Foreign Direct Investment in India - An Analytical Study: Project Report On

PROJECT REPORT ON
Foreign Direct Investment in India - An Analytical

Study
Submitted By
DIPTI PATIL
MFM Vth SEMESTER
BATCH 2011 -2014
ROLL NO: 40
UNDER THE GUIDANCE OF

PROF SMITA RAMAKRISHNA
K.J. SOMAIYA INSTITTE OF MANGEMENT STUDIES & RESEARCH

VIDYANAGAR, VIDYA VIHAR (E), MUMBAI- 400 077
SIMSR
Project Report
DECLARATION
I, Dipti Patil, a student of MFM programme, V Semester of 2011 2014 batch at SIMSR
do hereby declare that this report entitled Foreign Direct Investment in India - An Analytical
Study has been carried out by me during this semester under the guidance of Prof. Smita
Ramakrishna as per the norms prescribed by the University of Mumbai, and the same work has
not been copied from any source directly without acknowledging for the section that has been
adopted from published or non-published works.
( DIPTI PATIL )
Dipti Patil
Foreign Direct Investment in India - An Analytical Study
Page 2/42
SIMSR
Project Report
CERTIFICATE
This is to certify that Ms. Dipti Patil, a student of MFM programme V Semester of 20112014 batch at SIMSR has carried out the report entitled Foreign Direct Investment in India An Analytical Study
under my guidance as per the norms prescribed by the University of
Mumbai.
Prof SMITA RAMAKRISHNA

15TH Oct 2013
Dipti Patil
Page 3/42
SIMSR
Project Report
ACKNOWLEDGEMENTS
I wish to express my gratitude and special thanks to Prof Smita Ramakrishna, SIMSR for
guidance and support. Her guidance in data collection and analysis helped me to come up with
solution. She helped all the time whenever required and provide the right direction in
completion of project.
I also thank Prof Sonal Ved who helped us in selection of topic and allocation of mentor on
time. Last but not least I want to thank Mani sir who helped us with proper template to prepare
project report and other administrative formalities while submission of project.
(Dipti Patil)
Roll No. 40
Dipti Patil
Page 4/42
SIMSR
Project Report
TABLE OF CONTENT
1. LIST OF FIGURE.....6
2. LIST OF TABLE...7
3. LIST OF GRAPH......8
4. ABSTRACT......9
5. OBJECTIVE....10
6. RESEEARCH METHODOLOGY..11
7. LITERATURE REVIEW....12
8. INTRODUCTION.......14
WHAT IS FDI?
TYPES OF FDI
FDI PLOICY FRAMEWORK
9. FDI INFLOW AND ECONOMY DEVELOPMENT.21

10. FDI IN INDIA AND GLOBAL MARKET.22
11. FACTORS INFLUENCING FDI IMPACT ANALYSIS.24
DOLLAR RATE
GDP
POPULATION
CPI INDEX
GOLD PRICE
BOP
12. FDI FORECASTING TIME SERIES ANALYSIS......34

