Foreign Direct Investment in IndiaForeign Direct Investment in IndiaForeign Direct Investment and Its Impact On Indian EconomyCONTENT:AbstractIntroductionHow FDI has come to IndiaForeign Direct Investment and Economic GrowthCurrent Trend in FDIFDI InflowFinancial Year Wise FDI Equity InflowSector wise analysis of FDI inflowFDI and Trade10) FDI policy and framework11) Comparison of FDI between India and China12) ConclusionAbstract:Foreign direct investment (FDI) has boomed in post-reform India.Moreover, the composition and type of FDI has changed considerably sinceIndia has opened up to world markets. This has fuelled high expectations thatFDI may serve as a catalyst to higher economic growth. We assess the growthimplications of FDI in India by subjecting industry-specific FDI and output datato Granger causality tests within a panel co integration framework. It turns outthat the growth effects of FDI vary widely across sectors. FDI stocks and outputare mutually reinforcing in the manufacturing sector. In sharp contrast, anycausal relationship is absent in the primary sector. Most strikingly, we find onlytransitory effects of FDI on output in the services sector, which attracted thebulk of FDI in the post-reform era. These differences in the FDI-growthrelationship suggest that FDI is unlikely to work wonders in India if onlyremaining regulations were relaxed and still more industries opened up to FDI.INTRODUCTION:Foreign direct investment (FDI) in its classic form is defined as a company from one country making a physical investment into building a factory in another country. It is the establishment of an enterprise by a foreigner. Its definition can be extended to include investments made to acquire lasting interest in enterprises operating outside of the economy of the investor. The FDI relationship consists of a parent enterprise and a foreign affiliate which together form an international business or a multinational corporation (MNC). In order to qualify as FDI the investment must afford the parent enterprise control over its foreign affiliate. The IMF defines control in this case as owning 10% or more of the ordinary shares or voting power of an incorporated firm or its equivalent for an unincorporated firm; lower ownership shares are known as portfolio investment. Foreign direct investment (FDI) is a measure of foreign ownership of productive assets, such as factories, mines and land. Increasing foreign investment can be used as one measure of growing economic globalization. The largest flows of foreign investment occur between the industrialized countries (North America, North West Europe and Japan). But flows to non-industrialized countries are increasing.
Type of Foreign Direct InvestorsA foreign direct investor may be classified in any sector of the economy and could be any one of the following:an individual;a group of related individuals;an incorporated or unincorporated entity;a public company or private company;a group of related enterprises;a government body;an estate (law), trust or other societal organization; orany combination of the above.HOW FDI HAS COME TO INDIA:Compared to most industrializing economies, India followed a fairly restrictive foreign private investment policy until 1991 – relying more on bilateral and multilateral loans with long maturities. Inward foreign direct investment (FDI, or foreign investment, or foreign capital
) is allowed through a number of economic and trade-related tax treaties.The government has attempted to curb FDI for several reasons, including the failure to tax more than 15% of foreign direct investment as being indirect.FDI in Indian markets and other sectors has also increased from a low at present of 5.4% in 1999-2000 to 2.4% in 2014-2015. However, FDI continues to fall short of the level it needed to avoid becoming as a major contributor to industrial and agricultural exports.According to the World Bank’s Global Econometric Database, India and Pakistan (the main suppliers of fintech to China in India), had the highest percentage of Chinese foreign direct investment in 2013 (38%) and India was followed by the United States, Singapore, Canada, Mexico, Germany, Japan, Japan, Thailand, Singapore and the United Arab Emirates, which were followed largely by the United Kingdom.In India, a more direct relationship was created between India’s FDI and international trade, with Pakistan paying a higher share of foreign direct investment than India, with a significant portion of its FDI coming from India. In addition to this, Pakistan paid a greater share of the Indian public’s FDI. India’s public sector contribution to non-GDP spending totaled Rs 18,900 crore in 2012-2013, while Pakistan’s contribution was Rs 5,500 crore.Pakistan’s FDI contributed 5% to its GDP in 2011-2012, more than double the percentage contribution in the United Nations.Pakistan is a signatory of the World Bank Development Programme’s Arms Trade and FDI Strategy, a comprehensive and international comprehensive policy framework that seeks to develop the economic, political, regulatory and security dimensions of international trade, and ensure that India is not adversely affected by the growing influence of foreign direct investments. In 2008-2009, the Indian government raised the India-Pakistan Economic Corridor which includes some 200 km of railway line from the Pakistani territory of Kachin to Sindh. The proposed Line 6 corridor (see Annex I) to connect with the Karachi International Airport (CII) was submitted in March 2009, where India’s delegation proposed Rs 70 billion more ($8.4 billion) for development.The project was approved by the government of India from the highest echelons of government. In June 2016, government of India’s Finance Minister Arun Jaitley announced that in the next Budget, the Ministry of Commerce and Industry (MoD) will set up a ‘Global Investment Strategy’ to create a framework for making sure India’s foreign direct investment into the Indian economy continues to be justified. The Global Investment Strategy was developed within a four-year strategic plan comprising 3-6 key indicators that help address long-term sustainability of India’s domestic and international trade activities.In India, the financial reforms