spatial distribution of fdi in india

8/9/2019 Spatial Distribution of Fdi in India

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SPATIAL DISTRIBUTION OF FDI IN INDIAShyam Sunder Singh Chauhan *,

Deepa Rawat****

Deepti Sharma ***

Foreign Direct Investment in India has got momentum since1991, with the emergence of era of interaction of liberalization,privatization and globalization. The first and foremost initiative in thisdirection was to increase the foreign equity participation from 40 to 51per cent in industrial policy resolution 1991. During subsequent yearsthe FDI limit enhanced to as high as 100 per cent in selective cases.

The policy makers as well as economists categorically emphasized thatforeign direct investment could play a loading and effective role in theoverall development of the country. The stock of FDI in India soaredfrom less than US$ 2 million in 1991 to more than US$ 33 billion in2008-09 (RBI, 2009). The cumulative FDI equity inflow from August1991 to March 2009 is US$ 140.8 billion. In uncertain terms thequantum and dispersion of FDI in India shows that it had a limited role

in the growth of the economy in general and breaking down regionalimbalance in particular. The quantum of FDI in India is increasing at afast pace, but is still lagging behind many other developing countries.

The ratio of FDI stock to GDP increased from 0.5 per cent in 1990 to5.9 per cent in 2004 (UNCTAD 2005). Similarly the ratio of FDI inflowsto gross fixed capital formation (GFCF) increased from 0.2 per cent in1991 to 3.4 per cent in 2004 (UNCTAD 1994 and UNCTAD 2005).

The spatial distribution of FDI inflow shows high variations as perthe recent data of RBI, 35 per cent of cumulative FDI during April 2000* Associate Professor, Department of Economics, Govt. Girls P.G. College, Sirsaganj, Firozabad (U.P.).** Associate Professor, Department of Economics, Agra College, Agra (U.P.)*

*** Research Scholar, Department of Economics, Agra College, Agra, (U.P.)


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to March 2009 had gone to the Mumbai region of RBI, comprisingMaharashtra, Dadra, Nagar Haveli and Daman and Diu (US$ 30.7billion). Another region is New Delhi, comprising Delhi, parts of UP andHaryana which got 15 per cent cumulative FDI during the same period.Share of Karnataka, Gujarat, Tamil Nadu and Pondicherry, AndhraPradesh is 7 per cent, 7 per cent, 6 per cent and 4 per centrespectively. Thus, more than 65 per cent of the total FDI inflow hasbeen received by these states having about 44 per cent share in thetotal geographical area of the country and about 41 per cent in thetotal population of the country. The BIMARU states (including newlycreated states of Uttarakhand, Jharkhand, Chattisgarh) having a share

of 38 and 40 per cent in area and population of the countryrespectively received only US$ 0.6 billion FDI inflow which is as low as0.67 per cent of the total FDI inflow during the same period. North-Eaststates received 0.053 billion US$ which is 0.1 per cent of the total FDIinflow. The share of Bihar and Jharkhand the latter being rich in naturalresources is negligible (US$ 0.4 million) while that of Orissa anotherstate rich in mineral resources received only US$ 97.4 million FDI

inflow during April 2000 to March 2009.

The above data, prima face shows a highly skewed distribution of FDI in the country. In the light of above observations the present paperfocuses on the spatial distribution of FDI in India. Various factors thatinfluence the FDI inflow have been correlated so as to find out theirrole and effectiveness in attracting FDI. In recent times, thegeographical factors have attracted attention of the researchers as

well as policy makers because they have been guiding forces for theinvestors, domestic as well as foreign, to choose the location of theirenterprises. Some places cities coastal areas and well connectedregions are favoured by producers (WDR 2009). The paper iscomprises of four sections viz. Section I deals with the quantum and

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distribution of FDI across the states. Spatial distribution of FDI is highlyimbalanced not only on inter-state basis, but also on intra-state basis(i.e., within the states. This phenomenon has been discussed in sectionII, while the role of various geographical determinants of FDI inflowshave been discussed in section III and finally the IV section give theconclusion.

