FOREIGN CAPITAL

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CONTENT
Sr. No. PARTICULARS Page No.
CHAPTER I – INTRODUCTION
1.1 INTRODUCTION to FOREIGN
CAPITAL
1.2 PRE-LIBERALIZATION PERIOD
CHAPTER II – FOREIGN CAPITAL
2.1 NEED for FOREIGN CAPITAL
2.2 ROLE of FOREIGN CAPITAL
2.3 TYPES of FOREIGN CAPITAL
2.4 FOREIGN AID
2.5 PRIVATE FOREIGN INVESTMENT
2.6 PORTFOLIO INVESTMENT
2.7 FOREIGN INSTITUIONAL INVESTORS
2.8 GDR & FCCB
2.9 BENFITS of PORTFOLIO INVESTMENT
CHAPTER III – FOREIGN DIRECT INVESTMENT
3.1 FDI V/s PORTFOLIO IVESTMENT

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3.2 SUPERIORITY of FDI OVER OTHER
FORMS of CAPITAL INFLOWS
3.3 MACRO-ECONOMIC & MICRO-
ECONOMIC ASPECTS of FDI
3.4 TYPES of FDI
3.5 DETERMINANTS of FDI
3.6 ROUTES for INWARD FLOW of FDI
3.7 FDI in DEVELOPING COUNTRIES &
INDIA
3.8 SHARE of TOP TEN COUNTRIES
INVESTING in INDIA
3.9 BENEFITS of FOREIGN DIRECT
INVESTMENT
CHAPTER IV – CONCLUSION
4.1 CONCLUSION
CHAPTER V – APPENDIX
5.1 BIBLIOGRAPHY

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INTRODUCTION
For economic and industrial development, capital is the most important factor. Such capital may
be front within the country or from outside the country. When capital available within the
country is not sufficient, capital from abroad is made use of. For less developed countries, capital
has been provided by international organizations like World Bank and International Monetary
Fund (IMF) all government led. The recent technological developments and spread of
information technology have opened up the economies the world over as never in the past. This
in turn has increased the multi-national role and importance of capital. It has been realized by
many countries that inflow of capital from abroad is vital not only in the early stages of
economic development, but also for the growth of a developing economy. Most of the countries
now have been making use of foreign capital and investment. We shall first discuss about the
meaning aid role of foreign capital. Later we shall examine the advantages and disadvantages.
The government policy will regard to foreign investment shall also be discussed.
Pre-Liberalization Period in India
After independence from British colonial rule in 1947, India opted a socialist economy which
was influenced by the Soviet Union, with government control over private sector participation,
foreign trade and foreign direct investment.
This economic policy aimed to substitute products which India imports with locally produced
substitutes, industrialization, and state intervention in labour and financial markets, a large public
sector, business regulation and centralized planning. Policies were protectionist in nature and the
government made efforts to reduce the import to the minimum level to safeguard the interests of
the domestic Industries.
Plus at the time of Independence, the attitude towards foreign capital was that of fear and
suspicion. The common belief was that foreign capital was “draining away” resources from the
economy.

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As a result the Prime Minister had to give following assurance to foreign capitalists in 1949:-
1. No discrimination between foreign and Indian Capital.
2. Full opportunities to earn profits.
3. Guarantee of compensation
Jawaharlal Nehru, who formulated and oversaw this economic policy, expected a favourable
outcome from this strategy because it features both capitalist market economy and socialist
command economy.
But the outcome was unfavorable to the country and lead to liberalization and privatization in
India. Government made large investments in heavy industries and expects these industries will
produce enough capital for investment in other sectors of the economy. But it didn't happen. In
the other hand, government has to invest more money for the survival of these companies
because of poor management and low productivity. For example, the public sector steel company
losses were more than its initial investment while the private sector steel company was making
profit.
India's average annual growth rate from 1950-1980 was 3.5%. At the same time other Asian
countries like Hong Kong, Singapore, South Korea and Taiwan recorded an annual growth rate
of 8%. Now 'Hindu rate of growth' is an expression to refer low annual growth rate. The failure
of pro-socialist economic policy to produce an annual growth rate comparable to its neighbor‟s
leads to the economic reforms going on now.

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FOREIGN CAPITAL
The term 'foreign capital' is a comprehensive term and includes any inflow of capital in home
country from abroad. It may be in the form of foreign aid or loans and grants from the host
country or an institution at the government level as well as foreign investment and commercial
borrowings at the enterprise level or both. Foreign capital may flow in any country with
technological collaboration as well.
It is interesting to note that even in Russia and East European countries foreign capital has been
allowed to flow in. In countries like China, Thailand, Malaysia and Singapore contribution of
foreign capital has been extremely encouraging. But in Latin America and African countries
foreign capital flow has not been satisfactory. Foreign capital is useful for both developed and
developing countries. Advanced countries try actively to invest capital in developing countries.
In India, foreign capital has been given a significant role, although it has been changing
overtime. In the early phases of planning, foreign capital has been used as a means to supplement
domestic investment. Later on there were technological collaborations between foreign and
Indian entrepreneurs. But since July 1991, there has been a tremendous change in government's
policy (commonly called liberalization policy) about foreign investments.
Foreign capital is money entering the country in the form of concessional assistance or non-
concessional flows. There are many Forms of Foreign Capital Flowing into India such as
banking and NRI deposits. The various Forms of Foreign Capital Flowing into India has helped
to bring in huge amounts of FDI into the country, which in its turn has given a major boost to the
Indian economy.
Need for Foreign Capital:-
1. Inadequacy of domestic capital.
2. Foreign capital can show the way for domestic capital.
3. For speeding up economic activity in a developing country.
4. Financing of projects needed for economic development.
5. Brings in technical know-how, business experience and knowledge.

