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AN OVERVIEW OF FOREIGN DIRECT INVESTMENT IN INDIA

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International Journal of Research ISSN NO:2236-6124
th
7 International Conference on Emerging Strategies for Business Advancements (ICESBA-2022)

AN OVERVIEW OF FOREIGN DIRECT INVESTMENT IN INDIA

SushmaThummalapalli
Malla Reddy Engineering College for Women.

Ms. CH V L L KUSUMA KUMARI,

Email: [email protected]
Research Scholars, GITAM UNIVERSITY (HBS), HYDERABAD, INDIA

ABSTRACT:
The purpose of this study was to look at the examine India's FDI and it's economic impact. In addition,it looks at the factors that influence and
demands of FDI, as well as year-by-year sources, analysis and sectoral analysis and reasons for FDI. Increased investments the volume of FDI is
one of the economic indicators of globalisation. Due to the global crisis, most governments have been unable to attract investments in recent
years. Even during the financial crisis, India was able to attract more FDI than Western countries. FDI has been growing at a good rate in India,
especially in recent years. Since 1991, the government has emphasised policy liberalisation to encourage foreign direct investment. It transfer
through technology, job creation, and increased access to the management knowledge, These investments in global capital, product
marketplaces, and distribution networks have been critical drivers of increased economic growth. FDI has aided India's can compete in the global
economy because of its financial stability, growth, and progress.
----------------------------------------------------------------------------------------------------------------------------------------------
tables have been used to present statistical data on FDI across the
study period whenever possible.
INTRODUCTION:
FDI is one measure of growing the economic globalisation. INDIA’S GDP:
Investment has always been a challenge for the developing
economies like India. The world has become increasingly The long-term trend rate of growth increased from 3.6
globalised, and all the governments are liberalising their percent in the 1950s to 5.2 percent in the 1980s, 6.1 percent in the
restrictions to entice investment from countries with a proven track 1990s, and above 9 percent in the 2000s in 2005-2007, owing
record of success. The industrialised countries are focusing on new primarily to economic changes implemented in 1991 (ADB).
markets with a plentiful supply of labour, a diverse product variety, India's growth rate has declined by a mild 2-3 percent and is on
and high profitability. As the of result, Foreign Direct Investment track to recapture its 9 percent growth by the following fiscal
(FDI) has become a battleground in emerging nations. year," according to recent estimates from the Finance Minister and
Ernst & Young2. Prior to 1991, India's GDP was low. The
Allowing the FDI serves to complement and augment welcome of FDI has resulted in significant expansion in businesses
local investment in order to achieve higher development of like as financial services, banking and IT , telecommunications,
economic and provide opportunities for technical advancement and the infrastructure.
access to global managerial skills and practises is also available1.

During the 1980s, countries in South Asia, such as

China, introduced the policies open door, but India liberalised its
policy in 1991. Prior to liberalisation, India had inrestrictions that
are conservativeplace to safeguard its own investors and
industrialists. The goal of the goal of economic growth has not
been realised. To reform the Indian economy, the then-Congress
administration launched liberal lisation policies in 1991.

OBJECTIVES:
● To determine the numerous factors that influence FDI
● To comprehend India's demand for FDI
● To display a sector-by-sector and year-by-year
examination in india of FDI FDI IN INDIA:
The late twentieth century saw a major increases in the
RESEARCH METHODOLOGY: foreign direct investment, owing to a considerable shift in the
attitudes of the majority of developing countries toward inward
This is the nature of study that is descriptive.The
investment.
Ministry of Commerce and Industry's Department of Industrial
Policy and Promotion provided secondary data. Indiastat, and
Foreign direct investment (FDI) in India has been critical
various journals, magazines, and websites. From 2000 to 2010, the
to the country's economic development during the crisis. FDI in
study was conducted. Simple percentages were used to compare
India has helped India attain financial stability, prosperity, and
India's growth rate to that of the global economy. To show
development in a variety of ways. This money as helped In India to
statistical data on FDI across the study period, graphs and tables
concentrate on areas that may have required economic attention
were used whenever possible.The study is based on data from the
and handle a variety of issues that the country continues to face.
years 2000 to 2010. Simple percentages were used to compare
India has drawn investment due to its stable economic policies, the
India's growth rate to the world GDP growth rate. Graphs and
availability of inexpensive and high-quality people resources, and

ISBN: 978-93-90631-75-9 117 MRECW (UGC, Autonomous)

