Research Journal of Commerce & Business Management

ISSN 0974 - 200X

Special Issue on FDI in India June 2017 ANUSANDHANIKA Special Issue onSpecial FDI in India June 2017

Research Journal of Commerce & Business Management Published by VICHAYA EDUCATIONAL TRUST Ranchi, Jharkhand, India www.anusandhanika.co.in

Impact Factor - 2.118 ISSN 0974-200X ANUSANDHANIKA Refereed Research Journal of Commerce & Business Management Special Issue on FDI in India October 2017 Editor Madhukar Shyam

Managing Editor Dr. A.K. Chattoraj

Guest Editor Dr Arun Kumar Sinha

Advisory Board Dr. R.P. Verma Dr. S.K. Ambashtha Dr. Navin Kumar Dr. Shrikant Kumar Sinha Dr. Jyoti Shekhar Dr. M.N. Zubairi Dr. S.N.L. Das Dr. Vishwa Ranjan Dr. Vijay B Singh Dr. Vikas Kumar Dr. P. K. Pani Dr. Vijay Prakash Dr. Vijay Kumar Mishra Dr. Shahid Akhter Dr. M.K. Singh Dr. Sandeep Kumar Dr. Amar Kumar Chaudhary

Published by Vichaya Educational Trust Ranchi, Jharkhand (India)

Office: C-1, Shanti Enclave, Kusum Bihar, Road No. - 4, Morabadi, Ranchi - 8 Website: www.anusandhanika.co.in E-mail : [email protected] Ph : 09835536035 Published in January and July Printed, published, owned and edited by Madhukar Shyam on behalf of Vichaya Educational Trust, C-1, Shanti Enclave, Kusum Bihar, Road No. - 4, Morabadi, Ranchi - 8 Jharkhand, INDIA Impact Factor - 2.118 Notes for Contributors ANUSANDHANIKA ISSN 0974-200X The 'Anusandhanika' is a half yearly Refereed Research Journal published in January and Refereed Research Journal of Commerce & Business Management Special Issue on FDI in India October 2017 July. It contains articles, useful for professionals, scholars, students as well as for those Contents generally interested in the subject. 1. Need of FDI in India- Its impact on Economic Shuchi 1 Development Dr Arun Kumar Sinha The 'Anusandhanika' desires to bring to the notice of the contributors that The Articles should 2. Foreign Direct Investment (FDI) in India & its Dr. I. J. Khalkho 6 not normally exceed 5000 words. impact on Indian Economy Manuscripts should be composed in (MS - Word or Adobe Page Maker) double spaced 3. FDI in India: An Analysis Dr. Vijay Prakash 11 typed on one side only of A-4 size paper in font size 12 pts. with margins of 1.25" in left/right/ 4. Problems and Prospects of Foreign Direct Darshana Gopa Minz 16 Investment in India top & bottom and Arial fonts for English and Kruti Dev 010 fonts for Hindi is preferred. The Proposed article should be submitted in original along with a C.D. 5. Opportunities and Challenges of FDI in the Indian Tanuj Khatri 21 Telecommunication Sector Dr. S.N.L. Das The Editor and Advisory Board is fully empowered to edit, trim and adjust articles in order to 6. FDI in Broadcasting Sector Dr. Shravan Kumar 26 conform to Anusandhanika's format. 7. Recent Challenges and Issues of FDI in Retail Dr. Sandeep Kumar 30 Trade for Sustainable Development of Business While sending an Article to 'Anusandhanika', the author/s should certify that the article is his/ 8. Impact of Multinational Corporation on Labour Dr. Abha Kumari 38 her own/original and has not been published elsewhere and would not again be submitted for Practices in the Era of Liberalisation, Privatisation and Globalisation publication. In case of any litigation regarding any published article, the concerned author(s) 9. Foreign Direct Investment in India – Retail Sector Aditi Singhania 46 would be held responsible. Editor/Editorial Board would not be responsible in the matter Priyanka Chaturvedi Normally,articles should be arranged under the heads : (i) Title (ii) An Abstract of the paper 10. An Overview of FDI in India and Measures to Amit Kumar Gupta 52 Increase its Infl ow not exceeding 200 words (iii) Keywords - maximum five keywords may be placed after 11. Present Scenario of Foreign Direct Investment in Anamika Kumari 60 the abstract (iv) Introduction (v) Materials and Methods (vi) Results and Discussions (vii) India Sneha Toppo Conclusion and (viii) References. 12. Foreign Direct Investment in Aviation Anand Kumar Chitlangia 67 References should be arranged in this order- Author's name, name of the book/article/journal, 13. Foreign Direct Investment in Infrastructure Sector Avinash Kumar 71 and its Impact on Economic Growth in India Fouzia Tabassum name of Publisher, place of publication, year of publication and page nos. 14. Growth of Indian Economy in Foreign Direct Badal Rakshit 77 Editor and Advisory Board will not be responsible for the views expressed by the author/s in Investment the Anusandhanika. 15. Impact of FDI in Socio-economic Development of Binita Kumari 84 India Dr. Sanjiv Chaturvedi Foot notes should be avoided. 16. Foreign Direct Investment in India : An outline of Christina Deogam 90 Develpoment Since 1991 Dr Arun Kumar Sinha Units of measurement should be in the International (metric) system only. 17 A Socio-Economic Analysis of FDI in India Prof. (Dr.) Himadri Ranjan 95 Mishra Oxford English Dictionary should be followed for disputed spellings. 18 Foreign Direct Investment in Retail Sector Jayshree Gangunly 103 19 Impact of FDI in the Socio- Economic Development Dr. Aditendra Nath Shahdeo 106 in India Khaleda Rehman Impact Factor - 2.118 ANUSANDHANIKA ISSN 0974-200X Refereed Research Journal of Commerce & Business Management Special Issue on FDI in India October 2017 Contents

1. Need of FDI in India- Its impact on Economic Shuchi 1 Development Dr Arun Kumar Sinha 2. Foreign Direct Investment (FDI) in India & its Dr. I. J. Khalkho 6 impact on Indian Economy 3. FDI in India: An Analysis Dr. Vijay Prakash 11 4. Problems and Prospects of Foreign Direct Darshana Gopa Minz 16 Investment in India 5. Opportunities and Challenges of FDI in the Indian Tanuj Khatri 21 Telecommunication Sector Dr. S.N.L. Das 6. FDI in Broadcasting Sector Dr. Shravan Kumar 26 7. Recent Challenges and Issues of FDI in Retail Dr. Sandeep Kumar 30 Trade for Sustainable Development of Business 8. Impact of Multinational Corporation on Labour Dr. Abha Kumari 38 Practices in the Era of Liberalisation, Privatisation and Globalisation 9. Foreign Direct Investment in India – Retail Sector Aditi Singhania 46 Priyanka Chaturvedi 10. An Overview of FDI in India and Measures to Amit Kumar Gupta 52 Increase its Infl ow 11. Present Scenario of Foreign Direct Investment in Anamika Kumari 60 India Sneha Toppo 12. Foreign Direct Investment in Aviation Anand Kumar Chitlangia 67 13. Foreign Direct Investment in Infrastructure Sector Avinash Kumar 71 and its Impact on Economic Growth in India Fouzia Tabassum 14. Growth of Indian Economy in Foreign Direct Badal Rakshit 77 Investment 15. Impact of FDI in Socio-economic Development of Binita Kumari 84 India Dr. Sanjiv Chaturvedi 16. Foreign Direct Investment in India : An outline of Christina Deogam 90 Develpoment Since 1991 Dr Arun Kumar Sinha 17 A Socio-Economic Analysis of FDI in India Prof. (Dr.) Himadri Ranjan 95 Mishra 18 Foreign Direct Investment in Retail Sector Jayshree Gangunly 103 19 Impact of FDI in the Socio- Economic Development Dr. Aditendra Nath Shahdeo 106 in India Khaleda Rehman 20 Impact of FDI in the Socio-Economic Development Khushboo Rai 114 of India Dr. B.M. Sahu 21 Bottleneks in Ariving Foreign Direct Investment in CS. Mala Kumari 118 India and Suggestions to Overcome them Upadhyay 22 Challenges and Future Prospects of FDI in Gaurav Srivastava 127 Automobile Industry in India 23 FDI and Its Impact on Jharkhand’s Socio-Economic Nirmala Khess 131 Development Dr Sanjeev Chaturvedi 24 Problems and Prospects of FDI in Indian Retail Binay Kumar Panjiyar 136 Sector Dr. Shravan Kumar 25 FDI in Insurance Sector Pervez Wahab 142 Dr Nayeem Akhatar

26 Foreign Direct Investment in India Priyanka Chaturvedi 148 Dr. H.B Singh 27 FDI in Indian Retail Sector Opportunities and Priyanka Pandey 154 Challenges Dr. D.L Maurya 28 Present Scenario of FDI in India Rachana Kumari 161 29 The Opportunities and Challenges for FDI in Retail Ruchi Kumari 166 in India

30 Growth of FDI in Indian Telecom Sector Sagorika Rakshit 174 Dr. Subhas Kumar 31 FDI - An Opportunity to Indian Economy Shradha Verma 184 Anamika Kumari 32 Impact of Demonetization on Foreign Portfolio Sitaram Pandey 188 Investment & Return in Stock Market Dr. Amitava Samanta 33 Effect of Foreign Direct Investment and Human Dr. Abha Kumari 197 Capital Formation on Labour Markets in India Sheela Kumari Gupta 34 The Impact of FDI & FPI on Human Welfare Amarnath 202 Dr. Amitava Samanta 35 FDI in Energy Infrastructure – Power Generation Dr. Madan Kumar Singh 207 & Distribution 36 Role of FDI in Economic Growth of India Mantosh Kumar Singh 212 37 FDI in Retail Sector: Opportunities and Challenges Dr. Bijay Kumar Sinha 215 Ahead Mritunjay Kumar Mishra 38 Foreign Direct Investment (FDI) in Indian Service Rajiv Ranjan Sinha 219 Sector 39 Role of FDI in Indian Economy and its Problems Dr. Sanjay Prasad 223 Prof. Srinath Koley 40 Present Scenario of FDI in India Sheela Kumari Gupta 229 Anusandhanika /Special Issue on FDI in India/ October 2017/ pp 1 - 5 ISSN 0974 - 200X

20 Impact of FDI in the Socio-Economic Development Khushboo Rai 114 Need of FDI in India- Its impact on Economic of India Dr. B.M. Sahu Development 21 Bottleneks in Ariving Foreign Direct Investment in CS. Mala Kumari 118 India and Suggestions to Overcome them Upadhyay Shuchi Research Scholar 22 Challenges and Future Prospects of FDI in Gaurav Srivastava 127 Automobile Industry in India University Department of Commerce & Business Management Ranchi University, Ranchi 23 FDI and Its Impact on Jharkhand’s Socio-Economic Nirmala Khess 131 Development Dr Sanjeev Chaturvedi Dr Arun Kumar Sinha 24 Problems and Prospects of FDI in Indian Retail Binay Kumar Panjiyar 136 P G Head & Dean, Department of Commerce Sector Dr. Shravan Kumar St Xavier’s College, Ranchi 25 FDI in Insurance Sector Pervez Wahab 142 Dr Nayeem Akhatar Abstract

26 Foreign Direct Investment in India Priyanka Chaturvedi 148 As India is a developing country, capital has been one of the scare resources that are usually required for Dr. H.B Singh economic development. Capital is limited and there are many issues such as Health, poverty, employment, 27 FDI in Indian Retail Sector Opportunities and Priyanka Pandey 154 education, research and development, technology obsolesce, global competition. The flow of FDI in India from across the world will help in acquiring the funds at cheaper cost, better technology, employment Challenges Dr. D.L Maurya generation, and upgraded technology transfer, scope for more trade, linkages to domestic firms. The 28 Present Scenario of FDI in India Rachana Kumari 161 following arguments are advanced in favour of foreign capital. FDI is an important vehicle of technology transfer from developed countries to developing countries. India is the second fastest growing economy in 29 The Opportunities and Challenges for FDI in Retail Ruchi Kumari 166 the world with a GDP growth rate of 7.6% in the FY16. To maintain this growth rate and rank India requires in India huge foreign investment. Government of India has taken many initiatives to attract foreign investment into India. One of such initiative is “Make in India”, programme to make India a ‘Manufacturing Hub’ of the 30 Growth of FDI in Indian Telecom Sector Sagorika Rakshit 174 world. A Foreign Direct Investment is an investment made by a company or entity based in one country, Dr. Subhas Kumar into a company or entity based in another country. A foreign direct investment is a controlling ownership in a business enterprise in one country by an entity based in another country. Foreign Direct Investment has 31 FDI - An Opportunity to Indian Economy Shradha Verma 184 played a crucial role in the economic development of the country. Anamika Kumari Keywords : domestic capital, business enterprise, economic growth 32 Impact of Demonetization on Foreign Portfolio Sitaram Pandey 188 Investment & Return in Stock Market Dr. Amitava Samanta 33 Effect of Foreign Direct Investment and Human Dr. Abha Kumari 197 Introduction Most countries of the world which embarked Capital Formation on Labour Markets in India Sheela Kumari Gupta on the road to economic development had Foreign Direct Investment (FDI) is a type of 34 The Impact of FDI & FPI on Human Welfare Amarnath 202 investment in to an enterprises in a country by to depend on foreign capital to some extent. Dr. Amitava Samanta another enterprises located in another country The fact cannot be denied that the foreign capital contributed in many important ways 35 FDI in Energy Infrastructure – Power Generation Dr. Madan Kumar Singh 207 by buying a company in the target country or by to the process of economic growth and & Distribution expanding operations of an existing business in that country. In the era of globalization FDI industrialization. 36 Role of FDI in Economic Growth of India Mantosh Kumar Singh 212 takes vital part in the development of both As India is a developing country, capital has 37 FDI in Retail Sector: Opportunities and Challenges Dr. Bijay Kumar Sinha 215 developing and developed countries. been one of the scare resources that are Ahead Mritunjay Kumar Mishra If country is interested in rapid economic usually required for economic development. 38 Foreign Direct Investment (FDI) in Indian Service Rajiv Ranjan Sinha 219 development, they will have to import machinery, Capital is limited and there are many issues Sector technical know-how, entrepreneurship, and such as Health, poverty, employment, education, research and development, 39 Role of FDI in Indian Economy and its Problems Dr. Sanjay Prasad 223 foreign investment. One of the methods of Prof. Srinath Koley paying for the imports is to set up exports or technology obsolesce, global competition. The second alternative is getting foreign technology flow of FDI in India from across the world will 40 Present Scenario of FDI in India Sheela Kumari Gupta 229 and equipment and it also depends upon help in acquiring the funds at cheaper cost, foreign assistance in some forms or the other. better technology, employment generation, -1- and upgraded technology transfer, scope for vi. Improvement in the balance of more trade, linkages and spill over to domestic payments position: The inflow FDI will firms. help in improving the balance of payment. Firms which feel that the goods produced The need for Foreign Direct Investment for a developing country like India can arise on in India will have a low cost, will produce account of the following reasons: the goods and export the same to other country. This helps in increasing the i. Sustaining a high level of investment: exports. As all the under-developed and the developing countries want to industrialize vii. Foreign firm’s helps in increasing and develop themselves, therefore it the competition: Foreign firms have becomes necessary to raise the level to always come up with better technology, investment substantially. Due to poverty process, and innovations comparing and low GDP the saving are low. Therefore with the domestic firms. They develop a there is a need to fill the gap between completion in which the domestic firms income and savings through foreign direct will perform better it survive in the market. investments. Supporters of private foreign investment ii. Technological gap: In Indian scenario argue that, the foreign investment brings we need technical assistance from with it new technology, better management foreign source for provision if expert and organization, superior marketing and services, training of Indian personnel sometimes cheaper finance. The arguments and educational, research and training in favour of private foreign investment are the institutions in the industry. It only comes following: through private foreign investment or i. Foreign investment constitutes a net foreign collaborations. addition to investible resources in host iii. Exploitation of natural resources: In countries and as such raises their rates of India we have abundant natural resources growth; such as coal, iron and steel but to ii. Foreign investment results in a pattern of extract the resources we require foreign growth which is desirable from the point collaboration. of view of underdeveloped countries iv. Understanding the initial risk: In since new products are introduced and developing countries as capital is a scare marketed, new tastes are created and resource, the risk of investments in new specific needs of the host country are met; ventures or projects for industrialization and is high. Therefore foreign capital helps in iii. Free flow of capital is conducive for the these investments which require high risk. welfare of both the individual country and v. Development of basic economic the world at large. The operations of foreign infrastructure: In the recent years foreign firms, especially of modern multinational financial institutions and government of firms, knit countries together and closer advanced countries have made substantial into the web of international commerce, capital available to the under developed both by(vertical and horizontal) economic countries. FDI will help in developing integration and by the transmission of the infrastructure by establishing firm’s tastes, designs, ideas and technology. different parts of the country. There are Industrial studies have revealed that as foreign special economic zones which have been investors’ confidence in the Indian government developed by government for improvising will increase, their levels of investment in India the industrial growth. will also go up. In the 2015-2016 fiscal years,

-2- Anusandhanika /Special Issue on FDI in India/ October 2017 it is expected that FDI will exceed 60 billion in a business enterprise in one country by an US dollars. In the 2013-14 fiscal years, the entity based in another country. Foreign Direct aggregate foreign investment amounted to 29 Investment (FDI) has played a crucial role in billion dollars. This increase owes a lot to the the economic growth and development of the high expectations that foreign investors. It has country. FDI inflows not only bring capital in been estimated that in the ongoing Twelfth Five the country but also bring technological know- Year Plan, which continues till 2017, India will how and managerial skills. need almost a trillion US dollars in FDI. This It has been witnessed that with the increase in money will be used to develop infrastructure FDI inflows in India from $0.13 billion to $30.3 such as highways, airways and ports. billion in 2010-11, the GDP growth rate of the Materials and Methods country has accelerated from 1.43 percent in 1990-91 to 7.6 percent in 2015-16. It shows For the purpose of in depth study the contents that India’s GDP has increased four times have been taken from interview, relevant since 1990-91. FDI act as a catalyst in various books and articles from journals and websites. sectors mainly in manufacturing and service The method used is analytical and descriptive. sectors. With the new government in power, Both primary as well as secondary source of there are many reforms to attract FDI inflows in Information have been taken. the country. FDI inflows in 2015-16 are more in Results and Discussions the areas of service sectors (18%), construction development (10%), telecommunication (7%), FDI incorporates an important role within the computer software and hardware (6%) etc. economic progression and development of While the share of industry in GDP remained India. FDI in India in numerous sectors will attain stagnant, noteworthy over the period there sustained economic growth and development was structural transformation in manufacturing through creation of jobs, growth of existing sector. With FDI inflows there are development producing industries. There are various in many areas like infrastructure, per capita economic factors which affect the inflows of income and standard of living of the people has FDI. Even despite the fact that of many factors increased, poverty has declined in absolute Indian economy has succeeded to attract FDI terms, unemployment has reduced by 3 times inflows. India due to variability and many FDI since 1990-91 to 2013-14, clean technology caps provided by the government and other has installed, roads, dams, bridges, schools, factors hoard and providing opportunities to colleges, hospitals has been built with new many foreign investor countries. India is the technology. Thereby, overall development has second fastest growing economy in the world shown in all over India. with a GDP growth rate of 7.6% in the FY16. In terms of GDP it is the 10th largest economy For the economic growth and development in the world and in terms PPP (Purchasing of the country India requires huge capital. To Power Parity) it is the 3rd largest economy compensate this domestic capital requirement, in the world. To maintain this growth rate and FDI inflows are one of the important pre- rank India requires huge foreign investment. requisite. FDI is helping developing countries Government of India has taken many initiatives in capital formation by bringing fresh capitals. to attract foreign investment into India. One of Developing countries are lacking technological such initiative is “Make in India”, programme to know-how. With the opening up of their make India a ‘Manufacturing Hub’ of the world. economies for FDI, they will get the access A Foreign Direct Investment (FDI) is an to sophisticated technology from the foreign investment made by a company or entity firms which will enhance their productivity and based in one country, into a company or quality of the products. entity based in another country. A foreign FDI inflows are not only helping in capital direct investment is a controlling ownership formation but also help in developing -3- Anusandhanika /Special Issue on FDI in India/ October 2017 managerial skills. FDI inflows have increased In India, the primary sector is in dire needs the competitive environment for the domestic of foreign investment especially in the areas firms consequently benefitting the consumers of agricultural, livestock farming, forestry, by accessing with better quality products at a fishing etc. FDI inflows into agricultural and lesser price. allied sectors are still negative despite that With the transfer of technology and 58 percent of Indians are still dependent enhancement of production techniques, on agricultural and allied sectors for their marketing expertise and modern managerial livelihood and their contributions to country’s techniques possibilities of export promotion GDP has also declined from 56.5 percent in has also been opened up in new areas. 1950-51 to 16 percent in 2015-16. To attract With better quality product at a lower price FDI’s into this sector government has to make the demand increased for Indian goods land reforms and ease in the entry of FDI into and services abroad consequently there is this area. Therefore, it has been witnessed that increase in exports. Therefore, exports have FDI inflows are not even in terms of various increased from $18 billion to $245 billion. With sectors and regions. the enhancement in exports BOP deficits has FDI in India has a significant impact on declined. Government of India has also taken development of India. FDI in India to various many measures to attract FDI to boost exports. sectors can attain sustained economic With FDI inflows into the country new job growth and development through creation opportunities has been created in various of jobs, expansion of existing manufacturing sectors. As more employment opportunities industries. The inflow of FDI in service sectors are generated mainly in metropolitan cities and construction and development sector, where FDI inflows are maximum i.e., Delhi from April, 2000 to March, 2016 attained and Mumbai. Therefore more rural-urban substantial sustained economic growth and migrations are in these cities. India is the development through creation of jobs in India. second largest populated country in the world. Computer, Software & Hardware and Drugs & With increase in employment opportunities Pharmaceuticals sector were the other sectors there is reduction in absolute poverty in India. to which attention was shown by Foreign Direct But as the population base is very high in actual Investors (FDI). terms poverty has increased. So government FDI plays a crucial role in enhancing the has to take measures to attract more FDI and economic growth and development of create more employment opportunities to the country. Moreover, FDI as a strategic reduce poverty from the country. component of investment is needed by With the new reforms to boost FDI inflows in India for achieving the objectives of its India, the PSU’s reserved areas i.e, where second generation of economic reforms the state have exclusive rights to produce are and maintaining this pace of growth and opened up for Foreign Direct Investments. development of the economy. Hence FDI is a Earlier Railways and Defence were reserved significant factor which influences the level of for PSU’s and now FDI is allowed in these economic growth in India. It provides a sound sectors. 100 percent FDI is allowed under base for economic growth and development automatic route in most of the areas of Indian by enhancing the financial position of the Railways such as in bullet train, passenger country. It also contributes to the GDP and terminal, railway electrification, mass rapid foreign exchange reserves of the country. transport systems and IRCTC. 49 percent FDI India attracted FDI worth US$ 22.42 billion. is allowed in Defence sector but Atomic energy Tourism, pharmaceuticals services, chemicals are still under PSU’s reserved areas. To get and construction were among the biggest access to more sophisticated technology in beneficiaries. For Indian economy which has Defence area we have to increase the FDI tremendous potential, FDI has had a positive limit. impact. FDI inflow supplements domestic -4- Anusandhanika /Special Issue on FDI in India/ October 2017 capital, as well as technology and skills of References existing companies. It also helps to establish 1. Kumar Nagesh, Globalization and the new companies. All of these contribute to Quality of FDI, Oxford University Press, economic growth of the Indian Economy. New Delhi, 2015 India’s Foreign Direct Investment (FDI) policy has been gradually liberalised to make the 2. Khan A.Q., Strategy for Foreign market more investor friendly. The results have Investment Management in 21st century, been encouraging. These days, the country is Kitab Mahal Publication, New Delhi, 2015 consistently ranked among the top three global 3. Shandilya T.K., Thakur A.K., Foreign investment destinations by all international Direct Investment in India: Problems and bodies, including the World Bank. Prospects, Deep and Deep Publication, Conclusion New Delhi, 2014 FDI in India has a significant role in the economic 4. Narayanana M. R., Inflow of Foreign growth and development of India. FDI in India to Direct Investment in India- Patterns, various sectors can attain sustained economic Performance, Implications, Foreign Trade growth and development through creation Review, Vol. XXXIV, 2015, p 3 of jobs, expansion of existing manufacturing 5. Grubaugh S.J., Determinants of Direct industries. The inflow of FDI in service sectors Foreign Investment, Review of Economics and construction and development sector & Statistics, November, 2015 attained substantial sustained economic growth and development through creation of 6. Grubaugh S.J., Determinants of Direct jobs in India. Computer, Software & Hardware Foreign Investment, Review of Economics and Drugs & Pharmaceuticals sector were the & Statistics, November, 2015 other sectors to which attention was shown 7. Roy Tirthankar, The Economy of India, by Foreign Direct Investors (FDI). The other Oxford University Press, New Delhi, 2015 sectors in Indian economy the Foreign Direct Investors interest was, in fact has been quite 8. Srivastava Sadhana, What Is the True poor. Level of FDI Flows to India?, Economic and Political Weekly February 15, 2003 FDI has helped to raise the output, productivity and employment in some sectors especially 9. Kumar Raj Kapila, A Decade of Economic in service sector. Indian service sector is Reforms in India, published by Academic generating the proper employment options for Foundation, Delhi, 1998 skilled worker with high perks. On the other 10. Mello Junior Luiz, R., Foreign Direct side banking and insurance sector help in Investment led growth, Evidence from providing the strength to the Indian economic Time Series and Panel Data, Oxford condition and develop the foreign exchange Economic Papers, 1999 system in country. FDI is always helps to create employment in the country and also support 11. Bailliu Jeanine N, Foreign Capital Flows, the small scale industries also and helps Financial Development and Economic country to put an impression on the world wide Growth in Developing Countries, Working level through liberalization and globalization. Paper Bank of Canada, 2000

-5- Anusandhanika /Special Issue on FDI in India/ October 2017 Anusandhanika /Special Issue on FDI in India/ October 2017/ pp 6-10 ISSN 0974 - 200X Foreign Direct Investment (FDI) in India & its impact on Indian Economy

Dr. I. J. Khalkho Associate Professor Department of Commerce Gossner College, Ranchi

Abstract

Nations’ progress and prosperity is reflected by the pace of its sustained economic growth and development. Investment provides the base and pre-requisite for economic growth and development. Developed economies consider FDI as an engine of market access in developing and less developed countries vis-à-vis for their own technological progress and in maintaining their own economic growth and development. Developing nations looks at FDI as a source of filling the savings, foreign exchange reserves, revenue, trade deficit, management and technological gaps. FDI is considered as an instrument of international economic integration as it brings a package of assets including capital, technology, managerial skills and capacity and access to foreign markets. The impact of FDI depends on the country’s domestic policy and foreign policy. As a result FDI has a wide range of impact on the country’s economic policy. In order to study the impact of foreign direct investment on economic growth, two models were framed and fitted. The foreign direct investment model shows the factors influencing the foreign direct investment in India. The economic growth model depicts the contribution of foreign direct investment to economic growth.

Keywords : vital component, development strategy, managerial skills

Introduction visible panacea for all their scarcities. Further, the integration of global financial markets One of the most striking developments during paves ways to this explosive growth of FDI the last two decades is the spectacular growth around the globe. of FDI in the global economic landscape. This unprecedented growth of global FDI in 1990 Apart from being a critical driver of economic around the world make FDI an important and growth, Foreign Direct Investment (FDI) is a vital component of development strategy in major source of non-debt financial resource for both developed and developing nations and the economic development of India. Foreign policies are designed in order to stimulate companies invest in India to take advantage inward flows. In fact, FDI provides a win – win of relatively lower wages, special investment situation to the host and the home countries. privileges such as tax exemptions, etc. For a Both countries are directly interested in inviting country where foreign investments are being FDI, because they benefit a lot from such type of made, it also means achieving technical know- investment. The ‘home’ countries want to take how and generating employment. The Indian the advantage of the vast markets opened by Government’s favourable policy regime and industrial growth. On the other hand the ‘host’ robust business environment have ensured countries want to acquire technological and that foreign capital keeps flowing into the managerial skills and supplement domestic country. The government has taken many savings and foreign exchange. Moreover, the initiatives in recent years such as relaxing FDI paucity of all types of resources viz. financial, norms across sectors such as defence, PSU capital, entrepreneurship, technological know- oil refineries, telecom, power exchanges, and how, skills and practices, access to markets- stock exchanges, among others. According to abroad- in their economic development, Department of Industrial Policy and Promotion developing nations accepted FDI as a sole (DIPP), the total FDI investments India -6- received in FY 2015-16 was US$ 40 billion, destinations for inbound investments. Since indicating that government’s effort to improve 1991, the regulatory environment in terms ease of doing business and relaxation in FDI of foreign investment has been consistently norms is yielding results eased to make it investor-friendly. FDI has been associated with improved In the critical face of Indian economy the economic growth and development in the host government of India with the help of World countries which has led to the emergence of Bank and IMF introduced the macro-economic global competition to attract FDI. stabilization and structural adjustment program. As a result of these reforms India Foreign Direct Investment (FDI) is considered open its door to FDI inflows and adopted a as an engine of economic growth. Before the more liberal foreign policy in order to restore the Economic reforms the flow of foreign direct confidence of foreign investors. Further, under investment to India has been comparatively the new foreign investment policy Government limited because of the type of industrial of India constituted FIPB (Foreign Investment development strategy and the various foreign Promotion Board) whose main function was to investment policy followed by the nation Not only invite and facilitate foreign investment Starting India but much heralded FDI boom worldwide from a baseline of less than USD 1 billion in constitutes a major element of economic 1990, a recent UNCTAD survey projected India globalization Foreign investment was normally as the second most important FDI destination permitted only in high technology industries in (after China) for transnational corporations. As priority areas and in export oriented areas. So per the data, the sectors which attracted higher the inflow of FDI before 1990’s was very low. inflows were services, telecommunication, To fully utilize the country’s immense economic construction activities and computer software potential, the government launched Economic and hardware. Mauritius, Singapore, the US reforms in 1991. The new Government policies and the UK were among the leading sources are simple, transparent and promote domestic of FDI to the country. and foreign investment. India’s abundant and diversified natural resources, its sound India attracted FDI worth US$ 22.42 billion. economic policy, good market condition and Tourism, pharmaceuticals, services, chemicals high skilled human resources make it a proper and construction were among the biggest destination for FDI. After long years of journey beneficiaries. For Indian economy which has FDI was also introduced in various sectors tremendous potential, FDI has had a positive and states in India. The Investment of FDI impact. FDI inflow supplements domestic in various states and sectors leads to rapid capital, as well as technology and skills of growth of Indian economy Foreign Direct existing companies. It also helps to establish Investment in India is allowed through four new companies. All of these contribute to basic routes namely financial collaborations, economic growth of the Indian Economy. technical collaborations & joint ventures, India’s Foreign Direct Investment (FDI) policy capital markets via Euro issues, and private has been gradually liberalised to make the placement or preferential allotments. India market more investor friendly. The results have has opened up its economy & allowed MNEs been encouraging. These days, the country is in core sectors such as Power & Fuels, consistently ranked among the top three global Electrical Equipments, Transport, Chemicals, investment destinations by all international Food Processing, Drugs & Pharmaceuticals, bodies, including the World Bank. Textiles, Industrial Machinery, insurance as Materials and Methods well as telecommunication. For the purpose of in depth study the contents India has already marked its presence as one have been taken from interview, relevant of the fastest growing economies of the world. books and articles from journals and websites. It has been ranked among the top 3 attractive The method used is analytical and descriptive. -7- Anusandhanika /Special Issue on FDI in India/ October 2017 Both primary as well as secondary source of The long-term growth prospective of the Indian Information have been taken. economy is positive due to its young population, corresponding low dependency ratio, healthy Results and Discussions savings and investment rates, and increasing Foreign investment plays a significant role in integration into the global economy. The development of any economy as like India. Indian economy has the potential to become Many countries provide many incentives the world’s 3rd largest economy by the next for attracting the Foreign Direct Investment decade, and one of the largest economies by (FDI). Need of FDI depends on saving and mid-century. And the outlook for short-term investment rate in any country. Foreign Direct growth is also good as according to the IMF, investment acts as a bridge to fulfill the gap the Indian economy is the “bright spot” in the between investment and saving. In the process global landscape. India also topped the World of economic development foreign capital helps Bank’s growth outlook for 2015-16 for the first to cover the domestic saving constraint and time with the economy having grown 7.6% provide access to the superior technology in 2015-16 and expected to grow 8.0 % + in that promote efficiency and productivity of the 2016-17. existing production capacity and generate new India has the one of fastest growing service production opportunity. sectors in the world with annual growth rate India’s recorded GDP growth throughout the of above 9% since 2001, which contributed to last decade has lifted millions out of poverty 57% of GDP in 2012-13. India has become a & made the country a favoured destination for major exporter of IT services, BPO services, foreign direct investment. A recent UNCTAD and software services with $167.0 billion worth survey projected India as the second most of service exports in 2013-14. It is also the important FDI destination after China for fastest-growing part of the economy. The IT transnational corporations during 2010-2015. industry continues to be the largest private sector employer in India. India is also the Services, telecommunication, construction fourth largest start-up hub in the world with activities, computer software & hardware and over 3,100 technology start-ups in 2014-15. automobile are major sectors which attracted The agricultural sector is the largest employer higher inflows of FDI in India. Countries like in India’s economy but contributes to a Mauritius, Singapore, US & UK were among declining share of its GDP (17% in 2013-14). the leading sources of FDI in India. India ranks second worldwide in farm output. The Economy of India is the seventh-largest The Industry sector has held a constant share economy in the world measured by nominal of its economic contribution (26% of GDP in GDP and the third-largest by purchasing 2013-14). The Indian auto mobile industry is (PPP). The country is classified as a newly one of the largest in the world with an annual industrialized country, one of the G-20 major production of 21.48 million vehicles (mostly two economies, a member of BRICS and a and three wheelers) in FY 2013-14. India has developing economy with an average growth $600 billion worth of retail market in 2015 and rate of approximately 7% over the last two one of world’s fastest growing E-Commerce decades. Maharashtra is the wealthiest Indian markets. state and has an annual GDP of US$220 India’s two major stock exchanges, Bombay billion, nearly equal to that of Portugal, and Stock Exchange and National Stock Exchange accounts for 12% of the Indian GDP followed of India, had a market capitalization of US$1.71 by the states of Tamil Nadu (US$140 billion) trillion and US$1.68 trillion respectively as of and Uttar Pradesh (US$130 billion). India’s Feb 2015, which ranks 11th & 12 largest in economy became the world’s fastest growing the world respectively according to the World major economy from the last quarter of 2014, Federation of Exchanges. India is a member replacing the People’s Republic of China. of the Commonwealth of Nations, the South -8- Anusandhanika /Special Issue on FDI in India/ October 2017 Asian Association for Regional Cooperation, country. FDI inflows in 2015-16 are more in the the Non Aligned Movement, the G20, the areas of service sectors (18%), construction G8+5, the International Monetary Fund, the development (10%), telecommunication (7%), World Bank, the World Trade Organisation, computer software and hardware (6%) etc. the United Nations, the Shanghai Cooperation While the share of industry in GDP remained Organisation, the New Development BRICS stagnant, noteworthy over the period there Bank the Asian Infrastructure Investment Bank was structural transformation in manufacturing and Missile Technology Control Regime. sector. With FDI inflows there are development in many areas like infrastructure, per capita Impact of FDI on Indian Economy income and standard of living of the people has India is the second fastest growing economy increased, poverty has declined in absolute in the world with a GDP growth rate of 7.6% terms, unemployment has reduced by 3 times in the FY16. In terms of GDP it is the 10th since 1990-91 to 2013-14, clean technology largest economy in the world and in terms has installed, roads, dams, bridges, schools, PPP (Purchasing Power Parity) it is the 3rd colleges, hospitals has been built with new largest economy in the world. To maintain technology. Thereby, overall development has this growth rate and rank India requires huge shown in all over India. foreign investment. Government of India Capital has taken many initiatives to attract foreign investment into India. One of such initiative is For the economic growth and development “Make in India”, programme to make India a of the country India requires huge capital. To ‘Manufacturing Hub’ of the world. compensate this domestic capital requirement, FDI inflows are one of the important pre- A Foreign Direct Investment (FDI) is an requisite. FDI is helping developing countries investment made by a company or entity in capital formation by bringing fresh capitals. based in one country, into a company or entity based in another country. A foreign Technology direct investment is a controlling ownership Developing countries are lacking technological in a business enterprise in one country by an know-how. With the opening up of their entity based in another country. Foreign Direct economies for FDI, they will get the access Investment (FDI) has played a crucial role in to sophisticated technology from the foreign the economic growth and development of the firms which will enhance their productivity and country. FDI inflows not only bring capital in quality of the products. the country but also bring technological know- how and managerial skills. Managerial Skills FDI inflows are not only helping in capital Accelerated Economic Growth formation but also help in developing It has been witnessed that with the increase in managerial skills. FDI inflows in India from $0.13 billion to $30.3 Competitive Environment billion in 2010-11, the GDP growth rate of the country has accelerated from 1.43 percent in FDI inflows have increased the competitive 1990-91 to 7.6 percent in 2015-16. It shows environment for the domestic firms that India’s GDP has increased four times consequently benefitting the consumers by since 1990-91. accessing with better quality products at a lesser price. Accelerated Economic Development Reduction in Balance of Payment Deficit FDI act as a catalyst in various sectors mainly With the transfer of technology and in manufacturing and service sectors. With enhancement of production techniques, the new government in power, there are marketing expertise and modern managerial many reforms to attract FDI inflows in the techniques possibilities of export promotion

-9- Anusandhanika /Special Issue on FDI in India/ October 2017 has also been opened up in new areas. India. FDI in India in numerous sectors will attain With better quality product at a lower price sustained economic growth and development the demand increased for Indian goods through creation of jobs, growth of existing and services abroad consequently there is producing industries. There are various increase in exports. Therefore, exports have economic factors which affect the inflows of increased from $18 billion to $245 billion. With FDI. Even despite the fact that of many factors the enhancement in exports BOP deficits has Indian economy has succeeded to attract FDI declined. Government of India has also taken inflows. India due to variability and many FDI many measures to attract FDI to boost exports. caps provided by the government and other Employment Generation factors hoard and providing opportunities to many foreign investor countries. The invasion With FDI inflows into the country new job of FDI in service sectors and construction opportunities has been created in various and development sector earned substantial, sectors. As more employment opportunities sustained economic progression through are generated mainly in metropolitan cities creation of jobs in Indian economy. FDI has where FDI inflows are maximum i.e., Delhi helped to raise the output, productivity and and Mumbai. Therefore more rural-urban employment in some sectors especially migrations are in these cities. in service sector. Indian service sector is Poverty Alleviation generating the proper employment options for India is the second largest populated country skilled worker with high perks. in the world. With increase in employment References opportunities there is reduction in absolute poverty in India. But as the population 1. Prasanna N, FDI in India: Issues and base is very high in actual terms poverty Challenges, Regal Publications, New has increased. So government has to take Delhi, 2014 measures to attract more FDI and create more 2. Chaudhuri Sarbajit, Mukhopadhyay employment opportunities to reduce poverty Ujjaini, Foreign Direct Investment in from the country. Developing Countries, Springer India, Opened up Reserved Area New Delhi, 2015 With the new reforms to boost FDI inflows in 3. Roy Tirthankar, The Economy of India, India, the PSU’s reserved areas i.e, where Oxford University Press, New Delhi, 2015 the state have exclusive rights to produce are 4. Kumar Raj Kapila, A Decade of Economic opened up for Foreign Direct Investments. Reforms in India, Academic Foundation, Earlier Railways and Defence were reserved Delhi, 2015 for PSU’s and now FDI is allowed in these sectors. 100 percent FDI is allowed under 5. Chakraborty S. and Basu P., Foreign automatic route in most of the areas of Indian Direct Investment and Growth in India: Railways such as in bullet train, passenger A Co integration Approach, Applied terminal, railway electrification, mass rapid Economics, Vol. 34, 2014 transport systems and IRCTC. 49 percent FDI 6. https://en.wikipedia.org/wiki/Economy_ is allowed in Defence sector but Atomic energy of_India are still under PSU’s reserved areas. To get access to more sophisticated technology in 7. Narayanana M. R., Inflow of Foreign Defence area we have to increase the FDI Direct Investment in India- Patterns, limit. Performance, Implications, Foreign Trade Review, Vol. XXXIV, 2015, p 3 Conclusion 8. Bhasin Nitin, Foreign Direct Investment FDI incorporates an important role within the (FDI) in India, New Century Publications, economic progression and development of New Delhi, 2012 -10- Anusandhanika /Special Issue on FDI in India/ October 2017 Anusandhanika /Special Issue on FDI in India/ October 2017/ pp 11-15 ISSN 0974 - 200X FDI in India: An Analysis Dr. Vijay Prakash Department of Commerce Gyan Chand Jain Commerce College, Chaibasa

Abstract

The economic development witnessed during the past two decades in India rests to a great extent on Foreign Direct Investment (FDI). FDI has been a vital non-debt financial force behind the economic upsurge in India. Special investment vantages like cheap cost wages and tax exemptions on the amount being invested attract foreign companies to invest in India. FDI in India is done across a wide range of industries and its relentless influx reflects the tremendous scope, faith and trust that foreign investors have in the Indian economy. To ensure an uninterrupted inflow of FDI in India, the Indian government has created conducive trade atmosphere and effective business policy measures in place. This strategy is reflected in the steps taken by the government, such as easing out the restrictions levied on sectors like stock exchanges, power exchanges, defence and telecommunications.

Keywords : tax exemptions, trade policies, financial stability

Introduction investments (FDI). FDI brings better technology and management, marketing networks and FDI have helped India to attain a financial offers competition, the latter helping Indian stability and economic growth with the help companies improve, quite apart from being of investments in different sectors. FDI has good for consumers. Alongside opening up boosted the economic life of India and on the of the FDI regime, steps were taken to allow other hand there are critics who have blamed foreign portfolio investments into the Indian the government for ousting the domestic stock market through the mechanism of inflows. After liberalization of Trade policies foreign institutional investors. The objective in India, there has been a positive GDP was not only to facilitate non-debt creating growth rate in Indian economy. Foreign direct foreign capital inflows but also to develop the investments helps in developing the economy stock market in India, lower the cost of capital by generating employment to the unemployed, for Indian enterprises and indirectly improve Generating revenues in the form of tax and corporate governance structures. On their part, incomes, Financial stability to the government, large Indian companies have been allowed to development of infrastructure, backward and raise capital directly from international capital forward linkages to the domestic firms for the markets through commercial borrowings and requirements of raw materials, tools, business depository receipts having underlying Indian infrastructure, and act as support for financial equity. Thus the country adopted a two- system. Forward and back ward linkages pronged strategy: one to attract FDI which is are developed to support the foreign firm associated with multiple attendant benefits of with supply of raw and other requirements. It technology, access to export markets, skills, helps in generation of employment and also management techniques, etc. and two to helps poverty eradication. There are many encourage portfolio capital flows which ease businesses or individuals who would earn their the financing constraints of Indian enterprises. lively hood through the foreign investments. There are legal and financial consultants who FDI Policy Framework in India also guide in the early stage of establishment Policy regime is one of the key factors driving of firm. investment flows to a country. Apart from Foreign investments mean both foreign underlying overall fundamentals, ability of a portfolio investments and foreign direct nation to attract foreign investment essentially -11- depends upon its policy regime - whether it hand and allowed increased access to foreign promotes or restrains the foreign investment technology and funding on the other. A series flows. This section undertakes a review of of measures that were directed towards India’s FDI policy framework. There has been liberalizing foreign investment included: a sea change in India’s approach to foreign Introduction of dual route of approval investment from the early 1990s when it began of FDI– RBI’s automatic route and structural economic reforms about almost all Government’s approval (SIA/FIPB) route. the sectors of the economy. Automatic permission for technology Historically, India had followed an extremely agreements in high priority industries careful and selective approach while and removal of restriction of FDI in low formulating FDI policy in view of the technology areas as well as liberalisation governance of „import-substitution strategy‟ of technology imports. of industrialisation. The regulatory framework was consolidated through the enactment of Permission to Non-resident Indians Foreign Exchange Regulation Act (FERA), (NRIs) and Overseas Corporate Bodies 1973 wherein foreign equity holding in a joint (OCBs) to invest up to 100 per cent in high venture was allowed only up to 40 per cent. priorities sectors. Subsequently, various exemptions were Hike in the foreign equity participation extended to foreign companies engaged limits to 51 per cent for existing companies in export oriented businesses and high and liberalisation of the use of foreign technology and high priority areas including ‘brands name’. allowing equity holdings of over 40 per cent. Moreover, drawing from successes of other Signing the Convention of Multilateral country experiences in Asia, Government not Investment Guarantee Agency (MIGA) for only established Special Economic Zones protection of foreign Investments. (SEZs) but also designed liberal policy and These efforts were boosted by the enactment of provided incentives for promoting FDI in these Foreign Exchange Management Act (FEMA), zones with a view to promote exports. The 1999 [that replaced the Foreign Exchange announcements of Industrial Policy (1980 Regulation Act (FERA), 1973] which was less and 1982) and Technology Policy (1983) stringent. In 1997, Indian Government allowed provided for a liberal attitude towards foreign 100% FDI in cash and carry wholesale and investments in terms of changes in policy FDI in single brand retailing was allowed 51% directions. The policy was characterised by in June, 2006. After a long debate, further de-licensing of some of the industrial rules and amendment was made in December, 2012 promotion of Indian manufacturing exports which led FDI to 100% in single brand retailing as well as emphasising on modernisation of and 51% in multiple brand retailing. industries through liberalised imports of capital goods and technology. This was supported by Materials and Methods trade liberalisation measures in the form of For the purpose of in depth study the contents tariff reduction and shifting of large number of have been taken from interview, relevant items from import licensing to Open General books and articles from journals and websites. Licensing (OGL). The method used is analytical and descriptive. A major shift occurred when India embarked Both primary as well as secondary source of upon economic liberalisation and reforms Information have been taken. program in 1991 aiming to raise its growth Results and Discussions potential and integrating with the world economy. Industrial policy reforms slowly but India is a developing country; capital has been surely removed restrictions on investment one of the scare resources that are usually projects and business expansion on the one required for economic development. Capital -12- Anusandhanika /Special Issue on FDI in India/ October 2017 is limited and there are many issues such least half of their investment should be for as Health, poverty, employment, education, back-end infrastructure such as warehouses. research and development, technology They will also need to get permission from the obsolesce, global competition. The flow of state government where they wish to open FDI in India from across the world will help their stores. in acquiring the funds at cheaper cost, better The last fiscal (2014-15) year saw a technology, employment generation, and considerable increase in the FDI made in upgraded technology transfer, scope for more India. India’s pro-growth business policies trade, linkages to domestic firms. The following have contributed a great deal in making this arguments are advanced in favour of foreign possible. The first five months of the 2014-15 capital. fiscal year noticed a net inflow of US$ 14.1 As per the International Monetary Fund million FDI in India, amounting to a good 33.5 (IMF), Foreign Direct Investment, commonly percent rise in the FDI influx registered for referred to as FDI is an investment made the corresponding period during the previous to acquire lasting or long-term interest in fiscal year. With an aggregate investment enterprises operating outside of the economy of US$ 353,963 million between April 2000 of the investor. It is not ‘portfolio foreign and November 2014, neighbouring country investment (supine investment in another Mauritius has become the country with the country’s securities like bonds and stocks)’. largest Foreign Direct Investment (FDI) inflow Inorganically or organically done investment into India. in another country is not FDI. To understand There are several benefits of increasing the difference better, a British daily, the foreign direct investment in India. First of all, Financial Times puts it this way: “Standard with more FDI, consumers will be able to save definitions of control use the internationally 5 to 10 percent on their expenses because agreed 10 percent threshold of voting shares, products will be available at much less rates but this is a grey area as often a smaller and to top it all, the quality will be better as block of shares will give control in widely held well. In short, it will be a win-win situation companies. Moreover, control of technology, for the buyers. It is also expected that the management, even crucial inputs can confer farmers who face a lot of economic problems de facto control. Ever since coming to power, will also get better payment for their produce. the NDA government has taken a number of This is a major benefit considering how many steps to bolster the FDI scenario in India. It has farmers have been giving up their lives lately. enabled international entities like Carrefour It is expected that their earnings will increase and Walmart to come and invest in the multi- by 10 to 30 percent. FDI is also supposed brand retail market in India. The retail market to have a positive effect on the employment in India has been growing at a substantial rate scenario by generating approximately 4 million and at present, it is worth somewhere around job opportunities. Areas like logistics will be 28 billion dollars. It is expected that in 2020, benefited as well because of FDI and itis this value will reach approximately 260 billion assumed that 6 million jobs will be created. The dollars. However, there are certain conditions governments – both central and state – will be that need to be fulfilled by international entities benefited because of FDI. An addition of 25-30 that are thinking of coming and investing in the billion dollars to the national treasury is also retail market in India. The minimum amount expected. This is a substantial amount and that needs to be invested by a foreign entity to can really play a major role in the development gain entry in India’s retail market is 100 million of Indian economy in the long term. dollars. There are also some restrictions in choosing the place where their stores can be Steps Taken by Government to Promote FDI opened. They can only start stores in cities The Indian Government has taken a number where the population is at least 1 million. At of steps to show its willingness to allow more -13- Anusandhanika /Special Issue on FDI in India/ October 2017 foreign direct investment in the country. In a lot of relaxations for FDI and the business the infrastructure development sector, it has done under the FDI umbrella in India. The relaxed the norms pertaining to area restriction, Union Budget presented in the Lok Sabha the laws regarding gaining a comfortable exit mentioned that the procedures through from a particular project and the requirements which the corporate houses attract foreign relating to minimum capitalization. If investment into India will be simplified and companies are ready to commit 30 percent of made uncomplicated. From now onwards, their investments for affordable housing, then there will hardly be any difference between the rules for minimum capitalization and area ‘Portfolio Foreign Investment’ and ‘Foreign restriction will be waived off. It is expected that Direct Investment’. The composite cap has this will benefit the construction sector a lot, replaced the concept of individual cap; for especially in the form of greater investment instance, there is now a composite cap of inflow. The situation will only get better once 49 percent foreign investors allowed in the sectoral conditions are further relaxed and the insurance sector. The Indian government, terms that have been used in the policy are during the 2014-15 fiscal year, announced that clarified up to a greater extent. This is likely to it would allow FDI worth US$ 14.65 billion into get more investment especially in the newer the railways infrastructure. Some of the most areas. This will also act as a fillip for entities expensive and largest railway projects will be eagerly interested in developing plots for carried out under these investments. During serviced housing. This is going to be a major the next three years, ADAMA Agrochemicals, development considering the fact that the land an Israeli firm, has set its targets to spend in the urban areas is inadequate. One also US$ 50 million in India. The company plans to needs to factor in the high costs of land in enhance R&D and manufacturing facilities in this regard. It will also lead to the creation of India to grow at a better rate than the current cost-beneficial, affordable houses. It will help industry growth rate. Hundred percent FDI with the ‘Smart Cities’ programme as well. into the health sector will be allowed by the In the insurance sector too, the government Department of Industrial Policy and Promotion has increased the upper limit of FDI from 26 (DIPP) to enable indigenous manufacturing percent to 49 percent. It is an amalgamation of and reduce imports of medical devices. By different areas of investment such as: the next fiscal year, the value of medical devices in the world market will be worth US$ Foreign portfolio investment 400 billion. The equity investment in the real Foreign venture capital investment estate is expected to go twofold as the Indian government has allowed 100 percent FDI into Foreign institutional investment the construction sector. As per the real estate Non-resident investment experts’ beliefs, the demand from foreign Qualified foreign investment property buyers will rise. Currently valued at US$ 1.5 billion, the real estate equity will reach The Indian Ministry of Finance has also a value of US$ 3 billion in a few years, the proposed that 100 percent FDI will be allowed experts and analysts opine. in railways-related infrastructure. However, this does not include the operational aspects. Conclusion While it is true that the foreign investors will not The sectoral level of the Indian economy, FDI be allowed to intervene in railway operations, has helped to raise the output, productivity they will be able to provide for high-speed and employment in some sectors especially trains, such as bullet train, and enhance the in service sector. Indian service sector is overall network in the process. generating the proper employment options for skilled worker with high perks. On the other Investments in India during 2015-16 side banking and insurance sector help in The Government in the centre has announced providing the strength to the Indian economic -14- Anusandhanika /Special Issue on FDI in India/ October 2017 condition and develop the foreign exchange 3. Consolidated FDI Policy, Department of system in country. FDI is always helps to create Industrial Policy and Promotion, Ministry employment in the country and also support of Commerce and Industry, Government the small scale industries also and helps of India, 2015 country to put an impression on the world wide 4. http://en.wikipedia.org/wiki/Foreign_ level through liberalization and globalization. direct_investment_in_India References 5. Ghosh, Rajarshi, Foreign Direct 1. Singh Rampal, FDI in India: Issues and Investment – Policies and Experiences, Challenges, Regal Publications, New ICFAI University Press, Hyderabad, 2015 Delhi, 2014 6. Pradhan Rudra and Prakash P, ICFAI 2. Thakur Pooja and Burange L.G., An Journal of Financial Economics, Vol. 6, Analysis of Productivity Spillovers from Issue 2, 2014 FDI in India’s Services Sector, Foreign Trade Review, SAGE Publications, New Delhi, 2014

-15- Anusandhanika /Special Issue on FDI in India/ October 2017 Anusandhanika /Special Issue on FDI in India/ October 2017/ pp 16-20 ISSN 0974 - 200X Problems and Prospects of Foreign Direct Investment in India

Darshana Gopa Minz Research Scholar University Department of Commerce & Business Management Ranchi University, Ranchi

Abstract

Foreign Direct Investment (FDI) in India has played an important role in the development of the Indian economy. It has in lot of ways facilitated India to achieve a certain degree of financial stability, growth and development. It is the objective of the Government of India to attract and promote foreign direct investment in order to supplement domestic capital, technology and skills, for accelerated economic growth. Foreign Direct Investment (FDI) and trade are often seen as important catalysts for economic growth in the developing countries. FDI is an important vehicle of technology transfer from developed countries to developing countries. FDI is one example of international factor movement. An investment abroad, usually where the company being invested in is controlled by the foreign corporation. The simplest explanation of FDI would be a direct investment by a corporation in a commercial venture in another country. A key to separating this action from involvement in other venture in foreign country is that the business enterprise operates completely outside the economy of the corporation’s home country.

Keywords : domestic investment, emerging economies, privatization of markets

Introduction interest in Indian economy because of liberalized regime pursued and followed by The rapid expansion in FDI by multinational Indian economy. This may be due to the low enterprises since the mid-eighties may flow of FDI into India both at the macro level be attributed to significant changes in as well as at the sartorial level. It implies that technologies, greater liberalization of trade the spirit in which the economy has been and investment regimes, and deregulation liberalized and exposed to the world economy and privatization of markets in many countries at the late eighties and early nineties has not including developing countries like India. FDI been achieved after so many years. This calls is not permitted in the arms, nuclear, railway, for a judicious policy decision towards FDI at coal or mining industries. The objective behind the sartorial level. A large number of changes allowing FDI is to harmonize and complement that were introduced in the country`s regulatory domestic investment, for achieving a higher economic policies heralded the liberalization level of economic development and providing era of the FDI policy regime in India and more opportunities for up gradation of brought about a structural breakthrough in the technologies as well as to have an access to volume of the FDI inflows into the economy global managerial skills and practices. maintained a fluctuating and unsteady trend FDI is as an engine of capital, technology, during the study period. It might be interest to managerial skills, technological progress note that more than 50 per cent of the total FDI & capacity, access to foreign markets inflows received in India come from Mauritius, and in maintaining economic growth and Singapore and the USA. The main reason for development for developing countries, where higher levels of investment from Mauritius was as for developed countries it is considered as that the fact that India entered into a Double a tool for accessing the market of emerging Taxation Avoidance Agreement (DTAA) with economies. Foreign investors showed keen Mauritius were protected from taxation in India. -16- Among the different sectors, the service sector technical collaborations & joint ventures, had received the larger proportion followed by capital markets via Euro issues, and private computer software and hardware sector and placement or preferential allotments. India has then telecommunication sector. The process of opened up its economy & allowed MNEs economic reforms which was initiated in July in core sectors such as Power & Fuels, 1991 to liberalize and globalize the economy Electrical Equipments, Transport, Chemicals, had gradually opened up many sectors of its Food Processing, Drugs & Pharmaceuticals, economy for the foreign investors. Textiles, Industrial Machinery, insurance as well as telecommunication. Foreign Direct Investment (FDI) is a type of investment in to an enterprises in a country by Materials and Methods another enterprises located in another country For the purpose of in depth study the contents by buying a company in the target country or by have been taken from interview, relevant expanding operations of an existing business books and articles from journals and websites. in that country. In the era of globalization FDI The method used is analytical and descriptive. takes vital part in the development of both Both primary as well as secondary source of developing and developed countries. FDI has Information have been taken. been associated with improved economic growth and development in the host countries Results and Discussions which has led to the emergence of global Foreign direct investment refers to the competition to attract FDI. investment in a business from another country Foreign Direct Investment (FDI) is considered for which the foreign investor has control as an engine of economic growth. Before the over the company purchased According Economic reforms the flow of foreign direct to Organization of Economic Cooperation investment to India has been comparatively & Development (OECD) for an FDI control limited because of the type of industrial should be 10 % or more of business A parent development strategy and the various business enterprise & its foreign affiliates are foreign investment policy followed by the the two sides of the FDI relationship Together nation Not only India but much heralded they comprise an MNC or MNEs The parent FDI boom worldwide constitutes a major enterprise through its foreign direct investment element of economic globalization Foreign effort seeks to exercise substantial control investment was normally permitted only in over the foreign affiliate company Control as high technology industries in priority areas defined by UN is ownership of greater than and in export oriented areas. So the inflow of or equal to 10% of the ordinary shares or FDI before 1990’s was very low. To fully utilize access to voting rights in an incorporated firm the country’s immense economic potential, Ownership share amounting to less than that the government launched Economic reforms stated above is termed as portfolio investment in 1991. The new Government policies are & is not categorized as FDI simple, transparent and promote domestic India has already marked its presence as one and foreign investment. India’s abundant of the fastest growing economies of the world. and diversified natural resources, its sound It has been ranked among the top 3 attractive economic policy, good market condition and destinations for inbound investments. Since high skilled human resources make it a proper 1991, the regulatory environment in terms destination for FDI. After long years of journey of foreign investment has been consistently FDI was also introduced in various sectors eased to make it investor-friendly. and states in India. The Investment of FDI in various states and sectors leads to rapid The historical background of FDI in India can growth of Indian economy Foreign Direct be traced back with the establishment of East Investment in India is allowed through four India Company of Britain. British capital came basic routes namely financial collaborations, to India during the colonial era of Britain in India. -17- Anusandhanika /Special Issue on FDI in India/ October 2017 The industrial policy of 1965, allowed MNCs speaking work force, the country is considered to venture through technical collaboration in as a safe haven for foreign investors. India. Therefore, the government adopted Yet, India seems to be suffering from a host a liberal attitude by allowing more frequent of self-imposed restrictions and problems equity. regarding opening its markets completely In the critical face of Indian economy the too global investors by implementing full government of India with the help of World scale economic reforms. Some of the major Bank and IMF introduced the macro-economic impediments for India’s poor performance in stabilization and structural adjustment the area of FDI are: political instability, poor program. As a result of these reforms India infrastructure, confusing tax and tariff policies, open its door to FDI inflows and adopted a Draconian labour laws, well entrenched more liberal foreign policy in order to restore the corruption and governmental regulations. confidence of foreign investors. Further, under Lack of adequate infrastructure: It is cited as the new foreign investment policy Government a major hurdle for FDI inflows into India. This of India constituted FIPB (Foreign Investment bottleneck in the form of poor infrastructure Promotion Board) whose main function was to discourages foreign investors in investing in invite and facilitate foreign investment Starting India. India’s age old and biggest infrastructure from a baseline of less than USD 1 billion in problem is the supply of electricity. Power 1990, a recent UNCTAD survey projected India cuts are considered as a common problem as the second most important FDI destination and many industries are forced to close their (after China) for transnational corporations. As business. per the data, the sectors which attracted higher inflows were services, telecommunication, Stringent labor laws: Large firms in India are construction activities and computer software not allowed to retrench or layoff any workers, and hardware. Mauritius, Singapore, the US or close down the unit without the permission and the UK were among the leading sources of the state government. These laws protect of FDI to the country. the workers and thwart legitimate attempts to restructure business. To retrench unnecessary India attracted FDI worth US$ 22.42 billion. workers, firms require approval from both Tourism, pharmaceuticals, services, chemicals employees and state governments-approval and construction were among the biggest that is rarely given. Further, Trade Unions beneficiaries. For Indian economy which has extort huge sums from companies through tremendous potential, FDI has had a positive over-generous voluntary retirement schemes. impact. FDI inflow supplements domestic capital, as well as technology and skills of Corruption: Corruption is found in nearly every existing companies. It also helps to establish public service, from defense to distribution new companies. All of these contribute to of subsidized food to the poor people, to the economic growth of the Indian Economy. generation and transmission of electric power. India’s Foreign Direct Investment (FDI) policy The combination of legal hurdles, lack of has been gradually liberalised to make the institutional reforms, bureaucratic decision- market more investor friendly. The results have making and the allegations of corruption at the been encouraging. These days, the country is top have turned foreign investors away from consistently ranked among the top three global India. investment destinations by all international Lack of decision making authority with the bodies, including the World Bank. state Governments: The reform process of Problems of FDI in India liberalizing the economy is concentrated mainly in the Centre and the State Governments India, the largest democratic country with the are not given much power. In most key second largest population in the world, with infrastructure areas, the central government rule of law and a highly educated English -18- Anusandhanika /Special Issue on FDI in India/ October 2017 remains in control. Brazil, China, and Russia tax exemption and subsidies to the foreign are examples where regional governments investors who would help in developing the take the lead in pushing reforms and prompting economy. further actions by the central government. Cheap and Labour: There is abundant labour Limited scale of export processing zones: available in India in terms of skilled and India’s export processing zones have lacked unskilled human resources. Foreign investors dynamism because of several reasons, such as will to take advantage of the difference in the their relatively limited scale; the Government’s cost of labour as we have cheap and skilled general ambivalence about attracting FDI; labours. Example: Foreign firms have invested the unclear and changing incentive packages in BPO’s in India which require skilled labour attached to the zones; and the power of the and we have been providing the same. central government in the regulation of the Basic Infrastructure: India though is a zones. India which established its first Export developing country, it has developed special Processing Zone (EPZ) in 1965 has failed to economic zone where there have focused develop the zones when compared to China to build required infrastructure such as which took initiative for establishment only in roads, effective transportation and registered 1980. carrier departure worldwide, Information and High corporate tax rates: Corporate tax rates communication network/technology, powers, in East Asia are generally in the range of 15 to financial institutions, and legal system and 30 percent, compared with a rate of 48 percent other basic amenities which are must for the for foreign companies in India. High corporate success of the business. A sound legal system tax rate is definitely a major disincentive to and modern infrastructure supporting an foreign corporate investment in India. efficient distribution of goods and services in the host country Indecisive government and political instability: There were too many anomalies on the Unexplored Markets: In India there is large government side during past two decades scope for the investors because there is a and they are still affecting the direct inflow large section of markets have not explored of FDI in India such as mismanagement and or unutilized. In India there is enormous oppression by the different company, which potential customer market with large middle affect the image of the country and also deject class income group who would be target group the prospective investor, who is very much for new markets. Example: BPO was one conscious about safety and constant return on sector where the investors had large scope their investment. exploring the markets where the service was provided with just a call, with almost customer Prospects of FDI in India satisfaction. Stable Policies: India stable economic and Conclusion socio policies have attracted investors across border. Investors prefer countries which stable Foreign capital consists of private foreign economic policies. If the government makes capital and public foreign capital. Public changes in policies which will have effect on foreign capital is otherwise known as foreign the business. The business requires a lot of aid where as private foreign capital consists funds to be deployed and any change in policy of either foreign direct investment or indirect against the investor will have a negative effect. foreign investment. Further, indirect foreign investment is otherwise termed as portfolio Economic Factors: Different economic factors investment. Foreign portfolio investment is an encourage inward FDI. These include investment in the share and debt securities of interest loans, tax breaks, grants, subsidies companies abroad in the secondary market and the removal of restrictions and limitation. nearly for sake of returns and not in the The government of India has given many -19- Anusandhanika /Special Issue on FDI in India/ October 2017 interests of the management of a company. other structural and administrative rigidities. In case of foreign direct investment (FDI), Its ability to deal with the major obstacles the private foreign investor either sets up a namely shortages of financial resources and branch or a subsidiary in the recipient country. technology and skills, has made of the centre The private foreign investors exercise almost of attention for developing countries. It is the complete control over the assets created by reason most of the countries especially them in the developing countries in which developing countries like India are battling private foreign capital has been invested. In for attracting more and more foreign direct the liberalized environment as economies investment (FDI). become increasingly open, and trade between References countries expand, financial transactions become global through financing trade of goods 1. Pant Manoj, FDI in India, Orient Blackswan and services. Capital is the engine of economic Private Limited, New Delhi, 2015 development and this statement is gaining 2. Basu Nirmal, Reports on Investment importance in the recent times. Traditionally, Approval and FDI in India, Academic the various source of capital for developing Foundation. New Delhi, 2014 countries were either the demand for their output by industrial countries or foreign aid, or 3. Grubaugh S.J., Determinants of Direct loan from foreign banks. In today’s scenario, Foreign Investment, Review of Economics where official development assistance flows & Statistics, November, 2015 are steadily declining, high bank interest 4. Ahmed Shahid, Foreign Direct Investment, rates and portfolio investment involve risks. Trade and Economic Growth: Challenges Foreign direct investment is considered to be and Opportunities, Routledge India, New a major source of funds which may contribute Delhi, 2013 in increasing the economic growth rate of the developing countries. MNCs account for 5. Deepti, Foreign Direct Investment in 2/3rd of the world trade in services and goods. Different Sectors of Indian Economy, Recently the governments’ liberal and open Deep & Deep Publications, New Delhi, policy reform in foreign direct investment (FDI) 2012 aims to integrate the Indian economy to this 6. Shandilya T.K., Thakur A.K., Foreign world economy. Foreign direct investment Direct Investment in India: Problems and (FDI) helps to overtake the problem of low Prospects, Deep and Deep Publication, capital, low growth rate, untapped natural New Delhi, 2014 and human resources, high rate of inflation, unemployment, balance of payment and

-20- Anusandhanika /Special Issue on FDI in India/ October 2017 Anusandhanika /Special Issue on FDI in India/ October 2017/ pp 21-25 ISSN 0974 - 200X Opportunities and Challenges of FDI in the Indian Telecommunication Sector Tanuj Khatri Research Scholar University Department of Commerce & Business Management Ranchi University, Ranchi

Dr. S.N.L. Das Professor University Department of Commerce & Business Management Ranchi University, Ranchi

Abstract

FDI is considered as the life blood and an important vehicle for economic development as far as the developing nations are concerned. Encouraging FDI in the form of technology due to rising demand for a wide range of telecom equipment, particularly in the area of mobile telecommunications, has provided excellent opportunities to domestic and foreign investors in the manufacturing sector .The following paper will examine the current status of foreign direct investment (FDI) in the Indian telecommunication sector and the issues faced by foreign companies seeking to invest in the Indian telecommunications sector. Indian telecom industry is growing at a great pace & India is expected to become a manufacturing hub for telecom equipment and is set to become one of the largest sectors globally by 2020. The Indian Telecommunications network with 621 million connections is the third largest in the world. The rapid strides in the telecom sector have been facilitated by liberal policies of the Government that provides easy market access for telecom equipment and a fair regulatory framework for offering telecom services to the Indian consumers at affordable prices. Despite of having all such opportunities foreign investors in the Indian telecommunication sector face some challenges too. Though the telecom sector at present is going through the difficult phase of policies re enactment and clarity but has immense growth opportunities. There is big market to address telephony, data and internet services. The demography due to large young population is promising and internet services are bound to increase. It is still an attractive market for new entrants.

Keywords : manufactures hub, competitive, employment opportunities

Introduction towards the growth of the economy. FDI has an important impact on country‟s trade balance, Indian telecom industry is growing at a great increasing labor standards and skills, transfer pace and India is expected to become a of technology and innovative ideas, skills and manufacturing hub for telecom equipment. the general business climate. FDI also provides Indian telecom equipment manufacturing opportunity for technological transfer and up sector is set to become one of the largest gradation, access to global managerial skills sectors globally by 2010. Due to rising and practices, optimal utilization of human demand for a wide range of telecom capabilities and natural resources, making equipment, particularly in the area of mobile industry internationally competitive, opening telecommunications, has provided excellent up export markets, access to international opportunities to domestic and foreign investors quality goods and services and augmenting in the manufacturing sector.From the viewpoint employment opportunities.The role of Foreign of foreign investment FDI is considered as an Direct Investment in an economy goes beyond important vehicle for economic development simply easing financial constraints. FDI inflows as far as the developing nations are concerned. are associated with multiple benefits such The important effect of FDI is its contribution as technology transfer, market access and -21- organisational skills. Consequently, there is an School of Telecom Management Pune, is a increasing and intense competition between Institute which provides world- class telecom countries to maximize the quantity of FDI business leaders to cope up with the changing inflows. Any successful policy for attracting FDI scenario in the corporate world. As there is has to keep this competitive scenario in mind. huge growth in telecom in India, We need New international players are today entering telecom managers and we must rise to this the Indian market and while they may have not challenge. As Telecommunications technology seen immediate success, their strategy seems continues to grow and change. This technical to be one of providing better quality which will knowledge should be gained by education. This definitely find takers especially after the coming course will provide you with technical training in of mobile number portability, introduction on various technologies used to provide voice of 3G and expected roll out of BWA and 4G and data communication networks as well as technology in India.. Indian economy is now providing you with training in the management firmly developed as one of the world’s foremost and accounting skills needed by a manager. destinations for FDI. FDI in Telecommunication Opportunities in India undoubtedly continues to be one of the most dynamic and fastest growing major The Indian telecom market is expected to grow telecommunication markets in the world. three fold by 2017 and market size over US $ 8 billion. Moreover the government has set Materials and Methods a target of 20 million broadband connections Resources have been taken from both primary by 2018. The National Telecom Policy 1999 and secondary data or information. The study targets tele-density at 15 per cent by 2010. This area is the service(telecom) sectors of the will entail an investment of US $ 40- 50 billion economy both rural and urban comprising of over the next 6-8 years. There is an immense all the states and the Union territories of India. opportunity for DTH in the Indian market which For the purpose of in depth study the contents is almost 10 times compared to the developed have been taken from relevant books, articles, countries like the US and Europe. For every journals, newspapers and websites. The data channel there is a scope for broadcasting it in at obtained is compiled and analyzed. least ten different languages. So every channe l multiplied by ten that is the kind of scope for Results and Discussions DTH in the country. India‟s media players have The Indian Telecommunications network with all the ingredients to develop a successful 621 million connections is the third largest in DTH industry. So currently there is a lot of the world. The sector is growing at a speed pent-up demand in the Indian market for DTH. of 45% during the recent years. This rapid It is expected that by the year 2010 there will growth is possible due to various proactive be over 500 million subscribers in the Indian and positive decisions of the Government telecom market. Cellular subscriber base is and contribution of both by the public and projected to grow at a CAGR (Compounded the private sectors. The rapid strides in the Annual Growth Rate) of 48 per cent & telecom sector have been facilitated by liberal expected to reach 100 million in 2017. Over policies of the Government that provides easy 150% growth in telecom services is projected market access for telecom equipment and a in 5 years. India will require large investments fair regulatory framework for offering telecom in network infrastructure & India expected to services to the Indian consumers at affordable be fasted growing telecom market in the world. prices. Presently, all the telecom services have Total estimate of investment opportunity of been opened for private participation. USS 22 billion expected over the next five years. Investment opportunity of $22 billion India is the 2nd largest Telecom Market across many areas: Telecom Devices and in the World. So there is Plenty of Career Software for Internet Broadband and Direct Opportunities for young generation. MIT To Home Services Gateway exchange Set top -22- Anusandhanika /Special Issue on FDI in India/ October 2017 box Modem Mobile handsets and consumer Launch of IP-based television services premise equipments Gaming devices EPABX by several operators has the potential to Telecom Software Telecom Services for voice stimulate demand for broadband services. and data via a range of technologies. With the 9. Other avaenues of opportunities are as rapid growth of the telecom network, there are m-Banking, m-Education, mGovernance, further opportunities to expand the telecom m-Health and Location-based services infrastructure and research and development. (LBS). 1. Strong mobile subscriber growth is Major Challenges continuing, with the market benefiting from a healthy degree of competition. There are many challenges for the companies as:- 2. The mobile market plays host to a large number of strategic investors including 1. Uncertainty as to whether spectrum Singapore Telecommunications, allocations for 3G services will be Vodafone, Malaysia’s Maxis, Norway’s sufficient; severe lack of spectrum in nine Telenor, Japan’s NTT DoCoMo and of the 22 calling circles. Russia’s Sistema. 2. Network capacity, particularly in the 3. Demand for mobile value-added services mobile market, could struggle to keep up is strong and expected to grow. with demand. 4. Healthy competition exists in the 3. MNP will make migration between broadband sector, where state-owned operators easier, thus adding pressure on operators Bharat Sanchar Nigam (BSNL) operators to retain existing customers. and Mahanagar Telephone Nigam (MTNL) 4. Although operators have started to compete against a number of privately increase tariff rates, it would be some owned operators, including Bharti Airtel, time before a significant improvement in Hathway Cable and Tata Communications. profitability could be seen. 5. Fixed internet broadband subscription 5. Mobile market is still highly skewed growth is strong, with the market towards prepaid users, with around 30% registering an estimated 45 million of total subscriptions calculated to be subscriptors in 2017, hence a penetration inactive. just above 1% of the population. 6. Disagreements between the Telecom 6. In total 25 million internet supsciptions Regulatory Authority of India and makes India the 3rd biggest market in the government ministries have led to delayed world and rapid growth is expected. By policy implementation in a number of 2017, the number is expected to reach areas. 243 million with a penetration rate of 16,2%. 7. The country’s regulatory framework has been under intense spotlight amid 7. The issuance of several international corruption and mismanagement scandals, long-distance and national longdistance which could affect investor confidence in licences has created opportunities for new the long term. companies to develop a market presence. Strong demand exists among businesses 8. Despite major ongoing investments, for fixed voice and data services. mobile network infrastructures in rural areas remain limited. 8. Significant opportunities exist to develop a wide range of alternative broadband 9. Fixed-line sector may decline at a more technologies, including WiMAX and fibre. rapid rate than envisaged, with potentially

-23- Anusandhanika /Special Issue on FDI in India/ October 2017 negative consequences for ADSL growth. diffusion and knowledge transfer; and linkages and spillover to domestic firms. 10. Danger that the development of IPTV services will be hampered by high costs, 3. The co-efficient of correlation between low broadband usage and slow speeds. FDI flows and GDP states that there is a high degree of relationship between the 11. Potential of VoIP services to be banned FDI flows and GDP. Hence the recent due to security threat posed, as India’s changes in the Indian economic policies Intelligence Bureau remains unable to have made India as one of the most track calls as of yet.KEY prosperous economy of the developing Major Findings world. Indian economy is one of the most 1. The study found that there is a significant preferred destinations for the foreign direct telecom equipment-manufacturing base investments. The evidence shows us that in the country and there has been steady there was indeed a connection between growth of the manufacturing sector economic development and investment during the past few years. The figures in telecommunications. FDI brings the for production of telecom equipment promotion of economic growth, technology show three time increase in production transfer and the creation of employment. from Rs. 14400 crore to Rs. 50000 Foreign investment in telecommunications crore during the study period.Similarly brings technology transfer, huge capital, export of telecommunication equipments and increased market competition, has been increased from Rs. 402 crore which help national telecommunications to Rs. 13500 crore during the same development. The implementation of period. Rising demand for a wide range liberalized telecommunication investment of telecom equipment, particularly in produces considerable benefits not only the area of mobile telecommunication, within the country’s telecommunication has provided excellent opportunities to sector but also for the national economy as domestic and foreign investors in the a whole. We find that a stable, transparent manufacturing sector. The last five years and non-discriminatory regulatory system saw many renowned telecom companies is the best way to attract more foreign setting up their manufacturing base in investment. India. Ericsson set up GSM Radio Base Conclusion Station Manufacturing facility in Jaipur. New international players are today entering Elcoteq set up handset manufacturing the Indian market and while they may have not facilities in Bangalore. Nokia and Nokia seen immediate success, their strategy seems Siemens Networks have set up their to be one of providing better quality which will manufacturing plant in Chennai. LG definitely find takers especially after the coming Electronics set up plant of manufacturing in of mobile number portability, introduction GSM mobile phones near Pune. Ericsson of 3G and expected roll out of BWA and 4G launched their R&D Centre in Chennai. technology in India. Rising demand for a wide Flextronics set up an SEZ in Chennai. range of telecom equipment has provided Other major companies like Foxconn, excellent opportunities for investors in the Aspcom, Solectron etc have decided to manufacturing sector.Though the telecom set up their manufacturing bases in India. sector at present is going through the difficlut 2. The following are the major impact of FDI phase of policies reenactment and clarity but in Telecommunication: has immense growth opporuntites. There is big market to address telephony, data and internet Faster economic growth. Increase in trade, services. The demography due to large young Employment and skills levels, Technology population is promising and internet services

-24- Anusandhanika /Special Issue on FDI in India/ October 2017 are bound to increase. It is still an attractive References market for new entrants. Opportuties in allied 1. Dua, P. and A.I. Rasheed, Foreign Direct sector related to telecommunication opens Investment and Economic Activity in India, many potential areas for the companies to 1998 enter and sustain in growting Indian market. Provision of telecom services to the rural 2. Rajana Ramkishen S., Rongalab Sunil areas in India has been recognized as another and Ghosh Ramya, Attracting Foreign thrust area by Government.which also helps Direct Investment (FDI) to India April 2008 for the enormous opportunities in this sector. 3. Chaudhary Vaibhav and Chaudhar Therefore telecom sector in India is one of the Deeksha, The New Consolidated Foreign fastest growing sectors in the country and has Direct Investment Policy 2011: Whether been zooming up the growth curve at a feverish Will Prove a Game Changer in Boosting pace in the past few years. And even the Indian Investor Confidence? Article for Blog Post Wireless Market is booming which has plenty Writing Competition, 2011 of room for growth. Thus the foreign direct investment is very effective in the development 4. Singh Kulwindar, Foreign Direct of any country. Indian economy is now firmly Investment in India: A Critical Analysis of developed as one of the world‟s foremost FDI from 1991-2005 destinations for FDI. Telecommunication 5. http://www.prointelecto.com/mortgage- is playing an important role in the inflow of credit/list-of-government-companies- FDI than the other sectors. As above data intelecom-sector-2011-india/ shows that the FDI in Telecommunication in India without a doubt continues to be one of the most dynamic and fastest growing major telecommunication markets in the world.

