project on fdi
TRANSCRIPT
-
8/9/2019 project on FDI
1/27
MACROECONOMICS PROJECT
INFLUENCE OF FDIs ON
THE INDIAN ECONOMY
SUBMITTED BY:-
-
8/9/2019 project on FDI
2/27
ACKNOWLEDGEMENT
I would like to express our sincere gratitude to Prof. K.C.for giving us the opportunity towork on this project, which has helped us in building our knowledge about the subject,that is,Macroeconoics and the !usiness "nvironent, and without whose valuable guidance andencourageent aking the report would have beenunsuccessful.
#fter doing all the research necessary for the copletion of this project I have not onlygained inforation about this particular topic but also an overall insight into the Indian
econoy as a whole.
I thank hi for providing us with all the re$uired otivation needed to coplete the project.
-
8/9/2019 project on FDI
3/27
CONTENT
INTRODUCTION...
REASON FOR TAKING THE
PROJECT..........
OBJECTIVES....
METHODOLOGY.........
RESULT.
DISCUSSION..
CONCLUSION....
REFERENCE...
APPENDIX.
-
8/9/2019 project on FDI
4/27
INTRODUCTION
WHAT IS FDI?
%&I is generally defined as '# for of long ter international capital oveent,
ade for the purpose ofproductive activity and accopanied by the intention of anagerialcontrol or participation in the anageentof foreign fir.(In simp! "#$%s &n' in(!s)m!n) *#"in+ ,$#m #n! -#n)$' )# &n#)/!$ -#n)$'is ,#$!i+n in(!s)m!n). T/! m&n&+!m!n) #, & 0sin!ss !n)!$p$is! in & ,#$!i+n-#n)$' is ,#$!i+n in(!s)m!n).
In%i&n G#(!$nm!n) -&ssi1!s ,#$!i+n in(!s)m!n) in )/! ,##"in+ ,#$m2
For!"# $!r%& !#'s&(#& )FDI*
For!"# !#s&!&+&!o#, !#'s&(#& )FII*
No#-rs!$#& I#$!,# )NRI* !#'s&(#&
Policy on FDI
India has aong the ost liberal and transparent policies on %&I aong the eergingeconoies. %&I up to)**+ is allowed under the autoatic route in all the sectors except thefollowing, which re$uire prior approvalof overnent- ectors prohibited for %&I.
#ctivities that re$uire industrial license.
Proposals in which the foreign collaborator has an existing financial/technical
collaboration in India inthe sae field. Proposals for ac$uisition of shares in an existing Indian Copany in financial service
sector and where"!I regulations, )001 is attracted. #ll proposals falling outside notified sectoral policy in which %&I is not peritted.
-
8/9/2019 project on FDI
5/27
FDI IN INDIA
India, being a capital scarce country, has taken any easures to attract foreigninvestent since the beginning of refors in )00). India is the second largest country in theworld, with a population of over ) billion people. #s a developing country, India2s econoy
is characteri3ed by wage rates that are significantly lower than those in ost developedcountries. 4hese two traits cobine to ake India a natural destination for foreign directinvestent 5%&I6 and foreign institutional investent 5%II6. 7ntil recently, however, India hasattracted only a sall share of global foreign direct investent 5%&I6 and foreign institutionalinvestent 5%II6, priarily due to governent restrictions on foreign involveent in theeconoy. !ut beginning in )00) and accelerating rapidly since 8***, India has liberali3ed itsinvestent regulations and actively encouraged new foreign investent, a sharp reversalfro decades of discouraging econoic integration with the global econoy. 4he world isincreasingly becoing interdependent. In fact, the world has becoe a borderless world.9ith the globali3ation of the various arkets, international financial flows have so far beenin excess for the goods and services aong the trading countries of the world. :f the
different types of financial inflows, the foreign direct investent 5%&I6 and foreigninstitutional investent 5%II66 has played an iportant role in the process of developent ofany econoies. %urther any developing countries consider foreign direct investent5%&I6 and foreign institutional investent 5%II6 as an iportant eleent in their developentstrategy aong the various fors of foreign assistance.4he %oreign direct investent 5%&I6 and foreign institutional investent 5%II6 flows areusually preferred over the other for of external finance, because they are not debt creating,non;volatile in nature and their returns depend upon the projects financed by the investor. 4he%oreign direct investent 5%&I6 and foreign institutional investent 5%II6 would alsofacilitate international trade and transfer of knowledge, skills and technology.4he %oreign direct investent 5%&I6 and foreign institutional investent 5%II6 is the process
by which the resident of one country5the source country6 ac$uire the ownership of assets forthe purpose of controlling the production, distribution and other productive activities of afir in another country5the host country6. #ccording to the international onetary fund5IM%6, foreign direct investent 5%&I6 and foreign institutional investent 5%II6 is defined as'an investent that is ade to ac$uire a lasting interest in an enterprise operating in aneconoy other than that of investor(. 4he governent of India 5:I6 has also recogni3ed thekey role of the foreign direct investent 5%&I6 and foreign institutional investent 5%II6 in its
process of econoic developent, not only as an addition to its own doestic capital but alsoas an iportant source of technology and other global trade practices. In order to attract there$uired aount of foreign direct investent 5%&I6 and foreign institutional investent 5%II6,
it has bought about a nuber of changes in its econoic policies and has put in its practice aliberal and ore transparent foreign direct investent 5%&I6 and foreign institutionalinvestent 5%II6 policy with a view to attract ore foreign direct investent 5%&I6 andforeign institutional investent 5%II6 inflows into its econoy. 4hese changes have heraldedthe liberali3ation era of the foreign direct investent 5%&I6 and foreign institutionalinvestent 5%II6 policy regie into India and have brought about a structural breakthrough inthe volue of foreign direct investent 5%&I6 and foreign institutional investent 5%II6inflows in the econoy. In this context, this report is going to analy3e the trends and patternsof foreign direct investent 5%&I6 and foreign institutional investent 5%II6 flows into Indiaduring the post liberali3ation period that is )00) to 8**1 year.
