FDI Status in Different States of India

Abstract:

FDI in different states in India have increased steadily since the early 1990s when the Indian economy was opened up to foreign investments. Delhi, Maharashtra, Karnataka and Tamil Nadu are among the leading states that have attracted maximum FDI. The status of FDI in different states of India, during the period beginning from the year January 2000 to October 2006 corroborates the growth of Indian states in sync with the Indian economy. Some of the states in India which have witnessed a massive upsurge in FDI Inflows include Delhi (USD 6,780 million), Maharashtra (USD 5,650.1 million), Karnataka (USD 1,876.1 million), and Tamil Nadu (USD 1,876.1 million). Other states which are in the receipt of FDI Inflows in India include West Bengal, Gujarat, Haryana, Andhra Pradesh, Kerala, and Uttar Pradesh. State Wise FDI Equity Inflows

S. No.

RBI's - Regional Office2

2009-10 State covered (Apr.Mar.)

2010-11 ( Apr.March)

2011-12 (April Jan.)

Cumulative Inflows (April 00 Jan. 12)

%age to total Inflows (in terms of US$)

MAHARASHTRA, 1 MUMBAI DADRA & NAGAR HAVELI, DAMAN & DIU DELHI, PART OF UP AND HARYANA 46,197 (9,695) 4,852 (1,029) 3,653 (774) 3,876 (807) 5,710 12,184 (2,677) 6,133 (1,332) 6,115 (1,352) 3,294 (724) 5,753 33,089 (7,114) 5,776 (1,240) 5,754 (1,231) 4,234 (902) 3,697 146,778 (32,202) 42,434 (9,468) 36,602 (8,082) 35,927 (8,058) 30,259 39,409 (8,249) 27,669 (6,097) 39,758 (8,564) 241,228 (53,632) 34

NEW DELHI

20

BANGALORE

KARNATAKA

CHENNAI

TAMIL NADU, PONDICHERRY

AHMEDABAD

GUJARAT

HYDERABAD

ANDHRA PRADESH

(1,203) WEST BENGAL, SIKKIM, ANDAMAN & NICOBAR ISLANDS CHANDIGARH, PUNJAB, HARYANA, HIMACHAL PRADESH MADHYA PRADESH, CHATTISGARH

(1,262)

(779)

(6,740)

KOLKATA

531 (115)

426 (95)

1,732 (377)

8,100 (1,864)

CHANDIGARH`

1,038 (224)

1,892 (416)

203 (44)

4,888 (1,068)

BHOPAL

255 (54)

2,093 (451) 1,376 (302)

527 (114)

3,537 (768) 3,449 (751) 3,389 (730) 2,561 (544) 1,414 (310) 1,329 (288)

10

PANAJI

GOA

808 (169) 606 (128)

123 (26)

11

KOCHI

KERALA, LAKSHADWEEP

167 (37)

1,731 (363)

12

JAIPUR

RAJASTHAN

149 (31)

230 (51)

111 (23)

0.3

13

KANPUR

UTTAR PRADESH, UTTRANCHAL

227 (48)

514 (112)

602 (133)

0.2

14

BHUBANESHWAR

ORISSA

702 (149)

68 (15)

122 (27)

0.2

ASSAM, ARUNACHAL PRADESH, 15 GUWAHATI MANIPUR, MEGHALAYA, MIZORAM, NAGALAND, TRIPURA 16 PATNA REGION NOT INDICATED3 BIHAR, JHARKHAND 15,056 (3,148) 123,120 (25,834) 0 25 (5) 20,543 (4,491) 88,520 (19,427) 0 58 (11) 24,786 (5,241) 122,307 (26,192) 0 85 (17) 160,533 (35,376) 722,834 (159,973) 533 (121) 0 51 (11) 37 (8) 5 (1) 321 (73) 0.1

17

20

SUB. TOTAL

100

18

RBIS-NRI SCHEMES (from 2000 to 2002)

GRAND TOTAL

123,120 (25,834)

88,520 (19,427)

122,307 (26,192)

723,367 (160,094)

FDI in Maharashtra -

Foreign Direct Investment on Maharashtra covers Mumbai, Dadra and Nagar Haveli, and Daman & Diu. The total FDI Inflows in Maharashtra economy from January 2000 to October 2006 was estimated to be around ` 25,685.45 crores which is approximately USD 5,650.1 million.

