64265765-fdi-project.doc

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Current scenario of FDI in India &

Its eects on Indian economy

Contents Page No.

1. Introduction 1

2. Meaning & Types of FDI 2

3. Determinants of FDI 5

4. Eect of FDI on a country

5. FDI po!icy in India "

. #urrent $cenario of FDI in India 11

%. 'et'er (!o)a! recession aected FDI* 12

+. Impact of FDI on Indian economy 1

". ,na!ysis of FDI in-os 2/

1/. 0ecent c'anges to FDI po!icy

23

11. atest c'anges in some sectors of t'e economy

2

12. $Es in India

2+

13. #omparison it' #'ina

31

14. 'at India can !earn from #'ina*

35

15. 0ecommendations on oera!! FDI po!icy of India

3+

1. FDI in Mu!ti)rand retai! sector

42

1%. Detai!s of t'e retai! issue it' Eamp!e of a!Mart

43

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1+. ,na!ysis & 0ecommendations on retai! issue

4+

1". #onc!usion

522/. 0eferences

53

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Introduction

Most of t'e present day dee!oping countries of t'e or!d 'ae set out a

p!anned programme for acce!erating t'e pace of t'eir economicdee!opment. In a country p!anning for industria!i6ation & aiming to

ac'iee a target rate of grot'7 t'ere is a need for resources. T'e

resources can )e mo)i!i6ed t'roug' domestic as e!! as foreign sources.

$o far as t'e domestic sources are concerned7 t'ey may not )e su8cient

to ac'iee t'e 9ed rate of grot'. (enera!!y7 domestic saings are !ess

t'an t'e re:uired amount of inestment. ,!so t'e ery process of

industria!i6ation ca!!s for import of capita! good 'ic' cannot )e !oca!!yproduced.

;ence t'ere is a need for foreign resources or Foreign Direct

Investment. T'ey not on!y supp!ement t'e domestic saings )ut a!so

proide t'e recipient country it' etra foreign ec'ange to )uy imports

essentia! for dee!opment of economy. T'us foreign resources are craed

for 9!!ing t'e saing inestment gap.

T'ere are arious means aai!a)!e for a dee!oping country to o)tain

Foreign 0esources suc' as Foreign Inestment7 eport of goods & serices

etc.

Eport of goods & serices do contri)ute to t'e foreign resources )ut can

on!y meet sma!! part of t'e tota! demand for foreign resources.

Eterna! aid from foreign goernments and internationa! institutions7 )y

increasing t'e rate of 'ome saings and remoing t'e foreign gap a!!os

t'e uti!i6ation of preious!y underuti!i6ed resources and capacity. <ut t'e

aid genera!!y comes it' conditions 'ic' distorts t'e a!!ocation of

resources. $o its use 'as )een on t'e dec!ine.

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Meaning

Foreign Direct Inestment =FDI> is genera!!y de9ned as ?, form of !ong

term internationa! capita! moement7 made for t'e purpose of productie

actiity accompanied )y t'e intention of operationa! contro! orparticipation in t'e management of foreign 9rm.@

In t'e Indian contet t'e de9nition of FDI is gien )y DIAA as BFDIC means

inestment )y nonresident entityperson resident outside India in t'e

capita! of t'e Indian company under $c'edu!e 1 of FEM, =Transfer or Issue

of $ecurity )y a Aerson 0esident outside India> 0egu!ations 2///.

TYPES F FDI

<asica!!y FDI can )e a mere monetary inestment or it can )e a

tec'no!ogica! agreement.

!reen"e#d investment$ , form of foreign direct inestment 'ere a

parent company starts a ne enture in a foreign

country )y constructing ne operationa! faci!ities. In additionto )ui!ding ne faci!ities7 most parent companies a!so create ne !ong

term o)s in t'e foreign country )y 'iring ne emp!oyees. It is t'e

principa! mode of inesting in dee!oping countries !ie India.

(reen9e!d inestments are t'e primary target of a 'ost nationCs

promotiona! eorts )ecause t'ey create ne production capacity and

o)s7 transfer tec'no!ogy and no'o7 and can !ead to !inages to

t'e g!o)a! maretp!ace.

Mergers and %cuisition$ #ross)order mergers occur 'en t'e

assets and operation of 9rms from dierent countries are com)ined to

undertae )usiness actiities. #ompanies enter into mergers usua!!y for

tec'no!ogica! and 9nancia! purposes.

'ori(onta# Foreign Direct Investment$ Inestment in foreign

country in t'e same type of )usiness actiity7 as t'e 9rm 'as in 'ome

country. )ertica# Foreign Direct Investment$ Taes to formsG

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1> <acard ertica! FDIG 'ere an industry a)road proides inputs for

a 9rmHs domestic production process.

2> Forard ertica! FDIG in 'ic' an industry a)road se!!s t'e outputs of

a 9rmHs domestic productionFDI can *e in t+e form of$

• In order to participate in t'e management of t'e concerned enterprise7

t'e stoc of t'e eisting foreign enterprise can )e ac:uired i.e. t'e

eisting enterprise and factories can )e taen oer.

• , ne su)sidiary it' 1// per cent oners'ip can )e esta)!is'ed

a)road. e foreign )ranc'es7 o8ces and factories can )e epanded

•

It is possi)!e to participate in a oint enture t'roug' stoc 'o!dings.

• Minority stoc ac:uisition7 if t'e o)ectie is to participate in t'e

management of t'e enterprise.

FDI v,s PIS

<ot' FDI and AI$ =Aortfo!io Inestment $c'eme> are re!ated to inestment

in a foreign country. FDI or Foreign Direct Inestment is an inestment t'ata parent company maes in a foreign country. Jn t'e contrary7

Inestments t'roug' AI$ or Aortfo!io Inestment $c'eme are made )y an

inestor in t'e stoc ec'anges of a foreign nation.

T'e AI$ Inestment is a!so non as o!ati!e money as t'is inestment can

-uctuate :uic!y on t'e )asis of economic conditions in t'e internationa!

maret. <ut in Foreign Direct Inestment7 t'is is not possi)!e. In simp!eords7 AI$ can enter t'e stoc marets easi!y and a!so can )e it'dra

from it easi!y. <ut FDI cannot enter and eit t'at easi!y.

FDI is more preferred to t'e AI$ as it is considered to )e t'e most

)ene9cia! ind of foreign inestment for t'e 'o!e economy.

Foreign Direct Inestment on!y targets a speci9c enterprise. It aims to

increase t'e enterprises capacity or productiity or c'ange itsmanagement contro!. In an FDI7 t'e capita! in-o is trans!ated into

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additiona! production. T'e AI$ -os on!y into t'e secondary maret. It

'e!ps in increasing capita! aai!a)i!ity in genera! rat'er t'an en'ancing

t'e capita! of a speci9c enterprise.

FDI not on!y )rings in capita! )ut a!so 'e!ps in good goernance practices

and )etter management si!!s7 improing eports and een tec'no!ogy

transfer. T'oug' t'e Aortfo!io Inestment 'e!ps in increases -o of capita!

& foreign currency in t'e 'ost country7 it does not come out it' any

ot'er )ene9ts of t'e FDI.

FDI v,s E-terna# oans

Foreign Inestment7 particu!ar!y foreign direct inestment 'as signi9cant

adantages oer eterna! !oans & ot'er forms of 9nancing t'e resource

gap.

In t'e norma! circumstances7 t'e repayment of foreign direct inestment

is c'eaper in comparison to !oans and commercia! )orroings. For

instance7 FDI taes t'e form of repatriation of certain percentage of

earnings in t'e form of diidend of an enterprise on!y 'en it reac'es at

t'e stage of commercia! pro9ta)i!ity. Aractica!!y7 it 'appens norma!!y after

9e years to seen years after t'e esta)!is'ment of t'e concern. <y t'e

time7 foreign inestment a!ready unpacs its arious components !ie

capita!7 tec'nica! no'o7 eports7 mareting & manageria! si!! etc.

T'at is 'y7 in certain cases7 FDI is considered to )e muc' more

productie t'an commercia! )orroings 'ere repayment starts norma!!y

from 2nd year7 furt'er 'ic' is at 'ig' rate of interest.

Dee!oping countries !ie India need su)stantia! foreign in-os to ac'iee

t'e re:uired inestment to acce!erate economic grot' and dee!opment.

It can act as a cata!yst for domestic industria! dee!opment. , country7

attracting an in-o of FDI strengt'ens t'e connection to or!d trade

netors and 9nances its dee!opment pat'. ;oeer7 uni!atera! massie

FDI to a country can mae it dependent on t'e eterna! pressure t'at

foreign oners mig't eert on it.

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Determinants of FDI

,t inestorHs !ee!7 a 9rm can decide to mae a foreign inestment

)ecause of many factors7 inc!udingG

Diversi"cation7 )y purc'asing a 9rm doing some'at dierentactiities t'an t'e purc'aser7 to sei6e ne opportunities.

, 9rm a!ready eporting to a maret can decide to mae a FDI and

)ui!d t'ere a productie unit to reduce t'e transport cost and aoid

tari )arriers.

,!so7 FDI is t'e c'osen e'ic!e used )y a foreign 9rm 'aing a

monopo!istic adantage in comparison it' ot'er 9rms in t'e maret.

;ost country conditions are faoura)!e in suc' a ay t'at it ena)!est'e generation of economic pro9ts7 'ig'er t'an t'e epected pro9t to

)e gained from se!!ing done in t'e 'ome country. E.g. !oer taes7

c'eap aai!a)i!ity of factors of production.

In-o of Foreign Direct Inestments increases it' t'e attractiveness of

t'e country7 due to t'e fo!!oing factors in dierent proportions

depending on t'e industry and t'e countryG

;ig'er future grot' epected

!arge mar/et potentia!

s/i##ed orforce & !o !a)our cost and ages

!o ta-ation

encouraging )usiness environment

faoura)!e #a0s and incentives

$ound po!itica! sta)i!ity

It s'ou!d )e noted t'at on a su)nationa! !ee!7 FDI usua##y

concentrates in t+e ric+est 1art of t+e country7 )ecause t'ere t'e

inestor can 9nd a *etter infrastructure and easier #ogistica#

accessi*i#ity from a)road. T'is eaens t'e argument t'at FDI go 'and

in 'and it' t'e oera!! economic dee!opment of a nation.

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Eect of FDI

A. Financial variables

,s an in-o of capita!7 FDI c'anges t'e *a#ance of 1ayments. Jt'er

t'ings e:ua!7 FDI increases t'e o2cia# reserves of foreign currency.

B. External trade and industrial variables

, particu!ar!y strong FDI concentrated in a s'ort period of time can !ead

to a rea!uation of t'e currency ec'ange rate.

If t'e good produced in t'e 'ost country is so!d t'ere7 consumption

composition i!! c'ange7 possi)!y it' a !oss in maret s'ares of !oca!

producers and of foreign producers )ased a)road. In t'e !atter case7FDI is croding out imports.

If t'e product is ne for t'e 'ost country7 it 9!!s a gap and increases

t'e ariety of aai!a)!e goods7 t'us opening t'e pat' to 'ig'er

productiity for industria! users and 'ig'er satisfaction for consumers.

For instance7 a FDI in an e!ectricity generation p!ant i!! a!!o more

9rms to operate in t'e region and ider aai!a)i!ity of energy for

in'a)itants. If7 instead7 t'e production is eported7 FDI )oosts eports of t'e 'ost

country7 proiding it it' foreign currency.

If FDI is targeted to green9e!d inestment7 emp!oyment i!! rise7

possi)!y ino!ing an increase in income and consumption and

aggregate demand.

If FDI is targeted to an ac:uisition of a !arge ine8cient 9rm7 t'e priority

of pro9ts i!! possi)!y !ead7 in t'e s'ort run7 to aes of dismissa!s anda rise of unemp!oyment.

ages are usua!!y 'ig'er in foreign a8!iates t'an in !oca! 9rms7

sometimes it causes t'e croding out of t'e !oca! 9rms on t'e !a)our

maret =i.e. t'ey do not 9nd any more orers at t'e preious !ee! of

age and t'ey are not economica! at t'e ne !ee!>. Een t'e

reputation & am)ience of foreign 9rms may sometime )e a)!e to cause

)rain drain from 'ost country companies.

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C. Knowledge and entrepreneurial variables

Ksua!!y7 foreign 9rms 'ae 'ig'er productiity t'an !oca! ones7 since

t'e foreign oners'ip prompts managers to use non!oca!!y aai!a)!e

no!edge7 )ot' incorporated and notincorporated in mac'ines7 'ic'often constitute an innoation.

T'e !oca! orforce is put into contact it' t'at no!edge and7 more

in genera!7 it' t'e foreignersH menta!ity. ,!! t'is mig't generate

no!edge spi!!oers to orers7 as e!! as to !oca! proiders =e.g.

forced to adopt I$J certi9cation or speci9c met'ods of production> and

to !oca! competitors ='o cou!d imitate t'e foreign 9rm>.

T'us7 a midterm eect of FDI can )e t'e mus'rooming of ne

)usinesses formed in t'e same industry )y competitors and ey

orers 'o 'ae !eft t'e foreign company. In para!!e!7 t'e presence of

a )ig foreign inestor can reorient t'e education & training courses

oered in t'e region7 giing rise to a Lpoo!L of specia!i6ed si!!s7 'ic'

in turn )ecome a competitie adantage for t'e inestor as e!! as an

incentie for ot'er internationa! 9rm to !ocate t'ere.

D. Political variables

Farsig'ted po!iticians can use FDI for t'eir country to catc' up it'

or!d standards in certain industries7 prompting a fast dee!opment of

t'e economy7 )y attracting and se!ecting t'e inestors.

