proforma of synopsis

“A Study on Investment Pattern of FDI’s
in Developing Countries with Special Reference to India.”


Introduction:

Foreign direct investment (FDI) plays an extraordinary and growing role in global business. It can provide a firm with new markets and marketing channels, cheaper production facilities, access to new technology, products, skills and financing. For a host country or the foreign firm which receives the investment, it can provide a source of new technologies, capital, processes, products, organizational technologies and management skills, and as such can provide a strong impetus to economic development. Foreign direct investment, in its classic definition, is defined as a company from one country making a physical investment into building a factory in another country. The direct investment in buildings, machinery and equipment is in contrast with making a portfolio investment, which is considered an indirect investment. In recent years, given rapid growth and change in global investment patterns, the definition has been broadened to include the acquisition of a lasting management interest in a company or enterprise outside the investing firm’s home country. As such, it may take many forms, such as a direct acquisition of a foreign firm, construction of a facility, or investment in a joint venture or strategic alliance with a local firm with attendant input of technology, licensing of intellectual property, in the past decade, FDI has come to play a major role in the internationalization of business. Reacting to changes in technology, growing liberalization of the national regulatory framework governing investment in enterprises, and changes in capital markets profound changes have occurred in the size, scope and methods of FDI. New information technology systems, decline in global communication costs have made management of foreign investments far easier than in the past. The sea change in trade and investment policies and the regulatory environment globally in the past decade, including trade policy and tariff liberalization, easing of restrictions on foreign investment and acquisition in many nations, and the deregulation and privatization of many industries, has probably been the most significant catalyst for FDI’s expanded role.
Proponents of foreign investment point out that the exchange of investment flows benefits both the home and the host country. Opponents of FDI note that multinational conglomerates are able to wield great power over smaller and weaker economies and can drive out much local competition. The truth lies somewhere in the middle.
For small and medium sized companies, FDI represents an opportunity to become more actively involved in international business activities. In the past 15 years, the classic definition of FDI as noted above has changed considerably. This notion of a change in the classic definition, however, must be kept in the proper context. Very clearly, over 2/3 of direct foreign investment is still made in the form of fixtures, machinery, equipment and buildings. Moreover, larger multinational corporations and conglomerates still make the overwhelming percentage of FDI. But, with the advent of the Internet, the increasing role of technology, loosening of direct investment restrictions in many markets and decreasing communication costs means that newer, non-traditional forms of investment will play an important role in the future. Many governments, especially in industrialized and developed nations, pay very close attention to foreign direct investment because the investment flows into and out of their economies can and does have a significant impact.
Changed in the Past Decade
As mentioned above, the overwhelming majority of foreign direct investment is made in the form of fixtures, machinery, equipment and buildings. This investment is achieved or accomplished mostly via mergers & acquisitions. In the case of traditional manufacturing, this has been the primary mechanism for investment and it has been heretofore very efficient. Within the past decade, however, there has been a dramatic increase in the number of technology startups and this, together with the rise in prominence of Internet usage, has fostered increasing changes in foreign investment patterns. Many of these high tech startups are very small companies that have grown out of research & development projects often affiliated with major universities and with some government sponsorship. Unlike traditional manufacturers, many of these companies do not require huge manufacturing plants and immense warehouses to store inventory. Another factor to consider is the number of companies whose primary product is an intellectual property right such as a software program or a software-based technology or process. Companies such as these can be housed almost anywhere and therefore making a capital investment in them does not require huge outlays for fixtures, machinery and plants.
In many cases, large companies still play a dominant role in investment activities in small, high tech oriented companies. However, unlike in the past, these larger companies are not necessarily acquiring smaller companies outright. There are several reasons for this, but the most important one is most likely the risk associated with such high tech ventures. In the case of mature industries, the products are well defined. The manufacturer usually wants to get closer to its foreign market or wants to circumvent some trade barrier by making a direct foreign investment. The major risk here is that you do not sell enough of the product that you manufactured. However, you have added additional capacity and in the case of multinational corporations this capacity can be used in a variety of ways.
High tech ventures tend to have longer incubation periods. That is, the product tends to require significant development time. In the case of software and other intellectual property type products, the product is constantly changing even before it hits the marketplace. This makes the investment decision more complicated. When you invest in fixtures and machinery, you know what the real and book value of your investment will be. When you invest in a high tech venture, there is always an element of uncertainty.
Therefore, the expanded role of technology and intellectual property has changed the foreign direct investment playing field. Companies are still motivated to make foreign investments, but because of the vagaries of technology investments, they are now finding new vehicles to accomplish their goals. With the help of-
Licensing and technology transfer. Licensing and tech transfer have been essential in promoting collaboration between the academic and business communities. Ever since legal hurdles were removed that allowed universities to hold title to research and development done in their labs, licensing agreements have helped turned raw technology into finished products that are viable in competitive marketplaces. With some help from a variety of government agencies in the form of grants for R&D as well as other financial assistance for such things as incubator programs, once timid college researchers are now stepping out and becoming cutting edge entrepreneurs. These strategic alliances have had a serious impact in several high tech industries, including but not limited to: medical and agricultural biotechnology, computer software engineering, telecommunications, advanced materials processing, ceramics, thin materials processing, photonics, digital multimedia production and publishing, optics and imaging and robotics and automation. Industry clusters are now growing up around the university labs where their derivative technologies were first discovered and nurtured. Licensing agreements allow companies to take full advantage of new and exciting technologies while limiting their overall risk to royalty payments until a particular technology is fully developed and thus ready to put new products into the manufacturing pipeline.