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ROLE of FOREIGN CAPITAL
In the early stages of industrialization in any country foreign capital plays an important role.
Their role can he better understood under the following heads:-
1. Increase in Resources:- Foreign capital not only provide an addition to the domestic
savings and resources, but also an addition to the productive assets of the country. The
country gets foreign exchange through FDI. It helps to increase the investment level and
thereby income and employment in the recipient country.
2. Risk Taking:- Foreign capital undertakes the initial risk of developing new lines of
production. It has with it experience, initiative, resources to explore new lines. If a
concern fails, losses are borne by the foreign investor.
3. Technical Know-how:- Foreign investor brings with him the technical and managerial
know how. This helps the recipient country to organize its resources in most efficient
ways, i.e., the least costs of production methods are adopted. They provide training
facilities to the local personnel they employ.
4. High Standards:- Foreign capital brings with it the tradition of keeping high standards in
respect of quality of goods, higher real wages to labour and business practices. Such
things not only serve the interest of investors, but they act as an important factor in
raising the quality of product of other native concerns.
5. Marketing Facilities:- Foreign capital provides marketing outlets. It helps exports and
imports among the units located in different countries financed by the same firm.
6. Reduces Trade Deficit:- Foreign capital by helping the host country to increase exports
reduce trade deficit. The exports are increased by raising the quality and quantity of
products and by lower prices.
7. Increases Competition:- Foreign capital may help to increase competition and break
domestic monopoly. Foreign capital is a good barometer of world's perception of a
country's potential.
It is rightly said that a satisfied foreign investor is the best commercial ambassador a country can
have. To sum up, foreign capital helps three important areas that are necessary for the economic
development of a country. These three areas are savings, trade and foreign exchange and
technology. Foreign capital performs three gaps filling function, i.e.

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i. savings gap,
ii. trade gap, and
iii. technological gap in the recipient country's economy.
It encourages development of technology, managerial expertise, and integration with other
economies of the world, export of goods and services and higher growth of country's economy.
TYPES of FOREIGN CAPITAL
Foreign capital can be divided into two types:-
1. Foreign Aid.
2. Private Foreign Investment.
Foreign aid may consist of loans and grants. Private foreign investment takes two forms:-
1. Foreign Direct Investment (FDI).
2. Foreign Portfolio Investment (FPI).
In India Foreign Direct Investment may further take the form of:-
1. Wholly owned subsidiary.
2. Joint-venture.
3. Acquisitions.
Foreign Portfolio Investment may be:-
1. Investment by Foreign Institutional Investors (FIIs) including Non-Resident Indians
(NRIs).
2. Investment in a
a) Global Depository Receipts (GDRs).
b) Foreign Currency Convertible Bonds (FCCB‟s).

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The above classification is shown below:-
Private Foreign Investment in India can be further classified as follows:-
FOREIGN
CAPITAL
FOREIGN AID
LOANS GRANTS
PRIVATE
FOREIGN
INVESTMENT
FOREIGN
DIRECT
INVESTMENT
FOREIGN
PORTFOLIO
INVESTMENT

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FOREIGN AID:- It consists of loans and grants. Loans may be taken from individual countries
or from institutional agencies like World Bank, IMF and International Financial Corporation.
Usually loans are taken for medium and long term capital needs of a country. Loans impose a
heavy burden on the borrower country because they are to herepaid, along with interest, called
surviving of loans. Loans may be tied because of restrictions. Such restrictions may be in the
form of end use or in the form of source. Grants are given by public or private charitable
organizations. They are given for relief purposes and immediate use. Grants may be time bound
and can be used only for specific purpose. Loans involve repayment obligations, whereas grants
are not refunded. It is important to see that grants are properly utilized for the specified purpose.
Any foreign capital in the form of aid should be pledged on the basis of its purpose, mode of
repayment, cost to the borrower and political considerations. For it is not only uncertain, usually
not extended for public sector but for consumer goods industries and do not create means for its
repayment. It is therefore better to create 'trade' rather than 'aid' from a foreign country.
PRIVATE FOREIGN INVESTMENT:- Foreign investment and collaboration with a foreign
nation are closely inter-related, but they are different from each other. Capital investment is
participation of a foreign country in capital of recipient country's enterprises. Collaboration, on
the other hand, means providing technical and managerial know-how, licensing franchise, trade-
marks and patents by a host country to home country. Let us now discuss the two major
components of Private Foreign Investment.
PORTFOLIO INVESTMENT:- Portfolio investment is an investment in a foreign country
where the investing party does not seek control over the investment. It takes the form of the
purchase of equity in a foreign stock market or credit or capital from private or official sources.
If we analyze the above definition we find the following features of Portfolio Investment:-
1. The investor purchases the equity in a foreign stock market, i.e., he has a sort of property
interest.
2. The equity includes shares (stock) and creditors capital (debentures/bonds/other
securities).

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3. The equity purchased is of a joint stock company.
4. The investor is a non-resident.
5. If it is creditors capital, it may be from private or official sources and is invested in
recipient country's Joint Stock Companies.
6. The investor does not seek control over the investment if they do not have involvement
with promotion and management of joint stock company
Two more characteristics may be added here:-
1. Portfolio investment can be liquidated fairly easily.
2. Portfolio investments are influenced by short term gains and are more sensitive than FDI.
There are mainly two forms of portfolio investment in India
a) By foreign institutional investors (FIIs) like mutual funds,
b) Investment in global depository receipts (GDRs) and foreign currency convertible bonds
(FCCBs).
FOREIGN INSTITUIONAL INVESTORS:- Indian Stock Market was opened up to FIIs in
1992-93. FIIs include pension funds, mutual funds, asset management companies, investment
trusts, nominee companies and corporate or institutional managers. The regulations on FIIs,
notified on November 14, 1995 by RBI, contains various provisions relating to definition of FIIs'
eligibility criteria, investment restrictions, procedure of registration and general obligations and
responsibilities of FIIs. They may invest only in:-
1. Securities in the primary and secondary markets including shares, debentures and
warrants of companies listed on a recognized stock exchange in India; and
2. Units of schemes floated by mutual funds including Unit Trust of India, whether listed or
not.
In 1996-97 the Government of India liberalized investment policy for FIIs. There is no restriction
on the volume of investment and no lock-in period. Dis-investment is allowed only through stock
exchanges in India. The holding of a single FII in any company would be subject to a ceiling of
10% of total equity capital. They have to pay tax on concessional rate on capital gains. They can
invest in unlisted companies, in corporate as well as government securities.
The greatest disadvantage of investment by FIIs is that it is not certain how long they will hold
their investment, If they are allowed to acquire more of a company's equity (at 25%), they can

