Fdi in India

Foreign Direct Investment in India
1. Objective
The main purpose or objective doing this report is 1. To study what is actually Foreign Direct Investment (FDI) and their types. 2. To study the FDI trends and how it influences to India 3. To study the advantages and disadvantages also importance FDI to India and their investors itself.

2. Introduction
Foreign Direct Investment (FDI) is capital provided by a foreign direct investor, either directly or through other related enterprises, where the foreign investor is directly involved in the management of the enterprise. According to International Monetary Fund (IMF, International Monetary Fund, 2013), Foreign Direct Investment or simply as FDI refers to an investment made to acquire lasting or long term interest in enterprises operating outside of the economy of the investors. It can simply define as the allocation by a multinational firm of capital, managerial and technical asset from its home country to a host country. In FDI it had three components whereas: equity capital, reinvested earning and intra-company loans. Inflows of FDI stated as a net basis meanwhile outflow of FDI is the reporting economy comprise capital provided by a firm from host country.
There were several types of foreign direct investment which is Multinational Corporation, transnational corporation, strategic alliance, and also joint venture. For Multinational Corporation it was operate or handling from their home country even it actually operating in several country. The transnational corporation is the country that maintains the significant operation in more than one country but regionalize management to the local country. Meanwhile the strategic alliances was an approach to going global that involve partnership between an organization and a foreign company in which both share knowledge and resources in developing new products or building production facilities. It was common place in the biotechnology, information technology and the software industries.
The joint venture FDI is an approach to going global that is specific types of strategic alliance. There was the partner had agreed to form an independent organization for some business purpose. For the joint venture types is divided into two types which is contractual joint venture and equity joint venture. The contractual joint venture was between firms usually for a specific project, such as manufacturing a component or other product for a fixed period time. Meanwhile the equity joint venture was when a firm holds an equity stake in the setting up the joint subsidiary such as produce goods or services.

3. History of FDI in India
It is false if people advocated that India is a fresh country joining foreign direct investment (FDI). It is totally wrong. Actually India already joined or more accurate received the FDI since 1947, more early than other countries (Kapur, 2005). It was concentrated in primary sectors and services whereas foreign country like British conquers India’s mining, plantations, trade and manufacturing base. In early post-Independent years, FDI contributed and shows significant role as India turned abroad for both technology and capital. Late 1950s, foreign capital was invited in various sectors by Indian government (Kapur, 2005). The sectors was pharmaceutical drugs, aluminum, heavy electrical and chemicals. The results, during the 1960s, the capital flow concentrated on manufacturing especially technology-intensive industries. End of 1960 approximately 60 percent capital from FDI flows to manufacturing industries. Reverberation from food crisis and depreciation of the Rupee in 1960, the hardening of policy was there.
Early 1970, foreign oil majors were publicly owned. The government of India never rules out the new foreign investment but now it wanted to be in restrictive term. In 1973, the Foreign Exchange Regulation Act (FERA) had introduced an article that obligatory firms to dilute their foreign equity holdings to 40 percent if they wanted to treat as like Indian companies. By the mid-1980, growing concern about stagnation and technological uselessness in India industry led to push for economic reform and deregulation (Kapur, 2005).
On the 1990s, it started with major crisis. In the middle of Gulf War, and the consequent removal of Indian emigrant from the Middle East, foreign exchange payments fell. The panicked withdrawal of funds happened in India by Non Resident that occurred not balance of payments. As agreed with the IMF, the Rupee was devalued, and the fresh attempts were made. That will to liberalize the trade rule and the guiding framework. For the six decades, since the Independences of India, private foreign investment has stimulated thoroughly with exigencies of India external payment position (Kapur, 2005). The changing of the policy which is direct effect to foreign capital in India industry made it contribute in their economy.

4. Trend FDI Inflows to India Table 1Amount FDI approved and actual infow during 1991-2006 | Year | FDI approved (2) in Crores | FDI Actual (3) in Crores | Actual * (%) | 1991 | Rs 505 | Rs 353 | 69.9 | 1992 | Rs 3,818 | Rs 691 | 18.09 | 1993 | Rs 8,862 | Rs 1,862 | 21.01 | 1994 | Rs 8,955 | Rs 3,112 | 34.75 | 1995 | Rs 30,882 | Rs 6,485 | 20.99 | 1996 | Rs 30,886 | Rs 8,752 | 28.34 | 1997 | Rs 50,389 | Rs 12,990 | 25.78 | 1998 | Rs 27,590 | Rs 13,269 | 48.09 | 1999 | Rs 25,140 | Rs 10,167 | 40.44 | 2000 | Rs 17,237 | Rs 12,369 | 71.67 | 2001 | Rs 20,940 | Rs 16,778 | 80.12 | 2002 | Rs 11,058 | Rs 18,196 | 164.55 | 2003 | Rs 5,417 | Rs 11,617 | 214.45 | 2004 | Rs 8,714 | Rs 17,267 | 197.54 | 2005 | Rs 7,900 | Rs 19,299 | 244.31 | 2006 | Rs 23,004 | Rs 50,357 | 218.91 | * percentages of approval (3) as percentages f (2) | source: SIA Statistic, Various Isues | | |

