp://en.wikipedia.org/wiki/Foreign_portfolio_investmenthttp://en.wikipedia.org/wiki/Investmenthttp://en.wikipedia.org/wiki/Expertisehttp://en.wikipedia.org/wiki/Transfer_of_technologyhttp://en.wikipedia.org/wiki/Transfer_of_technologyhttp://en.wikipedia.org/wiki/Joint-venturehttp://en.wikipedia.org/wiki/Managementhttp://en.wikipedia.org/wiki/Balance_of_paymentshttp://en.wikipedia.org/wiki/Foreign_direct_investment#cite_note-0http://en.wikipedia.org/wiki/Investment


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CHAPTER-2


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HISTORY OF F FOREIGN DIRECT

INVESTMENT IN INDIA:

FDI is a measure offoreign

ownership of productive assets, such as

factories, mines and land. Increasing

foreign investment can be used as one

measure of growing economic

globalization. The figure below shows

net inflows of foreign direct investment

in the United States. The largest flows of

foreign investment occur between the industrialized countries (North

America, Western Europe and Japan). But flows to non-industrialized

countries are increasing sharply.

US International Direct Investment Flows:[3]

Period FDI Inflow FDI Outflow Net Inflow

1960-69$ 42.18 bn $ 5.13 bn + $ 37.04 bn

1970-79$ 122.72 bn $ 40.79 bn + $ 81.93 bn

1980-89$ 206.27 bn $ 329.23 bn - $ 122.96 bn

1990-99$ 950.47 bn $ 907.34 bn + $ 43.13 bn

2000-07$ 1,629.05 bn $ 1,421.31 bn + $ 207.74 bn

Total $ 2,950.69 bn $ 2,703.81 bn + $ 246.88 bn
http://en.wikipedia.org/wiki/Foreign_ownershiphttp://en.wikipedia.org/wiki/Foreign_ownershiphttp://en.wikipedia.org/wiki/United_Stateshttp://en.wikipedia.org/wiki/North_Americahttp://en.wikipedia.org/wiki/North_Americahttp://en.wikipedia.org/wiki/Western_Europehttp://en.wikipedia.org/wiki/Japanhttp://en.wikipedia.org/wiki/Foreign_direct_investment#cite_note-2http://en.wikipedia.org/wiki/Foreign_direct_investment#cite_note-2http://en.wikipedia.org/wiki/Foreign_direct_investment#cite_note-2http://en.wikipedia.org/wiki/Foreign_direct_investment#cite_note-2http://en.wikipedia.org/wiki/Japanhttp://en.wikipedia.org/wiki/Western_Europehttp://en.wikipedia.org/wiki/North_Americahttp://en.wikipedia.org/wiki/North_Americahttp://en.wikipedia.org/wiki/United_Stateshttp://en.wikipedia.org/wiki/Foreign_ownershiphttp://en.wikipedia.org/wiki/Foreign_ownership


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The last two decades of the 20th century witnessed a dramatic world-

wide increase in foreign direct investment (FDI), accompanied by a

marked change in the attitude of most developing countries towards

inward FDI. As against a highly suspicious attitude of these countries

towards inward FDI in the past, most countries towards inward FDI in the

past, most countries now regard FDI as beneficial for their development

efforts and complete with each other to attract it. In India, prior to

economic reforms initiated in 1991, FDI was discouraged by (a) imposing

severe limits no equity holdings by foreigners and (b) restricting FDI to

the production of only a few researched items. The initial policy stimulus

to foreign direct investment in India came in July 1991 when the new

industrial policy provided, inter alia, automatic approval for projects with

foreign equity participation up to 51 per cent in high priority areas. In

recent years, the Government has initiated the second generation reforms

under which measures have been taken to further facilitate in India. The

Policy for FDI allows freedom of location, choice of technology,

repatriation of Capital and dividends. As a result of these measures, there

has been a strong surge of international interest in the Indian economy.

The rate at which foreign direct investment has grown during the post-

liberasation period is a clear indication that India is fast emerging as an

attractive destination for overseas investors. Though India has one of themost transparent and liberal FDI regimes among the developing countries

with strong macro-economic fundamentals, it share in FDI inflows is

dismally low. The country still suffers from weaknesses and constraints,

in terms of policy and regulatory framework, which restricts the inflow of

FDI. This book is devoted to a descriptive and analytical study of FDI

trends and policies in India during the post-Independence period.


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CHAPTER-3


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production, Part B of the IEM has to be filled in the prescribed format.

The facility for amendment of existing IEMs has also been introduced.

LOCATIONAL POLICY:Industrial undertakings are free to select the location of a project. In the

case of cities with population of more than a million (as per the 1991

census), however, the proposed location should be at least 25 KM away

from the Standard Urban Area limits of that city unless, it is to be located

in an area designated as an "industrial area" before the 25th July,

1991.(List of cities with population of 1 million and above is given at

Annexure-V). Electronics, Computer software and Printing (and any

other industry which may be notified in future as "non polluting

industry") are exempt from such location restriction. Relaxation in the

aforesaid lavational restriction is possible if an industrial license is

obtained as per the notified procedure.

The location of industrial units is further regulated by the local zoning

and land use regulations as also the environmental regulations. Hence,

even if the requirement of the locational policy stated in paragraph 1.3 is

fulfilled, if the local zoning and land use regulations of a State

Government, or the regulations of the Ministry of Environment do not

permit setting up of an industry at a location, the entrepreneur would be

required to abide by that decision.

POLICY RELATING TO SMALL SCALE UNDERTAKINGS:An industrial undertaking is defined as a small scale unit if the investment

in fixed assets in plant and machinery does not exceed Rs 10 million. The

Small Scale units can get registered with the Directorate of

Industries/District Industries Centre in the State Government concerned.


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Such units can manufacture any item including those notified as

exclusively reserved for manufacture in the small scale sector. Small

scale units are also free from locational restrictions cited in paragraph 1.3

above. However, a small scale unit is not permitted more than 24 per cent

equity in its paid up capital from any industrial undertaking either foreign

or domestic.

