Foreign Direct Investment in India: Regulatory Framework, Issues and Current Status

International Journal of Management and Social Sciences Research (IJMSSR) ISSN: 2319-4421
Volume 2, No. 8, August 2013

i-Xplore International Research Journal Consortium www.irjcjournals.org
108
Foreign Direct Investment in India: Regulatory Framework,
Issues and Current Status

Mamta Sharma, Research scholar, Department of commerce, Kurukshetra University, Kurukshetra
Satbir Singh, Research scholar, Department of commerce, Kurukshetra University, Kurukshetra

ABSTRACT

FDI is an engine in bringing the financial sector at a fast
speed. FDI was encouraged by financial liberalization and
market-based reforms in many Emergent Market
Economies (EMEs). Now, FDI has become a key feature of
national development strategies for all most all the
countries over the globe. FDI has boosted the economy 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. The
paper tries to study the need of FDI in India. The paper
focuses on the trends of FDI inflows by categorize them
into sector-wise, region-wise, year-wise and country wise
FDI inflow in India. The result depicts that among the
sectors Service sector, among the regions Mumbai and
among the countries Mauritius are at the top. It also
shows that there has been a remarkable increase in FDI
inflow in India during the year 2000 to 2012.

Keywords:
Foreign Direct Investment (FDI), Liberalization, Foreign
Investment Promotion Board (FIPB), Reserve Bank of
India (RBI), GDP, Trends and Equity Inflows.

INTRODUCTION

In India, FDI is considered as a development tool, which
can help in achieving self-reliance in all the sectors of the
economy. Indias rich and diversified resources, its sound
economic policy, good market conditions and highly
skilled human resources, make it a proper destination for
investment. Direct Investment across national borders is a
distinct feature of international economics, which has
gained intense attention of all the countries of the world
recently. FDI is the process whereby resident of one
country (the home 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). FDI is now approved as an important driver of
growth in the country. Liberalization refers to relaxation of
previous government restrictions usually in areas of social
and economic policies. Liberalization was introduced in
1991 in India. The pre economic liberalization period was
challenge for the Indian economy to grow because there
were many constraints to overcome. Actually in the early
1980s, Indian government adopted a liberal policy towards
FDI, especially in high technology areas and exports and it
was then that FDI friendly environment was created. In a
way eighties were the fore-runners of the liberalization
policy of 1990s and so this period is termed as pre
liberalization period in the study. The period after 1991 is
termed as post liberalization period during which not only
the quantum of FDI to India escalated but the sector-wise
composition of FDI also underwent incredible change. The
post liberalization period was very productive for the
Indian economy to head with a swift pace. Though the
liberal policy position and strong economic fundamentals
appear to have driven the sharp rise in FDI flows in India
over past one decade and continued their strength even
during the period of global economic crisis (2008-09 and
2009-10), the subsequent moderation in investment flows
despite faster recovery from the crisis period appears
somewhat inexplicable. Survey of empirical literature and
analysis seems to suggest that these divergent trends in
FDI flows could be the result of certain institutional
factors that reduced the investors sentiments despite
continued strength of economic fundamentals. Find. FDI is
characterized as any form of long-term investment that
earns interest in an enterprise which functions outside the
domestic territory of the investor. In an era of
globalisation and liberalization, Foreign Direct Investment
(FDI) is a good source of flow of private foreign capital to
the developing countries as it adds to the domestic
resources of the recipient country. Unlike borrowings from
foreign resources, which involves contractual obligation
from the first day, direct foreign investments does not
involve any fixed charges and dividends, which would
have to be paid only when the firm earns profit.
Consequently, FDI leads to increase in Profits, Gross
Domestic Product (GDP), Aggregate Employment and
Foreign Trade of the recipient country.

OBJECTIVES OF THE STUDY

1. To discuss the FDI policy framework in India
2. To show the trends of FDI in India in post-
liberalised period.
3. To study year wise, region wise and component
wise trends of FDI in India.
4. To compare the trend of FDI among different
sectors in India.
5. To discuss the country wise FDI inflows in India.


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RESEARCH METHODOLOGY

This research is a descriptive study in nature. In order to
achieve the objectives of the study, secondary data have
been used. The main secondary sources include annual
report of Department of Industrial Promotion and Policy
(DIPP), United Nation Conference on Trade and
Development (UNCTAD), Reserve Bank of India (RBI),
Ministry of Commerce, Ministry of Finance, Planning
Commission of India and Investment Centre. Apart from
these publications, a number of websites are also accessed
to gather information for the study. Data from April 2000
to December 2012 have been taken for the study.
Percentage and averages are calculated to make the study
simple and understandable to all. Graphical and tabulated
presentation of data have also been used where ever to
represent the trends of FDI during the study period.

