RESEARCH PAPER ON FOREIGN DIRECT INVESTMENT (FDI)

Abstract

Foreign direct investment (FDI) policies play a major role in the economic growth of
developing countries around the world. Attracting FDI inflows with conductive policies has
therefore become a key battleground in the emerging markets. The prospect of new growth
opportunities and outsized profits encourages large capital inflows across a range of industry
and opportunity types. And this has led to competition among the states in formulating
flexible policies and providing incentives to woo private investors to invest more and more.
In the light of the above the paper highlights the trend of FDI in India after the economic
reforms, sector-wise and country-wise share of FDI, the manner in which FDI has effected
the growth of Indian states. Various factors which play a significant role in attracting FDI
into a particular state are also examined. Efforts made by the state governments in order to
attract maximum FDI are also studied.
Keywords: economic, growth, development, FDI, states

INTRODUCTION TO INDIAN ECONOMY

India is the seventh largest and second most populous country in the world, in terms of
Purchasing Power Parity India is the world’s fourth largest economy. India is also the tenth
most industrialised country in the world. With its consistent growth performance and
abundant high-skilled manpower, India provides enormous opportunities for investment, both
domestic and foreign. Since the beginning of economic reforms in 1991, major reforms
initiatives have been taken in the fields of investment, trade, financial sector, exchange
control simplification of procedures, enactment of competition and amendments in the
intellectual property rights laws, etc. India provides a liberal, attractive and investor friendly
investment climate. A new spirit of economic freedom is now stirring in the country,
bringing sweeping changes in its wake. A series of ambitious economic reforms aimed at
deregulating the country and stimulating foreign investment has moved India firmly into the
front ranks of the rapidly growing Asia Pacific region and unleashed the latent strengths of a
complex and rapidly changing nation.
Objective of the study:
1. To maintain a sustained growth in the productively andemployment.
2. To attain internationalcompetitiveness.
3. To enhance the level of exports;
 4. To improve the balance of trade;
5. To allow import of technology and equipment’s which may help in establishing new
industrial enterprises, produce new products and adopt a new process for higher
production levels.
6. To provide consumers with good quality products at reasonable prices through
regulated imports of such products.

Research Methodology
Research Methodology is a way to find out the result of a given problem on a specific
matter or problem that is also referred as research problem. In Methodology, researcher uses
different criteria for solving/searching the given research problem. Different sources use
different type of methods for solving the problem. If we think about the word
“Methodology”, it is the way of searching or solving the research problem. This chapter
contains conceptual model, research hypotheses, research methodology, methodology used
in the research. Conceptual model will also be used to undertake for analysis of study. In
last research methodology will be offered so that set objectives can be attainedsuccessfully.
Datacollection
Secondary sources:
Data collected from internet, journals, magazines, text books etc. A sample of typical
secondary source can be seen as per selected bibliography & references
.FOREIGN DIRECT INVESTMENT
CONCEPT:
 Long term Investment by a foreign direct investor in an enterprise resident in an
economy other than that in which the foreign direct investor is based
 The FDI relationship, consist of a parent enterprise and a foreign affiliate which
together form a transnational corporation (TNC)
 Parent enterprise investment must afford the parent enterprise control over its foreign
affiliate (owing 10% or more of the ordinary shares or voting power of an
incorporated firm or its equivalent for an unincorporated firm- UN definition)
 COMPARISION BETWEEN FDI AND FII
FDI
Direct investment by a controlling Parent
Enterprise in the assets of an affiliate
Enterprise Located in an economy other than where parent
enterprise is based
Investment by any corporation that
Long term & direct investment in plant &
Regulated by RBI & FIPB of the Dept. of
under ministry of finance
Sector specific limits prescribed for FDI
Under automatic/ approval route
FII
Investment in the capital- debt stock of a company/govt.
securities by investor that is from or registered in a country
Outside of the one in which its investing
Includes Hedge funds, insurance compa- nies, pension
funds and mutual funds
under portfolio management to earn profits from value
appreciation
SEBI registration is required to Commerce
operate as an FII in India
Aggregate investment ending for FII
investment is 10% (5% for single) of the
paid up capital of a company (upto 24% in case of listed
Indian companies under General Body Resolution