;oeer7 !arge and concentrated FDI can eert e-terna# 1ressure to

o)tain a preferentia! treatment against t'e !oca! 9rms7 giing rise to

po!itica! con-icts )eteen t'e to groups. T'e eterna! pressure can

tae t'e form of funds for corru1tion of )ureaucrats and po!iticians.

Foreignoned managerCs ris to e'i)it a radica! Lignorance of !aL7

since t'e !a is not e!! non to t'em and t'ey 'ae no eperience

it' it. In t'is case7 t'e management may )e'ae as it ants7 !eaing

to !ayers and )ri)ery t'e tas to mae t'e actiity LIn !ine it'L it'

t'e regu!ation.

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Tec+no#ogy s1i##over from FDI

T'e proponents of FDI 'ae argued t'at !oca! 9rms can o)sere and adopt

t'e tec'no!ogy )roug't from a)road and 'ence improe productiity. T'is

?spi!!oer@ of tec'no!ogy t'us creates an eterna!ity ustifying po!iciesencouraging FDI.

T'e tec'no!ogy diusion from FDI is more !ie!y directed to !oca! supp!iers

t'an to !oca! competitors7 as a strategy to )ui!d e8cient supp!y c'ains

from mu!tinationa!sC oerseas operations. <y transferring t'e tec'no!ogy

to !oca! supp!iers7 mu!tinationa!s may )e a)!e to improe t'e :ua!ity &

!oer t'e price of non!a)our inputs.

'o0 mig+t t+e socia# *ene"ts deve#o13

T'e primary motiation for mu!tinationa!s to transfer tec'no!ogy to

supp!iers is to ena)!e 'ig'er:ua!ity inputs at !oer prices. Jn!y one

pro)!em it' t'is strategy is t'at if t'e ena)!ing tec'no!ogy is transferred

to one upstream supp!ier7 t'en t'e mu!tinationa! is u!nera)!e to de!ay in

supp!y or unsatisfactory :ua!ity.

To reduce t'ese riss7 t'e mu!tinationa! cou!d diuse t'e tec'no!ogy

ide!yeit'er )y direct transfer to additiona! 9rms or )y encouraging

spi!!oer from t'e origina! recipient. T'e tec'no!ogyBs ide diusion ou!d

t'en encourage entry in t'e supp!ier maret7 t'ere)y increasing

competition and !oering t'e prices. ;oeer7 t'e mu!tinationa! cannot

preent t'e upstream supp!iers from a!so se!!ing to t'e mu!tinationa!Cs

competitors in t'e donstream maret. T'e !oer input prices may induce

entry and more competition in t'e donstream maret7 t'ere)y !oering

prices and increasing t'e output.

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FDI 1o#icy in IndiaForeign Direct Inestment =FDI> in India is goerned )y t'e FDI Ao!icy

announced )y t'e (oernment of India and t'e proisions of t'e Foreign

Ec'ange Management ,ct =FEM,>7 1""".

Entry routes for investments in India

Foreign Direct Inestment is free!y permitted in a!most a!! sectors. Knder

t'e Foreign Direct Inestments =FDI> $c'eme7 inestments can )e made

)y nonresidents in t'e e:uity s'ares7 mandatori!y conerti)!e

de)entures preference s'ares of an Indian company7 t'roug' to routes

t'e ,utomatic 0oute and t'e (oernment 0oute. Knder t'e ,utomatic

0oute7 t'e foreign inestor or t'e Indian company does not re:uire any

approa! from t'e 0esere <an or (oernment of India for t'e

inestment. Knder t'e (oernment 0oute7 prior approa! of t'e

(oernment of India7 Ministry of Finance7 and Foreign Inestment

Aromotion <oard =FIA<> is re:uired.

Fina# Sector4

Fina# Sector5

Su11#y Sector

oer $upp!yprices

oer 9na! sectorpricesIncreased outputand a!ue added

Increased productiityEntry and competitionoer pricesIncreased output anda!ue added

Tec'no!ogy transfer

oca!Firm 1

Foreign Firm1

oca!$upp!y1

Foreign Firm2

oca!Firm 2

oca!$upp!y2

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India 'as t'e most !i)era! and transparent po!icies on FDI among t'e

emerging economies. FDI up to 1//N is a!!oed under t'e automatic

route in a!! t'e sectors ecept t'e fo!!oing7 'ic' re:uire prior approa!

of (oernmentG $ectors pro'i)ited for FDI.

,ctiities t'at re:uire industria! !icense.

Aroposa!s in 'ic' t'e foreign co!!a)orator 'as an eisting

9nancia!tec'nica! co!!a)oration in India in t'e same 9e!d.

Aroposa!s for ac:uisition of s'ares in an eisting Indian #ompany in

9nancia! serice sector and 'ere $E<I regu!ations7 1""% is attracted.

6evie0 of FDI Po#icy

T'e (oernment of India =(JI> 'as )een se!ectie in opening arious

sectors for FDI.

(radua!!y dierent sectors ere opened for foreign inestment =ecept

from Aaistan & on!y after permission from FIA< in case of <ang!ades'>

it' arying rates of sectora! caps. (oernment of India is trying )est to

introduce simp!e and transparent FDI po!icy. T'e po!icy seems to reduceregiona! disparities7 protect t'e interest of sma!! retai!ers and 'ea!t'

'a6ard of its citi6ens due to foreign inestment. T'e areas 'ic' are of

strategic importance are not opened for FDI under automatic route.

;oeer7 t'e (JI 'as taen num)er of measures to )oost FDI in-o. FDI

up to 1// per cert is a!!oed under automatic route in many sectors and

no approa! is re:uired eit'er from goernment or 0<I. Inestors are on!y

re:uired to notify it'in 3/ days to concerned regiona! 0<I o8ce a)out

t'e in-o receied t'roug' inard remittances on!y.

T'e goernment 'as a!so )roadened !ist of sector for automatic route. In

t'e e Industria! Ao!icy7 a!! industria! undertaings are eempt from

!icensing ecept for ,tomic Energy7 0ai!ay transport7 disti!!ation and

)reing of a!co'o!ic drins7 cigars and cigarettes7 manufactured to)acco

su)stitutes7 Industria! ep!osies 'a6ardous7 c'emica!s7 drugs and

p'armaceutica!s and t'ose resered for t'e sma!! sca!e sector.

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Fo##o0ing sectors are 1ro+i*ited under FDI

I. 0etai! Trading =ecept sing!e )rand product retai!ing>

II. ,tomic Energy

III. ottery <usiness inc!uding (oernment priate !ottery7 on!ine!otteries etc.

I. (am)!ing and <etting inc!uding casinos etc.

. <usiness of c'it fund

I. id'i #ompany

II. Trading in Transfera)!e Dee!opment 0ig'ts =TD0s>

III. ,ctiitiessector not opened to priate sector inestment

IO. ,gricu!ture =ec!uding F!oricu!ture7 ;orticu!ture7 Dee!opment of

seeds7 ,nima! ;us)andry7 Aiscicu!ture and cu!tiation of egeta)!es7

mus'rooms etc. under contro!!ed conditions and serices re!ated to

agro and a!!ied sectors> and A!antations =Jt'er t'an Tea A!antations>

O. 0ea! estate )usiness or construction of farm 'ouses.

OI. Manufacturing of #igars7 c'eroots7 cigari!!os and cigarettes7 of

to)acco or of to)acco or of to)acco su)stitutes.

Foreign Inestment t'roug' e:uity s'ares7 fu!!y & mandatori!y conerti)!e

de)entures7 preference s'ares7 (D0s,D0s7 Foreign #urrency #onerti)!e

<onds =F##<s> etc. are a!! treated as FDI.

Current scenario of FDI in India

Despite t'e opening up of its economy in 1""17 India receied on!y P5

)i!!ion FDI ti!! 2//4/5 due to a fair!y restrictie FDI po!icy. <ut t'e po!icy

regime c'anged in Fe)ruary 2// and FDI in-o into India 'as

acce!erated since.

Jpening t'e economy to FDI and a!!oing foreign oners'ip is a

necessary )ut not su8cient condition to attract FDI. If a !i)era! FDI po!icy

is a!! t'at is important t'en t'e Eastern European and #entra! ,sian

countries7 'ic' 'ae t'e most open po!icies toards foreign inestors7

s'ou!d )e attracting 'uge o!umes of FDI. ;oeer7 East ,sian countries'ae a )etter trac record in attracting FDI t'an t'e Eastern European and

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#entra! ,sian countries. T'e eectieness of an FDI po!icy depends7 to a

!arge etent7 on t'e enironment it'in 'ic' it operates. , !i)era! FDI

po!icy in a poor inestment c!imate it' 'ig' transaction costs is most

!ie!y to )e ineectie. T'erefore7 factors !ie maret si6e7 infrastructure:ua!ity7 t'e !a of t'e !and7 e!! functioning institutions7 macroeconomic

sta)i!ity7 grot' potentia!7 etc7 p!ay an e:ua!!y important ro!e in attracting

FDI. #!ear!y7 inestor con9dence on some of t'ese factors it' respect to

India 'as eroded !ate!y and may per'aps )e t'e reason for t'e drop in FDI

t'is 9sca!.

#'ina )y eeping t'e spot!ig't on a !ocost manufacturing )ase for

eports and dee!opment of re!ated infrastructure and faci!itation fo!!oed

a focused approac' to attract FDI. ot 'aing an eport focus in India a!so

meant t'at FDI into t'e manufacturing sector in 'as most!y not )een of an

eportoriented ariety. $ince t'e )usiness rationa!e of FDI into India 'as

!arge!y )een drien )y t'e desire to pro9t from IndiaCs domestic maret

and its rising midd!e c!ass7 a !arge proportion of FDI into manufacturing in

India ti!! !ate!y 'as )een of setting up manufacturing faci!ities in India

main!y to aoid 'ig' Indian import taris. T'is7 neert'e!ess7 epanded

t'e range of products aai!a)!e to Indian domestic consumers.

,!so t'e FDI po!icy pursued so far does not appear to indicate t'at

inestment incenties gien to FDI are dierent from 'at t'e

goernment oers to its on residents. India7 in fact c'arges 4/N income

ta to t'e foreign companies 'ic' is 1/N 'ig'er t'an 'at it c'arges to

domestic corporates. 'o!!y oned su)sidiaries of foreign companies arec'arged it' 3/N ta in India & t'is sti!! is 'ig'er t'an a!! t'e dee!oped

nations !ie KQ7 #'ina7 and K$ etc. <ut sti!! India is considered as one of

t'e top 5 destinations for FDI.

It 'as )een o)sered t'at if po!icies are oerfriend!y to FDI 'i!e t'e

transaction costs =inc!uding ta and regu!atory> of inestments are 'ig'

for domestic 9rms7 t'en it can proe to )e counterproductie7 !eading to

BroundtrippingC =i.e.7 'ere domestic inestors route t'eir inestment

13

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t'roug' a foreign country to aai! t'e po!icy )ene9ts of FDI>. <ot' India

and #'ina 'ae itnessed si6ea)!e FDI in-os t'at can )e c!assi9ed as

roundtripping.

, signi9cant proportion of FDI coming from Mauritius to India is of t'e

roundtripping ariety due to a treaty on aoidance of dou)!e taation

)eteen India and Mauritius. ,ccording to t'e or!d inestment report of

K#T,D7 roundtripping accounts for near!y 2/3/N of t'e tota! FDI in

India & #'ina. #!ear!y7 eidence of roundtripping is an indication of

s'ortcomings in t'e FDI po!icy sp'ere.

,fter recording an aerage grot' of %3.+N )eteen FR/5FR/+7 t'e

grot' in FDI moderated to around 1N during 2//+/". T'e g!o)a! trade

'ad )een aected due to t'e g!o)a! economic s!odon.

7+et+er t+e !#o*a# recession +ad any eect on Indian

FDI3

T'e g!o)a! crisis 'as s'on t'e poer of 9nance c'anne!. T'e impact of

turmoi! in one economyCs 9nancia! marets is not mere!y transmitted to

ot'er marets7 t'e :uantum and direction of t'e moement is a!so more

or !ess simi!ar =dec!ine in e:uity marets7 rise in corporate )ond spreads

and depreciation in currency>. T'is is )ecause cross )order 9nancia!

!inages 'ae increased su)stantia!!y oer t'e years.

(ien t'e seerity of t'e crisis it as fe!t t'ere i!! )e !itt!e FDI

inestment. ;oeer7 in case of India7 FDI in-os remained positie

t'roug'out t'e crisis. T'e FDI in-os actua!!y 'e!ped eep maintain

capita! account 'en a!! ot'er categories s'oed s'arp dec!ine.

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$ourceG DIAA

Foreign inestment t'roug' Aortfo!io Inestment $c'eme =AI$>G Kn!ie

FDI7 it is di8cu!t to pinpoint t'e origin of AI$ inestment. ;oeer7 t'e

!inage 'ere is pretty direct. it' turmoi! in g!o)a! 9nancia! marets7

AI$ in-os i!! dec!ine. e 'ae a !arge num)er of g!o)a! 9nancia!

9rms 'ic' operate across t'e or!d and in case of a dec!ine in one

maor maretS t'ere is a pu!! out from ot'er marets as e!!.

Mont' FDI in-os

=In K$D

)i!!ion>

2//+

FDI in-os

=In K$D

)i!!ion>

2//" anMar 11.+ .2

=Maor #risis

period>,prune 1/.1 %./ u!$ep %.1 +.3JctDec 3."

