A Study on Foreign Direct Investment in India

A project submitted to
University of Mumbai for partial completion of the degree of
Bachelor of Commerce (Accounting and Finance)
Under the faculty of commerce

By

FALGUNI RAJESH SOLANKI

TYBAF

Under the guidance of

PROFESSOR. SHWETA GHULE

Valia college of arts and commerce

K-1, Wing B, New LIC Colony, D.N.Nagar,

Andheri West, Mumbai, Maharashtra 400053

March 2023
 CERTIFICATE

This is to certify that Ms. Falguni Rajesh Solankii has worked and duly completed her Project
Work for the degree of Bachelor in Commerce (Accounting and Finance) under the Faculty
of Commerce in the subject of Accounting and Finance and her project is entitled, “Foreign
Direct Investment” under my supervision.

I further certify that the entire work has been done by the learner under my guidance and that
no part of it has been submitted previously for any Degree or Diploma of any University.

It is her own work and facts reported by her personal findings and investigations
 DECLARATION BY LEARNER

I the undersigned Ms. Falguni Rajesh Solanki hereby, declare that the work embodied in
this project work titled “Foreign Direct Investment”, forms my own contribution to the
research work carried out under the guidance of Professor. Shweta Ghule is a result of my
own research work and has not been previously submitted to any other University for any
other Degree/Diploma to this or any other University.

Wherever reference has been made to previous works of others, it has been clearly indicated
as such and included in the bibliography.

I hereby further declare that all information of this document has been obtained and presented
in accordance with academic rules and ethical conduct.

Falguni Rajesh Solanki

Certified by
Professor. Shweta Ghule
Internal Guide
 ACKNOWLEDGMENT

To list who all have helped me is difficult because they are so numerous and the depth is so
enormous.

I would like to acknowledge the following as being idealistic channels and fresh dimensions
in the completion of this project.

I take this opportunity to thank the University of Mumbai for giving me chance to do this
project.

I would like to thank my __________ for providing the necessary facilities required for
completion of this project.

I take this opportunity to thank our Coordinator_________, for his moral support and
guidance.

I would also like to express my sincere gratitude towards my project guide Professor.
Shweta Ghule whose guidance and care made the project successful.

I would like to thank my College Library, for having provided various reference books and
magazines related to my project.

Lastly, I would like to thank each and every person who directly or indirectly helped me in
the completion of the project especially my Parents and Peers who supported me throughout
my project.
 SR.NO NAME OF THE CHAPTER PAGE
NO.
1. Abstract 1
2.6Types of investment 67
2. Chapter 1 INTRODUCTION 2-40
2.7Data collection 67
1.1Backdrop 2-3
2.8Advantages of FDI 68
1.2MEANING 9-11
2.9Disadvantages of FDI 69
1.3Definition 11-13
2.10 limitations of Foreign Direct Investment (FDI) in 70-71
1.4India
Literature Survey 13-14
4. Chapter 3 Literature Review 72-87
1.5FDI in India 14-15
5. Chapter 4 Data Analysis and Interpretation 72
1.6Investment Outlook 15
4.1Introduction 73-87
1.7FDI Performance and Potential Index 15-39
4.2 Analysis and Interpretation of Data 88-92
1.8Global Competitiveness of India’s FDI 40-42
6. Chapter 5 Conclusion and SS Suggestion 88-89
1.9Reforms In The India Economy 42-44
5.1Conclusion 89-90
1.10 Objectives of the Current Study 44-46
5.2Suggestions 91-92
1.11 History 47-63
7. BIBLIOGRAPHY/WEBLIOGRAPHY 93-95
1.12 World investment report 47
8. ANNEXURE 96-98
3. Chapter Research Methodology 47-63
2
2.1 Meaning 64-71

2.2 Sample Design 64

2.3 Scope of FDI in India in past and future 64-65

2.4 Need Of FDI In INDIA 66

2.5 Objective Of FDI 67

ABSTRACT
Investment is very important for the growth and prosperity of an economy. Domestic
investment and foreign investment both are equally important. Domestic investment may lead
to the creation of domestic savings, consumption, and employment. Foreign Investment can
decrease the domestic saving gap. The main objective of the study is to examine the trends
and patterns of foreign direct investment in India. The descriptive design has been adopted
for a study purpose. Secondary data has been used. Statistical tools ANOVA, average,
percentage, and CAGR have been applied. Data has been taken from 2005 to 2017. Showing
the data of total FDI and total foreign investment in India during the period 2005-17, the
study highlights the trends in the aggregate inflow of FDI in India during 2005-2010 and
2010-17. At the overall level RBI automatic route is found contributing the maximum share
of 64.98% to the total FDI inflow.
FDI has a powerful impact not only upon the economy of the investor country, but also upon
economic and social welfare of the host country. The role of FDI has increased considerably
in recent years. In fact, FDI has become an important source of external finance for the
developing countries as it not only fulfills the ever-increasing requirements of various sectors
of the economy but also promotes growth, even more through spillovers of technology,
improved innovative capacity, and gives them effective marketing links in highly competitive
world markets. Thus, FDI has become an important mechanism for global economic
integration. This paper focuses on top 5 investing countries in FDI equity inflows in India and
top 5 sectors attracting FDI in India.
Chapter 1: Introduction

1.1 Backdrop
Capital formation is an important determinant of economic growth. While domestic
investments add to the capital stock in an economy, foreign direct investment (FDI) plays a
complementary role in overall capital formation by filling the gap between domestic savings
and investment. FDI has played an important role in the process of globalisation during the
past two decades. The rapid expansion of FDI by multinational enterprises (MNEs1) since the
mid-eighties may be attributed to significant changes in technologies, liberalisation of trade
and investment regimes, and deregulation and privatisation of markets in many countries
including developing countries like India. Fresh investments, as well as mergers and
acquisitions, (M&A) play an important role in the cross-country movement of FDI. However,
various qualitative differences have been identified between fresh FDI (greenfield FDI) and
M&A. An important question that arises is whether FDI merely acts as filler between
domestic savings and investment or whether it serves other purposes as well. At the macro–
level, FDI is a non-debt-creating source of additional external finances. This might boost the
overall output, employment and exports of an economy. At the micro-level, the effects of FDI
need to be analysed for changes that might occur at the sector-level output, employment and
forward and backward linkages with other sectors of the economy. There are fears that
foreign firms might displace domestic monopolies, and replace these with foreign monopolies
which may, in fact, create worse conditions for consumers. Thus, it is important to have an
efficient competition policy along with sector regulators in place. While the quantity of FDI
is important, equally important is the quality of FDI. The major factors that might provide
growth impetus to the host economy include the extent of localisation of the output of the
foreign firm’s plant, its export orientation, the vintage of technology used, the research and
development (R&D) best suited for the host economy, employment generation, inclusion of
the poor and rural population in the resulting benefits, and productivity enhancement.

1.2 MEANING
These three letters stand for foreign direct investment. The simplest explanation of FDI
would be a direct investment by a corporation in a commercial venture in another country. A
key to separating this action from involvement in other ventures in a foreign country is that
the business enterprise operates completely outside the economy of the corporation’s home
country. The investing corporation must control 10 percent or more of the voting power of
the new venture.
Foreign direct investment (FDI) is a measure of foreign ownership of productive assets, such
as factories, mines and land. Increasing foreign investment can be used as one measure of
growing economic globalization.
For a multinational corporation, FDI in India is a means to access new consumption and
production markets, and thereby expand its influence and business operations. It can gain
access not only to limited resources such as fossil fuels and precious metals, but also skilled
and unskilled labour, management expertise and technologies. FDI also enables and an
organisation to lower its cost of production- by accessing cheaper resources, or going directly
to the sources of raw materials rather than buying them from third parties. Often, there are
various tax advantages that accrue to a company undertaking FDI. This can occur when the
home country allows tax deduction on foreign income, or when the recipient country allows
tax deductions and benefits for organisation incurring FDI in that country. Additionally, this
can happen when the recipient country has a more beneficial tax code than the home country.

1.3 DEFINITION
Foreign direct investment is that investment, which is made to serve the business interest of
the investor in a company, which is in a different nation distinct from the investor’s country
of origin. A parent business enterprise and its foreign affiliate are the two sides of the FDI
relationship. Together they comprise an MNC.
The parent enterprise through its foreign direct investment effort seeks to exercise substantial
control over the foreign affiliate company. ‘Control’ as defined by the UN, is ownership of
greater than or equal to 10% of ordinary shares or access to voting rights in an incorporated
firm. For an unincorporated firm one needs to consider an equivalent criterion. Ownership
share amounting to less than that stated above its termed as portfolio investment and is not
categorized as FDI.
FDI stands for Foreign Direct Investment, a component of a country’s national financial
account. Foreign direct investment is investment of foreign assets into domestic structures,
equipment, and organization. It does not include foreign investment into the stock market.
Foreign direct investment is thought to be more useful to a country than investments in the
equity of its companies because equity investments are potentially “ hot money” which can
leave at the first sign of trouble, where FDI is durable and generally useful whether things go
well or badly.
FDI or foreign Direct Investment is any form of investment that earns interest in enterprises
which function outside of the domestic territory of the investor. FDIs requires a business
relationship between a parent company and its foreign subsidiary. Foreign direct business
relationship give rise to multinational corporation. For an investment to be regarded as an
FDI, the parent firm needs to have at least 10% of the ordinary shares of its foreign affiliates.
The investing firm may also qualify for an FDI if it owns voting power in a business
enterprise operating in a foreign country.

