A Critical Analysis of 25 years of Foreign Direct Investment in India Chandra ShekharG

A Critical Analysis of 25 years of Foreign Direct Investment in India
Chandra ShekharG. S. College of Commerce & Economics, Jabalpur
Correspondence Author e-mail: [email protected]
The thought of Foreign Direct Investment is a part of India’s economic potential but the term remains vague to many, despite the profound effects on the economy. There has been modest explanation forthcoming and it remains a contentious topic, even with the wide-ranging studies on FDI,. The paper investigates the uneven performance of FDI, in India and examines the developments (economic and political) relating to the trends in different sectors
Introduction
Foreign Direct Investment (FDI) invested directly through purchasing a company or by increasing the size of business, which are into the production and services in host country by a foreign country company. This is the method to do business in other country (P Subba Rao 2009). Foreigners may purchase the shares and debentures of another country’s concerns.

Fundamentally, the FDI comprise of
a) Foreign direct investment- which includes the share of investment in equity through SIA / FIPB, RBI, NRI, acquisition of shares of Indian companies by NRIs under FEMA, equity capital of unincorporated bodies and other capital, plus
b) Foreign portfolio investment-which consists of Global Depository Receipts (GDR), American Depository Receipts (ADR),Foreign Institutional Investors (FIIs),offshore funds and others. FDI introduces modern technologies, transfers knowledge, skill, provides access to export markets along with investment and managerial expertise.
It makes available the much needed foreign exchange to help reduce the deficit of balance of trade. When foreign enterprises enter into competition with local firms, the latter are forced to improve their technology, quality and management. FDI is a vital method for channeling repositioning of capital and technology furthermore as a result it supposed to be a powerful part in encouraging economic development in host countries. In addition, MNCs regard as FDI as an vital stand for restructure their production activities across borders according to their corporate strategies and the aggressive advantage of host countries (RBI Bulletin 2012).

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There is scarcely a feature of the Indian awareness that the concept of ‘foreign’ has not saturated. This term, connote modernization, international brands and acquisitions by MNCs in popular thoughts, has purchased transformed significance after the reforms commenced by the Indian Government in 1991. Contrary to the grand narrative ‘opening of flood-gates idea’ of 1991, what took place was a gradual process of changes in policies on investment in certain sub-sections of the Indian economy.

Initially, India has pursued with vigilant and selective approach concerning to foreign capital, but India has liberalized FDI policy after economic reforms 1991. Numbers of measures were undertaken to promote FDI. Consequently the Government of India (GOI) had able to attract more FDI in India. Since 1991 to 2017, India has fetched 1280.24 US $ million FDI inflows. According to UN report, India is the third preferential country for investment after China and the US for major global companies. The report further expects India could increase foreign investment by 2016-1217. India needs foreign capital due to inadequate domestic capital and also for economic development. FDI in general identified to be the steadiest factor of capital flows considered necessary to finance the current account deficit. India has become an investment hub over last decade. The major areas of FDIs are- oil, mining, coal and gas, banking, insurance, transportation, finance, manufacturing, retailing etc. FDI is significant to India as an engine of growth.

Review of literature
Andersen P.S and Hainaut P. (2004) in their research, about “Foreign Direct Investment and Employment in the Industrial Countries”, observed the support about a possible relationship between foreign direct investment and employment, in particular between outflows and employment in the source countries in response to outflows. They also find that high labour costs encourage outflows and discourage inflows and that such effect can be reinforced by exchange rate movements. The distribution of FDI towards services also suggests that a large proportion of foreign investment is undertaken with the purpose of expanding sales and improving the distribution of exports produced in the source countries. According to this study the principle determinants of FDI flows are prior trade patterns, IT related investments and the scopes for cross – border mergers and acquisitions. Finally, the authors find clear evidence that outflows complement rather than substitute for exports and thus help to protect rather than destroy jobs.

John Andreas (2004), argued the prospective of FDI inflows to affect host country economic growth, “The Effects of FDI Inflows on Host Country Economic Growth”. “The paper argues that FDI should have a positive effect on economic growth as a result of technology spillovers and physical capital inflows. Performing both cross –section and panel data analysis on a dataset covering 90 countries during the period 1980 to 2002, the empirical part of the paper finds indications that FDI inflows enhance economic Growth in developing economies but not in developed economies. This paper has assumed that the direction of causality goes from inflow of FDI to host country economic growth. However, economic growth could itself cause an increase in FDI inflows. Economic growth increases the size of the host country market and strengthens the incentives for market seeking FDI”. This consequence will be in a situation, where FDI are positively correlated to economic growth. However, for the ease of most of the developing economies growth is unlikely to result in market – seeking FDI due to the low income levels. Therefore, causality is first and foremost anticipated to run from FDI inflows to economic growth for these economies.

