comprehensive project

A COMPREHENSIVE PROJECT REPORT

ON Analysis of Foreign Direct Investment

IN PARTIAL FULFILMENT OF THE REQUIREMENT OF THE AWARD FOR THE DEGREE OF

MASTER OF BUSINESS ADMINISTRATIOIN

In

Gujarat Technological University

UNDER THE GUIDANCE OF Nishant Vachhani

Submitted by:

Dhaval Shavaliya (ENROLLMENT NO.: 107870592015)

Ashish Parmar (ENROLLMENT NO.: 107870592055)

Batch: 2010-12

MBA SEMESTER III/IV

ATMIYA INSTITUTE OF TECHNOLOGY & SCIENCE

DEPARTMENT OF MANAGEMENT RAJKOT (IN-Gujarat)

MBA PROGRAMME

AFFILIATED TO GUJARAT TECHNOLOGICAL UNIVERSITY Ahmadabad

I

DECLARATION

We, undersigned Mr. Dhaval Shavaliya & Mr. Ashish Parmar student of Department of

Management, hereby declare that the “Comprehensive Project” entitled “Analysis of Foreign

Direct Investment” is our own work and has been carried out under the guidance of Prof.

Nishant Vachhani of DEPARTMENT OF MANAGEMENT, ATMIYA INSTITUTE OF

TECHNOLOGY & SCIENCE, Rajkot (IN-Gujarat)

This has not been submitted to any other university for securing in any examination.

(Dhaval Shavaliya)

(Ashish Parmar)

Date:

Place: Rajkot

II

PREFACE

The excellent opportunity for any management student is to know about the actual

managerial work. “Practice makes man perfect.” In this perspective, it is the necessity to get

practical Exposure for every MBA student to support and to expand the deep sense of

practical management work.

The aim and purpose behind this Comprehensive Project is to lead the student to get more

efficiently skills and the knowledge of real managerial work/practices, which may help them to

become a successful manager.

Management field is like a coin. It has two sides one is theoretical and another is practical

management approach. Both are very necessary aspect to learn for management students.

As a part of practical approach, Project work is very important for the management students.

As a Management Student, we have done an Analysis of Foreign Direct Investment. It was

great opportunity for me to explore such a big and vibrant Topic. In addition, we tried our

level best to make this Project most successful. I got very cordial support from Faculty

Members who shared their Knowledge and Help us, as such a way this experience has

become a precious reminiscence for me.

III

ACKNOWLEDGEMENT

We are heartily thankful to Mr. Abhay Raja (Faculty Member) for his constant

encouragement for assistance in preparing project report. I would also be thankful to Dean

Dr. Vikas Arora who has provided me an opportunity and valuable support for the project

work.

A project of this nature calls for intellectual nourishment and professional help from many

people. We therefore, deeply express our gratitude to all the professors of my college and

special Mr. Nishant Vachhani who guided me and even helped me in completing my project.

We finally express our gratitude to all those who directly or indirectly rendered the assistance,

guidance and support for the project undertaken by us.

Last but not the least, We are greatly indebted to God, Parents, Family members and Friends

without whose blessing and guidance we could not have reached this moment in my life.

(Dhaval Shavaliya)

(Ashish Parmar)

Date:

Place: Rajkot

IV

TABLE OF CONTENT

Particulars Page no. Student’s Declaration................................................................................................i Preface.......................................................................................................................ii Acknowledgement...................................................................................................iii List of Tables...........................................................................................................iv List of Figures.........................................................................................................v Executive Summary...............................................................................................viii General Information 01

1. Introduction 02

1.1 Overview of World FDI 03

1.2 Overview of various sectors in Indian Market 05

1.3 Growth of the FDI Investment 27

2. Major companies in the various sectors of India 30

3. Introduction of the Study

3.1 Literature Review 33

3.2 Importance of the Study 39

3.3 Problem Statement of the Study 40

3.4 Objectives of the Study 41

3.5 Hypothesis 42

4. Research Methodology

4.1 Sources of Data 43

4.2 Population 43

4.3 Sampling Method 43

4.4 Sampling Frame 43

4.5 Data Collection Instrument 43

5. Data Analysis and Interpretation 44

5.1 FDI Inflow in India 44

5.2 Application of Test: ANOVA 45

5.3 Chi-Square Test of Independence 49

5.4 Chi-Square Goodness of Fit for Five sector 52

5.4.1 Chi-Square for Service Sector 52

5.4.2 Chi-Square for Telecommunication Sector 56

5.4.3 Chi-Square for Automobile Sector 60

5.4.4 Chi-Square for Power Sector 64

5.4.5 Chi-Square for Petroleum & Natural Gas Sector 68

V

6. Result and Findings 72

7. Limitations of the Study 73

8. Suggestion & Recommendation 74

9. Future Scope of the Study 75

10. Bibliography 76

VI

LIST OF TABLES

SR. No. PARTICULARS TABLE

NO.

PAGE

NO.

1 FDI Inflow in India 5.1 44

2 FDI Inflow in Service Sector 5.4.1 52

3 FDI Inflow in Telecommunication Sector 5.4.2 56

4 FDI Inflow in Automobile Sector 5.4.3 60

5 FDI Inflow in Power Sector 5.4.4 64

6 FDI Inflow in Petroleum & Natural Gas Sector 5.4.5 68

VII

LIST OF FIGURES

SR. No. PARTICULARS TABLE

NO.

PAGE

NO.

1 FDI Inflow in India 5.1 44

2 FDI Inflow in Service Sector 5.4.1 52

3 FDI Inflow in Telecommunication Sector 5.4.2 56

4 FDI Inflow in Automobile Sector 5.4.3 60

5 FDI Inflow in Power Sector 5.4.4 64

6 FDI Inflow in Petroleum & Natural Gas Sector 5.4.5 68

VIII

EXECUTIVE SUMMARY

This report provides analysis of foreign direct investment inflow and its pattern of the current

and its stability of inflow in the last 3 years. Methods of Analysis include horizontal and

vertical analysis as well as statistical tool (Such as ANOVA and Chi-Square). Other

calculations include 5 sectors Foreign Direct Investment Inflow individually. Result of Data

analyzed show that all sectors FDI Inflow are uneven except two. In particular, comparative

inflow is poor in the Service and Telecommunication sectors since last 3 years, but

Automobile, Petroleum and Natural Gas shows FDI Inflow Positive.

The Report finds the trends of FDI Inflow in India in its current situation in India are not

favourable. The major areas of weakness in FDI require further attention and remedial action

by government.

Recommendations discussed include:

Government allows FDI in Service Sector about 49% which would increase more than

49%.

Government should intervene in unsustainable competition by reducing various taxes

and allowing more FDI in other segment of Telecommunication.

Increasing power consumption call for government special focus to increase FDI

Inflow in Power Sector by formulating various incentive plans.

In Petroleum & Natural Gas Sector, to attract more FDI Inflow government need to

take initiative to talk with other oil rich countries. So that future demand of Petroleum &

Natural Gas will be satisfied.

The report also has certain limitations:

Some of the limitations include; as the study is based on secondary data which inherently not

certain and there may be different methods exist to find out Foreign Direct Investment

analysis. It also confine to only 5 sectors.

“AITS, DEPARTMENT OF MANAGEMENT” 1

PART-1

GENERAL INFORMATION


1. INTRODUCTION

FDI refers to an investment made to acquire lasting interest in enterprises operating outside

of the economy of the investor. Further, in cases of FDI, the investor´s purpose is to gain an

effective voice in the management of the enterprise. The foreign entity or group of associated

entities that makes the investment is termed the "direct investor". The unincorporated or

incorporated enterprise-a branch or subsidiary, respectively, in which direct investment is

made-is referred to as a "direct investment enterprise". Some degree of equity ownership is

almost always considered to be associated with an effective voice in the management of an

enterprise; the BPM5 suggests a threshold of 10 per cent of equity ownership to qualify an

investor as a foreign direct investor.

Once a direct investment enterprise has been identified, it is necessary to define which

capital flows between the enterprise and entities in other economies should be classified as

FDI. Since the main feature of FDI is taken to be the lasting interest of a direct investor in an

enterprise, only capital that is provided by the direct investor either directly or through other

enterprises related to the investor should be classified as FDI. The forms of investment by

the direct investor which are classified as FDI are equity capital, the reinvestment of earnings

and the provision of long-term and short-term intra-company loans (between parent and

affiliate enterprises).

According to the BD3 of the OECD, a direct investment enterprise is an incorporated or

unincorporated enterprise in which a single foreign investor either owns 10 per cent or more

of the ordinary shares or voting power of an enterprise (unless it can be proven that the 10

per cent ownership does not allow the investor an effective voice in the management) or

owns less than 10 per cent of the ordinary shares or voting power of an enterprise, yet still

maintains an effective voice in management. An effective voice in management only implies

that direct investors are able to influence the management of an enterprise and does not

imply that they have absolute control. The most important characteristic of FDI, which

distinguishes it from foreign portfolio investment, is that it is undertaken with the intention of

exercising control over an enterprise.


1.1 Overview of World Foreign Direct Investment:

World trend of FDI have significantly changed in the last decades. Total FDI stocks in the

world, in fact, increased more than 25 times in the last three decades (i.e., from US$ 700 billion

in 1980 to US$ 17.7 trillion in 2009).

United States has maintained the first rank in both inward and outward FDI flows in 1980 and

2009. The United Kingdom slipped in its rank from being number two in terms of both inward

and outward FDI flows in 1980 to reaching number five in 2009 and number fourteen in 2009,

respectively. China has significantly improve its position in the last years, reaching the second

rank in inward FDI flows and the sixth one in outward FDI flows in 2009. Top ten ranked

countries in 2009 in terms of inward FDI flows were US, China, France, Hong Kong, UK,

Russia, Germany, Saudi Arabia, India and Belgium. For the same year, the top ten in terms of

outward FDI flows were US, France, Japan, Germany, Hong Kong, China, Russia, Italy,

Canada and Norway.

More concretely, some regional and national trends in FDI flows as follow. In South Africa there

was negligible inward FDI in 1980, which reached US$ 5.7 billion in 2009. In Sudan, inward

FDI was negligible in 1980 but increased to US$ 3 billion in 2009. Outward FDI from Sudan,

however, remained negligible in the same period. Sub-Saharan Africa (excluding South Africa)

saw an increase in inward FDI from US$ 267 million in 1980 to US$ 37 billion in 2009. Outward

FDI, however, remained low during these periods. Due to the closed economy of the erstwhile

USSR during the 1980s, there was no inward FDI in and outward FDI from the region. But it

changed after the formation of the Russian Federation and the resulting opening up of the

region saw the inward and outward FDI in 2009 increase to US$ 37 billion and US$ 46 billion

respectively.

Similarly, India's economy was relatively closed in the 1980s. As a result, the inward FDI and

outward FDI was negligible in 1980. India implemented economic reforms in 1992 and opened

up its economy. As a result, India's inward FDI and outward FDI in 2009 reached US$ 34.6

billion and US$1 14.8 respectively. The rest of South Asia (excluding India) saw an increase of

inward FDI from US$ 205 million in 1980 to US$ 6.8 billion in 2009. Outward FDI from the

region also increased from a negligible amount in 1980 to US$ 376 million in 2009. China

received a miniscule inward FDI in 1980, which jumped to US$ 95 billion in 2009. Similarly, its

outward FDI also jumped from a negligible amount in 1980 to US$ 48 billion in 2009, mainly

because of its open-economy reforms and policies.


Inward FDI in Eastern and South-Eastern Asia also increased from US$ 3.2 billion in 1980 to

US$ 96 billion in 2009. Outward FDI from the region increased from US$ 543 million in 1980 to

US$ 90 billion over the same period.

