Foreign Direct Investment In India Research Articles

Odysseys of Vedanta and POSCO in Odisha: an enviro-legal critique

The article attempts to find reasons for violations of the Environmental Impact Assessment process, perpetrated by multinational companies Vedanta and POSCO in Odisha, India. Vedanta’s mining proposals led to India’s first “environmental referendum” and POSCO is scheduled to be the biggest Foreign Direct Investment in India, upon completion. Suggestions to mitigate flaws have been offered. Judicial pronouncements of the Supreme Court on Vedanta’s bauxite mining and refinery project in Niyamgiri, have been analysed. The POSCO project site in Kujanga and its proposed mining site in Khandadhar are located in highly fragile ecosystems. Hence, POSCO is facing and is scheduled to face even more opposition from the local indigenous people of those areas. The article argues that biodiversity and the laws relating to it must be attributed importance, in order to safeguard endangered flora and fauna species from extinction. Biodiversity laws per se should be effectuated to protect forests and the species living in them. The approach adopted while conserving them, should be eco-centric, not anthropocentric. Environment cannot continue being a pawn in the hands of human beings, being exploited and destroyed for human activities like mining and industrialisation at such a large scale. An equitable balance must be maintained.

Foreign Direct Investment and Macroeconomic Factors: Evidence from the Indian Economy

Foreign direct investment (FDI) has boosted financial stability, growth and development in India. There has been positive growth rate in GDP since FDI in India has been allowed. FDI has also acted as the resistor during global financial crisis 2008. Many pull factors in India have attracted FDI which include rapidly expanding consumer market, easy access to other neighbouring countries, accessibility to cheaper basic inputs, well-developed and stable banking system and favourable policies for foreign investors, etc. This article attempts to find out the existence of relationship between FDI and six macroeconomic factors—Exchange rate (₹ per $), Inflation (WPI), GDP/IIP (proxy for Market size), Interest rate (91 days T-bills), Trade Openness and S&P CNX 500 Equity Index (profitability) using monthly and quarterly data for the period starting from July 1997 to December 2011. Apart from using the standard techniques, such as ADF and PP Unit root stationarity test, Bi-variate and Multi-variate Regression analysis and Granger Causality test, we have also applied advanced econometric techniques such as Johansen’s cointegration test, Vector Auto Regression (VAR) and Impulse Response analysis to check for long-run and short-run dynamic relationship. The results show a significant correlation between FDI and all macroeconomic variables (except for Exchange rate). Causality results show that IIP/GDP, WPI and S&P CNX 500 Equity Index are Granger causing FDI inflows in India while Trade Openness is Granger caused by the same. All the macroeconomic variables taken in the article (except exchange rate) are significantly affecting FDI inflows and the overall explanatory power of the regression model (i.e., Adjusted R square) is 75.7 per cent. The results of Johansen’s cointegration test disclose that there is long-run causal relation between FDI and IIP; FDI and S&P CNX 500 Equity, FDI and Trade Openness and FDI and WPI. VAR and Impulse response function analysis show that FDI is caused more by its own lagged values rather those of other macroeconomic factors. These results are important for policy makers, regulators and foreign investors. Policy makers and regulators are required to push reform agenda in domestic market for attracting huge FDI inflows in the country. Foreign investors want the policies of the country to be stable and transparent to provide enough safeguard for their investments because instability increases the risk to the foreign investors. Since, we find positive relationship between FDI and profitability, a higher investor’s confidence in domestic market acts as a stimulus in getting more FDI inflows.