Based on the Table 1, we can see that FDI approved was higher than FDI actual. It was in 10 years between 1991 until 2001. After 2001 or more exactly started from 2002 the actual value of FDI is more than it approved. It all about or because the reason the foreign direct investment take time to realize how much it valuable to recipients of FDI (Chandran & Balu, 2011). This is also because of the setting up of the Foreign Investment Implementation Authority. It was for quickly transformation of realization of FDI.

Table 2Share of India in World 's Total FDI Inflow (in $ mn) | Year | India | World | India 's Shares in World FDI %) | 1990 | 237 | 207278 | 0.11 | 1995 | 2151 | 341014 | 0.63 | 2000 | 3585 | 1398183 | 0.26 | 2005 | 7606 | 958697 | 0.79 | 2007 | 22950 | 1833324 | 1.25 | Source: UNCTAD Database (2008) |

Based on table 2 above, we can conclude India received more and more foreign direct investment from outside. It was shown that on 1990, India has only 0.11% from the total inflows of FDI all of the world and it was increase by 0.52% after five years. It became decrease along 1995 until 2000 because economic not very good condition. And it started increase back and it shown that government has been providing transparent and investors friendly (Chandran & Balu, 2011).

Table 3Top Investing Countries in India, according to FDI inflows 1991-2005 ($ billion) | Country | 1991-2002 | 2003-2004 | 2005-2006 | 1991-2005 | Mauritius | 6.632 | 0.567 | 1.76 | 10.874 | USA | 3.188 | 0.36 | 0.356 | 4.891 | Netherlands | 0.986 | 0.489 | 0.068 | 1.986 | Japan | 1.299 | 0.078 | 0.098 | 2.013 | UK | 1.106 | 0.617 | 0.196 | 1.91 | Germany | 0.908 | 0.081 | 0.052 | 1.33 | Singapore | 0.515 | 0.037 | 0.164 | 0.938 | France | 0.492 | 0.038 | 0.008 | 0.767 | South Korea | 0.594 | 0.024 | 0.057 | 0.749 | Switzeland | 0.325 | 0.045 | 0.064 | 0.604 | Total Inflows | 23.829 | 2.634 | 3.348 | 36.704 | Source: RBI, 2006 February | | |

Based on table 3 above, we can see about which country the FDI flows to India. In 1991 until 2002, Mauritius was a top investor in India than other country even the US. Mauritius also has low rates of taxes and agreement with India on double tax avoidance regime (Chandran & Balu, 2011). Besides, the MNCs decided to set up companies in India before decided to go India. It is because they can save some taxes because Mauritius was a tax shelter is conduit of investor development. Through Mauritius, the investment will trace back to US. Mauritius also had a political relationship with India even in bilateral and multinational relationship. It was characterized by kinship, culture, religion and also interest. Besides, India also has an agreement with Mauritius, which is in civil aviation, avoidance of double taxation, in economic, education, and also agriculture also bio technology. Umbrella agreement was signed on 1990 for science and technology. So, Mauritius became the partner to India since that country open towards the FDI and it was already in decades.
Meanwhile the FDI from US only in small amount but it increase every year. The country makes effort to strengthen institutional structure of bilateral economic relation. As the major trading partner to India, USA continued to lead. USA covers almost all the sector in India which is open to private participant. Now, the investor’s community from USA sharing a confidence towards future India economy will better in future.

