A STUDY ON FOREGIN DIRECT INVESMENT IN

INDIA

A MINI PROJECT REPORT

Submitted by
S.GURUPRABHA

(Reg. No. AC09MBF032)

In partial fulfillment for the award of degree

Of

MASTER OF BUSINESS ADMINISTRATION

Under the guidance of

MR.R.SANTHOSH KUMAR MBA,M.phil.(phd)

DEPARTMENT OF MANAGEMENT STUDIES

ADHIYAMAAN COLLEGE OF ENGINEERING, HOSUR.
ANNA UNIVERSITY: COIMBATORE
(AUTONOMOUS)
OCTOBER – 2010
 CERTIFICATE

This is to certify that the summer training report entitled “A STUDY ON FOREGIN

DIRECT INVESMENT IN INDIA ” submitted by S.GURUPRABHA(Reg. No.

AC09MBF032) is a bonafide record of the industrial training done by her during the

academic year 2009-2011, under my supervision and guidance in partial fulfillment for

the award of DEGREE OF MASTER OF BUSINESS ADMINISTRATION.

INTERNAL GUIDE DIRECTOR

R.SANTHOSH KUMAR Dr.CHANDRASHEKAR

(Dept of Mgt Studies) (Dept of

Mgt Studies)

Place : Hosur
Date :

DECLARATION

I hereby declare that the work entitled “A STUDY ON FOREGIN DIRECT

INVESMENT IN INDIA” submitted to the Anna University in partial Fulfillment of the

requirements for the award of degree in MASTER OF BUSINESS

ADMINISTRATION, is a record of original work done by me under the guidance of

MR,R.SANTHOSH KUMAR MBA lecturer, Department of Management studies,

Adhiyamaan Engineering College, Hosur

Place:

Date: S.GURUPRABHA
ACKNOWLEDGEMENTS

I would like to express my sincere gratitude and heartfelt thanks to our Principal

Dr. G. Ranganath who has given me a chance to do my post-graduation in this college

and also to our Director, Dr. Chandrasekar for him valuable guidance and to my

internal guide MR.R.SANTHOSH KUMARfor him guidance in every step and also for

constant encouragement which helped in the successful completion of this summer

internship training.

I wish to express my profound thanks to for providing me an opportunity to

perform this project and for his valuable suggestions for improving the project. I also

express my sincere thanks to the faculty members department of management studies for

their cooperation to make this project.

Finally I would like to thank my family members, my college for providing me an

opportunity to get an exposure in to real life business practices. Above all am obliged to

God and thank all people who have assisted me in the successful completion of this

project.
TABLE OF CONTENTS

S.NO CONTENTS PAGE.NO

1 Introduction to ERP 1

2 Objectives of the study 5

3 Introduction to SAP 6

4 Company profile 16

5 Conditions for Before implementation 17

6 Benefits of implementation 18

7 Appearance of SAP for Beginners and sap screen shots 20

8 Sap implementation decision and approach 25

9 Findings 34

10 Conclusion 35

11 Bibliography 36
Introduction and overview

Foreign Direct Investment

Meaning:

These three letters stand for foreign direct investment. The simplest explanation of FDI

would be a direct investment by a corporation in a commercial venture in another

country. A key to separating this action from involvement in other ventures in a foreign

country is that the business enterprise operates completely outside the economy of the

corporation’s home country. The investing corporation must control 10 percent or more

of the voting power of the new venture.

According to history the United States was the leader in the FDI activity dating back as

far as the end of World War II. Businesses from other nations have taken up the flag of

FDI, including many who were not in a financial position to do so just a few years ago.

The practice has grown significantly in the last couple of decades, to the point that FDI

has generated quite a bit of opposition from groups such as labor unions. These

organizations have expressed concern that investing at such a level in another country

eliminates jobs. Legislation was introduced in the early 1970s that would have put an end

to the tax incentives of FDI. But members of the Nixon administration, Congress and
business interests rallied to make sure that this attack on their expansion plans was not

successful. One key to understanding FDI is to get a mental picture of the global scale of

corporations able to make such investment. A carefully planned FDI can provide a huge

new market for the company, perhaps introducing products and services to an area where

they have never been available. Not only that, but such an investment may also be more

profitable if construction costs and labor costs are less in the host country.

The definition of FDI originally meant that the investing corporation gained a significant

number of shares (10 percent or more) of the new venture. In recent years, however,

companies have been able to make a foreign direct investment that is actually long-term

management control as opposed to direct investment in buildings and equipment.

