PROJECT REPORT

ON
“IMPACT OF FOREIGN DIRECT INVESTMENT ON INDIAN ECONOMY-
SERVICE SECTOR”
SUBMITTED TO THE UNIVERSITY OF MUMBAI IN THE PARTIAL
FULFILLMENT OF THE DEGREE B.COM (ACCOUNTING & FINANCE)
SUBMITTED BY:
ASHWINKUMAR SHASHIBHUSHAN PANDEY
T.Y.BAF
ACADEMIC YEAR: 2024-25
PROJECT GUIDE:
ASST. PROF. SEJAL V. PANCHAL
M.COM (ADVANCED ACCOUNTANCY AND FINANCE)
SUBMITTED TO:
UNIVERSITY OF MUMBAI

SONOPANT DANDEKAR ARTS, V.S. APTE COMMERCE AND M.H. MEHTA SCIENCE
COLLEGE, PALGHAR DIST: PALGHAR PIN: 401404
UNIVERSITY OF MUMBAI
 PROJECT REPORT
ON
“IMPACT OF FOREIGN DIRECT INVESTMENT ON INDIAN ECONOMY-
SERVICE SECTOR”
SUBMITTED TO THE UNIVERSITY OF MUMBAI IN THE PARTIAL
FULFILLMENT OF THE DEGREE B.COM (ACCOUNTING & FINANCE)
SUBMITTED BY:
ASHWINKUMAR SHASHIBHUSHAN PANDEY
T.Y.BAF
ACADEMIC YEAR: 2024-25
PROJECT GUIDE:
ASST. PROF. SEJAL V. PANCHAL
M.COM (ADVANCED ACCOUNTANCY AND FINANCE)
SUBMITTED TO:
UNIVERSITY OF MUMBAI

SONOPANT DANDEKAR ARTS, V.S. APTE COMMERCE AND M.H. MEHTA SCIENCE
COLLEGE, PALGHAR DIST: PALGHAR PIN: 401404
UNIVERSITY OF MUMBAI
 DECLARATION

I, ASHWINKUMAR SHASHIBHUSHAN PANDEY, A STUDENT OF SONOPANT

DANDEKAR ARTS, V.S. APTE COMMERCE AND M.H. MEHTA SCIENCE
COLLEGE, PALGHAR DIST: - PALGHAR, PIN: - 401 404 STUDYING IN T.Y.BAF
HEREBY DECLARE THAT I HAVE COMPLETED THIS PROJECT ON “IMPACT
OF FOREIGN DIRECT INVESTMENT ON INDIAN ECONOMY- SERVICE
SECTOR” DURING THE ACADEMIC YEAR 2024-25. THE INFORMATION
SUBMITTTED IS TRUE AND ORIGINAL TO THE BEST OF MY KNOWLEDGE.

DATE: SIGNATURE OF STUDENT

PLACE: PALGHAR
 CERTIFICATE

I, ASST. PROF. SEJAL V. PANCHAL, HEREBY CERTIFY THAT ASHWINKUMAR

SHASHIBHUSHAN PANDEY OF SONOPANT DANDEKAR ARTS, V.S. APTE
COMMERCE AND M.H. MEHTA SCIENCE COLLEGE, PALGHAR DIST: -
PALGHAR, PIN: - 401 404 OF T.Y.BAF HAS COMPLETED HIS PROJECT ON
“IMPACT OF FOREIGN DIRECT INVESTMENT ON INDIAN ECONOMY-
SERVICE SECTOR.” DURING THE ACADEMIC YEAR 2024-25. THE
INFORMATION SUBMITTED IS TRUE AND ORIGINAL TO THE BEST OF MY
KNOWLEDGE.

ASST. PROF. SEJAL V. PANCHAL SIGNATURE OF THE

SIGNATURE OF PROJECT GUIDE PRINCIPAL OF THE COLLEGE

ASST. PROF. MAQSOOD MEMON SIGNATURE OF

SIGNATURE OF CO-ORDINATOR EXTERNAL EXAMINER
 ACKNOWLEDGEMENT

If words are considered as a symbol of approval and token of appreciation, then let the
words play the heralding role expressing my gratitude. My successful completion of
this project report involved more than just my desire to earn a valued degree working
on this project has presented me with many insights and challenges.
I would like to thank the University of Mumbai for introducing an Accounting and
Finance course, thereby giving its students a platform to abreast with changing business
scenario, with the help of theory as a base and practical as a solution. I am also thankful
to the management of Sonopant Dandekar Arts, V.S. Apte Commerce and M.H. Mehta
Science College of Palghar for making all the facilities available and espousing the
cause of the research. I would like to thank our honourable principal Dr. Kiran Save.
I would like to express my earnest gratitude to Asst. Prof. Sejal V. Panchal for his
superlative guidance and unflinching support throughout the project work. No
development would have been feasible had it not been for their excellent supervision,
constant encouragement and careful perusal, in completion of the project successfully.
Last but not the least, I would like to thank my parents & teachers for giving the best
education and friends for their support and feelings without which this project would
not have been possible. Many others, without whose invaluable help and expert advice
this project would not have been the same ought to be cited.
With the completion of my project entitled “IMPACT OF FOREIGN DIRECT
INVESTMENT ON INDIAN ECONOMY- SERVICE SECTOR .”

-ASHWINKUMAR SHASHIBHUSHAN PANDEY

 INDEX
Sr. No. PAGE
Name of Topic
NO.

1 Introduction 1

2 Research Methodology 17

3 Literature Review 19

4 Data Analysis, Interpretation and Presentation 22

5 Conclusion 70

6 Findings Of Study 71

7 Suggestions 73

8 Bibliography 75
 Declaration by learner

I the undersigned ASHWINKUMAR SHASHIBHUSHAN PANDEY here by,

declare that the work embodied in this project work titled “Impact of Foreign
Direct Investment on Indian Economy-Service Sector”, forms my own
contribution to the research work carried out under the guidance of ASST.
PROF. SEJAL V. PANCHAL is a result of my own research work and has not
been previously submitted to any other University for any other Degree/Diploma
this or any other University.

Wherever reference has been made to previous works of others, it has been clearly
indicated as such and included in the bibliography.

I, here by further declare that all information of this document has been obtained
and presented in accordance with academic rules and ethical conduct.

Certified by Name and Signature of the learner

Name and signature of the Guiding Teacher ASHWINKUMAR S. PANDEY

ASST. PROF. SEJAL V. PANCHAL
 INTRODUCTION

WHAT IS FDI?

Foreign Direct investment (FDI) is an investment made by a firm or

individual in one country into business interests located in another country.
Generally, FDI takes place when an investor establishes foreign business
operations or acquires foreign business operations or acquires foreign business
assets in a foreign company. However, FDIs are distinguished from portfolio
investments in which an investor merely purchases equities of foreign-based
companies.

FDI IN INDIAN ECONOMY

FDI plays an important role in the economic development of a country. The

capital inflow of foreign investors allows strengthening infrastructure, increase
productivity and creating employment opportunities in India. Additionally, FDI
acts as a medium to acquire advanced technology and mobilize foreign exchange
resources. Availability of foreign exchange reserves in the country allows RBI
(the central banking institution of India) to intervene in the foreign exchange
market and control any adverse movement in order to stabilize the foreign
exchange rates. As a result, it provides a more favorable economic environment
for the development of Indian economy.

1
HISTORICAL BACKGROUND

The historical background of FDI in India can be traced back with the
establishment of East India Company of Britain. British capital came to India
during the colonial era of Britain in India. After Second World War, Japanese
companies entered Indian market and enhanced their trade with India, yet U.K.
remained the most dominant investor in India. Further, after Independence issues
relating to foreign capital, operations of MNCs, gained attention of the policy
makers. Keeping in mind the national interests the policy makers designed the
FDI policy which aims FDI as a medium for acquiring advanced technology and
to mobilize foreign exchange resources. With time and as per economic and
political regimes there have been changes in the FDI policy too. The industrial
policy of 1965, allowed MNCs to venture through technical collaboration in
India. Therefore, the government adopted a liberal attitude by allowing more
frequent equity.

In the critical face of Indian economy, the government of India with the help
of World Bank and IMF introduced the macro-economic stabilization and
structural adjustment program. As a result of these reforms India open its door to
FDI inflows and adopted a more liberal foreign policy in order to restore the
confidence of foreign investors.
Further, under the new foreign investment policy Government of India
constituted FIPB (Foreign Investment Promotion Board) whose main function
was to invite and facilitate foreign investment Starting from a baseline of less
than USD 1 billion in 1990, a recent UNCTAD survey projected India as the
second most important FDI destination (after China) for transnational
corporations during 2010-2012. As per the data, the sectors which attracted
higher inflows were services, telecommunication, construction activities and
computer software and hardware. Mauritius, Singapore, the US and the UK were
among the leading sources of FDI to the country.

According to GYANPRATHA – ACCMAN (Journal of Management, Volume

5 Issue 1, 2013) FDI for 2009-10 at US$ 25.88 billion was lower by five per
cent from US$ 27.33 billion in the previous fiscal. Foreign direct investment in

2
August dipped by about 60 per cent to approx. US$ 34 billion, the lowest in
2010 fiscal, industry department data released showed. In the first two months
of 2010-11 fiscal. FDI inflow into India was at an all-time high of $7.78 billion
up 77%from $4.4 billion during the corresponding period in the previous year.

3
In 2013, the government relaxed FDI norms in several sectors, including
telecom, Defence, PSU oil refineries, power exchanges and stock exchanges,
among others. In retail, UK-based Tesco submitted its application to initially
invest US$ 110 million to start a supermarket chain in collaboration with Tata
Group's Trent. In civil aviation, Malaysia-based Air Asia and Singapore Airlines
teamed up with Tata Group to launch two new airline services. Also, Abu Dhabi-
based Etihad picked up a 24 per cent stake in Jet Airways that was worth over Rs
2, 000 crore (US$ 319.39 million).

India has received total foreign investment of US$ 306.88 billion since 2000 with
94 per cent of the amount coming during the last nine years.

In the period 1999–2004, India received US$ 19.52 billion of foreign investment.

In the period 2004–09, foreign investment in the country touched US$ 114.55
billion, further increasing to US$ 172.82 billion between 2009–September, 2013.

During FY 2012–13, India attracted FDI worth US$ 22.42 billion. Tourism,
pharmaceuticals, services, chemicals and construction were among the biggest
beneficiaries.

The January–November period in 2013 witnessed mergers and acquisitions deals

worth US $ 26.76 billion in India, according to a survey by tax advisory firm
Grant Thornton.

4
FEATURES OF FDI IN INDIA

Since independence, the Indian policy on foreign investment could be seen as

ambivalent and swinging between regulation and liberalization. During the first
three decades after independence, the government displayed a “stop and go”
attitude towards foreign capital investment.

On the one hand, the government sought to establish limits on the areas of
industrial activity in which foreign investment could operate and also to restrict the
degree of foreign ownership of these operations. The government, on the other
hand, wanted to invite foreign investment with a hope that it would provide
technology and capital for industrialization as well as boost Indian’s foreign
exchange reserves. However, as a major component of structural adjustment
programme, since 1991, the Government of India has announced many policy
measures to attract foreign investment.

India has among the most liberal and transparent policies on FDI among the
emerging economies.

The Salient Features of Foreign Direct Investment Policy in India are as follows:

1) FDI up to 100 per cent is allowed under the automatic route in all
activities/sectors except the following, which will require approval
of the Government:
a. Activities/items that require an Industrial License;

b. Proposals in which the foreign collaborator has a

previous/existing venture/tie up in India in the same or allied
field.

c. All proposals relating to acquisition of shares in an existing

Indian company by a foreign/NRI investor.
d. All proposals falling outside notified sectoral policy/caps or
under sectors in which FDI is not permitted.

2) FDI in areas of special economic activity:

5
a. Special Economic Zones:

100 per cent FDI is permitted under automatic route for setting up
of Special Economic Zone. Units in SEZ qualify for approval
through automatic route subject to sectoral norms. Details about the
type of activities permitted are available in the Foreign Trade Policy
issued by the Department of Commerce. Proposals not covered
under the automatic route require approval by FIPB.

b. Export Oriented Units (EOUs):

100 per cent FDI is permitted under automatic route for setting up
100 per cent EOU, subject to sectoral norms. Proposals, which are
not covered under the automatic route would be considered and
approved by FIPB.

c. Industrial Park:

100 per cent FDI is permitted under automatic route for setting up
of the Industrial Park. Electronic Hardware Technology Park
(EHTP) Units All proposals for FDI/NRI investment in EHTP
Units are eligible for approval under the automatic route subject to
the parameters listed. For proposals not covered under automatic
route, the applicant should seek separate approval of the FIPB, as
per the procedure outlined in the policy.

d. Software Technology Park Units:

All proposals for FDI/NRI investment in STP Units are eligible

for approval under automatic route subject to parameters listed.
For proposals not covered under automatic route, the applicant
should seek separate approval of the FIPB, as per the procedure
outlined in the policy.