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 Indias FDI
policy framework. There has been a sea change in Indias
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).
b) Post-Liberalisation Period
A major shift occurred when India embarked upon
economic liberalisation and reforms program in 1991
aiming to raise its growth potential and integrating with
the world economy. Industrial policy reforms slowly but
surely removed restrictions on investment projects and
business expansion on the one hand and allowed increased
access to foreign technology and funding on the other. A
series of measures that were directed towards liberalizing
foreign investment included:

1) Introduction of dual route of approval of FDI
RBIs automatic route and Governments approval
(SIA/FIPB) route.
2) Automatic permission for technology agreements in
high priority industries and removal of restriction of
FDI in low technology areas as well as
liberalisation of technology imports.
3) Permission to Non-resident Indians (NRIs) and
Overseas Corporate Bodies (OCBs) to invest up to
100 per cent in high priorities sectors.
4) Hike in the foreign equity participation limits to
51 per cent for existing companies and
liberalisation of the use of foreign brands name.
5) Signing the Convention of Multilateral Investment
Guarantee Agency (MIGA) for protection of
foreign Investments.
These efforts were boosted by the enactment of Foreign
Exchange Management Act (FEMA), 1999 [that replaced
the Foreign Exchange Regulation Act (FERA), 1973]
which was less stringent. In 1997, Indian Government
allowed 100% FDI in cash and carry wholesale and FDI in
single brand retailing was allowed 51% in June, 2006.
After a long debate, further amendment was made in
December, 2012 which led FDI to 100% in single brand
retailing and 51% in multiple brand retailing.

An Indian company may receive Foreign Direct
Investment under the two routes as given under:
Automatic Route: FDI under the automatic route does
not require any prior approval either by the Government
or the Reserve Bank. The investors are only required to
notify the concerned regional office of the RBI within 30
days of receipt of inward remittances and file the required
documents with that office within 30 days of issuance of
shares to foreign investors.
Government Route/FIPB Route: Under this Route, FDI
approval is made by three institutions, viz., the Foreign
Investment Promotion Board (FIPB), the Secretariat for
Industrial Assistance (SIA) and the Foreign Investment
Implementation Authority (FIIA).Under the approval
route, the proposals are considered in a time-bound and
transparent manner by the FIPB. Approvals of composite
proposals involving foreign investment/ foreign technical
collaboration are also granted on the recommendations of
the FIPB.

110
Table: A- Sector Specific Limits of Foreign Investment in India

Sector FDI Cap/Equity Entry Route Other Conditions
A. Agriculture

1. Floriculture, Horticulture, Development of
Seeds, Animal Husbandry, Pisciculture,
Aquaculture, Cultivation of vegetables &
mushrooms and services related to agro and
allied sectors

2. Tea sector, including plantation
(FDI is not allowed in any other agricultural
sector /activity)

100%

100%

Automatic

FIPB

B. Industry
1. Mining covering exploration and mining of
diamond & precious stones; Gold, silver and
minerals.

2. Coal and lignite mining for captive
consumption by power projects and iron &
steel, cement production.

3. Mining and mineral separation of titanium
bearing minerals

100%

100%

100%

Automatic

Automatic

FIPB

C. Manufacturing

1. Alcohol-Distillation & Brewing

2. Coffee & Rubber processing & Warehousing

3. Defence production

4. Hazardous chemicals and isocyanates

5. Industrial explosives -Manufacture

6. Drugs and Pharmaceuticals

7. Power including generation (except Atomic
energy); transmission, distribution and power
trading.

(FDI is not permitted for generation,
transmission & distribution of electricity
produced in atomic power plant/atomic energy
since private investment in this activity is
prohibited and reserved for public sector.)

100%

100%

26%

100%

100%

100%

100%

Automatic

Automatic

FIPB

Automatic

Automatic

Automatic

Automatic

D. Services

1. Civil aviation (Greenfield projects and
Existing projects)

2. Asset Reconstruction companies

100%

49%

Automatic

FIPB


111
3. Banking (private) sector

4. NBFCs: underwriting, portfolio management
services, investment advisory services,
financial consultancy, stock broking, asset
management, venture capital, custodian,
factoring, leasing and finance, housing finance,
forex broking etc.

5. Broadcasting
a. FM Radio
b. Cable network; c. Direct to home; d.
Hardware facilities such as up-linking, HUB.
e. Up-linking a news and current affairs TV
Channel

6. Commodity Exchanges

7. Insurance

8. Petroleum and natural gas

a. Refining

9. Print Media
a. Publishing of newspaper and periodicals
dealing with news
and current affairs

b. Publishing of scientific magazines /
speciality
journals/periodicals

10. Telecommunications
a. Basic and cellular, unified access services,
national /international long-distance, V-SAT,
public mobile radio trunked services (PMRTS),
global mobile personal communication services
(GMPCS) and others.
74% (FDI+FII).
FII not to exceed49%

100%

20%
49% (FDI+FII)

100%

49% (FDI+FII) (FDI
26,% FII
23%)

26%

49% (PSUs).