Volume XI, Issue II, February/2022 Page No: 270
International Journal of Research ISSN NO:2236-6124
th
7 International Conference on Emerging Strategies for Business Advancements (ICESBA-2022)

the potential of new undeveloped markets. The service industry utilised in industrial operations or mine extraction by
receives the majority of FDI, while the manufacturing sector has foreign investors if they are available.
seen very little investment.Investments in the service sector will
improve the benefits of money going back to the home country.
Although India has roughly 17% of the world's population, its GDP NEED FOR FDI IN INDIA:
contribution to global GDP is merely 2%. According to the United Because India is developing country, capital
Nations Conference on Trade and Development (UNCTAD), India has been one of the precious resources essential for
was rated second in worldwide foreign direct investments in 2010 economic progress. There is a scarcity of capital, and
and would continue to be one of the top five attractive destinations many issues must be handled, including poverty,
for international investors between 2010 and 2012, according to the health, education, employment, development and
'World Investment Prospects Survey 2009-2012' report. research, technical obsolescence, and global rivalry.
The entry of FDI into India from around the world will
Since the start of Make in India, FDI into India has been help with lower-cost capital acquisition, the
on the rise. From April 2014 to March 2019, FDI inflows totaled development of superior technology, job creation, and
$286 billion, accounting for 46.94 percent (approximately) of all upgraded technology transfer, as well as the expansion
FDI received in the country since April 2000 ($592.08 billion). of commerce, connections, and spillovers to local
Due to investment-friendly policies and the opening of FDI firms. The following are some arguments in favour of
allowance in several industries, India crossed the $60 billion foreign investment.
milestone for the first time in FY 2017-18, with $55.55 billion in
FDI. ● MAINTAINING A HIGH INVESTMENT LEVEL: A
large increase in investment is essential because all
DETERMINANTS OF FDI: undeveloped and emerging countries want to
industrialise and develop. Because of poverty and a low
The factor varies each country due to its unique GDP, savings are low. As a result, foreign direct
qualities and opportunities for potential investors. FDI in India investments are needed to close the income-savings
is influenced by the following factors: imbalance.
● TECHNOLOGICAL GAP: In the Indian context, we
require foreign technical help for expert services, training
STABLE POLICIES: of Indian personnel, and educational, research, and
● ECONOMIC FACTORS: A range of economic training institutions in the industry. Private foreign
factors contribute to FDI inflows. Examples include investment or international cooperation are the only ways
Loans with cheap interest rates, tax benefits, grants, to get it.
and subsidies, as well as the removal of restrictions ● NATURAL RESOURCE EXPLOITATION: We have
and constraints. The Indian government has offered a the abundant natural resources in India, such as iron,
slew of tax breaks and incentives to international coal, and steel, but extracting these resources requires
investors who will help the economy grow. international cooperation.
● CHEAP AND SKILLED LABOR:India has a lot of ● UNDERSTANDING THE INITIAL RISK: Because
employees, both skilled and unskilled. Foreign investors cash is a scarce resource in developing countries, the risk
will take the dvantage of the labour cost differential of investing in new companies or industrialization
because we have cheap and skilled labour. Foreign projects is high. As a result, foreign capital assists in
corporations, for example, have invested in BPOs in these high-risk investments.
India, which demand specialised staff, which we have ● DEVELOPMENT OF BASIC ECONOMIC
provided. INFRASTRUCTURE: Developing countries have
● BASIC INFRASTRUCTURE:Though India is still a recently received significant support from international
developing the country, it has created a special economic financial organisations and advanced country
zone where they have focused on the development of governments. FDI will help to enhance infrastructure by
necessary infrastructure, such as roads, efficient establishing businesses in diverse parts of the country.
transportation, and registered carriers departing from all The government has created special economic zones in
over the world, as well as information and order to encourage industrial growth.
communication networks/technology, power, financial ● BALANCE OF PAYMENTS POSITION
institutions, and legal systems, among other things. In the IMPROVEMENT: The inflow FDI will aid in the
host country, a sound legal framework and modern improvement of the payment balance. Firms who believe
infrastructure allow effective distribution of goods and that items manufactured in India will be inexpensive will
services. produce the goods and export them to India. This aids in
the growth of exports.
● UNEXPLORED MARKETS:There is a lot of ● THE ASSISTANCE OF FOREIGN FIRM IN
opportunity for investors in India because so much of the IMPROVING COMPETITIVENESS: Foreign firms
market has been examined or underutilised. India has a have traditionally outperformed indigenous firms in
large prospective client base, with a sizable middle- terms of technology, process, and innovation. They
income population that would be the ideal demographic create a competition in which domestic enterprises
for new markets. For example, in the BPO sector, perform better in order to stay in business.
investors had a lot of potential to explore markets where
services could be provided with just a phone call and NEED FOR FDI IN INDIA:
nearly 100% customer satisfaction.
● NATURAL RESOURCES AVAILABILITY:We all FDI also serves as a strong supplement to India's domestic stock of
know that India is rich in natural resources such as iron investment, which is low (about 32 percent) due to poor savings.
ore, Core and natural gas. Natural resources can be This investment improves corporate competitiveness, fosters
innovation and efficiency, and boosts the standard of living by

