PROJECT REPORT

ON

Foreign Direct Investment in AUTOMOBILE SECTOR

IN PARTIAL FULFILLMENT OF MASTER OF BUSINESS ADMINISTRATION (2011-2013)

Submitted To Mrs. Shavina goyal

Submitted By kirandeep kaur Roll No. 6387 M.B.A. 4rd semester

SCHOOL OF MANAGEMENT STUDIES PUNJABI UNIVERSITY PATIALA

Review of literature

Abstract

Since the last decade of the twentieth century, due to liberalization of policies and globalization, the Foreign Direct Investment (FDI) inflows are on an increasing trend. Foreign Direct Investment (FDI) and liberalization/ globalization have been one of the most fascinating and hot topics among researchers in the field of international trade and commerce. Foreign Direct Investment (FDI) as an important driver of growth. It is an important source of non debt financial resources for country for economic development. Besides it is a means of achieving technical knowhow and employment generation of employment. However, many are of the view that FDI is a big threat to sovereignty of host and domestic business houses. Faster exploitation of natural resources for profit may deprive host from such resources in long run. Midst of debate on pros and cons of FDI, world economy has observed a phenomenal change in volume and pattern of FDI. There is clearly an intense global competition of FDI. India is not behind this global race of attracting foreign investment. India emerged as an attractive FDI destination in services but has failed to evolve a manufacturing hub which has greater economic benefit.FDI though one of the important sources of financing the economic development, but not is not a solution for poverty eradication, unemployment and other economic ills. India needs a massive investment to achieve the goals of vision 20-20. It is an important form of fast international expansion to increase ownership of assets, drive location-specific advantages and acquire additional knowledge. FDI in industrial sectors in India has become a point of discussion due to various reasons. Starting from the automobile sector, information technology, telecommunication sector, manufacturing etc there is a continuous fluctuation in FDI inflows over the years. Earlier FDI was the target for manufacturing industries, transportation industry etc., but Automobile Sector has been seen attracting the highest FDI inflows The present study is conducted to study the FDI inflows in India and the reasons for Automobile sectors attracting the highest FDI inflows. The study is conducted from 2000-2012.

Introduction

The automobile industry in India is one of the largest industries and a key sector of the economy. It is in fact the industry of industries as it has considerable forward and backward linkages. Foreign Direct Investment (FDI) in automobile sector has made a significant contribution to the growth in this sector specific and also developments and growth in the other related industries, like, metal, paint, electrical / electronic gadgets, tube and tyre, auto components and original equipment manufacturers (OEMs) for the manufacturers and after market ;is a significant development in this sector .Since independence (1947) to the FY 2012-13 (till October 12) automobile industry in India has grown reasonably well, more developments took place only after 1993. In 1950 the production was meager 4000 vehicles and this production figure in financial year ending 2012 has grown to over 20 million vehicles with industry gross annual turnover of 10,620 million USD in the financial year 2001-02 to 58,583 million USD in the financial year 2011-12 against the projected target1 of 75,300 million USD. In India, the Automobile industry was regulated like all other industries and investors needed to obtain license and also there was quantitative restrictions till late 1970s with only four principal manufacturers existed that time. There were few relaxations in the industrial regulations in early 80s. Major economic reforms in early 90s have greatly influenced the developments to the industry in general and specifically to the automobile industry but despite opening up the economy with liberalizations and relaxing regulations; India is far lagging behind China in the quantum of FDI inflows. The FDI in India was started with changes in industrial policy (named as New Industrial Policy NIP) which was announced on 24th July 1991. This policy abolished industrial licensing system for all industries with exception made for strategic and environmental concerns. In general, FDI inflows can be corroborated by any or combination of the following reasons:-1) To take advantage of technology and managerial, financial or marketing strengths to enter or to expand into specific foreign markets, To take advantage of attractive government policies and relaxed regulations in establishing institution (green filed or in equity stake in the existing unit or as a 100% subsidiary) 3) To make use of natural resources by employing specialized and technologically sophisticated methods iv. To exploit low-wage and high skilled labor force. Postliberalization, the Government of India's new automobile policy announced in June 1993 contained measures, such as deli censing (passenger car), automatic approval for foreign Holding of 51% in Indian companies, abolition of phased manufacturing programme (PMP), reduction of excise duty to 40% and reducing import duties of CKD to 50% and of CBU to 110% and commitment to indigenization schedules. The last two decades of the 20th Century witnessed a dramatic world-wide increase in Foreign Direct Investment (FDI). This was accompanied by distinct changes in the attitude of most developing countries towards inward FDI. The Indian automobile Industry evolution (influencing Foreign Direct Investment FDI inflows) can be explained by the following three major phases; in which there are various policy changes influencing in the growth of this industry. The first phase is during early 80s to 1995 establishment of Maruti Udyog and having MOU and Investment with Suzuki (Japan), entry of Japanese two wheelers (namely, Honda, Yamaha and Suzuki), de-licensing in 1993, decreasing customs and excise duties and Maruti brand established as market leader. The second phase is

