IJRMEC Volume2, Issue 12 (December- 2012) ISSN: 2250-057X

International J ournal of Research in Management, Economics and Commerce

www.indusedu.org 58
IMPACT OF FDI ON INDIAN BANKING SECTOR
Anil Kumari*
Dr Surender Kumar Gupta**

ABSTRACT
Foreign Direct Investment (FDI) is considered to be the lifeblood of economic development
especially for the developing and underdeveloped countries. Multinational companies (MNCs)
capitalise on foreign business opportunities by engaging in FDI, which is investment in real
assets (such as land, buildings, or existing plants) in foreign countries. MNCs engage in joint
ventures with foreign firms, acquire foreign firms, and form new foreign subsidiaries. It plays an
important role in the long-term development of a country not only as a source of capital but also
for enhancing competitiveness of the domestic economy through transfer of technology,
strengthening infrastructure, raising productivity and generating new employment opportunities
(Deutsche Bundesbank, 2003). MNCs are interested in boosting revenues through FDI by
attracting new sources of demand, entering into profitable markets and exploiting monopolistic
advantages. Currently these corporations are increasingly establishing overseas plants or
acquiring existing overseas plants to learn the technology of foreign countries.












*Research Scholar, Singhania University, J hunjhunu -333515, Rajasthan (India)
**Associate Professor, Maharaja Agrasen Institute of Management and Technology J agadhri
IJRMEC Volume2, Issue 12 (December- 2012) ISSN: 2250-057X
International J ournal of Research in Management, Economics and Commerce
www.indusedu.org 59
INTRODUCTION
In India, FDI is considered as a developmental tool, which can help in achieving self-reliance in
various sectors of the economy. With the announcement of Industrial Policy in 1991, huge
incentives and concessions were granted for the flow of foreign capital to India. India is a
growing country which has large space for consumer as well as capital goods. Indias abundant
and diversified natural resources, its sound economic policy, good market conditions and highly
skilled human resources, make it a proper destination for foreign direct investments.
As per the recent survey done by the United National Conference on Trade and Development
(UNCTAD), India will emerge as the third largest recipient of foreign direct investment (FDI)
for the three-year period ending 2012 (World Investment Report 2010). As per the study, the
sectors which attracted highest FDI were services, telecommunications, construction activities,
and computer software and hardware. In 1991, India liberalised its highly regulated FDI regime.
Along with the virtual abolition of the industrial licensing system, controls over foreign trade and
FDI were considerably relaxed. The reforms did result in increased inflows of FDI during the
post reform period. The volume of FDI in India is relatively low compared with that in most
other developing countries.
FOREIGN DIRECT INVESTMENT IN INDIAN BANKING SECTOR
Foreign direct investment (FDI) is defined as investment made to acquire lasting interest in
enterprises operating outside of the economy of the investor. The FDI relationship consists of a
parent enterprise and a foreign affiliate which together form a Multinational corporation (MNC).
In order to qualify as FDI the investment must afford the parent enterprise control over its
foreign affiliate. The UN defines control in this case as owning 10% or more of the ordinary
shares or voting power of an incorporated firm or its equivalent for an unincorporated firm;
lower ownership shares are known as portfolio investment.
Indian federal government has opened up the banking sector for foreign investors raising the
ceiling of foreign direct investment in the Indian private sector banks to 49 percent. However,
the ceiling of FDI in the countrys public sector banks remains unchanged at 20 percent. Foreign
banks having branches in India are also entitled to acquire stakes up to 49% through automatic
routes. It is to be noted that under automatic route fresh shares would not be issued to
foreign investors who already have financial or technical collaboration in banking or allied
IJRMEC Volume2, Issue 12 (December- 2012) ISSN: 2250-057X
International J ournal of Research in Management, Economics and Commerce
www.indusedu.org 60
sector. They would require FIPB approval. However, some statutory approvals of the Reserve
Bank of India (RBI), countrys central banking authority, would be required.
Statutory Limits
Foreign direct investment (FDI) up to 49 percent is permitted in Indian private sector
banks under automatic route which includes Initial Public Issue (IPO), Private Placements,
ADR/GDRs; and Acquisition of shares from existing shareholders.
Automatic route is not applicable to transfer of existing shares in a banking company
from residents to non-residents. This category of investors require approval of FIPB, followed by
in principle approval by Exchange Control Department (ECD), Reserve Bank of India (RBI).
The fair price for transfer of existing shares is determined by RBI, broadly on the basis
of Securities Exchange Board of India (SEBI) guidelines for listed shares and erstwhile CCI
guidelines for unlisted shares. After receipt of in principle approval, the resident seller can
receive funds and apply to ECD, RBI, for obtaining final permission for transfer of shares.
Foreign banks having branch-presence in India are eligible for FDI in private sector
banks subject to the overall cap of 49% with RBI approval.
Issue of fresh shares under automatic route is not available to those foreign investors who
have a financial or technical collaboration in the same or allied field. Those who fall under this
category would require Foreign Investment Promotion Board (FIPB) approval for FDI in the
Indian banking sector.
Under the Insurance Act, the maximum foreign investment in an insurance company has
been fixed at 26 percent. Application for foreign investment in banks which have joint
venture/subsidiary in insurance sector should be made to RBI. Such applications would be
considered by RBI in consultation with Insurance regulatory and Development Authority
(IRDA).
FDI and Portfolio Investment in nationalized banks are subject to overall statutory limits
of 20 percent.
The 20 percent ceiling would apply in respect of such investments in State Bank of India
and its associate banks.



