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Journal for Studies in Management and Planning
Available at http://edupediapublications.org/journals/index.php/JSMaP/
ISSN: 2395-0463
Volume 03 Issue 12
November 2017
Available online: http://edupediapublications.org/journals/index.php/JSMaP/ P a g e | 641
An Analytical Study of Foreign Direct
Investment in India
Bobbili Thirumala
M.Com.*
Abstract:
Foreign Direct investment plays a very
important role in the development of the nation.
Sometimes domestically available capital is
inadequate for the purpose of overall
development of the country. Foreign capital is
seen as a way of filling in gaps between
domestic savings and investment. India can
attract much larger foreign investments than it
has done in the past. The present study has
focused on the trends of FDI Flow in India during
2000-01 to 2014-15. The study also highlights
country wise approvals of FDI inflows to India
and the FDI inflows in different sector for the
period April 2000 to June 2015. The study based
on Secondary data which have been collected
through reports of the Ministry of Commerce
and Industry, Department of Industrial
Promotion and Policy, Government of India,
Reserve Bank of India, and World Investment
Report. The study concludes that Mauritius
emerged as the most domi nant source of FDI
contributing. It is because the India has Double
Taxation Avoidance Agreement (DTAA) with
Mauritius and most of the foreign countries like
to invest in service sector.
Index Terms: foreign direct investment;
economic growth, FDI Inflow and Outflow.
I. Introduction:
FDI have helped India to attain a financial
stability and economic growth with the help
of investments in different sectors. FDI has
boosted the economic life of India and on
the other hand there are critics who have
blamed the government for ousting the
domestic inflows. After liberalization of
Trade policies in India, there has been a
positive GDP growth rate in Indian
economy. Foreign direct investments helps
in developing the economy by generating
employment to the unemployed, Generating
revenues in the form of tax and incomes,
Financial stability to the government,
development of infrastructure, backward and
forward linkages to the domestic firms for
the requirements of raw materials, tools,
business infrastructure, and act as support
for financial system. Forward and back ward
linkages are developed to support the
foreign firm with supply of raw and other
requirements. It helps in generation of
employment and also helps poverty
eradication. There are many businesses or
individuals who would earn their lively hood
through the foreign investments. There are
Page 2 of 6
Journal for Studies in Management and Planning
Available at http://edupediapublications.org/journals/index.php/JSMaP/
ISSN: 2395-0463
Volume 03 Issue 12
November 2017
Available online: http://edupediapublications.org/journals/index.php/JSMaP/ P a g e | 642
legal and financial consultants who also
guide in the early stage of establishment of
firm.
Foreign investments mean both foreign
portfolio investments and foreign direct
investments (FDI). FDI brings better
technology and management, marketing
networks and offers competition, the latter
helping Indian companies improve, quite
apart from being good for consumers.
Alongside opening up of the FDI regime,
steps were taken to allow foreign portfolio
investments into the Indian stock market
through the mechanism of foreign
institutional investors. The objective was not
only to facilitate non‐debt creating foreign
capital inflows but also to develop the stock
market in India, lower the cost of capital for
Indian enterprises and indirectly improve
corporate governance structures. On their
part, large Indian companies have been
allowed to raise capital directly from
international capital markets through
commercial borrowings and depository
receipts having underlying Indian equity.
Thus the country adopted a two‐pronged
strategy: one to attract FDI which is
associated with multiple attendant benefits
of technology, access to export markets,
skills, management techniques, etc. and two
to encourage portfolio capital flows which
ease the financing constraints of Indian
enterprises.
Foreign technology induction can be
encouraged through FDI and through
foreign technology collaboration
agreements. The sectors which have
resources but do not have the required
technology acquire foreign technology
collaboration through RBI or Government
approvals. The total number of approvals
recorded for the period of 2000 to 2010 by
the RBI, SIA and FIPB is 8080. The RBI
has approved 4580 proposal whereas SIA
and FIPB have approved 3500. Technical
collaborations have put a positive effect on
the domestic firms. It helped in establishing
technology transfers. An Indian company
may receive Foreign Direct Investment
under the two routes as given under:
II.FDI inflow routes:
An Indian company may receive Foreign
Direct Investment under the two routes as
given under:
1. Automatic Route: FDI in sectors
/activities to the extent permitted under the
automatic route does not require any prior
approval either of the Government or the
Reserve Bank of India.
2. Government Route: FDI in activities not
covered under the automatic route requires
prior approval of the Government which are
considered by the Foreign Investment
Promotion Board (FIPB), Department of
Economic Affairs, and Ministry of Finance.
FDI is not permitted in the following
industrial sectors:
1. Arms and ammunition.
2. Atomic Energy,
3. Railway Transport.
4. Coal and lignite.
Page 3 of 6
Journal for Studies in Management and Planning
Available at http://edupediapublications.org/journals/index.php/JSMaP/
ISSN: 2395-0463
Volume 03 Issue 12
November 2017
Available online: http://edupediapublications.org/journals/index.php/JSMaP/ P a g e | 643
5. Mining of iron, manganese, chrome,
gypsum, sulphur,
6. gold, diamonds, copper, zinc.
Lottery Business
7. Gambling and Betting
8. Business of Chit Fund
9. Agricultural (excluding Floriculture,
Horticulture,
10. Development of seeds, Animal
Husbandry, Pisciculture and
cultivation of vegetables,
mushrooms, etc. under controlled
conditions and services related to
agro and allied sectors) and
Plantations activities (other than Tea
Plantations) .
11. Housing and Real Estate business.
12. Trading in Transferable
Development Rights (TDRs).
13. Manufacture of cigars, cheroots,
cigarillos and
14. cigarettes, of tobacco or of tobacco
substitutes.
III.FDI policy framework in india:
Policy regime is one of the key factors
driving investment flows to a country. Apart
from underlying overall fundamentals,
ability of a nation to attract foreign
investment essentially depends upon its
policy regime - whether it promotes or
restrains the foreign investment flows. This
section undertakes a review of India’s FDI
policy framework. There has been a sea
change in India’s approach to foreign
investment from the early 1990s when it
began structural economic reforms about
almost all the sectors of the economy.
(a)Pre-Liberalisation Period:
Historically, India had followed an
extremely careful and selective approach
while formulating FDI policy in view of the
governance of „import-substitution strategy‟
of industrialisation. The regulatory
framework was consolidated through the
enactment of Foreign Exchange Regulation
Act (FERA), 1973 wherein foreign equity
holding in a joint venture was allowed only
up to 40 per cent. Subsequently, various
exemptions were extended to foreign
companies engaged in export oriented
businesses and high technology and high
priority areas including allowing equity
holdings of over 40 per cent. Moreover,
drawing from successes of other country
experiences in Asia, Government not only
established special economic zones (SEZs)
but also designed liberal policy and provided
incentives for promoting FDI in these zones
with a view to promote exports. The
announcements of Industrial Policy (1980
and 1982) and Technology Policy (1983)
provided for a liberal attitude towards
foreign investments in terms of changes in
policy directions. The policy was
characterised by de-licensing of some of the
industrial rules and promotion of Indian
manufacturing exports as well as
emphasising on modernisation of industries
through liberalised imports of capital goods
and technology. This was supported by trade
liberalisation measures in the form of tariff
reduction and shifting of large number of
items from import licensing to Open General
Licensing (OGL).
