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Foreign Investment Inflows in India and Some Macroeconomic Indicators of Indian Economy

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Title: Foreign Investment Inflows in India and Some Macroeconomic Indicators of Indian Economy


1
Foreign Investment Inflows in India and Some
Macroeconomic Indicators of Indian Economy
  • Prof. Madhuri SrivastavaHead, Department of
    EconomicsFormer Director, Centre forWomens
    Studies DevelopmentB.H.U., Varanasi, INDIA

2
Why Do Developing Countries Need Foreign Capital?
  • Developing countries often faced the problem of
    shortage of resources for investment as saving
    capabilities are limited by the income
    constraint.
  • Countries attain the capacity of capital
    formation and creation of tangible and
    non-tangible assets in their economies.
  • Foreign investors bring with their capital the
    best technologies and improved managerial
    capacities.
  • Transfer of capital, technology and managerial
    skill is helpful not only in big concerns but
    also in the development of small and ancillary
    industries.
  • It transmits industrial culture in the form of
    quality of goods.

3
Why Do Developing Countries Need Foreign Capital?
  • But such investments do not take care of the
    attainment of national goals like social justice,
    higher growth rate, self-sufficiency, balanced
    regional growth , generation of employment and so
    on. Foreign investors bring with their capital
    the best technologies and improved managerial
    capacities.
  • Transfer of capital, technology and managerial
    skill is helpful not only in big concerns but
    also in the development of small and ancillary
    industries.
  • It transmits industrial culture in the form of
    quality of goods.
  • But such investments do not take care of the
    attainment of national goals like social justice,
    higher growth rate, self-sufficiency, balanced
    regional growth, generation of employment and so
    on.

4
Foreign Investment Policy During Mixed Economy
Regime (1948-91)
  • Foreign investment was permitted in areas where
    Indian enterprise/ indigenous technology was not
    available.
  • The foreign investors were welcomed to train
    Indian personnel and transmit the latest
    technology.
  • It was in the form of purchase of technology
    through one time payment of technical know-how
    fees or royalty payment rather than transfer of
    technology.
  • The entry of FI was restricted in the fields like
    banking, finance, trading, building-construction
    as these were considered as profit making
    ventures.
  • Since eighties, substantial liberalization was
    introduced and foreign capital was permitted to
    enter freely in electronics industries.

5
Foreign Investment Policy in India since 1991
  • Non Resident Indians (NRIs) and Overseas
    Corporate Bodies (OCBs) were permitted to invest
    up to 100 percent foreign equity in high priority
    industries such as hotels, tourism. hospital etc.
  • Foreign investors are permitted to take shares in
    small scale industries up to 24 percent
  • Foreign Investment Promotion Board (FIPB) was
    established to negotiate with large International
    firms.
  • FERA-1973 was replaced by FEMA in 1999.
  • The Government has allowed all the industries
    except six industries where FDI can be made
    without the approval from FIPB.
  • The portfolio investment by FIIs in primary and
    secondary markets have been raised to 49 percent
    in 2001-02 budget.

6
(No Transcript)
7
RATIO OF DIRECT AND PORTFOLIO INVESTMENTS TO
TOTAL FOREIGN INVESTMENT INFLOWS ?INDIA
Source Table 1
8
Foreign Investment Inflows in India ( GDP)
9
Total Foreign Technology Agreements (FTAs )and
Foreign Direct Investment (FDI) approvals and
Actual Inflows in India (Rs Crores)
10
Actual Inflow of FDI ( Amount Approved)
11
SECTORS ATTRACTING FDI APPROVALS WITH INFLOWS
(DURING AUGUST 1991 TO OCTOBER 2002) (Rs. Crores)
12
Average Annual Compound Growth Rate Macro
Economic Indicators Of Indian Economy During
1991-2002
13
Conclusions
  • Capital/Technology-intensive sectors are
    attracting significantly higher share of total
    foreign investment as compared to labour
    intensive sectors such as food-processing
    industries, hotels, tourisms, and textiles.
  • The average annual compound growth rate of
    employment generation in organised sectors is
    insignificant
  • The foreign investment do not have any
    considerable impact on the macro economic
    parameters of Indian economy.
  • The grow rate of foreign exchange reserve is the
    highest among indigenous macroeconomic indicators
    under consideration.

14
Suggestions
  • The flow of foreign investments should also be
    directed towards labour-intensive sectors
    including Agriculture and Food-Processing
    Industries.
  • Foreign investment in service sector should not
    be only for providing infra structural facilities
    but also for generating employment in both rural
    and urban areas.
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