=Maor #risis

period>

5.3

Mont' AI$

=In K$D

)i!!ion>2//+

AI$

=In K$D

)i!!ion>2//"

anMar 3.% 2.%

=Maor #risis

period>,prune 4.2 +.3 u!$ep 1.3 ".%JctDec 5.+

=Maor #risis

period>

5.%

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$ourceG $E<I

0emittances and 0I depositsG ,not'er important -o is 0I deposits

and 0emittances. Former s'os 'et'er 0I depositors it'dre funds

in ae of crisis and !atter s'os 'et'er Indians !iing a)road

stopped sending funds to t'eir 'omes again )ecause of t'e crisis. ItCs

an interesting trend in t'e case of 0I deposits. T'e deposits increase

in t'e crisis periods JctDec 2//+ and an Mar 2//" and dec!ine

t'ereafter. It cou!d )e t'at 0I preferred to inest 'ig'er proceeds in

India seeing crisis in t'eir on economies. In case of remittances7 e

see a dec!ine in crisis period Jct /+ U Mar /" )ut see improements as

crisis eases. T'ere ere 'uge concerns of remittances co!!apsing

)ecause of t'e crisis. In some countries t'ey did co!!apse orsening

poerty status. In India7 despite t'e dec!ine it manages to remain in

positie.

0I Deposits

0I

0emittances

it' t'e gradua! recoery in t'e g!o)a!

economic arena7 t'e FDI in-os in India

s'oed some signs of improement

and gre )y around 5."N during

FR1/. ;oeer7 despite improingg!o)a! economic prospects and ro)ust

Mont' 0I

remittances

=K$D )i!!ion>

2//+

0I

remittances

=K$D )i!!ion>

2//" an

Mar

13.4 ".5

=Maor #risis

period>,pr

une

11. 12."

u!

$ep

13./ 13.+

Jct

Dec

1/./

=Maor #risis

period>

12.+

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recoery of t'e Indian economy7 t'e FDI in-os 'ae !arge!y remained

muted during t'e course of t'e current 9sca!. In fact7 FDI in-os 'ad

recorded a signi9cant dec!ine of 23.3N during FR11 =,prDec 1/> as

compared to t'e corresponding period of t'e !ast 9sca!.

, con-uence of factors suc' as t'e recent spurt in corruption cases7

procedura! de!ays7 enironmenta! po!icy issues7 comparatie!y 'ig'er

in-ation mig't 'ae aected t'e FDI inestment into t'e country during

t'e current 9sca!. 'i!e in genera!7 t'e g!o)a! economic prospect seems to

'ae improed in t'e recent past7 t'e emergence of issues suc' as de)t

crisis in t'e European region is !ie!y to 'ae impacted t'e inestorHs

sentiment during some parts of t'e year. T'is7 coup!ed it' t'e issues

prea!ent domestica!!y7 mig't aect t'e !ongterm FDI -os in India.

From a sectora! perspectie7 'i!e t'e FDI in-os in serices sector

=9nancia! & non9nancia!> recorded a dec!ine of as muc' as 24N7 as

sectors suc' automo)i!e7 meta!!urgica! industries7 petro!eum and natura!

gas7 c'emica!s7 computer softare and 'ardare itnessed an increase in

FDI in-os during ,prDec 2/1/ as compared to t'e corresponding periodof t'e preious year.

T'e positie out!oo regarding ro)ust domestic demand from t'e !ong

term perspectie7 !arge poo! of si!!ed manpoer7 goernment po!icies

suc' as deregu!ation of petro!eum prices7 )idding for oi! )!ocs et c. a!!

'ae )een p!aying an instrumenta! ro!e in attracting FDI in sectors suc' as

automo)i!e7 petro!eum and natura! gas as e!! as computer softare.

T'e recent !icensing issues in t'e te!ecom space and series of corruption

cases in rea! estate 9nancing is !ie!y to 'ae impacted inestorHs

sentiment7 t'ere)y !imiting t'e FDI in-os in t'ese sectors. FDI in-os in

t'e rea! estate and te!ecom sector registered a dec!ine of /N and 4%N

respectie!y during ,prDec 2/1/ as compared to ,prDec 2//".

,not'er important factor t'at mig't 'ae eig'ed don t'e inestorHssentiment in t'e recent past cou!d )e t'e enironmentsensitie po!icies

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pursued causing de!ays to t'e proects as eident in t'e recent episodes

in t'e mining sector7 integrated tons'ip proects7 infrastructure proects

etc.

Moreoer7 t'e !ong standing issues suc' as !ac of ade:uate

infrastructure7 !and ac:uisition issues most!y in case of $Es and

persistent procedura! de!ays continue to !imit t'e FDI in-os in t'e

country. <esides a!! t'ese factors7 foreign inestors p!anning to enter t'e

retai! space as e!! as )aning in India or increasing t'eir stae in

insurance entures are sti!! aaiting t'e re:uired po!icy c'anges.

T'e recent reduction in FDI in-os seems to 'ae gained signi9cant

attention amongst t'e po!icy marers. ,s t'e Arime MinisterHs Economic

,disory #ounci! 'ig'!ig'ted t'e issue in t'e recent past7 t'e 0<I 'as

taen steps toards eamining t'e issue and articu!ating so!utions

t'ereon )y proposing to set up a specia! committee. Moreoer7 some of

t'e recent steps suc' as conso!idating a!! prior regu!ations and guide!ines

into one compre'ensie document7 granting c!earance to 24 foreign

inestment proposa!s7 ort' P 3/4.% mn are steps in t'e rig't directionand ou!d en'ance c!arity and predicta)i!ity of our FDI po!icy to foreign

inestors.

Im1act of FDI on Indian economy Rearise FDI in-os7 (DA7 (DA grot' rates in India

RE,0 FDI In-o

VK$D )i!!ionW

(DAVIn K$D )i!!ionW

FDI as a percentage of (DA =N>

2////1 2."1 4/ /.+%2//1/2 4.22 4%+ 1.2+2//2/3 3.13 5/% /.""2//3/4 2.3 5"" /.%22//4/5 3.% %22 /.+42//5/ 5.55 +34 1./%2///% 15.%3 "51 2.4/2//%/+ 24.5" 1242 2.%%2//+/" 2%.33 121 2.+"2//"1/ 25.+3 13%% 2.%4

2/1/11 1".43 13+3 1.+1

18

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Rearise FDI in-os7 (DA7 (DA grot' rates in C+ina

RE,0 FDI In-o

VK$D )i!!ionW

(DAVIn K$D)i!!ionW

FDI as apercentage of (DA

=N>

2/// 42.1 171"+ +.352//1 4.+ 17325 3.532//2 52.%4 17454 3.32//3 53.51 1741 3.22//4 /.3 17"32 3.142//5 %2.41 2725% 3.212// %2.%2 27%13 2.+2//% +3.52 374"4 2.3"2//+ "2.43 47522 2./42//" "/.// 47"+5 1.+12/1/ 1/5.%1 57++1 1.+/

$ourceG or!d <an7 or!d dee!opment Indicators7DIAA & ministry of commerce7 #'ina

T'oug' FDI in )ot' India & #'ina 'as )een ery sma!! in re!ation it' t'e

(DA of t'e countries7 sti!! it 'as 'e!ped t'e countries in creating

emp!oyment & giing an economic )oost in critica! sectors & u!timate!y in

maintaining 'ig' positie grot' rates. In t'e year 2///% t'e FDI in-o

of India s'oed a 'uge grot' )y reac'ing to 22.+3 K$D )n from +."K$D )n7 'ence in t'e fo!!oing year IndiaCs (DA rose )y a!most 33N 'ic'

is t'e 'ig'est rise in t'e recent years.

<ot' t'e countries 'ae posted re!atie!y !oer grot' rates in 2//+/"

due to g!o)a! 9nancia! crisis. IndiaCs grot' rate came don from ".+N to

4."N & in case of #'ina grot' rate came don from 14.2N to ".N. In

spite of !oer performance in (DA grot' rates7 FDI in-os in )ot' India

& #'ina ere not muc' aected. T'is sure!y must 'ae 'e!ped t'e

countries to recoer from t'e crisis & t'at is eident from t'e su)se:uent

yearCs 9gures. <y 2/1/ India & #'ina 'ae posted (DA grot' rates of +.5

& 1/.3 respectie!y.

FDI in t'e form of (reen9e!d proects 'ae )een ery usefu! for India

especia!!y in serice sectors. ,fter a!!oing FDI India )ecame non as

'u) for IT7 ITE$ & te!ecom serices.

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T'e s'are of dierent sectors of t'e economy in IndiaCs (DA in 2/1/ as

as fo!!osG ,gricu!ture1+ percent7 Industry2+ percent and $erices 54

percent. T'e fact t'at t'e serice sector accounted for more t'an 'a!f t'e

(DA s'os t'at FDI 'as )een p!aying a crucia! ro!e in grot' of sericesector )ecause in past India as considered as an agrarian economy.

,s e can see in t'e grap'7 after 2//+ FDI proects in serices are

reducing s'arp!y in India. T'e main reason for t'e dec!ine in FDI in t'e

serices sector in 2//"1/ as t'e g!o)a! credit crunc' caused due to K$

recession & euro crisis. T'e 9nancia! serices sector as aected t'e

most. ,s t'e euro 6one crisis su)dued inestment from KQ7 et'er!ands7

(ermany and France 'ic' used to )e t'e maor inestors in India.

,s a resu!t of recent corruption cases in te!ecom & rea!ty sectors7 in 2/117

)ot' FDI in serice sector & tota! FDI decreased )y a!most 25N.

Source: Ernst & Young Report on India

attractiveness Survey, 2011

For many dee!oping countries7 attracting foreign direct inestment =FDI>

'as )een a ey aspect of t'eir outardoriented dee!opment strategy7 as

inestment is considered a crucia! e!ement for output grot' and

emp!oyment generation.

20

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FDI 'as )een successfu! in creating many emp!oyment opportunities in

India.

<ut due to recent decrease in FDI in-os & FDI proects7 !ess emp!oyment

is )eing created.

India 'as )een eperiencing c!ear positie trends in num)ers of FDI

proects and o)s created. Jn aerage7 )eteen 2//3 and 2/1/7 t'e

num)er of FDI proects increased )y %N and t'e num)er of o)s created

)y FDI increased )y 4N annua!!y. ,s a resu!t7 o) intensity per proect 'as

fa!!en oer t'e period. T'is is due to a fa!! in t'e s'are of proects in t'e

most o)intensie actiities. T'ese actiities inc!ude s'ared serice

centers7 customer contact centers7 tec'nica! support centers7 design and

dee!opment. Foreign inestors are focusing increasing!y on )usiness

serices7 sa!es7 mareting and support. T'ese sectors re:uire inestment

in !ess !a)orintensie proects.

<ut in a!! e can say t'at FDI 'as )een rea!!y 'e!pfu! for generating o)

opportunities in our country.

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%na#ysis of FDI in India

arious studies 'ae proected India among t'e top 5 faoured destination

for FDI.

#umu!atie FDI e:uity in-os 'ae )een K$D 1"4.+1 )i!!ion for t'e period1""12/11. T'is is attri)uted to contri)ution from serice sector7

computer softare7 te!ecommunication7 rea! estate etc. IndiaCs +/N of

cumu!atie FDI is contri)uted )y nine countries 'i!e remaining 2/N )y

rest of t'e or!d.

#ountryise7 FDI in-os to India are dominated )y Mauritius =42

percent>7 fo!!oed )y t'e $ingapore =" per cent>7 Knited $tates =% percent>

and KQ =5 percent> VTa)!eW. #ountries !ie $ingapore7 K$,7 and KQ etc.inest in India main!y in serice7 poer7 te!ecommunication7 fue!s7 e!ectric

e:uipments7 food processing sector.

Diagram 58Ta*#e$ $'are of top inesting countries FDI In-os

$ourceG Department of Industria! Ao!icy and Aromotion.

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=,mounts in

K$ P

mi!!ion>

Diagram

9$

!eogra1+ica# Distri*ution of FDI In:o0s$ %1ri# 4;;; to Marc+

4;55 <Cumu#ative=

<a!anced geograp'ica! distri)ution of FDI in-os cou!d 'ae )een

instrumenta! in ac'ieing sustaina)!e grot'. ;oeer7 t'ere seems to

ide concentration of FDI in-os around Ma'aras'tra 0egion =35N>

fo!!oed )y e De!'i 0egion =1"N>7 Qarnataa =N>7 (uarat = N>7 Tami!

adu =5N> and ,nd'ra Arades' =5N>. It is a!arming t'at t'ese regionsreceie %N of FDI e:uity in-o 'i!e rest of India accounts for on!y 24N.

23

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ac of infrastructure causes t'e disparities of foreign inestments.

Diagram >$ (eograp'ica! Distri)ution of foreign Tec'no!ogy Transfer ,pri!

2/// to Marc' 2/11

Ma'aras'tra 0egion =1%N> attracts FDI in energy7 transportation7

serices7 te!ecommunication and e!ectrica! e:uipment.

(uarat =%N> attracts FDI in-os Ji! and gas7 Infrastructure7 Food

processing industries.

'i!e ;aryana =5N> emerged as a preferred destination for e!ectrica!

e:uipment7 transportation and food processing.

Tami! adu =+N> 'as )een successfu! in attracting FDI in automotie

re!ated and auto components sector.

,nd'ra Arades' =%N> and Qarnataa =%N> emerged as a popu!ar

destination for softare7 computer 'ardare and te!ecommunication.

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Jrissa 'as a!so )een successfu! in attracting FDI in securing !arge

(reen9e!ds FDI proects in )auite7 mining7 a!uminum and automotie

faci!ities.

