INTRODUCTION

MEANING AND DEFINITION OF FOREIGN DIRECT

INVESTMENT
Foreign Direct Investment(FDI) is an Investment in a business by an investor from another country for
which the foreign investor has control over the company purchased. The Organisation of Economic
Cooperation and Development (OECD) defines control as owing 10% or more of the business. Businesses
that make foreign direct investments are often called multinational corporations (MNCs).

A MNC may make a direct investment by creating a new foreign enterprise, which is called a Greenfield
Investment, or by the acquisition of a foreign firm, either called an acquisition or brownfield investment.

The Reserve Bank of India (RBI) , vide Notification No. FEMA 20(R)/2017-RB, dated 7 November 2017
issued the Foreign Exchange Management ( Transfer or issue of Security by a Person Resident
Outside India) Regulations, 2017 which defines FDI as follows:

DEFINITION:
‘FDI’ means investment through capital instruments by a person resident outside India in an unlisted
Indian company; or in 10 percent or more of the post issue paid - up equity capital on a fully diluted basis
of a listed Indian company;

EXPLANATION:
Definition of ‘Foreign Direct Investment ‘: The definition of ‘Foreign Direct Investment ‘3 (FDI)
under the New FEMA 20 distinguishes between investments in unlisted and listed companies.

FDI ,is a type of investment that involves the injunction of foreign funds into an enterprise that operates in
a different country of origin from the investor. It usually involves participation in management, joint
venture, transfer of technology and expertise. Foreign Direct Investment (FDI) are the net inflows of
investments to acquire a lasting management interest (10% or more of voting stock) in an enterprise
operating in an economy other than that of the investor. It is the sum of equity capital, reinvestment of
earnings, other than long - term capital and short - term capital as shown in the balance of payments.

The Foreign Direct Investment means “cross border investment made by a resident in one economy in an
enterprise in another economy, with the objective of establishing a lasting interest in the investee economy.

POSITIVE IMPACT OF FDI:

The positive impact of foreign direct investments (FDI) on transition economies has been widely
acknowledged. First FDI is an important source of financing for transition economies as it helps to cover
the current account deficit, fiscal deficit and supplements inadequate domestic resources to finance both
ownership change and capital formation. Second, compared with other financing options FDI also facilities
transfer of technology, know-how and skills, and helps local enterprises into foreign markets

MACRO VIEW:
The macro view sees FDI as a particular form of the flow of capital across national borders, from home
countries to host countries, measured in Balance of Payment Statistics. Those flows give rise to a particular
form of stock of capital in host countries, namely the value of home country in entities, typically
corporations, controlled by a home country owner, or in which a home country owner holds a certain share
of voting rights. The variables of interest are the flow of financial capital, the the value of stock of capital
that is accumulated by the investing firms, and the flows of income from the investment.

MICRO VIEW:
The micro view tries to explain the motivations for investment in controlled foreign operations, from the
viewpoint of investors. It also examines the consequences to the investors, and to the home and host
countries, of the operations of multinationals or of the affiliates created by these investments, rather tithe
size of the flows or the value of the investment stock or investment position. These consequences arise from
their trade, employment, production and their flow and stocks of intellectual capital, unmeasured by capital
flows and stocks in balance of payment although some proxies for the flow of intellectual capital are part
of the current account. These motivations and consequences are intrinsically related to the investing firms
control of the affiliates and the ability of multinationals to coordinate the activities of parents and affiliates.

There is a strong relation between FDI and other macroeconomic variables. Privatisation related FDI in
flows helps to finance the fiscal deficit in countries where the need for large infrastructure spending and
generous welfare programmes are inconsistent with budget revenue constraints including inefficient tax
administration. Foreign capital inflows are also needed to cover often large current account deficits caused
by the inflow of consumer and investment goods which are not produced domestically. An undeveloped
financial sector as well as a history of macroeconomic instability and high inflation contribute to a saving
gap, with domestic savings lower than domestic investments, while obsolete capital needs to be replaced.
FDI is not the only source of financing for either the fiscal deficit or the current account deficit, but stable
long - term capital inflows in form of FDI are preferable to short -term flows or debt financing to avoid an
increase in macroeconomic instability.

