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International Indexed & Refereed Research Journal, ISSN 0975-3486, (Print) E-ISSN-2320-5482, July,2013 VOL-IV *ISSUE- 46

Research Paper—Commerce

Foreign Direct Investment in India * Dr. Kh. Dhiren Meetei ** O. Deepakkumar July ,2013 *Asst. Prof. Dept. of Commerce, Manipur University, Canchipur-03 **Research Scholar, Dept. of Commerce, Manipur University, Canchipur-03 A B S T R A C T India has emerged as an attractive investment destination. FDI is the most important form of investment destination. FDI is the most important form of foreign investment in a developing country like India. But the aspect of FDI are so far not localized and limited to some particular areas. The importance of FDI should be to stimulate the productivity and export while scattering the investment location in all the states.

Introduction FDI is a direct investment by a company from another country into the production or business in a country, either by buying a company in the country or by expanding of an existing business in that country. IMF in 1977 defined FDI as the investment that is made to acquire a lasting interest in an enterprise operating in an economy other than that of the investor. FDI corresponds with the investment undertaken by a multinational enterprise in a foreign country (Mithani, 2012) . FDI exist in two different forms, the first one involves with establishment of a new operation in a foreign country while the second involves with acquiring or merging with an existing firm in the foreign country. FDI does not include portfolio investment in the security of another country such as stocks and bonds. Review of Literature Weisskof T.E. (1972) argues that FDI has a negative impact on the growth of Indian because FDI flows mainly towards the primary sectors whilebasically promoted the less market value. However, it is again argued that FDI inflow into the core sectors is assumed to play a vital role as a source of capital, management and technology in countries transaction economy (Sahoo, Parida, 2002) . According to Krause W (1965) , in the long run, when the borrower country's productivity and increases with the help of foreign capital, their import propensity may increase which may help in pushing up the export of the lending country. Role of FDI in India Foreign Direct Investment (FDI) as a strategic component of investment is needed by India for its sustained economic growth and development through creation of jobs, expansion of existing manufacturing industries, short and long term project in the field of healthcare, education, research and development (R & D) etc. Government should design the FDI policy such a way where FDI inflow can be utilized as means of enhancing domestic production, savings and exports

through the equitable distribution among states by providing much freedom to states, so that they can attract FDI inflows at their own level (Devjit, 2012) . The significance of capital movement lies in the fact that, such movement may tend to affect the incomes of countries involved as capital flows induce changes in investment expenditure which determines the level of income and when the level of income is affected changes in the level of imports and exports of the countries concerned may also be caused due to their being the functions of income. Employment In India A survey conducted by the Ministry of Labour indicates that during the last quarter, employment in the industry rose to 15.72 million. The research revealed that two sectors have shown the strongest improvement in terms of hiring levels, information technology and business process outsourcing. FDI has helped to raise the output, productivity and employment is some sectors especially in service sector, Indian service sector is generating the proper employment options for skilled workers with high perk (Deshmukh, 2012) . Foreign Investment In India The major effort of the government to attract foreign direct investment in India was outlined in the Industrial Policy Statement of 1991. Since then there was a sustained growth of direct investment inflows from US $ 97 million in 1990-91 to US $ 3904 million in 2001-02 and US $ 4660 million in 2002-03. Companies registered in Mauritius, Singapore, USA, UK and Netherland account for the bulk of the foreign direct investment. 42.16 per cent of the total FDI inflow in India is solely contributed by Mauritius. According to UNCTAD (2007) , India has emerged as the second most attractive destination for FDI after China and ahead of the US, Russia and Brazil. While India has experienced a marked rise in FDI in-



International Indexed & Refereed Research Journal, ISSN 0975-3486, (Print) E-ISSN-2320-5482, July,2013 VOL-IV *ISSUE- 46

Table No. 1 Foreign Investment in India YEAR FDI US $ Portfolio Investment mi l l i o n US $ million 1994-95 1314 3824 1995-96 2133 2748 1996-97 2821 3312 1997-98 3557 1828 2000-01 4029 2760 2001-02 6151 2021 2002-03 4660 979 2003-04 4675 11377 2005-06 8961 12492 2008-09 35168 -13855 Sources: RBI Annual Report Table No. 2 Sources of FDI In India Co un tr y FDI in Rs. (Crore) FDI in US $ (Million) Percentage of Total FDI Mauritius 231428.6 51719.5 42.16 Singapore 50961.66 1471.9 9.35 USA 41357.41 9186.37 7.49 UK 27569.08 6225.58 5.07 Neherland 23613.63 5254.89 4.28 Cyprus 19733.74 4322.36 3.52 Japan 19547.36 4300.29 3.51 Germany 12848.04 2881.92 2.35 France 8403.64 1851.48 1.51 UAE 8255.88 1815.29 1.48 Sources: Ministry of Commerce and Industry, Govt. of India

flows in the last few years (doubling from an average of US$5-6 billion the previous three years to around US$ 19 billion in 2006-07), it still receives far less FDI flows than China or much smaller economies in Asia like Hong Kong and Singapore was ahead of India. Not surprisingly India's growth strategy has depended predominantly on domestic enterprises and domestic demand as opposed to FDI and export demand. Foreign Investment may prove to be an additional source of supply of raises the purchasing power of borrowing nations in the foreign market which may enable the lender country to increase its exports. And when it is a tied loan with a condition that the proceeds should be spent only in the lending country, it will definitely be a means for enhancing its exports.

Conclusion FDI in India are not evenly distributed due to infrastructural facilities and favourable business environment in different regions. 75 per cent of the total inflows of FDI, during 2000- 2010 are concentrated in the state of Maharashtra, Delhi, Karnataka, Gujarat and Tamil Nadu. It can be mentioned worthwhile that the government should simplify and relax entry barrier for business activities and providing investor friendly law and tax system for foreign investors, which may in turn scatter it to the less developed states of the country, where there is less provision for investment. The policy of FDI should be designed to enhance domestic production, saving and exports through the equitable distribution among the states by providing much freedom to states so that they can attract FDI inflows at their own level.

R E F E R E N C E 1 Mithani D.M. (2012), International Economics, Himalayan Publishing House, New Delhi. 2 Weisskof T.E. (1972), The impact of Foreign Capital Inflow on Domestic Savings in Underdeveloped Countries, Journal of International Economics, 2. 3 Sahoo and Parida (2002), Is Foreign Direct Investment an Engine of Growth? Evidence from the Chinese Economy, Savings and Development, 4. 4 Krause W. (1965), International Economics, Houghton Mifflin Co., New York. 5 Devjit (2012), Impact of Foreign Direct Investment on Indian Economy, Research Journal of Management Sciences, September, Vol. 1(2) 6 Deshmukh (2012), Effect of FDI on Employment Generation, Research Analysis and Evaluation, February, Vol. III, Issue 29. 7 UNCTAD (2007), World Investment Report 2007, New York and Geneva, Oxford University Press.



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