1.4 Literature Survey

FDI plays a multidimensional role in the overall development of host economies. It is widely
discussed in the literature that, besides capital flows, FDI generates considerable benefits.
These include employment generation, the acquisition of new technology and knowledge,
human capital development, contribution to international trade integration, creation of a more
competitive business environment and enhanced local/domestic enterprise development,
flows of ideas and global best practice standards and increased tax revenues from corporate
profits generated by FDI (Klein et al., 2001; Tambunan, 2005). While FDI is expected to
create positive outcomes, it may also generate negative effects on the host economy. The
costs to the host economy can arise from the market power of large firms and their associated
ability to generate very high profits or by domestic political interference by multinational
corporations. But the empirical evidence shows that the negative effects from FDI are
inconclusive, while the evidence of positive effects is overwhelming, i.e., its net positive
effect on economic welfare (Graham, 1995).
FDI in manufacturing is generally believed to have a positive and significant effect on a
country’s economic growth (Alfaro, 2003). However, based on empirical analysis of data
from cross-country FDI flows for 1981-1999, Alfaro (2003) points out that the impact of FDI
on growth is ambiguous. FDI in the primary sector tends to have a negative impact on
growth, while investment in manufacturing has a positive effect, and the impact of FDI in
services is ambiguous. In general, multinational enterprises have increasingly contributed to
capacity addition and total sales of manufacturing. Further, FDI plays an important role in
raising productivity growth in sectors in which investment has taken place. In fact, sectors
with a higher presence of foreign firms have lower dispersion of productivity among firms,
thus indicating that the spill-over effects had helped local firms to attain higher levels of
productivity growth (Haddad and Harrison, 1993). Besides being an important source for
diffusion of technology and new ideas, FDI plays more of a complementary role than of
substitution for domestic investment (Borenzstein et al., 1998). FDI tends to expand the local
market, attracting large domestic private investment. This “crowding in” effect creates
additional employment in the economy (Jenkins and Thomas, 2002). Further, FDI has a
strong relation with increased exports from host countries. FDI also tends to improve the
productive efficiency of resource allocation by facilitating the transfer of resources across
different sectors of the economy (Chen, 1999).
Little empirical evidence is available on the impact of FDI on the rural economy, in general,
and on poverty, in particular. However, in recent times, there has been increasing interest in
studying the linkage between growth and poverty. FDI inflows are associated with higher
economic growth ( Jalilian and Weiss, 2001; Klein et al., 2001), which is critically important
for poverty reduction. But the pattern and nature of the growth process in an economy also
assumes importance. It has been found that FDI had a positive impact on poverty reduction in
areas where the concentration of labour-intensive industries was relatively high (Doanh,
2002).
It has been shown by Bajpai (2004) that India’s labour-intensive manufacturing can
potentially absorb a major section of the labour force and it holds the key to achieve dynamic
growth in the country. Further, Aggarwal (2001) showed that high-tech industries are not
attracting efficiency-seeking FDI; medium- and low-tech industries with foreign stakes seem
to have performed better, indicating that India’s comparative advantage in exports lies with
low-tech industries. However, Siddharthan and Nollen (2004) showed that in the information
technology sector, exports by MNE affiliates are greater when they have larger foreign equity
stakes.
Though it is expected that growth tends to benefit the poor, this has not happened in many
countries. There is no clear picture whether growth reduces poverty (World Bank, 2000). It is
believed that increased flow of capital raises capital intensity in production, resulting in lower
employment generation. However, a higher level of investment accelerates economic growth,
showing wider positive effects across the economy. Tambunan (2005) found that FDI has
positive effects on poverty reduction mainly through three important ways, viz., labour-
intensive growth with export growth as the most important engine; technological, innovation
and knowledge spill-over effects from FDI-based firms on the local economy; and poverty
alleviation programmes or projects financed by tax revenues collected from FDI-based firms.
However, the host country’s policies and institutions, the quality of investment, the nature of
the regulatory framework and the flexibility of labour markets are important to attain the
expected benefits from FDI (De Melo, 1999; Klein et al., 2001). The impact of FDI has been
found to be the strongest in countries with higher education levels (Borenzstein et al., 1998;
Jalilian and Weiss, 2001). However, FDI may indirectly benefit the poor by creating better
employment and earning opportunities for the unskilled workforce in developing countries
(ODI, 2002).
India-specific studies on FDI have dealt with determinants of FDI, technology spill-overs,
export growth and good governance practices transferred from foreign to domestic firms
(Banga, 2003; Kumar, 2002, 2003; Pant, 1995; Siddharthan and Nollen, 2004). These effects
have been estimated through firm-level case studies and through cross section industry data.
However, the impact of FDI on the economy is still not clear and there is little evidence on
the economy-wide impact of FDI in India. However, there is great interest among academics
and policy makers to critically examine the impact of FDI on the different sectors of the
economy and various regions of the country.
In India, FDI equity flows are concentrated in a few states (Morris, 2004). Of the total
approved FDI flow, Maharashtra accounted for the largest proportion with 46 per cent,
followed by Gujarat with 15 per cent, and Delhi with 7.7 per cent. Other states with
significant and large investments were Andhra Pradesh, Karnataka and Tamil Nadu. Among
these states, only a few cities were involved in a significant amount of FDI. These included
Ahmedabad, Bangalore, Kolkata, Chennai, Coimbatore, Goa, Hyderabad, Jamnagar,
Kancheepuram, Mumbai, Pune and Raigarh, indicating that the geographical flow of FDI in
India is skewed in favour of relatively large cities. However, for all investments, it is regions
with metropolitan cities that have the advantage in headquartering the country operations of
MNEs, thereby attracting the bulk of FDI. The study suggests that there are vast gains to be
made by attracting FDI, especially in services and high-tech skilled labour-seeking industries.
Aggarwal (2007) has shown that there are wide variations in the FDI inflow across the states
of India. Only seven states2 accounted for over 97 per cent of the total amount of export-
oriented FDI and 83 per cent of total FDI approvals during 1991-2001. The presence of
Export Processing Zones was found to be a relevant pull factor in attracting export-oriented
FDI. Further, while explaining the sensitivity of FDI to labour market conditions, the study
revealed that labour market rigidities and labour costs are more pronounced for export-
oriented FDI than for domestic market-seeking FDI. Infrastructure and regional development
are found to be key factors in attracting higher FDI, both in the export and domestic market-
seeking sectors.
FDI plant location is a complicated phenomenon. By utilising plant-level data across 100 of
the largest cities in 17 states of India, Goldar (2007) established that the inter-state and inter-
city distribution of plants of foreign firms is almost identical to that of domestic firms. This
indicates that the factors influencing the location of plants of foreign companies are, by and
large, the same as those for domestic companies. But the number of plants of foreign
companies in a city is positively related to the size of the city, civic amenities in the city, size
of the largest city in the state and investment climate in the state. The presence of a
metropolitan city in the state probably captures the advantage in headquartering the country
operations of multinational companies.
Examining industry-specific spill-over effects, Bergman (2006) has shown that
pharmaceutical MNCs in India made a positive contribution to the growth and development
of the industry. Spill-over effects through imitation, industrial management skills and
competition were explicitly observed in the industry. Such effects were generated not only in
product development, but also in marketing and documentation techniques. The foreign
firms’ presence has indirectly encouraged domestic firms to increase their managerial efforts
and to adopt some of the marketing techniques used by MNCs. Further, the presence of
foreign firms has intensified competitive pressure in the industry and stimulated domestic
firms to use accessible resources more efficiently. India’s comparative advantage in
pharmaceuticals has boosted the Indian pharmaceutical enterprises to move and operate
abroad.
FDI benefits the host country in a number of ways. However, most of the studies conducted
in India and abroad have been confined to firm/industry-level analyses that focus on
determinants and spill-overs from MNEs to domestic firms. In the Indian context, there is a
perception that the flow of FDI, either through greenfield investment or mergers and
acquisitions, and their associated benefits are concentrated only in urban/metropolitan areas.
It is thus important to know whether and by how much FDI has reached relatively small
cities/ towns since many of these are likely to have neighbouring rural clusters. The present
study is a modest attempt to quantify the linkage of benefits that FDI in India has provided to
its rural population.