Manufacture of items reserved for the small

scale sector can also be taken up by non-

small scale units, if they apply for and obtain

an industrial license. In such cases, it is

mandatory for the non-small scale unit to

undertake minimum export obligation of 50

per cent. This will not apply to non-small

scale EOUs that are engaged in the manufacture of items reserved for the

SSI sector, as they already have a minimum export obligation of 66 per

cent of their production. In addition, if the equity holding from another

company (including foreign equity) exceeds 24 per cent, even if the

investment in plant and machinery in the unit does not exceed Rs 10

million, the unit loses its small scale status. An IEM is required to be filed

in such a case for de-licensed industries, and an industrial license is to be

obtained in the case of items of manufacture covered under compulsory

licensing.

A small scale unit manufacturing small scale reserved item(s), on

exceeding the small scale investment ceiling in plant and machinery by

virtue of natural growth, needs to apply for and obtain a Carry-on-

Business (COB) License. No export obligation is fixed on the capacity for

which the COB license is granted. However, if the unit expands itscapacity for the small scale reserved item(s) further, it needs to apply for


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and obtain a separate industrial license. (For procedure to obtain COB

license.

It is possible that a chemical or a by-product recoverable throughpollution control measures is reserved for the small scale sector. With a

view to adopting pollution control measures, Government have decided

that an application needs to be made for grant of an Industrial Licence for

such reserved items which would be considered for approval without

necessarily imposing the mandatory export obligation.

ENVIRONMENTAL CLEARANCES:Entrepreneurs are required to obtain Statutory clearances relating to

Pollution Control and Environment for setting up an industrial project. A

Notification (SO 60(E) dated 27.1.94) issued under The Environment

Protection Act 1986 has listed 29 projects in respect of which

environmental clearance needs to be obtained from the Ministry of

Environment, Government of India. This list includes industries like

petro-chemical complexes, petroleum refineries, cement, thermal power

plants, bulk drugs, fertilizers, dyes, paper etc. However if investment is

less than Rs. 500 million, such clearance is not necessary, unless it is for

pesticides, bulk drugs and pharmaceuticals, asbestos and asbestos

products, integrated paint complexes, mining projects, tourism projects of

certain parameters, tarred roads in

Himalayan areas, distilleries, dyes,

foundries and electroplating

industries. Further, any item reserved

for the small scale sector with

investment of less than Rs 10 million

is also exempt from obtaining


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environmental clearance from the Central Government under the

Notification. Powers have been delegated to the State Governments for

grant of environmental clearance for certain categories of thermal power

plants. Setting up industries in certain locations considered ecologically

fragile (eg Aravalli Range, coastal areas, Doon valley, Dahanu, etc.) are

guided by separate guidelines issued by the Ministry of Environment of

the Government of India.


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CHAPTER-4


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PROCEDURE OF FOREIGN DIRECT

INVESTMENT:

Foreign direct investment policies play a very important role in the

economic growth of developing countries. The primary aim of these

policies is to create a friendly business environment where foreign

investors feels comfortable with the legal and financial frame work of the

company, and have potential to reap profits from economical viable

business Foreign Direct Investment is investment of foreign assets into

domestic structures, equipment and organizations. Foreign direct

investment is thought to have more useful to a country then investments

in the equity of its companies because equity investments are hot money

which can leave at the first sign of trouble, whereas FDI is durable

whether things go well or badly.

Foreign direct investment is very important for the growth of a country,

therefore Government is therefore making all efforts to attract and

facilitate FDI and investment from Non Resident(NRIs) including

overseas corporate bodies, that are predominantly owned by them, to

complement and supplement domestic investment. The procedure by

which foreign direct investment in India comes is by two ways one is

automatic route and the next is through government approval. Foreign

direct investment has become a key battle ground for emerging markets

and some developed countries. Government level policies are needed to

enable FDI inflows and maximize their returns for investors and recipient

countries. If you want to have knowledge about the foreign direct

investment policy and procedures 365 companies will help you in doing

this.


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1. Project Clearance: After the approval

has been obtained, the applicant may get

his unit/company registered with the

Registrar of Company. Subsequently, the

company needs to obtain various

clearances such as land clearance, building

design clearance, pre-construction

clearance, labour clearance, etc. from

different authorities before beginning its

operations. These clearances differ from

sector to sector and may also differ from state to state.2. Registration and Inspection: Each industrial unit is supposed to

maintain records in regard to production, sale and export, use of specified

raw materials including public utilities like water and electricity, labour

related details financial details and details in regard to industrial safety

and environment. The unit is also subject to periodic inspection by the

factories inspector, labour inspector, food inspector, fire inspector, central

excise inspector, air and water inspector, mines inspector, city inspector

and the like, the list of which may go up to thirty or more.

3. Foreign Exchange Management Act (FEMA), 2000: The additional

provisions which apply only to entry of FDI emanate from the provisions

of FEMA. According to FEMA, no person resident outside India shall

without the approval/knowledge of the RBI may establish in India a

branch or a liaison office or a project office or any other place of

business. FDI in a particular industry may, however, be made through the

automatic route under powers delegated to the RBI or with the approval

accorded by the FIPB. The automatic route means that foreign investors

only need to inform the RBI within 30 days of bringing in their


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investment. Companies getting foreign investment approval through FIPB

route do not require any further clearance from RBI for the purpose of

receiving inward remittance and issue of shares to foreign investors. RBI

has granted general permission under FEMA in respect to proposals

approved by FIPB. Such companies are, however, required to notify the

concerned regional office of the RBI of receipt of inward remittances

within 30 days of such receipts and again within 30 days of issue of

shares to the foreign investors.

ENTRY OPTIONS FOR FOREIGN INVESTORS:

A foreign company planning to set up business operations in India has the

following options:

By incorporating a company under the Companies Act, 1956through

Joint Ventures; or Wholly Owned Subsidiaries Foreign equity in such Indian companies can be up to 100%

depending on

the requirements of the investor, subject to equity caps in respect ofthe area

of activities under the Foreign Direct Investment (FDI) policy. Such offices can undertake activities permitted under the Foreign

Exchange Management Regulations, 2000.

1. INCORPORATION OF COMPANY : For registration andincorporation, an application has to be

filed with Registrar of Companies

(ROC). Once a company has been duly

registered and incorporated as an Indian

company, it is subject to Indian laws

and regulations as applicable to other

domestic Indian companies.


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2. LIAISON OFFICE/REPRESENTATIVE OFFICE : The

role of the liaison office is limited to collecting information about

possible market opportunities and providing information about the

company and its products to prospective Indian customers. It can promote

export/import from/to India and also facilitate technical/financial

collaboration between parent company and companies in India. Liaison

office can not undertake any commercial activity directly or indirectly

and cannot, therefore, earn any income in India. Approval for establishing

a liaison office in India is granted by Reserve Bank of India (RBI).

