A PROJECT REPORT ON

A STUDY OF CRITICAL FACTORS AFFECTING VARIOUS SECTORS

Submitted in the partial Fulfilment of the requirement for the award of degree of

Master of Bus !ess A"# ! strat o! $MBA%

To Su&er' se" ()* + Dr. Arti Gaur Lecturer Su(# tte" ()*+ Anil Kumar Roll No.- ! ".#.A. $F%

$,--.+,--/%
DEPARTMENT OF BUSINESS ADMINISTRATION C0AUD0ARY DEVI LAL UNIVERSITY SIRSA

CERTIFICATE

&hi' i' to certif( that re'earch pro)ect A STUDY OF CRITICAL FACTORS AFFECTING VARIOUS SECTORS ha' been completed b( Mr1 ANIL 2UMAR* the 'tudent of "#A final (ear under m( 'uper+i'ion. ,e ha' 'hown tremendou' -eal* enthu'ia'm and inno+ation' and ha' wor.ed pain'ta.ingl( for the 'ucce''ful completion of thi' pro)ect / recommend it for 'ubmi''ion to the 0ni+er'it( for 1+aluation. / wi'h him all the be't in hi' future endea+or'.

Dr1 Art Gaur Le3t1 I! De&tt 1 Of Bus !ess A"# ! strat o! C4au"4ar) De' La5 U! 'ers t)6 S rsa .

DECLARATION
/* ANIL 2UMAR* 'tudent of ".#.A. $F/NAL%* Department of #u'ine'' Admini'tration* C01 DEVI LAL UNIVERSITY* S/RSA hereb( affirm and declare that / ha+e completed 2ro)ect Report entitled A STUDY OF CRITICAL FACTORS AFFECTING VARIOUS SECTORS a+ailing the 'uper+i'ion of m( guide Dr1 Art Gaur $Le3turer%6

Department of #u'ine'' Admini'tration* 3h De+i Lal 0ni+er'it(* Sir'a. / al'o declare that thi' report i' purel( an original and authentic wor. done b( me and the 'ame ha' not been 'ubmitted to an( uni+er'it( or /n'titution for the ward of an( other degree and diploma.

$ANIL 2UMAR%

AC2NO7LEDGEMENT
The person who influences me, the most is not he, who does great deeds but he, who makes me feel that I can do great deeds. /t ha' been correctl( 'tated that we build our'el+e' on the 'houlder' of other'. / con'ider it m( dut( to ac.nowledge certain per'on' without whom a''i'tance and guidance thi' wor. could not be underta.en. Fir't of all* / e4pre'' m( 'incere than.' to Dr1 Art Gaur $Lecturer% Department 5f #u'ine'' Admini'tration* 3h. De+i Lal 0ni+er'it(* Sir'a* for her guidance and co-operation for m( pro)ect 6A STUDY OF CRITICAL FACTORS AFFECTING VARIOUS SECTORS. /t tran'cend' all barrier' of written word' to e4pre'' m( deep Sen'e of gratitude and indebtedne'' to m( 2arent* brother' and friend'* who helped me a lot and without their 'agaciou' guidance and 'cholarl( 'ugge'tion' m( pro)ect could not ha+e been 'ucce''ful.

$ANIL 2UMAR%

PREFACE
&heoretical .nowledge without the practical e4po'ure i' of little +alue. &heoretical 'tudie' in cla''room are not 'ufficient to under'tand the functioning and nature of re'earch. &herefore it become' nece''ar( to undergo re'earch pro)ect wor.. 2ractical pro)ect 'upplement' the theoretical 'tudie' i.e. it co+er' what i' left unco+ered in the cla''room. /t e4po'e' a 'tudent to in+aluable plea'ure of e4perience'. "( re'earch pro)ect on the topic A STUDY OF CRITICAL FACTORS

AFFECTING VARIOUS SECTORS.

&hi' re'earch deal' with the application of theor( to 'tud( the pre'ent real picture of thi' Global Financial 3ri'i'* which will tell it' cau'e'* depth* and con'equence'. / would learn a lot of new thing' which could ne+er been learned from the theor( cla''e'. &hi' di''ertation report i' a pre'entation of m( wor.. &he main ob)ecti+e of re'earch i.e. familiari-ation with the nece''ar( theoretical input and to gain 'ufficient practical e4po'ure to e'tabli'h a di'tant lin.age between the conceptual .nowledge acquired at the in'titute and practicing the'e concept'. 2rior to ma.ing reference to wor.ing of the re'earch pro)ect prepared the anal('i'* fea'ibilit( and all other a'pect' were ta.en into con'ideration. /n the forthcoming page' attempt ha' been made to pre'ent a comprehen'i+e report concerning different a'pect' of m( re'earch. &he o+erall gain to me will be reflected in the report it'elf.

TABLE OF CONTENTS
Certificate Declaration Acknowledgement Preface

C4a&ter+8
I!tro"u3t o! of t4e Stu")

Pa9e No1

C4a&ter +,
Re' e: of L terature

C4a&ter+;
Resear34 Met4o"o5o9)

C4a&ter+<
A!a5)s s a!" I!ter&retat o! o Anal('i' of &rend' and 2attern' of FD/ o Anal('i' of factor' affecting FD/ in /ndia
o An Anal('i' of determinant' of FD/ in /ndia

C4a&ter+=
F !" !9s Su99est o!s > Re3o##e!"at o!s 3o!35us o!

B (5 o9ra&4)

C0APTER+8
I!tro"u3t o!

INTRODUCTION
&hi' 'tud( i' ba'ed on the factor' which are affecting Foreign Direct /n+e'tment in /ndia $a' a de+eloping countr(%.&hi' 'tud( i' gi+ing +iew' about FD/ inflow in /ndia a' for FD/ 'o man( factor' are re'pon'ible. Foreign in+e'tment i' a term that ha' been bandied about loo'el( in +irtuall( e+er( di'cu''ion on international bu'ine''. /t mean' different thing' to differentl( intere't group'. &o 'ociali't' it mean' the 'ell out of an econom( to we'tern capitali't'. &o nationali't' it ha' become '(non(mou' with cultural decadence. Liberali-ation and globali-ation ha+e 'timulated the de+elopment of clo'er financial and trade relation between de+eloped countrie' and de+eloping countrie'. &echnical progre'' in tran'port and communication ha' cau'ed economic 'pace to 'hrin.. 3ountrie' now face more the competition than e+er before. &hi' lead' to a 'ignificant re'tructuring of their comparati+e ad+antage and acti+itie'. &he nature of competition i' it'elf d(namic. &he cu'tomer interaction ha' become more important than traditional form' of competition ba'ed on lower co't. &hi' require' countrie' to be more open to international flow' of internal mar.et'* pri+ati-ation and liberali-ation of technolog( and in+e'tment flow at international le+el. Foreign in+e'tment in+ol+e' the tran'fer of financial re'ource' 'uch a'* technolog( and other '.ill' from one countr( to another. &hi' 'tud( i' 'o intere'ting foreign in+e'tment ha' long been a 'ub)ect of intere't. &hi' intere't ha' been renewed in recent (ear' due to a number of rea'on'. 5ne of them i' rapid growth in the global foreign in+e'tment flow' in 788 ' and another important rea'on i' the po''ibilit( offered b( the foreign in+e'tment for the channeling re'ource' to de+eloping countrie' li.e /ndia. After the opening up of the border' for capital mo+ement the'e in+e'tment' ha+e grown in leap' and bound'. #ut after doing thi'