1.5 FDI in India

There have been significant changes in the growth models of developing economies during
the past two decades. Many of these economies, including India, have moved away from
inward-oriented import substitution policies to outward oriented and market-determined
export-oriented strategies. The scepticism about the role of FDI in reinforcing domestic
growth has given way to greater openness to FDI, with a view to supporting investment and
productivity of the host countries. While developing countries have started accepting FDI
inflows with some caution, which is obvious, the developed countries have moved their
investments to foreign locations, subject to safety and profitability of their business
operations in foreign lands.
FDI plays an important role in the transmission of capital and technology across home and
host countries. Benefits from FDI inflows are expected to be positive, although not automatic.
A facilitating policy regime with minimal interventions may be ideal to maximise the benefits
of FDI inflows. The debate on its pros and cons has not yet been settled and is likely to
continue. It is not possible to reach a decisive value judgement on whether FDI is good or bad
for the developing country/host economy. It may or may not have the desired and expected
growth-enhancing impact on the host economy. Even more difficult is the question of
whether it brings about equity along with growth effects. FDI might enter a labour-abundant
country with capital-intensive technologies; however, if the labour laws are not flexible, this
would have a relatively small impact on employment generation. On the other hand, the entry
of FDI in labour-intensive firms would have a positive impact on equity and poverty
reduction if the FDI-enabled firms choose to locate close to suburban/rural areas.
The history of capital flows shows that large amounts of FDI criss-crossed the high-income
countries and benefited their economies. The newly industrialised economies (NIEs)
constitute important case studies.
Many developing countries, including India, have started receiving significant amounts of
FDI in the past two decades. A large quantum of such FDI originates from high-income
countries including the United States and the EU, while south-south FDI flows have also
been increasing.
However, nothing comes for free. Mere openness to FDI inflows may be a necessary but
insufficient condition and the host economy needs to provide a sufficiently enabling
environment to attract foreign investors. In order to fulfil sufficient conditions, the host
country has to ensure that it creates absorptive capability to make the best use of the FDI it
receives. It needs to create a level playing field through developing an efficient, competitive
and regulatory regime, such that both domestic and foreign invested companies play a
mutually reinforcing role within a healthy competitive environment.
Among the developing regions, Asia and Africa registered higher FDI inflows than Latin
America and the Caribbean.4 Developing countries are more attractive to transnational
corporations5 for various reasons, one of which is the presence of cheap, skilled and
unskilled labour. In other words, there are opportunities that could help in cost reduction in
terms of labour—India’s huge inexpensive labour force, comprised by the largest working
age population in the world, is one of the reasons why foreign investors find India attractive.6
Moreover, land and other infrastructure are also cheaper; there is promise of emerging large
markets; and there exist ‘created’ assets such as communications infrastructure, marketing
networks, and innovative technology that all help companies become more competitive.
Current patterns in global production are such that developing countries provide the platform
for activities in the lower segments in manufacturing and services, and the developed nations
provide expertise in management, technical know-how and skills upgrade. Large-scale
migration of both skilled and unskilled labour has played an important role in moulding the
current global economic order. In the Gulf countries, for example, economic activities have
been driven by migrant skilled labour from the western countries, and unskilled workers from
the poorer Asian nations.
During the early 1980s, following a serious balance of payments crisis and a large loan from
the International Monetary Fund, the Indian government relaxed its foreign investment
policy. This engendered a number of joint ventures in the automotive industry, involving both
financial and technical relationships between Indian and Japanese manufacturers. A few years
later, Japanese two-wheeler manufacturers entered the domestic market, again through joint
ventures with major Indian producers. Here again, the ventures were followed by a series of
arrangements between component manufacturers in the two countries. Other key sectors, like
the computer industry, were also provided a more liberal trade and investment environment.
The big opening up came in 1991, following yet another external crisis. This time, the
government went much further than before in introducing a series of both domestic and
external reforms that fundamentally changed the business environment. One of the key
components of this new policy was a significant widening of the range of activities in which
foreign firms could enter as well as an easing of the conditions under which they came in.
This chapter first outlines the reform progress and the evolving pattern of FDI over the past
decade. We go on to report the key results from our FDI survey.

1.6 Investment Outlook

A number of studies in the recent past have highlighted the growing attractiveness of India as
an investment destination. According to Goldman Sachs (2003), the Indian economy is
expected to continue growing at the rate of 5 per cent or more until 2050. According to the
A.T. Kearney (2007), India continues to rank as the second most attractive FDI destination,
between China at number one and the United States at number three. India displaced the
United States in 2005 to gain the second position, which it has held since then. FDI inflows in
2006 touched $19.6 billion and in 2007, total FDI inflows in India stood at $23 billion,
showing a growth rate of 43.2 per cent over 2006. In 2008, total FDI inflows into India stood
at $33 billion.

1.7 FDI Performance and Potential Index

UNCTAD ranks countries by their Inward FDI Performance3 and Inward FDI Potential
Indices.4 While India is the second most attractive country in terms of the foreign investors’
confidence index, it does not rank high on either the performance or potential indices.
UNCTAD (2008) provides a matrix of four groups of countries based on their FDI
performance and potential:
a) Front runners: countries with both high FDI potential and performance
b) Above potential: countries with low FDI potential but strong performance
c) Below potential: countries with high FDI potential but low performance
d) Under-performers: countries with both low FDI potential and performance
While countries like Chile, Hong Kong, Malaysia, Singapore and Thailand are “front
runners”, and China is below potential, all the major South Asian countries, viz., Bangladesh,
India, Nepal, Pakistan and Sri Lanka are “underperformers”.
India’s FDI Performance Index in 2007 ranked at 106 (China was 88) out of 141 countries.
However, it has a relatively high FDI Potential Index at 84 (China is 32). India’s outward FDI
Performance Index in 2007 is also high at the 50th position (China was 59th).

1.8 Global Competitiveness of India’s FDI

Another method of assessing the investment potential of an economy is its rank on global
competitiveness.5 The Global Competitiveness Index (GCI) is a comprehensive index
developed by the World Economic Forum (WEF) to measure national competitiveness and is
published in the Global Competitiveness Report (GCR). It takes into account the micro- and
macro-economic foundations of national competitiveness, in which competitiveness is
defined as the set of institutions, policies and factors that determine the level of productivity6
of a country and involves static and dynamic components. The overall GCI is the weighted
average of three major components: a) basic requirements (BR)7 ; b) efficiency enhancers
(EE)8 ; and c) innovations and sophistication factors (ISF).
Within the information available for 131 countries, the United States is ranked the highest,
with an overall index of 5.67, and Chad is ranked the lowest with an overall index of 2.78;
the overall index is 107 for Bangladesh, 92 for Pakistan and 70 for Sri Lanka. The overall
rank of India at 48 is still below that of China at 35. In terms of the components, India holds a
relatively low rank for BR (74), but higher ranks for EE (31) and even higher for ISF (26).
Compared to China, India’s BR rank is lower, but it is higher than China’s on EE and ISF.

