Economics project for MCOM - Part 1 semester - 2 Mumbai university

1. 1
A PROJECT REPORT ON
FOREIGN CAPITAL INFLOWS IN INDIA AND EMERGING
ECONOMIES
SUBMITTED
TO THE UNIVERSITY OF MUMBAI
AS A PARTIAL REQUIREMENT FOR COMPLETING POST
GRADUATION OF
M.COM (BANKING AND FINANCE) SEMESTER 2
SUBMITTED BY:
UNDER THE GUIDANCE OF
DR. NEELIMA DIWAKAR

2. 2
SIES COLLEGE OF COMMERCE AND ECONOMICS,
PLOT NO. 71/72, SION MATUNGA ESTATE
T.V. CHIDAMBARAM MARG,
SION (EAST), MUMBAI – 400022.
CERTIFICATE
This is to certify that Ms. ------------ of M.Com (Banking and Finance) Semester II
(academic year 2013-2014) has successfully completed the project on FOREIGN
CAPITAL INFLOWS IN INDIA AND EMERGING ECONOMIES
under the guidance of DR. NEELIMA DIWAKAR
_________________ ___________________
(Project Guide) (Course Co-ordinator)
___________________ ___________________
(External Examiner) (Principal)
Place: MUMBAI
Date: ___________

3. 3
DECLARATION
I, ---------- Student M.Com (Banking and Finance) Semester I (academic
year 2014-2015) hereby declare that, I have completed the project on FOREIGN
CAPITAL INFLOWS IN INDIA AND EMERGING ECONOMIES
The information presented in this project is true and original to the best of my
knowledge.
Place: MUMBAI
Date: _________
_____________
Name:
Roll No.:

4. 4
ACKNOWLEDGEMENT
I would like to thank the University of Mumbai, for introducing M.Com
(Banking and Finance) course, thereby giving its students a platform to be abreast
with changing business scenario, with the help of theory as a base and practical as
a solution.
I am indebted to the reviewer of the project DR. NEELIMA DIWAKAR my
project guide who is also our principal, for her support and guidance. I would
sincerely like to thank her for all her efforts.
Last but not the least; I would like to thank my parents for giving the best
education and for their support and contribution without which this project would
not have been possible.
________________
Name:
Roll no:

5. 5
SR.NO. CONTENTS PG.NO.
1. INTRODUCTION 7
2. WHAT ARE THE MAJOR BENEFITS OF
FDI?
8
3. INDIA AND FDI 9
4. FDI FLOWS IN INDIA 11
5. TRENDS IN FDI FLOWS IN INDIA 13
6. FDI POLICY FRAMEWORK IN INDIA 14
7. FDI IN: AUTOMOTIVE SECTOR,
TECHNOLOGY, FINANCIAL SERVICES,
INDIAN BANKING, RETAIL, CONSUMER
PRODUCTS, MANUFACTURING SECTOR
17-25
8 POLITICAL IMPACT OFLARGER FDI
26
9. LIMITATIONS 28
10. REASON FOR DIS SATISFACTION 30
11. CONCLUSION 31
12. BIBLOGRAPHY 33

6. 6
INTRODUCTION
Foreign capital has significant role for every national economy regardless of its
level of development. For the developed countries it is necessary to support
sustainable development. For the developing countries, it is used to increase
accumulation and rate of investments to create conditions for more intensive
economic growth. Forthe transition countries it is useful to carry out the reforms
and cross to open economy, to cross the past long term problems and to create
conditions for stable and continuous growth of GDP as well as integration in world
economy. But, capital flows from developed to developing countries are worth
studying for a number of reasons. Capital inflow can help developing countries
with economic development by furnishing them with necessary capital and
technology. Capital flows contribute in filling the resource gap in countries where
domestic savings are inadequate to finance investment. Neoclassical economists
supportthe view that capital inflows are beneficial becausethey create new
resources for capital accumulation and stimulate growth in developing economies
with capital shortage. Capital inflows allow the recipient country to invest and
consume more than it produces when the marginal productivity of capital within its
borders is higher than in the capital-rich regions of the world. Foreign capital can
finance investment and stimulate economic growth, thus helping increase the
standard of living in the developing world. Capital flows can increase welfare by
enabling household to smoothout their consumption over time and achieve higher
levels of consumption. Capital flows can help developed countries achieve a better
international diversification of their portfolios and also provide supportfor pension
funds and retirement accounts into the twenty-first century. Capital inflows
facilitate the attainment of the millennium development goals and the objective of
national economic, empowerment and development strategy. As the economy
becomes more open and integrated with the rest of the world, capital flows will
contribute significantly to the transformation of the developing economy.
However, large capital inflows can also have less desirable macroeconomic effects,
including rapid monetary expansion, inflationary pressures, and real exchange rate
appreciation and widening current account deficits. Hence, a surge in inflows of
the magnitudes seen in recent years may poseserious dilemmas and tradeoffs for
economic policy, especially in the present environment of high capital mobility.
History has also shown that the global factors affecting foreign investment.