3. PROJECT OFFICE: Foreign Companies planning to execute

specific projects in India can set up temporary project/site offices in

India. RBI has now granted general permission to foreign entities to

establish Project Offices subject to specified conditions. Such offices can

not undertake or carry on any activity other than the activity relating and

incidental to execution of the project. Project Offices may remit outside

India the surplus of the project on its completion, general permission for

which has been granted by the RBI.

4. BRANCH OFFICE : Foreign companies engaged in

manufacturing and trading activities abroad are allowed to set up Branch

Offices in India for the following purposes:

Export/Import of goods Rendering professional or consultancy services Carrying out research work, in which the parent company is engaged. Promoting technical or financial collaborations between Indian companies and parent or overseas group company. Representing the parent company in India and acting as buying/selling agents in India.


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Rendering services in Information Technology and development of software in India. Rendering technical support to the products supplied by the parent/ group companies. Foreign airline/shipping Company.

A branch office is not allowed to carry out manufacturing activities on its

own but is permitted to subcontract these to an Indian manufacturer.

Branch Offices established with the approval of RBI may remit outside

India profit of the branch, net of applicable Indian taxes and subject to

RBI guidelines Permission for setting up branch offices is granted by the

Reserve Bank of India (RBI).5. BRANCH OFFICE ON STAND-ALONE BASIS IN

SPECIAL ECONOMIC ZONES (SEZS): Such branch offices

would be isolated and restricted to the SEZ

and no business activity/transaction will be

allowed outside the SEZ in India, which

include branches/subsidiaries of their

parent office in India. No approval shall be

necessary from RBI for a company to

establish a branch/unit in SEZs to

undertake manufacturing and service

activities, subject to specified conditions.6. INVESTMENT IN A FIRM OR A PROPRIETARY

CONCERN BY NRIS : A Non- Resident Indian (NRI) or a Person of

Indian Origin (PIO) resident outside India may invest by way of

contribution to the capital of a firm or a proprietary concern in India on

non-repatriation basis provided:


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The amount is invested by inward remittance or out of specifiedaccount types (NRE/FCNR/NRO accounts) maintained with an

Authorized Dealer. The firm or proprietary concern is not engaged in any

agriculture/plantation or real estate business, i.e. dealing in land

and immovable property with a view to earning profit or earning

income there from.

The amount invested shall not be eligible for repatriation outsideIndia. NRIs/PIOs may invest in sole proprietorship

concerns/partnership firms with repatriation benefits with the

approval of Government/ RBI.

7. INVESTMENT IN A FIRM OR A PROPRIETARY

CONCERN OTHER THAN NRIS : No person resident outside

India other than NRI/PIO shall make any investment by way of

contribution to the capital of a firm or a proprietorship concern or any

association of persons in India. The RBI may, on an application made to

it, permit a person resident outside India to make such an investment

subject to such terms and conditions as may be considered.


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IMPACT OF FOREIGN DIRECT INVESTMANT:

Supporters of FDI contend that foreign investors introduce a packageof highly productive resources into the host economy, includingproduction and process technology, managerial expertise, accounting

and auditing standards, and knowledge of international markets. The

challenge or the host economy is to benefit t from the MNE presence,

and to appropriate some of the increased income accruing from the

resultant productivity growth. The large literature on FDI impacts

concludes that the host economy benefits are quite uneven, both acrossand within countries. This suggests that host country policies are an

important factor in the distribution of these benefits. Of particular

relevance here, as postulated in this literature, are the commercial

environment, institutional

quality, and supply-side

capacities. It should be

emphasized that many FDI

impacts are inherently

difficult to measure. The

academic literature

typically approaches the issue in one of three ways. The first is in the

context of the determinants of growth

In international comparisons of economic growth, FDI, or some othermeasure of foreign presence, is introduced as an explanatory variable,

together with a range of interactive or conditional variables (e.g.,

trade orientation, human capital, institutional quality). The hypothesis

is that, other things being equal, a larger presence is associated with

faster economic growth. The other two methodologies focus on

technology spillovers within countries, from foreign to domestic


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firms, as measured either through firm-level case studies or an

analysis of cross-section industry data.

Both provide only a proximate and partial picture: the former islimited by the sample size and the flows are generally not quantified;

the latter is presumptive band inferential rather than demonstrated.

The relative importance of the various channels through which

spillovers occur emulation, inter firm worker mobility, subcontracting

networks is generally not demonstrated conclusively.

A range of non-equity channels (international labor migration,international buying groups, licensing arrangements) could be just as

important as FDI in some circumstances. A related set of literature

attempts to draw a distinction between positive, crowding-in effects

of FDI, and negative, crowding-out effects. Among the former are

the positive technology and trade effects alluded to above, together

with various dynamic externalities such as clustering and countryreputation.

The latter draws attention to a range of possible outcomes:anticompetitive impacts (e.g., displacement of domestic firms or

investment), bidding scarce resources (e.g., skilled labor, credit) away

from domestic firms, or squeezing out domestic supply networks as

new foreign entrants bring with them integrated upstream anddownstream supply chains.

It is now generally accepted that the distinguishing characteristics ofFDI are its stability and ease of service relative to commercial debt or

portfolio investment, as well as its inclusion of non financial assets in

production and sales processes. Aside from increasing output and

income, potential benefits to host countries from FDI inflows include

the following:


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Foreign firms bring superior technology. The extent of benefits to hostcountries depends on whether the technology spills over to domestic

and other foreign-invested firms.

Foreign investment increases competition in the host economy. Theentry of a new firm in a non tradable sector increases industry output

and may thereby reduce the domestic price, leading to a net

improvement in welfare.

Foreign investment typically results in increased domesticinvestment. In an analysis of panel data for 58 developing countries,

Bosworth and Collins (1999) found that about half of each dollar of

capital inflow translates into an increase in domestic investment.

The findings suggest a foreign resource transfer equal to 5369% ofthe inflow of financial capital. However, when the capital inflows take

the form of FDI, there is a near one-for-one relationship between the

FDI and domestic investment. Foreign investment gives advantages in

terms of export market access arising eitherf rom foreign firmseconomies of scale in marketing or from The ability to gain market

access abroad. Besides The contributions through joint ventures,

foreign firms can serve as catalysts for other domestic exporters.