Reciprocal distribution agreements. Actually, this type of strategic alliance is more trade-based, but in a very real sense it does in fact represent a type of direct investment. Basically, two companies, usually within the same or affiliated industries, agree to act as a national distributor for each other’s products. The classical example is to be found in the furniture industry. A U.S.-based manufacturer of tables signs a reciprocal distribution agreement with a Spanish-based manufacturer of chairs. Both companies gain direct access to the other’s distribution network without having to pay distributor support payments and other related expenses found within the distribution channel and neither
company can hurt the other’s market for its products. Without such an agreement in place, the Spanish manufacturer might very well have to invest in a national sales office to coordinate its distributor network, manage warehousing, inventory and shipping as well as to handle administrative tasks such as accounting, public relations and advertising.
Joint venture and other hybrid strategic alliances. The more traditional joint venture is bi-lateral, that is it involves two parties who are within the same industry who are partnering for some strategic advantage. Typical reasons might include a need for access to proprietary technology that might tip the competitive edge in another competitor’s favor, desire to gain access to intellectual capital in the form of ultra-expensive human resources, access to heretofore closed channels of distribution in key regions of the world. One very good reason why many joint ventures only involve two parties is the difficulty in integrating different corporate cultures. With two domestic companies from the same country, it would still be very difficult. However, with two companies from different cultures, it is almost impossible at times. This is probably why pure joint ventures have a fairly high failure rate only five years after inception. Joint ventures involving three or more parties are usually called syndicates and are most often formed for specific projects such as large construction or public works projects that might involve a wide variety of expertise and resources for successful completion. In some cases, syndicates are actually easier to manage because the project itself sets certain limits on each party and close cooperation is not always a prerequisite for ultimate success of the endeavor.
Portfolio investment. Yes, we know that you’re paying attention and no we’re not trying to trip you up here. Remember our definition of foreign direct investment as it pertains to controlling interest. For most of the latter part of the 20th century when FDI became an issue, a company’s portfolio investments were not considered a direct investment if the amount of stock and/or capital was not enough to garner a significant voting interest amongst shareholders or owners. However, two or three companies with "soft" investments in another company could find some mutual interests and use their shareholder power effectively for management control. This is another form of strategic alliance, sometimes called "shadow alliances". So, while most company portfolio investments do not strictly qualify as a direct foreign investment, there are instances within a certain context that they are in fact a real direct investment.
FDI and global dreams of organizations
The simple answer is that making a direct foreign investment allows companies to accomplish several tasks:
· Avoiding foreign government pressure for local production.
· Circumventing trade barriers, hidden and otherwise.
· Making the move from domestic export sales to a locally-based national sales office.
· Capability to increase total production capacity
· Opportunities for co-production, joint ventures with local partners, joint marketing arrangements, licensing, etc;
A more complete response might address the issue of global business partnering in very general terms. While it is nice that many business writers like the expression, “think globally, act locally”, this often used cliché does not really mean very much to the average business executive in a small and medium sized company. The phrase does have significant connotations for multinational corporations. But for executives in SME’s, it is still just another buzzword. The simple explanation for this is the difference in perspective between executives of multinational corporations and small and medium sized companies. Multinational corporations are almost always concerned with worldwide manufacturing capacity and proximity to major markets. Small and medium sized companies tend to be more concerned with selling their products in overseas markets. The advent of the Internet has ushered in a new and very different mindset that tends to focus more on access issues. SME’s in particular are now focusing on access to markets, access to expertise and most of all access to technology.
Basic requirements of companies and FDI’s
Depending on the industry sector and type of business, a foreign direct investment may be an attractive and viable option. With rapid globalization of many industries and vertical integration rapidly taking place on a global level, at a minimum a firm needs to keep abreast of global trends in their industry. From a competitive standpoint, it is important to be aware of whether a company’s competitors are expanding into a foreign market and how they are doing that. At the same time, it also becomes important to monitor how globalization is affecting domestic clients. Often, it becomes imperative to follow the expansion of key clients overseas if an active business relationship is to be maintained.
New market access is also another major reason to invest in a foreign country. At some stage, export of product or service reaches a critical mass of amount and cost where foreign production or location begins to be more cost effective. Any decision on investing is thus a combination of a number of key factors including:
Assessment of internal resources,
Competitiveness,
market analysis
Market expectations. From an internal resources standpoint, does the firm have senior management support for the investment and the internal management and system capabilities to support the set up time as well as ongoing management of a foreign subsidiary? Has the company conducted extensive market research involving both the industry, product and local regulations governing foreign investment which will set the broad market parameters for any investment decision? Is there a realistic assessment in place of what resource utilization the investment will entail? Has information on local industry and foreign investment regulations, incentives, profit retention, financing, distribution, and other factors been completely analyzed to determine the most viable vehicle for entering the market (Greenfield, acquisition, merger, joint venture, etc.)? Has a plan been drawn up with reasonable expectations for expansion into the market through that local vehicle? If the foreign economy, industry or foreign investment climate is characterized by government regulation, have the relevant government agencies been contacted and concurred? Have political risk and foreign exchange risk been factored into the business plan?