Foreign Direct Investments in India and China: A Comparative Study

The main object of this paper is to study the changing structure and direction of Foreign Direct Investment of India and China comparatively. It is well known that FDI can complement local development efforts in a number of ways, including boosting export competitiveness; generating employment and strengthening the skills base; enhancing technological capabilities and increasing financial resources for development. Global Foreign Direct Investment (FDI) inflows rose modestly by 5 percent, to reach $1.24 trillion in 2010. While global industrial output and world trade are already back to their pre-crisis levels, FDI flows in 2010 remained some 15 percent below their pre-crisis average, and nearly 37 percent below their 2007 peak. UNCTAD predicts FDI flows will continue their recovery to reach $1.4-1.6 trillion, or the pre-crisis level, in 2011. They are expected to rise further to $1.7 trillion in 2012 and reach $1.9 trillion in 2013, the peak achieved in 2007.The service sector has attracted highest (21 percent) FDI inflows; then computer software, and hardware (9 percent), telecommunication sector (8 percent) and Housing and Real estate (7 percent) during 2008 to August 2010. Mauritius (42 percent to total inflows of FDI) has been largest investor in India, followed by Singapore (9 percent) during 2008 to August 2010 among top ten countries. China’s highest FDI inflows in leasing and business service 30280.70 million USD in 2010. Second sector is Banking (8627.39) followed by wholesale and retail trade, mining, transport, storage and post etc. during the same period.In short, comparatively the global FDI inflow in China is highest than India in 2010. The sector wise FDI inflow show that, a highest FDI inflow to India is in housing and real estate. But China’s FDI inflow is Business service and Banking in study period.

Regression, ARIMA and ARIMAX Models to Study the Factors affecting Foreign Direct Investment in India

The paper describes Regression, ARIMA and ARIMAX analyses on GDP, inflation, exchange rate, export, import, energy generation and trade balance to estimate the foreign direct investment (FDI) in India. Specifically, we compared the results achieved from the fitted models viz., ARIMA and ARIMA with explanatory variable(s). The main emphasis was to see whether the ARIMA model including other time series as input variables helps in improving the forecasting performance. For this empirical study, we found that ARIMA(1, 1, 0) model with GDP as explanatory variable outperformed the Regression/ARIMA models for estimating the value of FDI in india.

Do the FDI inflows affect domestic investment?: Issues before India and South Asia

South Asian countries are characterised with varied pattern of FDI inflows, Gross Domestic Product (GDP) and Domestic Investment. It is interesting to have an analysis of these factors for evaluating the impact of FDI on domestic investment and GDP. FDI has an important role in promoting growth by accelerating domestic investment in the host country. Many a times it is observed that FDI in host countries deviate much from the expected role of promotion of domestic investment by displacing domestic investment. South Asia, with an annual average of 6.7 percent increase in real GDP over the past decade, holds the world’s third largest position in terms of GDP. However, South Asia’s FDI inflows as a share of GDP is observed to be the lowest among all developing regions. A detailed analysis is performed with the help of methodology used by Agosin and Mayor (2000) to measure the impact of FDI in this paper. The beneficial/harmful effect of FDI are termed as crowding in/out effects. For this purpose, panel data analysis is performed for the years ranging from 2003 to 2013. The World Bank data of 2005 base year is put to use. Three variables such as FDI inflows to GDP ratio, Growth of Gross Domestic Product (GDP) and Domestic Investment (DINV) are considered for Seemingly Unrelated time series analysis for India and for the Seemingly Unrelated panel data analysis for South Asian countries. The results obtained highlight important findings with regard to FDI in bringing about crowding in and crowding out impacts of FDI. It also brought to light the compatibility between domestic investment and Foreign Direct Investment in India and South Asia. The SUR results for the entire South Asian region indicate Crowding Out effect of FDI Inflows as it can be observed from the β LT value which is −7.023. This implies that additional one dollar of FDI displaces roughly seven dollars of domestic investment from the South Asian countries. The SUR time series analysis performed individually for India indicates that India too shows mild crowding out impact of FDI in its economy. In the past decade, though South Asia witnessed an increase in FDI inflows, it resulted in the displacement of domestic investment, which is a great cause of worry. FDI policies have to be instrumental in preventing the entry of harmful type of FDI inflows and in promoting the entry of the right type of FDI into South Asia.

Sectoral Analysis of Foreign Direct Investment in India During First Generation Reform Period

Since 1991, India has cautiously and slowly opened almost all the sectors, except a few related to strategic importance, for foreign investors. Degree of openness of various industrial sectors for FDI has been increased to the extent of 100 percent by consistently liberalizing industrial policies of the sectors. The purpose of the paper is to study pattern and trends of sectoral distribution of FDI within the background of the first generation reforms and liberalized industrial policies during 1991-2001. The paper has used series of the dynamics and stylistic indices and statistical tools such as three level indices, index of rank dominance, and correlation matrices for explaining the pattern of FDI distribution across sectors during 1991-2001. The results show that electrical, transportation, chemical, telecommunication, and service sectors are most dominating sectors and represent almost 75 percent of total FDI received during 1991-2001. Index of rank dominance indicates distribution of FDI across the sectors is top heavy.