'tud( it i' found that it had +aried factor' acro'' the countrie' and it can affect the factor producti+it( of the recipient countr( and al'o affect the balance of pa(ment'. Stud( 'how' that in de+eloping countrie'* there wa' a great need of foreign capital* not onl( to increa'e their producti+it( of labor but help' to build' the foreign e4change re'er+e to meet the trade deficit. Foreign in+e'tment pro+ide' a channel through which the'e countrie' can ha+e acce'' to foreign capital. /n the globali-ation era the de+eloped are in+e'ting in the de+eloping and under de+eloped countrie'. &he main moti+e to in+e't in the de+eloping and under de+eloped countrie' i' that the mar.et of de+eloped countrie' i' on 'aturation 'tage and there are a lot of opportunitie' in de+eloping countrie' and under de+eloped countrie'. #ecau'e the mar.et of de+eloping and under de+eloped countrie' i' in de+eloping 'tage. &he population of de+eloping and under de+eloping countrie' i' growing at +er( fa't rate thi' al'o of cau'e of increa'ing demand of the product' in de+eloping countrie'. So it i' good to in+e't at international le+el. Direct in+e'tment compri'e' not onl( the initial tran'action e'tabli'hing the FD/ relation'hip between the direct in+e'tor and direct in+e'tment enterpri'e but all 'ub'equent capital tran'action between them and among affiliated enterpri'e' re'ident in different economie'. Stati'tic' that mea'ure the operation' the foreign affiliate' of multinational enterpri'e' 'uch a' emplo(ment* 'ale' and a''et'- do not form part of the traditional balance of pa(ment and international in+e'tment po'ition 'tati'tic'* which capture onl( the net in+e'tment of the direct in+e'tor in foreign. Globali-ation i' an ine+itable and irre+er'ible proce''* and dealing with imperati+e' of globali-ation capitali-ing on it' po'iti+e a'pect' and mitigating the negati+e one' .Globali-ation ha' enhance the opportunit( for 'ucce''* but it ha' al'o po'ed new ri'.' to de+eloping countrie'. A' a re'ult of a re+olution on telecommunication' and information technologie'* the la't 79 (ear' ha+e witne''ed dramatic increa'e' in the trade lin.age and cro'' border capital flow'* a' well a' change' in form* location and

'tructure. /n /ndia there i' 'o man( 'ector' where FD/ i' not permitted in indu'trial 'ector' li.e: Atomic 1nerg( Railwa(' tran'port 3oal and lignite Arm' and ammunition "ining of iron* mangane'e* g(p'um. Sulphar* gold* diamond'* copper* -inc. FD/ ha' been one the core feature' of globali-ation and world o+er the pa't two decade'. &here wa' an interruption during the rece''ion of the earl( 788 '."ore firm' in more indu'trie' form more countrie' are e4pending abroad through direct in+e'tment than e+er before* and +irtuall( all economie' now complete to attract "ultinational 3orporation. &he'e de+elopment' ha+e rai'ed demand' for new 'tati'tical wor. in indu'trial and de+eloping countrie' and in international organi-ation'. /t i' recorded that world inflow' of FD/* which i' increa'ed b( 7! percent a (ear during 788 -8;and 9 percent a (ear during 788<-= in = 7. .&otal world FD/ inflow'* reached 0S >7.9 trillion

&he Go+ernment of /ndia in 7887 embar.ed on liberali-ation and economic reform' with a +iew to bringing about rapid and 'ub'tantial economic growth and mo+e toward' globali-ation of the econom(. A' a part of the reform' proce''* the go+ernment under it' New /ndu'trial 2olic( re+amped it' foreign in+e'tment polic( recogni-ing the growing importance of foreign direct in+e'tment a' an in'trument of technolog( tran'fer* augmentation of foreign e4change re'er+e' and globali-ation of the /ndian econom(. Simultaneou'l(* the go+ernment* for the fir't time* permitted portfolio in+e'tment' from abroad b( foreign in'titutional in+e'tor' in the /ndian capital mar.et. Foreign in+e'tment pro+ide' a channel through which the'e countrie' can ha+e acce'' to foreign capital. /t can be in two form': I1 Fore 9! D re3t I!'est#e!t

II1

Fore 9! Portfo5 o I!'est#e!t

T4e fore 9! D re3t I!'est#e!t $FDI% can broadl( be defined a' a long term
capital inflow in to countr( other than aid* portfolio in+e'tment or a repa(able debt. /n other word'* it i' u'uall( long term in+e'tment in equit( b( an entit( that i' out'ide the ho't countr(. &hi' in+e'tment i' deplo(ed to earn a return o+er a long period of time b( wa( of di+idend. An additional ob)ecti+e of the in+e'tment i' often to obtain a 'ignificant or controlling intere't in the management of the firm or compan( in which 'uch in+e'tment i' made. /t in+ol+e' in the direct production acti+it( and al'o of medium to long term nature. &hi' i' the t(pe of in+e'tment made foreign companie' in order to e'tabli'h wholl( owned companie' in another countr( for the purpo'e of managing 'uch companie'.

&he FD/ ma( ta.e in the form of: 7% Green field in+e'tment =% "erger' ? Acqui'ition' /n recent (ear'* merger' ? acqui'ition' ha+e been the ma)or dri+e' of FD/.

T4e Fore 9! Portfo5 o I!'est#e!t $FPI% i' an emerging alternati+e 'ource

of international financing with a higher future potential. Foreign in+e'tor' pro+ide permanent finance through equit( capital that bol'ter' dome'tic companie' without reducing the local control of the +enture* 'ince portfolio in+e'tor' do not 'ee. participation in the management. /t i' a 'hort-term in+e'tment mo'tl( in the financial mar.et' and it con'i't' of Foreign /n'titutional /n+e'tment $F//%. 2ortfolio /n+e'tment refer' to paper 'ecuritie' li.e 'toc.'* bond* and &-bill'* wherea' foreign direct in+e'tment in+ol+e' tangible good' li.e factorie' and office building'. Direct /n+e'tment i' long term* and i' more +i'ible than portfolio in+e'tment. 2aper can be traded on a global mar.et rather freel(* but direct cannot be freel( mo+ed from on

'tate to another a' condition' change. 2ortfolio theor( i' a branch of financial economie' which anal('e' the mo't efficient amount' of different a''et' an in+e'tor 'hould hold. &here are mainl( two form' of portfolio in+e'tment in /ndia: #( Foreign /n'titutional /n+e'tor' li.e mutual fund' #( i''uing Global Depo'itor( Receipt' $GDR'%* American Depo'itor( Receipt' $ADR'% and Foreign currenc( 3on+ertible #ond' $F33#'% ADR' and GDR' are Depo'itor( Receipt' ba'icall( a negotiable certificate that repre'ent' a foreign compan( publicl( traded local currenc( $/ndian 3urrenc(%. Global Depo'itor( Receipt' mean' an( in'trument in the form of a Depo'itor( receipt or certificate created b( the o+er'ea' depo'itor( #an. out'ide /ndia and i''ued to non-re'ident in+e'tor' again't the i''ue of ordinar( 'hare' or Foreign 3urrenc( 3on+ertible #ond' of i''uing compan(. 5n the other hand* Foreign /n'titutional /n+e'tor' are tho'e which there mone( in the 'toc. mar.et for a 'mall duration of time to earn the profit.

Be!ef ts of Fore 9! D re3t I!'est#e!t*

FD/ help' in the formation of a capital through additional capital inflow from the other countrie'. FD/ impro+e' the #alance of pa(ment' account' through the impro+ement in 14port'. FD/ bring' new technolog( input* managerial '.ill' and impro+ed producti+e efficienc( in the ho't countr(. /t generate' emplo(ment in the in+e'ting countr(.

FD/ bring' growth in net dome'tic 'a+ing? in+e'tment b( 'etting up of new enterpri'e in the ho't countr(. Dome'tic 0nit can al'o be 'et up for proce''ing of 'emi-fini'hed product' produced b( foreign corporation.

/t impro+e' acce'' to international mar.et through competiti+e efficienc( of dome'tic e4port'. "N3@' often de+elop en+ironmental friendl( technolog( at lower co't ? induce local form' to adopt good en+ironmental practice'

D sa"'a!ta9es of Fore 9! D re3t I!'est#e!t*

FD/ ha' a limited addition to the capital a' mo't of the FD/ enter' in the form of "?A and repatriation of profit lead to withdrawal of capital from ho't countr(. /t al'o wor'en' the #alance of 2a(ment through an increa'e in import' of input' and remittance' of lo(altie' ? di+idend abroad b( 'ub'idiarie'. &he emplo(ment creation might limit in alread( de+eloped the urban 'ector'. No contribution to mar.et acce'' if FD/ come' into a countr( onl( to e4ploit dome'tic mar.et. Foreign in+e'tor' can ta.e ad+antage of wea. en+ironmental regulation in de+eloping countrie' b( u'ing technolog( that i' cheap but harmful to the en+ironment. De+eloping countrie' might not ha+e the abilit( to ab'orb the high technolog( becau'e of poor infra'tructure* low le+el of education* rigidit( in labor legi'lation etc. FD/ can bring about a fall in net dome'tic in+e'tment ?foreign firm e'tabli'he' monopol( in dome'tic mar.et which dri+e' out 'mall firm' from mar.et. /n the +ariou' wa(' outlined abo+e* foreign direct in+e'tment ha' both end' po'iti+e a' well a' negati+e but it@' benefit' are more than it@' limitation' a' it help to

'trengthen dome'tic capital mar.et' and impro+e their functioning. &hi' will lead to a better dome'tic capital mar.et' and re'ource' in the dome'tic econom(* and thu' a healthier econom(. 5pen capital mar.et' al'o contribute to worldwide economic de+elopment b( impro+ing the worldwide allocation of 'a+ing' and re'ource'.