SECTION I

Quantum and Distribution of FDI Across States

Ever since the liberalization of rules and regulations regardingFDI cumulatively US$ 140.8 billion has been received in India as FDI

from August 1991 to March 2009. Year wise approvals and inflows of FDI in India, show that actual inflows as, percentage of approvals,varied from 18.7 per cent during 1994-96 to 57.2 per cent during1999-2000. However, it got a fillip, as a result actual inflows aspercentage of approvals has reached peak level of 205.1 per centduring 2003-04. The impediments to implementation reside both withthe centre and state governments, with their obstruction itsbeurocracies and corrupt political establishments. With reform inpolicies, better infrastructure and a more vibrant financial sector FDIinflow into India accelerated in 2006-07. On a gross basis, FDI inflowsinto India, after rising to a level of US$ 6.2 billion during 2001-02, fellto US$ 4.5 billion in 2003-04. After a recovery, the FDI inflow has risento reach US$ 23.0 billion in 2006-07. The trend continued in 2007-08with and US$ 33.6 billion in 2008-09. FDI inflows continued to bemainly of the equity variety, broad-based and spread across a range of

economic activities like financial services, manufacturing, bankingservices, information technology services and construction. FDI grewappreciably on both gross and net basis. While on the gross basis, thegrowth in 2006-07 was 150.2 per cent, on the net basis it was 179.5 prcent (Government of India, Economic Survey 2007-08, 123).

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Table 1 : Region wise FDI Inflow in India (from April 2000 toMarch 2009)

Ranks RBIs RegionalOffice

State Covered Amount of FDI Inflows %age withFDIinflows (inrupeesterms)

Rupees inCrores

US$ inmillion

1 Mumbai Maharashtra,Dadra & NagarHaveli, Daman & Diu

134,287.63

30,700.4 36%

2 New Delhi Delhi, Part of UP andHaryana

55,308.98 12,716.9 15%

3 Bangalore Karnataka 25,674.50 5.867.9 7%4 Ahmedabad Gujarat 24,522.79 5,624.8 7%5 Chennai Tamil Nadu,

Pondicherry21,078.90 4,725.0 6%

6 Hyderabad Andhra Pradesh 15,098.49 3,495.4 4%7 Kolkata West Bengal,

Sikkim, Andaman &Nicobar Islands

5,410.55 1,277.6 2%

8 Jaipur Rajasthan 2,071.24 438.3 1%9 Chandigarh Chandigarh, Punjab,

Haryana, HimachalPradesh

1,754.72 384.2 0.5%

10 Panaji Goa 1,139.32 252.9 0.3%

11 Kochi Kerala 884.11 203.1 0.2%12 Bhopal Madhya Pradesh,Chattisgarh

662.22 148.7 0.2%

13 Bhubaneshwar

Orissa 437.92 97.4 0.1%

14 Guwahati Assam, ArunachalPradesh, Manipur,Meghalaya, Mizoram,Nagaland, Tripura

228.85 53.2 0.1%

15 Kanpur Uttar Pradesh,Uttaranchal

71.66 16.4 0.0%

16 Patna Bihar, Jharkhand 1.78 0.4 0.0%

17 RBIs Regions not Indicated 80,344.11 18,431.2 22%Sub Total 368,977.90

84,433.6 100%

18 Stock Swapped (from 2002 to 2009) 14,546.64 3,301.1 -19 Advance of Inflows (from 2000 to

2004)9,962.22 1,962.8 -

20 RBIs-NRI Schemes (from 2000 to2002)

533.06 121.3 -

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Grand Total(from April 2000 to March 2009)

393,019.82

89,818.8 -

Source : RBI Bulletin, May 2009 .

Regional Distribution of FDI

A number of studies have examined the issue of spatialdistribution of FDI in the context of balanced regional development andstates efforts to attract investment, the objectives of employmentgeneration and raising the standard of living observed that FDIgenerally flows into developed areas (gtc, 2002). Further investors

from certain countries, tend to go to areas where other establishmentsfrom the same country are located (Rao and Murthy, 2006; 4). Thegrowth effects of FDI in India may also be constrained by theconcentration of FDI in relatively advanced location (Agarwal 2005). Tothe extent that greater openness to FDI in the post-reform era has ledto further agglomeration, FDI have fuelled regional divergence ratherthan promoting convergence (Nunnenkamp and strake 2007; 3).

Dissemination of data regarding statewise FDI is full of bottlenecks. In about 20 per cent cases, location was not indicated atthe time of approval. Such projects account for more than 28 per centof the total investment. In same cases the investors mentioned theirheadquarters in and around Delhi, but location of their enterprisesmight be in neighbouring states. For all practical purposes Delhi couldbe clubbed with unindicated category (Rao and Murthy, 2006; 8). With

these constraints, the present study is based on the data released byRBI.