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pressurize courtly interests of most companies. They may engage in speculative investment,
avoid tax laws due to double-taxation treaties and take undue advantage of exchange rates. This
can be prevented by improving the functioning of the stock markets. The Government has to
adopt a policy by which FIIs may not benefit at the cost of Indians.
Investment by NRIs
Non-Resident Indians are the persons not residing in India. They are of two types:-
1. An Indian citizen who
a) has made his permanent home outside India or
b) has proceeded abroad for employment or gainful occupation,
2. An Indian citizen who made his permanent home outside India and acquired foreign
citizenship or the descendent of an Indian who had earlier migrated from undivided India.
This definition has been extended and includes a foreign born husband of a citizen of India.
Investment made by NRI of category (a) are allowed to invest liberally, Investment by NRI of
category (b) are subject to policy guidelines framed by the Government of India. The RBI has
given a general exemption to NRI for transfer of shares/ debentures/ bonds of Indian Companies
through recognized stock exchange. They can gift the shares, etc. to their close relatives. They
can invest funds in government securities or units of UTI. NRI‟s and Overseas Corporate Bodies
(OCBs) pre-dominantly owned by NRIs can acquire listed securities of Indian Companies up to
24% of their paid up capital under Portfolio Investment Scheme. They can make direct
investment up to 100% of the equity in industries mentioned in Annexure III of the New
Industrial Policy 1991. There is a single window facility available to NRIs for obtaining all
information about investments in India. There is automatic clearance for investment proposals of
NRIs for the industries mentioned in Annexure III.
GLOBAL DEPOSITORY RECEIPTS (GDRs) & FOREIGN CURRENCY
CONVERTIBLE BONDS (FCCBs):- GDRs and FCCBs are investments issued by Indian
companies in Euro or US markets for mobilizing foreign capital by facilitating portfolio
investment. A GDR can be defined as
i. an instrument,
ii. expressed in dollars,
iii. traded on stock exchange in Europe or US, and

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iv. represents a certain number of equity shares.
These equity shares are, however, denominated in rupees.
The procedure of GDR is as follows:- First the equity shares are issued by the company to an
intermediary, called 'Depository'. The shares are registered in the name of depository. It is the
depository that issues GDR‟s. The depository also has the agent and the actual possession of
equity shares is with the agent. The agent is called 'custodian'. Then GDR does not figure in the
books of the issuing company.
FCCB‟s, are also called 'Euro Convertible Bonds'. They are quasi debt securities, i.e., they can be
converted into a 'depository receipt' or local shares. The investor has the option to convert the
bonds into equity shares at a fixed price after a minimum period. The exchange rate for the
conversion price is fixed as is the conversion price.
There are two types of options:- 'Put Option' and 'Call Option'. Put option is the right given to the
investor and call option is the right given to the company. By put option the investor has a right
to get his money back before maturity, either at par or at 100% basis point over the US treasury
rate at the time of issue. By call option the company has a right to convert bonds into shares, if
the market price of the shares exceeds a particular percentage of the conversion price. Since 1993
these bonds have become popular.
BENEFITS PORTFOLIO INVESTMENT:- Foreign portfolio investment increases the
liquidity of domestic capital markets, and can help develop market efficiency as well. As markets
become more liquid, as they become deeper and broader, a wider range of investments can be
financed. New enterprises, for example, have a greater chance of receiving start-up financing.
Savers have more opportunity to invest with the assurance that they will be able to manage their
portfolio, or sell their financial securities quickly if they need access to their savings. In this way,
liquid markets can also make longer-term investment more attractive.
Foreign portfolio investment can also bring discipline and know-how into the domestic capital
markets. In a deeper, broader market, investors will have greater incentives to expend resources
in researching new or emerging investment opportunities. As enterprises compete for financing,
they will face demands for better information, both in terms of quantity and quality. This press

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for fuller disclosure will promote transparency, which can have positive spill-over into other
economic sectors.
Foreign portfolio investors, without the advantage of an insider‟s knowledge of the investment
opportunities, are especially likely to demand a higher level of information disclosure and
accounting standards, and bring with them experience utilizing these standards and a knowledge
of how they function.
Foreign portfolio investment can also help to promote development of equity markets and the
shareholders‟ voice in corporate governance. As companies compete for finance the market will
reward better performance, better prospects for future performance, and better corporate
governance.
As the market‟s liquidity and functionality improves, equity prices will increasingly reflect the
underlying values of the firms, enhancing the more efficient allocation of capital flows. Well-
functioning equity markets will also facilitate takeovers, a point where portfolio and direct
investment overlap. Takeovers can turn a poorly functioning firm into an efficient and more
profitable firm, strengthening the firm, the financial return to its investors, and the domestic
economy.
Foreign portfolio investors may also help the domestic capital markets by introducing more
sophisticated instruments and technology for managing portfolios. For instance, they may bring
with them a facility in using futures, options, swaps and other hedging instruments to manage
portfolio risk. Increased demand for these instruments would be conducive to developing this
function in domestic markets, improving risk management opportunities for both foreign and
domestic investors.
In the various ways outlined above, foreign portfolio investment can help to strengthen domestic
capital markets and improve their functioning. This will lead to a better allocation of capital and
resources in the domestic economy, and thus a healthier economy. Open capital markets also
contribute to worldwide economic development by improving the worldwide allocation of
savings and resources. Open markets give foreign investors the opportunity to diversify their
portfolios, improving risk management and possibly fostering a higher level of savings and
investment.

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FOREIGN DIRECT INVESTMENT:- It is also known as 'direct business investment'. Foreign
direct investment (FDI), according to IMF manual on 'Balance of Payments' is "all investment
involving; a long term relationship and reflecting a lasting interest and control of a residual entity
in one economy in an enterprise resident in an economy other than that of the direct investor.
Such investment involves both initial transaction between the two entities and all subsequent
transactions between them and among foreign affiliates". Foreign affiliate means a subsidiary
company or an associate in which investor owns a total of at least 10%, but not more than half of
shareholder's voting power or branches.
The WIR02 defines FDI as „an investment involving a long-term relationship and reflecting a
lasting interest and control by a resident entity in one economy (foreign direct investor or parent
enterprise) in an enterprise resident in an economy other than that of the FDI enterprise, affiliate
enterprise or foreign affiliate. FDI implies that the investor exerts a significant degree of
influence on the management of the enterprise resident in the other economy. Such investment
involves both the initial transaction between the two entities and all subsequent transaction
between them among foreign affiliates, both incorporated and unincorporated. Individuals as
well as business entities may undertake FDI.
From the above definition we notice the following characteristics of FDI:-
1. It is an investment made by a foreign company in a home country.
2. The foreign company may make an investment either by opening its branch or by having
a subsidiary or foreign controlled company in home country. It may have wholly owned
subsidiary or joint venture or may acquire a stake in the existing business.
3. Profit is the prime motive of such an investment. It may be in the form of a royalty and
dividend payments.
4. Investor retains control over investment and management of the firm concerned. In FDI
investor may obtain effective voice in the management through other means such as sub-
contracting, management contracts, turnkey arrangements, franchising, licensing, trade-
marks and patents and product sharing.
5. On the winding up of the firm, the assets may be repatriated to the country of origin.

