Fdi in Automobile Sector in India Essay

EXECUTIVE SUMMARYThe study aims at providing the all overall view of the unusual Direct Investment into India, its classifications, course of studys and importance of FDI in pre and post re dust era. Wherein, the post economic reform shows an append in the result of FDI.It emphasises on the importance of FDI in sell sector. democracy wise FDI influxs into the country are carefully observed in order to arrive at appropriate conclusions in order to commiserate the trend of FDI inflows into Indian economy.Literature review involves the abridgment of miscellaneous articles and research papers which were done on the uniform lines of study to get an insight of the FDI and its performance in various sectors and alike to understand the research happy chance of the study. The articles and the research papers reviewed talks about the importance of FDI in retail sector. They also give a comparitive study of FDI in India with China which is helpful in making comparisons about t he inflow of FDI from various countries indicating the monetary stability of the country which is the chief(prenominal) reason in decoying the irrelevant investors. In many articles, factors affecting the inflow of FDI in different countries for better understanding of the aspects which are preventing the egress of FDI.Research design gives a outline summary about the over all research carried out. It defines the problem and states the importance of FDI in India in various sectors referring to the countrys economic growth.A brief description of research methodology talks about the quality of data collected, its sources and various statistical tools used in compend. Limitations are some of the factors affecting the study which are also discussed.Research design is then followed by the Analysis and interpretation of the data collected. Theoretical analysis of various determinants of FDI in India is made in order to understand the effects of determinants in the inflows of FDI i n India. St Josephs College Of CommerceA study on the overseas lead investment funds in India with recognition to retail sectorTrend analysis is used to forecast the FDI inflows from 2011 to 2016 with the data available from 2006 to 2010. The third objective world to study the recent trends in FDI in retail sector, various articles from newspaper and journal is been analyzed to understand the advantages and dis advantages of allowing FDI in multi brand retail sector.Findings mainly reveal the facts which are arrived at from the study it includes the trend analysis of retail FDI from 2006 to 2010, the forecasted retail FDI had a positive trend which shows that there will be a increment in FDI inflows in to India in coming years. Theoretical analysis of determinants of FDI help us to understand determinants of FDI in Indian context. In another theoretical study to learn the recent trends in FDI in India it was set up that it had both positive as well as negative impact on the economy like unemployment, high prices monopoly of overseas retailers etc.St Josephs College Of CommerceA study on the unknown machinate investment in India with reference to retail sector1.1 INTRODUCTIONForeign Direct Investment, or FDI, is a type of investment that involves the injection of foreign funds into an enterprise that operates in a different country of origin from the investor. Investors are minded(p) focusing and voting rights if the level of ownership is greater than or satisfactory to 10% of ordinary shares. Shares ownership amounting to less than the stated amount is termed portfolio investment and is not categorized as FDI. (SourceEconomic watch) FDI does not include foreign investments in stock markets. Instead, FDI refers more specifically to the investment of foreign assets into municipal goods and services.Classifications of Foreign Direct InvestmentFDIs can be classified as Inward FDI and outward FDI, depending on the direction of flow of money. Inward FDI occurs when foreign capital is invested in local resources. The factors propelling the growth of inward FDI include tax breaks, low interest rates and grants. Outward FDI, also referred to as direct investment abroad, it means firms in the country expand their business to other countries in the form of green field investments, mergers or acquisition etc.The host country aspires to receive FDI inflows because of the potential benefits, that the FDI supplements the domestic savings of a nation. Other benefits include access to superior international technologies, exposure to better management and accounting practices, and improved corporate arrangeance. On the other side, foreign investors are motivated by acquire and access to natural resources available in the host country. Therefore, large and growing domestic markets are probable to receive more FDI. Countries with abundant natural resources such as mines, oil reserves and manpower attract the foreign investors to invest in that country.A study on the foreign direct investment in India with reference to retail sector1.2 AN OVERALL VIEW OF FDI IN INDIAThe history of FDI in India was located with the brass section of East India Company by the British in 1612. Initially the investment came in the form of loans to political relation, railroad line companies and agro based industries like cotton and jute, public utilities engaged in plantation of tea and coffee. During this period there were no efforts to provide economic and financialinfrastructure to the industries therefore the foreign investors had hardly any incentive in manufacturing in India other than creating a raw material base. later on the First World War, India granted protection to the dawning industries, this profitability of these industries attracted more foreign capital. The inflow of British capital which wasUSD15 billion in 1913-14, increased toUSD29 in 1921 andUSD36 million in 1922. In the middle of the two world wars, the investm ent flowed into a number of consumer industries like cigarettes, matches, rubber, tyres, paints, chemical industries, paper, cement, textile, sugar etc.During the Second World War establishment naturalized new industries to replace imports as well as to support war efforts. It was during this period that the foreign investment had diversified into engineering industries, chemical industry and oil industry for defense purpose. By 1948 the foreign secret investment in India amounted to Rs 2.5 billion. Of which 21 percent was in the manufacturing industries, 16 percent in plantation, 4percent in mining, 27 percent in trading and 14 percent in banking. Indias foreign investment indemnity was first