State wise data on FDI approvals between 1991 to 2004 (Statewise data available only for 1991 to 2004 and that too for approvalonly ) show that only a handful of states have been managed to attract

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a very high share of FDI (Table 2). It is evident from the data that thelop 10 states attracted more than 68.63 per cent of FDI (Rs 2006510crore). In contrast, the bottom 10 states together received less than 1per cent of total FDI. There is also a strong regional disparity in thepattern of FDI inflows, with the southern and western states, faringmuch better than the other parts of the country. Three southern states(Tamil Nadu, Karnataka and Andhra Pradesh) received more than 29.1per cent of total FDI, while three western states (Maharashtra, Gujaratand Rajasthan received more than 33.74 per cent of total FDI). Fivenorthern states and two UTs (J & K, Punjab, Haryana, HimachalPradesh, Uttarkhand and Uttar Pradesh, Delhi and Chandigarh)

received about 22.08 per cent of total FDI. Central region (MadhyaPradesh, Chhatisgarh and Orissa) could garner only 8.66 per cent of total FDI. Eastern region (Bihar, Jharkhand and West Bengal) received4.78 per cent of total FDI. In contrast to this, North-Eastern statestogether received only 0.03 per cent total FDI during the same period.

This unequal distribution of FDI across states in India is notunexpected, as FDI inflows tend towards state with better

infrastructure and development. Proximity to major seaports andcoastal areas is the another factor that plays a crucial role in thelocation of FDI inflows. Share of Delhi is considerably higher in the FDIapproval, but it does not mean that all the approved FDI proposals,that mentioned Delhi as their location, would actually establish theirplant in Delhi region. The concentration of FDI in a few pockets in India,therefore, did not help to reduce regional inequality during the reformperiod.

Table 2 : State wise FDI Approval during August 1991 to August2004

S.No.

State Number of Approval FDI Approval(Rs.)

% of total Technical Financial Total

1 Maharashtra 1313 3655 4972 366024.15 14.78

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2 Delhi 306 2457 2763 303037.96 12.243 Tamil Nadu 615 2041 2656 225826.40 9.124 Karnataka 501 2085 2586 188184.32 7.605 Andhra Pradesh 266 1010 1276 116091.37 4.596 Gujrat 566 658 1224 111765.07 4.51

7 Madhya Pradesh 73 170 243 92714.08 3.748 Orissa 50 91 141 82293.13 3.329 West Bengal 198 481 679 77898.35 3.1510 Uttar Pradesh 277 534 811 48266.92 1.9511 Haryana 322 552 874 38751.56 1.5612 Rajasthan 103 240 343 29112.04 1.5613 Punjab 62 139 201 21241.53 0.8614 Kerala 70 262 332 17806.31 0.7215 Pondicherry 42 88 130 12861.53 0.5216 HimachalPradesh 57 42 99 11741.45 0.4717 Goa 66 210 276 8977.32 0.4018 Bihar 22 27 49 7397.05 0.3019 Chhattisgarh 31 17 48 6363.03 0.2620 Jharkhand 54 27 81 1464.15 0.0621 Uttarkhand 24 28 52 1256.49 0.05

Pattern of FDI inflow in India suggests that the inflows are highlyconcentrated in a few states and within states in a few districts mainly urban agglomerations because of a big domestic market,availability of cheap and skilled labour, market friendly policies, taxincentives and personal efforts of Chief Ministers of concerning states.

The concentration of FDI in relatively small areas has created someillusion of prosperity, but has hardly done anything to reduce overalllevels of poverty or inequality in India (Pal and Ghosh, 2007; 23). It isto be worth mentioning here that Maharashtra, with highest share inFDI inflows, has a higher poverty incidence (30.7 per cent). In contrast

Jammu & Kashmir with 5.4 per cent poverty incidence has a negligible

share in FDI inflow.

Geographically, the distribution of FDI is neither consistent inrelation to population nor in relation to geographical area (Table 3).Western region with 25.87 per cent of total area of the country and20.01 per cent share of the population received 34.27 per cent of total

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FDI during 1991-2004. While the southern region, having 19.35 percent area and 21.81 per cent population grabbed 30.34 per cent of total FDI.

Central region could attract only 8.63 per cent FDI despite 18.23per cent share in geographical area and 11.48 per cent share of totalpopulation of the country. Eastern region which has 7.99 per centgeographical area and 18.41 per cent share in total population of thecountry, could get only 4.76 per cent of total FDI. The most neglectedpart of the country NE regions share in FDI approval is only 0.03 percent despite 7.33 per cent geographical area and 4.07 per cent share

in total population.Table 3 : State/Region wise FDI Approval during 1991 to2004

SlNo

State FDIApproval (Rsmillion)

% sharein totalFDIApproval

% shareof totalGeogra-phicalarea

%shareintotalpopula- tion

PercapitaFDI (Rs)

FDI PerSq. m.area(millionRs.)