6
ADVANTAGES AND DISADAVANTAGES OF FDI IN INDIA

ADVANTAGES

 Promotion of investment in key areas:

By allowing FDI, we can promote investment in key areas such as

infrastructure development as a result of which there will be more
production of capital goods. For example, investment in power
generation can generate more electric power which will enable the
growth of more industries.

 New technologies:

FDI can bring in more new technologies which were not adopted in the
country till now. Examples are the recent developments in the
Communications System. The launching of satellites with the help of
other countries has enabled the growth of communication system in the
country. Nokia has come to India for promoting India’s communication
system.

 Increase in Capital inflow:

FDI promotes more capital inflow into the country especially in key and
core sectors. We have a shortage of capital not only in the form of money
but also in the form of material. FDIs will bridge this gap by which there
will be speedy economic growth in the country.

 Increase in Exports:

With the help of FDI, the exports of many underdeveloped countries have
increased. The creation of Economic Zones and promotion of 100%
export- oriented units have helped FDIs in increasing their exports from
other countries. Certain consumer products produced by them have

7
 world-wide markets. There is a change in the composition of exports and
direction of exports with the presence of FDI.

 Promotion of Employment opportunities:

The advent of FDI in developing countries has promoted the service

sector. This has resulted in a change in the advertising and marketing
technologies. This provides more scope for employment opportunities.
Educated unemployment to some extent is reduced by the FDI as they
could absorb some of Indian work force.

 Promotion of financial services:

FDI strengthens financial services of a country by not only entering its

banking industry but also by extending other activities such as merchant
banking, portfolio investment, etc., which has resulted in the promotion
of more new companies. It has also helped the capital market in the
country.

 Exchange rate stability:

Reserve Bank of India has been maintaining the exchange rate in the
country through its exchange control measures. But the constant and
continuous supply of foreign exchange is a must for continuing exchange
rate stability. With more FDIs coming into the country, this is made
possible and today RBI is having a comfortable foreign exchange reserve
position of more than 1 billion dollars.

 Development of backward areas:

Foreign direct investments are in a way responsible for the development

of backward areas. There are so many industries started by them in far
reaching and backward areas, as a result of which these areas have
developed into industrial centers. Some of the backward regions have

8
 utilized the services of FDIs for starting industries in backward areas.
Examples are Hyundai and Ford car units started at Sriperumbadur and
Maraimalainagar in India.

 Utilization of natural resources:

The natural resources in the country are put to better use by the FDIs
which otherwise would have remained un utilized. The examples are
Saint Gobain glass company and manufacture of paper and newsprint.

 Change in the lifestyle of people:

The presence of FDIs has no doubt changed the life-style pattern of

people. The purchase of consumer goods such as TV, fridge,
automobiles are made possible as these goods are made available
through hire purchase system. The increasing number of automobiles
in most of the cities is a standing example for the change in the life-
style.

DISADVANTAGES

 Disappearance of cottage and small-scale industries:

Some of the products produced in cottage and village industries and also

small-scale industries had to disappear from the market due to the

onslaught of the products from FDIs. Example Multinational soft drinks.

 Contribution to the pollution:

Foreign direct investments contribute to pollution problem in the country.

The developed have shifted some of their pollution borne industries to the
developing countries. The major victim is automobile industries. Most of
these are shifted to developing countries and thud they escaped pollution.
9
 Exchange crisis:

Foreign direct investments are one of the reasons for exchange crisis at
time. During the year 2000, the Southeast Asian countries experienced
currency crisis because of the presence of FDIs. With inflation
contributed by them, exports have dwindled resulting in heavy fall of
domestic currency. As a result of this, the FDIs started withdrawing their
capital leading to an exchange crisis. Thus, to much dependence on FDIs
will create exchange crisis.

 Cultural erosion:

In all the countries where the FDIs have made an inroad, there has been
a cultural shock experienced by the local people, adopting a different
culture alien to the country. The domestic culture either disappears or
suffers a setback. This is felt in the family structure, social setup and
erosion in the value system of the people. Importance given to human
relations, hither to suffer a setback with the hi-fi style of living.
 Inflation in the Economy:

The presence of FDIs has also contributed to the inflation in the country.

They spend lot of money in advertisement and done consumer promotion.

This is done at the cost of the consumers and the price is increased. They
also form cartels to control the market and exploit the consumer. The
biggest world cartel, OPEC is an example of FDI exploiting the
consumer.

 Trade Deficit:

The introduction of TRIPs (Trade Related Intellectual Property Rights) and

TRIMs (Trade Related Investment Measures) has restricted the production
of certain products in other countries. For example, India cannot
manufacture certain medicines without paying royalties to the country

10
 which has originally invented the medicines. The same thing applied to
seeds which are used in agriculture. Thus, the developing countries are
made to either import the products or produce them through FDIs at a
higher cost. WTO (World Trade Organization) is in favor of FDIs.

 World Bank and IMF Aid:

Some of the developing countries have criticized the World Bank and
IMF (International Monetary Fund) in extending assistance. There is a
discrimination shown by these international agencies. Only those
countries which accommodate FDIs will receive more assistance from
these international institutions.

 Convertibility of Currency:

FDIs are insisting on total convertibility of currencies in under developed

countries as a prerequisite for investment. This may not be possible in
many countries as there may not be sufficient foreign currency reserve to
accommodate convertibility. In the absence of such facility, it is
dangerous to allow the FDIS as they may withdraw their investments the
moment, they find their investments unprofitable.

TYPES OF FDI

1) Horizontal FDI

The most common type of FDI is Horizontal FDI, which primarily

revolves around investing funds in a foreign company belonging to the
same industry as that owned or operated by the FDI investor. Here, a
company invests in another company located in a different country,
wherein both the companies are producing similar goods. For example,
the Spain-based company Zara may invest in or purchase the Indian
company Fab India, which also produces similar products as Zara does.

11
 Since both the companies belong to the same industry of merchandise and
apparel, the FDI is classified as horizontal FDI.

2) Vertical FDI

Vertical FDI is another type of foreign investment. A vertical FDI occurs

when an investment is made within a typical supply chain in a company,
which may or may not necessarily belong to the same industry. As such
when vertical FDI happen, a business invests in an overseas firm which
may supply or sell products. Vertical FDIs are further categorized as
backward vertical integrations and forward vertical integrations. For
instance, the Swiss Coffee producer Nescafe may invest in coffee
plantations in countries such as Brazil, Columbia, Vietnam, etc. Since
the investing firm purchases, a supplier in the supply chain, this type of
FDI is known as backward vertical integration.
Conversely, forward vertical integration is said to occur when a company
invests in another foreign company which is ranked higher in the supply
chain, for instance, a coffee company in India may wish to invest in a
French grocery brand.

3) Conglomerate FDI

When investments are made in two completely different companies of

entirely different industries, the transaction is known as conglomerate
FDI. As such, the FDI is not linked directly to the investors business. For
instance, the US retailer Walmart may invest in TATA Motors, the Indian
automobile manufacturer.

4) Platform FDI

The last types of foreign direct investment is platform FDI. In the case of
platform FDI, a business expands into a foreign country, but the products
manufactured are exported to another, third country. For instance, the
French perfume brand Chanel set up a manufacturing plant in the USA and
12
export products to other countries in America, Asia, and other parts of
Europe.

13
FDI ENTRY ROUTES

FDI under sectors is permitted either through Automatic route or Government

route. Under the Automatic route, the non-resident or Indian company does not
require any approval from Government of India.

Whereas, under the Government route, approval form the Government of India is
required prior to investment. Proposals for foreign investment under the
Government route are considered by the respective Administrative
Ministry/Department.

FDI PERMITTED UNDER SECTORS AS PER FDI POLICY 2018

100% Automatic route

Agriculture & Animal Husbandry, Air-Transport Services (Non Scheduled Air

Transport Service / Helicopters services/ seaplane services requiring DGCA
approval), Airports (Greenfield + Brownfield), Asset Reconstruction
Companies, Auto-components, Automobiles, Biotechnology (Greenfield),
Broadcast Content Services (Up-linking & down-linking of TV channels,
Broadcasting Carriage Services, Capital Goods, Cash & Carry Wholesale
Trading (including sourcing from MSEs), Chemicals, Coal & Lignite,
Construction Development, Construction of Hospitals, Credit Information
Companies, Duty Free Shops, E-commerce Activities, Electronic Systems,
Food Processing, Gems & Jewellery, Healthcare, Industrial Parks, IT & BPM,
Leather, Manufacturing, Mining & Exploration of metals & non- metal ores,
Other Financial Services, Services under Civil Aviation Services such as
Maintenance & Repair Organizations, Petroleum & Natural gas,
Pharmaceuticals, Plantation sector, Ports & Shipping, Railway Infrastructure,
Renewable Energy, Roads & Highways, Single Brand Retail Trading, Textiles

14
& Garments, Thermal Power, Tourism & Hospitality, White Label ATM
Operations and Insurance & Insurance Intermediaries.

Upto 100% Automatic route

 Infrastructure Company in the Securities Market - 49%

 Insurance - upto 49%

 Medical Devices - upto 100%

 Petroleum Refining (By PSUs) – 49%

 Power Exchanges – 49%

Upto 100% FDI permitted under Government route

 Banking & Public sector – 20%

 Broadcasting Content Services – 49%

 Core Investment Company – 100%

 Food Products Retail Trading – 100%

 Mining & Minerals separations of titanium bearing minerals and

ores, Its value addition and integrated activities – 100%

 Multi-Brand Retail Trading – 51%

 Print Media (publications/ printing of scientific and technical

magazines/specialist journals/ periodicals and facsimile edition of
foreign newspapers) – 100%

 Print Media (publishing of newspaper, periodicals and Indian

editions of foreign magazines dealing with news & current affairs)
– 26%

 Satellite (Establishment and operations) – 100%

15
Upto 100% FDI permitted under Automatic & Government

 Airport transport services (Scheduled Air Transport Service/

Domestic Scheduled Passenger Airline; Regional Air Transport
Service) – upto 49% (auto) (Upto 100% under automatic route for
NRIs) + above 49% (Govt.)
 Banking (Private sector) – upto 49% (auto) + above 49% (Govt)

 Biotechnology (brownfield) – upto 74% (auto) + above 74% (Govt)

 Defence – upto 74% (auto) + above 74% (Govt)

 Healthcare (Brownfield) – upto 74% (auto) + above 74% (Govt)

 Pharmaceuticals (Brownfield) – upto 74% (auto) + above 74% (Govt)

 Private Security Agencies – upto 74% (auto) + above 74% (Govt)

 Telecom Services – upto 49% (auto) + above 49% (Govt)

LIST OF PROHIBITED SECTORS

 Lottery Business including Government/ Private lottery, online lotteries etc.

 Chit Funds

 Trading in Transferable Development Rights (TDR)

 Manufacturing of Cigars, cheroots, cigarillos, and cigarettes

(tobacco or tobacco substitutes)

 Gambling and betting including casinos

 Nidhi Company

 Real Estate Business or Construction of Farm Houses

 Sectors not open to private sector investments – atomic energy, railway

operations (other than permitted activities mentioned under the
consolidated FDI Policy)
16
 Foreign technology collaboration in any form including licensing for
franchise, trademark, brand name, management contract is also
prohibited for Lottery Business and Gambling and Betting activities
 Real estate business shall not include the development of town shops,
construction of residential/ commercial premises, roads or bridges and
Real Estate Investment Trusts (REITs) registered and regulated under
the SEBI (REITs) Regulations, 2014.