100% (Pvt.
Companies)

26%

100%

74% (including FDI,FII,
NRI,
FCCBs,ADRs/GDRs,
convertible preference
shares, etc.
Automatic

Automatic

FIPB

FIPB

Automatic

FIPB (for
PSUs).
Automatic
(Pvt.)

FIPB

FIPB

Automatic
up to 49%
and FIPB
beyond
49%.

s.t.minimum
capitalisation
norms

Clearance
from IRDA

S.t.guidelines
by Ministry of
Information &
broadcasting
Source: as per RBIs data base on FDI flows to India

Foreign Direct Invested in India is permitted
under the following forms of Investments:
Through financial collaborations.
Through joint ventures and technical collaborations.
Through capital markets via Euro Issues.

Through private placements or preferential
allotments.

Sectors where FDI is Banned
Atomic Energy, Lottery Business including Government /
private lottery, online lotteries, Gambling and betting
including casinos, Business of chit fund, Nidhi Company,

112
Trading in Transferable Development Rights (TDRs),
Activities/sector not opened to private sector investment,
Agriculture (excluding Floriculture, Horticulture,
Development of seeds, Animal Husbandry,
Piscicultureand cultivation of vegetables, mushrooms etc.
under controlled conditions and services related to agro
and allied sectors) and Plantations (Other than Tea
Plantations), Real estate business, or construction of farm
houses, Manufacturing of Cigars, cheroots, cigarillos and
cigarettes of tobacco or of tobacco or of tobacco
substitutes are the sectors where FDI is not permitted.

FOREIGN DIRECT INVESTMENTS
FLOWS TO INDIA
In the year 1991, various policy initiatives were taken as a
result of liberalisation, India has been rapidly changing
from a restrictive regime to a liberal one and FDI is
encouraged in almost all the economic activities under the
automatic route. In recognition of the important role of
Foreign Direct Investment in the speed up economic
growth of the country, Government of India commenced a
slew of economic and financial reforms in 2000. India is
now leading in the second generation reforms aimed at
further and faster integration of Indian economy with the
global economy. The industrial policy reforms have
reduced the industrial licensing requirements, removed
restrictions on investment, expansion and facilitated easy
access to foreign technology and foreign direct
investment.

1. CUMULATIVE AMOUNT OF FDI INFLOWS IN INDIA
Table 1 Total FDI Inflows
(From April, 2000 to December, 2012)

1. Cumulative Amount of FDI Inflows
(Equity inflows + Reinvested earnings +
Other capital)
- US$
280,412
million
2. Cumulative Amount of FDI Equity Inflows
(excluding, amount remitted through
RBIs-NRI Schemes)
`
866,710
crore
US$
187,804
Million
Source: As per DIPPs FDI data base

Table 1 shows the amount of FDI inflows from April,
2000 to December, 2012. It shows the cumulative amount
of FDI Inflows both in terms of ` crore and in US $
million. Point 1 shows the sum of equity inflows,
reinvested earnings and other capital. Cumulative amount
of inflows are 280,412 in US $ million. Other than this,
cumulative FDI equity inflows which excludes amount
remitted through RBIs-NRI schemes are 866,710 in `
crore and 187,804 in US $ million.

2. FINANCIAL YEAR-WISE FDI INFLOWS IN INDIA
As per International best practices
Table 2 Component-wise equity inflows
(Amount US $ million)
Sr.
No.
Financial Year
(April-march)
FOREIGN DIRECT INVESTMENT (FDI) Inves
tmen
t by
FIIs

Forei
gn
Instit
ution
al
inves
tors
Fund
(net)
Equity Reinvest
ed
earnings
+

Other
capital
+
FDI FLOWS INTO
INDIA
FIPB
Route/RBI
s
Automatic
Route/Acq
uisition
Route
Equity
capital of
unincorp
orated
bodies #
Total
FDI
Flows
%age
growth
over
previous
year(in
US$
terms)
FINANCIAL YEARS 2000-01 to 2012-13 (Up to December, 2012)
1. 2000-01 2,339 61 1,350 279 4,029 - 1,847
2. 2001-02 3,904 191 1,645 390 6,130 (+) 52 % 1,505
3. 2002-03 2,574 190 1,833 438 5,035 (-) 18 % 377

