A Study on Impact of Fdi on Service Sector

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A STUDY ON IMPACT OF FDI ON SERVICE SECTOR

Presented By:

Ms Pushpa A
Dept of Management studies
Garden City College
Bangalore|

Ms Shymala J.
Dept of Management studies
Garden City College
Bangalore|
|

ABSTRACT

The last two decades have witnessed an unprecedented growth of the Indian service sector. FDI is a tool for economic growth through its strengthening of domestic capital, productivity and employment. FDI plays a vital role in the up gradation of technology, skills and managerial capabilities in various sectors of the economy. The study aims to analyze the growth dynamics of the FDI. It intends to see whether the growth in FDI has any significant impact on the service sector growth and also investigates whether a growth in this sector causes the GDP to grow, also analyzes the significance of the FDI Inflows in Indian service sector. The study also looks into the sub-sectoral dynamics and indicates towards the fact that the trade, hotels and restaurants, transport. storage and communications sub-sector contributes the most in the growth of Indian service sector. The results suggest that there has been a significant positive impact of the FDI on services sector and this service sector growth has in turn a significant effect on the GDP. Therefore FDI can be truly be used as a propagator of economic growth, via its favorable effect on the growth in the services sector.

Key Words: FDI, Service Sector, Employment development, GDP

I. INTRODUCTION
Foreign Direct Investment (FDI) broadly encompasses any long-term investments by an entity that is not a resident of the host country. The investment is over a long duration of time. FDI to developing countries in the 1990s was the leading source of external financing. It is one of the most important component of national development strategies for most of the countries in the world and an important source of non-debt inflows for attaining competitive efficiency by creating a meaningful network of global interconnections. FDI provide opportunities to host countries to enhance their economic development and opens new opportunities to home countries to optimize their earnings by employing their ideal resources. India ranks fifteenth in the services output and it provides employment to around 23% of the total workforce in the country. The various sectors under the Services Sector in India are construction, trade, hotels, transport, restaurant, communication and storage, social and personal services, community, insurance, financing, business services, and real estate.

Meaning:
FDI stands for Foreign Direct Investment, a component of a country's national financial accounts. Foreign direct investment is investment of foreign assets into domestic structures, equipment, and organizations. It does not include foreign investment into the stock markets. Foreign direct investment is thought to be more useful to a country than investments in the equity of its companies because equity investments are potentially "hot money" which can leave at the first sign of trouble, whereas FDI is durable and generally useful whether things go well or badly. Classifications of Foreign Direct Investment

FDI is classified depending on the direction of flow of money. * Outward FDI:Any investment made by a country in other countries will account for outward FDI. Where as, all the FDIs invested by other countries in that country is called inward FDI. Outward FDI, also referred to as "direct investment abroad", is backed by the government against all associated risk. * Inward FDI : Inward FDI occurs when foreign capital is invested in local resources. The factors propelling the growth of inward FDI include tax breaks, low interest rates and grants.

FDI is classified depending on how the subsidiary company works in par with the parent investors.

* Vertical: Vertical FDIs happen when a corporation owns some share of the foreign enterprise. The local enterprise...
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