Klaus E Meyer (2005) in his research “Foreign Direct investment in Emerging Economies focuses on the impact of FDI on host economies and on policy and managerial implications arising from this (potential) impact.” The study reveals that as rising economies mix into the global economies international trade and, the investment will continue to accelerate. MNEs will keep on operating as pivotal circumference between domestic and international markets and their relative importance may even increase further. The widespread and diversity relations of MNEs with their host societies may tempt policy makers to micro – manage inwards foreign investment and to target their instruments at attracting very specific types of projects. Yet, the potential impact is hard to evaluate ex ante (or even ex post) and it is not clear if policy instruments would be effective in attracting specifically the investors that would generate the desired impact. The study concluded that the first priority should be on enhancing the general institutional framework such as to enhance the efficiency of markets, the efficiency of the public sector administration and the availability of infrastructure. On that basis, then, carefully designed but flexible schemes of promoting new industries may further enhance the chances of developing internationally competitive business clusters.

While favourable privatization strategies enhanced FDI flows into advanced countries. The reluctance to accept foreign investors’ involvement in privatization plans was still regarded as a major handicap hindering FDI flows into another country. With respect to absorbing FDI, Central Europe has been partially successful, but the situation is expected to improve in the near future .FDI has always been a subject matter of deep debate. About a decade back FDI was not easily welcomed by developing countries. Developed countries have been experiencing inflow but in recent time there is sudden increase in the level of the FDI inflow. The cause and the consequences of the FDI inflow indicate a big economic growth of developed countries is attributed to level of FDI inflow as in case of South Korea, Hong kong and other and their high per capita income is attributed to high level of FDI inflows. Some of the factors which can be accredited to inflow of FDI to developing countries are-Demand for FDI due to drying up of domestic savings, Surplus generated by TNCs’ need the markets for investment, new products and technologies, Need for the access and control over the latest technologies by developing countries, Control over the markets of developing countries by TNCs. (Danage and Phalatankar, 2012).

Azam and Lukman (2010) study the development and significance of FDI inflows to Pakistan, India and Indonesia for the period ranging from 1970 to 2005 and also analyzed the factors responsible for FDI inflows to these countries. The economic determinants possessions on FDI inflows to these countries were expected by using Log linear regression model and the method of least squares. The market size, external debt, domestic investment, trade openness, and physical infrastructure are the important economic determinants of FDI inflow to these countries as revealed by the models. The economic determinants of India matched with that of Pakistan excluding two determinates (viz, trade openness and government consumption). The results of Indonesia were not matched with the results of Pakistan and India. It was suggested by authors that to enhance FDI inflow into Pakistan, India and Indonesia, economic and political stability, provision of infrastructure, peace and security, law & order situation, encourage domestic investment, curtailment of external must and equal importance is be given to appropriate monetary and fiscal policy.

