Single Brand product Government

trading 51%
m) Financing Services
Foreign investment in other financial services , other than
those indicated below, would require prior approval of the
Government:

Asset Reconstruction Companies

Asset Reconstruction 49% of paid-up Government
Company‘ (ARC) means a capital of ARC
company registered with the
Reserve Bank of India under
Section 3 of the
Securitisation and
Reconstruction of Financial
Assets and Enforcement of
Security Interest Act, 2002
(SARFAESI Act).
n) Banking –Private sector
Banking –Private sector 74% including Automatic up
investment by to 49%
FIIs Government
route beyond
49% and up
to 74%
Banking- Public Sector
Banking- Public Sector 20% (FDI and Government
subject to Banking Portfolio
Companies (Acquisition & Investment)
Transfer of Undertakings)
Acts 1970/80. This ceiling
(20%) is also applicable to
the State Bank of India and
its associate Banks.
0) Policy for FDI in 49% (FDI & Government
Commodity Exchange FII)
[Investment by
Registered FII
under Portfolio
Investment
Scheme (PIS)
will be limited
to 23% and
Investment
under FDI
Scheme
limited to
26%)
p) Infrastructure Company in the Securities Market
49% (FDI & Government
FII) [FDI limit ( For FDI)
Infrastructure companies in of 26 per cent
Securities Markets, namely, and an FII
stock exchanges, depositories limit of 23 per
and clearing corporations, in cent of the
compliance with SEBI paid-up
Regulations capital ]
q) Insurance 26% Automatic
Non-Banking Finance Companies (NBFC)
r) Foreign investment in NBFC 100% Automatic
is allowed under the
automatic route in only the
following activities:
(i) Merchant Banking
(ii) Under Writing
(iii) Portfolio Management
Services
(iv) Investment Advisory
Services
(v) Financial Consultancy
(vi) Stock Broking
(vii) Asset Management
(viii) Venture Capital
(ix) Custodian Services
(x) Factoring
(xi) Credit Rating Agencies
(xii) Leasing & Finance
(xiii) Housing Finance
(xiv) Forex Broking
(xv) Credit Card Business
(xvi) Money Changing
Business
(xvii) Micro Credit
(xviii) Rural Credit

2.3 FDI promotion initiatives

(a) On the policy front, the FDI policy is already very liberal & it is being further
progressively rationalized, on the basis of an exercise initiated for integration of all
prior regulations on FDI, contained in FEMA, RBI circulars, various Press Notes
etc., into one consolidated document, so as to reflect the current regulatory
framework. The latest consolidated FDI policy document has been launched by
Department of Industrial Policy & Promotion on 30.09.2010, which is available at
DIPP’s website (www.dipp.nic.in) for public domain.
(b) On the investment promotion front, the Department organises ‘Destination
India’ and ‘Invest India’ events in association with CII and FICCI.
(c) DIPP has been undertaking concerted efforts for improving the business
environment in the country. The business reforms aimed at improving the business
environment include setting up of single windows, online registrations,
computerization of information, simplification of taxes and payments, reduction of
documents through developing single forms for various licences/permissions and
reduction of inspections etc.
(d) As a step towards promoting an online single window at the national level for
business users, the Department has undertaking e-Biz project, which is one of
Mission Mode Projects (MMPs) under the National eGovernance Plan (NeGP).
The objectives of setting up of the e-Biz Portal are to provide a number of services
to business users covering the entire life cycle on their operations. The project aims
at enhancing India’s business competitiveness through a service oriented, event-
driven G2B interaction.
(e) The National Manufacturing Competitiveness Council (NMCC) has been set up
to provide a continuing forum for policy dialogue to energise and sustain the
growth of manufacturing industries.
(f) The Department has regular interaction with foreign investors. Such interactions
have been held in bilateral/regional/international meets such as Indo-ASEAN,
Indo-EU, Indo-Japan, etc. Meetings with individual investors were also held on a
regular basis.
(g) The Department website (www.dipp.nic.in) has been made both comprehensive
and informative, with an online chat facility.
 CHAPTER-3
Research Design
3.0 Statement of the problem:
There are many factors that influence the economic condition. One of them is FDI.
Hence there is a need to study the impact of FDI on the change in economy.