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6ecent c+anges to FDI Po#icy

T'e Department of Industria! Ao!icy and Aromotion =DIAA>7 (oernment of

India recent!y re!eased its ne edition of t'e #onso!idated FDI Ao!icy7

#ircu!ar 1 of 2/11 t'at comes into eect ,pri! 17 2/11. T'is is part of t'e

)iannua! reie process t'at t'e DIAA commenced !ast year so as to

ensure t'at t'e po!icy is in tune it' dynamics in t'e economy and

industry.

T'e recent round of reie 'as introduced a num)er of c'anges7 t a )road

!ee!7 t'e c'anges appear to )e inestor friend!y as t'ey see to remoe

seera! o)stac!es t'at 'ae !ong 'e!d )ac foreign inestment in crucia!

sectors. In fact7 t'is round represents one of t'e more progressie sets of

c'anges made to FDI po!icy in recent times. eit'er t'e su)stance of t'e

po!icy nor its timing are surprising7 gien recent reports appearing in t'e

press a)out a steady drop in t'e FDI -os into India in recent times.

#!ear!y7 t'e eort seems to )e to arrest t'e s!ide.

5= T+e c+anges re#ating to 1ricing of converti*#e instrumentsG

T'e DIAA 'as done e!! to recognise t'is pro)!em regarding companies

issuing s'ares )e!o t'e fair a!ue & giing more num)er of s'ares to

attract more FDI. DIAA 'as addressed t'is )y amending t'e re!eant

c!ause in t'e ne po!icy =#ircu!ar o. 1 of 2/11> as fo!!osG

Indian companies can issue equit s!ares" #ull" compulsoril and

mandatoril convertible debentures and #ull" compulsoril and

mandatoril convertible pre#erence s!ares sub$ect to pricing

guidelines%valuation norms prescribed under FE&A 'egulations.

The price/ conversion foru!a of converti"!e capita! instruents

shou!d "e deterined upfront at the tie of issue of the

instruents# The price at the tie of conversion shou!d not in any

case "e !o$er than the fair va!ue $or%ed out, at the tie of

26

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issuance of such instruents, in accordance $ith the etant

'E() regu!ations (t!e DCF met!od o# valuation #or t!e unlisted

companies and valuation in terms o# )EBI *ICD'+ 'egulations" #or t!e

listed companies,.

T'ese amendments carry seera! positie imp!ications.

1. It 'as ased t'e issuers to set t'e conersion price upfront and to

agree upon a pricing formu!a it' t'e consent of a!! parties. It s'ou!d

)e noted t'at t'e ear!ier po!icy re:uired 9ing t'e a)so!ute price7 and

did not entertain a formu!a as suc'. T'is c'ange )rings t'e use of

conerti)!e instruments in India in !ine it' norma! maret practice.

2. T'e minimum regu!atory pricing norms =D#F7 or $E<I7 as t'e case may

)e> i!! )e app!ica)!e it' reference to t'e date of issue of t'e

conerti)!e instruments. ;ence7 parties are free to set any formu!a for

conersion as !ong as t'e price so arried at is not !ess t'an t'e

regu!atory minimum pricing as of issue date. T'e minimum pricing as

of issue date i!! eectie!y operate as t'e -oor price7 as t'e

conersion cannot resu!t in issue of s'ares at a discount to suc' price.

Jn t'e 'o!e7 t'ese c'anges to t'e FDI po!icy maes conerti)!e

instruments assume t'eir usua! c'aracter7 it'out )eing constrained )y

pricing restrictions. T'is may !ie!y increase t'e use of suc' instruments

'i!e inesting into India.

4= Ne0 FDI ru#es for e-1ansion for t+e foreign 1artners in ?oint

)enture

T'e Indian goernment 'as eased foreign direct inestment ru!es for

oerseas entures !ooing to epand in t'e country. Knder t'e reised FDI

po!icy eectie from ,pri! 2/117 eisting foreign oint enture partners i!!

no !onger re:uire t'e permission of t'eir !oca! co!!a)orator to set up a

'o!!yoned su)sidiary in t'e same 9e!d of )usiness.

27

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Immediate!y after t'e po!icy 'as )een announced7 in Mum)ai7 te!ecom

maor odafone announced t'at it as )uying up t'e Essar (roupHs 33N

stae in odafone Essar for K$P5 )i!!ion. In De!'i7 to'ee!er

manufacturer ;ero ;onda reported to t'e stoc ec'ange t'at torepresentaties of apanese partner ;onda 'ad stepped don from its

)oard. T'e ;ero (roup and ;onda 'ae parted ays7 after 2 years it'

;ero in t'e process of )uying ;onda MotorHs 2N stae for K$P+51

mi!!ion. ,nd in #'ennai7 $iss company 0ieter said it as se!!ing its entire

5/N stae in 0ieterM Mac'inery to its partner as'mi Mac'ine

ors =M>.

T'is po!icy i!! )e 'e!pfu! for increasing FDI in India. <ut it may so 'appen

t'at foreign companies start t'e oint entures & immediate!y )rea it to

form a ne 'o!!yoned su)sidiary. <ut sti!! t'e strategica!!y important

oint entures i!! remain unaected.

9= Com1anies +ave no0 *een c#assi"ed sim1#y into t0o

categories U ?companies oned or contro!!ed )y foreign inestors@

and ?companies oned and contro!!ed )y Indian residents@.

T'e ear!ier categorisations of ?inesting companies@7 ?operating

companies@ and ?inestingcumoperating companies@ 'ae )een done

aay it' to simp!ify t'e distinctions.

<eteen ,pri! 2/1/ and Fe)ruary 2/117 FDI in-os into India dec!ined )y

25 per cent to P1+.3 )i!!ion. T'ese c'anges ere deemed essentia! to

arrest t'is donard trend.

>= T+e ne0 conso#idated 1o#icy a#so a##o0s Indian com1anies to

issue euity in return for ca1ita# goods and 1re8o1erationa#

e-1enses suc+ as rent. Jn!y $o far7 t'e goernment recognised t'e

-o of foreign cas' as FDI. T'is measure7 'ic' !i)era!ises t'e

conditions for conerting noncas' items into e:uity7 is epected to

signi9cant!y )oost t'e prospects for foreign companies doing )usinessin India

28

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@= In t+e agricu#ture sector7 FDI i!! no )e permitted in t'e

dee!opment and production of seeds and p!anting materia! it'out

t'e stipu!ation of 'aing to do so under contro!!ed conditions

29

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6ecent c+anges in some of t+e sectors

FDI in IndiaAs Tourism Industry

T'e Indian tourism industry is interoen it' t'e countryCs monetary

dee!opment. ,s (DA continues to mature7 it increases dea!s in

fundamenta! infrastructure !ie transportation systems7 'ic' is necessary

to support t'e tourism industry. T'e 'ote! industry is direct!y connected to

t'e tourism industry in India.

,s ne destinations etend t'e tourist entry is !ie!y to rise. umerous

procedures 'ae )een taen in infrastructure7 'ic' i!! s'ine Indian

'ospita!ity for oerseas guests. Knder t'e automatic pat'7 1// percent

FDI is a!!oed in 'ote!s and tourism. Trae! and tourism is a K$P32 )i!!ion

)usiness in India it' an input to 5.3 percent of Indian (DA.

T'e 'ote! and tourism industries 'ae )een groing rapid!y in recent

years7 )ringing in 'uge reenues t'roug' oerseas as e!! as domestic

tourists in many parts of India.

FDI in tourism

it' a ie to stimu!ate domestic and internationa! inestments in t'is

sector7 t'e goernment 'as permitted 1// percent FDI in t'e automatic

route Ua!!oing fu!! FDI into a!! construction dee!opment proects

inc!uding construction of 'ote!s and resorts7 recreationa! faci!ities7 and city

and regiona! !ee! infrastructure. 1// percent FDI is no a!!oed in a!!

airport epansion proects su)ect to t'e condition t'at FDI for up

gradation of eisting airports re:uires Foreign Inestment Aromotion <oard

=FIA<> approa! )eyond %4 percent.

, 9e year ta 'o!iday 'as )een gien to organi6ations t'at set up 'ote!s7

resorts and conention centers at speci9c destinations7 su)ect to

fu!9!!ment it' t'e agreed conditions. $ome internationa! 'ospita!ity

maors suc' as ;i!ton7 ,ccor7 Marriott Internationa! and Inter#ontinenta!

;ote!s group 'ae a!ready announced maor enture p!ans in India in

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recent years. It is epected t'at t'e 'ospita!ity diision is epected to see

an additiona! K$P11.41 )i!!ion in in)ound inestments oer t'e net to

years. =$ourceG Internationa! Tourism Dee!opment #orporation>

T'ere are seera! types of tourism in India suc' as Medica! tourism7

$piritua! tourism7 rura! tourism7 ,denture tourism7 Ecotourism 'ic' i!!

)e eperiencing a !ot of inestment & grot' in coming future.

FDI in 1+armaceutica# sector

,t present 1//N foreign direct inestment is a!!oed in t'e

p'armaceutica!s sector t'roug' t'e automatic route. T'e DIAA7 t'e noda!

po!icy maing )ody for foreign direct inestment7 'ad put out a discussion

paper suggesting to s'ift foreign inestment in p'arma to t'e goernment

route so t'at proposa!s for mergers and ac:uisitions in t'is sector cou!d )e

scrutini6ed )y t'e Foreign Inestment Aromotion <oard.

T'e moe as prompted )y some recent )ig ticet taeoers of Indian

p'arma companies )y g!o)a! drugs maors. T'e countryCs !argest drugs

producer 0an)ay as ac:uired )y apanese Daiic'i $anyo for P 4.

)i!!ion in 2//+.Airama! ;ea!t' #ares c'emica! so!ution )usiness as

recent!y ac:uired )y K$)ased ,))ot a)oratories for P3.% )i!!ion.

India7 it' its 'ig'tec' processing and !ocost manpoer7 is considered

an attractie )ase for production for p'armaceutica!s. Domestic

companies are t'us seen as !ucratie )uyout targets )y M#s seeing to

epand capacity.

T'e !argesca!e se!!out to M# drug companies 'as created an

appre'ension t'at t'is cou!d undermine t'e generics industry7 aecting

t'e aai!a)i!ity of c'eap drugs.

T'e Indian Drug Manufacturers association 'as pitc'ed for a!!oing

foreign inestment to on!y %4N and maing FIA< approa! mandatory.

;oeer7 suc' a moe ou!d aderse!y impact t'e image of India as an

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attractie destination for in)ound FDI. T'e DIAA s'ou!d s'ift FDI in p'arma

from automatic to goernment approa! it'out reducing t'e 1//N cap

FDI in imited ia*i#ity Partners+i1s

T'e current in-o of foreign direct inestment =FDI> to t'e country may

get a )oost )ecause t'e #a)inet #ommittee on Economic ,airs =##E,>

'as a!!oed FDI in !imited !ia)i!ity partners'ip =A> 9rms7 according to a

goernment statement re!eased on May 117 2/11.

it' t'is approa!7 t'e As i!! 'ae t'e opportunity to c'oose among

domestic and foreign inestors7 t'us creating a more competitie

enironment. T'e initiatie is a!so epected to encourage more partner

9rms to get conerted to As.

,!t'oug' t'e ne initiatie may us'er in more foreign funding7 it i!! )e

imp!emented on!y in a ca!i)rated manner and on!y in sectors !ie mining7

poer7 roads & 'ig'ays7 manufacturing and p'armaceutica!s 'ere 1//

per cent FDI is a!!oed for companies t'roug' t'e automatic route and

t'ere are no FDI!ined performancere!ated conditions. ;oeer7 As

ino!ed in agricu!tura! and p!antation actiities7 print media or rea! estate

)usiness i!! not )e a!!oed to 'ae FDI.

As i!! not )e permitted to aai! of eterna! commercia! )orroingsS

neit'er can t'ey mae any donstream inestment. T'e #a)inet 'as

furt'er decided t'at foreign institutiona! inestors and foreign enture

capita! inestors i!! not )e permitted to inest in As. T'ese restrictionsare eectie measures on t'e goernmentCs part to preent As from

turning into ne inestment e'ic!es.

SEB in India

$E Ao!icy as drafted it' an intention to )ring an oera!! )oost to t'e

Indian economy attracting t'e foreign inestment & to gie a ery strong

message to t'e inestors or!dide a)out t'e strong desire to gie t'em

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a friend!y )usiness enironment & po!icies free from t'e c!utc'es of

)ureaucracy.

T'e incenties and faci!ities oered to t'e units in $Es for attracting

inestments into t'e $Es7 inc!uding foreign inestment are as fo!!osG

• Duty free importdomestic procurement of goods for dee!opment7

operation and maintenance of $E units

• 1//N Income Ta eemption on eport income for $E units under

$ection 1/,, of t'e Income Ta ,ct for 9rst 5 years7 5/N for net 5

years t'ereafter and 5/N of t'e p!oug'ed )ac eport pro9t for net 5

years.

• Eemption from minimum a!ternate ta under section 115< of t'e

Income Ta ,ct. =In t'e Knion <udget 2/1/117 t'ere is no more

eemption on $E dee!opers and $E units.>

• Eterna! #ommercia! <orroing )y $E units up to K$ P 5// mi!!ion in a

year it'out any maturity restriction t'roug' recogni6ed )aning

c'anne!s.

• Eemption from #entra! $a!es Ta. Eemption from $erice Ta.

• Eemption from $tate sa!es ta and ot'er !eies as etended )y t'e

respectie $tate (oernments.