13. CONCLUSION AND RECOMMENDATION.......37
14. BIBLIOGRAPHY....38
15. APPENDIX......39
Dipti Patil
Page 5/42
SIMSR
Project Report
LIST OF FIGURES
Fig No
Title
Fig-1
Foreign Investment Schematic Representation
15
Fig-2
UNCTAD Report - FDI Rank
22
Fig-3
FDI India Factsheet
22
Fig-4
FDI Confidence Index
23
Dipti Patil
Page No
Page 6/42
SIMSR
Project Report
LIST OF TABLE
Table No
Title
Table-1
FDI Policy Framework
17-19
Table-2
Factors affecting FDI
24-25
Table-3
Correlation Matrix
33
Table-4
Parameter Estimates
39
Table-5
FDI Forecasts
Dipti Patil
Page No
40-42
Page 7/42
SIMSR
Project Report
LIST OF GRAPHS
Graph No
Title
Page No
Graph-1
Sector wise Distribution
19
Graph-2
State wise Distribution
20
Graph-3
FDI Trend during post-liberalization
24
Graph-4
Dollar Rate Trend
25
Graph-5
Scatter Plot for Dollar Rate vs FDI Inflow
26
Graph-6
GDP Trend
26
Graph-7
Scatter Plot for GDP vs FDI Inflow
27
Graph-8
Population Trend
27
Graph-9
Scatter Plot for Population vs FDI Inflow
28
Graph-10
CPI Index Trend
28
Graph-11
Scatter Plot for CPI Index vs FDI Inflow
29
Graph-12
Gold Price Trend
29
Graph-13
Scatter Plot for Gold Price vs FDI Inflow
30
Graph-14
BOP Trend
30
Graph-15
Scatter Plot for BOP vs FDI Inflow
31
Graph-16
FDI inflow from different countries
31
Graph-17
Various Routes to FDI Equity Inflow
32
Graph-18
FDI Historical Trend
34
Graph-19
FDI trend - data for forecasting
35
Graph-20
FDI Forecasting for 24 months
36
Dipti Patil
Page 8/42
SIMSR
Project Report
ABSTRACT
Foreign Direct Investment inflows in India seen rising 15 per cent in 2013 and observed to be
grown steadily in volume and is a major source of development finance.
Foreign Direct
Investment is one and only major instrument of attracting International Economic Integration in
any economy. It serves as a link between investment and saving. Recognizing that FDI can
contribute to economic development, all governments want to attract it. This project examines
the different forms of capital, the global and regional trends in FDI inflows, factors influencing
FDI in India, and experiences in India, comparative study with global market. The policy
implications of the determinants of FDI flows are analyzed.
FDI is an important factor in the globalization process as it intensifies the interaction between
states, regions, and firms. Growing international flows of portfolio and direct investment,
international trade, information and migration are all parts of this process. The large incentive in
the volume of FDI during the past two decades provides a strong incentive for research on this
phenomenon.
Dipti Patil
Page 9/42
SIMSR
Project Report
OBJECTIVE OF STUDY
Study Foreign Direct Investment in India for Indias growth and development of after
economic reforms
Examine the significance and assess the various aspects pertaining to performance of the
FDI in India viz-a-viz sector-wise, country-wise, state-wise and year-wise during post
reform period
Analyze historical trends or pattern of FDI to forecast future FDI
Analyze impact of FDI on economy of India
Dipti Patil
Page 10/42
SIMSR
Project Report
RESEARCH METHODOLOGY
The present study is based on the objectives like how FDI helps in economy growth of India,
statistical analysis like forecasting, correlation with other factors of Indian economy based on
historical data during post-liberalization period.
To accomplish all above objectives data has been collected from various sources like SIA
Newsletter, Reports, publication of Govt, RBI relating to foreign Investment, economic
journals, books, magazines and internet etc. Impact analysis and time series forecasting is done
using tool SAS Enterprise Guide and Microsoft Excel
Dipti Patil
Page 11/42
SIMSR
Project Report
LITERATURE REVIEW
Gulshan Akhtar (2013), in his paper Inflows of Foreign Direct Investment in India focuses on
potential impact of FDI in the growth and development of Indian economy. FDI acts as a
catalyst for domestic industrial development and considered to be an important vehicle for
economic development. The study finds out that during pre liberalization period FDI increased
at CAGR of 19.05% while during post liberalization period it has grown 24.28%. Since 1991
FDI inflows in India has increased approximately by more than 165 times.
K.R. Kaushik & Dr. Kapil Kumar Bansal (2012), in their research article Foreign Direct
Investment in Indian Retail Sector highlights division of retail industry in India, FDI policy
with regard to retailing, foreign investors concern regarding FDI in retail sector and
Government viewpoint. The article highlights the mixed response about FDI in retail sector with
major reason to oppose is FDI in retail can be harmful to local retailers in India. The article
concludes that FDI in retail sector may boost the socio economic development of the entire
country if implemented wisely carefully while signing the agreements with the Foreign
Investors
Dr. Jasbir Singh, Ms. Sumita Chadha & Dr. Anupama Sharma (2012), in their research paper
Role of FDI in India focus on how Foreign Direct Investment helps in reducing the defect of
BOP. Foreign Direct Investment is one and only major instrument of attracting International
Economic Integration in any economy. It serves as a link between investment and saving. Many
developing countries like India are facing the deficit of savings. This problem can be solved
with the help of Foreign Direct Investment. The analytical study in this paper concludes that we
should welcome inflow of foreign investment in such way that it should be convenient and
favorable for Indian economy and enable us to achieve our cherished goal like rapid economic
development, removal of poverty, internal personal disparity in the development and making
our Balance of Payment favorable.
Pankaj Sinha and Anushree Singhal (2013), in their research article FDI in Retail in India
focuses on the relationship between FDI in retail and seven macroeconomic factors Exchange
Dipti Patil
Page 12/42
SIMSR
Project Report
rate (yoy%), Inflation (CPI), GDP growth, Index of Industrial Production, Trade Openness,
Unemployment rate and Tax as a percentage of nominal GDP. This research also recommends
the government of India to shift focus and not rely much on FDI in retail to act as a game
changer. Indian Government should emphasize on building infrastructural facilities especially
developing transportation systems like roadways and railways, setting up economic zones for
warehousing facility, streamlining labour laws, planning urbanization to ensure adequate
availability of quality real estate, high street and implementing GST to give new dimensions to
modern organized retail in India.
Dipti Patil
Page 13/42
SIMSR
Project Report
INTRODUCTION
Foreign Direct Investment is an investment made by a foreign company or entity into a

company or entity based in another country. FDI refers to capital inflows from abroad that is
invested in or to enhance the production capacity of the economy. It can be a subsidiary, joint
venture or merger or acquisition and includes Greenfield and Brownfield projects. OECD has
defined FDI as investment by a foreign investor in at least 10% or more of the voting stock or
ordinary shares of the investee company. According to the international monetary fund (IMF),
FDI is defined as Investment that is made to acquire lasting interest in an enterprise operating
in an economy other than that of investor. The investors purpose is being to have an effective
voice in the management of enterprise.
Types of FDI
Foreign Direct Investment can be of two types:
1. Inward Foreign Direct Investment: This occurs when one company purchases another
business or establishes new operations for an existing business in a country different
than the investing company's origin.
2. Outward FDI: A business strategy where a domestic firm expands its operations to a
foreign country either via a Green field investment, merger/acquisition and/or expansion
of an existing foreign facility.
Dipti Patil
Page 14/42
SIMSR
Project Report
Foreign Direct Investment is one of the important and highly focused among the entire foreign
investment in India. Below is the schematic representation
Fig-1: Foreign Investment Schematic Representation