D ffere!3e (et:ee! Fore 9! D re3t I!'est#e!t a!" Fore 9! Portfo5 o I!'est#e!t*

Difference between direct and portfolio in+e'tor' 'tem form the difference' in moti+ation and e4pectation for the'e two t(pe' of in+e'tment. For the foreign direct in+e'tor* the purpo'e i' control and operation of 1nterpri'e. Au't a' it will 'lower and more co'tl( for 'uch an in+e'tor to commit to the ho't econom(* it will be 'lower and more co'tl( to di+e't. /n the medium to long term* he e4pect' a profitable operation. &he portfolio in+e'tor* on the other hand* i' intere'ted in putting in hi' fund' where the( get the ma4imum return for a gi+en le+el of ri'.. 2ortfolio in+e'tment will be fa'ter to mo+e in 'earch of higher return andBor lower ri'.* and ha+e a 'horter time. &herefore* it tend' to be more +olatile. Colatilit( can be u'eful in pro+iding opportunitie' for profit* or arbitrage* which will attract in+e'tor' and encourage mar.et efficienc(. Colatilit( al'o indicate' that mar.et i' 'ee.ing the be't allocation of the capital for the current economic opportunitie'. &he'e differ in moti+ation and attribute' nece''itate difference' in polic( approach for the two t(pe' of in+e'tment.

S 9! f 3a!3e Of t4e Stu")

FD/ i' u'uall( preferred o+er other form' of e4ternal finance becau'e the( are non debt creating* non +olatile and their return' depend' on the performance on the pro)ect finance b( the in+e'tor'. FD/ al'o facilitate international trade ? tran'fer of Knowledge* '.ill' and technolog(. &here are 'o man( ad+antage' of FD/ coming to a de+eloping countr( li.e inflow of equipment* technolog(* 'carce human capital and financial re'ource'. 5n the other hand* the di'ad+antage' of foreign direct in+e'tment are mo't +i'ible in ca'e' where the indu'tr( could ha+e national 'ecret'. &he defen'e 'ector could be at ri'. if it allow' FD/. Foreign policie' ma( be enforced that do not go down well with dome'tic emplo(ee'. Some people are of the +iew that it doe' not +er( much relate to local bu'ine'' ta4 law'* bu'ine'' atmo'phere in particular and other go+ernment regulation'. Another di'ad+antage could be the language and culture difference'. &he'e ad+antage' and di'ad+antage' are different for different countrie' a' far a' the le+el of FD/ i' concerned. &he le+el of FD/ in a particular countr( i' ba'ed on 'o man( factor'. &he pro)ect entitledDE A 'tud( of determinant' of FD/ in /ndiaE will help in under'tanding the trend' of FD/ in /ndia. &he 'tud( al'o throw' a light on the .e( factor' re'pon'ible for 'timulating growth of foreign direct in+e'tment in /ndia. #e'ide' thi'* the 'tud( 'hall be u'eful for future re'earch pro)ect' to be pur'ued in the 'ame area.

C0APTER+,
Re' e: of L terature

Re' e: Of L terature
&here are well-e'tabli'hed theorie' e4plaining wh( foreign direct in+e'tment ta.e' place and what the potential determining factor' are* including the mar.et imperfection h(pothe'i' $,(mer* 78;F%* internali-ation theor( $Rugman 78<F%* and eclectic approach $Dunning* 78<<%. &here can be +ertical and hori-ontal FD/ inflow'. Certical FD/ ta.e place when factor price' are not equali-ed acro'' the countrie' $,an'on* = 7D ,elpman and Krugman* 78<9%. ,igher trade co't' and 'tronger firm le+el 'cale economie' encourage FD/ relati+e to e4port' $#arinard* 788;%.&hu'* hori-ontal FD/ ta.e' place becau'e of trade co't' $"ar.u'en* 78<GD "ar.u'en and Cenable'* 788<%.

Pote!t a5 Deter# !a!ts of Fore 9! D re3t I!'est#e!t Mar?et S @e*

&he aim of FD/ in emerging de+eloping countrie' i' to tap the dome'tic mar.et* and thu' mar.et 'i-e doe' matter for dome'tic mar.et oriented FD/. "ar.et 'i-e i' generall( mea'ured b( GD2* per capita income or 'i-e of the middle cla''. &he 'i-e of the mar.et or per capita income i' the indicator' of the 'ophi'tication and breathe' of the dome'tic mar.et. &hu'* an econom( with a large mar.et 'i-e $along with other factor'% 'hould attract more FD/. "ar.et 'i-e i' important for FD/ a' it pro+ide' potential for local 'ale'* greater profitabilit( of local 'ale' to e4port 'ale' and relati+el( di+er'e re'ource'* which ma.e local 'ourcing more fea'ible$2fefferman and "adara''( 788=%.&hu'* a large mar.et 'i-e pro+ide' more opportunitie' for 'ale' and al'o profit' to foreign firm'* and attract' FD/ $Hang and Swain*7889D "oore* 788!D Schneider and Fre(* 78<9D Fre(*

78<G%.FD/ inflow in an( period i' a function of mar.et 'i-e$Hang and Swain*7889%. ,owe+er* 'tudie' b( 1dward' $788 % and A'idu$= and Hei $= condition'. !% 'how that there i' no 'ignificant impact of growth or mar.et 'i-e on FD/ inflow'.Further* Lorre and Gui'inger $7889% % find that mar.et 'i-e and growth impact differ under different

Gro:t4 &ros&e3ts a!" &os t 'e 3ou!tr) 3o!" t o!s*

Along with "ar.et 'i-e* the pro'pect of growth $generall( mea'ured b( growth rate'% al'o ha' a po'iti+e influence on FD/ inflow'. 3ountrie' that ha+e high and 'u'tained growth rate' recei+e more FD/ flow' than +olatile economie'. &here are good number o 'tudie' 'howing the po'iti+e impact of per capita income or growth pro'pect' on FD/ $Scneider and Fre(* 78<9D Lip'e(* 7888D Da'gupta and Rath* = D and Durham* = !%.

La(or 3ost a!" a'a 5a( 5 t) of s? 55e" 5a(our*

3heap labor i' another important determinant of FD/ inflow to de+eloping countrie'. A high wage-ad)u'ted producti+it( of labor attract' efficienc(-'ee.ing FD/ both aiming to produce for the ho't econom( a' well a' for e4port from ho't countrie'. Studie' b( Hheeler and "od( $788=%* Scneider and Fre( $78<9%* and Loree and Gui'inger $7889% 'how a po'iti+e impact of labor co't on FD/ inflow. 3ountrie' with a large 'uppl( of '.illed human capital attract more FD/* particularl( in 'ector' that are relati+el( inten'i+e in the u'e of the '.illed labor.

I!frastru3ture fa3 5 t es*

&he a+ailabilit( of qualit( infra'tructure* particularl( electricit(* water* tran'portation and telecommunication'* i' an important determinant of FD/. Hhen de+eloping countrie' compete for FD/* the countr( that i' be't prepared to addre'' infra'tructure bottlenec.' will 'ecure a greater amount of Fdi.&he pre+iou' literature 'how' the po'iti+e impact of infra'tructure facilitie' on FD/ inflow' $Hheeler and "od( $788=%* Kumar $788G%* Loree and Gui'inger $7889%* Ai'du $= infra'tructure indicator'. !%. /n thi' 'tud(* the con'truction of an infra'tructure inde4 ha' been attempted ta.ing different

O&e!!ess a!" eA&ort &ro#ot o!*

&he .e( h(pothe'i' from +ariou' theorie' i' that gain' from FD/ are far higher in the e4port promotion $12% regime than the import promotion regime. &he theor( propo'e' that import 'ub'titution $/S% regime' encourage FD/ to enter inca'e' where the ho't countr( doe' not ha+e ad+antage' leading to e4tra profit' and rent' 'ee.ing acti+it(. ,owe+er in an 12 regime* FD/ u'e' low labor co't and a+ailable raw material' for e4port promotion leading to o+erall output growth. &he theoretical literature ha' e4ploded the trade openne'' and re'tricti+ene'' of trade polic( $#hagwati* 78;!D #recher and Dia- Ale)andro* 78;;D #recher and Findle(D 78<!%.