Despite 'aing so many incenties7 $E in India contri)ute ery !ess to

Foreign Direct Inestment un!ie #'ina7 'ere t'e $Es contri)ute to

more t'an 2/ percent of t'e tota! FDI. T'e $E mode! as a!so

successfu!!y imp!emented in Ao!and and A'i!ippines. In Ao!and t'e $Es

contri)ute to a!most 35 percent of t'e FDI in-os.

Indian $E 'as attracted FDI in-os of mere P1.2)n in 2//%/+7 'ereas

t'e tota! FDI in-os in t'at year ere around P24 )n.

T'e contri)ution from $E furt'er reduced during t'e period 2//+2/11.

In t'e span of 3 years $E 'as on!y attracted P2.42 )n 'i!e tota! FDI

in-os ere around P%2.5" )n.

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Jne of t'e !argest #'inese $E7 Tianin 'as attracted K$D 1/.+ )i!!ion in

2/1/. In 2//"7 $'en6'en $E generated a (DA of K$D 12/ )i!!ion and

uti!i6ed K$D 4.1 )i!!ion in Foreign Direct Inestment =FDI>. 12 of t'e top

5// companies in t'e or!d 'ae !ocations t'ere. $'en6'en is t'e !eadingcity in #'ina for e!ectronics manufacturing. It is a 'u) for E!ectronic

Manufacturing $upp!iers =EM$> and Jrigina! E:uipment Manufacturers

=JEM>. T'is a!!os companies to cut costs )y accessing a fu!! supp!y c'ain

in one !ocation. $'en6'enCs si!!ed orforce is fed )y t'e proince of

(uangdongCs 1// uniersities7 enro!!ing oer +%47/// students in t'e

regiona! area. T'ere can )e many reasons for Indian $ECs !o

performance suc' as

India 'as more num)er of $Es7 if compared to #'ina. India 'as 114

$Es =as of Jcto)er 2/1/>. <ut $Es in India are sma!!er in si6e. T'e

aerage !and area of an $E in India is 13/.13 'ectares. $o t'e sma!!

$Es cou!d not mae fu!! use of t'e economies of $ca!e 'ic' is t'e

'o!e idea )e'ind dee!opment of $Es.

Infrastructure in $Es in India is sti!! !agging )e'ind ot'er nations.

Kn!ie7 Indian (oernment7 t'e #'inese goernment itse!f dee!ops

$Es instead of giing t'e contracts to priate constructors.

(oernment can moe a !ot of resources easi!y as compared to priate

cos. India can count on AAA =Au)!ic priate p!acements> in t'is case.

Most of t'e #'inese $Es are restricted in costa! parts & some

speci9ed parts in t'e country from 'ere ra materia!s and productscan )e easi!y mo)i!i6ed. In India t'ere are not many speci9cations.

#'inese a)our !as are ay more !i)era! )y manufacturerCs point of

ie.

0ecent ta issue suc' asG In t'e proposed Direct ta code =DT#>7 t'e

goernment 'as proposed to !ey Minimum ,!ternate Ta =M,T> of1+.5N on t'e )oo pro9ts of $pecia! Economic one =$E> dee!opers

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and units.

T'e imposition of M,T on $E dee!opers and units i!! negatie!y

aect inestors as it sees to impose ta on income receied frominestments made it' a commitment of ta eemption. T'e

goernment 'as a!so proposed to impose diidend distri)ution ta on

$E dee!opers.

;aing poor performance in FDI7 $Es in India 'ae )een posting good

resu!ts in case of eports t'oug'. Eports from $EsG 0s. 227+4/ crore in

2//5/ to 0s. 272/7%11 crore in 2//"1/. India earned 0s 3.15 !a' crore

)y ay of eports from t'e specia! economic 6ones =$Es> during t'e !ast

9sca!. It s'os t'at Indian $Es 'ae enoug' potentia! to perform )etterS

t'en it is a sign of concern as to 'y FDI coming in $Es is !o & if India

ants to attract more FDI7 reforms s'ou!d )e )roug't. o in num)er )ut

!arger si6e $Es7 improement in infrastructure7 e8cient resource mo)i!ity

i!! )e rea!!y 'e!pfu! for augmenting FDI in $Es.

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Com1arison 0it+ C+ina

Creating friend#y *usiness c#imate for attracting FDI

#'ina7 T'e !eader in attracting FDI in an emerging maret creates

congenia! )usiness c!imate in its economic maret enironment. T'eir

Mode! of attractieness 'as t'ree underpinningsG structura! c'anges and

strategic infrastructure.

$tructura! c'anges in t'e economy inc!ude improing p'ysica!

infrastructure.

,ai!a)i!ity of road netor7 ater7 e!ectricity7 te!ecommunications7 and

ot'er resources proides opportunity for T#s to produce7 moe goods

and serices e8cient!y7 and minimi6e costs to t'at t'ey can compete

g!o)a!!y on a cost adantage.

T'e strategic infrastructure inc!udes !ocation decisions !ie it s'ou!d 'ae

connectiity it' t'e icinity to o)tain continuous supp!y of c'eap !a)orfrom )acard areas. T'e speci9ed area s'ou!d )e se!f contained and

'ae or!d c!ass infrastructure suc' as 'ote!s7 airports7 )ans7 stoc

marets7 retai! stores7 educationa! institutes7 recreationa! faci!ities7 etc.

T'e infrastructure can )e strategic if it 'as proimity to t'e !argest g!o)a!

marets and 'as connectiity it' t'e g!o)a! s'ipping netor. $uc'

economic c!usters are strategic in eery sense of t'e system for merit

term.

FDI8PIS <India8c+ina=

Indian scenario is c'aracterised )y strong portfo!io in-os and muc'

eaer foreign direct inestment =FDI>7 it' #'ina7 'ere t'e situation is

t'e reerse. T'e dierence to t'e opening of t'e capita! maret can )e

t'e cause. T'ere is anot'er factor t'atCs ust as critica!7 if not more. Ease

of entry and eit.

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Today7 it is re!atie!y eort!ess for Aortfo!io Inestments =AI$> to enter t'e

capita! maret. , $e)i registration7 preceded )y a fair!y regu!ar

carefu!ness7 is a!! it taes )efore AI$ can enter t'e Indian stoc maret and

commence trading. Eit is e:ua!!y simp!e. For FDI7 'oeer7 )ot' entryand eit are far more di8cu!t.

o onder portfo!io in-os into India far eceed direct inestment -os.

ItCs ust t'e reerse in #'ina. FDI is in t'e range of P1// )i!!ion7 'i!e

portfo!io -os are muc' !oer7 in t'e range of P1/15 )i!!ion. Aart of t'e

reason is t'at e:uity marets are far !ess open t'an in India. T'e maret is

segregated )eteen resident and nonresident inestors and t'ere are

strict contro!s.

FDI In:o0s8INDI% v,s C'IN%

, comparatie ana!ysis s'os t'at India 'as a more !i)era! FDI regime

t'an #'ina. Ret7 #'ina attracts considera)!y more FDI t'an India. Jne of

t'e important reasons for t'is a)norma!ity is t'at India continues to )e

one of t'e 'ig'est transaction cost economies in t'e or!d. ;ere again7 ifone compares t'e ease of setting up a )usiness )y a foreign entity7 t'en

India scores oer #'ina.

,ccording to t'e or!d <an study BInesting across <oarders 2/1/C7 'i!e

it taes 1+ procedures and "" days to set up a foreignoned !imited

!ia)i!ity company in #'ina7 it taes 1 procedures and on!y 4 days to do

t'e same in India. ,!so7 t'e #'inese approa! process is not an easy one

and inc!udes )ot' nationa! and regiona! approa!.

'i!e in #'ina7 )ot' nationa! and regiona! approa! is one process7 in India

federa! approa! and state!oca! approa! are to dierent processes and

t'is often !eads to proects getting )ogged don in red tape and

)ureaucracy7 !eading to 'ig'er transaction costs. $eparate c!earances are

needed to )e taen.

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E.g. one of t'e !argest FDI into IndiaG t'e P". )i!!ion dea! )eteen

ondon!isted edanta and <ritis'oned #airn India. edanta 'as )een

aiting for nine mont's to ac:uire #airnHs oi! 9e!ds7 )ut 'as )een 'e!d

up )ecause an Indian stateoned enterpriseHs interests are on t'e !ine. T'e maor port proects stuc due to enironmenta! c!earance inc!ude

t'e 0s 37//crore container termina! proect at #'ennai7 0s 4//crore

coa! termina! at Marmagao Aort =(oa>7 0s %21crore proect for iron ore

eport at Marmagao port t'at is )eing )ui!t as a pu)!icpriate

partners'ip proects and proects ort' 0s 17/// crore at Aaradip

=Jrissa>. In (uarat7 Qand!a Aort7 too7 'as one proect ort' 17/// crore

aaiting enironmenta! c!earance.

=$ourceG (reen 'urd!es cost port sector 0s1/7///crore ,n artic!e in

India Kr)an infrastructure reie>

,s matters stand7 many of t'e proposed stee! proects are facing

seeming!y intracta)!e pro)!ems7 most!y surrounding socioeconomic

issues !ie ac:uisition of !and7 forest and enironment c!earances7

re'a)i!itation and resett!ement of t'e proectaected peop!e7 aa!ite

menace in #''attisgar'7 'ar'and7 Jrissa and est <enga!7 non

a!!ocation of ade:uate captie mines7 and supp!y of ra materia!s.

To cite a recent eamp!e7 t'e fate of $out' Qorean company AoscoHs

9eyear o!d proect to set up a 12mi!!ion tonneper annum7 integrated

stee! p!ant in Jrissa orsened furt'er after a ey committee in t'e

enironment ministry recommended t'e it'draa! of forest c!earance

to t'e 0s 547///crore proect7 t'e sing!e!argest foreign direct

inestment in India to date

,s a conse:uence due to t'ese de!ays7 India actua!!y receies muc' !ess

FDI t'an 'at it approes.

FDI deve#o1ment in C+ina$

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#'ina is an eamp!e of a country t'at 'as created conducie )usiness

c!imate7 attracted FDI oer !ast tenty 9e years7 and gron into )eing a

P2.2 tri!!ion do!!ar economy7 t'e t'ird !argest economy in t'e or!d7 and

t'e fastest groing economy in t'e or!d.

In 2/1/ FDI in-os to #'ina ere P1/1 )i!!ion as opposed to P25 )i!!ion

for India. #'inaCs ac'ieements and comparison it' India demonstrate

t'e success of t'e congenia! )usiness c!imate adopted )y #'ina. In 1"%+7

India =P13 )> as not muc' far )e'ind #'ina =P14+.1 )> in terms of (DA.

#'inese goernment initiated reforms in 1"%+ and carried t'em forard in

1""2. In 2/1/7 IndiaCs (DA is P 1.32 tri!!ion as against #'inaCs P 5.++

tri!!ion.

#'ina fo!!oed an BeportimportC oriented grot' pattern as opposed to

an Indian Bimportsu)stitutionC pattern. #'inese goernment made

structura! c'anges in t'e economy7 proided strategic infrastructure in

form of $Es7 and too strategic po!icy initiaties to proide freedom7

openness in trade and made -ei)!e !a)our !as to attract e8cient !a)or

in t'e manufacturing sector.

,!! t'ese factors attracted T#Cs to set up manufacturing units in t'e $Es

and eport t'e produce to dierent parts of t'e g!o)e.

$tructura! c'anges made in t'e economy can )e demonstrated t'oug' t'e

dee!opment of $'ang'ai and its modern infrastructure. $'ang'ai as a

)acard sma!! p!ace some 9fteen years )ac. T'e goernment initiated

t'e c'ange process t'at )roug't a)out signi9cant improements.

Modern $'ang'ai attracts 1+/ mi!!ion peop!e7 'as a (DA of P11/ )i!!ion

and 'as attained a grot' rate of 1/N for !ast ten years.

#omparing $'ang'ai it' India it seems strange t'at in some cases t'e

ac'ieements of t'e city are as good as t'at of our country India.

$'ang'ai receied P/ ) in FDI as opposed to P5+ ) for India in 2//7 in

2/1/7 $'agn'ai 'as receied 1% )i!!ion K$P against IndiaCs 25 )i!!ion K$P.

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IndiaCs foreign trade as 3/N !ess t'an $'ang'aiCs P241 ) in 2//57

$'ang'ai or!dCs !argest port 'and!ed 443 mi!!ion tones cargo against 423

mi!!ion tones 'and!ed )y 12 ports of India in 2/1/. ear!y 4/7/// foreign

inested companies 'ae opened o8ce in $'ang'ai.

$trategic po!icy initiaties taen )y #'inese goernment ere proiding

economic freedom and creating openness during t'e period 1"%+2//5.

(oernment interention reduced oer time and in 2//5 +5N of t'e

manufacturing as outside nonstate sector.

(oernment a!!oed oint entures )eteen foreign and !oca! 9rms7 gae

incenties7 ta 'o!idays7 promoted eports7 and ages ere ept !o due

to a!!oing free competition.

ease and oners'ip rig'ts ere proided to foreigners. Ta eemption on

importing mac'inery7 free moement of goods )eteen $E designated

areas7 re)ates on eport duty7 !i)era! entry and eit po!icies ere adopted.

Foreign currency transactions ere a!!oed in $E designated areas.

isa norms and 6oning !as ere simp!i9ed for foreigners. Foreign 9rms

cou!d form 'o!!y Foreign Jned Enterprise =FJE> in #'ina from 1"+

onards. <i!atera! ta treaty 'as a!so 'e!ped in attracting inestment.