An Indian company receives Foreign Direct Investment under the two routes as given below:
1. Automatic Route
FDI is allowed under the automatic route without prior approval either of the
Government or the Reserve Bank of India in all activities/sectors as specified in the
consolidated FDI Policy, issued by the Government of India from time to time.
2. Government Route
FDI in activities not covered under the automatic route requires prior approval of the
Government which is considered by the Foreign Investment Promotion Board (FIPB),
Department of Economic Affairs, and Ministry of Finance.
FDI Policy Framework in India

There has been a sea change in Indias approach to foreign investment from the early 1990s
when it began structural economic reforms encompassing almost all the sectors of the economy.
Pre-Liberalization Period
Dipti Patil
Page 15/42
SIMSR
Project Report
Historically, India had followed an extremely cautious and selective approach while
formulating FDI
Government took active participation to command and control the economy by

allocation of resources (budgetary grants) or in setting priorities for the economy
Self-Reliance was the buzz word and there was limited scope to privatization whereas
nationalization of banks was taken as high priority
With the objective of becoming self reliant, there was a dual nature of policy intention
FDI through foreign collaboration was welcomed in the areas of high technology and
high priorities to build national capability and discouraged in low technology areas to
protect and nurture domestic industries.
Foreign Exchange Regulation Act (FERA) was introduced in 1973 , a regulatory

framework and removed restriction on FDI by allowing foreign equity holding in a joint
venture up to 40 per cent.
Government then established special economic zones (SEZs) and designed liberal policy
to provide incentives for promoting FDI in these zones with a view to promote exports.
The announcements of Industrial Policy (1980 and 1982) and Technology Policy (1983)
provided for a liberal attitude towards foreign investments in terms of changes in policy
directions.
Post-Liberalization Period
Post 1991 becomes a major shift in Liberalization and Globalization of Indian Economy
aiming to raise growth potential and integrating with the world economy.
Industrial policy reforms gradually removed restrictions on investment projects and

business expansion on the one hand and allowed increased access to foreign technology
and funding on the other.
A series of measures takes place to promote foreign direct investment

o Disinvestment Policy - Government started getting out of owning and managing
businesses
o Dual route of approval of FDI RBIs automatic route and Governments
approval (SIA/FIPB) route
o Automatic permission for technology agreements in high priority industries
Dipti Patil
Page 16/42
SIMSR
Project Report
o Removal of restriction of FDI in low technology areas as well as liberalization of

technology imports,
o Non-resident Indians (NRIs) and Overseas Corporate Bodies (OCBs) are
permitted to invest up to 100 per cent in high priorities sectors
o Foreign equity participation limits has been increased up to 51% for existing
companies
o Convention of Multilateral Investment Guarantee Agency (MIGA) for protection
of foreign investments.
o Foreign Exchange Management Act (FEMA), 1999 [that replaced the Foreign
Exchange Regulation Act (FERA), 1973] which was less stringent.
Current FDI policy in terms of sector specific limits has been summarized below:
Sector
Table 1: Sector Specific Limits of Foreign Investment in India

FDI
Entry Route
Cap/Equity
A. Agriculture
1. Floriculture, Horticulture, Development of 100%
Seeds, Animal Husbandry, Pisciculture,
Aquaculture, Cultivation of vegetables &
mushrooms and services related to agro and
allied sectors.
2. Tea sector, including plantation
100%
(FDI is not allowed in any other agricultural sector /activity)
B. Industry
1. Mining covering exploration and mining
100%
of diamonds & precious stones; gold, silver
and minerals.
2. Coal and lignite mining for captive
100%
consumption by power projects, and iron &
steel, cement production.
3. Mining and mineral separation of titanium 100%
bearing minerals
C. Manufacturing
1. Alcohol- Distillation & Brewing
100%
2. Coffee & Rubber processing &
100%
Warehousing.
3. Defence production
26%
4. Hazardous chemicals and isocyanates
100%
Dipti Patil
Other
Conditions
Automatic
FIPB
Automatic
Automatic
FIPB
Automatic
Automatic
FIPB
Automatic
Page 17/42
SIMSR
Project Report
5. Industrial explosives Manufacture

