Group 1, Division B

Astha Chandodwala B001

Foreign Direct Mrunal Sinkar B007

Shubham Jain B020
Saagarika Khandelwal B025

Investement in India
 Objectives

To  provide a broad outline Specific Objectives:

of   1. To understand the contribution of FDI

on India’s GDP and employment rate.
Foreign Direct Investment
2. To study the impact of FDI on the
(FDI) retail industry in India.
and its role in 3. To study the potential role of FDI on
India’s economic growth. strengthening the MSME sector in
India.
 1 Foreign Direct
Investement
Overview, Timeline and Current Scenario

3
 International Monetary Fund (IMF) defines FDI as

‘A category of international investment that reflects the

objective of a resident in one economy (DIRECT INVESTOR)
obtaining a lasting interest in an enterprise resident in another
economy (DIRECT INVESTMENT ENTERPRISE).’

4
 Classification of FDI
Conglomerates

Asset
Augmenting Nature of Horizontal FDI

Greenfield Business Vertical FDI

investments
Resource Seeking
Brownfield
Investments
Asset Motive
Market Seeking
Mergers & Motive
Acquisitions
Efficiency Seeking
Asset Motive Motive
Acquiring Strategic Asset
Seeking Motive
 • Selective opening of the Indian economy
Evolution of FDI Policy in Adopting MRTP (Monopolistic And
India Restrictive Trade Practices Act) and the
FERA(Foreign Exchange Regulation Act) in
1973

Year of India’s
Independence Phase 2
1948- 1969- 1991-
1947 1969 2000
1991
Phase 1 Phase 3

• Revolutionary liberalization in India.

• Cautious approach to foreign
investment
• Limited participation of foreign
capital.
• “Swadeshi Movement” or the era
of closed economy.
• FERA was replaced by FEMA (Foreign
Exchange Management Act)
• FDI allowed on the automatic route up to
51% in high priority sectors.
• FIPB ( Foreign Investment Promotional Board)
constituted to consider cases regarding FDI
 • Phase of global optimism and
global boom
• Increased role of BRICS and
interlinking of global economy in
early 2000’s
• Caps gradually raised in sectors
• Global economies began recovering
from recession but India witnessed a
slow growth rate
• Outflow of capital and
widening current account deficit.

Phase 4 Phase 6

2000- 2007- 2010- 2014-

2007 2010 2013 2020
Phase 5 Phase 7
• Global Economies hit by recession.
• Further easing, rationalizing
• Poor flow of capital.
and simplifying the process of
• Govt. gave a positive nod to NRI companies
foreign investments
to have 100% owned subsidiary in India
• Steep rise in FDI inflow
• “Make in India”, “Digital India”,
“Startup India” Initiative
• “Most open economy in world
7
for FDI” in 2016
 Trends in India’s FDI inflow

$30,421 Mil
80,000 USA
9%
70,000
$33,937 Mil Japan
60,000 10%
Mauritius
50,000 $34,937 Mil 42%
Netherlands
10%
$143.601 Mil
US$ Mil

40,000

30,000
$99,493 Mil
20,000

Singapore
10,000 29%

-
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
-01 -02 -03 -04 -05 -06 -07 -08 -09 -10 -11 -12 -13 -14 -15 -16 -17 -18 -19 -20 Country-wise FDI equity inflows from
Year April 2000 to June 2020
8
https://dipp.gov.in/
 Sector-wise FDI equity inflows
from April 2000 to June 2020

Amount of FDI inflows Percentage of total

Top 10 Sectors
(in US$ Mil) FDI Inflow
Service Sector (Banking, Financing,
1 83,149.54 17.45%
R&D, Insurance, Courier, Tech., etc)
2 Computer Software and Hardware 45,975.74 9.65%
3 Telecommunications 37,373.56 7.82%
4 Trading 28,020.47 5.88%
5 Construction Development 25,690.99 5.39%
6 Automobile Industry 24,536.89 5.15%
7 Chemicals (Excluding Fertilizers) 17,775.78 3.73%
8 Construction (Infrastructure) 16,975.46 3.56%
9 Drugs and Pharmaceuticals 16,546.97 3.47%
10 Hotel and Tourism 15,448.28 3.24%

9 https://dipp.gov.in/
 How is FDI beneficial to
developing economies?

Improved Capital Flow

s
sse Increased Employment
e

Sk
roc

ill
P Development of Backward Areas
s Increase in Exports

Provision of Finance & Technology

t
Te

en
c

Exchange Rate Stability

em
hn

ag
ol
og

an

Creation of a Competitive Market

y

10
 2 To understand the contribution of FDI
on India’s GDP and Employment Rate.

11
 • GDP = Consumption + Gross
FDI and GDP Investment + Government spending
+(eXports - iMports]

Here Gross investment is

• domestic investment plus net FDI
inflows

• GDP of India has been

growing four-crease since
1991.

• Long-run relationship
between FDI inflows
and GDP.