17
 RESEARCH AND METHODOLOGY

OBJECTIVES

The research paper covers the following objectives:

 To gain insight into the conceptual understanding of foreign direct

investment and its significance
 To critically analyse the role played by foreign direct investment in
driving the economy and development of countries

 To explore and gain insight into the service sector and its contribution
to the Indian economy

 To assess the impact of FDI on the service sector of the Indian economy

SCOPE

FDI has a major role to play in India’s economic development. Many sectors have
seen the growth of foreign investment over the past few years. New reform/
policies are being taken by the Government to promote FDI due to which a
consistent and rapid growth has been recorded in India.

SIGNIFICANCE

Foreign direct investment is significant for developing economies and emerging

markets where companies need funding and expertise to expand their
international sales. Private investment in infrastructure, energy, and water is a
critical driver of the economy as helps in increasing jobs and wages.

Some benefits of foreign direct investment are outlines below:

 it helps in diversifying investors portfolio

 it promotes stable long-term lending

18
 it infuses new technology in developing nations

 it provides financing to developing countries

 it brings in technological knowhow and managerial expertise

 it creates more jobs and opportunities

 it also helps in improving infrastructure in the developing countries

 it helps in raising living standards in emerging economies

19
 LITERATURE REVIEW

INTRODUCTION

Foreign Direct Investment (FDI) in the role of investment is treated as one of

the most significant contributors to the economic growth of the country. In the
past century, with the flow of FDI, there is an overall development and
remarkable growth in the countries. This is because FDI has been treated as the
crucial and significant element by the countries as the strategic alliance for the
overall economic development. FDI not only assists with the capital financing
but also provides with the positive impacts within the country through the
adoption of advanced foreign technology for the achievement of the growth
parameters of the country (Kukaj and Ahmeti, 2016). The overall discussion is
focused on presenting the literature on the concept of FDI, its significance and
the role of FDI in driving the economy towards growth. In addition, the role of
FDI in the development of the underdeveloped, developed and developing
countries are discussed along with the contribution made by FDI in the service
sector of the Indian economy to explain the implications and contributions made
by FDI in India. Furthermore, a critical analysis has been presented depicting the
impact of FDI on the services sector of India by considering four significant
parameters, which include the Technology, employment, banking sector and
infrastructure.

ANALYSIS OF SERVICE SECTOR AND ITS CONTRIBUTION TO

THE INDIAN ECONOMY

In the viewpoint of Domazet, Stošić and Hanić (2016) the service sector is
composed of the person and institutions that provide intangible products and
services to the customers such as health care, education, accounting and
hospitality. This sector does not produce products directly; instead, it provides
helps manufacturing industries to produce products as per their market
conditions. Some of the activities included in the service sector are recreation,
retail, social works and communications
20
(Domazet, Stošić and Hanić, 2016). However, Alcock (2010) has stated that the
role
of the service sector is vital in the growth of the country and consider it as a
third part economy. It includes the sector of hospitality, health care services and
education sector. Moreover, it also includes the outsourcing of various services
such as customer care and repairing of electric components. (Alcock, 2010).

According to Fryer, Antony and Douglas (2007), the conversations in the

public sectors include the term quality and improvement in quality to a great
extent. Quality improvement integrates a large group of tools, procedures and
techniques which focuses on the continuous improvement in the services which
contains improvement in terms of customers, employees, relationship between
employee and suppliers and business strategies. The improvement in quality has
a lot of benefits, such as, low capital investment, reduction in cost, increased
employee commitment, improvement in customer satisfaction and improvement
in performance (Fryer, Antony and Douglas, 2007). According to Akram, Naeem
and Saif (2009), the most important factor that determines the success of service
sector is quality of service and implementation of innovation and creativity in
order to provide good services to the customers. The regulatory policies and law
of the country compel organisations to provide the almost same type of services,
but the main difference is of the way these services are delivered to the
customers and quality of the services (Akram, Naeem and Saif, 2009). Mansury
and Love (2008) have stated that the traditional service sector is considered in a
negative sense as it includes activities of post-production. Nowadays, the service
sector includes the activities that transform and implement changes in the process
of manufacturing and reduce the impact of manufacturing activities on the
environment. The organisation of the service sector interacts with the
organisation of the manufacturing sector as they require equipment for providing
services of excellent quality to the customers (Mansury and Love, 2008).

21
 Bosworth and Collins (2008) have distinguished the economy of India in three
major sectors such as agriculture that includes activities of cropping, fisheries
and forestry. The second sector is of an industry that incorporates the activities of
mining, manufacturing, utilities and construction. The third sector is the service
sector that includes the activities of providing services to the customers, such as
repairing of material. Bosworth and Collins (2008) have further contributed to
the discussion that India has shown extremely high growth in the economy due to
the fast expansion of the industries that provides services. The high growth of the
country depends heavily on the growth of the service sector, especially in the
sector of outsourcing of the services (Bosworth and Collins, 2008). On the
contrary, Eichengreen and Gupta (2009) have stated that the in an increase in the
service sector improves the economy, but it reduces the contribution of another
sector in the Gross Domestic Product (GDP) of India. For instance, the
contribution of in GDP was 55%, in the financial year
1950-1950 that decreases and become 17% in the year 2008-2009.

On the other hand, the contribution of the service sector was 30% in the
financial year 1950 that increases and become 57 % in the financial year 2008-
2009 (Eichengreen and Gupta, 2009).

In the perspective of Verma (2010) the contribution of trade become

significantly important for the economy of India in the year 1990 and one year
after this the government of India was forced to implement liberalization due to
the crisis of balance of payment. The share of export in the service sector shows
high growth after 2000. The contribution of import is also increased after 2000
in the sector of service in the country. The growth in the services sector of India
is due to the increase in the extent of outsourcing activities by the organisation
of Information Technology (IT) (Verma, 2010).

22
 DATA ANALYSIS AND, INTERPRETATION
AND PRESENTATION

INTRODUCTION

Foreign direct investment (FDI) is investment directly into production in a

country by a company located in another country, either by buying a company in
the target country or by expanding operations of an existing business in that
country. It is cross border investment, where foreign assets are invested into the
organizations of the domestic market excluding the investment in stock.

It brings private funds from overseas into products or services. The domestic
company in which foreign currency is invested is usually being controlled by the
investing foreign company.

Foreign direct investment (FDI) plays an extraordinary and growing role

in global business. It can provide a firm with new markets and marketing
channels, cheaper production facilities, access to new technology, products,
skills and financing.

WHY IS FDI IMPORTANT FOR ANY CONSIDERATION OF

GOING GLOBAL?

The simple answer is that making a direct foreign investment allows

companies to accomplish several tasks:

 Avoiding foreign government pressure for local production.

 Circumventing trade barriers, hidden and otherwise.

 Making the move from domestic export sales to a locally-based

national sales office.

 Capability to increase total production capacity.

23
  Opportunities for co-production, joint ventures with local partners,
joint marketing arrangements, licensing, etc.

How is FDI beneficial to the host nation….

For a host country or the foreign firm which receives the investment, it can
provide a source of new technologies, capital, processes, products, organizational
technologies and management skills, and as such can provide a strong impetus to
economic development.

Why India?

 Liberal, largest democracy, Political Stability

 Second largest emerging market (US$ 2.4 trillion)

 Skilled and competitive labors force

 highest rates of return on investment

 one hundred of the Fortune 500 have R & D facilities in India

 Second largest group of software developers after the U.S.

 lists 6,500 companies on the Bombay Stock Exchange (only the

NYSE has more)

 World's fourth largest economy & second largest pharmaceutical industry

 growth over the past few years averaging 8%

 has a middle class estimated at 300 million out of a total

population of one billion

 Destination for business process outsourcing, Knowledge processing etc.

 Second largest English-speaking, scientific, technical and executive

manpower

 Low costs & Tax exemptions in SEZ

 Tax incentives for IT, business process outsourcing and KPO companies
24
INVESTMENT RISKS IN INDIA

 Sovereign Risks

 Political Risks

 Commercial Risks

 Risk due to Terrorism

FACTORS AFFECTING FDI

 Financial incentives (Funds from local Government)

 Fiscal incentives (Exemption from import duties)

 Indirect incentives (Provides land and labour)

 Political stability

 Market potential & accessibility

 Large economy

 Market size

FDI INVESTMENT SECTORS

Prohibited activities

 Atomic energy

 Arms and ammunition

 Lottery business

 Betting and Gambling

 Aircraft and warships

 Coal lignite
25
  Atomic minerals

 Mining

Fully permitted Activities

 Cigar and cigarettes of tobacco

 Coal, Roads & Highways

 Diamond, Gold, Silver, Minerals

 Electricity

 Hotel, hospitals

 Retail

 I.T

 Oil & Energy

 Power sector

 Pharmaceuticals & Chemicals

 Real state

 Mobile Sector

 Automobile

 Telecommunication

FDI IN RETAIL

INTRODUCTION

Foreign direct investment (FDI) in the retail sector in India is restricted. In

2006, the government eased retail policy for the first time, allowing up to 51 per cent
FDI through the single brand retail route. Since then, there has been a steady increase
26
in FDI in the retail sector, and the cumulative FDI in single-brand retail stood at
$195 million by the middle of 2010 (DIPP, 2010).

According to the Department of Industrial Policy and Promotion (DIPP) of the

Government of India, single-brand retail comprises those retailers selling
products “of a ‘single brand’ only, such that products should be sold under the
same brand internationally; and single-brand product retailing covers only
products which are branded during manufacturing. In this category, FDI is
allowed to the extent of 51 per cent in contrast, no FDI is allowed in the multi-
brand retail category. This includes all firms in organized retail that seek to stock
and sell multiple brands, such as large international retailers like Wal-Mart and
Carrefour. This is the sector that is most under dispute.

The Retail sector of India is vast, and has huge potential for growth and
development, as the majority of its constituents are un-organized. The retail sector of
India handles about $250 billion every year, and is expected by veteran economists
to reach to $660 billion by the year 2015. The business in the organized retail sector
of India, is to grow most and faster at the rate of 15-20% every year, and can reach
the level of $100 billion by the year 2015. Here, it is noteworthy that the retail sector
of India contributes about 15% to the national GDP, and employs a massive
workforce of it, after the agriculture sector. India's growing economy with a rate of
approximately 8% per year makes its retail sector highly fertile and profitable to the
foreign investors of all sectors of commerce and economy, of all over the world.

Organized retailing entails trading conducted by licensed retailers and

unorganized retailing includes all types of low-cost trading like local shops, small
roadside stores and temporary shops or door to door selling of various goods. Until
now, according to the Indian retailing laws, Foreign Direct Investment in multi-
brand retail market was prohibited. But government is thinking to open the FDI in
retail in India which implies that foreign investment in retailing is possible up to
51%. Now the announcement of retail FDI in India has triggered a series of debates
on both positive and negative notes and become political issue.

ADVANTAGES AND DISADVANTAGES:

27
Advantages of FDI in retail sector in India:

 Growth in economy: Due to coming of foreign companies’ new

infrastructure will be build, thus real estate sector will grow consequently
banking sector, as money need to be required to build infrastructure
would be provided by banks.
 Job opportunities: Estimates shows that this will create about 80Lakh
jobs. These career opportunities will be created mostly in retail, real
estate. But it will create positive impact on others sectors as well. Read
about career options in Retail-sector

 Benefits to farmers: In most cases, in the retailing business, the

intermediaries have dominated the interface between the manufacturers
or producers and the consumers. Hence the farmers and manufacturers
lose their actual share of profit margin as the lion’s share is eaten up by
the middle men. This issue can be resolved by FDI, as farmers might get
contract farming where they will supply to a retailer based upon demand
and will get good cash for that, they need not to search for buyers.

 Benefits to consumers: Consumer will get variety of products at low

prices compared to market rates, and will have more choice to get
international brands at one place.

 Lack of infrastructure in the retailing chain has been one of the common
issues in India for years which have led the process to an incompetent
market mechanism.

 In the last years, the Public distribution system is proved to be

significantly ineffective. In spite of the fact that the government
arranged for subsidies, the food inflation has caused its negative impact
continuously and it can be handled by FDI.

Disadvantages of FDI in retail sector in India:

28
  According to the non-government cult, FDI will drain out the country’s
share of revenue to foreign countries which may cause negative impact
on India’s overall economy.

 The domestic organized retail sector might not be competitive

enough to tackle international players and might lose its market
share.

 Many of the small business owners and workers from other functional
areas may lose their jobs, as lots of people are into unorganized retail
business such as small shops.