-
8/9/2019 project on FDI
6/27
For!"# $!r%& !#'s&(#&: I#$!,# s%#,r!o
%oreign &irect Investent 5%&I6 is peritted as under the following fors of investents ottery !usiness
abling and !etting
!usiness of chit fund.
?idhi Copany
4rading in 4ransferable &evelopent =ights 54&=s6.
#ctivity/sector not opened to private sector investent.
Foreign Investment through GDRs !uro Issues" #
Indian copanies are allowed to raise e$uity capital in the international arketthrough the issue of lobal &epository =eceipt 5&=s6. &= investents are treated as %&Iand are designated in dollars and are not subject to any ceilings on investent. #n applicantcopany seeking overnent@s approval in this regard should have consistent track recordfor good perforance 5financial or otherwise6 for a iniu period of A years. 4hiscondition would be relaxed for infrastructure projects such as power generation,telecounication, petroleu exploration and refining, ports, airports and roads.
-
8/9/2019 project on FDI
7/27
REASON FOR TAKING THE PROJECT
4he ajor reason behind taking up this particular topic as our project for Macroeconoics
and the !usiness "nvironent is the growing iportance of %&I2s and its ipact on the
econoy. 4hus it is essential to get an insight into how the growth in %&I2s affects the
acroeconoic aspect of India.In India, %&I is considered as a developental tool, which can help in achieving self;reliance
in various sectors of the econoy. 9ith the announceent of Industrial Policy in )00), huge
incentives and concessions were granted for the flow of foreign capital to India. India is a
growing country which has large space for consuer as well as capital goods. India2s
abundant and diversified natural resources, its sound
econoic policy, good arket conditions and highly
skilled huan resources, ake it a proper
destination for foreign direct investents.
#s per the recent survey done by the 7nited
?ational Conference on 4rade and &evelopent
57?C4#&6, India will eerge as the third largest
recipient of foreign direct investent 5%&I6 for the
three;year period ending 8*)8 59orld Investent =eport 8*)*6. #s per the study, the sectors
which attracted highest %&I were services, telecounications, construction activities, and
coputer software and hardware. In )00), India liberalised its highly regulated %&I regie.
#long with the virtual abolition of the industrial licensing syste, controls over foreign tradeand %&I were considerably relaxed. 4he refors did result in increased inflows of %&I during
the post refor period. 4he volue of %&I in India is relatively low copared with that in
ost other developing countries.
-
8/9/2019 project on FDI
8/27
%&I plays an iportant role in econoic growth of an econoy. >iterature on factors
deterining %&I inflows into an econoy shows that any factors influences inflows such as
arket si3e, inflation, trade openness, interest rate, wage rate, business environent, etc. 4he
present study exained the factors deterining %&I inflows in India during post refor
period. 4he results of our analysis show that %&I is related positively with real &P and
previous period %&I inflow but inversely related with inflation. It showed that theacroeconoic instability in ters of inflation has been an iportant factor which
influenced the inflow of %&I in India in the post refor period.
4here are any past studies which have ephasi3ed the role of &P growth, wage rate, traderate, real interest rates, inflation, and stock of %&I, doestic investent in attracting %&I into
a country. !esides, it is also understood that the ain deterinants of %&I inflows are the
inflation rate, the interest rate, the growth rate and the trade 5openness6 rate.
-
8/9/2019 project on FDI
9/27
OBJECTI.E
4he basic objective of the project is to deterine the relation of %&I with Macroeconoics.