FDI policy is issued by Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce and
Industry annually along with Press Notes/Press releases, Rules and Regulations, A.P. DIR. (Series)
Circulars determine the modalities of Foreign Direct Investment in India.

BENEFITS OF FDI:

FDI is also described as “investment into business of a country by a company in another company”.

Mostly the investment is into production by either buying a company in the target country or by expanding
operations of an existing business in that country.

Such investments can take place for many reasons, including to take advantage of cheaper wages, special
investment privileges ( e.g. tax exemptions) offered by the country.

NET FDI INFLOW:

Foreign Direct Investment (FDI) refers to an investment in or the acquisition of foreign assets within the
intent to control and manage them.

Companies can make an FDI in several ways, including purchasing the assets of the foreign company;
investing in the company or in new property, plants, or equipment; or participating in a joint venture with
a foreign company, which typically involves an investment of capital or know-how.

FDI is primarily a long-term strategy. Companies usually expect to benefit through access to local markets
and resources, often in exchange for expertise, technical know-how, and capital.

A country’s FDI can be both inward and outward. As the terms would suggest, inward FDI refers to
investments coming into the country and outward FDI are investments made by companies from that
country into foreign companies in other countries. The difference between inward and outward is called
the net FDI inflow, which can be either positive or negative.

TYPES OF FDI:

There are three forms of FDI;

1. Horizontal
2. Platform
3. Vertical

HORIZONTAL

Horizontal FDI occurs when a company is trying to open up a new market — a retailer, for example,
that builds a store in a new company to sell to the local market. For example, McDonald’s opening
restaurants in Japan would be considered horizontal FDI.

PLATFORM

Platform FDI occurs when Foreign Direct Investment from a source country into destination country for
the purpose of exporting to a third country.

VERTICAL

When a company invests internationally to provide input into its core operations— usually in its home
country. A firm may invest in production facilities in another country. When a firm brings the goods or
components back to its home country ( i.e., acting as a supplier), this is referred to as backward vertical
FDI. When a firm sells the goods into the local or regional market (i.e., acting as a distributor), this is
termed as forward vertical FDI. The largest global companies often gage in both backward and forward
vertical FDI depending on their industry. Using the same example, McDonald’s could purchase a large
scale farm in Canada o produce meat for their restaurants.

Many firms engage in backward vertical FDI. The auto, oil and infrastructure (which includes industries
related to enhancing the infrastructure of a country— that is, energy, communications, and transportation)
industries are good example for this. Firms from these industries invest in production or plant facilities in
a country in order to supply raw materials, parts, or finished product to their home country. In recent years,
these same industries have also started to provide forward FDI by supplying raw materials, parts, or finished
products to newly emerging local or regional markets.
GREEN FIELD INVESTMENT:

A form of foreign direct investment where a parent company starts a new venture in a foreign country by
constructing new operational facilities from the ground up. In addition to building new facilities, most
parent companies also create new long-term jobs in the foreign country by hiring new employees.

This opposite to a brown field investment. Green field investments occur when multinational corporations
enter into developing countries to build new factories and/or stores. Developing countries often offer
prospective companies tax-breaks, subsidies and other types of incentives to set green field investments.
Governments often see that losing corporate tax revenue is a small price to pay if jobs are created and
knowledge and technology is gained to boost the country’s human capital.

EXAMPLE:- Hyundai Investment in Czech Republic, it gave employment to around 3000, people and it
will be intended to manufacture 300,000 cars a year.

BROWN FIELD INVESTMENT:

When a company or government entity purchases or leases existing production facilities to launch a new
production activity. This is one strategy is where a commercial site used for an “unclean” business purpose,
such as steel mill or oil refinery, is cleaned up and used for a less polluting purpose, such as commercial
office space or a residential area. Brown field investment is usually less expensive and can be implemented
faster; however, a company may have to deal with many challenges, including existing employees, outdated
equipment, entrenched processes, and culture differences.

Please note that terms Greenfield and Brownfield are not exclusive to FDI; you may hear them in various
business contexts. In general, Greenfield refers to starting from the beginning, and brownfield refers to
modifying or upgrading plans or projects.