FDI POLICY WITH RESPECT TO RETAILING:

It will be prudent to look into Press Note 4 of 2006 issued by DIPP and
consolidated FDI Policy issued in October 2010 which provide the sector specific
guidelines for FDI with regard to the conduct of trading activities.

a) FDI up to 100% for cash and carry wholesale trading and export
trading allowed under the automatic route.

b) FDI up to 51 % with prior Government approval (i.e., FIPB) for

retail trade of ‘Single Brand’ products, subject to Press Note 3 (2006
Series).

c) FDI is not permitted in Multi Brand Retailing in India.

Single Brand and Multi Brand:

FDI in “single-brand” retail

29
While the precise meaning of single-brand retail has not been clearly defined in
any Indian government circular or notification, single-brand retail generally
refers to the selling of goods under a single brand name.

Up to 100 percent FDI is permissible in single-brand retail, subject to the

Foreign Investment Promotion Board (FIPB) sanctions and conditions
mentioned in Press Note 3[8]. These conditions stipulate that:

• Only single-brand products are sold (i.e., sale of multi-brand goods is

not allowed, even if produced by the same manufacturer)

• Products are sold under the same brand internationally

• Single-brand products include only those identified during manufacturing

• Any additional product categories to be sold under single-brand retail

must first receive additional government approval

FDI in single-brand retail implies that a retail store with foreign investment can only
sell one brand. For example, if Adidas were to obtain permission to retail its
flagship brand in India, those retail outlets could only sell products under the
Adidas brand. For Adidas to sell products under the Reebok brand, which it
owns, separate government permission is required and (if permission is granted)
Reebok products must then be sold in separate retail outlets.

FDI in “multi-brand” retail

While the government of India has also not clearly defined the term “multi-brand
retail,” FDI in multi-brand retail generally refers to selling multiple brands under
one roof. Currently, this sector is limited to a maximum of 49 percent foreign
equity participation.

Rational Behind FDI In Retail:

30
 It is believed that foreign direct investment (FDI) can prove to be a powerful
catalyst which can spur competition in the retail industry. This in turn will lead to
supply chain improvement, development of skill and manpower, betterment in the
agricultural segment as well as improved efficiencies in small and medium scale
industries. Increasing FDI in the retail segment is also believed to help expand the
market size, which in turn will help enhanced productivity. As a result, the
government also stands to gain by way of increased GDP, tax income and
employment generation.

With the consistently growing demand pressure, the unorganized retail

segment will have to make way for the organized markets. In addition, the
unorganized segment will fall short of addressing the growing demand for retail
given the relatively weak financial state of unorganized retailers as well as the space
constraints which restrict their expansion plans.

IMPACT ON CONSUMERS

It is believed that the overall consumer spending has witnessed an increase

backed by the entry of the organized retail. Even though unorganized retail
markets come with their set of benefits which include consumer goodwill, credit
sales, bargain potential, ability to sell loose items, convenient timings, and home
delivery, the consumers most certainly stand to gain from the expansion in
organized retail on multiple counts. In addition, proximity remains a major
comparative advantage for the unorganized outlets. However, it has been
witnessed that the organized retail outlets have proved to provide better savings
to the less well-off consumers other than providing saving to all the income
groups in general.

MAJOR KEY PLAYERS:

31
As India’s retail industry is aggressively expanding itself, great demand for real
estate is being created. The cumulative retail demand for real estate across India
is expected to reach 43 million square feet by 2013.

Around 46 per cent of the total estimated demand between 2009 and 2013 will be
come from Tier-1 cities. For instance, Pantaloon Retail added 2.26 million square
feet (sq. ft.) of retail space during the fiscal 2011 and booked over 9 million sq. ft
of retail space to fructify its expansion plans in future.

Some of the key players in the Indian retail market, with a dominant share are:

 Pantaloons Retail Ltd, a Future group venture: Over 12 mn sq. ft. of

retail space spread over 1,000 stores, across 71 cities in India.
 Shoppers Stop Ltd: Over 1.82 mn sq. ft. of retail space spread over 35
stores, in 15 cities.

 Spencer’s Retail, RPG Enterprises: Retail footage of over 1.1 mn sq. ft.
with approx. 250 stores, across 66 cities.

 Lifestyle Retail, Landmark group venture: Has approximately 15

lifestyle stores and 8 Home centers.

Other major domestic players in India are Bharti Retail, Tata Trent, Globus,
Aditya Birla ‘More’, and Reliance retail. Some of the major foreign players who
have entered the segment in India are–

 Carrefour which opened its first cash-and-carry store in India in New Delhi.

 Germany-based Metro Cash & Carry which opened six wholesale

centers in the country.

 Walmart in a JV with Bharti Retail, owner of Easy Day store—plans to

invest about US$ 2.5 billion over the next five years to add about 10
million sq ft of retail space in the country.

 British retailer Tesco Plc (TSCO) in 2008, signed an agreement with

Trent Ltd. (TRENT), the retail arm of India’s Tata Group, to set up
cash-and-carry stores.

32
  Marks & Spencer’s have a JV with Reliance retail.

CURRENT INVESTMENT SCENARIO

The Indian retail trading has received Foreign Direct Investment (FDI) equity
inflow totaling US$ 3.35 billion during April 2000-September 2020, according to
Department for Promotion of Industry and Internal Trade (DPIIT).

With the rising need for consumer goods in different sectors including consumer
electronics and home appliances, many companies have invested in the Indian retail
space in the past few months.

India’s retail sector attracted US$ 970 million from various private equity funds
in 2019.

In September 2020, US private equity firm Silver Lake announced plan to invest
Rs. 7,500 crores (US$ 1.00 billion) in Reliance Retail, which marks the second
billion- dollar investment by Silver Lake in a Reliance Industries subsidiary after the
US$
1.35 billion investment in Jio Platforms earlier in 2020. Walmart Investments
Cooperative U.A invested Rs. 2.75 billion (US$ 37.68 million) in Wal-Mart India
Pvt Ltd. Walmart Inc. plans to increase exports from India by 3x to US$ 10 billion
by 2027, up from US$ 3 billion at present.

Retail investors boosted their shareholdings in Indian companies to an 11-year

high in September 2020, with first-time investors continuing to add more money
into equities. According to Prime Database, shareholding of retail investors in
1,605 listed companies hit an 11-year high of 7.01% and witnessed ~3.4 million
new ‘Demat’ accounts from July 2020 to September 2020.

In November 2020, OnePlus, the Chinese smartphone maker, launched

‘OnePlus Nizam Palace’ in Hyderabad, touted as its largest experience store
worldwide that is spread across 16,000 sq. ft. The company also announced
plans to invest Rs. 100 crores (US$ 13.51 million) towards market penetration

33
across the omnichannel retail business, including extension of offline experience
beyond metro cities with new retail partnerships.

GOVERNMENT INITIATIVES

The Government of India has taken various initiatives to improve the retail
industry in India. Some of them are listed below:

Government may change Foreign Direct Investment (FDI) rules in food

processing in a bid to permit E-commerce companies and foreign retailers to sell
Made in India consumer products.

Government of India has allowed 100% FDI in online retail of goods and services
through the automatic route, thereby providing clarity on the existing businesses of
E- commerce companies operating in India.

34
FDI IN TELECOMMUNICATION

INTRODUCTION

Currently, India is the world’s second-largest telecommunications market with a

subscriber base of 1.16 billion and has registered strong growth in the last decade.
The Indian mobile economy is growing rapidly and will contribute substantially to
India’s Gross Domestic Product (GDP) according to a report prepared by GSM
Association (GSMA) in collaboration with Boston Consulting Group (BCG). In
2019, India surpassed the US to become the second largest market in terms of
number of app downloads.

The liberal and reformist policies of the Government of India have been
instrumental along with strong consumer demand in the rapid growth in the Indian
telecom sector. The Government has enabled easy market access to telecom
equipment and a fair and proactive regulatory framework, that has ensured
availability of telecom services to consumer at affordable prices. The deregulation
of Foreign Direct Investment (FDI) norms has made the sector one of the fastest
growing and the top five employment opportunity generator in the country.

MARKET SIZE

India ranks as the world’s second largest market in terms of total internet
users. The number of internet subscribers in the country increased at a CAGR of
21.36% from FY16 to FY20 to reach 743.19 million in FY20. Total wireless data
usage in India grew 11.01% quarterly to reach 25,369,679 TB in Q1FY21.

India is also the world’s second-largest telecommunications market. The total

subscriber base in the country stood at 1,168.66 million with a tele-density of
86.22%, as of September 30, 2020.

Gross revenue of the telecom sector stood at Rs. 66,858 crores (US$ 9.09
billion) in the first quarter of FY21.

35
 Over the next five years, rise in mobile-phone penetration and decline in data
costs will add 500 million new internet users in India, creating opportunities for
new businesses.

In the first half of 2024-25, foreign direct investment (FDI) in the

telecommunications sector of India was . This was a significant increase from the
US\$282 million in the same period in 2023-24.

36
BENEFITS OF FDI IN INDIAN TELECOM SECTOR

 Private participation has ensured that the best of services is provided to

consumers at reasonable rates. Due to the increase in the number of
telecom companies, the competition has enhanced consumer
experience with the freedom of choice between these networks.

 The Indian telecom sector is growing at a steady rate as more and more
of the population becomes connected. The investment opportunities are
immense since the subscriber base is showing healthy growth. Hence,
for foreign investors, Indian telecom sector is a very attractive and
promising one.
 Private investment has also improved the allied telecom infrastructure.
This has ensured maximum connectivity to the general population
with telecom connectivity reaching all corners of the country.

IMPACT OF RELAXATION

The sector is witnessing steady growth since the government has increased
FDI in the telecom space to 100%. FDI in the telecom sector has jumped nearly
five times in the past 3 years – from $1.3 billion in 2015-16 to $6.2 billion in
2017-18. However, FDI has plunged to $2.6 billion in 2018-19. The quantum
and nature of FDI inflows depend on many factors and accordingly no specific
reasons can be attributed for increase or decrease of inflows on year-to-year
basis.

There has been neither a regulatory uncertainty nor the lack of conducive
environment to invest in the Telecom Sector which may be cited as a reason for
the year-to-year decline in FDI.

The telecom sector is facing financial stress due to stiff competition and
reduction in tariffs. The country needs massive investment in developing newer

37
technologies which could be accessible and affordable to the people and at the
same time creates productive employment.

The government is aiming the commercial rollout of fifth-generation or 5G

services by the end of 2020. The newer technology is also expected to bring in
potential investment in the country with an array of multinational expressing
interest in the enterprise applications and utility services.

INVESTMENT/MAJOR DEVELOPMENT

With daily increasing subscriber base, there have been a lot of investment and
development in the sector. FDI inflow into the telecom sector during April 2000
– September 2020 totalled US$ 37.27 billion according to the data released by
Department for Promotion of Industry and Internal Trade (DPIIT).

Some of the developments in the recent past are:

In December 2020, BSNL, in partnership with Skylotech India,

announced a breakthrough in satellite-based NB-IoT (Narrowband-
Internet of Things) for fishermen, farmers, construction, mining and
logistics enterprises.

In the first quarter of FY21, customer spending on telecom services increased

16.6% y-o-y, with over three-fourths spent on data services. This spike in
consumer spending came despite of the COVID-19 disruption and lack of access
of offline recharges for a few weeks.

On November 24, 2020, Google paid Rs. 33,737 (US$ 4.5 billion) for a
7.73% stake in Reliance Industries Ltd.’s (RIL) digital subsidiary—Jio
Platforms Ltd.

In September 2020, Reliance Jio partnered with 22 foreign airlines for inflight
internet connectivity with plans starting at Rs. 499 (US$ 6.76) per day.

In September 2020, Airtel and Radware partnered to offer cloud security

services to businesses in India.

38
 Airtel launched a new ad campaign, ‘Sab Kuch Try Karo, Fir Sahi Chuno’,
and rolled out a new campaign 'Open to Questions', highlighting its aim to
resolve every single customer query, learn quickly from failures and ensure these
are not repeated.

India had over 500 million active internet users (accessed Internet in the last
one month) as of May 2020.

In June 2020, Jio Platforms Ltd. sold 22.38% stake worth Rs 1.04 trillion
(US$ 14.75 billion) to ten global investors in a span of eight weeks under
separate deals, involving Facebook, Silver Lake, Vista, General Atlantic,
Mubadala, Abu Dhabi Investment Authority (ADIA), TPG Capital and L.
Catterton. This is the largest continuous fundraise by any company in the world.