Western Region1 Maharashtra 511150 23.63 9.3 9.42 5276.11 1.662 Gujrat 188370 8.71 5.9 4.93 3717.58 0.963 Rajasthan 30330 1.40 10.4 5.49 536.71 0.084 Goa 9990 0.46 0.11 0.13 7400.00 2.695 Dadra Nagar

Haveli1240 0.05 0.01 0.02 6200.00 2.52

6 Daman & Diu 555 0.02 0.003 0.02 2775.00 4.95Sub-total 741635 34.27 25.87 20.01 3603.48 0.87

Southern Region7 Tamil Nadu 250720 11.59 3.95 6.07 4017.30 1.928 Karnataka 241380 11.16 5.80 5.14 4567.26 1.259 Andhra

Pradesh137450 6.35 8.36 7.41 1803.56 0.50

10 Kerala 15520 0.72 1.18 3.10 487.43 0.39

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11 Pondicherry 12862 0.52 0.01 0.09 14291.11

26.85

Sub-total 657932 30.34 19.35 21.81 2934.44 1.03

Western Region

12 Delhi 352510 16.29 0.04 1.35 25451.9 8 237.7

13 Uttar Pradesh 50430 2.33 7.32 16.16 303.42 0.2014 Haryana 38700 1.79 1.34 2.06 1830.65 0.8715 Himachal

Pradesh11740 0.54 1.69 0.59 7934.10

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16 Punjab 24340 1.12 1.53 2.37 999.17 0.4817 Chandigarh 2413 0.10 3.46 0.08 2681.11 21.1618 Uttarakhand 1256 0.05 1.62 0.83 147.93 0.02

19 Jammu &Kashmir 84 0.00 6.76 0.99 8.28 0.0003

Sub-total 481470 22.22 18.64 24.44 1917.06 0.78

Central Region

20 MadhyaPradesh

99040 4.58 9.37 5.87 1641.03 0.32

21 Chhattisgarh 6363 0.25 4.11 2.03 305.47 0.0422 Orissa 82290 3.80 4.73 3.58 2236.14 0.53

Sub-total 187693 8.63 18.23 11.48 1590.88 0.31

Eastern Region23 West Bengal 93170 4.31 2.69 7.79 1162.01 1.0424 Bihar 8840 0.40 2.86 8.00 106.50 0.0925 Jharkhand 1465 0.05 2.42 2.62 54.35 0.02

Sub-total 103475 4.76 7.99 18.41 544.23 0.39

North-Eastern Region

26 Assam 15 0.00 2.38 2.59 0.56 0.0001927 Arunachal

Pradesh111 0.00 2.54 0.11 100.90 0.00013

28 Nagaland 37 0.00 0.50 0.19 18.59 0.002229 Tripura 31 0.00 0.31 0.31 9.68 0.002930 Meghalaya 530 0.02 0.68 0.23 14.09 0.002031 Manipur 32 0.00 0.67 0.21 17.04 0.001432 Mizoram 15 0.00 0.64 0.09 17.04 0.000733 Sikkim 00 0.00 0.21 0.05 0.00 0.00

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Sub-total 771 0.03 7.33 4.07 19.78 3.19

Others 2151 0.10 2.58 0.04 Total 2175730 100.00 100.00 100.0 2114.63 0.66Location not

Mentioned

648320 - - - - -

Grand Total 2923580

- - - 2843.9 0.889

Source : (i) Central Statistical Organisation(ii) SIA New Letters Various Issues

The above mentioned uneven distribution of FDI approvals is alsosupported by Gini coefficient (Table-4), that measures the level of inequality in distribution. Gini coefficient in relation to states share inFDI and population in 0.408088 and that with states share isgeographical area is 0.758385.

Table 4 : Values of Gini coefficient in relation to percentagedistribution of FDI with geographical share andpopulation share of each state

S.No.

Description of GiniCoefficient

Value of Ginicoefficient

Estimate of populationvalue

(i) FDI and population 0.408088 0.43076(ii) FDI and geographical area 0.758385 0.782084

The above table shows that state wise distribution of FDI is moreunequal geographically than state wise population.

Another significant change that took place during August 1991 toAugust 2004, is the change in state wise distribution of FDI (Table 5).

Total approval FDI during 1991-98 was Rs. 1812960 million and thatduring 1999-March 2004 was Rs. 110620 million. Out of these location

details are available for Rs. 1239520 million and 923980 millionrespectively.