7. 7
DEFINITION
ForeignExchange
Any type of financial instrument that is used to make payments between countries
is considered foreign exchange. Examples of foreign exchange assets include
foreign currency notes, deposits held in foreign banks, debt obligations of foreign
governments and foreign banks, monetary gold, and SDRs.
ForeignCapital
Is the source, amount or amount of goods that is introduced in a host country by a
foreign country. Getting resources from another country or from outside the
boundary of our country.
ForeignCapital Inflow
Increase in the amount of money available from external or foreign sources for
the purchase of local capital assets such buildings, land, machines.

8. 8
EMERGING ECONOMIES
An emerging market is a country that has some characteristics of a developed
market, but does not meet standards to be a developed market. This includes
countries that may be developed markets in the future or were in the past. The term
"frontier market" is used for developing countries with slower economies than
"emerging". The economies of China and India are considered to be the largest.
The 7 countries with emerging economies are as follows:
China, Russia, India, Indonesia, Mexico, Brazil and South Korea.
An emerging market economy (EME) is defined as an economy with low to middle
per capita income. Such countries constitute approximately 80% of the global
population, and represent about 20% of the world's economies. The term was
coined in 1981 by Antoine W. Van Agtmael of the International Finance
Corporation of the World Bank.
Although the term "emerging market" is loosely defined, countries that fall into
this category, varying from very big to very small, are usually considered emerging
because of their developments and reforms. Hence, even though China is deemed
one of the world's economic powerhouses, it is lumped into the category alongside
much smaller economies with a great deal less resources, like Tunisia. Both China
and Tunisia belong to this category becauseboth have embarked on economic
development and reform programs, and have begun to open up their markets and
"emerge" onto the global scene. EMEs are considered to be fast-growing
economies.

9. 9
What an EME Looks Like?
EMEs are characterized as transitional, meaning they are in the process of moving
from a closed economy to an open market economy while building accountability
within the system. Examples include the former Soviet Union and Eastern bloc
countries. As an emerging market, a country is embarking on an economic reform
program that will lead it to stronger and more responsible economic performance
levels, as well as transparency and efficiency in the capital market. An EME will
also reform its exchange rate system because a stable local currency builds
confidence in an economy, especially when foreigners are considering investing.
Exchange rate reforms also reduce the desire for local investors to send their
capital abroad (capital flight). Besides implementing reforms, an EME is also most
likely receiving aid and guidance from large donor countries and/or world
organizations such as the World Bank and International Monetary Fund.
One key characteristic of the EME is an increase in both local and foreign
investment (portfolio and direct). A growth in investment in a country often
indicates that the country has been able to build confidence in the local economy.
Moreover, foreign investment is a signal that the world has begun to take notice of
the emerging market, and when international capital flows are directed toward an
EME, the injection of foreign currency into the local economy adds volume to the
country's stockmarket and long-term investment to the infrastructure.
For foreign investors or developed-economy businesses, an EME provides an
outlet for expansion by serving, for example, as a new place for a new factory or
for new sources of revenue. Forthe recipient country, employment levels rise,
labor and managerial skills become more refined, and a sharing and transfer of
technology occurs. In the long-run, the EME's overall productionlevels should
rise, increasing its gross domestic product and eventually lessening the gap
between the emerged and emerging worlds.