Implications of foreign direct investment in India's retail sector

Implications of foreign direct investment in India's retail sector

Current Status of FDI in Hospitals - A Review

Healthcare sector has been emerging as one of the largest service sector in India. As per a recent CII-McKinsey report, the growth of healthcare sector can contribute to 8-9% of GDP and increase employment by at least 3.5 million by 2014. The objectives of the study are to provide the current status of FDI in Hospitals and to identify some of the challenges and opportunities for Foreign Direct Investments in healthcare sector. The sectoral distribution of FDI is dominated by the service sector. The highest FDI equity inflows were received in this sector (financial & non financial services), amounting to 19% of the total FDI inflows, followed by drugs & pharmaceuticals (13%), telecommunications (8%) construction activities (7%) metallurgical Industries and power sectors (6% each), Misc mechanical & engineering industries (5% each), hotel & tourism and chemicals (other than fertilizers - 3% each). The balance of inflows (30%) was accounted for by other sectors. The FDI (Foreign Direct Investment) equity inflows have been of the order of Rs. 181,962 crore (US $ 32.2 Billion) during the financial year from April 2013 to October 2014, as against Rs. 94,179 crore (US$ 26.0 Billion) during the corresponding period last year, the cumulative FDI inflows from April, 2012 to December 2013 are Rs. 989,079 crores (US$ 258.1 billion). The FDI inflows in hospital and diagnosis sectors have received 0.03% growth from April 2013 to February; 2014. The percentage of FDI in hospital and diagnostic sector in total FDI in India has been increased from 1.72 in December 2013 to 2.80 June, 2014. However, as positive sentiment for doing business in India is resurfacing, in-flow of FDI in India is rising. Further, FDI in healthcare especially hospitals is understood to pay off rich dividends and good returns on investment in the long run. But yet, only time will tell how these investments would impact the core of the inadequacies and inequities of the Indian health system and whether the people would benefit from such measures. To conclude, the country should provide the quality health services by examining the challenges first and then the opportunities for commercialization of their health sector, rather than being sidetracking in to considering the level of foreign investment.

Indian Foreign Direct Investment: A Way to Africa

Indian companies are entering into African domain largely guided by the market and resource seeking motives which promotes potential forward and backward linkage. Indian FDI to Africa is concentrated in oil, gas and mining in the primary commodities market. In the manufacturing sector, a dominance of automobile and pharmaceutical firms is seen. Most of the Indian FDI in African countries is through Greenfield investments and joint ventures that are desired by the host countries due to their contribution in creating new production capacity and generating employment, transfer of technology, etc. The identified factors that motivate Indian investors to invest in Africa are socio-cultural, host country policies, regional integration agreements, bilateral investment treaties, gross domestic product growth etc. Also language, culture, presence of Diaspora does play a significant role in attracting FDI in Africa countries. The relationship between India and Africa exists and functions at these multilateral levels that includes commerce converge.

Implications of foreign direct investment in India's retail sector

Supply chain is the backbone of retail business. Adoption of an efficient supply chain between producers and consumers by modern large retailers could reduce average transaction and information costs of market exchange; generate surplus for stakeholders such as producers, farmers, and consumers; expand output; and could thereby contribute to economic growth and net employment gains. Foreign players can introduce a highly advanced supply chain and develop local producers and generate externalities. This paper develops a simple theory of supply chain and economic growth. It shows the implications of adaptation of the Wal-Mart model of retailing on India's retail business.