FOREIGN DIRECT INVESTMENT IN INDIA: AN

HISTORICAL PERSPECTIVE
The initial entry of FDI in India can be loosely considered from the time of establishment of East Indian
Company of Britain during the colonial era in the 17th century when the British merchants approached the
Mughal Emperor for establishing factory in Surat city of India. Along with them the British brought on the
Industrial revolution to India which lead to development of transportation (Railways and Roadways) and
communication systems albeit for their benefits. The innovations and inventions happening around the
European countries got introduced to the Indian subcontinent too.

After the Second World War, many Japanese companies entered the Indian market and enhanced their trade
with India. After the independence the policy makers of new India realised the need of foreign investment
for development and designed the FDI policies aiming it as a medium for bringing in advanced technologies
and gaining valuable foreign exchange resources. With time and as per economic and political regimes
there have been changes in FDI policy too.

FDI Policy during 1960-1980s From the 1960s onwards there have been voices in favour of FDI and against
it. Some argue that FDI leads to economic growth and productivity increases in economy as a whole, but
others stress the risks associated with FDI.

The industrial policy of 1965, allowed MNCs to venture through technical collaboration in India. Therefore,
the government adopted a liberal attitude by allowing more frequent equity.
During this period, the FDI policy of India was more restrictive due to the need to develop local industries.
In 1973, the Foreign Exchange Regulation Act(FERA) came into force, requiring all foreign companies
operating in India, with up to 40% equity, to register under Indian corporate legislation. Government
initiated the following measures such as:
No FDI was allowed without transfer of technology.
Renewals of foreign collaborations were restricted.
Foreign Exchange Regulation Act, 1973 was restricted to FDI in certain core or high priority
industries.
Equity participation was restricted to 40%.

FDI used to be viewed as unhelpful, negative and bringing inappropriate technology to developing
countries. More than four decades on, a radically different view from the beginning of the period has
emerged. FDI is now seen as beneficial and nearly all countries try to provide a welcoming climate for
investment. Countries increasingly recognise that they can affect the attraction of FDI using both general
economic policies and appropriate specific FDI policies.

However, at the same time as country governments have begun to realise the positive aspects of FDI, a
more nuanced view on FDI and development has now emerged in the research community, which views
the impact of FDI on economic growth as not only positive or negative, but that the effects depend on the
type of FDI, firm characteristics, economic conditions and policies. The type and sequencing of general
and specific policies in areas covering investment, trade, innovation and Human Resource’s are now seen
as crucial in affecting the link between FDI and development. While FDI is often superior in terms of capital
and technology, spillovers to local economic development is not automatic. Appropriate policies to benefit
from FDI include building up local Human Resource and technological capabilities to raise the absorptive
capacity to capture productivity spillovers from Transnational Corporations (TNCs).

The level and composition of FDI has changed markedly over time and this has implications for how FDI
affect development, not least because countries with increased amounts of the right type of FDI will have
a bigger potential to benefit.

With time, economic situations in the country and the outlook of government in power, the attitudes of the
policy makers kept changing towards foreign companies investing in India. FDI was introduced in the year
by then finance minister Dr. Manmohan Singh. It started with a baseline of $1 billion in 1990. India is
considered as second important destination for foreign investment. The major sectors that attracted FDI are
services, telecommunication, construction activities and computer software and hardware.

Foreign Direct Investment (FDI) in India is undertaken in accordance with the FDI policy formulated and
announced by the Government of India and is governed by the provisions of Foreign Exchange
Management Act, 1999.

India remains a preferred destination for foreign direct investment (hereinafter referred to as “FDI”) as
domestic consumption remains strong, according to the Reserve Bank of India’s Annual Report. In the
environment of a strengthening global economy, a cyclical rebound in world trade and generally buoyant
financial markets, the Indian economy in 2017-18 turned in a resilient performance that was also entrenched
in macroeconomic stability. Manufacturing activity is gathering momentum on the back of new business,
both domestic and export orders, rising capacity utilisation and drawdown of inventories. Therefore, Indian
Industrial as well as corporate structure has showed increased pace of progress making it a favourable
investment destination.
 INDUSTRY PROFILE
Modern banking in India originated in the last decade of the 18th century. Among the first banks were the
Bank of Hindustan, which was established in 1770 and liquidated in 1829–32; and the General Bank of
India, established in 1786 but failed in 1791.