FDI in West Bengal -

Foreign Direct Investment in various states in and around West Bengal covers West Bengal, Sikkim, and Andaman & Nicobar Islands. The FDI Inflows in these states from January 2000 to October 2006 was around ` 1,523.83 crores which comes to around USD 334.8 million.

FDI in Karnataka -

Foreign Direct Investment on Karnataka from January 2000 to October 2006 has accounted for ` 8,485.38 crores which approximately comes to around USD 1,876.1 million.

FDI in Gujarat -

Foreign Direct Investment on Gujarat from January 2000 to October 2006 was estimated to be around ` 4,112.73 crores which comes to around USD 898.8 million. Gujarat ranks six in terms of FDI Inflows in India.

FDI in Haryana -

The total Foreign Direct Investment Inflows in Haryana, Delhi, and parts of Uttar Pradesh has been estimated to be around ` 30,673.73 crores which is approximately USD 6,780.0 million from January 2000 to October 2006. Haryana ranks first in terms of receiving FDI Inflows in India.

FDI in Delhi Foreign Direct Investment Inflows on Delhi economy has been estimated to be around `30,673.73 crores which roughly comes to USD 6,780.0 million from January 2000 to October 2006.

FDI in Tamil Nadu Foreign Direct Investment Inflows on Tamil Nadu and Pondicherry has been accounted for `8,485.38 crores which comes to around USD 1,876.1 million from January 2000 to October 2006. Tamil Nadu ranks third in terms of FDI Inflows in India.

FDI in Andhra Pradesh Foreign Direct Investment Inflows on Andhra Pradesh has been estimated to be around `4,825.36 crores which is approximately USD 1,061.4 million as has been calculated between January 2000 and October 2006. Andhra Pradesh ranks fifth as a recipient of FDI Inflows in India.

FDI in Kerala Foreign Direct Investment Inflows in Kerala has also covered regions in Lakshadweep and has been estimated to be around ` 339.77 crores which is approximately USD 75.1 million from January 2000 to October 2006.

FDI in Uttar Pradesh Foreign Direct Investment Inflows on Uttar Pradesh and Uttaranchal was ` 15.27 crores which comes to around USD 3.3 million from January 2000 to October 2006.

Advantages of FDI
Integration into global economy - Developing countries, which invite FDI, can gain access to a wider global and better platform in the world economy. Economic growth - This is one of the major sectors, which is enormously benefited from foreign direct investment. A remarkable inflow of FDI in various industrial units in India has boosted the

economic life of country. Trade - Foreign Direct Investments have opened a wide spectrum of opportunities in the trading of goods and services in India both in terms of import and export production. Products of superior quality are manufactured by various industries in India due to greater amount of FDI inflows in the country. Technology diffusion and knowledge transfer FDI apparently helps in the outsourcing of knowledge from India especially in the Information Technology sector. Developing countries by inviting FDI can introduce world-class technology and technical expertise and processes to their existing working process. Foreign expertise can be an important factor in upgrading the existing technical processes.

For example, the civilian nuclear deal led to transfer of nuclear energy know-how between the USA and India. Increased competition - FDI increases the level of competition in the host country. Other companies will also have to improve on their processes and services in order to stay in the market. FDI enhanced the quality of products, services and regulates a particular sector. Linkages and spillover to domestic firms- Various foreign firms are now occupying a position in the Indian market through Joint Ventures and collaboration concerns. The maximum amount of the profits gained by the foreign firms through these joint ventures is spent on the Indian market. Human Resources Development - Employees of the country which is open to FDI get acquaint with globally valued skills. Employment - FDI has also ensured a number of employment opportunities by aiding the setting up of industrial units in various corners of India.

Policy On FDI
The Department of Industrial Policy and Promotion (DIPP) has brought out a policy for consolidated foreign direct investment and it has been implemented from April 10, 2012. The fresh FDI policy has taken over from the consolidated FDI policy that had been effective during 2011 and the press notes that had been issued to this effect before April 9, 2012.