Determinants of Foreign Direct Investment in India’s Service Sector

With the ever-growing importance of services sector in India’s economy, this paper seeks to identify the determinants of FDI in the services sector. The study uses ordinary least squares regression analysis and examines the impact of GDP, GDP per capita, trade openness, FDI openness, and labour cost on FDI inflows. We also use another specification to include the lagged dependent variable as an explanatory variable. Using annual data for the period 1991 to 2010, we find that FDI inflows in the services sector in India are significantly determined by national income, GDP per capita, trade openness, FDI openness and skilled labour availability. This confirms the view that FDI in the services sector is efficiency-seeking and greater availability of skilled labour in India leads to greater inflows of FDI in services sector.

A Study of Drivers, Impact, and Pattern of Foreign Direct Investment in India

Till 1991, there was excessive control of Government over economy with inward looking policies leading to over protection of economy leading to deterioration of trade, economic growth and large fiscal deficits financed by external borrowings. Foreign currency reserves plummeted to very low levels. Since then India has seen a steady set of reforms in LPG mode with foreign investment playing important role. In this study data has been obtained from secondary sources, mainly government and global bodies. Literature cited has been taken with reference to India or generic in nature and problems identified. Policies needed for attracting FDI are not very different from those required for domestic investors. Preferential for FDI may act as an extra incentive. Foreign Portfolio investment is contingent upon returns expected from capital market and home country issues. Foreign direct investment has slowly moved from manufacturing to service sector probably because of easy entry and exit conditions as well as leveraging labour arbitrage. In this study we have reviewed papers on determinants, patterns and impact of FDI and FII/FPI on Indian economy for the period 1991–2012 and attempted to find out interrelation between FDI and FII/FPI inflows.

FDI in India and Its Impact on Land Acquisition & Involuntary Displacement - A Case Study on POSCO Project at Paradeep in Odisha

With the liberalization of economy followed with policy of Foreign Direct Investment (FDI) in India attracted many investors across the world to make direct investment in various fields of manufacturing, finance management, service and infrastructure sector. POSCO of South Korea the fifth largest steel plant in world is one of them. POSCO proposed to make an investment of 51000 Crores for 12 MTPA integrated steel plant in India. This paper contains the background of site selection, land issues, land acquisition, forest diversion and involuntary displacements as well as the frustration of people challenging such acquisition of their land; has been narrated in detailed on the basis of first-hand information.This article is intended to show the land acquisition difficulties as well as poor Resettlement and Rehabilitation benefits leading to Public frustration as well as bitterness against such investment. The incompatibility of foreign companies to the Indian culture, Indian Environment and lack of mutual trust builds breach in understanding the policy of the state has been narrated in different chapters/paras. India was ruled by Britain’s East India Company for almost 200 years. During the ruling people of India have faced various exploitation for which even after 60 years of independence there is a general mistrust on foreign companies. It requires lot of stake holders management starting from managing the people in power and people in administration as well as people on site through different media management and trust building source so that people can look the investors something different from East India Company otherwise Land Acquisition will be very difficult and may take more time than usually taken.An attempt has been made to submit all the stages of activities showing the weakness of the company and defects of the land records maintained as well as faulty policies of the Government which has impacted in the time schedule of the project plan in the state of Odisha by POSCO. It’s a purely academic presentation not intended to show any fault of any body. I wish the discussions made in the article will give insight to such land acquisition Issues in India with a scope to improve the situations and resolve the gaps in the processes to make it more people acceptance and investment friendly. I have a strong belief that there is immense and motivating opportunity for FDI in India; only it requires looking to the consequences of Investment differently not only as an Economic venture but also social and Psychological acceptance to such changes in ground and that should match to the Indian condition and people at large.

Development of Financial System and Foreign Direct Investment: A Study in Indian Perspective

Development of financial system is raison d’etre for overall growth and development of the economy. Underdeveloped financial system acts as a fetter to attract sustained overseas investment in the form of Foreign Direct Investment. In this background, this paper attempts to investigate whether developed financial system is an important determinant of Foreign Direct Investment (FDI) in India. Using Vector Auto Regression (VAR) technique, the study aims to analyze the significant banking sector vis-a-vis capital market development variables that influenced FDI in India from 1980 to 2012. The results of the analysis leads to the conclusion that all the variables of capital market development, namely, market capitalization, stock traded and stock turnover are important determinants of FDI along with the positive impact of liberalization reforms initiated in 1991 suggesting irrefutable evidence of recommending robust foreign direct investment while at the same time streamlining the financial sector reforms. However, size of banking sector measured by liquid liabilities of banking sector and private sector credit by banking sector positively influence FDI.