Narayanamurthy et al. (2010) scrutinized the factors determining FDI inflows for the period 1975 to 2007, of BRICS countries except for Russia for which the required data set was available from 1990 onwards. Panel data analysis was used as a tool for the analysis. It was concluded from the results of the study that the selected variables Market size, Labour cost, Infrastructure, Currency value and Gross Capital formation are important determinants of FDI inflows of BRICS countries in terms of their potential. The Economic Stability and Growth prospects (measured by inflation rate and Industrial production respectively), Trade openness (measured by the ratio of total trade to GDP) were found to be the insignificant determinants of FDI inflows of the BRICS countries.
Chaturvedi (2011) investigated the sector wise distribution of FDI in order to know the foremost sector which has involved the major share of FDI in India and, also to find out the correlation between FDI and Economic Development. It revealed that there is high degree of significance between FDI and economic development.
Hooda (2011) studied the tendency and pattern of flow of FDI, determinants of FDI and also the impact of FDI on the Indian economy. The method used in study time series data for the period 1991 to 2008. Trend analysis, annual growth rate, compound annual growth rate and regression analysis were the tools used for model building. It was observed from the results that India continued to attract substantial amount of FDI inflows India due to its flexible investment regimes and policies despite troubles in the world economy. Due to which foreign investors are encouraged to investment s in India.
Nilofer Hussaini (2011) pointed out in study, about the important economic determinants of FDI inflow and sector wise trend in the Foreign Direct Investment (FDI) inflow into India using data from 1991 to 2009 for top 10 sectors of Indian economy. The conclusion was brought from the study that the FDI inflow over the decades was very unsteady and fluctuating trend in various sectors of the Indian economy was observed. FDI inflow was found to be highly correlated with the economic factors taken into consideration in the study. It is in India’s attention to maintain to improve foreign investment by liberalizing rules on equity caps, investment reviews and other provisions that have impeded India’s ability to attract more foreign investment over the recent years was suggested by the author.
Ramachandran and Rajalakshmi (2011) studied the foreign investment flows through the automobile sector with special reference to passenger cars from 1991 to 2011. The ARIMA, coefficient, linear and compound model are the tools was used. The author has examined the tendency and composition of FDI flow and, the effect of FDI on economic growth. The problems faced by India in FDI growth of automobile sector through suggestions of policy implications were made.

Khan (2012) analyzed the impact of FDI in India in terms of GDP growth rate and FDI inflows in different sectors and also explored the sector wise distribution of FDI inflows in order to point out the dominating sector which has attracted the major share. The period taken for the study was from 2000-01 to 2010-11. It has observed in analysis that economy has grown positively due to FDI. The FDI impacted on Indian economy in terms of variables like GDP, EXPORT and GDCF were emphasized. The result showed that there is significant relationship of FDI on GDP, Export and GDCF in India. FDI has not impacted on inflows to sectors on GDP was found through tested hypothesis. The sectors having highest attraction of FDI inflows are Service, Telecommunication, Real Estate, Construction and Computer Hardware & Software.
Sahni (2012) studied the tendency as well as the determinants of the FDI inflow into India for the post liberalisation period from 1992-93 to 2008-09. The Ordinary Least Square (OLS) method for the analysis of the time series data is used in this study. GDP, inflation and trade openness were found significant issues to be in a focus, for FDI inflows in India throughout the post reform period, whereas Foreign Exchange Reserves was not an important factor in explaining FDI inflows in India.
Singh et al. (2012) examined the reason of the foreign investment enhanced in both term i.e. FDI and FIIs and mainly equity is the important route of FDI inflow. The highest amount of FDI has gone to financing, Insurance, Real Estate and Business services which are 33.05 percent and minimum went to research & scientific services which is 0.07 percent of total cumulative inflow of FDI study period in India.

Gulshan (2013) stated in research with the aim of during pre liberalization period FDI has enlarged at Compounded Annual Growth Rate of 19.05% and during post liberalization period it has grown to 24.28%. This has indicated that liberalization has had an affirmative impact on FDI inflows in India and, since 1991 FDI inflows in India has greater than before i.e. more than 165 times.
Jain et al. (2013) studied the correlation between FII / FDI and the real economic growth in India over a period 2000-01 to 2009-10. In study the GDP at factor cost as the proxy variable for real economic growth has used. In conclusions the result show’s that FII and FDI are influencing the economic development to a greater extent and FDI is number one, above the FII investments, since it is believed to be the most advantageous form of foreign investment for the economy as a whole.
Nilanjana (2013) applied regression analysis and correlation tests to examine the equity inflow of FDI and FDI trend in India for the period of 2000 to 2012. It was found with the help of correlation that the flow of equity in any previous year determines the flow in the next year. The FDI trend analysis result showed the upward trend of FDI inflow in India. India should formulate policies which will diverse the threats and channel the benefits, so that the economy may prosper globally. FDI always faces problems in form of red tape-ism, bureaucracy, lobbying, non availability of credits, and rigid taxation policies. India has tried to assist FDI by allowing low corporate tax, tax holidays, preferential tariffs, removing the sectoral caps, removing restrictions of customs, lowering the depreciation rate, etc.
Renuka et al. (2013) observed that India had to open up the retail trade sector to foreign investors. India is allowing only that foreign retail who first invests in back end supply chain. Infrastructure would be slowed to set up multi brand retail outlets in the country with an idea that firms must create jobs for rural India before they venture multi brand retail. She opined that the advantages attached to investment in retail through FDI in India can evidently outweigh the disadvantages attached to it.