$b%ective &
4o exaine the trends and pattern in the foreign direct investent 5%&I6 across different
sectors of Macroeconoics in Indian context during )00);8**1 period eans during post
liberali3ation period.
$b%ective '
#nd oreover to see the ipact of %&I post liberali3ation and copare it with pre
liberali3ation of Indian "conoy. #fter the overview, the ain objective would be to get a
pre assuption about the ipact of %&I in retail industry, in India.
-
8/9/2019 project on FDI
10/27
METHODOLOGY
4he lifeblood of business and coerce in the odern world is inforation. 4he ability to
gather, analy3e, evaluate, present and utili3e inforation is therefore is a vital skill for the
anagerof today.
In order to accoplish this project successfully I have taken following steps.
)6D(t( )ollection*
4he analysis is done with the help econdary data 5fro internet site and journals6.
86An(lysis*
#ppropriate tatistical tools like correlation, regression and 4ie series are used to analy3e
the data.
A6 Di(gr(m*
uitable diagras are used where necessary for better interpretation and understanding.
B6 Pictures*
Pictures tells a lot then words, keeping this in ind any tables pictures are also used for
better understanding.
54he analysis is done with the available data fro the tie period )0B1;)00) for pre;
liberali3ation and )00);)001 for post liberali3ation. #nd the correlation, regression and 4ieseries analysis is done on the data of 8**;8**0.6
-
8/9/2019 project on FDI
11/27
RESULT AND DISCUSSION
RELATIONSHIP OF FOREIGN IN.ESTMENTWITH MACRO ECONOMIC FACTORS IN INDIA
F$R!IG+ I+,!ST!+T A+D GDP $F I+DIA
%oreign investent shows a strong correlation 5polynoial6 with &P in the lastdecade 5)00;8**6. The R' v(lue .or the s(me is /011&. Please refer to section D#.)2 of the#nnexure for detailed data. %&I shows a strong linear correlation with the &P of India. R'v(lue o. /02/3 shows the strength of the correlation between the two paraeters. %or detaileddata analysis, please refer to the section D#.82 of #nnexure.
FDI A+D I+DIA+ )4RR!+)5
# trend analysis of the %&I inflows to India and the exchange rates prevailing in the
financial year 8**;*0 shows a trend which doesn2t depict a very strong correlation betweenthe two chosen paraeters. 4he best and strongest fit function for the trend was given by theE;degree polynoial function with R6' v(lue o. /037&. 4he exchange rate taken is takenwith respect to 7 dollar. Please refer to section D#.A2 of #nnexure for further details.
F$R!IG+ I+,!ST!+T A+D !P8$5!+T GR$WTH
4he R6' v(lue is /0&93 for the F;degree polynoial correlation between foreigninvestent in India and eployent. %&I shows a B;degree polynoial correlation witheployent with an R6' v(lue o. /0'73. %or detailed data analysis, please refer to sectionD#.B2 of the #nnexure.
FDI A+D I+F8ATI$+ WPI"4he correlation derived between 9holesale Price Index 59PI6 and %&I based on the
onthly data available for the financial year 8**;*0 shows a trend which is not as strong asseen in the previous sections. 4he =G8 value for the correlation between the two paraeters isonly /0/9:. Please refer to section D#.F2 of the #nnexure for further reference.
F$R!IG+ I+,!ST!+T A+D IIP
4he correlation derived between %oreign Investent and Index for Industrial
Production 5IIP6 shows strong relationship with R6' v(lue o. /02& for a linear correlation.
4he R6' v(lue is /02: for a 8;degree polynoial correlation of %&I with IIP which again
shows a very strong relationship. Please refer to section D#.E2 of the #nnexure for further
reference.
TI! S!RI!S A+A85SIS $F F$R!IG+ I+,!ST!+T A+D FDI I+ I+DIA
4he best fit e$uation derived fro the tie series analysis of .oreign investment in
India is given by the following 8;degree polynoial e$uation- < y H AFF.Fx8 ; )"*Ex
)"*0 9here, x represents tie 5year6 and y represents the foreign investent ade in 7
Jillions. 4he =8 value obtained for the above e$uation is *.0BF. 4he best fit e$uation
derived fro the tie series analysis of FDI in India is given by the following A;degree
polynoial e$uation- y H E).*)xA ; AEF08x8 1"*x ; F")) 9here, x represents tie
-
8/9/2019 project on FDI
12/27
5year6 and y represents %&I in 7 Jillions. 4he =8 value obtained for the above e$uation is
*.1*.
H$W D$!S G$,!R+!+T ATTRA)TS A+D $+IT$RS FDI?