10. 10
FOREIGN CAPITAL FLOWS IN INDIA
International capital flow such as direct and portfolio flows has huge contribution
to influence the economic behavior of the developing countries positively. Prof.
John P. Lewis pointed out “that almost every developed country of the world in its
developing stage had made the use of foreign capital to make up deficiency of
domestic savings”. In the seventeenth and eighteenth century England borrowed
from Holland and in the nineteenth and twentieth century England gave loans to
almost every other country. United State of America, today the wealthiest country
of the world, had borrowed 5 heavily in the nineteenth century16. The half century
prior to the First World War was a period uniquely favorable to the free movement
of international capital. Even before 1914, certain changes were taking place in the
character and in the industrial distribution of the international capital movements.
The war not only accelerated this process bydramatically altering the position of
lending participants but heralded an era which eventually had a fundamental effect
on the whole climate of international capital movements. In the twenties, however
there were few signs of upheaval to come and, by 1929, the total investment debt
was of the same order as that in 1913. On the face occurred was the emergence of
US as the prime lender and the transformation of continental Europe from a
substantial creditor into a substantial debtor. Even by 1919, the US had invested
$6.5 billion abroad, excluding the large war loans to the allies. In the following
decades, her foreign investments rose by US $8.3 billion-about two-thirds of the
world total investment raising America’s total capital stake in 1930 to US $15.7
billion. By contrast, most European countries were forced to relinquish large
quantities of their foreign assets during the war; UK gave up 15% of hers, France
over half of hers and Germany nearly the whole. Since the war, a remarkable
resurgence has taken place in the international capital movements, the volume of
which has risen much faster than that of world trade and industrial production
during the last fifteen years. In the period 1946-1950 the net flow of private long
term capital from the traditional capital-exporting countries averaged US $1.8
billion per annum (equals to one-half of the average for the 1920s). In the
following decade it rose to US $2.9 billion per annum reaching a peak of US $3.6
billion in 1958; since then it has fallen somewhat to less than US $2 billion in the
early 1960s. The 1970s witnessed a remarkable boom of capital flows to emerging
economies17. The dramatic surge in international capital flows was triggered by

11. 11
the oil shockin 1973-1974, the growth of the Eurodollar market and the
remarkable increase in bank lending during 1979-1981. Latin America was the
main recipient of this heavy capital inflow, with capital flows to the region peaking
at US $44 billion in 1981. Overall, capital inflows to this region, which mostly
took the form of syndicated bank loans, reached about 6 per cent of the region’s
gross domestic product(GDP). The pace of international lending came to an abrupt
end in 1982 with the hike in world real interest rates to levels not seen since the
1930s. Suddenly, emerging countries became the pariahs of international capital
markets and they were not only excluded from voluntary capital markets but also
forced to run current-account surplus to repay their foreign debts. By the late
1980s, there was a revival of international lending. While flows to Latin America
made a tremendous comeback, capital inflows to Asia also surged, with capital
flows increasing tenfold from their averages in the early 1980s. India is a
developing country, like many other developing countries, international capital
flows have significant potential benefit on the Indian economy. The problems of
foreign investment in India have been an issue of outstanding importance ever
since the days of the East India Company and added significance after Indian 6
Independence in 194718. In the 1950s and 1960s, the dominant form of foreign
capital was foreign aid, mainly through government to government transfer of
resources. In the late 1960s and early 1970s, foreign direct investment (FDI) came
into prominence. The dominant form of foreign capital in the 1970s was the
foreign private loan (FPL). In the late 1970s there was hardly any new foreign
investment in India: indeed, some firms left the country. Inflows of private capital
remained meager in the 1980s: they averaged less than $0.2 billion per year from
1985 to 1990. In the 1990s, as part of wide ranging liberalization of the economy,
fresh foreign investment was invited in a range of industries. Inflows to India rose
steadily through the 1990s, exceeding $6 billion in 1996-97. The fresh inflows
were primarily as portfolio capital in the early years (that is, diversified equity
holdings not associated with managerial control), but increasingly, they have come
as foreign direct investment (equity investment associated with managerial
control). Though dampened by global financial crises after 1997, net direct
investment flows to India remain positive. Under the liberalized foreign exchange
transactions regime, the results were dramatic.