Sharmiladevi and Saifilali (2013) observed the macroeconomic variables that act as potential determinants of FDI inflows. Time series data was used for the period 2000-01 to 2011-12, and the study also employed ordinary Least Square (OLS) method. Results shows that among the selected variables, export, index of industrial production, inflation shows statistically significant at 5 % level. The researcher concluded that parameters which the internal business environment of a nation like growth rate, inflation, IIP, exports are having a direct influence upon India’s credibility in the international arena in terms of attracting more FDI.
Sisili and Elango (2013) in the study, explain about the determinants and its impact of SAARC nations. FDI and its competitiveness suggest that the basic determinants of the inflows of FDI’s are on three points 1) Size of the market, 2) Growth of the market and 3) the exchange rate of the country. The analysis pointed out that due to FDI inflow the India’s size of the market has expanded along with the growth of the markets. But the exchange rate has a negative influence on FDI inflow because of changes in the value of currencies.
Parashar (2015) evaluated the formative issues of foreign direct investment (FDI) inflow in both China and India from 1980 to 2013. The analysis was done by using econometric modeling. Linear regression analysis of time series data was done for 34 years data in this study. Macroeconomic indicators such as market size, infrastructure, and opportunity cost for investors, trade openness, growth rate, policy changes and inflation were assumed to be the determinants. Both ordinary least squares analysis and partial least squares analysis approaches were applied to obtain regression results. The analysis revealed that, for both countries, market size was an important factor. Also, in the case of China, lower wage rates played an important role in attracting FDI, while in India; it is policy reforms that played a crucial role in attracting FDI.

Methodology
This paper is based on Descriptive Research Method. A Descriptive Research describes the characteristics of a particular individual or a group. A study with the purpose of concerned with exact predictions or with the narration of facts and uniqueness related to an individual, group or situation, are case of Descriptive Research studies. Usually, all social research falls within this category. As a research method, both the descriptive is same diagnostic studies, share common necessities; hence they are from same grouped. Conversely, the process to be used and the research method need to plan circumspectly. The research plan must also make appropriate provision for protection against bias and thus maximize reliability, with due regard to the completion of the research study in an economical manner. The research plan in such studies should be inflexible.

Finding & Results
India’s approach had changed to foreign investment from early 1990s when it began structural economic reforms about all the sectors of the economy.

Earlier than Liberalisation Era
India had followed an extremely cautious about FDI. They had always followed careful approach while originating FDI policy in view of the control of ‘import-substitution strategy’ of industrialisation. Purpose of fetching ‘independence’, there was a twofold character of policy intention – FDI was allowed to invest in the areas of high technology and high priorities to build national capability and safeguard was given in low technology areas to protect and nurture domestic industries. The regulatory framework was consolidated through the enactment of Foreign Exchange Regulation Act (FERA), 1973 wherein foreign equity holding in a joint venture was allowed only up to 40 per cent. At the same time, various exemptions were extended to foreign companies engaged in export oriented businesses and high technology and high priority areas including allowing equity holdings of over 40 per cent. Moreover, drawing from successes of other country experiences in Asia, Government not only established special economic zones (SEZs) but also designed liberal policy and provided incentives for promoting FDI in different zones with a view to encourage exports. As India continued to be highly protective, these measures did not add substantially to export competitiveness. Identifying these limitations, partial liberalisation in the trade and investment policy was introduced in the 1980s with the objective of enhancing export competitiveness, modernisation and marketing of exports through Trans-national Corporations (TNCs). The announcements of Industrial Policy (1980 and 1982) and Technology Policy (1983) make available for a liberal attitude towards foreign investments in terms of changes in policy directions. The policy was characterised by de-licensing of some of the industrial rules and promotion of Indian manufacturing exports as well as emphasising on modernisation of industries through liberalised imports of capital goods and technology. This was supported by trade liberalisation measures in the form of tariff reduction and shifting of large number of items from import licensing to Open General Licensing (OGL).