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According to Section 591 of the Indian Companies Act 1956, a foreign company means any
company incorporated outside India which established a place of business within India after or
before 1.4.1956. The Reserve Bank of India has classified foreign companies into three types:-
1. Subsidiaries in which a single foreign company holds more than 50% of the equity share
capital.
2. Minority companies in which foreign company holdings are 50% or less.
3. Purely technical collaboration companies which have no foreign equity participation.
They have only technical collaboration agreements.
Foreign companies are also governed by Indian Income Tax Act 1961, MRTP Act 1969,
Industrial (Development and Regulation) Act 1951, and Foreign Exchange Regulation Act, 1973.
FDI are governed by long term considerations because these investments cannot be easily
liquidated. In aiming at investment decision, a foreign investor would have to be convinced that
existing comparative advantages are more than the comparative dis-advantages in a country. He
will compare the improved investment climate in one country with investment markets in
another country.
There are many other factors that Influence FDI decisions. They are:-
1. Long-term political stability,
2. Government policy of a country,
3. Industrial and economic prospect,
4. Rules about repatriation of profits and dis-investment,
5. Treatment by officials in government departments, and
6. Taxation laws.
The recipient country should be cautious that FDI may be harmful if the economy is highly
protected and foreign investment takes place behind high tariff walls.
Currently, India is experiencing lot of capital flow through FDI‟s. The last two decade 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,

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most countries now regard FDI as beneficial for their development efforts and compete with each
other to attract it. Such shift in attitude lies in the changes in political and economic systems that
have occurred during the closing years of the last century.
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 project with foreign equity
participation up to 51 percent in high priority areas. In recent years, the government has initiated
the second generation reforms under which measures have been taken to further facilitate and
broaden the base of foreign direct investment 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 FDI inflow has grown during the post-liberalization period is a clear indication that
India is fast emerging as an attractive destination for overseas investors. Encouragement of
foreign investment, particularly for FDI, is an integral part of ongoing economic reforms in
India.
Though India has one of the most transparent and liberal FDI regimes among the developing
countries with strong macro-economic fundamentals, its 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.
Foreign investment policies in the post-reforms period have emphasized greater encouragement
and mobilization of non-debt creating private inflows for reducing reliance on debt flows.
Progressively liberal policies have led to increasing inflows of foreign investment in the country.

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FOREIGN DIRECT V/s PORTFOLIO INVESTMENT
By Foreign Direct Investment (FDI) we mean any investment in a foreign country where the
investing party (corporation, firm) retains control over investment. A direct investment typically
takes the form of a foreign firm starting a subsidiary or taking over control of an existing firm in
the country in question. FDI consists of equity capital, technical and managerial services, capital
equipment and intermediate inputs and legal rights to patented or secret products, processes or
trade-marks. It is the direct type of foreign investment which is associated with multinational
corporations because most of FDI is transferred through firms and remains outside of ordinary,
functioning markets.
FDI can be done in the following ways:-
1. In order to participate in the management of the concerned enterprise, the stocks of the
existing foreign enterprise can be acquired.
2. The existing enterprise and factories can be taken over.
3. A new subsidiary with 100% ownership can be established abroad.
4. It is possible to participate in a joint venture through stock holdings.
5. New foreign branches, offices and factories can be established.
6. Existing foreign branches and factories can be expanded.
7. Minority stock acquisition, if the objective is to participate in the management of the
enterprise.
8. Long term lending, particularly by a parent company to its subsidiary, when the objective
is to participate in the management of the enterprise.
Portfolio investment, on the other hand, does not seek management control, but is motivated by
profit. Portfolio investment occurs when individual investors invest, mostly through
stockbrokers, in stocks of foreign companies in foreign land in search of profit opportunities.
FDI flows are usually preferred over other forms of external finance because they are non-debt
creating, non-volatile and their returns depend on the performance of the projects financed by the
investors. FDI also facilitates international trade and transfer of knowledge, skills and
technology. In a world of increased competition and rapid technological change, their
complimentary and catalytic role can be very valuable.

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SUPERIORITY of FDI OVER OTHER FORMS of CAPITAL INFLOWS
FDI is perceived superior to other types of capital inflows for several reasons:-
1. In contrast to foreign lenders and portfolio investors, foreign direct investors typically
have a longer-term perspective when engaging in a host country. Hence, FDI inflows are
less volatile and easier to sustain at times of crisis.
2. While debt inflows may finance consumption rather than investment in the host country,
FDI is more likely to be used productively.
3. FDI is expected to have relatively strong effects on economic growth, as FDI provides for
more than just capital. FDI offers access to internationally available technologies and
management know-how, and may render it easier to penetrate word markets.
A recent United Nations report has revealed that FDI flows are less volatile than portfolio flows.
To quote, “FDI flows to developing and transition economies in 1998 declined by about 5
percent from the peak in 1997, a modest reduction in relation to the effects on the other capital
flows of the spread of the Asian financial crisis to global proportions. FDI flows are generally
much less volatile than portfolio flows. The decline was modest in all regions, even in the Asian
economies most affected by the financial crisis.”
FDI is the appropriate form of external financing for developing countries, which have less
capacity than highly developed economies to absorb external shocks. Likewise, the evidence
supports the predominant view that FDI is more stable than other types of capital inflows.
Moreover, the volatility of FDI remained exceptionally low in the 1990s, when several emerging
economies were hit by financial crisis.
FDI is widely considered an essential element for achieving sustainable development. Even
former critics of MNCs expect FDI to provide a stronger stimulus to income growth in host
countries than other types of capital inflows. Especially after the recent financial crisis in Asia
and Latin America, developing countries are strongly advised to rely primarily on FDI, in order
to supplement national savings by capital inflows and promote economic development.