In April 2020, Vodafone Group Plc infused Rs 1,530 crore (US$ 217.05
million) in Vodafone Idea as accelerated payment to help the company manage
its operations.

As of January 2020, more than 542 banks were permitted to provide mobile
banking services in India.

GOVERNMENT INITIATIVES

The Government has fast-tracked reforms in the telecom sector and continues to
be proactive in providing room for growth for telecom companies. Some of the key
initiatives taken by the Government are as follows:

In December 2020, the Union Cabinet, chaired by the Prime Minister, Mr.
Narendra Modi, approved a proposal by Department of Telecommunications for
setting up of Public Wi-Fi Networks by Public Data Office Aggregators
(PDOAs) to provide public Wi-Fi services through Public Data Offices (PDOs).

In December 2020, the Union Cabinet, chaired by the Prime Minister, Mr.
Narendra Modi, approved the provision of submarine optical fibre cable

39
connectivity between Mainland (Kochi) and Lakshadweep Islands (KLI
Project).

On November 4, 2020, The Union Cabinet, chaired by the Prime Minister, Mr.
Narendra Modi, approved to sign a Memorandum of Understanding (MoU)
between the Ministry of Communication and Information Technology and the
Department of Digital, Culture, Media and Sports (DCMS) of United Kingdom
Government on cooperation in the field of telecommunications/information and
communication technologies (ICTs).

On September 21, 2020, Prime Minister, Mr. Narendra Modi launched a

project to connect all 45,945 villages in Bihar with optical fibre internet service.
This project will be completed by March 31, 2021 at a cost of Rs. ~1,000 crore
(US$ 135.97 million); Rs. 640 crores (US$ 87.01 million) of capital expenditure
will be funded by Department of Telecommunications.

In March 2020, the government approved the Production Incentive Scheme

(PLI) for Large- scale Electronics Manufacturing. The scheme proposes
production-linked incentive to boost domestic manufacturing and attract large
investments in mobile phone manufacturing and specified electronic
components including Assembly, Testing, Marking and Packaging (ATMP)
units.

In January 2020, Government of India allowed 100% FDI in Bharti Airtel.

The Government of India planned to roll out a new National Telecom Policy
2018 in lieu of rapid technological advancement in the sector over the past few
years. The policy intended to attract investments worth US$ 100 billion in the
sector by 2022.

The Department of Information Technology intends to set up over 1 million

internet- enabled common service centers across India as per the National e-
Governance Plan.

FDI cap in the telecom sector has been increased to 100% from 74%; out
of 100%, 49% will be done through the automatic route and the rest will be
done through the FIPB approval route.
40
 FDI of up to 100% is permitted for infrastructure providers offering dark fibre,
electronic mail and voice mail.

The Government of India has introduced Digital India programme under which
all the sectors such as healthcare, retail, etc., will be connected through internet.

ACHIEVEMENTS

Following are the achievements of the Government in the past four years:

Department of Telecommunication launched ‘Tarang Sanchar’ - a web portal

sharing information on mobile towers and EMF Emission Compliances.

Payments on unified payments interface (UPI) hit an all-time high of 2.2 billion
in terms of volume with transactions worth ~Rs. 3.90 lakh crore (US$ 53.14
billion) in November 2020.

Over 75% increase in internet coverage from 251 million users to 446 million.

ROAD AHEAD

Revenue from the telecom equipment sector is expected to grow to US$ 26.38
billion by 2022. The number of internet subscribers in the country is expected to
double by 2021 to 829 million and overall IP traffic is expected to grow four-fold
at a CAGR of 30% by 2022. The Indian Government is planning to develop 100
smart city projects, and IoT will play a vital role in developing these cities. The
National Digital Communications Policy 2018 envisaged attracting investment
worth US$ 100 billion in the telecommunications sector by 2023. App downloads
in India is expected to increase to 18.11 billion in 2018F and 37.21 billion in
2022F.

41
FDI IN POWER SECTOR

India needed an additional 100,000 megawatts of power in 2012. India,

however, currently has a peak deficit of 18 percent and an overall deficit of 9
percent. While India possesses the fifth largest electricity generation capacity in
the world, it has low per capita consumption at just 606 units – less than half of
China’s consumption per head.

While concerns exist over Chinese-managed projects close to India’s

border areas, opportunities do exist for politically neutral energy providers to
service the Indian market.

According to the Ministry of Power, the total installed capacity in India is

calculated to be 145,554.97 megawatts. They also state that India has:

A generation capacity of 122 GW, with 590 billion units produced (1 unit =
1kwh) CAGR of 4.6 percent over the last four years;

The fifth largest electricity generation capacity in the world with low per capita
consumption at 606 units;

A transmission and distribution network of 5.7 million circuit kilometers; and

Coal-fired plants that constitute 57 percent of the installed generation capacity,

followed by 25 percent from hydroelectric power, 10 percent from gas, 3 percent
from nuclear energy and 5 percent from renewable sources.

The State Electricity Regulatory Commission has said that India possesses a
vast opportunity to grow in the field of power generation, transmission and
distribution. The country’s target of over 150,000 megawatts of hydroelectric
power generation has not yet been achieved however, as huge capital
investments are required to meet this target. This has resulted in numerous
power generation, transmission and distribution multinationals establishing
operations in the country under the public- private partnership (PPP) program.

42
 The power sector is still experiencing a large demand-supply gap, and this has
called for an effective consideration of strategic initiatives. As a result, there are

strong opportunities in transmission network ventures in India – an additional

60,000 circuit kilometers of transmission network is expected to be completed
within the next few years with a total investment opportunity of about US$200
billion.

According to the Ministry of Power, the implementation of key reforms is likely

to foster growth in all segments as follows:

a) Coal based plants at pithead or coastal locations (imported

coal);

b) Natural gas/CNG based turbines at load centers or near gas

terminals;
c) Hydroelectric power, with 150,000 MW of untapped potential as assessed by the
government of India; and

d) Renovation, modernization, upgrading and life extension of old thermal and

hydroelectric power plants.

43
 OPPORTUNITIES

Allowing foreign equity participation of up to 100 percent in the power sector

under the automatic route;

Encouraging the private sector to set up coal, gas or liquid-based thermal

projects, hydroelectric projects and wind or solar projects of any size;

Constitution of independent state electricity regulatory

commissions; Deregulation of the ancillary sectors such as coal;
Introduction of the Electricity Act and national electricity and tariff policies;

Provision of income tax holiday for a block of 10 years in the first 15 years of
operation and waiver of capital goods’ import duties on mega power projects
(above 1,000 MW generation capacity); and

Unbundling of the state electricity boards into generation, transmission and

distribution companies for better transparency

Initiatives the government has introduced to facilitate foreign investment in the

sector under the automatic route:

Unbundling of vertically integrated state electricity boards;

‘Open access’ to transmission and distribution network;
Distribution circles to be privatized; and
Tariff reforms by regulatory authorities.

FACTS AND FIGURES:

Power sector’s share of FDI inflow: 3.78 percent

INVESTMENT INCENTIVES:

Generation and distribution power projects of any type and size are allowed;

44
The Electricity Act of 2003 allows trading in power and provides for further
deregulation;

A renewable license period of 30 years;

Return on equity up to 16 percent is assured at 68.5 percent PLF for thermal power
plants. Similar incentives are provided for hydroelectric power projects;

Import duty at the concessional rate of 20 percent has been set for import of
equipment; and

The government allows a five-year tax holiday for power generating projects with
an additional five years in which a deduction of 30 percent taxable profits is
allowed.

INVESTMENT OPPORTUNITIES:

 Power generation and transmission;

 Power distribution;

 Power exchange;

 Rural electrification;

 Hydropower;

 National grid program; and

 Renewable power.

FDI POLICY

100 percent FDI permitted in power sector excluding nuclear power

KEY INDIAN PLAYERS

45
  Tata Power;

 Reliance Power;

 Torrent Power; and

 Power Grid Corporation of India

FDI IN TOURISM

INTRODUCTION

The Indian tourism industry is interwoven with the country’s monetary

development. As GDP continues to mature, it increases deals in fundamental
infrastructure like transportation systems, which is necessary to support the
tourism industry. The hotel industry is directly connected to the tourism industry
in India. Over the last decade, India has transformed into one of the most popular
tourism destinations in the world, largely as a result of the government’s
“Incredible India” campaign which showed India in a new light to overseas
tourists. In 2005, the appearance of global tourists improved by 16 percent,
leading the resurgence of Indian tourism.

As new destinations extend the tourist entry is likely to rise. Numerous

procedures have been taken in infrastructure, which will shine Indian hospitality
for overseas guests.

Under the automatic path, 100 percent FDI is allowed in hotels and tourism.
Travel and tourism are a US$32 billion business in India with an input to 5.3
percent of Indian GDP. Many worldwide hotel groups are setting up their
businesses in India and many global tour operators are establishing operations in
the country.

46
BRIEF ON HOTEL AND TOURISM INDUSTRY IN INDIA:

The hotel and tourism industries have been growing rapidly in recent years,
bringing in huge revenues through overseas as well as domestic tourists in many
parts of India. There was a key rush to inbound tourism in India in 2006 and a
double-digit increase in the coming of overseas tourists to India in the same year.
Tourism is one of the third largest revenue generators of foreign exchange for
India and also employs one of the highest numbers of manpower. Conde Nast
Traveler, one of the most decorated travel magazines, rated India as one of the
hottest destinations in the world.

According to the World Tourism Organization, India will be the leader in the
tourism industry in South Asia with 8.9 million arrivals by 2020. India is
gradually emerging as the second most rapidly increasing (8.8 percent) tourism
economy in the world over 2005-14 according to the World Travel & Tourism.

47
FDI IN TOURISM:

With a view to stimulate domestic and international investments in this sector,

the government has permitted 100 percent FDI in the automatic route –allowing
full FDI into all construction development projects including construction of
hotels and resorts, recreational facilities, and city and regional level
infrastructure. 100 percent FDI is now allowed in all airport expansion projects
subject to the condition that FDI for upgradation of existing airports requires
Foreign Investment Promotion Board (FIPB) approval beyond 74 percent. A five
-tax holiday has been given to organizations that set up hotels, resorts and
convention centers at specific destinations, subject to fulfillment with the agreed
conditions. Some international hospitality majors such as Hilton, Accor,
Marriott International, Berggruen Hotels, Cabana Hotels, Premier Travel Inn
(PTI) and InterContinental Hotels group have already announced major venture
plans in India in recent years. It is expected that the hospitality division is
expected to see an additional US$11.41 billion in inbound investments over the
next two years.

TRENDS

According to the Indian Tourism ministry, the Indian tourism industry would be
the third largest foreign exchange earner in the country in the next three year. Till
the end of 2012, foreign tourists will grow at the fastest pace in comparison with
the last decade and it is estimated that tourism in India could contribute US$1.8
billion to India’s GDP. These statistics show the seriousness of the Indian
government towards tourism. Andhra Pradesh, Uttar Pradesh, Tamil Nadu,
Karnataka and Rajasthan are the leading tourism destinations in India in terms of
total tourist arrivals. In the next few years, some new states should come into the
picture such as Uttaranchal, Madhya Pradesh and a few others. According to the
ministry, it is predicted that around US$10 billion is required for the
development of Indian tourism in the next five years. When we think of long-

48
term capital requirements for all the states, it would be nearly US$56 billion in
the next 20 years.

49
WHY ONE SHOULD INVEST IN INDIAN TOURISM?

Economic liberalization has given a new force to the hospitality industry

The Indian hospitality industry is increasing at a rate of 15 percent yearly. The

current gap between supply and demand is predicted to grow as the economy
opens and grows

The government predicted an additional requirement of 200,000 rooms in the

next five years

Due to stable political and social conditions in India, there will be an increase in
the number of tourist arrivals. India is ranked fourth among the world’s must-see
countries

The present government in its process has taken a few projects like opening of
the partial sky policy. This allows private domestic airline operators to fly on the
Indian skies

An increasingly growing middle class group, the arrival of corporate incentive

travel and the multinational companies into India has bright prospects for
tourism. India’s easy visa rules, public freedoms and its many attractions as an
ancient civilization makes tourism development easier than in many other
countries

The 5-star hotel sector has increased the fastest during the last five years at a
CAGR of 12 percent. In the coming years, this sector can be divided into three
sub-segments Luxury, Business and Leisure. The growth in this segment shows
that segment of travelers coming into India. In the last few years India has seen
a large inflow of business travelers in the country courtesy to relaxation of the
government’s stand on FDI for most of the sectors in the country

It costs an average of US$50-80 million to set up 5-star hotels with three hundred
rentable rooms in India. The gestation period is generally between 3-5 years

50
SOME SUGGESTION TO ATTRACT MORE FDI IN TOURISM

 Reconsideration the taxation policy on the hotel industry

 Service tax should be calculated based on the value of services given

by the company

51
FDI IN HOSPITAL SECTOR:

Healthcare is one the fastest growing service sector in India. The financing of
health services can come from sources within a country tax or insurance for
example. The latter can be further sub-divided into commercial finance, official
aid or non- governmental finance. Commercial financial flows may further be
divided into portfolio/equity investments, commercial loans or FDI. A significant
aspect of this is direct trade in health services, a result of the rise of transnational
corporations, challenges in health care financing, porous borders and improved
technology creating the scope for increased „foreign direct investment‟ (FDI) in
health care sector.