-25- Anusandhanika /Special Issue on FDI in India/ October 2017 Anusandhanika /Special Issue on FDI in India/ October 2017/ pp 26-29 ISSN 0974 - 200X FDI in Broadcasting Sector

Dr. Shravan Kumar Associate Professor, Department of Commerce J.N College, Ranchi

Abstract

In a broad sweep, on 20th June, 2016, the government opened up India’s broadcasting sector, increasing the foreign direct investment (FDI) limit in television news channels and private FM radio, and permitting 100% overseas ownership of digital cable and direct-to-home (DTH) services. In a review of the foreign direct investment (FDI) policy for 15 sectors, the government raised the FDI limit in news channels and FM radio to 49%, up from the existing cap of 26%. Foreign investment limit in DTH, digital cable networks and so-called Headend in the Sky services (HITS) a satellite based system to deliver TV channels to cable operators was raised to 100% from 74% to allow foreign strategic investors to look at Indian companies favourably. To be sure, only up to 49% FDI has been allowed in the cable, DTH and HITS services through the automatic route. For 100% FDI, companies will need to seek approval from the foreign investment promotion board (FIPB). Similarly, companies would require government approval for 49% FDI in news channels. But 100% foreign investment in non-news channels or entertainment broadcasters will be allowed through the automatic route. There is no change in the foreign ownership norms for print media, in which FDI remains capped at 26%. A government statement said these measures are meant to ease, rationalize and simplify the process of foreign investment and to allow more FDI proposals through the automatic route rather than having to go through the FIPB, which consumes the time and energy of investors.

Keywords : digital cable, broadcasting sector, automatic route

Introduction Materials and Methods With more than 600 television channels, 100 For the purpose of in depth study the contents million pay TV households, 70,000 newspapers have been taken from relevant books and and 1,000 films produced annually, India’s articles from journals government reports. The vibrant media and entertainment (M&E) industry methods used are descriptive and analytical. provides attractive growth opportunities for Consultation with eminent scholars in this field global corporations. In recent years, with near has shaped the present discussion. double-digit annual growth and a fast-growing middle class, there has been a renewed surge Results and Discussions in investments into the country by multinational Indian Broadcasting sector is a sunrise companies. sector for the economy making high growth At present, India has probably one of the strides. Indian media industry is on the cusp most liberal investment regimes amongst of a strong phase of growth, backed by rising the emerging economies with a conducive consumer demand and improving advertising foreign direct investment (FDI) environment. revenues. The Foreign Direct Investment (FDI) The M&E industry has significantly benefited inflows in the Information and Broadcasting from this liberal regime and most sectors of the sector (including Print Media) in the period M&E industry today allow foreign investment. April 2000 – March 2016 stood at USD 4.98 The government (GOI) has recently further billion, as per data released by Department of liberalised the FDI caps in key sectors (including Industrial Policy and Promotion (DIPP). The Direct-To-Home (DTH), print media and radio) government has been steadily liberalising FDI and entry restrictions for foreign companies framework for this sector to move towards have been relaxed for most segments of the a digital addressable system because the M&E industry. higher FDI permission would mean higher -26- investments for ensuring digitalization. Press 6.17 billion) in 2015. This could also result in Note 5 of 2016 has significantly opened up the expanding opportunities for educational and sector for FDI and now up to 100percentFDI cultural development. The increased FDI limit is allowed in Teleports (setting up of uplinking is also likely to provide financial support to the HUBs/ Teleports), DTH, Cable Networks news industry (particularly broadcast news). (Multi System Operators (MSOs) undertaking Therefore, it may be a win -win situation both upgradation of networks towards digitalization for foreign investors and the Indian economy. and addressability), Mobile TV, Headend- The Indian Media and Entertainment (M&E) in the Sky (HITS) and in Cable Networks industry is a sunrise sector for the economy comprising of other MSO’s not undertaking and is making high growth strides. Proving upgradation of networks towards digitalization its resilience to the world, the Indian M&E and addressability and Local Cable Operators. industry is on the cusp of a strong phase of FDI up to 49percentby way of Government growth, backed by rising consumer demand route is permitted in the Broadcasting Content and improving advertising revenues. Services in case of Terrestrial Broadcasting FM (FM radio) and in Up-linking of ‘News The industry has been largely driven by and Current affairs’ TV channels. FDI up to increasing digitisation and higher internet 100percentunder automatic route is permitted usage over the last decade. Internet has almost in Up-linking of ‘Non-News and Current Affairs’ become a mainstream media for entertainment TV channels. Foreign Investment Promotion for most of the people. Board (FIPB) approval however, is required in Market Dynamics situations where the license already exists in the Company and it is going approval would The Indian media & entertainment sector is however, be required in situations where the expected to grow at a Compound Annual license already exists in the Company and it Growth Rate (CAGR) of 14.3 per cent to touch is going for either foreign investment resulting Rs 2.26 trillion (US$ 33.7 billion) by 2020, in change in the ownership pattern, or where while revenues from advertising is expected to there is transfer of stake by existing investor to grow at 15.9 per cent to Rs 99,400 crore (US$ a new foreign investor. 14.82 billion). Some likely advantages of the FDI policy Over FY 2015-20, radio will likely grow at a change CAGR of 16.9 per cent, while digital advertising will grow at 33.5 per cent. The largest segment, (i) employment generation in the India’s television industry, is expected to grow broadcasting sector; at a CAGR of 15 per cent, while print media is (ii) boosting forex reserves; expected to grow at a CAGR of 8.6 per cent.! (iii) wider choice for Indian consumers in Carriage and Content Services. India is one of the highest spending and fastest growing advertising market globally. Additionally, FDI policy liberalization will The country’s expenditure on advertising is incentivize for cable networks who have been expected to grow more than 12 per cent in bearing the brunt of the costs of digitization as 2016, and accelerate to 13.9 per cent in 2017, pushed by the government in the last few years. based on various media events like T20 Cricket Also, fully liberalizing the broadcasting sector World Cup, the Indian Premier League (IPL) has opened up a lot of avenues for strategic and State elections. Television segment, which investors from developed countries to invest in continues to hold highest share of spending, Indian economy. Due to the major reforms in the is expected to grow by 12.3 per cent in 2016 policy, the revenue from advertising is expected and 12.5 per cent in 2017, led by increased to grow at a CAGR of 13percentand expected spending by packaged consumer goods to exceed Rs. 81,600 crore (USUSD 12.09 brands and e-commerce companies.$ billion) in 2019 from Rs 41,400 crore (USUSD

-27- Anusandhanika /Special Issue on FDI in India/ October 2017 The Foreign Direct Investment (FDI) inflows in Recently, the Indian and Canadian governments the Information and Broadcasting (I&B) sector have signed an audio-visual co-production (including Print Media) in the period April 2000 deal that would help producers from both – March 2016 stood at US$ 4.98 billion, as countries to explore their technical, creative, per data released by Department of Industrial artistic, financial and marketing resources for Policy and Promotion (DIPP). co-productions and, subsequently, lead to exchange of culture and art amongst them. Government Initiatives Furthermore, the Centre has given the go- The Government of India has supported Media ahead for licences to 45 new news and and Entertainment industry’s growth by taking entertainment channels in India. Among various initiatives such as digitising the cable those who have secured the licenses include distribution sector to attract greater institutional established names such as Star, Sony, funding, increasing FDI limit from 74 per cent Viacom and Zee. Presently, there are 350 to 100 per cent in cable and DTH satellite broadcasters which cater to 780 channels. platforms, and granting industry status to the “We want more competition and we wanted film industry for easy access to institutional to open it up for the public. So far, we have finance. approved the licences of 45 new channels. It’s Mr Venkaiah Naidu, Union Minister for Housing a mix of both news and non-news channels,” and Urban Poverty Alleviation and Information said Mr Bimal Julka, Secretary, Ministry of I&B, & Broadcasting, outlined the Ministry’s plans of Government of India. introducing a National Communication Policy The Union Cabinet chaired by the Prime and stated that the government has allocated Minister, Mr Narendra Modi, has given its Rs 100 crore (US$ 14.91 million) to revive approval for entering into an Audio-Visual community radios stations across the country. Co-Production Agreement between India and The Union Cabinet has approved the model the Republic of Korea (RoK) and to complete Shops and Establishment Act, aimed at internal ratification procedure, to enable the generating employment prospects by allowing agreement to come into force. Cooperation cinema halls, restaurants, shops, banks and between the film industries of the two countries other such workplaces to remain open round will not only promote export of Indian films but the clock. would also act as a catalyst towards creating awareness about India and its culture. The Ministry of Information and Broadcasting (I&B) is working towards promoting ease Conclusion of doing business, which will ensure less The Indian Media and Entertainment industry regulation and facilitate India to become the is on an impressive growth path. The revenue hub of media and entertainment industry. from advertising is expected to grow at a CAGR The Government is planning to set up a National of 13 per cent and will exceed Rs 81,600 crore Centre of Excellence for media, which will (US$ 12.09 billion) in 2019 from Rs 41,400 provide training to the industry professionals, crore (US$ 6.17 billion) in 2014. Internet and has also decided to fund movies, including access has surpassed the print segment as Bollywood and regional films, for participating the second-largest segment contributing to the in foreign film festivals. overall pie of M&E industry revenues. The Union Budget 2016-17 has proposed Television and print are expected to remain basic custom duty exemption on newsprint. the largest contributors to the advertising pie in The customs duty on wood in chips or particles 2018 as well. Internet advertising will emerge for manufacture of paper, paperboard and as the third-largest segment, with a share of newsprint has been reduced to 0 per cent from about 16 per cent in the total M&E advertising 5 per cent. pie. The film segment which contributed Rs

-28- Anusandhanika /Special Issue on FDI in India/ October 2017 12,640 crore (US$ 1.88 billion) in 2014 is 3. KPMG-FICCI Media and Entertainment projected to grow steadily at a CAGR of 10 industry report 2016 per cent on the back of higher domestic and 4. As per the ‘Shaping the Industry at a Time overseas box-office collections as well as of Disruption’ report by Boston Consulting cable and satellite rights. Group (BCG) and Confederation of Indian References Industry (CII) 1. http://www.broadcastandcablesat. 5. As per a report by Morgan Stanley co.in/index.php/4138-fdi-in-indian- 6. Carat Ad Spend Report, September 2016 broadcasting-sector 2. Media Reports, Press Releases, Press Information Bureau, Department of Industrial Policy and promotion (DIPP), Union Budget 2016-17

-29- Anusandhanika /Special Issue on FDI in India/ October 2017 Anusandhanika /Special Issue on FDI in India/ October 2017/ pp 30-37 ISSN 0974 - 200X Recent Challenges and Issues of FDI in Retail Trade for Sustainable Development of Business Dr. Sandeep Kumar Professor Incharge Department of Management Studies Institute of Science and Management, Ranchi

Abstract

This paper contributes to the literature on FDI and economic growth. These are predicted to have a impact on sustainable development and economic growth . FDI has a positive effect on growth whereas volatility of FDI has a negative impact. Being encouraged by India’s growing retail boom many multinational companies also started to enter India’s retail market. Investment from abroad has also been hailed by Indian industry, by and large, as the same has been considered to be very vital for adding to domestic investment, addition to capacity, higher growth in manufacturing, trade, business, employment, demand, consumption and income with multiplier effects. Till recently, Government of India allowed 51% FDI in single brand retail and 100% in cash and carry only. But FDI in multi brand retail has not yet been allowed. One of the major steps taken by the Government recently to encourage the organized retailing in the country was the recent decision of the cabinet to allow 51% FDI in multi brand retail and 100% in single brand retail. The recent issues of FDI in Retail Trade and its opportunities and challenges has been discussed in this paper.. These will pave ways for the sustainable development of business and industry.

Keywords : economic retail, growth, multi branded companies Introduction cent of the sales. The creaky, old distribution system that India has lived with is grossly Retailing is defined as all activities involved in selling goods or services directly to the final inefficient. The Indian farmer typically gets consumer for their personal, non-business use only a third of what the final consumer pays, via shops, market, door-to-door selling, and instead of the two-thirds that his counterparts mail-order or over the internet where the buyer do in countries that have organized retailing. intends to consume the product. India is a land India is the second largest producer of fruits of retail democracy- hundreds of thousands and vegetables in the world, but almost 30 per of weekly haats and bazaars are located cent of these go waste for want of storage and across the length and breadth of our country processing facilities. by people‘s own self-organizational capacities Present Economic Scenario and interests. Our streets are bazaars – lively, vibrant, safe and source of livelihood Retailing is the largest private sector industry for millions. India has the shop density of 11 in the world economy with the global industry outlets per 1000 people and number around size exceeding $6.6 trillion and a latest survey 15 million, giving India the highest retail outlet has projected India as the top destination for density in the world. But only four per cent of retail investors. And the further upsurge is ant them have larger than 500 square feet area. icipated in the retail sector as the Government Food constitutes 70 per cent of retail sector, of India has already opened up 51% FDI in which means it has a direct link with the rural single brand retail outlets and 100% in cash economy. The Indian retail market, variously and carry business.In Nov, 2011, the Cabinet estimated at $400-450 billion, is dominated by cleared the bill to raise foreign direct investment the highly decentralized unorganized sector. to 51% in multi-brand retail and 100% in single The small retail outlets, most of them family- brand. The decision will be cheered by global owned businesses, account for about 95 per retail giants such as Wal-Mart that have long -30- been eyeing India’s rewarding retail sector Present Retail Sector in India which is mainly occupied by small ‘mom & The retail sector is also one of the most crucial pop’ shops. Currently, organized retail, or large and extremely potential sector of the Indian chains, makes up less than 10% of the market. Economy. As of now, the retail sector in India An ASSOCHAM report states that India’s accounts for approximately 33-35% of the overall retail sector is expected to rise to USD GDP with 46% growth rate in past three years. 833 billion by 2013 and to USD 1.3 trillion by The Indian retail market is one of the top 5 2018, at a compounded annual growth rate retail markets in the world and employs 7% of of 10% driven by the emergence of shopping the total Indian work-force. centers and malls, and a middle class of The retail sector in India is divided into two close to 300 million people that is growing at main heads, viz., organised and unorganised nearly 2% a year.Discussing about ―Single sector. Organised Sector Retailers means to brand retailing, its meaning says ‗own label include the licensed retailers i.e. those, who brands’ or they can be described as those have registered themselves for sales tax/VAT, which are created and owned by businesses income tax, etc. These are generally privately that operate in the distribution channel. These owned large businesses, like Westside, stipulations would prevent third party sourcing Tanishq, Croma, Shoppers Stop, Lifestyle, and encourage multinationals to set up a Pantaloons, Reliance World, Max and many manufacturing base in India. Conditions under more. single brand retailing are as follows: On the other hand, unorganised retailing 1. Products to be sold should be of a `single refers to the traditional kirana shops, general/ brand’. departmental stores, paan/beedi shops, etc. 2. Products should be sold under the same If we talk about the statistics, the market share brand internationally. of unorganised retail sector is 97% of the total retail sector, as compared to organised 3. Single brand’ product retailing would cover retail sector, which accounts for only 2-3%. only products, which are branded during This data is even after the presence of big manufacturing. Examples are of Sony and corporate giants like Tata, Reliance, K Raheja Nokia . Corp Group. There are three different forms through which retail trade is carried out in India, namely:

Mono/Exclusive/Single Multi-branded Retail Shops Convergence Retail Outlets Brand Retail Shops Exclusive Showrooms either In these kinds of stores, These kinds of products have owned or franchised out by almost all brands are available almost all kinds of products, the manufacturer. A complete for a single product type. The required by a consumer, in range of all the products customer has a very wide them. manufactured by the said choice for the kind of product manufacturer under one brand he is willing to buy. name. The focus is on the brand The focus is on the nature of The focus is on the diverse name. product. consumer needs. e.g.: Exclusive showroom e.g.: Max, Shoppers Stop, e.g.: Big Bazaar, In & Out, / franchise outlets of Nike, Croma, etc. Subhiksha, Grand India Liberty, Samsung, Nokia, etc. Bazaar, etc.

-31- Anusandhanika /Special Issue on FDI in India/ October 2017 Current FDI Policy in respect of Retail 2. FDI up to 51% with prior Government Sector in India approval for retail trade of ‘Single Brand’ products. (now 100% allowed vide Keeping in mind the ‘welfare’ motive, India notification dated 11/Jan/2012). has kept the retail sector closed for the foreign 3. FDI is not permitted in Multi Brand investors in order to protect the interest of the Retailing in India. 15 million small retail store-owners. Currently, the foreign investor can make investments as Present entrance routes for the Foreign per following guidelines: Investors In view of the restrictive entrance policies for 1. FDI up to 100% for cash and carry the foreign investors in the retail sector, they wholesale trading and export trading followed one or more of the following routes to allowed under the automatic route. expand their business in India:

A.Franchise B.Cash and C. Strategic D. Manufacturing Agreement Carry Wholesale Licensing and Wholly-owned Agreement Agreement Subsidiary <>o<>o <>o<>o In this <>o<>o e.g.: e.g.: Metro AG of e.g.: <>o<>o e.g.: kind of arrangement, Domino’s, Nike, Germany was the Levi’s, Reebok, foreign brands give Lacoste, have entered first significant global Woodland, have exclusive licences the Indian market player to enter India subsidiaries in India and distribution rights through this route through this route. who manufacture the to Indian companies. products with these Through these rights, brand-name. Indian companies can either sell it through their own stores, or enter into shop-in- shop arrangements or distribute the brands to franchisees.

Materials and Methods the developed countries. In the developed The research to be followed is a step by step countries, products and services normally process. This makes the entire research reach consumers from the manufacturer/ process systematic as well as easy to handle producers through two different channels: (a) the work in a right direction. The study has via independent retailers (‘vertical separation’) contained both primary as well as secondary and (b) directly from the producer (‘vertical sources of data. integration’). In India, however, the above two modes of operation are not very common. The information of this research has been Small and medium enterprises dominate gathered through interview, survey through the Indian retail scene. The trading sector different people and enterprises. The research is highly fragmented, with a large number of work makes use of methodologies, including intermediaries. So also, wholesale trade in data and analysis of data. But the mostly India is marked by the presence of thousands contents have been taken from relevant of small commission agents, stockiest and articles, journals, newspapers and websites. distributors who operate at a strictly local Results and Discussions level. The share of organized retailing in India, at around 2%, is too low, compared to The Indian trading sector, as it has developed 80% in the USA, 40% in Thailand, or 20% in over centuries, is very different from that of China, thus leaving the huge market potential -32- Anusandhanika /Special Issue on FDI in India/ October 2017 largely unexploited. Mounting earning levels, increase at a CAGR of more than 18.9 per education and an international revelation cent from 2007 to 2016 Rural and semi-rural have contributed to the progression of the market is projected to dominate the retail Indian middle class purchasing and shopping industry landscape in India by 2012 with total practices are burgeoning as an outcome market share of above 50 per cent Driven by the expanding retail market, the third party As the government is in a process to initiate logistics market is forecasted to reach US$ 20 a second phase of reforms, it is cautiously billion by 2012 Apparel, along with food and exploring the avenues for multi-brand grocery, will lead organized retailing in India. segment. With key parameters like customers entry, same stores sales, average transaction Leading watchmaker Titan Industries Limited per bill improving at faster pace, the industry plans to invest about US$ 21.83 million for expects the reforms to be fast going forward. opening 50 premium watch outlets Helios in Most of the front line players who had freezed next five years to attain a sales target of US$ their spreading out plans are reviving their 87.31 million. “We are looking to open Helios decisions in the last couple of months. outlets in Mumbai, Delhi, Hyderabad, Kolkata, Chennai, Pune, Ahmedabad etc in next 12 Moreover, for the 4th time in five years, India months,” said Ajoy Chawla, Vice President has been ranked as the most attractive nation (Retail), Titan. Bharti Retail strengthened its for retail investment among 30 emerging position in northern India by opening 59 stores, markets by the US-based global management Bharti Wal-Mart is expected to open 10 to 15 consulting firm, A T Kearney in its 8th annual wholesale locations in the next three years. Global Retail Development Index (GRDI) Established retailers are tapping into the 2009. India remains among the leaders in growing retail market by introducing innovative the 2010 GRDI and presents major retail store formats. Spencer’s Retail, More (owned opportunities. India’s retail market is expected by Aditya Birla Group) and Shoppers Stop to be worth about US$ 410 billion, with 5 per (owned by K Raheja Group) already plan to cent of sales through organized retail, meaning expand that the opportunity in India remains immense. Retail should continue to grow rapidly—up Challenges facing FDI to US$ 535 billion in 2013, with 10 per cent The challenges facing FDI in India are in spite coming from organized retail, reflecting a of the fact that more than 100 of Fortune 500 fast-growing middle class, demanding higher companies are already investing in India. These quality shopping environments and stronger FDIs are already generating employment brands, the report added. Foreign direct opportunities, income, technology transfer investment (FDI) inflows between April 2000 and economic stability. India is focusing on and April 2010, in single-brand retail trading, maximizing political and social stability along stood at US$ 194.69 million, according to the with a regulatory environment. In spite of the Department of Industrial Policy and Promotion. obvious advantages of FDIs, there are quite The Road Ahead a few challenges facing larger FDIs in India, such as: According to industry experts, the next phase of growth is expected to come from rural and 1. Resource Challenge: India is known to semi-rural markets . According to a market have enormous amounts of resources. research report published in June 20093 by There is manpower and significant RNCOS titled, ‘Booming Retail Sector in India’, availability of fixed and working capital. organized retail market in India is expected to At the same time, there are some reach US$ 50 billion by 2011. The key findings underexploited or unexploited resources. of the report are: The resources are well available in the Number of shopping malls is expected to rural as well as the urban areas. The focus is to increase infrastructure 10 years down -33- Anusandhanika /Special Issue on FDI in India/ October 2017 the line, for which the requirement will be in the retail sector in India: an amount of about US$ 150 billion. This 1. India will allow foreign direct investment of is the first step to overcome challenges facing larger FDI. up to 51 per cent in “multi-brand” sector; 2. Equity Challenge : India is definitely 2. Single brand retailers, such as Apple and developing in a much faster pace now Ikea, can own 100 percent of their Indian than before but in spite of that it can be stores, up from the previous cap of 51 identified that development has taken percent. This has been allowed lately on place unevenly. This means that while 11/Jan/2012. the more urban areas have been tapped, The bill has following important drivers the poorer sections are inadequately exploited. To get the complete picture of 1. The retailers (both single-brand and multi- growth, it is essential to make sure that the brand) will have to source at least 30% of rural section has more or less the same their goods from small and medium sized amount of development as the urbanized Indian suppliers. ones. Thus, fostering social equality and 2. All retail stores can open up their at the same time, a balanced economic operations in having population over 1 growth. million. Out of approximately 7935 cities 3. Political Challenge: The support of the and towns in India, 55 cities satisfy such political structure has to be there towards criteria. the investing countries abroad. This can be worked out when foreign investors put 3. Multi-brand retailers must bring a minimum forward their persuasion for increasing investment of US$ 100 millions. Out of FDI capital in various sectors like banking, this, half of the amount must be invested in and insurance. So, there has to be a back-end infrastructure fac3ilities such as common opinion between the Parliament cold chains, refrigeration, transportation, and the Foreign countries investing in packing, sorting and processing, in order India. This would increase the reforms in to reduce the post harvest losses and to the FDI area of the country. bring the remunerative prices to farmers. 4. Execution Challenge: Very important 4. The opening of retail competition (policy) among the major challenges facing will be within the parameters of state laws larger FDI, is the need to speed up the and regulations. implementation of policies, rules, and regulations. The vital part is to keep the Issues/Controverties accomplishment of policies in all the states of India at par. Thus, asking for equal speed in policy implementation among the states in India is important. 5. India must also focus on areas of poverty reduction, trade liberalization, and banking and insurance liberalization. Challenges facing larger FDI are not just restricted to the ones mentioned above, because trade Oppositions’ reaction against retail sector reforms relations with foreign investors will always A lot of objections have been raised by the bring in new challenges in investments. opposition parties and public at large, as a Prospected changes in FDI Policy for Retail result of which the said bill has been kept on Sector in India hold. The government (led by Dr.Manmohan Singh), Those who are criticising these reforms took announced the following prospective reforms support of the following points: [Threats]

-34- Anusandhanika /Special Issue on FDI in India/ October 2017 1. Current Independent stores will be SWOT Analysis compelled to close, leading to massive In order to conclude this issue let us draw a job losses. The operations in big stores SWOT analysis of the situation. like Walmart are highly automated and employ very less work-force. Strengths 2. Big players can afford to lower the prices 1. Major contributor to the GDP: The retail in initial stages in order to knock-out the sector in India is hovering 33-35% of the competition and become a monopoly GDP, as compared to around 20% in USA. and later on raise the prices. This kind of 2. High growth rate: The retail sector in phenomenon was evident earlier in the India enjoys an extremely high growth case of soft-drinks. Eviction of CampaCola rate of approximately 46%. by Pepsi and Coke is one such example. 3. High potential: Since the organised 3. India doesn’t need foreign retailers, since portion of retail sector in India is only homegrown companies and traditional 2-3%, thereby creating a lot of potential markets may be able to do the job. for the future players. 4. Just like in BPO industry, work will be done 4. High employment generator: The retail by Indians, profits will go to foreigners. sector employs 7% of the total work- 5. Remember East India Company. It force in India, which is rite now limited to entered India as a trader and then took unorganised sector only. Once the reforms over politically. get implemented this percentage is likely to increase substantially. 6. The government hasn’t built consensus. In a politically and culturally diverse country Weaknesses like India, every ECONOMIC issues turns 1. Lack of Competition: AT Kearney’s out to become an POLITICAL issue. On study on global retailing trends found that December 1, 2011, there was a nation-wide India is least competitive as well as least “Bandh” (close all business in protest) was saturated markets of the world. called up by various political parties opposing 2. The unorganised the retail sector reforms. Many nation-wide Highly unorganised: portion of total retails sector is 97% as newspapers such as the Times of India and compared to US, which is only 20%. the Hindu, claimed that there was a mixed response to that protest. Many stores ignored 3. Low productivity: A McKinsey study the shutdown call and remained open also claims retail productivity in India is very during the whole “bandh” day, whereas many low as compared to its international peers. other opened during the second half of the 4. Shortage of talented professionals: day. This was because of the fact that many of The retail trade business in India is not the opposition parties privately supported and considered as a reputed profession encouraged these reforms. As a result of this, and it is mostly carried-out by the family these reforms have been kept on hold. members (self-employment/captive A Wall Street Journal article reports that in business). Such people are generally not Uttar Pradesh, Uma Bharti, a senior leader of academically and professionally qualified. the opposition Bharatiya Janata Party (BJP), threatened to “set fire to the first Wal-Mart 5. No ‘Industry’ status, hence creating store whenever it opens;” with her colleague financial issues for retailers: The retail Sushma Swaraj busy tweeting up a storm of sector in India do not enjoy the “Industry” misinformation about how Wal-Mart allegedly status, thereby making difficult for the ruined the U.S. economy. retailers to raise funds for the expansion projects. -35- Anusandhanika /Special Issue on FDI in India/ October 2017 Opportunities (benefits): the children below the age group of 5 1. There will be more organization in the are malnourished and the Prime Minister sector. Organized retail will need workers. Dr.Manmohan Singh has referred to it This is quite evident in Unites States of as “a national shame”. Food often gets America, where the 80% of the retail rot in farm, in-transit and in antiquated sector is organised and it employs 13- state-run warehouses. Cost-cautious and 16% of the work-force of that country. highly competitive retailers will try to avoid Moreover, according to the findings of these wastage and looses and it will be KPMG, one of the world’s largest audit their endeavour to make the products companies, in China, the employment in available at lowest prices, hence making both retail and wholesale trade increased food available to the weakest and poorest from 4% in 1992 to about 7% in 2001, post segment of Indian society. reforms and innovative competition in the 6. Heavy flow of foreign capital will help retail sector in that country. in building up the infrastructure for the 2. Healthy competition will be boosted growing population. India is already and their will be an check on the prices operating in the budgetary deficit. Neither (inflation). Retail giants such as Walmart, the Government of India nor the Indian Carrefour, Tesco, Target, Metro, Coop domestic investor are capable to satisfy and 350 other global retail companies the growing needs (schools, hospitals, are already have operations in many transport, infrastructure) of the ever countries for over 30 years. Until now, growing Indian Population. Hence foreign they have not at all become monopolies, capital inflow will enable us to create a rather they have managed to keep a heavy capital base. check on the food inflation through their 7. There will be sustainable development healthy competitive practices. and many other economic issues will be 3. Create transparency in the system. The focused upon. Many Indian small shop intermediaries operating as per mandi owners employs many workers, who norms do not have transparency in their are not under any contract and make pricing. According to some of the reports, them work for long hours. Many of such an average Indian farmer realise only one- employs under-aged workers, thus giving third of the price, which a final consumer rise to child-labour. Not only this, lack of pays. contract between worker and employer and no registration of such shops 4. Intermediaries and ‘mandi system’ will boosts corruption at grass-root level and be envicted, hence directly benefiting the generates black money. farmers and producers. The prices of the commodities will automatically checked. Threats (drawbacks) For example, according to the Business Emergence of foreign players in Indian retail Standard, Walmart has introduced “Direct sector can give rise to a number of threats Farm Project”at Haider Nagar near also, which are discussed above. Out of the Malerkotla in Punjab, where 110 farmers above mentioned drawbacks, most of them have been connected with Bharti Walmart are politically created. for sourcing fresh vegetables directly. Conclusion 5. Quality Control and control over leakage and wastage. Due to organisation of the In view of the above discussion, if we try to sector, 40% of the production does not balance the opportunities and prospects reach the ultimate consumer. According attached to the given economic reforms, it will to a news in the Times of India, 42% of definitely cause good to Indian economy and consequently to the public at large,There is -36- Anusandhanika /Special Issue on FDI in India/ October 2017 sincere expectation that the government will in symbiosis, not only for their selfish benefits, open the sector to FDI, and act fast on this but for the welfare of the public at large. front, even if it means opening the sector in a References gradual and phased manner. 1. Mukherjee A., Distribution Services: India Since the Indian retail sector is highly and the GATS 2000 fragmented and domestic retailers are in the process of consolidating their position, 2. Business Standard, Economic Times, the opening up of FDI regime should be in a 28/11/06. phased manner over 5 to 10 years time frame 3. Economic Times, Retail Gowth: A boon to so as to give the domestic retailers enough time job market, 2006 to adjust changes. FDI should not be allowed for multi brand stores in near future, as Indian 4. Hindu Business Line, November 15, 2003; retailers will not be able to face competition May 13, 2005 with these stores immediately. 5. Hindu Business Line, October 29, 2005 At present it is also not desirable to increase 6. Indian Express, R-day reforms: Single FDI ceiling to more than 51% even for single brand retail opened to foreign funds‖, premium brand stores. It will help us to ensure 2006 check and control on business operations of 7. Indian Retailing – Birth Pangs, 2003, global retailers and to look after the interests of www.fitchratings.com domestic players. However, the limit of equity participation can be increased in due course 8. Chossudovsky Michel, The Globalisation of time as we did in telecom, banking and of Poverty: Impacts of IMF and World insurance sectors. Foreign players should not Bank Reforms, Indian edition, 1997 be allowed to trade in certain sensitive products 9. Manjunath V.S. & Rajesh, C.N.B.Article like arms and ammunition, military equipment, on Competitive growth & FDI Acharya etc. and the list of excluded products should be Institute of Tecnology clearly stated in the FDI policy. 10. Guruswamy M., Sharma K., Mohanty J.P., However, it can be said that the advantages and Korah T., FDI in India‘s Retail Sector of allowing unrestrained FDI in the retail – More Bad than Good‖, Economic and sector evidently outweigh the disadvantages Political Weekly, 12/2/05, estimates future attached to it and the same can be deduced job losses as a result of FDI in the retail from the examples of successful experiments sector at between 4,32,000 and 6,20,000. in countries like Thailand and China; where too the issue of allowing FDI in the retail 11. Mukherjee A & Patel N, FDI in Retail sector was first met with incessant protests, Sector: India, Academic Foundation in but later turned out to be one of the most association with ICRIER and Ministry promising political and economical decisions of Consumer Affairs, Food and Public of their governments and led not only to the Distribution(Govt. of India), 2008 commendable rise in the level of employment 12. Organized retail in India to triple by 2010: but also led to the enormous development CRISIL‖, www.domain-b.com of their country‘s GDP. . I personally believe that instead poking the political game in the 13. Rehman M., Impact of FDI in Retail in economic reform issues like these, all the India. Retrieved August 4, 2010, from political parties (ruling party and all other http://ezinearticles.com/?Impact-of-FDI- opposition parties also) of India, should work in-Retail-in-India&id=380228, 2006

-37- Anusandhanika /Special Issue on FDI in India/ October 2017 Anusandhanika /Special Issue on FDI in India/ October 2017/ pp 38-45 ISSN 0974 - 200X Impact of Multinational Corporation on Labour Practices in the Era of Liberalisation, Privatisation and Globalisation

Dr. Abha Kumari Head of the Department of Commerce Ursuline Inter College, Ranchi

Abstract

In International business, as in most other activities, human resources are the critical elements. The peculiar problem that international firms face in that people are usually raised, educated and adjusted in one culture, whereas international business management required cross- cultural communication, coordination and supervision. The challenge is to develop managers who can think globally or at least bi-culturally. The multinational firm has various options in choosing a policy that will develop international managers with this ability. It can follow a policy of hiring local nationals to manage its subsidiaries, but it will then have to rely on training programs to internationalize its personal. It will have to invest in training programs to prepare executives and their families for cross national transfers. One of the most perplexing problems faced by multinational companies has been the matter of compensation policies, but with increasing experience most companies have been able to work out reasonably satisfactory solutions even for handling cross national transfers. Business Environment in India is passing through the process for globalization and liberalization and it has been showing increasing, economics integration. India is a large country with a population of more 125 crore and only 62% of our people are literate. India’s Human resources are having the tremendous potential, but due to blackness of visionary mistake of ours we are far behind in the global market. Now the time has come to play decisive role for marketing of Indian Human resources to global. MNCs has advantage of the ability to utilize international network of facilities and expertise in employee development.

Keywords : business environment, cross - cultural, training opportunity, employee development

Introduction Managing people in international setting requires human resources to address a In the last 20 years MNCs have played an broader range of functional areas. It requires important role in the Indian economy. They more involvements in the employer’s personal have become a common feature of most life. The firm should establish different developing economies in the world. MNCs as geographic location. It must closely watch is evident from what we see around us, there the moves made by external constituencies are gigantic corporations which have their including foreign government political and operation in a number of countries. They do religious group. A host of other issues relating not aim at maximizing profit from one or two to employee compensation, health, safety, products but instead spread their branches all welfare etc., need to be monitored carefully. over the world. Employees on international assignment This is evident from the fact that the sales represent valuable assets and hence need to of top 200 corporations where equipment to be managed systematically and strategically 28.3% of the world’s GDP in 1998. This shows so that they can easily adapt, survive and that top 200 MNCs controlled over a quarter flourish in diverse cultures and environment. of the world economy, therefore, MNCs is As the president of a German Company in a position to exercise massive control on remarked, “There are no German and the world economy because of their capital American Companies (today). There are only resources, and world best training facilities. -38- successful and unsuccessful companies. loss of man-days due to disturbances is Ford Motor Co. is an excellent example of a alarmingly high. Labour productivity is very multinational company (MNC). It has design low. Portuguese workers average about 1980 and production facilities around the world. hours of work annually, while German workers average 1648 hours. In UK and Germany HRM Policy in Multinational Corporation the severance pay is relatively high. Such Generally speaking there are three sources labour cost differences could influence hiring of employees for an international assignment. and firing decisions. Likewise, industrial The organization might choose to hire. relations factors also influence HR policies. In Germany codetermination is the rule. In Host country nationals (HNCs) India powerful unions especially in Banking Parent of home country nationals (PCNs): Insurance, Post and Telegraphs, Railways, Third country nationals (TCNs) Coal Steel and Mining Sectors Significantly influence the shape of HR policies. In some According to P.V. Morgan, International HRM states like West Bengal and Kerela, there is is the result of interplay amount the three support from the Governments too (for various dimensions – human resources activities, political reasons). In the United States on the types of employees and countries operation. other hand HR policies in most matters such The complexities of operating in various as wages and benefits are being decided by countries and employing different national the employer alone, of course in consultation categories of workers is an important variable with labour unions. that differentiates domestic and international HRM, rather than any major differences International Selection Labour Policy between HRM activities performed. Broadly International policies are complex and carry a stated, IHRM (International Human Resources lot of in-built pressures along with them it would Management) is “The process of procuring and be erroneous to assume that the job requires effectively utilizing management, allocating the same set of skills in different locations. and effectively utilizing human resources in a 1. multinational corporation”. When compared to General and Technical Criteria : Research findings consistently indicate domestic human resources management, the that MNCs place heavy reliance on scope of IHRM is very vide. relevant technical skills during the expatiate selection process. In addition, the expatiate manager should be a good communicator, and possess management Procure Allocat Utilize talent, maturity, emotional stability in ample measure. Host Country National (HCNs) Parent Country National (PCNs) 2. Language Skills : Most researchers Third Country National (TCNs) argue that knowledge of the host country’s language is an important factor affecting Concept of Labour Policy & HRM the performance of an expatriate. Differences in economic system among 3. Cross-Cultural Suitability : Expatriate countries also translate into country differences managers must be able to adapt to in HR practices. In free enterprise systems. change. They must have the ability to Companies tend focus on HR policies that translate their technical or managerial skill value productivity, efficient workers, cost into meaningful actions plans in a foreign cutting measures in line with market situations. environment. In countries like India and Pakistan, the 4. Motivation for a foreign assignment:

-39- Anusandhanika /Special Issue on FDI in India/ October 2017 The candidate for foreign assignment International Training and Development must believe in the importance of the job Policy and possess a certain amount of idealism Careful selection is only the first step in or a sense of mission. ensuring the foreign assignee’s success. The 5. Family situation : Several items including expatriate may then require proper orientation, the adaptability of spouse and family, cross-cultural training assistance in career spouse’s positive opinion, willingness of planning and development etc. in order to spouse of life abroad, stable marriage handle the assigned jobs in a competent way. comprises this factor. A. ORIENTATION : International positions Table require an extensive orientation to Expatriate Manager’s Success and Failure familiarize the employee with culture, language and other unique aspects of the Characteristics of the expatriate manager assignment. High probability for Low probability for Pre-arrival orientation : success success (i) Cultural briefing : Explaining the Strong technical Uncertain Technical traditions customs, living conditions Skills Competency clothing and housing requirements Good Language Weak Language health situations, etc. Skills Skills (ii) Assignment briefing : Throwing Strong Desire to Unsure about going light on length of assignment, Work Overseas overseas vacations compensation package tax implications, repatriation policy etc. Well-adjusted Family Family Problems Situation Post-arrival orientation Complete Support of Low Spouse Support Once global employees arrive in the Spouse host country, they will required further assistance in ‘setting in’ some should Behavioral Flexibility Week Stress receive them and help them in obtaining Management Skills housing accommodation establishing Adaptability and Poor relational ability bank accounts, getting driving licenses Open – mindedness arranging admissions to school for dependent children etc. Good Stress Behavioural Rigidit Management Skills Cross Cultural Training Source : Human Resource Development, 2nd Differences in cultural, language and edition V.S.P. excel book publication, New Delhi, p 689 laws may make it difficult for the global employees to be track quickly. In order to Selection Process of MNCs in the Global lead a normal life, they need cross cultural Economy as well as language training. The Selection process varies widely from International Compensation Policy of MNCS country to country. Asian companies use extensive testing procedures and screening Due to differences in tax and cost of living as techniques. Europeans do not as much as well as often difficult living conditions, pay and Asians but considerable more than Americans. benefits for employees living abroad must be Testing in the US is not favoured because of decided carefully paying attention to three its negative impact on equal employment and things. affirmative, action efforts. Additional incentives must offered for accepting -40- Anusandhanika /Special Issue on FDI in India/ October 2017 the international assignment (e.g. sign-on 2. What is the management skills I will need bonus percentage increase in base salary, to? lump-sum payment on successful completion 3. Will this assignment be good for my long- of assignment etc.) term career growth? Can’t expect to be Cultural Differences and HRM promoted when I return? How will I be treated if I do not succeed in my overseas The important global pressures Impacting job? H.R. practices in MNCs have grown in number, variety and complexity in recent 4. What is the country like? What are the times – thanks to the changes in information customs? Will I be able to adjust to the technology, dismantling of tariffs, differentiated culture? labour laws; cultural and language barriers, 5. Will my family be able to adjust to the new bargaining practices etc. Getting the right situations? Will my spouse be able to find people with required skills, motivating them suitable employment? to accept the challenges in foreign locale and extending family support through cultural Table orientation, language training and education Cross Cultural Training Techniques for and education assistance have become truly Expatriate Managers demanding. Let’s examine these more closely. Need for Cultural Training (a) Documentary Trainees read about a One of the important challenges for organization programmes foreign country’s history, is preparing people to be expatriate employees culture, institutions working in a nation than their home country. geography and Without this preparation, such employees economics. Videotaped may not be able to take on and successfully presentations are often complete an overseas assignment. used. Westerners should aspect offers of hospitality (b) Culture Cultural familiarity to visit an Arab’s home and the invitation must Assimilation is achieved through be returned. No alcohol should be offered to exposure to a series of Arab Guests or Consumed in their presence simulated intercultural Arabs are habitually late for appointments (like incidents or typical Indians) as they believe that the such things problem situations. This are in the hands of Allah (they call it insha- technique has been Allah;) Contrast this with another example used to quickly train from China. Chinese do not like to be touched those who are given even to shake hands, Westerners should know short notice of a foreign that Chinese do not like loud, boisterous, or assignment. aggressive behaviour. (c) Language Conversational language Chinese prefer to meet others in groups. They Instruction skills are taught through are more reticent and shy. Appointment with a variety of methods. Chinese takes a lot of time. They do not like to In most multinational conclude anything in a hurry. companies executives The following questions must be looked learn various languages into carefully before sending managers on a in a routine way, so foreign assignment. that company in case of short term foreign 1. What is the host country’s business culture assignment. like? -41- Anusandhanika /Special Issue on FDI in India/ October 2017 (d) Sensitivity Experiential exercises working internationally in some of the less Training teach awareness of developed nations, safety – related issued the impact of impact of have issues have assumed importance one’s actions on others. in recent times. In countries like Brazil Nigeria, Phillippines, Russia and New (e) Field Firsthand exposure Guinea Street crimes and quite common Experiences to ethic subcultures and kidnapping has become a way of life. in one’s own country In countries like Turkmenistan, Tajikistan, or to foreign cultures Bangladesh Afghanistan medical heightens awareness. facilities are primitive, treatment is not as (f) Business This covers negotiating available and medicines are less easily basis cross – culturally obtained. Before sending executives working with various abroad therefore the home-office should types of clients, making understand the local environment, local presentation etc. conditions and the level of difficulty in Source : A Guide for Global Training” and each global assignment. Development July 93, Page - 69 Objectives International Labour Relations of MNCs The quality of a firm’s executive is usually Labour relations structures, laws and practices the single most important determinant of vary considerably among countries, MNCs, its success in international business. An therefore adopt different labour relations aggressive global strategy implies managerial strategies relation to the environment factors resources of a caliber to think out and peculiar to each firm. Some of the important implement such polices. In the words of one aspects worth considering here may be listed international executive. Virtually any type of thus. international problem in the final analysis is either created by people or must be solved by 1. The role of unions The role of unions : people. Hence having the right people in the varies from country to country due to right place at right time emerges as the key to a many factors such as level of employment, company’s international growth. Multinational homogeneity of labour relations between business brings with it may unique problems labour and management. in the management of human resources, the 2. Collective bargaining : Collecting most fundamental of which is the necessity bargaining practices can very widely for managers raised and experienced in one from country to country depending on culture to play bicultural or multicultural roles. the role played by the respective location According to CEO of Infosys N.R. Narayan governments. In the United Kingdom and Murthy “Our assets walk out of the door each France, for example, government actively evening we have to make sure that they come intervenes in all aspects of collective back the next morning.” bargaining. In this article we have gathered the 3. Labour Participation : The law takes implementation of the important areas of care of employee representation in many Multinational Corporations. The areas which European countries. have been covered in the study are as under : 4. Health and Safety : Employee Health and 1. Encouraging wage Management Safety Law and Regulations very from 2. International Compensation Policy country to country ranging from virtually non-existent to more stringent than in 3. Attractive Training Policies and Procedure India. With more and more expatriates 4. Fair Recruitment Polices and Procedure

-42- Anusandhanika /Special Issue on FDI in India/ October 2017 5. Nice Selection of Expatriate Managers availability of qualified managers in the host 6. Promotion Policy of MNCs country. Most MNC’s use a greater proportion of PCN’s (Parent Company Nations) in top 7. Demotion in MNCs management positions, Staffing middle and 8. Career Development on MNCs lower management positions with increasing 9. Acceptable Communication from top to proportions of HCN’s (impatriates) as one the bottom moves down the organizational hierarchy. 10. Health and Safety MNC’s has focused on the problems of selecting 11. Employee Welfare and training managers for international 12. Social Security assignments and then successfully repatriating them when their foreign stints of duty end. 13. Employee Grievances and Discipline Without exception, all the phases of human 14. Collective Bargaining resources management should support the 15. Participation and Empowerment desired strategy of the firm. In the staffing 16. Trade Unions phase, having the right people in the right places at the right times is a key ingredient 17. Harmonious Industrial Relations and to success in international operations. An Industrial Dispute effective managerial cadre can be a distinct Materials and Methods competitive advantage for a firm. For the purpose of in depth study the contents Types of Selection of Expatriate Assignment have been taken from relevant books and Rayer Swaak has identified several types of articles from journals government reports. The expatriate assignments. These are explained methods used are descriptive and analytical. below : Consultation with eminent scholars in this field has shaped the present discussion. 1. Developmental Assignment 2. Project Assignments Results and Discussions 3. Technological Transfer Assignments An MNC and its subsidiaries therefore must 4. Management Oversight Assignments carefully balance the demands of strategic 5. Regional Coordination Assignments global control and local adaptability. For most MNCs, the person assigned to carry out 6. World Wide Assignments this balancing act between global and local Expatriate Failures demands has been the expatriate manager. Expatriate failure occurs when an expatriate is An expatriate manager is a person assigned forced to return to his or her home organisation to carry out this balancing act between global before the expected duration of the foreign and local demands. assignment is completed. There are a Traditionally, expatriates were employees from number of reasons besides poor selection the home country of the MNC. However, during that contribute to expatriate failure. Tile major the 1980s and 1990s, as MNC operations causes of expatriate failure are given below : become more diverse, managers from any 1. Selection based on headquarters criteria country in which the MNC operated were rather than assignment needs selected to manage its foreign subsidiaries 2. Inadequate preparation, training and around the world. More recently, the selection orientation prior to assignment. and effective utilisation of inpatriates (foreign- country managers brought to an MNC’s home 3. Alienation or lack of support from country) has become an important issue for headquarters. many multinational firms. As a practical matter, 4. Inability to adapt to local culture and however, the choice often depends on the working environment. -43- Anusandhanika /Special Issue on FDI in India/ October 2017 5. Problems with spouse and children – poor case. This will depend on situational factors. adaptation, family unhappiness. Language : The ability to speak a second 6. Insufficient compensation and financial language is an aspect often linked with support. cross cultural ability. Language skills may be 7. Poor programmes for career support and regarded as of critical importance for some repatriation. expatriate positions, but less in others. Table : Reasons for Expatriate Failure Country-cultural requirements : The cultural U.S. Firms Japanese Firms environment in which the expatriates operate is an important factor in determining successful Inability of spouse to Inability of cope with performance. Effective skills are defined as the adjust larger international ability to successfully translate the managerial responsibility or technical skills into the foreign environment. Manager’s inability to Difficulties with new These include, apart from the obvious technical adjust environment ability and managerial skills :- Other family reasons Personal or (i) Cultural empathy emotional problems (ii) Adaptability Manager’s personal Lack of technical or emotional in competence (iii) Diplomacy maturity (iv) Language ability Inability to cope with Inability of spouse to larger international adjust (v) Positive attitude, emotional stability, and responsibility (vi) Maturity Source : Tung “Selection and Training procedures” Some Methods of Selecting Successful Managing an Expatriate Expatriates Willingness to Go A model of the life cycle of an expatriate Ability to do the job : For individuals who assignment involves a process of : may have short-term (one to two weeks) troubleshooting trips overseas, assessments 1. Determining the need for an expatriate of their performance during those assignments assignment collected. 2. Identifying and selecting likely candidates Ability to adapt : Situational exercises 3. Reassignment training characterized by high levels of ambiguity and some pressure to examine how well the 4. Departure candidate performs under such conditions. 5. Post arrival orientation and training Ability to firm relationships 6. Crisis and adjustment or crises and failure 1. Psychological tests of traits typically 7. Reassignment abroad and associated with relationship development. 8. Repatriation and adjustment 2. Assessment of how the individual typically deals with conflict and how that compares MNCs Requirement with the conflict management norms in the The MNCs may consider the proportion of host country. expatriates to local staff when making selection Ability to Communicate : Situations exercise decisions, mainly as an outcome of its staffing in which the language ability must be used e.g., philosophy. In some cases however, operations explaining a technical procedure to individuals in particular countries may requires the use of from the host culture using the host language. more PCNs and HCNs than normally is the -44- Anusandhanika /Special Issue on FDI in India/ October 2017 Family situation : Interviews with spouse 63,000 of them with about 8,22,000 affiliates. and family members to determine interest and Only less than 12% of these affricates mere willingness to go overseas. in the developed countries, China was host to about 3.64 lack of the affiliates (i.e. more than Conclusion 44% of the total) compared to more than 1400 Multinational Companies provide development in India. In case of globalization, productivity of labour by providing additional training grows more quickly when country produced opportunity and giving incentives for goods and services in which they have employees to increase their skills. Introduction comparative advantage. of high technology and changes in the system Human Resource need to be reshaped to of management by MNC call for resourceful suit the requirement of global, economy in people who are highly responsible to national terms of competence, commitment and costs. and global level. Increase of employment A company would have to keep an eye on in foreign affiliate in recent years has taken cost and quality all the time in order that they place in developing countries in general and should be able to share their product even in India in particular by MNC. India faces a rich the domestics market. This would require that human resources unutilized and still have organization should keep their employees, conventional practices. Today in the age of trained, education and well motivated all technology, oriented technology oriented the times of that they are able to generate economy is our first challenge. It is estimated excellence in a sustained order. that multinational corporation provide 73 millions jobs world wise however 60% of these A manager should have certain qualities for are in developed countries. Hence, the world the efficient management in the multinational has become a global village. companies in particular and any organization in general, they are an organizer, a controller a The growth of trade, communication and diplomat, a father confessor, a friend, a student globalization has opened the window of human psychology, vitality and endurance of opportunities for the mobilization of decisiveness, persuasiveness, stability of human resource from India. A majority of behaviour intellectual capacity, knowledge, the multinational company operating at Health and physical fitness, Intelligence and global levels placed Indians at the helm of technical competence, Initiative, power of affairs, Americans and Europeans have for judgment and ability to deal. Enthusiasm, long delegated the day today control and courage’s sense of direction judgment, tact management of their Indian subsidiaries to courtesy and integrity are also regarded as Indian executives. The multinational firm has necessary qualities for a leader to be effective. various options in choosing a policy that will develop international managers with this ability. References It can follow a policy of hiring local national to 1. Allen L.A., Management and Organization, manage its subsidiaries, but it will then have to TATA MCGraw Hill, New York, 2008 rely on training programme to internationalize its personnel. 2. Luthaus F., International Management” TATA Mc Graw Hill, New York, 2005 MNCs help the host countries to increases domestic investment and employment 3. Rao V.S.P., Human Resource generation, boost export transfer technology Development, Excel Book Publishing, and accelerate economic growth. So, far as House, 2007 development of multinational, corporations are 4. www.shrm.org concerned, the world investment report 1997 5. www.ipma-hr.org states, there are more about 45,000 MNCs with some 2,80,000 affiliates. According to the 6. www.jobdescription.com world Investment report 2001 there were over -45- Anusandhanika /Special Issue on FDI in India/ October 2017 Anusandhanika /Special Issue on FDI in India/ October 2017/ pp 46-51 ISSN 0974 - 200X Foreign Direct Investment in India – Retail Sector Aditi Singhania Research Scholar Department of Commerce and Business Management Ranchi University, Ranchi

Priyanka Chaturvedi Research Scholar Department of Commerce and Business Management Ranchi University, Ranchi

Abstract

Indian retail industry is one of the sunrise sectors with huge growth potential. According to the investment Commission of India, the retail sector is expected to grow three times its current levels, however, in spite of the recent developments in retailing and its immense contribution to the economy, retailing countries to be the least evolved industries and the growth of organized retailing in India has been much slower as compared to rest of the world. Indian retail sector today is valued at $450 billion, and is increasing day by day due to its increasing middle class population and their spending power. Indian retail sector has two parts: organized and unorganized sector. Organized sector which forms around 20 -30 % in other countries , here in India it forms only about 6% while rest is all unorganized consisting of small retailers convenience stores, departmental stores, pavement vendors etc. Organized retail consists of supermarkets, hypermarkets and modern retail outlets, malls, exclusive brand outlets etc which are located in urban areas or metros. Undoubtedly, this dismal situation of the retail sector, despite the ongoing wave of incessant liberalization and globalization stems from the absence of an FDI encouraging policy in the Indian retail sector.

Keywords : growth potential, current label, recent development

Introduction an accelerating growth in the flow of foreign investment into the country. During 1992-93, Foreign direct investment (FDI) India is now several additional measures were taken by the the last major frontier for globalized retail. government to encourage investment flows: In the twenty years since the economic direct foreign investment, portfolio investment, liberalization of 1991, India’s middle class has NRI investment and deposit and investment in greatly expanded, and so has its purchasing global depository receipts. power. But over the years, unlike other major emerging economies, India has been slow to Some of these measures are given as follows: open its retail sector to foreign investment. 1. The dividend balancing condition earlier Recent signals from the government however applicable to foreign investments up to suggest that this maybe about to change: 51% equity is no longer applied except for global supermarket chain stores such as consumer goods industries. Wal-Mart (United States), Carrefour(France), Marks & Spencer and Tesco (United Kingdom), 2. Existing companies with foreign equity and Shoprite (South Africa) may finally be can raise it to 51% subject to certain allowed to set up shop in India. It is one of the prescribed guidelines. Foreign direct most important sources of non-debt foreign investment has also been allowed in investment flows in Developing countries exploration, production and refining of oil like India. After the announcement of new and marketing of gas. Captive coal mines industrial policy, 1991 and the current policies can also be owned and run by private of liberalization, India has been experiencing investors in power. -46- 3. India has signed the multilateral FDI policy on a continuous basis. The FDI investment guarantee agency protocol for policy is notified through Press Notes released foreign investment on 13thApril 1992. from time to time by Secretariat for Industrial Assistance (SIA), Department of Industrial 4. Foreign companies have been allowed Policy and Promotion (DIPP). The foreign to use their trademarks on domestic investors are free to invest, except in few sales from 14th may, 1992.Foreign direct sectors, where prior approval from RBI or FIPB investment is nowadays considered as an would be required. important source of investible resources. Developing countries, emerging Retailing is the last link in the process of Supply economies and countries in transition Chain Management. Retailer is the person increasingly see FDI as a source of who is in direct contact with the customers economic development, modernization because of this it gains its importance for the and employment generation. manufacturer. The word ‘retail’ is derived from the French word ‘retailer’, which means ‘to Foreign direct investment came into being with cut a piece of’ or ‘to break bulk ‘The retailer effect from the 5thApril, 2013. It came to pass unlike wholesaler did not buy products for after an upheaval of debate in parliament. further resale but to provide them to the With the economy liberalising and market end consumers. A number of activities are globalising, it was more a necessity than performed by retailers such as assorting, luxury to go for FDI. It was necessity because sorting, merchandizing, storing, providing with the recent increase in GDP, rise in per credit facility, packing etc. The sector is facing capita income, increase in disposable income big transformation from mom & pop stores, local accompanied by proliferation of brands, there kiryana store to big malls and hypermarkets. have arisen changes in purchasing behaviour The customer is demanding products as never of Indian consumer. It is therefore a two- before. They possess good knowledge about way- traffic for the borderless world. Global pricing strategies, quality of the product and investors will be guided by the profitability of its usage. The consumer is now attracted the investment and for Indian consumer might towards big glitzy malls, eye catching interiors, be the key determinant of the retail FDI policy; one stop shopping experience. The concept of supplementing capital requirements would be e-retailing has resulted in one touch shopping the purpose of equity investment. real for customers. The customers are now Materials and Methods demanding products from a place which is convenient to them. Therefore, it is becoming For the purpose of in depth study the contents difficult for retailers to find loyal customers for have been taken from relevant books and themselves. The customers will be attracted articles from journals government reports. The towards those stores which tend to offer methods used are descriptive and analytical. good quality products at attractive prices with Consultation with eminent scholars in this field convenience facility, in an attractive manner. has shaped the present discussion. Such Retailing can be broadly divided into two Results and Discussions categories- FDI means investment by non-resident entity/ 1. Store retailing- storeretailing is of many person resident outside India in the capital kinds, such as, departmental store, of an Indian company under Schedule 1 of speciality store, convenience store, Foreign Exchange Management (Transfer superstore, supermarket etc. or Issue of Security by a Person Resident 2. Non -store retailing- Non- store retailing are- outside India) Regulations, 2000. In India, the Ministry of Commerce and Industry acts as Direct selling or network marketing a nodal agency for monitoring and reviewing such as, Eureka Forbes, Amway etc.

-47- Anusandhanika /Special Issue on FDI in India/ October 2017 Direct marketing such as, Encouraging increased sourcing of telemarketing and internet selling etc. goods from India Automatic vending as it is used to Enhancing competitiveness of sell products like beverages, milk, Indian enterprises through access magazines etc. In whatever name to global designs, technologies and or form we may think of retailing, the management practices. name of the game is the retail store Condition to be fulfilled: The FDI in retail trading which is an independently- owned of single brand product would be subject to business enterprise whose volumeof fulfilment of the following conditions: sales stem from retailing. Products to be sold should be of single Corporate Retail Store brand only. Corporate retailing implies exclusive retail Products should be sold under the same marketing in the form and style of corporate brand internationally; at least products chain stores, such as, shoppers stop, food should be sold under the same brand in world etc. one or more countries other than India. Corporate in chain stores, such as Retail trading in single brand product would shoppers stop, food world. cover only products which are branded Consumer co-operatives such as supper during the stage of manufacturing. bazaar, big bazaar etc. In case of proposals involving FDI beyond Franchised organisation like McDonald’s, 51%, sourcing of 30% of the value of KFC, Pizza Hut, Dominos, Raymond’s, goods purchased will be done from India, Vimal outlet etc. preferably MSME’s, village and cottage industries, artisans and craftsmen, in all Corporate retail organisations have the sectors. blessing of economies of scale, greater purchasing power, wide brand reputation and Retail trading, in any form by means of trained employees. E-Commerce would not be permissible for the companies with FDI, engaged in the Impact of FDI in Single Brand Retailing activity of single brand retail trading. This sector specific single brand retail activities, percentage of FDI capital required Application seeking permission of the and the entry route for the permitted sector of government of Indian for FDI in retail trade single brand retail trade are tabulated below. of single brand product would be made to Secretariat for Industrial Assistance (SIA) Sector / % of FDI Entry Route in the development of industrial policy and activity Capital promotion. Retailing of 100% Government Impact of FDI in Multi Brand Retail Trading single product The sector specific multi brand retail activity, Objective to achieve: The foreign investment percentage of FDI capital required and the in retail trading of single brand product is entry route for permitted sector of multi aimed at branding retail trading are tabulated below. Attracting investment in production Sector / % of FDI ENTRY and marketing. Activity Capital Route Improving the availability of such Multi brand 51% Government goods for the consumer. retail trading

-48- Anusandhanika /Special Issue on FDI in India/ October 2017 Condition to be fulfilled also be calculated. Multi brand retail trading is subject to certain Advantages of FDI In Retail Sector conditions such as: 1. Growth in Economy Fresh agriculture produce (fruits, 2. Job Opportunities vegetables, flowers, grains, pulses, fresh Poultry, fishery and meat products) may 3. Benefits to farmers be unbranded. 4. Benefits to consumers The foreign investor must bring a minimum 5. Cheaper production facilities amount of US $ 100 million for Investment. 6. Availability of new technology At least 50% of the investment bought should be invested in ‘back- 7. Long term cash liquidity end Infrastructure within three years. Disadvantages of FDI In Retail Sector Expenditure on land cost and rentals will not be Included in infrastructure 1. Impact on Local Markets (kirana shops) development. 2. Limited Employment Generation At least 30% of the products purchased 3. Fear of Lowering prices must be sourced from Indian micro, small and medium industries (total investment 4. Negative Impact on Economy in plant and machinery not exceeding US 5. Negative Impact on Indian Domestic $ 2.0 Millions) Market Government possess the first right of Challenges of FDI In Retail Sector procurement on agriculture produce. The challenges facing larger FDI in India Retail outlets are allowed to be set up in are in spite of the fact that more than 100 of cities with a population of more than 10 Fortune 500 companies are already investing Lakh as per 2011 census survey, or any in India. These FDIs are already generating other cities as per the decisions of the employment opportunities, income, technology respectiveState Governments. transfer and economic stability. The policy for FDI is an enabling policy; India is focusing on maximizing political the State Governments are set free and social stability along with a regulatory forImplementation of the policy. environment. In spite of the obvious advantages Applications are to be processed firstly by of FDIs, there are quite a few challenges facing DIPP followed by the FIPB for Approval of larger FDIs in India, such as: Government. 1. Resource challenge : India is known to Retail trading in any form by means of have huge amounts of resources. There e-commerce is not permissible for FDI, is manpower and significant availability engaged in multibrand or single brand of fixed and working capital. At the same retail trading. time, there are some underexploited or unexploited resources. The resources The collected primary and secondary data are well available in the rural as well as will be analysed with the help of standard the urban areas. The focus is to increase statistical tools. In order, the trend of the infrastructure 10 years down the line, for variables regression analysis will be used. In which the requirement will be an amount order to determine the extent of relationship of about US$ 150 billion. This is the first between variables co- relation analysis will be step to overcome challenges facing larger done. Mean and standard deviation of data will FDI.

-49- Anusandhanika /Special Issue on FDI in India/ October 2017 2. Equity challenge : India is definitely impact of large foreign firms on employment developing in a much faster pace now in the retail sector. A second related concern than before but in spite of that it can be raised in the DIPP’s report is that opening identified that developments have taken up FDI would lead to unfair competition place unevenly. This means that while and ultimately result in large-scale exit of the more urban areas have been tapped, incumbent domestic retailers, especially the the poorer sections are inadequately small family-owned business. A third concern exploited. To get the complete picture of raised by domestic incumbent firms in the growth, it is essential to make sure that the organized retail sector is that this sector is rural section has more or less the same under-developed and in a nascent stage. amount of development as the urbanized In this paper we argue that the potential ones. Thus, fostering social equality and benefits from allowing large retailers to enter at the same time, a balanced economic the growth. Indian retail market may outweigh the costs.FDI 3. Political Challenge : The support of the in organized retail could help tackle inflation, political structure has to be there towards particularly with wholesale prices. It is also the investing countries abroad. This can expected that technical know-how from foreign be worked out when foreign investors put firms, such as warehousing technologies and forward their persuasion for increasing distribution systems. FDI capital in various sectors like banking, and insurance. So, there has to be a Gone are the days, when customers were common ground between the Parliament dependent on nearby retail store for fulfilling and the Foreign countries investing in their India. This would increase the reforms in Needs. With new concepts like e-tailing, the FDI area of the country. customized product, a big shift is seen in the 4. Federal Challenge : Very important among response of the customers. Positive as well as the major challenges facing larger FDI, is negative points are attached to the liberalized the need to speed up the implementation FDI policy in retail sector. FDI in no doubt is of policies, rules, and regulations. The likely to bring improvement in state of Indian vital part is to keep the implementation economy, but the stake of small retailers of policies in all the states of India at par. must be taken care of while formulating Thus, asking for equal speed in policy and implementing the policy. With growing implementation among the states in India awareness and attitudinal shift of customers, is important. it is suggested that it is time for small retailers to spend time to revive the strategies required 5. India must also focus on areas of poverty to attract customers towards their retail reduction, trade liberalization, and banking stores. The small retailers must concentrate and insurance liberalization. Challenges upon innovative concepts of retailing, spend facing larger FDI are not just restricted to time on CRM practices, bring improvement the ones mentioned above, because trade in SCM, use feedback facility, keep a track relations with foreign investors will always record of customers, provide quality products, bring in new challenges in investments. bring improvement in ambience and most Conclusion importantly provide a personal touch to the services for attracting customers towards their India’s retail sector remains off-limits to retail stores. The Government is also required large international chains especially in multi- to frame strict policies, taking care of interest brandretailing. A number of concerns have of small retailers, so that organized and been raised about opening up the retail sector unorganized sector may co-exist and flourish to FDI in India. The first concern is the potential together. -50- Anusandhanika /Special Issue on FDI in India/ October 2017 Reference 3. Arora Richa, Mathew Supriya and Suresh Anupama, An Article on Impact of FDI 1. Chari Anusha and Raghavan T.C.A on Indian Retail Sector: Challenges and Madhav, An Article on Foreign Direct Opportunities by, January 2014 Investment in India’s Retail Bazaar – Opportunities and Challenges, March 4. Chowdhury Dr Monoj Kumar, An Article on 2011 FDI in Indian Retail Sector: An Analysis by, International Journal of Application 2. Dutta D.L., Principles of Marketing and or Innovation in Engineering and Ecommerce, Tee Dee Publications, August Management, April 2016 2016, Volume 4, pp 355-379

-51- Anusandhanika /Special Issue on FDI in India/ October 2017 Anusandhanika /Special Issue on FDI in India/ October 2017/ pp 52-59 ISSN 0974 - 200X An Overview of FDI in India and Measures to Increase its Inflow

Amit Kumar Gupta Assistant Professor St. Xavier’s College, Simdega

Abstract

This paper explains the prominent aspects of FDI, its implications for the Indian economy, factors that curtail its inflow in India and suggestions to overcome them. In 1991, the Indian economy was experiencing financial dimness as the government was not able to make repayments on its borrowings from abroad. This eventually led the government to introduce The New Economic Policies (NEP) in 1991. The NEP relaxed the trade barriers to a considerable extent which led to the flow of foreign capital in our nation and simultaneously uplifted the prosperity of the country. Since then, the FDI norms are continuously being further liberalised to attract foreign resources in the Indian system. Initiatives such as Make in India and up to cent percent FDI in many sectors, etc are ambitious strides in this regard. According to the UNCTAD World Investment Report 2016, India acquired 10th slot in the top 10 countries attracting highest FDI inflows globally in 2015. However, certain factors are discouraging the foreign investors to take India as an interesting investment destination. In the present paper an attempt has been made to find out the factors which are restraining the arrival of FDI in India and how those can be tackled effectively keeping in view the interests of the domestic players of the country.

Keywords : economic development, make in india, socio-economic condition

Introduction to the stipulations of The World Bank and The IMF and announced the New Economic Foreign Direct Investment (FDI) refers to Policies (NEP). The NEP laid the foundations an investment in a business enterprise in for the prominent policies popularly known a country other than the investor's country as LPG (abbreviated form of Liberalisation, designed to acquire a controlling interest in the Privatisation and Globalisation) which brought foreign business enterprise. The Organization about significant turnaround for the nation. of Economic Cooperation and Development (OECD) defines control as owning 10% or FDI Rankings more of the business. Whether or not or up The US tops in FDI inflows, with China at third place and India at 10th. FDI inflows (in $ bn) to what extent a country needs FDI support 380 175 depends upon the socio-economic conditions 2014 2015 136 prevailing in the relevant country. 129 114 107 101 In 1991, foreign exchange reserves dropped 73 73 69 68 65 65 to levels that were not sufficient to make 59 52 49 44 repayments on foreign borrowings. This led 31 35 India to approach The World Bank and The 7 IMF for a loan of $7 billion to manage the US Hong Kong. China Ireland Brazil Canada India crisis. For availing the loan, these international China Singapore Switzerland agencies expected India to liberalise and Netherlands open up the economy by removing restrictions Source : World Investment Report 2016 by UNCTAD on the private sector, reduce the role of the government in many areas and remove trade FDI refers to the net inflows of investment to restrictions with other countries. India agreed acquire a lasting management interest (10 per

-52- cent or more of voting stock) in an enterprise majority stake in a tyre manufacturer or a operating in an economy other than that of the rubber plantation. investor. However, there may be exceptions Conglomerate : In this type of investment, as often a smaller block of shares will give the investment is made to acquire an control in widely held companies. Moreover, unrelated business abroad. It is the most control of technology, management and even surprising form of FDI, as it requires crucial inputs can confer de facto control. overcoming two barriers simultaneously – There are two types of FDI: inward foreign one, entering a foreign country and two, direct investment and outward foreign direct working in a new industry. investment, resulting in a net FDI inflow (positive or negative.) FDI is one of the major Forms of FDI monetary sources for countries in need of FDI can take place in the following forms : funds. According to the World Bank, FDI is one of the critical elements in developing the private Greenfield Entry refers to activities or sector in lower-income economies and thereby, assembling all the elements right from in reducing poverty. It were P.V. Narasimha scratch as Honda did in the UK by Rao and Manmohan Singh, the Prime Minister investing £2.2 billion for establishing its and Finance Minister respectively at that plant from the ground level. time who brought FDI in India. Since then, Brownfield Entry/Foreign takeover means the FDI norms are continuously being further acquiring an existing foreign company liberalised to attract foreign resources in the – as Tata’s acquisition of Jaguar Land Indian system. FDI is a major source of non- Rover. Foreign takeover is often called debt financial resource for the economic Mergers and Acquisitions (M&A) but development of India. Foreign companies internationally, mergers are absolutely invest in India to take advantage of relatively small, which accounts for less than 1% of lower wages, special investment privileges all foreign acquisitions. such as tax exemptions, etc. The government has taken many initiatives in recent years such Methods of Acquiring Control, i.e., Voting as relaxing FDI norms across sectors such as Power defence, railways, telecom, power and civil The foreign direct investor may acquire voting aviation among others. power of an enterprise in an economy through Types of FDI any of the following methods: Strategically, FDI comes in three types by incorporating a wholly owned subsidiary or company anywhere Horizontal : In case of horizontal FDI, the company does all the same activities by acquiring shares in an associated abroad as at home. For example, Toyota enterprise assembles motor cars in Japan and the through a merger or an acquisition of an UK. unrelated enterprise Vertical : In vertical assignments, participating in an equity joint venture with different types of activities are carried out another investor or enterprise abroad. In case of forward vertical FDI, the FDI brings the company nearer to a The FDI Approval Process in India market. For example, Toyota buying a FDI is permitted in Indian companies, car distributorship in America. In case of partnership firms, venture capital funds backward Vertical FDI, the international and limited liability partnerships. These integration goes back towards raw entities may receive FDI under the materials. For example, Toyota getting automatic route or the government route,

-53- Anusandhanika /Special Issue on FDI in India/ October 2017 depending on the economic activity/ and thus pushing GDP to new levels. sector. Uprooting Unemployment and Poverty : FDI FDI in activities not covered under the will help in creating and/or developing automatic route requires prior Government new physical facilities which will open approval. Investment proposals are new job opportunities and thus will considered by the Foreign Investment thwart unemployment and poverty Promotion Board (FIPB), a Government simultaneously. body that offers single-window clearance Non-debt Fund : FDI is a non-debt capital for foreign investments in the country which will not oblige India for redemption. that are not allowed access through the automatic route. Push Competition to International level : The rush of FDI in the country will force Information disclosure requirements with the local producers and service providers the FIPB include the name and address to upgrade themselves to international of the Indian company, a description of level in order to sustain in the transformed the existing and proposed activities of scenario. the company and a description of the capital structure of the company, as More Forex and Tax Revenues : FDI will well as its proposed borrowings, export boost the forex position and tax revenues commitments, employment opportunities, for the government which will contribute amount of foreign equity investment and significantly towards the prosperity of the foreign technology agreements. Additional nation. documents to be submitted to the FIPB Government of India's FDI Initiatives include descriptions of Indian JV partners indicating their percentage share, group I. Make in India Initiative : Make in India companies and affiliates; information campaign is structured to attract more FDI on the activities of the downstream to India and make the country a global companies; copies of the JV and/or manufacturing and industrial hub. This shareholders agreement and technology campaign has garnered global attention transfer and/or trademark agreements; as the initiative has encouraged foreign pre- and post-investment shareholding investors to privatise key sectors such as structure of the investee and the investing the railways, defence, civil aviation, food companies; and, in cases of indirect products, pharmaceuticals and so forth. investment through Indian companies, II. Ease of Doing Business : The details on the indirect investment and its government is now trying to pave the way shareholders. for easy business in India by removing The consolidated FDI Policy stipulates archaic laws. The World Bank has listed that in all sectors with sectoral caps, India on 130th position in comparison to the balance equity, i.e. beyond the 142nd position of last year in the light of sectoral foreign investment cap, has to the improvements made in this regard. be beneficially owned by resident Indian III. Major Recent changes in the FDI Policy citizens and Indian companies owned or of India : controlled by resident Indian citizens. The government has raised FDI cap Ways in which FDI can benefit India in insurance from 26 per cent to 49 Positive for GDP : FDI serves as fresh per cent. capital and will aid in improving the socio- 100% FDI under automatic route in economic condition of the country by Greenfield Pharmaceuticals. Also, utilising the resources to the optimal level -54- Anusandhanika /Special Issue on FDI in India/ October 2017 up to 74% FDI under automatic route The government has also permitted in Brownfield Pharmaceuticals and 100% FDI through automatic route beyond that can be acquired through in broadcasting carriage services like government approval. teleports, direct-to-home and mobile TV. In a major reform move, 100% FDI in railway infrastructure has been In a significant reform move, the allowed. government allowed 100% FDI in airlines and relaxed norms for In the Defence Sector, FDI beyond overseas investments in Brownfield 49% has been permitted through airports. government approval route, in cases resulting in access to modern The changes in the policy include technology in the country or for other allowing 100% FDI under government reasons, besides permitting foreign approval route for trading, including investment in manufacturing of small through e-commerce, in respect of arms and ammunition. The condition food products manufactured and/or of access of state of the art technology produced in India. has been removed. FDI Flows to India: Country-Wise and Industry-Wise (US $ million)

Source/Industry 2011-12 2012-13 2013-14 2014-15 2015-16 P 1 2 3 4 5 6 Total FDI 23,473 18,286 16,054 24,748 36,068 Country-wise Inflows Singapore 3,306 1,605 4,415 5,137 12,479 Mauritius 8,142 8,059 3,695 5,878 7,452 U.S.A. 994 478 617 1,981 4,124 Netherlands 1,289 1,700 1,157 2,154 2,330 Japan 2,089 1,340 1,795 2,019 1,818 UAE 346 173 239 327 961 Germany 368 467 650 942 927 United Kingdom 2,760 1,022 111 1,891 842 Luxembourg 89 34 539 204 784 Cyprus 1,568 415 546 737 488 China 73 148 121 505 461 France 589 547 229 347 392 Hongkong 262 66 85 325 344 South Korea 226 224 189 138 241 Switzerland 211 268 356 292 195 Spain 251 348 181 401 141 Malaysia 18 238 113 219 73 Others 890 1,156 1,015 1,251 2,016 Sector-wise Inflows

-55- Anusandhanika /Special Issue on FDI in India/ October 2017 Source/Industry 2011-12 2012-13 2013-14 2014-15 2015-16 P 1 2 3 4 5 6 Manufacturing 9,337 6,528 6,381 9,613 8,439 Computer Services 736 247 934 2,154 4,319 Construction 2,634 1,319 1,276 1,640 4,141 Retail & Wholesale Trade 567 551 1,139 2,551 3,998 Financial Services 2,603 2,760 1,026 3,075 3,547 Business Services 1,590 643 521 680 3,031 Communication Services 1,458 92 1,256 1,075 2,638 Electricity and other Energy 1,395 1,653 1,284 1,284 1,364 Generation, Distribution & Transmission Transportation 410 213 311 482 1,363 Miscellaneous Services 801 552 941 586 1,022 Restaurants and Hotels 870 3,129 361 686 889 Mining 204 69 24 129 596 Education, Research & 103 150 107 131 394 Development Real Estate Activities 340 197 201 202 112 Trading 6 140 0 228 0 Others 419 43 292 232 215 P: Provisional. Note : Includes FDI through SIA/FIPB and RBI routes only. Source : RBI Annual Report 2015-16

Bottlenecks associated with FDI in India become easier for Indian businesses to and Measures to Increase its Inflow start a business, but their access to credit and ease of paying taxes has worsened, FDI inflow in the country is increasing at a fast according to the World Bank’s Doing pace. However, there are some bottlenecks to Business Report 2016. FDI which are not letting India to move with full pace in the desired direction of growth State of Infrastructure in India : New and prosperity. These bottlenecks need to be and innovative plans are required to tackled with effective and efficient measures to improve the infrastructure of the economy, make sure that optimal level of FDI reaches facilitate smooth business and navigation India. An attempt has been made to list some and to attract foreigners to invest by of these major bottlenecks along with their means of FDI. suggestive measures. High Taxation for Registered Entities : Ease Of Doing Business in India : Even India has one of the highest corporate tax though India has now improved its rank rates (30% for domestic companies and (from 142 to 130) in the field of Ease of 40% for foreign companies). The tax rate Doing Business, immense efforts are for the firms (30%) is also high. There is a needed to further simply the business need to lower the tax rates to make India prospects in the country. It may have an attractive destination for FDI and to -56- Anusandhanika /Special Issue on FDI in India/ October 2017 facilitate entrepreneurship in the country through RBI's automatic approval route : at the same time. More service sectors within the automatic route will straightaway get the attention Corruption speaks high in the country: of foreign investors, raise the level of Corruption needs to be checked through services in the nation and will prove to be implementation of harsh provisions in the meaningful in increasing the FDI inflow laws of the country as it diminishes the and forex reserves significantly. status of the country and thereby restricts the flow of foreign funds in the economy. More incentives for FDI in the rural and backward regions : This will serve the Making flat rules for FDI : Indian country's mission of attaining equity and governance framework is intertwined will help the poor sections of the economy between the Central and State structures. reap the benefits of the resultant economic The com¬panies face several complex prosperity. bureaucratic procedures and are forced to comply with both state and central rules More incentives for FDI from friendly and regulations. Moreover, duties and nations : India is known for maintaining levies undergo frequent revisions during healthy relationship with others and the Annual Central and State budget valuing a country by means of greater exercise. Flat rules for FDI will save incentives for FDI from the same will be the foreign investors from the unstable another stepping stone in the direction of political environment of the country and making the bond even stronger. also from the amendments in the Central Support in the initial phase : This can and State rules. be done by insuring their investments to Government should open doors to certain limits and appointing native liaison foreign companies in the export– officials to comply with the rules and oriented services : which could increase regulations applicable in the country the demand of unskilled workers and low Participation in deciding legal framework skilled services and also increases the for foreign investors : It will make them wage level in these services and further feel important and safe simultaneously increase the forex reserves of India. and will contribute significantly towards More services sectors should be allowed the inflow of FDI in the Indian economy.