The region of Central America and Greater Caribbean Islands received inward FDI amounting

to US$539 million in 1980, which increased to US$12.1 billion in 2009. Outward FDI from the

region also increased from US$354.2 million to US$2.5 billion over the same period. Mexico

received inward FDI of US$312 million in 1980, which increased to US$12.5 billion in 2009.

Outward FDI from Mexico increased from a negligible amount to US$7.5 billion over the same

period.

Finally, the net FDI shows the accumulation of inbound FDI in a country or outbound FDI from

a country. As per the year 2009, US had the higher net outward FDI stock of US$ 1.2 trillion,

followed by Netherlands in 1980 and Germany in 2009. Japan, Taiwan and UK both have also

ranked as investors in 1980 maintaining their position in 2009. Hong Kong had the higher

inward FDI stock of US$ 178 billion in 1980, replaced by Mexico with US$ 256 billion ranking at

the first place in 2009. France was among the top-10 receipts of FDI in 1980 becoming a FDI

exporter in 2009. In contrast, Brazil from being the third largest investors in 1980 turned out to

the third largest recipients of FDI in 2009.


1.2 OVERVIEW OF VARIOUS SECTORS IN INDIAN MARKET

Overview of service sector in India

Service sector is the lifeline for the social economic growth of a country. It is today the largest

and fastest growing sector globally contributing more to the global output and employing

more people than any other sector. The real reason for the growth of the service sector is

due to the increase in urbanization, privatization and more demand for intermediate and final

consumer services. Availability of quality services is vital for the well being of the economy. In

advanced economies the growth in the primary and secondary sectors are directly dependent

on the growth of services like banking, insurance, trade, commerce, entertainment etc.

Indian Service Sector

In alignment with the global trends, Indian service sector has witnessed a major boom and is

one of the major contributors to both employment and national income in recent times. The

activities under the purview of the service sector are quite diverse. Trading, transportation

and communication, financial, real estate and business services, community, social and

personal services come within the gambit of the service industry. One of the key service

industry in India would be health and education. They are vital for the country’s economic

stability. A robust healthcare system helps to create a strong and diligent human capital, who

in turn can contribute productively to the nation’s growth.

Post Liberalization

The Indian economy has moved from agriculture based economy to a knowledge based

economy. Today the IT industry and ITE'S industry are the dominant industry in the service

sector. Media and entertainment have also seen tremendous growth in the past few years.

Subsectors

Information Technology Industry

The Information Technology industry has achieved phenomenal growth after liberalization.

The industry has performed exceedingly well amidst tough global competition. Being

knowledge based industry; India has been able to leverage the global markets, because of

the huge pool of engineering talent available and the proficiency in English language among

the middle class.


Retailing

Prior to liberalization, India had one of the most underdeveloped retail sectors in the world.

After liberalization the scenario changed dramatically. Organized retailing with prominence on

self service and chain stores has changed the dynamics of retailing. In most of the tier I and

tier II cities supermarket chains mushroomed, catering to the needs of vibrant middle class.

This indirectly contributed to the growth of the packaged food industry and other consumer

goods.

Financial Services-Banking and Insurance

Prior to liberalization these two sectors were controlled and regulated by the government.

Nationalized banks and insurance companies had a firm grip over the market. After

liberalization the banking and insurance domain opened up for private participation.

Banking Sector

The three major changes in the banking sector after liberalization are:

Step to increase the cash outflow through reduction in the statutory liquidity and cash

reserve ratio.

Nationalized banks including SBI were allowed to sell stakes to private sector and

private investors were allowed to enter the banking domain. Foreign banks were given

greater access to the domestic market, both as subsidiaries and branches, provided

the foreign banks maintained a minimum assigned capital and would be governed by

the same rules and regulations governing domestic banks.

Banks were given greater freedom to leverage the capital markets and determine their

asset portfolios. The banks were allowed to provide advances against equity provided

as collateral and provide bank guarantees to the broking community.

Insurance Sector

The Insurance Regulatory and Development Authority Act 1999 (IRDA Act) allowed the

participation of private insurance companies in the insurance sector. The primary role of

IRDA was to safeguard the interest of insurance policy holders, to regulate, promote and

ensure orderly growth of the insurance industry. The insurance sector could invest in the

capital markets and other than traditional insurance products, various market link insurance

products were available to the end customer to choose from.


Some of the prominent insurance companies are:

Bajaj Allianz Insurance Corporation

Birla Sun Insurance Co Ltd

HDFC Standard Insurance Co Ltd

ICICI Prudential Insurance Co Ltd

Max New York Insurance Co Ltd

Tata AIG Insurance Co Ltd

Future Trends

Globally outsourcing industry would continue to grow.

Following the success of US and UK, more countries in the European Union would

outsource their business.

Technological power shift from the West to the East as India and China emerge as

major players.

Political backlash over outsourcing would come down as companies reap the benefit

of outsourcing.


Overview of Telecommunication sector in India

Telecom is the exchange of information between two distant points in space. The telecom

industry is very important for the socio economic development of a nation. It is one of the

main architects for accelerated growth and progress of different segments of the economy.

Post liberalization the telecommunication industry has grown by leaps and bounds.

Evolution of Indian Telecom

Year Event

1851 First operational landlines were laid by the government near Calcutta

1881 Telephone service introduced in India

1883 Merger with the postal system

1923 Formation of Indian Radio Telegraph Company (IRT)

1932 Merger of ETC and IRT into the Indian Radio and Cable Communication

Company(IRCC)

1947 Nationalization of all foreign telecommunication companies to form the Posts,

Telephone and Telegraph (PTT),a monopoly run by the government’s Ministry of

Communications

1986 Conversion of DOT into two wholly government-owned companies: the Videsh

Sanchar Nigam Limited (VSNL) for international telecommunications and

Mahanagar Telephone Nigam Limited (MTNL) for service in metropolitan areas.

1997 Telecom Regulatory Authority Of India (TRAI) was created.

1999 Cellular Services are launched in India. New National Telecom Policy is adopted.

2000 DoT becomes a corporation, BSNL


Liberalization

As part of the policy of liberalization, telecom equipment manufacturing was delicensed in

1991 and value added services were accessible to the private sector in 1992.As a result a

number of manufacturing units were established across the country. The National Telecom

Policy resolution of 1994 further liberalized the telecom sector for private initiative.

National Telecom Policy 1994

In 1994,the government came up with the National Telecom Policy which set certain

important goals like availability of telephone on demand, providing International standard

infrastructure and services at affordable prices, enhancing India's competitiveness in global

market and encouraging exports, create environment conducive for both FDI and domestic

investment, accelerate India's growth as a major manufacturer and exporter of telecom

equipment and availability of telecom services to every village.

Telecom Regulatory Authority of India (TRAI)

The opening up of the Indian telecom sector for private enterprises resulted in the need for

independent regulation. In 1997 The Telecom Regulatory Authority Of India (TRAI) was

initiated by an act of Parliament. The purpose of this act was to regulate telecom services,

fix/revise tariffs for telecom services which till then was under the control of the central

government. The objective of TRAI was to create an environment which would enable Indian

Telecomm to play an important role globally. Another important objective for TRAI was to

provide equal opportunity for all and ensure fair competition. To ensure these objectives,

TRAI has issued a large number of regulations, orders and directives and strategized the

plan to direct the telecom industry from a government controlled monopoly to multi operator

multi service competitive market. In January 2000, TRAI was modified by an act resulting in

Telecommunications Dispute Settlement and Appellate Tribunal (TDSAT) to settle disputes

between a licensor and a licensee, between two or more service providers, between a

service provider and consumers and to settle appeals against any direction, decision or order

of TRAI.


National Long Distance

In 2000 the government created guidelines for the entry of private sector in National Long

Distance without restricting the number of operators. Some of the salient features of NLD are:

Unlimited entry for both inner circle and intra circle calls.

Total foreign equity must not exceed 74%.Promoters must have a net worth of Rs 25

million.

Private operators will have to enter into an arrangement with fixed service providers

within a circle for traffic between long distance and short distance charging centers.

Private operators allowed to set up landing facilities that access submarine cables and

use excess bandwidth available.

License period would be for 20 years and extendable by 10 years.

International Long Distance

India had accepted under the GATS to open up ILD in 2004.But India allowed

competition in ILD in the year 2002 itself.

There can be any number of service providers. The license for ILD service is issued

for a period of 20 years, with automatic extension of the license by a period of 5 years.

The private applicant would have to pay a onetime non refundable fee of Rs 25 million

plus a bank guarantee of Rs 250 million, which will be given back on honouring of the

commitment.

The annual license fee is at 6% of the Adjusted Gross Revenue and the fee for use of

spectrum is to be paid separately.

Internet service Providers (ISPs)

In 1998 the private sector was given permission to be internet service providers. In the

interest of the customer, the government has set certain guidelines to grant license to

prospective service providers. Any company in India with a maximum foreign equity of 74% is

eligible for license. The segment has seen tremendous technological advancements.


Broad band Policy 2004

Realizing the immense potential of Broadband service in the growth of economy and the

improvement in quality of life due to various functions like tele education, tele medicine, e-

governance, entertainment and in job creation, the government came up with the Broadband

policy in 2004.The main aim was to create infrastructure to enhance the progress of

broadband. Some of the technology applicable for broadband would be Optical Fibre,

Asymmetric Digital Subscriber Lines (ADSL), Cable Network, DTH etc.

Foreign Direct Investment

In Basic, Cellular, Paging and Value Added Service and Global Mobile Personal

Communications by Satellite, FDI of 74% is allowed subject to license granted by

Department Of Telecommunication.

FDI up to 74% is also permitted in Radio Paging Service and Internet Service

Provider.

FDI up to 100% is allowed for Infrastructure Providers of dark fibre, electronic and

voice mail. The condition set was that these companies would divest 26% of their

equity in favor of Indian companies in five years, provided they were listed in other

parts of the world.

FDI of 100% was allowed in telecom manufacturing.


OVERVIEW OF POWER SECTOR IN INDIA

The critical role played by the power industry in the economic progress of a country has to be

emphasized. A self sufficient power industry is vital for a nation to achieve economic stability.

Indian Power Industry

Before Independence

The British controlled the Indian power industry firmly before Independence. The then legal

and policy framework was conducive to private ownership, with not much regulation with

regard to operational safety.

Post Independence

Immediately after Independence, the country was faced with capacity restraint. India adopted

a socialist structure for economic growth and all the major industries were controlled by

public sector enterprises. By 1970's India had nationalized most of its energy assets, due to

its commitment to social goals. By the late 1980's the Indian economy felt the strain of the

socialist agenda followed since independence. Faced with a serious deterioration in public

finance and balance of payment crisis, the Union government as part of its policy of

economic liberalization allowed greater investment by private sector in the power industry.

Power

Constitutional Position

Power as a matter of legislative and executive competence, falls in the Concurrent List (List

III of the Seventh Schedule to the Constitution of India).Both the Parliament and state

legislatures have the rights to pass laws on the matter and any law passed by the Parliament

overrides the existing state laws unless

The existing law is conserved or saved from such a repeal or

A law passed by the state legislature receives acknowledgment from the President of

India.

Post Liberalization

Understanding the critical part played by the power industry, the Union government passed

several laws and restructured the Power Industry to gear it up to meet the challenges posed

to the Indian economy post Liberalization.


Electricity Bill 2001

Learning from the experience gained through various reform initiatives, the Indian

government passed the Electricity Bill 2001.The Bill seeks to

Consolidate and rationalize existing laws.