Foreign Investment Promotion Board FIPB:
4his specially epowered !oard in the office of the Prie Minister is the only agencydealing with atters relating to %&I as well as prooting investent into the country. It ischaired by ecretary Industry 5&epartent of Industrial Policy Prootion6. It prootes%&I into India by undertaking investent prootion activities in India and abroad byfacilitating investent in the country through international copanies, non;resident Indians
and other foreign investors.
Foreign Investment Promotion Council FIPC:
4he overnent has constituted a %oreign Investent Prootion Council 5%IPC6under the chairanship of Chairan ICICI, to undertake vigorous investent prootion andarketing activities. 4he Presidents of the three apex business associations such as#:CL#M, CII and %ICCI will be ebers of the Council. Ministry of Industry personnelwill be Meber;ecretary.
Foreign Investment Implementation Authority FIIA:
%oreign Investent Ipleentation #uthority 5%II#6 has been set up by thegovernent of India in order to encourage the ipleentation of the proposals for %&I in thecountry. !y doing this, %oreign Investent Ipleentation #uthority 5%II#6 has given aajor boost to the Indian econoy.
=ole of %oreign Investent Ipleentation #uthority 5%II#6-
4o understand and solve the probles of the investors
4o understand and solve the probles of the approving authorities
4o refer the cases that have not been resolved at the level of %I# to the agencies at the
higher levels
4o start consultations with ultiple agencies
-
8/9/2019 project on FDI
13/27
WHAT D!T!RI+!S TH! FDI I+ TH! !)$+$5?
Gro;th o. the economy*
o 4he growth rate of the hoe econoy is an iportant deterinant of %&I into the country. Sienness o. the economy*
o #ny %&I investent into a country depends upon how Dopen2 the econoy is towardsforeign trade 5both iports and exports6. 9e have captured the Dopenness2 of the econoythrough the proxy variable, &: 5&egree of :penness6 where it is given by&: H 5Iports "xports6/&P
Incorporating all these factors as deterinants of %&I, we get the following odel-
FDIt ( @b GDPt @ c GDPt @ d D$t@ e R!!Rt@ ut
9here,%&It H %oreign &irect Investent in Period t.&Pt H ross &oestic Product in Period t.
&Pt H &Pt ;&Pt;)&:t H &egree of :penness in Period t and is e$ual to ratio of u of "xports and Iports to&Pt.=""=t H =eal "ffective "xchange =ate in Period t.ut H "rror 4er 7sing the tie series data,
we ran a ulti;variate regression of the above e$uation to estiate the values of thecoefficients and to check their significance levels. 9e obtained an adjusted = s$uare valueof .1A which shows that the odel explains ore than 1*+ of the data.FDIt -1B&&/ @ 0/&& GDPt @ 0/' GDPt @ 7729/ D$t@ 7BB0: R!!Rt
#lso, we note that all the coefficients are positive which is as expected and the t statistic
values indicate that all coefficients are significant.
-
8/9/2019 project on FDI
14/27
#n open;arket operation where the =!I decides to buy governent bonds fro the public
will result in the expansion of the oney supply. %ro the above graph, we can see that the
increase in the oney supply decreases the interest rate fro i) to i8. 4he decrease in the
interest rate increases the exchange rate 5as the deand for foreign currency N supply of
foreign currency6. #s a result, the %&I increases in the host country. #lso, the decrease in the
interest rate eans the cost of capital decreases since national incoe identity suggests thatan increase in doestic investent will positively ipact on doestic output.
Y = C + I + G + X M).
:pen;arket operations are likely to do a better job in attracting ore flows of %&I than
other type of onetary policy. 4he reason is because they ipact on two deterinants of %&I
inflows ; exchange rate and &P.
-
8/9/2019 project on FDI
15/27
Pr-!/r,!s,&!o# 0r!o$ )123451221*
Indian econoic policyafter independence was influenced by the colonial experience,which was seen by Indian leaders as exploitative, and by those leaders@ exposure to
deocratic socialis as well as the progress achieved by the econoy of the oviet7nion. &oestic policy tended towards protectionis, with a strong ephasis on iportsubstitution industrialisation,econoic interventionis, a largepublic sector,businessregulation, andcentral planning,while trade and foreign investent policies were relativelyliberal. %ive;Oear Plans of Indiaresebled central planning in the oviet 7nion. teel,ining, achine tools, telecounications, insurance, and power plants, aong otherindustries, were effectively nationalised in the id;)0F*s.