113
4. 2003-04 2,197 32 1,460 633 4,322 (-) 14 % 10,918
5. 2004-05 3,250 528 1,904 369 6,051 (+) 40 % 8,686
6. 2005-06 5,540 435 2,760 226 8,961 (+) 48 % 9,926
7. 2006-07 15,585 896 5,828 517 22,826 (+) 146% 3,225
8. 2007-08 24,573 2,291 7,679 300 34,843 (+) 53 % 20,328
9. 2008-09 31,364 702 9,030 777 41,873 (+) 20 % (-)
15,017
10. 2009-10 (P)(+) 25,606 1,540 8,668 1,931 37,745 (-) 10 % 29,048
11. 2010-11 (P)(+) 21,376 874 11,939 658 34,847 (-) 08 % 29,422
12. 2011-12 (P) 34,833 1,021 8,205 2,494 46,553 (+) 34 % 16,813
13. 2012-13 (P) 16,348 786 8,217 1,846 27,197 - 16,043
CUMULATIVE TOTAL
(from April, 2000 to
December, 2012)
189,489 9,547 70,518 10,858 280,412 - 133,12
1

Note:
(i) RBIs Bulletin February, 2013 dt. 11.02.2013 (Table
No. 34 FOREIGN INVESTMENT INFLOWS).
(ii) Inflows under the acquisition of shares in March,
2011, August, 2011 & October, 2011, include net
FDI on account of transfer of participating interest
from Reliance Industries Ltd. to BP Exploration
(Alpha).
(iii) RBI had included Swap of Shares of US$ 3.1
billion under equity components during December
2006.
(iv)Monthly data on components of FDI as per
expended coverage are not available. These data,
therefore, are not comparable with FDI data for
previous years.
(v) Figures updated by RBI up to December, 2012.
# Figures for equity capital of unincorporated bodies
for 2010-11 are estimates.
(P) All figures are provisional

+ Data in respect of Re-invested earnings & Other
capital for the years 2009- 10, 2010-11 & 2012-13 are
estimated as average of previous two years.

In this section, component-wise inflows of FDI in India
have been diagnosed to find out the most preferred FDI
component. Table 2 shows the total FDI flows from 2000-
2012 which include the entire three components i.e.
equity, reinvested earnings and other capital. The table
reveals that the total amount of US $ 280,412 has been
received from all the three components of FDI from 2000
to 2012. As the table discloses that FDI in equity is
199,036 (Equity through FIPB route + Equity capital of
unincorporated bodies), FDI in reinvested earnings is
70,518 and FDI in other capital is 10,858 in US $ million.
The investment made by Foreign Institutional Investors is
133,121 in US $ million as per table. The study concludes
the remaining points relating to this category with the help
of chart 1 which is as follows:-

Chart 1: As per DIPPs FDI data base
Equity, 199036
Reinvested
Earnings, 7051
8
Other
capital, 10858
Total of FDI
Inflows, 280412
-50000
0
50000
100000
150000
200000
250000
300000
350000
0 2 4 6
A
m
o
u
n
t

o
f

F
D
I

I
n
f
l
o
w
s
i
n

t
e
r
m
s

o
f

U
S

$
Component-wise FDI Inflows
FDI: component-wise Inflows
from 2000 to 2012
Amount of

114
Chart 1 is prepared on the basis of table 2, which shows
the amount of component-wise FDI Inflows. As the chart
shows that from 2000-2012 total amount of FDI is
280,412 in US $ million. It is observed from the chart 1
that the foreign investors preferred to invest in Indian
Corporate through equity shares as compared to reinvested
capital and other capital options available to them. The
main reason for equity preference was governments
(FIPB, SAI routes) and RBIs automatic approval and
various schemes on the flow of foreign capital. Study
shows that proportion of foreign investment through
equity route is increasing year after year. In 2000-001, it
was only 59.68% of total FDI Inflows, which reached to
66.68% in the year 2005-06. It then increased to 77.02%
of total FDI Inflows in the year 2011-2012. But the share
of reinvested earnings and other capital of total FDI
Inflows are comparatively low. In the year 2011-12, the
share of reinvested earnings was 17.62% and the share of
other capital was 5.36% to total FDI Inflows. A number of
initiatives had been taken by government to liberalise the
FDI policy, which reduced other capital proportion. On the
whole, it can be concluded that FDI in Equity is most
preferred component among all the three. The foreign
investors prefer to invest through equity component
because of liberalised FDI policy of India. Foreign
investor preferred RBIs and government automatic route
approval for most of the industries

FDI Equity Inflows
Table 3 FDI Equity Inflows
(Equity capital component only)