To address the issues of developing industry including regulation, power trading, non

discriminatory open access, choice of dispensing with vertically integrated state

enterprises and encouraging private enterprise.

Energy Conservation Act 2001

The Act was enacted by the Indian government to facilitate stringent steps to ensure the

efficient use of energy and its conservation. A Bureau of Energy Efficiency was set up to

monitor and regulate the Power Industry according to the provisions of the act.

Non Renewable Energy

Fossil fuels

The Industrial Revolution in Europe in the 19th century forced human's to seek alternative

sources of fuel to cater to the increasing demand. Focus was shifted to fossil fuels as an

alternate source of energy.

Fossil fuels were formed millions of years ago. They are nothing but fossilized organic

remains that after millions of years has been converted into oil, gas and coal. Because this

process takes a long time, they are known as non renewable.

Coal

It is the most easily available fossil fuel in the world. It is mostly carbon and is used as a

combustion fuel, especially after the Industrial Revolution. Coal can further be divided into

lignite, bituminous and anthracite. Lignite and Bituminous have lesser percentage of carbon

and therefore burn faster. They are not environmentally friendly, Whereas Anthracite has

about 98% carbon and therefore burns slowly and is more environmentally friendly. Coal can

be found in both underground mines and open mines. Though Petroleum gained prominence

through the 20th century, coal still continues to be the most used raw material for power

generation.


Oil and Gas

Oil and Gas is mostly found in underground rocks. Millions of years ago when plants and

animals died, they got buried in layers of mud and sand. The earth's crust changed its shape

and put immense pressure and heat on the dead plants and animals. Over a period of time,

the energy in those plants and animals changed into hydrocarbon liquids and gases. They

then turned into chemicals called hydrocarbons .Most of the hydrocarbons is found under the

sea bed. Oil has a disastrous effect on the environment and many scientists believe the main

reason for global warming.

Natural gas is usually found near a source of oil. It is a mixture of light hydrocarbons. It is

lighter than air and is odourless. It is therefore mixed with a chemical that gives it a strong

odour and thereby easy to detect in case of a leak. It is the cleanest burning fossil fuel.

Renewable Energy

Because of the environmentally disastrous effect of non renewable energy, an alternate

source of energy which would not pollute the environment and which can also be renewed

was tapped. They are known as renewable energy. The various types of renewable energy

are:

Solar Energy

It is the most easily available renewable resource. After the oil shock in 1970's many

countries conducted research work to tap solar energy. It is believed in the next few years

millions of consumers across the world would switch to solar energy. In India the Indian

Renewable Energy Development Agency and the Ministry of Non Conventional Energy

Sources are devising strategies to encourage the usage of solar energy.

Solar energy can be used for cooking, heating, drying, distillation, electricity, cooling,

refrigeration, cold storage etc.

Hydro Power

It is the one of the best, cheapest and cleanest source of power, though large dams could

have environmental and social repercussions. In view of these problems associated with

larger dams, experts have advocated the construction of smaller dams. New environmental

laws to safeguard the planet from the effects of global warming have made smaller

hydropower projects more viable.


Wind Energy

It is the kinetic energy used for many centuries in water sports like sailing and for irrigation. It

converts kinetic energy into more usable forms of power. Wind turbines help to convert the

energy in the wind into mechanical energy which can be used for generating power. Since

the late 1980's the viability of wind energy has gained in prominence across the globe. In

India the states of Tamil Nadu and Gujarat lead in the field of wind energy.

Biomass

It is sourced from the carbonaceous waste of animals and is also the by products from timber

industry, agricultural crops, raw material from forest, household waste and wood. It can be

used to generate power with the same power plant that are burning fossil fuels and is very

much environmentally friendly.

It is being used in the western countries for applications such as combined heat and power

generation. In India 90% of the rural households and 15% of the urban households use bio

mass fuel.

Nuclear Energy

Nuclear energy can be created in nuclear reactors under strict human control. The nuclear

power can be generated by the fission of uranium, plutonium or thorium or the fusion of

hydrogen into helium. Nowadays mostly Uranium is used for generating nuclear power. With

a view to increase India's dependence on nuclear energy to offset the energy crisis in the

country, the Indian government entered into an agreement with the government of USA

called the 123 agreement. This agreement aims to assuage greater cooperation between the

two countries in the field of nuclear technology.

Future Trends

According to experts the private sector would play a greater role in power generation

and foreign investments would increase considerable in his sector.

The government of India’s Hydrocarbon vision 2025 gives in detail the guidelines for

the policies in India for the next 25 years to attract investment in exploration,

production, refining and distribution of petroleum products.


Overview of Automobile sector in India

The automobile industry consisting of cars, trucks, buses, two-wheelers and three-wheelers,

is vital to the growth of the Indian economy. In the last decade their share in the Indian

economy is around 5% of GDP.

Economic progress is indicated by the amount of goods and services produced which give

the impetus for transportation and boost the sale of vehicles. Increase in automobile

production has a catalyst effect by indirectly increasing the demand for a number of raw

materials like steel, rubber, plastics, glass, paint, electronics and services.

Since transportation is the nerve centre of every other industry, the well being of the

automobile industry is a good indicator of the health of the economy. Economic studies have

shown that every truck manufactured creates anywhere between eight to twelve jobs and a

bus would create around seven, which would include salespeople, drivers, mechanics,

cleaners and servicing staff.

Indian Automobile Industry

Before Independence

Before independence India was seen as a market for imported vehicles. The assembling of

cars manufactured by General Motors and other leading brands was the order of the day.

Indian auto industry focused on servicing, dealership, financing and maintenance of vehicles.

Manufacturing started only after a decade from independence.

After Independence

Till the 1950s the Indian Railways played a pivotal role in meeting India's transportation

needs. The railways used to carry 90 per cent of the total freight, while road transport

accounted for the balance. But in the current context the dynamics have changed. Surface

transport accounts for 65% of freight movement and 80% of passenger movements. The

slow growth of railway infrastructure has been partly due to administrative reasons, partly due

to difficulty in acquiring land and partly due to high capital cost involved for every additional

railway line.

The Indian automobile industry faced several challenges and road blocks to growth since

independence. Manufacturing capability was restricted by the rule of license and could not be

increased. The total production of passenger cars was limited to 40,000 a year for nearly

three decades. This production was also confined to three main manufacturers Hindustan


Motors, Premier Automobiles and Standard Motors. There was no homegrown expertise or

research & development initiative. It was difficult to import scientific know how and vital spare

parts and cumbersome to recruit foreign technical experts.

The pricing was kept under control by the government. Here was the contradiction, a

passenger car was thought to be a premium product only for the rich, yet it came under the

purview of protection of a socialist regime.

Initially labor was unskilled and had to go through a process of learning through trial and

error. But to the credit of these workers, it was they who developed the skill set required for

future expansion in the industry.

The earlier automobiles were a domestic version of prominent International Brands.

The Morris Oxford popular in the 1950s, became the Ambassador, the Fiat 1100 became

the Premier Padmini. By 1960s nearly 98% of the product was developed indigenously.

By the end of 1970s, significant changes in the automobile industry were witnessed.

Initiatives like joint ventures for light commercial vehicles did not succeed. New models like

Contessa, the Rover and the Premier 118NE, hit the market.

Socialistic Pattern Of Growth

India by and large followed a socialist system till the later part of 1980s.The government

focused on development through heavy, long gestation, capital intensive projects like steel

manufacturing. The quality of the finished good and customer feedback were not given much

priority. As a result the country missed a golden opportunity to accelerate to a faster growth

trajectory by at least 2 decades.

The Pioneering Achievements

Mr. J.R.D Tata's role in the development of the Indian automobile industry has to be

mentioned. The Tata group set up a high standard Engineering Research Centre (ERC) in

1965 to facilitate technological advancement. Mr. Tata pioneered the indigenization of

scientific knowledge for trucks in collaboration with Mercedes Benz.

The launch of Maruti 800 in 1983 changed the dynamics of the passenger car sector in India.

It was also known as the people’s car.


Stability In The Market

The Indian automobile industry has come a long way since independence. From being an

importer of automobiles to a manufacturer. From having minimum foreign collaborations to

joint ventures. This attribute cannot be considered as a weakness, but as sharing of best

practices. This phenomenon can be compared to the business collaboration in the

outsourcing industry.

Highlights of Indian Automobile Industries

India is the world's largest two wheel manufacturer.

India is the world's second largest tractor manufacturer.

India has the fourth largest car market in Asia.

India has the world's largest three wheeler market.

The Future

The Indian automobile industry is expected to grow to US$ 40 billion by 2015 from the

current level of US$ 7 billion in 2008. By the year 2016 the industry is expected to

contribute 10% of the nation’s GDP. The industry manufacturers over 11 million

vehicles a year, employing more than three million people.

The greatest challenge and competition would be from the Chinese automobile

industry. The Chinese automobile industry has been able to give stiff completion to

India in terms of productivity, cost of manufacturing and technology. Again the present

trend of excess manufacturing capability, reduced margins put additional pressure on

the industry.

The global recession has had a dampener effect on the growth of the industry, but

market experts believe it is only a short term phenomenon and are confident of the

industry bouncing back.

On the positive side, India’s strength in software sector, combined with skilled labor

and low cost of manufacturing should place it in a favorable position globally.

Recently Ratan Tata, Chairman (Tata Motors) created history by launching the world's

cheapest car NANO. The cars pricing is around one lakh, gaining instant recognition in

the automobile industry across the globe. It heralded the coming to age of the Indian

Automobile Industry.


Oil and Natural Gas

An Overview

The Indian oil and gas sector is one of the six core industries in India and has very significant

forward linkages with the entire economy. India has been growing at 8-9 per cent annually

and is committed to accelerate the growth momentum in the years to come. This would

translate into India's energy needs growing many times in the years to come. Hence, there is

an emphasized need for wider and more intensive exploration for new finds, more efficient

and effective recovery, a more rational and optimally balanced global price regime - as

against the rather wide upward fluctuations of recent times, and a spirit of equitable common

benefit in global energy cooperation.

Exploration and Production (E&P)

• The growing demand for crude oil and gas in the country and policy initiative of Government

of India towards increased E&P activity, have given a great impetus to the Indian E&P

industry raising hopes of increased exploration

Crude Oil & Gas Production

Oil and Natural Gas Corporation Limited (ONGC) and Oil India Ltd. (OIL), the two National

Oil Companies (NOCs) and private and joint-venture companies are engaged in the

exploration and production (E&P) of oil and natural gas in the country. Crude oil production

by the NOCs during 2007-08 is expected to be about 29.663 MMT as against the production

of 29.11 MMT of crude oil during 2006-07.

In addition, there will be production of 5.1 MMT from the private and JV companies during

2007-08. Thus, total crude oil production in 2007-08 is expected to be about 34.763 MMT.

Total gas production during the year 2007-08 is expected to be about 31.67 BCM by

ONGC,OIL and private/JV companies. The contribution of private/JV companies in gas

production will be about 7.65 BCM in 2007-08. Consequent upon liberalization in petroleum

sector, Govt. of India is encouraging participation of foreign and Indian companies in the

exploration and development activities to supplement the efforts of national oil companies to

narrow the gap between supply and demand. A number of contracts have been awarded to

both foreign and Indian companies for exploration and development of fields on production

sharing basis.


Exports

The export of petroleum products during the last year increased by 17% over the quantity

exported during 2006-07. In dollar terms, the increase was close to 50%. During the first six

months of current year, around 18 million tonnes of petroleum products have been exported

registering an increase of 43%. Exports accounted for 24% of gross imports of oil and

products during 2007-08. Petroleum products continue to be the single largest merchandise

export from India.