Healthcare sector has a great potential in the present globalize world. It is one
of the world’s largest industries with total revenues of approximately US$ 2.8
Trillion.
Healthcare sector has been emerging as one of the largest service sectors in
India. Indian healthcare sector has estimated revenue of around $ 30 billion
constituting 5% of GDP and offering employment to around 4 million people
(CII Report 2011).

According to Investment Commission of India, the sector has witnessed a

phenomenal expansion in the last few years growing at over 12% per annum. As
per a recent CII- McKinsey report, the growth of healthcare sector can contribute
to 6-7% of GDP and increase employment by at least 2.5 million by 2012.

Since January 2000, FDI is permitted up to 100 percent under the automatic
route in hospitals in India. Thus, no government approval is required as long as
the Indian company files with the regional office of the RBI within 30 days of
receipt of inward remittances and file the required documents along with form
FC-GPR with that Office within 30 days of issue of shares to the non-resident
investors.6 Controlling stake is also permitted in hospitals for foreign investors.
FIPB approval is currently only required for foreign investors with prior
technical collaboration, but is allowed up to 100 percent. Prior to January 2000,
FDI in hospitals was permitted under the FIPB route, which meant that the FIPB
would consider the investment proposals and take a decision and the Indian
52
company with the RBI would make thereafter filings. Current regulations also
permit other forms of capital mobilization, which are treated as FDI. Foreign
Institutional Investors (FIIs), Non-Resident Indians (NRIs), and Persons of
Indian Origin (PIOs) are allowed to invest in the primary and secondary capital
markets in India through the portfolio investment scheme (PIS). Under this
scheme, FIIs/NRIs can acquire shares/debentures of Indian companies through
the stock exchanges in India.

Companies can raise foreign currency resources abroad through American

Depositary Receipts (ADRs) and Global Depositary Receipts (GDRs) under the
automatic route, up to 49 percent subject to specified conditions and such
investments are also treated as FDI. In order to understand the extent and nature
of foreign direct investment in hospitals, a list of all FDI approved projects in
hospitals and diagnostic centers during the January 2000 to July 20006 periods
was obtained from the Department for Industrial Policy and Promotion. This list
consisted of 90 projects, for a total approved FDI amount of $53 million, and
covering a wide range of countries, such as Australia, Canada, UK, US, the
UAE, Malaysia, and Singapore, among others.
However, if one examines the list of approved projects and separates hospitals
from diagnostic centers, then one finds that the majority of these approved projects
are diagnostic centers. Only 21 of the approved projects are in the hospitals
segment

FDI in India’s Healthcare Sector emerges from the following facts:

 The growing population of India which is 1.21 billion as per the

Census of 2011 out of which 26.1% is below the poverty line.
 The healthcare spend in India is less than half of the global average in
percentage when compared on a ‘percent of GDP’ basis and is amongst
the lowest globally in terms of ‘per capita’ basis and on ‘Purchase
Power Parity’ basis. The data pertaining to these as per WHO World

53
 Health Statistics 2010 by India and other countries are shown in the
following table:

Healthcare Healthcare Spend Healthcare Spend

Spend (on a per capita
(on Purchase Power Parity
Country basis in US $)
(as a % of basis in US $)
GDP)
China 4.5 108 233
Brazil 8.4 606 837
India 4.10 40 109
USA 15.7 7,285 7,285
UK 8.4 3,867 2,992
GLOBAL 9.7 802 863
(Source: WHO World Health Statistics, 2010)

 The disparity in healthcare infrastructure in India in terms of ‘beds per

thousand population’. India has 0.7 beds per thousand population
while the global average is 3.3 and it has an average of 0.6 ‘doctors
per thousand population’ against the global average of 1.23.

 The number of qualified doctors at present in India is not sufficient to

meet the growing requirements of healthcare in India. The rural-urban
disparity is still worse. That is, rural ‘doctors to population’ ratio is lower
by six times as compared to urban areas (Source: CII Technopak). Doctor
patient ratio in rural areas of India is 1: 20,000 as against 1: 2,000 as
against statutory 1: 250 ratios for which India requires 6, 00,000 doctors.
 There is dearth for staff in all categories like specialists,
surgeons, obstetricians, physicians, pediatricians, nurses, para-
medical staff etc.

 Private expenditure on health as a percentage of total health

expenditure in India is 75-80 %.

 The other factors that drive growth in this sector are, changing lifestyle
patterns of people leading to life style related health issues, cheaper
costs for treatment, health insurance penetration, government

54
 initiatives, the focus on Public Private Participation models, emerging
medical tourism and the like.

VARIOUS COMPONENTS OF HEALTHCARE SECTOR:

The healthcare sector in India is comprised of: (I) medical care providers; (ii)
diagnostic service and pathology labs; (iii) medical equipment manufacturers,
(iv) contract research organizations and (v) third party service providers.

Medical care Providers: This includes physicians, specialist clinics, nursing

homes and hospitals. As per the facts revealed by the Central Bureau of Health
Intelligence, there are 12, 760 hospitals having 5, 76, 793 beds in the country
and India have 314 medical colleges. So, there is a big gap between availability
of beds and number of beds required in India. As seen above the average
number of beds per thousand population in India is 0.7. There is also an inter-
state disparity in the availability of infrastructure. The average number of beds
per thousand population in various states are: Kerala-3.07; Delhi-2.38; Bihar-
0.33; UP: 0.38; MP: 0.17 and Maharashtra: 1.08.

In addition to the dearth for physical infrastructure, there is a shortfall of all

types of skilled manpower in the healthcare sector of India. According to the
Ministry of Health and Family Welfare, the overall shortfall of human resources
in various categories in this sector is:

 63.9% of specialists

 75% of surgeons

 65.9% of obstetricians and gynecologists

 74. 4% of pediatricians.

 80.1% of physicians and

55
 The hospital density per 10000 population as well as the doctor density
per 10000 population is the lowest in India compared to global average. The
following table provides data pertaining to the same:

Comparison of India with other countries for healthcare infrastructure

Indicators Year India USA UK Brazil China

Hospital
Density (per
10000 2000-09 12 31 39 24 30
population)
Doctor Density
(per 10000
2000-09 6 27 21 17 14
population)
(Source: www.ocd.org,www.whoindia.org)

According to ASA and Associates support the above point providing the
following data:

Health Infrastructure Comparison:

Countries Beds per Doctors per Nurses per
‘000 ‘000 ‘000 Population
Population Population
Low Income 1.5 1.0 1.6
India 1.5 1.2 0.9
Middle
Income
(China, Brazil 4.3 1.8 1.9
etc.,)
High
Income
7.4 1.8 7.5
(US,
Western
Europe)
Global 3.3 1.5 3.3
Average

56
(Source: www.whoindia.org)

The above tables clearly show that the healthcare infrastructure in India is
inadequate in terms of global average.

According to DIPP (2006) there are 21 FDI approved hospitals in India. To

mention a few: Vikram Hospital and Basappa Memorial Hospital Pvt Limited of
Mysore, Columbia Asia Hospital Pvt Ltd, Bangalore, Fernandez Hospital, Dr.
Ramayya’s Pramila Hospitals Ltd and Pacific Hospitals in Hyderabad, HN
Hospital and Parekh Hospital Pvt Ltd in Mumbai, Sir Edward Dunlop Hospitals
and Max Healthcare at New Delhi, S&V Loga Hospital Pvt Ltd in Salem, RA
Multispecialty Hospital at Coimbatore, Kalinga Hospital at Bhuvaneshwar,
Thaqdees Hospitals Limited, Trichur Heart Hospital and Malabar Institute of
Medical Sciences Hospitals Ltd in Kerala, etc. This number is expected to
increase in the future.

Diagnostic Service and Pathology Labs: Another major component of healthcare

sector is the diagnostic centers and pathology labs. FDI in the hospitals and
diagnostic centre segment has reached a new high with total cumulative FDI
inflow crossing Rs 35, 544.34 million (M Neelam Kachhap, 2010). This may be
a small but significant step for the healthcare sector. However, the benefits of
such investments would only materialize under conducive regulatory
environment focusing on affordability and accessibility. Interestingly, the private
sector, over the years, has increased its stake in healthcare delivery. This, in
recent years, has caused foreign players and non-resident Indians to enter the
Indian healthcare market. In recent years, there is growing interest among foreign
players to enter India’s healthcare sector through capital investments, technology
tie-ups, and collaborative ventures across various segments, including
diagnostics, medical equipment, hospitals, and education and training.

MANUFACTURE OF MEDICAL EQUIPMENT:

57
In the healthcare sector, the medical equipment constitutes around 30% of all fixed
assets in a hospital and Indian hospitals do not manufacture all that equipment
domestically. At least 70% of medical equipment and devices are imported by
India from other countries. The medical equipment supplies are expected to reach
US $
6.41 billion by 2014 with CAGR of approximately 15.5%. The Ernst and Young
analysis with FICCI also show that the medical equipment manufacturing
industry in India is expected to grow to US $ 60 billion by 2016. Thus, the
manufacturing of medical equipment is an attractive destination for FDI in
India. The FDI inflow in medical and surgical appliances stood at US $ 570.2
mn for the period April 2000 to June 2012 according to DIPP. This industry
needs more investment where increased FDI is expected to flow as well a more
collaborative arrangements to expand domestic manufacturing capacity is also
expected to increase.

INTERNAL AND EXTERNAL CHALLENGES TO HEALTHCARE

SECTOR IN INDIA.

Domestic challenges for FDI are as follows:

 The cost of establishment of hospitals and pathology labs are very high.
The initial establishment and establishment costs are very high. The
cost of running the hospitals is also high.
 The cost of acquiring land in big cities of India is high. And the
cost of support infrastructure like water and electricity supply is
also very high.
 The gestation period of providing medical facilities is also very high.

 The return on investment is low compared to other business ventures.

 There is little production of medical equipment in India. The cost of

medical equipment and surgical appliances are high.

58
  Investment is required for updating technology is also high. In
addition, the new models made using technology, become obsolete
soon. This causes the utilization ratio to be high.
 The medical equipment must be used by manpower trained in using the
same. But there is dearth for skilled manpower and lack of training
institutes providing knowledge of the same.
 There is lack of adequate number of training providing institutions for
human resource in healthcare sector at all levels

External Challenges for FDI is as follows:

 There is no benchmark for service delivery in India.

 There is no well-developed framework for establishing new hospitals in

India.

 The dearth for quality personnel in medical care providers at all levels
like doctors, nurses, paramedics, front and back-office staff,
administrators etc., makes other countries to think twice before
entering India.
 Number of people possessing adequate knowledge to handle
sophisticated medical equipment is also less. All this increases the cost of
establishment of hospitals in India. So, when there are competitive
destinations which have a more conducive environment than India may
be preferred by foreign investors.
 The lack of awareness and the casual approach to life about health
insurance makes it difficult to convince people by foreign investors.