Go'er!#e!t f !a!3e*
Go+ernment finance i' an important i''ue that affect' capital flow'. A high fi'cal deficit lead' to more go+ernment liabilitie' and therefore more ta4e' and the default' on international debt. &herefore* fi'cal 'tabilit( i' generall( con'idered to be one of the indicator' of macroeconomic 'tabilit(. He con'ider the fi'cal deficit for go+ernment finance.,ou'mann and Fernande- $= % and A'idu $= 7%

Rate of Retur! o! !'est#e!t*

&he profitabilit( of in+e'tment i' one of the ma)or determinant' of in+e'tment. &hu' rate of return on in+e'tment in a ho't econom( influence' the in+e'tment deci'ion'. &he log of in+er'e per capita ha' been u'ed a' pro4( for the rate of return* impl(ing low per capita GD2 $A'iedu* = !%.&hi' implie' that the lower the GD2 per capita* &,1 higher the rate of return and FD/ inflow.

0u#a! 3a& ta5*

&he a+ailabilit( of a cheap wor.force* particularl( and educated one* influence in+e'tment deci'ion' and thu' i' one of the determinant' of FD/ inflow. /n thi' 'tud(* we u'e both labor force growth and literac( rate.

I!terest rate*
/ntere't rate' affect the co't of capital in a ho't countr(D the( directl( affect one of the determinant' of the in+e'tment deci'ion. &he effect' of intere't rate' on FD/ are 'maller than on the dome'tic in+e'tment becau'e "N3@' normall( ha+ing greater choice' of 'ource of financial.

TaA Rates*
Fi'cal policie' determine general ta4 le+el'* including corporate and per'onal ta4 rate' and thereb( influence inward FD/. 5ther thing' being equal* a countr( with lower ta4 rate' 'hould 'tand a greater chance of attracting FD/ pro)ect than a countr( with higher rate'.

Po5 3) Measures*
&he pre+iou' literature 'how' the impact of go+ernment policie' including in+e'tment incenti+e' on FD/ inflow' into a ho't countr( $Dunning* = = !* #lom'rom and Ko..o* .%&hough !* Schneider and Fre(* 78<9* Grubert and "utti* 7887D &a(lor* =

in+e'tment incenti+e' are con'idered another determinant for FD/* the recentl( paper wa' gi+en b( #lom'trom and Ko..o$= !% 'uge't that in+e'tment incenti+e alone generall( not an efficient wa( to increa'e national welfare

De(t Ser' 3e rat o*

&hi' i' repre'ented b( total debt 'er+ice a' a percentage of total countr(. &he higher the debt 'er+ice ratio* the higher will be burden of countr( to 'er+ice the debt out of e4port of countr(. &he FD/ inflow' are e4pected to increa'e with a 'mall ratio. &herefore* thi' +ariable i' e4pected to ha+e negati+e correlation with the FD/ inflow'.

Fore 9! EA34a!9e Reser'es*

&he high le+el of foreign 14change Re'er+e' $1IR1S% in term' of import co+er reflect' the 'trength of e4ternal pa(ment' and help' to impro+e the confidence of the pro'pecti+e in+e'tor'. &herefore* a po'iti+e relation'hip i' po'tulated between the foreign e4change re'er+e' and inflow of FD/.

EA34a!9e Rate Re9 #e*

14change rate repre'ent' the in+e'tment climate in the countr(. ,igh e4change rate will erode the profitabilit( of foreign in+e'tment* increa'e of co't of production and introduce di'tortion' in the ho't-countr(@' econom(. A' a con'equence* a negati+e relation'hip can be h(pothe'i-ed between the e4change rate and the flow of foreign capital. Soum(en 'i.dar $= !% pro+ide' a comprehen'i+e re+iew of the i''ue' related to the foreign capital inflow' in /ndia after liberali-ation period. /n hi' 'tud( he mainl( focu'e' on the +ariou' determinant' and their management. Dr. Ci.a' "adhu.ar $= ;% ha' conducted re'earch on determinant' of FD/ and find out main determinant' which affect the foreign in+e'tment in the countr(. &he main determinant' are a' mar.et 'i-e of the countr(* ta4 rate in the countr(* go+ernment policie'* wage labor co't* e4change rate'* debt 'er+ice ratio and inflation rate. And find' that the'e are effect in both the direction po'iti+e a' well a' negati+e.

C0APTER+;
Resear34 Met4o"o5o9)

Resear34 Met4o"o5o9)
Re'earch i' common parlance refer' to 'earch for .nowledge. / t i' a 'cientific and '('tematic 'earch for patent information on 'pecific topic. Re'earch methodolog( i' a wa( to '('tematicall( 'ol+e the re'earch problem.

Nature of Resear34
&he 'tud( i' "es3r &t 'e a' well a' e#& r 3a5 in nature* where the re'earcher ha' u'e the fact' and information alread( a+ailable to anal(-e the problem.

Data Co55e3t o! a!" Data Sour3es

&he 'tud( i' ba'ed on 'econdar( data onl(. No collection of primar( data i' in+ol+ed in the 'tud(. &he 'econdar( data ha' been collected from the following 'ource': /nternet #oo.' New'paper* Aournal' and "aga-ine'.

U! 'erse a!" sa#&5e s @e

&he pre'ent 'tud( ta.e' foreign direct in+e'tment determinant' a' uni+er'e of the 'tud(* out of all Fi+e are ta.en a' 'ample of foreign direct in+e'tment factor* which affect the FD/ in /ndia.

A!a5)s s Patter!
&he pre'ent 'tud( i' emplo(ed +ariou' table' technique to anal(-e data 'o that 'tud( become ea'ier to under'tand to +ariou' reader'..

Fo3us of t4e &ro(5e#

&he world FD/ inflow' in the recent pa't ha+e grown man( time'. &he le+el of FD/ i' increa'ing with di'tribution of FD/ differ' from countr( to countr(. &he top ten economie' con'titute nearl( < to <9 percent of world FD/ inflow'. &hi' une+en di'tribution of FD/ inflow' acro'' the world i' attributed due to man( rea'on'. Keeping in +iew the abo+e* the main focu' of the problem i' on anal(-ing the +ariou' factor' affecting Foreign Direct /n+e'tment* 'pecificall( from the per'pecti+e of de+eloping countrie' li.e /ndia.

O(Be3t 'es of t4e stu")

&he main ob)ecti+e' of the 'tud( are a' follow':

&o 'tud( the conceptual and theoretical framewor. of Foreign Direct /n+e'tment. &o anal(-e the factor' affecting the Foreign Direct /n+e'tment in /ndia &o e4amine the e4i'ting trend of Foreign Direct /n+e'tment in /ndia. &o 'ugge't the polic( mea'ure' to enhance the FD/ inflow' in /ndia.

L # tat o!s of t4e Stu")

7. &he 'tud( i' ba'ed on the 'econdar( data* 'o it i' incorporated the all limitation' of the 'econdar( data. =. &he 'tud( i' re'tricted to few determinant' of FD/ but there are 'o man( factor'* which ma( al'o effect the foreign in+e'tment. !. &ime con'traint'. G. Re'ource con'traint'.

C0APTER+<
A!a5)s s a!" I!ter&retat o!