FDI growth has been a key factor in the “international” nature of business that many are

familiar with in the 21st century. This growth has been facilitated by changes in

regulations both in the originating country and in the country where the new installation

is to be built. Corporations from some of the countries that lead the world’s economy

have found fertile soil for FDI in nations where commercial development was limited, if

it existed at all. The dollars invested in such developing-country projects increased 40

times over in less than 30 years. The financial strength of the investing corporations has

sometimes meant failure for smaller competitors in the target country. One of the reasons

is that foreign direct investment in buildings and equipment still accounts for a vast

majority of FDI activity. Corporations from the originating country gain a significant

financial foothold in the host country. Even with this factor, host countries may welcome

FDI because of the positive impact it has on the smaller economy.

Foreign direct investment (FDI) is a measure of foreign ownership of productive assets,

such as factories, mines and land. Increasing foreign investment can be used as one

measure of growing economic globalization. Figure below shows net inflows of foreign

direct investment as a percentage of gross domestic product (GDP). The largest flows of

foreign investment occur between the industrialized countries (North America, Western

Europe and Japan).But flows to non-industrialized countries are increasing sharply.

Foreign direct investment (FDI) refers to long term participation by country A into

country B.

It usually involves participation in management, joint-venture, transfer of

technology and expertise. There are two types of FDI: inward foreign

direct investment and outward foreign direct investment, resulting in

a net FDI inflow (positive or negative) .Foreign direct investment reflects the objective of

obtaining a lasting interest by a resident entity in one economy (‘‘direct investor’’) in an

entity resident in an economy other than that of the investor (‘‘direct investment

enterprise’’).The lasting interest implies the existence of a long-term relationship

between the direct investor and the enterprise and a significant degree of influence on the

management of the enterprise.

Definition

Foreign direct investment is that investment, which is made to serve the business interests

of the investor in a company, which is in a different nation distinct from the investor's

country of origin. A parent business enterprise and its foreign affiliate are the two sides of

the FDI relationship. Together they comprise an MNC.

The parent enterprise through its foreign direct investment effort seeks to exercise

substantial control over the foreign affiliate company. 'Control' as defined by the UN, is

ownership of greater than or equal to 10% of ordinary shares or access to voting rights in

an incorporated firm. For an unincorporated firm one needs to consider an equivalent

criterion. Ownership share amounting to less than that stated above is termed as portfolio

investment and is not categorized as FDI.

FDI stands for Foreign Direct Investment, a component of a country's national financial

accounts. Foreign direct investment is investment of foreign assets into domestic

structures, equipment, and organizations. It does not include foreign investment into the

stock markets. Foreign direct investment is thought to be more useful to a country than

investments in the equity of its companies because equity investments are potentially "hot

money" which can leave at the first sign of trouble, whereas FDI is durable and generally

useful whether things go well or badly.

FDI or Foreign Direct Investment is any form of investment that earns interest in

enterprises which function outside of the domestic territory of the investor.  FDIs require

a business relationship between a parent company and its foreign subsidiary. Foreign

direct business relationships give rise to multinational corporations. For an investment to

be regarded as an FDI, the parent firm needs to have at least 10% of the ordinary shares

of its foreign affiliates. The investing firm may also qualify for an FDI if it owns voting

power in a business enterprise operating in a foreign country.

Foreign Direct investor

A foreign direct investor is an individual, an incorporated or unincorporated public or

privateenterprise, a government, a group of related individuals, or a group of related

incorporated and/or unincorporated enterprises which has a direct investment enterprise –

that is, a subsidiary, associate or branch – operating in a country other than the country or

countries of residence of the foreign direct

investor or investors.
Types of Foreign Direct Investment: An Overview

FDIs can be broadly classified into two types:

1 Outward FDIs

2 Inward FDIs

This classification is based on the types of restrictions imposed, and the various

prerequisites required for these investments. 

Outward FDI: An outward-bound FDI is backed by the government against all types of

associated risks. This form of FDI is subject to tax incentives as well as disincentives of
various forms. Risk coverage provided to the domestic industries and subsidies granted to

the local firms stand in the way of outward FDIs, which are also known as 'direct

investments abroad.' 

Inward FDIs: Different economic factors encourage inward FDIs. These include interest

loans, tax breaks, grants, subsidies, and the removal of restrictions and limitations.