3.1 Objectives of the research:

The study covers the following objective
1. To study the trends and patterns of flow of FDI.
2. To evaluate the impact of FDI on the economy.

3.2 Methodology and Data collection:

AIM: To establish the relationship between FDI and growing trends in the Indian
economy.
PRIMARY SOURCE: Not Applicable in this research

SECONDARY SOURCE:
The present study is of analytical nature and makes use of secondary data. The
relevant secondary data has been collected from reports of the Ministry of
Commerce and Industry, Government of India, Centre for Monitoring Indian
Economy, Reserve Bank of India, World Investment Report. It is a time series data
and the relevant data has been collected for the period 2007-2011.

3.3 Hypothesis:
The study has been taken up for the period 2007-2011 with the following
hypothesis
Ho: FDI doesn’t affect the economic growth of the country (India).
H1: FDI affect the economic growth of the country (India).

3.4 Scope of the study:

1) The study is aimed to understand the flow of FDI in the Indian economy.
2) Finding out the reason for the difference in FDI inflows
3) How FDI is affecting various sector of economy.

3.5 Limitations of the study:

1) It’s not only FDI that effects the growth of economy there are other factors such
as FII, monetary policy and government policies.
2) FDI data keeps on changing.
3) Time limitation.ANALYSIS AND INTERPRETATION
4) 4.0 Analysis of FDI inflows global and by group of economies
Chart 4.1

Global foreign direct investment (FDI) inflows grew in 2007 to an estimated

US$1.5 trillion, surpassing the previous record set in the year 2000. It was due to
continuous rise in FDI in all of three groups of economies -- in developed
countries, developing economies and in South-East Europe and the
Commonwealth of Independent States (CIS) -- largely reflecting the high-growth
propensities of transnational corporations (TNCs) and strong economic
performance in many parts of the world. Increased corporate profits and an
abundance of cash boosted the value of the cross-border mergers and acquisitions
(M&A’s) that constitute a large portion of FDI flows, although the value of M&A’s
in the latter half of 2007 declined.
The financial and credit crisis that began in the latter half of 2007 has not affected
the overall volume of FDI inflows. Even with a slowdown of the United States
economy, the depreciation of the US dollar may have helped to maintain high
levels of FDI flows into the country, in particular from countries with appreciating
currencies, such as Europe and developing Asia. While sub-prime loan problems
have impinged on the lending capabilities of banks, new capital injections from
various funds, including sovereign wealth funds, have helped alleviate some of the
problems.
FDI flows to developed countries in 2007 grew for the fourth consecutive year,
reaching US$1 trillion. The European Union (EU) as a whole continued to be the
largest host region, attracting almost 40% of total FDI inflows in 2007. FDI
inflows to developing countries and economies in transition (the latter comprising
South-East Europe and CIS) rose by 16% and 41% respectively, and reached new
record levels. In Africa, FDI inflows in 2007 remained relatively strong. The
unprecedented level of inflows (US$36 billion) was supported by a continuing
boom in global commodity markets. FDI inflows to Latin America and the
Caribbean, meanwhile, rose by 50% to a record level of US$126 billion. FDI
inflows to South, East and South-East Asia, and Oceania maintained their upward
trend in 2007, reaching a new high of US$224 billion, an increase of 12% over
2006. In West Asia, overall FDI inflows declined by 12%. FDI to South-East
Europe and the CIS, or transition economies, expanded significantly, by 41%, to a
new record of US$98 billion. Despite some unfavourable economic projections for
2008 and potential tightening of rules for foreign investment in natural resources
and related industries, high demand for natural resources around the world -- and,
as a result, the opening up of new potentially profitable opportunities in the
primary sector - are likely to boost FDI in the extractive industries. And later
during 2008 due to subprime crisis in US led to decline in FDI of the world.
However global FDI inflows in 2010
reached an estimated $1,244 billion from the above figure– a small increase from
2009’s level of $1,185 billion. How- ever, there was an uneven pattern between
regions and also between sub regions. FDI inflows to developed countries and
transition economies contracted further in 2010. In contrast, those to developing
economies recovered strongly, and together with transition economies – for the
first time – surpassed the 50 per cent mark of global FDI flows. FDI flows to
developing economies raised by 12% (to $574 billion) in 2010, due to their
relatively fast economic recovery, the strength of domestic demand. The value of
cross-border M&A’s into developing economies doubled due to attractive
valuations of company assets, strong earnings growth and robust economic
fundamentals (such as market growth). As more international production moves to
developing and transition economies, TNCs are increasingly investing in those
countries to maintain cost-effectiveness and to remain competitive in the global
production networks. This is now mirrored by a shift in international consumption,
in the wake of which market-seeking FDI is also gaining ground. This changing
pattern of FDI inflows is confirmed also in the global ranking of the largest FDI
recipients: In 2010, half of the top 20 host economies were from developing and
transition economies, compared to seven in 2009.In addition, three developing
economies ranked among the five largest FDI recipients in the world. While the
United States and China maintained their top position, some European countries
moved down in the ranking. Indonesia entered the top 20 for the first time.
4.1Analysis of FDI in India year wise
Table 4.1: FDI inflows year wise in India
Amount % change
Financial Year (US $ over previous
(April-March) million) year
August 1991-
March 2000 14485
2000-01 2,463.00
2001-02 4,065.00 65%
2002-03 2,705.00 -50%
2003-04 2,188.00 -19%
2004-05 3,219.00 47%
2005-06 5,540.00 72%
2006-07 12,492.00 125%
2007-08 24,575.00 97%
2008-09 27,330.00 11%
2009-10 25,834.00 -5%
2010-11 19,427.00 -25%
Total 146319