Table 5 : State wise share of approved FDI between 1991-1998 and 1999-March 2004

State Total approval FDI1991-March 2004

% share of each state

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Amount Rsmillion

% share 1991-1998 1999 toMarch 2004

Maharashtra 511150 23.63 17.92 31.28Delhi 352510 16.29 18.10 13.87

Tamil Nadu 250720 11.59 10.98 12.41

Karnataka 241380 11.16 10.74 11.72Gujrat 188370 8.71 8.04 9.60Andhra Pradesh 137450 6.35 6.38 6.32Madhya Pradesh 99040 4.58 6.16 2.45West Bengal 93170 4.31 5.95 2.10Orissa 82290 3.80 6.26 0.50Uttar Pradesh 50430 2.33 2.45 2.17Haryana 38700 1.79 1.78 1.80Rajasthan 30330 1.40 1.81 0.85Punjab 24340 1.12 1.54 0.57Kerala 15520 0.72 0.48 1.03Himachal Pradesh 11740 0.54 0.28 0.90Goa 9900 0.46 0.38 0.56Bihar 8840 0.41 0.18 0.71Othrs 17510 0.81 0.56 1.15

Total 2163390 100 100 100State notmentioned

2923580

Source : SIA Newsletters/Annual Issues.

The Table-5 shows that concentration of FDI increased in secondphase, particularly more in Western region (Maharashtra and Gujrat)and southern region (Tamil Nadu, Karnataka). Share of these states tototal approved FDI increased during 1999-March 2004 as compared to1991-1998. Andhra Pradesh could hold its position. But Delhis sharedeclined considerably. Madhya Pradesh,West Bengal and Osiss losttheir shares in approved FDI during second phase. Some of the

backward states also, lost their initial appeal (Rao and Murthy, 2006;10).

However, these simple concentration measures offer limitedinsights at best (Nunnenkamp and Stracke, 2007; 6). FDI has to benormalised in order to reflect the states attractiveness to FDI. Ratio

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of FDI per capita for each state to FDI per capita for All India gives astates relative attractiveness (Table 6). Likewise, economic density interms of FDI per sq. km. area of each state and its ratio to FDI per sq.km. area for whole of the country may also provide some insight intothe level of concentration of FDI in certain pockets of the country.

Table 6 : States attractiveness to FDIS.No.

State Per capitaFDI Rs

Ratio of per capitaFDI to AllIndia percapita FDI

FDI per sq.km. area(million Rs)

Ratio of FDI per sq.km. to FDIper sq. km.of wholecountry

1 Maharashtra 5276.11 2.49 1.66 2.51

2 Gujarat 3717.58 1.75 0.96 1.453 Rajasthan 536.71 0.25 0.08 0.124 Goa 7400.00 3.49 2.69 4.075 Dadra Nagar

Haveli6200.00 2.93 2.52 3.82

6 Daman & Diu 2775 1.31 4.95 7.57 Tamil Nadu 4017.30 1.89 1.92 2.908 Karnataka 4567.26 2.15 1.25 1.899 Andhra Pradesh 1803.56 0.85 0.50 0.7510 Kerala 487.43 0.23 0.39 0.5911 Pondicherry 14291.11 6.75 26.85 40.6812 Delhi 25451.98 12.0 237.7 360.1513 Uttar Pradesh 303.42 0.14 0.20 0.3014 Haryana 1830.65 0.86 0.875 1.3215 HimachalPrades

h1934.102 0.91 0.21 0.31

16 Punjab 999.17 0.47 0.48 0.7217 Chandigarh 2681.11 1.26 21.16 32.0618 Uttarakhand 147.93 0.06 0.02 0.0319 Jammu&Kashmir 8.28 0.03 0.37 0.0520 Madhya Pradesh 1641.09 0.77 0.32 0.4821 Chhatisgtarh 305.47 0.14 0.04 0.0622 Orrisa 2236.14 1.05 0.53 0.8023 W. Bengal 1162.01 0.54 1.04 1.5724 Bihar 106.50 0.050 0.09 0.1325 Jharkhand 54.35 0.02 0.018 0.0226 Assam 0.56 0.02 0.00 Neg.27 Arunachal Pd. 100.90 0.04 0.00 Neg.

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28 Nagaland 18.59 0.807 0.00 Neg.29 Tripura 9.68 0.45 0.00 Neg.30 Meghalaya 228.44 0.10 0.02 Neg.31 Manipur 14.09 0.66 0.00 Neg.32 Mizoram 17.04 0.80 0.00 Neg.

33 Sikkim - - - -34 Others Neg. Neg. Neg. Neg.All India 2114.63 1.00 0.6 1.00

Source: SIA News Letter Various Issues.

