A Project Report On

DETAILED STUDY OF FOREIGN DIRECT INVESTMENT &ITS IMPACT ON VARIOUS SECTORS IN INDIA
Submitted To Rashtrasant Tukdoji Maharaj Nagpur University in Partial Fulfillment of Degree Of Master Of Business Administration Submitted By: P.Sravani Raju Enrolment No: NU/A8/1996 Specialization: - International Business Management Under the guidance of Prof. A.H.Wajre

S.B Jain Institute of Technology, Management And Research 2009-2011

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DECLARATION

I, (P.SRAVANI RAJU) hereby declare that project entitled DETAILED STUDY OF FOREIGN DIRECT INVESTMENT &ITS IMPACT ON VARIOUS SECTORS IN INDIA or any part thereof has not been submitted earlier to any diploma or degree, nor the data have been derived for any project or university.

The Source of material and data used in this formulation have been duly acknowledged and certified.

Place: Nagpur Date:

(P.SRAVANI RAJU) Researcher

ACKNOWLEDGEMENT

I wish to express my sincere thanks to those who have helped me to complete this project. The completion of this dissertation in this present form would not have been possible by the valuable guidance, assistance, encouragement & contribution of various people at different stages made it possible. At the outset, I tender my deep sense of gratitude to my Guide A.H Wajre for his meticulous guidance & inspiration which kept in me the fervent desire to complete this work.

I also acknowledge deep gratitude to the Coordinator Prof. Geeta Naidu & other faculty members for their valuable guidance. I am also grateful to the staff members of library of S.B.J.I.T.M.R for their hearted cooperation in the completion of this task.

P.SRAVANI RAJU RESEARCHER MBA SEMISTER IV

ABSTRACT
Since the last decade of the twentieth century, due to liberalization of policies and globalisation, the Foreign Direct Investment (FDI) inflows are on an increasing trend. Foreign Direct Investment (FDI) and liberalization/ globalisation has been one of the most fascinating and hot topics among researchers in the field of international trade and commerce. It is an important form of fast international expansion to increase ownership of assets, drive location-specific advantages and acquire additional knowledge. FDI in industrial sectors in India has become a point of discussion due to various reasons. Starting from the service sector, information technology, telecommunication sector, manufacturing etc there is a continuous fluctuation in FDI inflows over the years. Earlier FDI was the target for manufacturing industries, automobile industries, transportation industry etc., but since a couple of years Service Sector has been seen attracting the highest FDI inflows The present study is conducted to study the Sector-wise FDI inflows in India and the reasons for industrial sectors attracting the highest FDI inflows.

INTRODUCTION&UNDERSTANDING OF FOREIGN DIRECT INVESTMENT

MEANING The three letters FDI stands for Foreign Direct Investment. In simple words, FDI is any investment made by a foreign country in another country. FDI usually happens in developing countries by countries that have surplus liquid money in hand. The country which accepts FDI will benefit by increased job opportunities, higher standards of living and better infra structure. The investing country or company usually has a 10% stake in the enterprise making it eligible to multiply the money invested. Investors prefer FDI as there is always a higher chance that the FDI investment will return higher than any investment made in the home country. There can be any form of investment happening by a foreign enterprise on a commercial venture in a country. An FDI stands separate among them. Such an investment has to have the commercial venture operating completely outside the economy of the foreign country. Also the investing corporation should control 10 percent or more of the voting power of the domestic venture to be called a FDI. FDI can be in another form where the parent company opens a subsidiary in another country. These FDIs enjoy a long term management control. Multinational Corporations or MNCs are formed as a result of FDI. The Maruti-Suzuki collaboration is a successful example of FDI in India. The Suzuki corporation funded Maruti to build factories and do research on cars in India. The maruti is entirely an Indian company and it operates completely in India. The Suzuki enjoys a huge share of profit earned by car sales in India.

THE TYPES OF FOREIGN DIRECT INVESTMENTS

A country in general has two types of FDI Outward FDI: Any investment made by your country in other countries will account for outward FDI. Inward FDI: Whereas, all the FDIs invested by other countries in your country are called inward FDI. These two forms account for the net FDI of the country. It could be either positive or negative. Both inward and outward FDIs are regulated by the governments of respective countries. The FDIs are categorized into vertical and horizontal based on how the subsidiary company works in par with the parent investor. Vertical FDIs happen when a corporation owns some share of the foreign enterprise. The local enterprise could either be supplying the input or selling finished goods to the parent corporation. The subsidiary here helps the parent company to grow more. Horizontal FDIs When the MNCs kick off similar business operations in different countries it becomes horizontal Foreign Direct Investment. It is actually a cloning that is happening here. Both the countries enjoy the same share of growth.

THE STRATEGIC LOGIC BEHIND FDI

Resources seeking looking for resources at a lower real cost. Market seeking secure market share and sales growth in target foreign market. Efficiency seeking seeks to establish efficient structure through useful factors, cultures, policies, or markets. Strategic asset seeking seeks to acquire assets in foreign firms that promote corporate long term objectives.

Enhancing Efficiency from Location Advantages

Location advantages - defined as the benefits arising from a host countrys comparative advantages.Better access to resources Lower real cost from operating in a host country Labor cost differentials Transportation costs, tariff and non-tariff barriers Governmental policies Improving Performance from Structural Discrepancies Structural discrepancies are the differences in industry structure attributes between home and host countries. Examples include areas where: Competition is less intense Products are in different stages of their life cycle Market demand is unsaturated There are differences in market sophistication Increasing Return from Ownership Advantages

Ownership Advantages- come from the application of proprietary tangible and intangible assets in the host country. Reputation, brand image, distribution channels Technological expertise, organizational skills, experience

Core competence skills within the firm that competitors cannot easily imitate or match. Ensuring Growth from Organizational Learning Diversity capabilities Broader learning opportunities Exposed to: New markets New practices New ideas New cultures New competition
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THE IMPACT OF FDI ON AN ECONOMY

A visible impact of FDI on the growing economy is that it gets a quick supply of money. This money very well improves infrastructure, offers job and positively contribute more money to the society. It is a matter of fact that eventually the investing company gains major foothold in the host country. But most of the developing countries welcome FDI as the impact on the economy on a whole is very positive. Some countries like India has not welcomed FDI warm heartedly. Such high scale investment by another country could actually cut down many domestic jobs the Indian economists feel. The retail sector in India is hence still dominated by local players than global ones like Wal-Mart.

BENEFITS OF FDI
Rather than visible financial benefits, FDIs can be carried out for different motives. Some companies invest money to do a research on new markets. These market seeking FDIs helps to strengthen the existing market structure of the parent country. Some countries go for FDI looking for cheaper resources and better operational benefits for production. This resource seeking FDIs eventually makes huge profit by moving their entire production line to the new country. A few countries look for optimizing the available opportunities and economies. And they result in transfer of strategic assets. This form of FDI aims at improving the overall efficiency. A company that goes for Foreign Direct Investment could possibly enjoy many incentives in the new country. Some of the tax benefits or concessions like low corporate tax and income tax rates could invariably boost the companys profit. Moreover, the investing company could get hold on special economic zones and enjoy special tariffs. They could gather financial subsidies to improve the working environment. Some of them enjoy free land for setting up the company. Or it could be in form of easy loans for renovations.
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Methods of Foreign Direct Investments

The Foreign Direct Investor May Acquire 10% Or More Of The Voting Power Of An Enterprise In An Economy Through Any Of The Following Methods: By Incorporating A Wholly Owned Subsidiary Or Company By Acquiring Shares In An Associated Enterprise Through A Merger Or An Acquisition Of An Unrelated Enterprise Participating In An Equity Joint Venture With Another Investor Or Enterprise

Foreign Direct Investment Incentives May Take The Following Forms: Low Corporate Tax and Income Tax Rates. Tax Holidays Other Types Of Tax Concessions Preferential Tariffs Special Economic Zones Investment Financial Subsidies Soft Loan Or Loan Guarantees Free Land Or Land Subsidies Relocation & Expatriation Subsidies Job Training & Employment Subsidies Infrastructure Subsidies R&D Support Derogation From Regulations (Usually For Very Large Projects) Entry Mode International Franchising Branches Contractual Alliances Equity Joint Ventures Wholly Foreign-Owned Subsidiaries Investment Approaches: Greenfield Investment (Building A New Facility) Cross-Border Mergers Cross-Border Acquisitions Sharing Existing Facilities.