According to the statistics released by India’s Ministry of Commerce and Industry,

the country has received US $19.43 billion in FDI during the last fiscal (April ‘10-
March’11), compared to US $25.83 billion that came in the previous financial year.
Although it is a significant dip (-25%), the government is confident that the trend
will be reversed. Cumulative FDI inflows received during the post liberalization
period i.e. 1991-2011 were to the tune of US $146,319 million as per the above
table. From the year 2000 up to 2002, investments into India grew 65% but
declined during the subsequent two years from 2002 to 2004. 2004 to 2006, India
once again experienced a surge in investments, growing 47% in 2004-05 and 72%
in 2005-06 respectively. The year 2006-07 was an exceptional year with a 125%
growth in FDI inflows. The subsequent year was again very good, where
investment inflows gained 97%, followed by an increase of 11% during 2008-09.
During the year of the financial crisis, Apr’09-Mar’10, foreign direct investments
suffered a slight setback with inflows declining a little over 5% over the previous
year.
Last year (Apr’10-Mar’11) FDI
into India declined further by 25% to US $19,427 million. Foreign direct
investment (FDI) in India’s services sector, which contribute over 50 per cent in
the country’s economic growth, declined by 22.5 per cent to USD 3.4 billion in
2010-11, according to the industry ministry’s latest data. The services sector
(financial and non-financial services) had attracted FDI worth USD 4.39 billion
during 2009-10. According to experts, global financial problems, particularly in the
European markets are making players cautious of undertaking overseas
investments. Mauritius, Singapore, the US, UK, Netherlands, Japan, Germany and
the UAE, among other countries, are the major investors in India. “The decline is
mainly because of global financial problems and it was a worldwide downfall. Also
the setback in attracting FDI was partly due to macroeconomic concerns such as a
high current account deficit and inflation, as well as to delays in the approval of
large FDI projects.