DIPP has stated in a press release that it does not feel it is necessary to make regular changes to the circular. This means that from now on the FDI policy will be reviewed only once a year instead of 2 times, as was done previously. As stated in the press release, it can be expected that the next combined FDI policy will come into effect on March 29, 2013. The DIPP can however make changes to the existing policy in the interim by way of press notes.

Changes to Investment by FIIs in Commodity Exchanges

According to the previous FDI policy, 26 percent is the maximum permissible limit in case of FDI in the commodities exchanges through approval and for the FIIs it is 23 percent through the portfolio investment scheme (PIS). The DIPP has taken into account the basic nature of FII investments and done away with the requirement of getting prior consent from the FIPB. But, the FDI investments will continue to happen through approval. This new rule is in line with the FDI policies for infrastructure companies that are active in the securities markets like stock exchanges, clearing corporations, and depositories. This move is expected to reduce the time needed for FIIs to invest in the commodities markets and generate liquidity. This decision can also help in free trading in securities available at commodities exchanges like the recently listed Multi Commodity Exchange.
Explanation of financing and leasing for FDI in NBFCs

As of now, DIPP has permitted FDI in the non banking financial services in the 18 previously prescribed activities and this also covers leasing and financing. The new FDI regulation makes sure that the leasing and financing part includes the financial leases only and not the operational leases. This decision makes it clear that the government had always intended to support financing and operational leases. It is expected that this could affect companies that are operating in the auto leasing industry.

Change in amount necessary for importing second hand machines

According to the previous FDI policy, any change of amount that needs to be paid for importing capital goods, equipment, and machinery including used machines into equity shares is permissible after approval. The consent in these instances is provided if certain regulatory conditions are complied with. The new FDI rules have made exclusion to this amount. The policy has been changed with the precise purpose of safeguarding the interests of machinery and capital goods manufacturers who have been hit hard due imported second hand products that are mostly of an inferior quality.

Transfer of shares from Non Resident Indians to Non Residents

The new FDI policy has made it mandatory to seek prior consent of the RBI in case shares are transferred from a Non Resident Indian to a Non Resident (NR). This is as per the Transfer or Issue of Security by a Person Resident Outside India (TISPRO Regulations) section of the Foreign Exchange Management Act.

It is not clear as to why the ruling did not apply for shares being transferred from NRs to NRs. According to experts this would have been applicable if the regulation was imposed on sectors like real estate where the NRIs were provided special privileges. This ruling can put the NRIs, who are investing through the FDI route, in significant disadvantage compared to the foreigners who transfer their shares to other NRs without the need for a previous approval.

Explanation of investment by FIIs

At present, the FIIs are allowed to invest in an Indian organization as per the Portfolio Investment Scheme, which restricts an individual FII to 10 percent and the puts the maximum limit for all FIIs to 24%. The total limit can be upped as per the applicable statutory ceiling or sectoral cap. However, this can be done only if the general body of the concerned company takes a resolution followed by a special resolution to this effect. The new FDI policy has made it necessary to inform the RBI before taking such a decision. Companies in India already have systems in place for informing different shareholders regarding such changes and now, experts assume, that this decision will add another dimension to it.

Investment by Foreign Venture Capital Investors (FVCIs)

From now on, FVCIs registered with SEBI will be permitted to invest in securities being traded at a well known stock exchange such as the following:

equity IVCU debentures equity linked instruments VCF debentures debt units of VCF schemes debt instruments units of VCF funds

They can buy these through a third party or participate through private purchase or arrangement.

Investment by Qualified Foreign Investors (QFIs)

The union government has allowed QFIs to invest in equity shares and DPs of listed companies. They can also invest in equity shares of organizations that have been offered publicly according to regulations and guidelines laid down by the SEBI. They can also perform the following transactions:

acquiring equity shares through right shares and bonus shares acquiring equity shares through corporate procedures such as demergers or amalgamation acquiring equity shares through stock consolidation or split

These transactions need to be done as per previously specified limits for individual QFIs it is 5 percent and for all the QFIs the limit goes up to 10%. This percentage is calculated in respect of the respective companys paid up capital.