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THE METHODS OF CARRYING OUT A FDI Having said the benefits of FDI, the foreign country may carry out the FDI in different ways depending on the requirement. As said earlier, an investment made by a country can be regarded as FDI is the company acquires 10% of the voting shares of the domestic company. This could be achieved by incorporating an existing subsidiary or a wholly owned company. Or it could be done by acquiring majority of shares of an associated company. Some companies go for a merger or acquisition of a completely different company. A few others happen by enrolling in an equity joint venture with other investors or companies. Overall the aim of these is to grab a quick 10% voting power.

WHO ALL CAN INVEST THROUGH FDI An FDI investor can be anyone who has lots of money and is ready to invest. It could be a single person, or a group of them, or a company, A group of companies or a government body.

It could also be a social organization like trust or can even be a combination of any of these.

Why Is FDI Important For Any Consideration Of Going Global?

The simple answer is that making a direct foreign investment allows companies to accomplish several tasks: 1 .Avoiding foreign government pressure for local production. 2. Circumventing trade barriers, hidden and otherwise. 3. Making the move from domestic export sales to a locally-based national sales office. 4. Capability to increase total production capacity. 5.Opportunities for co-production, joint ventures with local partners, joint marketing arrangements, licensing, etc.

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The Impact of FDI on the Host Country Employment

Firms attempt to capitalize on abundant and inexpensive labor. Host countries seek to have firms develop labor skills and sophistication. Host countries often feel like least desirable jobs are transplanted from home countries. Home countries often face the loss of employment as jobs move. FDI Impact on Domestic Enterprises Foreign invested companies are likely more productive than local competitors. The result is uneven competition in the short run, and competency building efforts in the longer term. It is likely that FDI developed enterprises will gradually develop local supporting industries, supplier relationships in the host country.

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INTERNATIONAL INVESTMENT THEORIES

Ownership Advantage Theory: firm having competitive advantage domestically derived from its valuable assets like technology, brand name and large-scale economies extend their operations to foreign markets through FDI.

Internalisation Theory: companies with domestic competitive advantage enter foreign markets to utilize their assets.

Dunnings Electic Theory: location specific advantages are derived by combining the advantages of country location with specific advantages.

Factor Mobility Theory: capital normally flows from those countries where the return on capital is low to those countries where the return on capital is high.

Product Life Cycle Theory: firms originally developed the product to establish manufacturing facilities to produce the production in foreign countries.

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RELEVANCE OF FDI IN INDIA

The inward FDI in India is not much welcomed by the government. Managing the labor unions is treated as a big hassle by the investors. Indias economy is driven highly by agriculture and retail industries and lately by the service sectors. Most of the FDI across the globe happens in the retail sector. But the government of India has imposed restrictions on this as they fear that will make many lose their means of livelihood. Though the inward FDI is showing a decline in India, it is estimated that Indian will soon be the source of outward remittance for other countries. Most of the outward investments are in the areas where India is successful Auto, IT, telecom to name a few.

Facts about FDI

Investors look for a country which is politically stable and economically strong. A developing country having many stakeholders may increase the risks associated in running the enterprise. To avoid such risks, most of the investment companies prefer to invest in rich countries through mergers and acquisitions. But many have proved that a well planned FDI in a developing country would yield more profit than investing in rich countries. Though direct investment is supposed to stimulate the economy, it is not always the case. Some of them can turn destructive to the nations economy. Taking Indias example, India adopted strong restrictions against foreign investment in some sectors. The retail sector is the second largest employment areas and if it is taken over by retail giants like Walmart, many would lose their jobs. Also this would have had a bad impact on the agriculture sector too, turning the entire economy unstable. FDI has its own share to claim for Indias economical growth. The government is encouraging more FDI investors to come in. It is a fact that there is yet more opportunity to be grabbed on.

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CHAPTER II

FLOW OF FOREIGN DIRECT INVESTMENT IN INDIA

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INTRODUCTION OF FDI IN INDIA

Once unlocking up of the Indian economy to the world economy, the country witnessed crowd stream of foreign capital into the economy. In the era of globalization foreign direct investment (FDI) takes vital part in the development of both developing and developed countries. Foreign Direct Investment (FDI) offers a number of profits like overture of new technology, innovative products, extension of new markets, and introduction of new skills etc., which reflect in the growth of Nations Income. India is ranked as the most favored end for foreign direct investment showing a remarkable growth rate year by year. Globalization The concept of globalization has increased across the world in recent years due to the fast progress that has been made in the field of technology especially in communications and transport. In India globalization started when the government of India opened the country's markets to foreign investments in the early 1990s.Through changes in its economic policy in 1991. As a result of this, globalization of the Indian Industry took place on a major scale. Globalization means the dismantling of trade barriers between nations and the integration of the nations economies through financial flow, trade in goods and services, and corporate investments between nations. Globalization of the Indian Industry took place in its various sectors such as steel, pharmaceutical, petroleum, chemical, textile, cement, retail, BPO etc. As far as the Indian economy is concerned the impact of globalization has been highly effective and positive in all spheres of economic and social life and virtually no negative effect. It is only because of opening the earlier closed, tyrannical policies to globalization that has helped the Indian economy to develop rapidly since the last 15 years. India's economic growth has been high, exports have boomed, incidence of poverty has been reduced, India's companies are setting up their business units abroad. India has better technological spreading out for the benefit of the common man in terms of mobiles, road transport, cheap clothes, chemicals, medicines, electronic and electrical gadgets etc., only because of globalization.

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FOREIGN DIRECT INVESTMENT

Foreign Direct Investment (FDI) in India has played an important role in the development of the Indian economy. FDI in India has - in a lot of ways - enabled India to achieve a certain degree of financial stability, growth and development. This money has allowed India to focus on the areas that may have needed economic attention, and address the various problems that continue to challenge the country. Foreign Direct Investment (FDI) is normally defined as a form of investment made in order to gain unwavering and long-lasting interest in enterprises that are operated outside of the economy of the shareholder or depositor. In other words it is the investment made by an enterprise of the one nation in an enterprise in another country. In FDI, there is a parent enterprise and a foreign associate, which unites to form a Multinational Corporation (MNC). In order to be deemed as a FDI, the investment must give the parent enterprise power and control over its foreign affiliate. As a source of capital to the corporate it effects the development of nations economy by the way of overture of new technology, innovative products, extension of new markets, introduction of new skills etc. It also effects positively on business environment. With the flow of FDI, the nation can develop the infrastructural facilities which are key to rapid industrialization of the country. It has the direct effect on the nations balance of payments (BoP). It considered as the device of development which helps in achieving the self-reliance in all segments of the economy. It had been rightly recognized by the government of India, in the year 1948 itself and prepared a separate policy to satisfy the interest of foreign investors and gave the strong bigotry on foreign capital.