Factors detrimental to the growth of FDIs include necessities of differential performance

and limitations related with ownership patterns. 

Other categorizations of FDI 

Other categorizations of FDI exist as well. Vertical Foreign Direct Investment takes place

when a multinational corporation owns some shares of a foreign enterprise, which supplies

input for it or uses the output produced by the MNC. 

Horizontal foreign direct investments happen when a multinational company carries out a

similar business operation in different nations.

• Horizontal FDI – the MNE enters a foreign country to produce the same products

product at home.

• Conglomerate FDI – the MNE produces products not manufactured at home.

• Vertical FDI – the MNE produces intermediate goods either forward or backward

in the supply stream.

• Liability of foreignness – the costs of doing business abroad resulting in a

competitive disadvantage.
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

• The manner in which a firm chooses to enter a foreign market through FDI.

– 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

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;

A more complete response might address the issue of global business partnering in very

general terms.  While it is nice that many business writers like the expression, “think

globally, act locally”, this often used cliché does not really mean very much to the

average business executive in a small and medium sized company.   The phrase does

have significant connotations for multinational corporations.  But for executives in

SME’s, it is still just another buzzword.  The simple explanation for this is the difference

in perspective between executives of multinational corporations and small and medium

sized companies.  Multinational corporations are almost always concerned with

worldwide manufacturing capacity and proximity to major markets.  Small and medium

sized companies tend to be more concerned with selling their products in overseas

markets.  The advent of the Internet has ushered in a new and very different mindset that

tends to focus more on access issues.  SME’s in particular are now focusing on access to

markets, access to expertise and most of all access to technology.

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 country’s

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

• MNEs exposed to multiple stimuli, developing:

– Diversity capabilities

– Broader learning opportunities

• Exposed to:

– New markets

– New practices

– New ideas

– New cultures
 – New competition

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.

Foreign Direct Investment in India

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.

The economy is diverse and encompasses agriculture, handicrafts, textile, manufacturing,

and a multitude of services. Although two-thirds of the Indian workforce still earn 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. FDI up to 100% is allowed under the automatic route in all

activities/sectors except the following which will require approval of the Government:

Activities/items that require an Industrial License; Proposals in which the foreign

collaborator has a previous/existing venture/tie up in India

FDI in India includes, FDI inflows as well as FDI outflow from India. Also FDI foreign

direct investment and FII foreign institutional investors are a separate case study while

preparing a report on FDI and economic growth in India. FDI and FII in India have

registered growth in terms of both FDI flows in India and outflow from India. The FDI

statistics and data are evident of the emergence of India as both a potential investment

market and investing country.  FDI has helped the Indian economy grow, and the

government continues to encourage more investments of this sort - but with $5.3 billion

in FDI . India gets less than 10% of the FDI of China. 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.  India has continually sought to attract FDI from the world’s

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. FDI

investments are 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. A number of projects have been announced in areas such as electricity

generation, distribution and transmission, as well as the development of roads and

highways, with opportunities for foreign investors. The Indian national government also

provided permission to FDIs to provide up to 100% of the financing required for the

construction of bridges and tunnels, but with a limit on foreign equity of INR 1,500

crores, approximately $352.5m. Currently, FDI is allowed in financial services, including

the growing credit card business.

These services include the non-banking financial services sector. Foreign investors can

buy up to 40% of the equity in private banks, although there is condition that stipulates

that these banks must be multilateral financial organizations. Up to 45% of the shares of

companies in the global mobile personal communication by satellite services (GMPCSS)

sector can also be purchased. By 2004, India received $5.3 billion in FDI, big growth

compared to previous years, but less than 10% of the $60.6 billion that flowed into China.

Why does India, with a stable democracy and a smoother approval process, lag so far

behind China in FDI amounts?  Although the Chinese approval process is complex, it
includes both national and regional approval in the same process. Federal democracy is

perversely an impediment for India. Local authorities are not part of the approvals

process and have their own rights, and this often leads to projects getting bogged down in

red tape and bureaucracy. India actually receives less than half the FDI that the federal

government approves.

Investment Risks 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.

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 fee to study the state of demand / supply for any product. As

it is, entering the consumer market 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.