12. 12
FOREIGN CAPITAL FLOW IN INDIA
COMPRISES OF:
FOREIGN DIRECT INVESTMENT (FDI)
FOREIGN PORTFOLIO INVESTMENT (FPI)
EXTERNAL COMMERCIAL BORROWINGS (ECB’s)
FDI
A foreign direct investment (FDI) is a controlling ownership in a business
enterprise in one country by an entity based in another country. Foreign direct
investment is distinguished from portfolio foreign investment, a passive investment
in the securities of another country such as public stocks and bonds, bythe element
of "control". According to the Financial Times, "Standard definitions of controluse
the internationally agreed 10 percent threshold of voting shares, but this is a grey
area as often a smaller block of shares will give controlin widely held companies.
Moreover, control of technology, management, even crucial inputs can confer de
facto control." The origin of the investment does not impact the definition as an
FDI, i.e., the investment may be made either "inorganically" by buying a company
in the target country or "organically" by expanding operations of an existing
business in that country.
FPI
Foreign portfolio investment typically involves short-term positions in financial
assets of international markets, and is similar to investing in domestic securities.
FPI allows investors to take part in the profitability of firms operating abroad
without having to directly manage their operations. This is a similar conceptto
trading domestically: most investors do not have the capital or expertise required to
personally run the firms that they invest in.
Foreign portfolio investment differs from foreign direct investment (FDI), in which
a domestic company runs a foreign firm. While FDI allows a company to maintain

13. 13
better control over the firm held abroad, it might make it more difficult to later sell
the firm at a premium price. This is due to information asymmetry: the company
that owns the firm has intimate knowledge of what might be wrong with the firm,
while potential investors (especially foreign investors) do not.
The share of FDI in foreign equity flows is greater than FPIin developing
countries compared to developed countries, but net FDI inflows tend to be more
volatile in developing countries becauseit is more difficult to sell a directly-owned
firm than a passively owned security.
ECB’s
An external commercial borrowing (ECB) is an instrument used in India to
facilitate the access to foreign money by Indian corporations and PSUs (public
sectorundertakings). ECBs include commercial bank loans, buyers' credit,
suppliers' credit, securitised instruments such as floating rate notes and fixed rate
bonds etc., credit from official export credit agencies and commercial borrowings
from the private sectorwindow of multilateral financial Institutions such
as International Finance Corporation (Washington), ADB, AFIC, CDC, etc. ECBs
cannot be used for investment in stockmarket or speculation in real estate. The
DEA (Department of Economic Affairs), Ministry of Finance, Government of
India long with Reserve Bank of India, monitors and regulates ECB guidelines and
policies. For infrastructure and greenfield projects, funding up to 50% (through
ECB) is allowed. In telecom sectortoo, up to 50% funding through ECBs is
allowed. Recently Government of India[1] allowed borrowings in Chinese currency
yuan.Corporate sectors can mobilize USD 750 million via automatic route,
whereas service sectors and NGO's for microfinance can mobilize USD 200
million and 10 million respectively.[2]
Borrowers can use 25 per cent of the ECB to repay rupee debt and the remaining
75 per cent should be used for new projects. A borrower cannot refinance its
existing rupee loan through ECB. The money raised through ECB is cheaper given
near-zero interest rates in the US and Europe, Indian companies can repay their
existing expensive loans from that.

14. 14
TRENDS IN FCF INFLOWS IN INDIA
With the tripling of the FDI flows to EMEs during the pre-crisis period of the
2000s, India also received large FDI inflows in line with its robust domestic
economic performance. The attractiveness of India as a preferred investment
destination could be ascertained from the large increase in FDI inflows to India,
which rose from around US$ 6 billion in 2001-02 to almost US$ 38 billion in
2008-09. The significant increase in FDI inflows to India reflected the impact of
liberalisation of the economy since the early 1990s as well as gradual opening up
of the capital account. As part of the capital account liberalisation, FDI was
gradually allowed in almost all sectors, except a few on grounds of strategic
importance, subject to compliance of sectorspecific rules and regulations. The
large and stable FDI flows also increasingly financed the current account deficit
over the period. During the recent global crisis, when there was a significant
deceleration in global FDI flows during 2009-10, the decline in FDI flows to India
was relatively moderate reflecting robust equity flows on the back of strong
rebound in domestic growth ahead of global recovery and steady reinvested
earnings (with a share of almost 25 per cent) reflecting better profitability of
foreign companies in India. However, when there had been some recovery in
global FDI flows, especially driven by flows to Asian EMEs, during 2010-11,
gross FDI equity inflows to India witnessed significant moderation. Gross equity
FDI flows to India moderated to US$ 20.3 billion during 2010-11 from US$ 27.1
billion in the preceding year.