4.2 Analysis of country wise inflows of FDI in India

Table4.2
2007- Cumulati
08 ve
(Apri 2008- 2009- 2010- 2011- Inflows
l- 09(Apr 10(Apr 11(Apr 12(Apr (April % to
Marc il- il- il- il- '00 Total
h) March March March August August Inflo
Rank Country ) ) ) ) '11) ws
1 Mauritius 4448 50794 49633 31855 26634 269395 41
3
2 Singapore 1231 15727 11295 7730 13350 66407 10
9
3 USA 4377 8002 9230 5353 2066 44609 7
4 UK 4690 3840 3094 3434 11311 40744 6
5 Japan 3336 1889 5670 7063 7855 31813 5
6 Netherlands 2780 3922 4283 5501 3207 28834 4
7 Cyprus 3385 5983 7728 4171 1830 23778 4
8 Germany 2075 2750 2980 908 5737 19113 3
9 France 583 2098 1437 3349 1668 11936 2
10 UAE 1039 1133 3017 1569 376 8968 1
Total FDI 9866 12302 12337
Inflows 4 5 8 88520 77864 658586

India’s 83% of cumulative FDI is contributed by ten countries while remaining 17

per cent by rest of the world. The analysis of country wise inflows of FDI in India
indicates that during 2007-2010, the total amount of Rs 526537 of FDI was
received from 113 countries including NRI investments. India’s perception abroad
has been changing steadily over the years. This is reflected in the ever growing list
of countries that are showing interest to invest in India. Mauritius emerged as the
most dominant source of FDI contributing 44 % of the total investment in the
country. Singapore was the second dominant source of FDI inflows with 9% of the
total inflows. However, USA slipped to third position by contributing 7% of the
total inflows. They maintained continuous increasing trend under the period of
study. UK occupied fourth position with 5%followed by Netherlands with 4%,
Japan with 4%, Cyprus with 4%, Germany with 3%, France with 1%, UAE with
1%. It has been observed that some of the countries like Israel, Thailand, Hong
Kong, South Africa and Oman increased their share gradually during the period
under study.
It is also interesting to note that some of the new countries such as Hungary,
Nepal, Virgin Islands, and Yemen are making significant investments in India.
Mauritius:
After 1991-2011, Mauritius have always topped the position for FDI inflows in
India with FDI on 2011-12 standing at 26634 US $ million, consisting of 41% of
total FDI inflows. The inordinately high investment from Mauritius is due to
routing of international funds through the country given significant tax advantages;
double taxation is avoided due to a tax treaty between India and Mauritius, and
Mauritius is a capital gains tax haven, effectively creating a zero-taxation FDI
channel.
The India-Mauritius Double Taxation Avoidance Agreement (DTAA)
was signed in 1982 and has played an important role in facilitating foreign
investment in India via Mauritius. It has emerged as the largest source of foreign
direct investment (FDI) in India, accounting for 50 per cent of inflows between
August 1991 and 2008. A large number of foreign institutional investors (FIIs) who
trade on the Indian stock markets operate from Mauritius. According to the DTAA
between India and Mauritius, capital gains arising from the sale of shares are
taxable in the country of residence of the shareholder and not in the country of
residence of the company whose shares have been sold. Therefore, a Company
resident in Mauritius selling shares of an Indian company will not pay tax in India.
Since there is no capital gains tax in Mauritius, the gain will escape tax altogether.
The DTAA has, however, recently been in the news, with Indian left-wing parties
demanding a review of the treaty. They argue that businessmen are misusing the
provisions of the treaty to evade taxes.
The Mauritius stock market was opened to foreign investors following the lifting
of foreign exchange controls in 1994. No approval is required for the trading of
shares by foreign investors, unless investment is for the purpose of legal and
management control of a Mauritian company or for the holding of more than 15
per cent in a sugar company. Incentives to foreign investors include free
repatriation of revenue from the sale of shares and exemption from tax on
dividends and capital gains.
Mauritius has an active offshore financial sector, which is a major route for foreign
investments into the Asian subcontinent. Foreign direct investment transiting
through the Mauritian offshore sector to India has been considerably increasing in
the recent years, according to figures released by the Indian Ministry of Commerce
and Industry. Major US corporations use the Mauritius offshore sector to channel
their investment to India.