FDI Policy in India

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 . These include

FDI limits in India for example:

o Foreign direct investment in India in infrastructure development projects

excluding arms and ammunitions, atomic energy sector, railways system ,

extraction of coal and lignite and mining industry is allowed upto 100% equity

participation with the capping amount as Rs. 1500 crores.

o FDI figures in equity contribution in the finance sector cannot exceed more than

40% in banking services including credit card operations and in insurance sector

only in joint ventures with local insurance companies.

o FDI limit of maximum 49% in telecom industry especially in the GSM services

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; and

 Investment through prior approval of Government.

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.

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.

FDI In Small Scale Sector (SSI) Units

A small-scale unit cannot have more than 24 per cent equity in its paid up capital from

any industrial undertaking, either foreign or domestic.

If the equity from another company (including foreign equity) exceeds 24 per cent, even

if the investment in plant and machinery in the unit does not exceed Rs 10 million, the

unit loses its small-scale status and shall require an industrial license to manufacture
items reserved for small-scale sector. See also FDI in Small Scale Sector in India Further

Liberalized

About foreign direct investment In India.

Is the process whereby residents of one country (the source country) acquire ownership

of assets for the purpose of controlling the production, distribution, and other activities of

a firm in another country (the host country). The international monetary fund’s balance of

payment manual defines FDI as an investment that is made to acquire a lasting interest in

an enterprise operating in an economy other than that of the investor. The investors’

purpose being to have an effective voice in the management of the enterprise’. The united

nations 1999 world investment report defines FDI as ‘an investment involving a long

term relationship and reflecting a lasting interest and control of a resident entity in one

economy (foreign direct investor or parent enterprise) in an enterprise resident in an

economy other than that of the foreign direct investor ( FDI enterprise, affiliate enterprise

or foreign affiliate).

I. Foreign direct investment: Indian scenario

FDI is permitted as under the following forms of investments –

· Through financial collaborations.

· Through joint ventures and technical collaborations.

· Through capital markets via Euro issues.

· Through private placements or preferential allotments.

Sector Specific Foreign Direct Investment in India

Hotel & Tourism: FDI in Hotel & Tourism sector in India

100% FDI is permissible in the sector on the automatic route,

The term hotels include restaurants, beach resorts, and other tourist complexes providing

accommodation and/or catering and food facilities to tourists. Tourism related industry

include travel agencies, tour operating agencies and tourist transport operating agencies,

units providing facilities for cultural, adventure and wild life experience to tourists,

surface, air and water transport facilities to tourists, leisure, entertainment, amusement,

sports, and health units for tourists and Convention/Seminar units and organizations.
For foreign technology agreements, automatic approval is granted if

i. up to 3% of the capital cost of the project is proposed to be paid for technical and

consultancy services including fees for architects, design, supervision, etc.

ii. up to 3% of  net turnover is payable for franchising and marketing/publicity

support fee, and up to 10% of gross operating profit is payable for management

fee, including incentive fee.

Private Sector Banking:

Non-Banking Financial Companies (NBFC)

49% FDI is allowed from all sources on the automatic route subject to guidelines issued

from RBI from time to time.

a. FDI/NRI/OCB investments allowed in the following 19 NBFC activities shall be

as per levels indicated below:

i. Merchant banking

ii. Underwriting

iii. Portfolio Management Services

iv. Investment Advisory Services

v. Financial Consultancy

vi. Stock Broking

 vii. Asset Management

viii. Venture Capital

ix. Custodial Services

x. Factoring

xi. Credit Reference Agencies

xii. Credit rating Agencies

xiii. Leasing & Finance

xiv. Housing Finance

xv. Foreign Exchange Brokering

xvi. Credit card business

xvii. Money changing Business

xviii. Micro Credit

xix. Rural Credit

b. Minimum Capitalization Norms for fund based NBFCs:

i) For FDI up to 51% - US$ 0.5 million to be brought upfront

ii) For FDI above 51% and up to 75% - US $ 5 million to be brought upfront

iii) For FDI above 75% and up to 100% - US $ 50 million out of which US $ 7.5

million to be brought up front and the balance in 24 months

c. Minimum capitalization norms for non-fund based activities:

Minimum capitalization norm of US $ 0.5 million is applicable in respect of all permitted

non-fund based NBFCs with foreign investment.

    d.   Foreign investors can set up 100% operating subsidiaries without the condition to

disinvest a minimum of 25% of its equity to Indian entities, subject to bringing in US$ 50

million as at b) (iii) above (without any restriction on number of operating subsidiaries

without bringing in additional capital)

    e.  Joint Venture operating NBFC's that have 75% or less than 75% foreign investment

will also be allowed to set up subsidiaries for undertaking other NBFC activities, subject

to the subsidiaries also complying with the applicable minimum capital inflow i.e. (b)(i)

and (b)(ii) above.

   f.   FDI in the NBFC sector is put on automatic route subject to compliance with

guidelines of the Reserve Bank of India.  RBI would issue appropriate guidelines in this

regard.