100%
Automatic
6. Drugs and Pharmaceuticals
100%
Automatic
7. Power including generation (except
100%
Automatic
Atomic energy); transmission, distribution
and power trading.
(FDI is not permitted for generation, transmission & distribution of electricity
produced in atomic power plant/atomic energy since private investment in this
activity is prohibited and reserved for public sector.)
D. Services
1. Civilaviation (Greenfield projects and
100%
Automatic
Existing projects)
2. Asset Reconstruction companies
49%
FIPB
3. Banking (private) sector
74%(FDI+FII). Automatic
FII not to
exceed 49%
4. NBFCs : underwriting, portfolio
management services, investment advisory
100%
Automatic
services, financial consultancy, stock
broking, asset management, venture capital,
custodian, factoring, leasing and finance,
housing finance, forex broking, etc.
5. Broadcasting
a. FM Radio
20%
FIPB
b. Cable network; c. Direct to home; d.
49%
Hardware facilities such as up-linking,
(FDI+FII)
HUB.
e. Up-linking a news and current affairs TV
100%
Channel
6. Commodity Exchanges
49% (FDI+FII) FIPB
(FDI 26 % FII
23%)
7. Insurance
26%
Automatic
8. Petroleum and natural gas :
a. Refining
9. Print Media
a. Publishing of newspaper and periodicals
dealing with news and current affairs
b. Publishing of scientific magazines /
speciality journals/periodicals
10. Telecommunications
a. Basic and cellular, unified access services,
national / international long-distance, VSAT, public mobile radio trunked services
(PMRTS), global mobile personal
Dipti Patil
49% (PSUs).
100% (Pvt.
Companies)
26%
100%
74% (including
FDI, FII, NRI,
FCCBs,
ADRs/GDRs,
convertible
s.t.minimum
capitalisation
norms
Clearance from
IRDA
FIPB (PSUs)
Automatic(Pvt.
)
FIPB
S.t.guidelines
by Ministry of
Information &
FIPB
broadcasting
Automatic up
to 49% and
FIPB beyond
49%.
Page 18/42
SIMSR
Project Report
communication services (GMPCS) and

preference
others.
shares, etc.
Sectors where FDI is Banned
1. Retail Trading (except single brand product retailing);
2. Atomic Energy;
3. Lottery Business including Government / private lottery, online lotteries etc;
4. Gambling and Betting including casinos etc.;
5. Business of chit fund;
6. Nidhi Company;
7. Trading in Transferable Development Rights (TDRs);
8. Activities/sector not opened to private sector investment;
9. Agriculture (excluding Floriculture, Horticulture, Development of seeds, Animal Husbandry,
Piscicultureand cultivation of vegetables, mushrooms etc. under controlled conditions and services
related to agro and allied sectors) and Plantations (Other than Tea Plantations);
10. Real estate business, or construction of farm houses;
Manufacturing of Cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco or of tobacco
substitutes.
Table-1: Source http://www.rbi.org.in/scripts/bs_viewcontent.aspx?Id=2513
Sector wise FDI in India

Manufacturing, constructions, Financial Services are top major sectors for FDI inflow in India.
Real Estate, Mining, Hotel, Retail, Computer Services, Mining, Energy & Electricity also
attractive sectors for FDI inflow
Below graph shows the comparative distribution of FDI inflow in recent four years. Steady
growth is observed in all the sectors which help in the economic development of India
Graph-1: Source http://rbi.org/
Dipti Patil
Page 19/42
SIMSR
Project Report
State wise FDI in India

Mumbai, Delhi, Chennai, Bangalore, Hyderabad are the major states in India to FDI inflow.
Below is the distribution for FDI in different countries in India in year 2012.
Graph-2: Source http://rbi.org/
Dipti Patil
Page 20/42
SIMSR
Project Report
FDI INFLOW AND ECONOMY DEVELOPMENT
FDI is an important vehicle of for economic development as far as the developing nations are
concerned. The important effect of FDI is its contribution to the growth of the economy in all
sectors like manufacturing, telecommunication, information technology, financial services,
energy & electricity etc.
FDI has an important impact on countrys trade balance, increasing labor standards and skills,
transfer of technology and innovative ideas, skills and the general business climate.
FDI also provides opportunity for technological transfer and up gradation, access to global
managerial skills and practices, optimal utilization of human capabilities and natural resources,
making industry internationally competitive, opening up export markets, access to international
quality goods and services and augmenting employment opportunities.
Dipti Patil
Page 21/42
SIMSR
Project Report
FDI INFLOW AND GLOBAL MARKET
The global rankings of the largest recipients of FDI also reflect changing patterns of investment
flows: 9 of the 20 largest recipients were developing countries
(Fig-2). India ranks 15th in international market to FDI recipients
Fig-2 Source: UNCTAD Report
India continues to be preferred destination for FDI. Fig shows the FDI inflow and outflow in
India.
Fig-3 Source: FDI India Factsheet
Dipti Patil
Page 22/42
SIMSR
Project Report
The Foreign Direct Investment Confidence Index is a regular survey of global executives
conducted by A.T. Kearney. The Index provides a unique look at the present and future
prospects for international investment flows. India ranks among the best in investment surveys.
Fig-4 shows the comparative ranking in global market for FDI investments
Fig-4 2013 FDI Confidence Index, Source: http://www.atkearney.com
Dipti Patil
Page 23/42
SIMSR
Project Report
FDI IMPACT ANALYSIS

