Page 1 of 8
Journal for Studies in Management and Planning
Available at http://edupediapublications.org/journals/index.php/JSMaP/
e-ISSN: 2395-0463
Volume 01 Issue 11
December 2016
Available online: http://edupediapublications.org/journals/index.php/JSMaP/ P a g e | 684
Trends and Patterns of Fdi in India
Mrs. Nisha Devi
Assistant Professor, Department of Commerce G. M. N. College, Ambala Cantt Haryana
E. Mail:- nisha_10feb@yahoo.com
ABSTRACT
Development of the nation depends
upon Foreign Direct Investment.
Sometimes domestically available funds
are insufficient for the purpose of overall
development of the nation. Foreign capital
is the key which is filling this gap between
local funds and investment. Now a day’s
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 2015-16 (up to September, 2015).
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 sept 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 dominant 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.
KEYWORDS: Foreign Direct
Investment (FDI); Sectors; Country wise
FDI
INTRODUCTION
Investment in a country by
individuals and organization from other
countries is an important aspect of
international finance. Their flow of
international finance may take the form of
portfolio investment (acquisition of
securities) or direct investment (creation of
productive facilities). The essence of FDI
is the transmission to the host country of a
package of capital, managerial skill and
technical knowledge.
The wave of liberalization and
globalization sweeping across the world
has opened many national markets for
international business. Global private
investment in most part is now made by
transnational corporations (TNCs) also
referred to as multinational corporation
(MNCs). Clearly, these transnational
organizational plays a major role in world
trade and investment because of their
demonstration management skill,
technology, finance recourses and related
advantages. Recent development in the
global market is indicative of the rapidly
growing international business. The end of
the 20th century has already marked a
tremendous growth of international
investment, trade and financial
transactions along with the integration and
openness of international markets.
Foreign investment is generally
classified into two categories, namely,
Foreign Direct Investment (FDI) and
Foreign Portfolio Investment (FPI). In
contrast to direct investment, FPI includes
funds such as fresh inflows of funds from
foreign institutional investors and funds
raised by domestic corporations through
ADRs/GDRs. FDI refer to an investment
involving long-term relationship and
reflecting a lasting interest and control of a
resident entity of one economy is an
enterprise resident of another economy
other than that of foreign investor. FDI
implies that the investor exerts a
significant degree influence on the
management of the enterprise resident in
the other economy. It takes the form of- i. acquiring stocks of the existing
foreign enterprise to participate
Page 2 of 8
Journal for Studies in Management and Planning
Available at http://edupediapublications.org/journals/index.php/JSMaP/
e-ISSN: 2395-0463
Volume 01 Issue 11
December 2016
Available online: http://edupediapublications.org/journals/index.php/JSMaP/ P a g e | 685
in the management of the
concerned enterprise;
ii. establishing abroad new
subsidiary with 100%
ownership;
iii. participating in joint venture
through stocks holding; and
iv. Establishing new branches or
expanding existing ones.
The three main components of FDI are:
i. Equity capital, which involves
foreign investor’s purchase of
shares of an enterprise in a
country other than its own.
ii. Reinvested earnings, which
refer to the foreign investor’s
share of earnings that are not
remitted to it by the affiliate as
dividends, but are reinvested or
ploughed back into the affiliate
enterprise in the host country.
iii. Intra-company loans or intra- company transactions refer to
short and long term borrowing
and lending of funds by parent
investors and their affiliate
enterprise in the host country.
FPI involves purchase of
existing bonds and stocks with the sole of
objectives of obtaining dividends pr capital
gains, which is short term in nature but
FDI tends to the more long term in nature
with an aim to control over
management/production or the operations
of the subsidiaries/affiliates, which in turn
creates a lasting interest for the foreign
investor in the subsidiary.
The dimension, called
‘controlling interest’, is the most important
factor separating FDI FPI. A ‘controlling
interest’ means that some degree of
independent decision making by the
foreign investor is present in the
management policies and strategies of the
company. Commonly, when a foreign firm
holds a minimum 10% of the shares of the
company, it can exert significant influence
over the key policies of the local firm.
Hence, FDI today is defined as foreign
investment with a controlling share of 10%
or above.
Route of FDI flow:
FDI can be approved either
through the automatic route or by the
government.