In an empirical analysis, the probability that a domestic plant willexport was found to be positively correlated with proximity to

multinational firms (Aitken et al. 1997). One implication is thatgovernments may encourage Potential exporters to locate near each

other by :-

creating special economic zones (SEZs) or export processing zones,,Or promoting clusters, or by

conferring special benefits, such as duty-free imports of inputs,subsidized infrastructure, or tax holidays, to help reduce costs for

domestic firms in breaking into foreign markets.


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Foreign investment typically results in increased domestic investment.In an analysis of panel data for 58 developing countries, Bosworth and

Collins (1999) found that about half of each dollar of capital inflow

translates into an increase in domestic investment. The findings

suggest a foreign resource transfer equal to 5369% of the inflow of

financial capital. However, when the capital inflows take the form of

FDI, there is a near one-for-one relationship between the FDI and

domestic investment.

Foreign investment gives advantages in terms of export market accessarising either from foreign firms economies of scale in marketing or

from The ability to gain market access abroad. Besides The

contributions through joint ventures, foreign firms can serve as

catalysts for other domestic exporters. In an empirical analysis, the

probability that a domestic plant will export was found to be positively

correlated with proximity to multinational firms (Aitken et al. 1997).

One implications that governments may encourage potential exportersto locate near each other by

creating special economic zones (SEZs) or export processing zones, orpromoting clusters, or by

Conferring special benefits, such as duty-free imports of inputs,subsidized infrastructure, or tax holidays, to help reduce costs for

domestic firms in breaking into foreign markets. Foreign investmentcan aid in bridging a host Countrys foreign exchange gap. Two gaps

may exist in the economy: insufficient savings to support capital

accumulation to achieve a Given growth target, and insufficient

foreign exchange to purchase imports.


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CHAPTER-6


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SECTOR WISE FOREIGN DIRECT

INVESTMENT:

A large portion of the FDI flows into skill intensive and high value-added

services industries, particularly financial services and information

technology. Service sector and computer software and hardware industry

together account for about 35.49 per cent of the total FDI into India

between April 2000 to December 2007. India, in fact, dominates the

global service industry in terms of attracting FDI with its unbeatable mix

of low costs, deep technical and language skills, mature vendors and

supportive government policies. India topped the AT Kearney's 2007

Global Services Location Index, emerging as the most preferred

destination in terms of financial attractiveness, people and skills

availability and business environment.Global investors have also shown

increasing interest in other sectors as

well. Particular amongst them have been

telecommunication, energy,

construction, automobiles, electrical

equipment among others. For example,

all the five leading global telecom

companies have made significant

investment in India. Similarly, leading

automobile companies have set up their

manufacturing base in India.

Country-wise, Mauritius has been the leading nation for FDI inflows into

India, followed by USA, UK, Singapore, Netherlands and Japan during

April 2000 to December 2007. It is to be noted that Mauritius pre-


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eminence has been due to its stature as a tax haven and most volume of

FDI inflows through Mauritius has been from the USA.

FDI IN THE FINANCIAL SECTORS AMONGMARKET ECONOMIES:

Opening up of doors by many countries of the world has resulted foreign

participation in the financial sectors of emerging market economies

(EMEs) during the 1990s. It has continued to expand so far in this

decade, on balance - although its pace fell somewhat following problems

in Argentina in 2002 and the global slowdown in mergers and

acquisitions. It is seen that banks accounted for the majority of financial

sector foreign direct investment (FSFDI). In a number of countries in

Latin America and central and eastern Europe (CEE), foreign banks now

account for a major share of total banking assets. In Asia, the share of

foreign banks is, overall, much lower, but still substantial. The integration

of EME financial firms into the global market has resulted a wider

diversity of financial institutions operating in EMEs and given greater

emphasis on risk-adjusted profitability. These include expansion into

local retail banking and securities markets, where elements such as client

relationships and reputation are important components of the franchise

value of operations. Such factors have tended to raise the costs of exiting

a country and hence increased the permanence of FSFDI.

FSFDI was fostered by financial liberalization and market-based reforms

in many EMEs. The liberalization of the capital account and financial

deregulation paved the way for foreign acquisitions and the integration of

EME financial firms into an expanding global market for corporate

control. This is the character of FSFDI as part of a broader trend towards

consolidation and globalization in the financial industry. In some cases


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competition in traditional markets increased pressure on major

international banks to find new areas for growth. Financial institutions in

advanced economies increasingly searching for profit opportunities at the

customer and product level, FSFDI offered a means of access to EME

markets with attractive strategic opportunities to expand. Local financial

infrastructure is growing which reduces the risks of conducting business

in EMEs.but events such as the Russian default in 1998 and Argentine

actions in 2002 also made financial institutions more sensitive. Thus,

financial institutions in industrial countries now tend to evaluate country

risk separately. An important benefit of FSFDI is its effect on financial

sector efficiency that arises from local banks' exposure to global

competition Host countries benefit from the technology transfers and

innovations in products and processes commonly associated with foreign

bank entry.

Foreign banks exert competitive pressures and demonstration

effects on local institutions. This results better risk management, more

competitive pricing and in general a more efficient allocation of credit in

the financial sector as a whole. Foreign banks presence helps to achieve

greater financial stability in host countries. Host countries benefit

immediately from foreign entry.

The better capitalization and wider diversification of foreign banks,

along with the access of local operations to parent funding, may reduce

the sensitivity of the host country banking system to local business cycles

and changing financial market conditions. Their use of risk-based credit

evaluation tends to reduce concentration in lending and in times of

financial distress, fosters prompter recognition of losses and more timely

resolution of problems.


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The growing involvement of

foreign firms in the financial systems

of EMEs has given rise to a situation

where majorities of EME bankin

assets have become foreign owned.

The growing involvement of foreign

firms in the financial systems of EMEs

has given rise to a situation where

majorities of EME banking assets have become foreign owned.

Accordingly, developing pertinent technical skills is considered be

an important area of cooperation between authorities in advanced and

EME countries. In some markets, foreign-owned banks have been

prominent in the rapid expansion of consumer lending and foreign

currency lending to both households and businesses.

Appropriate supervision is needed to assess such credit managed

by banks, and authorities in charge of financial stability. Accordingly,

public policy should be focused on maximizing these benefits by

continuing to encourage diversity and competition in financial systems

not only between foreign and domestic banks but also between banks and

other financial institutions.