Other Changes

The new FDI policy has brought about some provisions that had been previously approved. Some of them may be mentioned as below:

allowing investment by international VC and PE firms in secondary deals liberalized policy for transferring convertible debentures and shares of financial services companies 100 percent FDI in single brand retailing

Sectorwise Analysis of FDI Inflow in India

Abstract:

The Sectorwise Analysis of FDI Inflow in India reveals that maximum FDI has taken place in the service sector including the telecommunication, information technology, travel and many others. The service sector is followed by the manufacturing sector in terms of FDI. High volumes of FDI take place in electronics and hardware, automobiles, pharmaceuticals, cement, metallurgical and other manufacturing industries.

Sectorwise Analysis of FDI Inflow in India-Glimpses

The IT industry is one of the booming sectors in India. At present India is the leading country pertaining to the IT industry in the Asia -Pacific region. With more international companies entering the industry, the Foreign Direct Investments in India has been phenomenon over the year. The rapid development of the telecommunication sector was due to the FDI inflows in form of international players entering the market and transfer of advanced technologies. The telecom industry is one of the fastest growing industries in India. With a growth rate of 45%, Indian telecom industry has the highest growth rate in the world.

Top 10 Sectors Attracting Highest FDI Equity Inflows: 2009-10 Ranks Sector (AprilMarch) 2010-11 ( AprilMarch) 2011-12 (AprilJan.) Cumulative % age to total

Inflows (April Inflows (In 00 - Jan. 12) terms of US$)

SERVICES SECTOR (financial & non-financial) TELECOMMUNICATIONS paging, cellular mobile, telephone services) COMPUTER HARDWARE SOFTWARE & (radio basic

19,945 (4,176)

15,053 (3,296)

22,771 (4,836)

143,878 (31,971)

20.00%

12,270 (2,539)

7,542 (1,665)

8,984 (1,992)

57,050 (12,547)

8.00%

4,127 (872) 14,027 (2,935) 13,469 (2,852) 1,006 (213) 6,138 (1,272) 5,893 (1,236) 1,999 (420) 1,297 (266)

3,551 (780) 5,600 (1,227) 4,979 (1,103) 961 (209) 5,796 (1,272) 5,864 (1,299) 5,023 (1,098) 2,543 (556)

3,312 (698) 2,750 (591) 10,859 (2,230) 14,482 (3,208) 7,262 (1,569) 2,916 (635) 7,700 (1,655) 951 (202)

49,626 (11,107) 49,025 (10,973) 49,440 (10,867) 42,745 (9,170) 32,798 (7,215) 29,354 (6,470) 26,287 (5,909) 14,612 (3,339)

7.00%

HOUSING & REAL ESTATE

7.00%

CONSTRUCTION ACTIVITIES (including roads & highways)

7.00%

DRUGS & PHARMACEUTICALS

6.00%

POWER

5.00%

AUTOMOBILE INDUSTRY

4.00%

METALLURGICAL INDUSTRIES

4.00%

10

PETROLEUM & NATURAL GAS

2.00%

Note:
(i) Cumulative Sectorwise as FDI equity inflows to (from the April 2000 to January published 2012) Annex-'B'. data.

(ii) FDI Sectoral data has been revalidated in line with that of RBI, which reflects minor changes in the FDI figures (increase/decrease) compared earlier sectoral (iii)Source:-http://dipp.nic.in

Sector-Wise FDI Inflows From April 2000 To January 2012. %age with S.No Sector Amount of FDI Inflows total FDI Inflows (+)

(In crore) 1 2 3 SERVICES SECTOR TELECOMMUNICATIONS COMPUTER SOFTWARE & HARDWARE HOUSING & REAL ESTATE (INCLUDING CINEPLEX,MULTIPLEX, INTEGRATED TOWNSHIPS & COMMERCIAL COMPLEXES ETC.) 5 6 7 8 9 10 11 12 13 14 CONSTRUCTION ACTIVITIES DRUGS & PHARMACEUTICALS POWER AUTOMOBILE INDUSTRY METALLURGICAL INDUSTRIES PETROLEUM & NATURAL GAS CHEMICALS (OTHER THAN FERTILIZERS) HOTEL & TOURISM TRADING ELECTRICAL EQUIPMENTS INFORMATION PRINT MEDIA) & BROADCASTING (INCLUDING

Rs

(In million)