Automatic route:
Companies proposing
foreign investment under the
automatic route do not require any
government approval, provided the
proposed foreign equity is within
the specified ceiling and requisite
documents are filed with Reserve
Bank Of India (RBI) within 30
days if receipt of funds. The
proposals where the items of
manufacturing activity do not
require are industrial license and is
not reserved for the small-scale
sector.
The automatic approval
route of the RBI was introduced to
facilitate FDI inflows. However,
during the post policy period, the
actual investment flows through the
automatic route of the RBI against
total FDI flows has been quite
insignificant. While FDI flows
through the automatic route
accounted for 15.18 percent of the
total FDI inflows in 1993-94, its
share has declined since then and
was only 8.68 percent in 1999-2000.
This is partly due to the fact that
crucial areas like electronics,
services and minerals are left out of
the automatic approval route.
Another limitation has been the
ceiling of 51percent on foreign
equity holding. An increasing
number of proposals were cleared
through the foreign investment
promotion board (FIPB) route which
the automatic approval route has
been declining in the relative
importance since 1994.
Government approval:
Page 3 of 8
Journal for Studies in Management and Planning
Available at http://edupediapublications.org/journals/index.php/JSMaP/
e-ISSN: 2395-0463
Volume 01 Issue 11
December 2016
Available online: http://edupediapublications.org/journals/index.php/JSMaP/ P a g e | 686
For the following
categories; government approval for
FDI through the FIPB is necessary:
a) proposals attracting compulsory
licensing, b) items of manufacture
reserved for the small scale sector
and c) acquisition of existing shares.
Foreign investment promotion
board (FIPB):
The FIPB us especially
empowered to engage in purposive
negotiation and also consider
proposals in totality free from
predetermine parameters on
procedures. Industry secretary is the
chairman of FIPB. The Finance
Secretary, commerce Secretary and
Secretary (Economic Relation)
ministry of external affairs are the
other member of the FIPB.
The approach of FIPB is liberal
for all sectors and all types of
proposals. The totality of package
proposed is examined and approved
an merits within a period of 30 days.
The RBI has granted general
permission under Foreign Exchange
Regulation Act (FERA) in respect of
proposals approved by the
government Indian companies getting
foreign investment approval through
FIPB route do not require any further
clearance from RBI for the purpose of
receiving inward remittance and
issues of shares to the foreign
investment such companies are,
however, required to notify the
Regional office concerned of the RBI
of receipts of inward remittances
within 30days if such receipt and to
file the required document with the
concerned Regional offices of the RBI
within 30 days after issue of shares to
the foreign investors.
Foreign Investment Promotion
Council :
The Government has
constituted a Foreign Investment
Promotion Council (FIPC) in the
ministry of industry. It has been setup
to have more target oriented approach
towards foreign direct Investment
Promotion. Its function is to identify
the sector/project within to country
requirement foreign direct investment
and target-specific regions/countries of
the world from where FDI will be
brought through.
REVIEW OF LITERATURE:
A vast number of empirical studies
have been conducted regarding the force
that determines FDI. The literature
However is not only extensive, but also
confusing and conflicting. Most of the
studies utilize multiple number of theories
or hypothesis in an attempt to investigate
the empirical linkage between FDI and a
variety of economic variables.
A wide range of argument exists in
support of the various sets of
classification. Aggarwal(1980) classifies
the theories of FDI into four group (1) full
competition on factor and/or product
markets (includes theories of differential
rate of return, portfolio diversification and
output and market size), (2) Market
imperfections and comparative advantages
(include theories of behavioral economic,
product cycle, oligopolistic reaction and
international, (3) Propensities of countries,
industries or firms to undertake FDI
(liquidity and currency area theories), (4)
Propensities of countries to attract
investment.
According to Boddewyn (1980), theory
may be classified on the basis of (1)
condition,(2) motivation, and (3)
precipitating circumstance connected to
FDI. Boddewyn(1985) mentioned that
these categories are general researcher in
the possibility of overlapping and it is
necessary to recognize that, despite
common characteristics, ” organization
specific that any valid theory must
consider factors such as changes in
transportation and communication
facilities, changes in government policies
and the advent of chief executive officer
who is willing to invest or disinvest.
