FDI in India
MGT – 554
Submitted to: Miss Jaschetan Deep Kaur
Submitted By: Ishfaq Shah - A15
MEANING and DEFINITION Foreign investment refers to any type of funds coming from foreign countries to a home country, either from the various corporates or the individual and institutional investors. FDI is a type of investment that involves the injection of foreign funds into an enterprise, new or existing, that operates in a different country of origin from the investor. To put in simple words, FDI refers to capital inflows from abroad that is invested in or to enhance the production capacity of the economy. The country from which the investment comes is called the home country and the country in which the investment is done is referred as the host country. Foreign direct investment can include buying shares of an enterprise in another country, reinvesting earnings of a foreign- owned enterprise in the country where it is located, and parent firms extending loans to their foreign affiliates. NEED OF FOREIGN INVESTMENT
Raising the level of investment: The foreign investment helps in introducing more and more investment in the country, in addition to, the domestic investment sources. Upgradation of technology: The foreign investment, especially the FDI, helps bringing in the foreign technology which helps in the upliftment of various industries and raising them to the optimum level of competition. Exploitation of natural resources: The investment is required to make use of the resources present in the country and the foreign investment helps to tap these resources. Development of basic economic infrastructure: It helps in the development of the basic economic infrastructure of a country Benefits to consumers: It allows access to the low cost methods and materials which helps in providing the consumers with the low price but high quality products and services. Revenue to government: It increases the sources of the revenue for the government. Scope of Employment: It increases the avenues of employment for the host country.
DETERMINANTS OF FOREIGN INVESTMENT
Political stability Legal and regulatory framework Size of market
Prices and exchange rate Access to basic inputs
EFFECT OF LIBERALISATION ON FDI Economic liberalisation in India: It refers to loosening or removal of controls so that economic development gets encouragement. The economic liberalization in India refers to economic reforms in India that started on 24 July 1991. After Independence in 1947, India adhered to socialist policies. In the 1980s, Prime Minister P. V. Narasimha Rao initiated some reforms. In 1991, after India faced a balance of payments crisis, it had to pledge 20 tons of gold to Union Bank of Switzerland and 47 tons to Bank of England as part of a bailout deal with the International Monetary Fund (IMF). In addition, IMF required India to undertake a series of structural economic reforms As a result of this requirement, the government of P. V. Narasimha Rao and his finance minister Manmohan Singh (the present Prime Minister of India) started breakthrough reforms, although they did not implement many of the reforms IMF wanted. The new neo-liberal policies included opening for international trade and investment, deregulation, initiation of privatization tax reforms, and inflationcontrolling measures. THE FIRST PHASE (PRE LIBRALIZATION) The economy was characterized as Command and Control Economy. The various activities carried on by government were as:
Allocation of resources by the Government Government took active part in setting priorities for the economy Self-Reliance was the buzz word Nationalization of Banks Limited scope for private participation
PRE LIBRALIZATION POLICIES
First plan (Industrial policy 1948) Second plan (Main focus - increasing foreign exchange) Foreign investment policy was framed....
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