5. Importance of Proposed Research Work:

Importance for Researcher:

The research will give an in-depth analytical view to the researcher for making an attempt to write a thesis on Foreign Direct Investment and its objectives, pattern and behaviour of investment in developing countries with special reference to Indian economy

Importance for Organizations:

The research will also provide the path to those organizations of developing countries which are financed by Foreign Direct Investment or highly or indirectly affected by same and it is also useful for those organizations which are investing in to the various economies for the different motives.

Importance for Others:

The research will also become a step towards the attempt done by other researchers in either the same field or the other similar areas of research related with the FDI’s or other economic financial patterns.


6. Review of Work already done on the subject:

Agrawal, P. (2005). Foreign Direct Investment in South Asia: Impact on
Economic Growth and Local Investment. In: E.M. Graham (ed.),
Multinationals and Foreign Investment in Economic Development.
Basingstoke (Palgrave Macmillan)

Kamalakanthan, A., and J. Laurenceson (2005). How Important Is Foreign
Capital to Income Growth in China and India?

Enderwick, P. (2005). Attracting “Desirable” FDI: Theory and Evidence.
Transnational Corporations 14 (2): 93-119.

Agrawal, R., and R. Shahani (2005). Foreign Investment in India: Issues and
Implications for Globalisation. In: C. Tisdell (ed.), Globalisation and
World Economic Policies: Effects and Policy Responses of Nations and
their Groupings. New Delhi (Serials Publ.):

Aizenman, J., and I. Noy (2005). FDI and Trade – Two Way Linkages? NBER Working Paper 11403, National Bureau of Economic Research,

Arabi, U. (2005). Foreign Direct Investment Flows and Sustained Growth: A
Case Study of India and China. Paper for DEGIT conference in Mexico-
City, mimeo.

Bhat, K.S., Tripura Sundari C.U., and K.D. Raj (2004). Causal Nexus between Foreign Direct Investment and Economic Growth in India. Indian Journal of Economics

ATKearney (2004). News – Most Attractive Foreign Direct Investment
Destinations.

Choong, C.-K., Z. Yusop and S.-C. Soo (2004). Foreign Direct Investment,
Economic Growth, and Financial Sector Development: A Comparative
Analysis. ASEAN Economic Bulletin


ADB (Asian Development Bank) (2004). Asian Development Outlook 2004.
Part 3: Foreign Direct Investment in Developing Asia. Manila.