Sr.
No.
Financial Year
(April-March)
Amount of FDI Inflows %age of growth
over previous year
(in terms of US$) Financial Years 2000-2013 (up to December,
2012)
In ` crore In US$ million
1. 2000-01 10,733 2,463 -
2. 2001-02 18,654 4,065 (+) 65 %
3. 2002-03 12,871 2,705 (-) 33 %
4. 2003-04 10,064 2,188 (-) 19 %
5. 2004-05 14,653 3,219 (+) 47 %
6. 2005-06 24,584 5,540 (+) 72 %
7. 2006-07 56,390 12,492 (+) 125 %
8. 2007-08 98,642 24,575 (+) 97 %
9. 2008-09 * 142,829 31,396 (+) 28 %
10. 2009-10 # 123,120 25,834 (-) 18 %
11. 2010-11 # 97,320 21,383 (-) 17 %
12. 2011-12 # ^ 165,146 35,121 (+) 64 %

13. 2012-13 #
(April-December, 2012)
92,237 16,946
Cumulative Total
(from April, 2000 to December, 2012)
867,243 187,927
Note:
(i) Including amount remitted through RBIs-NRI
Schemes (2000-2002).
(ii) FEDAI (Foreign Exchange Dealers Association of
India) conversion rate from rupees to US dollar
applied, on the basis of monthly average rate provided
by RBI (DEPR), Mumbai.
# Figures for the years 2009-10, 2010-11, 2011-12 &
2012-13 (from April, 2012 to August, 2012) are
provisional subject to reconciliation with RBI.
^ Inflows for the month of March, 2012 are as reported
by RBI, consequent to the adjustment made in the
figures of March,11, August,11 and October,11.
* An additional amount of US$ 4,035 million
pertaining to the year 2008-09, since reported by RBI,
has been included in FDI data base from February,
2012.
Table 3 shows the total amount of FDI Inflows in India
during the last 10 years i.e. 2000 to 2012. The FDI Inflows
from 2000-01 was 10,733 crore `. In 2001-02, It reached to
18,654 crore `. It shows the admirable result in the FDI
Inflows in India. Little bit ups and downs in FDI Inflows
up to 2005-06, but after that great hike in the year 2007-08
i.e. 98,642 crore ` as compare to earlier years. In 2008-09
there was a huge investment in FDI in 142,829 crore ` and
so on. Then the total amount of inflows of FDI reached to
165,146 crore `. So it can be concluded that the foreign
investments have been on rise in India.

115


Chart 2 is based on table 2 and table 3. In this part of the
study, an attempt has been made to study the trends of FDI
in India from 2000 to 2012. The growth rates over a period
of last 12 years are depicted in chart 2. It shows growth
rate of total FDI inflows and FDI equity over the previous
year in terms of US $. It can be seen from chart 2 that the
growth rate of total FDI inflows with 146% and Equity
component with 125% was found to be maximum in the
year 2006-07. It can be concluded that in the total inflows
of FDI, the share of equity component was highest. The
main reason behind this substantial increase of FDI in
these years was opening up of automatic route. FDI up to
100% had been allowed to a number of industries. Further,
the FDI declined to 53%, 20%, 10%, and 08% during the
years 2007-08, 2008-09, 2009-10, and 2010-11. The

reason behind this decrease was prohibition in certain
sensitive areas such as agriculture, retail trading, railways
and real estate. The year 2008 showed growth of only
20%. The main reason for this decline was slowness of
stock market because of which many investors shifted to
traditional saving channels. The FDI equity inflows also
showed ups and downs. In the year 2007-08, the growth
rate of FDI equity inflow was 97%. Then it started to
decline i.e. 28%, 18%, and 17% during the years 2008-09,
2009-10 and 2010-11. In the year 2011-12, growth rate of
total FDI inflows and of FDI equity again showed a rise
i.e. 34% and 64%. On the whole, it can be concluded that
the growth rate of FDI has not been consistent over the last
12 years. From the above study, it can be estimated that in
the coming years the FDI Inflows will go on rise.

3. COUNTRY-WISE CUMULATIVE FDI INFLOWS IN INDIA
Table 4 COUNTRY-WISE FDI EQUITY INFLOWS
Sr.No. Country Amount of Foreign Direct Investment %age with total FDI
Inflows (+)
(In ` crore) (In US $ million)
1. Mauritius 330,057.45 71,621.44 38.14
2. Singapore 86,554.96 18,791.46 10.01
3. United kingdom 77,970.12 17,090.22 9.10
4. Japan 66,796.29 13,939.10 7.42
5. U.S.A 50,114.76 10,972.03 5.84
6. Netherlands 39,577.29 8,448.13 4.50
7. Cyprus 31,841.53 6,799.56 3.62
8. Germany 23,571.84 5,122.93 2.73
9. France 15,918.86 3,398.27 1.81
10. UAE 10,975.80 2,361.45 1.26
2000
-01
2001
-02
2002
-03
2003
-04
2004
-05
2005
-06
2006
-07
2007
-08
2008
-09
2009
-10
2010
-11
2011
-12
2012
-13
Total FDI Inflows 52 -18 -14 40 48 146 53 20 -10 -8 34
FDI Equity only 65 -33 -19 47 72 125 97 28 -18 -17 64
0
65
-33
-19
47
72
125
97
28
-18 -17
64
0 0
52
-18
-14
40
48
146
53
20
-10
-8
34
0
-100
-50
0
50
100
150
200
250
300
%
a
g
e