Domestic Oil and Gas Production

Crude oil production from the deepwater block D6 in KG Basin began on 17th September

2008. The block promises to yield a peak production of around 34,000 barrels per day next

year and its life is projected to be 11 years. The Improved Oil Recovery and Enhanced Oil

Recovery projects of ONGC are under operation in its 15 largest fields. The cumulative

incremental oil gain up to March 2008 has been of the order of 39.8 million tonnes. ONGC

expects to extract additional production of 14 million tonnes of oil and 16 BCM of gas from its

marginal fields during the current Plan period.

Natural Gas

Natural Gas has emerged as one of the most preferred fuel due to its environmentally benign

nature, greater efficiency and cost effectiveness. At present, the main producers of natural

gas are Oil and Natural Gas Corporation Limited (ONGC), Oil India Limited (OIL) and the

Joint Ventures of Panna Mukta & Tapti, and Ravva. Out of the total production of around 96

MMSCMD, after internal consumption, LPG extraction and unavoidable flaring, around 73

MMSCMD is available for sale to various consumers. In addition, around 7 MMTPA of

regasified LNG (about 23 MMSCMD) is also being supplied to domestic consumers. Gas

produced by ONGC and OIL from the existing nominated blocks is sold at administered

prices fixed by the Government. As against a total allocation of 150 MMSCMD of gas, actual

supply under APM is presently around 53 MMSCMD. However, availability of APM gas is

expected to decline sharply over the coming years.Exploration and Production (E&P)

activities in the country have been intensified with the New Exploration Licensing Policy

(NELP). Six bidding rounds have been successfully undertaken. A total of 162 blocks have

been awarded. Under the NELP-VII Round, the Ministry had received 181 bids for 45

exploration blocks. On 20th November 2008, the government decided to award 44 blocks to

the winning bidders. With this, the total number of blocks brought under exploration exceeded

200. Public Sector Undertakings Oil & Natural Gas Corporation Limited (ONGC) Oil & Natural


Gas Commission (then Commission) was established on 14th August, 1956 as a statutory

body under Oil & Natural Gas Commission Act (The ONGC Act), for the development of

petroleum resources and sale of petroleum products. ONGC was converted into a Public

Limited Company under the Companies Act, 1956 and named as “Oil and Natural Gas

Corporation Limited” with effect from February 1, 1994. The Government disinvested around

10% of the equity shares of ONGC in March 2004 through a public offer in the domestic

capital market at Rs. 750 per share. After the above disinvestment, the shareholding of the

Government in ONGC came down to around 74.15%. At present, paid-up equity capital

has increased to Rs. 21,388.73 crore after issuing bonus shares in ratio of one bonus share

for every two shares held.

ONGC Videsh Limited (OVL), a wholly owned subsidiary of ONGC, was incorporated as

Hydrocarbons India Limited on March 5, 1965 with an initial authorised capital of Rs. 5 Lakhs,

for the business of international exploration and production. Its name was changed to ONGC

Videsh Limited on June 15, 1989. The authorised and paid-up share capital of OVL as on

March 31, 2007 was Rs. 1,000 crore. The primary business of the company is to prospect for

oil and gas abroad. This includes acquisition of oil and gas fields in foreign countries as well

as exploration, production, transportation and sale of oil and gas. OVL has presence in 17

countries. It has 37 oil and gas projects. OVL has production of oil and gas from Sudan,

Vietnam, Syria, Russia and Colombia. Block BC 10 in Brazil is currently under evelopment

with production expected to begin in 2009-10. Block A-1 and A-3 in Myanmar, North

Ramadan Block and NEMED in Egypt, Najwat Najem Structure in Qatar and Farsi Offshore

Block in Iran have discoveries and appraisal work is being carried out after which the fields

shall be put on development. The remaining projects are in exploration phase. OVL started

production of oil and gas in the year 2003 and achieved production of oil and oil equivalent

gas (O+OEG) of 7.952 MMT in 2006-07 as compared to 6.339 MMT in 2005-06.The

consolidated gross revenue of OVL during the financial year 2006-07 stood at Rs. 11,901

crore registering 46% increase from last year’s gross revenue of Rs. 8,171 crore. During

2006-07, the consolidated profits (PAT) were at Rs. 1,663 crore, against Rs. 901 crore for

2005-06 registering 85% increase. Further, OVL is pursuing acquisition of various oil and gas

exploration and production opportunities in Centra Asia, Latin America, Africa, Middle East

and South East Asia, which are at different stages. Oil India , a Government of India

Enterprise, under the administrative set-up of Ministry of Petroleum and Natural Gas, is

engaged in the business of exploration, production and transportation of crude oil and natural

gas. The authorized capital of the company is Rs. 500.00 crores and the paid up capital of

the company is Rs. 214.00 crore. OIL produces crude oil and natural gas from its oilfields in


Assam and Arunachal Pradesh, non associated gas from its fields in western Rajasthan and

processes LPG from the natural gas in

Assam. The Company presently has operational areas in Assam, Arunachal Pradesh,

Mizoram, Orissa, Uttar Pradesh, Uttarakhand and Rajasthan in the country. OIL is operating

in 19 nominated ML and 19 nominated PELs. The Company has acquired participating

interest in a total of 21 NELP blocks up to the end of NELP-VI bidding round with the right of

Operatorship in respect of 12 blocks. The Company also holds Participating Interests (Pis) in

another four Pre-NELP JV blocks in India and Production Sharing Interest (PSI) in one Joint

Venture Contract with other partners in Arunachal Pradesh.OIL is presently active overseas

in seven countries, viz. Libya, Gabon, Iran, Nigeria, Yemen, Sudan and Bangladesh,

pursuing various upstream E&P activities. In addition, the Company is continuously scouting

for suitable E&P opportunities in other countries like Syria, Indonesia,Oman, Kazakhastan,

Russia, etc., either alone or with suitable partners.

Oil Industry Development Board (OIDB)

The Oil Industry (Development) Act, 1974 was enacted following successive and steep

increase in the international prices of crude oil and petroleum products since early 1973,

when the need of progressive self-reliance in petroleum and petroleum based industrial raw

materials assumed great importance.

Oil Industry Safety Directorate (OISD)

The Oil Industry Safety Directorate (OISD) assists Safety Council under Ministry of Petroleum

& Natural Gas (MOP&NG) headed by Secretary, P&NG as Chairman and includes Additional

/ Joint Secretaries, Advisors in MOP&NG, Chief Executives of all Public Sector Undertakings

(PSUs) under the Ministry, Chief Controller of Explosives (CCE), Advisor (Fire) of the Govt. of

India, DGMS and the Director General of Factory Advice Service & Labour Institute etc. as

members.

Centre for High Technology (CHT)

Centre for High Technology (CHT) was established in 1987 as a specialized agency of the oil

industry to assess futuristic requirements, acquire, develop and adopt technologies in the

field of refinery processes, petroleum products, additives, storage and handling of crude oil,

products and gas.


Petroleum India International (PII)

Petroleum India International (PII) is a consortium of Public Sector Companies in the

petroleum, Petrochemicals and engineering sector. The member companies include Indian

Oil Corporation Ltd., Bharat Petroleum Corporation Ltd. Bongaigaon Refinery &

Petrochemicals Ltd., Chennai Petroleum Corporation Ltd., Engineers India Ltd., Hindustan

Petroleum Corporation Ltd, Oil India Ltd and Indian Petrochemicals Corporation Ltd. PII was

established in 1986 with the common objectives of mobilizing the individual capabilities of its

member companies into a joint endeavour for providing technical managerial and other

human resources on a global basis.The turnover of the company during 2006-07 was 3499

lakh with a net profit of Rs. 788 lakh.

Petroleum Planning & Analysis Cell (PPAC)

The Petroleum Planning & Analysis Cell (PPAC) was created w.e.f. 1st April 2002 after

dismantling of the Administered Pricing Mechanism (APM) in the petroleum sector and

abolition of the erstwhile Oil Coordination Committee (OCC). The Governing Body under the

chairmanship of Secretary (PNG) and senior officials of MOPNG and Chief Executives of

major oil and gas PSUs as members provides necessary supervision, guidelines in the

functioning of PPAC. Investment Opportunities The entire gamut of exploration & production,

refining, transportation and distribution and retail marketing activities present opportunities for

FDI in:

• Production sharing contracts for oil and gas exploration under NELP.

• Supply of crude oil.

• Supply of gas.

• LNG import and transportation.

• Setting up of refineries.

• Marketing petroleum products including LPG


Policy Initiatives

National Auto Fuel Policy

The Auto Fuel Policy aims to comprehensively and holistically address the issues of vehicular

emissions, vehicular technologies, and auto fuel quality in a cost-efficient manner while

ensuring the security of fuel supply. The policy objectives are:

(i) Ensure sustainable, safe, affordable and uninterrupted supplies of auto fuels of right

quality to support social and economic development. One of the key factors for meeting this

policy objective is to diversify the sources and reduce dependence on any single source of

supply.

(ii) Over the years, infrastructure for the import of crude and crude products, x their

processing and production, and storage and transportation has been created in the

country.Considerable investment has been made in developing this infrastructure and the

logistics for the distribution of petroleum products in the country. The Auto Fuel Policy is

committed to an optimal utilization of such an infrastructure.

(iii) Assess the future trends in emission and air quality requirements from the view point of

public health, and establishment of a consistent framework within which different policy

options to reduce emissions can be assessed. It is, therefore, required that environmental

objectives for air quality be determined, emission reduction targets be established, input data

on costs and benefits be collected and cost effective measures to reduce emissions be

identified. Appropriate institutional arrangements to be put in place to where such activities

can be handled effectively.

(iv) Adopt such vehicular emission standards that they together with other measures will be

able to make a decisive impact on air quality, without placing an undue burden on the people.

(v) Vehicular emission standards and auto fuel quality should offer choice to the citizens and

equally a choice to automobile manufactures in matters of technology selection. Principles of

widening the choice and promoting competition amongst automobile technologies, within the

limits that are imposed by the availability of auto fuels and security of their supplies. (vi) As

elsewhere in the world, the Government should decide only the vehicular mission standards

and the corresponding fuel specifications without specifying vehicle technology and the type

of fuel.


(vii) The requirement of investments to reach vehicular technology and fuel quality of Euro III

equivalent levels throughout the country is estimated in the range of Rs. 50,000 - Rs. 60,000

crore. Therefore, to achieve the air quality targets by gradually improving emission standards

and a phased up gradation of fuel quality and vehicular technology, taking note of the

financial, technical and institutional considerations as also the absorptive capacity is required.

(viii) Administered fuel prices, carrying subsidies and cross-subsidies, lead to distortions in

fuel usage pattern. Determination of fuel prices on the principles of import parity and putting

in place a medium term fiscal regime as early as possible are necessary for the sustainability

of fuel usage pattern.

(ix) In order to remain relevant, the Auto Fuel Policy must undergo periodic revisions,

preferably at an interval of five years. This will allow adjustments in the Policy that may

become necessary on account of the technological and other changes that are inevitable in

the country and the world. It would also afford an opportunity to different stakeholders to

express their views in the light of the changes that take place with time.

Policy Initiatives to Attract Foreign Direct Investment

The present policy on FDI in the Petroleum & Natural Gas sector vide Press Note 1(2004)

and Press Note 4(2006) permits FDI up to 100% under the automatic route in exploration,

petroleum product marketing, petroleum product pipelines, Natural Gas/LNG pipelines, and

Petroleum refining in the private sector. FDI up to 26% is permitted with prior Government

approval in petroleum refining by the Public Sector Undertakings (PSU). In the case of actual

trading and marketing of petroleum products, FDI is allowed up to 100% with the condition

that 26% foreign equity would be divested in favour of Indian partner/public within 5 years.