Table-5 reveals that FDI per capita was 12 times higher than theaverage for India as a whole in case of UT Delhi and 6.75 times higherin case of Pondicharry. FDI per sq. km. in Delhi and Pondicherry was

360.15 and 40.68 times higher than the average for India as a whole.For Chandigarh the ratio between FDI per sq. km. to the average FDIper sq. km. for India as a whole was 32.06. This is because of twoseasons (i) These UTs are typically cities without a less developed ruralhinterland, and (ii) Urban agglomeration in smaller area with betterinfrastructural facilities and business environment. Also, five states(Maharashtra, Karnataka, Tamilnadu, Gujrat and Goa) attractedsignificantly more FDI per capita as well as FDI per sq. km. area thanIndia as a whole. Note that Haryana and West Bengal attracted moreFDI per sq. km than FDI per sq. km. for India as a whole. In Haryana, itis because of its proximity to NCR Delhi, while in West Bengal port cityKolcutta is the main attraction. In sharp contrast, 20 states appear tobe fairly unattractive to FDI, with ratio of FDI per capita and FDI per sq.km below 0.5 and in many cases close to zero.

Concludingly, the spatial distribution of FDI is highly skewed. FDIis concentrated in three regions, namely western, southern andnorthern region. In the initial stage of economic reforms andliberalization Delhi and its surrounding areas attracted a significantamount of FDI but lost some of its glamour in the second phase. On the

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contrary, western and southern regions were the choices of the foreigninvestors because of investor friendly policies and availability of ports-minor as well as major in these states. The increasing concentration of FDI left a large part of the Indian population and territory unaffected bybooming FDI in the post reform era.

S ECTION II

Concentration of FDI within the State

Although, the states like Maharashtra, Gujrat, Tamilnadu,Karnataka and UTs Delhi, Pondicherry and to some extent Dadra NagarHaveli and Daman & Diu have attracted more than 80 per cent FDI

during August 1991 March 2004, but the ultimate destination of FDIprojects in these states was guided more by geographical factors thaneconomic factors. Once a foreign investor, individual or MNC decides toinvest in India and chose a state finally, locational factors motivatedhim to choose the site Peter Nunnekamp and Rudi Stracke (2006) dealtthis question too. In their analysis based on the number of FDI projectsfound that in four out of the eleven states, the most important districtaccounted for more than 60 per cent of all FDI projects, the respectivestate attracted in 1993-2005. Most notably almost 90 per cent of FDIprojects in Karnataka went to Bangalore followed by Kalkata in westBengal, Chenai in Tamilnadu and Mumbai in Maharashtra (Table 7).

Table 7 : Concentration of FDI (Number of Projects) at Districtlevel (1993-2005)

States Distt. With highestpercentage of FDIprojects*

Top 3 Distts. With highestpercentage of FDIprojects*

% share of total FDIprojects inthe state

% share of populationof thatstate

% share of total FDI inprojects inthe state

% share of populationof thatstate

Maharashtra 60.1 3.4 85.9 19.3Gujarat 32.4 11.5 65.7 21.3

Tamilnadu 63.8 7.0 86.7 18.4Kerala 44.3 1.9 78.0 5.4

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Karnataka 89.3 12.4 97.6 20.9Andhra Pradesh 57.0 4.9 76.2 13.0West Bengal 70.2 5.7 82.1 26.3Madhya Pradesh 22.9 1.0 50.9 2.8Rajasthan 31.6 3.2 68.4 6.3

Uttar Pradesh 30.7 2.0 68.5 4.5Bihar 52.4 2.4 83.3 10.9Source : Piter Nunnekamp and Rudi Stracke (2006).*The share of undisclosed projects ranges from 2.8 per cent(Karnataka) to 14.3 per cent (Bihar).

The concentration of FDI in a smaller geographical area withinthe states is also visible when looking at the top-3 districts. With fewexceptions, the top-3 districts attracted more than two thirds of the

states total number of FDI projects in 1993-2005. 97.6 per cent FDIprojects in Karnataka find their safest destination in urban and ruralBangalore plus Mysore. Likewise top-3 districts of Maharashtraaccounted for 85.9 per cent FDI projects of the states. In this way avery small segment of population as well as area is benefited from FDIleaving the majority of population of that state rather unaffected bythese projects. It is a matter of serious concern for the general publicthat a large amount of funds was diverted to these areas so as toprovide high quality infra-structure facilities that are demanded by theinvestors. In this way the rest of the population of these states faceddearth of resources needed for their upliftment.

S ECTION III

Role of Geographical Factors in FDI

Since our concern in present analysis is to find out the role, if

any, of geographical factors in attracting FDI, so we have consideredthe following indicators for our analysis.

