foriegn invstmnt

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C H A P T E R 25C H A P T E R 25Foreign Investment Foreign Investment


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MEANINGMEANING

Foreign investment is seen as a means to supplement domesticForeign investment is seen as a means to supplement domesticinvestment for achieving a higher level of economic development.investment for achieving a higher level of economic development.

An investment in a country by individuals of and organisations from An investment in a country by individuals of and organisations fromother countries is an important aspect of international finance.other countries is an important aspect of international finance.

FDI is defined as an investment that is made to acquire a lasting interestin an enterprise operating in an economy


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NEED FOR FOREIGN INVESTMENTNEED FOR FOREIGN INVESTMENT

Raising the Level of InvestmentRaising the Level of InvestmentUp gradation of TechnologyUp gradation of Technology ..Ex ploitation of Natural ResourcesEx ploitation of Natural Resources

Development of Basic E conomicDevelopment of Basic E conomicInfrastructure.Infrastructure.Improvement in Ex port Competitiveness.Improvement in Ex port Competitiveness.Improvement in the BalanceImprovement in the Balance- -ofof--PaymentPayment

(BoP) Position.(BoP) Position.Benefit to Consumers.Benefit to Consumers.Revenue to Government.Revenue to Government.


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DETERMINANTS OF FOREIGN INVESTMENTDETERMINANTS OF FOREIGN INVESTMENT

Political Stability.Political Stability.Legal and Regulatory Framework.Legal and Regulatory Framework.

Size of Market.Size of Market.Prices and Ex change Rates.Prices and Ex change Rates.

Access to Basic Inputs Access to Basic Inputs


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GOVERNMENT POLICIESGOVERNMENT POLICIES

PrePre--liberalisation Policiesliberalisation PoliciesFirst Plan PeriodFirst Plan PeriodSecond Plan PeriodSecond Plan PeriodThe Acute Foreign Exchange Situation from 1956 to 57The Acute Foreign Exchange Situation from 1956 to 57OnwardsOnwardsForeign Investment Policy (1968Foreign Investment Policy (1968 90).90).Selective Foreign Investment Policy Period (1960Selective Foreign Investment Policy Period (1960 68).68).


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GOVERNMENT POLICIESGOVERNMENT POLICIESLiberalisation PoliciesLiberalisation Policies

L iberalisation is essentially a process, whereby liberalvalues, concepts, and percepts take an operationalform.


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GOVERNMENT POLICIESGOVERNMENT POLICIES

Liberalisation Trends and Patterns in FDI InflowsLiberalisation Trends and Patterns in FDI Inflows


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Liberalisation Trends and Patterns inLiberalisation Trends and Patterns inFDI InflowsFDI Inflows


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Liberalisation and Changing SectoralLiberalisation and Changing SectoralComposition of FDIComposition of FDI

The sectoral composition of FDI in India underwent a significant change in theThe sectoral composition of FDI in India underwent a significant change in the1990s.1990s.


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Liberalisation and Changing SourcesLiberalisation and Changing Sourcesof FDI in Indiaof FDI in India

European countries were the major sources of FDI inflEuropean countries were the major sources of FDI inflows into India until 1990. However, their relativeows into India until 1990. However, their relativeimportance steadily declined in the post importance steadily declined in the post- -liberalisationliberalisationperiod.period.

The decline in the relative importance of Europeancountries a sources of FDI to India has been made moreprominent by diversification of the sources of FDI

L ater in the post-liberlisatio period, the United States hasemerged as the most important source of FDI.


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Liberalisation and Mode of Entry:Liberalisation and Mode of Entry:Greenfield vs M& AsGreenfield vs M& As

An important feature of FDI inflows into India during 1990s is the An important feature of FDI inflows into India during 1990s is theemergence of mergers and acquisitions ( M& As) as an important emergence of mergers and acquisitions ( M& As) as an important channel.channel.SourceSource--wise Distribution of India s Inward FDI Stock, 1989wise Distribution of India s Inward FDI Stock, 1989 9797


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FDI Infl ows into India in a ComparativeFDI Infl ows into India in a ComparativeEast Asian PerspectiveEast Asian Perspective

The FDI inflows into Indian economyThe FDI inflows into Indian economyincreased considerably during the 1990sincreased considerably during the 1990sfollowing the reforms.following the reforms.But India s share would appear too small,But India s share would appear too small,especially if it is compared with that of theespecially if it is compared with that of the

other countries in the region such as China.other countries in the region such as China.


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FDI Inflows in China and India: ComparativeFDI Inflows in China and India: ComparativePerspective, 2000Perspective, 2000

China and other South-east Asian Countries have directed FDI tomanufacturing with export obligations and other incentives such as pioneer industry programmes.


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Rising Importance ofFDI in IndianRising Importance ofFDI in IndianEconomyEconomy


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R&D, Local Technological Capability,R&D, Local Technological Capability,and Diffusionand Diffusion

R&D Intensity of Indian Manufacturing E nterprises Based on Ownership, 1990R&D Intensity of Indian Manufacturing E nterprises Based on Ownership, 1990 0101


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Firm Size, Profitability, and EfficiencyFirm Size, Profitability, and Efficiency

Average Firm Size in Indian Manufacturing, 1990 Average Firm Size in Indian Manufacturing, 1990 0101


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NEW POLICIESNEW POLICIESThe government has permitted, except for a small negative list, an access toThe government has permitted, except for a small negative list, an access tothe automatic route for FDI.the automatic route for FDI.FDI s limit under the automatic route has been raised up to 100 per cent inFDI s limit under the automatic route has been raised up to 100 per cent inadvertisement and telecom sector.advertisement and telecom sector.

The FDI in the print The FDI in the print- -media sector is allowed up to 26 per cent of the paidmedia sector is allowed up to 26 per cent of the paid- -upupequity capital of the Indian entities that are publishing periodicals andequity capital of the Indian entities that are publishing periodicals andnewspapers which are dealing with news and current affairs.newspapers which are dealing with news and current affairs.The government has permitted the FDI up to 100 per cent under theThe government has permitted the FDI up to 100 per cent under theautomatic route for different areas like integrated township, drugs,automatic route for different areas like integrated township, drugs,

pharmaceuticals, andpharmaceuticals, andhotels and tourism.hotels and tourism.


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