15. 15
TRENDS IN FOREIGN CAPITAL FLOWS IN
EMERGING ECONOMIES THROUGHOUT THE
WORLD
Foreign direct investment is treated as an important mechanism for channelizing
transfer of capital and technology and thus perceived to be a potent factor in
promoting economic growth in the host countries. Moreover, multinational
corporations consider FDI as an important means to reorganise their production
activities across borders in accordance with their corporate strategies and the
competitive advantage of host countries. These considerations have been the key
motivating elements in the evolution and attitude of EMEs towards investment
flows from abroad in the past few decades particularly since the eighties
China
 Encouragement to FDI has been an integral part of the China’s economic
reform process. It has gradually opened up its economy for foreign
businesses and has attracted large amount of direct foreign investment.
 Government policies were characterised by setting new regulations to permit
joint ventures using foreign capital and setting up Special Economic Zones
(SEZs) and Open Cities. The concept of SEZs was extended to fourteen
more coastal cities in 1984.Favorable regulations and provisions were used
to encourage FDI inflow, especially export-oriented joint ventures and joint
ventures using advanced technologies in 1986.
 Foreign joint ventures were provided with preferential tax treatment, the
freedom to import inputs such as materials and equipment, the right to retain
and swap foreign exchange with each other, and simpler licensing
procedures in 1986. Additional tax benefits were offered to export-oriented
joint ventures and those employing advanced technology.
 Priority was given to FDI in the agriculture, energy, transportation,
telecommunications, basic raw materials, and high-technology industries,
and FDI projects which could take advantage of the rich natural resources
and relatively low labour costs in the central and northwest regions.
 China’s policies toward FDI have experienced roughly three stages: gradual
and limited opening, active promoting through preferential treatment, and
promoting FDI in accordance with domestic industrial objectives. These
changes in policy priorities inevitably affected the pattern of FDI inflows in
China.

16. 16
Chile
 In Chile, policy framework for foreign investment, embodied in the
constitution and in the Foreign Investment Statute, is quite stable and
transparent and has been the most important factor in facilitating foreign
direct investment. Under this framework, an investor signs a legal contract
with the state for the implementation of an individual project and in return
receives a number of specific guarantees and rights.
 Foreign investors in Chile can own up to 100 per cent of a Chilean based
company, and there is no time limit on property rights. They also have
access to all productive activities and sectors of the economy, except for a
few restrictions in areas that include coastal trade, air transport and the mass
media.
 Chile attracted investment in mining, services, electricity, gas and water
industries and manufacturing.
 Investors are guaranteed the right to repatriate capital one year after its entry
and to remit profits at any time.
Malaysia
 The Malaysian FDI regime is tightly regulated in that all foreign
manufacturing activity must be licensed regardless of the nature of their
business.
 Until 1998, foreign equity share limits were made conditional on
performance and conditions set forth by the industrial policy of the time.
 In the past, the size of foreign equity share allowed for investment in the
manufacturing sector hinged on the share of the products exported in order
to support the country's export-oriented industrial policy.
 FDI projects that export at least 80 per cent of production or production
involving advanced technology are promoted by the state and no equity
conditions are imposed. Following the crisis in 1997-98, the restriction was
abolished as the country was in need of FDI.