On a review of the extant policy for the Petroleum & Natural Gas sector, it has been decided

to

i) Delete the condition of compulsory divestment of up to 26% equity within 5 years for actual

trading and marketing of petroleum products; and

ii) Allow FDI up to 49%, with prior approval of FIPB, in petroleum refining by PSUs without

involving any divestment of dilution of domestic equity in the existing PSUs.


International Cooperation

(a) The India-Romania Joint Working Group met in New Delhi in March 2008 and the

possibility of Indian companies participating in the modernisation and upgradation of

refineries, and GAIL in CNG/ piped gas distribution network, in Romania were discussed.

(b) The India-Turkey Joint Working Group also explored the scope of Investment by the

Indian oil companies in Turkey’s pipelines and refineries.

(c) A delegation visited Venezuela in April 2008 and a Joint Venture agreement between OVL

and CVP of Venezuela was signed to exploit the San Cristobal field in Venezuela. This

marked a turning point in our bilateral cooperation with Venezuela.(d) Bilateral cooperation

with Colombia has taken shape with an MOU signed between the two countries on 5th

September 2008 in New Delhi.

(e) The Energy Minister of South Africa met the Indian Petroleum & Natural Gas Minister Shri

Murli Deora on 16th October 2008 and identified a number of areas of cooperation in South


1.3 GROWTH OF THE FOREIGN DIRECT INVESTMENT:

India enjoys a strong position as a global investment hub with the country registering high

economic growth figures even during the peak of financial meltdown. As a result, overseas

investors rested their confidence in the economy which eventually pushed foreign direct

investments (FDI) in India. The fact is further consolidated by the excerpts of a research by

Morgan Stanley which anticipates that India could attract FDI worth as

much as US$ 80 billion in next 1-2 years. Around US$ 48 billion of FDI has been pumped in

the Indian economy in the last two years.

Considering the pace of FDI growth in India, KPMG officials believe that FDI in 2011-12 may

cross US$ 35 billion mark.

Key Statistics

FDI inflow rose by 50 per cent to US$ 20.76 billion during January-August 2011, while

the cumulative amount of FDI equity inflows from April 2000 to August 2011 stood at

US$ 219.14 billion, according to the latest data released by the Department of

Industrial Policy and Promotion (DIPP).

Services (financial and non- financial), telecom, housing and real estate, construction

and power were the sectors that attracted maximum FDI during the first eight months

of 2011 while Mauritius, Singapore, the US, the UK, the Netherlands, Japan, Germany

and the UAE, among others, are the major investors in India.

India's foreign exchange (Forex) reserves have increased by US$ 858 million to US$

318.4 billion for the week ended October 21, 2011, according to the weekly statistical

bulletin released by the Reserve Bank of India (RBI). In the considered week, foreign

currency assets went up by US$ 861 million to US$ 282.5 billion, while the gold

reserves stood at US$ 28.7 billion.

Quenching its thirst for foreign assets, India Inc announced 177 M&A deals worth US$

26.8 billion in the first nine months of 2011. For the quarter July-September 2011,

inbound deals worth US$ 7.32 billion were registered as against the deals worth US$

2.65 billion in the previous quarter; total value being largely accounted for by two

mega deals - BP's US$ 7.2 billion acquisition of stake in Reliance Industries' oil and

gas properties and Vodafone Group's purchase of partner Essar's 33 per cent stake in

Vodafone Essar Limited for US$ 5.46 billion.


Important Developments

DIPP has proposed to permit 26 per cent FDI in domestic airlines, allowing foreign airlines to

hold a stake in their Indian counterparts. The draft Cabinet note has been circulated for inter-

ministerial consultation.

Indian government cleared 11 FDI proposals on October 10, 2011 entailing investment of

around Rs 182.78 crore (US$ 37.53 million). Foreign Investment Promotion Board (FIPB),

headed by Economic Affairs Secretary R Gopalan, gave its nod to the following major

proposals:

Kolkata-based Pran Beverages’ FDI proposal for Rs 16.45 crore (US$ 3.38 million), to

be pumped as foreign equity by a Bangladesh-based company.

Another Rs 39.36 crore (US$ 8.08 million) FDI proposal by DMV-Fonterra Excipients

entailing induction of foreign investment to an extent of up to 100 per cent in the

capital of a newly-formed Limited Liability partnership (LLP) firm involved in the

business of manufacturing and sale of pharmaceutical excipients.

Further, Mumbai-based Ace Derivatives and Commodity Exchange’s proposal to

transfer its equity shares to foreign institutional investors (FIIs), such that the holding

of each FII does not exceed 5 per cent of the equity of the company. The proposal is

worth Rs 10.53 crore (US$ 2.16 million).

South Africa-based Life Healthcare Group Holdings is buying 26 per cent stake in the

healthcare arm of Max India, valued at Rs 1,984 crore (US$ 405 million). PE firms such as

Warburg Pincus, Goldman Sachs and International Finance Corporation hold around 25 per

cent stake in Max India while its Foreign Institutional Investors (FII) also include Temasek.

Marking its second investment in India, Warren Buffet’s Berkshire Hathaway will induce

investment in a chlorinated polyvinyl chloride (CPVC) industrial unit in Gujarat, through its

wholly owned subsidiary Lubrizol Corporation. Lubrizol will initially invest Rs 1,177 crore

(US$ 242 million) in the project and its construction work is expected to commence by

January 2013.

In order to tap more foreign funds, Cox and Kings has got the nod from Foreign Investment

Promotion Board (FIPB) to increase its foreign equity by 10 per cent to 53.94 per cent, from

the previous 43.81 per cent. Currently, foreign promoters have a stake of 19.87 per cent and

FIIs hold 22.72 per cent. FIPB has granted its approval to the travel company to raise Rs 750


crore (US$ 154 million) from foreign markets.

Meanwhile, Singapore-based Global Schools Foundation plans to invest Rs 300 crore (US$

61.6 million) and start 25 schools in India over 2011-16. The foundation owns and operates

Global Indian International Schools (GIIS) and Global School of Silicon Valley (GSSV) across

eight countries all over the world.

Policy Initiatives

Recently, the government has further liberalised the FDI mechanism for allowing overseas

investment in bee-keeping and share-pledging for raising external debt.

Moreover, it has eased FDI norms for construction of old-age homes and educational

institutions. The modification endorses removal of issues pertaining to the minimum and built-

up area, capitalisation and lock-in period as applicable for other construction activities.

In a bid to facilitate addition of manufacturing capacities, technology acquisition and

development in Indian pharmaceutical sector, FDI in Brownfield investment will be allowed

through the FIPB for six months, following which such acquisitions will be coursed through

the Competition Commission of India (CCI), while it will be allowed through automatic route

for Greenfield projects. When FIPB will clear the acquisition in six months, CCI will put

regulations in place to ensure effective M&A deal while monitoring public health concerns.

Meanwhile, seeing the expansion of luxury brands market in India, the government is

considering raising FDI bar to 100 per cent from current 51 per cent in single-brand retailing.

The proposal has been placed before a joint government-industry task force for consultation.

The above stated initiatives clearly show that the Indian Government continues to work on

streamlining policies and make the environment friendlier to FDI.

[Exchange Rate used: INR1 = US$ 0.0205 as on October 31, 2011]


2. Major Companies in Various Sectors of India

Companies in Service Sector:

IT Companies Banking Media

1) Infosys ltd 1) ICICI 1) ZEEL

2) TCS 2) SBI 2) DB Corp.

3) Wipro 3) HDFC 3) Jagran

4) HCL 4) AXIS Bank 4) Sun TV

5) Tech. Mahindra 5) Bank of Baroda 5) Eros Media

Companies in Telecommunication Sector:

1) Bharti Airtel

2) IDEA

3) Reliance

4) TATA Communication

5) Dish TV

Companies in Power Sector:

1) NTPC Ltd.

2) BHEL

3) Power Grid

4) TATA Power

5) R Power


Companies in Automobile Sector:

1) TATA Motors

2) Mahindra & Mahindra

3) Bajaj Auto

4) Maruti Suzuki

5) Hero Moto Corp.

Companies in Petroleum & Natural Gas Sector:

1) Reliance

2) ONGC

3) GAIL India

4) Bharat Petroleum

5) Indian Oil


PART-II

PRIMARY STUDY


3. INTRODUCTION OF THE STUDY

3.1 LITERATURE REVIEW:

Authors: Riedl, Aleksandra. Source: Economics of Transition; Oct2010. Foreign direct

investment (FDI) has increasingly shifted toward the service sector. This change in the

industrial composition of FDI and the non-tradable nature of services may have altered the

importance of location factors for investment decisions. To capture potential changes in FDI

determinants, a contrasting sectoral analysis is performed. Based on FDI stock data from

eight new EU member states for the period 1998–2004, we implement a dynamic panel

approach allowing the speed of adjustment to the equilibrium investment level to vary across

sectors. Results support our assumption that investment into the service sector, which is

characterized by low installation costs, adjusts much faster to its desired level than

manufacturing FDI. Thus, government interventions to attract FDI are likely to boost the

service sector immediately while having a slower impact on manufacturing FDI. Furthermore,

as services are mostly non-tradable, FDI into this sector is largely based on market-seeking

motives while FDI in the manufacturing sector is also driven by international price

competitiveness measured by real unit labour costs.

Authors: Menon, Nidhiya, Sanyal, Paroma; Source: Review of Development Economics;

Nov2007. This paper analyzes patterns of foreign direct investment in India. We investigate

how labour conflict, credit constraints, and indicators of a state's economic health influence

location decisions of foreign firms. This is accomplished by using a state-specific fixed effects

framework that captures the presence of unobservable, which may influence investment

decisions and labour unrest simultaneously. Results indicate that labour unrest is

endogenous across the states of India, and has a strong negative impact on foreign

investment.


Authors: Singh, Jatinder; Source: IUP Journal of Financial Economics; Dec2010. In the

context of increasing competition among nations and sub-national entities to attract Foreign

Direct Investment (FDI), the present paper tries to analyze the emerging trends and patterns

of FDI inflows into India in response to various policy measures announced by the

Government of India since mid-1980 and later. The empirical analysis tends to suggest that

the FDI inflows, in general, show an increasing trend during the post-reform period.

Furthermore, country-wise comparison of FDI inflow also indicates that FDI inflow into India

has increased considerably in comparison to other developing economies in the recent years.

Thus, the study indicates that the FDI inflows into India responded positively to the

liberalization measures introduced in the early 1990s.

Authors: BOSE, SUCHISMITA JHA, SUDIPTA; Source: Money & Finance; Jul2011.

Several developing economies impacted by the recent global recession, are experiencing

large increases in fiscal deficits and consequently are at a higher risk of loss of long term

stable capital inflows like Foreign Direct Investment (FDI). While this is particularly true of

emerging economies in Europe, even India, one of the favoured destinations for FDI flows

but among the weakest emerging economies in terms of fiscal consolidation, is now facing an

apprehension of shrinking flows if the government fails to narrow its widening deficit. Given

these concerns, we have tried to determine the FDI encouraging or debilitating effect of

government balances relative to other determinants of inward FDI. In a panel regression

analysis with data from 15European countries and India, fiscal health by itself is found to be a

very significant determinant of FDI inflows vis-à-vis certain other growth and developmental

policy indicators, underlining the significance of pruning government deficits for sustainable

FDI. We find the gravity variable market size and past FDI inflows to be the other key

determinants of inward FDI flows.


Author: Aleksandra Riedl*,**

Department of Economics, Vienna University of Economics and Business

Foreign direct investment (FDI) has increasingly shifted toward the service sector.