1.9 REFORMS IN THE INDIAN ECONOMY

Prior to 1991, the government exercised a high degree of control over industrial activity by
regulating and promoting much of the economic activity. The development strategy
discouraged inputs from abroad in the form of investment or imports, while the limited
domestic resources were spread out by licensing of manufacturing activity. The result was a
domestic industry that was highly protected – from abroad due to import controls and high
duties, and from domestic competition due to licensing and reservations. Industrial policy
was dominated by licensing constraints by virtue of which strict entry barriers were
maintained. Under the Industries Development and Regulation Act (1951), it was mandatory
for all companies to get government approval to set up a new production unit or to expand
their activities. Approval was also required if the manufacturer wanted to change the line of
production. Moreover, when permission was granted, it was very specific to product, capacity
and location. The decision to award a license involved many stages and became a highly
bureaucratic process, with some elements of state capture by incumbent domestic firms. This
and other
policies led to a very high degree of bureaucratisation of the economy. Also many sectors like
textiles were reserved for the small scale sector, thereby making it difficult for domestic firms
belonging to these sectors to enjoy economies of scale, and making these sectors unattractive
to MNCs.
The government also controlled the exit option for a company.
Manufacturers were not allowed to close operations or to reduce their work force without
government approval. The intention was to try to avoid unemployment, but it also promoted
inefficiency in the industrial economy.
Indian trade policy before the 1990s focused on import substitution. Restrictions on imports
were imposed in different forms. In concurrence with the objective of attaining self-reliance,
import licensing was imposed to exercise control over the importers. Further, imports were
canalised, which meant that certain commodities could be imported by only one agency,
which was generally a public sector company.Import controls and high tariff rates led to high
input costs, which made Indian producers un-competitive in the world market. Further,
certain items were also subject to export controls with a view to ensure easy availability, low
domestic prices and for environmental reasons. As a result, domestic industry operated in an
isolated environment with limited exposure to the international products and markets.
FDI policy put severe restrictions on foreign investment. Few foreign companies were
allowed to retain an equity share of more than 40 per cent, and as a result many did not use
their best technologies in India. The economy was deprived of foreign capital and foreign
technology and internationally efficient scales and quality of production could not be
achieved. Financial sector policy did not focus upon generating enough capital from within
and outside the country. The financial sector was highly regulated by the state. The
government had owned all the major banks since nationalisation in 1969 and the early 1980s.
It administered low interest rates on borrowings and loans to small industries and agriculture;
price controls and credit rationing. Indeed, the basis of planning in India was a Harrod-
Domar growth paradigm which made the government focus on mobilisation of savings for
investment. The problem was that there was financial repression because of price fixing and
directed credit. Raising equity from the market was also restricted. The government decided
both the amount of capital as well as price. Apart from interest rates, initial public offerings
and other equity issues required prior government approval through its arm - the Controller of
Capital Issues (CCI). Banks could ignore market forces when taking functional and
operational decisions, and private sector participation was discouraged. Profitability of
financial institutions remained low owing to government control over interest rates and
absence of competitive forces. In addition to industrial and trade policies, public sector
policyexclusively reserved certain sectors for the public sector. The public sector was also
present in almost all parts of the economy - petroleum, consumer goods, tourism
infrastructure and services, etc. Infrastructure industries such as power, telecom, air transport,
etc., were almost wholly public sector controlled.
Reservation contributed to lack of competition, which reduced the incentive to be efficient.
Over-manning, poor management, obsolete technology and insufficient research and
development activities further contributed to the decay of public sector undertakings. Most
important of all, non-commercial objectives and government muddling in day-to-day
operations made these companies extremely inefficient. Small-scale industry policy gave
protection from domestic as well as international competition. This was done primarily by
reservation of certain product lines exclusively for small industries. The smaller firms
benefited from excise concessions and rebates that were determined on the basis of annual
turnover rather than investment in fixed capital. Financial aid was also given in form of credit
from government owned banks on softer terms. Small firms also benefited from preferential
government purchases and input supplies. To summarise the impact of pre-1990 policies, the
Indian industrial structure was weak, both financially and technologically. However,
domestic incumbents had been created who were entrenched and this had implications for
FDI and for the mode of entry in the 1990s. The major prevailing problems were
inefficiencies, high costs, poor management, non-competitiveness, excessive reservation,
import controls, lack of export orientation and disincentives to the foreign investors. Reforms
launched in the early 1990s focused on addressing some of these issues. Since manufacturers
were highly dependent on domestic growth, a more outward looking policy was adopted.
Economic policies were liberalised with a view to encouraging investment and accelerating
economic growth.
The new industrial policy announced in 1991 led to de-licensing of industry, competition
rather than protection as the desired policy environment. The earlier requirement of approvals
and licenses for any investments and expansions were abolished for all except 18 industries.
Within a few years, only five sectors remained under the ambit of industrial licensing. De-
licensing gave companies freedom to take decisions for investments, expansions and plant
locations. Bureaucratic practices involved in the investment procedures were reduced
significantly. Lowering of entry barriers resulted in greater private sector participation. Trade
reforms addressed the anti-import bias by reducing tariffs, quantitative restrictions and
foreign exchange control. From being one of the most protected domestic economies prior to
the reforms, the Indian economy has become similar to other developing countries. Trade
reforms have continued in a sustained manner throughout the 1990s and it is expected that
they will continue in the same manner.The government also liberalised its policy towards
FDI. Many constraints that had historically been imposed on portfolio and direct investment
were removed. The approval process for technical and financial collaborations was
completely revamped. For many industries, the Reserve Bank of India (RBI) would give an
automatic approval. Indian law does not differentiate between an Indian and foreign owned
company once it has been incorporated in India. The same procedures govern Indian and
foreign owned companies alike. Like Indian companies, foreign owned companies also do
not now require a license for production in most manufacturing sectors.
Technology transfers were also made easier by removing many mandatory approval
requirements. Another measure to bring in FDI was reduction of controls on technology and
royalty payments. Restrictions on foreign collaborations investment (both financial and
technological) were by and large removed. India’s financial sector went through a wide
variety of reforms during the 1990s (see Sarkar and Agarwal 1997), aimed at correcting the
biases in the lending policies of government owned banks and financial institutions. Under
new polices, the banks were free to decide lending and deposit rates. This was accompanied
by a significantly proposed reduction in pre-emption of bank loans, both by the government
and the priority sector. Both these gave the banks freedom to opt for the most rewarding
investments. Capital market reforms coupled with the removal of restrictions on firms
reduced entry barriers for the private sector. As a result, today there are many private
operators in the sector - banks, financial institutions, NBFCs and insurance companies have a
significantly higher private representation. The reforms in the public sector enterprises
(PSEs) were intended to be three pronged; privatisation, greater autonomy and reduction of
the monopoly power of the public sector. However, much has not been accomplished. First,
privatisation has not been very successful. Minor proportions of a few companies' total equity
was "dis-invested', only one company out of a total of 242 public sector companies owned by
the government has been completely privatised. Second, though some attempts were made at
giving greater autonomy to PSEs this has largely been unsuccessful (Bhandari and Goswami
2002).
Third, the public sector environment was highly un-competitive vis-à-visthe rest of the world.
Abolishing its monopoly was thought to be a solution that would force public companies to
adopt better management practices. Sectors reserved exclusively for public sector were de-
reserved (except for some social and security sectors). This was a policy measure to bring in
private performers in competition with the PSEs. Compared to the first two, these measures
have been much more successful. The policy reforms with respect to small-scale sector have
not been as significant. Small industries traditionally benefit from the preferential treatment
given by the government in many ways, including reservations and tax concessions.
Protective polices continue to shield small manufacturers from competition from the medium
and large ones. As a consequence, much of the small sector depends on subsidies,
concessions and reservations for its survival.
India removed most quantitative restrictions from April 1st, 2001. Under such circumstances,
the small manufacturers face serious challenges from international producers who have open
access to the domestic market.

1.10 Objectives of the Current Study

While empirical and econometric work on testing various theoretical hypotheses is embedded
in the extant literature on FDI, there has been no comprehensive attempt to examine the
spatial and sectoral spread of FDI-enabled production facilities in India and their linkages
with rural and suburban areas. The majority of the population, both urban and rural, is
expected to gain, indirectly and differentially, from FDI. While FDI may benefit the economy
at both macroeconomic and microeconomic levels through bringing in non-debt-creating
foreign capital resources, technological upgrading, spill-over and allocative efficiency effects,
it is equally important to probe whether people in the rural and suburban areas get affected
through such benefits. FDI in relatively labour-intensive sectors including food processing,
textiles and readymade garments, leather and leather products, and light machine tools, with
plants set up in small cities close to rural and suburban areas, would tend to have relatively
high employment-generating potential. The present study makes a modest contribution by
providing a comprehensive analysis of the various aspects of the impact of FDI on the Indian
economy. The objectives of the study are as follows:
1. Spatial Spread
To take stock of the spatial spread of FDI-enabled production facilities in India
during the past five years (2001 to 2006). The production facilities to be studied
include manufacturing plants as well as service-providing facilities as these evolved
either as greenfield or as M&A processes, located in cities other than metros and Tier
1 cities and in rural areas, in particular.
2. Sectoral Clustering
To bring out sectoral clustering across the states and sub-state regions (cities, towns
and rural areas of districts) in order to assess the types of production facilities that
have entered relatively small towns and rural areas outside municipal limits (2006 to
2008).
3. Depth of Value-Added
To enable a comprehensive understanding of the value-added features of the FDI-
linked production facilities and their role in providing employment opportunities.
4. Employment-Generating Effects
To analyse the impact of FDI on various rural activities, especially in the agriculture
and food-processing sectors, and to assess the positive and negative impact of
employment through FDI-enabled production activities.
5. Labour and Capital Intensity
To identify FDI-enabled sectors by their levels of skill, scale, capital and labour
requirements, to compare these features with domestically invested production
facilities that produce similar products and services, and to provide comprehensive
 documentation of FDI-enabled production facilities by their labour and capital
requirements.
6. Comparative Performance
To compare the efficiency and profit levels of MNC affiliates established in India
with firms under their parent companies operating outside India. To make similar
comparative analyses in a particular sector between FDI-enabled production facilities
and domestically invested production facilities.
7. FOREX Implications
To understand the implications of repatriation of profits earned in India versus profits
retained and invested.
8. Backward and Forward Linkages
To estimate the backward and forward linkages of FDI-enabled sectors by mapping
these on the latest available inputoutput tables for India.
9. FDI in Service Sectors
To study the impact of FDI in service sectors on the rural economy
10. Special Economic Zones (SEZs)
To study the concentration of production facilities in SEZs, analyse the relative
performance of such plants inside and outside SEZs, and examine the impact of such
production on the Index of Industrial Production.
11. Export Potential
To assess the share of export-seeking FDI in various sectors of production in order to
gauge the untapped potential of exports of labour-intensive goods from India.
12. Greenfield FDI versus FDI through Mergers and Acquisitions
To document the sectoral distribution of FDI through these two routes, and to
compare the rural and suburban linkages through these two routes.

1.11 HISTORY
In the years after the Second World War global FDI was dominated by the United States, As
much of the world recovered from the destruction brought by the conflict. The US accounted
for around three-quarters of new FDI (including reinvested profits) between 1945 and 1960.
Since that time FDI has spread to become a truly global phenomenon, no longer the exclusive
preserve of OECD countries.
FDI has grown in importance in the global economy with FDI stocks now constituting over
20 percent of global GDP. Foreign direct investment (FDI) is a measure of foreign ownership
of productive assets, such as factories, mines and land. Increasing foreign investment can be
used as one measure of growing economic globalization. Figure below shows net inflows of
foreign direct investment as a percentage of gross domestic product (GDP). The largest flows
of foreign investment occur between the industrialized countries (North America, Western
Europe and Japan). But flows to non-industrialized countries are increasing sharply.