F!ei)!e !a)or as ere created in 1"%"7 a)or 'ousing as freed and

free moement of !a)or in economic 6ones as permitted. Initia!!y 2/

mi!!ion peop!e ere unemp!oyed )ut it' t'e grot' in industria! actiity

unemp!oyment rate dropped.

7+at India can #earn from C+ina3

<ased on t'e Indian FDI mode! and 9ndings from #'inese FDI mode! po!icy

recommendations are made for creating a #ongenia! <usiness #!imate in

emerging maret. India 'as to mae structura! c'anges in t'e economy.

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Epressays 'ae to connect a!! parts of t'e country. In t'e

te!ecommunications 9e!d7 mo)i!e te!ep'ony 'as )een 'ig'!y successfu! in

India and its penetration s'ou!d continue to )ene9t farmers and rura! poor

peop!e.

Trai!ing Indian states of <i'ar7 Mad'ya Arades'7 Jrissa7 Kttaranc'a!7 Kttar

Arades'7 #''attisgar'7 and 'ar'and 'ae to eperience t'is faoura)!e

)usiness c!imate grot'.

Aoer and e!ectricity reform is anot'er area 'ere India needs to tae

immediate steps. Aoer sector 'as gien 2N returns on goernment

e:uity emp!oyed.

India 'as to oercome t'e current serice sector myopia. $erice sector

grot' s'ou!d )e supported it' manufacturing grot' as e!!. 0ura!

popu!ation may not )e easi!y conerted into computer !iterate ca!! center

eecuties. India 'as to diersify from dee!oping serice sector )ased

Bcore competenceC )eing current!y fo!!oed to dee!oping Bdynamic

capa)i!itiesC to augment current serices grot' it' manufacturing

grot'.

Een if e tae a !oo at FDI in-os itCs t'e serice sector t'at 'as )een

enoying maor FDI in-os.

$ectors attracting 'ig'est FDI in-os V$ourceG DIAAW

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Aaradigm s'ift in Indian manufacturing is re:uired. India 'as to moe

toards si!!neutra! mass manufacturing.

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Despite manufacturing grot' of "N in !ast t'ree years7 current

manufacturing pattern 'as created a Bo)!ess grot'C. <acard states donot 'ae maority of educated peop!e so a si!! neutra! Bmass

manufacturingC i!! 'e!p emp!oy !arge num)er of unemp!oyed yout'.

#'ina 'as areasise adantage oer India as #'ina is t'e 2nd !argest

country in or!d )y !and area 'ic' is more t'an dou)!e 'en compared

to India. India is dee!oping 1//Cs of $Es t'at are sma!! in si6e. #'inese

$Es are !arge;ainan $E for eamp!e is of t'e si6e of Qera!a.

T'e rig't strategy for India mig't )e rapid formation and s'ocasing of

!arge )ut fe $Es on east coast. Most approed app!ications are eit'er in

!and!oced areas or are in t'e dee!oped states.

Indian ports are congested and p!agued it' management 'ic' is not up

to t'e mar. o maor ports are t'ere in est <enga! & t'ere is Jn!y 1

maor port in Jrissa .#reating !arge ports in open spaces from scratc' in a

state !ie est <enga!7 ,nd'ra & Jrissa i!! 'e!p in dee!oping Bstateof

t'e artC ports t'at can 'and!e !arge s'ips direct!y. Aort to )e dee!oped

s'ou!d 'ae Bdeep )ed portC faci!ity.

India 'as !agged )e'ind due to its focus on serices and specia!i6ed si!!

)ased re!atie!y sma!! manufacturing mode! in contrast to #'ina. Indian

grot' mode! 'as )een )ased on IT7 ITE$7 and si!!ed manufacturing

'ic' is dependent on t'e aai!a)i!ity of 'uman si!! and capita! in an

emerging maret. India can !earn !essons from #'ina and create congenia!

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)usiness c!imate in t'e country to catc' up it' #'ina. If India can create

structura! c'anges at a faster pace it mig't attract more FDI and gro

rapid!y.

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6ecommendation regarding FDI

• First of a!! India s'ou!d try to increase t'e saing rate in India )y ay of

stopping corruption7 )!ac money & contro!!ing in-ation.

• Jn!y attracting more & more FDI s'ou!d not )e t'e o)ectie of our

country )ut t'e aim s'ou!d )e using FDI on!y in areas 'ere it is rea!!y

re:uired. e s'ou!d try to )e se!fsu8cient in areas 'ere e can &

a!!o more FDI to -o in tec'no!ogica! 9e!ds.

• India a!so re:uires FDI for nu!!ifying t'e negatie )a!ance of trade or

current account de9cit. 0ecent 9gures s'o t'at IndiaCs current

account de9cit is 2.%N of (DA7 an amount of a)out P53 )i!!ion. ,nd

IndiaCs )udget de9cit is around 5N of (DA. <ut t'atCs not t'e rig't

reason for attracting more & more FDI.

• Jne of t'e main reasons for attracting FDI in India is to 9!! t'e gap

)eteen saings & inestment. It is agreed t'at IndiaCs saings are

!oer t'an its inestment re:uirements )ut t'e i!!ega! -ig't of capita!

=<!ac money> from our country to outside countries can )e one of t'e

pro)!ems 'ic' if so!ed can serious!y reduce t'e need for FDI. If t'is

)!ac money7 ot'erise7 ou!d 'ae )een aai!a)!e7 India can do

onders it' suc' a 'uge :uantum of funds. India s'ou!d immediate!y

tae some serious steps against t'e i!!icit -ig't of funds.

• FDI in Industry & manufacturing sector s'ou!d )e gien preference.

Jn!y 152/N of t'e tota! FDI is coming in industria! sector. , !ot of

scope & opportunity is aai!a)!e in areas of tec'no!ogica!!y engineered

goods7 meta!!urgica!7 oi! & natura! gas sectors7 sma!! sca!e industries7

c'emica!s etc.

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• ie #'ina7 India s'ou!d a!so formu!ate some norms regarding

mandatory eports to )e done )y foreign companies 'ic' i!! add to

t'e re:uirement of essentia! foreign ec'ange. ,t t'e same time India

s'ou!d )ui!d conducie )usiness enironment to !oer t'e procedura!costs & gie t'em incenties7 so t'at t'e foreign 9rm i!! )e motiated

to increase t'eir eports.

Indias e-1orts

Year E-1orts <S

mi##ion=

FDI <S

mi##ion=2//1

/2

437+2 47222

2//2

/3

527%1" 37134

2//3

/4

37+42 2734

2//4

/5

+3535 37%55

2//5

/

17/37/"/ 5755+

2//

/%

1727414 157%32

2//%

/+

1737132 2475++

2//+

/"

17+572"5 2%733/

2//"

1/

17%+7%51 257+34

2/1/

11

27%57/+% 1"742%

$ourceG Department of #ommerce7 (oernment of India.

From t'e a)oe data it can )e o)sered7 t'at eports & FDI in case of

India are not muc' positie!y core!ated. Eports of India 'ae )een

groing no matter 'at 'as 'appened to FDI in India. 2//2/3 FDI in-os

fe!! )y a!most 25N7 sti!! t'e eports s'oed 2/N grot'.

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$imi!ar!y in 2///% IndiaCs FDI 'as augmented 3 times i.e. 3//N )ut

eports gre )y 25N in t'at year & )y 2/N in net 9sca! year.

IndiaCs eports in t'e 9sca! year 2/1/11 touc'ed 2%5 )i!!ion7 from P1%+

)i!!ion !ast year. IndiaHs merc'andise eports rose an annua! 3%.5 percent

in t'e !ast 9sca! year7 surpassing t'e initia! target of P2// )i!!ion7 as

demand soared for engineering goods7 oi! products and gems. T'is is an

interesting t'ing )ecause our FDI 'as decreased )y a!most 25N in t'is

9sca! sti!! our eports are not muc' aected. ;ence7 it can )e said t'at FDI

in India is not 'e!pfu! for eports.

• India 'as fai!ed to eo!e as inard FDI manufacturing destination

'ic' is most essentia! of a!! sources of FDI. Manufacturing inestment

'as potentia!ity to dee!op anci!!ary industries a!so. T'ere is a ide

spread disguised unemp!oyment in agricu!ture. Manufacturing sector

'as greater scope of !o end7 !a)our intensie manufacturing o)s for

unsi!!ed popu!ation 'en compared it' serice sector. T'ere are a !ot

of o)stac!es in ac'ieing friend!y )usiness enironment in India 'ere

e s'ou!d improe signi9cant!yS t'ese factors are corruption7 regiona!

disparity in infrastructure7 I!!iteracy7 !ac of training in rura! !a)ours7

acute !a)our maret rigidities7 and !ac of or!d c!ass ports7 airports7

and road and on an aerage % 'ours of poer cuts.

• T'e issues of geograp'ica! disparities of FDI in India need to address on

priority. Een t'e state !ie est <enga! 'ic' as once ca!!ed

Manc'ester of India attracts on!y 1.2N of FDI in-o in t'e country.

est <enga!7 <i'ar7 'ar'and7 #''attisgar' are endoed it' ric'

minera!s )ut proper initiaties is re:uired )y goernments of t'ese

states7 t'ey fai! to attract FDI. India is striing 'ard to ac'iee a grot'

rate of 1/N. Improing t'e !ee! of productiity can )e instrumenta! in

ac'ieing t'is target as grot' rate is positie!y re!ated to rates of

return.

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• Mauritius contri)utes a)out 44N of FDI in-o in t'e country. $uc' a

'ig' !ee! of FDI contri)uted )y a !o ta country !ie Mauritius

indicates t'at a!! is not e!!. Mauritius 'as agreement it' India on

aoidance of dou)!e taation. T'e corporate ta rate of Mauritius is15N & t'ere is no ta on capita! gains & )ranc' pro9t ta in Mauritius.

;ence7 it is !ie!y t'at many M#s may )e 9rst dummy companies in

Mauritius )efore inesting in India. T'is is not good for 9nancia!

sta)i!ity of t'e country and is a!so a reason for !oss to state

ec'e:uers.

•

In-ation is a!so aecting )ad!y to Indian economy7 as in-ation reducesgrot' prospects in future t'ere )y aecting t'e psyc'o!ogy of foreign

inestors suc' as AI$ & FDI. 0<I is taing t'e ade:uate steps to cur)

t'e in-ation pro)!em & India sure!y can see a rise in FDI after t'e

in-ation is under contro!.

• FDI can )e instrumenta! in dee!oping rura! economy. <ut proper care

s'ou!d )e taen )efore a!!oing (reen9e!d proects. o !andac:uisitions s'ou!d )e a!!oed in case of ferti!e !ands7 !ie in B,rece!or

Mitta!C case in Jrissa. ,!so7 proper consu!tation & study s'ou!d )e done

)efore accepting any green 9e!d proect in enironmenta!!y critica!

areas.

• In some cases rat'er t'an 'aing more FDI7 goernment s'ou!d tae

initiatie itse!f7 or s'ou!d support Indian 9rms. E.g. India is e!! nonfor its natura! )eauty7 tourist p!aces & its e!! diersi9ed & e!!

enric'ed cu!ture. $o instead of 'anding t'is 'uge opportunity in

tourism sector to foreigners7 goernment s'ou!d dee!op t'e sector )y

itse!f. T'is sector7 if epanded7 i!! 'e!p t'e rura! peop!e as a source of

earning & e!!)eing.

•

India 'as a 'uge poo! of oring popu!ation. ;oeer7 due to poor:ua!ity primary education and 'ig'er t'ere is sti!! an acute s'ortage of

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ta!ent. T'is factor 'as negatie conse:uence on domestic and foreign

)usiness. (ien t'e status of primary and 'ig'er education in t'e

country. T'e issues of regiona! gap in education 'ae to )e addressed

on priority.

• In order to improe tec'no!ogica! competitieness of India7 FDI into

0&D s'ou!d )e promoted. arious issues pending re!ating to Inte!!ectua!

Aroperty 0ig'ts7 #opy 0ig'ts and Aatents need to )e addressed on

priority.

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FDI in Mu#ti8*rand retai# sector

#urrent!y India a!!os 51N FDI in sing!e)rand retai! and 1//N FDI in cas'

andcarry stores 'o can on!y se!! to ot'er retai!ers and )usiness concerns

and not to indiidua! consumers 'o s'op for 'ome consumption. T'e

main drier for t'is po!icy seems to )e t'e recognition t'at t'e Indian

economy faces serious supp!yside constraints7 particu!ar!y in t'e food

re!ated retai! c'ains.

T'e goernment ou!d !ie to improe )acend infrastructure7 and

u!timate!y reduce post'arest !osses and ot'er astage. T'ere is a!so agenera! concern7 'ig'!ig'ted )y t'e persistence of food in-ation7 t'at

intermediaries o)tain a disproportionate s'are of a!ue in t'is c'ain and

farmers receie on!y 15N of t'e end consumer price.

FDI in 0etai! 'as a!ays )een a ery sensitie issue in India. $upporters of

FDI 'ae )een 'ig'!ig'ting positiity it i!! )ring to Indian economy !ie

greater e8ciency7 raising t'e emp!oyment & t'ere)y improement of

!iing standards and of course )ene9t for consumers )y ay of price

reduction.

<ut at t'e same time7 peop!e opposing it fee!s t'at it is a !a)or disp!acing

act and i!! endanger unorgani6ed and sma!! retai!ers of India as e!! as

Indian 0etai! A!ayers. T'ey )e!iee it i!! aect )a!ance of our economy

'en t'ese foreign inestors i!! dra )i!!ions of rupees as pro9t out of

our consumer spending.