initiated in 1949. The guiding principles of the indemnity wereAll undertakings Indian or foreign had to conform to the general requirements of the governments industrial policy.Foreign enterprises would be treated in par with Indian enterprises.Foreign enterprises would have license to remit the profits to home country, subject to foreign substitution considerations.If foreign company were compulsorily acquired, stipend would be paid ona fair and equitable basis andA study on the foreign direct investment in India with reference to retail sectorAs a rule, the study interest, ownership and effective control of an undertaking should be in hands of India.The above policy was to govern the entry of fresh foreign investments into India in future, exactly it was silent on regulation of existing foreign private investment in Indian industry. It was only in 1973 that legislative measures were taken to cope up with the problem posed by the existing foreign owned companies. This was done by amending the foreign exchange regulation act (FERA), in 1973 which learnd the entry and channelised the growth of existing foreign investment into the country. (Abraham, 1988)The government felt the need of FDI after independence not only to provide adequate capital but also to gain scientific, technical and industrial know how. The industrial policy of 1965 allowed MNCs to venture in India. tho the country faced two main problems in the form of foreign exchange and financial resources mobilisation during the second five year plan (1956 -61). Thus to overcome this problem pick out the policy of familiar equity participation to foreign enterprises and to accept equity capital in technical collaborations. The government also provided many incentives such as tax concessions, simplification of licensing procedure and de reserving some industries such as drugs, aluminum, doughy electricals, fertilizers etc. in order to improve FDI inflows into the country.This called forth investments from US, Japan, Germany and other countriesinto India. This eventually led to significant flight of foreign reserves in the form of dividends, profits etc, and the government had to adopt stringent foreign policy in 1970s to overcome this situation. During this period the govern ment adopted a selective and highly restricting foreign policy as far as foreign capital, type of FDI and ownerships of foreign companies was concerned. disposal frame-up Foreign Investment Board and enacted Foreign Exchange Regulation Act in order to regulate flow of foreign capital and FDIA study on the foreign direct investment in India with reference to retail sectorflow to India. In 1980s the government had to make necessary changes in the foreign policy due to the Continuous rise in oil prices, low exports and deterioration in Balance of Payment position. The government encouraged FDI in MNCs thus resulting in partial liberalization of the Indian economy.It is during this period the government encourages FDI, allow MNCs to operate in India. Thus, results in partial liberalization of Indian economy. The government introduces reforms in the industrial sector, aimed at increasing competency, efficiency and growth in industry through a stable, pragmatic and non-discriminatory po licy for FDI flow.In the early nineties, Indian economy faced severe Balance of hire crisis. Exports began to sink. There was a marked increase in petroleum prices because of the gulf war. The external debts and low foreign exchange reserves for were disabling the economic development of the country. The outflow of foreign currency which was deposited by the Indian NRIs gave a further jolt to Indian economy. The overall Balance of Payment reached at Rs.-4471 crores. pretentiousness reached at its highest level of 13%. Foreign reserves of the country stood at Rs.11416 crores. The continued political unbelief in the country during this period adds further to worsen the situation.As a result, Indias credit rating fell in the internationalmarket for both short- term and long-term borrowing. All these developments put the economy at that time on the verge of default in respect of external payments liability. In this comminuted face of Indian economy the then finance Minister of Indi a Dr. Manmohan Singh with the help of World Bank and IMF introduced the macro instruction economic stabilization and structural adjustment program. As a result of these reforms India open its door to FDI inflows and adopted a more liberal foreign policy in order to restore the confidence of foreign investors.Under this new foreign investment policy Government of India constituted FIPB (Foreign Investment Promotion Board) whose main function was to inviteA study on the foreign direct investment in India with reference to retail sectorand facilitate foreign investment through single window system from the establish Ministers Office. The foreign equity cap was raised to 51 percent for the existing companies.Government had allowed the use of foreign brand names for domestically produced products which was restricted earlier. India also became the member of MIGA (Multilateral Investment guarantee Agency) for protection of foreign investments. Government lifted restrictions on the ope rations of MNCs by revising the FERA Act 1973. immature sectors such as mining, banking, telecommunications, highway construction and management were open to foreign investors as well as to private sector.(Source Sapna Hooda, 2011)1.3 Trends in Foreign Direct Investment Inflow to India after economic reformAfter the initiation of liberal foreign investment policy b y government of India in 1991, FDI inflow has shown an upward trend in stock sense but varied in size over the period of twenty years (1991-92 to 2010-11). FDI inflow in India increased fromUSD129 million in 1991-92 to 27024 million in2005 in. The inflow of FDI to the country has witnessed fluctuations during the period under consideration. It increased fromUSD 129 million in 1991-92 toUSD3557 million in 1997-98, which declined toUSD2155 million in 1999-2000.It increased to a peak ofUSD6130 million in 2001-02 before declining in the subsequent years in 2002-03 and 2003-04. The inflow again increased to USD6051 million in 2004-05. There was tremendous growth till 2009-10 to USD37763 and a decline in 2010-11 to USD 27,024. The year wise FDI inflow to India along with Compounded Annual evolution Rate (CAGR) is shown in table 1. In terms of CAGR, growth rate of FDI inflow to India during the period 1991-2011, growth rate of FDI inflow to India was negative for six years (1998-99, 1999-2000, 2002-03, 2003-04, 2009-10 and 2010-11) as shown in the table.