OPPORTUNITIES FOR FDI IN HEALTHCARE SECTOR IS:

 Hospitals and Infrastructure: The number of hospitals and the available

infrastructure in India is inadequate when compared to the growing
population as well as the number of growing diseases. The gap between
the number of beds available and the number required is very wide and
59
 this could be narrowed by additional foreign investment. The import of
medical equipment could be reduced if more FDI flows into this sector.
 Health Insurance: The percentage of India’s population covered under
any one of the types of health insurance policies is less than ten percent.
As discussed above the percentage of population covered under health
insurance in India is very less even in big hospitals. Though there is an
increase in the healthcare insurance policies in the past few years the
percentage of people uncovered is still very large and there is scope for
FDI to support the domestic health insurance sector.
 Manpower Requirement: An additional 8,00,000 physicians are required
over the next ten years, which translates into huge investments in
training facilities and equipment. (Rupa Chanda, 2009)
 Medical Tourism: Another area of opportunity is the medical tourism.
India is getting popular worldwide in providing quality healthcare service
at lower cost and every year about 1,00,000 patients from various
countries come to India for availing treatment for various diseases. The
revenue through medical tourism is expected to contribute significantly in
the years to come due to cost advantage India has in delivering service.
 Telemedicine: It is a known fact the percentage of specialist physicians
residing in rural India is very negligible. So, the innovative medical
care providing facility called telemedicine may be used effectively to
serve the 70% of population who reside in rural India. At present
some of the private hospitals have adopted telemedicine services. The
Indian Space Research Organization has plans to establish 100
telemedicine centers across the country.

CURRENT INVESTMENT

Ayurveda is rapidly gaining recognition all over the world. India is the world's 2nd
largest exporter of Ayurvedic & alternative medicine. The wellness sector
includes segments such as alternative therapies, beauty, fitness and nutrition,
among others. Of these, rejuvenation services such as spas, alternative therapies,
60
 Ayurveda treatments and beauty services are expected to grow at around 30%,
while the fitness sector which includes gyms and slimming centers is expected to
grow by more than 25%.

The National Rural Health Mission has a declared policy of promoting ‘Pluralistic
Healthcare’ by involving, alongside the allopathic system, the AYUSH systems,
including local health traditions in its operational mission.

The healthcare market can increase three-fold to Rs 8.6 trillion (US$ 133.44 billion)
by 2022.

61
FDI IN AGRICULTURE SECTOR:

INTRODUCTION

Agriculture is the main resource of livelihood/occupation for over 75 per cent of

the rural population in India. Although, it employs about 52 per cent of the labor
force, it contributes to only 14.4 per cent of GDP and 10.23 per cent of all
exports. Any effort of poverty reduction and economic development must
address the problems being faced by the agricultural sector and turn the
challenges into economic opportunities for the poor population in rural India.
India being a participant to World Trade Organization’s General Agreement on
Trade in Services, which include wholesale and retailing services, had to open
up the retail trade sector to foreign investment

(Renuka, R., 2013). India is one of the fastest growing retail markets in the
world. The retail sector in India is a key contributor to the country’s economy
and was responsible for contributing 22 per cent to gross domestic product
(GDP) in 2011. In 2012, the Government of India framed some major
liberalization policies to support and encourage this sector. India is now the last
major boundary for globalized retail agriculture market. In the twenty years since
the economic liberalization of 1991, India’s middle class has greatly expanded,
and so has its purchasing power. 100 per cent foreign direct investment (FDI)
allowed through the automatic route covering Horticulture, Floriculture,
development of seeds, Animal Husbandry est. and Services related to Agri-
Business and Agriculture allied sectors.

In India Agricultural retail market is highly patchy and unorganized. Given the
various changes like effective subside of rural credit in organized sector,
especially for small and marginal farmers, continuous increase of input cost and
stagnant crop price, profit potential of agricultural sector has declined
substantially. Farmers are still kept on tenterhook, not knowing how to manage
their economy, except to play it by years (Gupta D., 2005). If production is good
then there is surplus and prices decrease. When there is crop failure farmers
hardly get any return in terms of higher price. West Bengal an eastern province
62
of India is the most densely populated among the provinces and paddy is the
principal crop here involving millions of rural people for their livelihood.
Profitability in paddy cultivation gradually came down to only 13 per cent in
2007 and has further come down to 10 per cent in 2011as per the report of the
commission for Agricultural Costs and Prices (CACP) (Choudhury S., 2012).

TREND OF FDI IN INDIA

FDI has been shown to play an important role in promoting economic growth,
raising a country's technological level, and creating new employment in
developing countries It has also been shown that FDI works as a means of
integrating developing countries into the global market place and increasing the
capital available for investment, thus leading to increased economic growth
needed to reduce poverty and raise living standards. Table 1 shows the FDI
inflow and FDI as percentage of Total GDP & Agriculture GDP in India from the
year 2000-01 to 2011-2012 (post liberalization period). The data on FDI inflows
into the country shows that foreign investors have shown a keen interest in the
Indian economy ever since it has been liberalized.

FDI INFLOWS IN DIFFERENT AGRICULTURE SECTOR: -

(1) FDI Inflows to food processing industries:

Food processing industry is a predominant segment in the Food Industry in India

and accounts for 32 percent share in the industry. The food processing industry
comprise of 2 percent of fruits and vegetables and 15 percent of processed milk.
Important initiatives by the Indian government have led to significant growth in
FDI Inflows to Food Processing Industries. While FDI Inflows to Food
Processing Industries are estimated to reach USD 325.93 million by 2009, a
target of USD
25.07 billion worth of FDI Inflows to Food Processing Industries has been set to be
achieved by 2015.

The food processing industry contributes to 6.3 percent of the Gross Domestic
product of India, 19 percent to the Indian industry, and 13 percent to the export
63
production. The export production in food processing sector has increased from
USD

6.98 billion in 2002-03 to USD 20.51 billion in 2006-07, accounting for a

phenomenal rise of 193.83 percent. The government of India has set a target of
USD 25.07 billion of FDI Inflows to Food Processing Industries to be achieved
by 2015 which will increase India's global food trade from 1.6 percent to 3
percent along with a rise in perishable processed food items from 6 percent to 20
percent. The food processing industry is expected to witness a growth of 10
percent in the recent years to come.
Government of India gave an estimation of Foreign Direct Investments (FDI)
Inflows to reach USD 325.93 million by 2009 keeping in view the rising demand
among the corporate players in Indian retail industry

 A number of active measures have been taken up by the government to

ameliorate the food processing units in terms infrastructure, human
resource, and research and development
 100 percent FDI is permitted in almost all the food processing units
with the exception of alcohol.
 Enactment of the Food Safety and Standards Bill 2005 has
introduced a governing body for the food processing sector.
 This legislation has also allowed a 100 percent tax deduction on
profits for five years and 25 percent for the next five years especially
to the upcoming agro-processing industries.
 Most of the items in food processing sector are exempted from
license agreement excepting those which are kept in reserve for
the small-scale sectors.

(2) FDI Inflows to Agriculture Services:

The Ministry of Agriculture, the Ministry of Rural Infrastructure, and the

Planning Commission of India are the main governing bodies that define the
future role of agriculture in India and it aims at developing agricultural sector of

64
India. No FDI / NRI / OCB are allowed in the Indian Agriculture sector. The FDI
Inflows to Agriculture Services are allowed up to 100% and allowed through the
automatic route covering horticulture, floriculture, development of seeds, animal
husbandry, pisciculture, aqua culture, cultivation of vegetables, mushroom and
services related to agro and allied sectors. Only in Tea sector, 100% FDI is
allowed, including, plantations of tea. This requires Government of India
approvals. Further, it requires compulsory divestment of 26% equity in favor of
the Indian partner or Indian public within a maximum period of five years. This
also requires approval from the concerned state government in case of change in
use of land for such activities. And this holds true for any fresh investments in
the above-mentioned sector. FDI inflows to agriculture services also facilitated
growth of other allied areas like Irrigation, Roads, Housing, Water Supply,
Electrification, and Telecommunication Connectivity.

(3) FDI Inflows to Agricultural Machinery:

Important aspects of the agrarian sector and rural sector in India that have a
positive impact on FDI Inflows to Agricultural Machinery. 100% foreign direct
investment (FDI) allowed through the automatic route covering horticulture,
floriculture, development of seeds, animal husbandry, pisciculture, aqua culture,
cultivation of vegetables, mushroom and services related to agriculture and
sectors associated with it.

OPPORTUNITIES AND CHALLENGES:

The positive results of the approach are as pert the following

 Allowing isolated interest into horticultural retailing is probably going to

guarantee sufficient progression of capital into provincial economy into at
way liable to advance the welfare of all areas of society especially
ranchers and shoppers
 It will achieve upgrades into rancher pay and rural development and help
with bringing down shopper value swelling

65
  Because of absence of satisfactory foundation offices and absence of
legitimate storeroom ranchers are compelled to sell their items at
extremely low value which now and then can’t take care of their expense
of creation It is expected that now rancher could bet sell their all maker
 Since the inflow of FDI into retail area will undoubtedly draw upto the
quality measures and cost intensity of Indian ranchers’ It consequently
appears that FDI into rural retailing has the capability of supporting
agrarian development
 This is relied upon to support the nation’s household fabricating
industry that outside retail organizations must bet source into any event
30 percent of the products from little and miniaturized scale businesses’
 Theta basset venture point of confinement has bent set at US$ 100
million fort remote organizations out of which into any event 50 percent
must be utilized
 To improve transportation dissemination stockpiling and bundling offices
and create homestead partnered foundation
 Due to the FDI creativity the idea of the broker which has ruled ranchers
into India fort quintet at long time can’t bet killed and ranchers would
now be able to get the full advantage of their product
 Outside organizations are relied upon tot market some helpful strides
fort the production of store network Passage of remote players
stockpiling and refrigeration framework will improve altogether
 Openings fort work into parts for example transportation bundling
horticulture handling and such like are required to trivet Concurring the
Government of Indicant FDI into retail division is able to dot producing
roughly 4 million direct occupations and around 5 to 6 million aberrant
employments inside at range of 10 years.

CHALLENGES

The FDI arrangement likewise accompanist at lot of impediments of the approach are:

66
 Little retailers and proprietors of Pop and Mom stores may endure as
the enormous retailers like Walmart and Tesco are probably going to
ease out these little and smaller scale level retailers’
 There may bet work misfortunes into the assembling portion Despite the
fact that the administration has topped the sourcing of wares from the
local market at 30 percent the remainder of the 70 percent can’t bet
purchased from the remote markets’
 The Indian retailers probably won’t most likely adapt upto to the
expanding rivalry from the outside retailers who are solid and steady
with better foundation and the executives’ methodology Gradually this
might prompt the replacement of the Indian retailer’s tot ant impressive
degree
 As the outside brands will be accessible at greater rate the
customer’s tendency towards universal brands may influence the
nation’s in-house brands’

 As indicated by the non-government religion FDI will deplete out at lot

of profits to isolated nations which may cause negative effect on India’s
general economy
 Presently Walt bazaar is the singlet purchaser and play as at monopolist
and it will bet power to rancher tot lessen the cost of their product
 It is said that FDI may give work openings however it is contended that
it can’t give business chances to semi-uneducated individuals’ This
contention acquires significance since into Indicant enormous
quantities of semi- uneducated individualist are available
 Despite the fact that Government has foreordained that 30 percent
obtainment ought to bet from Indian sourest this may get weakened
throughout the years’ the rest of the 70 percent acquisition from lest
expensive nations will market the individualist kept running towards that
stuff and the 30 percent supply from Indian little ventures will have their
own demise incapable to contend with low value Chinese products.

67
 BENEFITS OF FDI IN AGRICULTURE SECTOR

 The concept of contract farming would come of age in India. As a

concept, Contract farming ensures execution of concepts like Agro
Credit, Insurance, development in agriculture.
 Robust request: a huge populace and rising urban and rustic pay are
driving the interest, while outer interest is driving the expansion in
horticulture specialists from India.
 Attractive Opportunities: interest for farming information sources and
united administrations like warehousing and cold stockpiling in
expanding in India at a quick pace.
 Policy Support: Schemes like Paraphragmata Kishida’s Yojana helps in
creating natural bunches and make accessible substance free
contributions to ranchers.
 Government of India is likewise pointing the twofold rancher pay by 2022.

 Competitive Advantage: High extents of agrarian land, various agro-

climatic conditions support development of various harvests.

 Small farmers and agricultural workers would be additional enthused to

team up with cooperatives which would allow computerization of land
and multiple cropping which was not likely for practical complications.
 Indian Food Processing Industry can come of age. As proposed in the
12th FYP, food processing has been given particular opportunity
which would allow farmers to get involved towards food processing
industry.