Data A!a5)s s > I!ter&retat o! A! A!a5)s s of Tre!"s a!" Patter!s of FDI

Deter# !a!ts of " re3t !'est#e!t ! I!" a
&hi' con'i't of rule' and regulation' go+erning the entr( and operation of foreign in+e'tor'* the 'tandard' of treatment accorded to them and the functioning of mar.et' within which the( can operate the'e police' can range from out right prohibition of FD/ entr( to non-di'crimination in the treatment of foreign and dome'tic' firm' and e+en preferential treatment of foreign firm'. &he( 'ati'f( +ariou' ob)ecti+e'. a. Reducing or increa'ing FD/ b. /nfluencing it' 'ectoral compo'ition or geographical origin c. 1ncouraging 'pecific contribution to the econom( and affecting the wa(' in which the'e contribution' are made. &he importance of core FD/ polic( regime a' a determinant i' be't i' illu'trated b( the fact that FD/ cannot ta.e placed unle'' it i' allowed to enter a countr(. /t' potential rele+ance i' al'o e+ident when polic( change' 'harpl( in the direction or more of le'' openne''. /t 'hould be noted* howe+er* that polic( change in the direction of openne'' differ in an important wa( from tho'e in the direction of re'triction. 1+en when e4ten'i+e the( cannot guarantee the(@re de'ired re'ult'* a' radicall( re'tricti+e police' can guarantee their'. 5pen polic( i' ba'icall( intended to induce FD/ but the inducement ma( not be ta.en. Re'triction polic( on the other hand* 'uch a' 'weeping nationali-ation of foreign in+e'tor' can effecti+el( clo'e the door to FD/.&he mo't 'ignificant change in FD/ performance ha' occurred in china* where inward FD/ 'oc. ro'e from !> billion in 78<9 to 7F8> in 788;. /n other countr(* 'imilar change in FD/ police' ha' not had 'imilar effect on the FD/.there i' a e4ample of Africa where regulator( framewor.' in the mo't countrie' are quite open but FD/ inflow' remain'

'ame. 'o it 'how' that open FD/ policie' are a nece''ar( but not a 'ufficient* ,o't countr( determinant of in+e'tment. /n 'ome indu'trie' liberali-ation ma( produce rapid and 'ignificant re'pon'e' b( foreign in+e'tor'* in other' it ma( not. &he negati+e effect' of re'tricti+e policie' are much 'tronger than the po'iti+e effect of liberal policie'. 5ne of the con'equence' of the world wide trend toward' the liberali-ation of FD/ policie' ha' been the reali-ation b( countrie' that a' their FD/ policie' proper become 'imilar* the +alue of the'e policie' tool to influence location become le'' pronounced what the in+e'tor con'ider' i' a good in+e'tment climate* effecti+ene'' of FD/ related police'* and the new polic( area' that cut acro'' traditional policie' and the long term impro+ement of the economic determinant' of in+e'tment. &heoretical literature 'ugge't that liberal trade regime of a ho't countr( ma( ha+e two dimen'ion' influence' on the FD/ inflow'. a% 5pen trade polic( that facilitate intrafirm trade allow greater freedom to "N3' and are e4port friendl( ma( ma.e ho't countr( ha+e a better place to do bu'ine'' for foreign enterpri'e'* and the FD/ inflow ma( increa'e. b% Re'tricted trade regime with high tariff'* offer a locational ad+antage for tariff )umping import-'ub'tituting FD/ b( "N3'. Stronger patent regime impro+e' the in+e'tment climate in the ho't countr( and encourage' the inflow of foreign direct in+e'tment. According to #rewer* 'tronger protection ma( reduce the tran'action co't of tran'fer of .nowledge b( "N3' to foreign countrie'. &he i''ue of intellectual propert( protection lin.' more directl( with R? D and "N3' ma( be apprehen'i+e of locating their .e( R? D in countrie' ma( be a factor in determining the o+er'ea' R? D acti+it( in "N3'. /n other hand* R ? D directed to local adaption and pro+iding other 'upport to the local production of the "N3'* and not directed to new product de+elopment* the patent regime ma( not be of much con'equence to it.

E3o!o# 3 sta( 5 t) of the countr( i' al'o main factor* which affect' FD/ in /ndia.
"onetar( and fi'cal policie'* which determine the parameter' of economic 'tabilit( 'uch a' the intere't rate'* ta4 rate' and the 'tate of e4ternal and budgetar( balance'*

influence all t(pe of in+e'tment* dome'tic or foreign. ,ow the'e +ariable' can e4ert influence on the inflow of foreign direct i' de'cribed a' follow':

I!terest Rates*
/ntere't rate' affect the co't of capital in a ho't countr(D the( directl( affect one of the determinant' of the in+e'tment deci'ion. &he effect of the intere't rate' on the FD/ are 'imilar that on dome'tic in+e'tment becau'e "N3' normall( ha+e a greater choice of 'ource' of financing. For thi' rea'on the intere't rate ha' not been con'idered a' on e4planator( +ariable in the empirical anal('i'.

TaA Rates*
Fi'cal policie' determine general ta4 le+el'* including corporate and per'onal ta4 rate' inward FD/. 5ther thing' being equal* a countr( with lower ta4 rate' 'hould 'tand a greater chance of attracting an FD/ pro)ect than higher ta4 rate'.

De(t ser' 3e rat o*

&hi' i' repre'ented b( total debt 'er+ice a' a percentage of total e4port' of the countr(. &he FD/ inflow' are e4pected to increa'e with low debt 'er+ice ratio. So it +ariable i' e4pected to a negati+e correlation with the FD/ inflow'.

Fore 9! EA34a!9e reser'es*

Foreign e4change re'er+e' in term' of import co+er reflect' 'trength of e4ternal pa(ment and there i' po'iti+e correlation between foreign and FD/ inflow in the countr(.

I!ter!at o!a5 A9ree#e!t o! Fore 9! D re3t !'est#e!t

/n their effort to attract FD/ and to influence it' qualit(* countrie' increa'ingl( conclude international agreement' dealing with an e4pending 'et of i''ue'. #ilateral /n+e'tment &reatie' were originall( concluded between De+eloped and de+eloping countrie'* with a +iew to promoting in+e'tment the treatie' partner'. Regional /ntegration Framewor.': &he impact of Regional /ntegration Framewor.' $R/FS% which range from free trade area' to complete economic

integration depend on the 'cope and depth of the integration en+i'aged b( R/FS."ar..et 'i-e and growth rate are the FD/ economic determinant that are mo't affected b( the implementation of a R/F

TRENDS OF FOREIGN DIRECT INVESTMENT

FD/ /N &52 7 350N&R/1S /N H5RLD $During = ;- <% $/n million' of dollar'%
Cou!tr es
UK USA China France Netherlands Hong Kong Canada Germany Belgium Spain

A#ou!t 7FG9! 88GG! ;=G F F!9;F G!F! !9<8; !!<== !=FF! =!F87 ==8<;
Top 10 World FDI Destinations

C of :or5" !f5o:s 7;.F8J 7 .<9J ;.8 J F.8GJ G.;FJ !.8=J !.F8J !.9FJ =.98J =.97J D<1DEC

Tota5 of :or5" I!f5o:s

Amount (in millions of Doller)

"!0000 " 0000 "40000 "20000 "00000 !0000 0000 40000 20000 0
nc e N et he rla nd s H on g K on g A an y da K U S hi n C an a G er m Fr a el gi S pa in a um U

Series"

Countries

I!ter&retat o!: - &hi' table 'how' that among all the countrie' attracting FD/ in the world* top 7 countrie' attract around F9J of FD/.0K i' ran.ed 7 in the world which attract' ma4imum FD/ in = 9.

FDI ! to& 8- As a! Cou!tr es

$Dur !9 ,--.+-E% $in million dollar'% 0ost E3o!o#)
China Hong Kong Singapore UA' (ur)ey Korea +ndia +ndonesia Saudi Ara,ia

A#ou!t ;=G F !9<8; = <! 7= 8F<7 ;78< F98< 9=F GF=< !8F; <

C Of FDI I!f5o:s ! As a
# $2! "%$&& "0$0 $0" 4$!* #$ " #$#" 2$ 4 2$#2

C Of tota5 :or5" !f5o:s

%$& #$&2 2$"& "$#" "$0 0$%& 0$%2 0$*% 0$*"

"ala('ia Tota5 Source: 0N3&AD H/R =

7.88
E/1-D

.G! 8/1<

FDI in TOP ASIAN COUNT I!S (DU IN" #00$%#00&)

!0000 %0000 0000 Amount *0000 40000 #0000 20000 "0000 0
A' y Ar a, ia po re (u r) e Ko r Ko al ay on e (o ta l ng ea ia a sia hi n +n d U si a

Amount

Si ng a

on g

+n d

'ost Countries

I!ter&retat o!: -

&hi' table 'how' that in A'ia* 3hina i' the highe't FD/ attracting countr(* which i' ;=G F million dollar' in the (ear = 9.FD/ in 3hina* i' ;.8 J of the total FD/ inflow' in the world. /ndia i' ran.ed ;th in the FD/ inflow' in A'ian countrie' with F98< million dollar' and .;=J of total FD/ inflow in the world.