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FLOW OF FDI IN INDIA

In the year 1991, the government of India was sanctioned in its new Industrial Policy, large number of concessions and incentives, to attract the flow of the foreign capital to India. Factors like prospect opportunities in industries, favorite government policy, political stability in the country etc., were ranked India as second favorite country in the world, following China, in terms of attractiveness of FDI. AT Kearneys 2007 Global Services Location Index ranked India as the most preferred destination in terms of financial attractiveness, people and skills availability and business environment. The positive perceptions as a result of strong economic fundamentals driven by 19 years of reforms has helped FDI inflows grow at about 20 times since the opening up of the economy to foreign investment since 1991. Foreign Direct Investment in India India has continually sought to attract FDI from the worlds major investors. In 1998 and 1999, the Indian national government announced a number of reforms designed to encourage FDI and present a favorable scenario for investors. In India, Foreign Direct Investment Policy allows for investment only in case of the following form of investments: Through financial alliance Through joint schemes and technical alliance Through capital markets, via Euro issues Through private placements or preferential allotments

Foreign Direct Investment in India is not allowed under the following industrial sectors: Arms and ammunition Atomic Energy Coal and lignite Rail Transport &Mining of metals like iron, manganese, chrome, gypsum, sulfur, gold, diamonds, copper, zinc.

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FDI& Economic Growth

The economy of India is the third largest in the world as measured by purchasing power parity (PPP), with a gross domestic product (GDP) of US $3.611 trillion. When measured in USD exchange-rate terms, it is the tenth largest in the world, with a GDP of US $800.8 billion (2006). Is the second fastest growing major economy in the world, with a GDP growth rate of 8.9% at the end of the first quarter of 2006-2007 However, India's huge population results in a per capita income of $3,300 at PPP and $714 at nominal.

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The economy is diverse and encompasses agriculture, handicrafts, textile, manufacturing, and a multitude of services. Although two-thirds of the Indian workforce still earns their livelihood directly or indirectly through agriculture, services are a growing sector and are playing an increasingly important role of India's economy. The advent of the digital age, and the large number of young and educated populace fluent in English, is gradually transforming India as an important 'back office' destination for global companies for the outsourcing of their customer services and technical support. India is a major exporter of highly-skilled workers in software and financial services, and software engineering. India followed a socialist-inspired approach for most of its independent history, with strict government control over private sector participation, foreign trade, and foreign direct investment. However, since the early 1990s, India has gradually opened up its markets through economic reforms by reducing government controls on foreign trade and investment. The privatization of publicly owned industries and the opening up of certain sectors to private and foreign interests has proceeded slowly amid political debate. India faces a burgeoning population and the challenge of reducing economic and social inequality. Poverty remains a serious problem, although it has declined significantly since independence, mainly due to the green revolution and economic reforms.

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INVESTMENT RISK IN INDIA

Sovereign Risk India is an effervescent parliamentary democracy since its political freedom from British rule more than 50 years ago. The country does not face any real threat of a serious revolutionary movement which might lead to a collapse of state machinery. Sovereign risk in India is hence nil for both "foreign direct investment" and "foreign portfolio investment." Many Industrial and Business houses have restrained themselves from investing in the North-Eastern part of the country due to unstable conditions. Nonetheless investing in these parts is lucrative due to the rich mineral reserves here and high level of literacy. Kashmir on the northern tip is a militancy affected area and hence investment in the state of Kashmir are restricted by law

Political Risk India has enjoyed successive years of elected representative government at the Union as well as federal level. India suffered political instability for a few years in the sense there was no single party which won clear majority and hence it led to the formation of coalition governments. However, political stability has firmly returned since the general elections in 1999, with strong and healthy coalition governments emerging. Nonetheless, political instability did not change India's bright economic course though it delayed certain decisions relating to the economy. Economic liberalization which mostly interested foreign investors has been accepted as essential by all political parties including the Communist Party of India Though there are bleak chances of political instability in the future, even if such a situation arises the economic policy of India would hardly be affected.. Being a strong democratic nation the chances of an army coup or foreign dictatorship are minimal. Hence, political risk in India is practically absent.

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Commercial Risk
Commercial risk exists in any business ventures of a country. Not each and every product or service is profitably accepted in the market. Hence it is advisable to study the demand / supply condition for a particular product or service before making any major investment. In India one can avail the facilities of a large number of market research firms in exchange for a professional involves some kind of gamble and hence involves commercial risk

Risk Due To Terrorism

In the recent past, India has witnessed several terrorist attacks on its soil which could have a negative impact on investor confidence. Not only business environment and return on investment, but also the overall security conditions in a nation have an effect on FDI's. Though some of the financial experts think otherwise. They believe the negative impact of terrorist attacks would be a short term phenomenon. In the long run, it is the micro and macro economic conditions of the Indian economy that would decide the flow of foreign investment and in this regard India would continue to be a favorable investment destination.

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FDI IN MAJOR SECTORS IN INDIA

The major sectors of the Indian economy that have benefited from FDI in India are Financial sector (banking and non-banking). Insurance Telecommunication Hospitality and tourism Housing & real-estate Software and Information Technology, etc.

The Indian government made several reforms in the economic policy of the country in the early 1990s. This helped in the liberalization and deregulation of the Indian economy and also opened the country's markets to foreign direct investment. As a result of this, huge amounts of foreign direct investment came into India through non- resident Indians, international companies, and various other foreign investors. The growth of FDI in India boosted the economic growth of the country. Major advantages of FDI in India have been in terms of : Increased capital flow. Improved technology. Management expertise. Access to international markets.

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Advantages of FDI

Foreign Direct Investment plays a pivotal role in the development of India's economy. It is an integral part of the global economic system.

Advantages of FDI can be enjoyed to full extent through various national policies and international investment architecture.

Both the factors contribute enormously to the maximum FDI inflows in India, which stimulates the economic development of the country.

FDI inflow helps the developing countries to develop a transparent, broad, and effective policy environment for investment issues as well as, builds human and institutional capacities to execute the same.

Attracting foreign direct investment has become an integral part of the economic development strategies for India.

FDI ensures a huge amount of domestic capital, production level, and employment opportunities in the developing countries, which is a major step towards the economic growth of the country.

FDI has been a booming factor that has bolstered the economic life of India, but on the other hand it is also being blamed for ousting domestic inflows.

FDI is also claimed to have lowered few regulatory standards in terms of investment patterns. The effects of FDI are by and large transformative.

The incorporation of a range of well-composed and relevant policies will boost up the profit ratio from Foreign Direct Investment higher.

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Some of the biggest advantages of FDI enjoyed by India have been listed as under:

Economic growth: - This is one of the major sectors, which is enormously benefited from foreign direct investment. A remarkable inflow of FDI in various industrial units in India has boosted the economic life of country. Trade: - Foreign Direct Investments have opened a wide spectrum of opportunities in the trading of goods and services in India both in terms of import and export production. Products of superior quality are manufactured by various industries in India due to greater amount of FDI inflows in the country. Employment and skill levels: - FDI has also ensured a number of employment opportunities by aiding the setting up of industrial units in various corners of India. Technology diffusion and knowledge transfer: - FDI apparently helps in the outsourcing of knowledge from India especially in the Information Technology sector. It helps in developing the know-how process in India in terms of enhancing the technological advancement in India. Linkages and spillover to domestic firms: - Various foreign firms are now occupying a position in the Indian market through Joint Ventures and collaboration concerns. The maximum amount of the profits gained by the foreign firms through these joint ventures is spent on the Indian market.