Singapore:
Singapore has become a rapidly growing source of investment funds to India in the
past few years. In fact, the data above shows that investment from Singapore has
grown to very high levels. Singapore has become India’s second largest source of
FDI inflow for the period April 2011 till August 2011, with a cumulative amount of
Rs. 66407 crore. Its share has gone up from less than 1% of total FDI inflow in
2003-04, to 13% in 2007-08. For the past two years, it has overtaken even large
developed economies like US, UK and Japan which are normally viewed as the
most important places to look for funds. FDI increased from Rs. 172 crore 2003-04
to Rs. 822 crore in 2004-05, a jump of 378%! A major reason for this, as was seen
with Indo- Singaporean trade, probably was the anticipation for CECA’s signing
that boosted investment.30 Another major boost arrived in 2007-08, when FDI
increased by 370%. Since 2004-05, Singapore has been consistently in the top few
ranks since 2004-05, a situation not seen prior to this. Although FDI inflow from
most countries has grown in the past few years, the pace of growth in Singapore’s
investment has made others look surprised.
U.S.A:

The United States is the third largest source of FDI in India (7 % of the total),
valued at 44609 crore in cumulative inflows between April 2000 and August 2011.
According to the Indian government, the top sectors attracting FDI from the United
States to India during 1991–2011 are fuel (36 percent), telecommunications (11
percent), electrical equipment (10 percent), food processing (9 percent), and
services (8 percent). According to the available M&A data, the two top sectors
attracting FDI inflows from the United States are computer systems design and
programming and manufacturing. Since 2002, many of the major U.S. software
and computer brands, such as Microsoft, Honeywell, Cisco Systems, Adobe
Systems, McAfee, and Intel have established R&D operations in India, primarily in
Hyderabad or Bangalore. The majority of U.S. electronics companies that have
announced Greenfield projects in India are concentrated in the semiconductor
sector. By far the largest such project is AMD’s chip manufacturing facility in
Hyderabad, Andhra Pradesh. The largest share (36 percent) was found in the
manufacturing sector, most prominently in the machinery, chemicals, and
transportation equipment manufacturing segments. Other important categories of
employment are professional, scientific, and technical services; and wholesale
trade, with 29 percent and 18 percent of U.S. affiliate employment, respectively.