g
r
o
w
t
h

o
v
e
r

p
r
e
v
i
o
u
s

y
e
a
r
s

(
i
n

t
e
r
m
s

o
f

U
S

$

m
i
l
l
i
o
n
)
FDI: Financial year-wise Inflows

116
11. Switzerland 10,595.39 2,280.71 1.21
12. Spain 6,682.62 1,411.90 0.75
13. South Korea 5,732.17 1,215.10 0.65
14. Italy 5,083.16 1,137.15 0.61
15. Hong Kong 4,716.75 1,018.98 0.54
16. Sweden 4,585.61 978.81 0.52
17. Caymen Island 3,705.64 868.47 0.46
18. British Virginia 3,592.21 793.58 0.42
19. Indonesia 2,825.44 610.30 0.32
20. Poland 2,985.84 568.53 0.30
Source: As per DIPs FDI data base
Note:
*Complete/separate data on NRI investment is not
maintained by RBI. However, the above FDI inflows
data on NRI investment are reported by RBI under
head NRI (as individual investors).
+ Percentage of inflows worked out in terms of US$
& the above amount of inflows received through
FIPB/SIA route RBIs automatic route & acquisition
of existing shares only.

Table 4 portrays the country-wise FDI equity inflows in
India. It shows the total amount of inflows from April,
2000 to December, 2012 both in terms of US $ and crore `.
Table discloses that the Mauritius country has the highest
foreign investment in India with 38.14%. Mauritius is at
top in investing FDI in India followed by Singapore, UK,
Japan and so on.

U.S.A also gets 5
th
position in this category with 5.84%.
India is the fourth largest economy in terms of purchase
power parity. India have the second largest road network
in the world, spanning 3.3 million kilometres, easy
availability of labour at cheap rates, raw materials supplied
abundantly and fully developed banking system. These are
the reasons which facilitate the flow of FDI from different
countries in India.

Chart 3 is prepared on the basis of table 4. Chart 3
illustrates the share of top countries investing FDI in India.
It shows the percentage of FDI of different countries with
total FDI Inflows from 2000-2012 in the terms of US $.
As the chart portrays that Mauritius is at the top in
investing FDI in India. Indias most liberal and transparent
policy attracts the countries to invest FDI in India. In the
post liberalization era, a number of initiatives have been
taken to attract FDI by different countries in India. This
includes opening up of many new sectors to FDI, raising
FDI equity caps in sectors already opened and procedural
simplification. This is the reason of FDI Inflows made by
different countries at the highest growth rate.
Mauritius
46%
Singapore
12%
United
Kingdom
11%
Japan
9%
U.S.A
7%
Netherland
6%
Cyprus
4%
Germeny
3%
France
2%
Share of Top 10 Countries
investing FDI in India
(from 2000 to 2012 in US $ million)

117

4. SECTOR WISE CUMULATIVE FDI INFLOWS IN INDIA
Table 5 SECTOR-WISE FDI EQUITY INFLOWS

Sr.No. Sector Amount of FDI Inflows %age with total
FDI Inflows(+)
(In ` crore) (InUS $)
1. Service Sector 168,013.79 36,449.49 19.41
2. Construction Development 99,716.67 21,834.47 11.63
3. Telecommunications 57,464.47 12,622.83 6.72
4. Computer Software & Hardware 52,377.08

11,617.74 6.19
5. Drugs & Pharmaceuticals 45,980.03 9,783.31 5.21
6. Chemicals 39,832.86 8,758.81 4.66
7. Power 36,081.53 7,824.01 4.17
8. Automobile Industry 35,203.86 7,560.97 4.03
9. Metallurgical Industries 33,916.40 7,341.84 3.91
10. Hotel & Tourism 32,693.73 6,526.78 3.48
11. Petroleum & Natural Gas 24,786.41 5,377.42 2.86
12. Trading 17,084.54 3,671.42 1.95
13. Electrical Equipments 14,180.91 3,092.37 1.65
14. Information & Broadcasting 14,442.08 3,090.51 1.65
15. Cement & Gypsum Products 11,776.18 2,625.90 1.40
16. Miscellaneous Mechanicals &
Engineering industries
10,355.34 2,287.89 1.22
17. Industrial Machinery 10,632.16 2,231.09 1.19
18. Consultancy Services 9,549.31 2,068.72 1.10
19. Construction Activities 9,179.34 1,986.17 1.06
20. Non-Conventional Energy 9,457.58 1,951.77 1.04

Note: FDI inflows data re-classified, as per segregation
of data from April 2000 onwards.
+ Percentage of inflows worked out in terms of US$
& the above amount of inflows received through
FIPB/SIA route RBIs automatic route & acquisition
of existing shares only.