FDI inflows raise the capital for investment: - Foreign capital has taken over the domestic capital in terms of purchasing issue. Domestic capital is usually used or invested in other sectors of the Indian market. Foreign Direct Investment in green field ventures has introduced technological advancement and contemporary techniques for management in India, which the country lacked badly before FDI made its entry. The inflow of foreign capital in India has opened up a surfeit of options in the Indian market by ensuring foreign capital shares which stabilizes the country's economy.

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CHAPTER III

RESEARCH METHODOLOGY

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Problem Definition:India has to attract more and more FDI to make nation self-sufficient by arranging required facilities and creating trade opportunities. For this it is required that the government should amend and revise the norms in a way to expand the foreign trade, attracting joint ventures, minimizing the risk and providing the opportunities like diversifications of sales, acquiring the resources to the investors. Hence this project will guide us with the impact of FDI on Indian economy.

Objective of the Study: To study the concept of FDI. To Examine the trends and patterns in the FDI across different sectors To analyze maximum investment by FDI in Indian Sector. To understand FDI policies with context to Indian economy. TO study Impact of FDI on Indian economy.

Scope: FDI plays a vital role in the development of the Indian economy. The advantage of FDI can be enjoyed to full extent through various national policies & international investment architecture. Both this factor contributes enormously to maximum FDI in flow in India, which stimulates the economic development of the country.

Research Methodology:Hypothesis Test: FDI have significant impact on the economic growth of a country

This will help in knowing the sectors have maximum investment of FDI. If the hypothesis is rejected, or in other words if the null hypothesis is accepted, then FDI will have no significant impact on the Indian economy.
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Data collection:
Source, Secondary Data: Internet Newspapers Journals and books Other reports and projects Literatures

Research Design:The project Detail study of Foreign Direct Investment and its impact on various sectors in India is based on exploratory research.

Limitation of Study:The project report on the subject of FDI ,It Is not limited to only those topics which are covered here but it can also extended further more topics which are not considered in this project study for the convenience of study and time limit available. The conclusion drawn under the project report is subject to data available for the study.

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CHAPTER IV

FDI POLICY IN INDIA

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Foreign Direct Investment Policy

FDI policy is reviewed on an ongoing basis and measures for its further liberalization are taken. Change in sectoral policy/sectoral equity cap is notified from time to time through Press Notes by the Secretariat for Industrial Assistance (SIA) in the Department of Industrial Policy announcement by SIA are subsequently notified by RBI under FEMA. All Press Notes are available at the website of Department of Industrial Policy & Promotion. FDI Policy permits FDI up to 100 % from foreign/NRI investor without prior approval in most of the sectors including the services sector under automatic route. FDI in sectors/activities under automatic route does not require any prior approval either by the Government or the RBI. The investors are required to notify the Regional office concerned of RBI of receipt of inward remittances within 30 days of such receipt and will have to file the required documents with that office within 30 days after issue of shares to foreign investors. The Foreign direct investment scheme and strategy depends on the respective FDI norms and policies in India. The FDI policy of India has imposed certain foreign direct investment regulations as per the FDI theory of the Government of India.

Government Approvals for Foreign Companies Doing Business in India

Government Approvals for Foreign Companies Doing Business in India or Investment Routes for Investing in India, Entry Strategies for Foreign Investors India's foreign trade policy has been

formulated with a view to invite and encourage FDI in India. The Reserve Bank of India has prescribed the administrative and compliance aspects of FDI. A foreign company planning to set up business operations in India has the following options: Investment under automatic route, Investment through prior approval of Government.

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Procedure under automatic route

FDI in sectors/activities to the extent permitted under automatic route does not require any prior approval either by the Government or RBI. The investors are only required to notify the Regional office concerned of RBI within 30 days of receipt of inward remittances and file the required documents with that office within 30 days of issue of shares to foreign investors. List of activities or items for which automatic route for foreign investment is not available, include the following: Banking NBFC's Activities in Financial Services Sector Civil Aviation Petroleum Including Exploration/Refinery/Marketing Housing & Real Estate Development Sector for Investment from Persons other than NRIs/OCBs. Venture Capital Fund and Venture Capital Company Investing Companies in Infrastructure & Service Sector Atomic Energy & Related Projects Defense and Strategic Industries Agriculture (Including Plantation) Print Media Broadcasting Postal Services

Procedure under Government approval

FDI in activities not covered under the automatic route, requires prior Government approval and are considered by the Foreign Investment Promotion Board (FIPB). Approvals of composite proposals involving foreign investment/foreign technical collaboration are also granted on the recommendations of the FIPB. Application for all FDI cases, except Non-Resident Indian (NRI) investments and 100% Export Oriented Units (EOUs), should be submitted to the FIPB Unit, Department of Economic Affairs (DEA), Ministry of Finance. Application for NRI and 100% EOU cases should be presented to SIA in Department of Industrial Policy & Promotion.

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Investment by way of Share Acquisition

A foreign investing company is entitled to acquire the shares of an Indian company without obtaining any prior permission of the FIPB subject to prescribed parameters/ guidelines. If the acquisition of shares directly or indirectly results in the acquisition of a company listed on the stock exchange, it would require the approval of the Security Exchange Board of India.

New investment by an existing collaborator in India

A foreign investor with an existing venture or collaboration (technical and financial) with an Indian partner in particular field proposes to invest in another area, such type of additional investment is subject to a prior approval from the FIPB, wherein both the parties are required to participate to demonstrate that the new venture does not prejudice the old one.

General Permission of RBI under FEMA

Indian companies having foreign investment approval through FIPB route do not require any further clearance from RBI for receiving inward remittance and issue of shares to the foreign investors. The companies are required to notify the concerned Regional office of the RBI of receipt of inward remittances within 30 days of such receipt and within 30 days of issue of shares to the foreign investors or NRIs.

Participation by International Financial Institutions

Equity participation by international financial institutions such as ADB, IFC, CDC, DEG, etc., in domestic companies is permitted through automatic route, subject to SEBI/RBI regulations and sector specific cap on FDI.