FDI inflow Historical Trend
2005 onwards FDI inflow increased with in India which helped in development in Indian
economy. High FDI inflow observed in 2008 with $43,000 million Graph-3 shows the historical
trend in FDI inflow in India
Graph-3 Source: http://www.oecd.org/investment/statistics.htm
Factors influencing FDI inflow

Foreign Direct Investment plays a very important role in the development of any nation. A lot of
factors are involved to attract FDI in India which includes government policy, political
environment, market size, labor cost. Not all factors are quantitative. Listed below few
quantitative factors to find impact on FDI
Name
Type
Description
INR_per_USD
Numeric
Indian Rupee per 1 $
GDP
Currency
Gross Domestic Product in million
Population
Numeric
India Population
Inflation
Numeric
Consumer Price Index (inflation rate)
gold_per_10_gram
Numeric
Rupee per 10gram gold
Dipti Patil
Page 24/42
SIMSR
Project Report
Overall_BOP
Currency
Balance of Payments
FDI_Eq_govt_app_route Currency
FDI approval from government route
FDI_Eq_auto_route
Currency
FDI approval from auto route
FDI_Eq_existing_share
Currency
FDI approval from existing share
FDI_Eq_NRI_scheme
Currency
FDI approval from NRI scheme
FDI_Mauritius
Currency
FDI from Mauritius
FDI_USA
Currency
FDI from USA
FDI_Japan
Currency
FDI from Japan
FDI_Netherlands
Currency
FDI from Netherlands
FDI_UK
Currency
FDI from UK
FDI_Germany
Currency
FDI from Germany
FDI_France
Currency
FDI from France
FDI_Singapore
Currency
FDI from Singapore
Table-2 List of factors
Dollar Rate
Dollar rate trend shows a steady growth in 1990, but very fast growth in recent year which cross
Rupee 55 per dollar. Graph shows the historical trend for Indian Rupee per 1US dollar.
Graph-4 Source: http://www.inflation.eu/inflation-rates/india/historic-inflation
Dipti Patil
Page 25/42
SIMSR
Project Report
Scatter plot shows the 29.48% variation in FDI inflow explained by Indian Rupee per USD and
remaining 70% will be explained by other factors. FDI and dollar rate has direct proportional
relation having every 1unit of increase in dollar rate, will increase FDI by 1112 units.
Graph-5 Scatter plot for dollar rate vs FDI inflow
Gross Domestic Product

Historical trend for gross domestic product shows the increase in year on year. Recent horizon
shows the very high increase as FDI inflow.
Dipti Patil
Page 26/42
SIMSR
Project Report
The trend line in scatter plot shows that FDI Inflow and GDP are directly proportional. 78%
variation in FDI Inflow explained by factor GDP and 22% will be explained by other factors.
GDP and FDI has direct relation i.e. every 1% of increase in GDP, will have increase in FDI by
2.32%.
Graph-7 Scatter Plot for GDP vs FDI inflow
India Population
Population in India has a steady growth as shown in graph below
Graph-8 Source http://worldbank.org
Dipti Patil
Page 27/42
SIMSR
Project Report
65% variation in FDI Inflow explained by population. But the model shows minor change in
FDI if population increases although population and FDI has directly proportional. India
population is not much significant factor to impact on FDI inflow.
Graph-9 scatter plot for population vs FDI inflow
Consumer Price Indix (CPI)

Inflation rate in India is on an average 8%. It is expected to be in the range of 8% - 10% in
nearer future. Below graph shows the hostorical trend for CPI index.
Graph-10 source http://www.inflation.eu/inflation-rates
Dipti Patil
Page 28/42
SIMSR
Project Report
2% variation in FDI inflow explained by inflation rate which is very less. Infation rate is not the
signification factor to impact FDI inflow.
Graph-11 scatter plot for CPI index vs FDI inflow
Gold Price
Gold price hipe a lot in recent years. In 2012 the gold rate increases to INR 30,000. Gold Price
is appreciated and it is expected to be appriciate more in nearer future. Graph shows the
historical trend for gold price per 10 gram in INR.
Graph-12:Source:http://thebankingbible.com/10-gram-of-gold-price-history-for-the-last-86years-6440
Dipti Patil
Page 29/42
SIMSR
Project Report
60% variation in FDI inflow explained by Gold price. Below is the scatter plot for Gold Price vs
FDI inflow
Graph -13 scatter plot for gold price vs FDI inflow
Balance of Payments
FDI in the balance of payments accounts appears in two ways:
1. The initial outflow of FDI is entered as an outflow (debit) on the capital account
2. The investment income is entered as an inflow (credit) on the current account.
Graph-14 shows the historical trend in balance of payments.
Graph-14 Source: http://dbie.rbi.org.in/DBIE/dbie.rbi?site=home
Dipti Patil
Page 30/42
SIMSR
Project Report
Graph-15 shows the scatter plot for BOP vs FDI inflow. It shows that BOP has less explaining
power for FDI inflow.
Graph-15 Scatter plot for BOP vs FDI Inflow
FDI inflow from top countries