Comparison of Key Indicators

Particulars USA China India FDI Rankings (2015) 1 3 10 Net FDI (2015) ($ billions) 380 136 44 GDP (2015) ($ billions) 17,946.00 10,866.00 2,073.00 GDP (PPP) Rankings 2 1 3 Real GDP Growth Rate 2.6 6.9 7.60 Net FDI as % of GDP (Nominal) 2.117 1.252 2.123 Population (2015 UN Estimates) (in billions) 0.322 1.376 1.311 GDP(Nominal) per Capita ($) 55,732.92 7,896.80 1,581.24 Ease of doing business Index (2015) 7 90 142 World Economy Rankings 1 2 5 Corruption Perceptions Index (CPI) (2015) 17 84 79

-57- Anusandhanika /Special Issue on FDI in India/ October 2017 Particulars USA China India Share of world's goods exports 2 1 19 Share of world's goods imports 1 2 13 Unemployment Rate (Nov 2016) 4.60 4.04 4.90 Inflation (November 2016) 1.69 2.3 3.35 Human Development Index Rankings (2015) 8 90 130 Source : World Investment Report 2016 by ranks 130 out of the 189 countries in the ease UNCTAD, World Bank Doing Business Report of doing business, moving up from last year's 2016, Transparency International (CPI 2015) ranking of 142. In the first half of the 2016, India Points from the above table attracted FDI above $20 billion which shows a rise of 30% on year-to-year basis, reflecting The economies leading from India, viz., that the government's effort to improve ease USA and China are able to attract Net FDI of doing business, Make in India Initiative higher than eight times and three times and relaxation in FDI norms is proving fruitful. respectively in comparison to India. According to United Nations Conference on GDP of these two economies are also Trade and Development (UNCTAD) World approximately higher than eight times and Investment Report 2016, India acquired 10th five times respectively than that of India. slot in the top 10 countries attracting highest FDI inflows globally in 2015. The report Of the three economies, USA ranks higher also mentioned that among the investment in terms of Ease of Doing Business than promotion agencies, India has moved up by China and India. Even China is way ahead one rank to become the sixth most preferred than India. As a result, they are able to investment destination. attract substantially larger FDI than India. Most of the developing economies have The two leading economies are better opened their doors to FDI in the recent rated in terms of GDP per Capita, economy years. The main reason behind this is to rankings, exports, imports, unemployment, benefit from advanced production techniques inflation and more importantly the HDI. It and processes that accompany FDI. FDI is would not be exaggeration to say that the considered more superior than other forms of high level of FDI in these two economies foreign investments like FPIs, FIIs, commercial is responsible to a substantial extent in loans, foreign aid etc., as it is more stable. uplifting the prosperity of these nations. With 7.6% growth rate during the FY 2015-16, It is therefore concluded that India should India is now one of the world's fastest growing also come up in the list of Ease of Doing economies. India being a young country (more Business by getting rid of unnecessary than 50% of its population is below the age barriers which stand in the way of of 25 and more than 65% is below the age prospective FDI. of 35) craves for more opportunities which can only be provided when there are more Conclusion productive facilities in the country to absorb The reform process has completed nearly two the unemployed mass. FDI can serve this and a half decades since its introduction. The objective well when government provides opening up of the economy from time to time more incentives for adopting labour incentive has led to rapid increase in FDI and foreign sectors. FDI inflows in India can be enhanced exchange reserves. India today stands on to the maximum possible extent by opening 8th position in the world in terms of stock of up the economy to the optimal level keeping foreign exchanges. According to the World's in view the interests of the domestic players Bank Doing Business Report 2016, India now simultaneously. -58- Anusandhanika /Special Issue on FDI in India/ October 2017 References 3. UNCTAD World Investment Report 2016 1. Liberalisation, Privatisation and 4. Consolidated FDI Policy 2016, Department Globalisation : An Appraisal, Indian of Industrial Policy and Promotion, Ministry Economic Development, Unit II, Chapter of Commerce and Industry, Government 3, NCERT Textbook for Class XI, pp 38-52 of India 2. Thakur Pooja and Burange L.G., An 5. RBI Annual Report 2015-16 Analysis of Productivity Spillovers from 6. World's Bank Doing Business Report 2016 FDI in India's Services Sector, Foreign 7. http://dipp.nic.in/ Trade Review, SAGE Publications India Pvt. Ltd., New Delhi, Volume 51, Issue 8. http://en.wikipedia.org/wiki/Foreign_ No. 4, November 2016, pp 271-272 direct_investment_in_India

-59- Anusandhanika /Special Issue on FDI in India/ October 2017 Anusandhanika /Special Issue on FDI in India/ October 2017/ pp 60-66 ISSN 0974 - 200X Present Scenario of Foreign Direct Investment in India Anamika Kumari Research Scholar University Department of Commerce & Businness Management Ranchi University, Ranchi

Sneha Toppo Research Scholar University Department of Commerce & Businness Management Ranchi University, Ranchi

Abstract

Foreign Direct investment plays a very important role in the development of the nation. Globalization and liberalisation brings lots of new innovative products to the world, Foreign Direct Investment is the one among this, also there are number of different forms of FDI is available currently. The Government has put in place a policy framework on Foreign Direct Investment, which is transparent, predictable and easily comprehensible. This framework is embodied in the Circular on Consolidated FDI Policy, which may be updated every year, to capture and keep pace with the regulatory changes, effected in the interregnum. The BJP led Modi Government liberalized the FDI regime on 20th June 2016. Under this announcement, about 94% of the sectors would be under automatic approval route. This is the second major reform after the last radical changes announced in November 2015. Changes introduced in the policy include increase in sectoral caps, bringing more activities under automatic route and easing of conditionalities for foreign investment. These amendments seek to simplify the FDI regulations in the country and make India an attractive destination for foreign investors. The present study is based on secondary data collected from different sources. This paper also tries to find out the present scenario of Foreign Direct Investment in India.

Keywords : foreign Institutional Investor, economic growth, foreign portfolio investment

Introduction sectoral policies and procedures, and it is here that the holistic policy liberalization in the last In a globalized world today, India’s growth one year has brought in the maximum thrust. It story is intrinsically linked with the story of both is not surprising that OECD has termed India’s Indian entrepreneurship and Foreign Direct FDI policy regime today as more liberal than Investment (FDI). India’s strong fundamentals the FDI policy regime in China. of stable macroeconomic and political regime, strong institutions, geographical advantage, It is the intent and objective of the Government and the growing aspirational middle class with of India to attract and promote foreign direct appetite for consumption have made India investment in order to supplement domestic one of the preferred destinations for global capital, technology and skills, for accelerated investment, full potential of which is gradually economic growth. Foreign Direct Investment, being unleashed. UNCTAD and Ernst & Young as distinguished from portfolio investment, (EY) have included India in one of the top has the connotation of establishing a ‘lasting five attractive locations for investment. Japan interest’ in an enterprise that is resident in an Bank for International Cooperation continues economy other than that of the investor. to rate India as top most promising country for The Government has put in place a policy overseas business operations. framework on Foreign Direct Investment, FDI policy and procedures of a country can which is transparent, predictable and easily deliver results within the boundaries of the comprehensible. This framework is embodied

-60- in the Circular on Consolidated FDI Policy, of FDI in India can be traced back with the which may be updated every year, to capture establishment of East India Company of and keep pace with the regulatory changes, Britain. British capital came to India during the effected in the interregnum. The Department colonial era of Britain in India. After Second of Industrial Policy and Promotion (DIPP), World War, Japanese companies entered Ministry of Commerce & Industry, Government Indian market and enhanced their trade with of India makes policy pronouncements on FDI India, yet U.K. remained the most dominant through Press Notes/Press Releases which investor in India. Therefore, the government are notified by the Reserve Bank of India adopted a liberal attitude by allowing more as amendments to the Foreign Exchange frequent equity participation to foreign Management (Transfer or Issue of Security by enterprises, and to accept equity capital in Persons Resident Outside India) Regulations, technical collaborations. It is during this period 2000 (notification No.FEMA 20/2000-RB the government encouraged FDI, allowed dated May 3, 2000). These notifications take MNCs to operate in India. Thus, resulting in effect from the date of issue of Press Notes/ the partial liberalization of Indian Economy. Press Releases, unless specified otherwise Indian retail industry is one of the sunrise therein. In case of any conflict, the relevant sectors with huge growth potential. According FEMA Notification will prevail. The procedural to the Investment Commission of India, the instructions are issued by the Reserve Bank retail sector is expected to grow almost three of India vide A.P. (DIR Series) Circulars. The times its current levels to $660 billion by 2015. regulatory framework, over a period of time, thus, consists of Acts, Regulations, Press Materials and Methods Notes, Press Releases, Clarifications, etc. In pursuance of the above mentioned objective FDI, means “investment by non-resident entity the following methodology was adopted. The or person resident outside India in the capital present research work is based on secondary of an Indian company under Schedule 1 of data. The secondary data required for the study Foreign Exchange Management (Transfer or is collected through the official publication of Issue of Security by a Person Resident Outside government of India, various publications of India) Regulations, 2000.” RBI, Planning Report and from official web RBI. FDI, in its classic definition, is termed as a company of one nation putting up a physical Results and Discussions investment into building a facility (factory) FDI equity inflows during the financial year in another country. The direct investment 2014-2015 and 2015-2016 made to create the buildings, machinery, and equipment is not in sync with making a portfolio Financial Year Amount of FDI investment, an indirect investment. Equity inflows Foreign Investment in India is governed by the FDI policy announced by the Government (In Rs. (In US$ of India and the provision of the Foreign Crore) mn) Exchange Management Act (FEMA) 1999. 2015-16 (form April, 262,322 40,001 The FDI policy is notified through Press Notes 2015 to March, 2016) by the Secretariat for Industrial Assistance (SIA), Department of Industrial Policy and 2014-15 (form April, 189,107 30,931 Promotion (DIPP). The foreign investors are 2014 to March, 2015) free to invest in India, except few sectors/ activities, where prior approval from the RBI or %age growth over ( + ) 39 % ( + ) 29% Foreign Investment Promotion Board (“FIPB‟) last year would be required. The historical background

-61- Anusandhanika /Special Issue on FDI in India/ October 2017 Share of Top Investing Countries FDI equity inflows (Financial years)

Amount Country 2013-14 2014-15 2015-16 Cumulative %age Rupees (April - (April – (April,15 – Inflows to total in crores March) March) March,16 ) (April ’00 - Inflows (US$ in March ‘16) (in terms million) of US $) Ranks 1. Mauritius 29,360 55,172 54,706 480,363 33 % 2. Singapore 35,625 41,350 89,510 256,667 16 % 3. U.K. 20,426 8,769 5,938 115,592 8 % 4. Japan 10,550 12,752 17,275 110,671 7 % 5. U.S.A. 4,807 11,150 27,695 94,575 6 % 6. Netherlands 13,920 20,960 17,275 94,533 6 % 7. Germany 6,093 6,904 6,361 44,870 3 % 8. Cyprus 3,401 3,634 3,317 42,681 3 % 9 France 1,842 3,881 3,937 26,525 2 % 10. UAE 1,562 2,251 6,528 21,648 1 % Total FDI Inflows from all 147,518 189,107 262,322 1,495,859 - countries * *Includes inflows under NRI Schemes of RBI. %age worked out in US$ terms & FDI inflows received through FIPB/SIA+ RBI’s Automatic Route + acquisition of existing shares only. Growth of FDI in India (Mergers and Acquisitions) flows since 2007. Unctad (United Nations Conference On Trade & As a result, official FDI flows grew substantially Development), in its January 2016 Investment in 2015 by more than one-third. Developed Monitor, estimates that global FDI flows economies, and the US in particular, attracted increased by 36% in 2015 to $1700bn. This most of the growth in FDI flows in 2015 largely compares with The FDI Report 2016, which due to inbound M&As. FDI flows to the US in estimates that greenfield capital investment 2015 reached $384bn – nearly three times by foreign investors was $700bn in 2015, an more than FDI flows to China. While FDI 8.6% increase over the previous year. So by flows emanating from M&As can provide a how much did the FDI market actually recover valuable source of foreign exchange and in 2015? The answer is in the different ways of long-term capital to finance the balance of measuring FDI. Unctad FDI flows data records payments, the economic impact of M&As on all types of FDI, based in most countries on the host economy is generally regarded as the official OECD (Organization for Economic neutral in terms of the impact on job creation Cooperation and Development) definition of and capital investment; the impact is very FDI, while the FDI Markets data published in much deal specific and depends on what this report is based on the announcement of the plans of the foreign investor are for the greenfield FDI projects only. The year-on-year acquired company – to re-invest and expand changes in Greenfield FDI, published yearly or to rationalise or even close down – and if in The FDI Report, has closely tracked that of the M&A deal is a successful organizational the official FDI flows data published by Unctad. merger. The economic impact of greenfield This changed in 2015 due to record levels of FDI is generally regarded as positive – it is M&A, leading to the highest crossborder M&A new net capital investment and job creation for

-62- Anusandhanika /Special Issue on FDI in India/ October 2017 the host economy. As published in this report, contribution greenfield FDI can make to nearly 2 million jobs were directly created by employment and GDP, FDI is strongly attracted foreign investors in their new or expanded to high-growth economies. Success breeds operations in 2015 based on estimates from success and to attract high volumes of FDI, FDI Markets. Increased domestic capital locations need to create the conditions for investment and job creation through the supply strong economic growth and development to chain and the wealth effect further increases take place. the direct and indirect impact of greenfield Recent Policies and Initiatives FDI. The growth in greenfield FDI by 8.6% in 2015 was therefore very positive for economic The government has recently made changes development, although nearly all the growth in to the Foreign Direct Investment (FDI) policy capital investment and related job creation was regime by enhancing FDI limits in various in Asia-Pacific, where greenfield FDI increased sectors like Defence, Civil Aviation etc. The FDI by more than $70bn. The biggest change in limit in various sectors is not uniform. Further, greenfield FDI in 2015 was the near tripling FDI is also allowed through two different routes of greenfield FDI into India, with an estimated namely, Automatic and through the Foreign $63bn. In 2015, India was for the first time the Investment Promotion Board (FIPB). In the leading country in the world for FDI, overtaking automatic route, foreign entities do not need the US (which had $59.6bn of Greenfield FDI) the prior approval of the government to invest. and China ($56.6bn). However, they have to inform the RBI about the amount of investment within a stipulated Analysis time period. In specific sectors, FDI is through The rapid growth of greenfield FDI in India the FIPB or the Government route where the shows that while economic development FIPB has to approve each foreign investment. organisations try to attract FDI for the Sector wise FDI Limits

Sector FDI Limit Entry Route & Remarks Agriculture & Animal Husbandry 100% Automatic Floriculture, Horticulture, Apiculture and Cultivation of Vegetables & Mushrooms under controlled conditions Development and Production of seeds and planting material Animal Husbandry(including breeding of dogs), Pisciculture, Aquaculture Services related to agro and allied sectors Plantation Sector 100% Automatic Tea sector including tea plantations Coffee plantations Mining 100% Automatic Mining and Exploration of metal and non-metal ores including diamond, gold, silver and precious ores but excluding titanium bearing minerals and its ores

-63- Anusandhanika /Special Issue on FDI in India/ October 2017 Sector FDI Limit Entry Route & Remarks Mining (Coal & Lignite) 100% Automatic Mining 100% Government Mining and mineral separation of titanium bearing minerals and ores, its value addition and integrated activities Petroleum & Natural Gas 100% Automatic Petroleum & Natural Gas 49% Automatic Petroleum refining by the Public Sector Undertakings (PSU), without any disinvestment or dilution of domestic equity in the existing PSUs. Defence Manufacturing 100% Automatic up to 49% Above 49% under Government route in cases resulting in access to modern technology in the country Broadcasting 100% Automatic Broadcasting 100% Automatic Cable Networks (Other MSOs not undertaking up gradation of networks towards digitalization and addressability and Local Cable Operators (LCOs)) Broadcasting Content Services 49% Government Terrestrial Broadcasting FM(FM Radio) Up-linking of ‘News & Current Affairs’ TV Channels Up-linking of Non-‘News & Current Affairs’ TV 100% Automatic Channels/ Down-linking of TV Channels

Print Media 26% Government Publishing of newspaper and periodicals dealing with news and current affairs Publication of Indian editions of foreign magazines dealing with news and current affairs

Publishing/printing of scientific and technical 100% Government magazines/specialty journals/ periodicals Publication of facsimile edition of foreign 100% Government newspapers Civil Aviation – Airports 100% Automatic Green Field Projects & Existing Projects

-64- Anusandhanika /Special Issue on FDI in India/ October 2017 Sector FDI Limit Entry Route & Remarks Civil Aviation – Air Transport Services 100% Automatic up to 49% Scheduled Air Transport Service/ Domestic Above 49% under Scheduled Passenger Airline Government route Regional Air Transport Service 100% Automatic for NRIs Civil Aviation 100% Automatic Construction Development: Townships, Housing, 100% Automatic Built-up Infrastructure Industrial Parks 100% Automatic Satellites- establishment and operation, subject to 100% Government the sectoral guidelines of Department of Space/ ISRO Private Security Agencies 74% Automatic up to 49% Above 49% & up to 74% under Government route Telecom Services 100% Automatic up to 49% Above 49% under Government route Cash & Carry Wholesale Trading 100% Automatic E-commerce activities (e-commerce entities 100% Automatic would engage only in Business to Business (B2B) e-commerce and not in Business to Consumer (B2C) e-commerce.) Single Brand retail trading 100% Automatic up to 49% Local sourcing norms will be relaxed up to three Above 49% under years and a relaxed sourcing regime for another Government route five years for entities undertaking Single Brand Retail Trading of products having ‘state-of-art’ and ‘cutting edge’ technology. Multi Brand Retail Trading 51% Government Duty Free Shops 100% Automatic Railway Infrastructure 100% Automatic Asset Reconstruction Companies 100% Automatic Banking- Private Sector 74% Automatic up to 49% Above 49% & up to 74% under Government route Banking- Public Sector 20% Government Credit Information Companies (CIC) 100% Automatic Infrastructure Company in the Securities Market 49% Automatic Insurance 49% Automatic

-65- Anusandhanika /Special Issue on FDI in India/ October 2017 Sector FDI Limit Entry Route & Remarks Pension Sector 49% Automatic Power Exchanges 49% Automatic White Label ATM Operations 100% Automatic Non-Banking Finance Companies (NBFC) 100% Automatic Pharmaceuticals(Green Field) 100% Automatic Pharmaceuticals(Brown Field) 100% Automatic up to 74% Above 74% under Government route Food products manufactured or produced in 100% Government India Trading, including through e-commerce, in respect of food products manufactured or produced in India.

Prohibited Sectors comprehensible. This framework is embodied in the Circular on Consolidated FDI Policy, 1. FDI is prohibited in the following sectors which may be updated every year, to capture 2. Lottery Business including Government/ and keep pace with the regulatory changes, private lottery, online lotteries, etc. effected in the interregnum. 3. Gambling and Betting including casinos Forecasts with world GDP growth in 2016 being etc. revised downwards and given the continued unrest in the Middle East, the Chinese 4. Chit funds economic slowdown and the growing impact 5. Nidhi Company of Zika on Latin America, we are forecasting greenfield FDI to decline by at least 5%in 6. Trading in Transferable Development 2016. Unctad is also forecasting a decline Rights (TDRs) in FDI in 2016, if crossborder M&A does not 7. Real Estate Business or Construction of stay at its 2015 peak levels. Looking at the Farm Houses (Real estate business does 2017-20 period, we expect greenfield FDI to not include development of townships, slowly recover with annual growth of 3%to 5% construction of residential /commercial per annum over this period. premises, roads or bridges ). References 8. Manufacturing of cigars, cheroots, 1. Quarterly factsheet on FDI from 2000 to cigarillos and cigarettes, of tobacco or of march 2016 tobacco substitutes 2. THE FDI REPORT 2016 Global greenfield 9. Activities/sectors not open to private investment trends sector investment e.g. Atomic Energy and Railway operations (other than permitted 3. Puri V. K. and Mishra S. K., Indian activities). Economy, Himalaya Publishing House, New Delhi, 2016 Conclusion 4. UNCTAD, World Investment Report, 2015 The Government has put in place a policy framework on Foreign Direct Investment, 5. Website: www. rbi.org.in which is transparent, predictable and easily -66- Anusandhanika /Special Issue on FDI in India/ October 2017 Anusandhanika /Special Issue on FDI in India/ October 2017/ pp 67-70 ISSN 0974 - 200X Foreign Direct Investment in Aviation

Anand Kumar Chitlangia Research Scholar Department of Commerce & Business Management Ranchi University, Ranchi

Abstract

The government on June 20, 2016 raised foreign direct investment (FDI ) limit in scheduled commercial airlines to 100 per cent from 49 per cent. Foreign airlines, though, are barred from holding equity stake in Indian carriers above 49 per cent. As per changes in the FDI policy announced by the Prime Minister’s Office, foreign investors can pick up 100 per cent FDI in existing airports under the ‘automatic route’ — a change from past regime where foreigners needed government approval if they wanted to raise equity stake in airport projects from 74 per cent to 100 per cent. India is one of the fastest growing aviation markets and currently the ninth largest civil aviation market in the world. India is projected to be the third largest aviation market by 2020. Foreign investors, barring overseas airlines, can now have up to 100 per cent stake in local carriers. Besides, the norms for foreign direct investment in brownfield airports have been relaxed. Aimed at attracting more funds into the aviation sector which has high growth potential, the NDA government’s latest measure came after the unveiling of the National Civil Aviation Policy. It is against the backdrop of persisting concerns over ownership and control at local carriers where foreign players have a substantial stake. Now, 100 percent foreign investment is allowed in schedule air transport service/domestic scheduled passenger airline and regional air transport service. Only non-airline players will be allowed to bring in 100 per cent FDI in local carriers. With a view to aiding in modernization of the existing airports to establish a high standard and help ease the pressure on the existing airports, it has been decided to permit 100 percent FDI under automatic route in brownfield airport projects.

Keywords : automatic route, aviation policy, local carriers

Introduction Materials and Methods The Civil Aviation Industry in India has Currently India is ninth largest civil aviation been flourishing for last one decade as the market. Total passenger traffic stood at 224 Government of India has adopted an “Open million during 2016. India is expected to Skies Policy.” have 60 million international passengers by 2017. 81 international airlines connecting India’s civil aviation industry is on a high- over 40 countries. India is projected to be the growth trajectory. India aims to become the third largest aviation market by 2020. Indian third-largest aviation market by 2020 and the carriers are expected to have possessions of largest by 2030. The Civil Aviation industry 800 aircrafts by 2020. has ushered in a new era of expansion, driven by factors such as low-cost carriers (LCCs), Results and Discussions modern airports, Foreign Direct Investment Reasons to Invest (FDI) in domestic airlines, advanced information technology (IT) interventions and 1. India is one of the fastest growing aviation growing emphasis on regional connectivity. markets and currently the ninth largest India is the ninth-largest civil aviation market civil aviation market in the world. in the world, with a market size of around US$ 2. India is projected to be the third largest 16 billion. India is expected to become the third aviation market by 2020. largest aviation market by 2020 . 3. Total passenger traffic stood at 224 -67- million during 2016. India is one of the traffic grew at a CAGR of 11.8 per cent in least penetrated air markets in the world the country. with 0.04 trips per capita per annum as Passenger Traffic in FY 16 compared to 0.3 in China and more than 2 250 (millions) in the USA. 30% 200 20% 4. Indian carriers plan to increase their fleet 150 10% size to reach 800 aircraft by 2020. 100 50 0% 96.5 159.4 169.0 190.1 162.3 108.9 143.4 223.6 123.8 116.9 5. The Indian aviation sector is likely to see 0 73.4 10% investments totalling USD 15 billion during FY 06 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 FY 13 FY 14 FY 15 FY 16 Passenger Traffic - LHS Grwoth - RHS 2016-2020 of which USD 10 billion is expected to come from the private sector. Source: Association of Private Airport Increase in Freight Traffic Operators, TechSci Research Note : CAGR - Compound Annual Growth Total freight traffic registered a CAGR of FY - Indian Financial Year (April - May) 6.8 per cent over FY06-16 Government’s stand During FY06-16, domestic freight traffic The Government has also allowed for the increased at a CAGR of 8 per cent, while privatization of the airport development sector international freight traffic grew at a CAGR in both Greenfield and Brownfield projects. of 6.1 per cent during the same period. This resulted in the establishment of new By 2023, total freight traffic is expected airports in Hyderabad & Bengaluru and the to touch 4.14 million tonnes exhibiting redevelopment of the airports in New Delhi growth at a CAGR of 7.27 per cent and Mumbai. between FY2016 and FY23. The FDI policy in the civil aviation sector can 3000 Freight Traffic in FY 16 30% be divided into the following 3 subheads: 2500 25% 20% 1. Airports 986

2000 1045.92 852 812 15% 840 784

1500 689 10% 2. Air Transport Services 568 552 530

1000 484 5% 0% 3. Other Services under Civil Aviation Sector 1496 1468 1407 500 1440 1542 1658.35

920 1023 1147 1149 1271 -5% 0 -10% As per the GOI’s Consolidated FDI policy of FY 06 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 FY 13 FY 14 FY 15 FY 16 2016, FDI stipulations are as under: International (’000 tonnes) Domestic (’000 tonnes) Growth - International (%) Growth - Domestic (%) Airports 1. In Greenfield projects, 100% FDI is Source: Airports Authority of India, TechSci Research allowed through the automatic route. Note - FY - Indian Financial Year (April - May) 2. In Brownfield projects, 100% FDI is Healthy Growth of Passenger Traffic allowed. Out of this, proposals up to 74% Witnessing a growth of 17.62 per cent FDI are allowed through the automatic over the previous year, total passenger route while FDI beyond 74% requires GOI traffic stood at a 223.6 million in FY16, approval. which was recorded at 190.1 million in FY15 in India. Air Transport Services 1. For scheduled air transport services and Growth in passenger traffic has been regional air transport services, FDI is strong since the new millennium, allowed up to 100%. Out of this, up to especially with rising incomes and low- 49% FDI is allowed through the automatic cost aviation; during FY06-16, passenger route whereas proposal for FDI beyond -68- Anusandhanika /Special Issue on FDI in India/ October 2017 49% require GOI approval. However, for Indian nationals, etc. NRI investors, up to 100% FDI is allowed Benefits of the FDI Policy through the automatic route. 1. The primary benefit of this FDI policy is 2. For non-scheduled air transport services, that airport development has now been up to 100% FDI is allowed through the opened to further investment. As we automatic route. have seen from the examples of Delhi, 3. For helicopter and seaplane services, Hyderabad, Mumbai, Bengaluru and up to 100% FDI is allowed through the Kochi, privatization has certainly resulted automatic route. in improved service standards as these airports have only served to enhance Other Services under Civil Aviation Sector passenger experience. These airports 1. Up to 100% FDI through the automatic have been consistently rated as the best in route in Ground Handling Services. the world. Increasing private involvement 2. Up to 100% FDI through the automatic in the form of FDI will only improve the route in MROs, flying training institutions quality standards of Indian airports. and technical training institutions. 2. The Indian aviation market is witnessing a Further, some of the conditions attached to the period of boom wherein passenger traffic investment in either of the above 3 heads are is increasing at a healthy rate. Tier II & as under: III cities are also witnessing increasing frequencies and passenger traffic. Hence, 1. Air Transport Services would include this offers an attractive investment Domestic Scheduled Passenger Airlines; opportunity to any foreign investor since Non Scheduled Air Transport Services, the passenger numbers are very healthy helicopter and seaplane services. and hence the returns on investment will 2. Foreign airlines are allowed to participate be very positive. in the equity of companies operating 3. Allowing for FDI in the scheduled airline Cargo airlines, helicopter and seaplane segment is also an attractive investment services, as per the limits and entry routes opportunity since the passenger traffic is mentioned above. growing at a healthy pace. FDI has already 3. Foreign airlines are also allowed to benefitted carriers like Jet Airways, Air invest in the capital of Indian companies, Asia India & Vistara. operating scheduled and non-scheduled 4. Ground Handling and MRO services are air transport services, up to the limit an unchartered territory since majority of 49% of their paid-up capital. Such of the Indian airlines use MRO services investment would be subject to some of Sri Lanka, Singapore, UAE for the conditions, like (i) it would be made under maintenance of their aircraft. India suffers GOI approval route, (ii) the 49% limit will due to the high taxation structure. The subsume FDI and FII/FPI investment, (iii) MRO industry is estimated to be worth Rs. the investments so made would need to 50 billion and hence offers another mode comply with relevant SEBI regulations, of foreign investment. Ground Handling as well as other applicable rules and is also dominated by foreign companies regulations, (iv) the Scheduled Operator’s majorly. Hence, Ground Handling can Permit can be granted only to a company also be a major avenue for FDI. if it has registered its place of business in India; Chairman and at least 2/3rd Conclusion of the Directors are Indian citizens and Raising the FDI limit for airlines to 100%, will substantial ownership and control vests in boost the civil aviation sector, as they are

-69- Anusandhanika /Special Issue on FDI in India/ October 2017 suffering from shortage of capital. Domestic sector. It will be one of the big push to enhance players who are looking to raise capital or forge the Indian aviation sector. Liberalised FDI an alliance with foreign airlines will benefit from norms with first ever national civil aviation new policy. The opening of FDI will help bring policy will take further step ahead in growth in much needed capital for domestic players. and development of Indian civil aviation sector. The FDI relaxation will make existing operating References airlines a good vehicle for many overseas 1. Media Reports, Press Releases, Press companies that will be favourably inclined Information Bureau, Directorate General towards India and will be looking to have or of Civil Aviation (DGCA), Airports Authority want to increase their exposure in the country. of India (AAI), Union Budget 2016-17 Similarly new norms will attract new players into aviation sector and which will increase 2. FICCI-KPMG ‘India Aviation Report 2016 the competition. The increased competition 3. Airports Authority of India, TechSci will bring down the air prices and enhance air Research penetration both domestic and international route. 4. Association of Private Airport Operators, TechSci Research The 100% FDI in airports ties in neatly with the new civil aviation policy’s attempt to boost the 5. http://civilaviation.gov.in/ construction of airports in Tier-B and C cities. 6. http://dgca.nic.in/ 100% FDI in MRO units will further enhance the MRO activities and it will also generate 7. http://bcasindia.nic.in/ large scale employment for Indian youths. 8. http://aera.gov.in/content/ Latest round of reforms in FDI in aviation 9. http://aai.aero sector will bring useful capital to a beleaguered

-70- Anusandhanika /Special Issue on FDI in India/ October 2017 Anusandhanika /Special Issue on FDI in India/ October 2017/ pp 71-76 ISSN 0974 - 200X Foreign Direct Investment in Infrastructure Sector and its Impact on Economic Growth in India Avinash Kumar Research Scholar University Department of Commerce & Business Management Ranchi University, Ranchi

Fouzia Tabassum Research Scholar University Department of Commerce & Business Management Ranchi University, Ranchi Abstract

FDI play an important role in economic development of a nation. A country’s technology level and sectoral development is depending upon the level of FDI inflows.Infrastructure is an important item in judging a country’s or region’s development. Infrastructure is the basic physical and organizational structures needed for the operations of a society or enterprise or the services and facilities necessary for an economy to function. It can be generally defined as the set of interconnected structural elements that provide support for the development of the economy. Infrastructure sector covers hard infrastructure and soft infrastructure. The foreign investment in infrastructure remains dim even though Government of India promotes foreign capital and creating an investor friendly environment. Lack of infrastructure adversely affects in growth of other sectors also. This paper discuss the infrastructure deficiency of India, the foreign direct investment in infrastructure sector and the actions which the authorities can take while planning to bridge the infrastructural gap. It also analyze the impact of infrastructure development on output. Overall, the results reveal that infrastructure stocks, labour force and total investment play an important role in economic growth in India. More importantly, we find that infrastructure development in India has a significant positive contribution toward growth than both private and public investments. Further, causality analysis shows that there is unidirectional causality from infrastructure development to output growth. From a policy perspective, there should be greater emphasis on infrastructure development to sustain the high economic growth which the Indian economy has been experiencing for the last few years.

Keywords : infrastructure, economic growth, equity inflows

Introduction projects.Infrastructure sector includes power, bridges, dams, roads and urban infrastructure Infrastructure sector is a key driver for the Indian development. In August 2016, India jumped 19 economy. The sector is highly responsible places in World Bank’s Logistics Performance for propelling India’s overall development Index (LPI) 2016, to rank 35th amongst 160 and enjoys intense focus from Government countries. for initiating policies that would ensure time- bound creation of world class infrastructure Infrasrtucture Investment Scenario in India in the country. MrNitinGadkari, Minister of India is witnessing significant interest from Road Transport and Highways, and Shipping, international investors in the infrastructure has announced the government’s target of space. Many Spanish companies are keen Rs 25 trillion (US$ 376.53 billion) investment on collaborating with India on infrastructure, in infrastructure over a period of three years, high speed trains, renewable energy and which will include Rs 8 trillion (US$ 120.49 developing smart cities. billion) for developing 27 industrial clusters and an additional Rs 5 trillion (US$ 75.30 The Asian Development Bank (ADB) billion) for road, railway and port connectivity has approved US$ 631 million loan to -71- develop the first coastal corridor, namely Rs 50,000 crore (US$ 7.34 billion) to the Vishakhapatnam-Chennai industrial develop 100 smart cities across the corridor, which is expected to bring country. The Government released its list manufacturing and export industries to the of 98 cities for the smart cities project in east coast. August 2015. Silver Spring Capital Management, a BNP Paribas Lease Group, subsidiary of Hong Kong-based equity hedge fund, BNP Paribas Group, has acquired 5 per plans to invest over Rs 2,000 crore cent stake in Srei Infrastructure Finance, (US$ 306 million) in Hyderabad-based by selling its entire 50 per cent stake in infrastructure developer Transstroy India Srei Equipment Finance Limited (SEFL) Ltd, for construction of highways in the to Srei Infrastructure Finance, thus country. allowing them to play a larger role in the infrastructure finance business. Altico Capital, the non-banking finance company (NBFC) of Clearwater Capital Private equity giant Carlyle Group is Partners LLC, plans to invest around planning to invest Rs 500 crore (US$ 73.36 US$150 million in the commercial office million) in Feedback Infra, which could properties and infrastructure sector over make the US firm a major shareholder in the next 12-18 months. the Gurgaon-based infrastructure services company. Sovereign wealth funds and global pension funds plan to invest up to US$ 50 PTC India Financial Services (PFS) billion in Indian infrastructure sector over and India Infrastructure Finance the next five years. Company Limited (IIFCL) have signed a Memorandum of Understanding (MoU) to Airports Authority of India (AAI) plans jointly provide funding for infrastructure to develop city-side infrastructure at 13 projects in India, particularly in the energy regional airports across India, with help sector. from private players for building of hotels, car parks and other facilities, and thereby France has announced a commitment of boost its non-aeronautical revenues. € 2 billion (US$ 2.17 billion) to convert Chandigarh, Nagpur and Puducherry into The Asian Development Bank (ADB) smart cities. and Government of India signed a loan agreement of US$ 80 million, which is The Construction Industry Development the third tranche of a US$ 200 million Board (CIDB) of Malaysia has proposed to financing facility under the North Eastern invest US$ 30 billion in urban development Region Capital Cities Development and housing projects in India, such as Investment Programme, and will be a mini-smart city adjacent to New Delhi invested for improving water supply, solid Railway Station, a green city project at waste management and sanitation in the Garhmukhteshwar in Uttar Pradesh and cities of Agartala and Aizwal, the capital the Ganga cleaning projects. cities of Tripura and Mizoram respectively. The Government of India has unveiled Maharashtra State Government plans plans to invest US$ 137 billion in its rail to launch infrastructure projects worth network over the next five years, heralding Rs 73,367 crore (US$ 10.78 billion) in Prime Minister NarendraModi’s aggressive Mumbai and neighbouring areas in 2016, approach to building infrastructure needed which include coastal road, Trans harbour to unlock faster economic growth. link, metro rail, airport and road projects. The Government of India has announced The Government of India has earmarked highway projects worth US$ 93 billion,

-72- Anusandhanika /Special Issue on FDI in India/ October 2017 which include government flagship we need aclear, stable legal framework National Highways Building Project for promoting investment in infrastructure. (NHDP) with total investment of US$ 45 Once we move from State Investments to billion over next three years. Transnational Corporations (TNC) we need a legal framework which would meet the Materials and Methods international benchmarks. The investor will be always concerned of the clarity of the legal For the purpose of in depth study the contents frame work. Policy changes in short run and have been taken from relevant books and delay in taking decisions in policy matters articles from journals government reports. The has adversely affected the foreign inflow in methods used are descriptive and analytical. infrastructure. Consultation with eminent scholars in this field has shaped the present discussion. Lack of strategic planning in the sector also affected the foreign inflow. Many countries Results and Discussions havea very clear plan of the infrastructural FDI investment in infrastructural sector is requirements of the next 10 years and will be welcomed by the Government of India. having astrategy to route the money to various India is more viewed as a financial market. divisions based on requirement. In developed Majority of FDI investments happened in the nationsinfrastructural sector is viewed as financial services sector. The growth rate of whole and planning is done. But In India each the economy, working and earning population division is considered separately. and financial literacy helped in increasing Even though India is blessed with abundant the FDI base in financial services sector. labour, the management in infrastructure Other sectors including infrastructure was projectsis viewed in a different angle. Political not in the limelight till now. The recent policy influence, labour unrest, hostile measures of changes has favourablyaffected retailing and acquiring land etc. are viewed negatively by educational sector and many players has international media. This is creating some already expressed their interest in investing in sort of resistance for a foreign player to invest India. in infrastructure. The delay in completion of Infrastructure in India is viewed as a tough projects due to these factors is keeping the sector to invest. India needs an investment of money blocked for a longer period. Majority or US$ players wish to be an FII in infrastructure and reality sector than and FDI. 1.7 trillion in infrastructure. Only then the country would be able to meet the requirements based Among the developing economies, India is on the expected GDP growth. Private- Public considered to be one of the countries where Partnerships (PPP) are gaining importance theproject completion time is very high.We are with PPP airport projects at Bangalore, Delhi, not having a single window system (except in Hyderabad and Mumbai and also in power and a few cases where it’s more of a state subject). port sectors. Among the PPP projects only the This makes the process too complicated and power sector is on track, achieving 100 % of time consuming. The lack of co-ordination planned capacity, the airport sector is at 75% and integration between various Government and road sectors at 50% including National departments worsen the situation. An Highway Development Programme that has infrastructure project which requires approvals achieved only 10% of the planned capacity. for ‘n’number of departments from the starting stage to the completion stage, the investor This is followed by the low foreign investments is forced to comply with the demands of the in the infrastructure. One of the main consultants and bureaucracy. reasonsfor unattractive inflow to infrastructure is the regulatory environment. As a system Political environment in India is also a reason for low foreign investment in infrastructuralsector. -73- Anusandhanika /Special Issue on FDI in India/ October 2017 India is having elections every 5 years, and financial and political aspects of the majority of state have new ministry every 5 infrastructural sector is necessary to years. There are many instances where the perform demanding planning, negotiation policy and process of one ministry is diagonally and regulatory functions. The existing opposite to the next ministry. There are even Government agencies and Departments instances where some projects are cancelled, must be equipped to meet the challenge modified and fresh tenders orders and given. and undertake the responsibility. This is creating a policy dilemma and increases 3. Develop a strategic infrastructure plan the risk of the foreign player. identifying key needs: The identification Attracting FDI in Indian Infrastructure of priority infrastructural projects should The growth of others sectors of the economy is be informed by the Government’s now dependent of the growth and investments socioeconomic development objective. in infrastructure and which in turn demands The commercial viability of the project the requirement of FDI in the sector. Opening is always an important consideration, up of retail sector, matured financial services but cost sharing can also be used to and software sectors, growing educational, ensure the construction of less profitable reality, pharmaceutical and hospitality sectors projects based on requirement and provided wide opportunity for growth of the public interest. Long term planning by the economy. This will become a reality only if all Government allows it to better co-ordinate the others sectors can be supported with the infrastructural developments and optimize basic infrastructure. The following steps from the FDI impact. the government can make the infrastructure 4. Open the bidding stage to as many more lucrative for foreign participation: investors as possible: It is better to 1. Developing a strong legal and regulatory have a competitive bidding or auctioning framework: Ideally, this is the requirementin process. A highly competitive bidding the foundation stage itself (before inviting stage maximizes the benefits accruing for FDI participation).Significant capital to the infrastructural users in specific requirements, a long investment time and the economy as a whole also. It’s line and the fixed nature of assets make important that the process is transparent infrastructural investments unique. and favoritism to be avoided. Beyond the existence of commercial 5. Create a pipeline for pre-assumed, opportunities in the host country markets, commercially attractive projects that foreign infrastructural investments require can be actively promoted: After an a transparent and stable policy framework infrastructural project is identified as underpinned by the rule of law. Before eligible for private involvement, there committing funds to projects, companies are a number or preparatory steps that consider whether laws and contracts are the government can take to reduce the likely to be properly enforced; rights and risk which the foreign investor is facing responsibilities are well defined. Moving particularly in the case of green field from a state owned system to a TNC investments. Completing necessary requires significant adjustments to the feasibility study on environmental and policy framework. social impacts will reduce the risk of the 2. Capacity and skills to regulate FDI: foreign investor to a greater extend and Inviting TNC’s to deliver infrastructural improve the confidence in investing. servicesoften puts more pressure on 6. Single Window System: A single window public authorities than a State- sponsored system can reduce the delay and make plan.Understanding the legal, economic, the life easy for any entrepreneur including

-74- Anusandhanika /Special Issue on FDI in India/ October 2017 a foreign entrepreneur. The current start cent of the gross domestic product (GDP), up time required for all the major projects has been instrumental in the overall economic is crossing more than a year. This can be development of the country. Given the huge reduced by single window system without gap between potential and current air travel diluting the process and rules. penetration in India, the prospects and possibilities of growth of Indian aviation market 7. Mitigating political and regulatory risk: are enormous. Change in ministry can make the project riskier for the investor. Entering in to Conclusion bilateral agreements with foreign countries The Reserve Bank of India (RBI) has notified having the clause protecting the terms of 100 per cent foreign direct investment (FDI) the contact can be a morale booster. Yet, under automatic route in the construction the Government should remain cautious development sector. The new limit came into to avoid unlimited liability and obligations. effect in December 2014.The Government 8. Monitoring and Follow up in the project of India has relaxed rules for FDI in the implementation stage: Private investments construction sector by reducing minimum in infrastructure are typically characterized built-up area as well as capital requirement. by complex terms and conditions between It has also liberalised the exit norms. In fact, the investor and government. Positive the Cabinet has also approved the proposal to outcomes depends on government’s amend the FDI policy. efforts to monitor the project’s progress FDI in the sector can improve the standard and enforcing the agreement with the of living, generate employment opportunities, infrastructural investor which demands makes others sectors more effective and the creation of an independent body ultimately results in economic growth and with powers to negotiate and enforce the prosperity. A transparent, clear and accessible terms. High level reviews are another way regulatory system supported by a state run of ensuring the project completion as per independent monitoring system for project the terms specified in the contract. implementation can help in attracting FDI and The Road Ahead meeting infrastructure requirements. The Government of India has made a record Refrences allocation Rs 221,246 crore (US$ 33.07 billion) 1. Ghosh Rajarshi, Foreign Direct Investment for several infrastructure projects in Union – Policies and Experiences, Hyderabad, Budget 2016-17, which is expected to provide The ICFAI University Press significant boost to Indian infrastructure sector. 2. UBCTAD, 2012, World Investment Report Indian port sector is poised to mark great 2012 progress in the years to come. It is forecasted 3. TienQuang Tran, ASEAN Economic that by the end of 2017 port traffic will amount Bulletin. Apr2009, Vol. 26, Issue 1 to 943.06 MT for India’s major ports and 815.20 4. Pradhan Rudra Prakash P, ICFAI Journal MT for its minor ports. of Financial Economics. Jun2008, Vol. 6, Along with that, Indian aviation market is Issue 2 expected to become the third largest across 5. CMIE, Monthly Review of Indian Economy, the globe by 2020, according to industry Economic Intelligence Service, July 2010, estimates. The sector is projected to handle 336 million domestic and 85 million international 6. Xu B., Multinational Enterprises, passengers with projected investment to Technology Diffusion, and Host the tune of US$ 120 billion. Indian Aviation Country Productivity Growth, Journal of Industry, which currently accounts for 1.5 per Development Economics, Vol. (62), 2000, pp 477-493

-75- Anusandhanika /Special Issue on FDI in India/ October 2017 7. Reserve Bank of India (RBI), Handbook 11. Annual Survey of Industries, Ministry of Statistics on Indian Economy, RBI, of Statisitics and Programme Mumbai Implementation, Government of India, various issues. 8. Reserve Bank of India (RBI), Monthly Bulletin, various issues 12. www.rbi.org 9. Secretariat for Industrial Assistance 13. www.worldbank.org (SIA), Department of Industrial Policy and 14. www.indiabudget.nic.in Promotion, Ministry of Commerce and Industry, Government of India, various 15. www.unctad.org issues 16. www.dipp.gov.in 10. Ministry of Finance, Department of Economic Affairs, Government of India.

-76- Anusandhanika /Special Issue on FDI in India/ October 2017 Anusandhanika /Special Issue on FDI in India/ October 2017/ pp 77-83 ISSN 0974 - 200X Growth of Indian Economy in Foreign Direct Investment Badal Rakshit Guest Faculty and Research Scholar Department of Commerce Annada College, Hazaribag

Abstract

The economical history of FDI in India can be traced back with the establishment of East India Company of Britain. After Second World War, Japanese companies entered Indian Market and enhanced their trade with India, yet U.K. remained the most dominant Investor in India. The industrial policy of 1965, allowed MNCs to venture through technical collaboration in India. Therefore, the government adopted a liberal attitude by allowing more frequent equity. In the critical face of Indian economy the government of India with the help of World Bank and IMF introduced the macro-economic stabilization and structural adjustment program. As a result of these reforms India open its door to FDI inflows and adopted a more liberal foreign policy in order to restore the confidence of foreign investors. Further, under the new foreign investment policy Government of India constituted FIPB (Foreign Investment Promotion Board) whose main function was to invite and facilitate foreign investment. India’s recently liberalized FDI policy permits up to a 100% FDI stake in ventures. Industrial policy reforms have substantially reduced industrial licensing requirements, removed restrictions on expansion and facilitated easy access to foreign technology and FDI. India is known to have huge amounts of resources. There is manpower and significant availability of fixed and working capital. At the same time, there are some underexploited or unexploited resources. The resources are well available in the rural as well as the urban areas. The focus is to increase infrastructure 10 years down the line, for which the requirement will be an amount of about US$ 150 billion. This is the first step to overcome challenges facing larger FDI. India must also focus on areas of poverty reduction, trade liberalization, and banking and insurance liberalization. Challenges facing larger FDI are not just restricted to the ones mentioned above, because trade relations with foreign investors will always bring in new challenges in investments.

Keywords : economy, investor, government, liberalization

Introduction Materials and Methods Foreign direct investment is one of those For the purpose of in depth study the contents investments which are made for the benefit of have been taken from relevant books and the business interest. Foreign direct investment articles from journals government reports. The (FDI) in India is the major monetary source methods used are descriptive and analytical. for economic development in India. Foreign Consultation with eminent scholars in this field companies invest directly in fast growing private has shaped the present discussion. Indian businesses to take benefits of cheaper wages and changing business environment of Results and Discussions India. Economic liberalization started in India Planning commission has favoured further in wake of the 1991 economic crisis and since liberalization of the foreign direct investment then FDI has steadily increased in India. It were policy and improvement of business Manmohan Singh and P. V. Narasimha Rao regulations to raise the growth rate of gross who brought FDI in India, which subsequently domestic product to 9-9.5% in the 12th five generated more than one crore jobs. According year plan (2012-17). to the Financial Times, in 2015 India overtook China and the US as the top destination for Beside 100 percent relaxation of FDI in real the Foreign Direct Investment. In first half of estate, the government policies on FDI also the 2015, India attracted investment of $31 offer opportunities for foreign investors to invest billion compared to $28 billion and $27 billion in different sectors. This includes 100 percent of China and the US respectively. in power trading, processing, development of -77- new airports, laying of natural gas pipelines, During 2014–15, India received most of its petroleum infrastructure and warehousing of FDI from Mauritius, Singapore, Netherlands, coffee and rubber. Limit for telecom services Japan and the US. On 25 September 2014, firms have been raised from 49 per cent to 74 Government of India launched Make in India per cent. initiative in which policy statement on 25 sectors were released with relaxed norms Another cap to the retailing industry in India on each sector. Following are some of major is allowing 51% FDI in single brand outlet. sectors where growth of Indian economy in The government is now set to initiate a Foreign Direct Investment. second wave of reforms in the segment by liberalizing investment norms further. And Infrastructure : 10% of India’s GDP is this has also brought about a conspicuous based on construction activity. Indian interest by towards investments in the Indian government has plans to invest $1 trillion hospitality sector. Industry reports suggest the on infrastructure from 2012–2017. 40% of inflow of about US$ 500 million into the real this $1 trillion is to be funded by private estate sector over the past six months and is sector. 100% FDI under automatic route is expected to rise to a massive $ seven to eight permitted in construction sector for cities billion over the next 18-30 months. and townships. Government initiatives Automotive : FDI in automotive sector The Government of India has amended FDI was increased by 89% between April policy to increase FDI inflow. In 2014, the 2014 to February 2015. India is 7th largest government increased foreign investment producer of vehicles in the world with upper limit from 26% to 49% in insurance 17.5 million vehicles annually. 100% FDI sector. It also launched Make in India initiative is permitted in this sector via automatic in September 2014 under which FDI policy for route. Automobiles shares 7% of the 25 sectors was liberalized further. As of April India’s GDP. 2015, FDI inflow in India increased by 48% Pharmaceuticals : Indian pharmaceutical since the launch of “Make in India” initiative. market is 3rd largest in terms of volume India was ranking 15th in the world in 2013 in and 13th largest in terms of value. Indian terms of FDI inflow; it rose up to 9th position pharma industry is expected to grow at in 2014. While in 2015 India became top 20% compound annual growth rate from destination for foreign direct investment 2015 to 2020. 100% FDI is permitted in this sector. ‘’Invest India’’ Service : FDI in service sector was A joint company of public and private sector increased by 46% in 2014–15. Service named ‘’Invest India “has been constituted sector includes banking, insurance, for promoting foreign direct investment in the outsourcing, research & development, country this country will work on ‘’no profit no courier and technology testing. FDI limit in loss’’ basis. In this capital of Rs 1000 crore, insurance sector was raised from 26% to the government and FICCI have the share of 49% in 2014. 49: 51 Railways : 100% FDI is allowed under This company will work on three principles- automatic route in most of areas of railway, 1. To promote FDI in the country other than the operations, like High speed 2. To provide processing facilities to foreign train, railway electrification, passenger investors and act as coordinator among terminal, mass rapid transport systems various ministries. etc. Mumbai-Ahemdabad high speed 3. To provide feedback to government on corridor project is single largest railway industrial policy. project in India, other being CSTM-Panvel -78- Anusandhanika /Special Issue on FDI in India/ October 2017 suburban corridor. Foreign investment route. FDI in sectors/activities under automatic more than `90,000 crore (US$13 billion) route does not require any prior approval either is expected in these projects. by the Government or the RBI.

Chemical industry of India 5500 Chemicals : 5035 4876 5000 4739 4612 earned revenue of $155–160 billion in 4413 2013. 100% FDI is allowed in Chemical 4500 3743 4000 sector under automatic route. Except 3305 3500 Hydrocyanic acid, Phosgene, Isocynates 2701 3000 2473 2500 and their derivatives, production of all 2092 1850 2000 other chemicals is de-licensed in India. 1547 1500 India’s share in global specialty chemical Oct 2015 Jan 2016 April 2016 July 2016 industry is expected to rise from 2.8% in 2013 to 6–7% in 2023. Foreign Direct Investment in India increased by 4612 USD Million in September of 2016. Textile : Textile is one major contributor to Foreign Direct Investment in India averaged India’s export. Nearly 11% of India’s total 1203.96 USD Million from 1995 until 2016, export is textile. This sector has attracted reaching an all time high of 5670.00 USD about $1647 million from April 2000 to Million in February of 2008 and a record low of May 2015. 100% FDI is allowed under -60.00 USD Million in February of 2014. automatic route. During year 2013–14, FDI in textile sector was increased by Foreign Investment under ‘MAKE IN INDIA’ 91%. Indian textile industry is expected Programme reach up to $141 billion till 2021. The `Make in India’ initiative was launched in Airlines : Foreign investment in a September, 2014 with the aims of promoting scheduled or regional air transport India as an important investment destination service or domestic scheduled passenger and a global hub for manufacturing, design, airline is permitted to 100, with FDI up and innovation. Thereafter, during the period to 49% permitted under automatic route October, 2014 to May, 2016, the FDI equity and beyond 49% through government inflow has increased by 46%, i.e. from US$ approval. For airport modernization, 100 42.31 billion to US$ 61.58 billion in comparison % FDI will be allowed for existing airport to previous 20 months (February, 2013 under automatic route. to September, 2014). FDI inflow has also increased by 37% from US$ 62.39 billion to Foreign Direct Investment in India US$ 85.75 billion. India has been ranked 3rd Government of India accepts the key role of in the list of top prospective host economies for Foreign Direct Investment (FDI) in economic 2016-18 in the World Investment Report (WIR) development not only as an addition to 2016 of UNCTAD. domestic capital but also as an important To further boost the entire investment source of technology and global best practices. environment and to bring in foreign The Government of India has put in place a investments in the country, the Government is liberal and Transparent FDI policy. taking various measures like opening up FDI in FDI up to 100% is allowed under the automatic many sectors; carrying out FDI related reforms route in most sectors/activities. FDI policy in and liberalization and improving ease of doing India is reckoned to be among the most liberal business in the country. Steps are being taken in emerging economies. FDI Policy permits for development of support infrastructure FDI up to 100 % from foreign/NRI investor to facilitate setting up of industries such as without prior approval in most of the sectors transport infrastructure, utility infrastructure including the services sector under automatic etc. The Department of Industrial Policy and Promotion has advised Ministries and State -79- Anusandhanika /Special Issue on FDI in India/ October 2017 Governments to simplify and rationalize the follows: regulatory environment through business process reengineering and use of information Sl. Financial Total FDI Growth technology. No. Year inflow (in US$ billion) Sector-wise details of investment received 1 2013-14 36.05 5% through Foreign Direct Investment (FDI) equity inflows after launch of `Make in India’ 2 2014-15 45.15 25% programme in September, 2014, are at 3 2015-16 55.46 23% Annexure-I. All figures are provisional subject to reconciliation Year wise details of the increase in FDI inflow with RBI. Compared with figures of Financial Year during the last three financial years are as 2012-13 i.e. US$ 34.30 billion. Sector-wise FDI equity inflows fdi equity inflows From October 2014 to May 2016 Amount in US$ million

Sl Sector 2014-15 2015-16 2016-17 Total No Oct-14 to Apr-Mar Apr-16 to Mar-15 May-16 1 Metallurgical Industries 162.64 456.31 79.51 698.46 2 Mining 227.53 520.67 0.77 748.98 3 Power 258.27 868.80 19.01 1,146.08 4 Non-Conventional Energy 239.50 776.51 126.45 1,142.46 5 Petroleum & Natural Gas 58.08 103.02 8.23 169.34 6 Boilers And Steam Generating Plants 0.00 77.91 4.48 82.40 7 Prime Mover (Other Than Electrical 136.72 159.13 16.60 312.45 Generators) 8 Electrical Equipments 165.06 444.88 43.14 653.08 9 Computer Software & Hardware 1,874.19 5,904.36 282.66 8,061.21 10 Electronics 23.91 208.39 18.07 250.36 11 Telecommunications 424.05 1,324.40 888.62 2,637.08 12 Information & Broadcasting (Including 205.22 1,009.34 39.20 1,253.76 Print Media) 13 Automobile Industry 1,689.92 2,526.82 297.42 4,514.17 14 Air Transport (Including Air Freight) 32.76 361.25 5.65 399.66 15 Sea Transport 199.38 429.30 9.31 637.98 16 Railway Related Components 7.99 73.99 0.00 81.98 17 Industrial Machinery 378.91 568.26 48.03 995.20 18 Machine Tools 11.89 126.38 12.03 150.30 19 Agricultural Machinery 51.22 16.44 3.38 71.03 20 Earth-Moving Machinery 17.08 97.66 16.43 131.17 21 Miscellaneous Mechanical & 149.51 274.57 23.76 447.84 Engineering Industries

-80- Anusandhanika /Special Issue on FDI in India/ October 2017 Sl Sector 2014-15 2015-16 2016-17 Total No Oct-14 to Apr-Mar Apr-16 to Mar-15 May-16 22 Commercial, Office & Household 11.79 36.68 0.12 48.59 Equipments 23 Medical And Surgical Appliances 52.29 173.26 0.43 225.98 24 Industrial Instruments 0.85 7.42 0.00 8.27 25 Scientific Instruments 1.44 6.36 0.19 8.00 26 Fertilizers 224.30 20.93 0.08 245.31 27 Chemicals (Other Than Fertilizers) 348.66 1,469.95 92.34 1,910.95 28 Dye-Stuffs 0.00 3.32 0.00 3.32 29 Drugs & Pharmaceuticals 405.15 754.26 452.86 1,612.26 30 Textiles (Including Dyed,Printed) 127.27 230.13 9.50 366.90 31 Paper And Pulp (Including Paper 112.02 85.21 6.56 203.79 Products) 32 Sugar 26.77 105.85 0.60 133.22 33 Fermentation Industries 118.00 202.36 28.86 349.21 34 Food Processing Industries 233.23 505.88 121.19 860.30 35 Vegetable Oils And Vanaspati 111.87 34.22 19.65 165.74 36 Soaps, Cosmetics & Toilet 85.03 193.26 0.77 279.05 Preparations 37 Rubber Goods 162.09 296.15 53.61 511.86 38 Leather,Leather Goods And Pickers 18.01 17.13 0.00 35.14 39 Glue And Gelatin 4.57 0.82 7.08 12.47 40 Glass 39.70 25.78 0.03 65.51 41 Ceramics 26.94 51.21 1.22 79.36 42 Cement And Gypsum Products 105.14 19.69 0.10 124.93 43 Timber Products 7.88 53.17 0.14 61.20 44 Defence Industries 0.08 0.10 0.00 0.17 45 Consultancy Services 157.02 517.47 61.89 736.38 46 Services Sector (Fin., 3,201.67 6,889.46 1,862.19 11,953.32 Banking, Insurance, Non Fin/ Business,Outsourcing, R&D, Courier, Tech. Testing a nd Analysis, Other) 47 Hospital & Diagnostic Centres 354.74 742.35 74.28 1,171.37 48 Education 61.27 230.78 19.86 311.91 49 Hotel & Tourism 360.07 1,332.69 119.47 1,812.23 50 Trading 1,751.91 3,845.32 117.71 5,714.94 51 Retail Trading 1.20 262.24 7.94 271.38 52 Agriculture Services 30.53 84.65 1.82 117.00

-81- Anusandhanika /Special Issue on FDI in India/ October 2017 Sl Sector 2014-15 2015-16 2016-17 Total No Oct-14 to Apr-Mar Apr-16 to Mar-15 May-16 53 Diamond,Gold Ornaments 254.66 58.54 64.27 377.47 54 Tea And Coffee (Processing & 1.41 1.12 0.00 2.54 Warehousing Coffee & Rubber) 55 Printing Of Books (Including Litho 37.97 122.81 4.64 165.42 Printing Industry) 56 Construction (Infrastructure) Activities 744.20 4,510.71 196.38 5,451.29 57 Construction Development: Townships, 189.59 112.55 16.12 318.26 Housing, Built-Up Infrastructure And Construction-Development Projects 58 Miscellaneous Industries 555.97 668.77 60.54 1,285.28 Grand Total 16,239.13 40,000.98 5,345.21 61,585.32 Effect of Demonetization on Foreign Direct business is hugely affected by the recent and Investment in India shocking announcement of demonetization. Real Estate : According to market The Foreign Trade industry is suffering in experts that demonetization will revive the aftershocks and shall continue to suffer the currently sluggish housing sector. But for a further period, though for limited time. the big question is what effect positive or However the influx of money from the black negative ban of 500 and 1000 notes will market shall certainly improve to be beneficial have on foreign investment in real estate in the long run for Export Import Trade. The sector. The effect will surely be a positive fact lies at the moment that plunge in money one, as it will increase transparency in supply with overflowing bank deposits ring the sector. Further, in future, more global an alarm in consumption demands, means decline in imports. The Indian Government has clients will enter the real estate sector always paid incentives and promoted Export owing to demonetization and other recent with easy policies. Nonetheless the Exports updates that came in the form of 2016 market is taking a toll at the moment. Make in Real Estate Regulatory Act, improvement India projects need easy flow of currency for in policy framework of foreign direct manufacturing, hence the Import and Export investment and real estate investment both trade have got their bottlenecks. This has trust regulation. changed the algorithm in today’s economical Export Import Business : Economy situation. However stable exchange rate is an Growth of any Country depends up on idle situation as Volatility vitiates the Trade for its Export Import Trade. Indeed it is very India. crucial for India too. Especially after For a few months India’s Exports may be slow demonetization the Exports have slowed but consider that for any acceleration, the down due to currency crunch. True to its vehicle must be slow to begin with. Am sure core that instability in the Exports leads India shall come out with higher GDP and influx to inflation and that in turn leads to an of foreign exchange with prosperous Exports, uncertainty of internal purchasing power in sooner times than thought of. and unstable economy. In Modi’s “Swachh Bharat” mission, Exports is 8th November 2016 marked in history when the best answer to bring in Foreign Exchange India announced demonetization of its and make India prosper with “clean” business, large currencies India’s import and export a scene without black or unaccounted money -82- Anusandhanika /Special Issue on FDI in India/ October 2017 Conclusion real estate development etc. In this context it is also worth mentioning that savings rate has The future of Indian economy is brighter also increased from 23% to 31% over the last because of its huge human resources, rapidly year to this year. India’s continuing ambivalence upcoming service sector, availability of large on FDI, as a result, exacts a heavy toll on the number of competent professionals, vast economy. Undoubtedly, India is ceding billions market for every product, increasing impact of dollars of FDI to its neighbors each year. of consumerism, absence of controls and While China achieved actual FDI inflows of licenses, interest of foreign entrepreneurs in around $45.3 billion in 1997, India settled for a India and existence of four hundred million mere $3.2 billion. India therefore stands to win middle class people. Even today, India is in the next few years. producing largest number of billionaires in a year, take over by Indian multinationals is References amazing, the craze of Indians to go abroad 1. www.wikipedia.org is rapidly diminishing, and the Rupee is becoming stronger and stronger in relation 2. Indian Pharmaceutical Industry, to Dollar. India’s say in the international Pharmaceutical Industry In India, Pharma diplomacy and political affairs has now 3. Textile Industry in India, Indian Textile become meaningful, thousands of foreigners Industry, Garment Industry, Ibef.org. are working as executives in India, packages Retrieved 2015-16 are becoming lucrative and competitive and annual rate of growth is highest. This present 4. FDI inflows in services sector increased picture gives some reflections of the future. by 46 per cent in 2014–15: Department of But this is all in the absolute sense and not in Industrial Policy and Promotion data, The the relative terms. A country can only grow if Economic Times. 15 June 2015. Retrieved the Govt. policies allow more participation and 11 October 2016 is able to attract more and more foreign direct 5. International Institute of Import & Export investment in India. Today, India provides Management. highest returns on FDI than any other country in the world. India is poised for further growth 6. Government of India Ministry of Commerce in manufacturing, infrastructure, automobiles, & Industry auto components, food processing sectors,

-83- Anusandhanika /Special Issue on FDI in India/ October 2017 Anusandhanika /Special Issue on FDI in India/ October 2017/ pp 84-89 ISSN 0974 - 200X Impact of FDI in Socio-economic Development of India

Binita Kumari Research Scholar Ranchi University, Ranchi

Dr. Sanjiv Chaturvedi Department of Commerce Doranda College, Ranchi

Abstract

Foreign Direct investment in India is a crucial factor for the socio-economic development. The pre economic liberalization period was challenge for the Indian economy to grow because there were many constraints to overcome. India’s Foreign Direct Investment (FDI) policy has been gradually liberalised to make the market more investor friendly. The results have been encouraging. These days, the country is consistently ranked among the top three global investment destinations by all international bodies, including the World Bank, according to a United Nations (UN) report. For Indian economy which has tremendous potential, FDI has had a positive impact. FDI inflow supplements domestic capital, as well as technology and skills of existing companies. It also helps to establish new companies. All of these contribute to socio-economic development of India

Keywords : global investment, domestic capital, investor’s freindly

Introduction and has enough evidence,which has proved different positive impact to different countries In this Era of global development, where such as Blomstrom (1994)report has reflected developing nations have taken a step forward positive impact on increased competition in to liberalize its policies by welcoming foreign local firms in Indonesia and Mexico, Where players through FDI, it has been paid more as Smarzynska (2002) states that the local attention, and has become hot topic of academic supplier in Lithuania has benefit from the discussion and research. FDI doesn’t only spillover from supplying foreign customer. specify the concept of Foreign investment but indirectly it is associated with the movement of Caves (1996) concludes in his research that funds, technology, skills and expertise followed countries makes various efforts to attract by Research and development. It puts socio FDI due to its positive impact on developing and economic impact on the host country economy through technology transfer, by exchanging the traditional and cultural managerial skills, access to external markets, values across the nation during its business international production network and increased establishment at local and regional level. FDI productivity. strengthens the bond between two nations. Borensztein (1998) too consider FDI as ways Though research shows the FDI impact very of technology spillovers and contributing to the complex from a macro and micro perspective. economic growth. It has been proven to be benefiting the least developing countries by creating Employment, However many researchers like Hanson higher production with the available resources, (2001) and Lipsey (2002) finds that there are technology spill over. There has been a mixed very few positive aspects as it may crowd reaction from various region and nations having out the regional and local enterprises and distinct geographic, and demographic nature. relationship between FDI and economic There are few studies which supports this idea growth has not been consistent respectively.

-84- The effect depends upon the nature of the host Trends and pattern in FDI countries sectors and its potential in receiving The study of FDI pattern across the world has the FDI for the desired sector. seen the unprecedented growth of global FDI India being the most attractive destination and it was found that it is considered to be the for FDI in terms of its, demographic, social vital component for the developing nation and and geographical location availing cheap hence various policies and reforms have been labors,skilled manpower and available natural made to maximize the inward flow of funds, resources may get affected differently. FDI also paves the way for the integration of global financial market it also became The study is to demonstrate how FDI can the important tool due to the paucity of the accelerate the pace of social and economic available resources such as entrepreneurship, development. The study is done to reveal the financial capital, technological know-how and significant positive impact that the FDI have access to the world market. FDI can be said had on social economies and wellbeing of as the visible panacea to tackle with all these residents in different regions and country. scarcities. Materials and Methods Risk associated with FDI and attractiveness The secondary method of data collection has Although India has become the most attractive been used such as international Journals, destination for the foreign investors, due to Government websites, print media etcfor the its high potential and governments constant study about the FDI status and its impact. efforts to take it on a large level there has been some negative aspects inthe formof several Results and Discussions risk associated to the angel investors such India was a closed economy until 1991, then as sovereign risk,political risk, commercial the economic liberalization and globalization risk and risk of foreign sanctions. However have drastically changed the situation the study by various researches and analyst for foreign investment. From then till now shows that theserisk doesn’t possess any government have gradually liberalized the threat to the foreign investors as India foreign investment policies to incentivize has a very vibrant parliament democracy foreign players to invest in both national and since the time of its independence and has state level. Hence FDI has been allowed not witnessed any serious revolutionary in most of the sectors up to 100 % through movement so far and hence there is no automatic route where in FDI is not required to chance for the state to collapse thus have a seek any approval or get into agreement with zero effect on FDI. Even India has suffered from the Government but the intimation to the the political instability but if the political risk is RBI within 30 days of inward remittances and closely monitored then there has been no such issuing shares to non- residents. scenario where in any present government has reversed economic policy framed by the The investment which was not covered in past government as liberalization has been automatic route had to seek prior approval accepted as a necessity by all parties of India, which was taken care by the Foreign investment Few exception which includes north-east promotion Board (FIPB) a government Body state and Jammu Kashmir due to the terrorist having a single window clearance. The activity is either non-existent or too week to be government is still on process of shaping the of any significance and there is no way one FDI. The best example can be taken as the can predict of any type of annexation of India Multi Brand Retail store. When we talk about by any other power as it would be the height of structure there are several inclusions like imagination to visualize any state – disrupting project office, liaison offices,Branch office and revolution like Bangladesh and Kuwait. Hence wholly owned subsidiary. the political risk in India is close to non-existent.

-85- Anusandhanika /Special Issue on FDI in India/ October 2017 Commercial risk can prevail in any country and at regional level like purchasing goods and it can be easily reduced if the market viability services for organization need like, catering, is carefully evaluated,studied and analyzed advertising, transport companies, securities before making any major investment as no etc. It creates a multiplier effect as the employee product and services can be readily sold. of the Multi National Company spends in the region for all kinds of services results in Business Environment additional demand which consequently adds There are some characteristic of the business in the growth and development of small scale climate which encourages the foreign players business and hence it would add to the GDP to invest in the host country. Experts believe growth as per the report by OECD it was that adverse climatic condition and absence forecasted for India to be the one of the bright of the infrastructure can negatively influence spot for Investment among all the developing the inflow of FDI. Also some other factors like economies. The GDP is expected to boost due over- regulation of economic activity such as to the increased limit of FDI. custom service and licensing is considered as Annual GDP Growth (%) deterrent to foreign investment as it significantly As per OECD’s forecast, India is the only delay the project development also country’s bright spot poor judiciary system for litigating commercial matters could add to the negative factors. 8 8 7 However in India after all the recent reforms 6 6 4 5 in the government policies and new initiative 4 2 3 programs such Startup India and Make in India 2 0 1 have brought a revolutionary change in all the -2 0 -1 complex procedure, de-regularization to do -4 -2 World United States Euro Area Japan China India Brazil business which is considered a step towards 2014 2016 2017 2016 ease of doing business by end of conventional licensing Raj in India, also liberalizing foreign Source : OECD November 2015 Economic Outlook policies providing single window solution for the database all the foreign entity through automatic route FDI is somewhere directly or indirectly related with less legal formalities and government’s with GDP growth and National Income as interventions is said to set a mark. explained above also it boost the export which The socio- economic development of India would reduce the fiscal deficit. However it may in various ways not generate perfect competition as foreign companies are lashed with money, technology, Socio-economic development includes actual marketing skills, holding global experience inward fund flow through direct investment, in business might force the local and small introduction of new technologies,to have firms to exit from the market, abolishing the contracts with local suppliers, to make major characteristic of market of being perfect significant payment of tax. Increase tax competition which is the major criteria due to revenue contributes in the regional and national which the consumer is benefitted. budgets. There are lots of social benefits which is rendered by foreign companies as Tax Payments they offer fair and equitable compensation The major direct effect which is made by the along with ongoing professional training and FDI to any host country is the substantial fiscal development, which retains and attract skilled contribution of tax payment as it would increase and qualified workers results in bolster human the budget revenues which can be utilized capital in the region. in building infrastructure such as highways, FDI also makes a dynamic contribution in roads,bridges etc. India is still in its developing the development of small scale enterprises stage and lacks proper infrastructure for its -86- Anusandhanika /Special Issue on FDI in India/ October 2017 huge population. Government can use these development which is the ultimate key to funds for the welfare schemes through Direct rise in any field, however India lacks the fund benefit transfer, providing subsidy to the required for such R&D hence the inward agriculture and manufacturing sector,creating funding would put more impetus in R&D and more public facilities, like public toilets as open it would ensure the job for more skilled people defecation is the major hygiene issue India is also there would be proper training facilities to facing currently, also building hospitals and sharp ones skill along with imparting the values schools in the rural areas. of corporate culture abroad to the host country which would certainly inculcate the quality of Technology transfer, job creation and professionalism which is the key determinant to social development any business. This kind of environment helps The FDI would not only benefit host country the employees to have a personal growth and in monetary terms but it would also facilitate incline them towards their selfdevelopment. technology spillover. There would be the transfer Human development Index of business skills and experience providing access to global market. FDI through automatic There are certain criteria for measuring HDI route in Brown field project would ensure are Life expectancy at birth, Average years of the successful expansion with the advance schooling per person, Gross National income, technology, with the efficient managerial skill per unit of population, the per capita income, the business can be soon turned in more profit all these terms can be enhanced with the generating unit further creating employment human development in terms of standard of opportunities. Especially in the manufacturing living, per capita income, education and life sector which is a labor intensive unit, would expectancy which depends upon the economic increase hiring on attractive salary & wages, condition of the nation as it ensures good giving salary hike to the top level managers. All income, avail basic needs at affordable rates, this could enhance the purchasing power ofthe value education for all.For any of the above individual. Also Foreign companies pays good condition to be achieved a good job is required remuneration and other perks like medical especially country like India where there are facilities, accommodation, conveyance and massive youth population exist having no providing financial aid for the kids education, jobs cab be benefitted in statistical terms. All which put direct implication on the standard of these aspects are inter-related, so it can be living results social development. said FDI would bring more positive impact on a developing country like India, results may Change in Greenfield FDI in 2015 have not be seen yet but in future it would definitely boosted the foreign investment in Greenfield be, however it can not be determined how it is project with aprox investment of $63 billion. It going to benefit the consumer incase if their is expected to make employment and boost existence violates the perfect competition in the GDP, FDI has the potential to attract high the market by crowding out the small business. growth economies. According to the firstpost. It would be difficult to speculate the future com The FDI report states that the FDI Job prospect of the same and how the economy creation has increased from 1.6 lakhs new job would respond to it in the long run. in 2013 to 2.25 lakhs in 2015 highest in the world. Corporate duty under CSR Personal growth through Training and History witness that when the British East Development India company acquired Indian market there was less done by the government towards Foreign players are the expertise of business the infrastructure as the company for its own techniques as they poses knowledge and benefit and smooth operations made lot of experience of operating in global market expenditure on basic infrastructure by building also spends lot of money on Research and roads, dam, bridges to improve the poor -87- Anusandhanika /Special Issue on FDI in India/ October 2017 road connectivity and for the better regional Presently FDI limits has been pushed to & state linkages for its easy transportation of 100% in almost all the major sector such goods. Company makes so much efforts to as Telecommunication sector, FDI in utilize the natural resources by installation of trading companies, Power sector, Drugs& new technology machines for the extraction Pharmaceuticals, Roads, highways,ports and purposes,constructing ponds and reservoirs Harbors, Pollution control management, Call for the better utilization of natural resources. centers in India and BPO. Most of the time government too uses these Road Ahead infrastructure for its own use and also it provides maximum advantage to the local people of As per the (UNCTAD) United nation conference the area. In extractive industry operating in of trade and commerce world investment the sparsely populated area, company bears report 2016. India has acquired the 10th slot almost all the cost of infrastructure required for in the top 10 countries attracting highest FDI their operation. inflow in 2015, also India moved up in ranking to 6th position for being the most preferred Present scenario investment destination among investment After the Landmark ‘Make In India’ initiative promotion agency. Also for 12th five year plan from the seventh month of its inception FDI (2012-2017), India will require around us$ soars to 48% which is updated by India’s 1 trillion, for its infrastructure project which ministry of commerce and industry including covers the sectors such as highways, ports FIIs foreign institutional investment which and airways and this would surely require more recorded an unprecedented upsurge of 717% funding support from FDI that would eventually in FDI from October 2014 to April 2015 growing lead to India’s growth in the competitive field year on year period. in terms of wages, remuneration and its new policy of Standup India is expected to boost Below is the graphical representation of the the FDI in coming future. change in growth of FDI flow in India from 2014 to 2015. Conclusion Foreight Direct Investment India has put more emphasis on the attraction of FDI and increase its limit in almost all the 35 potential sectors,to improve and boost both 29.42 30 socio-economic development which has 25 19.84 20.75 42% 20 growth October, 13 surely been noticed in terms of GDP growth to April, 14 15 13.41 48% and increased job however before reaching to growth October, 14 10 to April, 15 any conclusion the proposal to the greenfield 5 Amount in US$ billion project needs time for its establishment and 0 FDI equity inflow FDI inflow an accurate employment growth and visible change in per capita income would be seen after 3 to 4 years of its commencement. For The recent policy in FDI has increased the FDI the crowd out of the small scale business, limits to 100% in most of the sector is expected by FDI,and Job loss, Government needs to to bring more rapid growth in manufacturing take proper efforts to check the interest of the sector as currently IT/BPO sector is leading small business personal by checking major job with the highest FDI. The investment in the loss, which can be caused due to entrance of greenfield project may not show any growth in strong competitive companies. Government the employment rate as it would take time for should also strengthen its domestic players any project to establish and hence the growth enabling them to survive the competition in employment rate would reflect after 3 to 4 revising its policy of startup India and framing years of its operations. some separate policies with more financial assistance,subsidy, and tax rebateto small -88- Anusandhanika /Special Issue on FDI in India/ October 2017 retailers which are found to be at the risk of References loosing their business followed by capital 1. http://www.atimes.com/article/make-in- erosion.Along with the FDI It is also very india-boosts-record-foreign-investments/ important to ensure perfect competition to avoid the consumer exploitation as discussed 2. Borensztein E., J. De Gregorio and J.W. above. Hence it is must to protect small Lee, How Does Foreign Direct Investment retailers. Affect, 1998 Economic development can be achieved when 3. Economic Growth in Journal of the available resources are utilized judiciously International Economics 45, p 115–135 focusing on the manufacturing sector, efforts 4. http://www.livemint.com/Politics/ of getting foreign investment in manufacturing sYFaCzUi4paE9UCajwYjuO/FDI-inflows- sector is not satisfactory and hence ‘Make rise-40-on-Make-in-India-initiative- In India policy’ was an initiative taken by the Economic-S.html government to attract investment from abroad and the results of it is yet to evaluated in 5. http://forms.fdiintelligence.com/ coming future. report2016/files/The_fDi_Report_2016. pdf Government should also take care and make some provisions for protecting the interest and 6. OECD November 15 economic outlook rights of the labor in the most labor intensive database. industry, as the availability of abundance of 7. Firstpost/business/india Man power as major resource are sometimes exploited in terms of cheap wages and below average salary.