The largest and the oldest bank which is still in existence is the State Bank of India (S.B.I). It originated
and started working as the Bank of Calcutta in mid-June 1806. In 1809, it was renamed as the Bank of
Bengal. This was one of the three banks founded by a presidency government, the other two were the Bank
of Bombay in 1840 and the Bank of Madras in 1843. The three banks were merged in 1921 to form the
Imperial Bank of India, which upon India's independence, became the State Bank of India in 1955. For
many years the presidency banks had acted as quasi-central banks, as did their successors, until the Reserve
Bank of India was established in 1935, under the Reserve Bank of India Act, 1934.

In 1960, the State Banks of India was given control of eight state-associated banks under the State Bank of
India (Subsidiary Banks) Act, 1959. These are now called its associate banks. In 1969 the Indian
governmentnationalised 14 major private banks; one of the big banks was Bank of India. In 1980, 6 more
private banks were nationalised. These nationalised banks are the majority of lenders in the Indian economy.
They dominate the banking sector because of their large size and widespread networks.

The Indian banking sector is broadly classified into scheduled and non-scheduled banks. The scheduled
banks are those included under the 2nd Schedule of the Reserve Bank of India Act, 1934. The scheduled
banks are further classified into: nationalised banks; State Bank of India and its associates; Regional Rural
Banks (RRBs); foreign banks; and other Indian private sector banks. The term commercial banks refers to
both scheduled and non-scheduled commercial banks regulated under the Banking Regulation Act, 1949.
Generally the supply, product range and reach of banking in India is fairly mature-even though reach in
rural India and to the poor still remains a challenge. The government has developed initiatives to address
this through the State Bank of India expanding its branch network and through the National Bank for
Agriculture and Rural Development (NABARD) with facilities like microfinance.

Market Size
The Indian banking system consists of 18 public sector banks, 22 private sector banks, 46 foreign banks,
53 regional rural banks, 1,542 urban cooperative banks and 94,384 rural cooperative banks as of September
2019. In FY07-18, total lending increased at a CAGR of 10.94 per cent and total deposits increased at a
CAGR of 11.66 per cent. India’s retail credit market is the fourth largest in the emerging countries. It
increased to US$ 281 billion on December 2017 from US$ 181 billion on December 2014.

Investments/developments
Key investments and developments in India’s banking industry include:
• In October 2019, the Department of Post launched the mobile banking facility for all post office
savings account holders of the CBS (core banking solutions) post office.
• Deposits under Pradhan Mantri Jan Dhan Yojana (PMJDY) stood at Rs 1.06 lakh crore (US$ 15.17
billion
• In October 2019, Government e-Marketplace (GeM) signed a Memorandum of Understanding
(MoU) with Union Bank of India to facilitate a cashless, paperless and transparent payment system
for an array of services.
• Transactions through Unified Payments Interface (UPI) stood at 1.15 billion in October 2019 worth
Rs 1.91 lakh crore (US$ 27.33 billion).
 • In August 2019, the government announced the major mergers of public sector banks which
included United Bank of India and Oriental Bank of Commerce to be merged with Punjab National
Bank, Allahabad Bank will be amalgamated with Indian Bank and Andhra Bank and Corporation
Bank will be consolidated with Union Bank of India.
• The NPAs (Non-Performing Assets) of commercial banks has recorded a recovery of Rs 400,000
crore (US$ 57.23 billion) in last four years including record recovery of Rs 156,746 crore (US$
22.42 billion) in FY19.
• The board of Allahabad bank approved the merger with Indian bank for the consolidation of 10
state-run banks into the large-scale lenders.
• As of September 2018, the Government of India launched India Post Payments Bank (IPPB) and
has opened branches across 650 districts to achieve the objective of financial inclusion.
• The total value of mergers and acquisition during 2017 in NBFC diversified financial services and
banking was US$ 2,564 billion, US$ 103 million and US$ 79 million respectively @.
• The total equity funding's of micro finance sector grew at the rate of 42 year-on-year to Rs 14,206
crore (US$ 2.03 billion) in 2018-19.