Top countries for FDI inflow in india are Mauritius, USA, Signgapore, UK, Grance,
Netherlands. But major FDI inflow in India is from Mauritius. Graph shows the comparative
distribution of FDI inflow in India from top countries. FDI inflow from singapore, USA, Japan
contributes significant amount
ZGraph-16 Source: http://dipp.nic.in/English/Publications/SIA_Newsletter/2013/jun2013/index.htm
Dipti Patil
Page 31/42
SIMSR
Project Report
FDI inflow via different routes in India

FDI inflow in India can take place via government route, automatic route, existing shares or
NRIs schemes. Major FDI inflow is via government route but in recent years automatic route
becomes more attractive. Graph shows the comparative distribution for various routes for FDI
inflow in India.
Graph-17 Source: http://dipp.nic.in/English/Publications/SIA_Newsletter/2013/jun2013/index.htm
Dipti Patil
Page 32/42
SIMSR
Project Report
Table3 shows the correlation of measurable factors with FDI inflow

FDI inflow (US $$ million)
GDP
INR per USD
Population
CPI - inflation
Gold Price
BOP
FDI inflow (US $$ million) GDP INR per USD Population CPI - inflation Gold Price BOP
100%
89% 100%
54% 67%
100%
80% 88%
87%
100%
14% 11%
-41%
-27%
100%
78% 95%
57%
75%
21%
100%
2% 6%
15%
22%
-34%
-10% 100%
Table3 Correlation Matrix

Correlation Matrix Interpretation is as below:
1.0
Perfect correlation
0 to 1
Both variables tend to increase or decrease together
0.0
The two variables do not vary together at all.
-1 to 0
One variable increases as the other decreases.
-1.0
Perfect negative or inverse correlation.
Factors like GDP, dollar rate, population, and gold price shows very high correlation with FDI
inflow.
Dipti Patil
Page 33/42
SIMSR
Project Report
FDI INFLOW TIME SERIES ANALYSIS
FDI Forecasting
Graph shows historical trend for FDI inflow in India during post-liberalization period. Trend
shows drastic growth in recent years. To forecast FDI for period 2013 and 2013, historical 12
years data (2000-2012) is used.
Grpah-19 shows the month on month pattern in FDI inflow. This data is used for time series
forecasting of next 24 months FDI inflow in India. Winters Multiplicative method is used to
forecast FDI. This method is the simplest form of exponential smoothing and can be used for
data without any systematic trend or seasonal components.
Dipti Patil
Page 34/42
SIMSR
Project Report

Theils U is one of the accuracy measure used to check the performance of a model. The Theil's
U statistic falls between 0 and 1. When U = 0, that means that the predictive performance of the
model is excellant and when U = 1 then it means that the forecasting performance is not better
than just using the last actual observation as a forecast. 0.586 the lowest Theils U is used to
choose the model.
Theils U determins the forecasting performance of the model. The interpretation for Theil U is
as follows:
Interpret (1- Theil U)
1.00 0.80 High (strong) forecasting power
0.80 0.60 Moderately high forecasting power
0.60 0.40 Moderate forecasting power
0.40 0.20 Weak forecasting power
0.20 0.00 Very weak forecasting power
FDI time series model has moderate forecasting power (1- Theil U = 0.41)
Dipti Patil
Page 35/42
SIMSR
Project Report
Graph-20 shows the forecasting of FDI inflow for 24 months (2013 2014)
Graph-20 FDI Forecasting for 24 months
Dipti Patil
Page 36/42
SIMSR
Project Report
CONCLUSION AND RECOMMENDATION
It can be observed from the above analysis that at the sector wise level of the Indian economy,
FDI has helped to raise the output, productivity and export in some sectors. Manufacturing been
always attractive for foreign investors however government is required to look more into policy
up gradation in sectors like construction, financial services, telecommunication to generate more
opportunity for foreign investors
The major FDI inflow is observed from Mauritius i.e. almost 50% of FDI inflow. The main
reason for higher levels of investment from Mauritius was that the fact that India entered into a
double taxation avoidance agreement (DTAA) with Mauritius were protected from taxation in
India.
Various macro-economic factors like GDP, dollar rate, political environment, market size,
government policy plays an important role in FDI inflow. FIPB, SIA helps to entry for foreign
investors however automatic route been more attractive for investors in recent years.
Government needs to improve more on RBIs NRI scheme to attract more investors.
Dipti Patil
Page 37/42
SIMSR
Project Report
BIBLIOGRAPHY
International Journal of Humanities and Social Science Invention ISSN (Online): 2319
7722, ISSN (Print): 2319 7714 www.ijhssi.org Volume 2 Issue 2 February. 2013
PP.01-11
International Journal of Emerging Research in Management &Technology ISSN: 22789359
RESEARCH INVENTY: International Journal of Engineering and Science ISSN: 22784721, Vol. 1, Issue 5 (October 2012), PP 34-42 www.researchinventy.com 34
Online at http://mpra.ub.uni-muenchen.de/46833/MPRA Paper No. 46833, posted 9.