European Union:
Within the European Union, the largest country investors were the United
Kingdom and the Netherlands, with 40744 crore and 28834 crore, respectively, of
cumulative FDI inflows between April 2000 to August 2011. The United Kingdom,
the Netherlands, Germany and France together accounted for almost 15% of all
FDI flows from the EU to India. FDI from the EU to India is primarily
concentrated in the power/energy, telecommunications, and transportation sectors.
The top sectors attracting FDI from the European Union are similar to FDI from
the United States. Manufacturing; information services; and professional,
scientific, and technical services have attracted the largest shares of FDI inflows
from the EU to India since 2000. Unilever, Reuters Group, P&O Ports Ltd,
Vodafone, and Barclays are examples of EU companies investing in India by
means of mergers and acquisitions. European companies accounted for 31 percent
of the total number and 43 percent of the total value for all reported Greenfield FDI
projects. The number of EU Greenfield projects was distributed among four major
clusters: ICT (17 percent), heavy industry (16 percent), business and financial
services (15 percent), and transport (11 percent). However, the heavy industry
cluster accounted for the majority (68 percent) of the total value of these projects.
Japan:
Japan was the fifth largest source of cumulative FDI inflows in India between April
and August 2011, i.e. the cumulative flow is 31813 crore and it is 5% of total
inflow. FDI inflows to India from most other principal source countries have
steadily increased since 2000, but inflows from Japan to India have decreased
during this time period. There does not appear to be a single factor that explains the
recent decline in FDI inflows from Japan to India. India is, however, one of the
largest recipients of Japanese Official Development Assistance (ODA), through
which Japan has assisted India in building infrastructure, including electricity
generation, transportation, and water supply. It is possible that this Japanese
government assistance may crowd out some private sector Japanese investment.
The top sectors attracting FDI inflows from Japan to India are transportation (54
percent), electrical equipment (7 percent), telecommunications, and services (3
percent). The available M&A data corresponds with the overall FDI trends in
sectors attracting inflows from Japan to India. Companies dealing in the
transportation industry, specifically automobiles, and the auto
component/peripheral industries dominate M&A activity from Japan to India,
including Yamaha Motors, Toyota, Kirloskar Auto Parts Ltd., and Mitsubishi
Heavy Industries Ltd. Japanese companies have also invested in an estimated 148
Greenfield FDI projects valued at least at $3.7 billion between 2002 and 2006. In
April 2007, Japanese and Indian officials announced a major new collaboration
between the two countries to build a new Delhi-Mumbai industrial corridor, to be
funded through a public-private partnership and private-sector FDI, primarily from
Japanese companies. The project was begun in January 2008 with initial
investment of $2 billion from the two countries. The corridor will cross 6 states
and extend for 1,483 km, in an area inhabited by 180 million people. At completion
in 2015, the corridor is expected to include total FDI of $45–50 billion. A large
share of that total is destined for infrastructure, including a 4,000 MW power plant,
3 ports, and 6 airports, along with additional connections to existing ports. Private
investment is expected to fund 10-12 new industrial zones, upgrade 5–6 existing
airports, and set up 10 logistics parks. The Indian government expects that by
2020, the industrial corridor will contribute to employment growth of 15 percent in
the region, 28 percent growth in industrial output, and 38 percent growth in
exports.
 4.3 Analysis of sector wise inflows of FDI in India
Table 4.3
Sector 2007-08 2008-09 2009-10 2010-11 2011-12 Cumulativ % age
(April- (April- (April- ( April- (April- e to total
March) March) March) March) Dec.) Inflows Inflows
(April 2000 (In
- terms
Dec. 11) of US$)
SERVICES SECTOR 26,589 28,411 19,945 15,053 21,431 142,539 20%
(financial & non-financial) (6,615 (6,116) (4,176) (3,296) (4,575) (31,710)
COMPUTER SOFTWARE & 5,623 7,329 4,127 3,551 2,626 48,940 7%
HARDWARE (1,410) (1,677) (872) (780 (564) (10,973
TELECOMMUNICATIONS 5,103 11,727 12,270 7,542 8,969 57,035 8%
(radio paging, cellular mobile, (1,261) (2,558) (2,539) (1,665) (1,989) (12,544)
basic telephone services
HOUSING & REAL ESTATE 8,749 12,621 14,027 5,600 2,544 48,819 7%
(2,179) (2,801 (2,935) (1,227) (551) (10,933
CONSTRUCTION 6,989 8,792 13,469 4,979 7,635 46,216 6%
ACTIVITIES (1,743) (2,028) (2,852) (1,103) (1,602) (10,239
(including roads & highways)
POWER 3,875 4,382 6,138 5,796 6,639 32,176 4%
(967) (985) (1,272) (1,272) (1,447) (7,094
AUTOMOBILE INDUSTRY 2,697 5,212 5,893 5,864 2,785 29,224 4%
(675) (1,152) (1,236) (1,299) (610 (6,444
METALLURGICAL 4,686 4,157 1,999 5,023 6,881 25,469 4%
INDUSTRIES (1,177) (961) (420) (1,098) (1,495) (5,750
PETROLEUM & NATURAL 5,729 1,931 1,297 2,543 920 14,581 2%
GAS (1,427) (412) (266) (556) (196) (3,333)
DRUGS & NA NA 1,006 961 14,405 42,668 4%
PHARMACEUTICALS (213) (209) (3,193) (9,155)
Ranking of Sector wise FDI inflows in India since April 2000- Dec 2011