1.12 World investment report

Data shows that Asia is one of the largest recipients of foreign investment in the world.9
Among the top FDI destinations in the region are China, Hong Kong, Singapore, Indonesia
and India. Although Southeast Asia is the driver of FDI growth in the region, inflows to
South Asia—in particular, India—are also significant. South Asia recorded a four-percent
increase in FDI in 2018 to US$ 54 billion from US$ 52 billion in 2017, and by a further 10
percent in 2019 to US$ 60 billion.10 FDI in India has been on a long-term growth trend.
Along with countries like Vietnam, India is emerging as alternate investment destinations for
China. Despite the setback caused by the COVID-19 pandemic, India’s large market will
continue to attract market-seeking investments. Increasing inflows of foreign investments
will boost the domestic economy. Whether the gains from such investments will be
distributed evenly across the country is worth examining. Wide variations in FDI inflows
across the states will result in an unbalanced growth and can worsen inequality. Policymakers
need to focus on ensuring balanced regional growth across the country, and improving the
inflow of FDI to the regions. Lack of state-wise data on FDI in India is a major impediment
to objective policymaking.
 Chapter 2: RESEARCH METHODOLGY

2.1 Meaning:
Research methodology is a way of explaining how a researcher intends to carry out their
research. It's a logical, systematic plan to resolve a research problem. A methodology details
a researcher's approach to the research to ensure reliable, valid results that address their aims
and objectives. It encompasses what data they're going to collect and where from, as well as
how it's being collected and analysed.

2.2 Sample Design

Sampling design defines as the researcher has to make a careful selection of a few elements
from the population and then study them intensely and reach conclusion, which can be safely
applied to the population. The selection of sample is very important task. The researcher
should determine the size of sample, the method of sampling, the test of sample.

 Population
The study is based on Foreign Direct Investment amongst older people In every house of in
Mumbai region.

 Sample size
Sample size is the measure of the number of individual samples used in an experiment. The
survey was conducted with 45 respondents.

 Sampling unit
A sampling unit is one of the units selected for the purpose of sampling. Here, sampling unit
is the older people in house of Mumbai region.

2.3 Scope of FDI in India in past and future

FDI is the investment of funds that is handled by an organization from one country to
another. The intent behind it is to establish “lasting interest”. According to OECD
(Organization for Economic Co-Operation and Development). Lasting interest is determined
when the organization acquires a minimum of 10% voting power in the other organization.
Here are some of the benefits that come with FDI investments:

Increased Economic growth and higher rate of employment – The creation of jobs is amongst
the most obvious advantage that comes with FDI. It is amongst the most important reason
that helps with the growth of nation. Increased FDI boosts the overall service as well as
manufacturing sector. This brings in jobs for both skilled as well as unskilled labour.

Human Resource Development – The less obvious advantage that comes with FDI is the
competence of workforce and the human capital knowledge. Skills that are gained are then
enhanced with the help of experience and training.

Backward Areas are being developed – Most crucial benefit that comes with FDI for
developing country. This provides an instant boost to the social economic status in the area.

Finance and Technology provisions – Businesses tend to get an access of the latest financing
tools, operational practices, as well as technologies from across the world. This results in an
enhanced efficiency and effectiveness of the industry.

Increased Exports – FDI helps enhance domestic consumption. These products are mostly
available in the global markets. 100% Export Oriented Units and Economic Zones have
further boosted exports.

Exchange Rate Stability – The constant FDI flow into the country brings in continuous
foreign exchange which increases the revenue. This also helps the Central Bank maintain a
very comfortable reserve of foreign exchange.

Economic Development – FDI adds to the external capital of the country which in turn adds
to the revenue of the country. When factories are constructed, materials, local labor, and
equipment are utilized. The factories create additional tax revenue for the Government which
can then be infused into creating and improving the physical and financial infrastructure.

FDI India is one of the top FDI experts in India. They help the organizations to accomplish
unfamiliar interests in a hassle-free way and facilitate their approach to get unfamiliar
speculations that they have been searching for. The team of experts in FDI India leaves no
stone improved in making the FDI cycle for its customers simple as they give minimal effort
high caliber and cycle driven Foreign Direct Investments.

The foreign direct investment into India is a process for facilitating people to invest in India.
If you are really interested in doing business in India with the help of foreign capital then
make sure that you are investing in the right source and you can do this in a number of ways.
Even when India was going through tough times, it was still a good financial breeding ground
for all foreign investors. They have never felt the pressure as their genre of investment has
always been unleashed for the purpose of ushering more capital within the country.

There have been several Indian infrastructures who may have suffered in the field of
production and manufacturing due to lack of essential capital. However, a good way for them
to survive is by offering FDI equity to companies or individuals who would be interested in
making huge capital investments.

Foreign direct investment in India is done in several ways. Investment can take place through
effective financial collaborations. In this case the common interest is the yearly financial turn
over and to make this work out two or more companies come in association and they share
much in contributing towards a common financial consensus. The effort has to be there from
both the ends, from the part of the investor and also from the part of the collaborator. When
collaborating, you can keep the leadership factors aside and think about a healthy
togetherness contributing towards a bigger financial platform.

As a way towards FDI equity is also a joint venture and a technical collaboration. Once the
company delivers the plan of taking things technically ahead then other can contribute in a
different way. It is more technical and less of financial collaboration.

Foreign direct investment in India is not permissible in all industrial sectors as it is not
allowed in the domain of arms and ammunitions. You cannot invest in the field of atomic
energy. You cannot invest anything related to railway and transport and you cannot even put
your money in the field of coal and lignite. It is even not permissible to invest money in
matters of metal mining. Thus, keeping aside these domains you still have a huge scope for
investment.

2.4 NEED OF FDI IN INDIA:

Foreign Direct Investment (FDI) is the investment of funds by a company from one country
to another.  There are many ways in which FDI benefits the recipient nation:
 Employment and Economic Growth – Development of work is the most apparent
benefit of FDI. It is also one of the key reasons why a country, in particular a
developing country, is trying to attract FDIs. Increased FDI enhances both the
development industry and the services sector. In exchange, this increases
opportunities and tends to lower the unemployment of trained young people in the
world – and professional and unqualified workers.

 Human Resource Development – This is one of FDI’s less evident benefits. It’s
always understated, but very important. The expertise and skill of workers is alluded
to by human resources. Training and knowledge gained as well as improved skills,
helps improve education and the country’s share of human resources.

 Finance & Technology – Recipient organizations have access from around the world
to state-of-the-art financial instruments, innovations and operational activities. In the
longer term, the adoption of modern, advanced technology and methods would extend
to the local economy, resulting in improved industry productivity and efficiency.

 Exports Increase – Not all products made by FDI are intended for domestic use.
Many have world markets for these goods. FDI investors have further helped to
improve their exports from other countries by developing 100% export-driven units
and economic zones.

 Capital Flow – Capital inflows are especially useful for countries with limited
domestic resources and countries with limited chances of raising money on global
capital markets.

 Competitive Market – FDI helps to build a dynamic atmosphere and crack domestic
monopolies by encouraging the entrance of international organizations into the
domestic market. A stable business climate encourages businesses to consistently
develop their products and processes and thereby encourage creativity. Consumers
now have access to a larger selection of goods at affordable prices.

 Technology: A developing country also gets access to the latest technology as

investors bring it to the country. Over time, this advanced and modern technology
extends to the local economy, resulting in improved efficiency and productivity.

 Development of backward areas: This is one of the most crucial benefits of FDI for
developing countries. FDI enables the transformation of backward areas in country
into industrial centres. This in turn provides a boost to the social economy of the area.
The Hyundai unit at Sriperumbudur, Tamil-Nādu in India exemplifies this process.

 Exchange rate stability: The constant low of FDI into a country translates into a
continues flow of foreign exchange. This helps the country’s central bank maintain a
comfortable reserve of foreign exchange. This in turn ensures stables exchange rates.
 2.5 OBJECTIVIES OF FDI
 Economic Growth: FDI is seen as a significant driver of economic growth as it
brings in much-needed capital investment and technical expertise to the country,
which can help boost productivity, increase employment opportunities, and improve
the overall standard of living.

 Employment Generation: FDI can help create employment opportunities by

establishing new businesses or expanding existing ones, which can help reduce
poverty and improve the economic well-being of the people.

 Technology Transfer: FDI can facilitate the transfer of advanced technology, skills,
and managerial expertise to the host country, which can help improve the
competitiveness of local industries, increase productivity and create a knowledge-
based economy.

 Export Promotion: FDI can help promote exports from the host country by
integrating local businesses with global supply chains, which can lead to increased
foreign exchange earnings and a reduction in trade deficits.

 Infrastructure Development: FDI can play a crucial role in the development of

infrastructure in the host country, particularly in sectors such as power, transportation,
and telecommunications, which can help improve the quality of life of the people and
facilitate economic growth.

 Strategic Importance: FDI can also have strategic importance for a country,
particularly in sectors such as defines and energy, where it can help enhance national
security and reduce dependence on foreign suppliers.

2.6 Types of investment

There are two types of foreign investment
 foreign direct investment, 
 non-direct investment (portfolio investment)
Foreign direct investment (FDI) takes place when a company, multinational corporation or
individual from one country invests in another country’s assets or takes an ownership stake in
its companies. It generally takes the form of acquiring a stake in an existing enterprise in the
foreign country or starting a subsidiary to expand the operation of an existing enterprise of
that country.
FDI can take two different forms: Greenfield or mergers and acquisitions (M&As).
 Greenfield investment involves the creation of a new company or establishment of
facilities abroad. A greenfield investment is a form of market entry commonly used
when a company wants to achieve the highest degree of control over foreign
activities.
 Mergers and acquisitions amounts to transferring the ownership of existing assets to
an owner abroad. In a merger, two companies are merged to form one, while in an
acquisition one company is taken over by another.
Non-direct investment - also referred to as ‘foreign portfolio investment’ - takes place
when companies, financial institutions or individuals buy stakes in companies on a foreign
stock exchange. This type of investment is not made with the intention of acquiring a
controlling interest in the issuing company. Typically, this type of investment is short-term in
nature and is made to take advantage of favourable changes in exchange rates or to earn
short-term profits on interest rate differences. It provides the investors with an opportunity to
diversify their portfolios and better manage the associated risk.
Foreign portfolio investment can also help to strengthen the domestic capital markets by
enhancing liquidity and contribute to improving their functioning. This in turn will lead to
optimal allocation of capital and resources in the domestic economy. For an emerging
economy, foreign portfolio investment can prove to be a significant contributor to its
development, creating significant wealth.