Kndou)ted!y7 as some peop!e say t'at !oer prices psyc'o!ogica!!y prope!

)uyers to spend more t'an t'ey ot'erise ou!d. T'e resu!ting grot' in

priate consumption creates o)s. <ut7 'at e must aoid is a situation

simi!ar to t'e one in t'e K$7 'ere increased consumption does tae

p!ace7 )ut actua!!y creates o)s in #'ina. If e can ensure t'at recruitment

of emp!oyees from !argeformat retai! taes p!ace it'in India7 it may 'ae

a )ene9cia! impact on o)s.

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If e see many ot'er dee!oping nations !ie #'ina7 Ma!aysia7 T'ai!and

etc.7 'ae opened up t'ere 0etai! $ector it'out muc' pro)!ems. <ut one

must a!so not forget 'o t'ese countries t'at opened t'eir retai! sector to

FDI in t'e recent past7 'ae )een forced to enact ne !as to c'ec t'eradica! epansion of t'e ne foreign ma!!s and 'ypermarets.

Een it is o)ious t'at many economica!7 po!itica!7 socia! aspects are not

t'e same in case of India as t'ey are in case of #'ina or T'ai!and.

$ome of t'e features of Indian retai! industryG

1> , simp!e g!ance at t'e emp!oyment num)ers is enoug' to paint a good

picture of t'e re!atie si6es of t'e to forms of trade in India U

Jrgani6ed & unorgani6ed

2> Jrgani6ed trade emp!oys roug'!y 1/ !a' peop!e 'ereas t'e

unorgani6ed retai! trade emp!oys near!y 3."5 crores. Knorgani6ed

sector is sti!! predominant in t'e retai! sector in India7 t'e unorgani6ed

retai! sector account for "+N of tota! trade7 'i!e organi6ed trade

accounts for on!y 2N 'e!d.

3> it' a)out 11 mi!!ion retai! out!ets operating in t'e country and on!y

4N of t'em are !arger t'an 5// s:uare feet in si6e. #ompare t'is it'

t'e 9gure of ust /." mi!!ion retai! out!ets in K$7 yet catering to more

t'an 13 times of t'e Indian retai! maret si6e.

Detai# #oo/ into t+e issue 0it+ an e-am1#e of 7a#mart

a!mart is t'e or!dCs !argest company )y turnoer & or!dCs )iggest

Mu!ti)rand retai! company. a!mart is a K$ )ased company 'aing +75//

stores in 15 countries7 under 55 dierent names & 'as an annua! turnoer

of K$D 421.+4" )i!!ion or!dide =i.e. 2N of IndiaCs (DA>. In oem)er

2//7 t'e company announced a oint enture it' <'arti Enterprises to

open retai! stores in India. ,s foreign corporations are not a!!oed to

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direct!y enter t'e retai! sector in India7 a!mart i!! operate t'roug'

franc'ises and 'and!e t'e 'o!esa!e end. <'arti i!! manage t'e front

end ino!ing opening of retai! out!ets7 'i!e a!mart i!! tae care of t'e

)ac end7 suc' as co!d c'ains and !ogistics. Mr. oe Men6er of a!martrecent!y met ArimeMinister BDr. Manmo'an $ing'C for discussions

regarding FDI in Mu!ti)rand retai!ing.

Im1#ications of Entry of 7a#8Mart

et a!one t'e aerage Indian retai!er in t'e unorgani6ed sector7 no Indian

retai!er in t'e organised sector i!! )e a)!e to meet t'e ons!aug't from a

9rm suc' as a!Mart U 'en it comes. it' itCs incredi)!y deep pocets

a!Mart i!! )e a)!e to sustain !osses for many years ti!! its immediate

competition is iped out.

T'is supermaret i!! typica!!y se!! eeryt'ing7 from egeta)!es to t'e

!atest e!ectronic gadgets7 at etreme!y !o prices t'at i!! most !ie!y

undercut t'ose in near)y !oca! stores se!!ing simi!ar goods. a! Mart

ou!d )e more !ie!y to source its ra materia!s from a)road7 and procure

goods !ie egeta)!es and fruits direct!y from farmers at preordained

:uantities and speci9cations. T'is means a foreign company i!! )uy )ig

from India and a)road and )e a)!e to se!! !o U seere!y undercutting t'e

sma!! retai!ers. Jnce a monopo!y situation is created7 t'is i!! t'en turn

into )uying !o and se!!ing 'ig'.

T'e proponents of FDI in 0etai! argue as to 'o FDI in 0etai! i!! transform

t'e supp!y c'ain )ene9ting farmers and sma!! producers. T'ey a!so argue

t'at once t'e !ies of a!Mart are esta)!is'ed in India7 eports i!! gro.

T'e o!ume t'at t'e a!Mart sourcing from #'ina7 'ic' is no in ecess

of K$ P2/ )i!!ion annua!!y. T'e suggestion t'erefore )eing t'at a!Mart

i!! do !ieise in India.

<ut e canCt ignore t'e ot'er side of t'e argument7 'ic' says a!Mart is

committed to )uying t'e )est goods at t'e c'eapest prices to gie itscustomers t'e )est a!ue for money. . T'at is 'y it sources so 'eai!y in

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#'ina. a!Mart sourcing from #'ina is no in ecess of K$ P2/ )i!!ion

annua!!y If a!Mart ere a country it ou!d 'ae )een #'inaCs sit'

!argest eport maret and eig't' !argest trading partner. T'e argument is

t'at een if a!Mart ere not operating its retai! )usiness in #'ina itou!d sti!! continue to source 'eai!y from t'ere. Jne 'ad not'ing to do

it' t'e ot'er. etCs consider t'e opposite side to t'at7 a!Mart a!so 'as

a sourcing operation )ased in <anga!ore and its Indian eports are !ess

t'an 5N of 'at it procures from #'ina. T'e reasons s'ou!d )e o)ious.

ItCs a)out getting a!ue for money.

T'e (oernment of IndiaCs Department of #onsumer aairs in

co!!a)oration it' t'e Indian #ounci! for 0esearc' on Internationa!

0e!ations =I#0IE0> 'as pu)!is'ed FDI in 'etail )ector I-DIA in une 2//5.

T'e study strong!y adocates t'at ?foreign direct inestment s'ou!d )e

a!!oed in retai!ing since it ou!d speed up t'e grot' of organi6ed

formats@. It furt'er states7 ?In t'e initia! stage FDI up to 4"N s'ou!d )e

a!!oed 'ic' can )e raised to 1//N in 3 to 5 years depending on t'e

grot' of t'e sector. FDI cap )e!o 4"N =i.e. 2N> ou!d not )ring in t'e

desired foreign inestment.@

It admits ?Foreign 0etai!ers 'ae pointed out t'at setting up of

manufacturing )ase in India is di8cu!t since t'e infrastructure is poor7

!a)or !as are unfriend!y7 etc.@ If t'is a)surd argument is carried to its

!ogica! !imit7 t'e retai!ers seem to )e persuasie for unrestricted imports

of a!! sorts of goods for consumption t'roug' a e!!dee!oped7 sing!e

pointsourcing c'anne!. =$ourceG FDI in 6etai# 8 II Initing more Trou)!e*

<y Mo'an (urusamy7 Qama! $'arma7 and #entre for Ao!icy ,!ternaties>

T'e 'yper marts and superstores of t'e foreign retai! giants fed )y

manufacturing nodes in ,$E, and #'ina cou!d t'en samp t'e retai!

space in India edging out not on!y t'e traditiona! distri)utors and retai!ers

)ut a!so putting out organi6ed retai!ers7 t'e $$I and medium sca!e

manufacturers in India. India it' a current tota! domestic retai! maret of

oer 0s.1//7 /// crores7 and it' organi6ed =!arge format> retai! of on!y0s.35// crores is t'e most anted destination for t'ese retai! giants.

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If a!Mart 'as accepted a BsecondaryC ro!e it'in India in 'ic' <'arti

interfaces it' one )i!!ion potentia! consumers and does not disp!ay t'e

g!o)a! )e'emot'Cs name on its e'i)itions7 t'en its interests and pro9ts !ie

in furt'ering its monopsonist procurement. India i!! proide a ne maretfor se!!ing a!MartCs monopsonistica!!y procured goods. <'arti i!! t'en

on!y )e a t'in coer for a!MartCs pro9t maing o)ecties and i!! 'e!p

t'em great!y in spreading t'eir operation in India.

T'is at a time 'en e sti!! 'ae not got around to faci!itating !oer cost

and more e8cient manufacturing in India t'roug' ena)!ing !egis!ation and

regu!ation i!! )e destructie to our economy. T'e contri)ution of industry

to (DA in 2/1/ as 4G.H for India t'ere to manufacturing on!y

accounted for 'i!e for #'ina oer roug'!y t'e same period it as >H.G.

Een 'en #'ina a!!oed & opened FDI in mu!ti)rand retai!7 t'e

contri)ution of industry to (DA in 1""2 and 1""4 #'ina as 42 and

4%. Indian industries contri)ute a mere 2+N to (DA.

<efore a!!oing FDI in retai! e need to no t'at t'e e8ciency of t'e

giant retai!ers arises from t'eir a)i!ity to procure from t'e c'eapest g!o)a!

source and its oer'e!ming poer to force prices don )ecause of its

enormous o!umes of purc'ase of any sing!e item.

'en #'ina a!!oed FDI7 t'ere ere !i)era! or in some cases in'uman

!a)our !as.

Ear!ier #'inese !a)ours ere not a!!oed to form unions7 participate inco!!ectie )argaining7 and tae recourse to stries.

Ksua!!y or consists of 12 'ours a day it' a regu!ar oertime.

oring age as 1425 years.

,ny orer can )e 9red it'out giing o8cia! 1 mont's notice.

Fe )ene9ts7 poor oring conditions ere oered to orers & een

fema!e emp!oyees ere not a!!oed to get pregnant ot'erise t'ey

used to )e retrenc'ed.

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T'e case of t'e Taianoned inte factory7 'ic' maes e!ectronic

components for ,pp!e7 is not unusua!. ast year7 an audit of factories

,pp!e contracts it' in #'ina s'oed t'at more t'an 'a!f of t'e

factories ere not paying a!id oertime rates for t'ose t'at :ua!i9ed.In addition7 23 of t'e +3 sureyed factories erenHt een paying t'eir

orers minimum age.

,pp!e is not a!one in t'is respect. In 2//+ !a)or groups c!aimed t'at

#'inese factory orers !ose or )rea a)out 4/7/// 9ngers a year on

t'e o)7 as e!! as accusing factories in t'e Aear! 0ier De!ta of unfair

!a)or practices7 using c'i!d !a)or and fai!ing to pay ages.

T'ese factories supp!y mu!tinationa! corporations suc' as a!Mart7Disney and De!!.

T'e aerage industria! age in #'ina sti!! compares poor!y it' t'at in

India7 a country 'ose per capita income is on!y a t'ird of it.

#'inese aut'orities 'ae )egun some trade union actiity recent!yS een

a!Mart as forced to accept unions in #'ina. <ut sti!! t'e !a)our !as are

in faour of manufacturers & 'ence c'eap !a)our is aai!a)!e.

It is o)ious t'at India cannot adopt t'e c'eap !a)our strategy used )y

#'ina. India7 )eing a democratic country7 simp!y can not 'ae suc' !a)our

!as. ,nd Indian economy is sti!! not dee!oped in manufacturing sector &

infrastructure. It is a!so recogni6ed t'at #'inese eports are aggressie!y

su)sidi6ed )y t'e state.

;ence7 de9nite!y een after opening t'e retai! s'ops in India7 foreign

giants i!! !ie to )orro t'e products from c'ina.

,)out food products t'e contract farming imposed on farmers )y M#s

re:uire strict ad'erence to :ua!ity and sc'edu!e. It is di8cu!t for our sma!!

tomato or onion farmers cope it' t'e eat'er pro)!ems7 and t'e

infrastructura! constraints to fu!9!! t'eir !ega! contracts.

India can fo!!o t'e #'inese mode! of caution and igi!ant approac'. #'inaa!!oed FDI in retai! in 1""2 )ut t'e cap as at 2N. ,fter 5; years t'e

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cap as raised to >J 'en !oca! c'ains 'ad su8cient!y entrenc'ed

t'emse!es.

Furt'er7 foreign c'ains ere initia!!y permitted to set up stores on!y in afe se!ect cities. oca! retai!ers ere o8cia!!y encouraged to )ecome )ig

)y mergers and ac:uisitions so t'at t'ey ou!d )e in a position to

compete it' )ig g!o)a! p!ayers.

In ot'er ords7 #'ina proided infant industry protection to domestic

retai!ers7 'ic' as gradua!!y reduced as t'e !oca! p!ayers gat'ered

strengt'. ,nd t'en 1//N FDI in retai! as permitted on!y in 2//4 after t'e

infant retai!ing industry 'ad ac:uired some musc!e.

Een in as !i)era! an economy as apan7 !argesca!e retai! !ocation !a of

2/// stringent!y regu!ates factors suc' as gar)age remoa!7 paring7

noise and tra8c. 0ecent!y #arrefour =T'e 2nd !argest mu!ti)rand retai!ers

in t'e or!d> decided to eit apan )y se!!ing o its eig't strugg!ing out!ets

after four years as t'e etreme!y cum)ersome apanese regu!ations

)!atant!y faor its on 'omegron retai! 9rms.