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MACRO-ECONOMIC & MICRO-ECONOMIC ASPECTS of FDI
In judging the significance of FDI, especially from the view point of developing countries, it is
useful to make a distinction between macroeconomic and micro-economic effects. The former is
connected with issues of domestic capital formation, balance of payments, and taking advantage
of external markets for achieving faster growth, while the latter is connected with the issues of
cost reduction, product quality improvement, making changes in industrial structure and
developing global inter-firm linkages.
In this context, it needs to be recognized that FDI is an aggregate entity, the sum total of the
investments made by many diverse multinationals, each with its own corporate strategy. The
micro-economic effects of the investment made by one multinational may be quite different from
that of another multinational even if the investments are made in the same industry. Also, what
benefits the local economy will depend on the capabilities of the host country in regard to
technology transfer and industrial restructuring.
TYPES of FDI
Two major types of FDI are typically differentiated:-
1. Resource-Seeking FDI is motivated by the availability of natural resources in the host
countries. This type of FDI was historically important and remains a relevant source of
FDI for various developing countries. However, on a world-wide scale, the relative
importance of resource-seeking FDI has decreased significantly.
2. The relative importance of Market-Seeking FDI is rather difficult to assess. It is almost
impossible to tell whether this type of FDI has already become less important due to
economic globalization. Regarding the history of FDI in developing countries, various
empirical studies have shown that the size and growth of host country markets were
among the most important FDI determinants. It is debatable, however, whether this is still
true with ongoing globalization.
Globalization essentially means that geographically dispersed manufacturing, slicing up the
value chain and the combination of markets and resources through FDI and trade are becoming
major characteristics of the world economy. Efficiency-seeking FDI, i.e. FDI motivated by
creating new sources of competitiveness for firms and strengthening existing ones, may then
emerge as the most important type of FDI. Accordingly, the competition for FDI would be based

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increasingly on cost differences between locations, the quality of infrastructure and business-
related services, the ease of doing business and the availability of skills. Obviously, this scenario
involves major challenges for developing countries, ranging from human capital formation to the
provision of business-related services such as efficient communication and distribution systems.
DETERMINANTS of FDI:-
To understand the scale and direction of FDI flows, it is necessary to identify their major
determinants. The relative importance of FDI determinants varies not only between countries but
also between different types of FDI. Traditionally, the determinants of FDI include the
following:-
1. Size of the Market:- Large developing countries provide substantial markets where the
consumers demand for certain goods far exceed the available supplies. This demand
potential is a big draw for many foreign-owned enterprises. In many cases, the
establishment of a low cost marketing operation represents the first step by a
multinational into the market of the country. This establishes a presence in the market
and provides important insights into the ways of doing business and possible
opportunities in the country.
2. Political Stability:- In many countries, the institutions of government are still evolving
and there are unsettled political questions. Companies are unwilling to contribute large
amounts of capital into an environment where some of the basics political questions have
not yet been resolved.
3. Macro-Economic Environment:- Instability in the level of prices and exchange rate
enhance the level of uncertainty, making business planning difficult. This increases the
perceived risk of making investments and therefore adversely affects the inflow of FDI.
4. Legal and Regulatory Framework:- The transition to a market economy entails the
establishment of a legal and regulatory framework that is compatible with private sector
activities and the operation of foreign owned companies. The relevant areas in this field
include protection of property rights, ability to repatriate profits, and a free market for
currency exchange. It is important that these rules and their administrative procedures are
transparent and easily comprehensive.

21. 21
5. Access to Basic Inputs:- Many developing countries have large reserves of skilled and
semi-skilled workers that available for employment at wages significantly lower than in
developed countries. This provides an opportunity for foreign firms to make investments
in these countries to cater to the export market. Availability of natural resources such as
oil and gas, minerals and forestry products also determine the extent of FDI.
The determinants of FDI differ among countries and across economic sectors. These factors
include the policy framework, economic determinants and the extent of business facilitation such
as macro-economic fundamentals and availability of infrastructure.
ROUTES for INWARD FLOW of FDI:-
1. Automatic Route:- Companies proposing FDI under automatic route do not require any
government approval provided the proposed foreign equity is within the specified ceiling
and the requisite documents are filed with Reserve Bank of India (RBI) within 30 days of
receipt of funds. The automatic route encompasses all proposals where the proposed
items of manufacture/activity does not require an industrial license and is not reserved for
small-scale sector. The automatic route of the RBI was introduced to facilitate FDI
inflows. However, during the post-policy period, the actual investment flows through the
automatic route of the RBI against total FDI flows remained rather insignificant. This
was partly due to the fact that crucial areas like electronics, services and minerals were
left out of the automatic route. Another limitation was the ceiling of 51 percent on foreign
equity holding. Increasing number proposals were cleared through the FIPB route while
the automatic route was relatively unimportant. However, since 2000 automatic route has
become significant and accounts for a large part of FDI flows.
2. Government Approval:- For the following categories, government approval for FDI
through the Foreign Investment Promotion Board (FIPB) is necessary:-
 Proposals attracting compulsory licensing.
 Items of manufacture reserved for small scale sector.
 Acquisition of existing shares.

22. 22
FIPB ensures a single window approval for the investment and acts as a screening
agency. FIPB approvals are normally received in 30 days. Some foreign investors use the
FIPB application route where there may be absence of stated policy or lack of policy
clarity.
3. Industrial Licensing in FDI Policy:- Industrial Licensing is regulated by Industries
(Development and Regulation) Act 1951. Following are the sectors which require
Industrial Licensing:-
 Industries which abide by compulsory licensing.
 Manufacturing of items by the larger industrial units for small sector industries
 Locational restrictions on the proposed sites
Sectors Which Require Industrial Licensing:-
 Electronic aerospace and defense equipment.
 Alcoholics drinks.
 Explosives.
 Cigarettes and tobacco products.
 Hazardous chemicals such as, hydrocyanic acid, phosgene, isocyanides and di-
isocyanides of hydro carbon and derivatives.
4. Restricted List of sectors:- FDI is not permissible in the following cases:-
 Gambling and Betting.
 Lottery Business.
 Business of chit fund.
 Housing and Real Estate business (to a certain extent has been opened).
 Trading in Transferable Development Rights (TDRs).
 Retail Trading.
 Railways.
 Atomic Energy.
 Atomic Minerals.
 Agricultural or Plantation Activities or Agriculture (excluding Floriculture,
Horticulture, Development of Seeds, Animal Husbandry, Pisiculture and
Cultivation of Vegetables, Mushrooms etc. under controlled conditions and