Insurance Sector: FDI in Insurance sector in India

FDI up to 26% in the Insurance sector is allowed on the automatic route subject to

obtaining license from Insurance Regulatory & Development Authority (IRDA)

 
Telecommunication:

FDI in Telecommunication sector

i. In basic, cellular, value added services and global mobile personal

communications by satellite, FDI is limited to 49% subject to  licensing and

security requirements and adherence by the companies  (who are investing and the

companies in which investment is being made) to the license conditions for

foreign equity cap and lock- in period for transfer and addition of equity and other

license provisions.

ii. ISPs with gateways, radio-paging and end-to-end bandwidth, FDI is permitted up

to 74% with FDI, beyond 49% requiring Government approval. These services

would be subject to licensing and security requirements.

iii. No equity cap is applicable to manufacturing activities.

iv. FDI up to 100% is allowed for the following activities in the telecom sector :

a. ISPs not providing gateways (both for satellite and submarine cables);

b. Infrastructure Providers providing dark fiber (IP Category 1);

c. Electronic Mail; and

d. Voice Mail

The above would be subject to the following conditions:

e. FDI up to 100% is allowed subject to the condition that such companies

would divest 26% of their equity in favor of Indian public in 5 years, if

these companies are listed in other parts of the world.

 f. The above services would be subject to licensing and security

requirements, wherever required.

Proposals for FDI beyond 49% shall be considered by FIPB on case to case basis.

FDI in Trading Companies in India

Trading is permitted under automatic route with FDI up to 51% provided it is primarily

export activities, and the undertaking is an export house/trading house/super trading

house/star trading house. However, under the FIPB route:-

i. 100% FDI is permitted in case of trading companies for the following activities:

 exports;

 bulk imports with ex-port/ex-bonded warehouse sales;

 cash and carry wholesale trading;

 other import of goods or services provided at least 75% is for procurement and

sale of goods and services among the companies of the same group and not for

third party use or onward transfer/distribution/sales.

ii. The following kinds of trading are also permitted, subject to provisions of EXIM

Policy:

a. Companies for providing after sales services (that is not trading per se)

b. Domestic trading of products of JVs is permitted at the wholesale level for such

trading companies who wish to market manufactured products on behalf of their

joint ventures in which they have equity participation in India.

c. Trading of hi-tech items/items requiring specialized after sales service

d. Trading of items for social sector

e. Trading of hi-tech, medical and diagnostic items.

f. Trading of items sourced from the small scale sector under which, based on

technology provided and laid down quality specifications, a company can market

that item under its brand name.

g. Domestic sourcing of products for exports.

h. Test marketing of such items for which a company has approval for manufacture

provided such test marketing facility will be for a period of two years, and

investment in setting up manufacturing facilities commences simultaneously with

test marketing

FDI up to 100% permitted for e-commerce activities subject to the condition that such

companies would divest 26% of their equity in favor of the Indian public in five years, if

these companies are listed in other parts of the world. Such companies would engage

only in business to business (B2B) e-commerce and not in retail trading.

Power:

FDI In Power Sector in India

Up to 100% FDI allowed in respect of projects relating to electricity generation,

transmission and distribution, other than atomic reactor power plants. There is no limit on

the project cost and quantum of foreign direct investment.

Drugs & Pharmaceuticals

FDI up to 100% is permitted on the automatic route for manufacture of drugs and

pharmaceutical, provided the activity does not attract compulsory licensing or involve use

of recombinant DNA technology, and specific cell / tissue targeted formulations.

FDI proposals for the manufacture of licensable drugs and pharmaceuticals and bulk

drugs produced by recombinant DNA technology, and specific cell / tissue targeted

formulations will require prior Government approval.

Roads, Highways, Ports and Harbors

FDI up to 100% under automatic route is permitted in projects for construction and

maintenance of roads, highways, vehicular bridges, toll roads, vehicular tunnels, ports

and harbors. 