US$

143878.44 57049.95 49626.45

31970.85 12546.54 11106.5

19.99 7.84 6.94

49024.58

10972.67

6.86

49440.18 42745.26 32798.25 29354.31 26287.48 14611.84 14703.35 14770.58 14131.09 12902.14

10867.24 9170.24 7214.83 6469.53 5909.42 3338.75 3244.93 3229.48 3126.53 2844.75

6.79 5.73 4.51 4.04 3.69 2.09 2.03 2.02 1.95 1.78

15

12062.2

2632.88

1.65

16

CEMENT AND GYPSUM PRODUCTS MISCELLANEOUS MECHANICAL & ENGINEERING INDUSTRIES

11324.88

2535.43

1.58

17

9787.16

2180.26

1.36

18 19 20 21 22 23 24 25 26 27 28 29 30

CONSULTANCY SERVICES INDUSTRIAL MACHINERY PORTS AGRICULTURE SERVICES FOOD PROCESSING INDUSTRIES NON-CONVENTIONAL ENERGY HOSPITAL & DIAGNOSTIC CENTRES ELECTRONICS TEXTILES (INCLUDING DYED,PRINTED) SEA TRANSPORT FERMENTATION INDUSTRIES MINING PAPER AND PULP (INCLUDING PAPER PRODUCTS) PRIME MOVER GENERATORS) (OTHER THAN ELECTRICAL

8772.22 7590.94 6717.37 6912.48 6324.11 6142.37 5252.56 5214.6 5036.27 4992.35 4480.65 4042.33 3554.22

1924.54 1664.26 1635.08 1445.37 1376.99 1324.22 1183.04 1151.07 1104.54 1100.78 1022.15 937.9 764

1.2 1.04 1.02 0.9 0.86 0.83 0.74 0.72 0.69 0.69 0.64 0.59 0.48

31

2801.95

599.13

0.37

32 33 34 35 36 37 38 39 40

MEDICAL AND SURGICAL APPLIANCES CERAMICS EDUCATION RUBBER GOODS AIR TRANSPORT (INCLUDING AIR FREIGHT) MACHINE TOOLS SOAPS, COSMETICS & TOILET PREPARATIONS DIAMOND,GOLD ORNAMENTS VEGETABLE OILS AND VANASPATI

2421.14 2171.84 2306.13 2124.88 1924.46 1950.99 1934 1505.37 1300.77

514.08 503.79 491.99 454.47 431.2 428.94 411.34 334.31 276.56

0.32 0.31 0.31 0.28 0.27 0.27 0.26 0.21 0.17

41

FERTILIZERS PRINTING OF BOOKS (INCLUDING LITHO PRINTING INDUSTRY) RAILWAY RELATED COMPONENTS COMMERCIAL, EQUIPMENTS AGRICULTURAL MACHINERY GLASS EARTH-MOVING MACHINERY TEA AND COFFEE (PROCESSING & WAREHOUSING COFFEE & RUBBER) PHOTOGRAPHIC RAW FILM AND PAPER INDUSTRIAL INSTRUMENTS LEATHER,LEATHER GOODS AND PICKERS RETAIL TRADING (SINGLE BRAND) BOILERS AND STEAM GENERATING PLANTS SUGAR TIMBER PRODUCTS COAL PRODUCTION SCIENTIFIC INSTRUMENTS DYE-STUFFS GLUE AND GELATIN DEFENCE INDUSTRIES COIR MATHEMATICAL,SURVEYING AND DRAWING OFFICE & HOUSEHOLD

1196.78

255.35

0.16

42

1110.39

244.28

0.15

43

1058.18

234.76

0.15

44

1026.7

225.85

0.14

45 46 47

903.7 806 728.9

200.32 176.2 167.33

0.13 0.11 0.1

48

451.11

100.26

0.06

49 50 51 52 53 54 55 56 57 58 59 60 61 62

269.26 304.26 267.9 204.07 201.86 174.64 173.56 103.11 96.78 84.86 70.56 17.68 9.56 5.05