Sa ud i

FDI INFLO7 IN INDIA

$Fro# ,--; to ,--E% $I! ru&ees 3rores% Year = ! = G = 9 = F
200%

FDI I!f5o:s 78<F =;7<< !G7<< <<GGF

%&%2 "2!*4"

= < Source: www.rbi.org.in

FO !I"N DI !CT IN(!ST)!NT IN INDIA

s+ Crores) "40000 "20000 "00000 !0000 0000 40000 20000 0 " 2 # *!A 4 * .ear F/+ +n0lo1s

I!ter&retat o!*-

A)OUNT(in

Abo+e table 'how' the amount of annual FD/ inflow' in /ndia from = been 'hown that FD/ inflow in =

!-=

<./t ha' < it ri'e'

! i' R'. 78<F crore'. And in the (ear =

up to R'. 7=<9G7 crore'. /t 'how' the ri'ing trend in annual FD/ inflow' in /ndia.

&he total FD/ from Aug.=

! to No+. =

< i' R'. ;.=8;= crore $5nl( equit( capital to No+. ;6==6E-- crore .

component onl(% and cumulati+e FD/ from April =

SECTORS ATTRACTING 0IG0EST FDI INFLO7S

$Fro#+,--;+,--E%
Se3tors FDI I!f5o: C of Tota5 FDI I!f5o:
Ser2ice Sector Computer Hard1are4 So0t1are (elecommunication Construction Acti2ities Housing 4 5eal 'state Automo,ile +ndustry 6o1er -etallurgical industries 6etroleum4 Natural Gas Chemicals %" " #!!#% 2*&%# 20!%* "&*"* "#2*% "20&% "0% & &"&# !"#2 22$003 "2$003 !$003 $003 $003 4$003 4$003 #$003 #$003 2$003

Source:www.dipp.nic.inBfdi

Se,tor Attra,tin- 'i-.est FDI Inflo/

!0000 %0000 0000 *0000 40000 #0000 20000 "0000 0 Ser2ice Sector s+ Crores)

Amount(in

Series"

(elecommunication

Housing 4 5eal 'state

Se,tor

I!ter&retat o!*
/t 'how' from the abo+e table that out of all the a+ailable 'ector'* 'er+ice i' the highe't FD/ attracting 'ector in /ndia which i' further leaded b( 3omputer ,ardware ? 'oftware. FD/ in 'er+ice 'ector i' R'. ;7F7F crore' which i' ==J of the total FD/ inflow' in all 'ector' .

6etrolium4 Natural Gas

6o1er

FDI INFLO7S IN INDIA TOP 8- REGIONAL OFFICES

$7IT0 STATE COVERED FROM ,--;+-E% Re9 o!a5 Off 3es "umbai New Delhi Ahmedabad #angalore 3hennai ,(derabad Kol.ata 3handigarh 2an)i
Kochi

State Co'ere" "ahara'htra* Dadar ? Nagar ,a+eli* Daman ? Diu Delhi*2art of 02 ? ,ar(ana Gu)rat Karnata.a &amilnadu ? 2ondicherr( Andhar 2rade'h He't #engal* Si..im* Andaman ? Nicobar /'land' 2un)ab* ,ar(ana? ,imachal 2rade'h Goa
Kerela 4 7a)shad1eep

FDI I!f5o: 777=F;.!! 9G9!;.=9 ==< G.!G ==98F.F 7<9=G.F= 7GF !.!7 9= 8.F 7;9G.;= 7 9 .=!
!# $"

C 7 t4 Tota5 FDI I!f5o:s !!.9GJ 7F.GGJ F.<;J F.<7J 9.9<J G.G7J 7.9;J .9!J .!=J
0$2*3

Source: www.dipp.nic.inBfdi 'tati'tic'

FDI Inflo/s In Indai in Top 10 e-inal Offi,es (Wit. State Co0ered)

"20000 FDI Inflo/s (in ruppees ,rore) "00000 !0000 0000 40000 20000 0
,a i / el hi ed a, ad Ba ng al or e C he nn H ai yd er a, ad Ko l) at a ga rh um C ha nd i 6a n8 i Ko ch i

F/+ +n0lo1

Ne 1

Ah m

e-ional Offi,es

I!ter&retat o!* +
/t ha' been incorporated from the abo+e table that FD/ inflow' in +ariou' regional office'* which co+ered the +ariou' 'tate' under +ariou' region'. "umbai i' the highe't FD/ attracting regional office co+ered the 'tate li.e "ahara'htra* Dadra ? nagar ,a+eli and Daman ? Dui with !!.9GJ of total FD/ inflow'.

FDI INFLO7S IN INDIA FROM TOP 8- COUNTRIES

$Fro# ,--;+,--E% Cou!tr)
-auritius USA UK Singapore Netherlands 9apan Germany Cyprus France U$A$'

FDI I!f5o:s
"4**4* 2 #!

C : t4 Tota5 FDI I!f5o:s

443 !$003 !$003 %$003 *$003 #$003 #$003 #$003 2$003 "$003

2*4 # 222** "*2 "0#2* &0%0 !**# *"!! #!"0

Source: www.dipp.nci.in/fdi statistics

FDI Inflo/s from top 10 Countries

" 0000 "40000 "20000 "00000 !0000 0000 40000
F/+ +n0 lo1s

"4**4*

N I ( e r T U O ) A o C + ) s

20000 0

#! 2*4 # 222** "*2

"0#2*&0%0 !**# *"!!

#!"0

Countries

I!ter&retat o!* +
A' we .now that FD/ in /ndia i' coming from man( countrie'. 5ut of which FD/ from "auritiu' i' highe't from = !- <."a4imum Jage of FD/ in /ndia i' coming from "auritiu'* which i' further leaded* b( 0SA* 0K ? 'o on. 5ut of the total FD/ inflow in /ndia GGJ i' from "auritiu'.

A!a5)s s of fa3tors affe3t !9 FDI ! I!" a FDI ! E5e3tr 3a5 EFu &#e!ts

Year
= = = = !- G G- 9 9- F F- ;

A#ou!t $I! Rs1Crores%

244& #2!" 4&& "2#2* "*!*4

200%:0!

Amount (In Rs.Crores)

18000 16000 14000 12000 10000 8000 6000 4000 2000 0 2003-04 2004-05 2005-06 2006-07 2007-08

Amount (In Rs.Crores)

I!ter&retat o!*
A' the trend 'how' that the FD/ in ectronical 1quipment' i' increa'ing (ear b( (ear that i' a good 'ign for indu'trie' growth. /n = crore. !- G the FD/ inflow in the thi' indu'trie' wa' R'. =GG8 crore but in 9 (ear' it increa'e around F time' that i' R'. 79<9G

FDI IN SERVICE SECTOR Year

= = = = = !- G G- 9 9- F F- ; ;- <

A#ou!t$ ! Rs1 Crores%

7=!9 =7 F =9F9 =7G!G =F9<8

Amount(in Rs. Crores)

30000 25000 20000 15000 10000 5000 0 2003-04 2004-05 2005-06 2006-07 2007-08 Amount(in Rs. Crores)

I!ter&retat o!* A' the trend 'how' that the FD/ in 'er+ice 'ector i' increa'ing
(ear-b(-(ear that i' a good 'ign for indu'trie' growth. /n = !- G the FD/ inflow' in the'e indu'trie' wa' R'. 7=!9 crore but in 9 (ear' it increa'e around 7; time' that i' R'.=F9<8 crore. &hi' increa'e in FD/ due to mainl( out'ourcing of 'er+ice indu'trie' b( the de+eloped countrie'.

FDI IN TELECOMMUNICATION

Year
= = = = = !- G G- 9 9- F F- ; ;- <

A#ou!t $ ! Rs1 Crores%

9!= 9<< ! != =!9G 97 !

Amount (in Rs. Crores)

6000 5000 4000 3000 2000 1000 0 2003-04 2004-05 2005-06 2006-07 2007-08 Amount (in Rs. Crores)

I!ter&retat o!* A' the trend 'how' that the FD/ in telecommunication 'ector i' increa'ing (ear-b(-(ear that i' a good 'ign for indu'trie' growth. /n = inflow in thi' indu'tr( wa' R'.9!= crore but in = crore. !- G the FD/ ;- < it increa'e' up to R'. 97 !