17. 17
Korea
 The Korean government maintained distinctive foreign investment policies
giving preference to loans over direct investment to supplement its low level
of domestic savings during the early stage of industrialisation. Korea’s
heavy reliance on foreign borrowing to finance its investment requirements
is in sharp contrast to other countries.
 The Korean Government had emphasised the need to enhance absorptive
capacity as well as the indigenisation of foreign technology through reverse
engineering at the outset of industrialisation while restricting both FDI and
foreign licensing. This facilitated Korean firms to assimilate imported
technology, which eventually led to emergence of global brands like
Samsung, Hyundai, and LG.
 The Korean government pursued liberalised FDI policy regime in the
aftermath of the Asian financial crisis in 1997-98 to fulfil the conditionality
of the International Monetary Fund (IMF) in exchange for standby credit.
 Several new institutions came into being in Korea immediately after the
crisis. Invest Korea is Korea’s national investment promotion agency
mandated to offer one-stop service as a means of attracting foreign direct
investment, while the Office of the Investment Ombudsman was established
to provide investment after-care services to foreign-invested companies in
Korea. These are affiliated to the Korea Trade Investment Promotion
Agency.
 Korea enacted a new foreign investment promotion act in 1998 to provide
foreign investors incentives which include tax exemptions and reductions,
financial support for employment and training, cash grants for R&D
projects, and exemptions or reductions of leasing costs for land for factory
and business operations for a specified period.
 One of the central reasons for the delays in the construction process in Korea
is said to be the lengthy environmental and cultural due diligence on
proposed industrial park sites. (OECD, 2008).

18. 18
Thailand
 Thailand followed a traditional import-substitution strategy, imposing tariffs
on imports, particularly on finished products in the 1960s. The role of state
enterprises was greatly reduced from the 1950s and investment in
infrastructure was raised. Attention was given to nurturing the institutional
system necessary for industrial development. Major policy shift towards
export promotion took place by early 1970s due to balance of payments
problems since most of components, raw materials, and machinery to
support the production process, had to be imported.
 On the FDI front, in 1977 a new Investment Promotion Law was passed
which provided the Board of Investment (BOI) with more power to provide
incentives to priority areas and remove obstacles faced by private investors
(Table 4). After the East Asian financial crisis, the Thai government has
taken a very favourable approach towards FDI with a number of initiatives
to develop the industrial base and exports and progressive liberalisation of
laws and regulations constraining foreign ownership in specified economic
activities.
 The Alien Business Law, which was enacted in 1972 and restricted majority
foreign ownership in certain activities, was amended in 1999. The new law
relaxed limits on foreign participation in several professions such as law,
accounting, advertising and most types of construction, which have been
moved from a completely prohibited list to the less restrictive list of
businesses.

19. 19
CROSS - COUNTRY COMPARISON OF POLICIES
– WHERE DOES INDIA STAND?
A true comparison of the policies could be attempted if the varied policies across
countries could be reduced to a common comparable index or a measure.
Therefore, with a view to examine and analyse ‘where does India stand’ vis-a-vis
other countries at the current juncture in terms of FDI policy framework, the
present section draws largely from the results of a survey of 87 economies
undertaken by the World Bank in 2009 and published in its latest publication titled
‘Investing Across Borders’.
The survey has considered four indicators, viz., ‘Investing across Borders’,
‘Starting a Foreign Business’, ‘Accessing Industrial Land’, and ‘Arbitrating
Commercial Disputes’ to provide assessment about FDI climate in a particular
country. Investing across Borders indicator measures the degree to which domestic
laws allow foreign companies to establish or acquire local firms. Starting foreign
business indicator record the time, procedures, and regulations involved in
establishing a local subsidiary of a foreign company. Accessing industrial
land indicator evaluates legal options for foreign companies seeking to lease or buy
land in a host economy, the availability of information about land plots, and the
steps involved in leasing land. Arbitrating commercial disputes indicator assesses
the strength of legal frameworks for alternative dispute resolution, rules for
arbitration, and the extent to which the judiciary supports and facilitates arbitration.
Following key observations could be made from this comparison:
 A comparative analysis among the select countries reveals that countries
such as Argentina, Brazil, Chile and the Russian Federation have sectoral
caps higher than those of India implying that their FDI policy is more
liberal.
 The sectoral caps are lower in China than in India in most of the sectors
barring agriculture and forestry and insurance. A noteworthy aspect is that
China permits 100 per cent FDI in agriculture while completely prohibits
FDI in media. In India, on the other hand, foreign ownership is allowed up to
100 per cent in sectors like ‘mining, oil and gas’, electricity and ‘healthcare
and waste management’.
 India positioned well vis-a-vis comparable counterparts in the select
countries in terms of the indicator ‘starting a foreign business’. In 2009,
starting a foreign business took around 46 days with 16 procedures in India

