1.

INTRODUCTION TO THE
STUDY

India and China are one of the largest economies of the world and which have the one
third of the world population. And they have talent and skilled manpower, resources and
area but still they are not among the developed economies. They lag far behind the
developed countries in the infrastructure. These countries have been striving hard for the
development from the past six seven stories of these developing countries i.e. Foreign
Direct Investment. It has helped in increasing the rate of growth in the form of green field
projects, investing money in brown field projects, bringing new technology in the country
etc.

Though the amount of FDI received by India every year is increasing but China is taking
the major share of FDI in the Asia pacific region.


Add FDI scenario of last 5-10 years and give little analysis
FDI in India and China

Net FDI Inflow( Please tell which table i shud use net FDI inflow or total FDI inflow)

Year India amt(US$) China amt(US$)
2004 0.8 3.2
2005 0.9 4.6
2006 2.1 4.6
2007 2.0 4.5
2008 3.5 3.8
2009 2.6 2.6
2010 1.6 4.1
2011 1.9 3.8
2012 1.3 3.1
2013

Year Amount(US$)
2003 4,322,747,673
2004 3,581,372,930
2005 7,269,407,226
2006 20,029,119,267
2007 25,227,740,887
2008 43,406,277,076
2009 35,581,372,930
2010 27,396,885,034
2011 36,498,654,598
2012 23,995,685,014


From the table we can see that the flow of FDI in India was increasing till 2008 and due
to recession and global meltdown was hit in 2009 and 2010 and again

But FDI has been an important factor in the growth of Indian economy. India was the
second most important FDI destination (after China) for transnational corporations during
2010-2012. It has helped in bridging the gap between the required resources and the
available resources. The major sectors attracting FDI are services sector, construction
development sector and telecommunication sector. Other major sectors attracting FDI are
Computer software & hardware and Drugs & pharmaceuticals. The top investment
attracting regions are Mumbai, Delhi and Chennai.

The leading sources of FDI for India are Mauritius, Singapore, The US and the UK.
Mauritius account for the 38% of the total inflow, Singapore 9.8%, UK 8.7% and US
6.7%. The other contributing countries are Japan, Netherlands, Cyprus, Germany, France
and UAE.

Though India is a attractive FDI destination among the emerging markets but still it not
able to attract a major chunk. There are many reasons but the poor infrastructure is one of
the major reasons.

From the table we can compare and see that China is getting higher amount of FDI than
India. China has been taking a major chunk of share in FDI among the developing
nations. It currently attracts 19%-38% of FDI in Asia. Especially the cities on the coastal
line are getting the major share.

China opened it's economy for the FDI in the country long time back and have proactive
policies for the FDI which helped to attract the FDI which in turn helped in the economic
development of the country and specially the manufacturing sector. Today China is the
largest exporter of goods in the world and more than half of the exported goods are
produced by the foreign invested enterprises. Manufacturing sector attracts the large part
of FDI in china. In China the secondary sector attracts the major FDI and the primary and
the tertiary sector receives only a small amount of the total FDI.

Few of the reasons being a huge domestic market, low labor cost, rich natural resources,
the well developed.


SIGNIFICANCE OF THE STUDY

This study will help in finding out the major differences between the investment
environment and the policies of two countries and help to understand the actions required
to attract more FDI in India


ECONOMIC DEVELOPMENT

According to the web definition economic development means sustained, concerted
actions of policy makers and communities that promote the standard of living and
economic health of a specific area.

The level of economic development of any country can be measured by the Quality of
Human capital, safety, social security, rate of literacy, life expectancy rate, health etc. In
the developed countries like America, U.K., Germany the standard of living of people,
level of social security, education level is much higher as compared to the developing and
the underdeveloped countries.

The comparative table of their Human development Index number, literacy rate, per
capita income here.

Table 1: The Human Development Index no for various countries
Serial No. Country HDI Ranking
1. Norway 1
2. USA 3
3. Germany 5
4. China 101
5. India 136

Table 2: The Literacy rate for various countries
Serial No. Country Literacy Rate Male Literacy Female Literacy
1 Norway 100% 100% 100%
2 USA 99% 99% 99%
3 Germany 99% 99% 99%
4 China 95.1% 97.5% 92.7%
5 India 74% 82.1% 65.5%

According to CIA world fact book, almost 75% of the world's illiterate adults are
concentrated in 10 countries including India and China on the top.


Table 3: Per capita Income for various countries
Serial No. Country Per Capita Income
1. Norway $54,397
2. USA $51,704
3. UK $36,569
4. China $9,055
5. India $3,843





ECONOMIC DEVELOPMENT IN INDIA

After Independence India has been on the path of economic development. In the various
5 year plans the objective was to achieve growth and development of the country. The
growth rate in the last 10 years is as follows

Table 4: Indicators
Indicators Real GDP
growth rate (%)
Agriculture
growth (%)
Industry growth
(%)
Services growth
(%)
2000-01 7.59 2.67 5.96 11.19
2001-02 4.30 -0.01 6.03 5.37
2002-03 5.52 6.01
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13


FDI was allowed in India before 1974. But gradually the govt controlled the amount of
CFDI flow in the country and that led to the exit of big companies like IBM, Coca Cola
etc from India.