23. 23
services related to agro and allied sectors) and Plantations(other than Tea
plantations).
The new polices have substantially relaxed restrictions on foreign investment, industrial
licensing and foreign exchange. Capital market has been opened to foreign investment and
banking sector controls have been eased. As a result, India has been rapidly changing from a
restrictive regime to a liberal one and FDI is encouraged in almost all economic activities under
the automatic route. The Government is committed to promoting increased flow of FDI for better
technology, modernization, exports and for providing products and services of international
standards. Therefore, the policy of the Government has been aimed at encouraging foreign
investment, particularly in core infrastructure sectors so as to supplement national efforts.
FDI in DEVELOPING COUNTRIES
FDI is now increasingly recognized as an important contributor to a developing country‟s
economic performance and international competitiveness. After the debt-crisis that hit the
developing world in early 1980s, the conventional wisdom quickly became that it had been
unwise for countries to borrow so heavily from international banks or international bond
markets.
Rather countries should try to attract non-debt-creating private inflows (DFI). The financial
advantage is that such capital inflows need not be repaid and that outflow of funds (remittance of
profits) would fluctuate with the cycle of the economy. It has also been widely observed that the
structural adjustment efforts of the 1980s failed to lead to new patterns of sustained growth in
developing countries. In particular, structural adjustment programs failed to restore private
investment to desirable levels. Again it is hoped that FDI could play an important role; the World
Bank observes that FDI can be an important complement to the adjustment effort, especially in
countries having difficulty in increasing domestic savings.
Against this background of balance of payments problems and low level of private investment, it
is probably not surprising that attitudes in developing countries towards FDI have shifted. In the
1960s and 1970s many countries maintained a rather cautious, and sometimes an outright

24. 24
negative position with respect to FDI. In the 1980s, however the attitudes shifted radically
towards a more welcoming policy stance. This change was not so much due to new research
finding on the impact of FDI but to the economic problems facing the developing world.
Developing countries are liberalizing their foreign investment regimes and are seeking FDI not
only as a source of capital funds and foreign exchange but also as a dynamic and efficient
vehicle to secure the much needed industrial technology, managerial expertise and marketing
know-how and networks to improve on growth, employment, productivity and export
performance.
At the global level the flows of FDI and PFI to developing countries have indeed increased. The
average net inflow of FDI in developing countries had been US$ 11 billion in 1980-86, but in
1987 it started to increase, by 1991 the annual net inflow had risen to US$ 35 billion and by 2004
to US$ 233 billion. The share of developing economies in total inflow of Foreign Direct
Investment in the world has been rising continuously since 1989.
FOREIGN DIRECT INVESTMENT IN INDIA
Since independence till 1990, the performance of Indian economy has been dominated by a
regime of multiple controls, restrictive regulations and wide ranging state intervention. Industrial
economy of the country was protected by the state and insulated from external competition. As a
result of which, India was thrown a long way behind the world of rapid expanding technology.
The cumulative effect of these policies started becoming more and more pronounced. By the
year 1989-90, the situation on the balance of payment and foreign exchange reserves became
precarious and the country was driven to the brink of default. The credibility reached the sinking
level that no country was willing to advance or lend to India at any cost. In such circumstances,
the government quickly followed a liberalized economic policy in July 1991.
The main objectives of the liberalized economic policy are two-fold. At the country level the
reform aims at freeing domestic investors from all the licensing requirements, virtual abolition of
MRTP restriction on the investment by large houses, and a competitive industrial structure for
Indian companies to achieve a global presence by becoming as competitive as their counterparts

25. 25
worldwide. Secondly, the focus on structural reforms intended to tap foreign investment for
economic growth and development.
Gradually & systematically the government has taken a series of measures like devaluation of
rupee, lowering of import duties and allowing foreign investment upto 51% of the equity in a
large number of industries and investment of large foreign equity (even up to 100%) in selected
areas especially for export oriented products.
In India, since the 1960‟s foreign investment and/or foreign collaborations by the multinationals
have been principally viewed as an instrument to facilitate the much needed „transfer of
technology‟. In technological as well as financial collaborations with foreign firms, the approval
and extent of ownership participation had been predominantly determined by the technology
component of the respective products. „Import of technology‟ as against the direct foreign
investment was the main focus of the policies till mid-eighties.
The New Industrial Policy (NIP) of July 1991 and subsequent policy amendments have
significantly liberalized the industrial policy regime in the country especially as it applies to FDI.
The industrial approval system in all industries has been abolished except for some strategic or
environmentally sensitive industries. In 35 high priority industries, FDI up to 51% is approved
automatically if certain norms are satisfied. FDI proposals do not necessarily have to be
accompanied by technology transfer agreements.
Trading companies engaged primarily in export activities are also allowed up to 51% foreign
entity. A Foreign Investment Promotion Board (FIPB) has been set up to invite and facilitate
investment in India by international companies. The use of foreign brand names for goods
manufactured by domestic industry which had earlier been restricted was also liberalized.
New sectors have been opened to private and foreign investment. The international trade policy
regime has been considerably liberalized too. The rupee was made convertible first on trade and
finally on the current account. Capital market has been strengthened. In spite of all these
liberalization measures taken by the Indian government- foreign investments have not been up to
expectations. Actual inflow of FDI has been less than the approval FDI.

26. 26
SHARE of TOP TEN COUNTRIES INVESTING in INDIA
Source Amount Percentage
Mauritius 8059 50.99
Singapore 1605 10.15
U.S.A 478 3.03
Cyprus 415 2.63
Japan 1340 8.48
Netherlands 1700 10.76
U.K 1022 6.46
Germany 467 2.95
U.A.E 173 1.09
France 547 3.46
Total 15806 100
Mauritius
Singapore
USA
Cyprus
Japan
Netherlands
UK
Germany
UAE
France

27. 27
1. The first rank goes to Mauritius in terms of highest inflow of foreign direct investment
to India in comparison with all the other countries that make investments in India. This is
due to the fact that special tax treatment is given to all those investments that come
through Mauritius to India. Industries attracting FDI from Mauritius to India are:
 Electrical Equipment,
 Gypsum and Cement Products,
 Telecommunications,
 Services Sector that includes both Non-Financial and Financial,
 Fuels.
2. The major Singapore Government linked projects in India are the involvement of the
Port of Singapore Authority in the management as well as equity of Gujarat's Pipavav
Port and Singtel's joint collaboration with the company Bharti Telecom. Further the
major Singapore Government linked projects in India are Singapore Technologies
Telemedia's joint collaboration with the company ModiCorp and Port of Singapore
Authority's contract for a period of thirty years for the management and operation of the
Port of Tuticorin. Indian sectors attracting FDI from Singapore are:-
 Electrical Equipment‟s,
 Fuel,
 Telecommunications,
 Transportation industries,
 Services,
 Information technology.
3. FDI from U.S.A to India is increasing at a very fast pace over the last few years due to
the several incentives that has been given by the Indian government. The huge flow of
FDI from U.S.A to India has given a major boost to the country's economy. Industries
attracting FDI from U.S.A to India are:-
 Telecommunications which includes services of basic telephone, radio paging,
and cellular mobile,
 Food processing industries,
 Fuels,
 Service sector which includes non- financial and financial services,

