A PROJECT REPORT ON “Role of FDI & FII in Indian Economic Growth” SUBMITTED TOWARDS PARTIAL FULFILLMENT OF POST GRADUADTE DIPLOMA IN MANGEMENT (Approved by AICTE, Govt. of India) (Equivalent to MBA) ACADEMIC SESSION 2008 – 2010 [pic] Under the guidance of : Submitted By: Dr. Tapan Kumar Nayak Gagan (61) Associate professor Karun Dev (73)
IMS Ghaziabad Kush Dixit (77) Meenu Singh (87) Nidhi Dhawal (105) Date of submission: 30-03-2009 Institute of Management Studies C-238, Bulandshahr road Lal Quan, G. T. Road Ghaziabad Acknowledgement Any assignment puts to litmus test of an individual knowledge credibility or experience and thus sole efforts of an individual are not sufficient to accomplish the desire.
Successful completion of a project involves interest and effort of many people and so this becomes obligatory on the part to record our thanks to those who helped us out in the successful completion of our project. Life is a process of accumulating and discharging debts, not all of those can be measured. We can not hope to discharge them with simple words of thanks but we can certainly acknowledge them. At this level of understanding it is often difficult to comprehend and assimilate a wide spectrum of knowledge without proper guidance and advice.
Hence, We would like to take this opportunity to sincerely thank Dr. Tapan Kumar Nayak, Associate Professor, Institute of Management Studies, Ghaziabad, for his inspiration and affectionate encouragement throughout the tenure of the project. Last but not the least we would like to pay our sincere thanks to our parents who have constantly encouraged and blessed us. Table of contents |S. No. |Contents |Page No. |1 |Introduction |4 | |...
2 |Foreign Direct Investment |8 | |3 |Foreign Institutional Investment |18 | |4 |Impact of FDI on Indian Economic Growth |22 | |5 |Impact of FII on Indian Economic Growth |27 | |6 |Recent issues regarding FDI & FII |34 | |7 |Conclusion |39 | |8 |References |40 | 1. Introduction There are various links among foreign direct investment (FDI), financial markets and economic growth. We explore whether countries with better financial systems can exploit FDI more efficiently. FDI alone plays an ambiguous role in contributing to economic growth.
However, countries with well-developed financial markets gain significantly from FDI. The results are robust to different measures of financial market development, the inclusion of other determinants of economic growth, and consideration of endogeneity. The Indian government differentiates cross-border capital inflows into various categories like foreign direct investment (FDI), foreign institutional investment (FII), non-resident Indian (NRI) and person of Indian origin (PIO) investment. Inflow of investment from other countries is encouraged since it complements domestic investments in capital-scarce economies of developing countries, India opened up to investments from abroad gradually over the past two ecades, especially since the landmark economic liberalization of 1991. Apart from helping create additional economic activity and generating employment, foreign investment also facilitates flow of technology into the country and helps the industry to become more competitive. The FDI & FII mantra is considered an all-purpose panacea for the ills of the Indian economy and society. It has become routine for our finance ministers to “showcase” Indi
in various international forums and exhort the global captains of industry and commerce to come to India. We here want to know about the far-reaching implications of FDI in our economy and, particularly, how it can stifle economic growth.
Fortunately India’s economic growth over the last decade and a half has primarily been driven by savings in the economy, especially by households. Housewives from middle-class homes should be given due credit for this. If we want to grow at 10 per cent and if our capital-output ratio is 3. 5, we need investment at 35 per cent and, if our savings rate is 28 per cent, then the gap has to be met by the investment. This is, to start with, spurious since the measurement of the capital-output ratio is not reliable and definitely not applicable to our service sector, which makes up nearly 60 per cent of the economy and is its growth engine. FDI provides us with a continuous flow of funds and an active capital market.
Actually, hundreds of MNCs have de-listed from the stock market in the last decade by converting to unlisted subsidiaries of foreign parents. An analysis of this alone will give a clue to the nature of the capital market due to foreign investment in our economy. MNC does not even bring funding from outside sources since it can access funds in the domestic market by showing “comfort letters” from its parent company. There are many local financial institutions, both Government and private, which would lend them below prime rate since they are “global”. Financial institutions in India do not deny foreigners funds. The another argument is regarding technology transfer.
In this age of information flows and market for technology any entrepreneur can purchase technology needed by him. In a country like India, which scores very high for “technology diffusion” or “absorption”, building on technology is not an issue. If we travel in the rural areas of Punjab, we find washing machines being used for churning lassi on a mass scale. Who ever thought that washing machines have alternative uses? The Indian Diaspora can be relied upon to acquire most modern technology in complex areas, and there are already significant organic links between the NRIs and the domestic capitalists. The next argument is regarding the growing global flow of funds and how nation-states cannot ignore it.
Fascinatingly, when Mr Lakshmi Mittal attempted to take over Arcelor, or when China Petroleum tried to take over a Unocal of the US, the same globalisers came down like a ton of brick on the attempts. Actually, we can see that funds are in search of markets, and not the other way. It means we are in a position to choose whom to invite. But we would rather continue to ” sell” India. Selling India is an easy skill for most of our politicians. Which sectors are “sold” globally for FDI in India? It is the retail trade, restaurants, road transport and construction. Non-corporate, family-run businesses dominate all these activities. In most of these sectors the share of partnership/proprietorship firms is more than 80 per cent. We want global corporate to
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