Post-Liberalisation Period
A major shift occurred when India embarked upon economic liberalisation and reforms program in 1991 aiming to raise its growth potential and integrating with the world economy. Industrial policy reforms gradually removed restrictions on investment projects and business expansion on the one hand and allowed increased access to foreign technology and funding on the other. A sequence of actions that were heading for towards liberalizing foreign investment incorporated: (i) introduction of dual route of approval of FDI – RBI’s automatic route and Government’s approval (SIA/FIPB) route, (ii) automatic permission for technology agreements in high priority industries and removal of restriction of FDI in low technology areas as well as liberalisation of technology imports, (iii) permission to Non-resident Indians (NRIs) and Overseas Corporate Bodies (OCBs) to invest up to 100 per cent in high priorities sectors, (iv) hike in the foreign equity participation limits to 51 per cent for existing companies and liberalisation of the use of foreign ‘brands name’ and (v) signing the Convention of Multilateral Investment Guarantee Agency (MIGA) for protection of foreign investments. These efforts were boosted by the enactment of Foreign Exchange Management Act (FEMA), 1999 that replaced the Foreign Exchange Regulation Act (FERA), 1973 which was less stringent. This along with the sequential financial sector reforms paved way for greater capital account liberalisation in India.

The Govt. holds investment through approval direction to FDI policy. It should be done through the Foreign Investment Promotion Board (FIPB), the Secretariat for Industrial Assistance (SIA) and the Foreign Investment Implementation Authority (FIIA) and, while Investment scheme falling under the automatic route and matters related to FEMA are dealt with by RBI.

Any prior approval is not required either by the Government or the Reserve Bank for FDI under the automatic route. The investors should inform the concerned regional office of the RBI within 30 days of receipt of inward remittances and file the mandatory documents with that office within 30 days of issuance of shares to foreign investors. Under the approval route, the proposals are considered in a time-bound and transparent manner by the FIPB. Approvals of multiple schemes relating to foreign investment/ foreign technical collaboration are also approved on the advice of the FIPB. Current FDI policy in terms of sector specific limits has been briefed in Table 1 below:
Table 1: Sector Specific Limits of Foreign Investment in India
Sector FDI Cap/Equity Entry Route Other Conditions
A. Agriculture1. Floriculture, Horticulture, Development of Seeds, Animal Husbandry, Pisciculture, Aquaculture, Cultivation of vegetables ; mushrooms and services related to agro and allied sectors.    100%     Automatic     
2. Tea sector, including plantation 100% FIPB  
(FDI is not allowed in any other agricultural sector /activity)  
B. Industry1. Mining covering exploration and mining of diamonds ; precious stones; gold, silver and minerals.  100%  Automatic  
2. Coal and lignite mining for captive consumption by power projects, and iron ; steel, cement production. 100% Automatic  
3. Mining and mineral separation of titanium bearing minerals 100% FIPB  
C. Manufacturing1. Alcohol- Distillation ; Brewing 100% Automatic  
2. Coffee ; Rubber processing ; Warehousing. 100% Automatic  
3. Defence production 26% FIPB  
4. Hazardous chemicals and isocyanates 100% Automatic  
5. Industrial explosives -Manufacture 100% Automatic  
6. Drugs and Pharmaceuticals 100% Automatic  
7. Power including generation (except Atomic energy); transmission, distribution and power trading. 100% Automatic  
(FDI is not permitted for generation, transmission ; distribution of electricity produced in atomic power plant/atomic energy since private investment in this activity is prohibited and reserved for public sector.)  
D. Services1. Civilaviation (Greenfield projects and Existing projects) 100% Automatic  
2. Asset Reconstruction companies 49% FIPB  
3. Banking (private) sector 74% (FDI+FII).FII not to exceed 49% Automatic  
4. NBFCs : underwriting, portfolio management services, investment advisory services, financial consultancy, stock broking, asset management, venture capital, custodian, factoring, leasing and finance, housing finance, forex broking, etc. 100% Automatic s.t.minimum capitalisation norms
5. Broadcasting a. FM Radio b. Cable network; c. Direct to home; d. Hardware facilities such as up-linking, HUB. e. Up-linking a news and current affairs TV Channel  20% 49% (FDI+FII)  100% FIPB  
6. Commodity Exchanges 49% (FDI+FII) (FDI 26 % FII 23%) FIPB  
7. Insurance 26% Automatic Clearance from IRDA
8. Petroleum and natural gas : a. Refining 49% (PSUs). 100% (Pvt. Companies) FIPB (for PSUs). Automatic (Pvt.)  
9. Print Media a. Publishing of newspaper and periodicals dealing with news and current affairs b. Publishing of scientific magazines / speciality journals/periodicals 26%   100% FIPB   FIPB S.t.guidelines by Ministry of Information ; broadcasting
10. Telecommunications a. Basic and cellular, unified access services, national / international long-distance, V-SAT, public mobile radio trunked services (PMRTS), global mobile personal communication services (GMPCS) and others. 74% (including FDI, FII, NRI, FCCBs, ADRs/GDRs, convertible preference shares, etc. Automatic up to 49% and FIPB beyond 49%.     
Sectors where FDI is Banned
1. Retail Trading (except single brand product retailing);2. Atomic Energy;3. Lottery Business including Government / private lottery, online lotteries etc; 4. Gambling and Betting including casinos etc.; 5. Business of chit fund;6. Nidhi Company;7. Trading in Transferable Development Rights (TDRs); 8. Activities/sector not opened to private sector investment; 9. Agriculture (excluding Floriculture, Horticulture, Development of seeds, Animal Husbandry, Piscicultureand cultivation of vegetables, mushrooms etc. under controlled conditions and services related to agro and allied sectors) and Plantations (Other than Tea Plantations); 10. Real estate business, or construction of farm houses;Manufacturing of Cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco or of tobacco substitutes.