awaharlal ?ehru, the firstprie inister of India, along with the statisticianPrasantaChandra Mahalanobis, forulated and oversaw econoic policy during the initial years ofthe country@s existence. 4hey expected favourable outcoes fro their strategy, involving the
rapid developent ofheavy industryby both public andprivate sectors, and based on directand indirect state intervention, rather than the ore extree oviet;stylecentral coandsyste.4he policy of concentrating siultaneously on capital; and technology;intensiveheavy industry and subsidising anual, low;skillcottage industrieswas criticised byeconoist Milton %riedan, who thought it would waste capital and labour, and retard thedevelopent of sall anufacturers.4he rate of growth of the Indian econoy in the firstthree decades after independence was derisively referred to as the Lindu rate of growthbyeconoists, because of the unfavourable coparison with growth rates in other #siancountries.
ince )0EF, the use of high;yielding varieties of seeds, increased fertilisersand
iproved irrigationfacilities collectively contributed to the reen =evolution in India, whichiproved the condition of agriculture by increasing crop productivity, iproving croppatterns and strengthening forward and backward linkages between agriculture andindustry. Lowever, it has also been criticised as an unsustainable effort, resulting in thegrowth of capitalistic faring, ignoring institutional refors and widening incoedisparities.4he year wise &P with 7 "xchange rate are given below-
O"#= =: &:M"4IC P=:&7C4 7 "QCL#?" =#4"
)0F*)**,F* B.10 Indian =upees
)0FF))*,A** B.10 Indian =upees
)0E*)1B,*1* B.11 Indian =upees
)0EF8*,)E* B.1 Indian =upees
)01*BE8,B0* 1.FE Indian =upees
)01FB8,8)* .A0 Indian =upees
Pos&-!/r,!s,&!o# 0r!o$ )s!#%1221*
http://en.wikipedia.org/wiki/Economic_policyhttp://en.wikipedia.org/wiki/Economy_of_the_Soviet_Unionhttp://en.wikipedia.org/wiki/Economy_of_the_Soviet_Unionhttp://en.wikipedia.org/wiki/Import_substitution_industrialisationhttp://en.wikipedia.org/wiki/Import_substitution_industrialisationhttp://en.wikipedia.org/wiki/Import_substitution_industrialisationhttp://en.wikipedia.org/wiki/Economic_interventionismhttp://en.wikipedia.org/wiki/Public_sectorhttp://en.wikipedia.org/wiki/Regulation_(socio-legal_concept)http://en.wikipedia.org/wiki/Regulation_(socio-legal_concept)http://en.wikipedia.org/wiki/Regulation_(socio-legal_concept)http://en.wikipedia.org/wiki/Central_planninghttp://en.wikipedia.org/wiki/Central_planninghttp://en.wikipedia.org/wiki/Five-Year_Plans_of_Indiahttp://en.wikipedia.org/wiki/Soviet_Unionhttp://en.wikipedia.org/wiki/Jawaharlal_Nehruhttp://en.wikipedia.org/wiki/Prime_minister_of_Indiahttp://en.wikipedia.org/wiki/Prime_minister_of_Indiahttp://en.wikipedia.org/wiki/Prasanta_Chandra_Mahalanobishttp://en.wikipedia.org/wiki/Prasanta_Chandra_Mahalanobishttp://en.wikipedia.org/wiki/Prasanta_Chandra_Mahalanobishttp://en.wikipedia.org/wiki/Heavy_industryhttp://en.wikipedia.org/wiki/Heavy_industryhttp://en.wikipedia.org/wiki/Private_sectorhttp://en.wikipedia.org/wiki/Economy_of_the_Soviet_Unionhttp://en.wikipedia.org/wiki/Cottage_industrieshttp://en.wikipedia.org/wiki/Milton_Friedmanhttp://en.wikipedia.org/wiki/Hindu_rate_of_growthhttp://en.wikipedia.org/wiki/Hindu_rate_of_growthhttp://en.wikipedia.org/wiki/Hybrid_seedhttp://en.wikipedia.org/wiki/Fertilisershttp://en.wikipedia.org/wiki/Irrigationhttp://en.wikipedia.org/wiki/Green_Revolution_in_Indiahttp://en.wikipedia.org/wiki/Economy_of_the_Soviet_Unionhttp://en.wikipedia.org/wiki/Economy_of_the_Soviet_Unionhttp://en.wikipedia.org/wiki/Import_substitution_industrialisationhttp://en.wikipedia.org/wiki/Import_substitution_industrialisationhttp://en.wikipedia.org/wiki/Economic_interventionismhttp://en.wikipedia.org/wiki/Public_sectorhttp://en.wikipedia.org/wiki/Regulation_(socio-legal_concept)http://en.wikipedia.org/wiki/Regulation_(socio-legal_concept)http://en.wikipedia.org/wiki/Central_planninghttp://en.wikipedia.org/wiki/Five-Year_Plans_of_Indiahttp://en.wikipedia.org/wiki/Soviet_Unionhttp://en.wikipedia.org/wiki/Jawaharlal_Nehruhttp://en.wikipedia.org/wiki/Prime_minister_of_Indiahttp://en.wikipedia.org/wiki/Prasanta_Chandra_Mahalanobishttp://en.wikipedia.org/wiki/Prasanta_Chandra_Mahalanobishttp://en.wikipedia.org/wiki/Heavy_industryhttp://en.wikipedia.org/wiki/Private_sectorhttp://en.wikipedia.org/wiki/Economy_of_the_Soviet_Unionhttp://en.wikipedia.org/wiki/Cottage_industrieshttp://en.wikipedia.org/wiki/Milton_Friedmanhttp://en.wikipedia.org/wiki/Hindu_rate_of_growthhttp://en.wikipedia.org/wiki/Hybrid_seedhttp://en.wikipedia.org/wiki/Fertilisershttp://en.wikipedia.org/wiki/Irrigationhttp://en.wikipedia.org/wiki/Green_Revolution_in_Indiahttp://en.wikipedia.org/wiki/Economic_policy -