The growth rate increases considerably post liberalization and it was highest during 2007-
2011. The growth rate decreased gradually after 2008 due to the recession in the world
economy. Though it did not affected India much immediately. During 1990s it was one of
the fastest growing economies of the world.

But now the amount of inflow of FDI in India has increased gradually and has
contributed in the growth and economic development.


ECONOMIC DEVELOPMENT IN CHINA

China is the world's second largest economy and the largest exporter of goods. It has
been able to maintain a very good growth rate in the past decade. It has been able to
maintain growth rate. of 9%-10%. And it is among one of the countries to who witnessed
the fastest growth in consumption. There has been a huge increase in the per capita
income of the Chinese citizens which has helped them to come out of the rank of poor
nation to the middle income bracket and increased their standard of living
China promoted FDI in the country long time back and which has helped a lot in the
economic development of the country. And China was able to survive the world
economic recession and able to maintain it's economy and employment in track. And
But the now the young workforce in China is decreasing and the liability of pensions is
increasing on the government which can have a negative effect in the coming years.


2. REVIEW OF LITERATURE

Role of FDI in India: An Analytical study ( Dr JasbirSingh, Ms Sumita Chadha, Dr
Anupama Sharma)

They studied that India is facing the problem of scarcity of resources and low rate of
capital formation so the domestic resources are not sufficient to carryout the various
reforms and the developmental projects. They discovered that large part of global FDI is
attracted by the developed countries rather than developing and under developing
countries. But even the small portion of global FDI coming to developing countries are
supplementing the scarce domestic resources and fulfilling the financial requirement for
building up the basic and essential infrastructure industries of the priority sector. In India
the highest amount of FDI is gone to financing sector, insurance sector, Real Estate and
Business services which is 33.05% of the total cumulative inflow of FDI.


FDI policies in China and India: Evidence from Firm Survey
(Yasheng Huang & Heiwai Tang)

They found out a major difference between the policies of India and china which are
completely opposite. While china has pursued a more proactive policy towards FDI,
opposite pattern is observed in India. It has more restrictions on Foreign Invested firms as
compared to the domestic firms. Secondly in China Govt officials are more helpful to the
Foreign Invested Firms while in India these firms face lot of obstacles and financial
constraints as compared to the domestic firms due to national preference

Can India adopt strategic Flexibility like China did?( Swapna S Sinha)

In this study the writer has tried to explore the factors determining the FDI in the
emerging markets of India and China. According to him the reason for India being a
laggard is it's dependency on services and specialized skills as comared to China who is
dependent on manufacturing model.



Role of FDI in different sectors (Sharma Reetu, Kurana Nikita)

In this study they have tried to establish the fact that FDI is playing a significant role in
the economic growth in India and enhancing the financial position of the country. FDI is
also contributes in the GDP and Foreign exchange reserves of the country. There are
many factors which affects the flow of FDI in an economy like market size, Inflation,
Trade openness, interest rate, wage rate, business environment etc. Although India is
receiving a constant flow of FDI but it is too low as compared to it's neigbour China
Inspite of having a large domestic market and low labour costs. This is attributed to
restricted FDI regime, high Tariffs, exit barriers for firms, stringent labour laws, poor
quality infrastructure, centralized decision making process and very limited scale of
export processing zones make India an unattractive investment location


An inclusive study of Foreign Investment in the Indian Economy (Dr P.S. Vohra *
Ms Preeti Sehgal)


In this paper the authors are trying to say that although India has been quite successful in
attracting Foreign capital in the form of FDI, Foreign portfolio Investment, External
Commercial Borrowings, ADRs, GDR's which have helped in the economic growth but
it's largely concentrated in service sector which provides less employment opportunities
as compared to the Agriculture and manufacturing sector. And secondly this foreign
capital has helped only in the internal growth and not helped much to increase the exports
of the country.

Exchange rate- A key Determinant of FDI in India (Diki S.V.and Shringarpura
A.A)

India's new Foreign Policy is attracting lot of Foeign investors in which 100% FDI is
permitted under automatic route. But the amount of Foreign Investment we receive
depends a lot on the Exchange rate. In turn exchange rate is a lot deteremined by various
factors like interest rate, political stability, public debt, balance of trade etc.


FDI in china- what we know and what we need to study next (chung Ming Lau and
Garry D. Brutan.)

Researchers need to know the factors that lead to success & Failure in managing both
joint ventures & Foreign investments in China & we should go beyond understanding
entry-mode related decisions


FDI origin and Regional Productivity in China: A comparison between China, U.S.
& Japan


FDI is overall found to have a significant and positive impact on regional economies
productivity. This result is consistent with most previous studies. One important policy
implication drawn from this study is that attracting inflows of foreign capital with
appropriate technology in terms of the technological gap continues to be an important
strategy for promoting productivity & economic growth for the inland region


Impact of FDI on Indian economy (Rangappa)

The growth of FDI gives opportunities to Indian industry for technological upgradation,
gaining access to global managerial skills & practices, optimizing utilizing of human &
natural resources & competing internationally with higher efficiency. FDI can help to
raise the output, production and export at the sectoral level of the Indian economy.

