Inflow Of Funds Through Foreign Direct Investment In India- Analysis

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M.Ganesh, Faculty in MBA,

Thanthai Hans Roever College, Perambalur

ganeshm67@gmail.com

and

K.Soundarapandiyan, Faculty in MBA,

Sri SaiRam Engineering College Chennai-44

Soundrap_mba@yahoo.com

ABSTRACT

Foreign Direct Investment (FDI) is considered to be the lifeblood for economic development as far as the developing nations are concerned. Since the liberalization of the Indian economy inflows of foreign direct investment has greatly increased. As far as forting direct investment is concerned, its flow in India is very small as compared not only to China but also to India's potential. Economic Survey for 2005-06 points out that India has potential to absorb $150 billion FDI in the infrastructure sectors alone by 2010.Most of the FDI inflows come from a few countries. Between 1991 and 2005, investments of 10 countries accounted for 71 percent of FDI, the main investor countries being the USA, the Netherlands, Japan, and the United Kingdom. With regard to FDI, U.S. is one of the largest foreign direct investors in India. India is becoming an attractive location for global business on account to its buoyant economy, its increasing consumption market, and its needs in infrastructure and in the engineering sector. Opening and FDI have really created new opportunities for India's development and boosted the performances of local firms as well as the globalization of some of them. Such a trend has undeniably raised Indian's stature among developing countries.

INTRODUCTION:

Foreign direct investment (FDI) is considered to be the lifeblood for economic development as far as the developing nations are concerned. FDI to developing countries in the 1990s was the leading source of external financing.

The rise in FDI volume was accompanied by a marked change in its composition. That is investment taking the form of acquisition of existing assets (mergers and acquisitions) grew much more rapidly than investment in new assets particularly in countries undertaking extensive privatization of public enterprises.Foreign Direct Investment (FDI) is defined as "investment made to acquire lasting interest in enterprises operating outside of the economy of the investor." A Company from one country obtains controlling interest in a (new or existing) firm in another country, and then operates that firm as a part of the multinational business of the investing firm. FDI may be financed through parent company transfer of funds to the new affiliate, borrowing from home-country lenders, borrowing in the host country by the parent company, or any combination of these strategies.

OBJECTIVES:

 To find out FDI flows in India between 1990-1991 and 2005-2006.

 To analyze at least top 10 recipients of FDI in the year 2004-'05.

 To find out the sector that attracts FDI in flows with special reference to Indian Union States.

 To assess the FDI in flows to India especially from US and China.

 To find out the benefits of FDI and the advantage that an Indian Companies realize through FDI.

 To re assess the major new FDI inflows.

Methodology:

The objective of the study is to find out the FDI inflows right from liberalization to till now and the benefits that the Indian Companies take advantage through FDI and finally summarize few major FDI inflows.

Limitations:

 The entire study is based on the secondary data obtained from newspapers, journals, magazines and concerned web sites.

 The study period is restricted to the period between 1991 and 2005.

FOREIGN DIRECT INVESTMENT FLOWS IN INDIA

Since the liberalization of the Indian economy inflows of foreign direct investment has greatly increased. As shown in the below table total foreign investment inflow (net) was mere 101 million US $ in 1990-1991 rose to 5117 million US $ in 1999-2000 aimed further to 12,147 million US $ in 2004-05.In the last three years (2003-2006), foreign institutional inflow (FII), have exceeded by a big margin the foreign direct investment

Foreign Direct Investment Flows in India

Table No - 1

YEAR

(1)

FOREIGN INVESTMENT

(2)

FDI (NET)

(3)

FIIS

(4) EURO EQUITIES AND OTHERS

(5)

1990-91 101 96 0 5

1998-99 2312 2380 -390 322

1999-00 5117 2093 2135 889

2000-01 5862 3272 1847 743

2001-02 6686 4734 1505 447

2002-03 4161 3217 377 567

2003-04 13744 2388 10918 438

2004-05 12147 3240 8280 627

2005-06 7411 2304 4227 880

From the above figure we can observe that there have been upward trend in foreign investment flows. But as far as forting direct investment is concerned, its flow in India is very small as compared not only to China but also to India's potential. Economic Survey for 2005-06 points out that India has potential to absorb $150 billion FDI in the infrastructure sectors alone by 2010.Besides opening up of single brand retail for FDI raising the cap to 49% for FDI in airports holds up further prospects of increase in FDI.

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