May 2013 04:47 UTC
India Fact Book, Department of Economic Affairs, Ministry of Finance, Government of

India June 2012
UNCTAD World Investment Report 2013
Ernst & Young's 2012 attractiveness survey India
RBI website
FIPB website
DIPP website
Dipti Patil
Page 38/42
SIMSR
Project Report
APPENDIX
PARAMETER ESTIMATES
Parameter Estimates
N
NRESID
DF
WEIGHT1
WEIGHT2
WEIGHT3
SIGMA
CONSTANT
LINEAR
S_JAN
S_FEB
S_MAR
S_APR
S_MAY
S_JUN
S_JUL
S_AUG
S_SEP
S_OCT
S_NOV
S_DEC
SST
SSE
MSE
RMSE
MAPE
MPE
MAE
ME
MAXE
MINE
MAXPE
MINPE
RSQUARE
ADJRSQ
RW_RSQ
ARSQ
APC
AIC
SBC
CORR
THEILUM
THEILUS
THEILUC
THEILUR
THEILUD
THEILU
RTHEILUM
RTHEILUS
RTHEILUC
RTHEILUR
RTHEILUD
RTHEILU
Method - Winters Multiplicative

FDI_Inflow
156
156
142
0.1055728
0.1055728
0.25
1055.4042
2276.1099
-7.969106
0.8029204
0.8781421
0.845852
1.139364
1.2887347
1.1413181
0.8877874
1.3359588
1.104222
0.9351759
0.7838162
0.8567085
238207628
158170682
1113878
1055.4042
55.584969
-29.41305
570.5778
-64.7447
4323.8094
-3041.69
80.494793
-378.4551
0.3359966
0.2752075
-0.014164
0.2050663
1213841.5
2185.3754
2228.0734
0.6405127
0.0041343
0.0127649
0.9831007
0.1077023
0.8881633
0.5866506
0.0009218
0.0923968
0.9066814
0.0940959
0.9049822
0.9287713
Table-4 Parameter Estimates
Dipti Patil
Page 39/42
SIMSR
Project Report
FORECASTING RESULTS
Period
Jan-00
Feb-00
Mar-00
Apr-00
May-00
Jun-00
Jul-00
Aug-00
Sep-00
Oct-00
Nov-00
Dec-00
Jan-01
Feb-01
Mar-01
Apr-01
May-01
Jun-01
Jul-01
Aug-01
Sep-01
Oct-01
Nov-01
Dec-01
Jan-02
Feb-02
Mar-02
Apr-02
May-02
Jun-02
Jul-02
Aug-02
Sep-02
Oct-02
Nov-02
Dec-02
Jan-03
Feb-03
Mar-03
Apr-03
May-03
Jun-03
Jul-03
Aug-03
Sep-03
Oct-03
Nov-03
Dec-03
Jan-04
Feb-04
Mar-04
Apr-04
May-04
Jun-04
Jul-04
Aug-04
Sep-04
Oct-04
Dipti Patil
FDI Inflow
$157
$169
$164
$118
$264
$182
$241
$421
$236
$185
$213
$254
$204
$288
$240
$128
$349
$219
$256
$363
$230
$238
$243
$332
$338
$352
$283
$227
$492
$319
$416
$665
$349
$272
$299
$348
$292
$266
$338
$143
$297
$178
$168
$257
$150
$132
$131
$145
$148
$142
$209
$87
$230
$174
$202
$296
$257
$192
Page 40/42
SIMSR
Nov-04
Dec-04
Jan-05
Feb-05
Mar-05
Apr-05
May-05
Jun-05
Jul-05
Aug-05
Sep-05
Oct-05
Nov-05
Dec-05
Jan-06
Feb-06
Mar-06
Apr-06
May-06
Jun-06
Jul-06
Aug-06
Sep-06
Oct-06
Nov-06
Dec-06
Jan-07
Feb-07
Mar-07
Apr-07
May-07
Jun-07
Jul-07
Aug-07
Sep-07
Oct-07
Nov-07
Dec-07
Jan-08
Feb-08
Mar-08
Apr-08
May-08
Jun-08
Jul-08
Aug-08
Sep-08
Oct-08
Nov-08
Dec-08
Jan-09
Feb-09
Mar-09
Apr-09
May-09
Jun-09
Jul-09
Aug-09
Sep-09
Oct-09
Nov-09
Dec-09
Jan-10
Feb-10
Dipti Patil
Project Report
$212
$283
$230
$314
$284
$169
$319
$348
$277
$534
$346
$252
$280
$478
$340
$526
$480
$388
$820
$612
$548
$1,065
$700
$649
$939
$1,001
$1,266
$1,520
$2,335
$1,324
$2,158
$1,767
$1,963
$2,367
$1,779
$1,808
$1,774
$2,843
$1,544
$1,346
$2,725
$2,285
$3,665
$2,830
$2,905
$3,671
$2,907
$3,769
$3,378
$4,404
$2,672
$3,401
$3,443
$2,484
$3,179
$2,127
$2,127
$2,745
$2,380
$2,567
$2,322
$3,093
$2,268
$2,406
Page 41/42
SIMSR
Project Report
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Jan-11
Feb-11
Mar-11
Apr-11
May-11
Jun-11
Jul-11
Aug-11
Sep-11
Oct-11
Nov-11
Dec-11
Jan-12
Feb-12
Mar-12
Apr-12
May-12
Jun-12
Jul-12
Aug-12
Sep-12
Oct-12
Nov-12
Dec-12
Jan-13
Feb-13
Mar-13
Apr-13
May-13
Jun-13
Jul-13
Aug-13
Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Mar-14
Apr-14
May-14
Jun-14
Jul-14
Aug-14
Sep-14
Oct-14
Nov-14
Dec-14
$2,558
$1,964
$2,342
$1,788
$1,836
$1,963
$1,380
$1,705
$1,423
$1,817
$1,551
$1,502
$1,487
$1,359
$1,706
$1,459
$2,144
$2,122
$2,365
$2,448
$2,425
$3,209
$2,404
$2,542
$2,557
$3,002
$3,587
$2,943
$1,951
$3,008
$1,892
$2,503
$2,240
$2,327
$1,821
$1,985
$1,905
$2,557
$2,882
$2,543
$1,971
$2,956
$2,434
$2,054
$1,715
$1,868
$1,744
$1,901
$1,824
$2,448
$2,759
$2,434
$1,886
$2,828
$2,329
$1,965
$1,640
$1,786
Table-5 FDI Forecasting Results
Dipti Patil
Page 42/42