Pollution Control and Management

FDI up to 100% in both manufacture of pollution control equipment and consultancy for

integration of pollution control systems is permitted on the automatic route.

 

Call Centers in India / Call Centre’s in India

FDI up to 100% is allowed subject to certain conditions. 

   Business Process Outsourcing BPO in India

FDI up to 100% is allowed subject to certain conditions. 

Special Facilities and Rules for NRI's and OCB's

NRI's and OCB's  are allowed the following special facilities:

1. Direct investment in industry, trade, infrastructure etc.

2. Up to 100% equity with full repatriation facility for capital and dividends in the

following sectors  

i. 34 High Priority Industry Groups

ii. Export Trading Companies

iii. Hotels and Tourism-related Projects

iv. Hospitals, Diagnostic Centers

v. Shipping

vi. Deep Sea Fishing

vii. Oil Exploration

viii. Power
 ix. Housing and Real Estate Development

x. Highways, Bridges and Ports

xi. Sick Industrial Units

xii. Industries Requiring Compulsory Licensing

3. Up to 40% Equity with full repatriation: New Issues of Existing Companies

raising Capital through Public Issue up to 40% of the new Capital Issue.

4. On non-repatriation basis: Up to 100% Equity in any Proprietary or Partnership

engaged in Industrial, Commercial or Trading Activity.

5. Portfolio Investment on repatriation basis: Up to 1% of the Paid up Value of the

equity Capital or Convertible Debentures of the Company by each NRI.

Investment in Government Securities, Units of UTI, National Plan/Saving

Certificates.

6. On Non-Repatriation Basis: Acquisition of shares of an Indian Company, through

a General Body Resolution, up to 24% of the Paid Up Value of the Company.

7. Other Facilities: Income Tax is at a Flat Rate of 20% on Income arising from

Shares or Debentures of an Indian

India Further Opens Up Key Sectors for Foreign Investment

India has liberalized foreign investment regulations in key sectors, opening up

commodity exchanges, credit information services and aircraft maintenance operations.

The foreign investment limit in Public Sector Units (PSU) refineries has been raised from

26% to 49%.

An additional sweetener is that the mandatory disinvestment clause within five years has

been done away with. FDI in Civil aviation up to 74% will now be allowed through the

automatic route for non-scheduled and cargo airlines, as also for ground handling

activities. 100% FDI in aircraft maintenance and repair operations has also been allowed.

But the big one, allowing foreign airlines to pick up a stake in domestic carriers has been

given a miss again. India has decided to allow 26% FDI and 23% FII investments in

commodity exchanges, subject to the proviso that no single entity will hold more than 5%

of the stake. 

Sectors like credit information companies, industrial parks and construction and

development projects have also been opened up to more foreign investment. Also

keeping India's civilian nuclear ambitions in mind, India has also allowed 100% FDI in

mining of titanium, a mineral which is abundant in India.

Sources say the government wants to send out a signal that it is not done with reforms

yet. At the same time, critics say contentious issues like FDI and multi-brand retail are

out of the policy radar because of political compulsions.

 Sector-wise FDI Inflows ( From April 2000 to January 2010)
AMOUNT OF FDI

SECTOR INFLOWS PERCENT OF TOTAL FDI

In US$ INFLOWS (In terms of Rs)

  In Rs Million
Million
 
Services Sector 787420.81 18118.40 22.39
Computer Software &
391109.74 8876.43 11.12
hardware
Telecommunications 275441.38 6215.55 7.83
Construction Activities 213595.12 5029.01 6.07
Automobile 146799.41 3310.23 4.17
Housing & Real estate 217936.02 5118.85 6.20
Power 137089.37 3129.66 3.90
Chemicals (Other than
87008.07 1964.06 2.47
Fertilizers)
Ports 63290.50 1551.88 1.80
Metallurgical industries 109563.20 2612.85 3.11
Electrical Equipments 57379.63 1324.92 1.63
Cement & Gypsum
70781.19 1621.03 2.01
Products
Petroleum & Natural
94417.17 2244.17 2.68
Gas
Trading 62416.85 1480.94 1.77
Consultancy Services 48647.43 1112.92 1.38
Hotel and Tourism 52500.05 1217.50 1.49
Food Processing
34362.49 760.32 0.98
Industries
Electronics 33914.75 748.57 0.96
Misc. Mechanical &
28310.13 648.86 0.80
Engineering industries
Information & 52115.90 1194.20 1.48

Broadcasting (Incl.