Banga, R. (2003). The Differential Impact of Japanese and U.S. Foreign Direct Investments on Exports of Indian Manufacturing. Indian Council for
Research on International Economic Relations, New Delhi.

Basu, P., C. Chakraborty and D. Reagle (2003). Liberalization, FDI, and Growth in Developing Countries: A Panel Cointegration Approach. Economic Inquiry

Im, K., M.H. Pesaran and Y. Shin (2003). Testing for Unit Roots in
Heterogeneous Panels. Journal of Econometrics 115 (1): 53-74.
(http://www.buseco.monash.edu.au/units/aberu/papers/1405Abby.pdf).

Central Statistical Organisation, Government of India (var. iss.). Statistical
Pocket Book India. New Delhi.

Cambridge, MA. Alfaro, L. (2003). Foreign Direct Investment and Growth: Does the Sector Matter? Harvard Business School, Boston, MA, mimeo.
Alfaro, L., A. Chanda, S. Kalemli-Ozcan, S. Sayek (2001).

Hermes, N., and R. Lensink (2003). Foreign Direct Investment, Financial
Development and Economic Growth. The Journal of Development Studies
40(1):142-161.

Chakraborty, C., and P. Basu (2002). Foreign Direct Investment and Growth in India: A Cointegration Approach. Applied Economics

Fischer, S. (2002). Breaking Out of the Third World: India’s Economic
Imperative. (http://www.imf.org/external/np/speeches/2002/012202.htm).

FDI and Economic Growth: The Role of Financial Markets. Working Paper 01-083, Harvard Business School, Boston, MA.

Athreye, S., and S. Kapur (2001). Private Foreign Investment in India: Pain or Panacea? The World Economy


UNCTAD (2001). World Investment Report 2001. New York and Geneva
(United Nations).

Bajpai, N., and J.D. Sachs (2000). Foreign Direct Investment in India: Issues
and Problems. Development Discussion Paper 759, Harvard Institute for
International Development, Harvard University, Cambridge, MA.

Balasubramanyam, V.N., and V. Mahambare (2003). FDI in India.
Transnational Corporations


Balasubramanyam, V.N., M.A. Salisu and D. Sapsford (1996). Foreign Direct Investment and Growth in EP and IS Countries. Economic Journal


Borensztein, E., J. De Gregorio and J.W. Lee (1998). How Does Foreign Direct Investment Affect Economic Growth? Journal of International Economics

Granger, C.W.J., B.-N. Huang and C.-W. Yang (2000). A Bivariate Causality between Stock Prices and Exchange Rates: Evidence from Recent Asian
.
Dua, P., and A.I. Rashid (1998). FDI and Economic Activity in India. Indian
Economic Review 33 (2): 153-168.

Granger, C.W.J. (1988). Some Recent Developments in a Concept of Causality.

Granger, C.W.J., and A. A. Weiss (1983). Time Series Analysis of Error
Correction Models. In: S. Karlin, T. Amemiya and L.A. Goodman (eds.),
Studies in Econometrics: Time Series and Multivariate Statistics. New
York (Academic Press): 255-278.
35

(1991a). Japanese multinationals and 1992. In Multinationals and Europe 1992, B. Burgenmeier and J. L. Mucchielli, eds. London: Routledge, pp. 135-154.

(1991b). The dynamics of Pacific Rim industrialization: how Mexico can join the Asian flock of "flying geese". InMexico's External Relations in the 1990s, Riordan Roett, ed.Boulder and London: Rienner, pp. 129-154.

(1990). Multinational corporations and the "flying-geese" paradigm of economic development in the Asian Pacific region, paper presented at the 20th Anniversary World Conference on Multinational Enterprises and 21st Century Scenarios, Tokyo (July).

Balassa, Bela (1979/1989). The changing pattern of comparative
advantage in manufactured goods.

Review of Economics and Statistics, As reproduced in Comparative Advantage, Trade Policy and Economic Development. NewYork: New York University Press.(1989).

New Directions in the World Economy. NewYork: New York University Press.

Cantwell, John A. (1989). Techological Innovation and Multinational
Corporations. Oxford: Basil Blackwell.and Paz Estrella E. Tolentino (1990). Technological

Accumulation and Third World Multinationals. Discussion Paper No. 139, Department of Economics, University of Reading, Series B, III.Dunning, John H. (1981a). Explaining the international direct investment position of countries: Toward a dynamic or developmental approach.