ISBN: 978-93-90631-75-9 118 MRECW (UGC, Autonomous)

Volume XI, Issue II, February/2022 Page No: 271
International Journal of Research ISSN NO:2236-6124
th
7 International Conference on Emerging Strategies for Business Advancements (ICESBA-2022)

bringing better products and services to the market. Exports are

boosted, and the balance of payments shows a surplus, causing the During the post-liberalization period, non-debt investments
rupee to rise against the dollar. According to the Quantity Theory provided India with financial assistance and stability. Between
of Money, as forex reserves rise, RBI's assets rise as well, causing 2000 and 2010, inflows of foreign direct investment (FDI)
money supply to rise and hence inflation to rise.Total FDI inflows fluctuated. According to the Reserve Bank of India and the finance
into the country in the last 20 years (April 2000 – September 2020) ministry of India (RBI), foreign participation in investment
totaled $729.8 billion dollars, while total FDI inflows into the companies should be permitted because they are akin to holding
country in the last 5 years (April 2014 – September 2019) totaled companies4. Inflows increased from 4029 US$ millions to 6130
$319 billion dollars, accounting for nearly half of total FDI inflows US$ millions between 2000 and 2002, then fell to 4322 US$
in the last 20 years. Let us look at the top 5 Indian states in terms of millions for the next two years, 2002-2004. India received 4322
FDI destinations in this massive investment scenario. FDI in State US$ million to 37182 US$ million from 2004 to 2010.Despite the
Rs in Crs % of Total fact that there has been growth, the marginal rise in percentages
1.maharshtra 191264 45 has been declining over time. Between 2006 and 2010, India's
2.Gujarath 184807 30 marginal growth rate fell from 146% to 6%.Even during the
3.Karnataka 97631 20 recession, India did not have any negative rates. A combination of
4.Tamilnadu 98651 18 a recession in rich nations, lower commodity prices, and decreased
5. Delhi 42239 5 foreign capital flows will cause a considerable slowdown in
Total 534622 86 emerging market growth, while most will avoid a full-fledged
recession5. According to the UNCTAD report, global FDI flows
Let us look at the next 5 in the list (Rank 6 to 10) . began to bottom out in late 2009 and have shown a moderate
FDI in State Rs in Crs % of Total recovery in the first half of 2010, with South Asia leading the
6.Jharkhand 19200 3 charge to recover from the previous downturn.
7.Telengana 17757 3
8.Haryana 14843 2
9.Punjab 5417 2 SOURCESOFFDI
10.UP 4861 1
Total 60818 10
Mauritius received the greatest inflows of FDI from
April 2000 to October 2010, accounting
EMPLOYMENT: for 42.16 percent of total inflows. Singapore is in second place,
with a 9.35 percent share. The United States, the United Kingdom,
FDI and employment have a direct and beneficial relationship. the cyprus, Netherlands , Germany, japan , France, and the United
Companies operating in India require both skilled and uneducated Arab Emirates are the other major sources of foreign direct
workers. In India, labour is both cheap and plentiful. As a result, investment, with respective shares of FDI inflows of 7.49 percent,
FDI creates jobs for people from all walks of life. They account for 5.07 percent, 4.28 percent, 3.52 percent, 3.51 percent, 2.35, 1.51
a sizable share of total employment. Greenfields usually create jobs percent, and 1.48 percent. Because of the tax advantages, inflows
when they start a project or a company, while mergers and from the United States are routed through Mauritius. The tax
acquisitions do not create jobs right away, but they do create jobs benefit stems from India's double taxation avoidance agreement
over time and develop trade links in the long run. One The creation with the United States. As a result of this agreement, any foreign
of jobs is one of the goals of developing Special Special economic investor can choose to pay taxes in either India or Mauritius.
zones. Class-3 cities account for more than two-fifths of the market
capitalisation. In the manufacturing sector, FDI-enabled enterprises
supply