20. 20
as compared with 99 days with 18 procedures in China and 166 days with 17
procedures in Brazil
 In terms of another key indicator, viz., ‘accessing industrial land’ India’s
position is mixed. While the ranking in terms of indices based on lease rights
and ownership rights is quite high, the time to lease private and public land
is one of the highest among select countries at 90 days and 295 days,
respectively. In China, it takes 59 days to lease private land and 129 days to
lease public land. This also has important bearing on the investment
decisions by foreign companies.
 In terms of the indicator ‘arbitrating commercial disputes’ India is on par
with Brazil and the Russian Federation. Although, the strength of laws index
is fairly good, the extent of judicial assistance index is moderate.
Investing Across Borders – Sector wise Capitals – 2009
Country
Mini
ng,
oil
and
gas
Agricul
ture and
forestry
Light
manufact
uring
Telecomm
unications
Electricity Banking Insurance
Trans
portation
Media
Constr
uction,
touris
m and
retail
Health
care
and
waste
manag
ement
Argentina 100 100 100 100 100 100 100 79.6 30 100 100
Brazil 100 100 100 100 100 100 100 68 30 100 50
Chile 100 100 100 100 100 100 100 100 100 100 100
China 75 100 75 49 85.4 62.5 50 49 0 83.3 85
India 100 50 81.5 74 100 87 26 59.6 63 83.7 100
Indonesia 97.5 72 68.8 57 95 99 80 49 5 85 82.5
Korea, 100 100 100 49 85.4 100 100 79.6 39.5 100 100
Malaysia 70 85 100 39.5 30 49 49 100 65 90 65
Mexico 50 49 100 74.5 0 100 49 54.4 24.5 100 100
Philippines 40 40 75 40 65.7 60 100 40 0 100 100
Russian 100 100 100 100 100 100 49 79.6 75 100 100
South 74 100 100 70 100 100 100 100 60 100 100
Thailand 49 49 87.3 49 49 49 49 49 27.5 66 49

21. 21
CONCLUSION
Although emerging economies may be able to look forward to brighter
opportunities and offer new areas of investment for foreign and developed
economies, local officials in EMEs need to consider the effects of an open
economy on citizens. Furthermore, investors need to determine the risks when
considering investing in an EME. The process ofemergence may be difficult, slow
and often stagnant at times. And even though emerging markets have survived
global and local challenges in the past, they had to overcome some large obstacles
to do so.
Against this backdrop, it is pertinent to highlight the number of measures
announced by the Government of India on April 1, 2011 to further liberalise the
FDI policy to promote FDI inflows to India. These measures, inter alia included
(i) allowing issuance of equity shares against non-cash transactions such
as import of capital goods under the approval route,
(ii) removal of the condition of prior approval in case of existing joint
ventures/technical collaborations in the ‘same field’,
(iii) providing the flexibility to companies to prescribe a conversion
formula subject to FEMA/SEBI guidelines instead of specifying the
price of convertible instruments upfront,
(iv) simplifying the procedures for classification of companies into two
categories – ‘companies owned or controlled by foreign investors’ and
‘companies owned and controlled by Indian residents’ and
(v) Allowing FDI in the development and production of seeds and planting
material without the stipulation of ‘under controlled conditions’. These
measures are expected to boostIndia’s image as a preferred investment
destination and attract FDI inflows to India in the near future.

22. 22
BIBLOGRAPHY
http://www.investopedia.com/articles/03/073003.asp
http://en.wikipedia.org/wiki/E7_%28countries%29
http://shodhganga.inflibnet.ac.in/bitstream/10603/7857/12/12_chapter%201.pdf
http://en.wikipedia.org/wiki/Foreign_portfolio_investment
http://www.investopedia.com/terms/f/foreign-portfolio-investment-fpi.asp
http://en.wikipedia.org/wiki/External_commercial_borrowing_%28India%29
http://www.rbi.org.in/scripts/bs_viewcontent.aspx?Id=2513
http://business.mapsofindia.com/fipb/forms-foreign-capital-flowing.html
http://www.sesrtcic.org/files/article/111.pdf
http://www.federalreserve.gov/pubs/ifdp/2013/1081/ifdp1081.pdf
http://www.imf.org/external/np/speeches/2015/031715.htm