(1987). Can the market alone manage structural upgrading? A challenge posed by interdependence. In Structural Change, Economic Interdependence and World Development,


7. Main Objectives of Proposed Research:

Following are the main objectives of proposed research

· To find out the Challenges of investment for developing countries

· To give an insight into the Status o FDI in India before fiscal reforms.

· To analyze the introduction of fiscal reforms in India and its impact on FDI’s

· To evaluate the Foreign Direct Investment and Indian Policy

· To Study of impact on economic growth from investment by
· FDI’s in India





8. Methodology:

The research will primarily be concerned with getting an insight in to the foreign direct investment and its impact on developing countries and policies adopted by FDI players in various sector in India and their changes in strategies. Study comprises the past status of Indian economy and present status for allowing the foreign investment in various areas of economy. It also comprises changes in investment pattern of foreign institution.

Following points are needed to be considered and studied to design and develop various areas of research for find out the actual impact.

1. Study past status of economy of developing countries with special reference to India.

2. Study of present status of foreign direct investment and its repercussion on economical development of developing countries.

3. An insight with in depth analysis of economic surveys of work already done by various organizations after the various steps taken by the Government to change in the Indian Economy.

4. The proposed research will be descriptive and analytical in nature.

5. Data’s collection will be with the help of analysis and data’s will be
Secondary in nature.

9. Chapter wise details of proposed research:

The proposed research will contain following chapters.

Chapter 1 Challenges of investment for developing countries

The development priorities of developing countries include achieving sustained income growth for their economies by raising investment rates, strengthening technological capacities and skills, and improving the competitiveness of their exports in world markets; distributing the benefits of growth equitably by creating more and better employment opportunities; and protecting and conserving the physical environment for future generations. The new, more competitive, context of a liberalizing and globalizing world economy in which economic activity takes place imposes
considerable pressures on developing countries to upgrade their resources and capabilities if they are to achieve these objectives. This new global context is characterized by rapid advances in knowledge, shrinking economic space and rapid changes in competitive conditions, evolving attitudes and policies, and more vocal (and influential) stakeholders.

A vital part of the new context is the need to improve competitiveness, defined as the ability to sustain income growth in an open setting. In a liberalizing and globalizing world, growth can be sustained only if countries can foster new, higher value-added activities, to produce goods and services that hold their own in open markets.

Chapter 2 Status of FDI in India before fiscal reforms.

Foreign investment in India is permitted through the following modes:[i]
a. Through the route of foreign collaborations
b. Through Joint ventures and technical collaborations
c. Through capital markets via euro issues[ii]
d. Through private placement or preferential allotment
Although, the Government of India has permitted FDI in crucial sectors such as power, aviations, telecommunications etc., the following sectors cannot benefit from inflows of FDI:
a. Arms and Ammunition:- National defense and security is solely within the control, regulation and supervision of the Central Government
b. Atomic Energy: Due to its impact on national security, this subject is under the sole control of the Central Government. The Constitution of India stipulates 3 lists for legislation of numerous subjects namely the Central list, State list and the Concurrent List. Atomic Energy finds a mark on the Central List and the Central Government has so sole control on legislation.[iii]
c. Railway Transport
d. Coal and Ignite
e. Mining of Iron, Manganese, Chrome, Gypsum, Sulphur, Gold, Diamonds, Copper and Zinc.
While the government has opened most sectors for FDI, there are certain sectoral caps[iv] that are imposed to ensure that domestic corporations are not left out of the greater participation in the privatisation schemes. Industry wide break –up in FDI ensures that inflows of FDI are concentrated only on priority sectors. In order to ensure sustained and accelerated growth in each sector, to increase the inflows of foreign capital and to introduce appropriate institutional arrangements and transparent procedures, the Government of India has structured a Committee that shall implement policies and shall grant approval for foreign investment in domestic corporations and State- owned Enterprises. This committee is called the Foreign Investment Promotion Board. [v] The Board is the sole authority to consider investment proposals.

