19-04-2011, 04:43 PM
PREPARED BY
PRIYA SARASWAT
4th sem project.docx (Size: 371.97 KB / Downloads: 151)
OBJECTIVES
Following are the objectives of my study –
• To know the flow of investment in India
• To know benefits & cost to host and home country.
• To know Straetgies to Invest in India.
• To Examine the trends and patterns in the FDI across different sectors & from different countries in India.
• To know which country in investing in which country.
• To know the reason for investment in India
• To understand the FII & FDI policy in India.
RESEARCH METHODOLOGY
Research is, thus, an original contribution to the existing stock of knowledge making for its advancement. It is the pursuit of truth with the help of study, observation, comparison and experiment. In short, the search of knowledge through objectives and systematic method of finding solution to a problem is research. The systematic approach concerning generalization and the formulation of theory is also research.
My Research Type:
Descriptive Research: The major purpose of this research is description of the state of affairs as it exists at present. In social science and business research we quite often use the term Ex post facto research for descriptive research studies. The main characteristic of this method is that the researcher has no control over the variables; he can only report what has happened or what is happening.
Data Collection Method:
Secondary Data: The secondary data are those which have already been collected by someone else and which have already been passed through statistical problem. The methods of collecting primary and secondary data differ since primary data are to be originally collected while in case of secondary data the nature of data collection work is merely that of compilation.
Sources of Data Collection:
Internet,Books
Statistical Tools to be used:
Various test of significance such as Bar Graph, ratio analysis, line graph.
INTRODUCTION
Foreign investment refers to investments made by the residents of a country in the financial assets and production processes of another country. The effect of foreign investment, however, varies from country to country. It can affect the factor productivity of the recipient country and can also affect the balance of payments. Foreign investment provides a channel through which countries can gain access to foreign capital. It can come in two forms: foreign direct investment (FDI) and foreign institutional investment (FII). Foreign direct investment involves in direct production activities and is also of a medium- to long-term nature. But foreign institutional investment is a short-term investment, mostly in the financial markets. FII, given its short-term nature, can have bidirectional causation with the returns of other domestic financial markets such as money markets, stock markets, and foreign exchange markets. Hence, understanding the determinants of FII is very important for any emerging economy as FII exerts a larger impact on the domestic financial markets in the short run and a real impact in the long run. India, being a capital scarce country, has taken many measures to attract foreign investment since the beginning of reforms in 1991.
India is the second largest country in the world, with a population of over 1 billion people. As a developing country, India’s economy is characterized by wage rates that are significantly lower than those in most developed countries. These two traits combine to make India a natural destination for foreign direct investment (FDI) and foreign institutional investment (FII). Until recently, however, India has attracted only a small share of global foreign direct investment (FDI) and foreign institutional investment (FII), primarily due to government restrictions on foreign involvement in the economy. But beginning in 1991 and accelerating rapidly since 2000, India has liberalized its investment regulations and actively encouraged new foreign investment, a sharp reversal from decades of discouraging economic integration with the global economy.
The world is increasingly becoming interdependent. In fact, the world has become a borderless world. With the globalization of the various markets, international financial flows have so far been in excess for the goods and services among the trading countries of the world. Of the different types of financial inflows, the foreign direct investment (FDI) and foreign institutional investment (FII)) has played an important role in the process of development of many economies. Further many developing countries consider foreign direct investment (FDI) and foreign institutional investment (FII) as an important element in their development strategy among the various forms of foreign assistance.
The Foreign direct investment (FDI) and foreign institutional investment (FII) flows are usually preferred over the other form of external finance, because they are not debt creating, nonvolatile in nature and their returns depend upon the projects financed by the investor. The Foreign direct investment (FDI) and foreign institutional investment (FII) would also facilitate international trade and transfer of knowledge, skills and technology.
The Foreign direct investment (FDI) and foreign institutional investment (FII) is the process by which the resident of one country(the source country) acquire the ownership of assets for the purpose of controlling the production, distribution and other productive activities of a firm in another country(the host country).
According to the international monetary fund (IMF), foreign direct investment (FDI) and foreign institutional investment (FII) is defined as “an investment that is made to acquire a lasting interest in an enterprise operating in an economy other than that of investor”.