This change in the industrial composition of FDI and the non-tradable nature of services may

have altered the importance of location factors for investment decisions. To capture potential

changes in FDI determinants, a contrasting sectoral analysis is performed. Based on FDI

stock data from eight new EU member states for the period 1998–2004, we implement a

dynamic panel approach allowing the speed of adjustment to the equilibrium investment level

to vary across sectors. Results support our assumption that investment into the service

sector, which is characterized by low installation costs, adjusts much faster to its desired

level than manufacturing FDI. Thus, government interventions to attract FDI are likely to

boost the service sector immediately while having a slower impact on manufacturing FDI.

Furthermore, as services are mostly non-tradable, FDI into this sector is largely based on

market-seeking motives while FDI in the manufacturing sector is also driven by international

price competitiveness measured by real unit labour costs.

Author: Dagar, Shalini S. Source: Business Today; 9/21/2008, Vol. 17 Issue 19, p26-26,

1/2p

The article presents an analysis whether the $40 billion foreign direct investment (FDI)

inflows expected by India as of 2008 is attainable. It is reported that FDI inflows for the last

quarter of 2007-2008 has amounted to $11.9 billion, while in the first six months of 2008 it

reaches more than $20 billion. It is believed that the $40 billion target of India is achievable

given the sprout of investments in infrastructure and commodities sector.


Author: Robert Huggins, Mehmet demirbag & Violina Iankova Ratcheva Source: The

Management School, University of Sheffield, UK International Review of Applied Economics,

Vol. 21, No. 3, 437–451, July 2007

The global nature of foreign direct investment (FDI) is changing in terms of both location and

sectors of activity. This paper analyses recent flows of R&D FDI across the globe. It is found

that North America has been the source of one-half of all R&D FDI between 2002 and 2005.

Asia Pacific, especially China and India, has been the overwhelming destination for most

R&D FDI, accounting for more than one-half of all investment and almost three-quarters of

the jobs created. In general, R&D FDI has not been equitably spread across nations such as

India and China but concentrated in a small number of locations. R&D FDI from advanced

economies is facilitating the emergence of new centres and clusters of knowledge across the

globe. This global redistribution of knowledge brings challenges to policymakers in both the

developed and the developing world. The challenges come in two main forms: first, cross-

regional disparities in knowledge-based wealth creation within particular nations; and second,

anxieties about the off shoring of knowledge-based tasks and jobs. It is argued that current

patterns of global knowledge flow require policies to nurture the open regional innovation

systems being established by these flows.

Author: Sophia P. Dimelis and Sotiris K. Papaioannou Source: European Journal of

Development Research (2010) 22, 79–96. doi:10.1057/ejdr.2009.45 Published online 5

November 2009

This article investigates for possible effects stemming from Foreign Direct Investment (FDI)

and Information and Communication Technologies (ICT) on productivity growth. The analysis

is based on panel data covering a sample of 42 developing and developed countries during

the period 1993–2001. The growth accounting results indicate that the growth contribution of

ICT was quite high for both developed and developing countries. On the contrary, the FDI

contribution was relatively low. The econometric results showed a positive and significant

impact of ICT in all groups, the effect being larger among developing countries. Positive and

significant FDI effects were found in the group of developed countries, and positive but

insignificant, among the developing ones.


Author: CHING-MU CHEN_, KONSTANTINOS A. MELACHROINOS__ & KANG-TSUNG

CHANG† Source: European Planning Studies Vol. 18, No. 2, February 2010

The extent to which foreign direct investment (FDI) can foster the long-term economic

development of lagging regions remains a highly debated issue in the literature, even in the

current era of intense territorial competition for mobile investment and resources. The

emergence of new industrial spaces in China that have flourished through FDI offers a good

opportunity to revisit the topic. Kunshan in Suzhou, China has evolved from an impoverished

area into a world-class information technology (IT) centre within 25 years. FDI, mainly from

Taiwan, has enabled Kunshan to gradually upgrade its economy, following a development

path that has been largely based on the transplant of entire production chains from Taiwan.

Local innovative strategies for attracting and increasing the embeddedness of Taiwanese FDI

are also an important element of Kunshan’s success. This paper discusses the positive

aspects, as well as the potential costs and negative facets, of FDI in Kunshan, with the view

to draw some policy lessons regarding the impact of FDI on the economic development of

lagging regions.

Author: Miao Wang & M. C. Sunny Wong Source: Published online: 28 May 2011

# International Atlantic Economic Society 2011

We revisit the results from the influential study by Borensztein et al. (Journal of International

Economics 45:115–135, 1998), which argues that inward foreign direct investment (FDI)

promotes the economic growth in a less developed host country only when the host country

obtains a threshold level of secondary schooling. Borensztein et al. (Journal of International

Economics 45:115–135, 1998) only focus on the quantity of education. We take into

consideration both the quantity and the quality of education. We adjust the original schooling

data in Borensztein et al. (Journal of International Economics 45:115–135, 1998) by two

quality of education indices and re-estimate their model. We find that the complementarity

between inward FDI and schooling still exists, but the threshold level of schooling in our study

is lower than the threshold calculated in Borensztein et al. (Journal of International

Economics 45:115–135, 1998). Our results support the importance of education quality and

suggest that with improved quality of education, it does not take as much quantity of

schooling, as established in Borensztein et al. (Journal of International Economics 45:115–

135, 1998), for inward FDI to have a positive impact on economic growth in the host country.


Author: Aljaž Kuncic and Marian Svetlicic Source: Eastern European Economics, vol. 49,

no. 3, May–June 2011, pp. 66–88.

The existing macroeconomic evidence predominantly demonstrates positive effects of foreign

direct investment (FDI) on growth and competitiveness. Countries thus tend to have

systematic policies in place for FDI promotion, devised and implemented especially through

investment promotion agencies (IPA s). This paper adds to the literature on FDI incentives by

examining the beliefs or attitudes of people working in the FDI promotion industry and the

extent to which they coincide with the known FDI pull factors. To that end, we utilize a data

set of attitudes of people largely working in regional and national IPA s in Europe and the

Western Balkans. Cluster analysis reveals that in fact we can talk about three sets of beliefs

Or attitudes toward FDI: “pessimistic,” “Keynesian,” and “neoclassical.” Keynesians largely

favour fiscal measures for attracting FDI, whereas neoclassical dislike fiscal measures and

government interventions and prefer good economic fundamentals and infrastructure and

qualified personnel. Interestingly enough, most of the eastern European Union as well as

south-eastern European respondents can be classified as Keynesians; on the other hand,

almost all neoclassical are from Western Europe.

Author: Polpat Kotrajaras, Bangorn Tubtimtong, and Paitoon Wiboonchutikula Source:

ASEAN Economic Bulletin Vol. 28, No. 2 (2011), pp. 183–202

Foreign direct investment (FDI) has increased rapidly in East Asian countries over the past

two decades, and many studies find that it has significant linkages with economic growth.

This paper examines the impacts of FDI in groups of 15 East Asian countries classified by

level of economic development, using panel data analysis together with cointegration

methods. The results show that favourable impacts of FDI on East Asian countries depend

on complementary factors, particularly each host country’s economic conditions such as

levels of financial market development, institutional development, better governance, and

appropriate macroeconomic policies. Furthermore, East Asian countries need to increase

their investment in fundamental infrastructures, human capital development, and facilities for

enhancing international trade and investment climate.


3.2 IMPORTANCE OF THE STUDY:

By this Assessment Government can know most growing sectors of the India.

Evaluation may help state Government & Central Government to focus on more or

less Growing Sectors.

For Investors this study helps to identify investment opportunities in various sectors in

India.

Through this Analysis Government should know that where they can Generate

Employment.

The Study helps the investor to know potential Growing sectors of India and make

advance planning for investments.


3.3 PROBLEM STATEMENT/ RATIONALE/ OF THE STUDY:

“An Analysis of Foreign Direct Investment of last 3 years in different sectors in India”.


3.4 OBJECTIVE OF THE STUDY:

To analyse the FDI inflow in India.

Analysis of FDI into the Service sector.

Analysis of FDI into the Telecommunication sector.

Analysis of FDI into the Power sector.

Analysis of FDI into the Automobile sector.

Analysis of FDI into the Petroleum & Natural sector.


3.5 HYPOTHESIS:

Hypothesis testing begins with an assumption, called a hypothesis that makes assumption

about a population parameter. Then we collect sample data, produce sample statistics and

use this information to decide how likely it is that our hypothesized population parameter is

correct. Say that we assume a certain value for a population mean to test the validity of our

assumption. We gather sample data and determine the difference between the Hypothesized

value and the actual value of the sample mean then we judge whether the difference is

significant. The smaller the difference between two, greater likelihoods that our hypothesized

value for the means is correct.

- Null Hypothesis (H0)….

Null hypothesis states that there is no difference between the population parameter

and sample statistics being compared.

- Alternative Hypothesis (Ha)…

Alternative hypothesis states there is difference between the populations parameter

and sample statistic being compared.


4. RESEARCH METHODOLOGY

4.1 Sources of Data:

This study is based on secondary data. The required data have been collected from various

sources i.e. World Investment Reports, Asian Development Bank’s Reports, Various Bulletins

of Reserve Bank of India, publications from Ministry of Commerce, Govt. of India, Economic

and Social Survey of Asia and the Pacific, United Nations, Asian Development Outlook,

Country Reports on Economic Policy and Trade Practice-Bureau of Economic and Business

Affairs, U.S. Department of State and from websites Of World Bank, IMF, WTO, RBI,

UNCTAD.

4.2 Population: 5 Sectors

4.3 Sampling Method: Random Sampling Method

4.4 Sampling Frame: Service Sector

Telecommunication Sector

Power Sector

Automobile Sector

Petroleum & Natural Gas Sector

4.5 Data Collection Instrument: Internet, Magazine, Newspapers.


5. DATA ANALYSIS & INTERPRETATION

5.1 Foreign Direct Investment Inflow in India

(US $ in Millions)

ServiceTelecommunic

ationAutomobile Power

Petroleum & Natural Gas

2009 4353 2554 1208 1437 272

2010 3403 1665 1341 1252 574

2011 2658 1020 1466 1256 846

0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

US

$ in

Mill

ion

s

Foreign Direct Investment Inflow in India

Year:

Sectors:

2009

2010

2011

Service 4353 3403 2658

Telecommunication 2554 1665 1020

Automobile 1208 1341 1466

Power 1437 1252 1256

Petroleum & Natural Gas 272 574 846


5.2 APPLICATION OF TEST: ANOVA

Hypothesis:

Step 1:

The hypothesis is as Follows:

H0: µ1 = µ2 = µ3 = µ4 = µ5

Ha: µ1 ≠ µ2 ≠ µ3 ≠ µ4 ≠ µ5

(At least one of the means is different from the others.)

Test:

Step 2:

The appropriate test statistic is the F- Test calculated from ANOVA.

Step 3:

The Value of α is 0.01

Step 4:

The Degree of Freedom for this problem is 5 - 1 = 4 for the numerator and

15 - 5 = 10 for the Denominator.