A VAR approach to the economics of FDI in China

Market growth, lower labour cost and the performances of FDI firms in China are the
factors determining the amount of flow of FDI in China. There is little evidence to
support role of exchange rate in FDI determination. Theoretically the causality between
FDI and GDP growth could run in either direction. FDI could promote further GDP
growth in the state. Through knowledge transfer FDI is expected to augment the existing
stock of knowledge and to update the skill of the labour training and skill acquisition. As
a result foreign investor may increase productivity in the recipient economy and FDI can
be deemed to be a catalyst for domestic investment and technological progress. However
the causality could also run the other opposite way. Rapid GDP growth could induce
more inflow of FDI. This is because rapid GDP growth will usually create a high level of
capital requirement and a resource gap in the host country and hence the host country will
demand more FDI by offering concessional terms for FDI to attract overseas investors.

Sectoral location of FDI in China

The foreign investors invest in the industry with comaprative advantage

The trade cum FDI theory therefore predict that the degree of FDI presence in China
should be higher in industries that are producing labour intensive goods and also export
oriented. The FDI presence is discouraged in the sectors in which SOE's enjoy political
pecking order' preferential treatment through market acess.


The Indian govt and the FDI in retail sector in India

Indian retail industry contributes around 15% of GDP & employs more or less 7% of the
labour. The move for opening up the retail sector to FDI is said to be anti- trader and anti
farmer. The trade in India is fragmented, unorganized, unnetworked and individually
small. No denying the fact that India needs a widespread & efficient supply chain. It is
highly improbable that a few retail giants can enable the desired outcome.

Socio economic and the environmental effects of FDI in India: An economic Analysis of
the perception in two metropoliton cities. According to this article FDI has unfavourable
impact on the socio-economic environmental aspects.



3. METHODOLOGY

To carry out this research both the secondary and the Primary data will be collected.
Secondary data
Secondary data will be collected from the various sources like Research Journals,
magazines and websites
Primary data
Primary data will be collected through the questionnaires and interviews

One paragraph saying that the statistical tools as per the need of the data collected

The Problem statement

Inspite of being an attractive market for the investors and India trying hard to
attract FDI why it's is not able to attract sufficient FDI as compared to China.
What are the factors that are holding back these large economies.
Why it's lagging behind.
What are the policy differences?
Why China is able to attract more FDI in his country
And what are it's effect?


4. OBJECTIVE OF THE
RESEARCH

1. To study the Indian Economic growth scenario.
2. To study the trends of FDI in India
3. To study the Comparative analysis of FDI in India and China in selected sector wise
4. To study the perception of people for FDI as tool for economic development


5. BIBLIOGRAPHY

Swapna S. Sinha, 2008, "Can India Adopt Strategic Flexibility like China did?" Global
Journal of Flexibal Systems Managemet 9: 1-14

Yasheng Huang and Heiwai Tang, 2012, "FDI Policies in China and India: Evidence
from Firm Surveys" The world Economy

JORDAN SHAN,2002 A VAR approach to the economics of FDI in China". Applied
Economics 34:885-893

Dr. P.s. Vohra; Preeti sehgal, 2011," An inclusive study of foreign investment in the
Indian economy" Asia Pacific Journal of research in business management 2:268-
281

Dikit S.V.* and Shringarpure A.A., 2013 "Exchange Rate A Key Determinant of FDI
in India" Advances In Management 6:55-57

Chung Ming Lau and Garry D. Bruton, 2008," FDI in China: What We Know and What
We Need to Study Next", Academy of Management

Chun-Chien Kuo, I-Jan Yeh, Kuo-Wei Chang , Foreign Direct Investment Origin and
Regional Productivity in China: A Comparison between China, U.S. and Japan",
International Journal of Organizational Innovation.

Rangappa E., 2013" Impact of Foreign Direct Investment on Indian Economy" Advances
In Management 6:9-12
Komal Narang and Ravi Inder Singh, 2008," Position of Foreign Direct Investment in
India". The Icfai University Journal of Financial Economics,3:84-91

Dr. Jasbir Singh, Ms. Sumita Chadha, Dr. Anupama Sharma ,2012," Role of Foreign
Direct Investment in India: An Analytical Study" International Journal of
Engineering and Science 1:34- 42

Mi Lin and Yum K. Kwan, 2011, Sectoral Location of FDI in China," The World
Economy 1181-1198

Sharma Reetu1, Khurana Nikita 2, 2013, Role of Foreign Direct Investment (FDI) in
Different Sectors," International Journal of Advances in Management and
Economics", 2:14-19

Janardhanan a. Alse and Arun K. Srinivasan, 2012, "Socio-Economic and Environmental
Effects of Foreign Direct Investment in India: An Economic Analysis Of
Perception In Two Metropolitan Cities", Journal Of International Business And
Economics 12:11-20

Paul Uttam1and Roy Swapan Kumar2, 2013, The Indian Government and FDI in Retail
Sector in India, Advances In Management 6: 3-7