One essential component among host country policy is

commitment for growth and stability. Another is the protection of

property rights and equal treatment of banks irrespective of ownership.

From this point of view a more extensive implementation of the

internationally recognized set of financial standards and codes can help to

reduce country risk. Strengthening of legal frameworks act as a parameter


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for reducing country risk. Smooth functioning of the market for corporate

control would be assisted by greater international compatibility of

accounting standards, takeover rules, and insolvency codes.

Regional integration among EME financial systems, often within a

framework for broader economic integration in the region, is another

complementary approach to this objective. There is substantial evidence

of major benefits from regional compacts such as those of the European

Union and NAFTA. In the case of very poor countries where there is

some special support for FSFDI may be merited provided political risk

insurance if properly designed, could be useful.


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CHAPTER-7


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CURRENT STATUS:

LAST UPDATED: APRIL-JUNE 2008 :

The liberal investment regime, rapid growth of the economy, strong

macro economic fundamentals, progressive de-licensing of sectors and

the ease in doing business has attracted global corporations to invest in

India

And consequent to policy changes and procedural simplifications, FDI

equity inflows have registered a phenomenal upswing. FDI inflows have

recorded over five-fold increase in the last three years, from US$ 2.2

billion in 2003-04 to US$ 15.7 billion in 2006-07. Simultaneously, FDI

share in India's GDP has increased from 0.77 per cent to 2.31 per cent.

Significantly, FDI has come to play an increasing role in the economic

growth of the country. The share of FDI in total investment has more than

doubled from 2.55 per cent in 2003-04 to 6.42 2006-07.

In fact, the US$ 5.67 FDI inflows

recorded in February 2008 was the

highest-ever during any month since

1991 and more than the entire

annual inflows from 1991-92 to

2004-05. This surge in FDI is likely

to further boost India's attraction as

an investment destination. Already, India recorded a higher change in

Investor outlook than China in the latest FDI Confidence Index of A T

Kearney, implying bridging the gap between the two countries in terms

investment attractiveness. Also, India has emerged as the preferred

investment destination for European investors, ahead of even china.


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FDI INFLOW AT $20.13 BILLIONSFDI:

India received $20.13 billion as Foreign Direct Investment (FDI) between

April-February 2007-08, almost 70 per cent higher compared to the year-ago period. "This is the highest FDI equity in the country during any

year," an official release said here. FDI inflows in February 2008 stood at

$5.67 billion, up 712 per cent over February 2007. "The inflows in the

month of February have surpassed the inflows received in any single year

since 1991, barring last year 2006-07,"

AMOUNTS

APRIL

FEBRUARY


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CHAPTER:8


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GUIDELINES FOR FOREIGN DIRECT

INVESTMENT:

The following Guidelines are laid-down to enable the Foreign Investment

Promotion Board (FIPB) to consider the proposals for Foreign Direct

Investment (FDI) and formulate its recommendations.

All applications should be put up before the FIPB by the SIA (Secretariatof Industrial Assistance) within 15 days and it should be ensured that

comments of the administrative ministries are placed before the Board

either prior to/or in the meeting of the Board.

Proposals should be considered by the Board keeping in view the time-frame of 6 weeks for communicating Government decision (i.e. approval

of IM/CCFI or rejection as the case may be)

In cases in which either the proposals is not cleared or further informationis required, in order to obviate delays presentation by applicant in the

meeting of the FIPB should be resorted to

While considering cases and making recommendations, FIPB shouldkeep in mind the sectoral requirements and the sectoral policies vis-a-vis

the proposal(s).

FIPB would consider each proposal in totality (i.e. if it includes apartfrom foreign investment, technical collaboration/industrial licence) for

composite approval or otherwise. However, the FIPB's recommendation

would relate only to the approval for foreign financial and technical


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collaboration and the foreign investor will need to take other prescribed

clearances separately.

The Board should examine the following while considering proposalssubmitted to it for consideration:

whether the items of activity involve industrial licence or not and ifso the considerations for grant of industrial licence must be gone

into;

whether the proposal involves technical collaboration and if so:- (a)the source and nature of technology sought to be transferred, (b)

the terms of payment (payment of royalty by 100% subsidiaries is

not permitted);

whether the proposal involves any mandatory requirement forexports and if so whether the applicant is prepared to undertake

such obligation (this is for Small Industry units, as also for

dividend balancing and for 100% EOUs/EPZ Units);

whether the proposal involves any export projection and if so theitems of export and the projected destinations;

whether the proposal has concurrent commitment under otherschemes such as EPCG Scheme, etc.;

in the case of Export Oriented Units (EOUs) whether theprescribed minimum value addition norms and the minimum turn

over of exports are met or not;

whether the proposal involves relaxation of locational restrictionsstipulated in the industrial licensing policy; and

whether the proposal has any strategic or defence relatedconsiderations.

While considering proposals the following may be prioritised.


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Items falling withinAnnexure-IIIof the New Industrial Policy (i.e.those which do not qualify for automatic approval).

Items falling in infrastructure sector. Items which have an export potential. Items which have large scale employment potential and especially

for rural people.

Items which have a direct or backward linkage with agrobusiness/farm sector.

Items which have greater social relevance such as hospitals, humanresource development, life saving drugs and equipment.

Proposals which result in induction of technology or infusion ofcapital.

8. The following should be especially considered during the scrutiny andconsideration of proposals:

The extent of foreign equity proposed to be held (keeping in viewsectoral caps if any - e.g. 24% for SSI units, 40% for air

taxi/airlines operators, 49% in basic/cellular/paging, etc. in

Telecom sector).

Extent of equity with composition of foreign/NRI (which mayinclude OCB)/ resident Indians.

Extent of equity from the point of view whether the proposedproject would amount to a holding company/wholly owned

subsidiary/a company with dominant foreign investment (i.e. 76%

or more)/joint venture.

Whether the proposed foreign equity is for setting up a new project(joint venture or otherwise) or whether it is for enlargement of
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foreign/NRI equity or whether it is for fresh induction of foreign

equity/NRI equity in an existing Indian company.

In the case of fresh induction of foreign/NRI equity and/or in casesof enlargement of foreign/NRI equity in existing Indian companies

whether there is a resolution of the Board of Directors supporting

the said induction/enlargement of foreign/NRI equity and whether

there is a shareholders agreement or not.