from 1995 to 2002 and one of the prime reasons for growth of this automobile industry in India Market opening for international players, increased competitions, translating from sellers to buyers market (a beginning), market segmentation, focusing on environmental concerns (pollution controls), developments in technology and improvements in service networks. The third phase (2002 onwards) is another step in historic developments... unique by itself because of implementation of AUTO Policy 2002 which has revolutionized the growth of Indian Automobile Industry. The Policy aims to promote integrated, phased, enduring and self-sustained growth of the Indian Automotive Industry and the objectives are to:1. Exalt the sector as a lever of industrial growth and employment and to achieve a high degree of value addition. 2. Promote a globally competitive automotive industry and emerge as a global source for auto components 3. Establish an international hub for manufacturing small, affordable passenger cars and a key centre for manufacturing Tractors and Two-wheelers in the world; 4. Ensure a balanced transition to open trade at a minimal risk to the Indian economy and local industry; 5. Conduce incessant modernization of the industry and facilitate indigenous design, research and development; 6. Steer India's software industry into automotive technology; 7. Assist development of vehicles propelled by alternate energy sources; 8. Development of domestic safety and environmental standards at par with international standards. The quantitative restrictions (QRs) were removed from 01-04-2001 and this policy placed import of capital goods and automotive components under open general license (OGC), but restricted import of cars and automotive vehicles in Completely Built Unit (CBU) form or in Completely Knocked Down (CKD) or in Semi Knocked Down (SKD) condition. Car manufacturing units were issued licenses to import components in CKD or SKD form only on executing a Memorandum of Understanding (MOU) with the Director General Foreign Trade (DGFT).

Literature review
The study aims at providing the overall view of the Foreign Direct Investment into India, its classifications, trends and importance of FDI in pre and post reform era. Wherein, the post economic reform shows an increase in the growth of FDI. It emphasises on the importance of FDI in retail sector. Country wise FDI inflows into the country are carefully observed in order to arrive at appropriate conclusions in order to understand the trend of FDI inflows into Indian economy. Literature review involves the analysis of various articles and research papers which were done on the similar lines of study to get an insight of the FDI and its performance in automobile sectors. Review of various literatures available on FDI reveals that foreign investment is still a matter of debate. Whether FDI is boom or bane for host countries economic growth and development? Opinions are still divided. FDI has its own advantages and disadvantages. Many scholars argue that through FDI developed nations may try to invade the sovereignty of host country. In order to earn quick profit they may exploit the natural resources at the faster rate and thus leave the host country deprived in the long run. It have been feared that FDI is a big threat to survival of domestic players. Many are of the opinion that basic objective of foreign investments is to earn profits by ignoring the overall social & economic development of the host nation. Thus, through this section an attempt has been made to discuss various issues raised by different scholars on the subject. It is universally acknowledged that FDI inflow offers many benefits to an economy.According to an article by vijay bhasker of Banglore; there has been significant impact of FDI in Auto Sector in Employment Generation both in quantity and quality. Apparently, FDI in automobile manufacturing contributes appreciably to employment generation in all segments of the sector and also generates demand in skill development to match with the technology upgrading and productivity of labor. Thus, this research paper is aimed on the employment potential in Indian Automobile Industry as such, in quantum only. It is essential to highlight certain limitations in findings arrived at: -It does not represent the quantum and skill requirements at various levels in specific numbers as this research in employment generation prima facie. It pre employment generation is absolutely directly proportional to production increase. According to an article by P.chadambram in times of India on April 1, 2013 I have come to know about changes in FDI limits again. But their basic target is telecom industries and banking sector. No new limit will be prescribed for automobile sector. It will remain on 100%.i have also referred an article which is released by the department of industrial policy and promotion (DIPP). From this topic I have come to know about the FDI policy. I have also studied an article by YVS Subramnaya, professor in department of commerce in Andhara university. This research is basically on the growth of automobile industry because of FDI and discuss about the role of FDI. This research article is an attempt to identify the industrial policies relevant to the development of Indias automobile industry; studying the impact on the industrys development. The observation is; with every major shift in the policies made by the Indian Government.

Objective of the study

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 automobile industry in India is growing by 18 percent per year. The automobile sector in India was opened up to foreign investments in the year 1991. 100% Foreign Direct Investment (FDI) is allowed in the automobile industry in India. The production level of, the automobile sector has increased after the participation of global players in the sector. India is the second largest country in the world with a population of over one billion people. As a developing country, Indias economy is characterized by wage rates that are significantly lower than those in most developed countries. These two traits combine to make India a natural destination for foreign direct investment (FDI). Until recently, however, India has attracted only a small share of global FDI, primarily due to government restrictions on foreign involvement in the economy. But beginning in 1991 and accelerating rapidly since 2000, India has liberalized its investment regulations and actively encouraged new foreign investment, a sharp reversal from decades of discouraging economic integration with the global economy. So my objective is:- To know the growth in automobile sector after liberalisation and major players in Indian market. - To know the advantages in investing in automobile sector - To know the challenges ahead in investing in this sector. - FDI inflow trends - FDI trends in various Emerging market economies - Opportunities of FDI in automobile sector - Sector performance - Outcomes of FDI - Strength and weaknesses

- Key challenge ahead in automobile sector