FDI IN TRANSPORTATION INDUSTRY

Year
= = = = = !- G G- 9 9- F F- ; ;- <

A#ou!t $ ! Rs1 Crores%

7G7; <79 8<! =77= !7 =

Amount (in Rs. Crores)

3500 3000 2500 2000 1500 1000 500 0 2003-04 2004-05 2005-06 2006-07 2007-08 Amount (in Rs. Crores)

I!ter&retat o!*

A' the trend 'how' that the FD/ in tran'portation indu'trie' i' decrea'ing from = !- G to = G- 9 but it 'tart increa'ing from = 9- F.and 'till increa'ing* it i' a good 'ign for indu'tr( growth. &he infra'tructure impro+ement pro)ect' are 'tarted b( the Go+t. thi' i' the main rea'on of increa'ing the FD/.

FDI IN FUEL > PO7ER

Year
= = = = = !- G G- 9 9- F F- ; ;- <

A#ou!t $ ! Rs1 Crores%

9=7 ;98 G7F 77=8 !<;9

Amount (in Rs. Crores)

4500 4000 3500 3000 2500 2000 1500 1000 500 0 2003-04 2004-05 2005-06 2006-07 2007-08

Amount (in Rs. Crores)

I!ter&retat o!* A' the trend 'how' that the FD/ in Fuel and 2ower indu'trie' i' decrea'ing from = G- 9 to = 9- F but it 'tart increa'ed in = F- ;. New pro)ect' 'tart b( Go+t. i' the main rea'on of FD/ increa'ing

FDI IN C0EMICAL
Year
= = = = = !- G G- 9 9- F F- ; ;- <

A#ou!t $ ! Rs1 Crores%

8G 8 8 78;8 8! 8=

Amount (in Rs. Crores)

2500 2000 1500 1000 500 0 2003-04 2004-05 2005-06 2006-07 2007-08 Amount (in Rs. Crores)

I!ter&retat o!* A' the trend 'how' that the FD/ in the chemical 'ector i' not 'table. &he Go+t. change' the rule' and regulation' regarding the chemical indu'tr(* 'o it i' the main rea'on of up and down in FD/.

FDI IN DRUGS > P0ARMACEUTICAL

Year
= = = = = !- G G- 9 9- F F- ; ;- <

A#ou!t $ ! Rs1 Crores%

9 = 7!G! ;F 8; !9!

Amount (in Rs. Crores)

1600 1400 1200 1000 800 600 400 200 0 2003-04 2004-05 2005-06 2006-07 2007-08 Amount (in Rs. Crores)

I!ter&retat o!* A' the trend 'how' that the FD/ in Drug' ? 2harmaceutical i' increa'ing from = but felled in = !- Gto = G- 9 but it decrea'ed in = 9- F and again increa'ed ;- <.So Drug' ? 2harmaceutical indu'tr( i' 'howing up and down

due to +ariou' health i''ue' which are ta.en b( Go+t.

FDI IN FOOD GPROCESSING INDUSTRY

Year
= = = = = !- G G- 9 9- F F- ; ;- <

A#ou!t $ ! Rs1 Crores%

977 7;G 7<! GG7 !9G

Amount (in Rs. Crores)

600 500 400 300 200 100 0 2003-04 2004-05 2005-06 2006-07 2007-08 Amount (in Rs. Crores)

I!ter&retat o!* &he FD/ trend in the Food-2roce''ing i' not 'table in la't fi+e (ear'. &he FD/ i' going up and down. /t i' due +ariation in demand in thi' indu'tr(.

FDI IN 0OUSING > REAL ESTATE

Year
= = = = = !- G G- 9 9- F F- ; ;- <

A#ou!t $ ! Rs1 Crores%

7;7 =7=7 <;G8

Amount (in Rs. Crores)

10000 8000 6000 4000 2000 0 2003-04 2004-05 2005-06 2006-07 2007-08 Amount (in Rs. Crores)

I!ter&retat o!* &he FD/ trend in the ,ou'ing ? Real 1'tate wa' -ero in = after that it i' continuou'l( increa'ing till = growing +er( fa'tl( in /nd G- 9 but ;- <. So it i' one of 'ector* which i'

FDI IN CONSTRUCTION ACTIVITIES

Year
= = = = = !- G G- 9 9- F F- ; ;- <

A#ou!t $ ! Rs1 Crores%

=7F F8F FF; GG=G F8<8

/nterpretation: &he FD/ trend in the con'truction Acti+itie' 'how' that the FD/ i' not 'table in la't 'i4 (ear'. &he FD/ i' growing in thi' 'ector a' man( road' pro)ect' are going to con'truct. FD/ i' increa'ed 'harpl( in = F- ; and = ;- <.

A!a5)s s of "eter# !a!ts of FDI ! I!" a

Mo"e5 S&e3 f 3at o!
&he pre'ent 'tud( e4amine the determinant' of foreign direct in+e'tment in /ndian conte4t a' the countr( after e4periencing the foreign e4change cri'i' opened up the econom( for foreign capital. /ndia* being a capital 'carce countr(* ha' ta.en lot of mea'urement to attract foreign direct in+e'tment 'ince the beginning of reform' in

7887* till end of the December =

< it could attract a total FD/ of around R'. 7=<9G7

crore. &hi' 'how' the importance of FD/ in the o+erall foreign in+e'tment programmed. A' /ndia i' in the proce'' of liberali-ation the capital account* it would ha+e 'ignificant impact on the foreign in+e'tment and particularl( on the FD/ * a' thi' would affect 'hort term 'tabilit( in the financial mar.et'. ,ence there i' need to pu'h and pull factor' behind an( change in the FD/* 'o that we can frame our policie' to influence the +ariable' which dri+e-in foreign in+e'tment. &he pre'ent 'tud( would e4amine the determinant' of FD/ in /ndian conte4t. &he'e are +ariou' factor' which are gi+en b( man( re'earcher' in the e4i'ting re+iew of literature li.e "ar.et 'i-e* 'toc. of foreign e4change re'er+e* import' e4port'* labor co't* '.illed labor* openne''* GD2 etc. #ut for the pre'ent 'tud( after anal(-ing all the +ariou' factor' the following factor' are ta.en into con'ideration: 2olitical in'tabilit(* openne''* infra'tructure* GD2 and financial 'oundne''. &he'e determinant' ta.en into con'ideration after re+iewing literature and there relation'hip with the FD/ i' gi+en a' Follow':

Po5 t 3a5 I!sta( 5 t)*

/t i' being con'idered a' an important determinant of FD/ in /ndia a' with the increa'e in in'tabilit( of the go+ernment* it ha' a negati+e impact on the attraction of the FD/.

O&e!!ess*

5penne'' ha' found to be an important con'ideration for the flow of foreign direct in+e'tment in /ndia a' it i' 'how' that how much the countr( i' liberal in in+iting foreign capital from out'ide the nation.

I!frastru3ture*
/t i' being con'idered a' an important determinant of foreign direct in+e'tment a' with the increa'e in the number of telephone per million of population.

GDP*
/t reflect' the pro'pect' of economic growth or economic de+elopment of the countr(. /t al'o ha' 'ome impact on the foreign direct in+e'tment in the count(.

F !a!3 a5 Sou!"!ess*
&he o+erall financial 'oundne'' of the nation can be mea'ured with help of import* e4port' and e4ternal debt'.

FDIHI-J I,POLINSTJI;OPENNESSJ I<INFRJ I=GDPJIDFINSND

EA&5a!ator) Var a(5es a!" t4e r "ef ! t o!

Var a(5e EA&5a!at o!