What Are the Different Types of FDI?

The investment market is vast, with several avenues for investment opportunities. Even
within FDI, there are four distinct types of investments, each with its own approach. Here are
the different types of foreign direct investments:
1. Horizontal FDI
Horizontal FDI is the most common type of foreign investment. It involves investing capital
in a foreign company that belongs to the same industry sector that the investor conducts or
owns business operations in. Thus, the investment is made through the domestic company in
a foreign company, both of which produce similar goods and belong to the same industry.
The distribution of funds is seen horizontally across the sectors, despite being in different
countries since the core business undertaking is the same. It can also be seen as an expansion
of the investor’s domestic business overseas.
2.Vertical FDI
A vertical FDI is when an entity invests within the supply chain of a business, but the
component may not necessarily belong to the same industry. Thus the investor chooses to
invest in a foreign company that can supply that component. For instance, a coffee producer
may invest capital in overseas coffee plantations. Here, since the investing company is
purchasing a provider in the supply chain, this is known as backward vertical integration. On
the other hand, when the investor invests in a foreign company that is placed higher in the
supply chain it is known as forwarding vertical integration. For example, the same coffee
company may want to invest in a foreign grocery chain. Thus, the business expansion occurs
on a different level in the business supply chain, but the undertakings are still associated with
the primary business. This helps the investor is effectively strengthening their supply chain
without drastically modifying their business.
3.Conglomerate FDI
When an investor chooses to invest in two entirely different businesses based in completely
different industries, it is known as conglomerate FDI. In this scenario, the FDI is not directly
linked to the foreign investor’s business. For instance, an automobile manufacturer may
decide to invest in Pharma. Here, the investor is undertaking foreign business investments
that are completely unrelated to their domestic business. This type is relatively uncommon
since the difficulty of establishing a business in a new country is compounded by the
difficulty of a breakthrough in a new market or industry. The goal of a conglomerate FDI is
to expand into new niches and explore different business opportunities.
4.Platform FDI
Platform FDI is the final type of foreign direct investment. In this case, the investor’s
business works towards expansion in a foreign country, with the ultimate aim of exporting
the manufactured products to a completely different, third country. For example, a clothing
brand based in North America may outsource their manufacturing process to a developing
country in Asia, and sell the finished goods in Europe. Thus the expansion occurs in one
foreign country, and the output is carried on to a different foreign country. This type of FDI is
generally seen in free-trade regions in countries that are actively seeking FDI. Luxury
clothing brands are a classic example of this type of FDI and manufacturing process.

2.7 Data collection

Data for the study was collected from primary as well as secondary sources.

 Primary Sources of Data Collection

For this research primary source of data collection was done by survey method. The survey
was Conducted through Structured Questionnaire which was asked to the respondents. The
Questionnaire was prepared keeping in mind the objectives of the study and also the
hypothesis Of the study. The questions asked to the respondents were close ended so that the
respondents Could answer quickly without any problem. The questionnaire was prepared
with the help of Google forms. The questionnaire was divided in to 2 main parts i.e. the age,
gender and other details of the Respondents and the questions relating to the topic.

 Secondary sources of Data Collections

Secondary sources of data means the data that is already available on various platforms.
Secondary data can be obtained by various publications by the central or the state government
or By any organizations, journals, books,, magazines, and even newspapers, reports published
by Various organizations, schools, universities etc. This type of data collection is used to gain
more knowledge of the topic of our research by Collecting articled by authors who have
previously researched on the topic that we have selected. In this study secondary data was
collected through various websites, online journals, which Helped in completing the review
of literature. Secondary source of data collection was useful to Understand the research topic
more accurately.
Method of Data collection

 Accurate and systematic data collection is critical to conducting scientific research.

 Data collection allows us to collect information that we want to collect about our
study participants.

 Depending on research type, methods for data collection include documents review,
observation, questioning, measuring, or a combination of different methods.

 Here, I have selected questionnaire method to collect data.

 Questionnaire is a research instrument consisting of a series of questions and other

prompts for the purpose of gathering information from respondents.
Steps require to design and administer a questionnaire
1. DEFINING THE OBJECTIVES OF STUDY
A Questionnaire should allow us to collect the most complete And accurate data in a logical
flow. This is done in order to reach reliable conclusions from What we are planning to
observe. A well-designed questionnaire should meet the research goal and objectives and
minimize unanswered questions—a common Problem bound to many surveys.
2. DEFINE THE TARGET RESPONDENTS AND METHOD TO REACH THEM.
The researcher should clearly define the target, study populations from which she/ he collects
data and information. Main methods of reaching the respondents are: personal contact,
interview, mail/Internet-based questionnaires, telephone interview.

3. WRITING THE QUESTIONNAIRE

Before writing the questionnaire researcher should decide on the Questionnaire content. Each
question should contribute to testing one or more Hypothesis/ research question established in
the research design. Questions could be:

 Open format questions that are without a predetermined set of Responses.

 Closed format questions that take the form of a multiple-choice Question.

Following points to be considered while writing a Questionnaire:

 Clarity: question has the same meaning for all the respondents

 Phrasing: short and simple sentences, only one piece of Information at a time, avoid
negatives if possible, ask precise Questions, in line with respondent level of
knowledge.
 Sensitive question: avoid questions that could be Embarrassing to respondents.

 Hypothetical questions should be avoided if possible

4. QUESTIONNAIRE PILOT TESTING

 The major challenge in questionnaire design is to make it clear to all respondents.

 In order to identify and solve the confusing points, we need To pre-test the
questionnaire.

 During the pilot trial the questionnaire participants should be Randomly selected
from the study population.
5. QUESTIONNAIRE ADMINISTRATION
6. RESULT INTERPRETATION
2.8 Advantages of FDI
The advantages of foreign direct investment can be enumerated as follows:
 Best practices: It brings technology to developing nations. Besides, it brings the most
efficient management ideas to the business that is the recipient. Also, the recipient
organization's employees learn innovative ways of accomplishing goals prevalent
internationally. Consequently, the lifestyle of the workers in recipient organizations
enhances.
 High Standard of Living: Due to FDI, the living standard of the entire developing
nation increases. This is possible as the recipient organization receives a significant
amount of money due to foreign financing. Consequently, it pays a higher amount of
taxes. This in turn benefits the people of the developing nation.
 Establishing stable long-term lending: A major benefit of FDI is that it removes the
volatile effect of hot money. Hot money refers to a capital whose transferring takes
place frequently with the aim of maximizing capital gain. Due to this, the entire nation
can be ruined. With foreign direct investment, this problem is effectively tackled.
 FDI stimulates economic development: It is the primary source of external capital as
well as increased revenues for a country. It often results in the opening of factories in
the country of investment, in which some local equipment – be it materials or labour
force, is utilised. This process is repeated based on the skill levels of the employees.

 Increased employment opportunities: As FDI increases in a nation, especially a

developing one, its service and manufacturing sectors receive a boost, which in turn
results in the creation of jobs. Employment, in turn, results in the creation of income
sources for many. People then spend their income, thereby enhancing a nation’s
purchasing power.

 Development of human resources: FDI aids with the development of human

resources, especially if there is transfer of training, technology and best practices. The
employees, also known as the human capital, are provided adequate training and
skills, which help boost their knowledge on a broad scale. But if you consider the
overall impact on the economy, human resource development increases a country’s
human capital quotient. As more and more resources acquire skills, they can train
others and create a ripple effect on the economy.
  FDI enhances a country’s finance and technology sectors: The process of FDI is
robust. It provides the country in which the investment is occurring with several tools,
which they can leverage to their advantage. For instance, when FDI occurs, the
recipient businesses are provided with access to the latest tools in finance, technology
and operational practices. As time goes by, this introduction of enhanced technologies
and processes get assimilated in the local economy, which make the fin-tech industry
more efficient and effective.

Apart from the above points, there are a few more we cannot ignore. For instance, FDI helps
develop a country’s backward areas and helps it transform into an industrial centre. Goods
produced through FDI may be marketed domestically and also exported abroad, creating
another essential revenue stream. FDI also improves a country’s exchange rate stability,
capital inflow and creates a competitive market. Finally it helps smoothen international
relations.

2.9 Disadvantages of FDI

Though there are a lot of benefits in a Foreign Direct Investments (FDI), there are still a lot of
disadvantages which need attention.
 Disappearance of cottage and small scale industries:
Some of the products produced in cottage and village industries and also under small
scale industries had to disappear from the market due to the onslaught of the products
coming from FDIs. Example: Multinational soft drinks.

 Contribution to the pollution:

Foreign direct investments contribute to pollution problem in the country. The
developed countries have shifted some of their pollution-borne industries to the
developing countries. The major victim is automobile industries. Most of these are
shifted to developing countries and thus they have escaped pollution.