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%na#ysis & 6ecommendations$

T'ere is 'uge potentia! in retai! maret7 t'en 'y not promote a AAA

=pu)!ic At. Aartners'ip> in retai! maret sector or ust gie )oost to

a!ready eisting Indian companies. 'y to a!!o Internationa! p!ayers

'en t'ese t'ings can )e taen care of )y Indian companies on!y.

#onsidering t'e current scenario India s'ou!d dee!op its

Manufacturing 'u) e!! )efore a!!oing FDI in mu!ti)rand retai!ing. If

foreign retai!ers are going to )e a!!oed in future7 t'e 'uge demand

'ic' i!! )e generated can )e met )y Bdee!oped IndianmanufacturersC rat'er t'an importing it.

Een a dee!oped manufacturing sector i!! tae care of

unemp!oyment caused due to remoa! of midd!emen in supp!y c'ains.

,rria! of )ig retai!ers 'as 'ad an impact on sma!! grocersS sma!! stores

are sti!! groing t'eir sa!es7 a!t'oug' at a muc' !oer rate t'an

modern trade7 according to data from maret researc' 9rm T'e ie!sen

#ompany.$ince 2//7 'en most )ig retai!ers eit'er entered t'e retai! space or

)egan epanding t'eir netor7 sa!es in !oca! iranas 'ae gron in

t'e !o sing!e digits een !ess t'an t'e (DA grot' rate7 'i!e modern

trade 'as gron in strong dou)!e digits.

For instance7 sa!es at modern stores gre 34N in 2// and 2".3N in

2/1/. Traditiona! stores cou!d increase sa!es on!y 1.5N in 2//7 )ut

improed t'e grot' rate to .2N !ast year =see grap'>!ro0t+ rates

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=$ourceG BModern retai! outgroing irana stores in IndiaC ,n artic!e

printed Economic Times dated 15t' une 2/11>.

;aing t'is situation7 )ringing in !arge foreign retai!ers onCt )e a

c!eer decision.

, Nationa# Commission must )e esta)!is'ed to study t'e pro)!ems of

t'e retai! sector and to eo!e po!icies t'at i!! ena)!e it to cope it'

FDI as and 'en it comes. It i!! a!so regu!ate t'e 'o!e retai! sector

'ic' 'as )ecome a ery de!icate issue

T'e conditiona!s must )e aimed at encouraging t'e purc'ase of goods

in t'e domestic maret7 state t'e minimum space7 si6e and specify

detai!s !ie7 construction and storage standards7 t'e ratio of -oor space

to paring space etc. (iant s'opping centres must not add to our

eisting ur)an pro)!ems.

T'e argument t'at arge Foreign 0etai! giants i!! not crodout sma!!

retai!ers s'ou!d )e reieed as een t'e modern Indian retai! sector

'ad an eect on sma!! irana stores.

Im1#ications in Food 6etai# sector

It is ide!y agreed t'at t'e supp!y c'ain t'at !ins t'e Indian producer to

t'e domestic consumer is primitie7 outmoded and astefu!. Many studies

eist t'at detai! t'e etent of astage. e i!! readi!y concede t'at !arge

format retai!ing it' its capacity for )u! procurement and capita!

inestment7 een if it accounts for a fraction of t'e retai! trade in t'e

sector7 mig't )e a)!e to mae some dee!opment in moderni6ing t'e

supp!y c'ain. <ut t'is does not mae FDI imperatie.

Entry of Mu!tinationa!s in t'e Foodretai! sector aims at cutting out many

!ayers of midd!emen7 and esta)!is'ing a direct !inage it' t'e farmers.

T'ey may a!so dee!op t'e processing faci!ities and eport t'e products to

meet t'eir g!o)a! re:uirements7 farmers ou!d get )etter prices and

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)igger marets 'i!e t'e consumers ou!d )ene9t in terms of !oer

prices7 )etter :ua!ity and greater ariety.

<ut farmers can face pro)!ems re!ated to speci9cations of M#s7 de!ayed

payments and !ac of credit and insurance. T'e emergence of suc'

pro)!ems in India7 especia!!y in t'e contet of t'e deep crisis t'at 'as

engu!fed t'e agrarian economy7 is entire!y aoida)!e. T'e M#s i!! dea!

it' on!y t'e !argegroers7 & on!y fe farmers i!! )ene9t. M#s i!! 9

prices in adance & can easi!y mis!ead farmers. M#s i!! oer good

prices to farmers at t'e )eginning and after t'ey dee!op t'e monopo!y

t'ey may ep!oit t'e farmers )y oering !oer prices.

6ecommendations for t+e Food 6etai# Sector$

India s'ou!d itse!f dee!op its ,gricu!tura! infrastructure rat'er t'an

!ooing for FDI.

Aroision of training in 'and!ing7 storing7 transporting7 grading7 sorting7

maintaining 'ygiene standards7 upeep of refrigeration e:uipment7

pacing7 etc. is an area 'ere ITI =Industria! Training Institute> and $I$I

=$ma!! Industria!s $erice Institute> can p!ay a proactie ro!e.

It s'ou!d gie )oost to t'e settingup of cooperaties !ie ,mu!. It can

)e seen t'at ,mu! 'as )een ery successfu! it' its uni:ue supp!y

c'ain & 'as got immense success in 'and!ing a :uic peris'a)!e

product !ie Mi!.

,mu! is managed )y a cooperatie organi6ation =(uarat #ooperatie

Mi! Mareting Federation td.> & t'e mi! supp!iers are its

s'are'o!ders. T'e oners decide 'at t'ey s'ou!d pay t'emse!es for

t'e ra materia! t'ey supp!y. , uni:ue situation 'ere t'e oners of

t'e company are a!so its !argest endors. In t'e ,mu! system mi! is

co!!ected at t'e co!!ection centres. T'ese co!!ection centres are in t'e

i!!age7 'ere t'e mi! :uantity is measured7 t'e :ua!ity is c'eced and

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payment is made. T'e mi! is t'en transported )y ans to a c'i!!ing

centre it'in 2 'ours. ,t t'e c'i!!ing centre t'e mi! is pasteuri6ed and

t'en paced. $ome surp!us mi! is sent to a factory to )e conerted to

ot'er mi! products. , simp!e 'u) and eectie system. T'e mirac!e ist'at a!! t'is as done 4/ years )ac7 'en road and infrastructure as

primitie. T'en t'ere is no reason 'y it cannot )e done today.

For t'e fruit and egeta)!e supp!y c'ain to )e successfu!7 t'e farmers

need to organi6e t'emse!es into cooperaties. T'at ay t'ey i!! 'ae

t'e )argaining poer it' t'e )uyers and transporters. Instead of

mu!titudes of cooperaties7 t'ere s'ou!d 1 per district or state. et7

t'e cooperaties ou!d 'ae to inest in #o!d U$torages. T'e co!!ection

of fruits and egeta)!es 'as to )e organi6ed. T'e onard distri)ution of

t'e fruits and egeta)!es to cities7 retai! stores can t'en )e organi6ed

)y trucs or rai!ay parce! ans.

, #ommission s'ou!d )e set up for ,gricu!tura! Aeris'a)!e Aroduce to

ensure t'at procurement prices for peris'a)!e commodities are fair to

farmers and t'at t'ey are not distorted it' re!ation to maret prices.

#reation of infrastructure for retai!ing at mandis7 are'ouses7 transport

systems7 community e!fare centers and goernment and priate

co!onies it' a focus on easier !ogistics i!! ena)!e greater emp!oyment

and 'ig'er ro!!oer of products.

7+i#e a##o0ing t+e FDI in mu#ti food8retai# fo##o0ing norms can *e

/e1t for foreign com1anies #i/e

Fiing :uota of Indian mae products in t'eir oerings in India. $ay for

eamp!e if t'ey are oering 0s. 1// a!ues of products7 t'an 0s. +/

ort' products s'ou!d )e made in India.

T'is ou!d increase demands of Indian Aroducts and i!! )oost

Manufacturing sector too. ,)oe c!ause i!! encourage t'em to getmanufactured some goods in India. If cost of manufacturing is

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contro!!ed7 retai!er may a!so eport t'ese products to t'eir out!ets in

ot'er countries )oosting IndiaCs eport.

(ot. can impose t'at 1//N of Fruits & egeta)!es t'ey are oering

are produced in India. T'is i!! encourage contract farming )y t'ese0etai!ers in agreement it' farmers ensuring 'ig' :ua!ity produce and

)etter earnings to poor farmers of India.

Furt'er (ot. needs to monitor Arices in order to ensure t'at price

e8ciency of t'ese retai!ers is not i!!ing sma!! Indian p!ayers.

$ome part of t'e tota! FDI say 5/N s'ou!d go for )acend

infrastructure.

M#s i!! )e a!!oed on!y in metropo!itan cities it' t'e speci9ed -oorarea for t'eir esta)!is'ments.

2N FDI s'ou!d )e a!!oed at 9rst & cautious approac' s'ou!d )e taen

'i!e raising t'e !imit after some years.

Conc#usion

FDI as e 'ae seen can comp!ement !oca! dee!opment )y )oosting

eport competitieness7 emp!oyment generation and strengt'ening si!!s7

transferdiusiongeneration of tec'no!ogy and en'anced 9nancia!

resources for dee!opment.

0ecent!y (!o)a! inestors 'ae raned India as t'e second topprioritydestination for FDI in coming years7 after #'ina.

India is attracting a !o !ee! of FDI !arge!y due to poor )usiness

enironment7 !ac of infrastructure & corruption issues preai!ing in t'e

country. T'e inestment c!imate in India 'as )ecome muc' friend!ier

today t'an preious decades. Inestors are s'oing t'eir groing

con9dence in t'e immediate and medium term prospects of Indian

Economy.

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it' t'e eorts of goernment & 0<I7 t'e FDI in-os are again s'oing a

ro)ust grot' in 1st :uarter of f. y. 2/1112. It is de9nite!y a great sign of

recoery of FDI in-os & strengt'ening of foreign inestorCs con9dence in

our country. T'e ne po!icy c'anges t'at 'ad )een )roug't in sure!y 'aep!ayed an important ro!e in t'is rise. ;oeer7 a !ot is to )e done if e

ant to reap fu!! )ene9ts out of FDI in-os & emerge as t'e greatest

economy.

FDI mig't )e one of t'e important sources of 9nancing t'e economic

dee!opment. ;oeer7 one s'ou!d not forget t'at FDI a!one is not a

so!ution for poerty eradication7 unemp!oyment and ot'er economic i!!s.

Jur aim s'ou!d not on!y )e increasing our (DA7 posting dou)!e digit

grot' rates7 improing FDI in-os )ut a!so to redirect t'e )ene9ts of

t'ese ac'ieements to a!! sections of t'e society )y reducing poerty7

ine:ua!ity & raising t'e standard of !iing.

Economica!7 po!itica! & socia! needs s'ou!d go 'and in 'and & it' a!! t'is

fa!!ing in !ine e i!! )e a)!e to say ourse!es B, tru!y dee!oped nationC.

Economica!7 po!itica! & socia! needs s'ou!d go 'and in 'and & it' a!! t'is

fa!!ing in !ine e i!! )e a)!e to say ourse!es B, tru!y dee!oped nationC.

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6eferences

• Consolidated FDI Polic *Eective #rom April /" 01//+ Department o#

Industrial Polic and Promotion &inistr o# Commerce and Industr

2overnment o# India

• 'BI3s &aster Circular -o./4%01/15// 6ul 1/" 01/1 'BI%01/15//%/4

• Fact s!eet on #oreign direct investment *FDI+" &arc! 01//5

www.DIPP.nic.in%

• Foreign Direct Investment in India * /78950115 a boo: b Kamles!

2a:!ar.

• Does Foreign Direct Investment Promote Development;5 A boo: b <.

=. &oran

• 'ole o# FDI in Economic Development o# India> )ectoral Analsis5Ila

C!aturvedi541%4%01//

• India3s Foreign Direct Investment> Current )tatus" Issues ? Polic

'ecommendations b &o!d. )!amim Ansari" &u:es! 'anga509%@%01/1

• Comparative analsis o# FDI in India ? C!ina> Can laggards learn #rom

leaders; A researc! pro$ect b )wapna ). )in!a.

• Determinants o# FDI in C!ina> )!au:at Ali and ei 2uo

• Issue o# discussion paper over Foreign Direct Investment in 'etail

trading5DIPP

• Foreign Direct Investment b alentino Piana *011+

• FDI in India3s <ourism Industr Posted on Februar /8" 01// b India

Brieng B An:it )!rivastava" Dean )!ira ? Associates

•

India3s FDI inGows> <rends ? Concepts K.). C!alapati 'ao ? Biswa$itD!ar" I)ID or:ing paper Februar 01//

• H=ow European crisis could impact India; nderstanding t!e lin:agesJ

An article B Amol Agrawal.

• !at almart can learn #rom A&;5An article Dr. erg!ese Kurien5

-ovember /"0117

• al&art3s suppl c!ain management practices5 ICFAI

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• Demsti#ing Compulsoril Convertible Pre#erence )!ares5 Finance

&ortem Blog

• )ELs as growt! engines 5 India s C!in5 An article b Pradeep -ema"

)ocial )cience 'esearc! -etwor: • MFDI in 'etail> &ore Bad t!an 2ood;3 MFDI in 'etail II Inviting more

<rouble;3 and FDI in 0etai!IIIG Imp!ications of a!martHs <acdoor Entry

B &o!an 2uruswam" Kamal )!arma" Central #or polic Alternatives

*CPA)+

• www.wi:ipedia.org

• www.economictimes.com

• www.nancialexpress.com

• www.timesondia.com

• www.unctad.org

• www.dipp.nic.in

• www.#di.gov.cn

• www.mapsondia.com

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