Chapter 3 Introduction of fiscal reforms in India and its impact on
FDI’s

Prior to understanding the economic progress of India, it is vital to first identify the current economic status of India so that it is easy to retrace the process leading to the current status. India presently enjoys the status of an attractive emerging market. However, this status has been the result of numerous economic reforms adopted over the years. India intent to open its markets to foreign investment can be traced back to the economic reforms adopted during two prime periods- pre- independence and post independence.
Pre- independence, India was the supplier of foodstuff and raw materials to the industrialised economies of the world and was the exporter of finished products- the economy lacked the skill and means to convert raw materials to finished products. Post independence with the advent of economic planning and reforms in 1951, the traditional role played changes and there was remarkable economic growth and development. International trade grew with the establishment of the WTO. India is now a part of the global economy. Every sector of the Indian economy is now linked with the world outside either through direct involvement in international trade or through direct linkages with export and import transactions of other sectors in the economy.
Development pattern during the 1950-1980 period was characterised by strong centralised planning, government ownership of basic and key industries, excessive regulation and control of private enterprise, trade protectionism through tariff and non-tariff barriers and a cautious and selective approach towards foreign capital. It was a quota, permit, licence regime which was guided and controlled by a bureaucracy trained in colonial style. This inward thinking, import substitution strategy of economic development and growth was widely questioned in the 1980’s. India’s economic policy makers started realising the drawbacks of this strategy which inhibited competitiveness and efficiency and produced a much lower growth rate that was expected.
Consequently economic reforms were introduced initially on a moderate scale and controls on industries were substantially reduced by 1985 industrial policy.

This set the trend for more innovative economic reforms and they got a boost with the announcement of the landmark economic reforms in 1991. After nearly five decades of insulation from world markets, state controls and slow growth, India in 1991 embarked on an accelerated process of liberalization. The 1991 reforms ensured that the way for India to progress will be through globalization, privatisation, and liberalisation. In this new regime, the government is now assuming the role of a promoter, facilitator and catalyst agent instead of the regulator and controller of economic activities.
India has a number of advantages which make it an attractive market for foreign capital namely, political stability in democratic polity, steady and sustained economic growth and development, significantly huge domestic market, access to skilled and technical manpower at competitive rates, fairly well developed infrastructure. FDI has attained the status of being of global importance because of its beneficial use as an instrument for global economic integration.
Pre-Independence Reforms:
Under the British colonial rule, the Indian economy suffered a major set-back. An economy with rich natural resources was left plundered and exploited to the hilt under the English regime. India is originally a agrarian economy. India’s cottage industries and trade were abused and exploited as means to pave the way for European manufactured goods. Under the British rule the economy stagnated and on the eve of independence India was left with a poor economy and the textile industry as the only life support of the industrial economy.
Post – Independence Reforms:
India’s struggle post independence has been an excruciating financial battle with a slow economic growth and development which were largely due to the political climate and impact of the economic reforms. The country began it transformation from a native agrarian to industrial to commercial and open economy in the post independence era. India in the post independence era followed what can be best called as a ‘trial and error’ path. During the post independence era, the Indian Economy geared up in favour of central planning and resource allocation.

The government tailored policies that focussed a great deal on achieving overall economic self-reliance in each state and at the same time exploit its natural resource. In order to augment trade and investments, the government sought to play the role of custodian and trustee by intervening in the practice of crucial sectors such as aviation, telecommunication, banking, energy mainly electricity, petrol and gas.
The policy of central planning adopted by the government sought to ensure that the government laid down marked goals to be achieved by the economy thereby establishing a regime of checks and balances. The government also encouraged self sufficiency with the intent to encourage the domestic industries and enterprises, thereby reducing the dependence on foreign trade. Although, initially these policies were extremely successful as the economy did have a steady economic growth and development, they weren’t sustained. In the early 1970’s, India had achieved self sufficiency in food production. During the 1970’s, the government still continued to retain and wield a significant spectre of control over key industries such as power, mining, transportation and communications. [vi]
In the Early 1980’s-Macro-Economic Policies were conservative. Government control of industries continued. There was marginal economic growth & development courtesy of the development projects funded by foreign loans. The financial crisis of 1991 compelled drafting and implementation of economic reforms. The government approached the World Bank and the IMF for funding. In keeping with their policies there was expectation of devaluation of the rupee. This lead to a lack of confidence in the investors and foreign exchange reserves declined. There was a withdrawal of loans by Non Resident Indians (NRI’S).
Economic reforms of 1991:
India has been having a robust economic growth since 1991 when the government of India decided to reverse its socially inspired policy of a retaining a larger public sector with comprehensive controls on the private sector and eventually treaded on the path of liberalization, privatisation and globalisation.[vii]
During early 1991, the government realised that the sole path to India enjoying any status on the global map was by only reducing the intensity of government control and progressively retreating from any sort of intervention in the economy – thereby promoting free market and a capitalist regime which will ensure the entry of foreign players in the market leading to progressive encouragement of competition and efficiency in the private sector.