 Exchange crisis:
Foreign Direct Investments are one of the reason for exchange crisis at times. During
the year 2000, the Southeast Asian countries experienced currency crisis because of
the presence of FDls. With inflation contributed by them, exports have dwindled
resulting in heavy fall in the value of domestic currency. As a result of this, the FDIs
started withdrawing their capital leading to an exchange crisis. Thus, too much
dependence on FDls will create exchange crisis.

 Cultural erosion:
In all the countries where the FDls have made an inroad, there has been a cultural
shock experienced by the local people, adopting a different culture alien to the
country. The domestic culture either disappears or suffers a setback. This is felt in the
family structure, social setup and erosion in the value system of the people.
Importance given to human relations, hither to suffers a setback with the hi-fi style of
living.
  Political corruption:
In order to capture the foreign market, the FDIs have gone to the extent of even
corrupting the high officials or the political bosses in various countries. Lockheed
scandal of Japan is an example. In certain countries, the FDIs influence the political
setup for achieving their personal gains. Most of the Latin American countries have
experienced such a problem. Example: Drug trafficking, laundering of money, etc.

 Inflation in the Economy:

The presence of FDIs has also contributed to the inflation in the country. They spend
lot of money on advertisement and on consumer promotion. This is done at the cost of
the consumers and the price is increased. They also form cartels to control the market
and exploit the consumer. The biggest world cartel, OPEC is an example of FDI
exploiting the consumers.

 Trade Deficit:
The introduction of TRIPs (Trade Related Intellectual Property Rights) and TRIMs
(Trade Related Investment Measures) has restricted the production of certain products
in other countries. For example, India cannot manufacture certain medicines without
paying royalties to the country which has originally invented the medicine. The same
thing applies to seeds which are used in agriculture. Thus, the developing countries
are made to either import the products or produce them through FDIs at a higher cost.
WTO (World Trade Organization) is in favour of FDIs.

 World Bank and lMF Aid:

Some of the developing countries have criticized the World

Bank and IMF (International Monetary Fund) in extending assistance. There is a
discrimination shown by these international agencies. Only those countries which
accommodate FDIs will receive more assistance from these international institutions.

 Convertibility of Currency:
FDIs are insisting on total convertibility of currencies in under-developed countries as
a prerequisite for investment. This may not be possible in many countries as there
may not be sufficient foreign currency reserve to accommodate convertibility. In the
absence of such a facility, it is dangerous to allow the FDIs as they may withdraw
their investments the moment they find their investments unprofitable.

2.10 limitations of Foreign Direct Investment (FDI) in India:

There are several limitations of Foreign Direct Investment (FDI) in India:
 Regulatory barriers: Despite liberalization measures, India still has complex
regulations and bureaucratic procedures that can make it difficult for foreign
companies to invest and operate in the country.

 Infrastructure challenges: India's infrastructure, including transportation, power,

and telecommunications, is still underdeveloped in many areas. This can make it
 challenging for foreign companies to do business and can increase the cost of doing
business.

 Skilled workforce shortage: India has a shortage of skilled workers in many areas,
including technology, engineering, and management. This can make it difficult for
foreign companies to find the talent they need to operate in the country.

 Political instability: India's political situation can be unpredictable, and there have
been instances of policy changes and reversals that can make it difficult for foreign
companies to plan for the long term.

 Cultural differences: India's culture and business practices can be different from
those of other countries, and foreign companies may find it challenging to navigate
these differences.
 Corruption: Corruption is a significant issue in India, and foreign companies may
face challenges in dealing with corrupt officials and practices.

 Legal system: India's legal system can be slow and inefficient, and foreign companies
may face challenges in resolving disputes.
Overall, while India has made progress in attracting foreign investment, there are still
significant challenges that need to be addressed to make it a more attractive destination for
FDI.
Chapter 3: Literature Review
"Foreign Direct Investment in India: An Empirical Analysis" by Pankaj Kumar Gupta and
Sangeeta Bansal (2017): This literature review examines the impact of FDI on economic
growth, employment, and technology transfer in India. The authors find that FDI has a
positive impact on economic growth and employment, but the technology transfer effects are
less clear. Link:
https://www.researchgate.net/publication/317105367_Foreign_Direct_Investment_in_India_
An_Empirical_Analysis
"Foreign Direct Investment in India: Policies, Opportunities, and Challenges" by S.
Mahendra Dev (2013): This literature review provides an overview of FDI policies and trends
in India, and examines the challenges and opportunities for attracting more FDI. The author
concludes that India needs to improve its infrastructure, reduce regulatory barriers, and
address corruption to attract more FDI. Link:
https://www.researchgate.net/publication/259279652_Foreign_Direct_Investment_in_India_
Policies_Opportunities_and_Challenges
"Foreign Direct Investment in India: A Critical Analysis of FDI from 1991-2005" by Krishna
Reddy Chittedi (2012): This literature review examines the trends in FDI inflows and
outflows in India from 1991 to 2005, and analyzes the impact of FDI on various sectors of the
economy. The author finds that FDI has had a positive impact on the Indian economy, but
there are challenges related to infrastructure, labor laws, and corruption that need to be
addressed to attract more FDI. Link:
https://www.researchgate.net/publication/301067320_Foreign_Direct_Investment_in_India_
A_Critical_Analysis_of_FDI_from_1991-2005

CHAPTER – 4 DATA ANALYSIS AND INTERPRETATION

4.1 Introduction
Analysis is a crucial aspect of research. Analysis is a form of description of data Gathered in
a systematic and scientific way. Statistical analysis acts as a quantitative Link for
communication of results. This chapter reflects the research approach of Data collection for
the present study. The data was processed and analysed with the Help of MS- Word.
Description of data is done on the basis of each variable being Studied for the entire sample.
The table depicts the number/ percentage of Respondents’ views on each variable.
Following questions were asked to the people in Mumbai Region and their responses Have
been recorded in the form of percentages and table below. Total 45 responses Have been
collected to know the Foreign direct investment in India amongst older people in Mumbai
Region. The Objectives and short explanation has also been stated.

4.2 Analysis and Interpretation of Data

Q. 1 Age
 Source: Primary

Particulars Frequency Percentage

Below 20 12 26.7%
20-30 years old 27 60%
30-40 years old 3 6.65%
40-50 years old 3 6.65%

INTERPRETATION
As we analyse the above percentage, at age 20-30 years old has highest percentage of 60%
with a frequency 27. Next we have at 26.7% the below 20 years old with frequency of 12. At
30-40 years old has lowest percentage of 6.65% with frequency of just 3 and there is3
respondents at 40-50 years old. Mostly all the questions are formed considering elders people
so the all the respondents have answer on behalf of elders People they know or living with
them.
Q.2 Gender

Source: Primary
Particulars Frequency Percentage
Male 22 48.9%
Female 23 51.1%
Other - -

INTERPRETATION
The above table shows the number of males and females who have been part of this Survey
and responded. This helps us understand the number of people who are females Who filled up
the survey and the number of males who filled up the survey. As we Analyse the above table,
we understand that the female frequency who have responded To this survey is higher than
the males. Female frequency is 23 and males are at 22. If We see the percentage, 51.1% of
the total people who filled this survey are females leaving 48.9% males to answer the survey.
Q3. Full Form Of FDI

Source: Primary

Particulars Frequency Percentage

Foreign development 6 13.3%
index
Federal department of 9 20%
investigation
Foreign department of 3 7.7%
investment
Foreign Direct Investment 27 60%
INTERPRETATION
There were total 45 responses out of 60% of people know about Foreign direct investment
with a frequency of 27. Whereas 40 % of people are don’t know full form of Foreign Direct
Investment.

Q.4 Do you know about FDI ?

Source: Primary

Particulars Frequency Percentage

Yes 25 48.1%
No 10 19.2%
Maybe 17 32.7%

INTERPRETATION
The above analysis for the awareness of Foreign direct investment. Out of 52 respondents
48.1% of respondents having frequency as 25 have chosen the yes option which indicates that
they are aware of Foreign Direct Investment and 19.2% of people with a frequency of 10
have chosen the no option which means they are not familiar to Foreign Direct Investment.
Remaining 17 people with a percentage of 32.7% have chosen maybe option which means
that they are still not sure if they are aware of not.

Q.5 Does FDI helps in economic growth?

Source: Primary

Particulars Frequency Percentage

Yes 32 62.7%
No 3 7%
Maybe 16 31.4%

INTERPRETATION
According to above pie chart 62.7% of respondents selected the yes option for with a highest
frequency of 32 while 7% respondents have selected No option with a frequency of 3. And
remaining 31.4% respondents are not sure about their answer, that FDI helps in economic
growth or not.
Q.6 Limit of FDI for private security agencies in India.

Source: Primary

Particulars Frequency Percentage

49% 27 51.9%
74% 12 23.1%
69% 11 21.2%
19% 2 5.1%
INTERPRETATION
According to above pie chart 51.9% of respondents selected the 49% limit option with a
highest frequency of 27 while 23.1% respondents have selected 74% limit option with a
frequency of 12. Then 21.2% respondents 69%limit and 5.1 % respondents 19% limit. It
means only 51.9% people know the limit of FDI for private security agencies in India.