Government Initiatives
• As per Union Budget 2019-20, the government has proposed fully automated GST refund module
and an electronic invoice system that will eliminate the need for a separate e-way bill.
• Under the Budget 2019-20, government has proposed Rs 70,000 crore (US$ 10.2 billion) to the
public sector bank.
• Government has smoothly carried out consolidation, reducing the number of Public Sector Banks
by eight.
• As of September 2018, the Government of India has made the Pradhan Mantri Jan Dhan Yojana
(PMJDY) scheme an open ended scheme and has also added more incentives.
• The Government of India is planning to inject Rs 42,000 crore (US$ 5.99 billion) in the public
sector banks by March 2019 and will infuse the next tranche of recapitalisation by mid-December
2018.
Achievements
Following are the achievements of the government in the year 2017-18:
• As on March 31, 2019 the number of debit and credit cards issued were 925 million and 47 million,
respectively.
• As per RBI, as of October 25, 2019, India recorded foreign exchange reserves of approximately
US$ 442.58 billion.
• India ranks among the top seventh economies with a GDP of US$ 2,73 trillion in 2018 and economy
is forecasted to grow at 7.3 per cent in 2018.
• To improve infrastructure in villages, 204,000 Point of Sale (PoS) terminals have been sanctioned
from the Financial Inclusion Fund by National Bank for Agriculture & Rural Development
(NABARD).
• The number of total bank accounts opened under Pradhan Mantri Jan Dhan Yojana (PMJDY)
reached 333.8 million as on November 28, 2018.

REVIEW OF LITERATURE
REVIEW - 1

Rajesh Kumar (2014), “Foreign Direct Investment (FDI) in Indian Service Sector - A Study of Post
Liberalisation “, IOSR Journal of Computer Engineering, Vol. 16,Issue 5, pp. 95 - 105.

Rajesh Kumar studied the FDI inflows in Indian service sector from 1991 - 2010. It also studied the
relationship between service sector growth and India economy. The study was based on secondary source
of data. The main sources of data are from various economic survey of India, Ministry of Commerce and
Industry data, RBI bulletin, online data base of Indian economy, journals, articles, news chapters etc. The
study found that FDI has played a vital role in rising the output, productivity and employment specifically
in service sector. Good employment options are provided to skilled workers by Indian service sector. India
made a widely welcomed strategic shift in its national policy in the early nineties and removed many
restrictions to liberalise the Indian economy. This has given an unimaginable impetus for growth of all
industrial sector, and IT was in the forefront to take advantage of the liberalisation policies. Growth of IT
sector has helped many Indian cities to grow. This has brought pressure for infrastructure development and
many Indian cities are currently witnessing heavy investments in infrastructure projects. It is being
predicted that India is going to be a major developed power possibly in the next 20 years and the growth of
IT sector could very well be one of the major contributing factors for getting India into an enviable position.

REVIEW - 2
Prof. Kalpana Singh (2014)’ “Retail Sector in India: Present Scenario, Emerging Opportunities and
Challenges”, IOSR Journal of Business and Management (IOSR-JBM), Vol.16, Issue 4, pp. 72 - 81.

Kalpana Singh analysed the present structure of Indian retail sector and changes there in the last few years.
He made a segment analysis of Indian retail sector in order to know about the major sub - sectors in
organised and traditional retail and changes in the relative share of various sub - sectors over last few years
and penetration of organised retail in various segments. The study was based on secondary data and
information collected from a variety of sources. The study found that the Indian retail sector is evolving
rapidly. The size of India’s retail industry is expected to be more than double to $1.3 trillion by 2020. It is
expected that FDI will accelerate the growth of organised retail. Organised retail share in total retail share
in total retail was 8% in 2012 and it is expected to assume 24% share of total retail market in India in 2020.

REVIEW - 3
Manjunath, M., Dr. Shiva Prasad, H. C., Keerthesh Kumar, K. S., and Deepa Puthran (2014), “Foreign
Direct Investment In India “, MANEGMA - 2014, Changing Trends in Management, IT and Social Sciences
Held at Srinivas Institute of Management Studies, Mangalore.