Table 4.4

Industrial Sector Rank

Service Sector 1
Telecommunication 2
Computer Hardware & Software 3
Housing and Real Estate 4
Construction Activities 5
Drugs and Pharmaceuticals 6
Automobile Industry 7
Metallurgical Industry 8
Power 9
Petroleum and Natural Gas 10

Chart 4.2
Pie chart representing % of total FDI inflows in different sectors

The Sector wise 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 computer
hardware and software in terms of FDI. High volumes of FDI take place in
telecommunication, real estate, construction, power, automobiles, etc.
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. During the year 2009 government had raised the
FDI limit in telecom sector from 49 per cent to 74 per, which has contributed to the
robust growth of FDI. The telecom sector registered a growth of 103 per cent
during fiscal 2008-09 as compared to previous fiscal.
FDI inflows to real estate sector in India have developed the sector. The increased
flow of foreign direct investment in the real estate sector in India has helped in the
growth, development, and expansion of the sector. FDI Inflows to Construction
Activities has led to a phenomenal growth in the economic life of the country.
India has become one of the most prime destinations in terms of construction
activities as well as real estate investment.
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. The basic
advantages provided by India in the automobile sector include, advanced
technology, cost-effectiveness, and efficient work force. Besides, India has a well-
developed and competent Auto Ancillary Industry along with automobile testing
and R&D centres. The automobile sector in India ranks third in manufacturing
three wheelers and second in manufacturing of two wheelers. Opportunities of FDI
in the Automobile Sector in India exist in establishing Engineering Centres, Two
Wheeler Segment, Exports, Establishing Research and Development Centres,
Heavy truck Segment, Passenger Car Segment.
The increased FDI Inflows to Metallurgical Industries in India has helped to bring
in the latest technology to the industries. Further, the increased FDI Inflows to
Metallurgical Industries in India has led to the development, expansion, and
growth of the industries. All this has helped in improving the quality of the
products of the metallurgical industries in India.
The increased FDI Inflows to Chemicals industry in India has helped in the growth
and development of the sector. The increased flow of foreign direct investment in
the chemicals industry in India has helped in the development, expansion, and
growth of the industry. This in its turn has led to the improvement of the quality of
the products from the industry. Based upon the data given by department of
Industrial Policy and Promotion, in India there are sixty two (62) sectors in which
FDI inflows are seen but it is found that top ten sectors attract almost seventy
percent (70%) of FDI inflows. The cumulative FDI inflows from the above results
reveals that service sector in India attracts the maximum FDI inflows amounting to
Rs. 106992 Crores, followed by Computer Software and Hardware amounting to
Rs. 44611 Crores. These two sectors collectively attract more than thirty percent
(30%) of the total FDI inflows in India.

The housing and real estate sector and the construction industry are among the new
sectors attracting huge FDI inflows that come under top ten sectors attracting
maximum FDI inflows. Thus the sector wise inflows of FDI in India shows a
varying trend but acts as a catalyst for growth, quality maintenance and
development of Indian Industries to a greater and larger extend. The technology
transfer is also seen as one of the major change apart from increase in operational
efficiency, managerial efficiency, employment opportunities and infrastructure
development.

4.5 Trends and Patterns of FDI in different sectors

Service Sector:
Chart 4.3

India stands out for the size and dynamism of its services sector. The importance of
the services sector can be gauged by looking at its contributions to different aspects
of the economy. The share of services in India’s GDP at factor cost (at current
prices) increased rapidly: from 30.5 per cent in 1950-51 to 55.2 per cent in 2009-
10. The overall growth rate (compound annual growth rate) of the Indian economy
from 5.7 per cent in the 1990s to 8.6 per cent during the period 2004-05 to 2009-10
was to a large measure due to the acceleration of the growth rate (CAGR) in the