(i) Road density (km/sq. km area)(ii) Rail density (km/sq. km area)(iii) Bank density (No. of Branches/Sq. Km. area)

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(iv) Sea port density (per cent share of respective major parts interms of traffic handled

(v) Electricity consumption (per capita)(vi) Share of urban population(vii) Availability of raw material

In general terms, it is believed that states like Maharashtra,Gujrat, Tamilnadu, Karnataka, Goa and UTs Delhi (includingsurrounding area of UP and Haryana) and Pondicherry are industriallydeveloped states. Punjab and Haryana also fall in developed categorybecause of their higher value addition in agriculture. A major Chunk of

FDI went to these states/UTs, except Punjab and Haryana, while thebackward states like UP, Bihar, Madhya Pradesh, Rajasthan, Jharkhand,Chhattisgarh, Orissa, West Bengal and the Whole of N.E. States failedto attract significant amount of FDI.

Table 8 : Correlation between FDI and Road density bank density, and electricity per capita consumption

Item Correlation between FDI andRoaddensity

Rail SeaPorts

Electricity

Bankdensity

Urbanpopulation

Correlation

0.3740 0.320 0.828 0.258 0.3872 0.607

T (15) 1.562 1.309 3.919 1.085 1.626 2.962

Bivariate correlations have been presented in Table-8 to assessthe impact of geographically factors on FDI. It is evident from Table-8that roads, railways, electricity consumption have positive correlationwith FDI, but the correlation is not so strong. Sea port shows a strongcorrelation and thus has been a major force of attraction for FDI.

Availability of raw material also plays an important role in theselection of location for investment.

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It is interesting to note that in most leading states (such asKarnataka, Tamilnadu, Gujrat, Andhra Pradesh, West Bengal, MadhyaPradesh, Haryana, Rajasthan, Kerala, Pondicherry) the top mostimportant contributor was Power & Fuels. It is because of hugepotential of crude oil or natural gas in off shore/on shore fields orbecause of investment in oil refining. In Maharashtra and Delhi,telecommunication had a majority share because of liberalized normsfor FDI in this sector. Transportation industry attracted FDI in thoseareas where there were strong base of automobile industry. The choiceof Orissa and Madhya Pradesh for metallurgical industries is quiteobvious

S ECTION IV

Conclusion

The economic reforms in India have been instrumental inbreaking the Hindu rate of growth of 3.5 per cent and moving towardsfaster economic growth. Increase in FDI inflow has been one of themajor achievements in the post reforms period. FDI inflow has beenvery unevenly distributed across states and regions. This hasprevented its economic benefits from spreading across the entireeconomy. Theoretically foreign investment might encourageseconomic growth, exports and technology transfer but in practice, FDIinflows into India neither resulted into decline in income inequalities,nor it could foster inclusive growth. During the post-reform period,Indias economic growth situation has improved along with the flow of FDI. Increasing flows of foreign investment have partially contributed

towards higher growth and higher growth prospects have attractedmore FDI. Despite the benefits of increasing foreign investment andthe economic reform processes in general have not been distributedevenly among states and regions is evident in the analysis presentedin the study. States in the western and southern regions attracted

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much of the approved FDI. The relatively backward states in thecentral, eastern and north-eastern region could not attract much FDIboth in absolute and relative terms. In fact some of the states are fastlosing their limited initial appeal. Also besides the inter state/regiondisparities, the intra state/region disparities in the inflow of FDI alsolead to unequal growth within the state/region.

The unequal inflow of FDI shows a marked trend of foreigninvestors to prefer states that are more developed with betterinfrastructure, sufficient power and fuel generation, availability of transportation facilities, proximity to sea route, well developed major

or minor ports and liberal macro economic policies of the stategovernments.

Within a state also, the FDI remains concentrated in a fewdistricts mainly because of urban agglomeration. The concentration of FDI in relatively small areas has created some illusions of prosperitybut has hardly done anything to reduce overall levels of poverty orinequality. On the other hand, in an effort to attract FDI to their states,

some states have ignored the rural sector and concentrated theirdevelopment expenditures in restricted urban areas. This has furtherincreased the rural-urban divide adding further to the regionaldisparities. Thus, it can be concluded that although attracting FDI canbe an important factor for regional developmental strategy, it is not anend in itself. The right strategy would be to create a favourableenvironment throughout the country for equitable FDI inflow and

simultaneously develop sound domestic macro economic andstructural policies for removing inter and intra state disparities.

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REFERENCES

1. Agarwal (2005). The Influence of Labour Markets on FDI,Some Empirical Explorations in Export Oriented and DomesticMarket Seeking FDI across Indian States. University of Delhi,http: // Knowledgeforum.lifac.org.in/IndexServer/Tifac/article/22.doc .