Manjunath et al. highlighted the importance of FDI in India which plays an important role as an economic
catalyst of India’s economic growth. In the study a casual loop diagram is drawn considering the Indian
economy as a dependent variable and this cause and effect diagram can be later improvised and simulations
can be carried out by converting the casual loop diagram in to a stock and flow diagram. It deals with the
development of cause and effect diagram only. The methodology used in this paper is system dynamic
approach. The secondary data is used for developing casual loop diagram. Based on the casual loop
diagram, the study concluded that FDI plays an important role in the long-term development of a country
not only as a source of capital but also for enhancing competitiveness of domestic economy through transfer
of technology, strengthening infrastructure, raising productivity and generating new employment
opportunities. India emerges as the fifth largest recipient of foreign direct investment across the globe and
the second largest among all other developing countries (World Investment Report 2010). The huge market
size, availability of highly skilled Human Resource’s, sound economic policy, abundant and diversified
natural resources, all these factors, enable India to attract FDI.

REVIEW - 4
Teli (2013), “A Critical Analysis of Foreign Direct Investment Inflows in India”,
Procedia - Social and Behavioural Sciences, Vol.133, pp. 447 - 455.

Teli analysed the growth and trends and patterns of FDI inflow in India. It also studied impact of FDI on
economic indicators in India. The study was based on secondary data and period of the study was from
1991 to 2012. The study found that FDI inflows in India showed positive trend over the period under study.
Gross inflows of FDI included 63% share of direct investment in equity and 37% share of portfolio
investment. FDI increased due to adoption of more liberal foreign policy and series of measures are
undertaken by Government of India. It observed that Mauritius and Singapore had 48% cumulative inflow
of FDI. While, studying sectoral perspective, it is found that service sector tops in attracting highest FDI in
equity inflows, followed by manufacturing sector. Even in recent global crisis, FDI inflows showed
increasing trends. FDI is expected to grow in coming years. It was hypothecated that, the FDI inflow would
show positive growth trend during the period from 1992-92 to 2011-12. Opening FDI in multi-brand
retailing has mixed consequences on retail in India. They have positive impact on the related economic
indicators on Indian Economy. Government of India should attract more FDI through favourable policies
to avoid uncertainties. Finally, FDI in Indian retailing is considered to be the most significant factor for
country’s development.

REVIEW - 5
Naik Parth Pradipbhai (2013), “Role of FDI in Indian Economy Development”, PAREX Indian Journal of
Research, Vol.2, Issue 12, pp. 13 - 139.

Naik Parth Pradipbhai analysed the FDI inflows coming in India with special reference to sector-wise flows.
The study identified whether FDI has any role for economic development in India. The study puts forward
the case for allowing FDI in developing countries. The sample size for the study was yearly inflow of FDI
for the last 22 years, GDP at factor cost. It means that the trend of Indian economy moves similar to the
trend of FDI inflow. So the research has proved that FDI has a role to play in the flow of GDP at factor
cost. The study also proved that FDI and GDP at factor cost in India.

REVIEW - 6
Mohammed Nizamuddin (2013), “FDI in Multi Brand Retail and Employment Generation in India”,
International Journal of Engineering and Management Sciences, Vol. 4, No. 2, pp. 179-186.

Mohammed Nizamuddin analysed the role of FDI in employment generation in Indian retail sector. He
assumed FDI as an independent variable whereas employment as dependent variable. The study is
exploratory and quantitative in nature. The secondary information is extensively used for analysis purpose.
Further the secondary data pertaining to the study is originated from various sources like National Sample
Survey Organisation (NSSO), SIA reports, newspapers and websites of Reserve Bank of India (RBI),
Department of Industrial Policy and Promotion (DIPP), Economic Survey 2010-11, 2011-12 and a number
of leading journals. In order to compare the FDI inflow over the period under study, the percentage method
and simple statistics were used. By using time series date from 2001-02 to 2009-10 and applying ordinary
least square (OLS) method he found that FDI have negative impact on employment generation in retail
sector in India because the result show that 10% increase in FDI inflow in retail sector will decrease
approximately 1% jobs.