An Overview of the Impact of Tax Incentives on Foreign Direct Investment in India

At present in a globalized scenario, Foreign Direct Investment (FDI) is crucial in stimulating economic growth and development of a country. Government of India for the purpose of accelerated growth of the Indian economy and in order to attract FDI has extended incentives in the form of tax holiday, investment tax allowances, depreciation allowances etc. Foreign investors are generally interested to take the benefits of differences in tax rates across various countries. This has resulted in an increased competition among government of different countries to attract foreign investors by offering tax incentives. Empirical research on tax incentives shows that they sometimes work in attracting FDI, but it remains unclear whether they are beneficial overall. Some studies concludes that developing countries do not need to offer tax incentives to attract Foreign Direct Investment (FDI) because the decision to invest in a country depends on the country's overall investment climate and some other factors. This paper attempts to analyse the effect of using different business tax incentives on Foreign Direct Investment in India based on the overview of theoretical and empirical findings. Through an in-depth analysis it might be concluded that despite insufficient findings regarding its effectiveness, tax incentives plays a key role in the policy initiatives which are being used to increase their appeal to foreign investors. Investment by MNCs has made a significant contribution in the economic development of India.

Infrastructure as a Determinant of Foreign Direct Investment in India and China

This study examines the role of infrastructure in attracting FDI inflows into India and China. Infrastructure is the main determinant in attracting sizeable amount of FDI. During the late 1990’s FDI inflows headed towards developing nations including China and India. China attracted huge amounts of FDI due to rapid growth in infrastructure. India attracted lower FDI due to slow phase growth in infrastructure. The infrastructure development is not similar in both the countries; similarly, the magnitude of inflow of FDI is different. The present study empirically examines the inflow of FDI in to India and China in relation to the physical infrastructure development during the period 2000 to 2012. Regression analysis is employed to study the causal relationship between the inflow of FDI and the infrastructure. Total Road Length, Total Rail Length, Air Passengers, Internet Users, Mobile Cellular Subscriptions and Electricity Production are highly positively related with FDI; In India, Air Passengers, Internet Users, Mobile Cellular Subscriptions and Electricity Production are highly positively related with FDI. Among the infrastructure variables, heavy FDI investment is attracted by the Energy Sector (Electricity Production) both in China as well as in India.

Macroeconomic Determinants of Foreign Direct Investment in India: An Empirical Investigation (1991–2012)

The paper has made an empirical investigation into some of the macroeconomic determinants of Foreign Direct Investment (FDI) inflows into India. Time series data over the period 1991 to 2012 has been used for the purpose and Gross Domestic Product (GDP), Consumer Price Index (CPI), Trade Openness (TO), Exchange Rate (ER), Foreign Exchange Reserve (FOREX) and Gross Domestic Capital Formation (GCF) are considered as the determinant variables of Foreign Direct Investment (FDI) inflows into the country. Multivariate linear regression has been used as an analytical model for studying the relationships between the explained and the explanatory variables. The Ordinary Least Squares (OLS) results suggest that Foreign Exchange Reserves (FOREX), Inflation (CPI) and Gross Capital Formation (GCF) are the significant explanatory variables of FDI inflows in to India over the years. Further, it is revealed that FOREX and CPI contribute positively to FDI inflows and the relative importance of the former is higher than the later. The variable GCF was found to have a negative bearing on FDI inflows into the country. Though the variables Gross Domestic Product, Trade Openness and Exchange Rates have positive impacts on FDI inflow, they did not appear to be significant in the regression model.