66.54 65.95 59.6 44.45 41.77 39.56 36.17 24.78 21.21 19 14.55 3.72 2.02 1.27

0.04 0.04 0.04 0.03 0.03 0.02 0.02 0.02 0.01 0.01 0.01 0 0 0

INSTRUMENTS 63 SUB. TOTAL 64 GRAND TOTAL RBIS- NRI SCHEMES (2000-2002) MISCELLANEOUS INDUSTRIES 33596.67 7487.61 4.68

722833.7

159973.12

533.06

121.33

723366.76

160094.45

The FDI in Automobile Industry has experienced huge growth in the past few years. The increase in the demand for cars and other vehicles is powered by the increase in the levels of disposable income in India. The options have increased with quality products from foreign car manufacturers. The introduction of tailor made finance schemes, easy repayment schemes has also helped the growth of the automobile sector. For the past few years the Indian Pharmaceutical Industry is performing very well. The varied functions such as contract research and manufacturing, clinical research, research and development pertaining to vaccines are the strengths of the Pharma Industry in India. Multinational pharmaceutical corporations outsource these activities and help the growth of the sector. The Indian Pharmaceutical Industry has been experiencing a vast inflow of FDI. The FDI inflow in the Cement Industry in India has increased with some of the Indian cement giants merging with major cement manufacturers in the world such Holcim, Heidelberg, Italcementi, Lafarge, etc. The FDI in Semiconductor sector in India were crucial for the development of the IT and the ITES sector in India. Electronic hardware is the major component of several industries such as information technology, telecommunication, automobiles, electronic appliances and special medical equipments.

FDI Approval in India

Abstract: FDI Approvals in India are carried out by agencies like the Reserve Bank of India and the Foreign Investment Promotion Board. FDI Approval in India is done quickly by the concerned agencies in order to bring in huge amounts of foreign direct investment into the country.

Foreign Direct Investment in India: Major economic reforms were undertaken in India in the early 1990s.

This led to the liberalization and deregulation of the Indian economy and also opened the country's markets to Foreign Direct Investment (FDI). In India, foreign direct investments are allowed through collaborations that are of financial nature,

joint venture collaborations, through preferential allotments, and also through Euro issues.

Various routes of FDI Approval in India:

The proposals for foreign direct investment in India get their approval through two routes that are the Reserve Bank of India and the Foreign Investment Promotion Board. Automatic approval is given by the Reserve Bank of India to the proposals for foreign direct investment in India. The Reserve Bank of India gives approval within the time period of two weeks. It gives approval to the proposals for foreign direct investment in India that involve FDI up to 74% in the nine categories that are included in List four, FDI up to 50% in the three categories that are included in List two, and FDI up to 51% in the forty eight industries that are included in List 3. FDI Approval in India is also done by the Foreign Investment Promotion Board (FIPB), which processes cases of non- automatic approval. The time taken by Foreign Investment Promotion Board for approving the proposals for foreign direct investment in India is between four to six weeks. The approach of FIPB is liberal as a result of which it accepts most of the proposals and rejects very few.

FDI Approval in India and Economic Growth

FDI approvals in India have grown significantly in recent years. Significant FDI approvals have taken place in telecom, real estate, banking and insurance sectors. Several other sectors have also benefited from FDI approvals in India. FDI approvals have played a major role in the economic growth of India in recent years.

Factors Responsible for FDI Inflow to India

A large number of factors are held responsible for FDI Inflow to India. Foreign Direct Investment inflow made its entry in India for the first time during the year 1991-92 with the aim to bring together the intended investment and the actual savings of the country. An Overview of Factors Responsible for FDI Inflow to India-

To pursue a growth of around 7 percent in the Gross Domestic Product of India, the net capital flows should increase by at least 28 to 30 percent on the whole. The savings of the country stood at 24 percent. The gap formed between intended investment and the actual savings of the country was lifted up by portfolio investments by Foreign Institutional Investors, loans by foreign banks and other places, and foreign direct investments. Among these three forms of financial assistance, India prefers as well as possess the maximum amount of Foreign Direct Investments. Advantages of Foreign Direct Investment Inflows in India-

FDI inflows raise the capital for investment. Foreign capital has taken over the domestic capital in terms of purchasing issue. Domestic capital is usually used or invested in other sectors of the Indian market. Foreign Direct Investment in greenfield ventures, has introduced technological advancement and contemporary techniques for management in India, which the country lacked badly before FDI made its entry. The inflow of foreign capital in India has opened up a plethora of options in the Indian market by ensuring foreign capital shares which stabilizes the country's economy India ranks 17th in terms of foreign direct investment inflows, and has 1.4 percent shares in FDI inflows among all other developing nations

Why Does India Attracts the Maximum FDI Inflows?