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Sector wise Regulation in Foreign Investment

Automatic route for specified activities subject to Sectoral cap and conditions.
Sectors Airports :- Existing Greenfie Air Transport Services :Non Resident Indians Other Cap 74% 100% 100% 49% 100% 74% 100% 100% 100% 100% 100% 100% 26% 100% 100% 100% 100% 100% 100% 100% 100%

Alcohol distillation and brewing Banking (Private Sector) Coal and Lignite mining (specified) Coffee, Rubber processing and warehousing Construction and Development (Specified projects) Floriculture, Horticulture and Animal Husbandry Specified Hazardous chemicals Industrial Explosives Manufacturing Insurance Mining (Precious metals, Diamonds and stones) Non banking finance companies ( conditional) Petroleum and Natural gas Refining (private companies) Other areas

Power generation, transmission, distribution Trading Wholesale cash and carry Trading of Exports

SEZs and Free Trade Warehousing Zones Telecommunication Basic and cellular services ISP with gateways, radio paging, end-end bandwith ISP without gateway (specified) Manufacture of telecom equipment

49% 49% 49% 100%

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Prior Approval from FIPB where investment is above Sectoral caps for activities listed below.
Sectors Cap

New Investment by a foreign investor in a field in which the investor already has an existing joint venture or collaboration with another Indian partner New investment sought to be made in manufacture of items reserved for Small Scale Industries sting Airports 74% to 100% 49% 74% Broadcasting FM Radio Cable network Direct-To-Home (DTH) Setting up hardware facilities Uplinking news and current affairs Uplinking non-news, current affairs TV channel 20% 49% 49% 49% 26% 100% 100 % 100 % 26 % 49 % 26 % 100 % 100 % 100 % 51 % 74 %

Cigarette manufacturing Courier services other than those under the ambit of Indian Post Office Act, 1898 Defense production Investment companies in infrastructure / service sector (except telecom) Petroleum and natural gas refining (PSU) Tea Sector including Tea plantation Trading items sourced from Small scale sector Test marketing for equipment for which company has approval for manufacture Single brand retailing Satellite establishment and operations Print Media Newspapers and periodicals dealing with news and current affairs Publishing of scientific magazines / specialty journals periodicals

26 % 100 %

Telecommunication Basic and unified access services ISP with gateways, radio paging, end to end bandwidth ISP with gateway (specified) 49 % to 74 % 49 % to 74 % to 100 %

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Foreign Investment Promotion Board

The FIPB (Foreign Investment Promotion Board) is a government body that offers a single window clearance for proposals on foreign direct investment in the country that are not allowed access through the automatic route. Consisting of Senior Secretaries drawn from different ministries with Secretary ,Economic Affairs in the chair, this high powered body discusses and examines proposals for foreign investment in the country for restricted sectors ( as laid out in the Press notes and extant foreign investment policy) on a regular basis. Currently proposals for investment beyond 600 crores require the concurrence of the CCEA (Cabinet Committee on Economic Affairs). The threshold limit is likely to be raised to 1200 crore soon. The Board thus plays an important role in the administration and implementation of the Governments FDI policy. In circumstances where there is ambiguity or a conflict of interpretation, the FIPB has stepped in to provide solutions. Through its fast track working it has established its reputation as a body that does not unreasonably delay and is objective in its decision making. It therefore has a strong record of actively encouraging the flow of FDI into the country. The FIPB is assisted in this task by a FIPB Secretariat. The launch of e- filing facility is an important initiative of the Secretariat to further the cause of enhanced accessibility and transparency.

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CHAPTER V

ANALYSIS & FINDINGS

37

Analysis of FDI inflow in India

From April 2000 to August 2010 (Amount US$ in Millions) S.No Financial Year Total FDI Inflows % Growth Over Previous Year 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 4,029 6,130 5,035 4,322 6,051 8,961 22,826 34,362 35,168 16,232 ---(+) 52 (-) 18 (-) 14 (+) 40 (+) 48 (+) 146 (+) 51 (+) 02 ----

TOTAL FDI INFLOWS IN INDIA

40,000 35,000 30,000 25,000 22,826 20,000 15,000 10,000 5,000 0 6,130 4,029 5,035 4,322 6,051 8,961 16,232 TOTAL FDI INFLOWS 34,362 35,168

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Analysis of Share of Top Ten Investing Countries FDI Equity in Flows

From April 2000 to January 2010, (Amount in Millions) Sr. No 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Country Mauritius Singapore U.S.A. U.K. Netherlands Japan Cyprus Germany France U.A.E. Amount of FDI Inflows 19,18,633.61 3,80,142.56 3,32,935.60 2,40,974.98 1,78,047.76 1,50,129.05 1,32,448.04 1,12,242.06 61,686.39 50,915.59 % As To Total FDI Inflow 44.01 8.72 7.64 5.53 4.08 3.44 3.04 2.57 1.42 1.17

FDI equity Inflow by countrys

1 Mauritius 17% 1% 1% 3% 3% 3% 4% 6% 8% 9% 2 Singapore 3 U.S.A. 4 U.K. 45% 5 Netherlands 6 Japan 7 Cyprus 8 Germany 9 France 10 U.A.E. 11 others

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Mauritius
Mauritius invested Rs.19, 18,633 million in India Up to the January 2010, equal to 44.01 percent of total FDI inflows. Many companies based outside of India utilize Mauritian holding companies to take advantage of the India- Mauritius Double Taxation Avoidance Agreement (DTAA). The DTAA allows foreign firms to bypass Indian capital gains taxes, and may allow some India-based firms to avoid paying certain taxes through a process known as round tripping. The extent of round tripping by Indian companies through Mauritius is unknown. However, the Indian government is concerned enough about this problem to have asked the government of Mauritius to set up a joint monitoring mechanism to study these investment flows. The potential loss of tax revenue is of particular concern to the Indian government. These are the sectors which attracting more FDI from Mauritius Electrical equipment Gypsum and cement products Telecommunications Services sector that includes both non- financial and financial Fuels.

Singapore
Singapore continues to be the single largest investor in India amongst the Singapore with FDI inflows into Rs. 3,80,142 crores up to January 2010 Sector-wise distribution of FDI inflows received from Singapore the highest inflows have been in the services sector (financial and non financial), which accounts for about 30% of FDI inflows from Singapore. Petroleum and natural gas occupies the second place followed by computer software and hardware, mining and construction.

U.S.A.
The United States is the third largest source of FDI in India (7.64 % of the total), valued at 732335 crore in cumulative inflows up to January 2010. According to the Indian government, the top sectors attracting FDI from the United States to India are fuel, telecommunications, electrical equipment, food processing, and services. According to the available M&A data, the two top sectors attracting FDI inflows from the United States are computer systems design and programming and manufacturing

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U.K.
The United Kingdom is the fourth largest source of FDI in India (5.53 % of the total), valued at 2,40,974 crores in cumulative inflows up to January 2010 Over 17 UK companies under the aegis of the Nuclear Industry Association of UK have tied up with Ficci to identify joint venture and FDI possibilities in the civil nuclear energy sector. UK companies and policy makers the focus sectors for joint ventures, partnerships, and trade are nonconventional energy, IT, precision engineering, medical equipment, infrastructure equipment, and creative industries.

Netherlands
FDI from Netherlands to India has increased at a very fast pace over the last few years. Netherlands ranks fifth among all the countries that make investments in India. The total flow of FDI from Netherlands to India came to Rs. 1, 78,047 crores between 1991 and 2002. The total percentage of FDI from Netherlands to India stood at 4.08% out of the total foreign direct investment in the country up to August 2009.

Following Various industries attracting FDI from Netherlands to India are: Food processing industries Telecommunications that includes services of cellular mobile, basic telephone, and radio paging Horticulture Electrical equipment that includes computer software and electronics Service sector that includes non- financial and financial services

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Analysis of sectors attracting highest FDI equity inflows

From April 2000 to March 2010
Sr. No 1. Country Service Sector (Financial & Non Financial) 2. 3. 4. 5. 6. 7. 8. 9. 10. Computer Software & Hardware Telecommunication Housing & Real Estate Construction Activities Automobile Industry Power Metallurgical Industries Petroleum & Natural Gas Chemical 4,13,419.03 3,68,899.62 3,25,021.36 2,65,492.96 1,90,172.22 1,79,849.92 1,25,785.57 1,11,957.00 1,01,680.18 9.48 8.46 7.46 6.09 4.36 4.13 2.89 2.57 2.33

(Amount in Millions)
Amount of FDI Inflows 9,65,210.77 % As To Total FDI Inflow 22.14

Total FDI Inflow in various sector

Service Sector (Financial & Non Financial) 22% 30% Computer Software & Hardware Telecommunication Housing & Real Estate Construction Activities 10% 2% 3% 3% 4% 4% 6% 7% Automobile Industry Power Metallurgical Industries 9% Petroleum & Natural Gas Chemical other

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The sectors receiving the largest shares of total FDI inflows up to march 2010 were the service sector and computer software and hardware sector, each accounting for 22.14 and 9.48 percent respectively.