28. 28
 Electrical equipment which includes electronics and computer software.
4. FDI from Japan to India has increased over the years which in its turn have helped in the
growth of the country's economy. The flow of FDI from Japan to India has increased due
to the several incentives that have been provided by the Indian government. All these
measures helped to attract huge amounts of foreign direct investment in India. The
various sectors that have been attracting foreign direct investment in India are cement and
gypsum products, fuels, transportation industry and drugs and pharmaceuticals. Various
industries attracting FDI from Japan to India are:-
 Electrical equipment‟s which includes electronics and computer software,
 Transportation industry,
 Services sector which includes non- financial and financial services,
 Earth moving industry,
 Telecommunications which includes cellular mobile, radio paging, and basic
telephone services.
5. FDI from Netherlands to India has registered significant growth over the last few years
due to the several incentives that have been provided by the Indian government. The
increased flow of FDI from Netherlands to India has helped in the growth of the country's
economy. FDI from Netherlands to India has increased at a very fast pace over the last
few years. Netherlands ranks sixth among all the countries that make investments in
India. Various industries attracting FDI from Netherlands to India are:-
 Food processing industries,
 Telecommunications that includes services of cellular mobile, basic telephone,
and radio paging,
 Horticulture,
 Electrical equipment that includes computer software and electronics,
 Service sector that includes non- financial and financial services
6. There are around 630 Indo- German joint collaborations in operation in India as on 12th
October, 2005. Around one third of the total Indo- German joint ventures are in operation
in the Indian state of Maharashtra. The other Indian states that have attracted FDI from
Germany are Karnataka, Tamil Nadu, Andhra Pradesh, and West Bengal. Industries
attracting FDI from Germany to India are:-

29. 29
 Auto components,
 Electrical and electronic engineering,
 Chemical,
 Mechanical engineering,
 Information Technology,
 Glass and ceramics,
 Textiles,
 Paper,
 Metallurgical industries.
7. Many French companies have made investments in the Indian telecommunications sector
such as France Telecom which has entered into partnership with Sema Group and BPL
Mobile in Mumbai and Alcatel has made investments in the sector in Chennai, Gurgoan,
and Bangalore. FDI from France to India has also come in the infrastructure sector which
has gone mainly in the development of railways and roads. The French company GTMA
has widened the road network between Delhi and Jaipur to four lanes in 1997. The other
French companies that are active in the infrastructure sector of India are ALSTOM,
CORYS TESS, and ALCATEL.
The French world leader Thomson Multimedia has entered the Indian multimedia
industry by setting up a subsidiary company in Chennai and it has an important share in
the color tubes market of the country. Foreign direct investment from France to India has
also been made in the consumer sector such as home decoration, cosmetics & perfumes,
and tableware. The major French brands that have entered the Indian consumer sector are
Gotier, Baccarat, Louis Vuitton, ST Dupont, Christian Dior, Ninna Ricci, Lalique, and
Daum. Major sectors attracting FDI from France to India are:-
 Agro- industries,
 Power,
 Environment,
 Drugs and pharmaceuticals,
 Auto parts,
 Hydrocarbons,

30. 30
 Telecommunications,
 Infrastructure,
 Information technology.
8. FDI from U.K to India has registered significant growth in the last few years due to the
many incentives that have been given by the government of India. The increased flow of
FDI from U.K to India has helped in giving a major boost to the country's economy. FDI
from U.K to India has increased over the years to make U.K rank fourth among all the
countries that make investments in India. The flow of FDI from U.K to India has
increased over the years due to the several incentives that have been provided by the
government of India. The beneficial results of FDI from U.K to India are that it has
helped in creating new opportunities for employment in the country, improved the
technology of the industries, and also developed the infrastructure of the country. Various
industries attracting FDI from U.K to India are:-
 Information technology,
 Telecommunications which includes services of radio paging, basic telephone,
and cellular mobile,
 Service sector which includes non- financial and financial services,
 Power,
 Oil and gas.

31. 31
BENEFITS of FOREIGN DIRECT INVESTMENT
With its orientation to developing enterprises directly, foreign direct investment helps to
strengthen economic potential. Sometimes, this is accomplished through Greenfield investment,
adding new and different economic activity and consequently diversifying the economy. Other
times, this will be achieved through building up existing enterprises and enhancing their
potential. Both of these activities will add a new and healthy element of increased competition to
an economy, which is itself a powerful force for economic development.
Competition is one of the ways a foreign direct investment can have a broader effect on the
economy. It spurs other enterprises to increase their own efficiency and productivity.
Competition plays a major role in improving the allocation of resources, boosting the economic
prospects of the domestic economy and worldwide sustainable economic development.
Technology transfers and the development of human capital are often seen as two of the primary
benefits of foreign direct investment. Competition has a role to play in both, as it encourages
domestic competitors of the foreign investment to build up their own technological capabilities
and the productivity of their labor force. They will, among other things, learn from the
technology of the foreign investor and the ways in which it improves the productivity of its labor
and management.
The development of human capital can be one of the chief contributions of foreign direct
investment. The foreign owners will bring their management skills and technology to their
enterprises. In training the local workforce, they will pass on those management skills and
technology. As their workers move on to other jobs in domestic firms, or start their own
businesses, they will bring with them the management, working skills, and the technology that
they have learned. Thus, in a very direct manner, the human capital of the host country can be
developed by foreign direct investment, and the investment' technology transferred.
Human capital development and technology transfer also occur through the foreign investment‟s
relationships with its suppliers and the downstream users or sellers of its products. The
investment will require from its suppliers a certain standard of product, perhaps a higher standard
than they are accustomed to producing. In order to meet that higher standard, they will have to
improve their workers‟ skill levels and their management system. They may also gain new