India is potentially active in terms of investments and provides a galore of opportunities to the foreign players into the market. Foreign companies who aspire to become a global player would grab the opportunities, India provides in terms of investments. The foreign companies enjoy the rights to set up branch offices, representative offices, and also carry out outsourcing activities in terms of software developmental programmes in India. All these have opened up innumerable options for the foreign investors to expand their businesses at a global level. These are some of the factors which led to FDI Inflows in India.

Market Potential in India for Attracting FDI Inflows-

India is claimed to be the fifth largest economy across the globe and ranks third in the Gross Domestic Product in the entire Asia, which is one of the most significant factors responsible for FDI Inflows in India. India is also known to be the second largest country amongst all other developing countries. Besides, India belongs to those rarest of countries, which offer growth and earning opportunities through various industrial units. India offers maximum opportunities for foreign investments, which have been a major cause behind the flourishing economy of the country. The FDI Inflows in Indian market as accounted for the year 2006-07, stood at USD 2,171 million.

FDI in India
Foreign direct investment in India has grown immensely in the last 5 years due to strong support from the Union Government. This growth has in turn helped with the progress of the national economy. Recently, the South-East Asian country has strived hard to draw FDI from the leading investors of the world.

financial collaborations capital markets via euro issues preferential allotments or private equity joint ventures

In the last few years the following sectors have attracted the maximum FDI as per a fact sheet brought out by the Department of Industrial Policy and Promotion:

Services Automobile Computer hardware and software Power Telecommunications Metallurgical industries Real estate and housing Petroleum and natural gas Construction Chemicals with the exception of fertilizers

The FDI laws forbid investment in the following sectors:

arms coal nuclear mining railway

Impact of FDI on Indian Economy

India has recently liberalized its FDI policy and decided to allow 100 percent international investment in the single brand retail segment. Reforms to industrial policies have brought about significant reductions to requirements regarding to licensing and done away with restrictions related to expansion and made it easy to use international technology. The real estate sector has performed well in recent times and much of the credit in this instance can be given to the relaxed FDI regulations and the properly performing economy.

The Indian government has been trying hard to do away with the FDI caps for majority of the sectors but there are still critical areas like retailing and insurance where much thought needs to be given before more FDI is allowed. India is the 3rd biggest economy of the world in terms of purchasing power parity and is thus a popular destination when it comes to FDI. Following are the major economic sectors where it can attract investment:

telecommunications apparels information technology pharmaceuticals auto components jewelry chemicals

Foreign investments in India have increased of late but the strict FDI policies have impeded the possible growth in this sector. India is however set to become one of the major recipients of FDI in the Asia-Pacific region because of the economic reforms for increasing foreign investment and the deregulation of this important sector. India has technical expertise and skilled managers and a growing middle class market of more than 300 million and this represents an attractive market.

FDI Inflows in India

The table provides a list of countries that are the leading foreign direct investors for India:
Country Approximate percentage of inflow Approximate inflow in million US dollars

Mauritius Singapore USA UK Netherlands

42 9 7 5 4

50164 11275 8914 6158 4968

As the table shows, within 2000 and 2010 India has attracted FDI worth 178 billion dollars. Majority of the foreign direct investment comes through Mauritius as it enjoys several tax advantages, which works well for the international investors. India and Mauritius have also signed a tax avoidance treaty and the African country provides several capital gains tax privileges to companies that operate from its territory. This effectively makes it a preferred medium as there is no taxation when it comes to FDI.

How FDI is calculated?

Foreign direct investment can be defined, according to national accounting principles, as the net investment inflow that is necessary for acquiring long term management interest in an organization that is operating in a different country. Long term management interest can be calculated as at least 10% of the voting stock of a company. It is the aggregate of equity capital and other long term and short term capital that are reflected in the balance of payments. A foreign direct investor normally takes part in the following areas of an organizations operations:

management technology transfer joint ventures expertise transfer

There are two major types of FDI inward FDI and outward FDI. Together these values are used to calculate the stock of foreign direct investment and the net FDI inflow. Direct investment, however, does not include buying shares. FDI can be cited as an example of international factor movement.