FDI inflows to India remained slow-moving, despite sound domestic economic performance ahead of worldwide revival, when global FDI flows to EMEs had recovered in 2010-11. The paper gathers evidence through a panel exercise that actual FDI to India during the year 2010-11 fell short of its potential level (reflecting underlying macroeconomic parameters) partly on account of magnification of policy uncertainty.

FDI inflows to India observed noteworthy temperance in 2010-11. This had raised concerns in the wake of widening current account deficit in India beyond the perceived sustainable level of 3.0 per cent of GDP during April-December 2010. This also assumes consequence as FDI is the most stable factor of capital flows required to finance the current account deficit. Moreover, it adds to investible resources, provides access to advanced technologies, assists in gaining production know-how and promotes exports.

A perusal of India’s FDI policy reveals that the approach towards foreign investment has been moderately conservative to begin with, gradually own the line it was with the more liberalised policy stance from the early 1990s onwards, inter alia in terms of wider access to different sectors of the economy, ease of starting business, repatriation of dividend and profits and relaxations regarding norms for owning equity. This progressive liberalisation, fixed through considerable improvement in terms of macroeconomic fundamentals, reflected in growing size of FDI flows to the country that increased nearly 5 fold during first decade of the present millennium.

Though the liberal policy stance and strong economic fundamentals was the factor which has driven the sharp rise in FDI flows in India over past one decade and continuous have their impetus even during the period of global economic crisis (2008-09 and 2009-10), the subsequent moderation in investment flows despite faster recovery from the crisis period appears somewhat inexplicable. Survey of empirical literature and analysis presented in the paper seems to suggest that these divergent trends in FDI flows could be the result of certain institutional factors that reduce the investors’ emotions regardless of continued strength of economic fundamentals.
Trends in FDI Inflows
Broaden growth discrepancy across economies and steady opening up of capital accounts in the emerging world resulted in a steep rise in cross border investment flows during the past two decades. This section briefly presents the recent trends in global capital flows particularly of India. The given figure 1 shows the investment pattern of FDI from 1990 to 2016

Figure 1
Trends in FDI Inflows to India
With the increase in three times of the FDI flows to EMEs through the pre-crisis period of the 2000s, India also obtained large FDI inflows in line with its robust domestic economic performance. India as a favored investment destination could be determined from the large increase in FDI inflows to India, it increased from around US$ 6 billion in 2001-02 to almost US$ 38 billion in 2008-09. As a part of the capital account liberalisation, FDI was gradually allowed in almost all sectors. In few, on grounds of strategic importance are not allowed, and subject to compliance of sector specific rules and regulations. The more and constant FDI flows also increasingly financed the current account deficit over the period. At the time of global crisis, the decline in FDI flows to India was relatively moderate reflecting robust equity flows on the back of strong rebound in domestic growth ahead of global recovery and steady reinvested earnings (with a share of almost 25 per cent) reflecting better profitability of foreign companies in India . Gross equity FDI flows in India, has faired to US$ 20.3 billion during 2010-11 from US$ 27.1 billion in the preceding year.