In the case of induction of fresh equity in the existing Indiancompanies and/or enlargement of foreign equity in existing Indian

companies, the reason why the proposal has been made and the

modality for induction/enhancement (i.e. whether by increase of

paid up capital/authorised capital, transfer of shares (hostile or

otherwise) whether by rights issue, or by what modality).

Issue/transfer/pricing of shares will be as per SEBI/RBI guidelines. Whether the activity is an industrial or a service activity or a

combination of both.

Whether the item of activity involves any restriction by way ofreservation for the small scale sector.

Whether there are any sectoral restrictions on the activity (e.g.there is ban on foreign investment in real estate while it is not so

for NRI/OCB investment).

Whether the item involves only trading activity and if so whether itinvolves export or both export and import, or also includes

domestic trading and if domestic trading whether it also includes

retail trading.

Whether the proposal involves import of items which are eitherhazardous, banned or detrimental to environment (e.g. import of

plastic scrap or recycled plastics).


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9. In respect of industries/activities listed in Annexure - III of the NewIndustrial Policy automatic approval for majority equity holding

(50/51/74 per cent) is accorded by the Reserve Bank of India. FIPB may

consider recommending higher levels of foreign equity in respect of these

activities keeping in view the special requirements and merit of each case.

10. In respect of other industries/activities the Board may considerrecommending 51 per cent foreign equity on examination of each

individual proposal. For higher levels of equity up to 74 per cent the

Board may consider such proposals keeping in view considerations such

as the extent of capital needed for the project, the nature and quality of

technology, the requirement of marketing and management skills and the

commitment for exports.

11. FIPB may consider and recommend proposals for 100 per centforeign owned holding/subsidiary companies based on the following

criteria :

where only "holding" operation is involved and allsubsequent/downstream investments to be carried out would

require prior approval of the Government;

where proprietary technology is sought to be protected orsophisticated technology is proposed to be brought in;

where at least 50% of production is to be exported; proposals for consultancy ; and proposals for power, roads, ports and industrial model

towns/industrial parks or estates.

12 In special cases, where the foreign investor is unable initially toidentify an Indian joint venture partner, the Board may consider and

recommend proposals permitting 100 per cent foreign equity on a
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temporary basis on the condition that the foreign investor would divest to

the Indian parties (either individual, joint venture partners or general

public or both) at least 26 per cent of its equity within a period of 3-5

years.

13. Similarly in the case of a joint venture, where the Indian partner isunable to raise resources for expansion/technological upgradation of the

existing industrial activity the Board may consider and recommend

increase in the proportion/percentage (up to 100 per cent) of the foreign

equity in the enterprise.

14. In respect of trading companies, 100 per cent foreign equity may bepermitted in the case of activities involving the following :

export; bulk imports with export/expanded warehouse sales ; cash and carry wholesale trading ; other import of goods or services provided at least 75% is for

procurement and sale of goods and services among the companies

of the same group.

15. In respect of the companies in the infrastructure/services sector wherethere is a prescribed cap for foreign investment, only the direct

investment should be considered for the prescribed cap and foreign

investment in an investing company should not be set off against this cap

provided the foreign direct investment in such investing company does

not exceed 49 per cent and the management of the investing company is

with the Indian owners.

16. No condition specific to the letter of approval issued to a foreigninvestor would be changed or additional condition imposed subsequent to


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the issue of a letter of approval. This would not prohibit changes in

general policies and regulations applicable to the industrial sector.

17. Where in case of a proposal (not being 100% subsidiary) foreigndirect investment has been approved up to a designated percentage of

foreign equity in the joint venture company, the percentage would not be

reduced while permitting induction of additional capital subsequently.

Also in the case of approved activities, if the foreign investor(s)

concerned wishes to bring in additional capital on later dates keeping the

investment to such approved activities, FIPB would recommend such

cases for approval on an automatic basis.c

18. As regards proposal for private sector banks, the application would beconsidered only after "in principle" permission is obtained from the

Reserve Bank of India (RBI)

19. The restrictions prescribed for proposals in various sectors asobtained, at present, are given in theAnnexureand these should be kept

in view while considering the proposals.

These Guidelines are meant to assist the FIPB to consider proposals in an

objective and transparent manner. These would not in any way restrict the

flexibility or bind the FIPB from considering the proposals in their

totality or making recommendations based on other criteria or special

circumstances or features it considers relevant. Besides these are in the

nature of administrative Guidelines and would not in any way be legally

binding in respect any recommendation to be made by the FIPB or

decisions to be taken by the Government in cases involving Foreign

Direct Investment (FDI).

These guidelines are issued without prejudice to the Government's right

to issue fresh guidelines or change the legal provisions and policieswhenever considered necessary.
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CHAPTER-9


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ADVANTAGES AND DIS-ADVANTAGES OF FDI:

ADVANTAGES OF FDI:1.STIMULATION OF NATIONAL ECONOMY:-

FDI is thought to bring certain benefits to national economies. It can

contribute to gross domestic product (GDP). Gross fixed formation (total

investment in a host economy) and balance of payment. There have been

empirical studies indicating a positive link between higher GDP and FDI

inflows (OECD).however the link does not hold for all region e.g. over

the last ten year FDI has increased in central Europe whilst GDP has

dropped. FDI can also contribute toward debt servicing repayment,

Simulate export markets and produce foreign exchange revenue.

2. STABILITY OF FDI:-

FDI inflows can be less affected by affected by change in nationalexchange rate as compared to other private sources. This is partly because

currency devaluation means a drop in the relative cost of production and

assets. For foreign companies and there by increases the relative

attraction of a host country. FDI can stimulate product diversification

though investments into new businesses, so reducing market reliance on a

limited number of sectors/products. However, if international flows of

trade and investment fall globally and for lengthy periods

Then stability is less certain. New inflows of FDI are especially

affected by these global trends. Because it is harder for a foreign

company to de-invest or reverse from foreign affiliates as compared to

portfolio investment. Companies are therefore more likely to be careful to

ensure they will accrue benefits before making any new investments.E.g.


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Korea and Thailand, during the 1996/97 crisis, it fell in others e.g.

Indonesia. During Latin Americas financial crisis in the 80,s many Latin

American countries experienced a sharp fall in FDI suggesting that

investment sensitivity varies according to a countrys particular

circumstances.