5. The Importance of FDI
The importance of FDI can be specified into two aspect which is country perspective where is absolutely India and investor perspective (Bose, 2012). From these two perspectives we conclude that FDI give benefits on both side fairly. From the India perspective, it brings positive benefits to India economies. It given contributed to Gross Domestic Product (GDP), Gross Fixed Capital Formation and balance of payments. There was positive bond between GDP and FDI inflows and it was truth. It also brings to India the way servicing debt repayments, inspire export markets and produce foreign exchange revenue. Then, it can conclude as foreign direct investment was an important factor to regenerate economy for the India. Besides that, FDI not just only bring the capital but it also brings the technology, organizational and managerial practice and skill as well to practice in India to access in international markets. The FDI also be a major source of economic for developing and under developing countries. From the investors perspective, FDI enhance the domestic competitiveness, provides the opportunities of taking significant advantages of international trade technology, contributes towards increasing of sales and profit, extend sales potentials of the existing products, maintains cost competitiveness in the domestic market set-up, enhance possibilities of business expansion, helps in the process of obtaining global market share, reduce the dependency on existing markets and also stabilize seasonal market fluctuations (C., 2000).

6. Advantages and Disadvantages of FDI in India
The foreign direct investments have their own advantages and disadvantages. The advantages was from the both side either Indian or the investor side. For the advantages that own by the investor was India was a country that have huge market size and fast developing economy (Bose, 2012). It was because India is the second biggest country after China. Currently statistic the population in India was 1.2 billion. It was until early year 2012. The biggest population was automatically huge market for any business in logically. So the FDI gets the biggest market that automatically generates more cash in quick time. The economy of India also moved faster than other countries that had same purchasing power at the same rate (Atreye & Kapur, 2001).
Second advantage to investors is availability of diversified resources and cheap labour force. It was biggest benefits for investor to invest India because it has variety of resources. India was the country which had a different kind of resources and technology resources are existed. As we know India was biggest country that has mining and oil reserve very well. Besides, India was the country has a cheaper labour force among the other countries. It was almost all part of India. From Mumbai which is in the west to Bengal which is in the east there is a lot opportunities to set up business venture and location and most importantly labour is available at low price (Bhandari , Gokarn, & Tandon, 2002). From the country side, the benefits they get were the government will increase improvement of infrastructure. Many researchers said that India already fail to attract significant amount of FDI because the infrastructure having problem in India. But now it changes. The government of India takes a huge project in transference and energy sector to improve it. The government of India takes several investments to their own country such as developing road transport, port, and airport and cost around $190 billion not including development of nuclear. This huge investment is changing the investment climate in the country and investor will benefit incredibly by that (Dua & Rasheed, 1998). For other advantages was public private ownership, IT revolution and English literacy, openness towards FDI and also regulatory framework and investment protection. The investors will knowledgeable the chances of triple P which is public private ownership. It was in different important sector such as energy, transportation, mining, oil, and others. It was also advantageous when India already eliminated the traditional tirade obstacles and joint venture no risk with the government of India. Nowadays, India also concern about IT. India has developed their own IT sector for the benefits their own country. Because of IT advancement the firm invests in India will get the low-priced information access. It was supported by young Indian are energetic and skilled in English language which is important in conduct of business. Foreign firm also find it effectiveness and earnest investment by recruiting Indian HR (IMF, India: Selected Issue. IMF Country Report No.05/87, 2005). The government of India has opened in a few certain sectors such as increase the limit of FDI and approved the systems far easier and reachable. Unlike the traditional historical, today investment in India not more require special cases like investment in important sectors only. Last not least, in the process quickening of the FDI, government of India make the regulatory framework lot of flexible. Nowadays investor has a advantages in different way such in taxes. For the disadvantages side, even though India was biggest country but it has negative effect. Majority of inhabitants was middle and even low class people. This type population of people was still lacking in budget. Since the infrastructure still lacking, the government need to improve it a lot with a major cost. It was already in biggest pressure. The problems also come from the power demand shortfall, poor road conditions, and also still sometimes slow moving bureaucracy. All these advantages just made the companies difficult to do appreciated or complete product or service portfolio. Besides that, India is not a member of the International Centre for the Settlement of Investment Disputes and also New York Convention of 1958. This makes the foreign investor having difficulties. India still has heavy regulation than other countries, for example to register a property or start the business.

7. Impact of FDI
Foreign Direct Investment (FDI) had motivating growth process increasingly. Two main arguments have been support this view (Chandran & Balu, 2011). First, essentially a short term view, FDI can help mitigate problems encountered in external debt management by providing an alternative source of long term finance. Act as “Engine of Growth” for the developing countries, FDI as the long term investment viewed the benefits of the inflow the capital based on the perception. It had been argued that FDI is an important source of foreign saving for the host countries, which is increase their local funds available for the investment (Chandran & Balu, 2011). It also was observed that international flows of goods, services, capital, labour and technology expanded hastily because the globalization. Openness to FDI brings the policy maker in India to throw wide which is the FDI assume bring huge advantages with little or no downside. It also cutting down the cost for bring come the new technology and developing new products.
Other than that, it bring benefit to a developing country from the FDI be contingent mostly on its trade and investment policies. For more efficient technology and management, it was depends on country openness about trade regimes. It was attract more competitive outward oriented FDI. Attracted with FDI will make one country more knowledgeable in totally global. The researcher figures up that the quality of FDI that problems for a country like India than rather than it quality. Generally globalization was on term when interacting for domestic economies were increased. It was long term process when the globalization caused the fully earned. Besides, when the crisis happened, the FDI has more salutary effect on the balance of payment. The FDI also bring most important roles which is developing the country such as like India.