2. Bhasin, Niti (2008). Foreign Direct Investment in India : 1947-48 to 2007-08, New Century Publications, New Delhi.

3. GOI (1992). Economic Survey 1991-92, Ministry of Finance.

4. GOI (2008). Economic Survey 2007-08, Ministry of Finance,New Delhi.

5. Nunnenkamp, Peter and Stracke Rudi (2007). Foreign DirectInvestment in Post-Reform India : Likely to work for Regional

Development. Kiel Institute for the World Economy,Duesternbrooker Weg 120, Kiel (Germany), Kiel workingPaper, No. 1375.

6. Oguteu, Mehmet (2002). Foreign Direct Investment andRegional Development : Sharing Experiences from Brazil,China, Russia and Turkey. OECD Secretariat in theInternational Conference on Regional Development and

Foreign Investment in Brazil, Fortaleza, Brazil, 12-12,December.

7. Pal Parthafralin and Jayati Ghosh (2007). Inequality in India :A Survey of Recent Trends, Desa Working Paper, N. 45, July.

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http://knowledgeforum.lifac.org.in/IndexServer/Tifac/article/22.dochttp://knowledgeforum.lifac.org.in/IndexServer/Tifac/article/22.dochttp://knowledgeforum.lifac.org.in/IndexServer/Tifac/article/22.dochttp://knowledgeforum.lifac.org.in/IndexServer/Tifac/article/22.doc


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8. Raman Jaishanker (1999). Indias Economic LiberalisationProgramme : An Examination of its impact on the Regional.

9. Raman Jaishankar (1997). Convergence or Uneven

Development : A Note on Regional Disparity in India. TheIndian Economic Journal, Vol. 44, No. 4, April.

10. Rao and Murthy (2006). Towards Understanding the Statewise Distribution of Foreign Direct Investments in the Post-liberalisation Period. Institute for Studies in IndustrialDevelopment, ISID Working Paper 2006/01.

11. RBI (2005). Handbook of Statistics, A Indian Economy. TheRBI, Mumbai.

12. UNCTAD (2006). World Investment Report, 2006, UNO, New York.

13. UNCTAD (1994). World Investment Report. TransnationalCorporations, Employment and the work place.

14. World Bank (2009). World Development Report 2009, TheWorld Bank, Washington DC.

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Table 1 : Region wise FDI Inflow in India (from April 2000 toMarch 2009)

Ranks RBIs RegionalOffice

State Covered Amount of FDI Inflows %age withFDIinflows (inrupeesterms)

Rupees inCrores

US$ inmillion

1 Mumbai Maharashtra,Dadra & NagarHaveli, Daman & Diu

134,287.63

30,700.4 36%

2 New Delhi Delhi, Part of UP andHaryana

55,308.98 12,716.9 15%

3 Bangalore Karnataka 25,674.50 5.867.9 7%4 Ahmedabad Gujarat 24,522.79 5,624.8 7%5 Chennai Tamil Nadu,

Pondicherry21,078.90 4,725.0 6%

6 Hyderabad Andhra Pradesh 15,098.49 3,495.4 4%7 Kolkata West Bengal,

Sikkim, Andaman &Nicobar Islands

5,410.55 1,277.6 2%

8 Jaipur Rajasthan 2,071.24 438.3 1%9 Chandigarh Chandigarh, Punjab,

Haryana, HimachalPradesh

1,754.72 384.2 0.5%

10 Panaji Goa 1,139.32 252.9 0.3%11 Kochi Kerala 884.11 203.1 0.2%12 Bhopal Madhya Pradesh,

Chattisgarh662.22 148.7 0.2%

13 Bhubaneshwar

Orissa 437.92 97.4 0.1%

14 Guwahati Assam, ArunachalPradesh, Manipur,Meghalaya, Mizoram,Nagaland, Tripura

228.85 53.2 0.1%

15 Kanpur Uttar Pradesh,Uttaranchal

71.66 16.4 0.0%

16 Patna Bihar, Jharkhand 1.78 0.4 0.0%17 RBIs Regions not Indicated 80,344.11 18,431.2 22%

Sub Total 368,977.90 84,433.6 100%18 Stock Swapped (from 2002 to 2009) 14,546.64 3,301.1 -19 Advance of Inflows (from 2000 to

2004)9,962.22 1,962.8 -

20 RBIs-NRI Schemes (from 2000 to2002)

533.06 121.3 -

Grand Total 393,019.8 89,818.8 -

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(from April 2000 to March 2009) 2Source : RBI Bulletin, May 2009 .

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spatial distribution of fdi in india

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