Union Government FDI Measures

The Union Government has allowed 100 percent FDI in cash and carry wholesale trade sector apart from the single brand retail market. It has also opted to allow 51% FDI in the multi brand retail segment. However, this will be implemented in accordance to certain predetermined conditions. At present, it is trying to come to a consensus on this matter with the various state governments.

FDI Equity Inflows from 2000-2012 S. Nos Financial Year (April March) Amount of FDI Inflows %age growth over previous year (in terms of US $)

FINANCIAL YEARS 2000-2012

In ` crores 10733 18654 12871 10064 14653

In US$ million 2463 4065 2705 2188 3219 ( + ) 65 % ( - ) 33 % ( - ) 19 % ( + ) 47 %

1 2 3 4 5

2000-01 2001-02 2002-03 2003-04 2004-05

6 7 8 9 10 11

2005-06 2006-07 2007-08 2008-09 * 2009-10 # 2010-11 # 2011-12 # (April - January 2012)

24584 56390 98642 142829 123120 88520

5540 12492 24575 31396 25834 19427

( + ) 72 % (+ )125 % ( + ) 97 % ( + ) 28 % ( - ) 18 % ( - ) 25 %

12

122307

26192

CUMULATIVE TOTAL (from April 2000 to January 2012)

723367

160096

Note: (i) including amount remitted through RBIs-NRI Schemes (2000-2002). (ii) FEDAI (Foreign Exchange Dealers Association of India) conversion rate from rupees to US dollar applied, on the basis of monthly average rate provided by RBI (DEAP), Mumbai. (iii) Variation in equity inflows reported in above Table II-A & II-B for 2006-07, 2007-08, 2008-09, 2009-10 & 2010-11 is due to difference in reporting of inflows by RBI in their monthly report to DIPP & monthly RBI bulletin. (IV) # Figures for the years 2009-10, 2010-11 & 2011-12 are provisional subject to reconciliation with RBI. (V) * An additional amount of US$ 4,035 million pertaining to the year 2008-09, since reported by RBI, has been included in FDI data base from February 2012.

Documents for FDI

This article depicts a short review on various documents required for FDI. Foreign direct investment (FDI) precisely means a long-term investment made by a foreign direct investor in an organization except the one in which the foreign direct investor is based. FDI usually comprise of a parent enterprise and a foreign affiliated concern in domestic market, which jointly forms a Transnational Corporation (TNC).

Documents for FDI in a Nutshell-

To acquire Foreign Direct Investments, the primary document required is 10 percent or more of the

ordinary shares of an incorporated enterprise. This means, the enterprise seeking FDI must have a control of the foreign parent organization over its affiliated firm in India. Ever since the Second World War, United States of America has been a major contributor in FDI. Between 1945 and 1960, United States accounted for around threequarters of new FDI. FDI has become a booming phenomenon in global economy especially with FDI stocks occupying around 20 percent of global GDP. In the last few years, India and China have been the most flourishing destinations to receive the maximum of Foreign Direct Investments.

Documents Required for Foreign Direct Investments-

Application Form Detailed information on the foreign investor or collaborators stating their parent enterprises and affiliated firms Copies of the memorandum of collaborations made by the foreign investors Detailed information on the Joint Venture firms or technical collaborators along with information on their parent enterprise, promoters, and affiliated firms Companies aiming at establishing multi sectoral activities must present their details on the already existent activities with four digit NIC code In case of any investments being carried out in a holding company, information about downstream investments are to be presented Copies of the earlier approved proposals by FIPB or SIA or RBI connected with the current one The board resolution of the investor company and the approval of transferred shareholder while transferring the existent equity Before and after investments, the detailed information on shareholders of the investor concern In case of indirect foreign investments, the details of the indirect route and the names of the foreign companies along with their shareholders Justification for higher payments in terms of payments for technology or trademark or brand name which require FIPB approval under automatic route Declaration from the investors stating their details Detailed information on the existing ventures or enterprises Remarks from Indian partners in case of the collaborations or the Joint ventures