In this process, the government reduced its control and stake in nationalized and state owned industries and enterprises, while simultaneously lowered and deescalated the import tariffs. All of the reforms addressed macroeconomic policies and affected balance of payments. There was fiscal consolidation of the central and state governments which lead to the country viewing its finances as a whole. There were limited tax reforms which favored industrial growth. There was a removal of controls on industrial investments and imports, reduction in import tariffs. All of this created a favorable environment for foreign capital investment.
As a result of economic reforms of 1991, trade increased by leaps and bounds. India has become an attractive destination for foreign direct and portfolio investment..

Chapter4 Foreign Direct Investment and Indian Policy

FDI is investment of foreign assets into domestic structures, equipment, and organizations. It does not include foreign investment into the stock markets. FDI is thought to be more useful to a country than investments in the equity of its companies because equity investments are potentially “hot money” which can leave at the first sign of trouble, whereas FDI is durable and generally useful whether things go well or badly.
Emerging markets pose a significant potential for foreign investment both direct and portfolio. Foreign direct investment (FDI) is defined as the investment of foreign assets into domestic structures, equipment and organizations. However, it doesn’t include foreign investment in the stock markets. FDI is thought to be more beneficial to a country than its investment in equity of its corporations because equity is considered to be potential ‘hot money’, which can leave at the first sign of trouble. On the other hand FDI is durable and generally useful whether things go well or badly.
China currently ranks first among the top ten countries for foreign direct investment among developing countries in 2001.[viii] Mexico, Singapore, Brazil are also among the top ten. India although is also an attractive destination for foreign investment, it is not in the front line. This is a stark reality despite the fact that the Indian economic, political and social conditions stable.
India is one of the largest economies of the world. Its strategic location in the sub-continent provides it with continued access to South–Asian markets and middle-east markets. The country also enjoys a huge consumer markets. Fast moving consumer goods find a significant market share in India, providing a market conducive to trade and finance.
Foreign investment is open in India and there aren’t cumbersome procedures in force for approval of inflows of foreign capital.[ix] India is also an attractive destination for foreign investment because of its access to skilled labor at competitive costs. Being the one of the largest manufacturing sectors of the world, it has a market conducive to trade and production.
India also has in place well established legal and accounting system to ensure proper administration of foreign capital to key sectors. Also, the stability of the political environment is another factor which makes India an attractive destination for foreign capital

Chapter5 Study of impact on economic growth from investment by
FDI’s in India
Implications of Foreign Direct Investment:

Foreign direct investment affects economic growth through increased investment in the country. An increase in the inflows of FDI would essentially increase foreign savings and consequently would result in increased investment in the country. Another direct consequence of enhanced inflows of FDI is the positive impact on improvement in technology and infrastructure. FDI potentially brings new and emerging technologies to emerging and developing markets, and this can contribute to economic growth and development in the long run. Improved Technology also enhances the productivity of domestic enterprises and industries, thereby leading to efficiency and creation of competitive and open markets in sectors originally within the folds of state and central control.
Policy Regime:
Control and restraints on foreign investment has long been the subject of controversy and major political debate in India. India drafted two major legislations which directly address the issue of foreign capital namely the Foreign Exchange Regulation Act ( FERA) and the Foreign Exchange Management Act ( FEMA). The policy framework for FDI is as follows:
a. FDI in priority sectors like power and telecommunications enjoy automatic approval from the FIPB
b. All other proposals for foreign investment have to go through the FIPB approval route.
c. To provide enhanced and sustained access to foreign capital and to encourage modernisation of traditional and small scale industries, FDI up to the sectoral cap of 24% is permitted in traditional and small scale industries.
d. The Reserve Bank of India (RBI) – the apex central bank of India, grants automatic approval for all industries with respect foreign technology agreements and collaborations.
e. The licensing requirement which required industrial enterprises to apply for and obtain industrial licences was abolished to enhance competition and promote efficiency.
f. Majority investment by foreign parties is permitted. The FERA imposed equity participation limits on foreign corporations. The new FEMA has retrospectively altered this policy. As a result equity participation up to 51 % is permitted by foreign corporations.
The above policy design portrays that the government of India is making every endeavour to project India as global markets by diminishing and eliminating restrictions and restraints on the flow of foreign capital. The procedural framework for inflow of foreign capital has also been structured in a manner to ensure that foreign players are not dissuaded from investing because of cumbersome and tedious procedures. The policy also sought to ensure that the granting of approval for foreign investment was transparent and was not subject to whims, caprice and arbitrary decisions of the political; parties in power by formulating the formation of the FIPB..