These were followed by the telecommunications, real estate, construction and automobile sectors. The top sectors attracting FDI into India via M&A activity were manufacturing; information; and professional, scientific, and technical services. These sectors correspond closely with the sectors identified by the Indian government as attracting the largest shares of FDI inflows overall.

The ASSOCHAM has revealed that FDI in Chemicals sector (other than fertilizers) registered maximum growth of 227 per cent during April 2008 March 2009 as compared to 11.71 per cent during the last fiscal. The sector attracted USD 749 million FDI in FY 09 as compared to USD 229 million in FY 08.

During the year 2009 government had raised the FDI limit in telecom sector from 49 per cent to 74 per, which has contributed to the robust growth of FDI. The telecom sector registered a growth of 103 per cent during fiscal 2008-09 as compared to previous fiscal. The sector attracted USD 2558 million FDI in FY 09 as compared to the USD 1261 million in FY 08, acquired 9.37 per cent share in total FDI inflow.

India automobile sector has been able to record 70 per cent growth in foreign investment. The FDI inflow in automobile sector has increased from USD 675 million to 1,152 million in FY 09 over FY 08. The other sectors which registered growth in highest FDI inflow during April March 2009 were housing & real estate (28.55 per cent), computer software & hardware (18.94 per cent), construction activities including road & highways (16.35 per cent) and power (1.86 per cent).

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CHAPTER VI

ANALYSIS: IMPACT OF FDI ON SERVICE,

TELECOMMUNICATION, HOUSING &REAL-ESTATE

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INTRODUCTION India stands out for the size and dynamism of its services sector. The contribution of the services sector to the Indian economy has been manifold: a 55.2 per cent share in gross domestic product (GDP), growing by 10 per cent annually, contributing to about a quarter of total employment, accounting for a high share in foreign direct investment (FDI) inflows and over one-third of total exports, and recording very fast (27.4 per cent) export growth through the first half of 2010-11.

IMPORTANCE OF THE SERVICES SECTOR FOR INDIA The importance of the services sector can be gauged by looking at its contributions to different aspects of the economy. Services GDP The share of services in Indias GDP at factor cost (at current prices) increased rapidly: from 30.5 per cent in 1950-51 to 55.2 per cent in 2009-10. If construction is also included, then the share increases to 63.4 per cent in 2009-10. The ratcheting up of the overall growth rate (compound annual growth rate [CAGR]) of the India economy from 5.7 per cent in the 1990s to 8.6 per cent during the period 2004-05 to 2009-10 was to a large measure due to the acceleration of the growth rate (CAGR) in the services sector from 7.5 per cent in the 1990s to 10.3 per cent in 2004-05 to 2009-10. The services sector growth was significantly faster than the 6.6 per cent for the combined agriculture and industry sectors annual output growth during the same period. In 2009-10,services growth was 10.1 per cent and in 2010-11.

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FDI in Services in India

The measurement of the share of services in FDI inflows encounters problems as it is difficult to clearly differentiate activities between services and goods in sectors such as computer hardware and software, telecommunications, and construction.

Nevertheless, the share of the four sectors combined (services [financial and nonfinancial], computer hardware and software, telecommunications, and housing and real estate), predominantly consisting of services, in FDI equity inflows in April 2000December 2010 is around 44per cent.

If construction is included then the share rises to 51 per cent. The financial and non-financial services sector which falls purely in the services category is the largest recipient of FDI equity inflows with a 21 per cent share.

This is followed by the other two sectors, namely computer software and hardware, and telecommunications each with 8 per cent share. Housing and real estate, and construction with 7 per cent share each were next in importance.

The year 2009-10 has seen a drying up of FDI inflows to India due to the global crisis with a fall of 5.5 per cent. Mirroring this trend, FDI inflows in the services sector also fell by 29.1 per cent (in US dollar terms). The first nine months of 2010-11 have also not shown any improvement on the FDI front, overall and in services sectors.

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Analysis of service sectors attracting FDI equity inflows From April 2005 to March 2010
APRIL-MARCH AMT IN CRORES

2005-06 2006-07 2007-08 2008-09 2009-10

2399 21047 26589 28516 20776

service sector(April-March) Amt crores

30000 25000 20000 AMOUNT 15000 10000 5000 0 Series1

2005-06 2399

2006-07 21047

2007-08 26589

2008-09 28516

2009-10 20776

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India is also moving towards a services-led export growth. During 2004-05 to 2008-09 as per the Balance of Payments data, merchandise and services exports grew by 22.2 and 25.3 per cent respectively.

Services growth slowed in 2009-10 as a result of the global recession, but the decline was less pronounced than the slowdown in merchandise export growth, and has recovered rapidly in the first half of 2010-11 with a growth of 27.4 per cent.

The overall openness of the economy reflected by total trade including services as a percentage of GDP shows a remarkable increase from 29.2 per cent in 2000-01 to 53.9 per cent in 2008-09, though it dipped to 46.1 per cent in 2009-10 due to the global crisis.

The dip was more due to fall in share of merchandise trade to GDP to 35 per cent in 2009-10 compared to 41 per cent in 2008-09. The fall in the share of services trade to GDP was less than 2 percentage points from 12.9 per cent to 11.2 per cent.

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TELECOMMUNICATIONS

Growth
The opening of the sector has not only led to rapid growth but also helped a great deal towards maximization of consumer benefits as tariff have been falling across the board. From only 76.54 million telephone subscribers in 2004, the number increased to 764.77 million at the end of November 2010. Wireless telephone connections have contributed to this growth as their number rose from 35.62 million in March 2004 to 729.58 million at the end of November 2010. The wire-line has shown a decline from 40.92 million in 2004 to 35.19 million in November 2010

Teledensity
With increasing private-sector participation, the share of the private sector in total telephone connections has increased to 84.5 per cent in November 2010 from a meager 5 per cent in 1999.

Teledensity, an important indicator or telecom penetration, rose from 7.02 per cent in March 2004 to 64.34 per cent in November 2010. Thus there has been continuous improvement in the overall teledensity of the country.

Rural teledensity which was above 1.57 per cent in March 2004 has increased to 30.18 per cent at the end of November 2010. Urban teledensity has increased from 20.74 per cent in March 2004 to 143.95 per cent at the end of November 2010.

With the penetration of mobile services and flourishing of private service providers, rural telephone connections have gone up from 12.3 million in March 2004 to 250.94 million in November 2010. The share of rural telephones in total telephones has steadily increased from around 16 per cent in 2004 to 32.81 per cent as on 30 November2010.

During 2009-10, the growth rate of rural telephones was 62.6 per cent as against 37.32 per cent for urban telephones. The private sector has contributed crucially to the growth of rural telephones by providing about 84.5 per cent of telephones as in November 2010.

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Internet / Broadband
With supportive policies, broadband subscribers grew from 8.77 million as in March 2010 to about 10.71 million up to November 2010. A target 20 million by 2010 has been set. in broadband policy. The auction of BWA spectrum has been successfully conducted. Newer Access technologies like Broad Band Wireless Access (BWA) can significantly transform the character of internet/broadband scenario in India. This will encourage further expansion of wireless service with a vision of providing 'Broadband for all'.