8/9/2019 project on FDI
16/27
In the late )01*s, the governent led byMorarji &esaieased restrictions on capacityexpansion for incubent copanies, reoved price controls, reduced corporate taxes and
prooted the creation of sall scale industries in large nubers. Le also raised the incoetax levels at one point to a axiu of 01.F+, a record in the world for non;counisteconoies. Lowever, the subse$uent governent policy of%abian socialishapered the
benefits of the econoy, leading to high fiscal deficits and a worsening current account. 4he
collapse of the oviet 7nion, which was India@s ajor trading partner, and the ulf 9ar,which caused a spike in oil prices, resulted in a ajor balance;of;payents crisis for India,which found itself facing the prospect of defaulting on its loans. India asked for a J). billion
bailout loan fro the International Monetary %und5IM%6, which in return deanded refors.
In response, Prie Minister?arasiha=ao, along with his finance inister Manohaningh, initiated the econoic liberalisation of )00). 4he refors did away with the >icence=aj, reduced tariffs and interest rates and ended any public onopolies, allowing autoaticapproval offoreign direct investentin any sectors. ince then, the overall thrust ofliberalisation has reained the sae, although no governent has tried to take on powerfullobbies such as trade unions and farers, on contentious issues such as reforing labour laws
and reducing agricultural subsidies. !y the turn of the 8*th century, India had progressedtowards a free;arket econoy, with a substantial reduction in state control of the econoyand increased financial liberalisation. 4his has been accopanied by increases in lifeexpectancy, literacy rates and food security, although the beneficiaries have largely beenurban residents.
9hile the credit rating of India was hit by itsnuclear weapons tests in )00, it has since beenraised to investent level in 8**A by P and Moody@s. In 8**A, oldan achspredictedthat India@s &P in current prices would overtake %rance and Italy by 8*8*, erany, 7Kand =ussia by 8*8F and apan by 8*AF, aking it the third largest econoy of the world,
behind the 7 and China. India is often seen by ost econoists as a rising econoicsuperpower and is believed to play a ajor role in the global econoy in the 8)st century.
GDP $F I+DIA SI+)! &2:/ T$ '/&/
http://en.wikipedia.org/wiki/Morarji_Desaihttp://en.wikipedia.org/wiki/Morarji_Desaihttp://en.wikipedia.org/wiki/Morarji_Desaihttp://en.wikipedia.org/wiki/Incumbent#In_businesshttp://en.wikipedia.org/wiki/Incumbent#In_businesshttp://en.wikipedia.org/wiki/Fabian_socialismhttp://en.wikipedia.org/wiki/Fabian_socialismhttp://en.wikipedia.org/wiki/Gulf_Warhttp://en.wikipedia.org/wiki/International_Monetary_Fundhttp://en.wikipedia.org/wiki/Narasimha_Raohttp://en.wikipedia.org/wiki/Manmohan_Singhhttp://en.wikipedia.org/wiki/Manmohan_Singhhttp://en.wikipedia.org/wiki/Economic_reforms_in_Indiahttp://en.wikipedia.org/wiki/Licence_Rajhttp://en.wikipedia.org/wiki/Licence_Rajhttp://en.wikipedia.org/wiki/Foreign_direct_investmenthttp://en.wikipedia.org/wiki/Pokhran-IIhttp://en.wikipedia.org/wiki/Pokhran-IIhttp://en.wikipedia.org/wiki/Goldman_Sachshttp://en.wikipedia.org/wiki/Morarji_Desaihttp://en.wikipedia.org/wiki/Incumbent#In_businesshttp://en.wikipedia.org/wiki/Fabian_socialismhttp://en.wikipedia.org/wiki/Gulf_Warhttp://en.wikipedia.org/wiki/International_Monetary_Fundhttp://en.wikipedia.org/wiki/Narasimha_Raohttp://en.wikipedia.org/wiki/Manmohan_Singhhttp://en.wikipedia.org/wiki/Manmohan_Singhhttp://en.wikipedia.org/wiki/Economic_reforms_in_Indiahttp://en.wikipedia.org/wiki/Licence_Rajhttp://en.wikipedia.org/wiki/Licence_Rajhttp://en.wikipedia.org/wiki/Foreign_direct_investmenthttp://en.wikipedia.org/wiki/Pokhran-IIhttp://en.wikipedia.org/wiki/Goldman_Sachs -
8/9/2019 project on FDI
17/27
FDI IN RETAIL SECTOR IN INDIA
Just back from first frenzied shopping experience in the UK, a four year old
ever-inquisitive daughter asked to her father, hy do !e not have a "arrods
in "yderabad# $hopping there is so much fun%& $imple question for a four-year-old, but not so simple for her father to explain'
#s per the current regulatory regie, retail trading 5except under single;brand product
retailing R %&I up to F) per cent, under the overnent route6 is prohibited in India. iply
put, for a copany to be able to get foreign funding, products sold by it to the general public
should only be of a Dsingle;brand2S this condition being in addition to a few other conditions
to be adhered to. 4hat explains why we do not have a Larrods in Lyderabad.