The Critical F-Value is F0.01, 2, 10 = 7.56

Step 5:

Formulas:

𝐒𝐒𝐂 = nj x j − x 2

c

j=1

𝐒𝐒𝐄 = xij − x j 2

c

j=1

nj

i=1

𝐒𝐒𝐓 = 𝑥𝑖𝑗 − 𝑥 2

𝑐

𝑗 =1

𝑛𝑗

𝑖=1


Where,

𝑖= A particular number of a treatment level

𝑗 = A treatment level

𝑐 = Number of treatment level

𝑛𝑗= Number of observation in given treatment

𝑥 = Grand Mean

𝑥 𝑗= Column Mean

𝑥𝑖𝑗= Individual Value

𝑑𝑓𝑐= C-1 = 5-1= 4

𝑑𝑓𝑒= N-C= 15-5= 10

𝑑𝑓𝑡= n-1= 15-1= 14

Step 6:

(US $ in Millions)

Year Service Telecom Auto Power P&NG

2009 4353 2554 1208 1437 274

2010 3403 1665 1341 1252 574

2011 2658 1020 1466 1256 846

𝑇𝑗 : 𝑇1=10414, 𝑇2=5239, 𝑇3=2927, 𝑇4=3945, 𝑇5=1694

∴ T= 24219

𝑛1= 3, 𝑛2= 3, 𝑛3= 3, 𝑛4= 3, 𝑛5= 3

∴n= 15

𝑥1 = 3471.33, 𝑥2 = 1746.33, 𝑥3 = 975.66, 𝑥4 = 1315, 𝑥5 = 564.66

∴ 𝑥 = 1614.6


Step 7:

For SSC:

𝐒𝐒𝐂 = nj (x j − x )2

c

j=1

𝑺𝑺𝑪 = 3(3471.33 − 1614.6)2 + 3(1746.33 − 1614.6)2 + 3(975.66 −

1614.6)2+ 3(1315−1614.6)2+ 3(564.66−1614.6)2

𝑺𝑺𝑪 = 10342338.88 + 52058.37 + 1224732.97 + 269280.48 + 3307122.01

𝑺𝑺𝑪 = 𝟏𝟓𝟏𝟗𝟓𝟓𝟑𝟐. 𝟕𝟏

For SSE:

𝑺𝑺𝑬 = (𝑥𝑖𝑗 − 𝑥 𝑗)2

𝑐

𝑗 =1

𝑛𝑗

𝑖=1

𝑺𝑺𝑬 = (4353 − 3471.33)2 + (3403 − 3471.33)2 + (2658 − 3471.33)2 +

2554−1746.33)2+ 1665−1746.33)2+

1020−1746.33)2+ 1208−975.66)2+ 1341−975.66)2 1466−975.66)2+ 1437−1315)2+(12

52−1315)2+ 1256−1315)2+ 274−564.66)2+ 574−564.66)2+ 846−564.66)2

𝑺𝑺𝑬 = 1443516.6 + 1186500.709 + 430308.51 + 22334 + 92485.46

𝑺𝑺𝑬 = 𝟑𝟏𝟓𝟕𝟎𝟒𝟓. 𝟐𝟕𝟗

Source of Variance

𝒅𝒇 SS MS 𝐅𝐜𝐚𝐥

Between 4 15195532.71 3798883.17

12.033 Error 10 3157045.279 315704.5279

Total 14

𝐅𝐜𝐚𝐥 = MSC

MSE

= 3798883 .17

315704 .5279

F = 12.033


∴ 𝐅𝐜𝐚𝐥 > 𝐅𝐭𝐚𝐛𝐥𝐞

The Decision is to reject the null hypothesis because the calculated F value 12.033 is greater

than the critical table F value of 7.56

Step 8: Conclusion

There is a significant difference in the mean of FDI at the three years.


5.3 Chi- Square Test of Independence:

(US $ in Millions)

Year Service Telecom Auto Power P&NG

2009 4353 2554 1208 1437 274

2010 3403 1665 1341 1252 574

2011 2658 1020 1466 1256 846

Hypothesis:

Step 1:

Ho: Foreign Direct Investment is year wise Independent

Ha: Foreign Direct Investment is not year wise Independent

Test

Step 2:

The Appropriate Statistic Test is:

𝜒2 = (𝑓𝑜 − 𝑓𝑒)2

𝑓𝑒

Where,

𝑓𝑜 = Observed Frequency

𝑓𝑒 = Expected Frequency

Step 3:

Alpha (α) is 0.01

Step 4:

𝑑𝑓 = 𝑟 − 1 (𝑐 − 1)

Where,

𝑟 = Number of Row

𝑐 = Number of Columns

𝑑𝑓 = 3 − 1 (5 − 1)

= 8


𝜒𝑡𝑎𝑏𝑙𝑒2 = 𝜒(𝛼 ,𝑑𝑓 )

2

𝜒𝑡𝑎𝑏𝑙𝑒2 = 𝜒(0.01,8)

2 = 20.0902

Step 5:

𝐸𝑥𝑝𝑒𝑐𝑡𝑒𝑑 𝑉𝑎𝑙𝑢𝑒 = 𝑅𝑜𝑤 𝑇𝑜𝑡𝑎𝑙 × 𝐶𝑜𝑙𝑢𝑚𝑛 𝑇𝑜𝑡𝑎𝑙

𝑇𝑜𝑡𝑎𝑙

Step 6:

(US $ in Millions)

FDI in Sectors

Service Telecom Automobile Power P & NG Total

2009 4353

(4043.4)

2554

(2034.1)

1208

(1558.9)

1437

(1531.7)

274

(657.7)

9826

2010 3403

(3388.7)

1665

(1704.8)

1341

(1306.49)

1252

(1283.7)

574

(551.2)

8235

2011 2658

(2981.7)

1020

(1500.05)

1466

(1149.6)

1256

(1129.5)

846

(485.03)

7246

Total 10414 5239 4015 3945 1694 25307

𝜒2 = (𝑓𝑜 − 𝑓𝑒)2

𝑓𝑒

χ2 = (4353 − 4043.4)2

4043.4+

(2554 − 2034.1)2

2034.1+

(1208 − 1558.9)2

1558.9+

(1437 − 1531.7)2

1531.7

+ (274 − 657.7)2

657.7+

(3403 − 3388.7)2

3388.7+

(1665 − 1704.8)2

1704.8

+ (1341 − 1306.49)2

1306.49+

(1252 − 1283.7)2

1283.7+

(574 − 551.2)2

551.2

+ (2658 − 2981.7)2

2981.7+

(1020 − 1500.05)2

1500.05+

(1466 − 1149.6)2

1149.6

+ (1256 − 1129.5)2

1129.5+

(846 − 485.03)2

485.03

= 23.70 + 132.88 + 78.98 + 5.85 + 223.8 + 0.0603 + 0.92916 + 0.9115 + 0.7832 +

0.9431 + 35.14 + 153.62 + 87.08 + 14.16 + 268.6

= 1027.43


Step 7:

The Observed value of Chi-Square is 1027.43, is greater than the critical value 20.0902

So, the Null Hypothesis is rejected.

Step 8:

The two Variables of various sectors and different years are not independent. The FDI that

comes in to India is related to or Dependent on different years of total Foreign Direct

Investment.

Examination of the sectors reveals that year 2009 of FDI is more than other years.

So, the Govt. of India can utilize such information in targeting their sectors providing

appropriate room to invest in various FDI Sectors.


5.4 Chi-Square Goodness of Fit for Five Sectors:

5.4.1 Chi-Square for Service Sector:

FDI Inflow in Service Sector

(US $ in Millions)

Interpretation:

The Graph Shows Total Inflow of Foreign Direct investment in India in the last 3 years also it

shows 3.48% of FDI in 2009, 2.04% in 2010 and 1.34% in 2011in service Sector.

total Inflow Service

2009 125212 4353

2010 167023 3403

2011 197939 2658

0

50000

100000

150000

200000

250000

US

$ in

Mill

ion

s

FDI Inflow in Service Sector

Year Total Inflow Service % age

2009 125212 4353 3.48

2010 167023 3403 2.04

2011 197939 2658 1.34


Application of Test:

Service sector:

Hypothesis:

Step 1:

H0 : Year wise, there is no signification difference in FDI in Service Sector

Ha : Year wise, there is significant difference in FDI in Service Sector

Test:

Step 2:

The statistical test being used is

𝜒2 = (𝑓𝑜 − 𝑓𝑒)2

𝑓𝑒

Where,

𝑑𝑓= K-1

𝑥2= Chi-Square

𝑓𝑜= Observed Frequency

𝑓𝑒= Expected Frequency

K =Number of Categories

Step 3:

𝛼 = 0.05

Step 4:

𝑑𝑓= k-1

= 3-1

= 2

Step 5:

χtab2 = χ 0.05,2

2 = 5.9915


Step 6:

Year

Service Sector 𝝌𝟐 =

(𝒇𝒐 − 𝒇𝒆)𝟐

𝒇𝒆

Observed

Frequency 𝒇𝒐 Expected

Frequency 𝒇𝒆

2009 4353 3471.33 223.93

2010 3403 3471.33 1.3450

2011 2658 3471.33 190.56

Total 415.835

𝜒2 = (𝑓𝑜 − 𝑓𝑒)2

𝑓𝑒

For 2009:

= (4353−3471.33)2

3471.33

=777341 .98

3471.33

= 223.93

For 2010:

= (3403 − 3471.33)2

3471.33

=4668.98

3471.33

= 1.3450

For 2011:

= (2658 − 3471.33)2

3471.33

=661505 .68

3471.33

= 190.56


Step 6:

The Chi-Square goodness of fit can then be calculated as shown in table

Step 7:

The Observed value of Chi-Square of 415.835 is greater than the tabulated value of 5.9915

So, the Null Hypothesis is rejected

Step 8: Conclusion

Thus the data gathered in the sample of 3 year of FDI indicate the investment in the India is

significantly different from the distribution of investment to the previous year


5.4.2 Chi-Square for Telecommunication Sector:

FDI Inflow in Telecommunication Sector

(US $ in Millions)

Interpretation:

This Graph shows total Foreign Direct Investment in last 3 years in India; also it shows 2.04%

of FDI in 2009, 1% in 2010 and 0.52% in 2011 in Telecommunication Sector.

Total Inflow Telecommunication

2009 125212 2554

2010 167023 1665

2011 197939 1020

0

50000

100000

150000

200000

250000

US

$ in

Mill

ion

s

FDI Inflow in Telecommunication Sector

Year Total Inflow Telecommunication % age

2009 125212 2554 2.04

2010 167023 1665 1

2011 197939 1020 0.52



Telecommunication Sector:

Hypothesis:

Step 1:

H0: Year wise, there is no signification difference in FDI in Telecommunication Sector

Ha: Year wise, there is significant difference in FDI in Telecommunication Sector

Test:

Step 2:


𝜒2 = (𝑓𝑜 − 𝑓𝑒)2

𝑓𝑒

Where,

𝑑𝑓= K-1

𝑥2= Chi-Square




Step 3:

𝛼 = 0.05

Step 4:

𝑑𝑓= k-1

= 3-1

= 2


Step 5:

χtab2 = χ 0.05,2

2 = 5.9915

Step 6:

Year

Service Sector 𝜒2 =

(𝑓𝑜 − 𝑓𝑒)2

𝑓𝑒

Observed Frequency 𝒇𝒐

Expected Frequency 𝒇𝒆

2009 2554 1746.33 375.54

2010 1665 1746.33 3.787

2011 1020 1746.33 302.09

Total 681.417

𝜒2 = (𝑓𝑜 − 𝑓𝑒)2

𝑓𝑒

For 2009:

= (2554−1746.33)2

1746.33

= 375.54

For 2010:

= (1665 − 1746.33)2

1746.33

= 3.787

For 2011:

= (1020 − 1746.33)2

1746.33

= 302.09


Step 6:


Step 7:


So, the Null Hypothesis is rejected

Step 8: Conclusion




5.4.3 Chi-Square for Automobile Sector:

FDI Inflow in Automobile Sector

(US $ in Millions)

Interpretation:


of FDI in 2009, 0.80% in 2010 and 0.74% in 2011 in automobile Sector.