-89- Anusandhanika /Special Issue on FDI in India/ October 2017 Anusandhanika /Special Issue on FDI in India/ October 2017/ pp 90-94 ISSN 0974 - 200X Foreign Direct Investment in India : An outline of Develpoment Since 1991

Christina Deogam Post Graduate Diploma in Rural Development Student of Indira Gandhi Open University, Ranchi

Dr Arun Kumar Sinha St Xavier’s College, Ranchi

Abstract

Interrelation and interdependency between political and economy has influence the growth no hi of every variables of development. Encouragement of foreign direct investment in India since 1991, has let to increase the capital formation thus leading to development process reach its high pick. The law formulated to manage foreign exchange such as foreign exchange management act 1999, indicates the political o regulate the economic forces. Though there has been improvement to liberalize the market to attract the foreign investment in some areas till date, still there are obstacles like corruption, red tapism, etc., which obstruct complete foreign investment in India. The paper attempts to highlight in brief the determinants of FDI in India which has developed since inception of new economic policy, 1991 and its journey to make in India 2016 and calls for the need of 4G network in the government work and its admiration to monitor the obstacle in the path of foreign direct investment in India. The political instrument like political institution, regulatory structures, micro ¯oeconomic policies, political rights, economic freedom and private property rights, economic infrastructure, beneficial policy environment through perfect bureaucratic management, the ability to control element affecting the market forces, etc. Are requirement for developing political economy. The paper outlines importance of political interactivities with economic forces to build the foreign direct investment in India.

Keywords : political institution, regulatory structures, political economy Introduction formation, trade integration, etc. There has been uneven implementation of policy due The international financial institution, to opposition from several pressure groups. International monetary fund which is an The anti FDI group has been demanding for international organization defines foreign swadeshi instead of western imperialism. direct investment as an investment made They accused the government for bringing FDI to acquire lasting or long-term interest in which would drive out India to be self-reliance. enterprises operating outside of the investor. FDI in the country is permitted subject to The investment is direct because the investor, applicable laws/regulations, security and other which could be a foreign person, company conditions. Further, FDI Policy on different or group of entities, is seeking to control, sectors are formulated/ reviewed after intensive manage, or have significant influence over consultations with stakeholders including the foreign enterprise. A gradual change in Ministries/ Departments concerned, apex investment policies since 1991 through new industry chambers and other organizations. economic policy have witnessed the thunder of Today the Indian Government has put in place political controversy ongoing in India. In spiteof an enabling and highly liberalized FDI policy, controversial political climate foreign direct where except in a number of specified sectors, investment has found acceptance as a source FDI up to 100%, under the automatic route is of economic development, modernization, permitted. The government reviews FDI policy employment, advance technology, capital and makes significant changes from time to -90- time with a view to making it more investor markets to invest with ease. The open friendly and to ensure that India remains market and political capacity is the important increasingly attractive and investor-friendly. determinants of the FDI. The open market The FDI policy was governed by import policies provide the political infrastructure substitution strategy industrialization. The FDI which allows the investors to move capital was regulated by foreign exchange regulation into host economy with easy regulations, act FERA 1973 and only up to 40% was and the political capacity refers to the ability allowed in a joint venture foreign equity. The of the government to extract the resource implementation of special economic zones, needed for the investment environment. The industrial policy 1980 & 1982, and technology greater investment flows need the policies policy 1983 provided for a liberal attitude that strengthen property rights as it stabilizes towards foreign investments. De licensing the courts in favor of the FDI. There is also act through open general licensing, trade need of the moderate cost of doing business, liberalization were some major development stringent regulatory environmentalists, heavy opening route for FDI before 1991. The major tax burdens, price controls and liberal financial reason to economic reform was due to the system is needed for capital flow. Feng has economics burning hell of deficiency in foreign reported that political capacity has a modest trade balance to 10,644 crores of rupees, impact on domestic private investment; it can loan from international monetary fund as a easily attract the FDI stock. compensatory financial facility, 46 tons of gold The Indian government has been sensitive as a short term foreign loan from the bank of to the impact of reform on votes, rather than England, inflation of 12% and fiscal deficit. economic development. The manifesto of Materials and Methods political party during election time indicates the area of working of government towards The study is based on secondary data targets for development. The party is driven collected from various sources. These include with motive to garner more votes to win publications of various organizations such the power of ruling. Even though congress as department of investment policy and implemented the FDI in 1991, there was promotion and World Bank, etc. The data has clear definition or understanding of the term been collected from 1991 to 2017. There is bit or use of it for the development process. information about the FDI status prior to 1991 In same year, the RSS formed Swadeshi to have clear understood about the history Jagaranmanch[SJM] in November to fight of FDI prior to1991 and development after against privatization and globalization. The that. This paper analyzes the political activity Swadesi Jagranmanch was formed under the surrounding the FDI in India. An attempt has banner of political group which included five been made to understand the link between the national level organizations. Bhartiya Mazdoor politics and economics of FDI. Sangh, Akhil bhartiya Vidyarthi, Bhartiya kisan Results and Discussions Sangh, Akil Bharitya Grahak Panchayat and Shanker Bharti formed this group to advocate The FDI can only be successful when there is the Swadesi and pressure the government positive investment climate which can be only to adopt FDI policy. Today the SJM consists provided by the government or ruling authority. almost 15 political parties. This case was Along with the beneficial economic policy similar even in 1992-93. In 1993-94, there there is also need of efficient government was realization how FDI can bring economic with capacity to maintain the environment success through real investment, employment same. Governments must formulate such and production. By 1995-96 India saw positive policies which can provide perfect atmosphere result of FDI so the government stated that for for foreign capital formulation. The ruling higher growth FDI is an instrument for progress authority with open market policy and high and it should be used without hesitation. level of political exercise clear the international -91- Anusandhanika /Special Issue on FDI in India/ October 2017 Though the FDI defended, the opposition does The BJP opposed the congress government not welcome it. As such there was variance in in retail to 51 % FDI, as they wanted 100% votes in next election. The BJP party criticizes FDI in it. The small retailers were worried the congress government for license quota about the competition from big business and permit raj which has remained radical at some the some medium sized businesses thought level. By now the BJP only welcomed at this of negative impact on profit earning. The left instance that it does not minimize the India’s parties opposed FDI from capitalists countries economic sovereignty rather dependency on such as UK, USA and Europe, which was foreign should be minimize. It called for not opposed in case of FDI coming from China, westernizing the Indian development. Even the Russia, Venezula where leftist rule. The FDI communist party criticizes the BJP of having in 2005 was turned to 100% in infrastructure ideology mixture of swadesi and support to the route in townships, housing and construction LPG reform. It can be summarize that by 1996 development projects such as hotels, resorts, though there was unsure of acceptance and hospital, etc. In 2006, the policy of the implementation of the FDI reform, the topic of government of India has tried to maximize FDI was major issue in politics. the investment by encouraging FDI in every sector. The 2006 policy cleared that FDI under The importance change in FDI environment the automatic route does not require prior was introduction of the foreign investment approval either by the government of India promotion council and foreign investment or reserve bank of India. The policy cleared promotion board to provide guidelines for the that the FDI in retail trade, except in single implementation of FDI. The need of FDI was brand product retailing; lottery; gambling; realized and so the list of industries eligible and automatic energy. Even in the year for automatic route were approve to 51% 2009 -2014, there was some opposition claims with foreign direct investment flows provided by the opposition group. savings without adding to the country’s external dept. in 1998 there was decline in the In spite of the controversy there has been FDI and change of government to BJP targeted significant improve in the FDI policy reform and for the FDI in capital stocks, technology, new formulation since the 1991. In fulfillment of its market practices and employment. FDI was commitment to provide greater transparency increased in core areas and non priority areas in decision making, the Government in 1997 were discouraged. Even the communist party, announced a set of Guidelines for consideration who had no clear idea of priorities, supported of foreign direct investment proposals by the the government stance. While congress Foreign Investment Promotion Board. party demanded FDI in the power, roads, Under the 1998 FDI policy,. Indian companies ports, railways, coal, oil, and gas, mining undertaking generation and transmission of and telecommunication. In 1999, foreign electric energy, produced in hydro-electric investment implementation authority was power plants, coal based power plants, set up for a providing quick communication oil based thermal power plants and gas between foreign investors and the government, based thermal power plants were eligible for and state authorities. In 2002, the ministry of automatic approval up to 74% foreign equity. finance’s economic survey that exclusively dealt with FDI outcomes and reserve bank of Accordingly, projects for electric generation, India stated evaluating the FDI. In May 2002, transmission and distribution were permitted department of industrial policy & promotion foreign equity participation up to 100% on the was constituted to maintain FDI data. By 2004, automatic approval route provided the foreign the issue related to the FDI became silent as equity in any such project does not exceed Rs. it was welcomed by both UPA and NDA. But 1500 crore. In 1999 Government With a view to now there was issue on type of policies to expediting disposal of FDI proposals, decided be adopted for FDI and to which extended. to reduce the time frame for consideration

-92- Anusandhanika /Special Issue on FDI in India/ October 2017 of proposals related to investment to thirty foreign capital compared with US $ 4.28 billion (30) days from six weeks. In 2014, make in 2001. While the share of FDI was only 0.2% in India was launched for manufacturing, in 1990, it increased to 3.98% by 2001, while design and innovation from foreign. In 2016, FDI as a percent of GDP increased from 0.05 the government have opened 100% FDI percent in 1990 to 0.90 percent in 2001. India’s under automatic route. Make in India, invest FDI share in the developing world was only India, start up India and e biz mission mode 0.4% in 1991. A marginal improvement was project are other new initiative. The most seen by 2001, when the share had increased active organization SJM still remains frame to 1.7%. in protesting government against FDI reform. It is interesting that the government always In 2016 when government introduce the FDI wants to support FDI while the opposition reform in e-commerce, food processing and does not. This truth is for every party who marketing sectors, SJM oppose it, reasoning aims to collect votes of people. When the UPA that it is against the interest of the small was in power it was the NDA which opposed, Indian shop keeper. On 20 October 2016, while now it is other way around. Most of RSS boycotted the foreign good especially the them oppose merely for political motives. The Chinese goods in the capital cities. left party only seems to be the only section There was increase in net flows FDI to 44% which opposes FDI due to a conflict with their annual growth during 1991 to 2001. In 1991 ideology of opposing any external investment. there was investment of US $ 0.1 billion of

FDI in $ billion

50 40 30 20 10 0 FDI in $ billion 1999 1997 1991 1995 1996 1994 1992 1993 1998 2011 2015 2014 2012 2013 2009 2007 2001 2005 2006 2010 2004 2002 2003 2008 2000 2016 up to March

Conclusion 2000, and 2008 and 2012. As of March 2016, The 26 years of the new economic policy the country has received total FDI of $371 since its inception in 1991 has seen many billion, since 1991. The year 2008 has highest facets of controversy related with the FDI FDI flow of 43.40 billion. The biggest flow reform. The government have done their was between 2005 to 2006 i.e. 175.54%. As will while being in the power. The opposition of march 2016, India has attracted $10.55 party have opposed the FDI reform and FDI billion worth of FDI. According to the financial policies according to own self interest. The times India overtook China and US as the top game of FDI implementation has worked out destination for FDI. Recently the government well for the Indian economy. Before 1991, on 1stfebuary 2017 has proposed abolition foreign investment was negligible. The first of the foreign investment promotion board. year of reform saw a total foreign investment Finance minister Arun Jaitley stated in his of only $74 million. However investments have budget speech that FIPB has done its work, raised since then, except between 1997and and now it is the phase to bring more FDI policy which can ease investment process. The SJM

-93- Anusandhanika /Special Issue on FDI in India/ October 2017 have called for made by India. Nevertheless, 6. Roy Suranjana, India ranks 10th in FdI India ranks 10thin FDI inflows globally and inflows : UNCTAD report. Http://www. the forth in developing Asia as per the world livemint.com/_india_ranks_10th_in_fdi_ investment report 2016 by the United Nations inflows_unctad_report.html% conference for trade and development. It is 7. What are the some good arguments due to account of the make in India initiative, against allowing FDI in India. Http:// a liberalization measures and reforms initiated www.quora.com/what_are_the_good_ by the national Democratic alliance. But, China argument_against_allowing_FDI_in_india is more than three times India’s FDI at $ 136 billion in 2015 is ranked third in terms of FDI 8. Rao Aprameya & Kadam Kishor, 25 years flows, which means India is far behind and of liberalisation: a glimpse of India’s growth need to improve its reform related FDI. The in 14 charts. July 07, 2016. Retrieved from issues like land acquisition, goods and service http://www.firstpost.com/business/25_ tax, and labour reforms need to be resolves. years_of_liberalisation_a_glimpse_of_ Still Indian government has done a lot in 10 india’s_gr owth_in_14_charts_2877654. years to attract FDI in comparison to China. html. The government initiative through make in 9. Singh Kulwindar, Foreign direct investment India and stand up India is a positive step in India: a critical analysis of fdi. Retrieved towards the increase of investment. from http://www.toanewdawn.blogspot. References in/2012/09/a_brief_history_of_foreign_ 1. Foreign direct investment in India. direct.html=1 Retrieved from https://en.m.wikipedia.org/ 10. Foreign direct investment. Dec. 2016. wiki/foreign_direct_investment_in_india Retrieved from http://www.ibef.org/ 2. FDI 2005 press note. Government of economy/foreign_direct_investment.aspx India. Ministry of industrial policy and 11. Maharaja R., What has happened since promotion. SIA. Http://dipp.nic/English/ 1991?. http://www.igidr.ac.in/faculty/ policy/changes/pn2_2005.pdf nag/what%20happened%20aince%20 3. Reforms and FDI inflows into India. Chapter 1991%20%20assesment%20of%20 5, Retrieved from http://Shoshana.inflibnet. economics%20reforms.pdf ac.in/bitstream/10603/12952/12/12_ 12. Coan Travis G & killer Tadeuz, The chapter%25205.pdf politics of foreign direct investments: an 4. Sutta M.K Sutta & Dharma G.K., Foreign interactive direct investment in India since 1991: trends, challenges and prospects. Retrieve d from http:// papers.ssrn.com/ s013/papers.cfm%3fabstract_id 5. Installed questions no 2410 and unstarred questions no 910.consolidated foreign direct investment in India policy circular of 2016. Department of industrial policy. Retrieved from http://support.nic.in/ English/polices/fdi_circular_of_2016.pdf

-94- Anusandhanika /Special Issue on FDI in India/ October 2017 Anusandhanika /Special Issue on FDI in India/ October 2017/ pp 95-102 ISSN 0974 - 200X A Socio-Economic Analysis of FDI in India

Prof. (Dr.) Himadri Ranjan Mishra Department of Management Science (MBA) Balasore College of Engineering & Technology Balasore, Odisha

Abstract

The fast and steadily growing economy of India in majority of its sectors, has made India one of the most popular and famous destinations in the whole world for FDI (Foreign Direct Investment).India’s ever expanding markets, liberlisation of trade policies, development in technology & telecommunications, and loosening of diverse foreign investment restrictions, have further collectively made India the apple of investors’ eye for most productive, profitable and secure foreign investment. The economic development of a country depends on its Industries. The developments are easily possible when Foreign Direct Investment (FDI) comes to India. It is an important source of economic development by investing capital in various sectors like manufacturing, infrastructure, transport, technology, services, productivity and hospitality etc. According to a recent survey by the UNCTAD (United Nations Conference on Trade And Development), India has conspicuously emerged out as the second most popular and preferable destination in the entire world after China for highly profitable FDI by investors of countries like US, UK, Mauritius, Singapore, and many others. In this paper, an attempt has been made to present the role and impact of Foreign Direct Investment (FDI) in the socio-economic development of India as a whole since l991.It analyzes the growth of economy and different sectors of Indian Industries due to liberalization of Economic Policy of the Country as well as the policy framed by the honorable Prime Minister Mr. Narendra Damodar Das Modi for the projects like “Make in India and Smart Cities” etc. The present study tries to assess the determinants and impact of FDI in Indian economic factors. Thus, the present study is an endeavour to discuss the trends and patterns of FDI, and its impact on Indian economy

Keywords : gross domestic product, manufacturing sector, infrastructure development

Introduction studies in the past on sectoral inflows but they do not conduct study on impact on sectors India is an attractive hub for foreign investments share in GDP. Further the role of government in the manufacturing sector. Several mobile has always been changing. New suggestions phone, luxury and automobile brands, have always emerged to increase the FDI among others, have set up or are looking to flows in India. Foreign direct investment or establish their manufacturing bases in the foreign investment refers to the net inflows of country. With impetus on developing industrial investment to acquire a lasting management corridors and smart cities, the government interest (10% or more) in an enterprise plans enormous development of the nation. operating in an economy other than that of The corridors assist in integrating, monitoring the investor. FDI is defined under dictionary of and developing a friendly environment for economics as- Investment in a foreign country the industrial development and will promote through the acquisition of a local company or advance practices in manufacturing. FDI effect the establishment thereof an operation on a could not be gauzed in the past as the flows new site. It refers to capital inflow from foreign were limited but in the recent period they have countries. shown a great increase. Further, it was proved that the positive impact of FDI on growth “kicks There are two types of FDI: (a) Inward foreign in” only after financial market development direct investment and (b) Outward foreign exceeds a threshold level. Until then, the direct investment. benefit of FDI is non-existent. There have been Single brand- Single brand implies that foreign -95- companies can sell their products under a 4. Procurement : At least 30 percent of single brand; as Reebok, Nokia and Adidas. the procurement of manufactured and FDI in single brand retail implies that a retail processed product purchased shall be store with foreign investment can only sell one sourced from small industry globally with brand. investment in plant and machinery not exceeding USD 1 million. Multi brand- FDI in multi brand retail implies that a retail store with a foreign investment can 5. Location : Retail sales outlet may be set sell multiple brands under one roof. up in cities with population of more than In 1997, the government allowed 100 percent I million according to 2011census and FDI in “cash and carry” wholesale stores under may also cover area of 10 km around the automatic route. In 2006, Government municipal/ urban agglomeration limits of allowed 51 percent FDI in single brand such cities. Only 53cities in India qualify retailing, although with prior approval from under this criterion. government. After that, In December 2011, the 6. Agriculture produce : First right of government fully (100 percent) opened up FDI procurement lies with the government. in single brand retail stores. Many international retail brands such as IKEA and Carrefour were Over the last two decades India opened its eager to enter the Indian market. 51 percent market and slowly it becomes second in the FDI in Multi-brand retail was proposed in world in terms of financial attractiveness. The September 2012, with parliamentary approval Prime Minister has launched the ‘Make in in December 2012. However on the other India’ campaign to place India on the world side many of small retailers have caused map as a manufacturing hub and recognize protest against foreign direct investment in Indian economy worldwide as a preferred retail. According to the Government of India destination for foreign direct Investment. notification, 51 percent of FDI is permitted FDI brings a huge capital, technological under following conditions : knowledge, employment opportunities. FDI boosts manufacturing industry by aiding setting 1. State Acceptance : Stores may be set up of various manufacturing units in different up in those states which allow FDI in parts of India. For any country to generate multi brand retail under this policy. Such adequate employment, its manufacturing stores will be subject to compliance with sector’s contribution to GDP has to improve applicable state laws and regulations. in a faster rate. But this is not the case in 2. Minimum Investment : The minimum Indian manufacturing sector because of its low amount that the foreign investors have to contribution of 16% to GDP. Research says the invest is US$ 100 billion. manufacturing sector in India has the potential 3. Backend Investment : At least 50 to reach USD 1 trillion by 2025 and contribute percent of total FDI brought in shall approximately 25 percent to India’s GDP. So, be invested in backend infrastructure it is expected to generate approximately 90 within three years of first tranche of FDI. million jobs by 2025. Currently India has a Backend infrastructure includes capital contribution of approximately 2.2 percent of expenditure on all activities, excluding world’s total manufacturing output, which is at that on front –end units, for instance, par with developed economies. it includes investment made towards processing,manufacturing, distribution, Materials and Methods quality control, design improvement, The data have been collected from secondary packaging, logistics, storage, ware sources like published research papers, house and agriculture market produce. journals, magazines, websites such as Expenditure on land cost and rentals will www.tradingeconomics.com RBI websites, not be counted for the purpose of backend Government of India websites, and various infrastructure. -96- Anusandhanika /Special Issue on FDI in India/ October 2017 issues of DIPP, Central Statistical Organization, million by 2022.100 percent FDI under and Handbook of Statistics on Indian Economy. automatic route allowing free imports of The study carried out is analytical and empirical automotive components and delicensing in nature in which it explores the relationship in the automotive sector has helped in between the Inflows of FDI and their impact on developing the sector. Indian economic growth. C. Heavy engineering and construction Results and Discussions equipment : This sector derives demand from the infrastructure industry in India. India replaced China as the top destination The construction sector’s capacity in India for FDI by capital investment following a exceeds the domestic demand which year of high-value project announcements, shows potential for increasing exports and specifically across the coal, oil and natural improving utilization. The construction gas and renewable energy sectors. In 2015, equipment sector in India was estimated India was for the first time the leading country to have generated USD 6.4 billion in in the world for FDI, overtaking the US (which revenues in FY13, and is expected to had $59.6bn of FDI) and China ($56.6bn). reach USD 22.2 billion in FY 20. India is a The rapid growth of FDI in India shows that preferred destination by global companies while economic development organisations for outsourcing work related to the try to attract FDI for the contribution, FDI can engineering sector as India has a large make to employment and GDP. FDI is strongly base of skilled and lower cost labor along attracted to high-growth economies. Success with better designing capabilities. breeds success and to attract high volumes of FDI, locations need to create the conditions for D. Chemical sector : The Indian chemical strong economic growth and development to industry is the 3rd largest producer in take place. Asia in terms of volume of production, and twelfth in the world. The industry accounts A. Metals and mining : The total value of for almost 7 percent of world’s production mineral and production including minor of dyestuff and dye intermediates, minerals but excluding atomic minerals particularly for reactive acid and direct in FY12 and FY13 was about USD 49 dyes. The chemical industry is expected billion and USD 43.1 billion, respectively. to grow at an annual rate of 15 percent to By 2020, the metals and mining sector reach USD 290 billion by 2017.Supportive in India has the potential to contribute government policies and the domestic around USD 150 billion to GDP, create environment including 100 percent FDI new employment for 2.3 million people under the automatic route and delicensing and contribute USD 40 billion as the the manufacturing of most chemical government revenues. India ranks fourth products, has supported the growth of the globally in terms of iron ore production. sector. The government allows 100 percent FDI under automatic route in the metals and E. Electronic components : In India, mining sector. the demand for electronic component and semiconductor designs exceeded B. Automobile sector : India’s automotive INR 68.1 billion in FY13, with domestic sector is the largest manufacturing output 40 percent of the total demand. sector in India accounting to 22 percent A significant share approximately 30 of India’s manufacturing GDP. The auto percent of the component production component sector employs approximately is exported, leaving only 25 percent for 19 million people (direct and indirect) and domestic consumption, which is used in the requirement is expected to reach 35 -97- Anusandhanika /Special Issue on FDI in India/ October 2017 the production of local equipment. The N.B: The cumulative amount of inflow of FDI electronic component and semiconductor was US$ 350,963 million for the period from design market size increased from INR April, 2000 to November, 2014. While the FDI 9.6 billion in 2008 to INR 26.5 billion in inflow to India during the financial year 2012- 2013 and is estimated to touch INR 62.4 13 was US$ 36,860 million, for 2013-14 was billion by 2022.The organized sector is US$ US$ 36,396 million, for 2014-15 (from expected to increase its market share from April, 2014 to November, 2014) was US$ 80 percent in 2013 to 85 percent in 2022, 27,401 million. with increasing competition in the sector The following tables show the amount of FDI expected to drive out small enterprises equity inflows for particular financial year & that constitute the unorganized sector. sectors attracting highest FDI equity inflows. F. Cement : The cement production in FDI inflows during financial year 2012-13 (from India has increased at a CAGR of 9.7 April, 2012 to March, 2013) percent to reach 272 MT during FY 06- 13. Currently, India is the second largest Financial Year Amount of FDI Equity producer of cement in the world having inflows current capacity of around 370 MT which is expected to grow to 550 MT by (In Rs. (In US$ FY20. The sector comprises 167 large Crore) MN) cement plants which constitute about 95 percent of total installed capacity, while 2014-15 (from 189107 30931 the remainder is constituted by the mini- April, 2014 to cement plants. The sector is divided into March, 2015) five geographical regions- south, north, east, west and central. Each of these 2013-14 (from 147,518 24,299 regions has a significant limestone cluster April 2013 to and acts a major production center of March 2014) cement. From APRIL, 2000 to MARCH, 2015 %age growth (+) 28 (+) 27 (Cumulative FDI flows ntoi India) over last year

1 Cumulative Rs. US$ 2012-13(from 121,907 22,424 amount of 1,718,629 368439 April, 2012 to FDI inflows Crore Million March, 2013) (Equity inflows + RE-invested %age growth (+) 21% (+) 8% earnings’ +‘Other over last year capital’) 2012-13 (up to 121,907 22,424 2 Cumulative Rs. US$ March, 2013) amount of FDI 1233005 248512 equity inflows Crore Million 2011-12 (up to 165,146 35,121 (excluding, March, 2012) amount remitted through RBI’s- %age growth (-) 28% (-) 38% +NRI Schemes) over last year

-98- Anusandhanika /Special Issue on FDI in India/ October 2017 Amount of FDI Equity inflows for particular financial year

Ranks Sector 2012-13 2013-14 2014-15 Cumulative % age ( April - (April- (April- Inflows to total March) March) Mar, (April Inflows 2015) ’2011 - Mar (In terms ‘2015) of US$) 1 Services sector 26,306 13,294 19,963 205,532 17% (4,833) (2,225) (3,253 ) (42,713) 2 Construction 7,248 7,508 4,582 113,140 10% development: (1,332) (1,226) (758) (24,064) Townships, housing, built-up infrastructure 3 Telecommunications 1,654 7,987 17,372 84,092 7% (radio paging, (304) (1,307) (2,895) (17,058) cellular mobile, basic telephone services) 4 Computer software & 2,656 6,896 13,564 73,235 6% hardware (486) (1,126) (2,200) (15,017) 5 Drugs & 6,011 7,191 9,211 65,282 5% pharmaceuticals (1,123) (1,279) (1,523) (13,121) 6 Automobile industry 8,384 9,027 15,794 63,991 5% (1,537) (1,517) (2,570) (12,383) 7 Chemicals (other than 1,596 4,738 4,077 49,310 4% fertilizers) (292) (878) (669) (10,337 8 Power 2,923 6,519 3,985 46,640 4% (536) (1,066) (657) (9,557) 9 Metallurgical 7,878 3,436 2,897 41,147 4% industries (1,466) (568) (472) (8,547) 10 Hotel & tourism 17,777 2,949 16,962 43,799 3% (3,259) (486) (2,761) (8,060

In a major boost to the ‘Make in India’ Trina Solar have plans to set up initiative, the Government of India has manufacturing facilities in India. Clean received investment proposals of over Rs energy investments in India increased to 1,10,000 Crore (US$ 16.56 billion) in the last US$ 7.9 billion in 2014, helping the country 12 months from various companies including maintain its position as the seventh largest Airbus, Phillips, Thomson, Samsung, LG and clean energy investor in the world. Flextronics among others. Some of the major Samsung Electronics has invested Rs investments and developments in this sector in 517 Crore (US$ 77.82 million) towards the recent past are: the expansion of its manufacturing plant in Siemens has announced that it will invest Noida, Uttar Pradesh (UP). “Samsung India € 1 billion (US$ 1.13 billion) in India to Electronics is committed to strengthen add 4,000 jobs to its existing workforce of its manufacturing infrastructure and will 16,000 in the country. gradually expand capacity at this plant to US-based First Solar Inc and China’s meet the growing domestic demand for

-99- Anusandhanika /Special Issue on FDI in India/ October 2017 mobile handsets, as per the company. infrastructure hindered large-scale FDI into India prior to 2013. Subsequently, FDI flows India is currently among the top 10 into India increased from $24bn in 2013 to sourcing countries for IKEA. The plan is to $59bn in 2015. The floodgates had been double sourcing from India to €630 million opened. India’s dramatic ascension in the (US$ 711.65 million) by 2020. global FDI rankings has largely been due to Shantha Biotechnics Private Limited has a dynamic Modi-led government focusing on started building a facility to manufacture ‘big bang’ FDI and labour law reforms. Relative Insuman, an insulin product to treat stability within the government coupled with diabetes. Sanofi SA, which acquired an effort to reduce the stagnating effects of Shantha Biotechnics, will invest Rs 460 bureaucracy has given foreign investors, Crore (US$ 69.24 million) to build the across many industries, confidence in India as facility. a remunerative investment opportunity. India announced itself as a global force in the FDI BMW and Mercedes-Benz have intensified sector as it broke into the top 10 economies their localization efforts to be part of in terms of incoming FDI flows in 2014. The ‘Make in India’ initiative. “The localization iconic ‘Make in India’ campaign is structured to efforts will reduce the waiting period and attract more FDI to India and make the country accelerate the servicing process of our a global manufacturing and industrial hub. cars as we had to (previously) depend This campaign has garnered global attention on our plants overseas for supply and will as the PM has encouraged foreign investors help us on the pricing front.” to privatise key sectors such as the railways, Suzuki Motor Corp plans to make defense manufacturing and insurance, as well automobiles for Africa, the company’s next as the liberalisation of medical devices. Ease of big bet, as well as for India at its upcoming doing business has always been a problem in factory in Hansalpur, near Ahmadabad, India, and Mr Modi’s campaign has addressed Gujarat. this by removing archaic laws. The controlled elevation of FDI caps and the elimination of Taiwan-based HTC has decided to unnecessary red tape restrictions in decision manufacture products in India. HTC making have gone a long way towards is believed to have partnered GDN ensuring India’s exponential growth of inward Enterprises, which has an assembly set FDI. The campaign and the resultant boost up in Noida. in FDI has resulted in a whopping increase Foxconn is planning an aggressive in FDI job creation from 116,000 new jobs in expansion in India, building up to 12 new 2013 to 225,000 in 2015 – the highest number factories and employing as many as one in the world. The Government of India has million workers by 2020. taken several initiatives to promote a healthy environment for the growth of manufacturing The State Government of Tamil Nadu sector in the country. Some of the notable has signed investment agreements worth initiatives and developments are: Rs 2, 42,160 Crore (US$ 36.45 billion) during a two-day Global Investors Meet in The Government of India has asked New September 2015. Delhi’s envoys in over 160 countries to focus on economic diplomacy to help Government Initiatives government attract investment and Factors such as the lack of progressive FDI transform the ‘Make in India’ campaign a reforms, retrospective taxation, excessive success to boost growth during the annual permit requisites, centre-state political heads of missions’ conference. Prime stalemates, inflexible labour markets, Minister has also utilized the opportunity land acquisition issues and inadequate to brief New Delhi’s envoys about the

-100- Anusandhanika /Special Issue on FDI in India/ October 2017 Government’s Foreign Policy priority and Conclusion immediate focus on restoring confidence Foreign direct investment occurs when a of foreign investors and augmenting business invests in a foreign country by foreign capital inflow to increase growth in either acquiring a foreign business that it manufacturing sector. controls or starting a business in the foreign The Government of Uttar Pradesh (UP) country. Even though global economies has secured investment deals valued at are suffering with financial crisis and other Rs 5,000 Crore (US$ 752.58 million) for economic hurdles, India still stands as a setting up mobile manufacturing units in global investment destination. Keeping in view the state. of current requirements and benefits of the nation the government of India comes up with The Government of Maharashtra has new policies from time to time. Government cleared land allotment for 130 industrial should design the FDI policy such a way units across the state with an investment where FDI inflow can be utilized as means of Rs 6,266 Crore (US$ 943.13 million). of enhancing domestic production, savings Dr Jitendra Singh, Union Minister of State and exports through the equitable distribution (Independent Charge) of the Ministry of among states by providing much freedom to Development of North Eastern Region states, so that they can attract FDI inflows at (DoNER), MoS PMO, Personnel, Public their own level. It is observed that Trade, GDP, Grievances and Pensions, Atomic Energy Reserves GDP, Exchange rate are the main and Space, Government of India, has determinants of FDI inflows to the country. In announced the ‘Make in Northeast’ other words, these economic growth factors initiative beginning with a comprehensive have a profound impact on the inflows of FDI in tourism plan for the region. India.FDI plays a significant role in enhancing the level of economic growth of the country. Government of India has planned to India is emerging as a key destination for invest US$ 10 billion in two semiconductor renewable energy projects, helped by a wider plants in order to facilitate electronics government policy of incentives, infrastructure manufacturing in the country. and programmes designed to attract New Entrepreneurs of small-scale investment. The country topped the rankings businesses in India will soon be able to in 2015 with $11.8bn of announced FDI in this avail loans under PradhanMantri MUDRA sector. This includes Light source Renewable Yojana (PMMY). The three products Energy’s plans to invest $3bn to design, install available under the PMMY include: Shishu and manage more than 3 gigawatts of solar - covering loans up to Rs 50,000 (US$ power within the country. Chinese companies 752), Kishor - covering loans between Sany Group and Chint Group are also planning Rs 50,000 (US$ 752) to Rs 0.5 million to invest a total of $5bn in the country’s (US$ 7,520), and Tarun - covering loans renewable energy sector. A clear cut FDI plan between Rs 0.5 million (US$ 7,520) and for the logistics sector in India becomes critical Rs 1 million (US$ 15,052). considering that the logistics sector in India is currently in the growth stage. China and the US The Government of India has an ambitious where logistics cost as a percentage of cost of plan to locally manufacture as many as 181 manufacture is much lower, Indian companies products. The move could help infrastructure still spend nearly 14% of their cost on logistics. sectors such as power, oil and gas, and This is substantially higher than the 6-7 % that automobile manufacturing that require large most developed countries spend on logistics capital expenditure and revive the Rs 1,85,000 due the fact that the logistics infrastructure is Crore (US$ 27.85 billion) Indian capital goods much more matured and fine-tuned in these business. countries. That is where FDI in the logistics

-101- Anusandhanika /Special Issue on FDI in India/ October 2017 sector along with the strategic, procedural 5. Hooda SK, Access to and Financing of and technical knowhow can be a great value Healthcare through Health Insurance addition. The challenges for FDI in the logistics Intervention in India, ISID-PHFI sector in India are many. But then so is the Collaborative Research Programme, opportunity. Logistics is already a $400 billion 2013 industry and is likely to be a $1 trillion industry 6. Datta P, Mukhopadhyay I, Selvaraj S, in the next 5 years. This is the one area that Medical Devices Manufacturing Industry can promise homogenous growth for foreign in India: Market Structure, Import Intensity investors. Secondly, logistics is the missing and Regulatory Mechanisms, ISID-PHFI piece in catapulting India’s GDP growth from Collaborative Research Programmem, 7.5% to 10%. We have seen in China how 2013 infrastructure and logistics can combine to give a major thrust to growth. India is in a 7. Hooda SK, Changing Pattern of Public similar sweet spot. Thirdly, there is a fairly FDI- Expenditure on Health in India: Issues friendly regime as far as the logistics sector and Challenges, ISID-PHFI Collaborative in India. There are challenges on the ease of Research Programme, 2013 doing business but the current government is 8. Sen S, Currency Concerns under moving on a war footing to make India more Uncertainty: Case of China, 2013 competitive and friendly to foreign investors. It is safe to say that India’s rise in the global FDI 9. Papola TS, Structural Changes in the inward rankings will not stagnate in the near Indian Economy. Emerging Patterns and future. Increasing global investor confidence Implications, 2012 due to gradual redressal of key hindrance 10. Bhat TP, Growth and Structural Changes factors will see a further rise in incoming FDI in Indian Industry: Organised Sector, 2013 capital over the next five years. This analysis also helps the future aspirants of research 11. Papola TS, Economic Growth and scholars to identify the main determinants of Employment Linkages: The Indian FDI at sectoral level. Finally, the study observes Experience, 2013 that FDI is a significant factor influencing the 12. Papola TS, Employment Growth in the economic growth in India. It provides a sound Post-Reform Period, 2012 base for economic growth and development by enhancing the financial position of the country. 13. Mallick J, Estimation of Private Investment in Manufacturing Sector and Determinants References in Indian States, 2012 1. Mohan CN, Unemployment in an Era of 14. Roy S, Regional Disparities in Growth and Jobless Growth, 2014 Human Development in India, 2012 2. Pais J, Growth and Structure of the 15. Papola TS, Social Exclusion and Services Sector in India, 2014 Discrimination in the Labour Market, 2012 3. Mohanty N, The Special Category State 16. Roy S, Changing Factor Incomes in Conundrum in Odisha, 2013 Industries and Occupations: Review of 4. Choudhury PK, Parental Education and Long Term Trends, 2012 Infant Mortality in India: Understanding the Regional Differences, ISID-PHFI Collaborative Research Programme, 2013

-102- Anusandhanika /Special Issue on FDI in India/ October 2017 Anusandhanika /Special Issue on FDI in India/ October 2017/ pp 103-105 ISSN 0974 - 200X Foreign Direct Investment in Retail Sector Jayshree Gangunly Teacher (Commerce) Ursuline Inter College Ranchi

Abstract

The entry of foreign direct investment in India’s retail sector in inevitable. In January 2012 India allowed 100% FDI investment in single brand stores and on 7th December 2012. India allowed 51% FDI in multiband retail. The process of FDI in retail sector, the Foreign investment Board Ministry of finance will consider the application before providing the final approval. Through FDI in retail sector our country develops in many ways. Such as in integration, economic growth, trade. Increasing competition, more employment opportunities. Improve rural areas infrastructure good quality of good. Government earning by taxes and new technology. Therefore significant challenges as will given that our 90% of trade is conducted through independent local stores challenges include: geographically dispersed, population, little use in IT systems etc. In 2006 FDI was not authorized in retailing in India. In November 2015 Narendra Modi our prime minister put more and more FDI proposals on the automatic route. In 2016. The government has announce that who wants to set up shop in India in single brand like APPLE and LeEco allow relaxed sourcing regims for another five years for entities undertaking single brand retail trading of product . The government allowed 100% FDI in the marketing of food product in India .

Keywords : economic growth, food product, multibrand

Introduction Process of FDI in Retail Sector Foreign direct investment made by a company There is no such procedure for short listing the or individual in one country in business companies. International companies who are interest in another country, in the form of either willing to invest in either single or multi brand establishing business operation or acquiring retail can put in their applications policy and business assets in the such as ownership or promotion. controlling interest in a foreign company. Here, the application are reviewed in a Meaning of Retail sector: - The part of a country effort to determine their suitability as per the economy that is made up of business that sell stated guidelines, Subsequently, the foreign goods through stores, on the internet etc.to the investment promotion board, Ministry of public. Share prices in the retail sector have Finance will consider the applications before been driven up takeover activity. providing the final approval. In 2011 FDI was not allowed in multiband retail FDI in retail sector in good food for ouor but in January 2012, India allowed 100% FDI our country in following points investment in single brand store but imposed Integration into Global Economy: the requirement that the single brand retailer Developing countries, which invite FDI, would have to source so percent of its goods can gain access to a wider global and from India. On 7 December 2012, India allowed better platform in the world economy. 51 percent FDI in multiband retail. Trade : Foreign direct investment has Manmohan Singh then the prime minister of given wide scope of opportunities in the India was credited with bringing about this Import and export production. Product of policy change aimed at making India friendlier superior in India due to greater amount of for businessmen. He thinks it will be beneficial FDI inflows in the country. for consumer and farmer. Agricultural making was also expected to be benefited with the Economy Growth : This is one of the introduction of new technology. -103- major sector, which is benefited from of satisfying the growing needs of the ever FDI. A remarkable inflow of FDI in various growing Indian population. Hence foreign industrial units in India has boosted the capital inflow will enable use to create a economic life of country. heavy capital base. Increased competition : FDI increase the Challenges of FDI in retail Sector level of competition in the host country. India presents a large. Market opportunity Other companies will also have to improve given the number and increasing purchasing their processes and services in order to power of consumer. There are significant stay in the market. The maximum amount challenges as well given that over 90% of trade of the profit gained by the foreign firms is conducted through independent local stores. through this joint venture is spent on the Challenges include Geographically disposed Indian market. population small ticket sixes, Complex Employment : FDI has also ensured a distribution network, Little use it system, number of employment opportunities by limitations of mass media and existence of aiding the setting up of industrial unit in counterfeit goods. various corners of India. Data of FDI in retail sector from 2006 to Improve rural infrastructure : It would 2016 help build infrastructure and create a In 2006 to 2009 : On Jan 24, 2006. FDI competitive market. Reduce wastage of was not authorized in retailing. However agricultural produce and farmer get better most general players had been operating prices for their crops. in the country with other entry routes, Reduce the product price : The consumer such as franchise agreement, strategic will get commodities of daily use at licensing agreement, manufacturing and reduced prices. wholly owned subsidiaries, among others. It was not permitted in Multi brand retailing Government earning : Government too in India. stands to gain by this move through more transparent and accountable monitoring In 2010 to 2011 : Though no significant of goods and supply chain management decisions were taken with respect to multi systems. It can expect to receive an brand retail or single brand retail this year, additional US$ 25-30 billion by way of the Department of Industrial Policy and taxes. Promotion (DIPP), Ministry of Commerce circulated a discussion paper in July 2010 Quality control and control over leakage seeking the opinions of all stakeholders and wastage : Due to organization of the on allowing FDI in Multi brand retail. The sector, 40% of the does not reach the consumer affairs ministry and planning ultimate consumer. Cost conscious and commission gave the green signal for highly competitive retailer will try to avoid 49% FDI in multi brand retail. these wastages and losses and it will be their Endeavour to make quality products In 2012 – 2014: The Government allowed available at lowest prices, hence making 100% PDI in single brand retail. Under good available to weakest and poorest the government approval south India segment of Indian society. 2012. It followed another decision that allowed foreign retailers to own up to Heavy flow of capital will help in building 51% in multi¬-brand retail. In September up the infrastructure for the growing during the same year. The condition for population : India is already operating in companies for investment at least 50% budgetary deficit. Neither the Government of the first US $ 100 million into backend of India nor domestic investors are capable

-104- Anusandhanika /Special Issue on FDI in India/ October 2017 infrastructure such as manufacturing, relaxed sourcing regime for another five Years processing, packaging, distribution, for entities undertaking single brand retail logistics, design, Improvements, quality trading of product having state of the art and control, warehouses, storage, and cutting edge technology. agriculture market. Conclusion In 2015 : During November 2015 Modi We know India have strong resources but to announced the simple process of foreign lack of finance, knowledge, new technology, investment in the country and to put more education and infrastructure cannot develop and more FDI Proposals on the automatic our country. Retailer sector are the important route instead of Government route where part of our country because people get satisfied time and energy of the investors are their needs through then. wasted. In single brand retail the reforms allowed global technology brands such FDI plays an important role in retail sector. as apple of APPLE of SONY to open fully Thought FDI we can develop in many ways owned stores in India. The Government such as in integration, Economic growth, trade, also allowed single brand retailing with employment generate, to help of product of FDI to conduct online trading in any form. goods quality and rural areas also help to Several large foreign companies such develop. as sportswear retailer ADIDSA, AG and According to my view, FDI can introduce world SWISS watch retailer swatch SA have class technology and technical exporters and received permission to set up fully owned processes to their existing working process store in India. foreign expertise can be an important factor in In 2016 : Just six months into 2015 and upgrading the existing technical processes. government has announced various FDI is goods for Indian because it helps to reforms and policies pertaining to FDI utilize the resources of our country, provide in retail and e-commerce. Government for opportunities and help to build. Our permitted 100 recent FDI in the market country strong in economically through FDI place format of e-commerce retailing Government expects to receive US$25-30 and also come up with the definition of billion by way of taxes. In a recent presentation marketplace and inventory led models of FICCI has estimated the total retail business e-commerce in March this year inventory to be Rs 11, 00,000 crore or equivalent to 44 based model of e-commerce adopted by percent of GDP. e-grocers like Big Basket has been kept out of the preview of 100 recent FDI.In So, According to my knowledge FDI is very multi brand the Government unexpected important and strong able to develop for our announcement in the budged 2016 country. that paves the way for retailers such as References Walmart and IKEA to sell multi brand food 1. Business in India- maps of India product as long as they are source and manufactured within India.In single brand 2. http//www.business.mapsofindia. the announcement definitely indicates com>Fdi-india brother of three years to brands like Apple 3. http//www.indiabix.com>group-discussion and LeEco, who want to set up shop in India. The government allowed 100% FDI 4. http//www.en.m.wikipedia.org>wiki>Retail in the marketing of foods products made 5. Article,newspaper,journals etc. in India. The Government has decided to have no local sourcing norms up to three Years and allow a -105- Anusandhanika /Special Issue on FDI in India/ October 2017 Anusandhanika /Special Issue on FDI in India/ October 2017/ pp 106-113 ISSN 0974 - 200X Impact of FDI in the Socio- Economic Development in India Dr. Aditendra Nath Shahdeo Assistant Professor, Department of Commerce Marwari College, Ranchi, Ranchi University, Ranchi

Khaleda Rehman Research Scholar Department of Commerce and Business Management Ranchi University, Ranchi Abstract

Widespread liberalization and deregulation of financial markets, cross-border mergers and acquisitions (M&As), increasing role of investors willing to invest abroad, rapid advances in modern telecommunication and computer network – have all resulted in a tremendous upsurge of international capital flows in India over the last two decades. Among the various forms of foreign investment, foreign direct investment (FDI) flows are usually preferred over other forms of external finance because they are non-debt creating, non-volatile and their returns depends on the performance of projects financed by the investors. Moreover, in order to overcome the deficiencies of all kinds of resources viz. financial, capital, entrepreneurship, technological know- how, skills and practices, access to markets-abroad - in their economic development, developing nations accepted FDI as a sole visible panacea for all their scarcities.

Keywords : entreprenurship, investors, external finance

Introduction Foreign direct investment (FDI) is an investment made by a company or individual FDI plays an important role in the long term in one country in business interests in another development of a country by enhancing the country, in the form of either establishing competitiveness of domestic economy through business operations or acquiring business transfer of capital, up gradation of technology, assets in the other country, such as ownership developing managerial skills and capabilities in or controlling interest in a foreign company. various sectors, strengthening infrastructure, Foreign direct investments are distinguished raising productivity and generating new from portfolio investments in which an investor employment opportunities. India is being merely purchases equities of foreign-based looked up by many foreign nations as the scope companies. The key feature of foreign direct of investment due to rise in purchasing power, investment is that it is an investment made growing consumerism and brand proliferation. that establishes either effective control of, or at least substantial influence over, the decision making of a foreign business. FDI brings both favourable and unfavourable effects to a host country. The favourable The question that begs for an elaboration is effects include an enhanced supply of capital, that is high growth and inflows of FDI solve technology and resources that boost the structural imbalance of Indian economy and economic growth rate of a nation. In addition, will it succeed in improving the lot of bottom expansion of business with capital investments section of the Indian economy, which are living through FDI are likely to bring better job in abysmally poor socioeconomic conditions in opportunities, higher salaries, more choices the countryside. The employment elasticity in of goods and services because of competitive the agriculture and industrial sector has gone markets. down in the post reform period, therefore, -106- the creation of employment opportunities FDI in India will be a gigantic task for the policy makers. India, the world’s largest democracy, liberalized FDI has come in the most capital intensive its economy in 1991 due to structural sectors; Therefore, the required employment imbalances in its external account has made opportunities could not be created especially significant progress. The liberalization policies for the manual and the semi skilled labor. High enacted by the Indian government are touted skilled workforce gained substantially. That is as a great success by policymakers and why high growth is called urban centric and pundits around the world. One of the major thus has developed a wedge between the benefits of the economic reforms program urban and rural economy. There is urgent need has been its ability to attract foreign direct to fill this void. The process of Policymaking investment (henceforth FDI). has matured in the democratic Indian polity since the independence. It is thus predicted FDI brings both favourable and unfavourable that the growing problems will receive mature effects to a host country. The favorable response and policy will be articulated in such effects include an enhanced supply of capital, a way to use FDI the way China has used to technology and resources that boost the enhance economic growth while taking more economic growth rate of a nation. In addition, and more investment to industrialize the rural citizens of the host country are likely to sector of the Indian economy. benefit from better job opportunities, higher salaries, more choices of goods and services Materials and Methods because of competitive markets. Some of the The whole study is based on descriptive unfavourable effects of FDI on socio-economic arguments, statistical data and analytical and environmental characteristics include logic developed through the understandings disparity in wages, culture, political corruption, from various research papers, reports, books, ecology and environment. journals, newspapers and online data bases. Socio-economic factors in FDI flows Results and Discussions A deeper concern is that our developmental priorities, as reflected in drastic FDI Social economics is a branch of economics relaxations, appear fundamentally misplaced. that focuses on the relationship between While ‘ease of doing business’ is a desirable social behaviour and economics, and it thing, in India’s case it is being promoted at examines how social norms, ethics and the expense of other more important national other social philosophies that influence objectives such as employment; survival consumer behaviour shape an economy. It and skill up gradation of agricultural and involves the relationship between social and small manufacturing economies and families economic factors within a society. These are dependent on them; expanding on existing factors that influence how a particular group, domestic capacities in those industries where or socioeconomic class, act within society Indian firms have already demonstrated including their actions as consumers. competence; and development of domestic Development is a multi-dimensional phenomenon. R&D and manufacturing capability in state- Some of its major dimensions include: the level of-the-art technology areas. FDI should be of economic growth, level of education, level subservient to, and support, these more of health services, degree of modernisation, important socio-economic goals. The ongoing distribution of goods & services and access to development policy, by promoting FDI at the communication. In India, the progress of socio- expense of these goals, is in fact really not for economic development is not uniform across development. the country and there is wide spread disparity By and large, democracies with high income among different states and low social strife are the ones which have

-107- Anusandhanika /Special Issue on FDI in India/ October 2017 opened their economies to foreign capital in a developing countries, or at least countries with major way only after achieving a reasonable a history of colonialism, fear that foreign direct degree of domestic economic stability, investment may result in a form of modern industrial technological competence and day economic colonialism, exposing host overall prosperity. Opening a large economy countries and leaving them and their resources to foreign investments without either adequate vulnerable to the exploitations of the foreign checks or having a strong domestic economy of company. suppliers, markets and technological capability While FDIs may increase the aggregate is akin to fattening a person by injecting drugs. demand of the host economy in the short run, It is a short cut to growth, but one which will via productivity improvements and technology yield an economy that is inherently weak and transfers, critics have also raised concerns vulnerable. It is also likely to produce a society over their supposed benefits. This theory beset with economic fault-lines that constantly follows the rationale that the long- run balance trigger social conflicts – a phenomenon that of payments position of the host economy is might intensify beyond the levels we have jeopardised with the investor outlay. Once the witnessed in the past. initial investment starts to turn profitable, it is Another impact of FDI is that it influences and inevitable that capital will return to the country is influenced by the culture of a host country. it originated from. Some cultures are supportive to FDI while To sum up, FDIs have created tremendous others are not. In India, traditional culture opportunities for India’s development and encompasses a value system that emphasizes helped to boost the performance of local firms on group identity, religious beliefs some of as well as the globalisation of some of them. which place greater emphasis on detachment This has undeniably raised India’s stature from the material world that discourages among developing countries. India needs entrepreneurial activity, and a rigid caste massive investments to sustain high quality system that has the potential to limit social economic growth, particularly in the energy mobility along the lines of caste. and infrastructure sectors. Policymakers Unfavourable impact of FDI are looking at FDI as the primary source of funds. It is important to keep in mind that FDI One of the measurements of economic on its own is not a panacea for rapid growth development in a low income economy is and development. What India needs is to the increase in the nation’s level of capital put in place a comprehensive development stock. A developing nation may increase strategy, which includes being open to trade the amount of capital stock by incentivising and FDI. This should go a long way in fulfilling and encouraging capital inflows, and this is the ultimate goal of permanently eradicating generally done through the attraction of FDI. poverty. It has been widely discussed and upheld that amongst various forms and modes of capital Drawbacks of FDI inflows, FDIs are favoured, because of their Exploitation : Leverages in labour laws long term durability and commitment to a host combined with unemployment in the country’s economy. FDIs are less susceptible developing countries leads to exploitation of to short term changes in market conditions, workers by multinational corporations. MNEs which ensure a certain level of continuity and shift the manufacturing base from higher stability in the money flow. However, many income nations to lower ones in order to save developing economies have tried to restrict, money nevertheless the working conditions at and even resist, foreign investments because the new places are anything but good. of nationalist sentiments and concerns over foreign economic and political influence. One Unemployment : FDI will lead to job losses. pertinent reason for this sentiment is that many Small retailers and other small ‘Kirana Store

-108- Anusandhanika /Special Issue on FDI in India/ October 2017 Owners’ will suffer a large loss. Giant retailers technology and to mobilize foreign exchange and Supermarkets like Wal-Mart, Carrefour, resources. With time and as per economic and etc. will displace small retailers. Jobs in the political regimes there have been changes manufacturing sector will be lost because in the FDI policy too. The industrial policy foreign giants will purchase their goods from of 1965, allowed MNCs to venture through the international market and not from domestic technical collaboration in India. Therefore, sources. This has been the experience of most the government adopted a liberal attitude by countries which have allowed FDI in retail. allowing more frequent equity. Although, our country had made a condition The government of India with the help of World that they must source a minimum of 30% Bank and IMF introduced the macro-economic of their goods from Indian micro and small stabilization and structural adjustment industries, we can’t stop them from purchasing program. As a result of these reforms India goods from international markets as per WTO open its door to FDI inflows and adopted a law. So after coming to India, they can reduce more liberal foreign policy in order to restore the this 30% by litigating at the WTO. confidence of foreign investors. Further, under Draining of Money : In spite of foreign direct the new foreign investment policy Government investment coming into the country by the of India constituted FIPB (Foreign Investment company is basically deployed to earn profits Promotion Board) whose main function was to from the native customers. Therefore, the net invite and facilitate foreign investment amount earned is transferred to the parent Indian economy which has tremendous nation. potential, FDI has had a positive impact. FDI Loss of business for local companies : inflow supplements domestic capital, as well International corporations bringing in FDI as technology and skills of existing companies. are awash with funds compared to the local It also helps to establish new companies. All companies. The latter is forced to play second of these contribute to economic growth of the fiddle or wind up after some time because they Indian Economy. do not have the required financial muscle. Advantages of FDI It is an unfortunate situation as the country can never develop a local industrial base. Global Integration : Developing country, Supermarkets will establish their monopoly in which invites FDI, can gain a greater foothold the Indian market. Because of supermarket’s in the world economy by getting access to a fine tuning, they will get goods on low price and wider global market. they will sell it on low price than small retailers, Technology : FDI can introduce world-class it will decrease the sale of small retailers. technology as well as technical knowhow and Favourable impact of FDI : The historical processes to developing countries. Foreign background of FDI in India can be traced back expertise can be an important factor in with the establishment of East India Company upgrading the existing technical processes in of Britain. British capital came to India during a host country. For example, the nuclear deal the colonial era of Britain in India. After Second between India and the United States would World War, Japanese companies entered lead to transfer of nuclear energy knowhow Indian market and enhanced their trade with between the two countries and allow India to India, yet U.K. remained the most dominant upgrade its civilian nuclear facilities. investor in India. Further, after Independence Competition : As FDI brings in advances in issues relating to foreign capital, operations of technology and processes, it increases the MNCs, gained attention of the policy makers. competition in the domestic economy of the Keeping in mind the national interests the developing country that has attracted the FDI. policy makers designed the FDI policy which Other companies will also have to improve aims FDI as a medium for acquiring advanced their processes and products in order to stay -109- Anusandhanika /Special Issue on FDI in India/ October 2017 competitive in the market. FDI improves the JW Marriott plans to have 175-200 hotels quality of products and services. in India over the next four years. Elimination of monopoly : By inviting FDI, China based LCD and touch screen the government can eliminate monopoly of the panel manufacturer, Holitech Technology, local companies and benefit the customers plans to invest up to US$ 1 billion in India because they can avail quality products. next year, as per the company’s CEO Mr Bingshuang Chen. Human resources : Employees of a host country in which there is foreign direct Mr Abdul Lahir Hassan, Chairman of UAE- investment get exposure to globally valued based Gamma Group, outlined plans of skills. The training and skills up gradation can investing around Rs 3,000 crore (US$ enhance the value of the human resources of 436.5 million) in the infrastructure, health the host country. and education sectors of Kerala, which Market size and Inflow of Capital is expected to generate around 2,000 indirect and direct jobs in the state. According to Department of Industrial Policy and Promotion (DIPP), the total FDI investments Mr Stephane Descarpentries, Director India received during April - September 2016 of operations FM Logistic Asia, outlined rose 30 per cent year-on-year to US$ 21.6 plans of investing around EUR 50 million billion, indicating that government’s effort to (US$ 52.9 million) in India in the next four improve ease of doing business and relaxation years, to contribute to a better efficiency in FDI norms is yielding results. of logistics market in the country. Data for April - September 2016 indicates that The first Incredible India Tourism the services sector attracted the highest FDI Investment Summit 2016, which was equity inflow of US$ 5.29 billion, followed by organised from September 21-23, 2016, telecommunications – US$ 2.79 billion, and witnessed signing of 86 Memoranda of trading – US$ 1.48 billion. India received the Understanding (MoUs) worth around Rs maximum FDI equity inflows from Mauritius 15,000 crore (US$ 2.18 billion), for the (US$ 5.85 billion), followed by Singapore (US$ development of tourism and hospitality 4.68 billion), Japan (US$ 2.79 billion), (US$ projects. 1.62 billion), and USA (US$ 1.44 billion). Apple Inc has started its first development Some of the recent significant FDI centre outside the US in Hyderabad, announcements are as follows which will employ over 4,000 people and focus on Apple Maps, the company’s BSH Home Appliances Group, one of the digital maps and navigation service. leading home appliances manufacturers worldwide, opened its first technology Panasonic Corporation plans to set up a centre in India at Adugodi, Bengaluru, new manufacturing plant for refrigerators which will enable the company to further in India with an investment of Rs 250 develop localised technologies for the crore (US$ 36.4 million), and also invest Indian market. around Rs 20 crore (US$ 3 million) on an assembly unit for lithium ion batteries at Ford Motor Co. plans to invest Rs 1,300 its existing facility in Jhajjar in the next crore (US$ 189.2 million) to build a 8-10 months. global technology and business centre in Chennai, which will be designed as a Vistra Group Ltd, a Hong Kong-based hub for product development, mobility professional services provider, has solutions and business services for India acquired IL&FS Trust Company Ltd, and other markets. India’s largest independent corporate trust services provider, which will enable

-110- Anusandhanika /Special Issue on FDI in India/ October 2017 Vistra to expand the platform to provide during 2016-17, as against 6.2 per cent in the a broader suite of corporate and fiduciary previous year. services and thereby gain a foothold in the Health care : According to a new index Indian corporate services market. developed to make the assessment of each Silver Spring Capital Management, a country’s healthcare achievements, India Hong Kong-based equity hedge fund, ranks 143 in a list of 188 countries. plans to invest over 2,000 crore (US$ The ranking has been given in the first 291.0 million) in Hyderabad-based global analysis that assesses countries on infrastructure developer Transstroy India sustainable development goal (SDG) health Ltd, for construction of highways in the performance, launched at a special event at country. the UN General Assembly on 21st September Global beverage company Pepsi plans 2016 in the Lancet. to invest Rs 500 crore (US$ 72.8 million) There is lack of infrastructure and investment to set up another unit in Maharashtra to in healthcare in India and investment in make mango, pomegranate and orange- healthcare through FDI will be beneficial based citrus juices, while biotechnology for investors and also works towards social giant Monsanto plans to set up a seed and economic improvement in India. There plant in Buldhana district of Maharashtra. are many positive implications of foreign Impact of FDI in socio economic parameters investment in hospitals. The major impact of Foreign Direct Investment is the creation of the With the increasing flow of FDI in India, it necessary infrastructure. Investments are also is important to analyse its impact on socio needed beyond the metros to expand access economic factors to see how it affects the socio to health care. In addition to helping increase economic development. There are various physical capacity in the health care sector, factors and variables in socio economic such as increasing the number of hospital development but we have selected five primary beds, diagnostic facilities, and increasing key indicators to assess the impact of FDI. the supply speciality and super speciality Per Capita Income : With increase in FDI centres, foreign investment can also help in inflow, it is important to assess its impact raising the standards and quality of health on growth of income of India and per capita care, upgrading technology, and creating income is best parameters to assess its vitality. employment opportunities, with potential As per the Economic Times reports dated benefits to the health sector and the economy 6th January 2017, India’s per capita income, at large. However few things to be kept in mind a gauge for measuring living standard, is for achieving success in hospital sector are that estimated to cross Rs 1 lakh in 2016-17, up the cost of medical care should be affordable from Rs 93,293 in the previous fiscal. As per the most importantly in the tire-II and tier- III ‘First Advance Estimates of National Income, locations should concentrate on the ailments 2016-17’ released by the Central Statistics which are geography specific. Considering the Office (CSO), the per capita net national need of proper health care facilities, it would income during 2016-17 is “estimated to be Rs act as a major boost to the health care sector 103,007” at current prices. This is higher by if the same is included under the ambit of the 10.4 per cent compared to Rs 93,293 during “infrastructure” sector. Such policy move would 2015-16. “The per capita income in real terms allow health care facilities to receive more tax (at 2011-12 prices) during 2016-17 is likely to benefits. For the purpose of direct taxation attain a level of Rs 81,805 as compared to Rs it would be eligible for tax benefits under 77,435 for the year 2015-16,” the estimates section 80-IA of the Income Tax Act,1961.This said. At constant prices, the growth rate in section provides for a ten year tax holiday per capita income is estimated at 5.6 per cent is to enterprises engaged in the business of

-111- Anusandhanika /Special Issue on FDI in India/ October 2017 development, operation and maintenance of is ambiguous, infrastructure, however, has a infrastructure facilities. Such tax holiday may significant positive impact on FDI flows. Mining help in reducing the input costs involved in the has a positive influence on FDI flows, but lacks establishment of a hospital. Such additional statistical significance. The presence of strong money could be used for further investments agglomeration effect indicates that the states in to the sector which in turn may result in more already rich in FDI flows tend to receive more of people receiving proper health care and more them which make it more difficult for the other job opportunities for health care workers states to attract fresh investments. In view of this difficulty, a conscious and coordinated Education effort at the national and the state government Owing to social impact of FDI, India also levels would be essential to make the laggard enhances its educational system. Since 2003, states more attractive to FDI flows. The direct the Indian government has been allowing method to achieve this objective may be to 100% FDIs in education, which means that design the national FDI policy in such a way foreign schools, colleges, and universities that a sizable portion of FDI flows to India can set up wholly owned subsidiaries in India. move into the laggard states. The indirect way Students passing out of these institutes will is to provide a boost to the overall economy be awarded foreign degrees and certificates. of the less advanced states, with special The social impact of FDI in education is such thrust on the manufacturing, services and the that the number of foreign students pursuing infrastructure sectors so that they themselves higher education in India has increased by a become attractive to foreign investors. large margin. Also, the ‘brain-drain’ issue has Infrastructure also been checked to a significant extent since the number of students going out of India Reserve Bank of India has defined has also reduced. There is implementation of infrastructure sector as: higher education and training for the laborers. i. Power India is definitely developing in a much faster pace now than before but in spite of that, it ii. Telecommunications can be identified that developments have iii. Railways taken place unevenly. This means that while iv. Roads including bridges the more urban areas have been tapped, the poorer sections are inadequately reached out v. Sea port and air port to. To get the complete picture of growth, it is vi. Industrial parks essential to make sure that the rural section vii. Urban infrastructure (water supply, has equal amount of development as the sanitation and sewage projects) urbanized ones. FDI helps to focus in this area thus, fostering social equality and at the same viii. Mining, exploration and refining, and time a balanced economic growth. ix. Cold storage and cold room facility, Employment including for farm level pre-cooling for preservation or storage of agricultural and FDI to India has increased significantly in the allied produce, marine products and meat. last decade. However, the growth in FDI flows has been accompanied by strong regional The Index of Eight core industries—crude oil, concentration. The findings of the study reveal petroleum refinery products, coal, electricity, that market size, agglomeration effects and cement, steel, fertilizers and natural gas— size of manufacturing and services base in having a combined weight of 37.90 per cent a state have significant positive impact on in the Index of Industrial Production (IIP) stood the regional distribution of FDI flows in India. at 139.5 in September 2012, according to data The impact of taxation and cost of labour is released by the Union Ministry of Commerce negative. While the impact of quality of labour and Industry. During April-September 2012- -112- Anusandhanika /Special Issue on FDI in India/ October 2017 13, the cumulative growth rate of the Core Conclusion industries was 3.2 per cent. The infrastructure On evaluation of drawback and benefits of sector accounts for 26.7 per cent of India’s FDI in Indian context with analysis of FDI in industrial output. The Planning Commission India with socio economic parameters, it is has projected that investment in infrastructure drawn that FDI has favourable impact on socio would almost double at US$ 1,025 billion in the economic development in longer term. Twelfth Five Year Plan (2012-17), compared to US$ 514 billion in the Eleventh Plan. Of the For Indian economy which has tremendous US$ 1,025 billion, 50 per cent is expected to potential, FDI inflow supplements domestic come from private sector, whose investment capital, as well as technology and skills of has been 36 per cent in the Eleventh Plan. existing companies. All of these contribute to According to investment banking company improvement in socio economic condition of Goldman Sachs, India’s infrastructure sector India. will require US$ 1.7 trillion investment in the References next 10-years. With a view to streamlining and simplifying the appraisal and approval process 1. http://www.investopedia.com/terms/f/fdi. for public private partnership (PPP) projects, a asp Public Private Partnership Appraisal Committee 2. Socio Economic Development in India. (PPPAC) has been constituted under the Development and Society Vol. 28 No. 2, chairmanship of Secretary, Department of December 1999 by Abhiman Das(RBI) Economic Affairs and Secretaries of Planning https://core.ac.uk/download/pdf/9312200. Commission, Department of Expenditure, pdf Department of Legal Affairs and the concerned Administrative Department as its members. 3. http://www.ibef.org/economy/foreign- direct-investment.aspx The project proposals are appraised by the Planning Commission and approved by the 4. http://www.ripublication.com/gjbmit/ PPPAC. Further, India needs to spend US$ 1.7 gjbmitv4n1_03.pdf trillion by 2030 to meet the projected demand 5. https://www.quora.com/What-are-the- of its cities, according to a McKinsey Global positive-and-negative-effects-of-foreign- Institute Report. Foreign Direct Investment direct-investment-on-the-economy-of-a- (FDI) in infrastructural sector to be viewed in country by Amarjeet Singh Deo this context. India’s infrastructure funding has fallen well short of its economic growth. Lack of 6. RBI Master Circular No. 12/2012-13 dated infrastructure is adversely affecting the growth July 02, 2012 of secondary sector and the percentage share 7. http://business.mapsofindia.com in GDP is showing a decline. This is making the economy over dependent on service sector and forcing as to increase our imports.

-113- Anusandhanika /Special Issue on FDI in India/ October 2017 Anusandhanika /Special Issue on FDI in India/ October 2017/ pp 114-117 ISSN 0974 - 200X Impact of FDI in the Socio-Economic Development of India

Khushboo Rai Research Scholar University Department of Commerce & Business Management Ranchi University, Ranchi

Dr. B.M. Sahu Ex-Head and Dean University Department of Commerce & Business Management Ranchi University, Ranchi

Abstract

The advent of foreign investment in India has made a positive impact on the socio-economic development of the region in various ways which include the arrival of foreign capital inflow, job creation, increase in GDP and National Income, contracting with local suppliers and the introduction of new and innovative technologies, foster relations, co-operation, and harmony between India and foreign countries. The social impact of larger FDI include the product market as well as many new products are coming into the market due to which the people of India are enjoying unprecedented exposure to branded and quality goods which has improved the living standard of the people and has increased the economical condition of the suppliers. FDI has enhanced India’s educational system too. Since 2003, the Indian government has been allowing 100% FDIs in education, through which foreign schools, colleges, and universities can set up wholly owned subsidiaries in India. Also, the ‘brain-drain’ issue has also been checked to a significant extent since the number of students going out of India has also reduced. The increase in FDI in India is also helping in the liberalization of labour through which the inequality in wage earnings will be reduced. There is implementation of higher education, training and skill development for the labourers too. The health facilities also increase with better and sophisticated products and processes. India is definitely developing in a much faster pace now than before but in spite of that, it can be identified that developments have taken place unevenly. In order to get the complete picture of growth, it is essential to make sure that the rural section has equal amount of development as the urbanized ones. FDI helps to focus in this area thus, fostering social equality with balanced economic growth of India in a sustained manner.

Keywords : national income, foreign capital, capital inflow

Introduction foreign investors. Further, under the new foreign investment policy Government of The impact of FDI on the Indian economy, India constituted FIPB (Foreign Investment particularly after two decades of economic Promotion Board) whose main function was reforms has witnessed favourable impact on the to invite and facilitate foreign investment. Indian. Foreign investment plays a significant Many countries provide many incentives role in development of Indian economy. In the for attracting the foreign direct investment critical face of Indian economy the government (FDI). Need of FDI depends on saving and of India with the help of World Bank and IMF investment rate in any country. Foreign Direct introduced the macro-economic stabilization investment acts as a bridge to fulfil the gap and structural adjustment program. As a result between investment and saving. In the process of these reforms India opened its door to FDI of economic development foreign capital helps inflows and adopted a more liberal foreign to cover the domestic saving constraint and policy in order to restore the confidence of provide access to the superior technology

-114- that promotes efficiency and productivity of compiled and analyzed. The study has been the existing production capacity and generate done keeping in mind the cultural diversity new production opportunity. The social impact of India, FDI undertakes all its initiatives of FDI is dependent on India’s policies and sensitively with special on the upliftment of institutions. The flexibility of the labour market schedule castes/tribes and preserving the would determine employment opportunities. culture and heritage along with economic The extent to which the lower income groups development. can take advantage of the growth policies Results and Discussions determine the growth-poverty relationship. The production in the fields of physical and In the process of economic development foreign social infrastructure determines the regional capital helps to cover the domestic saving developments. The Indian industries are constraint and provide access to the superior predominantly labour based but there are technology that promotes efficiency and also many capital based companies. Capital productivity of the existing production capacity intensive set up is an expensive proposition and generate new production opportunity. but India can look forward to more professional Starting from a baseline of less than USD and sophisticated number of workers and 1 billion in 1990, a recent UNCTAD survey employees at all levels. Human capital in terms projected India as the second most important of quantity was never a big problem in India due FDI destination (after China) for transnational to its huge population added emphasis must corporations during 2010-2012. As per the be laid on the quality and efficiency in work. data, the sectors which attracted higher This is brought about by MNCs. Foreign Direct inflows were services, telecommunication, Investments foster relations, co-operation, and construction activities and computer software harmony between India and foreign countries. and hardware. Mauritius, Singapore, the US The social impacts of FDI include the product and the UK were among the leading sources of market as well because many new products FDI to the country. According to GYANPRATHA come into the market as a consequence – ACCMAN (Journal of Management, Volume of FDIs. As a result, the people of India 5 Issue 1, 2013) FDI for 2009-10 at US$ 25.88 enjoy unprecedented exposure to branded billion was lower by five per cent from US$ and quality goods. In fact, various training 27.33 billion in the previous fiscal. Foreign methods, personality grooming, and soft skills direct investment in August dipped by about are given by multinational corporations which 60 per cent to approx. US$ 34 billion, the impart value to human resources. Even the lowest in 2010 fiscal, industry department civil society can work with the government data released showed. In the first two months and help in reducing bureaucratic hassles and of 2010-11 fiscal. FDI inflow into India was at interferences. The increase in FDI in India an all-time high of $7.78 billion up 77%from is also helping in the liberalization of labour $4.4 billion during the corresponding period through which the inequality in wage earnings in the previous year. In 2013, the government will be reduced. relaxed FDI norms in several sectors, including telecom, defence, PSU oil refineries, power Materials and Methods exchanges and stock exchanges, among Extensive literature survey regarding the others. In retail, UK-based Tesco submitted its topic and related concepts has been done. application to initially invest US$ 110 million to Resources have been taken from either start a supermarket chain in collaboration with primary and secondary data or information. Tata Group’s Trent. In civil aviation, Malaysia- Secondary data inclusive of quantitative and based Air Asia and Singapore Airlines teamed qualitative data as well collected from various up with Tata Group to launch two new airline sources including books, research papers, services. Also, Abu Dhabi-based Eti had newspapers, magazines, and websites is used picked up a 24 per cent stake in Jet Airways for the purpose of study. The data obtained is that was worth over Rs 2, 000 crore (US$ -115- Anusandhanika /Special Issue on FDI in India/ October 2017 319.39 million). India has received total foreign amounting to Rs 1133.41 crore (US$ 180.16 investment of US$ 306.88 billion since 2000 million) approximately. On November 13, with 94 per cent of the amount coming during 2013, it had approved 12 proposals of FDI the last nine years. In the period 1999–2004, amounting to Rs 821.63 crore (US$ 130.73 India received US$ 19.52 billion of foreign million) approximately. The FIPB has also investment. In the period 2004–09, foreign approved Swedish clothing major Hennes & investment in the country touched US$ 114.55 Mauritz (H&M) AB’s proposal to open 50 stores billion, further increasing to US$ 172.82 billion across India. The investment will be around Rs between 2009–September, 2013. During FY 720 crore (US$ 114.61 million). 2012–13, India attracted FDI worth US$ 22.42 The social impact of larger FDI brings about billion. Tourism, pharmaceuticals, services, a more broadminded outlook in the Indian chemicals and construction were among the society, leaving alone a few who would be biggest beneficiaries. The January–November a bit conservative. However, the condition period in 2013 witnessed mergers and of the Indian urban sector has improved acquisitions deals worth US $ 26.76 billion in drastically thereafter, which we still await the India, according to a survey by tax advisory developments from other areas of the Indian firm Grant Thornton. economy. India also enhances its educational The Ministry of Home Affairs has finally given system. Since 2003, the Indian government the approval to the proposal of allowing has been allowing 100% FDIs in education, FDI in railways. The Cabinet Committee which means that foreign schools, colleges, on Economic Affairs (CCEA) is expected to and universities can set up wholly owned consider the proposal. Foreign investors can subsidiaries in India. Students passing out invest only in construction and maintenance of of these institutes will be awarded foreign railway projects, and not in operations. India’s degrees and certificates. The social impact of Prime Minister Mr Manmohan Singh has larger FDI in education is such that the number sought increased Japanese investment in the of foreign students pursuing higher education country. The two countries are already looking in India has increased by a large margin. Also, at the possibility of concrete cooperation in the ‘brain-drain’ issue has also been checked areas such as manufacturing and research to a significant extent since the number of and development in the electronic industry students going out of India has also reduced. and energy efficient and energy saving Current challenges and recommendations technologies. “I believe there is enormous untapped potential in our business ties,” India is one of the most favourite for FDI, but Mr Singh said following the annual summit there are certainly some challenges and areas level meeting between Japan and India. The for improvement still present. India is focusing presence of Japanese companies in India on maximizing political and social stability increased by 16 per cent in 2013. In an effort along with a regulatory environment. In spite to improve capital flows into the country, the of the obvious advantages of FDIs, there are Indian government has allowed 100 per cent quite a few challenges facing FDIs in India, are FDI under automatic route in storage and 1. Challenge of Resource: India is known to warehousing, which includes warehousing of have huge amounts of resources. There agriculture products with refrigeration. The is manpower and significant availability government has also set up National Centre of fixed and working capital. At the same for Cold Chain Development (NCCD) which will time, there are some underexploited or look at standards and protocols for cold chain unexploited resources. The Foreign Direct infrastructure. Based on the recommendations Investment: Impact on Indian Economy 23 of Foreign Investment Promotion Board (FIPB) resources are well available in the rural made on December 30, 2013, the Indian as well as the urban areas. The focus is government has agreed to five FDI proposals to increase infrastructure 10 years down

-116- Anusandhanika /Special Issue on FDI in India/ October 2017 the line, for which the requirement will be have been encouraging. These days, the an amount of about US$ 150 billion. This country is consistently ranked among the top is the first step to overcome challenges three global investment destinations by all facing larger FDI. international bodies, including the World Bank, 2. Challenge for Equity: India is definitely according to a United Nations (UN) report. developing in a much faster pace now For Indian economy which has tremendous than before but in spite of that it can be potential, FDI has had a positive impact. FDI identified that developments have taken inflow supplements domestic capital, as well place unevenly. This means that while as technology and skills of existing companies. It also helps to establish new companies. All the more urban areas have been tapped, of these contribute to economic growth of the the poorer sections are inadequately Indian Economy. India is estimated to require exploited. To get the complete picture of around US$ 1 trillion during the 12th Five-Year growth, it is essential to make sure that the Plan period (2012–17), to fund infrastructure in rural section has more or less the same sectors such as roads, airports and ports. The amount of development as the urbanized government is in the process of liberalising FDI ones. Thus, fostering social equality and norms in construction activities and railways, at the same time, a balanced economic which could bring in investments to meet the growth. target. The government is also relaxing FDI 3. Political Challenges: The support of the norms in other sectors for foreign investors political structure has to be there towards to invest. FDI in multi-brand retail has been the investing countries abroad. This can allowed up to 51 per cent. The minimum be worked out when foreign investors put requirement for the FDI is US$ 100 million, of forward their persuasion for increasing which at least 50 per cent must be invested FDI capital in various sectors like banking, in ‘backend infrastructure’ within three years and insurance. So, there has to be a following the initiation of the FDI. FDI limit common ground between the Parliament in single-brand retail has been increased to and the foreign countries investing in 100 per cent; 49 per cent will be under the India. This would increase the reforms in automatic route and the rest through the FIPB the FDI area of the country. route.. India is definitely developing in a much 4. Federal Challenge: Very important among faster pace now than before but in spite of that, the major challenges facing larger FDI, is it can be identified that developments have taken place unevenly. This means that while the need to speed up the implementation the more urban areas have been tapped, the of policies, rules, and regulations. The poorer sections are inadequately reached out vital part is to keep the implementation to. To get the complete picture of growth, it is of policies in all the states of India at par. essential to make sure that the rural section Thus, asking for equal speed in policy has equal amount of development as the implementation among the states in India urbanized ones. FDI helps to focus in this area is important. thus, fostering social equality and at the same 5. Economical challenges: India must also time a balanced economic growth. focus on areas of poverty reduction, trade liberalization, and banking and insurance References liberalization. Challenges facing larger 1. Balasubramanyam V.N, Sapsford David, FDI are not just restricted to the ones Does India need a lot more FDI, Economic mentioned above, because trade relations and Political Weekly, 2007 with foreign investors will always bring in 2. Horizon, Indian Economic Review, Vol. new challenges in investments. XXXXII. No.2 Conclusion 3. Basu P., Nayak N.C, Archana, Foreign India’s Foreign Direct Investment (FDI) policy Direct Investment in India:Emerging, 2007 has been gradually liberalised to make the 4. www.google.co.in market more investor friendly. The results 5. www.wikipedia.org -117- Anusandhanika /Special Issue on FDI in India/ October 2017 Anusandhanika /Special Issue on FDI in India/ October 2017/ pp 118-126 ISSN 0974 - 200X Bottleneks in Ariving Foreign Direct Investment in India and Suggestions to Overcome them

CS. Mala Kumari Upadhyay Company Secretary and Assistant Professor St. Xavier’s College and St .Xavier’s College of Management and Technology Digha, Patna

Abstract

Foreign Direct Investment (FDI) in India we can say, is the offspring of Globalization and Liberalisation in the backdrop of the 1991 reforms. India has gradually marked its presence as one of the fastest growing economies of the world. It has been ranked among the top ten attractive destinations for inbound investments. Since 1991, the regulatory environment in terms of foreign investment has been consistently eased to make it investor-friendly. The measures taken by the Government of India (GOI) are directed to open new sectors for Foreign Direct Investment (FDI), increase the sectoral limit of existing sectors and simplifying other conditions of the FDI policy. This paper serves to highlight the present scenario of FDI in India in the contexts of Socio-Economic Development of India; its impact across various sectors it caters to; the roadblocks it has encountered and strives to overcome with suggestions for the same and the manifold opportunities it brings. It also strives to denote the future prospects of FDI. FDI policy reforms are meant to provide ease of doing business and accelerate the pace of foreign investment in the country. India will have to alleviate the challenges which FDI faces to fully imbibe its benefits in the long run.