Table 2: Equity FDI Inflows to India
(Percent)
Sectors 2006-07 2007-08 2008-09 2009-10 2010-11
Sectoral shares (Percent)
Manufactures 17.6 19.2 21.0 22.9 32.1
Services 56.9 41.2 45.1 32.8 30.1
Construction, Real estate and mining 15.5 22.4 18.6 26.6 17.6
Others 9.9 17.2 15.2 17.7 20.1
Total 100.0 100.0 100.0 100.0 100.0
Equity Inflows (US$ billion)
Manufactures 1.6 3.7 4.8 5.1 4.8
Services 5.3 8.0 10.2 7.4 4.5
Construction, Real estate and mining 1.4 4.3 4.2 6.0 2.6
Others 0.9 3.3 3.4 4.0 3.0
Total Equity FDI 9.3 19.4 22.7 22.5 14.9
From a different sector viewpoint, FDI in India mainly invested into services sector (with an average share of 41 per cent in the past five years) followed by manufacturing (around 23 per cent) and mainly routed through Mauritius (with an average share of 43 per cent in the past five years) followed by Singapore (around 11 per cent). From almost 57 per cent in 2006-07 to about 30 per cent in 2010-11 in the share of services, has declined over the years, while the shares of manufacturing, and ‘others’ largely consist of ‘electricity and other power generation’ increased over the same period (Table 2). Sectoral information on the latest development in FDI flows to India confirm that the moderation in gross equity FDI flows during 2010-11 has been mainly driven by sectors such as ‘construction, real estate and mining’ and services such as ‘business and financial services’. Manufacturing is the largest recipient of FDI in India, has also witnessed some moderation (Table 2).

Conclusion
An analysis of the recent trends in FDI flows suggests that India has normally involved higher FDI flows in line with its robust domestic economic performance and gradual liberalisation of the FDI policy as part of the cautious capital account liberalisation process. Even during the recent global crisis, FDI inflows to India did not show as much moderation. FDI flows to India stayed slow in spite of relatively better domestic economic performance ahead of global recovery. This has raised questions especially in the backdrop of the widening of the current account deficit beyond the sustainable level of about 3 per cent.

Against this backdrop, it is pertinent to highlight the number of measures announced by the Government of India to further liberalise the FDI policy to promote FDI inflows to India. These measures, inter alia included
allowing issuance of equity shares against non-cash transactions such as import of capital goods under the approval route,
removal of the condition of prior approval in case of existing joint ventures/technical collaborations in the ‘same field’,
providing the flexibility to companies to prescribe a conversion formula subject to FEMA/SEBI guidelines instead of specifying the price of convertible instruments upfront,
simplifying the procedures for classification of companies into two categories – ‘companies owned or controlled by foreign investors’ and ‘companies owned and controlled by Indian residents’ .

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Sharmiladevi J.C. and Saifilali M.I. (2013),” An Empirical Examination of the Determinants of Foreign Direct Investment in India”, The International Journal’s Research Journal of Economics and Business Studies, Vol. 2(12), ISSN 2251- 1555.

Singh, J., Chadha, S. and Sharma. A. (2012),” Role of Foreign Direct Investment in India: An Analytical Study”, International Journal of Engineering and Science, Vol. 1(50), 34-42.

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Reports
Department of Industrial Policy and Promotion. 2005. Foreign Direct Investment-Policy
& Procedures. New Delhi: Government of India. Available at http://dipp.nic.in/manual/manual_03_05.pdf. Internet.Economic Department, Ministry of Finance & Company Affairs. Economic Survey 1991-1992 to 2015-16. New Delhi: Ministry of Finance & Company Affairs, Government of India.

Planning Commission of India.2002 to 2015. Report of the Steering Group on Foreign Direct Investment: Foreign Investment India.government report. New Delhi:
Internet
Hossain, Moazzem and Rajat Kathuria. 2003. Telecommunications Reform and the Emerging ‘New-Economy’: The Case of India. Available at http://www.devstud.org.uk/publications/papers/conf03/dsaconf03hossain.pdf.

OECD.2002. Foreign Direct Investment for Development: Maximizing benefits minimizing costs: Report of the Steering Group on Foreign Direct Investment: Foreign Investment India. p 5. Paris: OECD. Accessed on June 10, 2005. Available at http://www.oecd.org/dataoecd/47/51/1959815.pdf
Books
Tharoor, Shashi. 1997. India: from midnight to the millennium. India: Penguin

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