Total Inflow Automobile

2009 125212 1208

2010 167023 1341

2011 197939 2

0

50000

100000

150000

200000

250000

US

$ in

Mill

ion

s

FDI Inflow in Automobile Sector

Year Total Inflow Automobile % age

2009 125212 1208 0.97

2010 167023 1341 0.80

2011 197939 1466 0.74



Automobile Sector

Hypothesis:

Step 1:

H0: Year wise, there is no signification difference in FDI in Automobile Sector

Ha: Year wise, there is significant difference in FDI in Automobile Sector

Test:

Step 2:


𝜒2 = (𝑓𝑜 − 𝑓𝑒)2

𝑓𝑒

Where,

𝑑𝑓= K-1

𝑥2= Chi-Square




Step 3:

𝛼 = 0.01

Step 4:

𝑑𝑓= k-1

= 3-1

= 2


Step 5:

χtab2 = χ 0.01,2

2 = 9.2104

Step 6:

Year

Automobile Sector 𝜒2 =


𝑓𝑒



2009 1208 1338.33 12.69

2010 1341 1338.33 0.005

2011 1466 1338.33 12.18

Total 24.875

𝜒2 = (𝑓𝑜 − 𝑓𝑒)2

𝑓𝑒

For 2009:

= (1208−1338.33)2

1338.33

= 12.69

For 2010:

= (1341−1338.33)2

1338.33

= 0.005

For 2011:

= (1466−1338.33)2

1338.33

= 12.18


Step 6:


Step 7:


So, the decision is to reject the Null Hypothesis.

Step 8: Conclusion



This Provide enough evidence to indicate that FDI in auto is not uniform investment.

Action:

Auto sector FDI is not uniformly distributed, so Govt. Need to pay attention to uneven

investment trend in this particular sector.


5.4.4 Chi-Square for Power sector:

FDI Inflow in Power Sector

(US $ in Millions)

Interpretation:


of FDI in 2009, 0.75% in 2010 and 0.63% in 2011 in Power Sector.

Total Inflow Power

2009 125212 1437

2010 167023 1252

2011 197939 2

0

50000

100000

150000

200000

250000

US

$ in

Mill

ion

s

FDI Inflow in Power Sector

Year Total Inflow Power % age

2009 125212 1437 1.15

2010 167023 1252 0.75

2011 197939 1256 0.63



Power Sector

Hypothesis:

Step 1:

H0: Year wise, there is no signification difference in FDI in Power Sector

Ha: Year wise, there is significant difference in FDI in Power Sector

Test:

Step 2:


𝜒2 = (𝑓𝑜 − 𝑓𝑒)2

𝑓𝑒

Where,

𝑑𝑓= K-1

𝑥2= Chi-Square




Step 3:

𝛼 = 0.05

Step 4:

𝑑𝑓= k-1

= 3-1

= 2

Step 5:

χtab2 = χ 0.05,2

2 = 5.9915


Step 6:

Year

Power Sector 𝜒2 =


𝑓𝑒

Observed

Frequency 𝒇𝒐 Expected

Frequency 𝒇𝒆

2009 1437 1315 11.318

2010 1252 1315 3.018

2011 1256 1315 2.64

Total 16.976

𝜒2 = (𝑓𝑜 − 𝑓𝑒)2

𝑓𝑒

For 2009:

= (11437−1315)2

1315

= 11.318

For 2010:

= (1252−1315)2

1315

= 3.018

For 2011:

= (1256−1315)2

1315

= 2.64


Step 6:


Step 7:

The Observed value of Chi-Square is 16.976 is greater than the tabulated value of 5.9915


Step 8: Conclusion



This Provide enough evidence to indicate that FDI in power sector is not uniform an

investment.


5.4.5 Chi-Square for Petroleum & Natural Gas:

FDI Inflow in Petroleum & Natural Gas

(US $ in Millions)

Interpretation:


of FDI in 2009, 0.34% in 2010 and 0.43% in 2011 in Petroleum & Natural Gas Sector.

Total Inflow Petroleum & Natural Gas

2009 125212 272

2010 167023 574

2011 197939 846

0

50000

100000

150000

200000

250000

US

$ in

Mill

ion

s

FDI Inflow in Petroleum & Natural Gas

Year Total Inflow P & NG % age

2009 125212 272 0.22

2010 167023 574 0.34

2011 197939 846 0.43



Petroleum & Natural Gas Sector

Hypothesis:

Step 1:

H0: Year wise, there is no signification difference in FDI in Petroleum & Natural Gas Sector

Ha: Year wise, there is significant difference in FDI in Petroleum & Natural Gas Sector

Test:

Step 2:


𝜒2 = (𝑓𝑜 − 𝑓𝑒)2

𝑓𝑒

Where,

𝑑𝑓= K-1

𝑥2= Chi-Square




Step 3:

𝛼 = 0.01

Step 4:

𝑑𝑓= k-1

= 3-1

= 2


Step 5:

χtab2 = χ 0.01,2

2 = 9.2104

Step 6:

Year

Petroleum & Natural Gas Sector 𝜒2 =


𝑓𝑒



2009 274 564.66 149.61

2010 574 564.66 0.1544

2011 846 564.66 158.68

Total 308.44

𝜒2 = (𝑓𝑜 − 𝑓𝑒)2

𝑓𝑒

For 2009:

= (274−564.66)2

564.66

= 149.61

For 2010:

= (574−564.66)2

564.66

= 0.1544

For 2011:

= 846 − 564.66 2

564.66

= 158.68


Step 6:


Step 7:

The Observed value of Chi-Square is 308.44 is greater than the tabulated value of 9.2104


Step 8: Conclusion



This Provide enough evidence to indicate that FDI in Petroleum & Natural Gas sector is not

uniform an investment.


6. RESULTS & FINDINGS

By Doing Analysis and Interpretation of Service sector for the year of 2009, 2010 and

2011 we came to know that it was declined continuously for the last 3 years. This

shows that FDI Inflow in Service Sector is decreased by 21%.

In telecommunication Sector for the year of 2009, 2010 and 2011 we came to know

that it was declined continuously for the last 3 years. This shows that FDI Inflow in

Telecommunication Sector is decreased by 38.73%.

In Automobile Sector Trend of FDI Inflow was Positive. In the year 2009 FDI was $

1208 Million and in 2010 it was stood at $1341 Million, which shown 2% Increase for

the Next year of 2011.

Power Sector FDI Inflow was Decline by $ 1437 to $1252 Million.

In Petroleum & Natural Gas shown positive FDI Inflow. This was grown more than 3%

year to year.

From statistical Tool: ANOVA it was drawn that average FDI Inflow was not equal to

the each other sectors.

From Second Statistical Tool Chi-Square Test and Independence Test. It was

concluded that FDI Inflow was not dependent to each Sectors.


7. LIMITATION OF THE STUDY

This Comprehensive project has certain limitations, which are as follows:

The First and foremost limitation of this study is the time constraint, this project is

undertaken in the course of CP, which usually serve for the period of III & IV

Semester.

As the study is based on secondary data, the inherent limitation of the secondary data

would have affected the study.

There is limited number of data and authentication of data may not be certain.

This project is descriptive in nature.

There may be different methods exist to find out Foreign Direct Analysis.

The study is limited to the particular Sectors.

The Sectors may have their own limitations.


8. SUGGESTION & RECOMMENDATION

The Sectorial distribution of Foreign Direct Investment in 2009 to 2011 across India attracted

by the specific characteristics of Different Strength, Potential, Fiscal Incentive, Culture and

Political Features.

Service sector contribution in Indian GDP is 55.2% and the Foreign Direct investment Inflow

decreased continuously, it is cause of concern for government so, the government should

allow FDI in Service Sector.

Currently FDI allows by government in service sector is (Banking Service) is 49%, which

government would have to increase more than 49%.

In India Telecommunication sectors initially growing very substantially but due to recent tariff

war profit margin of companies came down which was discouraging FDI in

Telecommunication sector. So government should intervene such type of unsustainable

competition by reducing various taxes and allowing more FDI in other segment except Radio,

Paging etc.

The contribution of Automobile sector in GDP of India is 9% and growth of this sector seems

very good so government should formulate incentives plans and strategy through which

government can attract more FDI Inflow in Automobile.

FDI Inflow of Power sector gradually decreases which is apprehension for the Indian

government because of the growing Indians requirement of Electricity. So, government

should reconsider FDI policy in power sector and formulate new strategy to attract more FDI

Inflow in Power sector.

In the case of Petroleum & Natural Gas government should take initiation to talk with other oil

rich countries so that the future need of Petroleum & Natural Gas will be satisfied

The study reveals that Inflow of FDI is uneven in all three sectors such as: Service,

Telecommunication and Power which is not better for the sustainable growth of the company.


9. FUTURE SCOPE OF THE STUDY

This study further compares the Foreign Direct Investment to know the relative

position of the Sectors and Rank in India.

The Study can also be undertaken to do investment in the market share of growing

sectors.

The Study is limited up to 3 years and 5 sectors only. In this study one can take more

number of years and sectors which helps to get more accurate result and conclusion.

This Study can be done on international level as FDI inflow in India can be compared

with other countries i.e. China and Brazil.


10. BIBLIOGRAPHY

Web Sources:

http://www.unctad.org/en/Pages/Statistics.aspx

http://www.bseindia.com/

http://www.ficci.com/

http://www.tradechakra.com/

http://www.business.gov.in/

http://www.automobileindustryindia.com/resources/overview-of-indian-automobile-industry.html

http://www.pppinindia.com/opportunities-petroleum-natural-gas.php

http://madaan.com/sectors.html

http://search.ebscohost.com/login.aspx?

Articles:

1. Riedl, Aleksandra. Source: Economics of Transition; Oct2010.

2. Menon, Nidhiya, Sanyal, Paroma; Source: Review of Development Economics;

Nov2007.

3. Singh, Jatinder; Source: IUP Journal of Financial Economics; Dec2010.

4. BOSE, SUCHISMITA JHA, SUDIPTA; Source: Money & Finance; Jul2011.

5. Dagar, Shalini S. Source: Business Today; 9/21/2008, Vol. 17 Issue 19, p26-26, 1/2p

6. Robert Huggins, Mehmet demirbag & Violina Iankova Ratcheva Source: The

Management School, University of Sheffield, UK International Review of Applied

Economics,Vol. 21, No. 3, 437–451, July 2007

7. Sophia P. Dimelis and Sotiris K. Papaioannou Source: European Journal of

Development Research (2010) 22, 79–96. doi:10.1057/ejdr.2009.45 Published online

5 November 2009

8. CHING-MU CHEN_, KONSTANTINOS A. MELACHROINOS__ & KANG-TSUNG

CHANG† Source: European Planning Studies Vol. 18, No. 2, February 2010

9. Miao Wang & M. C. Sunny Wong Source: Published online: 28 May 2011

10. # International Atlantic Economic Society 2011

11. Aljaž Kuncic and Marian Svetlicic Source: Eastern European Economics, vol. 49, no.

3, May–June 2011, pp. 66–88.

12. Polpat Kotrajaras, Bangorn Tubtimtong, and Paitoon Wiboonchutikula Source: ASEAN

Economic Bulletin Vol. 28, No. 2 (2011), pp. 183–202

http://www.unctad.org/en/Pages/Statistics.aspx

http://www.bseindia.com/

http://www.ficci.com/

http://www.tradechakra.com/

http://www.business.gov.in/


Book/ Reference:

Ken Black, (2010). Business Statistics New Delhi: Wiley India.

Richard I. Levin, David S. Rubin, (2010). Business Statistics Prentice Hall College Div

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