8. Conclusion
India as country still developing needs help from the outsider to make their country become developed country. The best way was openness toward the foreign direct investment. From this FDI India get several of benefits. The transfer of technology and management skill, even the Indian people also got change worked under the most experienced people. The capital inflows to India also make the government realize to attract more and more investor. Through all investors coming in to into India, make government also realize to more infrastructure better than before. It was positive since India open towards the foreign direct investment and it helpful in balance of payment. From the investor’s side, through FDI they get many benefits. Beside the profit they get, they also get the chance to explore other country. In India with the cheap labor, the cost they invest is very meaning. Other than that, the investor also realizes that India was great country that will develop if they helped with them invest to it.

9. References
Anand, S. (2012). India Foreign Direct Investment Trends. CEDAR, 1-7.
Atreye, S., & Kapur, S. (2001). Private Foreign INvestment in India: Pain or Panacea? The World Economy, 399-424.
Bank, W. (2004). India: Investment Climate and Manufacturing Industry. Washington, DC: World Bank.
Bhandari , L., Gokarn, S., & Tandon, A. (2002). Reform and Foreign Direct Investment in India. DRC Working Paper, 1-23.
Bose, T. K. (2012). Advantages and Disadvantages of FDI in China and India. International Business Research, 164-174.
C., O. (2000). Policy Competition for Foreign Direct Investment: A Study of Competition among Governmant to Attract FDI. OECD Development Centre.
Chandran, M., & Balu, A. (2011). Foreign Direct Invesment Trends in India. International Journal of Research Scientific Reseach, 237-240.
Dua, P., & Rasheed, A. (1998). Foreign Direct Investment and Econoic Activity in India. Indian Economic Review, 153-168.
IMF. (2005). India: Selected Issue. IMF Country Report No.05/87. IMF.
IMF. (2013, January 15). International Monetary Fund. Retrieved from International Monetary Fund Website: http://www.imf.org/external/np/exr/glossary/showTerm.asp#89
Kapur, S. (2005). Foreign Direct Investment in India: Recent Trends and Prospect. FDI in India, 1-7.
M., C., & A., B. (2011). Foreign Direct Investment Trends in India. International Journal of Recent Scientific Research, 237-240.
Singh, A. K., & Argawal, P. K. (2012). Foreign Direct Investment: The Big Bang in Indian Retail. VRSD International Journal of Business & Management Research, 237-337.

10. Appendix

References: Anand, S. (2012). India Foreign Direct Investment Trends. CEDAR, 1-7. Atreye, S., & Kapur, S. (2001). Private Foreign INvestment in India: Pain or Panacea? The World Economy, 399-424. Bank, W. (2004). India: Investment Climate and Manufacturing Industry. Washington, DC: World Bank. Bhandari , L., Gokarn, S., & Tandon, A. (2002). Reform and Foreign Direct Investment in India. DRC Working Paper, 1-23. Bose, T. K. (2012). Advantages and Disadvantages of FDI in China and India. International Business Research, 164-174. C., O. (2000). Policy Competition for Foreign Direct Investment: A Study of Competition among Governmant to Attract FDI. OECD Development Centre. Chandran, M., & Balu, A. (2011). Foreign Direct Invesment Trends in India. International Journal of Research Scientific Reseach, 237-240. Dua, P., & Rasheed, A. (1998). Foreign Direct Investment and Econoic Activity in India. Indian Economic Review, 153-168. IMF. (2005). India: Selected Issue. IMF Country Report No.05/87. IMF. IMF. (2013, January 15). International Monetary Fund. Retrieved from International Monetary Fund Website: http://www.imf.org/external/np/exr/glossary/showTerm.asp#89 Kapur, S M., C., & A., B. (2011). Foreign Direct Investment Trends in India. International Journal of Recent Scientific Research, 237-240. Singh, A. K., & Argawal, P. K. (2012). Foreign Direct Investment: The Big Bang in Indian Retail. VRSD International Journal of Business & Management Research, 237-337.