Keywords : economic growth, investor friendly, socio economic development, dynamic growth

Introduction divergence between Indian corporate law and its English counterpart became clearer The evolution of corporate law in India with India’s economic liberalization in 1991. can be traced back to the colonial era with With the Liberalisation of the Indian Economy several previous companies’ legislation being leading to the Globalisation, Indian market modelled on parallel English legislation. The opened for the whole world, the challenge influence of colonial laws continued even with the then Congress Government was to after decolonization in 1947 when the most convince the foreign investors to invest into significant piece of corporate legislation, the country . Foreign direct investment (FDI) the Companies Act, 1956, was modelled on we can say is an investment that is made the English Companies Act of 1948. That by a company or individual of one country in is the reason why the Indian Companies is business interests in another country. It can called as the replica of the English Corporate be in the form of either establishing business Law. Although the Companies Act, 1956 operations or acquiring business assets was the result of a classic legal transplant, in the other country, such as ownership or its evolution thereafter took on a different controlling interest in a foreign company. trajectory. Constant amendments to the Foreign direct investments are distinguished Act were necessitated due to legislative from portfolio investments in which an investor requirements that arose due to local conditions merely purchases equities of foreign-based and problems that were unique to the Indian companies. Foreign direct investment can be corporate setting. Moreover, Indian courts too characterised as an investment that is made refused to accept English judgments without to establishes either effective control of, or at adjusting and adapting the legal principles least substantial influence over, the decision to suit the conditions of Indian society. The making of a foreign business. -118- Materials and Methods in place on these investments are now being removed as the importance of FDI is being The paper will be based on in-depth analysis realized. Thus when we talk about evolution of data and statistics, collected both from the of Foreign Direct Investment, we can say that primary and the secondary sources but main the first that was between 1948 and 1969 will secondary source was characterized by a cautious welcome to Secondary sources : Secondary sources will foreign investment. During this phase foreign include information collected from firms were encouraged to invest in protected 1. Journal/Article published industries. The second phase which moves between between 1969 and 1991 was 2. Reference Books related to corporate law marked by coming into force of Monopolies 3. Publications by the government. and Restrictive Trade Practices Commission (MRTP). Foreign Exchange Regulation Act 4. Various websites. was enacted in 1973 which limited the extent The present paper has been written primarily of foreign equity to 40%, though this limit could on the basis of readings from the secondary be raised to 74% for technology intensive, sources export intensive and core sector industries. The third and most revolutionary phase between This research is exploratory in nature. It will 1991 and 2000 witnessed liberalization of FDI give a direction to the future researcher for policy. Foreign Investment Promotion Board conducting the further research related to the (FIPB) was constituted to consider cases same issue. under government route. The fourth and last Results and Discussions phase from 2000 till date was the reflection of increasing globalization of Indian economy. The historical background of FDI in India can All the activities except for negative list were be traced back with the establishment of East placed under the automatic route. The year India Company of Britain. British capital came 2010 saw the continuation of rationalization to India during the colonial eraof Britain in India. process. All the existing regulations on FDI After Second World War, Japanese companies were consolidated into a single document for entered Indianmarket and enhanced their ease of reference. trade with India, yet U.K. remained the most dominant investor in India. Further, after Governments introduction of a string of policy Independence issues relating to foreign measures to address the prevailing economic capital,operations of MNCs, gained attention situation, by way of economic liberalization, of the policy makers. Keeping in mind the Intended to boost business activity and national interests the policy makers designed foreign investment in India. These measures the FDI policy which aims FDI as a medium included the reduction of industrial licensing for acquiring advanced technology and to only to a small range of industries, permitting mobilize foreign exchange resources. With companies to freely issue capital without time and as per economic and political regimes any restrictions, and gradually opening up there have been changes in the FDI policy too. various sectors for foreign investment. This The industrial policy of 1965, allowed MNCs new economic outlook naturally triggered to venture through technical collaboration in a slew of changes to corporate law in India, India. Therefore, the government adopted which operated on different fronts, including a liberal attitude by allowing more frequent (i) amendments to the Companies Act, 1956, equity. More and more developing countries (ii) introduction of securities legislation to are competing with each other to attract this promote the stock markets, and (iii) adoption investment. Restrictions which were earlier of specific measures to Enhance corporate

-119- Anusandhanika /Special Issue on FDI in India/ October 2017 governance. During the liberalization period, and more industries are set up. This helps the key changes were the flexibility introduced in increasing employment. FDI also helps in to companies to raise as well as to restructure promoting international trade. This investment capital. This was intended to enable Indian is a non-debt, non-volatile investment and companies to attract investments, particularly returns received on these are generally spent from foreign investors. As a result of these on the host country itself thus helping in the reforms India open its door to FDI inflows and development of the country. adopted a more liberal foreign policy in order Some of the sectors that attract high FDI inflows to restore the confidence of foreign investors. in India are the hotel and tourism industry, Further, under the new foreign investment insurance sector, telecommunication, real policy Government of India constituted FIPB estate, retail, power, drugs, financial services, (Foreign Investment Promotion Board) whose infrastructure and pollution control etc. main function was to invite and facilitate foreign investment For example, Indian companies Negative List Or Restrictions On Foreign Direct were allowed to issue shares with differential Investment: rights as to dividend and voting. Similarly, FDI is not permitted in the following sectors: concepts such as employee stock option and sweat equity that were by then common in 1. Railways the U.S. now received statutory recognition 2. Atomic energy in India. A capital maintenance regime that had previously been extremely stringent was 3. Defence relaxed to permit companies to buy back their 4. Coal and lignite own securities. FDI has a major role to play in India’s economic FDI plays a major role in any developing development. The total FDI inflow in our country countries including India. They act as a long was US$27 billion in 2010-11. Over the past term source of capital as well as a source of few years, many sectors have seen the growth advanced and developed technologies. The of foreign investment. The Government is also investors also bring along best global practices coming out with new reforms to promote more of management. As large amount of capital and more of this investment. comes in through these investments more

Data Analysis Table No. 1 : Total FDI Inflows (From April, 2000 to March, 2013)

Sl Item Amount of Amount Of No. FDI FDI

(in ` Crore) (in $ million)

1. Cumulative Amount of FDI Inflows (Equity inflows + Re------290,078 invested earnings + Other capital)

2. Cumulative Amount of FDI Equity Inflows (Excluding, 896,380 193,282 amount remitted through RBI’s-NRI Schemes)

Source: FDI Statistics, Department of Industrial Policy& Promotion, Ministry of Commerce & Industry, Government of India. 2013.

-120- Anusandhanika /Special Issue on FDI in India/ October 2017 Table No. 2 : FDI Inflows during Financial Year 2012-13 (From April, 2012 to March, 2013)

Sl Item Amount of Amount Of No. FDI FDI 1. Total FDI Inflows Into India (Equity inflows + Re-invested earnings + ‘\Other capital) 36,860 2. FDI Equity Inflows 121,907 22,423 Source: RBI’s Monthly bulletin dated: 13.05.2013. Table 3 : Sector-Wise FDI Equity Inflows From April, 2000 to March, 2013

Sl. Sector Amount of Amount of % with No. FDI Inflow FDI Inflow total FDI Inflow (+) 1 Services Sector 172,275.31 37,234.60 19.26 2 Construction Development 101,049.13 22,080.20 11.42 3 Telecommunications 58,732.23 12,856.06 6.65 4 Computer Software & Hardware 52,774.07 11,691.10 6.05 5 Drugs & Pharmaceuticals 48,879.53 10,318.17 5.34 6 Chemicals (Other Than Fertilizers) 40,495.55 8,880.83 4.59 7 Automobile Industry 39,169.94 8,294.85 4.29 8 Power 36,136.88 7,834.22 4.05 9 Metallurgical Industries 34,814.13 7,507.07 3.88 10 Hotel & Tourism 33,260.03 6,631.25 3.43 11 Petroleum & Natural Gas 24,808.41 5,381.48 2.78 12 Trading 18,646.51 3,955.80 2.05 13 Information & Broadcasting (Including Print Media) 15,495.69 3,284.21 1.70 14 Electrical Equipment 14,668.58 3,182.70 1.65 15 Cement and Gypsum Products 11,779.04 2,626.43 1..36 16 Non-Conventional Energy 12,901.12 2,591.22 1.34 17 Miscellaneous Mechanical & Engineering 10,522.52 2,318.71 1.20 Industries 18 Industrial Machinery 11,017.51 2,302.14 1.19 19 Consultancy Services 9,692.72 2,095.13 1.08 20 Construction (Infrastructure) Activities 9,741.06 1.08 1.08 21 Food Processing Industries 8,681.38 1,811.06 0.94 22 Ports 6,717.38 1,635.08 0.85 23 Agriculture Services 7,797.73 1,608.69 0.83 24 Hospital & Diagnostic Centres 7,437.93 1,597.33 0.83 25 Textiles (Including Dyed,Printed) 5,689.76 1,226.02 0.63 26 Electronics 5,466.74 1,198.22 0.62

-121- Anusandhanika /Special Issue on FDI in India/ October 2017 Sl. Sector Amount of Amount of % with No. FDI Inflow FDI Inflow total FDI Inflow (+) 27 Sea Transport 5,492.51 1,194.50 0.62 28 Fermentation Industries 5,095.29 1,134.63 0.59 29 Rubber Goods 5,824.46 1,134.44 0.59 30 Mining 4,368.18 998.30 0.52 31 Paper And Pulp (Including Paper Products) 4,056.14 865.54 0.45 32 Prime Mover (Other Than Electrical Generators) 4,131.80 848.68 0.44 33 Education 3,332.97 684.35 0.35 34 Soaps, Cosmetics & Toilet Preparations 3,115.54 632.39 0.33 35 Machine Tools 2,967.09 622.99 0.32 36 Medical And Surgical Appliances 2,913.92 604.47 0.31 37 Ceramics 2,195.59 508.13 0.26 38 Air Transport (Including Air Freight) 2,022.00 449.26 0. 23 39 Diamond &,Gold Ornaments 1,810.74 390.76 0.20 40 Glass 1,942.21 389.07 0.20 41 Vegetable Oils And Vanaspati 1,893.72 384.94 0.20 42 Fertilizers 1,425.53 297.90 0.15 43 Agricultural Machinery 1,423.25 296.42 0.15 44 Printing of Books (Including Litho Printing 1,257.51 272.32 0 40.14 Industry) 45 Railway Related Components 1,246.35 270.33 0.14 46 Commercial, Office & Household Equipment 1,181.76 254.83 0.13 47 Earth-Moving Machinery 769.05 174.95 0.09 48 Leather,Leather Goods And Pickers 527.88 107.43 0.06 49 Tea And Coffee & Rubber (Processing & 456.01 101.21 0.05 Warehousing) 50 Retail Trading (Single Brand) 459.55 9 95.36 0.05 51 Scientific Instruments 496.11 94.48 0.05 52 Timber Products 398.52 79.15 0.04 398.52 79.15 0.04 53 Photographic Raw Film And Paper 269.26 66.54 0.03 54 Industrial Instruments 307.45 66.53 0.03 55 Boilers And Steam Generating Plants 305.75 61.83 0.03 56 Sugar 242.32 51.82 0.03 57 Coal Production 103.11 24.78 0.01 58 Dye-Stuffs 87.32 19.50 0.01 59 Glue And Gelatin 70.56 14.55 0.01 60 Mathematical, Surveying And Drawing 39.80 7.98 0.00 Instruments

-122- Anusandhanika /Special Issue on FDI in India/ October 2017 Sl. Sector Amount of Amount of % with No. FDI Inflow FDI Inflow total FDI Inflow (+) 61 Defence Industries 19.89 4.12 0.00 62 Coir 10.37 0.00 60.00 63 Miscellaneous Industries 35,469. 7,843.68 4.10 Sub -Total 896,379.67 193,283.31 100 64 RBI’S- NRI Schemes (2000-2002) 533.06 121.33 - Grand Total 896,912.73 193,404.64 - Source: FDI Statistics, Department of Industrial Policy& Promotion, Ministry of Commerce& Industry, Government of India. 2013 Eligible investors per Schedules 2,2A and 3 respectively of Foreign Exchange Management (Transfer 1. A non-resident entity can invest in India, or Issue of Security by a Person Resident subject to the FDI Policy except in those Outside India) Regulations, 2000, can sectors/activities which are prohibited. invest/trade through a registered broker However, a citizen of Bangladesh or an in the capital of Indian Companies on entity incorporated in Bangladesh can recognised Indian Stock Exchanges. invest only under the Government route. Further, a citizen of Pakistan or an entity 5. A SEBI registered Foreign Venture Capital incorporated in Pakistan can invest, only Investor (FVCI) may contribute up to under the Government route, in sectors/ 100% of the capital of an Indian company activities other than defence, space and engaged in any activity mentioned in atomic energy and sectors/activities Schedule 6 of Notification No. FEMA prohibited for foreign investment. 20/2000, including startups irrespective of the sector in which it is engaged, under 2. NRIs resident in Nepal and Bhutan as the automatic routeRanking Of Sector well as citizens of Nepal and Bhutan Wise FDI Inflows in India since April 2000- are permitted to invest in the capital of Dec 2011: Indian companies on repatriation basis, subject to the condition that the amount Rank of Sector–wise FDI Inflows of consideration for such investment shall be paid only by way of inward remittance Industrial sectors Rank in free foreign exchange through normal Service sector 1 banking channels. Computer hardware & software 2 3. OCBs have been derecognized as a Telecommunication 3 class of investors in India with effect from September 16, 2003. Erstwhile OCBs Housing and real state 4 which are incorporated outside India and Construction 5 are not under the adverse notice of RBI can Power 6 make fresh investments under FDI Policy as incorporated non-resident entities, with Automobile industry 7 the prior approval of Government of India Metallurgical industry 8 if the investment is through Government Petroleum and natural gas 9 route; and with the prior approval of RBI if the investment is through Automatic route. Chemicals 10 4. Only registered FIIs/FPIs and NRIs as Sources: Fact Sheets on FDI, DIPP -123- Anusandhanika /Special Issue on FDI in India/ October 2017 Analysis and Findings FDI limit of 100% (49% under automatic route, beyond 49% government route) Government of India has decided to allow 26% FDI and 23% FII investment in commodity for defence sector made applicable exchange, subject to the provision that no to Manufacturing of Small Arms and single entity will hold more than 5% stake. Ammunitions covered under Arms Act 1959 Although India`s share in global FDI has increased considerably, but the pace of FDI up to 100% under automatic route FDI inflows has been slower than China, permitted in Teleports, Direct to Home, Singapore, Brazil and Russia Cable Networks, Mobile TV, Headend-in- the Sky Broadcasting Service Due to continued economic liberalization since 1991, India has seen a decade of FDI up to 100% under automatic route 7 plus percent of economic growth. In permitted in Up-linking of Non-‘News fact, India`s economy has been growing & Current Affairs’ TV Channels, Down- more than 9 percent for three consecutive linking of TV Channels years since 2007 which make country make a proficient performer among global In case of single brand retail trading of economies ‘state-of-art’ and ‘cutting-edge technology’ products, sourcing norms can be relaxed At present India is the 4th largest and 2nd up to three years and sourcing regime can fastest growing economy in the world. It be relaxed for another 5 years subject to is the 11th largest economy in terms of Government approval industrial output and has the 3rd largest pool of scientific and technical manpower. Foreign equity cap of activities of Non- There has been a generous flow of FDI in Scheduled Air Transport Service, Ground India since 1991 and its overall direction Handling Services increased from 74% to also reminded the same over the years 100% under the automatic route irrespective of the ruling party. 100% FDI under automatic route permitted India has considerably decreased its in Brownfield Airport projects fiscal deficit form 4.3% in 2002-03 to 2.7% in 2007-08 and 1.15 in year 2009-11. FDI limit for Scheduled Air Transport Service/ Domestic Scheduled Passenger FDI plays a crucial role in enhancing the Airline and regional Air Transport Service economic growth and development of the country. Moreover, FDI as a strategic raised to 100%, with FDI upto 49% component of investment is needed by permitted under automatic route and India for achieving the objectives of its FDI beyond 49% through Government second generation of economic reforms approval and maintaining sustainable economic Foreign airlines would continue to be growth. allowed to invest in capital of Indian 49% FDI under automatic route permitted companies operating scheduled and non in Insurance and Pension sectors scheduled airtransport services up to the Foreign investment up to 49% in defence limit of 49% of their paid up capital sector permitted under automatic route. In order to provide clarity to the The foreign investment in access of e-commerce sector, the Government has 49% has been allowed on case to case issued guidelines for foreign investment basis with Government approval in cases in the sector. 100% FDI under automatic resulting in access to modern technology route permitted in the marketplace model in the country or for other reasons to be of e-commerce recorded

-124- Anusandhanika /Special Issue on FDI in India/ October 2017 100% FDI under Government route It might be interest to note that more than for retail trading, including through 50 per cent of the total FDI inflows received e-commerce, has been permitted in in India come from Mauritius, Singapore and respect of food products manufactured the USA.The main reason for higher levels and/or produced in India of investment from Mauritius was that the fact that India entered into a double taxation 100% FDI allowed in Asset Reconstruction avoidance agreement (DTAA) with Mauritius Companies under the automatic route were protected from taxation in India. Among 74% FDI under automatic route permitted the different sectors, the service sector had in brownfield pharmaceuticals. FDI beyond received the larger proportion followed by 74% will be allowed through government computer software and hardware sector and approval route then telecommunication sector. FDI limit for Private Security Agencies References raised to 74% (49% under automatic 1. Kumar Gajendran Lenin, Karthika S, route, beyond 49% and upto 74% under Sectoral performance through inflows of government route) foreign direct investment (FDI), 2010 For establishment of branch office, 2. Agarwal J, Khan MA, Impact of FDI on liaison office or project office or any other GDP: A comparative study of China place of business in India if the principal and India, Int. J. Business Management business of the applicant is Defence, 6(10):71-79, 2011 Telecom, Private Security or Information and Broadcasting, approval of Reserve 3. Singh S, Foreign direct investment (fdi) Bank of India would not be required in and growth of states of india. VISION 2020 cases where FIPB approval or license/ - Managerial Strategies and Challenge, permission by the concerned Ministry/ Wisdom Publications, Delhi, 2009 Regulator has already been granted 4. Sharma RK, FDI in Higher Education: Requirement of ‘controlled conditions’ Official Vision Needs Corrections, for FDI in Animal Husbandry (including Economic and Political Weekly, 2006, breeding of dogs), Pisciculture, p 5036 Aquaculture and Apiculture has been 5. Devajit Mahanta, Impact of foreign direct waived off investments on indian economy, Research Conclusion J. Management Sciences, 1(2):29-31, 2012 This may be due to the low flow of FDI into India both at the macro level as well as at the 6. Balasubramanyam VN, Sapsford David, sartorial level. It implies that the spirit in which Does India need a lot more FDI, Economic the economy has been liberalized and exposed and Political Weekly, 2007, pp 1549-55 to the world economy at the late eighties and 7. Chien Nguyen Dinh and Kezhong Zhang, early nineties has not been achieved after so FDI of vietnam; two-way linkages between many years. This calls for a judicious policy FDI and GDP, competition among decision towards FDI at the sartorial level. A provinces and effects of laws, iBusiness, large number of changes that were introduced 2012, 4:157-163 in the country`s regulatory economic policies heralded the liberalization era of the FDI policy 8. Bajpai Nirupam, Jeffrey D Sachs, regime in India and brought about a structural Foreign Direct Investment in India: breakthrough in the volume of the FDI inflows Issues and Problems, Harvard Institute of into the economy maintained a fluctuating International Development, Development and unsteady trend during the study period. Discussion Paper No. 759, 2006

-125- Anusandhanika /Special Issue on FDI in India/ October 2017 9. Department of Industrial Policy and 19. Arrow K., The Economic Implications of Promotion Ministry of Commerce and Learning by Doing. Review of Economic Industry Government of India Consolidated Studies, 29, 1962, pp 155-173 FDI Policy (Effective from June 07, 2016), 20. Banga R, Impact of Liberalization on D/o IPP F. No. 5(1)/2016-FC-1 Dated the Wages and Employment in Indian June 07, 2016 Manufacturing Industries, Working Paper 10. Guha Romit, IMF: India Should Resolve No. 153, New Delhi: ICRIER, 2005 ‘Bottlenecks’ By March 13, 2013 6:46 a.m. 21. Hooda Sapna, A study of FDI and Indian ET Economy; Doctor of philosophy from 11. International Journal of Advances in national institute of technology (deemed Management and Economics Available university) Haryana, 2011 online at www.managementjournal.info 22. Andersen P.S and Hainaut P., Foreign 12. International Journal of Scientific and Direct Investment and Employment in the Research Publications, Volume 4, Issue Industrial Countries”, http:\\www.bis\pub\ 2, February 2014 work61.pdf., 2004 13. Hameedu Dr. M. Shahul, Foreign 23. Balasubramanyam V.N, Sapsford David, Direct Investment, the Indian scenario, Does India need a lot more FDI, Economic Iqbal College, Peringammala. and Political Weekly, 2007, pp1549-1555 Thiruvananthapuram, Kerala, India 24. Basu P., Nayak N.C, Archana, Foreign 14. FDI Statistics, Department of Industrial Direct Investment in India: Emerging Policy & Promotion, Ministry of Commerce Horizon, Indian Economic Review, Vol. & Industry, Government of India, 2013 XXXXII. No.2, 2007, pp 255-266 15. International Journal of Scientific and 25. Belem Iliana Vasquez Galan, The effect Research Publications, Volume 4, Issue of Trade Liberalization & Foreign Direct 2, February 2014 5 ISSN 2250-3153 Investment in Mexico, etheses.bham. ac.uk/89/1/vasquezgalan06phd.pdf., 16. Aitken B. G. H. Hansen and A. E. Harrison 2006 (1997) Spillovers, Foreign Investment and Export Behaviour. Journal of International 26. www.investindia.gov.in Economics, 43, pp 103-32 27. www.managementjournal.info 17. Alam M. S., FDI and Economic Growth 28. www.imf.org of India and Bangladesh: A comparative study”, Indian Journal of Economics, vol. 29. www.rbi.org Lxxx, part 1 no 316, 1-15, 2000 30. www.worldbank.org 18. Annual Survey of Industries, CD Rom, Economic and Political Weekly Research Foundation, Mumbai, 2001

-126- Anusandhanika /Special Issue on FDI in India/ October 2017 Anusandhanika /Special Issue on FDI in India/ October 2017/ pp 127-130 ISSN 0974 - 200X Challenges and Future Prospects of FDI in Automobile Industry in India

Gaurav Srivastava Research Scholar University Department of Commerce and Business Management Ranchi University, Ranchi

Abstract

As india’s economy continues to grow at a rapid pace the automobile industry will be a key benificiary. India has the fastest growing economies and many companies view India as a potentially lucrative market. They see opportunities like stable economic policies, availability of skilled personnel and large internal market. It is expected that the automotive industry will play an important role in helping the economy to continue this growth. Presently The Indian automobile industry is one of the most vibrant industries in the world. This industry accounts for 22 per cent of the country’s manufacturing gross domestic product (GDP). Indian automobile industry is currently the seventh-largest in the world with an average annual production of 17.5 million vehicles..The industry has attracted Foreign Direct Investment (FDI) worth US$ 15.06 billion during the period April 2000 to March 2016, according to data released by Department of Industrial Policy and Promotion (DIPP).Although achieving new heights the industry faces many challenges like regulatory complexities (taxes, slow legal system, environment regulations)weak Infrastructure and even cultural complexities. The paper tries to give an overview of challenges and future prospects Of FDI in automobile industry in India.

Keywords : beneficiary, lucrative, vibrant

Introduction requirements. Gradually they also realized that substantial economic growth is inevitable Foreign Direct Investment (FDI) is an investment made by a company or individual without global integration of business process. in one country in business interests in another This created opportunities for locational country, in the form of either establishing advantages and thus facilitated strategic business operations or acquiring business alliances, joint ventures and collaborations assets in the other country, such as ownership over R & D. or controlling interest in a foreign company.FDI In india 100% Foreign Direct investment (FDI) gives a win – win situation to the host and the is allowed in the automobile sector under the home countries. In fact, both the countries are automatic route in the auto sector, subject to directly concerned in inviting more and more all the applicable regulations and laws.Talking FDI, as they benefit a lot from these type of about The Automotive Industry in India, it is investments. The ‘home’ countries have the one of the largest in the world with an annual advantage of the vast markets opened by production of 23.96 million vehicles in FY 2015- industrial growth. On the other side, the ‘host’ countries are having the advantage to acquire 16, following a growth of 2.57 per cent over the technological and managerial skills and aid last year. The automobile industry accounts for domestic savings and foreign exchange. As a 7.1 per cent of the country’s gross domestic result, Foreign Direct Investment (FDI) is now product (GDP). The Two Wheelers segment, been a vital driver of growth. Many Emerging with 81 per cent market share, is the leader Market Economies (EMEs) are looking upon of the Indian Automobile market, owing to a FDI as one of the easiest means to satisfy growing middle class and a young population. and fulfil their financial, technical, employment Moreover, the growing interest of companies generation and competitive efficiency in exploring the rural markets further aided the -127- growth of the sector. The overall Passenger government also provided many incentives Vehicle (PV) segment has 13 per cent market such as tax concessions, simplification of share. India is also a prominent auto exporter licensing procedures and de- reserving some and has strong export growth expectations for industries such as drugs, aluminium, heavy the near future. In FY 2014-15, automobile electrical equipment, fertilizers, etc. in order exports grew by 15 per cent over the last to further boost the FDI inflows in the country. year. In addition, several initiatives by the This liberal attitude of government towards Government of India and the major automobile foreign capital lures investors from other players in the Indian market are expected to advanced countries like USA, Japan, and make India a leader in the Two Wheeler (2W) Germany, etc. But due to significant outflow of and Four Wheeler (4W) market in the world by foreign reserves in the form of remittances of 2020. dividends, profits, royalties etc the government had to adopt stringent foreign policy in 1970s. FDI in India : History During this period the government adopted The historical background of FDI in India can a selective and highly restrictive foreign be traced back with the establishment of East policy as far as foreign capital, type of FDI India Company of Britain. British capital came and ownerships of foreign companies was to India during the colonial era of Britain in concerned. The world economy has observed India. However, researchers could not portray a phenomenal change in volume and pattern the complete history of FDI pouring in India due of FDI flow from developed nations to EMEs in to lack of abundant and authentic data. Before 1980s and 1990s compared to earlier decades. independence, major amount of FDI came from The hostile attitude of developing nations the British companies. After Second World regarding multinationals investment has War, Japanese companies entered Indian become generous during this transition period. market and enhanced their trade with India, FDI was fostered by liberalisation and market- yet U.K. remained the most dominant investor based reforms in EMEs. The financial sector in India. Further, after Independence issues deregulation and reforms in the industrial policy relating to foreign capital, operations of MNCs, further paved the way for global investments. gained attention of the policy makers. Keeping Some of the most phenomenal developments in mind the national interests the policy makers during the last 20 years is the fabulous growth designed the FDI policy which aims FDI as a of FDI in the global economic arena. Starting medium for acquiring advanced technology from a baseline of less than USD 1 billion in and to mobilize foreign exchange resources. 1990, a recent UNCTAD survey projected India The first Prime Minister of India considered as the second most important FDI destination foreign investment as “necessary” not only to (after China) for transnational corporations supplement domestic capital but also to secure during 2010-2012 scientific, technical, and industrial knowledge Materials and Methods and capital equipment. However, the country faced two severe crises in the form of foreign This study is of analytical nature and makes exchange and financial resource mobilization use of secondary data. The required& during the second five-year plan (1956 relevant secondary data are collected from -61). Therefore, the government adopted various publications of Government of India, a liberal attitude by allowing more frequent Publications from Ministry of Commerce, & equity participation to foreign enterprises, from the websites of Dept. of Industrial Policy and to accept equity capital in technical &Promotions (Govt. of India) & Society of collaborations. With time and as per economic Indian Automobile Manufacturers(SIAM) and political regimes there have been Results and Discussions changes in the FDI policy too .The industrial policy of 1965, allowed MNCs to venture The industry produced a total 23,960,940 through technical collaboration in India. The vehicles including passenger vehicles, -128- Anusandhanika /Special Issue on FDI in India/ October 2017 commercial vehicles, three wheelers, two percent and 3.58 percent respectively during wheelers and quadric cycle in April-March April- March 2016 over the same period last 2016 as against 23,358,047 in April-March year. 2015, registering a marginal growth of 2.58 Exports : In April-March 2016, overall percent over the same period last year. automobile exports grew by 1.91 percent. Domestic Sales : The sales of Passenger Passenger Vehicles, Commercial Vehicles, Vehicles grew by 7.24 percent in April-March Three Wheelers and Two Wheelers registered 2016 over the same period last year. Within the a growth of 5.24 percent, 16.97 percent (-) Passenger Vehicles, Passenger Cars, Utility 0.78 percent and 0.97 percent respectively in Vehicles and Vans grew by 7.87 percent, 6.25 April- March 2016 over April-March 2015.

Automobile Production Trend

Category 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 Passenger Vehicles 29,82,772 31,46,069 32,31,058 30,87,973 32,21,419 34,13,859 Commercial Vehicles 7,60,735 9,29,136 8,32,649 6,99,035 6,98,298 7,82,814 Three Wheelers 7,99,553 8,79,289 8,39,748 8,30,108 9,49,019 9,33,950 Two Wheelers 1,33,49,349 1,54,27,532 1,57,44,156 1,68,83,049 1,84,89,311 1,88,29,786 Grand Total 1,78,92,409 2,03,82,026 2,06,47,611 2,15,00,165 2,33,58,047 2,39,60,409

Source: Society of Indian automobile manufacturers (SIAM)

Challanges Future Prospects/Opportunities There are many challenges in front of foreign By 2026, India is expected to be the third investors and can be summarised as- largest automotive market by volume in the world. 1. Volatility : Government policies are volatile in nature,Dollor to rupee exchange Tractor sales in the country are expected to grow rate is subject to frequent fluctuation,stock at Compound Annual Growth Rate (CAGR) of market in india is also very sensitive. 8-9% in the next five years, enhancing India’s market potential for international brands. Two- 2. Cultural Complexity : India is a country wheeler production has grown from 8.5 million with diversity, there are different needs units annually to 15.9 million units in the last for different societies. No “one size fit for seven years. Significant opportunities exist in all”can be applied here. rural markets. 3. In India,there Regulatory Complexity : The emergence of large automotive clusters are many taxes and the rates are high. in the country: Delhi-Gurgaon-Faridabad in Slow legal system breakes down the the north, Mumbai-Pune-Nashik-Aurangabad speed of development.environmental and in the west, Chennai- Bengaluru-Hosur in the emission regulations are very strict. south and Jamshedpur-Kolkata in the east. 4. Weak Infrastrucure : It includes poor road Global car majors have been ramping up network, lack of proper communication, investments in India to cater to growing transportation, electricity etc. domestic demand. These manufacturers plan 5. Local Competition : Several indigenous to leverage India’s competitive advantage to automaker companies are expanding their set up export-oriented production hubs. business and can give tiugh competition. An Research & Development (R&D) hub:

-129- Anusandhanika /Special Issue on FDI in India/ October 2017 strong support from the government in the factors and trends discussed in this paper. setting up of National Automotive Testing and The indus try is continually innovating itself R&D Infrastructure Project (NATRiP) centres. to the changing requirements and markets. Private players such as Hyundai, Suzuki, GM The automobile are progressing to production are keen to set up an R&D base in India. of commercial vehicles as the next stage for various reasons. It will be interesting to see Electric cars are likely to be a sizeable market whether and to what extent India plays the role segment in the coming decade. of a hub in the passengervehicle segment. Auto Policy As part of efforts to reduce emission output, auto makers are working to make their internal Automatic approval for foreign equity combustion engines more efficient and also investment up to 100% with no minimum use lighter and stronger materials such as investment criteria. aluminum and high tensile steel. More R&D Manufacturing and imports in this sector will be needed in future to achieve this. The are exempt from licensing and approvals. Govern ment and the industry must ensure The encouragement of R&D by offering that FDI transfers result in win-win situations in terms of as many parameters and all rebates on R&D expenditure. Automotive stakeholders concerned. Mission Plan 2016-26: References Salient points of AMP-2026 are 1. Aiyar S., The unintended consequences The Indian Automotive industry to be a top of FDI, 2003, The Times of India. 28th job creator – 65 million additional jobs The June 2010. Indian Automotive industry to be one of the prime movers of Manufacturing sector 2. Report of the Committee on Compilation and “Make in India” initiative of FDI in India The Indian Automotive industry aims to 3. Reserve Bank of India, 2015 increase exports of vehicles by 5 times 4. Athreye S. and Kaput K, Private Foreign and components by 7.5 times Investment in India: Pain or Panacea?. Specific interventions are envisaged The World Economy. Vol. 34. No. 3., 2001 to sustain and improve manufacturing 5. Hand Book of Statistics of Indian competitiveness and to address Economy- Various Issues. challenges of environment and safety 6. Reserve Bank of India. Reserve Bank of Conclusion India Bulletin- Various Issues. Reserve India is expected to become the third largest Bank of India. car market in the world by 2025 with 7.4 million 7. Mukerjee Aravindan, The automotive vehicles (Goldman Sachs, 2015). FDI has Industry. Indian Institute of Management., played a crucial role in the growth of this sector 1996, in India till now. It will be interesting to see how it plays out in the coming years in light of the 8. Website: www.rbi.org.in

-130- Anusandhanika /Special Issue on FDI in India/ October 2017 Anusandhanika /Special Issue on FDI in India/ October 2017/ pp 131-135 ISSN 0974 - 200X FDI and its Impact on Jharkhand’s Socio-Economic Development

Nirmala Khess Research Scholar Ranchi University, Ranchi

Dr Sanjeev Chaturvedi Department of Commerce Doranda College, Ranchi Abstract

Jharkhand the eastern state of the country is exceedingly becoming an attractive region from economic point of view, given its major deposits of coal, bauxite, iron, mica and other minerals, which offers considerable advantages for investment and trade. Proving itself as a major emerging investment destination, Jharkhand has been ranked as the 10th highest reciver of Foreign Direct Investment (FDI) proposals in the year 2015, in a ranking of top FDI earning states in India and China. But, the economic development is not enough to improve social development. Social indicators such as poverty, unemployment, income distribution, health and education are the key element which shows the quality of life in the society. This paper aims to trace out the impact of FDI on economic as well as the social development i.e. socio-economic development of the state. The study is descriptive in nature and analyse the contribution of FDI in employment generation, capital investment, rural development and tribal upliftment, foreign exchange earnings, etc. the paper also highlights the sustainability of FDI in Jharkhand and the policies given by the state and central government to promote FDI such as “Make-in-India”, set up of NRI cells, etc. which provide platform and facilitate investors in setting up of industries in Jharkhand.

Keywords : employment generation, capital investment, social upliftment Introduction can confer de facto control.” Foreign direct investment is an investment Foreign direct investment can be made in a made by a company or individual in one country variety of ways, including: in business interests in another country, in the The opening of a subsidiary or associate form of either establishing business operations company in a foreign country. or acquiring business assets in the other country, such as ownership or controlling Acquiring a controlling interest in an interest in a foreign company. FDI are existing foreign company. distinguished from the portfolio investments in By means of merger or joint venture with a which an investor merely purchases equities foreign company. of foreign based companies. The key feature of foreign direct investment is that it is an Foreign direct investments are commonly investment made that establishes either categorized as being horizontal, vertical or effective control of, or at least substantial conglomerate in nature. A horizontal direct influence over, the decision making ofa investment refers to the investor establishing foreign business. According to the Financial the same type of business operation in a foreign Times, “Standard definitions of control use the country as it operates in its home country. A internationally agreed 10 percent threshold of vertical investment is one in which different but voting shares, but this is grey area as often related business activities from the investor’s a smaller block of share will give control in main business are established or acquired widely held companies. Moreover, control of in a foreign company that supplies parts or technology, management, even crucial inputs raw materials required for the manufacturing

-131- company to make its products. A conglomerate has been consistently eased to make it type of foreign direct investment is one where investor-friendly. The measures taken by the a company or individual makes a foreign government are directed to open new sectors for investment in a business that is unrelated foreign direct investment, increase the sectoral to its existing business in its home country. limit of existing sectors and simplifying other Since this type of investment involves entering conditions of the FDI policy. FDI policy reforms an industry the investor has no previous are meant to provide ease of doing business experience in, it often takes the form of a and accelerate the pace of foreign investment joint venture with a foreign company already in the country. In 2015 India overtook China operating in the industry. and the US as the top destination for the Foreign Direct Investment. In the first half of Materials and Methods the 2015, India attracted investment of $31 The paper is descriptive is nature, so all billion compared to $28 billion and $27 billion the necessary data required are collected of China and the US respectively. The initiative from secondary sources. The following are taken by the government to boost the FDI in the secondary sources from the datas are India is The Make in India program launched collected from News paper. in September 2014 as part of a wider set of nation-building initiatives. It was a powerful, Results and Discussions galvanising call to action to India’s citizens and The economic crises in 1991, give birth to business leaders, and an invitation to potential LPG (i.e. liberalisation, privatisation, and partners and investors around the world. Under globalisation) and after that FDI has a steady Make in India the FDI policy for 25 sectors was growth in India. It were Manmohan singh and liberalised and government increased foreign P.V.Narshimha Rao who brought FDI in India, investment upper limit from 26% to 49% in which subsequently generated more than insurance sector, resultant there is an increase one crore jobs. It has been ranked among in inflow of FDI by 48%. The following table the top 10 attractive destinations for inbound shows the different sectors and the policy investments. Since 1991, the regulatory measures by the government of India : environment in terms of foreign investments 1.1. Table: Different sectors and their policy measures by government

S. Sectors Policy Measures By Government No. 1. Infrastructure Indian government has plans to invest $1 trillion on infrastructure from 2012-2017. 40% of this $1 trillion is to be funded by private sector. 100% FDI under automatic route is permitted in construction sector . 2. Automotive FDI in automotive sector was increased by 89% between April 2014 to February 2015 . 100% FDI is permitted in this sector via automatic route. 3. Pharmaceuticals Indian pharma market is 3rd largest in terms of volume and 13th largest in terms of value. Indian pharma industry is expected to grow at 20% compound annual grwth rate from 2015 to 2020 . 100% FDI is permitted in this sector. 4. Service FDI in service sector was increased by 46% in 2014-15. Service sector includes banking, insurance, outsourcing, R&D, courier and technology testing. FDI limit in insurance sector was raised from 26% to 49%. 5. Railways 100% FDI is allowed under automatic route in most of areas of railways, other than the operations, like high speed train, railway electrification, passenger terminal, mass rapid transport system etc.

-132- Anusandhanika /Special Issue on FDI in India/ October 2017 S. Sectors Policy Measures By Government No. 6. Airlines Foreign investment in a scheduled or regional air transport service or domestic scheduled passenger airline is permitted to 100,with FDI up to 49% permitted under automatic route and beyond 49% through government approval. For airport modernization, 100% FDI will be allowed for existing airport under automatic route. Source: self generated table from available sources There are certain types of investors which are year, has been featured in the joint Indo-China as follows: list with 5 Chinese states and 4 other Indian states. The release of recent data by the FDI 1. Individual: market shows that in the year 2015 Jharkhand Foreign Venture Capital Investors rrecived investment proposals worth USD 3.20 (FVCI) billion. The FDI proposals for Jharkhand were Pension/Provident Fund mainly directed at Mining and Power sectors. Financial Institution Earlier, World Bank data ranked Jharkhand as 2. Company: 3rd in the country on ease of doing business. Foreign Trust Recently, industries from Russia and Ukraine have envinced interest in inviesting in the Sovereign Wealth Funds coal sector of Jharkhand. The government Non Resident Indians (NRIs)/Person in Jharkhand is hoping to recive more of Indian Origin (POIs) investment as it has taken number of steps 3. Foreign Institutional Investors (FIIs): to improve the business friendliness of its Private Equity Funds market including Single window clearance, incentives for enterprenuers and reform in Partnership/Proprietorship Firm labour laws. Jharkhand has also actively taken Others. part in the “Make in India” campaign and has Foreign Direct Investment (FDI) In Jharkhand launched efforts to boost the manufacturing sector of the state. The state government Foreign Direct Investment (FDI) is one is also considering an investment proposal of the key indicators for determining the by Belarusian company Belaz, to invest in attractiveness of a destination. This is also an Jamshedpur. Following is bar graph of top 5 important way of transmitting skills, knowledge states of india dealing with FDI: and technology to the State and an important driver of industrial performance. Proving itself Bar graph of leading states for the as amajor emerging investment destination, destination of FDI Jharkhand has been ranked as the 10th Ease of doing of business, Top 5 highest reciver of Foriegn Direct Investment proposals in the year 2015, in a ranking of top FDI earning states in India and China. 71.14 70.12 63.09 62.45 62 With dedicated efforts and steps taken by Cheif Minister Raghubar das led state government to improve business environment, give impetus to industry and make the state more enterprenuer friendly, Jharkhand has been rising up the ranks of favoured business Gujarat Andhra Jharkhand Chhatisgarh Madhya destinations in recent years. The state, which Pradesh Pradesh was the 5th highest FDI attracter in India last

-133- Anusandhanika /Special Issue on FDI in India/ October 2017 Impact of foriegn direct investment (FDI) in employment opportunities. The extents to socio-economic development of Jharkhand which the lower income groups can take advantage of the growth policies determine the Cultural and Political : FDI has the positive growth poverty relationship. With the upcoming and negative impact to the local culture of of MNCs in Jharkhand the migration of local the home country. With the arrival of FDI in people to the different states for job is lowered Jharkhand, the rapid urbanisation may see down, which is a positive sign for the state. as a threat to the local culture, and it has the potential to cause cultural tension between the Regional Development : FDI inflows help in host and the home country. But, it can also the regional development or the development promote or help in promoting the local culture of that area where it is set up. As the industries to the whole world. For example: If there is were set up the infrastructure is also get an investment in tourism by foreign investors developed like; transportation facilities then it’s a positive and fair side of FDI, as its (roadways, railways, airways), which is not promoting the opportunities of certain state. only beneficial for the foreign investors but for the local investors. In Jharkhand mostly agro FDI can impact the political environment of products are produce, with the development the host country. Although underdeveloped of transportation and infrastructure, it become countries do not receive the majority of FDI easier for the export ad import of those flows, in the absence of a stable political products. Some people think that foreign environment, which is more typical of an investors might do not compensate for the use underdeveloped countries. Political unrest of local resources. occurs in several ways. As Jharkhand with newly instituted political structures, some Increment in standard of living : FDI inflows people may view foreign investment as an can generate employment opportunity which is extension of imperialism. Local entrepreneurs one of the reason for raising the standard of might view foreign investors as seizing living. With that as the entry of FDI the import valuable resources that belong to indigenous and export of products become easier, so that people. the general public can easily consume the foreign product, through which also, there is Technological : As the entry of FDI in a change in standard, as costlier things are Jharkhand, various foreign companies set easily available in cheap prices. and brings new technology to the state, which is beneficial for the growth and development Boost the local Entrepreneur : The economic of the state. With the traditional way of crises of 1991, give rise to LPG policy, which producing of product either in agro industry or opens the gate for the local businessmen in manufacturing industry, it’s not that worth in or entrepreneurs for the international trade giving return or profit as compare to the new integration. As FDI will make easier or technologies, which came through the FDI compatible for the entrepreneur to trade with channels. The government also initiating by foreign companies without spending extra on launching certain programs like; ‘Digital India’ export. where every village and cities are connected Financial volatility : When financial markets with the internet, as FDI is entering through are imperfect and underdeveloped, the result is online shopping businesses, so its beneficial a scarcity of financial resources that prevents for the development of the villages and interior MNCs and domestic corporations from areas. undertaking profitable business opportunities. Employment Opportunities : FDI generates High investment returns obtained through FDI lots of employment opportunities by setting are based more on interest rate differentials up of industries, which is beneficial for the rather than on rudimentary economic local people. As there is a flexibility of the variables, investors are finding the problems labour market, which would determine the associated with FDI, which are more difficult to -134- Anusandhanika /Special Issue on FDI in India/ October 2017 measure, are not always compensated by the earliest forms of industrialisation and create high returns. pollution in location. Financial volatility, political conflicts, changes in cultural relationship Environmental Degradation : FDI has a and etc. the following are some suggestions strong relationship with natural resources regarding the impact of FDI in Jharkhand: use and extraction (agriculture, minerals) especially in Jharkhand because most of the References foreign investments are proposed to be done in 1. India pips US, China as No.1 foreign mining, big industries may cause in the water direct investment destination, The Times pollution of rivers and sometimes the natural of India, 30 September 2015. Retrieved vegetation also get harmed. There are certain 11 October 2015 policies regarding the conservation of the eco- system or the environment for FDI which they 2. India Tops Foreign Investment Ranking have to follow. ahead of US and China, The Times of India, Rishi Lyengar, 30 September 2015. Steady Growth : FDI increase the growth of Retrieved 11 October 2015 the state both economically and socially, as the availability of employment can reduce the 3. FDI up 48% since ‘Make in India’ campaign burden and per capita income of the individual launch”- The Economic Times, 14 July and their standard of living may increase. 2015. Retrieved 11 October 2015 There is a development of infrastructure and 4. Self generated table from available transportation system through the setting up of sources. industries and easily connected to the metro cities. 5. 7 major sectors attracting FDI for India” – Yahoo Finance, 13 September 2012. In order to complete this study the data Retrieved 11 October 2015 collected as a means of secondary data which analysed with the journals, books, newspaper, 6. FDI in automobile sector u 89% in April- etc. February FY’15” – The Economic Times, 25 May 2015. Retrieved 11 October 2015 Conclusion In the conclusion, the study shows that FDI 7. Indian Pharmaceutical Industry, has a wide scope in Jharkhand and even Pharmaceutical Industry in India, Pharma, Jharkhand can develop with the entry of more lbef.org. 9 September 2015. Retrieved 17 foreign investors. The benefits of FDI are October 2015 numerous but there is a negative impact too. 8. Cabinet clears 100% FDI in Railways FDI inflows can result in technology transfer, infrastructure, 49% in defence” – international trade integration, and increase in Zeenews.india.com. Retrieved 13October competitive business environments, enterprise 2015 development, economic growth, and improved environmental and social conditions. FDI 9. System Changes, Export-Oriented appears to have the most significant impact on Growth and Women in Hungary, Europe- microeconomic growth, which is why the new Asia Studies”, Kiss, Y. (2003). 55(1), 3-37 industrial policies of Jharkhand are welcoming 10. Transnational Corporations: International the FDI. If there is numerous benefits of Citizens or New Sovereigns?, Business FDI, there are some negative effects like; and Society Review, Rondinelli, D. (2002). environmental degradation as, environment 107(4), 391-413 degradation is a trend that began with the

-135- Anusandhanika /Special Issue on FDI in India/ October 2017 Anusandhanika /Special Issue on FDI in India/ October 2017/ pp 136-142 ISSN 0974 - 200X Problems and Prospects of FDI in Indian Retail Sector Binay Kumar Panjiyar Research Scholar University Department of Commerce & Business Management Ranchi University, Ranchi

Dr. Shravan Kumar Associate Professor Department of Commerce J. N. College, Dhurwa, Ranchi

Abstract

Today India was being looked up by many foreign nations as the scope of investment is seen tobe high in our country for the availability of huge resources. Retail Industry has spotted India for stamping its development which had led to the origin of many retail stores. Though it’s been argued that it may affect the local players, many organized retail stores were brought in and they are running successfully covering standard customers for them. FDI as an important means to reorganize the production facilities globally is regarded as an important vehicle for economic development particularly for developing economies. Indian government promotes FDI in retail sector by providing up to 51% for single brand segment and 100% in wholesale segment. It gives an opportunity for the global retail giants to enter India. This paper focuses on the problems and prospects of FDI in Indian retail sector in multibrand segment which aims to give a brief idea about the implications of foreign investments in retail sectors.

Keywords : organized retail, unorganized retail, multi-brand retail, single brand retail Introduction Retailing is the largest private sector in India and second to agriculture in employment. After Though foreign direct investments (FDIs) in farming, retailing is India’s major occupation India were significant in the 1950s and 1960s, (8% of total population). It employs 40 million FDI inflows were meager in the 1970s and people. The retail industry is divided into 1980s. By the mid-1980s, the stagnation organized and unorganized sectors. and technological obsolescence in Indian industry led to a push for economic reform Organized retailing refers to trading activities and deregulation of exchange controls. As a undertaken by licensed retailers, that is, those result of the reforms agreed with the IMF, FDI who are registered for sales tax, income tax, boomed in post reform India and FDIs in India etc. These include the corporate-backed are considered to be a major stimulus in our hypermarkets and retail chains, and also the economic growth as it has the ability to curtail privately owned large retail businesses. Modern the shortage of financial resources and the format retailers which include Supermarkets shortage of technology and skill consequently. like Foodworld, Hypermarkets like Big Bazaar, But the researchers are also of the opinion that HyperCity; Departmental Stores like, Shoppers FDI may exert a negative impact on economic Stop, Lifestyle, Pantaloons, Piramyds, growth of the recipient countries by extracting Westside and Trent, Specialty chains like Ikea their labor and other resources. the retail furnishing house and entertainment chains like Fun Republic, Fame Adlabs, Inox Trade or retailing is the single largest and PVR. Some of the biggest Indian corporate component of the services sector in terms of houses like the Future Group, Raheja Group, contribution to GDP. Its massive share of 10- Reliance, TATA’s, Aditya Birla Group,Bharti 11% is double the figure of the next largest etc. have made massive investments in India’s broad economic activity in the services sector.

-136- organized retail business. are getting exposed to international lifestyles. They are inclined to own more assets and Unorganized retailing, on the other hand, thus there is an increased tendency to spend. refers to the traditional formats of low-cost Therefore, contrary to the olden times, retailing, for example, the local kirana shops, shopping is no longer need based. The owner manned general stores, paan/beedi greater education levels have increased the shops, convenience stores, hand cart and awareness levels of consumers and they are pavement vendors, etc. Unorganized retailing becoming more demanding and discerning. is by far the prevalent form of trade in India – The age segments of 17- 21 year olds, (which constituting 95% of total trade, while organized number more than a 100 million in India) tend trade accounts only for the remaining 5%. to spend freely and are highly influenced by Organized retail trade employs roughly 0.5 international lifestyles. As the contemporary million people and unorganized 39.5 million. retail sector in India is reflected in sprawling With India’s growing per capita income and shopping centers, multiplex- malls and huge a rising middle class, the retail sector has complexes offer shopping, entertainment and the potential to be the real growth engine of food all under one roof, the concept of shopping the country’s economy. While demand for a has altered in terms of format and consumer superior shopping experience is evident in the buying behavior, ushering in a revolution in metropolitan cities, the Tier II and Tier III towns shopping in India. This has also contributed are also rapidly acclimatizing to the changing to large scale investments in the real estate landscape of the Indian retail market. Growing sector with major national and global players consumerism, changes in consumers’ tastes investing in developing the infrastructure and and preferences, and heightened brand construction of the retailing business. The consciousness has been fast replacing trends that are driving the growth of the retail traditional mom and pop stores with organized sector in India are retail malls that house lifestyle and luxury Low share of organized retailing brands from national and international retailers. Competitive real estate prices As part of its retail transformation, India has seen substantial increase in mall space in Increase in disposable income and recent years. Over the past decade, such cities customer aspirations as NCR-Delhi, Mumbai and Bangalore have Increase in expenditure for luxury items shown prominent growth in retailstock, while Hyderabad, Pune, Chennai, Kolkata and many Another credible factor in the prospects of other Tier III towns are rapidly emerging as the the retail sector in India is the increase in the retail growth corridors of the next decade young working population. Hefty pay-packets, nuclear families in urban areas, along with Changing Indian Consumer Behaviour increasing working-women population have There has been an increase in the disposable also contributed to the growth of retailing in income of the middle class households in India. These key factors have been the growth India. Between 1993 and 2003 there was a drivers of the organized retail sector in India 20.9% growth in the real disposable income which now boast of retailing almost all the of the Indians. Besides that, there has been preferences of life -Apparel and Accessories, a 10% growth in the middle and high income Appliances, Electronics, Cosmetics and populations in the last decade. Add to that, the Toiletries, Home and Office Products, falling interest rates, easier consumer credit Travel and Leisure and many more. With and a greater variety and quality of goods this the retail sector in India is witnessing a available at all price points has increased rejuvenation as traditional markets make way the momentum of consumerism in India. for new formats such as departmental stores, Consumers in particular, the urban consumers hypermarkets, supermarkets and specialty

-137- Anusandhanika /Special Issue on FDI in India/ October 2017 stores. The retailing configuration in India Results and Discussions is fast developing as shopping malls are Domestic firms that are contemplating to enter increasingly becoming familiar in large cities. the international market require information When it comes to development of retail space and knowledge that may be costly to obtain. specially the malls, the Tier II cities are no Foreign firms are an obvious source of such longer behind in the race. If development plans information to enable the host country’s till 2007 are studied it shows the projection of access to the world market. Moreover, Foreign 220 shopping malls, with 139 malls in metros Direct Investment implies an element of risk and the remaining 81 in the Tier II cities. sharing between the capital owners and the Foreign direct investment (FDI) or foreign capital importing countries that make this type investment refers to the net inflows of of capital flow more desirable than loans. investment to acquire a lasting management Unlike borrowings from foreign sources which interest in an enterprise operating in an involve contractual obligations from day one, economy other than that of the investor. It direct foreign investment does not involve usually involves participation in management, any fixed charges. Moreover, dividends would joint-venture, transfer of technology and have to be paid only whenthe firms earn profit. expertise. There are two types of FDI: inward FDI can also stimulate employment generation foreign direct investment and outward foreign in the host country because everything else direct investment, resulting in a net FDI inflow being equal, the establishment of foreign (positive or negative) and “stock of foreign firms increases the demand for labor and the direct investment”, which is the cumulative demand for intermediate goods and services number for a given period. Direct investment from local suppliers. excludes investment through purchase of shares. Foreign direct investment, in its classic FDI flows are usually preferred over other definition, is defined as a company from one forms of capital flows because they are non- country making a physical investment into debt creating and non-volatile. In a world of building a factory in another country. The increased competition and rapid technological direct investment in buildings, machinery and changes, their complimentary and catalytic equipment is in contrast with making a portfolio role can be very valuable. FDI can contribute investment, which is considered an indirect directly and indirectly to building national investment. In recent years, given rapid growth capabilities. FDI as an important means to and change in global investment patterns, the reorganize the production facilities globally, it is definition has been broadened to include the regarded as an important vehicle for economic acquisition of a lasting management interest in development particularly for developing a company or enterprise outside the investing economies. Thus foreign direct investment is firm’s home country. As such, it may take many considered a desirable route amongst various forms, such as a direct acquisition of a foreign forms of capital inflows for bridging this gap, as firm, construction of a facility, or investment it is not prone to quick reversal unlike portfolio in a joint venture or strategic alliance with a investment. The importance of FDI also lies in local firm with attendant input of technology, the fact that assistance from multilateral and licensing of intellectual property. bilateral sources is either stagnant or declining in comparison with FDI inflows. Further, apart Materials and Methods from the long-term additional capital that it brings in, FDI also facilitates technology For the purpose of in depth study the contents up-gradation and introduction of modern have been taken from relevant books and production and management practices. articles from journals government reports. The methods used are descriptive and analytical. Determinants of FDI inflows Consultation with eminent scholars in this field The volume and the quality of FDI in a country has shaped the present discussion. -138- Anusandhanika /Special Issue on FDI in India/ October 2017 depend on the following factors: foreign exchange control, remittances, and incentives – both monetary and fiscal a) Natural Resources: Availability of natural offered to foreign investors exercise a resources in the host country is a major significant influence on FDI in a country. determinant of FDI. Most foreign investors For example, Export Processing Zones seek an adequate, reliable and economical (EPZs) have been developed in India source of minerals and other materials. FDI tends to flow in countries which are Problems of FDI in Indian Retail Sector rich in resources but lack capital, technical Adverse Impact on the Employment : In skills and infrastructure required for the the absence of any substantial improvement exploitation of natural resources. in the employment generating capacity of the b) National Markets: The market size of a manufacturing industries in our country, entry host country in absolute terms as well as of foreign capital in the retail sector is likely in relation to the size and income of its to play havoc with the livelihood of millions. population and market growth isanother Let alone the average Indian retailer in the major determinant. Large markets can unorganized sector, no Indian retailer in the accommodate more firms and can help organized sector will be able to meet the firms to achieve economies of large scale onslaught from a firm such as Wal-Mart when operations. it comes in full swing. With it’s incredibly deep pockets Wal-Mart will be able to sustain losses c) Availability of Cheap Labor: The availability for many years till its immediate competition is of low cost and skilled labor has been a wiped out. This is a normal predatory strategy major cause of FDI in countries like China used by large players to drive out small and and India. Low cost labortogether with dispersed competition. This entails job losses availability of cheap raw materials enables by the millions. A back-of-the-envelope foreign investors to minimize costs of calculation can substantiate the point. If we production and thereby increase profits. take the case of India, it has 35 towns each d) Socio-Economic Conditions: The size with a population over 1 million. If Wal-Mart of the population of the host country, its were to open an average Wal-Mart store in infrastructural facilities and income level each of these cities and they reached the of the country also influence direct foreign average Wal-Mart performance per store-we investment. are looking at a turnover of over Rs.80, 330mn with only 10,195 employees. Extrapolating e) Political Situation: Political stability, legal this with average trend in India, it would mean framework, judicial system, relations with displacing about 4,32,000 persons and if we other countries and other political factors suppose that the large FDI driven retailers take prevailing in the country also influence up 20% of the retail trade in India, it would mean movements of FDI from one country to a turnover of Rs. 800 billion and displacement another. of eight million persons employed in the f) Rate of interest: Differences in the rate of unorganized retail sector. interest prevailing in different countries Threat on Organized Retail Players : Entry stimulate foreign investment. Capital tends of global players would increase internal rivalry to move from a country with a low rate of among the players than promoting business of interest to a country where it is higher. FDI overall industry. Their economies of scale will is also inspired by foreign exchange rates. allow them to reduce their margin to provide Foreign capital is attracted to countries value for money products in the beginning to where the return on investment is higher. grab the market share which is not possible g) Government Policies: Policy towards for domestic players to reduce incomparison foreign investment, foreign collaborations, to global players because of huge investment.

-139- Anusandhanika /Special Issue on FDI in India/ October 2017 Majority of the Indian players have not attained majority of their products globally rather than even break-even point as organized retail is investing in the local markets. still at the nascent stage in India. Towering Effect On Real Estate Prices : Huge Spread of Retail Chain Stores : The entry of global players may have towering Financially strong giants will spread their impact on the real estate prices. With intensified function at multiple location to cater to maximum fight for space in cities, the race may result in markets with full fledge infrastructure which is steep rise in real estate prices which could be not possible for domestic player to cater. counterproductive for the domestic players. Predatory Practices of the Multinational Distortion of Urban Development and Retail Chains : FDI in retail is often supported Culture : The promotion of large retail stores on the basis of the need to develop modern with huge retail space also fosters a different supply chains in India, in terms of the kind of urban development than what we have development of storage and warehousing, followed in India till date. Large shopping transportation, logistic and support services, malls with all known retail chains with their especially in order to meet the requirements showrooms as a part of urban development of agriculture and food processing industries. is familiar in the US where the consumers While the infrastructure and technology needs live in suburbs, drives long distances for his/ are undeniable, the belief that the entry of her shopping and lives in a community that multinational food retailers is the only way to hardly knows each other. The problem with build such infrastructure is unfounded. this model is that it neglects the simple Indian reality where most households do not have It is often argued that the Indian farmers and cars and need local markets. The myth of a manufacturers are going to enjoy access to huge and fast growing affluent middle class is international markets by supplying commodities counter to the reality that this section is still too to these multinational retailers. However, small to support the remodeling of the urban the experience of the producers, especially landscape as is being planned with malls, those producing primary commodities in the large retail chains and branded products. developing world, is not encouraging in this regard. The International market access Prospects of FDI in Indian Retail Sector available to the global retailers do not benefit the It Will Improve Competition And Bring producers from the developing countries since Prices Down : Retail trade in India is they are unable to secure a fair price for their fragmented, unorganized, un-networked, produce in the face of enormous monopsony inefficient and individually small. An all too power wielded by these multinational giants. visible manifestation of the inefficiencies is Monopoly In The Customer Market And the huge disparity between the price which he Creation Of Cartels By The Global Players: producer gets and the price which the consumer Foreign players may create monopoly by pays— sometimes as high as 10-20 times! providing products at discounted rates in Clearly, what is needed is an efficient supply the beginning to grab the market share by chain backed by improved infrastructure, cold displacing domestic giants and after getting storages, packing and transportation. The good market or monopoly in the market may traditional system of distribution, ending with create a cartel of global giants to exploit the mom and pop or the street-side vegetable the customers by inducing price hike and seller, is just not capable of creating it. customers would not get any option than to Investing In Technology and Better Supply purchase at the available prices. Chain Management : The cold storage chains Setback To The Trade Balance : FDI in set up by international retailers will solve the retailing can upset the import balance, as large perennial problem of wastages. As much as international retailers may prefer to source 40 % of India’s fruits and vegetables rot due

-140- Anusandhanika /Special Issue on FDI in India/ October 2017 to lack of processing facilities. The foreign by players of the organized sector will not retail giant houses like Wal-Mart and Carrefour be possible like those of the unorganized can bring better managerial practices and IT- sector. Thus, the exchequer of the Govt. shall friendly techniques to cut wastages and set up increase. integrated supply chains to gradually replace Increase In Employment Levels : Employment the present disorganized and fragmented retail shall be generated at various levels and across market. According to McKinsey, India wastes the entire value chain. Retailing industry doesn’t nearly Rs. 50,000 crore in the food chain itself. need very high level skill sets. Graduates and With ITapplication, the modern retail store can school pass outs shall be suitable for the jobs cut transaction costs such as due to inventory, and this is a major unemployed demographic delivery and handling. That is precisely how group. It is projected that job generation will the US based Wal-Mart grew to be a giant be similar to that of the ITES industry. More because it reduced its distribution costs to employment generation shall lead to an 3% of sales compared to 4.5% of others. increase in the tax paying population. These international retail outlets can help develop the food processing industry which Better Lifestyle : Greater levels of wages requires $28 billion of modern technology are paid by most international players. The and infrastructure. Also a more advanced and increasing purchasing capacity of consumers efficient production and distribution cycle shall shall lead to better lifestyle. International evolve. An improved distribution system and retailers shall offer a better product variety better supply chain management shall make with many new product categories emerging. an improvement in the product basket from Also the quality of products shall improve. The India for exports. newer supermarkets in urban/metropolitan India offer a produce which is cleaner, fresher, Controlling Inflation :Industry trends for retail well-packed and often cheaper than the sector indicate that organized retailing has vegetable seller on the street.Modern retailing major impact in controlling inflation because is designed not only to provide consumers with large organized retailers are able to buy directly a wide variety of products under one roof, but from producers at most competitive prices. also of assured home delivery and information Increase In Exports : here are likely to be feedback between consumers and producers. greater levels of exports due to increased A modern retail outlet will also make it easy sourcing by major players. Sourcing by Wal- to buy on credit and provide for servicing and Mart from China improved multifold after FDI repair of products sold. was permitted in China. Tourism Development : The Singapore and Manpower and Skill Development : By Dubai shopping festivals were examples of the allowing market-savvy, market-intelligent and possibilities for improving tourism thanks to the best management practices of corporations retail industry. such as Wal-Mart, Carrefour, Ahold, JC Overall Growth and Expansion : FDI would Penny, etc to enter India the know-how result in market growth and expansion. A and professionalism of Indian employees greater consumer spending shall lead to shall increase. Also there shall be a greater greater GDP growth. managerial talent inflow from other countries which add to transfer of knowledge and Conclusion technical know-how. Given the WTO regime India is a party to, the Better Enforcement of Tax Laws : While entry of FDI in the retail sector is inevitable. there will be increased tax revenue on the one But with the instruments of public policy in its hand, on the other hand there will be better hands, the government can create conditions enforcement of tax laws on the organized that slow down their entry. Japan has done this sector and international players. Tax evasion quite effectively. In this fashion, the Government -141- Anusandhanika /Special Issue on FDI in India/ October 2017 can try to ensure that the domestic and foreign 4. http://www.mbauniverse.com/article/ players are approximately on an equal footing id/6568/ and that the domestic traders are not at an 5. http://blogs.economictimes.indiatimes. especial disadvantage. While it is true that com/policypuzzles/entry/why-fdi-won-t- some dislocation of traditional retailers will be solve-the-problem-of-fiscal-disaster-in- felt, the government must ensure that retail india-fdi does not remain concentrated in a few foreign hands. 6. http://indiatoday.intoday.in/story/ retail-fdi-reforms-at-full-throttle-anand- References sharma/1/221559.html 1. Imtiaz Mohmad, FDI in organized 7. http://www.coolage.in/2012/09/23/fdi-in- retail in India: look to the multi brand india-pros-and-cons-of-it-top-3/ opportunities‖, IJRCM, Volume NO.3, Issue No:12(December), ISSN 0976 – 8. http://www.rbi.org.in/scripts/bs_ 2183, 2012, pp 122-125 viewcontent.aspx?Id=2513 2. Babu S. Harish, Foreign Direct Investment 9. http://www.getmoneyrich.com/prospects- in India and Its Economic Significance‖, of-fdi-in-retail-in-india/ IJRCM, Volume no. 1, Issue no. 6 (October) 10. http://www.kish.in/know-about-the- ISSN 2231-4245, 2011pp 140- 145 prospects-of-foreign-direct-investment-in- 3. http://www.moneycontrol.com/news/real- the-retail-sector-of-india/ estate/fdimulti-brand-retail-is-india-ready- for-it-now_788962.html

-142- Anusandhanika /Special Issue on FDI in India/ October 2017 Anusandhanika /Special Issue on FDI in India/ October 2017/ pp 143-147 ISSN 0974 - 200X FDI in Insurance Sector

Pervez Wahab Research Scholar University Department of Applied Economics & Commerce Bodh Gaya, Bihar

Dr Nayeem Akhatar Associate Professor, Department of Commerce Mirza Ghalib College, Gaya

Abstract

When control on capital accounts relaxed then the economy creates potential for inward and outward movement of capital. These flows usually come in the form of Portfolio, Investment, Foreign Direct Investment, Equity and Debt flows. These flows are oftenly used to promote economic growth in a developing economy. Over the last two decades India has been gradually dismantling capital controls as part of its broader financial liberalization strategy. FDI is one of the tool to accelerate economic growth of India. Till 2015 the total inflow of FDI into India is 1,29,33,03 crores in the different sector. The share of service sector is 17% of the total FDI inflow. Service sector includes financial, banking, Insurance, non financial/ business etc. followed by construction development, at the rate of 9% and telecommunication by 7% and other sector. FDI is a major sources of external financing and thereby provide important means of implementation of sustainable development goals and growth of a developing nation. FDI also contributes to the transfer of technology and improvement of labor and management skills. Insurance is one the beneficiary through FDI. India‘s Insurance market has a high potential due to its large population. There for Developed countries wants to grab this opportunities

Keywords : management skills, capital controls, economic growth

Introduction place due to its large uncovered population for the developed countries. In 2015 through Foreign Direct Investment is one of the Insurance Amendment Bill Parliament has measures of growing economic globalization. passed a resolution bill to increase FDI in Investment has always been an issue for Insurance sector from 26% to 49% with other the developing economics such as India. sector .After the increased rate of FDI in India All the developing countries are liberalizing the total inflow of is INR 12,93,836 crores. their policies for welcoming investment from India becomes the tenth largest recipient countries which are abundant in capital of Foreign Direct Investment in 2015 in the resources. FDI offers number of benefits like world, grossing $44 billion as per the latest overture of new technology, innovative products world Investment Report, regulated by the and extension of new markets, opportunities United Nations Conference on Trade and of new employments and introduction of new Development. (UNCTAD). skills. Which reflect in the growth of income of any nation. The countries which are FDI Investment scenario developed are focusing on new market where Through below table we can analyse that how there is avability of abundant labors, scope much other countries are interested to invest in of products, and high profits are achieved. India through FDI. And India is one of the most favorable market -143- Share of Top Investment Countries FDI equity Inflows ( in crores)

Sl. Country 2013-14 2014-15 2015-16 Cumulative % of Total No inflow Inflow 1 Mauritius 29,360 55,172 13,236 4,38,892 35% 2 Singapore 35,625 41,350 23,320 190,477 14% 3 UK 20,428 8,769 7,55 110,409 9% 4 Japan 10,550 12,752 2,916 96,312 7% 5 Netherland 13,920 20,960 4,123 81,381 6% 6 USA 4,807 11,150 3,959 70,839 6% 7 Germany 6,093 6,904 3,497 42,007 3% 8 Cyprus 3,401 3,634 608 39,971 3% 9 France 1,842 3,881 877 23,465 2% 10 Switzerland 2,084 2,066 598 15,812 1% Total Inflow from all 1,47,518 1,89,107 60,298 1,293,836 countries Source- IRDAI Annual Report 2015 A total 147 countries have invested through FDI 7%, and 6% respectively. Service sector is including NRI’s contribution in India. According the highest FDI attracting inflows with 17% to the fact sheet on foreign direct investment, of the total inflow, followed by construction Mauritius is the highest FDI in equity inflow with development, Computer software, with 9% 35% of the total inflow followed by Singapore, and 7% respectively. UK, Japan, and Netherland with 14%, 9%, Sector wise FDI equity Inflow ( Rs in Crores)

Sl. Sector 2013-14 2014-15 2015-16 Cumulative % of total No. inflow Inflow 1 Service Sector ** 13,294 19,963 4,036 209,578 17% 2 Construction 7,508 4,582 216 113.355 9% Development: Townships, Housing, Built-Up Infrastructure 3 Computer Software & 6,896 13,564 16,245 89,481 7% Hardware 4 Telecommunications 7,987 17,372 2,517 86,609 7% (Radio Paging, Cellular Mobile, Basic Telephone Services) 5 Automobile Industry 9,027 15,794 6,914 70,906 5% 6 Drugs & 7,191 9,211 1,370 66,652 5% Pharmaceuticals 7 Chemicals (Other Than 4,738 4,077 1,598 50,909 4% Fertilizers

-144- Anusandhanika /Special Issue on FDI in India/ October 2017 Sl. Sector 2013-14 2014-15 2015-16 Cumulative % of total No. inflow Inflow 8 Power 6,519 3,985 1,717 48,357 4% 9 Trading 8,191 16,962 5,679 49,479 4% 10 Metallurgical Industries 3,436 2,897 845 41,992 3% Note: (i)** Services sector includes Financial, Banking, Insurance, Non-Financial / Business, Outsourcing, R&D, Courier, Tech. Testing and Analysis (ii) Cumulative Sector- wise FDI equity inflows (from April, 2005to June, 2015). (iii) FDI Sectoral data has been revalidated / reconciled in line with the RBI, which reflects minor changes in the FDI figures (increase/decrease) as compared to the earlier published sectoral data Materials and Methods 2008 47.4 4.60% In this Study I would investigate the link 2009 54.3 5.20% between FDI Inflow and Insurance Market. 2010 64.4 5.10% Using time series data spanning from 2005 to 2015 for India. The study is divided in 2011 59.0 4.10% Introduction, FDI Investment scenario, an 2012 53.2 3.96% over view of FDI in Insurance sector, Need of 2013 52.0 3.90% FDI in Insurance sector and Conclusion. The 2014 55.0 3.30% data is secondary nature and is collected from different sources and web sites. 2015 54-7 3.44% Results and Discussions Sources- Swiss re- Sigma Insurance plays a major role to mobalise The measures of Insurance penetration and national savings and channelise them in to density reflect the level of development of investment in different sector of the economy. Insurance sector in a country. While Insurance FDI in Insurance can meet India’s long term penetration is measured as the percentage capital requirement to fund the building of of Insurance premium to GDP. Insurance infrastructure. Insurance sector has the density is calculated as the ratio of premium to capabilities of raising long term capital from population (per capita Income). the masses. An increase in FDI in Insurance Registered Insurance Company in India would indirectly be a boon for the Indian Economy. During the first decade of insurance Type of Public Private Total Industries achieved a strong growth, the sector Business Sector sector number has reported consistent increase in Insurance Life insurance 1 23 24 penetration from 2.71 percent in 2001 to Non- life 6* 22 28 5.20% in 2009. However since then the level insurance of penetration has been declining reaching 3.3 percent in 2014. Re Insurance 1 1 1 Insurance Penetration and Density in India Total 8 44 53 Including specialized Insurance sector. ECGC Year Density Penetration % and AIC (Export Credit Granted Corporation, (USD) Agriculture Insurance Company of India ltd.) 2005 22.7 3.14% Need of FDI in Insurance Sector 2006 38.4 4.80% There are ultimate benefit of FDI insurance 2007 46.6 4.70% sector, which can be write down in below

-145- Anusandhanika /Special Issue on FDI in India/ October 2017 mentioned way. in , the insurance companies will be able to create more jobs to meet their targets 1. Insurance Product : Private as well as of venturing in to under insured market government insurer will get benefit from through improved infrastructure , better the hike of FDI. These companies can operation and more manpower. offer better and wide range of insurance product to customer at large competitive Conclusion prices. The associate Chamber of Commerce and 2. Smaller Companies : FDI will help smaller Industry of India in their Executive Summery insurance companies to break even of foreign Investment said that over INR 12000 factors and help monetize ( convert in to crores is expected to land in the country currency) the holding of the promoters of and more than dozen foreign companies the older Insurance companies. are planning to raise their stake in private insurance sector. Soon after the law take place, 3. Capital Inflow : Immediate capital inflow foreign investor started ploughing capital in to of $2 billion and long term inflow of about their Indian Joint Ventures. Companies AXA of $10 billion can be expected. France, Bupa of the UK, Nippon life Insurance 4. Aggression : The Industry has been of Japan announced raising stake in their cautious in selling which are capital respective joint ventures. About 9 Insurance intention, it will be able to become companies have already applied for regulatory aggressive. clearance to bring in foreign investment. Re- Insurance sector would also see some fund 5. Technology : Insurer will not just get capital flow as it has also get a leg-up through the but also technology and product expertise amendment act. According to IRDAI the total of the foreign partners who is the domin FDI in insurance sector as on March.2015 partner. was about Rs.8,031 crores . This figure could 6. New Players : We can expect about 100 well cross Rs 20,000 crore by the end of life and non- life companies to serve a December this year”. There are 52 insurance market of our size. Increased FDI could companies operating in India, of which 24 see 25 to 30 new insurer entering the are in the life insurance business and 28 in market. the general insurance. State-owned General Insurance Corporation (GIC), in addition, is 7. Penetration : With the population more the sole national reinsurer. In order to deepen than 125 crores , India requires more than the re-insurance market, IRDAI permitted any other nation. However , the Insurance UK-based Lloyds to set up business in India. penetration in the country is only about Ireland based global Re-insurance firm XL 3.3% of our Gross Domestic Product Catlin has announced plan to enter India and (GDP). India’s insurance market lags has already begun the licencing process. behind other economics in the baseline The FDI has opened new vistas and will help measure of insurance penetration. At only deepening the insurance market in the country 3.3%, India is well behind the 11.3% for which is second most populous in the world. the South Korea, 10.8% for Japan, 10.6% Indian Insurance market has huge unexplored for UK and 9.1% for the France, Italy potential yet to be explored. . Indian insurance with 8.6% and for US 7.3%. Increased industry has a long way to traverse insurance FDI limits will strengthen the existing penetration in the country is quite low compared companies and will also allow the new to global average. The FDI will help to increase players to come in, there by enabling penetration level. As we know that insurance more people to buy life cover. penetration is measured as the percentage of 8. Employment : With more money coming insurance premium to GDP. There for we say that FDI in insurance sector plays a important -146- Anusandhanika /Special Issue on FDI in India/ October 2017 role in the economic development of India by 4) www.quora.com providing various useful services. 5) www.assocha.org/foreign-investmentflow- References in-insurancesector 1) https/rbi.org.in/scripts/bs fema 6) www.swissre.com/sigma notification.aspx 7) www.statica.com 2) India FDI June 2015 3) IRDA annual Report

-147- Anusandhanika /Special Issue on FDI in India/ October 2017 Anusandhanika /Special Issue on FDI in India/ October 2017/ pp 148-153 ISSN 0974 - 200X Foreign Direct Investment in India Priyanka Chaturvedi Research Scholar University Department of Commerce and Business Management Ranchi University, Ranchi

Dr. H.B Singh Associate Professor, Department of Commerce Doranda College, Ranchi

Abstract

Foreign Direct Investment is one and only major instrument of attracting International Economic Integration in any economy. It serves as a link between investment and saving. Many developing countries like India are facing the deficit of savings. This problem can be solved with the help of Foreign Direct Investment. Foreign investment helps in reducing the defect of BOP. The flow of foreign investment is a profit making industry like insurance, real estate and business services and serving as a catalyst for the growth of economy in India. Foreign investment flows are supplementing the scare domestic investments in developing countries particularly in India. The inflow of foreign investment because it enable us to achieve our cherished goal like making the balance of payment, rapid economic development, removal of poverty, and internal personal disparity in the development and also it is very much convenient for Indian economy.

