3. INDEX :
What is FDI
Why FDI
Drawbacks of FDI
Impact of FDI on host economy
Studies on FDI in India
FDI policy in India
Year wise FDI inflow in the post reforms era
(1990-2010)
Top Investors in India
Telecommunications sector
Retail Sector in India
4. What is FDI?
• Foreign direct investment (FDI) is a direct investment
into production or business in a country by an individual
or company of another country, either by buying a
company in the target country or by expanding
operations of an existing business in that country.
•
• Foreign direct investment is in contrast to portfolio
investment which is a passive investment in the
securities of another country such as stocks and bonds..
5. Why FDI?
No debt creation on the part of the government.
Triggers technology transfer.
Assists Human capital formation.
Contributes to international integration by promoting
exports.
Increases productivity and competitiveness.
Improves efficiency of resources.
Promotes innovation
6. Drawbacks of FDI
Local firms may loose business because of the
oligopolistic power of foreign firms.
The repatriation of profit may drain out the
capital of the host country.
Local population may be displaced out of their
jobs if they are unable to cope with the
technologically advanced foreign firms.
7. Impact of FDI on host economyReview of literatures.
FDI may have a negative impact on the growth of
the developing countries (Singer,1950; Griffin,
1970).
Hanson (2001) argues that evidence that FDI
generates positive spillovers for host countries is
weak.
FDI could have a favorable short-term effect on
growth as it expands the economic activity.
However, in the long run it reduces the growth rate
due to dependency, particularly due to
“decapitalization” (Bornschier, 1980).
8. Studies on FDI in India
Banga (2005) demonstrates that FDI, trade and
technological progress have differential impact on
wages and employment.
Higher extent of FDI in an industry leads to higher
wage rate, it has no impact on its employment.
Higher export intensity of an industry increases
employment in the industry but has no effect on its
wage rate.
Import of technology has unfavorably affected
employment in India. The study by Sharma (2000)
concluded that FDI does not have a statistically
significant role in the export promotion in Indian
Economy.
9. “FDI is not growth stimulant rather it is
growth resultant.”
Study by Sahoo and Mathiyazhagan (2003) support
the view that FDI in India is not able to enhance the
growth of the economy.
Pailwar (2001) argues that the foreign firms are
more interested in the large Indian market rather
than aiming for the global market.
Export oriented sectors should be opened up for FDI
so that a higher growth of the economy could be
achieved through the growth of these sectors.
10. FDI policy in India:
Currently FDI is permitted:
a) Through financial collaborations.
b) Through Joint Ventures and technical
collaborations.
c) Through capital markets via Euro issues.
d) Through preferential allotments.
India had opened up its economy and allowed
MNCs in the core sectors such as Power and Fuels,
Electrical Equipments, Transport, Chemicals, Food
Processing, Metallurgical, Drugs and
Pharmaceuticals, Textiles, and Industrial Machinery.
11. Currently FDI is also allowed in:
Telecommunications, Banking, Insurance, Hotel
& Tourism, IT.
Mining of titanium keeping India's civilian
nuclear ambitions in mind upto100%,a mineral
which is abundant in India.
single Brand product retailing where Foreign
Investment up to 51% is permitted with prior
Government approval. Major debate going on
about approving FDI in India’s Retail sector.
12. Year wise FDI inflow in the post
reforms era (1990-2001)
2439
1999-2000
1998-1999
1997-1998
1996-1997
FDI
1995-1996
1994-1995
1993-1994
1992-1993
0
1000
2000
US $ MILLIONS
3000
4000
13. 2009-2010
37763
Year wise revised FDI
Inflow since 2000-2001 with
expended coverage to
approach International
Best Practices.
2008-2009
2007-2008
2006-2007
2005-2006
FDI
2004-2005
2003-2004
2002-2003
2001-2002
2000-2001
0
10000
20000
US $ MILLIONS
30000
40000
14. The growth of FDI inflows in India was not significant
until 1991 due to the regulatory policy framework.
There has been a steady build up in the actual FDI
inflows in the post-liberalization period. Actual
inflows have steadily increased from US $ 143.6
million in 1991 to US $ 37,763 million in 2010.
The pace of FDI inflows to India has definitely been
slower than some of the smaller developing
countries like Indonesia, Thailand, Malaysia and
Vietnam.
15. India had registered a declining trend of FDI inflows
and the FDI- GDP ratio especially in 1998 and 2003
could be attributed to many factors, including the US
sanctions imposed in the aftermath of the nuclear
tests and Swadeshi movements.
But since 2006 India has seen a remarkably higher
growth of FDI in accordance with the general trends
of the global economy with a slight dip in the year
2009-2010.
16. Capital goods sector has more or less been
bypassed by FDI. This clearly points out the
tendency of foreign investment to exploit the pent up
domestic demand for consumer durable goods.
A gradual increase in the mergers and acquisitions
during the 1990s which show a tendency of FDI
inflows to acquire existing industrial assets and
managerial control without actually engaging in new
productive activities (Nagraj, 2006).
18. Telecommunications sectorA success story
Large number of private operators started operating
in the basic/mobile telephony and Internet domains
after several series of reforms in the telecom sector.
FDI is permitted up to 74% with FDI, beyond 49%
requiring Government approval.
As a result of the New Telecom Policy 1999
(NTP99) Total FDI in telecom is currently over US $
15 billion.
Tremendous improvement in infrastructure, lowest
tariff rates in the world and over 250 million users.
In 2007-2008 Vodafone took over Hutch for about
US $ 11 billion.
19. Retail Sector in India
Retail industry in India is one of the fastest growing.
Contributes 14% to the national GDP and employs
7% of the total workforce.
The retail industry is divided into organised and
unorganised sectors.
Organised trade employs roughly 5 lakh people
whereas the unorganized retail trade employs nearly
3.95 crores.
Growth in Retail as a result of economic expansion
as well as jobless growth.
20. Major arguments against adoption of
FDI in Retail in India:
FDI driven modern retailing is labour displacing.
It can only expand by destroying the traditional retail
sector.
Foreign retail firms have deep pockets and can
cause even the organized retail sector to go out of
business.
Will buy big from India and abroad and be able to
sell low. When monopoly situation is created will will
buy low and sell high.
21. It is true that it is in the consumer’s best interest
to obtain his goods and services at the lowest
possible price. But collective well being should
take precedence.
22. Suggestive measures to eliminate the
negative effects of FDI in Retail
FDI should be aggressively promoted in R&D,
Manufacturing, Entertainment to accommodate the
people who have lost their jobs.
Import duty should be imposed to protect domestic
production units.
Labour laws should be imposed to ensure that no
management jobs are outsourced.
Jobs should be reserved for the poor people.
23. Hindi and local languages as a mode of operation
should be encouraged.
Cooperative societies should be formed for the
farmers and other agricultural suppliers to take care
of their rights.
The foreign retail units should be made to divest a
certain percentage of their equity in the Indian
financial markets.
Social infrastructure like schools, colleges and
hospitals should be developed to promote human
capital formation