10. Expected duration of work:
( Year wise schedule to be given )




S. No.

Time Duration (Tentative)

Research Work To be accomplished


01.

Till 1st March 2007`

Finalization of research Design


02.

From 2nd March 2007 to 1st Feb 2008

Facts and Data Collection

03.


From 2nd Feb 2008 to 30th June 2008

Analysis of Facts and Data’s

04.


From 1st July 2008 to 31st Oct 2008

Discussion and interpretation of Findings


05.


April 2009 First week


Submission of Report















11.Facilities available for the work :

(Details of facilities available duly attested by Principal/ HOD univ. Dept. to be enclosed)





To whom so ever it may concern


This is to certify that Mr. Aditya Sharma would be undertaking his research work for the award of Doctor of philosophy (Management) under the supervision and guidance of Dr. T.K.Jain He shall be provided with the following facilities in order to accomplish his research work if he is registered for PhD.

Library facilities, Computer, Software, Internet, Web camera, television, Audio visual Aids existing with Institution, projectors etc. Any other facilities for the research purpose may be provided, if feasible.


Principal

















12. Bibliography:

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Athukorala, Prema-chandra and Sisira Jayasuriya, Macroeconomic Policies, Crises and Long
Run Growth: Sri Lanka 1966-86, The World Bank, Washington DC

Bhagwati, Jagdish (1998), “ External Sector and Income Distribution”, in Income Distribution and
High Quality Growth, Vito Tanzi and Ke-young Chu (eds.), MIT Press, Cambridge, Mass:251-290.
Bhagwati, Jagdish and T.N.Srinivasan (2002), “Trade and Poverty in the Poor Countries”,
American Economic Review, 92(2): 180-183

Bhalla, Surjit (2002), Imagine There’s No Country: Poverty, Inequality and Growth in the Era
of Globalization, Institute of International Economics, Washington, D.C.

Bardhan P. (1997), "Method in the Madness? A Political-Economy Analysis of the Ethnic
Conflicts in Less Developed Countries", World Development, 25(9): 1381-1398

Bruno, Michael, Martin Ravallion and Lyn Squire (1998), “Equity and Growth in Developing Countries: Old and New Perspectives on the Policy Issues”, in Income Distribution and High0 Quality Growth, Vito Tanzi and Ke-young Chu (eds.), MIT Press, Cambridge, Mass:

Bruton, Henry J. (1992), “Sri Lanka and Malaysia”, The Political Economy of Poverty, Equity and Growth, A World Bank Comparative Study, Oxford University Press (for the World Bank).
Datt, Gaurav and Martin Ravallion (2002), “ Is India’s Economic Growth Leaving the Poor Behind?”, Journal of Economic Perspectives, 16(3): 89-108

Deaton, Angus and Jean Dreze (2002), “Poverty and Inequality in India: A Re-Examination”, Economic and Political Weekly, September 7, 2002: p: 3729-3748.

Dunham D. and S. Jayasuriya (2000), "Equity, Growth and Insurrection: Liberalisation and the Welfare Debate in Contemporary Sri Lanka", Oxford Development Studies, 28(1): 99-110

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Fujita, Mahahisa and Dapeng Hu (2001), “ Regional disparity in China 1965-1994: The effects of globalization and economic liberalization”, The Annals of Regional Science, 35:3-37

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Hasan, Parvez (1998), Pakistan’s Economy at the Cross Roads: Past Policies and Present Imperatives’, Oxford University Press, Karachchi
:
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Sen, Amartya (2000), Development as Freedom, Oxford University Press

Sen, Amartya (1983),”Poor, Relatively Speaking”, Oxford Economic Papers, 35:153-69

Srinivasan, T.N. (2002), “Economic Reforms and Global Integration”,