The government of India (GOI) has also recognized the key role of the foreign direct investment (FDI) and foreign institutional investment (FII) in its process of economic development, not only as an addition to its own domestic capital but also as an important source of technology and other global trade practices. In order to attract the required amount of foreign direct investment (FDI) and foreign institutional investment (FII), it has bought about a number of changes in its economic policies and has put in its practice a liberal and more transparent foreign direct investment (FDI) and foreign institutional investment (FII) policy with a view to attract more foreign direct investment (FDI) and foreign institutional investment (FII) inflows into its economy. These changes have heralded the liberalization era of the foreign direct investment (FDI) and foreign institutional investment (FII) policy regime into India and have brought about a structural breakthrough in the volume of foreign direct investment (FDI) and foreign institutional investment (FII) inflows in the economy.
About foreign direct investment
Is the process whereby residents of one country (the source country) acquire ownership of assets for the purpose of controlling the production, distribution, and other activities of a firm in another country (the host country). The international monetary fund’s balance of payment manual defines FDI as an investment that is made to acquire a lasting interest in an enterprise operating in an economy other than that of the investor. The investors’ purpose being to have an effective voice in the management of the enterprise’. The united nations 1999 world investment report defines FDI as ‘an investment involving a long term relationship and reflecting a lasting interest and control of a resident entity in one economy (foreign direct investor or parent enterprise) in an enterprise resident in an economy other than that of the foreign direct investor ( FDI enterprise, affiliate enterprise or foreign affiliate
Characteristics of FDI
FDI is an activity by which an investor, who is a resident in one country, obtains a
lasting interest in, and is a significant influence on, the management of an entity in
another country.
This may involve either creating an entirely new enterprise, a so-called "Greenfield"
investment, or more typically, changing the ownership of existing enterprises via
mergers and acquisitions.
Investment Patterns
International Product Life Cycle - Reduces costs by 'shifting production to developing countries. For instance, Essel Propack moved to China.
Location - Specific advantages make FDI easier than exporting or licensing.
Mahindra tractors are manufactured in North America.
Contract manufactures - Brings down the cost of manufacturing and also contributes to consolidating competitive sourcing and competing in the world market. Honda Motors manufactures its vehicles in Europe.
Assured return on investment - R&D centers and futuristic projects enable the
investor to achieve great successes through high revenues.
Social effects: Countries with closed economies have started to liberalize their
economies through market reforms that are favorable to foreign investors through
privatization, property rights, and liberal labor policies.
Benefits of FDI for Host Country
Capital: Multinational enterprises invest in long-term projects, taking risks and
repatriating profits only when the projects yield returns.
Technology: The effects of technology emerge especially when the liberalization of
the investment flow drives a more rapid rate of technology development, diffusion,
and transfer. Such processes may involve the transfer of physical goods and/or the
transfer of knowledge. A vast majority of economic studies dealing with the
relationship between FDI and productivity and economic growth have found that the
transfer of technology through FDI has contributed positively to productivity and
economic growth in host countries.
Market access: Investors can provide access to export markets. The growth of exports
themselves offers benefits, such as technological learning and competitive stimuli.
They can transform normal customers into intellectual customers.
Increase in domestic investment: The increase in FDI inflow is associated with a
manifold increase in the investment by national investors.
Export promotion: It seems that FDI could be related to export trade in goods, and the
host country can benefit from an FDI-led export growth.
Generating employment: FDI leads to the generation of both direct and indirect
employment opportunities in the host country.
Infrastructure: In order to facilitate and enable investors to perform well, the host
country studies other competitive destinations and enhances the level of infrastructure
in selected areas to match the requirements of the investors. India's Silver Valley in
Bangalore, Hitech City in Hyderabad, and Tidel Park in Chennai have revolutionized
the areas through connectivity.
Social effects: Countries with closed economies have started to liberalize their
economies through market reforms that are favourable to foreign investors through
privatization, property rights, and liberal labour policies. Society at large benefits as
employment, infrastructure, literacy, and health care are bound to improve as an
impact of FDI inflow.
Formation of Clusters: Groups of similar projects and manufacturing centres are
formed in a specific location by way of providing common production, R&D,
training, and pollution control systems to a group of competing companies. In Italy,
Brazil, and India, such clusters have worked wonders.
Spin-offs: Statistical evidence exists across the world to prove that FDIs have a
number of spin-offs. Business history is replete with examples where individuals who
trained with companies started their own ventures and became successful leaders in
their respective fields. Silicon Valley in the U.S. provides many examples of such
spin-offs. Intel is a spin-off of Fairchild. The main competitor to Intel today is its own
spin-off. Even in India, the machine tool industries of Ludhiana and Bangalore are
spin-offs of yesteryears' popular companies, such as SKF, Bosch and MICO.