3. SOCIAL DEVELOPMENT:FDI. Where it generates and expands

businesses. Can help stimulate

employment. Raise wages and replace

declining market sectors. However, the

benefits may only be felt by small

portion of the population, `E.g. where

employment and training is given to

more educated. Typically wealthy cities

or there is an urban emphasis, wagedifferentials between income groups

will be exacerbated. Cultural and social impacts may occur with

investment directed at non-traditional goods. For example, if financial

resources are diverted away from food and subsistence production

towards more sophisticated products and encouraging a culture of

consumerism can also have negative environmental impacts. Within local

economies small scale and rural business of FDI host countries there is

less capacity to attract foreign investment and business or to use more

informal sources of finance.


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4. INFRASTUCTURE DEVELOPMENT AND

TECHNOLOGY TRANSFER:-

Parent companies can support their foreign subsidiaries by ensuringadequate human resources and infrastructure are in place. In particular

Greenfield investments into new business sectors can stimulate new

Infrastructure development and technologies to host economies. These

developments can also result in social and environmental benefits, but

only where they spill over into host communities and businesses.

Investment in research & development (R&D) from parent companies

can stimulate innovation In-house investment will result in

improvements.Foreign technology/organizational techniques may

actually be inappropriate to local needs, capital intensive and have a

negative affect on local competitors, especially smaller businesses who

are less able to make equivalent adoptions.

5. CROWDING IN OR COROWDING OUT:-

Crowding in occurs where FDI companies can stimulate growth in

up/down stream domestic businesses within the national economies.

Whilst crowding out is a scenario where parent companies dominate

local competition and entrepreneurship. One reason for crowding out is

policy chilling or regulatory arbitrage where government regulationsSuch as labour and environmental standards are kept artificially low to

attract foreign investors. This is because lower standards can reduce the

short term operative costs for businesses in a country For example:- In

industries where demand or supply for a product or service is highly price

elastic (market sensitive) and capital intensive.Hence regulation brings

additional costs of compliance and is therefore much more likely to

influence a companys decision to in vest in that country


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DIS-ADVANTAGES OF FDI:

1. RESTRICTIVE FDI REGIME:

The FDI regime in India is still quite restrictive. As a consequence, with

regard to Cross border ventures, India ranks 57 th in the GCR 1999.foreign

ownership of between 51 and 100 percent of equity still requires a long

procedure of governmental approval. In our view, there does not seem to

be any justification for continuing with this rule. This rule should be

scrapped in flavor of automatic approval for 100% foreign ownership

except on a small list of sectors that may continue to require government

authorization.

The banking sector, for example, would be an area where India would

like to negotiate reciprocal investment rights. Besides, the government

also needs to ease the restrictions on FDI outflows by non-financial

Indian enterprises so as allow these enterprises to enter into joint ventures

and FDI arrangements in other countries. Further deregulation of FDI in

industry and simplification of FDI procedures in infrastructure is called

for.


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2. LACK OF CLEAR CUT $ TRANSPARENT SECTORAL

FOR FDI:

Expeditious translation of approved FDI into actual investment wouldrequire more transparent sectoral policies, and a drastic reduction in time-

consuming redtapism.

3.HIGH TARIFF RATES BY INTERNATIONAL

STANDARDS:

Indias tariff rates are still among the highest in the world, and continueto block Indias attractiveness as an export platform for labor-intensive

manufacturing production. On tariffs and quotas, India is ranked 52nd in

the 1999GCR, and on average tariff rate, India is ranked 59 th out of 59

countries being ranked. Much greater openness is required which among

other things would include further reductions of tariff rates to average in

East Asia (between zero and 20 percent). Most importantly, tariffs rates

on imported capital goods used for export, and on import inputs into

export production, should be duty free, as has been true for decades in the

successful exporting countries of East Asia.

4. LACKS OF DECISION-MAKING AUTHORITY WITH

THE STATE GOVERNMENTS:-

The reform process so far has mainly concentrated at the central level.

India has yet to free up its state government sufficiently so that they can

add much greater dynamism to the reform. In most key infrastructure

area, the central government remains in control or at least with veto over

state actions. Greater freedom to the state will help foster greater

competition among themselves. The state in India needs to be viewed as

potential agents of rapid and salutary change.


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5. LIMITED SCALE OF EXPORT PROCESSING

ZONES:-

The very modest contributions ofIndias export processing zones to

attracting FDI overall export

development call for are vision of

policy. Indias export processing zones

have lacked dynamism because of

several reasons, such as their relativelylimited scale; the governments general

ambivalence about attracting FDI; the unclear and changing incentive

packages attached to the zones; and the power of the central government

in the regulation of the zones, in comparison with the major responsibility

of local and provincial governments in china. Ironically, while India

established her first EPZ in 19654 compared with chinas initial efforts in

1980, the Indian EPZ never seemed to take offeither in attracting

investment or in promoting exports.

6. NO LIBERALIZATION IN EXIT BARRIERS:-

While the reforms implemented so far have helped remove the entry

barriers, the liberalization of exit barriers has yet to take place. In our

view, this is a majors deterrent to large volume of FDI flowing to India.

An exit policy needs to be formulated such that firms can enter and exit

freely from the market. While it would be incorrect to ignore the need and

potential merit of certain safeguards, it is also important to recognize that

Safeguards if wrongly designed and/ore poorly enforced would turn into

barriers that may adversely affect the heath of the form. The regulatory


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framework, which is in place, does not allow the firms to undertake

restructuring.

7. STRENGENT LABOUR LAWS:-

Large firms in India are not allowed to retrench or layoff any workers, or

close drown the unit without the permission of the state governments.

While the law was enacted with a view to monitor unfair retrenchment

and layoffs, in effects it has turned out to be a provision for job security

provided to public sector employees most importunately, with 100 or

more employees paralyzes firms in hiring new workers. With regard to

labours regulations and hiring and firing practices, India is ranked 55 th

and 56th respectively in the GCR 1999.so India remains an unattractive

base for such production in part because of the continuing obstacles to

flexible managements of the labour force.


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CHAPTER:9


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CONCLUSION:

A number of studies have been undertaken to determine whether

FDI impacts positively one economic growth. Two types of studiesmacro and microhave generally been conducted to study the

relationship between FDI and growth. Micro studies usually find no

positive evidence that FDI makes a positive contribution to growth.

Macro studies, on the other hand,

often find FDI to positively affect economic growth under certain

conditions.