Playing Risk: Chinese Foreign Direct Investment in Cambodia

Multinational firms must go to the place with what they seek--whether natural resources, markets, labour or assets--is located and, more importantly where what they seek is available. Due both to the location of what they seek and their status as latecomers to globalization, firms frequently operate in developing countries where they are confronted by factors found to deter foreign direct investment (FDI), which seeks a controlling interest in a business enterprise in a foreign country. These factors include weak rule of law, high and high risk, each of which is characteristic of Cambodia's investment environment. Both theory and empirical studies suggest that foreign direct investors prefer states with and legal institutions that protect property rights and constrain the government's executive leadership. (1) In Cambodia, where the institutions creating such conditions are weak, foreign investors must find alternative means of protecting their investments. outward FDI--not only to Cambodia but also more generally--defies findings that property rights, and risk deter inflows of foreign investment. Surprisingly, Peter Buckley and his co-authors find outbound FDI to be positively correlated with risk. (2) Similarly, Ivar Kolstad and Arne Wiig conclude that outward FDI is attracted to countries with poor institutions, using an index that includes control of corruption and political stability. (3) K.C. Fung and Alicia Garcia-Herrero compare and Indian outward FDI and suggest Chinese investment seems to be attracted to more corrupt countries, while India is attracted to less corrupt economies with better rule of law. (4) Yin-Wong Cheung and Xingwang Qian also find that FDI is not deterred by corruption, law and order or a lack of democratic accountability. (5) This article analyses investment in Cambodia, which has risen dramatically since the turn of the century despite the difficulties faced by foreign investors in the Cambodian economy. FDI in Cambodia is worth studying for several reasons. The first is precisely because Cambodia lacks the characteristics that have been found to attract foreign investment and is abundant in those found to deter it. Second, there is important variation in the ownership type of investments in Cambodia, with state owned enterprises (SOEs) dominating the hydropower sector and private firms investing in the garment industry. Finally, there is also variation in these investments' asset specificity, the degree to which assets invested can be switched to other uses or moved out of the country. The garment industry, in which assets consist mostly of small sewing machines, is highly mobile. Hydropower assets, on the other hand, are not so easily shifted out of the country. These differences are important should the Cambodian government change policies in a way that negatively impacts a foreign investment or should domestic partners renege on their contracts. Investors with mobile assets can always credibly threaten to move their investments elsewhere. (6) I hypothesize that government support is the key variable allowing firms to invest successfully in difficult investment environments. Testing this hypothesis against the Cambodia case, I find that China's bilateral policies, particularly financial assistance to the Cambodian government, are sometimes essential to gaining approval for and protection of investments. It is the factors mentioned above, ownership type (public or private) and asset specificity, along with size of the investment, that determine whether government support is a necessary condition for successful investment in Cambodia. Successful investment is a two-stage process. First, in order to obtain approval for the investment, the establishment of the enterprise in the foreign country must be perceived as beneficial by elites in that country. …

Determinants of foreign direct investment in India: an empirical analysis

Foreign direct investment (FDI) inflows to the developing countries have increased with a greater pace in the 1990s accounting for about 46.1 % of global FDI inflows in the year 2010. Similar trends have also been visualized in India where FDI has expanded rapidly following the economic reforms initiated in the early 1990s. These were directed towards increased liberalization, privatization and deregulation of the industrial sector, integrating the economy with that of world economy by reducing trade barriers and adapting favourable policy framework towards expansion of foreign investment in the country. This has made Indian economy a favourable destination for foreign investors. The present study explores the determinants of FDI that influence the inflows of FDI into India. Explanatory variables used in the study are gross domestic product (GDP), foreign exchange reserves (RES), long-term debt (LTD), inflation (INF), exchange rate (EXCH) and openness (OP). Empirical analysis concludes that the variables OP, Reserves, GDP and LTD have found to have positive impact on FDI, while negative impacts of INF and EXCH on FDI have been noticed.

Do Exchange Rate and its Volatility Deter Foreign Direct Investment to India?

This paper investigates the impact of exchange rate levels and its volatility on Foreign Direct Investment in India using quarterly data for the period 1996:2 to 2010:1. The study employed autoregressive distributed lag (ARDL) bounds testing approach to examine the long-run and short-run relationship. Both conditional variance and other measures of volatility have been used to generate exchange rate volatility. The study also considered factors that motivate the foreign investors’ decision to invest in India. The results indicated that exchange rate volatility deters FDI in India, suggesting that flexible but stable exchange rate system may be needed to successfully attract FDI inflows in India.