Print media)
Mining 21204.94 522.86 0.60
Textiles (Incl. Dyed,
26736.94 611.03 0.76
Printed)
Sea Transport 17653.81 402.59 0.50
Hospital & Diagnostic
27241.42 644.73 0.77
Centers
Fermentation Industries 27743.46 658.04 0.79
Machine Tools 10955.32 247.88 0.31
Air Transport ( Incl. air
10552.19 240.71 0.30
freight)
Ceramics 17462.43 409.92 0.50
Rubber Goods 11392.76 247.60 0.32
Agriculture Services 7937.13 188.39 0.23
Industrial Machinery 13748.27 316.97 0.39
Paper & Pulp 18612.76 429.06 0.53
Diamond & Gold
11014.62 248.15 0.31
Ornaments
Agricultural Machinery 6649.12 148.37 0.19
Earth Moving 5749.34 134.22 0.16
Machinery
Commercial, Office &
5798.71 132.74 0.16
Household Equipments
Glass 5683.60 126.51 0.16
Printing of Books (Incl.
6066.23 135.80 0.17
Litho printing industry)
Soaps, Cosmetics and
4984.88 114.54 0.14
Toilet Preparations
Medical & Surgical
8087.87 177.42 0.23
Appliances
Education 14374.11 309.09 0.41
Fertilizers 4282.17 96.59 0.12
Photographic raw Film
2580.20 63.90 0.07
& Paper
Railway related
3281.85 75.11 0.09
components
Vegetable oils and
3769.18 83.69 0.11
Vanaspati
Sugar 1836.64 41.58 0.05
Tea & Coffee 3774.81 84.28 0.11
Leather, Leather goods
1621.56 36.74 0.05
& Piackers
Non-conventional
3640.58 86.84 0.10
energy
Industrial instruments 1368.36 29.47 0.04
Scientific instruments 511.44 11.64 0.01
Glue and Gelatine 385.80 8.44 0.01
Boilers & steam
238.67 5.40 0.01
generating plants
Dye-Stuffs 406.48 9.52 0.01
Retail Trading (Single
1074.67 25.18 0.03
brand)
Coal Production 614.10 15.42 0.02
Coir 50.17 1.12 0.00
Timber products 139.59 3.10 0.00
Prime Mover (Other

than electrical 178.30 3.72 0.01

generators
Defence Industries 6.87 0.15 0.00
Mathematical,

Surveying & drawing 50.35 1.27 0.00

instruments
Misc. industries 180561.54 4162.55 5.19

Sub Total 3517310.79 81010.63 100.00

Stock Swapped (from
145466.35 3391.07 -
2002 to 2008)
Advance of Inflows
89622.22 1962.82 -
(from 2000 to 2004)
RBI's NRI Schemes 5330.60 121.33 -
Grand Total 3757729.96 86395.85 -

Sector wise FDI inflows

 
 SOURCE: DIPP, Federal Ministry of Commerce and Industry, Government of

India

Forbidden Territories:

 Arms and ammunition

 Atomic Energy

 Coal and lignite

 Rail Transport

 Mining of metals like iron, manganese, chrome, gypsum, sulfur, gold, diamonds,

copper, zinc.

Foreign Investment through GDRs (Euro Issues) –

Indian companies are allowed to raise equity capital in the international market through

the issue of Global Depository Receipt (GDRs). GDR investments are treated as FDI and

are designated in dollars and are not subject to any ceilings on investment. An applicant

company seeking Government's approval in this regard should have consistent track

record for good performance (financial or otherwise) for a minimum period of 3 years.

This condition would be relaxed for infrastructure projects such as power generation,

telecommunication, petroleum exploration and refining, ports, airports and roads.

1. Clearance from FIPB –

There is no restriction on the number of Euro-issue to be floated by a company or a group

of companies in the financial year. A company engaged in the manufacture of items

covered under Annex-III of the New Industrial Policy whose direct foreign investment

after a proposed Euro issue is likely to exceed 51% or which is implementing a project

not contained in Annex-III, would need to obtain prior FIPB clearance before seeking

final approval from Ministry of Finance.

2. Use of GDRs –

The proceeds of the GDRs can be used for financing capital goods imports, capital

expenditure including domestic purchase/installation of plant, equipment and building

and investment in software development, prepayment or scheduled repayment of earlier

external borrowings, and equity investment in JV/WOSs in India.