New horizons for further growth

Third-generation (3G) telecom services: The explosive growth of the telecom industry in India is being followed by the urge to move towards better technology and the next level of service delivery. While the last five years have been transformational for Indian telecom industry, the next few years look even more exciting. One of the key new frontiers is 3G technology. The auction of 3G/WBA spectrum has been successfully conducted. This will encourage further expansion of wireless services

Mobile number portability (MNP): MNP allows any subscriber to change his service provider without changing his mobile phone number. The much-awaited MNP was launched on 25 November 2010 in Haryana and is now available to more than 700 million subscribers across the country from 20January, 2011.

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Manufacturing:

Indian telecom industry manufactures a complete range of wireline telecom equipment using state-of-the-art technology. Considering the growth of wireless, there are excellent opportunities for domestic and foreign investors in manufacturing sector.

Presently most of the wireless core equipment is being imported and there is great potential to manufacture these items in the country. The last five years saw many renowned telecom companies setting up their manufacturing bases in India.

The production of telecom equipments in value terms increased from ` 48,800 crore during 200809 to ` 51,000 crore during 2009-10. The worth of telecom equipment including customer premises equipment (CPE) produced during 2010-11 is expected to be about ` 53,500 crore .

There are favourable factors such as policy moves taken by the Government, incentives offered, large talent pool in R&D, and low labour cost which can provide an impetus to the industry. Exports of telecom equipment have also increased from ` 11,000 crore in 2008-09 to ` 13,500 crore during 2009-10 and are expected to increase to ` 14,000 crore in 2010-11.

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Analysis of telecommunication sectors attracting FDI equity inflows From April 2005 to March 2010
APRIL-MARCH 2005-06 2006-07 2007-08 2008-09 2009-10 Amt in crores 2776 2155 5103 11727 12338

TELECOMMUNICATION
14000 12000 Amount ,crores 10000 8000 6000 4000 2000 0 Series1 2005-06 2776 2006-07 2155 2007-08 5103 2008-09 11727 2009-10 12338

The Indian Telecommunications network with 621 million connections (as on March 2010) is the third largest in the world. The sector is growing at a speed of 45% during the recent years. This rapid growth is possible due to various proactive and positive decisions of the Government and contribution of both by the public and the private sectors. The rapid strides in the telecom sector have been facilitated by liberal policies of the Government that provides easy market access for telecom equipment and a fair regulatory framework for offering telecom services to the Indian consumers at affordable prices. Presently, all the telecom services have been opened for private participation.

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INTRODUCTION FDIs in Housing In the present global scenario, India has been considered as the most promising and fast growing economy in the world. Due to the liberalized rules for Foreign Direct Investment (FDIs), in India the real estate has been the attractive investment proposal for both the domestic as well as foreign investors and which has enhanced the economy of the country. Foreign direct investment (FDIs) in Indias booming real estate and housing market jumped 80 times between 2005 and 2010.Figures show that in 2005, FDIs in real estate was a mere Rs 171 crores. That soared to Rs 13,586 crores in 2009-10. In April and May this year, Rs 737 crores in FDIs was pumped into the sector. India has been witnessing more money being pumped into housing sector from abroad despite the recent downturn.

Since 2005, foreign direct investment (FDIs) worth Rs 37,986 crore has come into the housing sector in India, including Rs 13,586 crores already this year. It is no surprise that the largest number of building projects where FDIs is in play are in the countrys commercial capital, Mumbai. Of the total 1,614 projects in which foreign investors have put in money since 2005, 422 were cleared by the Reserve Bank of Indias Mumbai office, followed closely by 316 in Delhi. Other big cities like Bangalore (225 projects), Hyderabad (105 projects) and Chennai (68 projects) also enjoyed considerable attention of foreign real estate developers.

At present, the government allows FDIs in real estate, but does not permit foreign institutional investment. It is, however, considering a proposal not to view FDIs and FII as distinct investment flows while specifying an overall limit. It is yet to permit foreign venture capital investors (FVCI) in the realty sector. To ensure that the concept of special economic zones (SEZs) did not distort the realty market, the RBI has classified lending to SEZs on par with commercial real estate, according it higher risk weight and provisioning.

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India in the next five-year period is estimated to require investments worth US $ 25 billion with the urban housing sector. This again has opened up opportunities for foreign investments in the realty sector. The Central government allowed up to 100% FDIs for setting up townships in 2002. However, the flow of FDIs investments has been thwarted by the 100 acre criterion; since acquiring such a large chunk of land was impossible in metropolitan cities and even satellite cities and state capitals.

Advantages of FDIs in India Real Estate: FDIs flows in India can encourage and organize the realty sector and thereby also create better
employment opportunities in this sector. Technology advancement is possible in construction activity in India whether commercial or residential housing. To create a healthy and competitive market environment for both Indian and foreign investors Better infrastructural facilities are possible with investments from foreign investors. Efficiency in funds management in India and enrich the quality standards for housing sector in India.

Disadvantages of FDIs
There a necessity to frame strategies for better utilization of FDIs inflows as is pressurizes the Indian economy There is also a scope of losing the ownership and entity with the foreign investors in the business. The increased liquidity and consequent inflation due to excessive FDIs inflow in India

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B. FDI Rules (Housing)

The Government of India has set up certain guidelines for investors willing to apply in FDIs in real estate, which has conditions like area, investment options and target for completion of a project

Minimum area In case of development of serviced housing plots, 10 hectares (25 acres).In case of constructiondevelopment projects, built-up area of 50,000 sq m. In case of a combination project, any of the above two conditions

Investment Minimum capitalization For wholly owned subsidiaries - US$ 10 million. For JV with Indian partners - US$ 5 million,to be brought in within 6 months of commencement of business. Original investment cannot be repatriated before a period of three years from completion of capitalization. The investor may exit earlier with prior approval from Foreign Investment Promotion Board (FIPB).

Time frame & rules At least 50 per cent of the project to be developed within five years from the date of obtaining all statutory clearances. Investor cannot sell undeveloped plots - where roads, water supply, street lighting, drainage, sewerage and other conveniences are not available.

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Guidelines for Foreign Direct Investment

No foreign investment is permitted in this sector except for development of integrated townships and settlements where FDIs upto 100% is permitted with prior Government approval. NRIs/OCBs are allowed to invest in the following activities.

Development of serviced plots and construction of built up residential premises. Investment in real estate covering construction of residential and commercial premises including business centers and offices.

Development of townships. City and regional level urban infrastructure facilities, including both roads and bridges. Investment in manufacture of building materials, which is also opened to FDIs. Investment in participatory ventures in (a) to (e) above. Investment in housing finance institutions, which is also opened to FDIs as an NBFC. The government has also imposed a lock-in period of three years for repatriation of investments made in this sector after the minimum capitalization requirements are complete. Also, 50 per cent of the project must be completed in five years from the date of statutory clearances and the investor is not permitted to sell undeveloped plots.

Some of the foreign players who have already tied up with Indian real estate developers are Lee Kim Tah Holdings, CESMA International Pvt Ltd., Evan Lim, and Keppel Land from Singapore, Salim Group from Indonesia, Edaw Ltd., from USA, Emaar Group from Dubai, IJM, Ho Hup Construction Co., from Malaysia etc.