In this part of study, sector wise FDI Inflows have been
considered to find out the most favoured FDI sector in
India. Table 5 shows the sector-wise FDI Inflows in India
from April, 2000 to December, 2012 in terms of US $ and
crore `. According to FDI report Service sector is the
desired sector with highest FDI inflow of 168,013.79 crore
`. After service sector, Construction Development,
Telecommunications and Computer Software & Hardware
is the next preferred sector with 99,716.67 crore `,
57,464.67 crore ` and 52,377.08 crore `.
Indias recent liberalization of its foreign regulations has
generated strong interest by foreign investors, turning
India into one of the fastest growing destinations for
global FDI inflows.

118


Chart 4 is based on table 5. It shows sector-wise FDI
equity inflows in terms of percentage with total FDI
inflows. The sector-wise analysis of FDI with the help of
this chart reveals that maximum FDI has taken place in the
service sector including finance, banking, insurance etc.
Chart 4 depicts that service sector is at the top with
19.41% of total FDI inflows. After that Construction

Development comes with 11.63% followed by
Telecommunications, Computer Software & Hardware
and Drugs and Pharmaceuticals with 6.72%, 6.19%, and
5.21%. At present India is the leading country pertaining
to the IT industry in the Asia-Pacific region. The telecom
industry is one of the fastest growing industries in India.
With a growth rate of 45%, Indian telecom industry has
the highest growth rate in the world.
5. REGION WISE CUMULATIVE FDI INFLOWS IN INDIA
Table: 6 REGION-WISE FDI EQUITY INFLOWS
1


Sr.No. RBIs-Regional Offices
2
State covered Cumulative Inflows (From
April00-Dec.12)
%age to total
Inflows
Amount ` in
crore
Amount US $
in million
1. Mumbai Maharashtra,
Dadra& Nagar
Haveli, Daman &
Diu
282,179 61,248 33
2. New Delhi Delhi, part of UP
and Haryana
167,061 36,013 19
3. Bangalore Karnataka 47,886 10,497 6
4. Chennai Tamil Nadu,
Pondicherry
47,007 10,007 5
5. Ahmadabad Gujarat 38,867 8,607 5
6. Hyderabad Andhra Pradesh 35,256 7,665 4
7. Kolkata West Bengal,
Sikkim,
Andaman &
Nicobar Islands
9,684 2,145 1
8. Chandigarh Chandigarh,
Punjab, Haryana,
Himachal
5,492 1,188 1
19.41
11.63
6.72
6.19
5.21
4.66
4.17
4.03
3.91
3.48
Service Sector
Construction Development
Telecommunications
Computer Software &
Drugs & Pharmaceuticals
Chemicals
Power
Automobile Industry
Metallurgical Industries
Hotel & Tourism
Sector-Wise FDI Equity Inflows
(from 2000 to 2012)
%age with total FDI Inflows (in US $ million)

119
Pradesh
9. Bhopal Madhya Pradesh,
Chhattisgarh
4,435 932 1
10. Kochi Kerala,
Lakshadweep
4,259 900 1
11. Panaji Goa 3,544 769 .04
12. Jaipur Rajasthan 3,122 648 .04
13. Bhubaneswar Orissa 1,617 341 .02
14. Kanpur Uttar Pradesh,
Uttaranchal
1,572 340 .02
15. Guwahati Assam,
Arunachal
Pradesh,
Manipur,
Meghalaya,
Mizoram,
Nagaland,
Tripura
348 78 0
16. Patna Bihar, Jharkhand 170 34 0
17. Region not indicated
3
214,211 46,383 24.7
Sub. Total 866,710 187,804 100.00
18. RBIs-NRI schemes 533 121 -
Grand Total 867,243 187,925 -
Source: As per DIPs FDI data base

Note:

1
Includes equity capital component only.
2
The Region-wise FDI inflows are classified as per
RBIs Regional Office received FDI inflow
furnished by RBI, Mumbai.
3
Represents, FDI inflows through acquisition of
existing shares by transfer from residents to non
residents. For this, RBI Regional wise information is
not provided by Reserve Bank of India.