The findings indicate that FDI is a positive and a significant

contributor to growth for EP countries, while having no influence on

growth for IS countries. In addition, as far as EP countries are concerned,

it is FDI and not domestic investment that acts as a driving force in the

growth process.

FDI can promote growth in the presence of a liberal trade regime; a threshold level of human endowment is necessary for the promotion of

growth through FDI;

effective utilization of human capital in conjunction with FDI requires anadequate domestic market for the goods produced; and technology and

skill spillovers from FDI do not materialize became statistically

significant with the inclusion of the domestic market

The findings, meanwhile, show strong evidence of considerableheterogeneity across countries. This indicates that incorrectly imposing

the homogeneity assumption on the data can lead to biased estimates and

faulty policy implications. To circumvent the problem, the authors use

mixed, fixed, and random (MFR) panel data estimation to test for

causality between FDI and economic growth in developing countries.


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CHAPTER-10


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FUTURE STRATEGIES OF FDI:

FDI flows will likely remain disappointing through 2011, according tothe 2010 A.T. Kearney Foreign Direct Investment Confidence Index, a

regular assessment of senior executive sentiment at the worlds largestcompanies.

The Index also found executives are wary of making investments in thecurrent economic climate and revealed that they expect the economicturnaround to happen no earlier than 2011. Half of the companiessurveyed also report that they are postponing investments as a result ofmarket uncertainty and difficulties in obtaining credit.

Conducted regularly since 1998 by global management consulting firm

A.T. Kearney, the Index provides a unique look at the present and futureprospects for international investment flows. Companies participating inthe survey account for more than $2 trillion in annual global revenue.

China remains the top-ranked destination by foreign investors, a title ithas held since 2002. The United States retakes second place from India,which had surpassed it in 2005. India, Brazil and Germany complete thetop five favored investment destinations.

Overall, developed economies rose in the Index as investors looked forsafety. The most striking exception is the United Kingdom, whosereliance on financial services left it exposed in the current crisis. At thesame time, the placement of China, India and Brazil in the top five showsa strong vote of confidence for the strength of these economies. Investorsalso expressed the most optimism about the future outlook for China,India and Brazil.

The results indicate a return to market fundamentals and a flight to

quality for corporate executives, said Paul A. Laodicea, managing

officer and chairman of A.T. Kearney. Companies are looking for the

antidote to uncertainty and increasingly looking to invest in the nearabroad.


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CHAPTER-11

CASE STUDY:

(CASE-1)

TATAS To BENEFIT FROM REMOVAL OF BAN ON

BANGLADESH FDI


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The $3-billion investment proposal of the Tata group in the power, steel

and fertilizer sectors in Bangladesh is closer to reality because of Indias

decision to lift the ban on Bangladeshi investment into India.

That Bangladesh was not allowed to invest in India while India wanted to

invest in that country had been a sore point in the bilateral relationship

between the two nations, according to the Union Minister of State for

Commerce and Industry,

Mr. Jairam Ramesh.

Mr. Ramesh told Business Line that it was hypocritical on the part of

India to push for Tata investment while not allowing Bangladesh to

invest in India. He said that there were rich possibilities of Bangladesh

investing in India, especially in the North East, in areas such as food

processing, textiles and bamboo-related industries.

He said that Indias proposal to develop the Sitwe project did not

imply that the country thought it could develop the North East ignoring

Bangladesh.

Logistics-wise the Sit we project is very good, but we cannot operate on

the assumption that we can develop the North East ignoring Bangladesh,

he said, adding that Bangladesh, Indias North East, Myanmar and

Thailand formed a growth quadrilateral.

Noting that along the 1,600-km border with Myanmar, the only border

trade post was Morah in Manipur, Mr. Ramesh said that India was in

talks with Myanmar to open border trade with Myanmar at two more

pointsPangsau in Arunachal Pradesh, Zokhawthar in Mizoram.

Right now, our notion of border trade is that the trade is restricted

to a list of goods. For example, at Nathu La, there are only 37 items that


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can be traded. In Morah, there are only 22 items that can be traded. We

must get out of this restrictive approach of border trade and move to a

more liberal trade at border. Of course, our security establishment is not

very comfortable with this concept because it feels it could be used by

China to dump its goods.

The goodwill generated by India developing the Sitwe port would

put India in a favourable position to win oil and gas

exploration/production blocks.

Asked if US or China might oppose India developing the Sitwe project,Mr Ramesh said, Undoubtedly we cannot minimize the possibility that

there will be sometimes overt, sometimes covert opposition to our

enhanced relations with Myanmar. Im sure will be attacked by human

rights groups. It is a fine line that we have to treat.

(CASE 2)

RETAIL WILL CREATE PURCHASING POWER, JOBS

MUKESH AMBANI:-

On being quizzed about FDI in multi-brand retail, during India

Economic Summit, Reliance chairman Mukesh Ambani, said that,

considering that the sector offered immense potential, it should be

allowed. FDI in the sector was welcome as the retail potential was real


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and no single large company or an MNC would be able to capture it, he

added.

The retail segment had the potential to aid not only in Indias

economic growth but also to provide employment opportunities, said

Ambani. 10 to 15 million jobs would be generated over the next three to

five years due to the explosion in the retail sector, he added.

One of the biggest opportunities offered by the retail, according to

Ambani, was to create purchasing power, even at the bottom of the

pyramid


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CHAPTER-11

Annexures:

Article: india- an attractive destination to fdi.

Article from: The Economic Times, New Delhi.

Article date: april.22,2000.

Auther: ashoksheel.


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NEW DELHI: Despite regulatory hurdles, India continues to be among

the preferred destinations for FDI due to the country's high economic

growth, with both Mumbai and Delhi being touted as among the cities

likely to produce the next Microsoft or Google, a survey said.

According to the '9th Annual European Attractiveness Survey' by Ernst &

Young, India will rank fifth among the most attractive destinations for

European firms within the next three years, mainly on account of India's

perceived specialization as a hub for low cost outsourcing business.

"Foreign investors are not deterred by current regulatory issues to invest

in India... India's perceived specialization as a low-cost business process

outsourcing (BPO) hub continues to appeal the investors across the

globe," the report said.


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BIBLIOGRAPHY:

Books:

Foreign Investment in India: 1947-48 to 2007-08, Dr. Kamlesh

Gakhar

Foreign Direct Investment in India: 1947 to 2007, Dr. Nitin Bhasin

Websites:


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Documents

Project Report Fdi Final