REVIEW - 7
Jampala, Rajesh C., Lakshmi, P.A. and Dokku, Srinivasa Rao (2013) “FOREIGN DIRECT INVESTMENT
inflows into India in the Post-reforms Period” Foreign Direct Investment and Financial Crisis, New Century
Publications New Delhi, pp. 42-58.

Jampala, Lakshmi and Srinivasa discussed about Foreign Direct Investment Inflows into India in the Post-
reforms period. They concluded that “as far as the economic interpretation of the model is concerned; the
size of domestic market is positively related to Foreign Direct Investment. The greater the market, the more
customers and more opportunities to invest.”

REVIEW - 8
Pradeep, (2013), “Foreign Direct Investment and Industrial Development in India”, Thesis submitted to
Maharshi Dayanand University Rohtak for the degree of Doctor of philosophy in Department of.
Commerce.

Pradeep made an attempt to study of Foreign Direct Investment in India. He emphasised that Investment,
or creation of capital, is an important determinant of economic growth. In general, investment may lead to
creation of physical capital, financial capital and human capital. In combination with other factors of
production and technology, investment determines the levels and growth through changes in production
and consumption of goods and services. Other things being the same, less investment leads to lower
economic growth with attendant consequences on reduction in income, consumption and employment
Foreign investment can reduce domestic savings gap. Hence, notwithstanding the domestic savings gap,
economic growth can be increased in an open economy with inflow of foreign investment. The foreign
investment in India would stimulate the domestic investment. The foreign investments are complementary
to economic growth and development in developing countries like India. Investment in an economy raises
output and improves standard of living of the people. Keeping this end in view both developed and
developing countries are trying their best to undertake investment programmes.

Since the availability of capital is scarce in many countries due to low save of domestic savings, hence the
important of foreign investment is ever rising. Foreign capital consists of private foreign capital and public
foreign capital. Public foreign capital is otherwise financial foreign aid where as private foreign capital
consists of either foreign direct investment or indirect foreign investment. In case of Foreign Direct
Investment (FDI), the private foreign investor either sets up a branch or a subsidiary in the recipient country.
Capital is the engine of economic development and this statement is gaining importance in the recent times.

REVIEW- 9
Bhattacharya Jita, Bhattacharya Mousumi (2012), “Impact of Foreign Direct Investment and Merchandise
and Services Trade of the Economic growth in India: an Empirical study”.

Bhattacharya Jita, Bhattacharya Mousumi study revealed that there was a long term relationship between
FDI, merchandise, service trade and economic growth of India. Bi-directional causality is observed
between merchandise trade and economic growth, services trade and economic growth. Unidirectional
causality is also observed from FDI to economic growth and FDI merchandise trade. A unidirectional
causality is also observed from merchandise trade to services trade.

REVIEW - 10
Kumar G. L., Karthik S. (2010) “Sectoral Performance Through Inflows of Foreign Direct Investment
(FDI)”.

The study revealed that Foreign Direct Investment has a major role to play in the economic development
of host country. Most of the countries have making use of foreign investment and foreign technology to
accelerate the place of their economic growth. Over the years, foreign direct investment has helped the
economies of the host countries to obtain a launching pad from where they can make further improvements.
Any forms of foreign direct investment pumps in a lot of capital knowledge and technological resources
into the economy of the country. This helps in taking the particular host economy ahead. FDI ensures a
huge amount of domestic capital, production level and employment opportunities in the developing
countries, which a major step towards the economic growth of the country. Using a process framework this
paper examines Foreign Direct Investment inflow into India and share of top ten investing countries flow
into India.

RESEARCH METHODOLOGY
NEED OF THE FDI:

Diversifies investors portfolio.

Promotes stable long term lending.
Developing countries need FDI to facilitate economic growth or repair.
Provide finance to developing countries.
Investors seeking the best return with the least risk, anywhere in the world.
Diversification of the business outside of a specific country.
Access to new technology.

Through there is a need of FDI as said above FDI can also become a disadvantage when:
Comparative advantage is lowered by foreign investment in strategic industries.
It strips or adds no value to businesses.
Trade agreements between countries to encourage more FDI may become a trade barrier.
Also it can lead to exploitation of both natural and Human Resource’s.
Profit repatriation.
Displacement as unethical access to local businesses.