32. 32
technological expertise needed for the required product standard from the foreign investment.
The current trend toward outsourcing and closer collaboration along the supply chain means that
there will be a greater tendency to pass management, production and technology know-how to
suppliers, enhancing the transfer of technology and skills. Enterprises that are downstream in the
supply and sales chain will receive similar benefits, although less obviously and perhaps less
frequently, both through the direct use of a higher standard product incorporating technological
improvements, and through efforts by the foreign investment to maximize the value of its
product.
Foreign enterprises often incorporate foreign trade, either with the parent company or with
customers, or both. Thus, another benefit that foreign direct investment brings is increased
opportunities and avenues for trade. Trade and investment are increasingly integrated, as are
their benefits.
Foreign direct investment can also provide environmental and social benefits. Often,
international investors will operate at higher environmental and social standards than their
domestic competitors.
Although they may not bring standards up to the highest level possible, they will have the effect
of raising the standards above existing levels. These standards may also be adopted over time by
domestic companies, further raising the country‟s environmental and social standards. Foreign
Direct Investment has the following potential benefits for less developed countries.
1. Raising the Level of Investment:- Foreign investment can fill the gap between desired
investment and locally mobilized savings. Local capital markets are often not well
developed. Thus, they cannot meet the capital requirements for large investment projects.
Besides, access to the hard currency needed to purchase investment goods not available
locally can be difficult. FDI solves both these problems at once as it is a direct source of
external capital. It can fill the gap between desired foreign exchange requirements and
those derived from net export earnings.
2. Upgradation of Technology:- Foreign investment brings with it technological
knowledge while transferring machinery and equipment to developing countries.
Production units in developing countries use outdated equipment and techniques that can

33. 33
reduce the productivity of workers and lead to the production of goods of a lower
standard.
3. Improvement in Export Competitiveness:- FDI can help the host country improve its
export performance. By raising the level of efficiency and the standards of product
quality, FDI makes a positive impact on the host country‟s export competitiveness.
Further, because of the international linkages of MNCs, FDI provides to the host country
better access to foreign markets. Enhanced export possibility contributes to the growth of
the host economies by relaxing demand side constraints on growth. This is important for
those countries which have a small domestic market and must increase exports vigorously
to maintain their tempo of economic growth.
4. Employment Generation:- Foreign investment can create employment in the modern
sectors of developing countries. Recipients of FDI gain training of employees in the
course of operating new enterprises, which contributes to human capital formation in the
host country.
5. Benefits to Consumers:- Consumers in developing countries stand to gain from FDI
through new products, and improved quality of goods at competitive prices.
6. Resilience Factor:- FDI has proved to be resilient during financial crisis. For instance, in
East Asian countries such investment was remarkably stable during the global financial
crisis of 1997-98. In sharp contrast, other forms of private capital flows like portfolio
equity and debt flows were subject to large reversals during the same crisis. Similar
observations have been made in Latin America in the 1980s and in Mexico in 1994-95.
FDI is considered less prone to crises because direct investors typically have a longer-
term perspective when engaging in a host country. In addition to risk sharing properties
of FDI, it is widely believed that FDI provides a stronger stimulus to economic growth in
the host countries than other types of capital inflows. FDI is more than just capital, as it
offers access to internationally available technologies and management know-how.
7. Revenue to Government:- Profits generated by FDI contribute to corporate tax revenues
in the host country.

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CONCLUSION
To characterize portfolio investment as “bad” and direct investment as “good” oversimplifies a
much more complex situation. Both bring risks, and both require their own policy approaches.
There seems to be a certain fear attached to foreign portfolio investment, due perhaps to its
complexity and the central economic role of the financial system. (At one time there was a fear
of foreign direct investment.) Does foreign portfolio investment engender greater concern?
Certainly, financial disturbances have not been confined to foreign investors.
If you take “foreign” out of foreign portfolio or direct investment, most policy makers would
acknowledge that domestic portfolio and direct investment are both necessary for healthy
economic growth and development. Portfolio investment and the financial system it is part of are
central to any healthy economy. Put “foreign” back in and you have effectively increased the
quantity and diversity of investment to even greater effect. As shown above, both portfolio and
direct investment can bring powerful benefits to the economy, and together the benefits are
increased.
The best answer is not to shut either type of investment out – not to label one “bad” and the other
“good.” Instead, both should be welcomed within the proper regulatory structure to maximize the
benefits, and to manage the drawbacks and potential negatives. Both portfolio and direct
investment bring value for economic growth. They are not intrinsically good or bad, but they are
different.
Economic reforms in India have deregulated the economy and stimulated domestic and foreign
investment, taking India firmly into the forefront of investment destinations. The Government,
keen to promote FDI in the country, has radically simplified and rationalized policies, procedures
and regulatory aspects. Foreign direct investment is welcome in almost all sectors; expect those
strategic concerns (defense and atomic energy). Since the initiation of the economic
liberalization process in 1991, sectors such as automobiles, chemicals, food processing, oil and
natural gas, petrochemicals, power, services, and telecommunications have attracted
considerable investments. Today, in the changed investment climate, India offers exciting
business opportunities in virtually every sector of the economy. Telecom, electrical equipment
(including computer software), energy and transportation sector have attracted the highest FDI.
Despite its market size and potential, India has yet to convert considerable favourable investor
sentiment into substantial net flows of FDI. Overall, India remains high on corporate investor

35. 35
radar screens, and is widely perceived to offer ample opportunities for investment. The market
size and potential give India a definite advantage over most other comparable investment
destinations.
India‟s investment profile, however, is also conditioned by factors that affect the flow of FDI,
which are bureaucratic delays, wide spread corruption, poor infrastructure facilities pro-labour
laws, political risk and weak intellectual property regime.
A perceived slowdown in the process of reforms generates doubts about the market‟s long-term
potential. To capitalize on its potential for FDI, would seem that India needs to accelerate efforts
to institutionalize government efficiency and advance the implementation of promised reforms.
Other strategic efforts should include focusing the market on India‟s relatively higher rates of
return on existing investments and long-term potential, addressing the issue of transforming the
country into a viable export platform and encouraging strategic alliances with foreign investors.
In short, this means accelerating India‟s integration with the global economy.

36. 36
BIBLIOGRAPHY:-
1. www.imf.org
2. www.economicshelp.org
3. www.rbi.org.in
4. www.dipp.gov.in
5. www.business.mapsofindia.com
6. Foreign Direct Investment in India: 1947 to 2007, Dr. Nitin Bhasin