Keywords : domestic investment, real estate, profit making

Introduction FDI through following two routes:- Foreign Direct Investment (FDI) is an 1. Automatic Route: FDI in these sectors do investment of foreign assets into domestic not require any prior approval from either structures, equipment, and organisations. the Government of India or the Reserve Foreign companies invest directly in fast Bank of India. growing private Indian businesses to take 2. Government Route: FDI in these activities benefits of cheaper wages and changing require prior approval of Government business environment in India. The FDI can which are considered by Foreign take any route or form to enter into any nation. Investment Promotion Board (FIPB), The three principal forms of FDI in India are Department of Economics Affairs, and joint ventures, acquisitions of assets in a Ministry of Finance. country and Greenfield ventures. In this era of Globalisation FDI plays a vital role in the Recently, the Government of India in its Annual development of developing and developed Budget 2017-18, has announced to abolish or economies. Investment has always been an wind up the Foreign Investment Promotion issue for developing economies like India. Board (FIPB) and come up with a new Developed countries are focusing on new mechanism that could include approvals by markets where there is availability of abundant ministries concerned for expeditious clearance labours, scope for products and higher profits of foreign investment proposals. This will are achieved. Therefore, FDI has emerged as further improve the ease of doing business. a battle ground of emerging markets. Currently, FIPB has a single window clearance for applications on FDI in India under approval Countries like Mauritius, Singapore, US and route. UK have emerged as the leading sources of FDI in India. Indian companies may receive Inflow of Foreign Investment comes through -148- various routes- and policies. Frequent changes in policies by the Government have adverse impact 1. Equity (Government, RBI, NRI, Acquisition, on the business. A business requires a lot shares, Equity capital of unincorporated of fund for its continuation and change in bodies); Reinvested earning or other policies may have a negative impact on capital. the potential investor. As a matter of fact, 2. Portfolio Investment (GDR/ADR, FIIs, India’s stable economic and socio-policies OFF shore funds and others): Portfolio have attracted a lot of investors across Investment does not seek management borders. control, but it is motivated by profit. When 3. Basic infrastructure : India has developed individual investors invest mostly through special economic zones which require stockbrokers in the stocks of foreign infrastructure such as roads, effective companies in foreign land in search of transportation and registered carrier profit opportunities, it is called Portfolio departure worldwide, information and Investment. They do not exercise a control network technology, powers, financial or significant influence. This is actually a institutions and legal system and other contrast to direct investment, which allows basic amenities which are must for the an investor to exercise a certain degree of successful running of a business. Now if managerial control over a company. there is a sound legal system and modern Materials and Methods infrastructure in the host country, it attracts On the basis of requirements, tools available foreign capital. and limitations, secondary data collection 4. Economic factors : Different economic method is used in this paper. Secondary data factors such as interest loans, tax breaks, means data that are already available, that grants subsidies and the removal of is, referring to data which have already been restrictions and limitations attract FDI. collected and analysed by someone else. The Government of India has given many Secondary data may either be published data tax exemptions and subsidies to the or unpublished data. Following are the sources foreign investors. For example, the Start of secondary data Journals and Newspapers, up India campaign of the current NDA Various publications of central, state and local Government has provided for capital gain government, Books and Magazines, Websites, tax exemption to foreign investors. Reports prepared by research scholars, universities, economists, etc. 5. Availability of natural resources : The foreign investors have advanced Results and Discussions technology and capital which can be Determinants vary from each other in different used in the process of production and countries due to the interest and opportunities India has ample amount of unexploited for the potential investors. In case of India, natural resources like coal, iron and steel. following are the determinants of FDI- These natural resources can readily be used by foreign investors in process of 1. Cheap and easily available labour supply: production by extracting them from mines. India has an abundant supply of both This requires foreign collaborations skilled and unskilled labour. Foreign for economic development of the host investors, therefore, try to take advantage country. of this and they invest in India for cheap labour. 6. Unexplored markets : India has a large market scope which is unutilised. This 2. Stable policies : The foreign investors can be used by the potential foreign prefer those countries for investment investors giving them profit opportunities. which have stable economic conditions -149- Anusandhanika /Special Issue on FDI in India/ October 2017 This is being practised in the BPOs where business in a country. investors have large scope of exploring Second, if obtaining certain business the market where service can be provided licenses in India involves politicians only through a call anywhere at any time. and bureaucrats interference, Problems of Foreign Direct Investment flow then it creates uncertainty for the in India corporation. The largest democracy of the world-India, with Third, it encourages the middlemen the second largest population (65 percent of to get involved in corrupt activities. its population being 35 or under, and half of Fourth, the investor may have to face the country’s population being under the age legal implications like going to jail, if of 25), with rules, laws and a highly English they are caught. speaking workforce is an ideal place for foreign investors. Still, India suffers a lot of problems Fifth, the foreign investors may in attracting FDI due the restrictions regarding be blacklisted by the host country the market. Following are some of the major and many other countries if the problems in the inflow of FDI in India- malpractices come into light. 1. Stringent labour laws : India is a federal Sixth, the attraction of talented people form of Government and because labour in the host country may become is a subject of the concurrent list of the difficult for the investing corporation. Indian Constitution, labour matters are Seventh, the public or customer’s both in the jurisdiction of State and the perception about unethical conduct Central Governments. Since both of them of the investor may harm his brand can enact laws on the labour relations and image and reputation in the host employment issues, therefore, the labour country as well as in the home laws are too strict and precise in India. country. Large firms in India are not allowed Eight, it may also result in financial to retrench or lay off unnecessary damages in terms of fine imposed workers from the industry without prior even when the guilt is not admitted by approval of the State Government the company. and the employees. Therefore, these approvals are rarely given. Some of the companies affected by corruption are JP Morgan Chase and Company, the They cannot just close down the work biggest US Bank and Avon Products Inc; a unit without prior approval of the State cosmetic company are still facing investigation Government. by US and Chinese authorities. Another The presence of the over generous multinational drug manufacturer, Pfizer had voluntary retirement policies and to pay a huge amount of money to settle its schemes pave a way for the Trade claim regarding payment of bribe to doctors in Unions to extort huge sums from the China. companies. 3. Lack of adequate infrastructure : Lack of Due to some of these restrictions adequate infrastructure acts as a major mentioned above, inflow of FDI sometimes hurdle in the easy FDI inflow into India. becomes difficult. The biggest problem in India is Electricity. There are frequent power cuts and many 2. Corruption : Corruption in a country affects industries are forced to close down. Thus, investors in many ways. the poor form of infrastructure discourages First, it increases cost of doing foreign investment into India.

-150- Anusandhanika /Special Issue on FDI in India/ October 2017 4. Lack of decision making capabilities : In liberal attitude towards foreign investors. case of decision making, the Centre and A major shift took place in 1991 at the time the State are not given much power. At of Liberalisation aiming to raise its growth some places the power vests with the potential and integrating with the world State Government and in some cases economy. It allowed an increased access to with the Centre. If the decision is not foreign technology and capital. Introduction of timely taken, it is of no use and its gives the dual routes of approval by RBI –automatic a bad image to the prospective investors, and Government approval, removal on who is very conscious about safety and restrictions on FDI, boosted the replacement of constant return on their investment in the the Foreign Exchange Regulation Act (FERA), host country. 1973 by the Foreign Exchange Management 5. High Corporate taxes : High rates of Act (FEMA), 1999. Government of India, in corporate taxes are definitely a problem June 2006, allowed 51 percent FDI in the single for the foreign investors. It acts as a barrier brand retailing. Furthermore, in December in the process of foreign investment. The 2012, Government of India approved 100 corporate tax rates in East Asia vary percent FDI in single brand retailing and 51 between 15-30 percent and 48 percent for percent in multi brand retailing. foreign companies in India. FDI has been allowed up to 100 percent 6. Political instability : The potential investors under Government approval route for are always attracted to the countries trading, including through e-commerce, in where there is political stability because terms of food products manufactured or this leads to stable economic policy produced in India, in the Budget 2016-17. framework which affects the business. The Government permitted 74 percent FDI High degree of political turmoil leads to in pharmaceutical sector under automatic less inflow of FDI in a country. route. It added that the Government Current Scenario of Foreign Direct approval will be required beyond 74 Investment in India percent up to 100 percent in brown-field pharmacy. Economic Liberalisation started in India in the wake of the 1991 economic crisis since then 100 percent FDI has been permitted in FDI has steadily increased in India. It was India based Airlines. However, a foreign the then the Finance Minister, Mr.Manmohan carrier can only own up to 49 percent Singh and the then, the Prime Minister, Mr.P.V stake in the venture, and rest can come Narasimha Rao, who brought FDI in India, from a private investors including those which subsequently generated more than one based overseas.100 percent FDI is crore jobs. allowed in airport development projects without any approval of the Government As the third largest economy of the world in from 74 percent permitted so far. terms of purchasing power parity (PPP), India is a preferred destination for foreign investment. 49 percent FDI allowed under automatic Historically, India had followed an extremely route in Insurance and Pension sectors. careful and selective approach in the Pre- Foreign investment up to 49 percent in liberalisation period. The regulatory framework defence sector permitted under automatic was consolidated through the enactment of route and Government approval in excess Foreign Exchange Regulation Act (FERA), of 49 percent. 1973 where foreign equity holding was allowed only up to 40 percent in joint venture. The FDI limit of 100 percent in Manufacturing announcement of the Industrial Policy (1980 of Small Arms and Ammunitions and 1982) and Technology Policy provided a covered under Arms Act 1959. (49%

-151- Anusandhanika /Special Issue on FDI in India/ October 2017 under automatic route and beyond that 2. Company: government’s approval.) Foreign Trust 100 percent FDI in cable networks, Sovereign Wealth Funds teleports, direct to home benefits, television channels. Non –resident Indians /Persons of Indian origin 100 percent FDI allowed in Asset Reconstruction Companies under 3. Foreign Institutional Investors: automatic route.FDI limit of Foreign Private equity funds Security Agencies raised to 74%. Partnership/proprietorship firm Railways Infrastructure-100 percent. Others Tourism -100 percent. The following steps are involved in the FDI and the MAKE IN INDIA programme Investment made under this Programme:- The Make in India campaign was launched Identification of structure. by Prime Minister Mr.Narendra Modi on 25th Approval of Central Government, if September 2014, to encourage companies required. to manufacture their products in India. The Incorporating the structure. aim of this ambitious campaign to turn India into a global manufacturing hub. Ease of Inflow of funds. doing business, focus on Public-Private Meeting RBI’s guidelines or partnerships, harnessing the potential of requirements. Democracy, Demography and Demand- that’s Registration process. what forms the key focus of the MAKE IN INDIA programme. There is a high correlation Project approval from State or Union between Industrial Production and FDI Territory. inflows. The effect of economic development Finding ideal space for business ranges from increased productivity to greater activities. technology transfer. The measures taken by Acquiring Industrial license. the Government are directed to open new sectors for FDI, increase in sectoral limits of Construction of the unit. existing sectors and simplifying the FDI policy. Hiring manpower. FDI policy reforms are meant to provide ease Obtaining license, if any. of doing business and accelerate the pace of Other formalities like state and central foreign investment in the country. level registrations. The Recent Policy measures taken in this Meeting annual requirements like campaign have already been discussed above payment of taxes. along with the permissible limits in different sectors. Now we see the different types of Certain incentives are provided by the investors- Government of India in terms of foreign investment made under the Make in India 1. Individual: campaign. Some of them are- Foreign Venture Capital Investors Central Government Incentives Pension/Provident Fund Investment allowance up to 15 percent Financial Institutions to manufacturing companies that invest more than INR 1 billion in plant and

-152- Anusandhanika /Special Issue on FDI in India/ October 2017 machinery available till March 31st, 2105. It helps in creation of jobs and expansion of manufacturing sector. In the process of Export incentives like duty exemption. economic development, foreign capital acts Area based incentives like those regions as a catalyst providing superior technology, which are in North- Himachal Pradesh, promoting efficient production and improving Jammu and Kashmir, and Uttarakhand. profit opportunity. Sector specific incentives like Modified References Special Incentive Package Scheme in 1. Singh Dr. Jasbir, Chadha Sumita and electronics. Sharma Dr. Anupam, Role of Foreign State Government Incentives Direct Investment in India : an analytical study, International Journal of Engineering Each state has its own incentive policy and Science, Volume 1, Issue 5, October which is based upon amount of investment, 2012, pp 34-42 project location, employment generation, etc. These incentives differ from state to 2. Ravi Siva Prasad, Does Corruption state. in a country affect the Foreign Direct Investment? A study of Rising Economic Other state incentives include stamp duty Super Powers China and India, Open exemption for land acquisition, refund or Journal of Social Sciences, 2015, Volume exemption from payment of electricity 3, pp 99-104 duty etc. 3. Vyas Abhishek Vijay kumar, An analytical Conclusion study of FDI in India (2000-2015), Foreign Direct Investment plays a significant International Journal of Scientific and role in the development of economy like India. Research Publications, Volume 5, Issue Foreign Direct Investment acts as a bridge to 10, October 2015 fulfil the gap between investment and saving.

-153- Anusandhanika /Special Issue on FDI in India/ October 2017 Anusandhanika /Special Issue on FDI in India/ October 2017/ pp 154-160 ISSN 0974 - 200X FDI in Indian Retail Sector Opportunities and Challenges

Priyanka Pandey Research Scholar University Department of Commerce and Business Management Ranchi University, Ranchi

Dr. D.L Maurya Associate Professor Previous HOD & Dean University Department of Commerce and Business Management Ranchi University, Ranchi

Abstract

As we know that India is the third-largest economy in world preferred destination for Foreign Direct Investment (FDI). The rapid growth of world population since 1950 has occurred mostly in developing countries like India. This growth has been matched by more rapid increases in gross domestic product and thus income per capita has increased in most countries around the world since 1950. FDI is a major source of non- debt financial resource for the economic development of India. Foreign companies invest in India to take advantage of cheaper wages, special investment privileges like tax exemptions, are being made, it also means achieving technical knowhow and generation of employment. Economic liberalization started in India in wake of the 1991 economic crisis and since then FDI has steadily increased in India. FDI is an investment made by an organization or individual in another country in business interests in another country in the form of either establishing business operations or acquiring business assets in other country such as ownership or controlling interest in a foreign company. Retailing in India is one of the pillars of economy and accounts for about 15% of its GDP. The retail industry is the sector of economy which is consisted of individuals stores commercial complex, agencies, companies and organization etc involved in the business of selling and merchandizing diverse finished products or goods to the end-user consumers directly and indirectly. The union govt. has “radically liberalized”, the FDI regime and opened up multiple sectors for 100 percent FDI. Most of the sectors would be under automatic approval route, except a small negative list. With these changes, India is now the most open economy in the world for FDI.

Keywords : economic liberalization, economic development, commerical complex

Introduction local market with foreign financers when local investment is unavailable. There are various Globalization and liberalization brings lots of formats of FDI and companies investing in a latest products to the world, Foreign Direct foreign country. It has been proved that FDI Investment is the one among this, also can be a win win situation for both the parties there are number of different forms of FDI is involved. The investor can gain cheaper access available currently. Recently, Government of to products/ services and the host country can India allowed FDI in different sectors of Indian get valuable investment unattainable locally. economy. But several opposition parties are As we know that India is the third-largest making it a political issue in parliament on economy in world preferred destination for these policy decisions and amendments. Foreign Direct Investment (FDI). The rapid With a view to infuse globally acceptable growth of world population since 1950 has best practices, modern management skills occurred mostly in developing countries like and latest technology, it has been decided to India. This growth has been matched by more allow foreign investment in India. FDI play a rapid increases in gross domestic product vital role in acquiring investments and grow the and thus income per capita has increased in -154- most countries around the world since 1950. investment in a business by an investor FDI is a major source of non-debt financial from another country for which the resource for the economic development of foreign investor has control over the India. Foreign companies invest in India to company purchased. The Organization of take advantage of cheaper wages, special Economic Cooperation and Development investment privileges like tax exemptions, are (OECD) defines control as owning 10% being made, it also means achieving technical or more of the business. Businesses that knowhow and generation of employment. make foreign direct investments are often Economic liberalization started in India in called multinational corporations (MNCs) wake of the 1991 economic crisis and since or multinational enterprises (MNEs). A then FDI has steadily increased in India. It was MNE may make a direct investment by Manmohan Singh and P. V. Narasimha Rao creating a new foreign enterprise, which who brought FDI in India, which subsequently is called a greenfield investment, or by the generated more than one crore jobs. acquisition of a foreign firm, either called FDI is considered to be the most attractive an acquisition or brownfield investment. type of capital flow for emerging economies According to the International Monetary as it is expected to bring latest technology Fund, foreign direct investment, commonly and enhance production capabilities of the known as FDI, “...refers to an investment economy. made to acquire lasting or long-term FDI is a major source of external finance which interest in enterprises operating outside means that countries with limited amounts of of the economy of the investor.” The capital can receive finance beyond national investment is direct because the investor, borders from wealthier countries. Exports which could be a foreign person, company and FDI have been the two key ingredients in or group of entities, is seeking to control, China’s rapid economic growth. According to manage, or have significant influence the World Bank, FDI and small business growth over the foreign enterprise. are the two critical elements in developing the FDI% means how much shares can be issued private sector in lower-income economies and to foreign investors, or in other words what reducing poverty. is the percentage of ownership that can be Materials and Methods legitimately belongs to a foreign investor. The whole paper is based on secondary data Importance of FDI from various research papers, reports, books, FDI is an important factor in acquiring journals, newspapers and online data bases. investments and grow the local market with Results and Discussions foreign finances when local investment is unavailable. There are various formats of FDI Broadly, foreign direct investment includes and companies should do a good research “mergers and acquisitions, building new before actually investing in a foreign country. facilities, reinvesting profits earned from An FDI may provide some great advantages overseas operations and intra company for the MNE but not for the foreign country loans”. FDI is an investment made by an where the investment is made FDI also offers organization or individual in another country some advantages for foreign countries. For in business interests in another country in the starters, FDI offers a source of external form of either establishing business operations capital and increased revenue. It can be a or acquiring business assets in other country tremendous source of external capital for such as ownership or controlling interest in a a developing country, which can lead to foreign company. economic development. Foreign direct investment (FDI) is an For example, if a large factory is constructed

-155- Anusandhanika /Special Issue on FDI in India/ October 2017 in a small developing country, the country will economy and accounts for about 15% of typically have to utilize at least some local labor, its GDP. The retail industry is the sector of equipment, and materials to construct it. This economy which is consisted of individuals will result in new jobs and foreign money being stores commercial complex, agencies, pumped into the economy. Once the factory is companies and organization etc involved in constructed, the factory will have to hire local the business of selling and merchandizing employees and will probably utilize at least diverse finished products or goods to the end- some local materials and services. This will user consumers directly and indirectly. create further jobs and maybe even some new Indian Retail Sector businesses. These new jobs mean that locals have more money to spend, thereby creating Meaning of retail : It is defined as all activities even more jobs. Additionally, tax revenue is involved in selling goods or services directly generated from the products and activities of to the final consumer for their personal, the factory, taxes imposed on factory employee non-business use via shops, market, door- income and purchases, and taxes on the to-door selling, and mail-order or over the income and purchases now possible because internet where the buyer intends to consume of the added economic activity created by the the product. In 2004, The High Court of factory. Developing governments can use this Delhi defined the term „retail‟ as a sale for capital infusion and revenue from economic final consumption in contrast to a sale for growth to create and improve its physical further sale or processing. Retailing involves and economic infrastructure such as building a direct interface with the customer and the roads, communication systems, educational coordination of business activities from end to institutions, and subsidizing the creation of end- right from the concept or design stage of new domestic industries. a product or offering, to its delivery and post- delivery service to the customer. Forms of FDI Evolution of Indian Retail Industry : It is Horizontal : In case of horizontal FDI, the interesting to focus on the evolution of the retail company does all the same activities abroad sector in India. Historically they evolved as a as at home. For example, Toyota assembles source of entertainment (in the form of village motor cars in Japan and the UK. fairs, melas etc.) which was within the rural Vertical : in vertical assignments, different reach. Later on these were transformed Mom types of activities are carried out abroad. and Pop/ Kirana stores which are of traditional In case of forward vertical FDI, the FDI variety neighborhood shops. Then came the brings the company nearer to a market (for government supported PDS outlets, khadi example, Toyota buying a car distributorship stores, cooperatives etc. Finally shopping in America). In case of backward Vertical malls, supermarkets, departmental stores etc FDI, the international integration goes back has brought a great revolution to the Indian towards raw materials (for example, Toyota retail market getting majority stake in a tyre manufacturer or Forms of Indian Retail Industry a rubber plantation). Organized Retailing : refers to trading Conglomerate : In this type of investment, the activities undertaken by licensed retailers, investment is made to acquire an unrelated that is, those who are registered for sales tax, business abroad. It is the most surprising form income tax, etc. These include the corporate- of FDI, as it requires overcoming two barriers backed hypermarkets and retail chains, simultaneously – one, entering a foreign and also the privately owned large retail country and two, working in a new industry. businesses. About Indian Retail Sector Unorganized Retailing : refers to the Retailing in India is one of the pillars of our traditional formats of low-cost retailing, for -156- Anusandhanika /Special Issue on FDI in India/ October 2017 example, the local kirana shops, owner development of the auto component manned general stores, paan/beedi shops, industry which not only produces products convenience stores, hand cart and pavement of global standards but has also resulted vendors, etc. in increased employment. Types of Retailing in India The productivity levels within the sector have improved as a result of Single Brand : Single brand implies that following globally recognized models of foreign companies would be allowed to sell goods sold internationally under a „single manufacturing. brand‟, viz., Reebok, Nokia and Adidas. FDI The technological capability of Indian in „Single brand‟ retail implies that a retail firms has also seen improvements over store with foreign investment can only sell the years. FDI bought the required capital one brand. For example, if Adidas were to into the sector which assisted players in obtain permission to retail its flagship brand scaling up their supply thereby assisting in India, those retail outlets could only sell their overall efficiency and growth. products under the Adidas brand and not the Reebok brand, for which separate permission Consumer choices have increased by is required. If granted permission, Adidas many folds both in terms of product range could sell products under the Reebok brand in within a price range as well as across separate outlets. price range. The Indian consumer today has access to Multi Brand : FDI in Multi Brand retail implies that a retail store with a foreign investment can global brands sell multiple brands under one roof. Opening The quality of products in terms of up FDI in multi-brand retail will mean that customer experience as well as other global retailers including Wal-Mart, Carrefour parameters such as safety, accessories and Tesco can open stores offering a range have improved tremendously. Over the of household items and grocery directly to years there have been new product consumers in the same way as the ubiquitous categories that have been created ‟kirana‟ store. keeping in mind the change in customer FDI in retail would have been an opportunity preferences. The recent surge in demand to attract inflow of funds which would have for luxury and high end automobiles has resulted in major benefits for the Indian been noticed by various international economy brands which have now started looking at India as a future growth driver. Elimination of Food Wastage Creation of More and Better Employment Supports improved standard of living Opportunities- The entry of foreign Enhanced competition and reduced prices companies into Indian Retailing will not only create many employment Enhanced shopping environment and opportunities but, will also ensure quality experience in them. This helps the Indian human Growth in allied industries resource to find better quality jobs and to improve their standard of living and life Improvement of govt. revenues styles on par with that of the citizens of Benefits to consumers developed nations. Consumers have increased the Challenges before Indian retail sector competitiveness of domestic players. FDI in unorganized retail sector would The growth in the sector assisted the adversely affect the small retailers, farmers

-157- Anusandhanika /Special Issue on FDI in India/ October 2017 and consumers and give rise to monopolies of ordinary people who desire to own their large corporate houses which can adversely houses within the limit of the cities. affect the pricing and availability of goods. 5. Distortion of Culture : Though FDI in Indian They also contend that the retail sector in India retail will indirectly or directly contribute is one of the major employment providers for the enhancement of Tourism, and permitting FDI in this sector can displace Hospitality and few other Industries, the the unorganized retailers leading to loss of culture of the people in India will slowly livelihood. The major threats to the domestic be changed. The youth will easily imbibe retailers in India are specified below: certain negative aspects of foreign culture 1.. Domination of Organized Retailers : and lifestyles and develop inappropriate FDI in single-brand retail will strengthen consumption pattern, not suited to our organized retail in the country. These cultural environment organized retailers will tend to dominate Combination of Indian Retail Market the entire consumer market. It would lead to unfair competition and ultimately result in large-scale exit of domestic retailers, 23% 31% especially the small family managed Push Cart outlets (local “mom and pop” stores will Vendors Big Retailers be compelled to close down). 2. Create Unemployment : Retail in India Small Retailers Hawkers has tremendous growth potential and it 15% 31% is the second largest employer in India. Any changes by bringing major foreign retailers who will be directly procuring from the main supplier will not only create Retail Industry

unemployment on the front end retail Total Retail Market (Rs. 12,781 bn) but also the middleman who have been Beauty Care (Products) 2.20% Footwear Home decor Jewellery Books, music and gifts working in this industry will be thrown out 1.05% and furnishing and watches 0.84% of their jobs. 3.04% 4.30% Consumer durable 3. Loss of Self Competitive Strength : the 4.87% Indian retail sector, particularly organized Clothing and retail is still underdeveloped and in a textile 9.31% nascent stage and that, therefore the Food and beverages companies may not be able to compete 74.41% with big global giants. If the existing firms collaborate with the global biggies they Sources: article times of India, Indiatimes.com2011 might have to give up at the global front Nov.(author compilation) by losing their self competitive strength. Literature review 4. Indirectly Leads to Increase in Real The salient features of FDI is that it is an Estate Cost : It is obvious that the foreign investment made that establishes either companies which enter into India to open effective control of, or at least substantial up their malls and stores will certainly look influence over the decision making of a foreign for places in the heart of the cities. There business. shall be a war for place, initiated among During the literature review, it is noticed that such companies. It will result in increase the term”FDI in retail sector” has used in in the cost of real estate in the cities that different séances by researchers from India will eventually affect the interest of the and another country. -158- Anusandhanika /Special Issue on FDI in India/ October 2017 According to the International Monetary Major foreign players who have entered the Fund, foreign direct investment, commonly segment in India are. known as FDI, “... refers to an investment Carrefour which opened its first cash and made to acquire lasting or long-term carry store in India in New Delhi. interest in enterprises operating outside of the economy of the investor.” The Germany based Metro cash and carry investment is direct because the investor, which opened six wholesale centers in which could be a foreign person, company the country. or group of entities, is seeking to control, Wal-Mart in a JV with ‘Bharti Retail’, owner manage, or have significant influence of easy day store - plans to invest about over the foreign enterprise. US $ 2.5 billion over the next five years to Moghe (2012) critically analyzed the add about 10 million sq. ft. of retails space decision of Indian government to open in the country. retail sector for FDI in single-brand and British retailer Tesco PIC (TSCO) in 2008 multi-brand category and it’s likely to have signed an agreement with Trent Ltd. an adverse impact on various components (TRENT) the retail arm. of Indian economy. Marks & Spencers have a JV with Reliance Jain (2013) examined that retailing is the retail. interface between the producer and the individual consumer buying for personal After Studying FDI in Indian Retail sector I consumption. As such, retailing is the last came to known that FDI is one of the major link that connects the individual consumer sources of investments for a developing with the manufacturing and distribution country like India wherein it expects huge chain. Indian retail industry is one of the investments from multinational companies to sunrise sectors with huge growth potential. improve the countries growth rate, create jobs, share their expertise, back-end infrastructure Jain and Sukhlecha (2012) studied FDI in and research & development in the country. multi-brand retail and tried to establish the FDI also plays an extraordinary and growing need of the retail community to invite FDI role in global business. It can provide a firm in multi-brand retailing. with new markets and marketing channels Kumar (2013) examined the decision cheaper production facilities access to new of government to allow 51 percent FDI technology, products, skills and financing.FDI in multi brand retail. India came under in retail provide more discount to consumer, serious flake due to many reasons, loss of less wastage, more money to farmers, employment being one of them. marketing platform for small industries, no more adulterated/ spurious drugs and milk Mahadevaswamy and Nalini (2013) trickle down effects on entire economy inspite analyzed the perceptions of the common of this the threats which are unemployment, man about foreign direct investment (FDI) predatory pricing, India becomes dumping in multi-brand retailing (MBR) grounds for Chinese products. When Indian Some of the Major Players in Indian Retail retailers take challenges as opportunities, they Sector can beat the global players and even Wal-Mart is no exception to it. Major domestic players in India are - Pantaloon Retail Ltd., Shoppers Stop Ltd., Spencer’s Conclusion Retail, and Lifestyle Retail, Landmark group After analysis it can be observed that FDI is venture, Bharti Retail, Tata Trent, Globus, one of the major sources of investments for a Aditya Birla, More and Reliance retail. developing country like India. India is one of the fastest growing retail markets in the world with -159- Anusandhanika /Special Issue on FDI in India/ October 2017 1.2 billion people. The retail sector of India is Vol. 1(6), 2014 vast, and has huge potential for development, 4. Qureshi Nassir Z. & Amin, FDI in Indian as the majority of its constituents are un- retail sector: Prospects and hurdles. organized. Increasing FDI can be used as one Indian Journal of Commerce, Vol. 60(4), measure of growing economic globalization. 2007 India is the second most FDI destination as per the survey by UNCTAD after China. The 5. Gupta S.K. and Batra A., FDI in retail sector foreign direct investment involves the transfer in India – A boon or bane. International of technology and expertise, and participation Journal of Research in IT & Management, in the joint venture and management. It Vol. 1(8), 2011 provides highly productive advantages both 6. Ritika and Dangi N., FDI in retail sector: governmental and private companies and Opportunities and challenges. Innovative organizations of all over the world. It is profitable Journal of Business and Management, both to the country receiving investment vol. 2(5), 2013 (foreign capital and funds) and the investors. Despite the current policy and regulatory 7. Bhattacharyya R., The Opportunities and environment not being ‘perfect’ for foreign Challenges of FDI in Retail in India. IOSR investors, there are clearly moves towards Journal of Humanities and Social Science, improving the current position and facilitating vol. 5(5), 2012 FDI inflows without having a detrimental impact 8. Mukherjee and N. Patel, FDI in retail on various sectors of the economy.FDI in retail sector, India: Academic Foundation, 2005 sector raise the employment, less wastage more money to farmers, marketing platform 9. Guruswamy M., Sharma K., Mohanty J. for small industries, option for customers and P., and Korah T. J., FDI in India’s Retail many more. The retail sector in India is the Sector: More Bad than Good?, Economic largest source of employment after agriculture and Political Weekly, pp 619-623, 2005 and has deep penetration into rural India 10. Kalhan A., Impact of Malls on Small Shops generating more than 10% of India’s GDP. and Hawkers, Economic and Political and References Weekely, June 2, 2007. 1. Moghe, D., Critical Study of Foreign Direct 11. Sarma E. A. S., Need for Caution in Retail Investment in Indian Retail Sector with FDI, Economic and Political and Weekely, Special Reference to Multi Brand Retail November 12 2005 Sector. Journal of Research in Commerce 12. www.dipp.nic.in and Management, Vol. 1(3), 2012, 29-39 13. www.unctad.org 2. Singh and Dave, FDI in multi brand retail: An empirical study of consumers in NCR 14. www.fipbindia.com Region (India) International Journal of 15. www.ficci.com Indian Culture and Business Management, Vol. 7(1), 2013 3. Muley S. S., Indian retail industry - An overview. Excel Journal of Engineering Technology and Management Science,

-160- Anusandhanika /Special Issue on FDI in India/ October 2017 Anusandhanika /Special Issue on FDI in India/ October 2017/ pp 161-165 ISSN 0974 - 200X Present Scenario of FDI in India Rachana Kumari Research Scholar University Department of Commerce and Business Management Ranchi University, Ranchi

Abstract

Foreign Direct Investment (FDI) plays a very important role in the development of the nation and Economy. It is very much vital in the case of underdeveloped and developing countries. It helps in transferring of financial resources, technology and innovative and improved management techniques along with raising productivity. Foreign investments mean both foreign portfolio investments and foreign direct investments (FDI). FDI brings better technology and management, marketing networks and offers competition, the latter helping Indian companies improve, quite apart from being good for consumers. Foreign direct investment (FDI) is a direct investment into production or business in a country by a company in another country, either by buying a company in the target country or by expanding operations of an existing business in that country. Foreign direct investment is in contrast to portfolio investment which is a passive investment in the securities of another country such as stocks and bonds. FDI is a sturdy source of money. This money has allowed India to focus on the areas that needed a boost and economic attention, and address the various problems that continue to challenge the country. Indian government has designed number of reforms to promote investment in India. FDI are permitted through financial collaborations, through private equity or preferential allotments, by way of capital markets through euro issues and in joint ventures. FDI is not permitted in the arms, nuclear, railway, coal or mining industries. FDI can work in number of areas like electricity generation its distribution and transmission. FDI finds difficulty in doing business because of the large beauracratic structure of central government. They find the red tape paper work very inefficient and slow. Nowadays FDI is witnessing a gradual shift with liberalized reforms over the last few years and attractive Investment Climate making positive Impact on the inflow. My study is based on present scenario of FDI in India. To understand the importance of FDI in India.

Keywords : financial collaborations, joint ventures, capital market

Introduction technology, skill levels, employment and linkages with other sectors and regions of the Foreign direct investment (FDI) has played an host economy. important role in the process of globalization during the past two decades. The rapid Foreign direct investment (FDI) is direct expansion in FDI by multinational enterprises investment by a company located in another since the mid-eighties may be attributed to country either by buying a company in the significant changes in technologies, greater country or by expanding operations of an liberalization of trade and investment regimes, existing business in the country. Foreign direct and deregulation and privatization of markets in investment is done for many reasons including many countries including developing countries to take advantage of cheaper wages in the like India. Capital formation is an important country, special investment privileges such determinant of economic growth. While as tax exemptions offered by the country as domestic investments add to the capital stock an incentive to gain tariff-free access to the in an economy, FDI plays a complementary role markets of the country or the region. in overall capital formation and in filling the gap Foreign direct investment is a passive between domestic savings and investment. At investment in the securities of another country the macro-level, FDI is a non-debt-creating such as stocks and bonds and also known as source of additional external finances. At the portfolio investment. FDI explains about the net micro-level, FDI is expected to boost output, inflows of investment to acquire a management -161- interest and also management control and address the various problems that continue to profit sharing as a part of the national accounts challenge the country. of a country. It usually refers to a measure of FDI are permitted through financial foreign ownership of productive assets, such collaborations, through private equity or as factories, mines and land. Increasing preferential allotments , by way of capital foreign direct investment can be used as one markets through euro issues and in joint measure of growing economic globalization. ventures. FDI finds difficulty in doing business The foreign direct investment involves because of the large beauracratic structure the transfer of technology and expertise, of central government. They find the red tape and participation in the joint venture and paper work very inefficient and slow. management. Foreign direct investment Classification of Foreign Direct Investment provides highly productive advantages to both governmental and private companies and Foreign investment considered in several organizations of all over the world. Foreign types such as direct investment is profitable both to the Portfolio investment, country receiving investment (foreign capital and funds) and the investors. Foreign loans and FDI have helped India to attain a financial Foreign direct investment stability and economic growth with the help These are the three important classifications. of investments in different sectors. FDI has Out of these foreign direct investments in boosted the economic life of India and on the industry and services are the most useful. other hand there are critics who have blamed the government for ousting the domestic Foreign direct investments help in inflows. After liberalization of Trade policies in developing the economy by India, there has been a positive GDP growth Generating employment to the rate in Indian economy. Foreign investments unemployed, mean both foreign portfolio investments and foreign direct investments (FDI). FDI brings Generating revenues in the form of tax better technology and management, marketing and incomes, networks and offers competition, the latter Financial stability to the government, helping Indian companies improve, quite apart from being good for consumers. Alongside Development of infrastructure, opening up of the FDI regime, steps were taken Backward and forward linkages to the to allow foreign portfolio investments into the domestic firms for the requirements Indian stock market through the mechanism of of raw materials, tools and business foreign institutional investors. infrastructure, Foreign direct investment (FDI) is a direct It act as support for financial system. investment into production or business in a country by a company in another country, Forward and back ward linkages are developed either by buying a company in the target to support the foreign firm with supply of raw country or by expanding operations of an material and other requirements. It helps in existing business in that country. Foreign direct generation of employment and also helps investment is in contrast to portfolio investment poverty eradication. which is a passive investment in the securities There are many businesses or individuals who of another country such as stocks and bonds. would earn their lively hood through the foreign FDI is a sturdy source of money. This money investments. There are legal and financial has allowed India to focus on the areas that consultants who also guide in the early stage needed a boost and economic attention, and of establishment of firm.

-162- Anusandhanika /Special Issue on FDI in India/ October 2017 The objective of Foreign Direct Investment 2. Atomic Energy. was not only to facilitate non-debt creating 3. Railway Transport foreign capital inflows but also to develop the stock market in India, lower the cost of capital 4. Coal and lignite. for Indian enterprises and indirectly improve 5. Mining of iron, manganese, chrome, corporate governance structures. On their part, gypsum, sulphur, gold, diamonds, copper, large Indian companies have been allowed to zinc. raise capital directly from international capital markets through commercial borrowings and 6. Lottery Business depository receipts having underlying Indian 7. Gambling and Betting equity. 8. Business of Chit Fund Strategy Adopted 9. Agricultural (excluding Floriculture, Thus the country adopted a two pronged strategy: Horticulture, Development of seeds, 1. One to attract FDI which is associated Animal Husbandry, Pisciculture and with multiple attendant benefits of cultivation of vegetables, mushrooms, etc. technology, access to export markets, under controlled conditions and services skills, management techniques, etc. related to agro and allied sectors) and Plantations activities (other than Tea 2. Two to encourage portfolio capital flows Plantations) . which ease the financing constraints of Indian enterprises. 10. Housing and Real Estate business. Foreign technology induction can be 11. Trading in Transferable Development encouraged through FDI and through foreign Rights (TDRs). technology collaboration agreements. The 12. Manufacture of cigars, cheroots, cigarillos sectors which have resources but do not and cigarettes, of tobacco or of tobacco have the required technology acquire foreign substitutes. technology collaboration through RBI or Government approvals. Pros in FDI An Indian company may receive Foreign 1. It reduces the gap between farm prices Direct Investment under the two routes as and retail prices. given under: 2. Gives best management practices from all 1. Automatic Route: FDI in sectors / over the world. activities to the extent permitted under the 3. It makes market intelligent and also automatic route does not require any prior provides good understanding and practical approval either of the Government or the knowledge to he domestic retailers. Reserve Bank of India. 4. To achieve expected growth in India GDP: 2. FDI in activities Government Route: India is targeting for its GDP to grow by not covered under the automatic route 8 to10 percent per year. This requires requires prior approval of the Government raising the rate of investment as well as which are considered by the Foreign generating demand for the increased Investment Promotion Board (FIPB), goods and services produced. Department of Economic Affairs, Ministry of Finance. 5. Provide an aid to Indian agriculture to become lowest cost source of farm FDI is not permitted in the following industrial produce. sectors: 6. To bring trade balance and to increase 1. Arms and ammunition. -163- Anusandhanika /Special Issue on FDI in India/ October 2017 liquidity by the way of foreign exchange during periods of economic uncertainty, it reserves. has the potential of adversely affecting the net capital flow of a developing economy 7. status of the human resources in a country especially if it does not have a healthy and is also instrumental in attracting direct sustainable FDI schedule. investment from overseas. Countries like China that have taken an active interest in 4. FDIs may enter the host country for increasing the quality of their workers and unique strategic reasons but there is have made compulsory for every Chinese ultimately the need to achieve returns on citizen to receive at least nine ears of investments. For e.g. paying a premium education. This has helped in enhancing for the price of labor may improve the the standards of the laborers in China. consumption power of workers, but it also has the detrimental ability of disrupting the 8. If a particular country has plenty of local employment market. When prices natural resources it always finds investors rise, supply increases while demand falls. willing to put their money in them. A good Similarly, when the price of labor increase, example would be Saudi Arabia and other wage premiums in this case, this creates oil rich countries that have had overseas a distortion and creates disequilibrium companies investing in them in order to in the labor market. Job matching stops tap the unlimited oil resources at their being efficient and may even create disposal. unemployment. 9. Infrastructure is very important for Current Investment scenario in India: FDI. So if a country keens to have Inward and Outward overseas investors they have to focus on infrastructure. Globalization and Foreign Direct Investment (FDI) is playing an important role in the CONS of FDI development of developed, developing as well 1. Threats on organized and unorganized as underdeveloped economies. The reasons retail players. are simple like introduction of new products, new skills, easy approachable markets and 2. Replacement of established national modern technology to the host countries. brands by the brands of the retail gains. Every country around the world is playing a For e.g Wal-Mart is committed to buying important role in the encouragement of foreign the best goods at the cheapest prices and overseas investors and their investments. to give its customers the best value for India is being ranked as the second most money. That is why it sources so heavily favored destination for foreign investments from China. 70% of merchandise in after China by showing a growth year after Wal-Mart contains components made year. in China. Even though Wal-mart may not continue heavy operations in china Government on time to time has taken various but would continue heavy sourcing from initiatives to liberalize FDI policies so as to china market to cater to the world markets receive maximum investment keeping in at lower prices. Low prices of Chinese mind that domestic products should not get products can easily convince Indian price blemished. The FDI outflow from India has consciousness mentality. Acceptance also been increased and expected to reach to towards Chinese brands can create a very high mark. direct threat on Indian established brands Conclusion providing best quality products with reasonable prices. On the basis of above research and discussion FDI has both positive and negative impact on 3. While the levels of FDI tend to be resilient India Economy. Government should promote -164- Anusandhanika /Special Issue on FDI in India/ October 2017 FDI and in order to lower down its negative standards, by the Government of India, to impact it should have redesigned framework attract more and more foreign capital in for the local players. Government should various sectors of the economy to make India encourage FDI on gradual basis depending a developed economy. on products from one area to other Product Major economic reforms were undertaken category wise clauses should be developed in India in the early 1990s. This led to the to allow FDI. India needs inflows to drive liberalization and deregulation of the Indian investment in infrastructure, a lack of which Economy and also opened the country’s is often cited as restricting the country’s markets to Foreign Direct Investment (FDI). economic growth. In India foreign direct investments are allowed FDI plays an important role in the long-term through collaborations that are of financial development of a country not only as a source of nature, joint venture collaborations, through capital but also for enhancing competitiveness preferential allotments and also through Euro of the domestic economy through transfer issues. Regulatory reforms were undertaken of technology, strengthening infrastructure, in India in the early 1990s to encourage FDI raising productivity and generating new inflows to the country. FDI is allowed through employment opportunities. The huge market joint ventures, preferential allotments, capital size, availability of highly skilled human markets, and financial collaborations. resources, sound economic policy, abundant References and diversified natural resources all these factors enable India to attract FDI. Further, it 1. Review of Economic Statistics, Vol. 87, was found that even though there has been No. 1, Pages 174-183. increased flow of FDI into the country during 2. Reserve Bank of India (RBI), Handbook of the post liberalization period, the global Statistics on Indian Economy share of FDI in India is very less when it is compared to other developing countries. Lack 3. Reserve Bank of India (RBI), Monthly of proper infrastructure, instable government Bulletin, various issues. and political environment, high corporate tax 4. Ministry of Finance, Department of rates and limited export processing zones Economic Affairs, Government of India. are considered to be the major problems for low FDI into the country. To overcome this 5. Agarwal J, Khan MA (2011) Impact of FDI situation, the Government should revise the on GDP: A comparative study of China sectoral cap and bring more sectors under the and India, Int. J. Business Management automatic route. Further, India should sign the 6(10):71-79. agreement of Double Taxation treaties with 6. www.fdi.gov.in other countries in order to increase bilateral trade. Therefore, there is an urgent need to 7. www.org.in adopt innovative policies and good corporate 8. www.sebi.gov.in governance practices on par with international

-165- Anusandhanika /Special Issue on FDI in India/ October 2017 Anusandhanika /Special Issue on FDI in India/ October 2017/ pp 166-173 ISSN 0974 - 200X The Opportunities and Challenges for FDI in Retail in India

Ruchi Kumari Research Scholar P.G Department of Commerce and Business Administration T.M. Bhagalpur University, Bhagalpur

Abstract

India is fast becoming the retail destination of the world ,India has emerged as the fourteenth most favourable destination for international retailers according the GRDI 2013 report. The Indian retail is poised to become a $ 1.3 billion opportunity by 2020 with the current market size estimated at $ 500 billion this translates to an additional $800 billion in the next eight year said President of the FICCI. Despite these encouraging signs India’s retail markets remain largely off limits to large international retailers like Wal-Mart and Carrefour opposition to liberalizing FDI in this sector raised concerns about employment losses unfair competition resulting in large scale exit of incumbent domestic and the death know on the small traders who will bein no position to compete with the pig players. Thus it will kill the small entrepreneurs initiatives as these traders do not have the capital and expertise to compete with big retail chains. The bulk of the Indian economy would gain significantly from the emergency of a well capitalized retail industry that brings the latest technology and management practices to build modern supply chains in India, connecting country and town connecting small producers with national and even global markets. In this paper I will explain the policy and reforms latest policy change on FDI on retail industry by the government of India, the entry of foreign retailers into the market further the paper will focus on the strategies, strength issues and opportunities of retail industry and its recent / future trends.

Keywords : liberalization, global markets, latest technology

Introduction The scenario at present is Consumersbuying preference in India is almost 100% FDI is allowed in wholesale cash changing and creating a tremendous potential and carry trade. for the retail industry to look for innovative 51% FDI, in single Brand Retail. ideas and bring in new products with creative marketing approach to tap the huge working Few FDI in Multi Brand Retail population with the age group of 21-30 years. Some of the concerns against allowing of New modern retailing concepts of western foreign direct investment in multi brand retail trends has entered into the retail market in were that FDI would lead to unfair competition India, in the form of bustling shopping centers, and result in large scale exit of domestic multi storied malls and the huge complexes retailers, especially, the small family managed that offer shopping, entertainment and food all outlets. under one roof. Another concern was that organized retail is The retail industry in India is expected to still under developed and in its nascent stage, grow at a rate of 14% by 2013. The first step and there for it is important that the domestic towards allowing Foreign Direct investment in retail sector is allowed to grow and consolidate retail was taken in the year 2006. Since then first and then this sector should be opened to 54 FDI approvals have been granted by the foreign investors. government and the country has received a cash inflow to the tune of about Rs. 901.64 As per the report prepared by FICCI and crore. ICICI Property services in Feb 2005, FDI can -166- be a powerful catalyst to spur competition foreign companies from any ownership in in the retail industry. It can bring about the supermarkets, convenience stores or any retail improvement in various areas such as:- outlets. Even single brand retail was limited to Supply chain Improvement 51 percent ownership. In January 2012, India allowed 100 percent FDI investment in single Investment in Technology brand stores, but imposed the requirement Manpower and skill development that the single brand retailer would have to Tourism Development source 30 percent of its goods from India. On Up gradation in Agriculture 7 December 2012, India allowed 51 percent FDI in multi brand retail. Manmohan Singh, the Efficient small and medium scale then prime minister of India, felt that this would Industries be beneficial for both consumers and farmers. Growth in market size Agricultural marketing was also expected Greater Productivity to be benefited with the introduction of new Benefits to government through greater technologies. GDP. Dr. Manmohan Singh was credited with Tax income and employment generation bringing about this policy change aimed at making India friendlier for businessmen. The arrival of foreign companies into the With this decision. International companies, Indian retail sector is a sensitive issue, as especially the supermarkets, were able to small shopkeepers fear being driven out of increase their presence in the multi brand retail business by multinationals. Industry bodies sector of India. However,they were not allowed want the retail sales sector to be liberalized to own more than 51 percent stakes in these gradually but calls for the market to be opened establishments. This step was regarded as the up to foreign competition have increased in most important one in the last two decades recent months, notably during visits by western especially with regard to reforms in India. leaders. Both US President Barack Obama and hisfrench counterpart nicolas Sarkozy Retail Sector in India urged India to remove restrictions on foreign Retailing in defined as a set of all activities trade and investment. involved in selling goods or services directly Definition of Retail to the final consumer for their personal, non- business use by the way of shops, market, In 2004, The High Court of Delhi defined the door to door selling. and mail –order or over the tern “retail” as a sale for final consumption in internet where the buyer intends to consume contrast to a sale for further sale or processing the product. “Retail ” term came up in 2004 (i.e. wholesale).Thus, retailing can be said to when the High Court of Delhi defined the term be the interface between the producer and retail “as a sale for final consumption compared the individual consumer buying for personal to a sale for further Sale or processing. consumption. This excludes direct interface between the manufacturer and institutional The phenomena of retailing involve a buyers such as the government and other direct interface with the customer and the bulk customers. Retailing is the last link that coordination of business activities from end connects the individual consumer with the to end from the concept or design stage of a manufacturing and distribution chains A retailer product to its delivery and post delivery service is involved in the act of selling goods to the to the customer. individual consumer at a margin of profit. Evlution of Indian Retail Industry FDI in Retail Sector Historically retailing evolved as a source of Until 2011, Foreign Direct Investment (FDI) entertainment ( in the form of village fairs, was not allowed in multi brand retail, forbidding melas etc.) which was within the rural reach. -167- Anusandhanika /Special Issue on FDI in India/ October 2017 Later on definitions and meanings were and unorganized retailing. transformed. Mom and Pop/Kirana stores (a) Organized Retailing : Refers to trading which are of traditional variety neighbourhood activities undertaken by licensed retailers, shops.Then Came the government supported that is, those who are registered for sales PDS outlets, khadi stores, cooperatives etc. tax, income tax etc. These include the Last of all shopping malls, supermarkets, corporate backed hypermarkets and retail departmental stores etc has brought a huge chains, and also the privately owned large charge to the Indian retail market. retail businesses. Retailing in India is one of the pillars of economy (b) Unorganized Retailing : Refers to the and accounts for 14 to 15 percent of its GDP. traditional formats of low cost retailing for The Indian Retail market is estimated to be example, the local kirana shops, owner US $ 500 billion and one of the top five retail manned general stores, paan / beedi markets in the world by economic value. India shops, convenience stores, hand card is one of the fastest growing retail markets in and pavement vendors etc. the world. with 1, 2 billion people. As of 2013, India’s retailing industry was Type of Retailing in India essentially owner manned small shops In The retail sector in india is organized into 2010, larger format convenience stores and three categories, namely “ single brand “,”Multi supermarkets accounted for about 4 percent brand “ and cash and carry retail. of the industry, and these were present only in (a) Single Brand : Single brand retail large urban centres. India’s retail and logistics comprises those retailers selling product industry employs about 40 million Indians(3.3 of a “Single brand” only, such that % of Indian population) products should be sold under the same The retail industry in India is of late often brand internationally and single brand being hailed as one of the sunrise sectors in product retailing covers only products the economy. The Indian retail sector is very which are branded during manufacturing, different from that of the developed countries FDI in “Single Brand” implies that a retail In the developed countries, products and store with foreign investment can only sell services normally reach consumers from the one brand. for example if Adidas were manufacturer/ producers through two different to obtain permission to retail its flagship channels: brand in India, those retail outlets could (a) Via independent retailers (vertical only sell products under the Adidas brand separation) and not the Reebok Brand for which separate permission is required. If granted (b) Directly from the producers (vertical permission, Adidas could sell products integration) under the Reebok brand in separate In the latter case, the producers establish outlets. their own chains of retail outlets, or develop (b) Multi – Brand : FDI in Multi brand retail franchises. On the other hand, Indian implies that a retail store with a foreign retail industry is divided into organized and investment can sell multiple brands under unorganized sectors. Organized retailing refers one roof. No FDI is allowed in the multi ot trading activities undertaken by licensed brand retail category. This includes all retailers, that is those who are registered for firms in organized retail that seek to stock sales tax, income tax etc. and sell multiple brands, such as large Division of Indian Retail Industry international retailers like Wal-Mart and Carrefour. This is the sector that is most The Indian retail industry is generally divided under dispute. into two major segments-organized retailing -168- Anusandhanika /Special Issue on FDI in India/ October 2017 (c) Cash and Carry : The third segment, distribution infrastructure to, assist local called “Cash and Carry” refers to manufacturers. The wholesaler deals only wholesale retail The government defines with smaller retailers and not consumers. this segment as the “ sale of goods and Metro AG of Germany was the first merchandise to retailers, industrial, significant global player to enter India commercial, institutional or other through this route. professional business users or to other (c) Strategic Licensing Agreements : wholesalers and related subordinated Some foreign brands give exclusive service providers” In India, FDI of 100 licenses and distribution rights to Indian percent is permitted in this segment. As companies Through these rights, Indian per the cash and carry structure commonly companies can either sell it through their employed in India. The wholesale and own stores., or enter into shop in shop retail entities are maintained as separate arrangements or distribute the brands to entities without any cross sharehodings. franchises. Mango, the Spanish apparel The retail entity is owned and controlled Brand has entered India through this route by the Indian partner while the wholesale with an agreement with Piramyd. Mumbai entity can be owned by the foreign partner SPAR entered into a similar agreement up to 100 percent. Wal-Mart, for example, with Radhakrishna foodlands Pvt. Ltd. has already established a successful presence in this category of wholesale (d) Manufacturing and wholly owned operations by entering into a joint venture subsidiaries : The foreign brands with Bharati Enterprises Ltd. of India. The such as Nike, Reebok, Adidas etc. new entity, Bharti Wal-Mart, is in operation That have wholly-owned Subsidiaries with stores opening around the country. in manufacturing are treated as Indian companies and are, therefore allowed, Entry Options for foreign Players Prior to to do retail. These companies have been FDI Policy (2006) authorized to sell products to Indian Although prior to Jan 24, 2006. FDI was not consumers by franchising, internal authorized in retailing most general players distributors, existent Indian retailers, own had been operating in the country. Some outlets, etc. For instance, Nike entered of entrance routes used by them have been through an exclusive licensing agreement discussed in sum as below:- with sierra enterprises but now has a wholly owned subsidiary,Nike Indian (a) Franchise Agreements : It is an easiest track to come in the Indian market. In Private Limited. franchising and commission agents Opportunities and Challenges of FDI in services. FDI (unless otherwiseProhibited) Retail in India is allowed with the approval of the Opportunities : The following may be regarded Reserve Bank of India (RBI) under the as major perceived benefits of allowing FDI in Foreign Exchange Management Act. This retail in india: is a most usual mode for entrance of quick food bondage opposite a world. Apart from (a) Capital Infusion : This would provide an quick food bondage identical to Pizza Hut, opportunity for cash –deficient domestic players such as Lacoste, Mango, Nike as retailers to bridge the gap between capital good as Marks as good as Spencer,have required and raised In fact FDI is one of entered Indian marketplace by this route. the major sources of investments for a developing country like India wherein it (b) Cash and Carry Wholesale Trading: expects investments from Multinational 100% FDI is allowed in wholesale companies to improve the countries trading which involves building of a large growth rate, create jobs, share their

-169- Anusandhanika /Special Issue on FDI in India/ October 2017 expertise, back –end infrastructure and Further, transportation facilities can get a research and development in the host boost, in the form of increased numberof country. refrigerated vans and pre-cooling chambers which can help bring down (b) Boost Healthy Competition and Check wastage of goods. Inflation :Supporters of FDI argue that entry fo the many multinational corporations will (f) Benefits for the Farmers : Presumably, obviously promise intensive competition with the onset of multi- brand retail, the between the different companies offering food and packaging industry will also get their brands in a particular product market an impetus, Though India is the second and this will result in availability of many largest producer of fruits and vegetables. varieties reduced prices, and convenient It has a very limited integrated cold distribution of the marketing offers. chain infrastructure. Lack of adequate storage facilities causes heavy losses to (c) Improvement in supply Chain : farmers, in terms of wastage in quality Improvement of supply chain distribution and quantity of produce in general, and efficiencies, coupled with capacity building of fruits and vegetables in particular. With and introduction fo modern technology liberalization, there could be a complete will help arrest wastages (in the present overhaul of the currently fragmented situation improper storage facilities and supply chain infrastructure. Extensive lack of investment in logistics have been backward integration by multinational creating inefficiencies in food supply retailers,coupled with their technical chain, leading to significant wastages). and operational expertise, can hopefully (d) Improvement in Customer Satisfaction: remedy such structural flaws Also, farmers Consumers in the organized retail will can benefit with the “farm to fork ventures have the opportunity to choose between a with retailers which helps” numbers of internationally famous brands I. To cut down intermediaries with pleasant shopping environment, huge space for product display, maintenance of II. Give better prices to farmers, and hygiene and better customer care. There III. Provide stability and economics is a large segment of the population which of scale which will benefit, in the feels that there is a difference in the quality ultimate analysis, both the farmers of the products sold to foreign retailers and consumers. and the same products sold in the Indian market. There is an increasing tendency (g) Creation of More and Better to pay for quality and ease and access to Employment Opportunities : The Entry a “one-stop shop” which will have a wide of foreign companies into Indian Retailing range of different products. If the market is will not only create many employment opened, then the pricing could also chage opportunities but will aslo ensure quality and the monopoly of certain domestic in them. This helps the Indian human Indian companies will be changed. resource to find better quality jobs and to improve their standard of living and life (e) Improved technology and logistics: style on par with that of the citizens of Improved technology in the sphere developed nations. of processing, grading, handling and packaging of goods and further technical Challenges developments in areas like electronic (a) Supply Chain : Finance Minister Mr. weighing,billing, barcode scanning etc. Pranab Mukherjee in his 2010-11 budget could be a direct consequence of foreign speech had emphasized on the reduction companies opening retail shops in India. of wastages estimated at 40 percent of

-170- Anusandhanika /Special Issue on FDI in India/ October 2017 National produce in storage as wll as departments leading to considerable lead in the operations of the existing food. time in opening up of the stores. A push Supply chains in the country, catering to has been made by existing retailers to get people in 35 states and union territories the government to have a single window is equivalent to catering to people in 35 clearance for getting all the licenses at countries, leading to complexities in one place to speed up the process. merchandise / inventory management. (e) Unique Indian Customer : The Indian Infrastructure has been developing at consumer experiencing modern retail a rapid pace over the past decade but has now warmed up to this idea. Buying has still a significant ground to cover; the habits have still not changed, where planned expenditure of US $ 1 trillion in people prefer to buy most of the fruits and the 12th five year plan will help bridging vegetables on a daily basis. this gap. Conclusion Finding the right (b) Location and Rental : Debates, discussions and conflicting views exit location with the right rental for stores among policy makers, economists and social has been a challenge for all retailers. thinkers on the issue of estimating the costs Rent forms a large portion of the total and benefits of allowing FDI in both single and expenditure (6 to 11 percent of the multi brand retail in India. A recent study by revenue) in retailer’s income statement University of North Carolina economist shows and can more often than not convert that the potential benefits of allowing large a profitable store into loss making the retailers into the country significantly outweigh challenge for a retailer would be to find the costs. These benefits largely accumulate the right location for their stores either in through productivity gains. With respect to malls or as a standalone store to be able the impact of entry by big box stores such as to generate enough footfalls. Wal-Mart on retail employment and earnings, (c) Channel Conflicts : The retailers need evidence from the United states is mixed. Using to maintain a direct relationship with their country level data, a recent study finds that suppliers. Due to the complex taxation Wal-Mart entry increases retail employment structure and geographic spread of the in the year of entry (Basker 2005) a while country, most FMCG companies have contrasting evidence indicates that each Wal- developed regional distribution and re- Mart worker replaces approximately 1.4 retail distribution network, cutting out the workers representing a 2.7 percent reduction distribution network will hurt operating in average retail employment (Neumark, structures of distibutors, who as an Zhang and Ciccarella. 2008), while describing industry body in the past have opposed the retail experience in Thailand Sarma (2005) FMCG companies selling directly to shows how traditional shopkeeper continued to retailers. suffer even when the thai economy recovered, after the Asian crisis of the late 1990s. Foreign (d) Regulatory : Currently indirect taxation owned retailers, he argues, “grabbed a big structure is complex in India with varying share of the retail market, often through” tax rates, multiplicity of taxes and multiple unethical means. tax enfor cement authorities. Goods and service Tax likely to be implemented in The UK competition commission found in 2011 will replace a host of levies like excise, a 2006 study of major retail chins including sales tax, value- added tax, entertainment Marks and Spencer,Sainshury and Tesco that tax and luxury tax. Opening new store the burden of cost increases in the supply requires a lot of licenses, which have to chain has fallen disproportionately heavily be obtained from different government on small suppliers such as farmers “Apart from prices, the report states that smaller -171- Anusandhanika /Special Issue on FDI in India/ October 2017 farmers came under servere pressure from http:// www. dipp.nic.in ” supermarkets due to the latters requirement 5. Basker Emek, A Job creation on for large valumes of each product,pushing Destruction? Labour market effects of farmers to grow single crops rather then the Wal-Mart Expansion, 2005 multiple produce they would usually grow to minimize risk. 6. Review of economic statistics vol 87 No.1, pp 174-183 Observed supermarket practices too may work against the interests of incumbent 7. Basker Emek, Selling a cheaper retailers even organized ones. Supermarket Mousetrap : Wal-Marts effect on Retail chains routinely sell some products at lower Prices Journal of urban economics vol 58 than market prices, which appears to benefit No. 2, 2005, pp 203 229 consumers, but this puts pressure, on small 8. Chari Anusha and TCA, Madhav local stores and has an adverse impact on low Raghavanj, Foreign Direct Investment in income and elderly consumers who rely on India’s Retail Bazaar opportunities and local shops. challenges, March 2011 The Indian government, however, 9. Confederation of Indian Industry, The recommends that retail firms source a Impact of FDI in Retail on SME Sector: A percentage of manufactured products from the survey Report, 2012 small and medium domestic enterprises(DIPP Report, 2010) with a restriction of this sort 10. Joseph M.N. Soundararajan, M. Gupta, the opening up of the retail sector of FDI Impact of organized Retailing on the could therefore provide a boost to small and Unorganized sector, ICRIER, May 2008 medium enterprises Moreover, expansion in 11. Joseph M. and Nirupama Soundararajan, the retail sector could also generate significant Retailingin India: A cntical Assessment, employment potential, especially among rural Academic foundation, New Delhi, 2009 and semi-urban youth. So it is very difficult to predict the future of Indian retail sector. But the 12. Kalhan Anuradha, Impact of malls on government of India must be cautious about small shops and hawkers” Economic the apprehensions raised by the critics and and political weekly vol 42, No. 22, 2007, adequate safeguards must be taken so that pp 2063-66 the positive effects may outweigh the negative 13. Kalhan Anuradha and Martin Franz, ones and the traditional retailers coexist even Regulation of Retail : Comparative after big foreign retailers enter the market. experience economic and political weekly References vol 44, no 32, 2009, pp 56-64 1. Nielsen AC, Consumer and Designer 14. Kulkarni Keerti, Kulkarni ramakant Brands AC Nielsen April 2008 and Kulkarni Gururaj A, Foreign Direct 2. Kearney A.T, Retail Global Expansion: Investment in Indian retail sector: A portfolio of opportunities, Global retail Issues And Implication, Indian journal of Development Index, 2011 Engineering and Management Sciences 2012 vol 3(3) 3. CBRE, How global is the business of retail CB Richard Ellis, Global Research and 15. Mc Kinsey and company, The Bird of Gold consulting, 2011 : The Rise of Indias consumer Market, Mckinsey global Institute, 2007 4. Department of Industrial Policy and promotion 2010, Foreign Direct 16. Mukherjee A.D. Satya, T.M Goval, M.K Investment (FDI) in Mutti Brand Retail Mantrala and S.Zou, Impact of the FDI Trading, Discussion Paper Available at Retail policy on Indian consumer and the

-172- Anusandhanika /Special Issue on FDI in India/ October 2017 way forward, ICRIER Policy series Aug 20. Sarthaksarin (Nov 23,2010) foreign Direct 2011, No. 5 Investment in retail sector http://www. Legalindia.in/foreign –direct-investment 17. Mukherjee A and Nitishpatel, FDI in Retail in retail –sector –others –surmounting – Sector : India, Academic Foundation New india-napping Delhi, 21. Soundararaj J., 100% FDI in single 18. Neumark David, Junfu Zhang, and brand Retail of india –A Boon or a Bane Stephen Ciccarella, 2008 The effects of International Journal of multi-disciplinary Wal-Mart on local labour markets “ jounal Management studies may 2012 vol 2 of urban economics vol 63 No. 2, 2005, issue 5, 2012 pp 405-430 19. Sarma E.A.S, Need for caution in retail FDI, Economic and Political weekly, vol 40 No. 46, 2005, pp 4795-98

-173- Anusandhanika /Special Issue on FDI in India/ October 2017 Anusandhanika /Special Issue on FDI in India/ October 2017/ pp 174-183 ISSN 0974 - 200X Growth of FDI in Indian Telecom Sector

Sagorika Rakshit Research Scholar Department of Commerce Vinoba Bhave University, Hazaribag

Dr. Subhas Kumar HOD, Annanda College, Hazaribag

Abstract

Foreign Direct Investment is a profiler for the economic development of the country. Inadequacy of foreign direct investment retained many countries as poor country. Encouraging FDI in the form of technology, direct currency loan, consultancies have put the poor state of economy in the path of development. There is sufficient evidence to prove this. This yet another attempt how far FDI put the Indian telecom sector on the way of growth path of the ladder. This paper will examine the current status of foreign direct investment (FDI) in the Indian telecommunication sector and the issues facing foreign companies seeking to invest in the Indian telecommunications sector. The telecommunications sector is growing at a speed of 45% during the recent years. This rapid growth is possible due to various proactive and positive decisions of the Government and contribution of both by the public and the private sectors. The paper concludes with a brief econometric examination of the factors influencing the level of FDI, how Go-Green entered in FDI, Telecom and IT in the Indian telecommunication sector.