MAJOR INVESTMENTS COMPANIES

Companies Sector Investment

Walmart, Marks Retail US$ 10 Billion
Intel Corp. I.T US$ 40 Billion
British & cairn Oil & Energy US$ 2 Billion
Essar power Power sector US$ 2 Billion
Toyota Automobile US$ 10.51Billion

68
Panasonic Telecommunication US$ 200 million

FOREIGN DIRECT INVESTMENT AND ITS SIGNIFICANCE

In the context of the significance of Foreign Direct Investment (FDI), the

increased inflow of FDI has positive relationship with the economic growth of
India because it facilitates the infrastructural development, increases the
employment opportunities and drives an improvement in the level of production.
In addition to this, the flow of FDI directly impacts the industries and sectors
both, such as defence industry, agricultural sector and construction sector, which
are very critical to the growth of economy.

Flow of FDI contributes to stimulation of investments in the domestic sector,

which is the major focus of any country’s economy. The increased investments will
lead to growth of domestic sector and thus the growth of Indian economy.

FDI is positively correlated to boosting of human capital formation in the

country which further helps in enhancing productivity and thus the growth of
economy.

FDI flowing in the country helps in boosting the transfer of technology, which
is very essential for the economy to remain up to date in this fast-changing era of
technology and thus, contributing to the growth of economy.

FDI facilitates improved level of production, increased opportunity of

employment along with infrastructural development and thus, it can be presumed
that there is a positive relationship of inflow of FDI in India with the economic
growth of India.

The inflow of FDI results in stimulating investments in domestic sector, which

is the important focus of India’s economy in order to grow at a higher rate.

69
 FDI is positively correlated to increasing human capital formation in the
country which will result in enhancing its productivity and thus the growth of
country’s economy.

The increase in FDI inflow, technology transfer gets boosted and it is

necessary for any country to use updated technology so that it can provide goods
and services with better quality and reduced costs thereby ultimately affecting
the economic growth.

It can be inferred from the responses that FDI has positive relationship with
the economic growth of a country as it facilitates the infrastructural development,
increases the employment opportunities and drives an improvement in the level
of production. It is positively correlated to boosting of human capital formation
in the country which further helps in enhancing productivity and thus the growth
of economy.

IMPACT OF FOREIGN DIRECT INVESTMENT ON SERVICE

SECTOR OF INDIAN ECONOMY

In regard to the impact of FDI that was created on the service sector along with
its future implications,

 The inflow of FDI has largely contributed in enhancing the productivity

and skills of the workforce in the Indian service sector. The export and
import were also affected by the FDI as with its increase, the domestic
industry also improved to a greater level, thus becoming a globally
competitive sector. I believe that in the near future the increased FDI
will further increase the employment opportunities in various sectors of
the economy. However, government restrictions over the trade and
development of the country and ill infrastructure are the major barriers
that can impact its positive inflow.
 The increased FDI has to lead the foreign institutions to capture the
domestic market, which has further increased the imports and decreased
the exports. I believe that along with the increment in FDI, the foreign
organisations will provide an opportunity to the new generation to adopt
70
 technological changes that are brought in the organisations and thus will
improve their productivity.
 The increased FDI has been responsible for boosting the employment rate
of the Indian service sector. I think that the increased employment rate
due to increased FDI will lead to better employment opportunities for job
seekers and will further improve their skills and productivity. In addition
to this, the availability of cheap labour in India largely drove the inflow
of FDI, which further enhanced the production in the country, thus,
promoting export.
 Foreign direct investment has provided immense opportunities to the
workforce of the Indian service sector. I believe that high inflow of
FDI will further contribute to the maximization of skills and
productivity of the workforce as they will get a chance to work with
better organisations,

However, FDI has also contributed in decreasing the volume of

exports in India due to a lack of opportunity for the domestic industry to sell
their products.
 Foreign direct investment will likely impact the productivity and skills of
workforce as with its inflow in the country the employment opportunities
in different sectors of the economy will also increase. I also think that just
as FDI has contributed in the growth of Indian service sector, it will
further result in more technology transfer and more productivity, which
will lead a firm to gain a competitive advantage in the global market;
hence ultimately improving the export rate.
 Employment opportunities in the service sector was the key aspect that
got boosted as a result of an increase in FDI in the Indian economy. I
think that the productivity and skills of the workforce in the Indian
service sector will further get maximized with the inflow of FDI in the
country. Apart from this, FDI was also responsible for offering the
opportunity of improvement to the domestic industry in regard to
becoming more competitive.

71
 With the increase in FDI, the number of foreign organisations
operating in India will also increase. These organisations will then
further provide opportunities to youngsters for adopting technological
changes; hence will contribute to the upgradation of their skills.
Howe-ever, with the increase in foreign institutions as a result of FDI,
the domestic market is likely to get shadowed, which can further lead
to a decrement in exports.
 As the inflow of FDI increased in India, the employment rate also
accelerated; hence contributing to the emergence of employment
opportunities and enhancement of skills and productivity in the service
sector. I believe that India has a huge advantage in terms of availability
of cheap labour, which makes it an attractive platform for conducting
production operation and therefore promoting exports from the country.
 FDI has and will further continue to promote skill development in the
Indian service sector. However, as the number of foreign organisations
will increase due to boost in FDI inflow, the domestic industry will lose
its chance to grow within the Indian economy, and this would further
accelerate the promotion of imports within the country.

 FDI can impact the maximization of skills and productivity in the

country as the job seekers or the unemployed population will get the
opportunity to work in various industries of different sectors because of
the increased inflow. However, I think it will also hamper exports in the
country due to the fact that it will lessen the growth opportunities for the
domestic industry.
 Overall, it was identified from the responses of the participants that
increased rate of employment, skill development, enhancement of
productivity are the key benefits or impact that FDI creates on the Indian
service sector. However, decreased volume of imports and lack of
growth opportunities for the domestic sector are the negative future
implications of FDI on the Indian service sector.

72
 CONCLUSION

CONCLUSION
It can be concluded that the concept of FDI is positively associated with the
economic growth of a country. FDI is encouraged by the developing countries as
it is considered as a way to transfer both knowledge and technology from the
developed countries, which has a positive impact on the economic performance
of the countries. In addition to this, FDI also has an impact on the gross fixed
capital formation of the developing countries, which influences the economic
growth direction of the country. Further, FDI helps in raising the investment in
the infrastructure.

The third objective of this research is concerned with exploring the service
sector and its contribution to the Indian economy has concluded that the most
important factor which has a drastic impact on the success of service sector in
India is quality of service along with the implementation of innovation and
creativity for the purpose of providing good services to the customers. It has been
concluded that the high growth of the country is dependent heavily on the growth
of the service sector, more specifically in the sector of outsourcing of the
services. In addition to this, service sector also improves the economy, but it
leads to the reduction of the contribution of another sector in the Gross Domestic
Product (GDP) of India. that FDI has an impact on the economic conditions of
the Indian economy and also has a social impact due to which it is considered
significant for the country to develop appropriate policies.

In addition to this, FDI is essential for enhancing the domestic capital,

productivity as well as employment rate of the country. Further, it has been
concluded that FDI helps in increasing the ratio of total employment with the
help of providing employment to people in different sectors. FDI also contributes
significantly in the development of Indian economy as it helps in optimizing
country's earnings by utilizing all the resources in an effective and efficient
manner.

73
 FINDINGS OF THE STUDY

The findings of the research study indicate that foreign direct investment is one of
the significant factors that contribute to the development of infrastructure, increase
the opportunities for employment and increase in the level of production in India.
Moreover, it also facilitates the transfer of knowledge and technology between
countries and accelerates the pace of development if the country. Finding the
research has been supported by literary findings, as FDI has a major contribution
to the transfer of technology between different countries (Tidd and Bessant,
2018). In addition to this, FDI also helps in the transfer of knowledge between
the companies of two countries (Alfaro, Kalemli‐ Ozcan and Sayek, 2009).

It has further been analysed from the research findings that foreign direct
investment has a crucial role to play in driving economy and development of the
country. Finding of the research study has suggested that the inflow of FDI is
enough for achieving a high level of economic growth in the country due to the
reason that India is getting a high amount of FDI in various sectors such as
communication, manufacturing and financial services that are very important to
the growth of the country. This can be supported by the literary findings that the
flow of FDI is increased in various sectors of India and contributes to its growth.
For instance, in the banking sector, it contributes to addressing issues faced by
the banking sector, such as improved capitalization of banks and the
development of new products and services (Pradhan, 2009). It also facilitates the
growth in technology, increase capital stock and accelerate the pace of
managerial skills transfer and provide access to the global market (Saleena,
2013).

The study findings further reflected the role of FDI in affecting the service sector
of the Indian economy, which is one of the developing countries. However, prior
to the exploration of its role, the role of the service sector in the Indian economy
was identified in this study. It was explored that the Indian service sector is a
vital growth aspect for the country's economy and the sectors that can be
considered as its significant parts include healthcare, hospitality and education.
This can be supported by the literary findings, wherein it has been identified that

74
the Indian service sector has been responsible for transforming the
manufacturing process and activities that take place in the majority of the
industries. Apart from this, it has also played a crucial role in boosting the level
of global competence and trade activities within the Indian economy; hence
positively affecting its overall development (Nayyar, 2012).

In regard to the impact of FDI on the Indian service sector, it was explored that
rise in the FDI inflow has been responsible for generating job opportunities in
the service sector and also in improving the productivity and skills of the
workforce. It has also been able to offer the benefit of technology transfer to the
service sector; hence providing Indian economy with an opportunity to become
self-dependent by adopting and manufacturing its own technology on the basis
of acquired skills. It has been examined from the literature that the rise in
technology transfer as a result of FDI has been responsible for improving the
manufacturing process, operational efficiency and effectiveness of conducting
business practices (Tidd and Bessant, 2018).

On the other side, the study findings also reflected the ways through, which the
Indian government can enhance the flow of FDI in the service sector. It was
identified that elimination of barriers such as stringent labour law, lack in proper
decision making and absence of transparent sectoral policies are the barriers that
need to addressed by the Indian government for the purpose of boosting FDI
inflow. Apart from this, in- depth assessment of the bureaucracy patterns, legal
and administrative barriers and effective utilization of cheap labour and unused
capacity of Indian financial sector also needs to be conducted by the Indian
government to increase the FDI inflow in the service sector (Malhotra, 2014).

75
 SUGGESTIONS

 The factors that contribute negatively to FDI in a country are

unavailability of investment climate and infrastructure. In order to
remove this issue, the government of India should take some preventive
measures that help in increasing the flow of FDI in the service sector of
India. The government should provide leverage to the companies that
invest their money and resources in the country. The upper limit of
investment by a foreign country that is 24% of the paid-up and issued
capital of the company should be raised to the higher amount so that
foreign companies may invest in large amount (Nagi, 2019). The policies
of the government that regulate the highest amount of FDI should be
amended in order to increase the flow of FDI in India.

 The government should take adequate steps in order to generate a climate

of investment in the country. The foreign companies have a various
obligation in investing money in India such as investments are allowed
only through collaboration with a company of Indian origin, referential
or equity allotments and making joint ventures (Kinda, 2010). The
government should make policies that support investment of foreign
companies directly in India so as to avoid the involvement of mediating
channels and increase transparency in the system.

 The companies also face a significant problem of shortage of skilled and

trained labour force in the country due to which the company that is
investing in India has to spend a large amount of fund and resources in
training of employees. The challenge of lack of skills should be
overcome by initiating suitable training and skills programmes by the
government of India. Training and skill programme also contributes to
increasing the number of skilled workforces and increasing opportunities
for employment for its citizens (Chi, Wu and Lin, 2008). Moreover, the
government should also invest in the sector of education and include
courses that contribute to providing skills that are needed by the foreign
companies that invest in India.

76
 The government of India should also invest in the sector of development
of infrastructure in the service sector and provide the necessary
resources required by the company that invest in India. The necessary
facilities such as water, electricity and raw material should also be
provided by the government in order to increase FDI in the service
sector in India. In addition to this, the government should develop a
large number of Special Economic Zones (SEZ) in every city and
provide all the facilities that are required by the company in order to
invest in India. (Chaudhuri and Yabuuchi, 2010).

77
 BIBLIOGRAPHY

 https://www.managementjournal.info/index.php/IJAME/article/
download/500/ 439

 https://www.slideshare.net/Dr.houkat1968/foreign-direct-investment-
final?
utm_source=slideshow&utm_medium=ssemail&utm_campaign=downlo
ad_notification

 https://www.fdi.finance/blog/why-is-fdi-so-important/
 http://www.ripublication.com
 https://www.tradingbells.com/blog/role-of-fdi-in-the-economic-
development- of-india/

78