Foreign Direct Investment in India - An Analytical Study: Project Report On

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Foreign Direct Investment in India - An Analytical Study: Project Report On

Uploaded by

Copyright:

Available Formats

PROJECT REPORT ON

Foreign Direct Investment in India - An Analytical

UNDER THE GUIDANCE OF

K.J. SOMAIYA INSTITTE OF MANGEMENT STUDIES & RESEARCH

Foreign Direct Investment in India - An Analytical Study

under my guidance as per the norms prescribed by the University of

Prof SMITA RAMAKRISHNA

Foreign Direct Investment in India - An Analytical Study

Foreign Direct Investment in India - An Analytical Study

FDI PLOICY FRAMEWORK

9. FDI INFLOW AND ECONOMY DEVELOPMENT.21

12. FDI FORECASTING TIME SERIES ANALYSIS......34

Foreign Direct Investment in India - An Analytical Study

Foreign Investment Schematic Representation

UNCTAD Report - FDI Rank

FDI India Factsheet

FDI Confidence Index

Foreign Direct Investment in India - An Analytical Study

FDI Policy Framework

Factors affecting FDI

Foreign Direct Investment in India - An Analytical Study

Sector wise Distribution

State wise Distribution

FDI Trend during post-liberalization

Dollar Rate Trend

Scatter Plot for Dollar Rate vs FDI Inflow

Scatter Plot for GDP vs FDI Inflow

Scatter Plot for Population vs FDI Inflow

CPI Index Trend

Scatter Plot for CPI Index vs FDI Inflow

Gold Price Trend

Scatter Plot for Gold Price vs FDI Inflow

Scatter Plot for BOP vs FDI Inflow

FDI inflow from different countries

Various Routes to FDI Equity Inflow

FDI Historical Trend

FDI trend - data for forecasting

FDI Forecasting for 24 months

Foreign Direct Investment in India - An Analytical Study

Foreign Direct Investment in India - An Analytical Study

Analyze historical trends or pattern of FDI to forecast future FDI

Analyze impact of FDI on economy of India

Foreign Direct Investment in India - An Analytical Study

Foreign Direct Investment in India - An Analytical Study

Foreign Direct Investment in India - An Analytical Study

Foreign Direct Investment in India - An Analytical Study

Foreign Direct Investment is an investment made by a foreign company or entity into a

Foreign Direct Investment in India - An Analytical Study

Fig-1: Foreign Investment Schematic Representation

FDI Policy Framework in India

Foreign Direct Investment in India - An Analytical Study

Government took active participation to command and control the economy by

Foreign Exchange Regulation Act (FERA) was introduced in 1973 , a regulatory

Industrial policy reforms gradually removed restrictions on investment projects and

A series of measures takes place to promote foreign direct investment

Foreign Direct Investment in India - An Analytical Study

o Removal of restriction of FDI in low technology areas as well as liberalization of

Table 1: Sector Specific Limits of Foreign Investment in India

Foreign Direct Investment in India - An Analytical Study

5. Industrial explosives Manufacture

Foreign Direct Investment in India - An Analytical Study

communication services (GMPCS) and