Keywords : rapid growth, currency loan, poor country

Introduction various proactive and positive decisions of the Government and contribution of both by The telecom services have been recognized the public and the private sectors. The rapid the world-over as an important tool for socio- strides in the telecom sector have been economic development for a nation. It is one facilitated by liberal policies of the Government of the prime support services needed for rapid that provides easy market access for telecom growth and modernization of various sectors equipment and a fair regulatory framework of the economy. Indian telecommunication for offering telecom services to the Indian sector has undergone a major process of consumers at affordable prices. Presently, all transformation through significant policy the telecom services have been opened for reforms, particularly beginning with the private participation. The Government has announcement of NTP 1994 and was taken following main initiatives for the growth subsequently re-emphasized and carried of the Telecom Sector: forward under NTP 1999. Driven by various policy initiatives, the Indian telecom sector Foreign Direct Investment (FDI) witnessed a complete transformation in the In Basic, Cellular Mobile, Paging and Value last decade. It has achieved a phenomenal Added Service, and Global Mobile Personal growth during the last few years and is poised Communications by Satellite, Composite FDI to take a big leap in the future also. permitted is 74% (49% under automatic route) The Indian Telecommunications network with subject to grant of license from Department of 621 million connections (as on March 2016) Telecommunications subject to security and is the third largest in the world. The sector is license conditions. (para 5.38.1 to 5.38.4 of growing at a speed of 45% during the recent consolidate FDI Policy circular 1/2016 of DIPP) years. This rapid growth is possible due to FDI upto 74% (49% under automatic route) is

-174- also permitted of the Following:- transfer of technology and payments for use of trademark/brand name on the Radio Paging Service automatic route. Internet Service Providers (ISP’s) Foreign equity of 74% (49 % under FDI upto 100% permitted in respect of the automatic route) permitted for telecom following telecom services: services - basic, cellular mobile, paging, Infrastructure Providers providing dark value added services, NLD, ILD, ISPs - and fibre (IP Category I); global mobile personal communications by satellite. Electronic Mail; and Full repatriability of dividend income and Voice Mail capital invested in the telecom sector. Subject to the conditions that such companies Liberalization would divest 26% of their equity in favor of Indian public in 5 years, if these companies The process of liberalization in the were listed in other parts of the world. country began in the right earnest with the announcement of the New Economic Policy in In telecom manufacturing sector 100% July 1991. Telecom equipment manufacturing FDI is permitted under automatic route. was delicensed in 1991 and value added The Government has modified method of services were declared open to the private calculation of Direct and Indirect Foreign sector in 1992, following which radio paging, Investment in sector with caps (para 4.1 cellular mobile and other value added of consolidate FDI Policy circular 1/2016 services were opened gradually to the private of DIPP) and have also issued guidelines sector. This has resulted in large number of on downstream investment by Indian manufacturing units been set up in the country. As a result most of the equipment used in Companies. (para 4.6 of consolidate FDI telecom area is being manufactured within the Policy circular 1/2016 of DIPP) country. A major breakthrough was the clear Guidelines for transfer of ownership or enunciation of the government’s intention of control of Indian companies in sectors with liberalizing the telecom sector in the National caps from resident Indian citizens to non- Telecom Policy resolution of 13th May 1994. resident entities have been issued (para Telecom Regulatory Authority of India (TRAI) 4.2.3 of consolidate FDI Policy circular 1/2016 of DIPP) The entry of private service providers brought with it the inevitable need for independent Investment Opportunities and Incentives regulation. The Telecom Regulatory Authority An attractive trade and investment policy and of India (TRAI) was, thus, established with lucrative incentives for foreign collaborations effect from 20th February 1997 by an Act of have made India one of the world’s most Parliament, called the Telecom Regulatory attractive markets for the telecom equipment Authority of India Act, 1997, to regulate telecom suppliers and service providers. services, including fixation/revision of tariffs for telecom services which were earlier vested in No industrial license required for setting the Central Government. up manufacturing units for telecom equipment. TRAI’s mission is to create and nurture conditions for growth of telecommunications 100% Foreign Direct Investment (FDI) in the country in manner and at a pace, is allowed through automatic route for which will enable India to play a leading role manufacturing of telecom equipments. in emerging global information society. One Payments for royalty, lumpsum fee for of the main objectives of TRAI is to provide a

-175- Anusandhanika /Special Issue on FDI in India/ October 2017 fair and transparent policy environment, which private operators. promotes a level playing field and facilitates fair International Long Distance Services competition. In pursuance of above objective opened to private sectors. TRAI has issued from time to time a large number of regulations, orders and directives to Private telecom operators licensed on deal with issues coming before it and provided a revenue sharing basis, plus a one- the required direction to the evolution of Indian time entry fee. Resolution of problems of telecom market from a Government owned existing operators envisaged. monopoly to a multi operator multi service open Direct interconnectivity and sharing of competitive market. The directions, orders network with other telecom operators and regulations issued cover a wide range of within the service area was permitted. subjects including tariff, interconnection and quality of service as well as governance of the Department of Telecommunication Authority. Services (DTS) corporatised in 2000. The TRAI Act was amended by an ordinance, Spectrum Management made transparent effective from 24 January 2000, establishing a and more efficient. Telecommunications Dispute Settlement and All the commitments made under NTP 99 have Appellate Tribunal (TDSAT) to take over the been fulfilled; each one of them, in letter and adjudicatory and disputes functions from TRAI. spirit, some even ahead of schedule, and the TDSAT was set up to adjudicate any dispute reform process is now complete with all the between a licensor and a licensee, between sectors in telecommunications opened for two or more service providers, between a private competition. service provider and a group of consumers, and to hear and dispose of appeals against National Long Distance any direction, decision or order of TRAI. National Long Distance opened for private New Telecom Policy 1999 participation. The Government announced on 13.08.2000 the guidelines for entry of private The most important milestone and instrument sector in National Long Distance Services of telecom reforms in India is the New Telecom without any restriction on the number of Policy 1999 (NTP 99). The New Telecom Policy, operators. The DOT guidelines of license for 1999 (NTP-99) was approved on 26th March the National Long Distance operations were 1999, to become effective from 1st April 1999. also issued. NTP-99 laid down a clear roadmap for future reforms, contemplating the opening up of all Highlights - NLD Guidelines the segments of the telecom sector for private Unlimited entry for carrying both inter-circle sector participation. It clearly recognized the and intra-circle calls. need for strengthening the regulatory regime as well as restructuring the departmental Total foreign equity (including equity of NRIs telecom services to that of a public sector and international funding agencies) must corporation so as to separate the licensing and not exceed 74%. Promoters must have a policy functions of the Government from that of combined net worth of Rs.25 million. being an operator. It also recognized the need Private operators will have to enter into an for resolving the prevailing problems faced by arrangement with fixed-service providers the operators so as to restore their confidence within a circle for traffic between long- and improve the investment climate. distance and short-distance charging Key features of the NTP 99 include: centres. Strengthening of Regulator Seven years time frame set for rollout of network, spread over four phases. Any National long distance services opened to -176- Anusandhanika /Special Issue on FDI in India/ October 2017 shortfall in network coverage would result Universal Service Obligation Fund in encashment and forfeiture of bank Another major step was to set up the Universal guarantee of that phase. Service Obligation Fund with effect from April 1, Private operators to pay one-time entry 2002. An administrator was appointed for this fee of Rs.25 million plus a Financial Bank purpose. Subsequently, the Indian Telegraph Guarantee (FBG) of Rs.200 million. The (Amendment) Act, 2003 giving statutory revenue sharing agreement would be to status to the Universal Service Obligation the extent of 6%. Fund (USOF) was passed by both Houses of Parliament in December 2003. The Fund Private operators allowed to set up landing is to be utilized exclusively for meeting the facilities that access submarine cables Universal Service Obligation and the balance and use excess bandwidth available. to the credit of the Fund will not lapse at the Licence period would be for 20 years and end of the financial year. Credits to the Fund extendable by 10 years. shall be through Parliamentary approvals. The Rules for administration of the Fund known as International Long Distance Indian Telegraph (Amendment) Rules, 2004 were notified on 26.03.2004. In the field of international telephony, India had agreed under the GATS to review its opening The resources for implementation of USO are up in 2004. However, open competition in this raised through a Universal Service Levy (USL) sector was allowed with effect from April 2002 which has presently been fixed at 5% of the itself. There is now no limit on the number of Adjusted Gross Revenue (AGR) of all Telecom service providers in this sector. The licence for Service Providers except the pure value added ILD service is issued initially for a period of 20 service providers like Internet, Voice Mail, years, with automatic extension of the licence E-Mail service providers etc. In addition, the by a period of 5 years. The applicant company Central Govt. may also give grants and loans. pays one-time non-refundable entry fee of An Ordinance was promulgated on 30.10.2006 Rs.25 million plus a bank guarantee of Rs.250 as the Indian Telegraph (Amendment) million, which will be released on fulfillment Ordinance 2006 to amend the Indian of the roll out obligations. The annual licence Telegraph Act, 1885 in order to enable support fee including USO contribution is @ 6% of the for mobile services, broadband connectivity, Adjusted Gross Revenue and the fee/royalty general infrastructure and pilot project for for the use of spectrum and possession of new technological developments in rural and wireless telegraphy equipment are payable remote areas of the country. Subsequently, an separately. At present 24 ILD service providers Act has been passed on 29.12.2006 as the (22 Private and 2 Public Sector Undertaking) Indian Telegraph (Amendment) Act 2006 to are there. As per current roll out obligations amend the Indian Telegraph Act, 1885. under ILD license, the licensee undertakes to USFO has initiated action to bring mobile fulfill the minimum network roll out obligations services within the ambit of Universal Service for installing at least one Gateway Switch Obligation Fund (USOF) activities. Under this having appropriate interconnections with at initiative, 7387 mobile infrastructure sites are least one National Long Distance service being rolled out, in the first phase, across 500 licensee. There is no bar in setting up of Point districts and 27 states of India. This scheme of Presence (PoP) or Gateway switches in will provide mobile services to approximately remaining location of Level I Tax’s. Preferably, 0.2 million villages which where hitherto these PoPs should conform to Open Network deprived of the same. As on 30th June 2016, Architecture (ONA) i.e. should be based on 7183 shared towers have been set up under internationally accepted standards to ensure the First Phase of the scheme. The USOFof seamless working with other Carrier’s Network. DOT has proposed to set up about 10,128

-177- Anusandhanika /Special Issue on FDI in India/ October 2017 additional towers in order to extend the mobile and telecom services has decided to issue the coverage in other uncovered areas under the new guidelines(Details) for grant of licence Second Phase of the Scheme. of Internet services on non-exclusive basis. Any Indian company with a maximum foreign Unified Access Services equity of 74% is eligible for grant of licence. Unified access license regime was introduced Broadband Policy 2004 in November 2003. Unified Access Services operators are free to provide, within their area Recognizing the potential of ubiquitous of operation, services, which cover collection, Broadband service in growth of GDP and carriage, transmission and delivery of voice enhancement in quality of life through societal and/or non-voice messages over Licensee’s applications including tele-education, tele- network by deploying circuit, and/or packet medicine, e-governance, entertainment as switched equipment. Further, the Licensee can well as employment generation by way of high- also provide Voice Mail, Audiotex services, speed access to information and web based Video Conferencing, Videotex, E-Mail, Closed communication; Government has announced User Group (CUG) as Value Added Services Broadband Policy in October 2004. The main over its network to the subscribers falling within emphasis is on the creation of infrastructure its service area on non-discriminatory basis. through various technologies that can The country is divided into 23 Service Areas contribute to the growth of broadband services. consisting of 19 Telecom Circle and 4 Metro These technologies include optical fibre, Service Areas for providing Unified Access Asymmetric Digital Subscriber Lines (ADSL), Services (UAS). The licence for Unified Access cable TV network; DTH etc. Broadband Services is issued on non-exclusive basis, for connectivity has been defined as Always a period of 20 years, extendable by 10 years On with the minimum speed of 256 kbps. It at one time within the territorial jurisdiction of is estimated that the number of broadband a licensed Service Area. The licence Fee is subscribers would be 20 million by 2016. With 10%, 8% & 6% of Adjusted Gross Revenue a view to encourage Broadband Connectivity, (AGR) for Metro and Category ‘A’, Category ‘B’ both outdoor and indoor usage of low power and Category ‘C’ Service Areas, respectively. Wi-Fi and Wi-Max systems in 2.4 GHz-2.4835 Revenue and the fee/royalty for the use GHz band has been delicensed. The use of of spectrum and possession of wireless low power indoor systems in 5.15-5.35 GHz telegraphy equipment are payable separately. and 5.725-5.875 GHz bands has also been The frequencies are assigned by WPC wing delicensed in January 05. The SACFA/WPC of the Department of Telecommunications clearance has been simplified. The setting up from the frequency bands earmarked in the of National Internet Exchange of India (NIXI) applicable National Frequency Allocation Plan would enable bringing down the international and in coordination with various users subject bandwidth cost substantially, thus making the to availability of scarce spectrum. broadband connectivity more affordable. Internet Service Providers (ISPs) The prime consideration guiding the Policy includes affordability and reliability of Internet service was opened for private Broadband services, incentives for creation participation in 1998 with a view to encourage of additional infrastructure, employment growth of Internet and increase its penetration. opportunities, induction of latest technologies, The sector has seen tremendous technological national security and brings in competitive advancement for a period of time and environment so as to reduce regulatory has necessitated taking steps to facilitate interventions. technological ingenuity and provision of various services. The Government in the public By this new policy, the Government intends interest in general, and consumer interest in to make available transponder capacity for particular, and for proper conduct of telegraph VSAT services at competitive rates after taking -178- Anusandhanika /Special Issue on FDI in India/ October 2017 into consideration the security requirements. from US$ 0.67 per minute to US$ 0.02 per The service providers permitted to enter into minute in 2009. franchisee agreement with cable TV network The International Long Distance tariff from operators. However, the Licensee shall be US$ 1.36 per minute in 2000 to US$ 0.16 responsible for compliance of the terms and per minute in 2009 for USA, Canada & conditions of the licence. Further in the case of UK. DTH services, the service providers permitted to provide Receive-Only-Internet Service. The The mobile tariff for local calls has reduced role of other facilitators such as electricity from US$0.36 per minute in 1999 to US$ authorities, Departments of ITs of various 0.009 - US$ 0.04 per minute in 2009. State Governments, Departments of Local The Average Revenue Per User of mobile Self Governments, Panchayats, Departments is between US$ 5.06 - US$ 7.82 per month of Health and Family Welfare, Departments of Education is very important to carry the Network Expansion advantage of broadband services to the users The telecom sector has shown robust particularly in rural areas. growth during the past few years. It has also Target has been set for 20 million broadband undergone a substantial change in terms of connections by 2016 and providing Broadband mobile versus fixed phones and public versus connectivity to all secondary and higher private participation. The following table shows secondary schools, public health institutions the growth trend of telecom sector from last and panchayats by 2016. five years: In rural areas, connectivity of 512 KBPS with The number of telephones has increased ADSL 2 plus technology (on wire) will be from 54.63 million as on 31.03.2003 to 621.28 provided from about 20,000 existing exchanges million as on 31.03.2016. Wireless subscribers in rural areas having optical fibre connectivity. increased from 13.3 million as on 31.03.2003 Community Service Centres, secondary to 584.32 million as on 31.03.2016. Whereas, schools, banks, health centres, Panchayats, the fixed line subscribers decreased from police stations etc. can be provided with this 41.33 million in 31.03.2003 to 36.95 million in connectivity in the vicinity of above-mentioned 31.03.2016. The broadband subscribers grew 20,000 exchanges in rural areas. DOT will from a meager 0.18 million to 8.76 million as be subsidizing the infrastructure cost of on 31.03.2016. Broadband network through support from USO Trend in Tele-density Fund to ensure that Broadband services are available to users at affordable tariffs. Tele-density in the country increased from 5.11% in 2003 to 52.74 % in March 2016. In the Tariff Changes rural area teledensity increased from 1.49% in The Indian Telecom Sector has witnessed Mar 2003 to 24.31% in March 2016 and in the major changes in the tariff structure. The urban areas it is increased from 14.32% in Mar Telecommunication Tariff Order (TTO) 1999, 2003 to119.45% in March 2016.This indicates issued by regulator (TRAI), had begun the a rising trend of Indian telecom subscribers. process of tariff balancing with a view to bring Rural Telephony them closer to the costs. This supplemented by Calling Party Pay (CPP), reduction in ADC Apart from the 200.77million fixed and WLL and the increased competition, has resulted connections on March 2016 provided in the in a dramatic fall in the tariffs. ADC has been rural areas, 570000 uncovered VPTs have abolished for all calls w.e.f. 1st October 2008. been provided as on March 2016. Thus, 96% of the villages in India have been covered The peak National Long Distance tariff for by the VPTs. More than 3 lakh PCOs are above 1000 Kms. in 2000 has come down also providing community access in the rural -179- Anusandhanika /Special Issue on FDI in India/ October 2017 areas. Further, Mobile Gramin Sanchar Sewak Ericsson set up GSM Radio Base Station Scheme (GSS) a mobile Public Call Office Manufacturing facility in Jaipur. Elcoteq set up (PCO) service is provided at the doorstep of handset manufacturing facilities in Bangalore. villagers. At present, 2772 GSSs are covering Nokia and Nokia Siemens Networks have set 12043 villages. Also, to provide Internet up their manufacturing plant in Chennai. LG service, Sanchar Dhabas (Internet Kiosks) Electronics set up plant of manufacturing GSM have been provided in more than 3500 Block mobile phones near Pune. Ericsson launched Headquarters out of the total 6337 Blocks their R&D Centre in Chennai. Flextronics set in the country. The target of 80 million rural up an SEZ in Chennai. Other major companies connections by 2016 have already met during like Foxconn, Aspcom, Solectron etc have year 2008 itself. USOF subsidy support decided to set up their manufacturing bases in scheme is also being utilized for sharing India. wireless infrastructure in rural areas with about The Government has already set up Telecom 19,000 towers by 2016. Equipment and Services Export Promotion Performance of telecom equipment Council and Telecom Testing and Security manufacturing sector Certification Centre (TETC). A large number of companies like Alcatel, Cisco have also shown As a result of Government policy, progress has interest in setting up their R&D centers in India. been achieved in the manufacturing of telecom With above initiatives India is expected to be a equipment in the country. There is a significant manufacturing hub for the telecom equipment. telecom equipment-manufacturing base in the country and there has been steady growth of Opportunities the manufacturing sector during the past few India offers an unprecedented opportunity years. The figures for production and export of for telecom service operators, infrastructure telecom equipment are shown in table given vendors, manufacturers and associated below: (Rs. in crore) services companies. A host of factors are Figures for production and export contributing to enlarged opportunities for growth and investment in telecom sector: Year Production Export An expanding Indian economy with 2008-09 14400 402 increased focus on the services sector 2009-10 14000 250 Population mix moving favorably towards 2010-11 16090 400 a younger age profile 2011-12 17833 1500 Urbanization with increasing incomes 2012-13 23656 1898 Investors can look to capture the gains of 2013-14 41270 8131 the Indian telecom boom and diversify their 2014-15 488800 11000 operations outside developed economies that 20015-16 50000 13500 are marked by saturated telecom markets and (Projected @ (Projected @ lower GDP growth rates. 18%) 25%) Inflow of FDI into India’s telecom sector during Rising demand for a wide range of telecom April 2000 to Feb. 2016 was about Rs 405,460 equipment, particularly in the area of mobile million. Also, more than 8 per cent of the telecommunication, has provided excellent approved FDI in the country is related to the opportunities to domestic and foreign investors telecom sector. in the manufacturing sector. The last two years Research & Development saw many renowned telecom companies setting up their manufacturing base in India. India has proven its dominance as a technology solution provider. Efforts are being -180- Anusandhanika /Special Issue on FDI in India/ October 2017 continuously made to develop affordable Secure Information Infrastructure that is technology for masses, as also comprehensive vital for country’s security. security infrastructure for telecom network. Capacity Building through Knowledge for Research is on for the preparation of tested a sustained growth. infrastructure for enabling interoperability in Next Generation Network. It is expected Support Planned Predictive Growth for that the telecom equipment R & D shall be stability. doubled by 2016 from present level of 15%. Reduce Rural Urban Digital Divide to Modern technologies inductions are being reach out to masses. promoted. Pilot projects on the existing and Utilize available talent pool and create emerging technologies have been undertaken environment for innovation. including WiMax, 3G etc. Emphasis is being given to technologies having potential to Management of National Information improve rural connectivity. Also to beef up Infrastructure (NII) during Disaster R& D infrastructure in the telecom sector and Cater the requirement of South East Asia bridge the digital divide, cellular operators, top as Regional Telecom Leader academic institutes and the Government of India together set up the Telecom Centres of To achieve these objectives seven Centre of Excellence (COEs). The main objectives of the Excellences in various field of Telecom have COEs are as follows: been set up with the support of Government and the participation of private/public telecom Achieve Telecom Vision 2016 that operators as sponsors, at the selected stipulates a definite growth model and academic institutions of India. The details of take it beyond. COEs are enumerated below: -

TCOEs Centres

Sr. Associate Institute Sponsor Work Assigned No. 1 IIT Kharagpur Vodafone Essar & Texas Next Generation Network (NGN) & Instruments Network Technology 2 IIT Delhi Bharti Airtel Telecom technology and management of Infrastructure 3 IISC (Indian Institute of Aircel & Texas instrument Information Security & Disaster Science), Bangalore, Management of Infrastructure 4 IIT Kanpur BSNL & Alphion Technology Integration, Multimedia & Computational Mathematics 5 IIT Chennai BSNL & Alphion Telecom Infrastructure & Energy 6 IIT Mumbai TTeleservices Rural Applications 7 IIM Ahmedabad Idea Cellular Policy, Regulation, Governance, Customer care &; Marketing

3G & Broadband Wireless Services (BWA) would also be able to bid thus leading to technology innovation, more competition, The government has in a pioneering decision, faster roll out and ultimately greater choice for decided to auction 3G & BWA spectrum. The customers at competitive tariffs. The 3G will broad policy guidelines for 3G & BWA have allow telecom companies to offer additional already been issued on 1stAugust 2008 and value added services such as high resolution allotment of spectrum has been planned video and multimedia services in addition to through simultaneously ascending e-auction voice, fax and conventional data services process by a specialized agency. New players

-181- Anusandhanika /Special Issue on FDI in India/ October 2017 with high data rate transmission capabilities. Voice tariffs might increase due to factors BWA will become a predominant platform like aggressive bidding by operators in the for broadband roll out services. It is also an upcoming spectrum auction. effective tool for undertaking social initiatives Mobile Number Portability (MNP) of the Government such as e-education, telemedicine, e-health and e-Governance. Mobile Number Portability (MNP) allows Providing affordable broadband, especially to subscribers to retain their existing telephone the suburban and rural communities is the next number when they switch from one access focus area of the Department. service provider to another irrespective of mobile technology or from one technology to BSNL & MTNL have already been allotted 3G another of the same or any other access service BWA spectrum with a view to ensuring early provider. The Government has announced roll out of 3G & WiMax services in the country. the guidelines for Mobile Number Portability They will pay the same price for the spectrum (MNP) Service Licence in the country on as discovered through the auction. While, 1st August 2008 and has issued a separate Honble Prime Minister launched the MTNL’s Licence for MNP service w.e.f. 20.03.2009. 3G mobile services on the inaugural function The Department of Telecommunication (DoT) of India Telecom 2008 held on 11th December has already issued licences to two global 2008, BSNL launched its countrywide 3G companies (M/s Syniverse Technologies Pvt. services from Chennai, in the southern Tamil Ltd. and M/s MNP Interconnection Telecom Nadu state on 22nd February 2009. Solutions India Pvt. Ltd.) for implementing the 4G market service. MNP is to be implemented in whole country in one go by 31.10.2016 Reliance Jio 4G services launched in India in 2015. The launch of Jio lead to multiple things Targets Set By the Government simultaneously: 1. Network expansion We expect data price wars between Airtel 800 million connections by the year and Jio thereby benefitting the customers 2012. Wide availability of 4G will lead to its 2. Rural telephony wider adoption thereby increasing the 4G subscriber base 200 million rural subscribers by 2012 There will an influx of 4G handsets at Reduce urban-rural digital divide from entry and mid-segments levels due to present 25:1 to 5:1 by 2016. increased demand for 4G devices 3. Broadband To incentivise 4G, stress will be laid by 20 million Broadband connections by operators on different forms of content 2016 right from music, videos, images, gaming etc Broadband with minimum speed of 1 mbps. Tariffs : With respect to tariffs we expect the following from the industry: Broadband coverage for all secondary & higher secondary schools and Increase in 2G data tariffs to bridge the public health care centers by the end gap between prices thereby prompting of year 2016. subscribers to adopt 3G and 4G Broadband coverage for all Increase in 3G data tariffs and reduction Grampanchayats by the year 2016 of 4G data tariffs to promote 4G by select operators Broadband on demand is every village by 2012 -182- Anusandhanika /Special Issue on FDI in India/ October 2017 4. Manufacturing Conclusion Making India a hub for telecom FDI is the main source for capital formation in manufacturing by facilitating more India. Since the entry of FDI government of India and more telecom specific SEZs. make such source to penetration into almost Quadrupling production in 2016. all sectors including telecommunication sector. The study by analysis found that in the trend Achieving exports of 10 billion during of FDI flows in India and telecommunication 11th Five year plan. sector is significant different because the total 5. Research & Development flow into telecommunication sector was just 6. International Bandwidth 4.3% over the total FDI flows in India over the 10 years period of time that spans over Indian Telecommunications at a glance 10 years. Hence, the impact of growth in FDI (As on 31st March 2016) on the growth of subscriber of in number in Rank in world in network size 3rd telecommunication sector is in significant. It does mean to say that FDI is playing a Tele density (per hundred 52.74 submissive role in telecommunication sector populations) as it is working as only a focal source of capital Telephone connection (In million) and not able to create any difference. It is also Fixed 36.95 caused by less utilization of FDI give cost of Mobile 548.32 FDI. Total 621.28 References Village Public Telephones 5,69,385 inhabited (Out of 5,93,601 1. Agosin M.R. and Machado R., FDI in uncovered villages) Developing Countries: Does it Crowd in Domestic Investment? Oxford Foreign Direct Investment (in 4070 Development Studies, 33 (2), 2005, 149- million) (from April 2000 till March 162, UNCTAD, 2003 2016) Licenses issued 2. Ankilo A.E., Foreign Direct Investment And Basic 2 Economic Growth In Sub-Saharan AFrica. International Review of Economics and CMTS 38 Business, 50(4), 2003, pp 569-580 UAS 241 3. Telecom Regulatory Authori ty of India Infrastructure Provider I 219 (2013). Annual Report 2012-2013. http:// ISP (Internet) 371 www.trai.gov.in National Long distance 29 4. Telecom: Enabling growth and serving International Long distance 24 the masses. Deloitte report(2014) Pre-eminence of India as a technology http://www2.deloitte.com/content/dam/ solution provider. Deloitte/in/Documents/technology-media- Comprehensive security infrastructure for telecommunications/ in-tmttelecom-enabl telecom network. ing-growth-and-serving-the-masses- noexp.pdf Tested infrastructure for enabling interoperability in Next Generation 5. Ovum Analyst, Shiv Putcha India’s first Network. drop in mobile subscriber base just a blip ht tp:/ /www.zdnet .com/in/indiasfirst- Facilitating availability of adequate drop-in-mobile-subscriber-base-just-a- international bandwidth at competitive blip-7000004271 prices to drive ITES sector at faster growth. -183- Anusandhanika /Special Issue on FDI in India/ October 2017 Anusandhanika /Special Issue on FDI in India/ October 2017/ pp 184-187 ISSN 0974 - 200X FDI - An Opportunity to Indian Economy Shradha Verma Research Scholar Ranchi University, Ranchi

Anamika Kumari Reserch Scholar Ranchi University, Ranchi

Abstract

FDI have helped India to attain a financial stability and economic growth with the help of investments in different sectors. FDI has boosted the economic life of India and on the other hand there are critics who have blamed the government for ousting the domestic inflows. After liberalization of Trade policies in India, there has been a positive GDP growth rate in Indian economy. Foreign direct investments helps in developing the economy by generating employment to the unemployed, Generating revenues in the form of tax and incomes, Financial stability to the government, development of infrastructure, backward and forward linkages to the domestic firms for the requirements of raw materials, tools, business infrastructure, and act as support for financial system. Forward and back ward linkages are developed to support the foreign firm with supply of raw and other requirements. It helps in generation of employment and also helps poverty eradication.

Keywords : domestic inflows, trade policies, financial stability Introduction for country’s overall development. This is the reason that government today is working Foreign Direct Investment or FDI is an towards promotion of FDI . investment in a business by an investor from another country for which the foreign investor Materials and Methods has control over the company purchased. The present study is based on the objectives According to International Monetary Fund, like to analyse the merits and demerits of FDI, Foreign Direct Investment, commonly known to explore and analyse the present promotional as FDI, refers to an investment, made scheme for FDI and to study the opportunities to acquire lasting or long term interest in provided by FDI. enterprise operating outside of the economy of To fulfill all above objectives, data has been the investor. gathered from secondary source like reports It is seen as an important catalyst for economic and publications of government, reports and growth in the developing countries as it publications of Department of Industrial Policy provides capital, technical, fusion, creates job, and Promotion and RBI reports relating to brings managerial skills etc, that overall raises foreign investment, Economic Journals, books the bar of economy of a host country. With magazines and internet etc. it there comes some drawbacks of FDI too. The study is descriptive in nature and Like, at time it creates hindrances to domestic therefore the information presented is based investment, creates destruction of small on secondary data. Secondary information has domestic entrepreneurs, shrinking of job etc. been collected from various documents such But when the overall analysis of advantages as books, newsletters, reports, magazines and disadvantages of FDI is done, it is journals, daily newspapers etc. concluded that even though FDI carries Results and Discussions some demerits but is very essential for market, industry and economy of a country 100% FDI rule in India, 2015 : The Union

-184- government permitted 100% FDI under 8. A developing nation can improve its government, approval route for almost every economy apart from becoming major sector, including defense. export destination. 9. Organization with FDI uses local employees this proves In November, 2015, the Narendra Modi to be cost effective and provide quality government has made certain changes in FDI product at low cost. policy and had opened up FDI for many sectors like defense, retail, construction and banking. 10. Creates technical advancement through technology transfer from foreign company. Change in FDI policy 2016 : On 20 June, 2016, The government opened up the economy even Disadvantages of FDI more to foreign investments . 1. Native human recourse might get Data for new FDI policy exploited. 1. As per the new policy most of the sectors 2. There might be unemployment due is to be opened up to FDI under automatic to closure of some small domestic route . companies. 2. Approval for 100% FDI in defense sector 3. The net amount earned is transferred to got easier. foreign nation. 3. 100% FDI is allowed for Airport 4. Foreign company may diploy to earn development. profits from native customers and so profit 4. 100% automatic FDI has been allowed is transferred to foreign country. in some new sectors like – DTH, cable Analysis of imapact of FDI networks, teleports ,mobile, T.V. etc. On analysing the advantages and 5. For Pharma sector it allowed FDI upto 74% disadvantages of FDI, it gets clear that even through automatic route and approval is though it carries some drawbacks with it but it needed for anything beyond that. acts as a boon for effective and instant growth of developing country’s economy. That is In the above points, automotive route means lacking financially and technically far behind that no prior approval of the government or RBI the developed nations. is required to invest the money, while approval route means that stipulated approval need to The stated objective of 100% FDI and other be taken before investment beings. relaxation will promote employment and will improve infrastructure along with greater FDI Advantages of FDI inflows and the ease of doing business in India. 1. Creation of employment. There is a risk too, that the FDI relaxations 2. Eliminates monopoly of local companies. might accelerate the ongoing trend of jobless 3. FDI in the economy of a country helps to growth and rising inequality and, with 100% FDI relaxation, greater share of return on make it more competitive. investment will go outside India. In case of 4. Customer centric services are invented. infrastructure, investment from outside nation 5. Generates huge capital that helps in was not required, growth would also have been upgrading the infrastructure in construction achieved through joint venture mechanism. and power Industries. The government has been seeking to drum up 6. Enhances productivity of employees. investment as part of Prime Minister Modi’s “Make in India” initiative that aims at turning 7. Foreign companies trains the local human the country into a global manufacturing hub to resources by enhancing skill. generate job, raise incomes and drive growth.

-185- Anusandhanika /Special Issue on FDI in India/ October 2017 Reality check of pros and cons of 100% FDI An analysis of monthly trend in foreign will be evident only after few years of its investment inflows shows that in most month implementation. Thus it is very rightly said stable long term FDI has been more than that in order to learn how to swim, you need portfolio inflows. This must be largely due to to jump into the water. There is no other way several initiatives by the government to attract around. So, let’s just hope for the best. investment on the manufacturing sector. So the government actions are yielding results. Monthly Investment in India, 2015 and 2014 According to Amitabh Kant, secretary at the According to Saugata Bhattacharya, Chief Department of Industrial policy and Promotion, Economist, Axis Bank. the surge in FDI in India is significant given that investment across the world has fallen by Month Drat Net 16%. Though sizeable amount is estimated to Investment to portfolio have gone to manufacturing sector, including India investment consumer goods and food processing, among Nov 2015 3358 -3774 others, a sector of the market feels that the Oct 2015 5611 4488 portion of the FDI inflows could have come through private equity. Sept 2015 3253 -2409 The seldom find its way into Greenfield projects Aug 2015 2576 -3493 but at the same time provide an important Jul 2015 2363 -541 source of finance for entrepreneurs. June 2015 2714 -3011 Conclusion May 2015 4510 -2749 Market oriented policies of FDI are boosting economic activity, all round development and Apr 2015 4265 3458 economic growth rate. As the Indian economy Mar 2015 2318 3308 gears up for competition in the international Feb 2015 3489 3774 market, overseas investor clearly see the potential for attractive returns from investment Jan 2015 4681 6640 an India, which is also evident from the already Dec 2014 2608 -361 achieved FDI success stories. Nov 2014 1978 4876 On the negative side FDI leads to inefficient use of local resources and at times subtracts Oct 2014 3096 1765 form local economic welfare as profit of the Sept 2014 3137 2327 investment goes back to the investing foreign company. Aug 2014 1734 2055 References Portfolio investment are held directly by an investor or managed by financial professionals. 1. Blonigen B, A review of the empirical It is the entry of funds into a country where literature on FDI determinants, Atlantic foreigners deposit money in a country’s bank Economic Journal, 33(4):383-403, 2005 or make purchases in the country’s stock and 2. Nil sury, Foreign Direct Investment bond markets sometime for speculation. global and India Aspects, New century FDI and portfolio flows over the past years and publication, New Delhi, 2004. a half, suggest that conscious efforts of the 3. Gopinath T., Foreign Investment in India : government to encourage more stable direct Policy issues, Trends and prospects, RBI- investments are yielding results. This is more Occassional Papers, vol. 18, no. 2 and 3 , than triple the amount of net portfolio inflows of 1997 $14.3 billion in the same period. -186- Anusandhanika /Special Issue on FDI in India/ October 2017 4. Nambiar Kutty Krishnan, Performance of 7. www.businesseconomices.com > FDI Companies in India, Productivity vol. Foreign-direct- investment. 46, no. 2 and 3 July- Dec, 2005 8. www.livemint.com > Politics > Policy. 5. Neera Verma, Sillovers form FDI: A survey 9. dipp.nic.in>English > acts- rules>press of recent literature, Arth Anveson, vol. 4 Note. no. 2-1, 2007 10. fipb.gov.in. 6. Reserve Bank of India, RBI, Handbook of Statistic on Indian Economy, 2001

-187- Anusandhanika /Special Issue on FDI in India/ October 2017 Anusandhanika /Special Issue on FDI in India/ October 2017/ pp 188-196 ISSN 0974 - 200X Impact of Demonetization on Foreign Portfolio Investment & Return in Stock Market

Sitaram Pandey Assistant Professor, Department of MBA Cambridge Institute of Technology, Ranchi

Dr. Amitava Samanta Assistant Professor, Department of Commerce & Management Vinoba Bhave University, Hazaribag

Abstract

This study examines the impact of demonetization on the returns of stock market and pattern of net inflows of foreign portfolio investment in cash segment of stock market in India for a very short period of time. The study examines the daily data of pre and post demonetization periods. This is a new aspect that has been experimented by the existing government to eradicate black money, counter tax-evasion and destroy counterfeit currency from the Indian economy. The paper is basically concentrating on the effect of this government strategy on the FDI in capital market and its return.There is a mixed reaction on demonetization announcement among the different stakeholders of the economy. The present study attempts to contribute to the understanding of the behavior of FPI in Indian capital market after demonetization. A standard event study methodology has been adopted to examine the pattern of changes that has taken place in FPI net inflow surrounding 50 days of the announcement date.

Keywords : nifty returns, demonetization, event study

Introduction and destroy counterfeit currency from the Indian economy. It is also being lauded for Foreign direct investment is one of the its potential to convert India into a cashless most important mode of development in the economy. developing countries. Research on foreign direct investment (FDI) has attracted the In this paper, It is trying to find impact of this attention of scholars in the fields of international historic move on FDI in capital market and business and economics over the last decade. its effect on the return of the stock market. India continues to be among the top ten Before talking further, let us try to understand countries in terms of foreign direct investment the concept of demonetization and its impact (FDI) inflows globally and the fourth in on the economy.Demonetization is the developing Asia, as per the World Investment mechanism by which the government states Report 2016 by the United Nations Conference to withdraw the money which is current legal for Trade and Development (UNCTAD)1. Some tender. The effect of this announcement is that initiatives taken by the current government the currency notes in circulation will now cease such as Make in India, Stand UpIndia, Land to be valid tender and can only be exchanged acquisition measures, GST and labor reforms at the banks. Demonetization is a one step to has surged the investments in India by making unearth black money from the economy. Black it an attractive destination but the withdrawal money refers to illegal money earned from of high denominations notes ranks amongst illegal sources which has not been disclosed the most significant economic measures taken to the government. In short, it uses all the by the government. The audacious move has resources of the economy but does not pay been experimented by the government to the costs. There are various researches done eradicate black money, counter tax-evasion by National Institute of Public finance and

-188- policy& Ministry of Finance on black money. endeavors included attempts to clarify the The estimates of black money, including from tax treatment of gain in securities market other sources, vary from 15% to 45% of the transactions as well as the retrospective tax total economy. The strategies which have treatment. Fiscal 2013 was the lowest in terms been found out through various researches of market capitalization in the past five years. are establishing identity of persons operating However, the foreign portfolio witnessed in the country (through PAN card, Aadhar impressive growth of about 80% in fiscal 2013 Card, etc);Reform the avenues of cashless over the previous year. In fiscal 2014, the FPI transactions through various e-payment fell sharply- about 69% over the previous year. modes(e-wallet, paytm, NEFT etc.); Reform It rose again by 284% in fiscal 2015.The data tax system so that cost of compliance is lower for the last five years show that the net FPI than cost of tax evasion ( Saral forms, e-filing, investment has been more in equity rather etc.) ; Harsh regulations for black money than in debt except some months. hoarders (prevention of Corruption Act) ; The present study adds to the existing Control of holding of cash and physical money literature on determinants of FDI by empirically including Indian and foreign money ( FEMA, examining the response of FDI inflows to Demonetization, etc.) government policies (namely demonetization) So, out of all the above mentioned approaches, and its impact on returns of stock market. the government has tried almost all the So, the present study attempts to empirically approaches to remove black money from the examine the differential response of FPI due Indian economy but here we will discuss the to demonetization. approach of demonetization and its impact on The rest of the paperis organized as follows: FDI and return in stock market. Section 2 examines the literature review. It is not the first time that demonetization has Section 3 presents the objective and taken place in India rather it is the third time. hypotheses of the study. Section 4 discusses The first demonetization took place in 1946 the variables, data sources,research design and Rs. 1000 and Rs. 10,000 notes were &methodology. Section 5 presents the demonetized. Later in 1978, Rs. 1000, Rs. data analysis & discussion and Section 6 5000 and Rs. 10,000 were demonetized. summarizes and concludes. An overview of Foreign Portfolio Investment Materials and Methods in Indian Capital Market The data for present study has been collected Foreign portfolio Investment (FPI) is investment from National Stock Exchange. In order to by non-residents in Indian securities including estimate the impact of the demonetization shares, government bonds, corporate bonds, on the return of stock market, daily closing convertible securities, infrastructure securities prices of FPI in equity and debt &S&P CNX etc. Theclasses of investors who make Nifty Index is collected for 50 days pre and investment in these securities are known as post demonetization. NSE accounts for about foreign portfolio investors. As opposed to 99.5% of the total trading volume in the FDI (Foreign Direct Investment),FPI (foreign derivatives segment; therefore we use the portfolio investment) is an investment into S&P CNX Nifty Index as a proxy to study the traded equities of a company rather than return behavior of the market. The CNX Nifty into a company. The FPI in a stock market Index represents about 65% of the free float refers to the net investment- that is gross market capitalization of the stocks listed on purchase minus gross sales. The FPI values NSE on March 31, 2016. Hence the present considered here include both the equity and study analyses the effect of demonetization the debt segments. In fiscal 2015, 2016, the on the FPI pattern and its effect on returns of Indian government took several measures to the Indian stock market by dividing the time boost foreign investments. The government’s periods into: -189- Anusandhanika /Special Issue on FDI in India/ October 2017 1. Pre-demonetization period (19-09-2016 to example, the announcement of merger , a 7-11-2016) takeover, issue of dividend payment etc to analyze their effect on company’s share prices. 2. Post- demonetization period ( 09-11-2016 There are nine steps to follow for performing a to 28-12-2016) short-term event study. These steps are The study calculated daily returns using the 1) Identify specific calendar event dates of a equation Rt = ln (Pt / P t-1) * 100 where Rtis company and set it as an event date point. the daily returns , Pt is the closing price of the stock at time t, Pt-1 is the closing price at t-1. 2) Determine the length of both event period and estimation period. Analytical Tools & Techniques 3) Download the historical files of both share In order to analyze the collected data the price and stock market index data. The statistical tools such as Graph, Descriptive data files should contain the calendar statistics which are used to evaluate the dates of both estimation period and event mean, standard deviation, median, skewness period. and probability of the variables that are under consideration in there search. Along 4) Calculate the daily returns of both side the variance of data, these values show individual share price and market index the distribution of error terms, Correlation data. Normally, daily returns are used,so & Multi regression OLS model is used. the returns shall be daily returns. These Correlation coefficient is a statistical measure are actual returns. that determines the degree to which two 5) Calculate the two parameter estimates variable’s movements are associated. Alpha and Beta by using the return Correlation coefficient value ranges from -1 to +1. Negative value of correlation indicates: if generating model to the data from the one variable increases in its value, the other estimation period. variable decreases in its value and positive 6) Get back to event period and use the value indicates:if one variable increases in its two parameters estimates get from the value, the other variable also increases in its estimation period to determine the (daily) value. In the current study to study the linear expected return of the share price in event relationship between variables such as FPI period. in equity &FPI in debtand Nifty correlation is applied.The multiple regression analysis is 7) Determine the estimation and event a statistical technique used to evaluate the window: The event window is the period effects of two or more independent variables of trading days over which you want to on a single dependent variable. In the current calculate abnormal returns. In this study paper attempt is made to study the impact of we have chosen the event window of demonetization on FPI & market return. We 41trading days symmetrically surrounding are considering equity FPI & debt FPI as the the identified event day, [-20, +20]. two independent variables and nifty returns as 8) Calculate cumulative (average) abnormal the dependent variable. returns or buy-and-hold abnormal returns In this study we have used “Event study method” : The respective CAR is just the sum of the to analyze the impact of demonetization firm’s abnormal returns on the day before on market returns.According to McWilliams the event , the event day itself, and the andSiegel , ‘Event study is a statistical method day after the event. The average of each to assess the impact of an event on the value firm’s AR and CAR over a certain period of firm’. Here instead of value of firm we are of trading days in the event window is using market return and this method is gaining called average abnormal return (AAR) (for popularity in analyzing many situations. For the event day) and cumulative average

-190- Anusandhanika /Special Issue on FDI in India/ October 2017 abnormal return (CAAR) (for several days is lot of fluctuation in the foreign portfolio in the event window), respectively. investment after demonetization in the negative side. This is clearly indicating negative impact 9) Test for statistical significance. of demonetization on foreign investors. So, Results and Discussions the pattern of FPI after demonetization has decreased to a greater extent. Government has Graphical representation : The graph is to revive the sentiments of foreign investors to clearly indicates that market return is almost increase FPI in Indian stock market. same throughout the study period but there

Graph1

3000.000 2000.000 1000.000 0.000 Nifty Return -1000.000 % change in FPI -2000.000

-3000.000 09-09-2016 19-10-2016 19-11-2016 19-12-2016 -4000.000 -5000.000

Analysis of Descriptive Statistics : The demonetization whereas market return is following table 1 presents the amount of almost same in both periods.There is a flow of total FPI in India in terms of(Rs. significant difference in average investment Crore) and Market return ( in %) for 50 days by foreign investor’s between pre and post before demonetization and 50 days after demonetization period.Fluctuations have also demonetization. The overall investment increased in the investment pattern of FPI in has decreased to a great extent after post demonetization period.

Table 1: Descriptive Statistics

Pre Demonetization Post Demonetization FPI Investment Market Return FPI Investment Market Return (Rs. Crores) (in %) (Rs. Crores) Mean 94.25 -0.140 -1901.11 -0.141 Standard Dev 1475.20 0.716 2337.83 1.033 Kurtosis 2.105 1.440 4.51 0.348 Skewness 0.823 0.0315 -1.944 -0.255 Range 7541.97 3.608 10664 4.559 Minimum -2726.09 -1.759 -9807.59 -2.691 Maximum 4815.88 1.848 856.41 1.868

Correlation Analysis for to the 100 days daily data considered. Based on the results it can be concluded that Correlation is applied to study the statistical the relationship changed after demonetization. relationship of the variables FPI equity, FPI The relationship is not significant at 1% level debt & CNX Nifty return. The following Table of significance. 2presents the output, when correlation is run -191- Anusandhanika /Special Issue on FDI in India/ October 2017 Table 2 : Correlation Coefficients

Nifty % change % change Return in FPI in FPI Debt Equity Pre-demonetization Nifty Return 1 Period % change in FPI Equity -0.0160 1 % change in FPI Debt -0.0361 0.1517 1 Post-demonetization Nifty Return 1 Period % change in FPI Equity -0.1263 1 % change in FPI Debt 0.0348 0.1253 1 Event Study Analysis Table 3 :Summary Output

The tests involved estimating and examining Regression Statistics abnormal returns for foreign portfolio Multiple R 0.0929 investment (FPI) & Market return before and R Square 0.0086 after demonetization for 50 days before and Adjusted R Square -0.0087 after event date. Each announcement date in Standard Error 0.9137 the sample was labeled time zero ;points in Observations 59 time after the announcements were labeled The table 3 is the model summary reports the +1,+2,+3,…..,+6.At each point in event time , strength of the relationship between the model the market abnormal returns and the average and the dependent variable R, the multiple abnormal returns across market return was correlation coefficients, is the linear correlation between the observed and model predicted calculated. The average abnormal returns values of the dependent variable. The value of were cumulatively summed up over the event R2 is 0.0929; it shows that FPI explains only time and presented on a graph. 9.29% of the variation in market return. Table 4 : ANOVA

df SS MS F Significance F Regression 1 0.4146 0.4146 0.4966 0.4838 Residual 57 47.595 0.8350 Total 58 48.009 Coefficients Standard t Stat P-value Error Intercept -0.1375 0.1244 -0.8333 0.4081 % in equity FPI -0.000098 0.000139 0.7047 0.4838

The ANOVA table 4, tests the acceptability 0.05. of the model from a statistical perspective. α =-0.1037 , β = -0.000098 However , F-statistic is not found significant , so the impact of FPI on variation of market E(Ri)= α + β Rm return in pre & post demonetization period is Abnormal return = Actual return – Estimated nil, since the p-value is very much greater than return -192- Anusandhanika /Special Issue on FDI in India/ October 2017 Results reported in this paper are obtained in the demonetization announcement date were terms of the event study methodology wherein obtained for the study period. The abnormal the abnormal return of every day is calculated returns were condensed for 101 days event through Sharpe model with a view to study window comprising 50 days prior and 50 days the informational efficiency of the market. In post to the announcement of demonetization. order to investigate the difference between Table 5 presents statistical significance of Pre and Post demonetization period, Average the difference between CAARs of the market Abnormal Return (AAR) and Cumulative return for Pre and Post demonetization period. Average Abnormal Returns (CAAR) related to Table 5 :T-test of CAARs of the market return for Pre and post demonetization period

Pre-demonetization Period Post- demonetization Period Mean -730.916 -1179.750 Variance 675306.584 643563.728 Observations 42 36 Hypothesized Mean Diff 0 df 75 t Stat 2.435 P(T<=t) one-tail 0.008 t Critical one-tail 1.665 P(T<=t) two-tail 0.017 t Critical two-tail 1.992

Testing the hypothesis 2) NH02: There is no effect of demonetization 1) NH01: There is no impact of on return of the stock market. demonetization on theinvestment pattern The p-value related to demonetization of foreign portfolio investment in Indian is shown in table 5, is greater than 0.05 stock market. so null hypothesis is accepted. Hence it The p-value related to demonetization is is concluded that demonetization has no shown in table 5, is .017less than 0.05 effect on return of the stock market. so null hypothesis is rejected. Hence it It is clear from above analysis that the is concluded that demonetization has investment sentiments have been significantly impacted the investment pattern of affected due to demonetization which is foreign portfolio investment in Indian stock need to be revived but the market return is market. almost same in both the short term periods as suggested by their t-values and p-values. Annexure 1

Date FPI in Equity FPI in Debt (Rs. Total FPI Nifty Return (Rs. Cr) Cr) 19-09-2016 540.9 511.27 1052.17 0.325 20-09-2016 964.33 523.16 1487.49 -0.369 21-09-2016 1105.71 65.88 1171.59 0.014 22-09-2016 508.05 -779.71 -271.66 1.029

-193- Anusandhanika /Special Issue on FDI in India/ October 2017 Date FPI in Equity FPI in Debt (Rs. Total FPI Nifty Return (Rs. Cr) Cr) 23-09-2016 401.99 -82.99 319 -0.405 26-09-2016 -247.71 549.39 301.68 -1.229 27-09-2016 -143.61 1128.12 984.51 -0.191 28-09-2016 805.59 1724.58 2530.17 0.445 29-09-2016 974.5 1076.89 2051.39 -1.760 30-09-2016 3411.03 1404.85 4815.88 0.232 03-10-2016 -183.83 46.43 -137.4 0.355 04-10-2016 108.78 -1047.95 -939.17 -0.287 05-10-2016 503.72 601.77 1105.49 -0.393 06-10-2016 655.65 -2342.58 -1686.93 -0.137 07-10-2016 360.55 -948.1 -587.55 0.129 10-10-2016 65 -1018.09 -953.09 -1.555 13-10-2016 -484.1 642.78 158.68 0.117 14-10-2016 -846 -1880.09 -2726.09 -0.734 17-10-2016 -945.41 -607.4 -1552.81 1.849 18-10-2016 -219.66 -1056.71 -1276.37 -0.217 19-10-2016 373.88 -132.66 241.22 0.465 20-10-2016 -295.54 -151.71 -447.25 -0.073 21-10-2016 341.17 965.46 1306.63 0.183 24-10-2016 -221.94 212.51 -9.43 -0.203 25-10-2016 -391.91 763.82 371.91 -0.875 26-10-2016 -505.01 547.73 42.72 0.000 27-10-2016 -1512.78 -147.13 -1659.91 0.264 28-10-2016 -1108.83 -448.04 -1556.87 -0.142 01-11-2016 -867.69 -1105.49 -1973.18 0.006 02-11-2016 -95.99 312.23 216.24 -1.301 03-11-2016 -613.77 120.24 -493.53 -0.341 04-11-2016 73.03 176.7 249.73 -0.603 07-11-2016 492.58 482.73 975.31 0.751 08-11-2016 191.5 117.97 309.47 0.547 09-11-2016 319.6 251.74 571.34 -1.306 10-11-2016 -2044.52 -2044.52 -4089.04 1.112 11-11-2016 -629.87 1486.28 856.41 -2.691 15-11-2016 -1432.34 -1096.48 -2528.82 -2.264 16-11-2016 -2325.7 -2290.62 -4616.32 0.039 17-11-2016 -1960.25 -7045.11 -9005.36 -0.390 18-11-2016 -947.82 -1734.05 -2681.87 -0.072

-194- Anusandhanika /Special Issue on FDI in India/ October 2017 Date FPI in Equity FPI in Debt (Rs. Total FPI Nifty Return (Rs. Cr) Cr) 21-11-2016 -873.11 -1787.56 -2660.67 -1.796 22-11-2016 -1241.01 -97.63 -1338.64 0.923 23-11-2016 -674.6 -644.9 -1319.5 0.387 24-11-2016 -1095.1 -2944.33 -4039.43 -0.844 25-11-2016 -2038.3 -960.09 -2998.39 1.868 28-11-2016 -461.29 -487.34 -948.63 0.155 29-11-2016 -1366.85 -3522.25 -4889.1 0.188 30-11-2016 -652.75 -988 -1640.75 1.011 01-12-2016 -360.39 443.27 82.88 -0.384 02-12-2016 -401.04 -1010.45 -1411.49 -1.295 05-12-2016 -125.25 -410.8 -536.05 0.519 06-12-2016 -278.55 -9529.04 -9807.59 0.177 07-12-2016 206.19 -2412.37 -2206.18 -0.505 08-12-2016 354.4 -2070.99 -1716.59 1.787 09-12-2016 743.18 -2401.05 -1657.87 0.181 13-12-2016 334.03 -245.64 88.39 -1.101 14-12-2016 -731.86 -411.44 -1143.3 0.624 15-12-2016 -477.07 126.74 -350.33 -0.479 16-12-2016 -405.66 -530.1 -935.76 -0.353 19-12-2016 254.86 -1207.61 -952.75 -0.174 20-12-2016 -554.06 -413.64 -967.7 -0.431 21-12-2016 -621.37 -945.87 -1567.24 -0.271 22-12-2016 -1108.15 1045.68 -62.47 -0.261 23-12-2016 -573.53 946.59 373.06 -1.020 26-12-2016 -1460.65 -494.23 -1954.88 0.083 27-12-2016 -1099.84 -818.27 -1918.11 -0.970 28-12-2016 -683.85 11.69 -672.16 1.576 29-12-2016 -526.38 1101.75 575.37 0.025 Conclusion correlation analysis has proved that any relationship between FPI, Demonetization & By using graph, descriptive statistics, correlation Market return is not significant.The short term coefficients and event study methodology it is event study has clearly rejected the first null found that the demonetization has affected hypothesis and proved that the demonetization the FPI in Indian stock market in both equity has impacted the investment pattern of foreign and debt segment. The FPI investment has portfolio investment in Indian stock market. decreased significantly post demonetization. The graph and short term event study has The range , standard deviation & skewness accepted the second null hypothesis and of FPI has increased post-demonetization. proved that the demonetization has no effect The graph has clearly captured the variation on return of the stock market. that has taken place in pattern of FPI. The -195- Anusandhanika /Special Issue on FDI in India/ October 2017 References 11. Pan Y., The inflow of foreign direct investment to China: the impact of country- 1. Asamoah G. N., The impact of dividend specific factors. Journal of Business announcement on share price behaviour in research, 2003, 56(10), 829-833. Ghana. Journal of Business & Economics Research, 8(4), 47, 2010 12. Prasad E., Rogoff K., Wei S. J. & Kose M. A., Effects of financial globalization 2. 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Devajit M., Impact of foreign direct Foreign Capital Inflows and Economic investment on Indian economy. Research Growth: Empirical Evidence from India. Journal of Management Sciences ISSN, International Journal, 2(1), 2013 2319, 1171, 2012 16. Singh J., Chadha S. & Sharma A., Role 6. Dzokoto V. A. A. & Mensah E. C., Making of foreign direct investment in India: sense of a new currency: An exploration An analytical study. Research Inventy: of Ghanaian adaptation to the New Ghana International Journal of Engineering and Cedi. The Journal of Applied Business Science, 2012, 1(5), 34-42 and Economics, 2010, 10(5), 11 17. Srikanth M. & Kishore B., Net FII Flows 7. Eniekezimene F. A., The impact of foreign into India: A Cause and Effect Study. ASCI portfolio investment on capital market Journal of management, 2012, 41(2), growth: evidence from Nigeria. Global 107-120 Business and Economics Research Journal, 2(8), 13-30, 2013 18. Sultana S. 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-196- Anusandhanika /Special Issue on FDI in India/ October 2017 Anusandhanika /Special Issue on FDI in India/ October 2017/ pp 197-201 ISSN 0974 - 200X Effect of Foreign Direct Investment and Human Capital Formation on Labour Markets in India Dr. Abha Kumari Head of the Department of Commerce Ursuline Inter College, Ranchi

Sheela Kumari Gupta Faculty of Economics Ursuline Inter College, Ranchi Abstract

Foreign Direct Investment (FDI) and human capital formation’s interaction has strong implications for labour demand and supply factor in developing economics. Multinational Enterprises invest in their employees through provision of training, direct technological diffusion and up-gradation innovation and imitation. They also tend to affect the scale and composition of labour demand in economy. Indian economy has featured rising wage inequality and demographic dividend simultaneously since the last decade. In our first attempt to empirically assess the human capital formation effect of foreign Direct Investment in India manufacturing firms, we use unbalanced panel data for 568 firms for the period 2001-2013. FDI is found out to be stirring up wage inequality. We find an evidence of negative relation between relative wages and interaction term of training and foreign direct investment suggestive of positive human capital formation effect of FDI only through this channel. Results are the same when we do it for sb-classifications of industries.

Keywords : labour supply wages, human capital, labour market

Introduction gives a hand to expand the capabilities of the domestic entrepreneur along with For ensuring the unremitting economic the interest of the foreign firms. Structural growth and trade competitiveness skill labor and counteractive transition of framework forces and foreign direct investment play completed by the host countries government an inevitable role both for developed and facilitate the flow of investment from the world, developing country. Macroeconomic variable alleviate multitudinous dilemma. Due to the like income, investment and employment labor inefficiencies always cumulating demand ameliorate due to the inflow of FDI in the host for the skill labor forces in the developing country. FDI has a positive effect on economic country and that leads to originate gigantic growth because foreign MNCs are transferring wages disparity. In a country where there is an modern technology and that escalate the availability of adroit and competent workforces efficiency of the host countries labor forces then there is an accumulation of considerable that are significant to establishing the trade amount of FDI especially in high value added competitiveness. Host country with having products. FDI effect the labour market through the accumulation of ambidextrous skill labor changes in employment and wage structure of forces magnetize a vast amount of technology labour forces. Most of the developing country intensive FDI that ameliorate the economic has pitiable infrastructure and poor research advancement of a country along with the facility and also the lack of protection of enhancing the adaptability and capabilities of intellectual property rights (patent, copyrights the workforces. Multinational enterprise (MNE) and trade mark). Because of the unavailability plays a pivotal role for introduction of new of the resources the developing country knowledge and wisdom facilities, transferring countenances paramount problems. Due to new technology and information for the host the conception of the market liberalization countries. This complementary process -197- policy the developing countries are able of FDI for host countries include human capital to interrelate with the develop countries development. and through the concept of transferring the FDI and Economic Development modern technology assist to heighten the capacity building approach, thriving technical The bulk of FDI goes, of course, not to experience, management knowhow and developing countries but to developed, OECD marketing knowledge. countries; in 1999 77 per cent of total FDI inflows went to OECD countries (UNCTAD, There are three benefits of human capital 2000a). And even the minority of FDI that accumulation for developing countries to does go to developing countries is spread be able to absorb new technologies. First, very unevenly, with two-thirds of total OECD human capital accumulation leads to higher FDI flows to non-OECD countries going to productivity and profitability as a direct effect. Asia and Latin American. However, these FDI Second, employees are better qualified to inflows do represent significant sums for many absorb and use codified and tacit knowledge. developing countries. And thirdly, human capital accumulation improves the willingness, commitment and The nature of these inflows has altered, though, motivation of employees. with more going into mergers and acquisitions rather than on greenfield investment. Of course, Higher productivity and better absorbing mergers and acquisitions may lead to human capacity of modern technology generates the capital development, but it may not, and it may wage disparity among the workers in the host even lead to the opposite, while greenfield countries. With the substantial flow of FDI investment would be expected to lead to at assists to upgrade and accelerate the efficiency least some positive impact on human capital level of the labour forces in developing country development. This increasing role of mergers through schooling, training and compelling and acquisitions may therefore undermine the layoffs. FDI leads human capital formation extent to which incoming FDI enhances human through upgrading the skills of human capital of capital development. However, it is impossible host countries by provision off formal training, to predict either the motives or outcomes of schooling and spill-over effects of layoffs and mergers and acquisitions – which in both turnover of labor force from international firm cases are in any case extremely mixed – and to domestic firms. it may be that over time there is little difference The particular focus is on the impact of FDI according to what form any given investment on human capital enhancement in developing started out as. countries. While there are of course vast The potentially positive effects of FDI include literatures on both FDI and human capital inducing incumbent firms to upgrade their enhancement, the specific issue of how, if at technology, and spill-over benefits so that all, the behaviour of TNCs impact on human local competitors can learn from MNCs’ capital enhancement in developing countries technological and managerial practices. has not as yet been explicitly researched in any great detail. The potentially negative effects include the possibility of MNCs deliberately raising Reflecting on forty years of development concentration levels, forcing competitors out experience, the World Bank (1991) concluded of business by predatory pricing, taking away that the state has a crucial role in supporting skilled labour and R&D staff from local firms, key functions such as the provision of basic or engaging in restrictive business practices education. That report identified what it saw which, among other things, may deter as the lessons from the more successful technological development. developing countries, one of which was their investing in people, including through A well educated and trained workforce is one education. Conversely, the potential benefits of the location advantages that host countries -198- Anusandhanika /Special Issue on FDI in India/ October 2017 can provide to attract and retain inward FDI. the firm becomes more likely to benefit from recruiting already skilled labour, and will also Human Capital Enhancement benefit from the fact that other firms within the Developing countries need to have reached region are operating at or near the relevant a certain threshold of development to be able technological frontier. to fully absorb new technologies. Enhancing FDI, Human Capital Enhancement, and human capital can therefore have a number Development of beneficial effects, both direct and indirect, for the companies concerned and also for the Developing countries have increased their wider economy. share of public resources spent on education over the past two decades. However, Firstly, human capital enhancement can be comparisons across countries ‘reveal little expected to lead to higher productivity and relationship between public spending on profitability as a direct result of the increased education … and outcomes … once country capacity of the employees to perform their income levels are taken into account’. One tasks. reason for this is that spending levels will Secondly, there is the indirect effect of cover a range of quality outcomes and also companies getting a greater payback than of distributional outcomes. After controlling for would otherwise be the case from investment labour and physical capital, unequal distribution in new technologies and process innovations, of education tends to have a negative impact as the employees are better equipped to on per capita income in most countries absorb and utilise both the codified and tacit Regarding FDI, the evidence on OECD knowledge through which the benefits of such countries shows that foreign affiliates of MNEs investment are largely delivered. have a higher labour productivity compared Thirdly, human capital enhancement may to local firms.6 However, Cortes et al. (1998) improve not just the ability of employees to found that TNCs in Thailand had lower shares deliver greater productivity, but also their of skilled employment in total employment willingness, commitment and motivation so to than did locally-owned firms across a variety do. of industries, such as electrical and computer industries, with the share of skilled employees The above effects will be beneficial to the in total employment of US and European firms in which the employees work, and affiliates being sixteen per cent, in Japanese thereby to the economy generally. This wider affiliates fifteen percent, and in Asian newly economic benefit derives not just from the industrializing enterprises’ affiliates ten per direct contribution of increased output to cent, as opposed to eighteen per cent for national income, but also through vertical local firms. This is probably due to the low- linkages with suppliers and others. Labour technology nature of assembly operations turnover, on the other hand, may have rather in ostensibly high-technology industries different implications for the individual firm on (UNCTAD, 1999: 287). the one hand, and the wider economy on the other. For the individual firm, some degree Implications for economic growth, wages, of labour stability will be required to ensure and equity that the benefits from training flow back to Income inequality and development was the firm rather than moving on to rival firms. reviewed in UNCTAD (1997), and the picture For the economy as a whole, however, such is unlikely to have changed significantly since movement may generate positive spill-over then, other than inequality having most likely effects. To some extent the successful creation been exacerbated by the Asian crisis. of industrial districts can internalise what would otherwise be externalities to the firm, so The impact of TNC activities on the generation that labour turnover becomes less costly, as and upgrading of employment and on the -199- Anusandhanika /Special Issue on FDI in India/ October 2017 building up of skills in host countries varies concerned – although clearly this does of ‘according to the type or motivation of FDI, the necessity occur – but rather by the domestic industries in which TNCs invest, the strategies governments themselves as a way of attracting they adopt, and host country conditions. They that inward investment. Thus rather than also depend significantly on the policies of host inward investment enhancing human capital, countries on FDI for increasing employment the causal process has been the enhancement quantity, improving employment quality and of human capital to attract inward investment. strengthening human resource capabilities The end result is of course the same in the and for minimizing any negative effects that sense that both processes occur - human FDI may have in these respects.’ (UNCTAD, capital enhancement and inward investment 1999: 258). - even if the nature of the human capital enhancement may be affected by whether Developed country experience the education and training has come from the The experience of developed countries domestic government or the inward investor. is clearly different from that of developing Finding and Suggestion countries, as the motivation for attracting inward investment is rather different. In overall The UNCTAD conclusion from ten years ago terms there are the same goals, in terms quoted above went on as follows: of contributing to employment creation, the In an increasingly competitive environment for balance of trade and so forth. But regarding foreign investment capital, least developed the specific aim of enhancing human capital countries should pay greater attention to development, this is clearly less of an issue, the development of infrastructure, human or at least is of a different nature, with resources and entrepreneurship which have a developed countries being more interested in significant bearing on the locational choice of the spreading of best practice, technological transnational corporations. spill-overs and so forth. With that caveat, it is worth considering the relevance of developed While the same anachronistic balance country experience since some of the broader of responsibility is evident – on the least aims are indeed similar, such as hoping for developed countries rather then the TNCs productive linkages with existing supplier and – the key issue is already raised, namely other domestic companies, and the creation of the importance of human resources to the new spin-off companies. And the success or investment decisions of TNCs. otherwise in achieving these goals will depend Human capital enhancement may be related in part at least on human capital issues. in various ways to the issue of the transfer of Policy Implications technical knowledge. Low level of transfer of both technical knowledge and management However, it is clear that public policy has in technique, and also of training in general, for several countries impacted positively upon two main reasons. Firstly, the majority of FDI human resource development in the context of inflows has been in low to medium technology inward investment. The obvious route through industry that does not require much skill, with which public policy might aim to achieve a concomitantly low requirement for MNCs such goals would be to pursue policies such to invest in human resources. Secondly, as tax and other incentives to attract inward even in the high technology sectors, the wide investment which would, by hiring and training technology gap has inhibited the ability of local employees, thereby enhance human the local employees to learn, either because resource development. Ironically, though, this the gap is so great that it is hard to bridge, appears not generally to have been the case. or because the perceived gap simply deters Instead, human resources have more often MNCs from attempting to bridge it – and most been developed not so much by the MNEs likely a combination of the two. that have established plants in the countries -200- Anusandhanika /Special Issue on FDI in India/ October 2017 The key developments as having been on as requirements and opportunities become the one hand the decision to try to attract in uncovered. Secondly, technological diffusion Multinational Corporations and on the other will increase the incentives for companies to hand the question of skill levels, and in take advantage of these technologies, which particular the interaction and dynamics of these will in turn require human capital enhancement. two factors. As always with economic and And thirdly it will be an attractor not only to industrial processes, the links are complex. further FDI, but to FDI going into relatively high Firstly, there was the need to massively value added areas. increase skill levels. On the direct effect of References MNCs on the skill levels of the workforce as a result of the MNCs’ own efforts, there is 1. Best, M.H., The New Competitive no doubt that any such positive effect has Advantage: The Renewal of American been relatively limited – certainly relative to Industry, Oxford University Press, London, the scale of the task in the case of Malaysia. 2001 The major education and training effort came 2. Chang, H.-J., Kicking Away the Ladder, from Government. This public policy action 2002 plays an important part in the effort to attract companies. There is still an open question, 3. DeMartino G.F., Global Economy, Global though, of what becomes to the workers once Justice: Theoretical Objections and Policy they enter the MNCs, in two senses. Firstly, to Alternatives to Neoliberalism, Routledg, what extent do the MNCs further develop the London, 2000 skills of the workforce? And secondly, to what 4. Fransman, M., The Relevance of East extend does that workforce tend to remain Asian Institutions Designed to Support within the MNC, rather than moving on to work Industrial and Technological Development in domestic companies? This latter pattern in Southern African Countries, UNCTAD, can have important effects on the domestic Geneva, 1998 economy through knowledge spill-overs. The presence and activities of the MNCs may 5. International Labour Organisation (ILO), also have two other beneficial effects. Firstly, World Employment, An ILO Report, through influencing the behaviour of domestic International Labour Office, Geneva, 1995 firms in addition to the effect just mentioned 6. Lee E., Globalization and labour standards: of knowledge transfer through labour turnover. a review of the issues, International Labour And secondly by employees within the MNCs Review, ILO, Geneva, 1997, 136(2): 173- moving not to existing domestic companies but 189 to start up their own companies. Government policies have been successful; but Best warns 7. Maher Maria, The Benefits and Costs that they risk being trapped in relatively low of Foreign Direct Investment: A Survey, value added sectors. OECD Directorate for Financial, Fiscal and Enterprise Affairs’ Committee on Conclusion International Investment and Multinational The question is how to encourage MNEs to Enterprises, DAFFE/IME, 2001, 21 invest in human capital enhancement. The 8. OECD, Foreign direct investment and key mechanisms, it is suggested, are those recovery in Southeast Asia, OECD, Paris, already being pursued, not all of which are 1999 obviously connected with human capital. Thus public education is vital. But so are policies 9. Sengenberger W. and Wilkinson F., to enhance technological diffusion. Firstly Globalization and Labour Standards, such policies will inevitably lead to further in J. Michie and J. Grieve Smith (eds), intervention from government and other Managing the Global Economy, Oxford: public agencies to enhance human capital Oxford University Press, London, 1995 -201- Anusandhanika /Special Issue on FDI in India/ October 2017 Anusandhanika /Special Issue on FDI in India/ October 2017/ pp 202-206 ISSN 0974 - 200X The Impact of FDI & FPI on Human Welfare Amarnath Research Scholor, Department of Commerce, Vinoba Bhave University, Hazaribagh, Jharkhand

Dr. Amitava Samanta Assistant Professor, Department of Commerce Vinoba Bhave University, Hazaribagh, Jharkhand

Abstract

Capital is a vital component for economic growth, and most nations cannot meet their total capital requirements from internal resources alone, they turn to foreign investors to supply capital.Foreign direct investment and foreign portfolio investment are two of the most common routes for overseas investors to invest in an economy. Financial flow is captured by the foreign investment while the capital flow is acted by the Portfolio investment. The human welfare was proxied by human development index, (HDI-a composite of three indicators: life expectancy at birth, mean year of schooling and income per head), access to basic necessities such as water, sanitation and health services were also used as alternative measure of human welfare while Governance index was considered as a control variable which stimulates globalisation and human welfare.One line of approach is through globalization ,which could affect the welfare of the poor is through financial liberalization, which has increased the growth for capital. Greater financial integration contributes to higher growth by expanding access to capital, expanding access to new technology, stimulate domestic financial sector development, reducing transaction cost, and access to international capital markets should allow countries to smooth consumption shocks, reduce consumption volatility and increase real wages.

Keywords : capital flow, financial flow, portfolio investment, human development index

Introduction portfolio investment projects are managed less efficiently than direct investment projects. International equity flows are the main Tobe more specific, direct investors, who act feature of the recent globalization of capital effectively as managers of their own projects, markets both in developing and in developed are more informed than portfolio investors economies. These flows take two major forms: regarding changes in the prospects of their Foreign Direct Investments (FDI) and Foreign projects. This information enables them to Portfolio Investments (FPI). An empirical manage their projects more efficiently. This regularity is that the share of FDI in total foreign effect generates an advantage, with an equity flows is larger for developing countries added value in the capital markets, to direct than for developed. Difference between the investments relative to portfolio investments. two types of investment: FDI investors, who There are, however, costs to direct take both ownership and control positions in investments. We specify two types of costs. the domestic firms, are in effect the managers The first type reflects the initial cost that an of the firms under their control; whereas FPI FDI investor has to incur in order to acquire investors, who gain ownership without control the expertise to manage the project directly. of domestic firms, must delegate decisions This cost is exogenously given in the model. to managers, but limit their freedom to make The second type, an information based cost, is decisions because the managers’ agenda derived endogenously in the model. It results may not be always consistent with that of from the possibility that investors need to sell the owners. Consequently, due to an agency their investments before maturity because they problem between managers and owners, -202- face liquidity shocks. In such circumstances, whether financial integration has smoothed or the price they can get will be lower if they exacerbated output and consumption volatility. have more information on the economic They pointed out that greater macroeconomic fundamentals of the investment project. This is volatility probably increases human welfare because when potential buyers know that the deterioration, particularly when there are seller has more information, they may suspect financial crises. Since the poor are likely to that the sale results from bad information on be hurt in periods of consumption. Capital is a the prospects of the investment, and will thus vital ingredient for economic growth, but since be willing to pay a lower price. Thus, if they most nations cannot meet their total capital invest directly, the investors bear the cost requirements from internal resources alone, of getting a lower price if and when they are they turn to foreign investors to supply capital. forced to sell the project before maturity. The Foreign direct investment (FDI) and foreign endogeneous growth theory provided the portfolio investment (FPI) are two of the most theoretical framework for this study. Financial common routes for overseas investors to flow is capturedby the foreign investment invest in an economy. FDI implies investment while the capital flow is proxied by the Portfolio by foreign investors directly in the productive investment. The human welfare was proxied by assets of another nation. FPI means investing human development index, (HDI-a composite by investors in financial assets such as stocks of three indicators: life expectancy at birth, and bonds of entities located in another country. mean year of schooling and income per head), FDI and FPI are similar in some respects but access to basic necessities such as water, very different in others. As retail investors sanitation and health services were also used increasingly invest overseas, they should be as alternative measure of human welfare while clearly aware of the differences between FDI Governance index (GI) was considered as a and FPI, since nations with a high level of FPI control variable which stimulates globalization can encounter heightened market volatility and and human welfare. currency turmoil during times of uncertainty. The Globalization-Capital Flows-Growth- Evaluating Attractiveness for FDI / FPI Human Welfare Capital is always in short supply and is highly One major avenue through which globalization mobile, foreign investors have standard criteria could affect the welfare of the poor is through when evaluating the desirability of an overseas financial liberalization, which has increased the destination for FDI and FPI, which include: growth for capital to flow to developing countries Economic factors : the strength of (Harrison, 2006). In theory, openness to capital the economy, GDP growth trends, flows (financial globalization) could enhance infrastructure, inflation, currency risk, human welfare state and alleviate poverty foreign exchange controls etc. through several channels. If greater financial integration contributes to higher growth by Political factors : political stability, expanding access to capital, expanding access government’s business philosophy, track to new technology ,stimulate domestic financial record, and so on. sector development, reducing transaction cost, Incentives for foreign investors : and access to international capital markets taxation levels, tax incentives, property should allow countries to smooth consumption rights, etc. shocks, reduce consumption volatility and increase real wages through output and Other factors : education and skills of the investment growth. Then such growth should labor force, business opportunities, local enhance human welfare. This suggests that competition etc. the impact of financial integration on human FDI versus FPI welfare-via possible growth effects- is likely to be small. They also explore another link Although FDI and FPI are similar in that they -203- Anusandhanika /Special Issue on FDI in India/ October 2017 both originate from foreign investors, there are interest rates (the source of cheap money) some very fundamental differences between appeared to be coming to an end. the two. Foreign portfolio managers first focused on The first difference arises in the degree of nations like India and Indonesia, which were control exercised by the foreign investor. FDI perceived to be more vulnerable because of investors typically take controlling positions their widening current account deficits and in domestic firms or joint ventures, and are high inflation. As this hot money flowed out, actively involved in their management. FPI the rupee sank to record lows against the U.S. investors, on the other hand, are generally dollar, forcing the Reserve Bank of India to step passive investors who are not actively involved in and defend the currency. Although the rupee in the day-to-day operations and strategic had recovered to some extent by year-end, plans of domestic companies, even if they its steep depreciation in 2013 substantially have a controlling interest in them. eroded returns for foreign investors who had invested in Indian financial assets. The second difference is that FDI investors perforce have to take a long-term approach to The Bottom Line their investments, since it can take years from While FDI and FPI can be sources of much- the planning stage to project implementation. needed capital for an economy, FPI is much On the other hand, FPI investors may profess more volatile, and this volatility can aggravate to be in for the long haul but often have a economic problems during uncertain times. much shorter investment horizon, especially Since this volatility can have a significant when the local economy encounters some negative impact on their investment portfolios, turbulence.Which brings us to the final point. retail investors should familiarize themselves FDI investors cannot easily liquidate their with the differences between these two key assets and depart from a nation, since such sources of foreign investment. In order to assets may be very large and quite illiquid. harmonize the various available routes for FPI investors have an advantage here in that foreign portfolio investment in India, the Indian they can exit a nation literally with a few mouse securities market regulator i.e. Securities clicks, as financial assets are highly liquid and Exchange Board of India (“SEBI”) has widely traded. introduced a new class of foreign investors in Cautionary Signs for Investors India known as the Foreign Portfolio Investors (“FPIs”). This class has been formed by merging Investors should be cautious about investing the existing classes of investors through which heavily in nations with high levels of FPI, portfolio investments were previously made and deteriorating economic fundamentals. in India namely, the Foreign Institutional Financial uncertainty can cause foreign Investors 1 (“FIIs”), Qualified Foreign Investors investors to head for the exits, with this capital 2 (“QFIs”) and sub-accounts3 of the FIIs. flight putting downward pressure on the Previously portfolio investment was governed domestic currency and leading to economic under different laws i.e. the SEBI (Foreign instability. The Asian crisis of 1997 remains Institutional Investors) Regulations, 1995 (“FII the textbook example of such a situation. The Regulations”) for FIIs and their subaccounts plunge in currencies like the Indian rupee and and SEBI circulars dated August 09, 2011 and Indonesian rupiah in the summer of 2013 is January 13, 2012 governing QFIs, which are another recent example of the havoc caused now repealed under the SEBI (Foreign Portfolio by “hot money” outflows. In May 2013, after Investors) Regulations (“FPI Regulations”) Federal Reserve chairman Ben Bernanke that govern FPIs. SEBI has, thus, intended to hinted at the possibility of winding down the simplify the overall operation of making foreign Fed’s massive bond-buying program, foreign portfolio investments in India. investors began closing out their positions in emerging markets, since the era of near-zero -204- Anusandhanika /Special Issue on FDI in India/ October 2017 Human development index aspect is of prime importance. For example, the new-growth theory gives significant The theoretical framework relating to FDI weight to human capital –creating agents who and human development can be traced from can become more productive through their welfare and economic growth literature. Nobel acquisition of knowledge, increased skills and Laureate, Amartya Sen’s work pertaining better health and nutrition. Foreign investors to welfare economics has stressed the play a positive role in the enhancement of such importance of several economic and societal attributes. Thus, higher levels of individual well variables bringing about notable changes and being are likely to represent an increase in generally improving the quality of life of an human capital, hence contributing to higher individual (Sen 1987, 1997 and 1998). In some levels of aggregate output. Increased output of his earlier works, Sen (1987 and 1992) has generates higher incomes and improves per expressed that “while economic analyses capita incomes, inducing overall well being. have often concentrated on incomes and Ranis, Stewart and Ramirez (2000) point out commodities to judge a person’s advantage, that there exists a strong connection between misery and deprivation, there is a need to shift economic growth and human development: attention to things that people have reason to economic growth provides the resources to value intrinsically.” In line with these views, we permit sustained improvements in human pursue this matter forward by considering FDI development while improvements in the quality having an influential role for the betterment of the labour force are important contributors of individual well being. Reducing the state to economic growth. For sustained levels of misery and deprivation and improving of human development, technology is overall human welfare of the large proportion equally important in nation building generate of the world’s deprived population is certainly productivity gains and is an essential an issue of prime concern for many poor component behind sustained economic countries. The welfare of poorer nations is of growth. Other, than investments in technology equal concern to foreign investors, as their by host governments, FDI brings in much contributions such as employment creation, needed technology as well as technology of skill development, income generation and a high calibre. Several factors contributing technological improvements can have direct to economic well being have been identified effects in reducing the level of sufferings of in previous studies (Sen, 1998 and 2002; the poorer nations. Technological progress Anand&Sen, 2000; Meier & Stiglitz, 2001). For has been noted to have an influential effect on example, Sen (2002) has emphasised that “the societal progress. For example, Solow (1956) importance of global contact and interaction emphasised the importance of technological applies to economic relations among others progress as the ultimate driving-force behind and that there is much evidence that global sustained economic growth. While the role of economy has brought prosperity to many human capital has recently received extensive different areas of the globe and in overcoming attention in recent times, it should be noted that pervasive poverty.” Foreign investors play a attempts to quantify the contribution of human significant role in enhancing global contacts capital to a country’s rate of economic growth through direct capital investment and could be traced at least as The endogenous international trade. growth theory has certainly re-awakened interest in the role of human capital, providing Conclusion ample evidence that technology and human Liberalization policies have led to rapid capital play an essential role in a country’s growth in FDI flows in recent years. Basing development (Barro, 1991 and Easterly, et on the benefits associated with FDI several al., 1994).Because several factors contribute developing, as well developed countries, to higher levels of human capital, hence compete fiercely for FDI. They try to attract improvements in human development, this foreign investors by providing financial and -205- Anusandhanika /Special Issue on FDI in India/ October 2017 fiscal incentives, undertaking corporate Reference restructuring and economic reforms and inviting 1. Eyeing big-billions in 2015, government foreign investors in the privatization of state-run rolls out FDI red carpet. The Economic units. In 2001, for example, 71 countries made Times. 28 December 2014. Retrieved 11 208 changes in their FDI regulatory regimes, October 2015 out of which 194 have done to attract higher FDI. The investing countries usually supply 2. Foreign direct investment, net inflows superior technologies to the host countries. At (BoP, current US$) | Data | Table”. Data. the initial stages, however, the less developed worldbank.org. Retrieved 17 November countries (LDC) lack not only the necessary 2012 skills and infrastructure to attract FDI in high 3. How the Indian economy changed in technology sector but also the knowledge for 1991–2011. The Economic Times. 24 July proper implementation of technology. Since 2011. Retrieved 11 October 2015 this requires less technical capabilities, skill building in the host LDC is less. However, 4. India pips US, China as No. 1 foreign such skill building, even though small, creates direct investment destination”. The Times a platform for the LDC to develop their existing of India. 30 September 2015. Retrieved technology and capital productivity. This 11 October 2015 helps in improving the human capital of the 5. India grabs investment league pole country by facilitating education and technical position”. Financial Times training to a greater mass of people. Capital is a vital component for economic growth, and 6. India Pips China, US to Emerge as most nations cannot meet their total capital Favourite Foreign Investment Destination: requirements from internal resources alone, Report”. NDTV Profit. Retrieved 1 October they turn to foreign investors to supply capital. 2015 Foreign direct investment and foreign portfolio 7. Iyengar Rishi, (30 September 2015). India investment are two of the most common routes Tops Foreign Investment Ranking Ahead for overseas investors to invest in an economy. of U.S and China, Time. Retrieved 11 Financial flow is captured by the foreign October 2015. investment while the capital flow is acted by the Portfolio investment. The human welfare was 8. Reserve Bank of India – Frequently proxied by human development index, (HDI-a Asked Questions. Reserve Bank of India. composite of three indicators: life expectancy Retrieved 11 October 2015. at birth, mean year of schooling and income 9. Nagaraji R, What Has Happened since per head), access to basic necessities such as 1991? : Assessment of India’s Economic water, sanitation and health services were also Reforms” (PDF). Igidr.ac.in. Retrieved used as alternative measure of human welfare 2015-10-12 while Governance index was considered as a control variable which stimulates globalisation and human welfare.

-206- Anusandhanika /Special Issue on FDI in India/ October 2017 Anusandhanika /Special Issue on FDI in India/ October 2017/ pp 207-211 ISSN 0974 - 200X FDI in Energy Infrastructure – Power Generation & Distribution

Dr. Madan Kumar Singh Research Scholar, D. Litt. Faculty of Commerce Ranchi University, Ranchi

Abstract

Infrastructure is one of the crucial pillars of productivity in any economy. It not only attracts foreign direct investment, but also affects economic growth and reduces poverty in India. Infrastructure is the basic physical and organizational structures needed for the operations of a society or enterprise or the services and facilities necessary for an economy to function. The foreign investment in infrastructure remains dim even though Government of India promotes foreign capital and creating an investor friendly environment. Lack of infrastructure adversely affects in growth of other sectors also. This paper identifies that inadequate allocation of fuel to the power stations, delay in environment clearances, issues in the land acquisition and absence of credible dispute resolution mechanism are the technical barriers of investment in infrastructure. This paper also discusses the energy infrastructure deficiency of India, the foreign direct investment in energy infrastructure sector and the actions which the authorities can take while planning to bridge the infrastructural gap. Energy Infrastructure is an important item in judging a country’s or region’s development. Sustained economic growth continues to drive electricity demand in India. The Government of India’s focus on attaining ‘Power for all’ has accelerated capacity addition in the country. Total installed capacity of power stations in India stood at 305,554.25 Megawatt (MW) as of August 31, 2016. The Planning Commission’s 12th Five-Year Plan estimates total domestic energy production to reach 669.6 Million Tonnes of Oil Equivalent (MTOE) by 2016–17 and 844 MTOE by 2021–22. The initiative would entail an investment of about US$ 310–350 billion. The Government of India has been supportive to growth in the power sector. It has de-licensed the electrical machinery industry and also allowed 100 per cent Foreign Direct Investment (FDI) in the sector. Total FDI inflows in the power sector touched US$ 10.48 billion during the period April 2000 to March 2016.