Q.7 According to India's FDI policy, 100%FDI in equity via the automatic methods is not
permitted in which of the following area?
 Source: Primary

Particulars Frequency Percentage

Maintenance and repair 8 15.4%
organization
private security agencies 32 61.5%
industrial park 7 13.5%
construction development 5 9.6%
project

INTERPRETATION
The correct answer is Private Security Agencies. As per pie diagram 61.5% respondents
selected private security agencies with the highest frequency of 32 while 15.4% respondents
selected maintenance and repair organization option with frequency 8, 13.5% respondents
selected industrial park with the frequency of 7 and 9.6% respondents selected construction
development project with frequency 5.
Q.8 ______ is Foreign Direct Investment.
 Source: Primary

Particulars Frequency Percentage

Circulation of money 26 50%
Unemployment 8 15.4%
Supply 5 9.6%
Employment 13 25%
INTERPRETATION
As per pie diagram 50% respondents selected circulation of money with the highest
frequency 26, while 15.4% respondents selected unemployment with the frequency

8, 9.6% respondents selected supply with the frequency 5 and 25% respondents selected
employment with the frequency 13. The correct answer is Circulation of money.
Q.9 An ______ is a financial institutional made by a company or individual in another
country's business interests.
 Source: Primary

Particulars Frequency Percentage

RBI 12 23.1%
FDI 37 71.2%
SEZ 1 2.1%
CRR 2 4.2%

INTERPRETATION
The answer is FDI. According to pie diagram 71.2% respondents selected FDI with highest
frequency 37 while 23.1% respondents selected RBI with the frequency 12, 4.2% respondents
selected CRR with the frequency 2 and 2.1% respondents selected SEZ with the frequency 1.
Q.10 Ministry of India needs to decide on FDI proportion application in his many days?
 Source: Primary

Particulars Frequency Percentage

70 Days 10 19.2%
50 Days 10 19.2%
45 Days 13 25%
60 Days 19 36.5%
INTERPRETATION
According to the pie diagram 36.5% respondents selected 60 days with the highest frequency
19, while 19.2% respondents selected 70 Days with the frequency 10, 19.2% respondents
selected 50 days with the frequency 10 and 25% respondents selected 45 days with the
frequency 13. Ministry of India needs to decide on FDI proportion application in his 60
days.
Q.11 _______ is an investment fund that if based in a country other than the one where the
investment is made.

Source: Primary

Particulars Frequency Percentage

foreign institutional 12 24%
investment
foreign trade investment 17 34%
forex 9 18%
foreign direct investment 12 24%
INTERPRETATION
As per pie diagram 34% respondents selected Foreign trade investment with the highest
frequency 17, while 24% respondents selected foreign institutional investment with the
frequency 12, 24% respondents selected foreign direct investment with the frequency 12
and 18% respondents selected forex with the frequency 9. The correct answer is Foreign
Institutional Investment.
Q.12 FD is the formulation policy of which noble department?
 Source: Primary

Particulars Frequency Percentage

NABARD 12 23.5%
SEBI 14 27.5%
Department for promotion 19 37.3%
of industry an internal
trade
RBI 6 11.8%

INTERPRETATION
As per pie diagram 37.3% respondents selected department for promotion of industry am
internal trade with the highest frequency 19, while 27.5% respondents selected SEBI with the
frequency 14, 23.5% respondents selected NABARD with the frequency 23.5% and 11.8%
respondents selected RBI with the frequency 6.
Q.13 what is the maximum amount of FDI in retail that can be brought into India through
unrestricted routes?
 Source: Primary

Particulars Frequency Percentage

55% 18 34.6%
100% 22 42.3%
45% 10 19.2%
25% 2 5.3%

INTERPRETATION
As per pie diagram 42.3% respondents selected 100% option with the highest frequency 22,
while 34.6% respondents selected 55% option with the frequency 18, 19.2% respondents
selected 45% option with the frequency 10 and 5.3% respondents selected 25% option with
frequency 2. 100 is the maximum amount of FDI in retail that can be brought into India
through unrestricted routes.

Q.14 which index did India rank 8th on April 20, 2017?
 Source: Primary

Particulars Frequency Percentage

AT Kearney FDI 23 45.1%
confidence index
Moody’s rating 13 25.5%
Morgan Stanley index 8 15.7%
ICRA rating 7 13.7%

INTERPRETATION
As per pie diagram 45.1% respondents selected AT Kearney FDI confidence index with the
highest frequency 23, while 25.5% respondents selected Moody’s rating with the frequency
13, 15.7% respondents selected Morgan Stanley index with the frequency 8 and 13.7%
respondents selected ICRA rating with the frequency 7. The answer is AT Kearney FDI
confidence index.

CHAPTER – 5 CONCLUSION AND SS SUGGESTION

5.1 Conclusion
Foreign Direct Investment (FDI) in India has been an important driver of economic growth
and development. Over the years, India has gradually opened up its economy to foreign
investors, leading to a significant increase in FDI inflows.
FDI inflows have contributed to the growth of various sectors such as manufacturing,
services, and infrastructure, among others. The inflow of FDI has also led to increased
employment opportunities, transfer of technology, and enhanced productivity.
Trends are just relative numbers which might differ from that of the original numbers. It only
shows the relation in the form of percentage growth over last year whereas the foreign direct
investment keeps on coming into the economy. There can be many factors responsible for
such variations in the trends of foreign direct investment inflows like economic, institutional
and political factors. These factors include economic growth of the country, market size,
resource location, return on investment, inflation, government regulation, political stability,
tax policies and foreign exchange rate among others.
In recent years, India has been ranked among the top destinations for FDI, and the
government has undertaken several measures to attract foreign investment. These measures
include simplification of regulations, relaxation of FDI norms in various sectors, and
improving the ease of doing business in the country.
FDI-enabled plants are spread across various states with relatively high concentration in
Maharashtra, Gujarat, Tamil Nadu, Karnataka and West Bengal. A significant proportion (54
%) of manufacturing plants is located in Class-3 cities. FDI-enabled service facilities have
relatively high concentration in Andhra Pradesh, Karnataka, Maharashtra, and Tamil Nadu.
The proportion of service facilities located in Class-3 cities is relatively less significant (35
%) vis-à-vis manufacturing plants.
However, there are also some challenges that India faces in attracting FDI, including
bureaucratic hurdles, infrastructure bottlenecks, and regulatory complexities. The country
also faces competition from other emerging economies for FDI inflows.
Overall, FDI has played a significant role in India's economic development, and the country
continues to work towards improving its investment climate to attract more foreign investors.

5.2 Suggestions
Here are a few suggestions to further improve the FDI environment in India:
Simplify Regulations: The government should continue to simplify regulations and
procedures for foreign investors. This could include reducing the number of approvals
 required for FDI projects, simplifying the tax system, and providing a clear and
transparent regulatory environment.
Improve Infrastructure: The Indian government should focus on improving infrastructure
in the country, such as roads, ports, and airports. This will not only improve the overall
investment climate but also enhance the competitiveness of Indian businesses.
Increase Sectoral Participation: The government should encourage FDI in sectors such as
agriculture, education, and healthcare, where there is still significant untapped potential
for investment.
Develop Human Capital: The government should also focus on developing human capital
in the country, such as improving the quality of education and vocational training. This
will not only enhance the skills of the local workforce but also make India an attractive
destination for high-skilled FDI projects.
Promote R&D: The government should provide incentives for foreign investors to
undertake research and development activities in India. This will not only help to develop
new technologies and products but also create new jobs and industries.
Overall, India has made significant progress in attracting FDI, but there is still significant
potential for further growth. By implementing these suggestions, India can further
improve its investment climate and attract more foreign investors to the country.

BIBLIOGRAPHY/ WEBLIOGRAPHY
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 ANNEXURE
Questionnaire for A study on FOREIGN DIRECT INVESTMENT.
This research is done for pure academic purpose only. Data filled in this questionnaire will
not be disclosed to anyone.

Name

E-mail

1. Age

 Below 20
 20-30
 30-40
 40-50

2. Gender

 Female
 Male
 Prefer not to say

3. Full Form Of FDI

 Foreign development index

 Federal department of investigation
 Foreign department of investment
 Foreign Direct Investment

4. Do you know about FDI?

 Yes
 No
 Maybe

5. Does FDI helps in economic growth?

  Yes
 No
 Maybe

6. Limit of FDI for private security agencies in India.

 74%
 69%
 49%
 19%

7. According to India's FDI policy, 100%FDI in equity via the automatic

methods is not permitted in which of the following area?

 Maintenance and repair organization

 private security agencies
 industrial park
 construction development project

8. ______ is Foreign Direct Investment.

 Circulation of money
 Unemployment
 Supply
 Employment

9. An ______ is a financial institutional made by a company or individual in

another country's business interests.

 RBI
 FDI
 SEZ
 CRR

10. Ministry of India needs to decide on FDI proportion application in his many
days?

 70 days
 50 days
 45 days
 60 days
11. _______ is an investment fund that if based in a country other than the one
where the investment is made.

 foreign institutional investment

 foreign trade investment
 forex
 foreign direct investment

12. FD is the formulation policy of which noble department?

 NABARD
 SEBI
 Department for promotion of industry an internal trade
 RBI
13. what is the maximum amount of FDI in retail that can be brought into india
through unrestricted routes?
 55%
 100%
 45%
 25%

14. which index did India rank 8th on April 20, 2017?
 AT Kearney FDI confidence index
 Moody’s rating
 Morgan Stanley index
 ICRA rating