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ANALYSIS & FINDINGS HOUSING AND REAL ESTATE FDIS IN INDIA (2005-2010SEP)
YEAR 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 RUPEES IN CRORES 171 2,121 8,749 12,621 13,586 2,957 40,205 % OF FDI 0.47 5.27 21.77 31.40 33.49 7.35

The above figures show that FDIs inflows in housing sector have increased from Rs171 crores in 200506 to Rs13, 586 crores in 2009-10. It indicates that FDIs inflows has jumped 80 times between 2005 and 2010.Even during the global recession period the realty sector in India has received a considerable amount of FDIs .But in 2010, FDIs to realty sector has come down to 7.35% till September.

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Economic Growth with FDI in Housing in India

India has been experiencing the impact of FDIs from a very recent period. Due to the government policy on FDIs, all real estate sectors, residential, commercial and retail are currently witnessing huge growth in demand.

India, during the first half of 2005-06 fiscal has attracted more than three times foreign investment at US$ 7.96 billion during making it amongst the "dominant host countries" for FDIs in Asia and the Pacific (APAC).

After the initiatives of the government, the foreign investors have been more attracted in investing in India and so the construction activities have been enhanced. The real estate sector has been more organized in India since then and so improving competitive conditions for both the domestic and foreign investors.

FDIs has helped the Indian economy grow, and the government continues to encourage more investments of this sort. Foreign direct investment (FDIs) in India has played an important role in the development of the Indian economy.

FDIs in India has - in a lot of ways - enabled India to achieve a certain degree of financial stability, growth and development. This money has allowed India to focus on the areas that may have needed economic attention, and address the various problems that continue to challenge the country.

India has continually sought to attract FDIs from the worlds major investors. FDI is permitted through financial collaborations, through private equity or preferential allotments, by way of capital markets through Euro issues, and in joint ventures. FDI is not permitted in the arms, nuclear, railway, coal & lignite or mining industries.

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YEAR 2003 2004 2005 2006 2007 2008 2009 2010

GDP-The real growth rate 4.30% 8.30% 6.20% 8.40% 9.20% 9.00% 7.40% 7.40% Source: CIA World Fact book

The above study highlights on the fact that the housing sector has received 21.77% in 2007-08 which was just 5.27% in 2006. With the effect of permitting 100% FDIs, the inflows have increased to 31.90% in 2008-09 and 33.49% in 2009-10 and so the GDP has also increased from 6.20 in 2005 to 8.40 in 2006 and 9.20 in 2007.This indicates that FDIs has positively contributed to the economic growth of India. Even thou there has been a negative correlation between the real estate sector and GDP but the housing have indirectly contributed to the economic growth.

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CHAPTER VII CONCLUSION SUGGESTION BIBLOGRAPHY

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CONCLUSION
Given the prominent role of Foreign Direct Investment (FDI) in India's growth story so far, the recent decline in the FDI inflows has emerged as a major area of concern and could pose a significant downside risk to growth, if the trend persists.

After recording an average growth of 73.86% between FY05-FY08, the growth in FDI moderated to around 1.0% during FY09 consequent to the global economic slowdown.

With the gradual recovery in the global economic arena, the FDI inflows in India showed some signs of improvement and grew by around 5.69% during FY10. However, despite improving global economic prospects and robust recovery of the Indian economy, the FDI inflows have largely remained muted during the course of the current fiscal.

In fact, FDI inflows had recorded a significant decline of 23.3% during FY11 (Apr-Dec 10) as compared to the corresponding period of the last fiscal.

The outlook for the services sector which had slightly dimmed due to the fallout of the subprime crisis in the US and the global financial crisis has once again brightened. Recent business performance indicators of different service firms in different sub-sectors also support this healthy prognosis. Even during the crisis year, annual services growth was around the 10 per cent mark, which it has maintained since 2005-06. This is in contrast to the overall GDP growth which fell to 6.8 per cent in 2008-09 from 9.3 per cent in 2007-08. Thus the resilience of the services sector has greatly contributed to the resilience of the economy.

The positive outlook regarding robust domestic demand from the long term perspective, large pool of skilled manpower, government policies such as deregulation of petroleum prices, bidding for oil blocks et al have been playing an instrumental role in attracting FDI in sectors such as automobile, petroleum and natural gas as well as computer software.

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The recent licensing issues in the telecom space and series of corruption cases in real estate financing is likely to have impacted investor's sentiment, thereby limiting the FDI inflows in these sectors. FDI inflows in the real estate and telecom sector registered a decline of 60% and 47% respectively during Apr-Dec 2010 as compared to Apr-Dec 2009.

Another important factor that might have weighed down the investor's sentiment in the recent past could be the environment-sensitive policies pursued causing delays to the projects as evident in the recent episodes in the mining sector, integrated township projects, infrastructure projects et al.

Moreover, the long standing issues such as lack of adequate infrastructure, land acquisition issues mostly in case of SEZ's and persistent procedural delays continue to limit the FDI inflows in the country.

A confluence of factors such as the recent spurt in corruption cases, procedural delays, environmental policy issues, comparatively higher inflation might have affected the FDI investment into the country during the current fiscal.

The policies for FDIs have changed overtime with the changing requirements. Indias share in the global FDIs regime is still minuscule which needs further liberalization in the policies.

Besides all these factors, foreign investors planning to enter the retail space as well as banking in India or increasing their stake in insurance ventures are still awaiting the required policy changes.

SUGGESTION
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The opportunities in this fast-growing, employment-oriented, FDI attracting sector, with vast exportpotential are striking. However, the challenges are also many. One of the challenges in this area is to retain Indias competitiveness in those sectors where it has already made a mark such as IT & ITeS and Telecommunications. Their deeper and broader use in the domestic sectors would also have a dramatic potential to increase the efficiency and productivity of other goods and services.

The second challenge lies in making inroads into some traditional areas such as tourism and shipping where other countries have already established themselves, but where the potential for India is nevertheless very high.

The third challenge is in making forays into globally traded services in still niche areas for India, such as financial services, health care, education, accountancy, and other business services where India has a large domestic market and has also shown recent signs of making a dent in the international market, but only a very small part of the full potential has been tapped.

There are also challenges related to collecting better data and developing a better coordinated strategy to pull together all the dispersed information. Regulatory improvements will also be important as many domestic regulations and market access barriers could come in the way of fully tapping this growth accelerating sector.

Since there are diverse sectors within services, the issues and policies cannot be separated into watertight compartments. Addressing these challenges and issues could further strengthen the services sector which is the driving force for India to realize double-digit growth potential, both overall and at state level, while providing more and better jobs. To help achieve more inclusive and balanced growth.

BIBLOGRAPHY
www.rbi.org
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www.fin.in.nic www.sebi.org http://books.google.co.in/books?id=0VUafaE3pOIC&pg=PA4&dq=types+of+foreign+direct+inv estment&hl=en&ei=efzrS_rEAoy5rAfv34DbBg&sa=X&oi=book_result&ct=bookthumbnail&resnum=1&ved=0CDUQ6wEwAA#v=onepage&q=types%20of%20foreign%20direct %20investment&f=false http://www.indiahousing.com/fdi-foreign-direct-investment.html http://finance.indiamart.com/investment_in_india/fdi.html http://www.answers.com/topic/foreign-direct-investment#History http://www.unctad.org/sections/dite_iiab/docs/diteiiab20041_en.pdf http://www.economywatch.com/foreign-direct-investment/ http://www.legalserviceindia.com/articles/fdi_india.htm

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