Table 6 represents region-wise FDI equity inflows from
2000-12 both in terms of ` crore and US $ million. Table
shows that Mumbai has registered largest FDI inflow (`
282,197 crore) amounting to 33% of total inflow received
in last 12 years. New Delhi is the second preferred region
for FDI inflow (` 167,061 crore) with 19% of total inflows
received in last 12 years. This is due to good quality
infrastructure and better quality of life provided in these
cities. Other regions like Bangalore (` 47,886 crore),
Chennai (` 47,007 crore), Ahmadabad (` 38,867 crore),
Hyderabad (` 35,256 crore) have also recorded FDI with
6%, 5%, 5% and 4% of total FDI in the country
respectively. Bangalore is the primary destination for
property investment and the city has riding high on the
Information Technology (IT). Other regions like Kolkata
(` 9,684 crore), Chandigarh (` 5,492 crore), Bhopal (`
4,435 crore) and Kochi (` 4,259 crore) have been able to
attract very less FDI because they lack in infrastructure
and information technology (IT) developments. Sectors
like service, construction developments,
telecommunications and computer software & hardware
have been registering highest FDI inflows in India.
Therefore, Mumbai, New Delhi, Bangalore and Chennai
are the favourite destinations for FDI in India.

KEY FINDINGS
India is attracting foreign investment at a good
rapid rate of growth. The growth rate of FDI over
last year was found to be 64% (table 3). The main
reason for this substantial growth in FDI was
opening up of Indian economy to foreign
investment, relaxation of norms for foreign
investments and enhancing sector wise limit.
In region wise analysis, Mumbai was on the top
with 33% (table 6) to total FDI of India. The reason
behind this was the availability of service sector,
infrastructure and construction development. Six
regions offices which are at the top contribute 71%
to the total FDI while rest of the regions add 29% to
total FDI.
As per the data, the sectors that attracted higher
inflows were Services (19.41%), Construction
activities (11.63%), Telecommunications (6.72%)
and Computer Software and Hardware (6.19%)
(table 5).
A country wise FDI inflows show that Mauritius is
the country that has invested highly in India
followed by Singapore, UK, Japan and USA and so
on (table 4). Nine countries contribute 83% to
cumulative FDI in India while remaining
contributes only 17%.

120
FDI plays an important role in the development of
infrastructure because many countries invest in the
infrastructure sector and banking finance sector.

CONCLUSION

Foreign direct investment plays an important role in the
economic development of the country. It helps in
transforming of financial resources, technology and
innovative and improved management techniques along
with raising productivity. It is concluded that the trend of
FDI in India showed a positive picture. Foreign investors
are enjoying the benefits of liberalised FDI policy by
investing into equity shares of Indian corporate on
automatic route. The study shows that there has been
remarkable increase in FDI inflow in India during the
period 2000 -2012. No doubt, there are some factors which
limiting the flow of FDI in India but Indian economy is
growing day by day. It is expected that in the upcoming
year FDI will grow more than the last years.

KEY REFERENCES

[1] Aggrawal, S., Singla, A., Aggrawal, R. (2012).
Foreign direct investment in India. International
Journal of Computational Engineering &
Management, 15 (5), 93-105.
[2] Azhar, S., Marimuthu, K.N. (2012). An overview of
foreign direct Investment in India. International
Journal of Multidisciplinary Management studies, 2
(1), 202-214.
[3] Department of Industrial Policy and Promotion,
(April 2000 to February 2012) Annual Report.
[4] Devajit, M. (2012). Impact of foreign direct
investment on Indian economy. Research Journal
of management Sciences, 1(2), 29-31.
[5] Kumar, P. (2011). FDI in India and its impact- A
critical evaluation. VRSD International Journal of
Business & Management Research, 1(3), 185-196.
[6] Manual on Foreign Direct Investment in India by
Secretariat for Industrial Assistance (SIA) DIPP.
[7] Mhajan, D. (2008). FDI in India not as per her
potential. The Economic Challenger, 41 (11), 59-
63.
[8] Press notes of Department of Industrial Policy and
Promotion (DIPP) (2010-12).
[9] Ramachandran, A., Kavitha, N., Veni, N.K. (2008).
Foreign direct investment and the economic
scenario. The Economic Challenger, 39 (10), 43-49.
[10] Reserve Bank of India (2012), Monthly Bulletin,
December.
[11] Sahni, P. (2012). Trends and determinants of
foreign direct investment in India: An empirical
investigation. International Journal of Marketing
and Technology, 2 (8), 144-161.
[12] UNCTAD (2012), World Investment Report.

Websites
[1] www.unctad.org
[2] www.rbi.org.in
[3] www.ficci.com
[4] www.dipp.nic.in
[5] www.wikipedia.org
[6] www.tribuneindia.com
[7] www.google.com
[8] www.indiabix.com
[9] www.fdi.gov.in
[10] www.planningcommission.gov.in
[11] http://indiacurrentaffairs.org/white-paper-on-fdi-in-
retail-independent-study/
[12] http://timesofindia.indiatimes.com/business/india-
business/Traders-body-demand-white-paper-on-
FDI-in-retail/articleshow/14562607.cms

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International Journal of Management and Social Sciences Research (IJMSSR) ISSN: 2319-4421

Volume 2, No. 8, August 2013

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