Keywords : economic growth, infrastructural Gap, sustained economic growth

Introduction economy to function. It can be generally defined as the set of interconnected structural Since the mid-1980s, governments around elements that provide support for the the world have pursued policies to encourage development of the economy. The foreign private sector participation in the financing and investment in infrastructure remains dim delivery of infrastructure services. The natural even though Government of India promotes monopoly characteristics of infrastructure foreign capital and creating an investor friendly utilities mean, however, that the privatization environment. Lack of infrastructure adversely of these industries risks the creation of private- affects in growth of other sectors also. This sector monopolies. Therefore, governments paper discuss the infrastructure deficiency need to develop strong regulatory capabilities of India, the foreign direct investment in to police the revenues and costs of the infrastructure sector and the actions which the privatized utility firms, while, at the same authorities can take while planning to bridge time, establishing regulatory credibility among the infrastructural gap. investors. Infrastructure is the basic physical and organizational structures needed for Infrastructure is an important item in judging the operations of a society or enterprise or a country’s or region’s development. the services and facilities necessary for an Infrastructure sector covers hard infrastructure

-207- and soft infrastructure. Hard infrastructure industrial output. The Planning Commission includes transport infrastructure, energy has projected that investment in infrastructure infrastructure, water management would almost double at US$ 1,025 billion in the infrastructure, communication infrastructure, Twelfth Five Year Plan (2012-17), compared to solid waste management, earth monitoring US$ 514 billion in the Eleventh Plan. Of the and measurement networks. Governance US$ 1,025 billion, 50 per cent is expected to infrastructure, economic infrastructure, come from private sector, whose investment social infrastructure, cultural, sports and has been 36 per cent in the Eleventh Plan. recreational infrastructure comes under the The trend towards greater reliance on the soft infrastructure. Before 1700, infrastructural private sector has also seen a growing role for sector covered only roads and canals. FDI in infrastructure. FDI made up 28% of the Railways and telegraph services are included total infrastructure investment in developing in the category from 1700 to 1870. Electricity, countries during 1996 – 2008. Moreover they water distribution and sewers and subways have the greater capacity to mobilize financial are added to the sector after 1870. Since resource to meet the huge capital requirements 1920 communication facilities and technology of major infrastructural projects. Opening the infrastructure is considered as the prime infrastructure sector also increases the pool of additions to the sector. potential investors, allowing governments to Reserve Bank of India has defined secure higher prices for infrastructural assets. infrastructure sector as: FDI investment in infrastructural sector is i. Power welcomed by the Government of India. India is more viewed as a financial market. ii. Telecommunications Majority of FDI investments happened in the iii. Railways financial services sector. The growth rate of the economy, working and earning population iv. Roads including bridges and financial literacy helped in increasing v. Sea port and air port the FDI base in financial services sector. vi. Industrial parks Other sectors including infrastructure was not in the limelight till now. The recent policy vii. Urban infrastructure (water supply, changes has favourably affected retailing and sanitation and sewage projects) educational sector and many players has viii. Mining, exploration and refining, and already expressed their interest in investing in India Infrastructure in India is viewed as ix. Cold storage and cold room facility, a tough sector to invest. India needs an including for farm level pre-cooling for investment of US$ 1.7 trillion in infrastructure. preservation or storage of agricultural and Only then the country would be able to meet allied produce, marine products and meat. the requirements based on the expected GDP The Index of Eight core industries—crude oil, growth. Private- Public Partnerships (PPP) are petroleum refinery products, coal, electricity, gaining importance with PPP airport projects cement, steel, fertilizers and natural gas— at Bangalore, Delhi, Hyderabad and Mumbai having a combined weight of 37.90 per cent and also in power and port sectors. Among in the Index of Industrial Production (IIP) stood the PPP projects only the power sector is on at 139.5 in September 2012, according to data track, achieving 100 % of planned capacity, released by the Union Ministry of Commerce the airport sector is at 75% and road sectors at and Industry. During April-September 2012- 50% including National Highway Development 13, the cumulative growth rate of the Core Programme that has achieved only 10% of the industries was 3.2 per cent. The infrastructure planned capacity. This is followed by the low sector accounts for 26.7 per cent of India’s foreign investments in the infrastructure. One of the main reasons for unattractive inflow to -208- Anusandhanika /Special Issue on FDI in India/ October 2017 infrastructure is the regulatory environment. growth and prosperity. A transparent, clear and As a system we need a clear, stable legal accessible regulatory system supported by a framework for promoting investment in state run independent monitoring system for infrastructure. Once we move from State project implementation can help in attracting Investments to Transnational Corporations FDI and meeting infrastructure requirements. (TNC) we need a legal framework which The 1990s saw an unprecedented increase would meet the international benchmarks. in private foreign investment in infrastructure The investor will be always concerned of the projects in developing countries. Much of this clarity of the legal frame work. Policy changes investment was in the telecommunications and in short run and delay in taking decisions in electricity industries. For the private sector, policy matters has adversely affected the infrastructure investment is associated with a foreign inflow in infrastructure. sizeable investor risk linked to the long-term Political environment in India is also a reason sunk cost characteristics of infrastructure for low foreign investment in infrastructural projects. For the government, the involvement sector. India is having elections every 5 years, of the private sector in “natural monopolies” and majority of state have new ministry every raises new challenges in designing regulatory 5 years. There are many instances where the structures that can control anti-competitive or policy and process of one ministry is diagonally monopolistic behaviour, while at the same time opposite to the next ministry. There are even maintaining the attractiveness of the domestic instances where some projects are cancelled, economy to potential foreign investors in the modified and fresh tenders orders and given. infrastructure industries. This is creating a policy dilemma and increases This article provides an empirical examination the risk of the foreign player. of the relationship between the quality of Materials and Methods the regulatory framework and foreign direct investment (FDI) in infrastructure in middle The Study will be descriptive analysis of and lower income developing countries during the problem identified. For this research the period 1990 to 2002. The results confirm techniques will consists of: Observation, that FDI in infrastructure responded positively Scanning, Collection of Required Materials/ to an effective domestic regulatory framework. Data, Analysis, and Presentation. The By implication, where regulatory institutions relevant material will be collected mainly are weak and vulnerable to “capture” by the from secondary sources content in the form government (or the private sector), foreign of reports, articles, annual reports, authentic investors may be more reluctant to make a reports of the Ministry of Coal & Energy, major commitment to large scale infrastructure Reserve Bank of India Bulletins and Planning projects in developing countries. Commission Publications will be extensively be used. In developing countries, an essential requirement for economic growth and The primary sources, however, may consists sustainable development is the provision of of a very small portion of research work as efficient, reliable and affordable infrastructure when required on the spot study will be made services, such and causes of operational constraints will be ascertained from the concerned officials and as water and sanitation, power, transport engineers. and telecommunications. The availability of efficient infrastructure services is an important Results and Discussions determinant of the pace of market development FDI in the Energy sector can improve the and output growth, and, in addition, access standard of living, generate employment to affordable infrastructure services for opportunities, makes others sectors more consumption purposes serves to improve effective and ultimately results in economic household welfare, particularly among the -209- Anusandhanika /Special Issue on FDI in India/ October 2017 poor. In most countries, however, the potential competition in certain areas of service contribution of infrastructure to economic delivery, each of the utilities retains some growth and poverty reduction has not been natural monopoly features. As a consequence, fully realized, and existing infrastructure stock privatization of these industries, in whole or and services fall far short of the requirements. in part, risks the introduction of private sector monopolies that will exploit their economic Traditionally, infrastructure was the exclusive power, leading to supernormal profits (high province of the public sector, with large, state- “producer surplus”) and reduced consumer owned enterprises (SOEs) being responsible welfare (a lower “consumer surplus”). for investment and service delivery. Typically, Consumers may suffer from no – or a limited SOEs were costly and inefficient providers choice of – goods and services and face of infrastructure services in most developing monopoly prices. countries. Since the mid-1980s, however, governments around the world have pursued To prevent such an outcome, governments policies to involve the private sector in the need to develop strong regulatory capabilities delivery and financing of infrastructure services. so that they can police the revenues and Encouraged by international organizations costs of production of the privatized utility such as the World Bank, privatization has been firms and protect consumers from monopoly a major component of the economic reform exploitation. At the same time, there needs to programmes pursued by many developing be commitment on the part of government to countries over the past two decades (Parker the regulatory rules so that they are perceived and Kirkpatrick, 2004). Privatization was as credible by investors. Where regulatory thought to promote more efficient operations, credibility is weak or absent, private investment expand service delivery, reduce the financial decisions will be adversely affected. burden on government and increase the level Conclusion of foreign and domestic private investment (World Bank, 1995). Early privatization FDI has expanded steadily over the past three measures were, on the whole, concentrated in decades. The growth in FDI accelerated in the manufacturing sector but, in recent years, the 1990s, rising to $331 billion in 1995 and the private sector has become increasingly $1.3 trillion in 2000 (UNCTAD, 2002). As a involved in the financing and delivery of result, developing countries experienced a infrastructure services. A large number of sharp increase in the average ratio of FDI to developing countries have introduced private total investment during the 1990s. A principal participation into their infrastructure industries feature of the growth in FDI has been its rise in and, by the end of 2001, developing countries the services sector, which is now the dominant had received over $755 billion in private sector in global FDI. For developing countries, investment flows in nearly 2,500 infrastructure FDI in services increased at an annual rate projects (World Bank, 2003a). of 28% over the period 1988 to 1999, and by 1999, accounted for 37% of total foreign Utilities such as water supply, gas, electricity investment inflows. and telecommunications and certain modes of transport, e.g. rail, all have natural Private participation in infrastructure in monopoly characteristics arising from developing countries has been concentrated pervasive economies of scale and scope. in the telecommunications industry, which These characteristics mean that competition accounted for 44% of the cumulative is unlikely to develop or, if it develops, it will investment in 1990-2001. Energy, which be uneconomic because of the duplication includes electricity and the transmission and of assets. Although technological advances, distribution of natural gas, attracted the second notably in telecommunications, have largest share of investment, accounting for whittled away some of the natural monopoly 28% of the cumulative investment in private characteristics in utilities, permitting economic infrastructure projects in 1990- 2001. In -210- Anusandhanika /Special Issue on FDI in India/ October 2017 contrast, private participation in the water 3. Planning Commission, 2011, Report and sewerage industry has been limited, on Steering Group on Foreign Direct accounting for 5% of cumulative investments Investment over the period 1990-2001. The limited amount 4. www.wikepedia.com of private involvement in water utilities is likely to be a reflection of the inherent difficulties 5. www.rbi.org that face privatization in this industry, in terms 6. www.worldbank.org of the technology of water provision and the nature of the product, transaction costs and 7. www.indiabudget.nic.in regulatory weaknesses. 8. www.unctad.org References 9. www.dipp.gov.in 1. Report of Union Minister of Commerce & Industry. 2. UNCTAD, FDI/TNC database (www. unctad.org/fdistatistics).

-211- Anusandhanika /Special Issue on FDI in India/ October 2017 Anusandhanika /Special Issue on FDI in India/ October 2017/ pp 212-214 ISSN 0974 - 200X Role of FDI in Economic Growth of India Mantosh Kumar Singh M.Com, MBA, Research Scholar Department of Commerce Magadh University, Bodhgaya

Abstract

Foreign Direct Investment (FDI) has played an important role in the process of globalization during the past two decades. The rapid expansion in FDI by multinational enterprises since the mid-eighties may be attributed to significant changes in technologies, greater liberalization of trade and investment regimes, and deregulation and privatization of markets in many countries including developing countries like India. Capital formation is an important determinant of economic growth. While domestic investments add to the capital stock in an economy, FDI plays a complementary role in overall capital formation and in filling the gap between domestic savings and investment. At the macro-level, FDI is a non-debt-creating source of additional external finances. At the micro-level, FDI is expected to boost output, technology, skill levels, employment and linkages with other sectors and regions of the host economy.

Keywords : dynamic growth, private finance, portfolio investment

Introduction record in attracting FDI inflows. The role of Foreign Direct Investment (FDI) The commercial bank debt. crisis and the aid is stimulecting economic growth in one fo fatigue, in the 1980, FDI became the preferred the controversial issues in the development source once again as countries becamemore literature. The great promise of foreign direect attracted towards non-debt creating sources of investment (FDI) by multinational corporations external private finance. is that capital will stimulate dynamic growth. Now Government of India allowed FDI in The part played by foreign direct investiment different sectors of economy. FDI includes (FDI) in the development process has mergers and acquisitions, building new undergone several changeS. In the 1960 FDI facilities reinvesting profit earned from was seen in most countries as a partner in overseas operations and intra company loans. the development endeavours. India adopted FDI id in Dissimitanities to portfolio investment a regime that was perceived to be restrictive which in a pansive investment in the securitics towards FDI. The introduction of the Foreign of mother Country such as stock bonds. FDI exchange regulation Act (Fera) in 1973 by is defined as the net inflows of investment to incorporated in India. The industrial Licening acquire a lasting management interest in an system under the industries Development and enterprise operating in an economy othe than Regulation Act, 1951 and the Monopolies and that of the investor. As per the data, the sector Restrictive Trade practice Act. 1969 sought to that attracted higher inflows were service channelize their activities into high technology telecommunication. Construction activities and. exportoriented production. and computer software and Hardware. On 14 The limits on foreign shares fostered joint September 2012 Government of India allowed ventures with Indian entrepreneurs. These FDI in aviation Up to 49% in the broadcast Policies continued until the policy of creeping sector up to 74% inmulti-brand retail up to liberalisation of the Indian economy was 100% the choice of allowing FDI in Multi-brand initiated in the 1980. The fast-tracked retailing up to 51% has been left to each state. liberatisation of the Indian economy the Agrwal and Khanin (2011) in their the study process of establishing the venture. The policy found that 1% increase in FDI would result in change were thus aimed at improving india’s -212- 0.07% increase in GDP of China and 0.02% Total FDI inflows from April 2000 March 2016. increase in GDP of India. We also found that 1. Cumulative amount of FDI inflows (Equity China’s growth is more affected by FDI. Then inflows +Re-invested earning + other India’s growth. Kumar and Karthika (2010) capital.) Amount of FDI inflow in $ million- found out in their study that foreign Direct 290.078. Investment has a major role to play in the economic development of the host country. 2. Cumulative amount of FDI Equity inflows excluding amount remitted through RBI’s Bauasubranyam and spsord 2007 stated in NRI Schemes. Amount of FDI inflow in Rs. their Anticle “Does India need a lot more FDI” Crore-896.30 and in $ Million - 193.282. compared the levels of FDI inflows in India and China and found that FDI in India s one tenth FDI inflows during the Financial year 2015-16 of that of China. The paper also concluded that from Arpil 2015 to March 2016. India may not require increased FDI because 1. Total FDI inflows into India (Equity inflows of the Structure and composition of India’s +Re- invested earings + other capital manufacturing. Service Sectors and her Amount of FDI inflow in $ million. 36,860 endowments of human capital and the country in a position to unbundle the FDI package 2. FDI Equity inflows. Amont of FDI inflows effectively and rely and sources other then FDI in Rs. Crore- 121.907 and in $ million- for its capital requirements. The conclusion of 22,423. study is that restnricted FDI regime poor quality Foreign Direct investment FDI as astrategic infrastructure, centralized decision making component of investment in needed by processe and a very limited scale of export India for its sustained economic growth processing zones make India and unattractive and development through creation of jobs. investment Location. Expansion of existing manufacturing industries. Materials and Methods Short and long term project in the field of health care, education, research and development For the purpose of in depth study the contents through creation of Jobs. Expansion of existing have been taken from relevant books and manufacturing industries. articles from journals government reports. The methods used are descriptive and analytical. The sector wise inflow of FDI to India for the Consultation with eminent scholars in this field Period from April 2000 to March 2016 reveal has shaped the present discussion. that 28.26 Percentages were on service sector. While 19.45 percentages were in construction Results and Discussions development sector. Telecommunications, Recently in 2016, the Industry Minsitry Computer, Software and Hardware and Drugs come out with a consolidated foreign Direct and Pharmaceuticals sector were 7.58%, Investment FDI document incorporating. 7.49%, 7.09%, 6.89% and 6.48% respectively. Significant changes in the FDI norms by During this period FDI inflow to sectors permitting foreign Institutional investors. namely petroleum and Natural gas. Trading According to a notification issued by the Information and Broadcasting Including print department of Industrial policy and promotion’s media. Electrical equipment. Cement and on consolideated FDI policy, the government Gypsum products. Non- Conventional Energy has decided to Liberalise the policy. Miscellaneous Mechanical and Engineering The Cumulative amount of inflow of FDI was Industries. Industrial Machinery. Consultancy U$$ 290.078 million for the period from April services and construction accounts for one 2000 to March 2013. While the FDI inflow to to three Percentage only. While into the other India during the financial year 2012-13 was sectors the FDI inflows were less than one U$$ 36.860 million. percentage.

-213- Anusandhanika /Special Issue on FDI in India/ October 2017 Conclusion 3. Singh S, Foreign direct investment (FDI) and growth of states of India Vision 2020. FDI in India has a significant role in the Managerial strategies and challenge, economic growth and development of India. wisdom publications, Delhi, 2009 FDI in India to various sectors can attain sustained economic growth and development 4. Balasubramanym VN., Sapsford David, through creation of Jobs, expansion of Does India need a lot more FDI, Economic existing manufacturing industries. The inflow and political weekly, pp 1549-55, 2007 of FDI in service sectors and construction 5. Sharma Reetu, Khurana Nikita, Role of and development sectors, from aprial 2000 Foreign Direct Investment (FDI) in Different to march 2016 attained substantial sustained sectors, International Journal of Advances economic growth and development through in Management and Economics, Jan- Feb creation of jobs in India. Computer, Software 2013, pp 14-19 and Hardware and Drugs and pharmaceuticals sector were the other sectors to which attention 6. Nayak DN, Conacdian foreign direct was shown by foreign direct investors interest investment in India. Some observations, was, In fact has been quite poor. Poitical Economy J. India, 8:51-56, 1999 References 7. Srivastava S, What is the True level of 1. Agrwal J, Khan MA, Impact of FDI on FDI flows of India. Economic and political GDP. A comparative study of china and weekly, 1201-1209, 2003 india. Int. J.Business Management 6(10) 8. www. imf.org : 71-79, 2011 9. www.rbi.org 2. Kumar Gajendran, Lenin Karthika, 10. www.dipp.gov.in. Sectoral Performance through inflows of foreign direct investment. (FDI), 2010

-214- Anusandhanika /Special Issue on FDI in India/ October 2017 Anusandhanika /Special Issue on FDI in India/ October 2017/ pp 215-218 ISSN 0974 - 200X FDI in Retail Sector: Opportunities and Challenges Ahead Dr. Bijay Kumar Sinha Associate Professor and Head of Department P G Commerce Department, B. D. College Mithapur, Patna, Bihar

Mritunjay Kumar Mishra Research Scholar, University Department of Applied Economics & Commerce, Magadh University, Bodh Gaya (Bihar)

Abstract

FDI in retail sector is not allowed, it is only allowed up to 51 % in single brand and government is still considering the opinion of allowing FDI in multi brand segment.100% FDI is allowed in cash and carry wholesale and export trading, both wall mart and Carrefour have already entered in India in this segment. Many big giants like Wall mart, Carrefour are waiting to earn their fortune in continuously growing market. FDI in retail sector will have both positive and negative effect if allowed. Both organized and unorganized sector will face adverse competition from global players. Wal-Mart has a turnover of $256 billion and growing at an average of 12 -13 % annually. Average size of its stores is 85000sq ft and average turnover is $51 million. Organized sector retail outlets in India like pantaloons, reliance cannot compare with the giant let alone the small retailers. Indian government still fears that if FDI is allowed in retail then unorganized sector will be affected very badly and it will result in a large lot of unemployed retailers and other youth which is employed in the supply chain, this unemployed lot can’t be absorbed in manufacturing or service sector which can ultimately push a large chunk of population below poverty line. In India unorganized retail is a ‘forced employment sector’, there are large number of retail outlets because when youth dose not find enough employment opportunities or is not educated enough then the easiest resort to earn decent money is to save money or get a loan to set up a shop. On an average a retailer earns Rs.186075 annually and only 4% of 12 million retail outlets have area more than 500 square ft. Now if FDI is allowed in such an unorganized sector than many changes can happen which can be positive or negative.

Keywords : adverse competition, employment opportunities, growing market

Introduction government policies are becoming more favorable and emerging technologies are India is the second fastest growing economy facilitating operations. Retailing in India is in the world. It is third largest economy in gradually inching its way toward becoming the world in terms of GDP and fourth largest the next boom industry. The whole concept economy in terms of Purchasing Power Parity. of shopping has altered in terms of format India presents a huge opportunity to the world and consumer buying behavior, ushering in at age, to use as a hub. Standing on the a revolution in shopping in India. Modern threshold of a retail revolution and witnessing a retail has entered India as seen in sprawling fast changing retail landscape, India is all set to shopping centers, multi-storied malls and huge experience the phenomenon of global village. complexes offer shopping, entertainment and India is the “promised land” for global brands food all under one roof. The Indian retailing and Indian retailers A “Vibrant economy”. India sector is at an inflexion point where the tops in the list of emerging market for global growth of organized retailing and growth in the retailer and India’s retail sector is expanding consumption by the Indian population is going and modernizing rapidly in line with India’s to take a higher growth trajectory. The Indian economic growth. population is witnessing a significant change The future is promising; the market is growing, in its demographics. A large young working

-215- population with median age of 24 years, Materials and Methods nuclear families in urban areas, along with The study is based on secondary sources of increasing working-women population and data. The main source of data are various emerging opportunities in the services sector Economic Surveys of India and Ministry of are going to be the key growth drivers of the Commerce and Industry data, RBI bulletin, retail sector in India. online data base of Indian Economy, journals, Growth of Indian Retail Industry in the Last articles, news papers, etc. Decade Results and Discussions The Indian Retail Industry is the 5th largest The Indian retail sector is highly fragmented, retail destination and the second most consisting predominantly of small, attractive market for investment in the globe independent, and owner managed shop. after Vietnam as reported by AT Kearney‟s The domestic organized retail industry is at a seventh annual Globe Retail Development nascent stage. India got started with organized Index (GRDI), in 2008. The growing popularity chain retailing just a few years ago. There are of Indian Retail sector has resulted in growing just very few categories, the most prominent awareness of quality products and brands. As being apparel, where organized retail chains a whole Indian retail has made life convenient, have had a significant presence for more than easy, quick, and affordable. Indian retail 3-4 years. Indian retailers have done very sector, specially organized retail is growing well. Particularly after taking into account the rapidly, with customer spending growing in various obstacles and hindrances like real an unprecedented manner. It is undergoing estate costs, lack of trained manpower etc. metamorphosis. Till 1980 retail continued Growth of organized sector of retailing will in the form of kiranas that is unorganized yield efficiencies in the supply chain, enabling retailing. Now big players like Reliance, Tata‟s, better access to markets, to producers and to Bharti, ITC, and other reputed companies have customers. The strength of organized retail entered into organized retail business. lies in resource availability. It can translate into efficient supply chain management, leading Last decade has indeed witnessed tremendous to faster inventory turnaround, resulting in growth in Indian retail industry and has improved button lines. It is anticipated that the integrated our Indian economy with the world. further belongs to organized sector in India. Retailing in India is progressively inching its India’s organized sector is all set to explode. way toward becoming the next boom industry. While the existing players such as future group, It has emerged as one of the most dynamic and Bharti, Reliance Retail, Essar, Shopper’s stop growing paced industries accounting for over and Aditya Birla group are endeavouring to 10 percent of the country’s GDP. This growth consolidate their markets, others such as has become major attraction for foreigners to Mohindra & Mohindra, Parsavnath & DLF, enter in India. Hero Honda & Indiabulls have announced plans to enter the retail sector. The challenge to the retail, on the other hand, is the requirement of heavy initial investments Organised sector is going to grow at a much which leads to difficulty in achieving break faster rate of 45-50 percent per annum and even and this is the reason that many of these quadruple its share in total retail to 16% by players have not tasted success so far. 2011-12. Government is also apprehensive about the uncertain future of this sector However, the growing trend of the market, considering the vote bank attached to retail, changes in the lifestyle of consumer segment, political environment is quite willing to take the increasing per capita income, and emerging risk of 100% FDI in retail. technologies in operations still promise success in the long run with achievement of Modern Retail Formats in India economies of scale. The face of India retail sector is changing;

-216- Anusandhanika /Special Issue on FDI in India/ October 2017 new & innovative business models are being have again more insight, they expect more and adopted. The formats prevalent in retail sector more at each and every time when they step are:- into a store. For manufacturers and service providers the emerging opportunities in urban Hyper Market: Hypermarket offer a markets seem to lie in capturing and delivering large basket of products, ranging from better value to the customers through retail. grocery. Fries & processed food, beauty However, manufacturers and service providers & healthcare products etc. Example – will also increasingly face a host of specialist Spencer’s, Big Bazaar . retailers, who are characterized by the use Cash & Carry: These are large B2B of modern management techniques, backed focused retail formats, buying & selling with seemingly unlimited financial resources. in bulk for various commodities and carry Organized retail appears inevitable. Retailing several thousand stock-keeping. Example in India is currently estimated to be a US$ 200 – Mito, a Germany based C&G. billion industry, of which organized retailing makes up a paltry 3 percent or US$ 6.4 billion. Department Stores: Department stores have a large layout with a wide range Challenges before Organized Retail Sector of merchandise mix, usually in cohesive Organized sector has only recently emerged categories, such as showed towards from its nascent stage and yet has to become garments. Example:- Ebony, Shopper’s a preferred career option for most of India’s stop, Westside educated class. The roadblocks in the success Speciality Stores: Speciality stores are of organized sector are:- single category, focusing on individuals i. Talent shortage & lack of trained and group clusters of the same class with manpower. high product loyalty. Examples – Footwear stores, gift stores etc.Examples- Archies, ii. Supply chains are not yet so efficient and Woodlannd etc. the kind of quality that customers demand is not being provided yet. Discount Store: A discount store is a retail store offering a wide range of products, iii. There are too many intermediaries. These mostly branded, at discounted prices or long intermediaries’ chains are in turn apparel or footwear brands. Example – driving up their costs. Subhiksha, Koutons, Nike, Levis iv. A plethora of clearances are required Convenient Store: A convenience store is for setting up retail outlet. It limits the a relatively small retail store located near expansion of retail outlets at a faster pace. a residential area (closer to consumer), v. Inadequate infrastructure, such as roads, open long hours, 7 days a week and electricity, cord chains and posts, hampers carrying a limited range of staples and going for a pan-India network of supplies. groceries. Example – In & Out, Safal, Due to this, retailers have to resort to 6ten. multiple vendors for their requirements Challenges and Opportunities which are raising their costs and prices. Retailing has seen such a transformation vi. Organized sector does not have industry over the past decade that its very definition status. It is further making it difficult for the has undergone a sea change. No longer can players to raise funds for their expansion a manufacturer rely on sales to take place plans. by ensuring mere availability of his product. vii. Government restrictions on FDI limit Today, retailing is about so much more than are resulting in limited exposure to mere merchandising. As the Indian consumers international best practices.

-217- Anusandhanika /Special Issue on FDI in India/ October 2017 Conclusion Engineering and management Sciences, 2012; Vol. 3(3) India being one of the major economies in the world has been enjoying huge and regular FDI 4. Jadhav Ajit, FDI in Retail Sector- A Boon from investor of all around the world. Majority of to Farmers in India. ABHINAV National this FDI in India has been made in the sectors Monthly Refereed Journal of Research in of telecommunication, construction, computer Commerce & Management, 1(5), 9-14 software and hardware etc. FDI in retail sector 5. Bisaria G., Foreign Direct Investment in was permitted to enter in 2006 and gradually it Retail in India. International Journal of was liberalized and recently in 2011, 100% FDI Engineering and Management Research, in single brand retail was permitted and in 2012, 2012, 2(1), 31-37. 51% FDI in multi brand retail was permitted. This has led to debate regarding implication of 6. Chari A. & Raghavan T., C. A. M., Foreign this policy. FDI has positive impact on some Direct Investment in India‟s Retail Bazaar: sectors while negative on others. In our study Opportunities and Challenges. The World we hope to see that FDI will bring investment Economy, 2012, 35(1), 79-90. for modernizing farm as well as retail sector 7. David G., Retail marketing Management. and will also improve supply chain. As a Pearson Education, 2012, 45-50 result of these factors food inflation will come down and it will benefit consumers as well. In 8. Fernandes L. M., Banu R., & Simon S., fine, FDI in retail sector may boost the socio FDI in Multi-Brand Retail: Issues and economic development of the entire country if Implications on Indian Economy. Pacific implemented wisely and carefully and taking Business Review International, 5, 2012, extra care while signing the agreements with 19-28 the Foreign Investors. 9. Gupta, S., FDI in Retail: How can it benefit So this is the time to shift gears and accelerate India’s Farm sector? Center for Strategic the pace of retail development in India. Finally, & International Studies, 2(3), 1-2, 2012 of late, there has been a lot of debate about the 10. Kamaladevi B., The FDI Permit for merits and demerits in liberalizing FDI in retail, Multi Brand Retail Trading in India - insurance, pension, and aviation sectors in Green Signal or Red Signal. Business India. With the issue of FDI still being hot, it is Intelligence Journal, 5(1), 2012,176-186. important for the government to take due care in formulating its FDI policies so as to reduce 11. Kishor K. P., & Pravasinee R., FDI in Indian the regional disparity rather than aggravating Retail Market: Problems and Prospects. it. Indian Streams Research Journal, 3(12), 2014, 1-5 References 12. Levy W., Retailing Management, Tata 1. Kalhan Anuradha, Impact of Malls on McGraw Hills Company Ltd New Delhi, pp Small Shops and Hawkers, Economic 472-502 and Political Weekly, Vol.42, No.22, 2007, pp 2063-66 13. Mandeep, S, Retail in India: Historical Perspective. Spectrum: A Journal of 2. Kalhan Anuradha and Martin Franz, Multidisciplinary Research, 2012, 1(6), Regulation of Retail : Comparative 18-29 Experience, Economic and Political Weekly, Vol. 44, No. 32, 2009, pp 56-64 14. Maruti Rao, N., FDI in Multi-Brand Retailing - Challenges and Opportunities. 3. Kulkarni Keerti, Kulkarni Ramakant International Business Management, and Kulkarni Gururaj A., Foreign Direct Elixir Inter. Busi. Mgmt., 2013, 59A, Investment In Indian Retail Sector: 15611-15617 Issues and Implications, Indian Journal of -218- Anusandhanika /Special Issue on FDI in India/ October 2017 Anusandhanika /Special Issue on FDI in India/ October 2017/ pp 219-222 ISSN 0974 - 200X Foreign Direct Investment (FDI) in Indian Service Sector

Rajiv Ranjan Sinha Research Scholar, Department of Commerce Magadh University, Gaya, Bihar

Abstract

The services sector is a vital component of the Indian economy. The sector, which accounts for around 60 per cent of the country’s gross domestic product (GDP), has emerged as one of the largest and fastest-growing sectors not just in the country but in the global landscape; subsequently, its contribution towards global output and employment has been substantial. Sometimes domestically available capital is inadequate for the purpose of overall development of the country. Sometimes domestically available capital is inadequate for the purpose of overall development of the country. Foreign capital is seen as a way of filling in gaps between domestic savings and investment. FDI is a tool for economic growth through its strengthening of domestic capital, productivity and employment. FDI also plays a vital role in the up gradation of technology, skills and managerial capabilities in various sectors of the economy. .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. Therefore FDI can be truly be used as a propagator of economic growth, via its favourable effect on the growth in the services sector. Finally, the study addresses the long running sustainability debate regarding the Indian service sector.

Keywords : managerial capabilities, domestic capital, domestic savings

Introduction The flow of FDI in Indian service sector is boosting the growth of Indian economy, this FDI to developing countries in the 1990s was sector contributing the large share in the the leading source of external financing and growing GDP of India. This sector is attracting has become a key component of national a significant portion of total FDI in Indian development strategies for almost all the economy and it has shown especially in the countries in the world as a vehicle for technology second decade (2000 - 2010) of economic flows and an important source of non-debt reforms in India. Is this contribution of FDI in inflows for attaining competitive efficiency this sector is stimulating the economic growth by creating a meaningful network of global or not, this knowledge thrust of research interconnections. FDI provide opportunities scholar create the interest in conducting this to host countries to enhance their economic study. development and opens new opportunities to home countries to optimize their earnings Materials and Methods by employing their ideal resources. India The study is based on secondary sources of ranks fifteenth in the services output and it data. The main source of data are various provides employment to around 23% of the Economic Surveys of India and Ministry of total workforce in the country. India’s services Commerce and Industry data, RBI bulletin, sector covers a wide variety of activities such online data base of Indian Economy, journals, as trade, hotel and restaurants, transport, articles, newspapers, etc. storage and communication, financing, insurance, real estate, business services, Results and Discussions community, social and personal services, and Indian economy stands today as one of services associated with construction. Indian the influential and attractive economy. The service sector grew at approximately 8 per liberalization move by the Indian Government cent per annum and contributed to about 64 in 1990s has given a boost to the Indian per cent of India’s GDP in FY 2015-16. -219- economy and put her into a fast track economic community services (public administration growth route. With the beginning of the new and defense) and other services. This sector millennium, India was considered as an provides services of final consumption nature emerging super power. In 2009, Indian GDP as well as intermediate nature, the latter based on purchasing power parity (PPP) stood accounting for a major share. Substantial at USD 3.5 trillion making it the fourth largest parts of services such as transport and economy. India’s service industry accounts for communications are in the form of intermediate 62.5% of the GDP while the industrial sector inputs for production of other goods and contributes 20% to the GDP. The agricultural services. sector which was the back bone of Indian Indian service sector grew at approximately 8 economy post-independence took a back seat per cent per annum and contributed to about in 21st century and contributed only 17.5% 64 per cent of India’s GDP in FY 2015-16. to the GDP. India growth rate has been an average of 7% since 1997 and has maintained Market Size a growth rate above 5% even in times of global The services sector is the key driver of India’s recession. The Information Technology and economic growth. The sector contributed IT outsourcing services has been the biggest around 66.1 per cent of its Gross Value Added contributor to India’s growth. India’s per capital growth in 2015-16, thereby becoming an income (PPP) is not too attractive and stands important net foreign exchange earner and the at USD 4542. India currently accounts for most attractive sector for FDI (Foreign Direct 1.5% of the total Indian trade as per WTO, Investment) inflows. 2007 publications. The Indian telecommunication services market Services Sector contribution to the Indian is expected to grow by 10.3 per cent year-on- Economy year to reach US$ 103.9 billion by 2020. The contribution of the Services Sector has India is the eighth largest services exporter in increased very rapidly in the India GDP for the world. The services exports have in 2014 many foreign consumers have shown interest stood at US$ 155.6 billion, which constitutes in the country’s service exports. This is due to 7.5 per cent of the GDP. The services imports the fact that India has a large pool of highly increased at a rate of 3.3 per cent to US$ skilled, low cost, and educated workers in the 81.1 billion in 2014-15. Out of overall services country. This has made sure that the services sector, the sub-sector comprising financial that are available in the country are of the best services, real estate and professional services quality. The foreign companies seeing this contributed 21.6 per cent to the GDP, and grew have started outsourcing their work to India the fastest among all sub-segments at 10.3 per especially in the area of business services cent year-on-year in 2015-16. The sub-sector which includes business process outsourcing of trade, hotels, transport, communication and and information technology services. This has services related to broadcasting contributed given a major boost to the Services Sector in 12.6 per cent to the GDP. The third-largest India, which in its turn has made the sector sub-segment comprising public administration, contribute more to the India GDP. defence and other services contributed nearly Recent trends in Indian service sector 12.6 per cent to the GDP. By services sector we mean the tertiary sector, Investments which is the largest of the three constituent The Indian services sector has attracted the sectors in terms of contribution to Gross highest amount of FDI equity inflows in the Domestic Product (GDP) in India. The service period April 2000-March 2016, amounting sector comprises trade, hotels and restaurants, to about US$ 50.79 billion which is about 18 transport, storage, communication, financing, per cent of the total foreign inflows, according insurance, real estate and business services, -220- Anusandhanika /Special Issue on FDI in India/ October 2017 to the Department of Industrial Policy and a contract worth Rs1,370 crore (US$ Promotion (DIPP). 203.09 million) to Ricoh India Ltd and Telecommunications Consultants India Some of the developments and major Ltd (TCIL) to modernise 129,000 post investments by companies in the services offices through automation. sector in the recent past are as follows: Taxi service aggregator Ola plans to Meru Cab Company Pvt Ltd, the Mumbai- double operations to 200 cities in current based radio cab service, has raised fiscal year. The company, which is looking Rs150 crore (US$ 22.24 million) from at small towns for growth, also plans Brand Capital, the investment arm of to invest in driver eco-system, such as Bennett Coleman and Co, which will be training centers and technology upgrade, used to fund advertising and provide user besides adding 1,500 to 2,000 women incentives including discounts and loyalty drivers as part of its pink cab service by schemes. women for women. Vistra Group Ltd, a Hong Kong-based The Government has also adopted a few professional services provider, has initiatives in the recent past. Some of these acquired IL&FS Trust Company Ltd, are as follows: India’s largest independent corporate trust services provider, which will enable The Government of India plans to Vistra to expand the platform to provide significantly liberalise its visa regime, a broader suite of corporate and fiduciary including allowing multiple-entry tourist services and thereby gain a foothold in the and business visas, which is expected to Indian corporate services market. boost India’s services exports. Icertis Inc, a contract management The Ministry of Communication and software maker for enterprises based Information Technology has announced out of Pune and Mumbai in India, has plans to increase the number of common raised US$ 15 million in series B round of service centres or e-Seva centres to funding from Ignition Partners and Eight 250,000 from 150,000 currently to enable Roads Ventures, which will be used to village level entrepreneurs to interact with invest in marketing and expand its global national experts for guidance, besides operations. serving as a e-services distribution point. India had the strongest activity in office The Central Government is considering leasing space in Asia and accounted for a two-rate structure for the goods and half of Asia’s total office leasing in third service tax(GST), under which key quarter of 2015, with Delhi being the most services will be taxed at a lower rate active market. compared to the standard rate, which will help to minimize the impact on consumers Amazon, the world’s largest online due to increase in service tax. retailer, plans to invest Rs31700 crore (US$ 4.7 billion) in India in addition to the The Government of India has proposed US$ 2 billion investment it committed two provide tax benefits for transactions made years ago, in expanding its network of electronically through credit/debit cards, warehouses, data centers and increasing mobile wallets, net banking and other its online marketplace, besides launching means, as part of broader strategy to an instant video and subscription-based reduce use of cash and thereby constrain ecommerce services for high-end buyers, the parallel economy operating outside called Amazon Prime, later this year. legitimate financial system. The Government of India has awarded The Reserve Bank of India (RBI) has

-221- Anusandhanika /Special Issue on FDI in India/ October 2017 allowed third-party white label automated References teller machines (ATM) to accept 1. Narula Rajneesh (Ed.), Trade and international cards, including international Investment in a Globalising World, Series prepaid cards, and has also allowed white in International Business and Economics, label ATMs to tie up with any commercial Elsevier Science Ltd., 2001 bank for cash supply. 2. Bohra Narendra Singh, Int. J. Eco. Res., Conclusion 2011, 2(2), 10-18 ISSN: 2229-6158 Services sector growth is governed by both 3. The World Bank Research Observer, vol domestic and global factors. The sector is 17, no. 2, pp 191-235, Fall 2002 expected to perform well in FY17. Some 4. Patil-dake Jayashree, Analysis of FDI improvement in global growth and recovery inflows in India, volume no: 2, 2011 in industrial growth will drive the services sector to grow 7.4 per cent in FY17 (FY15: 7.3 5. Media Reports, Press Releases, DIPP per cent). The Indian facilities management publication, Press Information Bureau, market is expected to grow at 17 per cent India budget 2015-16, Central Statistical CAGR between 2015 and 2020 and surpass Organisation the $19 billion mark supported by booming 6. http://www.sethassociates.com/policy_ real estate, retail, and hospitality sectors. The on_foreign_direct_investment http://dipp. performance of trade, hotels and restaurants, nic.in/ and transport, storage and communication sectors are expected to improve in FY16. Loss 7. http://planningcommission.gov.in/ http:// of growth momentum in commodity-producing finmin.nic.in/capital_market/capital_ sectors had adversely impacted transport market.asp and storage sectors over the past two years. 8. http://business.mapsofindia.com/india- The financing, insurance, real estate, and gdp/sectorwise/services-sector growth- business services sectors are also expected rate.html to continue their good run in FY16. The growth 9. www.unctad.org performance of the community, social and personal services sector is directly linked with 10. http://planningcommission.nic.in/data/ government expenditure and we believe that datatable/Data0910/tab32.pdf the government will remain committed to fiscal 11. http://dipp.nic.in/fdi_statistics/india_fdi_ consolidation in FY17. It can be observed that index.htm Indian service sector is generating the proper 12. http://indiainbusiness.nic.in/newdesign/ employment options for skilled worker with index.php?param=advantage high perks.

-222- Anusandhanika /Special Issue on FDI in India/ October 2017 Anusandhanika /Special Issue on FDI in India/ October 2017/ pp 223-228 ISSN 0974 - 200X Role of FDI in Indian Economy and its Problems Dr. Sanjay Prasad Faculty of Commerce St. Xavier’s College, Ranchi

Prof. Srinath Koley Faculty of Commerce St. Xavier’s College, Ranchi

Abstract

Foreign investment is an important economic process during which foreign state and private companies and enterprises invest capital, technology and innovations into the companies of another country. Modern world economy cannot develop successfully without foreign investment. A great number of countries invest their funds to the economy of other countries having a certain income and developing certain branches of industries of such countries. Due to received capital the country receives an opportunity to renew and develop all necessary branches of industries, to increase the effectiveness of production and produce competitive goods and services. Foreign investment is a predominant and vital factor in influencing the global economic development

Keywords : invest capital, corruption, economic stability

Introduction Mining etc. The future of Indian economy is brighter because of its huge human resources, FDI play an important role for the Growth of rapidly upcoming service sector, availability the country. In the view of Economic Growth of large number of competent professionals, FDI investment are most important for the vast market for every product, increasing country. So it is most important part that how impact of consumerism, absence of controls can encourage foreign investment. Foreign and licenses, interest of foreign entrepreneurs investment has become an integral part of in India and existence of four hundred million national development strategies for almost all middle class people. Today, India provides the nations globally. highest returns on FDI than any other country As the third-largest economy in the world in in the world. PPP terms, India is a preferred destination Investment Policy for foreign direct investments (FDI). India’s recently liberalized FDI policy permits up to a For encourage the Foreign Investment The 100% FDI stake in ventures. Industrial policy regulatory framework and instruction issued by reforms have substantially reduced industrial the Reserve Bank of India. This is connected licensing requirements, removed restrictions with the Foreign Direct Investment Policy. This on expansion and facilitated easy access part also covers the following areas. to foreign technology and FDI. The upward 1) Acquisition of Immovable property moving growth curve of the real-estate sector owes some credit to a booming economy and 2) Establishment of Branch/ Liaison office in liberalized FDI regime. A number of changes India. were approved on the FDI policy to remove 3) Investment in capital of Partnership firms the cap in most of the sectors. Restrictions or proprietary concern. will be relaxed in sectors as diverse as civil aviation, construction development, industrial This master circular consolidated the existing parks, commodity exchanges, petroleum instructions issued by the Reserve Bank of and natural gas, credit-information services, India through Notification under FEMA. -223- Foreign direct investment in India incorporated in Bangladesh can invest in India under the FDI Scheme, with prior Foreign Investment in India is governed by the approval of FIPB. FDI policy announced by the Government of India and the provisions of the FEMA 1999. (ii) Overseas Corporate Bodies (OCBs) are This Notification has been amended from time entities established outside India and to time. predominantly owned by NRI (at least 60% of the paid up capital). Erstwhile OCBs The objective of India’s foreign investment policy is to invite and encourage foreign direct which are incorporated outside India and investment in India. The regulatory approval are not under adverse notice of Reserve process has been substantially liberalized to Bank can make fresh investments under facilitate investment in India. The administrative the FDI as incorporated non-resident and compliance aspect of FDI are embedded in entities, with the prior approval of the Foreign Exchange Regulations prescribed Government if the investment is through by the Reserve Bank of India. Government Route and with the prior approval of Reserve Bank if the investment Indian Government has a key role to play as is through Automatic Route. far as investment laws are concerned. In this regard it is noteworthy to highlight some of the Investments in Small Scale Industrial units positive reforms that have brought a positive NRI can invest in an Indian company which is growth in the Indian economy in terms of GDP a small scale industrial unit provided it is not growth. engaged in any activity which is prohibited Foreign direct investment is an investment under the FDI policy. Such investments are made by a foreign individual or company in subject to a limit of 24 per cent of paid-up productive capacity of another country. It is the capital of the Indian company /SSI Unit. movement of capital across national frontiers Investments in Asset Reconstruction in a way that grants the investor control over Companies (ARCs) the acquired asset. Persons resident outside India (other than Entry Routes for Investment in India Foreign Institutional Investors (FIIs)), can invest in the equity capital of Asset Reconstruction 1) Automatic Route: Under the Automatic Companies (ARCs) registered with Reserve Route the foreign investor or the Indian Bank under the Government Route only. company does not require any approval Further, FDI is restricted to 49 per cent of the from the Reserve Bank or Government of paid-up capital of the ARC. India for the Investment. Investment in infrastructure companies in 2) Government Route : Under the the Securities Market government Route, prior approval of the Government of India, Ministry of Finance, Foreign investment is permitted in Infrastructure Foreign Investment Promotion Board is Companies in Securities Markets, namely required. stock exchanges, depositories and clearing corporations, in compliance with SEBI Eligibility for Investing in India Regulations and subject to the following (i) A person resident outside India (Other conditions: than a citizen of Pakistan) or an entity Foreign investment up to 49 per cent of the incorporated outside India, (other than paid-up capital is allowed in these companies an entity incorporated in Pakistan) can with a separate FDI cap of 26 per cent and FII invest in India, subject to the FDI Policy cap of 23 per cent; of the Government of India. A person who (i) FDI will be allowed with specific prior is a citizen of Bangladesh or an entity approval of FIPB; and -224- Anusandhanika /Special Issue on FDI in India/ October 2017 (ii) FII can invest only through purchases in banks are subject to overall statutory limits the secondary market. of 20 per cent as provided under Section 3 (2D) of the Banking Companies (Acquisition Investment in Credit Information Companies & Transfer of Undertakings)-Acts, 1970/80. Foreign investment in Credit Information The same ceiling would also apply in respect Companies is permitted in compliance with the of such investments in State Bank of India Credit Information Companies (Regulations) and its associate banks. not be lower than Act, 2005 and subject to the following :— the price at which such shares are offered i. The aggregate Foreign Investment in to resident shareholders. OCBs have been Credit Information Companies is permitted de-recognized as a class of investors with only up to 49 per cent of the paid-up effect from September 16, 2003. Therefore, capital. companies desiring to issue rights shares to such erstwhile OCBs will have to take specific ii. Foreign Investment up to 49 per cent is prior permission from the Reserve Bank. allowed only with the prior approval of As such, entitlement of rights shares is not FIPB and regulatory clearance from RBI. automatically available to OCBs. However, iii. Investment by SEBI Registered Flls is bonus shares can be issued to erstwhile 0CBs permitted only through purchases in the without RBI approval. secondary market to an extent of 24 per Conversion of ECB/Lump sum Fee/Royalty/ cent. Import of capital goods by SEZs into Equity iv. Investment by SEBI Registered Flls to 1. Indian companies have been granted an extent of 24 per cent should be within general permission for conversion of the overall limit of 49 per cent for Foreign External Commercial Borrowings (ECB) Investment. into shares/ preference shares, subject v. No FII can individually hold directly or to the following conditions and reporting indirectly more than 10 per cent of the requirements: equity. (a) The activity of the company is Investment in Commodity Exchanges covered under the Automatic Route Foreign investment in Commodity Exchanges for FDI or the company has obtained is permitted subject to the following conditions:- Government approval for foreign equity in the company, i. There is a composite ceiling of 49 per cent for Foreign Investment, with a FDI limit of (b) The foreign equity after conversion of 26 per cent and an FII limit of 23 per cent. ECB into equity is within the sectoral cap, if any, ii. FDI is allowed with specific approval of the Government. (c) Pricing of shares is as per SEBI regulations or erstwhile CCI iii. The FII purchases in equity of Commodity guidelines in the case of listed or Exchanges are restricted to the secondary unlisted companies respectively. - markets only. (d) Compliance with the requirements iv. Foreign Investment in Commodity prescribed under any other statute Exchanges is also subject to compliance and regulation in force. with the regulations issued, in this regard, by the Forward Market Commission. 2. The conversion facility is available for ECBs availed under the Automatic or Investment in Public Sector banks Approval Route. This would also be FDI and Portfolio Investment in Nationalised applicable to ECBs, due for payment or not, as well as secured/ unsecured loans -225- Anusandhanika /Special Issue on FDI in India/ October 2017 availed from non-resident collaborators. c. The SEZ unit issuing equity as General permission is also available mentioned in Para (iii) above, should for issue of shares/ preference shares report the particulars of the shares against lump-sum technical know—how issued in the form FC—GPR. fee, royalty, under automatic route or SIA/ Problems faced while investing in India FIPB route, subject to pricing guidelines of SEBI / CCI and compliance with applicable A lot of advice that is offered to investors, tax laws. including NRIs, is driven by commission. A significant majority of investment 3. Units in Special Economic Zones (SEZs) consultants recommend schemes which are permitted to issue equity shares to offer them higher commission as against non-residents against import of capital schemes that suit the client needs and goods subject to the valuation done by objectives. While in a bull market, NRI a Committee consisting of Development may not get hurt by getting invested in Commissioner and the appropriate poorly managed schemes; over a stock Customs officials. market cycle he can almost be sure that 4. Reporting Details of issue of shares the poor choice of fund will reflect in the against conversion of ECB has to be returns. reported to the concerned Regional Office Sometimes, distributors of mutual funds of the Reserve Bank, as indicated below: either lack accurate information on a. In case of full conversion of ECB into taxation or do not pass on the correct equity, the company shall report the information to their NRI clients. To take conversion in form FC-GPR to the a case in point, if an NRI decides to shift concerned Regional Office of the within a particular mutual fund scheme, Reserve Bank as well as in form ECB- from say, the dividend re-investment 2 to the Department of Statistical and option to the growth option, and then the Information Management (DSIM), same falls under the tax purview for the Reserve Bank of India, Bandra-Kurla NRI. This is because such transactions Complex, Mumbai — 400 051, within are considered as a sale by the concerned seven working days from the close of authorities. month to which it relates. The words “ECB wholly converted to equity” Another issue pertaining to NRIs shall be clearly indicated on top of is the cumbersome paperwork and the ECB-2 form. Once reported, filing documentation. For instance, while of form ECB-2 in the subsequent mutual fund forms are common for both months is not necessary. resident and non-resident, refilling them on account of errors made can become b. In case of partial conversion of a cumbersome proposition in the case of ECB, the company shall report the NRIs on account of the distance involved. converted portion in form FC-GPR to the concerned Regional Office The distributor needs to ensure that his as well as in form ECB-2 clearly NRI client is guided properly through the differentiating the converted portion form filling process and that the form error from the non- converted portion. The free. Failure to follow simple guidelines words “ECB partially converted to may sometimes result in money and equity” shall be indicated on top of opportunities lost. the ECB-2 form. In the subsequent Another case in point pertaining to months, the outstanding balance of documentation, the account statement ECB shall be reported in ECB-2 form does not reach the NRI. One way of to DSIM. -226- Anusandhanika /Special Issue on FDI in India/ October 2017 tacking this problem is asking for the 2) Provision of Taxes for NRI in India should account statement, that way, the need for be simplified. physical delivery would be eliminated. 3) Investment of NRI should be clearly Also observed is the fact that some NRIS identified. are not, in know, with respect to how to go 4) Addition to above there are following about making payments from their NRE/ suggestions:- NRO back account. For example. If the makes payments from his NRO account, The first and foremost thing for NRIs to then the investment is allowed. But if the do is to ensure that they choose their same payments are made from the NRE investment advisor/distributor wisely. account, then the investment is allowed to NRIs must ensure that the advisor they be repatriate. This fact has to be conveyed transect with has successfully cleared to the NRI by the distributor so that the NRI the Association of Mutual Fund of India is able to plan his investments properly. (AMFI) accredited examination. Make sure that he has sound knowledge of At times, fund house ask for a certificate the financial markets and instrument and authenticating the NRIs status; the same manages portfolios soundly keeping the has to be procured from the bank through investor asset allocation in mind. This which the NRI has invested his money. becomes an important creation, as NRIs, This is so even when the NRE/NRO like most investor, do not have the time or account cheques have a clear mention skill sets to conduct their own investment on the cheque itself of the status of the exercise. cheque. The cheque being an NRO/NRE account should act as sufficient proof of It would further help if the investment the individuals, or the accounts status and consultant gives value added services that the NRI should not be put through any like fools and calculator for online tracking further hassles before investing. of investments. Also, the advisor should provide the NRIs with timely after sales Evaluation and Finding support like servicing transfer and There are different Act and Regulation for redemption. defining the Non-resident in India, such Also ensure that the advisor is updated as Income Tax Act 1961, FEMA 1999 and on the various procedures/ requirements foreign contribution Act 1956 etc. while investing in various instruments, Provision of Income Tax in the context of as he will ultimately act as an interface NRI is such much critical which is difficult between the NRIs and the financial to understand for NRI. institution. There are certain Tax Incentives has been Ensure that the documentation is in order. given to NRI which are not sufficient to NRIs should preserve all the statements attract the NRI investment. of accounts and such other documents that concern their investments. Such Imposition of rate of Taxes on NRI is so documents should be photocopied. much high. Ensuring that all cheques have NRE/NRO Investment in India does not clearly printed on them also helps. identify in the different circular. NRIs should confirm before investing Suggestions money into a scheme from any mutual 1) A uniform Act for Taxes to NRI should be fund house whether they are allowed to required to Frame in India. invest into the scheme, given their country of residence. Such details are given in the

-227- Anusandhanika /Special Issue on FDI in India/ October 2017 offer document distributed by the assets to be suffering from a host of self-imposed management company and a copy of restrictions and problems regarding opening which the distributor also has. its markets completely too global investors by implementing full scale economic reforms. NRIs should preferably consider the direct Some of the major problems for India’s poor credit option while investing into a mutual performance in the area of FDI are: political fund scheme in India. Such an option instability, poor infrastructure, confusing tax ensures that when redemption happens, and tariff policies, Draconian labour laws, money from the AMC is directly credited well entrenched corruption and governmental to the NRIs bank account. This helps save regulations. time and money. References Conclusion 1. Shanbhag A.N. & Shanbhag Sandeep, In FDI contributes in economic growth significantly The Wonderland of Investment for NRIs, after a period of three years. Thus, there is Popular Prakashan Pvt. Ltd. need to encourage foreign direct investment every year to enhance economic growth in 2. Chaturvedi Tarun, Handbook for NRI, Indian economy. For that, Government of Commercial Law Publishers (India) Pvt. India should improve the investment climate Ltd. for foreign capital through the maintenance 3. Lakhotia R.N., Tax Planning for NRIs, of political as well as economic stability along Vision Books Pvt. Ltd. with curbing corruption. Moreover, by providing adequate market size, easy accessibility to 4. Jain Dr. D.K. & Jain Ishan, Guide to export market, developed infrastructure, cost- NRIs and PIOs (Policy, Procedures and effectiveness and by other means more FDI Taxation)- Bharat Law House Pvt. Ltd. can be attracted. Along with this, there is a 5. Mehrotra Dr. H.C., Income Tax Law and rationale for the adoption of innovative policies Accounts- Sahitya Bhawan Publication and good governance practices on par with international standards to make India as a most 6. Economic Times preferred destination for foreign capital. India, 7. Hindustan Times the largest democratic country with the second largest population in the world, with rule of 8. NRI Ready Reckoner law and a highly educated English speaking 9. www.nri in India .com work force, the country is considered as a safe haven for foreign investors. Yet, India seems 10. www.nri provision in India.

-228- Anusandhanika /Special Issue on FDI in India/ October 2017 Anusandhanika /Special Issue on FDI in India/ October 2017/ pp 229-236 ISSN 0974 - 200X Present Scenario of FDI in India

Sheela Kumari Gupta Economics Teacher Ursuline Inter College, Ranchi

Abstract

Globalization and liberalization brings lots of new innovative products to the world, Foreign Direct investment is one among this, also there are number of different forms of FDI is available currently. An Indian company may receive FDI either through automatic route or government route. Foreign capital refers to the investment of capital by a foreign government, institution, private individual and international organization in the productive activities of a country. It is a direct investment into production in a country by a company located in another country or by expending operation of an existing business in that country. Simply putting the money of your country which is functioning in some other country is FDI. If we invest this way then we are a foreign investor. FDI plays an extraordinary and growing role in global business. It can provide a firm with new markets and marketing channels, cheaper production facilities, access of new technology, products, skills and financing for a host country, which receives the investment. Recently world economy is passing through the global crisis. India is not free from its effect. India is also suffering from inflection and economic crisis. To overcome this situation and make to economy speedy, Indian Government has decided to do economic reforms, as a result, Indian government has taken steps in this direction and make free FDI in some sectors like retail, broad casting, airline etc. Indian government has increased limits of foreign investment in such sectors. Government of India allowed FDI in different sectors of Indian economy.

Keywords : economic development, dynamic growth, economic reform

Introduction compared to 10.1 per cent in October 2009. The highest growth has been coming from The Economic Survey 2009-10 said that manufacturing sector followed by electricity outlook for India’s trade sector in 2010 has and mining. Core infrastructure sectors grew brightened with prospects of recovery in world by 7.0 per cent in October 2010 as compared output and trade volumes. The World Bank has to the growth of 3.9 per cent in October 2009. forecast real GDP growth rates of 2.7% and The October growth has been recorded as 7.5% for the world and India respectively for the highest so far in the current fiscal 2010- 2010 and growth in world trade volume of 4.3% 11. Except the sectors like petroleum refinery and 6.2% in 2010 and 2011, respectively. The and coal, all major infrastructure industries International Monetary Fund (IMF) projections have displayed much improvement in output are a tad better than the World Bank estimates, expansion during the month. The headline with projections of output growth for the world inflation has somewhat eased in October 2010. and India at 3.9% and 7.7% respectively. On y-o-y basis WPI growth remained high, but The world trade volume growth projections the monthly trend of inflation revealed decline are also higher at 5.8% and 6.3% in 2010 in the month of October 2010 compared and 2011 respectively. This is a remarkable to the recorded inflation in the previous improvement compared to the fall in world month. WPI growth under three major heads trade volumes by 12.3% in 2009. Following are namely primary articles, fuel & power and the main highlights of Indian economy in 2009 manufactured products eased a bit in October – 10: After two successive months of slow compared to September 2010. In RBI‘s down in the 2010-11 (August and September), assessment, the current rate of inflation is still the Index of Industrial Production (IIP) rose well above the comfort zone. Food inflation sharply in October 2010. The overall growth continues to remain a matter of concern on in IIP was 10.8 per cent during the month as -229- account of rising prices of vegetables in the investment rules among investors resulting recent months. The broad money supply in the ultimately in simplification of the policy. This economy expanded by 8.4 percent calculated is also expected to improve transparency and October over April 2010-11. The net bank boost global investors’ confidence. 100% FDI credit to the commercial sector was also is permitted under the automatic route in most observed to grow well during the period; only of the sectors while there are Sectoral caps in bank’s Investments in government and other the case of Banking (74%), Insurance (26%), approved securities experienced setback Telecom (49%), Aviation (74%) and Single in October 2010 compared to better growth brand retail (51%) etc. In certain sectors like seen in the same month of 2009. The fiscal Atomic Energy, Lottery, Gambling and Betting, performance of Central government during Multi Brand Retail, Nidhi company etc, FDI is October 2010 continued to accomplish higher not permitted. The Government is looking to revenue growth vis-a-vis the expenditure allow FDI in media and also looking to amend growth during the month. Consequently, the Press and Registration of Books Act 1867 the fiscal deficit has narrowed down during to facilitate the entry of foreign newspapers or April to October in 2010 -11 as compared Indian editions of foreign newspapers being to the previous fiscal. India’s cumulative printed. The present FDI limit is 26% under merchandise exports during April to October Government approval. Currently, 100% FDI in 2010-11 were valued at USD 121.4 billion is allowed in facsimile publication of foreign which was substantially higher than USD 95.6 newspapers by an entity incorporated or billion during the same period of 2009-10. The registered in India. FDI in multi-brand retail aggregate trade deficit magnified to the level is another sector where FDI is currently not of USD 72.8 billion during April to October in permitted though the Government Says that 2010-11 as against the amount of USD 58.3 the current retail infrastructure including the billion during the same period of 2009- 10. backend (from the farm to the store) needs India saw greater volume of foreign capital to be strengthened. The entry of large Indian inflows in the recent months. In October 2010, retail chains has in general been positive total foreign investment witnessed almost a six allowing farmers to get better prices for their fold increase from the level observed during produce and giving multiple Choices to the end October 2009. The capital surge is continued user. Banking and Insurance sectors could driven by FII flows. According to planning also do with a hike in the FDI limits while this commission, the inflow would not destabilize is being monitored after the global meltdown the economy as India’s large current account where some of the largest banks and financial deficit can absorb capital flows to some extent. institutions went bust. The Government might encourage investments by foreign insurance Consolidated Foreign Direct Investment companies in health and weather (floods, Policy of India famines) to farmers and rural residents and for The Government of India released the new banks to be set up in rural areas where this is document on FDI policy on March 31, 2010 a Greenfield project. whereby this document now consolidates all The flow of FDI in Indian service sector is existing regulations related to FDI contained boosting the growth of Indian economy, this in the Foreign Exchange Management Act sector contributing the large share in the (FEMA), RBI Circulars and various press growing GDP of India. This sector attracting notes issued at various points in time. The a significant portion of total FDI in Indian comprehensive policy document came into economy and it has shown especially in the effect from April 1, 2010 and would be replaced second decade (2000 - 2010) of economic every 6 months after incorporating the changes reforms in India. Is this contribution of FDI in which have been effected during the said this sector is stimulating the economic growth period. This is a good move considering that this or not, this knowledge thrust of research would bring clarity in understanding the foreign -230- Anusandhanika /Special Issue on FDI in India/ October 2017 scholar create the interest in conducting this investment, the Department of Industrial study. Policy and Promotion has announced a slew of changes in its policies, including allowing Materials and Methods overseas firms in existing joint ventures to The objective of our study is to analyze the operate simultaneously in the same business current scenario in India, investigate the segments. Earlier, overseas companies controversial views of the various stakeholders needed the prior approval of their Indian and evaluate the current scenario of FDI in partners. The nodal agency has also classified India. The study is based on comparative companies into two categories study and analytical logic developed through 1. Companies owned or controlled by foreign the understandings from various research investors’ papers, reports, books, journals, newspapers and online data bases. 2. Companies owned and controlled by Indian investors’. Results and Discussions The historical background of FDI in India Following are the changes in Indian FDI can be traced back with the establishment Policy of East India Company of Britain. British Foreign Companies need not get permission capital came to India during the colonial era from their Indian joint venture partner; they of Britain in India. After Second World War, plan to set up new units in “Same Field” of wish Japanese companies entered Indian market to partner with another Indian firm. Companies and enhanced their trade with India, yet to prescribe a formula for transforming for U.K. remained the most dominant investor convertible instruments (like debenture, in India. Further, after Independence issues partially paid shares, preferential shares, relating to foreign capital, operations of among other), in to equity at market conversion. MNCs, gained attention of the policy makers. Equity permitted to exchange import of capital Keeping in mind the national interests the goods, machinery and equipments. policy makers designed the FDI policy which FDI allowed in development and production aims FDI as a medium for acquiring advanced of seeds and plantation material without technology and to mobilize foreign exchange stipulation like controlled conditions. No resources. With time and as per economic and changes in retail policy, FDI in multi brand political regimes there have been changes retailing is remaining same. in the FDI policy too. The industrial policy of 1965, allowed MNCs to venture through FDI issues and Policy Recommendation technical collaboration in India. Therefore, India is striving hard to achieve a growth rate the government adopted a liberal attitude by of 10%. Improving the level of productivity allowing more frequent equity participation can be instrumental in achieving this target to foreign enterprises, and to accept equity as growth rate is positively related to rates of capital in technical collaborations. But due return. The available data on FDI reveals that to Significant outflow of foreign reserves in India’s volume of FDI has increase largely the form of remittances of dividends, profits, due to Merger and Acquisitions (M&As) rather royalties etc, and the government has to adopt than large Greenfield’s projects. M&As not stringent foreign policy in 1970s. During this necessarily imply infusion of new capital into period the government adopted a selective a country if it is through reinvested earnings and highly restrictive foreign policy as far as and intra-company loans. Business friendly foreign capital, type of FDI and ownerships of environment must be created on priority to foreign companies was concerned. attract large Greenfields projects. Regulations Changes in FDI Policy (March 31, 2011) should be simplified so that realization ratio is improved (Percentage of FDI approvals To give a fillip to flagging foreign direct -231- Anusandhanika /Special Issue on FDI in India/ October 2017 to actual flows). To maximize the benefits of increase largely due to Merger and Acquisitions FDI persistently India should also focus on (M&As) rather than large Greenfields projects. developing human capital and technology. M&As not necessarily imply infusion of new capital into a country if it is through reinvested India has failed to evolve as inward FDI earnings and intracompany loans. Business manufacturing destination which is sweetest of friendly environment must be created on all sources of FDI. Manufacturing investment priority to attract large Greenfields projects. has potentiality to develop ancillary industries Regulations should be simplified so that also. There is a wide spread under employment realization ratio is improved (Percentageof in agriculture. Manufacturing sector has FDI approvals to actual flows). To maximize greater scope of low end, labour intensive the benefits of FDI persistently India should manufacturing jobs for unskilled population also focus on developing human capital and when compared with service sector. It is widely technology. Mauritius contributes about 44% reported in large number of studies that India of FDI inflow in the country. Such a high level lags behind in terms of business environment of FDI contributed by a low tax country like (ranked 72 of 82 countries by EIU, 2007) which Mauritius indicates that all is not well. Mauritius is not conducive for doing business. These has agreement with India on avoidance of factors are acute labour market rigidities, lack double taxation. There are likely chances that of world class ports, airports, road and on many MNCs may be first dummy companies an average 6-7 hours of power cuts. Other in Mauritius before investing in India. This is problems are that of norms of registering not good for financial stability of the countr and property, protection of investors, excessive is also a reason for loss to state exchequers. bureaucracy, lack of rationale tax structure, FDI can be instrumental in developing rural competition rules and time taken in enforcing economy. There is abundance opportunity contracts (1420 days with a cost average cost in Greenfield Projects. But the issue of land of twofifth of claim). The issues of geographical acquisition and steps taken to protect local disparities of FDI in India need to address on interests by the various state governments priority. India is a federal country consisting are not encouraging. MOU Arecelor-Mittal of States and Union Territories. States are controversy is one of the best examples also partners in the economic reforms. Many of such disputes. India has a huge pool of states are making serious efforts to simplify working population. However, due to poor regulations for setting up and operating the quality primary education and higher there is industrial units. In order to attract foreign still an acute shortage of talent. This factor has investors in their states, many of them are negative repercussion on domestic and foreign offering packages in the form of tax rebates, business. FDI in Education Sector is less than capital and interest subsidies, reduced power 1%. Given the status of primary and higher tariff, etc. However, efforts by many state education in the country, FDI in this sector governments are still not encouraging. Even must be encouraged. However, appropriate the state like West Bengal which was once measure must be taken to ensure quality. called Manchester of India attracts only 1.2% The issues of commercialization of education, of FDI inflow in the country. West Bengal, regional gap and structural gap have to be Bihar, Jharkhand, Chhattisgarh are endowed addressed on priority. Indian economy is with rich minerals but due to lack of proper largely agriculture based. There is plenty of initiatives by governments of these states, scope in food processing, agriculture services they fail to attract FDI.India is striving hard to and agriculture machinery. FDI in this sector achieve a growth rate of 10%. Improving the should be encouraged. The issue of food level of productivity can be instrumental in security, interest of small farmers and marginal achieving this target as growth rate is positively farmers need cannot be ignored for the shake of related to rates of return. The available data mobilization of foreign funds for development. on FDI reveals that India’s volume of FDI has

-232- Anusandhanika /Special Issue on FDI in India/ October 2017 India has a well developed equity market but event the Indian National Congress was does not have a well developed debt market. able to come into power by forming a Steps should be taken to improve the depth coalition government, by soliciting the vast and liquidity of debt market as many companies majority of the poor people of the country, may prefer leveraged investment rather than surprising the incumbent government investing their own cash. Looking for debt which was relying heavily on a fast funds in their own country invites exchange growing economy, increased privatization rate risk. In order to improve technological and a thriving middle class. competitiveness of India, FDI into R&D should b) Bureaucracy : Another very important be promoted. Various issues pending relating factor that affects India’s competitiveness to Intellectual Property Rights, Copy Rights on the world standing is the Bureaucracy. and Patents need to be addressed on priority. Particularly in the FDI process the Indian Special package can be also instrumental in Government has already invested a lot mobilizing FDI in R&D. of time and effort but there is still a lot of Though service sector is one of the major room for improvement in the identification, sources of mobilizing FDI to India, plenty approval and implementation process of scope exists. Still we find the financial e.g. creating more centres for assistance, inclusion is missing. Large part of population more user friendly processes, effective still doesn’t have bank accounts, insurance of use of technology, being as clear as any kind, underinsurance etc. These problems possible leaving no room for interpretation, could be addressed by making service sector assisting in identifying new areas for more competitive. investment etc. Current Challenges and Improvement Areas c) Security risk: Another important factor that As explained above, India is definitely a needs to be handled with care and worked lucrative place for FDI, but there are certainly upon is the ever present security risk. This some challenges and areas for improvement risk includes the geopolitical risk with still present. Until, these areas are honed to Pakistan and the ongoing dispute over perfection, India will not become the number the Kashmir issue, which on numerous one place for FDI. Some of the key areas are occasions has brought these two countries listed below: armed with nuclear weapons to the brink of war. The other security risks would a) Political risk : Amongst the top items include incidences of domestic terrorism, is the political instability of the country. not only in the Kashmir valley but also in On one hand the fact that India is the Assam, Manipur and Nagaland, where world’s largest democracy does add a numerous separatists group operate. sense of pride and security, but the hard reality is that there is insurmountable d) Cost advantage : One of the attractions instability present. Just the fact that the of India is the lower cost advantage as past two governments have been based compared to most western economies. on coalitions between a few parties is The Indian Government would have to reason enough to be skeptical. Moreover, work on creating an atmosphere where each new government has certain this advantage can be maintained else policies which are different from the ruling it might result in India not seem as government and if there is frequent change attractive. One of the key drivers would be in government, this will lead to changes to try and control inflation because if there in policy and increased uncertainty. Just is increased level of inflation then there take the example of the last elections would be increased costs and reduced in 2004, where by a sudden change of returns. Other factors which would act in similar respects would be increased tax -233- Anusandhanika /Special Issue on FDI in India/ October 2017 incentives and reduced tariffs. 6.9 per cent in 2013-14 and further to 7.3 per cent in 2014-15 (Provisional Estimates). The e) Intellectual Property (IP) Rights & Piracy: growth in Gross Value Added (GVA) at basic With the increased instances of Piracy prices for agriculture & allied sectors, industry around the world and the extreme sector and services sector has been estimated importance placed by Investors on at 0.2 per cent, 6.1 per cent and 10.2 per cent maintaining their IP rights, this is definitely respectively in 2014-15, as compared to the an area which needs improvement in corresponding rates of 3.7 per cent, 4.5 per India. India has begun instilling intellectual cent and 9.1 per cent respectively in 2013-142. property rules and regulations into the country but there is still a long road ahead. Overall industrial growth was 2.8 percent in the year 2014-15 as compared to Key Drawbacks contraction of 0.1 percent in 2013-14. 1. Domination of Organized Sector Retailers- Eight core infrastructure industries grew FDI in single-brand retail will Strengthen by 3.5 percent in 2014-15, lesser than 4.2 organized retail in the country. These percent registered in 2013-143. organized retailers will tend to dominate As per the 4th Advance Estimates for the entire consumer market. It would lead 2014-15, production of total foodgrains to unfair competition and ultimately result during 2014-15 is estimated at 252.68 in large-scale exit of domestic retailers, million tonnes which is lower than 265.04 especially the small family managed million tonnes recorded in 2013-14. outlets , stores will be compelled to close down. Gross fixed capital formation as a percentage of GDP declined from 31.4 2. Leads to Increase in Real Estate Cost- It is per cent in 2012-13 to 29.7 per cent in obvious that the foreign companies which 2013-14 to 28.7 per cent in 2014-15. enter into India to open up their malls and stores will certainly look for places in the Wholesale Price Index(WPI) inflation heart of the cities. There shall be a war for for all commodities in the year 2014- place, initiated among such companies. It 15. declined sharply to 2 per cent, as will result in increase in the cost of real compared to an average of 6.0 per cent estate in the cities that will eventually during 2013-14. affect the interest of the ordinary people The inflation as per the Consumer Price who desire to own their houses within the Index(CPI) (Combined) declined from limit of the cities. 9.5 per cent in 2013-14 to 6.0 per cent in 3. Change in lifestyle and Culture: Though 2014-154. FDI in Indian retail will indirectly or directly Understanding Indian Economy contribute for the enhancement of Tourism, Hospitality and few other Industries, the Indian economy stands today as one of culture of the people in India will slowly the influential and attractive economy. The be changed. The youth will easily imbibe liberalization move by the Indian Government certain negative aspects of foreign culture in 1990s has given a boost to the Indian and lifestyles and develop inappropriate economy and put her into a fast track economic consumption pattern, not suited to our growth route. With the beginning of the new cultural environment. millennium, India was considered as an emerging super power. In 2009, Indian GDP Economic Growth 2014-15 based on purchasing power parity (PPP) stood The growth rate of Gross Domestic Product at USD 3.5 trillion making it the fourth largest (GDP) at constant (2011-12) market prices economy. India’s service industry accounts for increased from 5.1 per cent in 2012-13 to 62.5% of the GDP while the industrial sector

-234- Anusandhanika /Special Issue on FDI in India/ October 2017 contributes 20% to the GDP. The agricultural storage, communication, financing, insurance, sector which was the back bone of Indian real estate and business services, community economy post-independence took a back seat services (public administration and defense) in 21st century and contributed only 17.5% and other services. This sector provides to the GDP. India growth rate has been an services of final consumption nature as well as average of 7% since 1997 and has maintained intermediate nature, the latter accounting for a growth rate above 5% even in times of global a major share. Substantial parts of services recession. The Information Technology and such as transport and communications are in IT outsourcing services has been the biggest the form of intermediate inputs for production contributor to India’s growth. India’s per capital of other goods and services. income (PPP) is not too attractive and stands Performance of Service Sector at USD 4542. India currently accounts for 1.5% of the total Indian trade as per WTO, 2007 The performance table of services sector gives publications. Services Sector contribution figures of the annual growth rates of GDP at to the Indian Economy The Services Sector factor cost and the services sector and its three contributes the most to the Indian GDP. The constituent categories from 2001-02 onwards - Sector of Services in India has the biggest that is the growth rates recorded by the three share in the country’s GDP for it accounts for components of services: around 53.8% in 2005. The contribution of the A. Trade, hotel, transport and communication, Services Sector in India GDP has increased a lot in the last few years. The Services Sector B. Financing, insurance, real estate, and contributed only 15% to the Indian GDP in C. Community, social and personal services. 1950. Further the Indian Services Sector’s share in the country’s GDP has increased Thus, shows the growth of the service sector. from 43.695 in 1990- 1991 to around 51.16% The service sector had higher aggregate rates in 1998- 1999. This shows that the Services of growth than that observed in GDP. ‘Trade, Sector in India accounts for over half of the hotels, transport and communications’ segment country’s GDP. The contribution of the Services has continuously registered higher growth Sector has increased very rapidly in the India rates than the other two segments of service. GDP for many foreign consumers have shown ‘Community, social and personal services’ interest in the country’s service exports. This segment has witnessed relatively lower rates is due to the fact that India has a large pool of of growth among the three segments. highly skilled, low cost, and educated workers Conclusion in the country. This has made sure that the services that are available in the country are of Foreign Direct Investment as a strategic the best quality. The foreign companies seeing component of investment is needed by this have started outsourcing their work to India India for its sustained economic growth especially in the area of business services and development through creation of jobs, which includes business process outsourcing expansion of existing manufacturing industries, and information technology services. This has education and research and development etc. given a major boost to the Services Sector in Government should design the FDI policy India, which in its turn has made the sector such a way where FDI inflows can be utilized contribute more to the India GDP. Recent as means of enhancing domestic production, trends in Indian service sector By services savings and exports through the equitable sector we mean the tertiary sector, which is the distribution among states so that they can largest of the three constituent sectors in terms attract FDI inflows at their own level. FDI can of contribution to Gross Domestic Product help to raise the output, production and export (GDP) in India. The service sector comprises at the sectored level of the Indian economy. trade, hotels and restaurants, transport, It is advisable to open up the export oriented sectors and higher growth of economy could be -235- Anusandhanika /Special Issue on FDI in India/ October 2017 achieved through the growth of these sectors. 5. UNCTAD, FDI Database On-Line, Keeping in mind the humble beginning of India 6. http://www.randstad.com/the-world-of- and the stage at which it is right now goes to work/employment-rises-in-indias-service- show how much potential is present in this sector?c=4374 country and if the Indian government works 7. www.indiabudget.nic.in on the areas for improvement mentioned above and continues to support and assist the 8. http://www.sethassociates.com/policy_ encouragement of FDI into India, there is no on_foreign_direct_investment stopping India into becoming the number one 9. www.unctad.org destination for FDI in the world, far beyond China. 10. http://www.sebi.gov.in/Index. jsp?contentDisp=FIITrends References 11. http://dipp.nic.in/ 1. From crisis to recovery, India’s experience with economic reforms of 1990’s, 12. www.indiaonestop.com/economy-macro- K.G Sahadevan, http://ganga.iiml. issues.htm ac.in/~devan/ecolib-sajm.pdf 13. http://planningcommission.nic.in/data/ 2. Pohit Dr Sanjib and Subramaniam Shalini, datatable/Data0910/tab32.pdf Investment policy in India – performance 14. http://dipp.nic.in/fdi_statistics/india_fdi_ and perceptions, CUTS Centre for index.htm Competition, Investment & Economic Regulation, 2002 15. http://www.startbizindia.in/india_fdi_trend. php 3. Reserve bank of India website 16. http://planningcommission.gov.in/ 4. World Development Indicators database, World Bank. http://www.worldbank.org/ 17. http://finmin.nic.in/capital_market/capital_ data/quickreference/quickref.html market.asp

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Special Issue on FDI in India June 2017 ANUSANDHANIKA Special Issue onSpecial FDI in India June 2017

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