Foreign direct investments in India are approved through two routes –

1. Automatic approval by RBI –

The Reserve Bank of India accords automatic approval within a period of two weeks

(subject to compliance of norms) to all proposals and permits foreign equity up to 24%;

50%; 51%; 74% and 100% is allowed depending on the category of industries and the

sectoral caps applicable. The lists are comprehensive and cover most industries of interest

to foreign companies. Investments in high priority industries or for trading companies

primarily engaged in exporting are given almost automatic

approval by the RBI.

2. The FIPB Route – Processing of non-automatic approval cases –

FIPB stands for Foreign Investment Promotion Board which approves all other cases

where the parameters of automatic approval are not met. Normal processing time is 4 to 6

weeks. Its approach is liberal for all sectors and all types of proposals, and rejections are

few. It is not necessary for foreign investors to have a local partner, even when the

foreign investor wishes to hold less than the entire equity of the company. The portion of

the equity not proposed to be held by the foreign investor can be offered to the public.
 Analysis of FDI inflow in India

From April 2000 to August 2009-10

(Amount US$ in Millions)

S.No Financial Year Total FDI Inflows % Growth Over Previous Year
1. 2000-01 4,029 ----
2. 2001-02 6,130 (+) 52
3. 2002-03 5,035 (-) 18
4. 2003-04 4,322 (-) 14
5. 2004-05 6,051 (+) 40
6. 2005-06 8,961 (+) 48
7. 2006-07 22,826 (+) 146
8. 2007-08 34,362 (+) 51
9. 2008-09 35,168 (+) 02
10. 2009-10 16,232 ----
 TOTAL FDI INFLOWS IN INDIA
40,000

35,000 35,168
34,362

30,000

25,000
22,826

20,000 TOTAL FDI INFLOWS

16,232
15,000

10,000
8,961

6,130 6,051
5,000 5,035
4,029 4,322

0
01 02 03 04 05 06 07 08 09 10
0 0- 01
-
02
-
03
-
04
-
05
-
06
-
07
-
08
-
09
-
20 20 20 20 20 20 20 20 20 20
 iii. Analysis of sectors attracting highest FDI equity inflows

From April 2000 to March 2010

(Amount in Millions)

Sr. No Country Amount of FDI % As To

Inflows Total FDI

Inflow
1. Service Sector 9,65,210.77 22.14

(Financial & Non Financial)

2. Computer Software & Hardware 4,13,419.03 9.48
3. Telecommunication 3,68,899.62 8.46
4. Housing & Real Estate 3,25,021.36 7.46
5. Construction Activities 2,65,492.96 6.09
6. Automobile Industry 1,90,172.22 4.36
7. Power 1,79,849.92 4.13
8. Metallurgical Industries 1,25,785.57 2.89
9. Petroleum & Natural Gas 1,11,957.00 2.57
10. Chemical 1,01,680.18 2.33
 The sectors receiving the largest shares of total FDI inflows up to arch 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).

Objective of the study:

 To know the flow of investment in India

 To know how can India Grow by Investment .

 To Examine the trends and patterns in the FDI across different sectors and from

different countries in India

 To know in which sector we can get more foreign currency in terms of investment

in India

 To know which country s safe to invest .

 To know how much to invest in a developed country or in a developing.

 To know Which sector is good for investment .

 To know which country in investing in which country

 To know the reason for investment in India

 Research methodology

In order to accomplish this project successfully we will take following steps.

Data collection:

Secondary Data:

Internet, Books , newspapers, journals and books, other reports and projects, literatures

FDI:

The study is limited to a sample of investing countries e.g. Mauritius, Singapore, USA

etc. and sectors e.g. service sector, computer hardware and software, telecommunications

etc. which had attracted larger inflow of FDI from different countries.
CONCLUSION

A large number of changes that were introduced in the country’s regulatory economic

policies heralded the liberalization era of the FDI policy regime in India and brought

about a structural breakthrough in the volume of the FDI inflows into the economy

maintained a fluctuating and unsteady trend during the study period. It might be of

interest to note that more than 50% of the total FDI inflows received by India , came from

Mauritius, Singapore and the USA.

The main reason for higher levels of investment from Mauritius was that the fact that

India entered into a double taxation avoidance agreement (DTAA) with Mauritius were

protected from taxation in India. Among the different sectors, the service sector had

received the larger proportion followed by computer software and hardware sector and

telecommunication sector.