India being a signatory to 9orld 4rade :rganisation2s eneral #greeent on 4rade in
ervices, which include wholesale and retailing services, had to open up the retail trade sector
to foreign investent. 4here were initial reservations towards opening up of retail sector
arising fro fear of job losses, procureent fro international arket, copetition and loss
of entrepreneurial opportunities. Lowever, the governent in a series of oves has opened
up the retail sector slowly to %oreign &irect Investent 5'%&I(6. In )001, %&I in cash and
carry 5wholesale6 with )** percent ownership was allowed under the overnent approval
route. It was brought under the autoatic route in 8**E. F) percent investent in a single
brand retail outlet was also peritted in 8**E. %&I in Multi;!rand retailing is prohibited in
India.
The Question of Foreign Direct Investment (FDI in !etail:
iven this backdrop, the recent claour about opening up the retail sector to %oreign
&irect Investent 5%&I6 becoes a very sensitive issue, with arguents to support both sides
of the debate. It is widely acknowledged that %&I can have soe positive results on the
econoy, triggering a series of reactions that in the long run can lead to greater efficiency and
iproveent of living standards, apart fro greater integration into the global econoy.
upporters of %&I in retail trade talk of how ultiately the consuer is benefited by
both price reductions and iproved selection, brought about by the technology and know;
how of foreign players in the arket. 4his in turn can lead to greater output and doestic
consuption.
!ut the ost iportant factor against %&I driven 'odern
retailing( is that it is labour displacing to the extent that it can only
expand by destroying the traditional retail sector. 4ill such tie we
are in a position to create jobs on a large scale inanufacturing, it
would ake einent sense that any policy that results in the
eliination of jobs in the unorganised retail sector should be kept
on hold.
-
8/9/2019 project on FDI
18/27
4hough ost of the high decibel arguents in favour of %&I in the retail sector are not without
soe erit, it is not fully applicable to the retailing sector in India, or at least, not yet. 4his is because
the priary task of governent in India is still to provide livelihoods and not create so called
efficiencies of scale by creating redundancies. #s per present regulations, no %&I is peritted in retail
trade in India. #llowing B0+ or 8E+ %&I 5which have been the proposed figures till date6 will have
iediate and dire conse$uences. "ntry of foreign players now will ost definitely disrupt the currentbalance of the econoy, will render illions of sall retailers jobless by closing the sall slit of
opportunity available to the.
PR!SS +$T!S
-
8/9/2019 project on FDI
19/27
CONCLUSION
4he process of econoic refors which was initiated in uly )00) to liberali3e and globali3e
the econoy had gradually opened up any sectors of its econoy for the foreign investors.
# large nuber of changes that were introduced in the country2s regulatory econoic policies
heralded the liberali3ation era of the %&I policy regie in India and brought about a
structural breakthrough in the volue of the %&I inflows into the econoy aintained a
fluctuating and unsteady trend during the study period.
-
8/9/2019 project on FDI
20/27
!efore liberali3ation the whole scenario was different and the country was suffering fro
uneployent, debts etc. . !ut after liberali3ation the whole scenario has changed drastically.