TYPES OF FDI
Greenfield Investment
 Direct investment in new facilities / expansion of existing facilities
 Objective to create new production capacity and jobs, transfer technology and know-
how and form linkages to the global market place
 Leads to crowding out of local industry due to production of goods more cheaply (due
to advanced technology and efficient process) and uses up resources
 Profits from production do not feed backint the local economy but to the multinational’s
home economy
FDI in Retailing
RetailinginIndiaisone ofthepillars ofits economyand accountsfor 14to15%ofits GDP. The
Indianretailmarketis estimated tobeUS$ 450billionand one ofthetopfiveretail
marketsintheworld byeconomic value.Indiais oneofthe fastestgrowingretail markets
intheworld,with 1.2 billionpeople. India'sretailingindustryis
essentiallyownermannedsmallshops.In 2010,larger formatconveniencestores
andsupermarketsaccountedfor about 4%ofthe industry, andthesewere presentonlyinlarge
urbancenters. India'sretailand logistics industryemploys about40millionIndians
(3.3%ofIndian population). Until2011,Indiancentral governmentdeniedforeign
directinvestment(FDI) inmulti-
brandretail,forbiddingforeigngroupsfromanyownershipinsupermarkets,
conveniencestoresoranyretailoutlets. Evensingle-brandretailwas limitedto 51% ownership
anda bureaucratic process.
CASE STUDY COCA COLA
Coca cola was the first international soft drinks brand to enter in 900 crore softdrink market
of India in early 1970s. Indian market was dominated by domestic brands, with Limca being
the largest selling brand. Cola was the largest selling flavour with market share of 40%,
Lemon drinks 31% and orange drinks only 19%. Uptill 1977, Coca-cola was the leading soft
drink brand in India. But due to norms set by the Foreign Exchange Regulation Act (FERA),
Coca-cola left India and did not return till 1993.
RBI's move on Foreign Equity Regulation
In 1974, Multinationals operating in low priority areas like consumer goods were asked by
RBI (under FERA) to step down equity to 40% either through equity dilution or through
equity sale
Non-strategic category of foreign companies
Coke, which operated in India through a branch office, submitted its plan for stepping down
equity to the RBI. It offered to hold 40% equity in its bottling and distribution units, but
refused to step down equity in its technical and administrative unit
Coke at Logger Heads with the Indian Government
Since this was not in line with FERA, which permitted not more than a 40 % holding in all
operations, Coke was asked to comply properly with the new norms. Coke decided to wind
up its operations in India, but quit making allegations that the Indian Government was forcing
it to share its secret formula for making its concentrate
Blame game in a Bad Blood
The Indian Government slaapped its counter charges and accused the parent of bleeding
profits and repatriating large sums of funds aroad (as administrative charges) even when the
Indian operations were posting losses. Further, there were allegations of Coke abusing import
licenses- against which it imported the concentrate- all of which resulted in bad blood
between the two parties
Coke Exists India
In 1977, Coke left India and did not return for nearly two decades. By which time, the
economic situation had undergone a major transformation. More importantly, the particular
provision in FERA had been diluted completely
Coke re enters India
Coke factored in all these issues at the time of its re-entry. In its application to India's Foreign
Promotion Board (FIPB) in 1997, it voluntarily offered to divest 49% in favor of the Indian
public through an IPO at the end of three years. This was despite the fact that the FDI norms
for the soft drink sector did not require mandatory divestment of stake and noboby was
forcing it to do so.
CONCLUSION
Thus from developed countries experience retailing can be thought of as developing through
two stages. In the first stage, modern retailing is necessary in order to achieve major
efficiencies in distribution. The dilemma is that when this happens it inevitably moves to
stage two, a situation where an oligopoly, and quite possibly a duopoly, emerges. In turn this
implies substantial seller and buyer power, which may operate against the public interest.
The lesson for developing countries is that effective competition policy needs to be in place
well before the second stage is reached, both to deter anticompetitive behaviour and to
evaluate the extent to which retail power is being used to unfairly disadvantage smaller
retailers and their customers. The sources of retail power need to be understood to ensure
that abuses of power are curbed before they occur. The more important debate lies in the
parameters of competition policy. The benefits brought by modern retailers must be
acknowledged and not unduly hindered. While it is true that some dislocation of traditional
retailers will be felt, time will prove that the hardship brought will not be substantial.
Competition law is being created and adopted across Asia but in the immediate future its
impact is not expected to be large. Competition laws only become vital as time passes and
retail becomes concentrated in the hands of a few powerful companies, whether or not these
companies are foreign or domestic.
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