• FDI has a positive and

12 significant impact on GDP
 FDI and Employment

4 5.8
Unemployment Rate (%)
3.5 5.7

3 5.6

Unemployment Rate (%)

FDI inflows (% of GDP)

2.5 5.5

2 5.4

1.5 5.3
FDI inflows (% of GDP)
1 5.2

0.5 5.1

0 5
91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18
19 19 19 19 19 19 19 19 19 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20

13 Year
 3 To study the impact of FDI on the retail
industry in India.
Service
Pharmaceutical
Automobile
Construction
Telecommunication
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 Impact of the present retail FDI Policy
on Indian Consumers
and Economy
Strengths
Boosts competition
Weaknesses
Generate Lack of
employment infrastructure
opportunities Complex task and
New Technology fiscal policies
Improvement in Caters to high end
India ranked as the 2nd in Global Retail consumers only
purchasing power
Development Index among thirty developing
countries.
• Contributes to 10% of the country’s Gross
Domestic Product (GDP)
Opportunities Threats
• Provides almost 8% of employment of the Improving quality
standards Job losses
country
Distribution and Inequitable
warehousing competition
technologies Repatriation of
Rural retailing profits outside
India

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 Service Sector
F D I E Q U IT Y IN F L O W S ( in R s C r o re )

Service sector
Year FDI EQUITY INFLOWS Growth
(in Rs Crore)

2008 28516
70000 2009 20776 -37.25%
60000
2010 15,053 -38.02%
2011 24,656 38.95%
50000

2012 26,306 6.27%

40000
2013 13,294 -97.88%
30000
2014 27,369 51.43%
20000 2015 27,630 0.94%
10000 2016 58,214 52.54%
0
2017 43,249 -34.60%
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Service sector
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 Construction Development
Year Construction Growth
Development
(FDI EQUITY INFLOWS (in
16000 Rs Crore)

14000 2008 8792

FDI EQUITY INFLOWS (in Rs Crore)

12000 2009 13516 34.95%

10000 2010 4109 -228.94%
8000 2011 15236 73.03%

6000 2012 7248 -110.21%

4000 2013 7508 3.46%

2000 2014 4652 -61.39%

0
2015 673 -591.23%
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
2016 703 4.27%
Construction Development
2017 3472 79.75%

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 Pharmaceutical sector

Pharmaceuticals
Year FDI EQUITY INFLOWS Growth
16000 (in Rs Crore)

14000 2008 800

FDI EQUITY INFLOWS (in Rs Crore)

2009 1006 20.48%

12000
2010 961 -4.68%
10000
2011 14605 93.42%
8000
2012 6011 -142.97%
6000
2013 7191 16.41%
4000
2014 9052 20.56%
2000
2015 2267 -299.29%
0 2016 5723 60.39%
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Pharmaceuticals 2017 6502 11.98%

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 Telecommunication Sector
Telecommunication
Year FDI EQUITY INFLOWS (in Growth
Rs Crore)

45000 2008 11,727

40000 2009 12,338 4.95%
FDI EQUITY INFLOWS (in Rs Crore)

35000 2010 6,021 -104.92%

30000 2011 9,012 33.19%

25000 2012 1,654 -444.86%

20000 2013 5,02 -229.48%

15000 2014 17,372 97.11%

10000 2015 6,936 -150.46%

5000 2016 37,435 81.47%

0 2017 39,748 5.82%

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
2018 14,899 -62.5%
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 Automobile Sector
Automobile
Year FDI EQUITY INFLOWS (in Growth
Rs Crore)

18000
2008 5212
16000
FDI EQUITY INFLOWS (in Rs Crore)

2009 5754 9.42%

14000

12000 2010 4805 -19.75%

10000 2011 4347 -10.54%

8000 2012 8384 48.15%

6000 2013 9027 7.12%
4000
2014 16760 46.14%
2000
2015 11405 -46.95%
0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
2016 10824 -5.37%
Automobile 2017 13461 19.59%
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 4 To study the potential role of FDI on
strengthening the MSME sector in
India.

21
 FDI in MSME

MSME (Micro, Small and Medium

Enterprises) sector accounts for
• 30% of India’s GDP and
• 48% of exports. 

Types of Industries Total Investment Total Investment

(Manufacturing) (Services)

Micro Enterprises Below 25 lakhs Below 10 lakhs

Above 25 lakhs and Above 10 lakhs and
Small Enterprises below  below
Medium Enterprises Above 5 crores and Above 2 crores and
below  below
Financing issues faced by MSME due to:
1. Scarcity of capital in the country
2. Weak credit worthiness of small units
in the country.

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 With a view to liberalizing the SSI sector and augmenting economic activity in the country, it
is announced that FDI norms governing SSIs would be relaxed and a notification is likely to be
tabled before Parliament, enabling an increase in the limits of FDI in the SSI sector.

• Raise foreign equity

• Improve their access to technology and capital
• Assist in the growth and modernization of the sector.
• At par with global standards

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 References

1. https://www.researchgate.net/publication/340297088_Role_of_FDI_on_Empl
oyment_Scenario_in_India
2. https://www.ijemr.net/DOC/TheImpactOfFDIOnIndianRetailSector(218-222).p
df
3. https://www.researchgate.net/publication/340297088_Role_of_FDI_on_Empl
oyment_Scenario_in_India
4. https://dipp.gov.in/sites/default/files/FDI_Factsheet_June20_20October2020.pdf
5. https://www.researchgate.net/publication/336769452_Foreign_Direct_Investments
_on_Small_Scale_Industries_in_India
6. https://www.fdi.finance/?gclid=CjwKCAiA8ov_BRAoEiwAOZogwSDupl8JuMSowf7Y5
3VN26jQurf40dHcnK4fYQTqVeQyOtXx4EUHeBoCYfgQAvD_BwE
7. https://www.ijltet.org/journal/14858742145.1305.pdf

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