4here has been developent in each and every sector which solved any of the
acroeconoics probles. o in the end we can say that %&I affected India in both the ways
i.e. positive as well as negative , but I can say that ore of positive. !ecause of %&I2s only
our econoy is developing at a faster rate.ANNE6UREA.34 For!"# !#'s&(#& !# I#$!, ,#$ I#$!,s GDP:
Y,r For!"# I#'s&(#&)7888 US 9 (!!o#s*
GDP )788888 I#RsCror*
3556755 8.9:3 3;.6< =:.8>9
A;* FDI !# I#$!, ,#$ I#$!,s GDP:
Y,r FDI )7888 US 9(!!o#s*
GDP )788888I# RsCror*
3556755 8.963;38::>7:9 9.>88 86.;;;:9.> 8:.5=
Jn7:5 8>= 8=.68J7:5 8>6.9 >=.38.
-
8/9/2019 project on FDI
24/27
A* For!"# I#'s&(#& ,#$ I#$@ or I#$+s&r!, Pro$+%&!o# )IIP*
Ann& A(!$&+! IIP ?Ap$7M&$4 In%i-!s
Y!&$ B&si-G##%s
C&pi)&G##%s
In)!$m!%i&)!G##%s
T#)& D$&0!s
N#nD$&0!s
G!n!$& In%!
355=759.> 3=8.5 3>:.8 3>:.6
355;756
3>>.< 3>=.< 39=.6 3=8.; 3==.6 399.6 3;9.3 3>6.3 39=.8
35557::
39>.> 3.> 3.: 356.; 398.= 3=9.5
8:::7
:3
396.< 3
-
8/9/2019 project on FDI
25/27
355578::: 83== =3638:::7:3 9:85 =:>= 7:9 9>88 3==
8::>7:9 9>888::97:=
-
8/9/2019 project on FDI
26/27
-
8/9/2019 project on FDI
27/27
REFERENCE
W!C8I+S*-
/))p2""".!+&in%i&.in,#$!i+n7%i$!-)7in(!s)m!n)7in7in%i&n7$!)&i7s!-)#$7
E86:5>7&n7&n&'sis
/))p2""".in%i&,%i"&)-/.#$+1!&%minIn%i&si)!3:7FDI7R!)&i7m#$!70&%.p%,
/))p2!n."iip!%i&.#$+"iiF#$!i+n%i$!-)in(!s)m!n)
/))p2!n."iip!%i&.#$+"iiG#0&is&)i#ninIn%i&
/))p2!n."iip!%i&.#$+"iiR!)&iin+inIn%i&
/))p2""".in%i&s)&).-#min%s)$i!s36,#$!i+n%i$!-)in(!s)m!n)3;=;6s)&)!$0i$!
+i#n"is!,#$!i+n%i$!-)in(!s)m!n)995==6s)&)s.&sp
/))p2""".$0i.#$+.ins-$ip)sP0i-&)i#nR!p#$)D!)&is.&spU$P&+!ID>>;
/))p2""".)$&%in+!-#n#mi-s.-#min%i&,#$!i+n7%i$!-)7in(!s)m!n)
http://www.legalindia.in/foreign-direct-investment-in-indian-retail-sector-%E2%80%93-an-analysishttp://www.legalindia.in/foreign-direct-investment-in-indian-retail-sector-%E2%80%93-an-analysishttp://www.indiafdiwatch.org/fileadmin/India_site/10-FDI-Retail-more-bad.pdfhttp://en.wikipedia.org/wiki/Foreign_direct_investmenthttp://en.wikipedia.org/wiki/Globalisation_in_Indiahttp://en.wikipedia.org/wiki/Retailing_in_Indiahttp://www.indiastat.com/industries/18/foreigndirectinvestment/17578/staterbiregionwiseforeigndirectinvestment/449558/stats.aspxhttp://www.indiastat.com/industries/18/foreigndirectinvestment/17578/staterbiregionwiseforeigndirectinvestment/449558/stats.aspxhttp://www.rbi.org.in/scripts/PublicationReportDetails.aspx?UrlPage=&ID=337http://www.legalindia.in/foreign-direct-investment-in-indian-retail-sector-%E2%80%93-an-analysishttp://www.legalindia.in/foreign-direct-investment-in-indian-retail-sector-%E2%80%93-an-analysishttp://www.indiafdiwatch.org/fileadmin/India_site/10-FDI-Retail-more-bad.pdfhttp://en.wikipedia.org/wiki/Foreign_direct_investmenthttp://en.wikipedia.org/wiki/Globalisation_in_Indiahttp://en.wikipedia.org/wiki/Retailing_in_Indiahttp://www.indiastat.com/industries/18/foreigndirectinvestment/17578/staterbiregionwiseforeigndirectinvestment/449558/stats.aspxhttp://www.indiastat.com/industries/18/foreigndirectinvestment/17578/staterbiregionwiseforeigndirectinvestment/449558/stats.aspxhttp://www.rbi.org.in/scripts/PublicationReportDetails.aspx?UrlPage=&ID=337