De&e!"e!t FDI I!"e&e!"e!t POLINS OPEN Repre'ent' the political in'tabilit( $14port'K /mport'%BGD2 No. of telephone' per million of population GD2 $14port' K /mport'%B 14ternal debt ,a' a negati+e impact 5n FD/ inflow' 14tent of 1conomic 5penne'' Show' the de+elopment in /nfra'tructure Repre'ent' the mar.et 'i-e Show' the financial Soundne'' Negati+e 2o'iti+e Fore 9! D re3t I!'est#e!t

INFR GDP FINSND

2o'iti+e Negati+e 2o'iti+e

/n thi' table* FD/* which i' a dependent +ariable* repre'ent' the Foreign Direct /n+e'tment and all other +ariable' are independent which include' Po5 !st6 :4 34 repre'ent' the political in'tabilit( of the Go+t.* which impo'e' a negati+e effect on the attracti+ene'' of foreign direct in+e'tment. OPEN repre'ent the openne'' in the econom(* which 'how' the attracti+ene'' of the econom(. INFR repre'ent' the infra'tructure in a countr( which can be mea'ured with the number of telephone' per million of population 1GDP repre'ent' the gro'' dome'tic product of the countr( which i' u'ed to mea'ure the mar.et 'i-e. FINSND repre'ent' the financial 'oundne'' of the nation* which can be mea'ured* with the help of import'* e4port' and e4ternal debt. /t ha' been ob'er+ed that GDP > POLINST are the two negati+el( correlated +ariable' with foreign direct in+e'tment and all other ha+e po'iti+e relation.

C0APTER+=

FINDINGS > CONCLUSION

SUGGESTIONS

F !" !9s of t4e stu")

Foreign Direct /n+e'tment i' a long-term in+e'tment mo'tl( in the equit( b( entit( that i' out'ide the ho't countr(. Foreign direct in+ol+e' tangible good' li.e factorie' and office building' wherea' foreign portfolio in+e'tment refer' to paper 'ecuritie' li.e 'toc.'* bond'* and &-bill'. &he main form of FD/ in /ndia: Green field in+e'tment "erger ? Acqui'ition' Foreign direct in+e'tment i' liquid in natureD it bring' technological ad+ancement and promote' the de+elopment of the countr(. /t al'o bring' the e4perience n the countr( and pro+ide' in+e'tment opportunitie'. &he re'ult' 'hown b( tend' of FD/ are 0K i' the large't de'tination of FD/ during the (ear = ;- < with 7<J of the total FD/ in the world.

FD/ i' increa'ing in tran'portation indu'tr( becau'e Go+t. allow' the pri+ate 'ector in the air and railwa(' tran'portation. Li.ewi'e* 3hina ran.ed 7't in all A'ian countrie' with !F.8<J of total FD/ in A'ian countrie' and ;.8 J in the whole world and /ndia ran.ed ; th in A'ia attracting FD/ with !.!7J in A'ian countrie' and .;=J in the world.

 /n /ndia al'o* Ser+ice 'ector attract' the highe't FD/ equit( inflow from the (ear = - <.

5ut of all the nation' in+e't their capital in /ndia* "auritiu' ran.ed 7 't with appro4* G9J of FD/ inflow. Li.ewi'e* "umbai i' highe't FD/ attracting regional office with !!.9GJof the total FD/ coming to /ndia co+ered the 'tate' li.e "ahara'htra* Dadar ? Nagar ,a+eli and Daman ? Dui. FD/ i' increa'ing in infra'tructure due to highwa( pro)ect'. &he total FD/ from Aug.7887 to No+. = No+. !*99*< crore or 0S > <=*=88. G- < and reached from < i' R'. G*7F*G=; crore or 0S > 88* 9 to

$ onl( equit( capital component onl(% and cumulati+e FD/ from April =

FD/ for real e'tate 'how' the growing trend from = -ero to R'. <;G8 crore.

FD/ i' increa'ing in telecommunication 'ector due to the mar.et potential in /ndia. FD/ in Drug' ? 2harmaceutical i' increa'ed from = decrea'ed in = 9- F and again increa'ed in = <.&he trend 'how' FD/ in thi' indu'tr( i' fluctuating. FD/ in 1lectrical 1quipment i' continuou'l( increa'ing. /t increa'ed 9 time' with in = ! to = <. !- !to = G- 9and ;-

F- ;and fell down in =

 FD/ in 'er+ice 'ector i' increa'ed around 7; time' with in F (ear'. &he main rea'on of increa'ing FD/ i' out'ourcing of 'er+ice 'ector )ob' in /ndia b( the de+eloped countrie'. FD/ i' not 'table in the chemical indu'tr( due to reform change' b( Go+t. &he potential determinant' of FD/ in /ndia a' re+iewing from the e4i'ting literature are mar.et 'i-e* growth pro'pect' and po'iti+e countr( condition'* labor co't and a+ailabilit( of '.illed labor* infra'tructure facilitie'* openne'' and e4port promotion* go+ernment finance* rate of return on in+e'tment* human capital* polic( mea'ure'* intere't rate'* ta4 rate' debt 'er+ice ratio* foreign e4change re'er+e* e4change rate regime etc. A' per the literature there are +ariou' factor' which determine or affect the flow of foreign direct in+e'tment in /ndia 'uch a' GD2* inflation* infra'tructure* political* in'tabilit( etc. 5ut of which 9 factor' are ta.en into con'ideration.

Co!35us o!
/ndia 'ub'tantiall( increa'ed foreign direct in+e'tment 'ince = !- !.Such flow'

are e4pected to ri'e further* gi+en the continuing liberali-ation and globali-ation of the financial mar.et and continuing 'uperior growth performance in emerging mar.et'. /t i' important to note that the le+el of openne'' in the countr( and financial 'oundne'' are +er( 'ignificant in conte4t of FD/ inflow in /ndia. #oth the'e factor' are found to ha+e a po'iti+e correlation. &hi' 'how' that while framing policie'* the polic( ma.er 'hould ta.e into con'ideration all the'e factor'. Le+el of openne'' in the econom( 'hould be increa'ed a' it i' ha+ing a po'iti+e relation with FD/. For thi' there 'hould be more liberali-e polic( in each and e+er( 'ector and the re'triction' 'hould be remo+ed for the inflow and out flow of fund' and e4port and import in the countr(. &he 'econd important factor need' to be con'idered i' financial 'oundne'' a' thi' reflect' the economic de+elopment of the countr( and the 'tep' 'hould be ta.en to increa'e the financial 'oundne''.

Su99est o!s
&he FD/ i' increa'ing too much in 'er+ice 'ector 'o it ma( be dangerou' for our 'er+ice 'ector. So go+t. 'hould ta.e action to control on it' inflow.

&he FD/ i' not 'table in the Drug' and 2harmaceutical and it i' nece''ar( for the go+t. to maintain thi' growth. &he FD/ in chemical al'o not 'table* it i' nece''ar( to maintain the 'tabilit( in FD/ trend 'o go+t. 'hould determine a certain le+el of FD/. &he FD/ i' increa'ing Food L2roce''ing indu'tr( 'o Go+t. 'hould maintain the control on the flow of FD/ in thi' indu'tr( a' it directl( affect' the health of the national'. &he FD/ i' increa'ing continuou'l( in telecommunication 'o it 'hould reduce a' all econom( depend' on it and all bu'ine'' tran'action i' ba'ed on it. FD/ i' increa'ing in 1lectrical equipment' indu'tr(D and new technolog( i' coming in /ndia 'o go+t. 'hould maintain thi' growth.

 /nfra'tructure' are con'idered an important factor of foreign direct in+e'tment 'o go+t. 'hould impro+e infra'tructure of the econom( 'o that more and more FD/ can be attract. 5penne'' ha' found to be an important con'ideration for flow of the FD/ in /ndia and po'iti+e relation with FD/* 'o go+t. 'hould be more liberal in in+ite foreign capital from out'ide countr(.

BIBLIOGRAP0Y

B (5 o9ra&4)
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A'iedu* 1. $= p.7 ;-778. 3hrunilam* Franci' $= !%* #u'ine'' 1n+ironment* 7=th 1dition. !%* 6&he Determinant' of Foreign Direct /n+e'tment to de+eloping countrie': /' Africa DifferentME Horld De+elopment* ! $7%*

Dunning* A.,. $788!%* "ultinational 1nterpri'e' and the Global 1conom(* New Nor.: Addi'on-He'le(. Kothari* 3.R. $= F%* Re'earch "ethodolog(* =nd 1dition* New Age /nternational 2ubli'her* New Delhi. "adhu.ar* Ci.a' ? "ittal Anil $= ;%* 6/mpact of FD/ 5N 1conomic

growth of /ndian-an empirical 'tud(E* Business Analyst* +ol.=*no.7 Seth* A. K.* 6/nternational Financial "anagementE* Galgotia 2ubli'hing 3ompan( New Delhi* = F.

&homa'* L.#rewer$788!%* 6Go+t. 2olicie'* "ar.et /mperfection'* and Foreign Direct /n+e'tmentE

7e(s tes*+

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