INVESTMENT PROPOSALS AND FOREIGN

TECHNOLOGYCOLLABORATIONS

Induction of foreign technology's can be aided via FDI and the

foreign technology partnership agreements. Through RBI or
government permissions, sectors that have resources but lack the
needed technology might obtain foreign technological partnership.
The RBI, SIA, and FIPB recorded a total of 8080 approvals from
2000 to 2010. The RBI has given its approval to 4580 proposals,
while the SIA and the FIPB have given their approval to 3500.
Domestic companies have benefited from technical collaborations.
It assisted in the establishment of technological transfers.

All foreign technology collaboration approvals were for electrical

equipment, which accounted for 15.6 percent of the total.
Chemicals, industrial machinery, and transportation can all benefit
from increased foreign technology introduction through FDI and SECTORALCOMPOSITIONOF FDI
foreigntechnology cooperation agreements. Sectors with resources
but no technology may be able to seek foreign technical
collaboration through RBI or government permits. Between 2000 We can see from the sectoral mix of FDI from April
and 2010, the RBI, SIA, and FIPB granted 8080 approvals. 4580 2000 to October 2010 that the service sector is the main
proposals have received RBI approval, while 3500 have received recipient of such investment (non financial and financial
permission from the SIA and the FIPB. Collaborations in the services). This industry represents 21% of overall FDI inflows.
technical field have helped domestic firms. Foreign investors are mostly interested in financial services
INVESTMENTS - YEAR WISE ANALYSIS OF FDI IN INDIA because of the profit potential. This sector allows international

ISBN: 978-93-90631-75-9 119 MRECW (UGC, Autonomous)

Volume XI, Issue II, February/2022 Page No: 272
International Journal of Research ISSN NO:2236-6124
th
7 International Conference on Emerging Strategies for Business Advancements (ICESBA-2022)

investors to reinvest their gains in their home country. As a [9]. 10.TheHindu,onlineeditionofIndia’snationalnewspaper,Fr

service industry, services are consumed in the host country, idayJuly2010
resulting in a fund outflow from the host country. The computer
of software and hardware sector, which receives 8.5 percent of [10]. 11.Joong-
overall FDI, is the second beneficiary. Housing and real estate, WanCho,Foreigndirectinvestment:determi
building activities, and the electricity industry, respectively, nants,Trendsinflowsandpromotion
provide 8.14 percent, 7.39 percent, and 7.15 percent. The other policies, Investment Promotion and
sectors, on the other hand, provide a total of 47.81 percent. The Enterprise Development Bulletin forAsia
following are the most important worldwide flow takeaways: and thePacific.

[11]. 12.Source:EconomyWatch,http:///www.economywatch.c
om/foriegn-direct-investment/

[12]. 13.www.indiastate.com

CONCLUSION

This article focuses on the theoretical aspects of foreign direct

investment in India over the previous ten years, as well as the
determinants and necessity for FDI in the Indian context. India is a
developing country that has managed to maintain a positive GDP
growth rate even throughout the recession. It has outperformed the
global GDP growth rate on a comparative basis. "If the situation
continues to improve," UNCTAD writes in its World Investment
Report 2010, "India is anticipated to be among the most promising
investor-home nations in 2010-12, as well as the third highest
economy for FDI in 2010-12." India possesses all of the necessary
factors, including excellent infrastructure, viable markets, ample
labour, natural resource availability, and, last but not least, pro-FDI
economic and trade laws. India is now the world's second-most
popular FDI destination, after China, but it is believed that this
may change in the future.

REFERENCES
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[2]. Jayshree Bose (2008), FDI Inflows in

India and China – Sectoral analysis,
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[3]. EconomicTimes,24thNov, 2008.

[4]. .GlobalRecession mayworsen in2009, Fitch,Friday,

Nov07, 2008.

[5]. .TheHindu, Business Line, Tuesday,January 26,2010.

[6]. Mishra,S.Kand Puri,V.K(2006),Indian Economy,24th

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[8]. FDIinIndia anditsgrowth linkages,NCAER, August2009.

ISBN: 978-93-90631-75-9 120 MRECW (UGC, Autonomous)

Volume XI, Issue II, February/2022 Page No: 273
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