IJRMEC Volume2, Issue 12 (December- 2012) ISSN: 2250-057X
International J ournal of Research in Management, Economics and Commerce
www.indusedu.org 61
VOTING RIGHTS OF FOREIGN INVESTORS
Table 3
Private Sector
Banks
: Not more than 10 percent of the total voting rights of all the
shareholders
Nationalized
Banks
: Not more than 1 percent of the total voting rights of all the
shareholders of the nationalized bank.
State Bank of
India
: Not more than 10 percent of the issued capital This does not
apply to Reserve Bank of India (RBI) as a shareholder.
However, government in consultation with RBI, ceiling for
foreign investors can be raised.
SBI Associates : Not more than 1 percent. This ceiling will not be applied to
State Bank of India. If any person holds more than 200 shares,
he/she will not be registered as a shareholder.
RBI Approval
Transfer of shares of 5 percent and more of the paid-up capital of a private sector bank
requires prior acknowledgement of RBI.
For FDI of 5 percent and more of the paid-up capital, the private sector bank has to apply
in the prescribed form to RBI.
Under the provision of Foreign Exchange Management Act (FEMA), 1999, any fresh
issue of shares of a bank, either through the automatic route or with the specific approval of
FIPB, does not require further approval of Exchange Control department (ECD) RBI from the
exchange control angle.
The Indian banking company is only required to undertake two-stage reporting to the
ECD of RBI as follows: (1) the Indian company has to submit a report within 30 days of the date
of receipt of amount of consideration indicating the name and address of foreign investors, date
of receipt of funds and their rupee equivalent, name of bank through whom funds were received
and details of govt. approval, if any. (2) Indian banking company is required to file within 30
IJRMEC Volume2, Issue 12 (December- 2012) ISSN: 2250-057X
International J ournal of Research in Management, Economics and Commerce
www.indusedu.org 62
days from the date of issue of shares, a report in form FC-GPR (Annexure II) together with a
certificate from the company secretary of the concerned company certifying that various
regulations have been complied with.
Divestment by Foreign Investors
Sale of shares by non-residents on a stock exchange and remittance of the proceeds there of
through an authorized dealer does not require RBI approval.
Sale of shares by private arrangement requires RBIs prior approval.
Sale of shares by non-residents on a stock exchange and remittance of the proceeds
thereof through an authorized dealer does not require RBI approval.
A foreign bank or its wholly owned subsidiary regulated by a financial sector regulator in the
host country can now invest up to 100% in an Indian private sector bank. This option of 100%
FDI will be only available to a regulated wholly owned subsidiary of a foreign bank and not any
investment companies. Other foreign investors can invest up to 74% in an Indian private sector
bank, through direct or portfolio investment. The Government has also permitted foreign banks
to set up wholly owned subsidiaries in India. The government, however, has not taken any
decision on raising voting rights beyond the present 10% cap to the extent of shareholding.
All entities making FDI in private sector banks will be mandatory required to have credit rating.
The increase in foreign investment limit in the banking sector to 74% includes portfolio
investment [i.e., foreign institutional investors (FIIs) and non-resident Indians (NRIs)], IPOs,
private placement, ADRs or GDRs and acquisition of shares from the existing shareholders. This
will be the cap for any increase through an investment subsidiary route as in the case of HSBC-
UTI deal. In real terms, the sectoral cap has come down from 98% to 74% as the earlier limit of
49% did not include the 49% stake that FII investors are allowed to hold. That was allowed
through the portfolio route as the sector cap for FII investment in the banking sector was
49%.The decision on foreign investment in the banking sector, the most radical since the one in
1991 to allow new private sector banks, is likely to open the doors to a host of mergers and
acquisitions. The move is expected to also augment the capital needs of the private banks.
Trends in banking:
The scheduled commercial banks operating in India are classified into public sector banks, old
private sector banks, new private sector banks and foreign banks. In the last few years, the new
private sector banks have outperformed the other three groups. Between 1995-96 and 1999-2000,
IJRMEC Volume2, Issue 12 (December- 2012) ISSN: 2250-057X
International J ournal of Research in Management, Economics and Commerce
www.indusedu.org 63
the share in assets of public sector banks fell from 84.5 to 80.2 per cent, while the share of
foreign banks during the same period fell from 7.9 to 7.5 per cent. The share of the old private
sector banks rose modestly from 6.2 to 7 per cent during the same period, while the new private
sector banks increased their share from 1.4 to 5.3 per cent. The main disadvantage that the
foreign banks face is the restriction on branch expansion imposed by the RBI.
Vulnerability of old private banks:
The 23 old private sector banks represent a vulnerable section of the commercial banking sector.
They have a comparatively high level of non-performing assets. They also have a low capital
base, inadequate technology infrastructure and limited branch network. Over a period, they need
to be merged with stronger players. Till now the new private sector banks were in the best
position to take them over. However, with the new guidelines, the Government/RBI has
introduced a new set of players, namely, foreign banks, in this consolidation game. The capital
market has already realised this; witness the recent rise in shares of listed private sector banks.
Public sector banks:
In the case of public sector banks, the Government had earlier announced that it is planning to
reduce its stake in such banks to 33 per cent in a phased manner. This is mainly because the
Government does not have enough money to contribute the additional capital that would be
required over a period. Private domestic capital may not be enough to fill the gap in capital
requirements, which means that foreign capital would have to be accessed. Such foreign capital
can be either FII or FDI investments. The moot point is whether sufficient capital from overseas
investors would be forthcoming if there were no change in management in the public sector
banks. Induction of FDI in public sector banks would probably have to be accompanied by
change in management style in public sector banks. Politically such decisions are not easy to
take. Therefore, lack of capital in addition to other well known impediments may constrain the
growth of public sector banking segment as a whole.
Consolidation:
Consolidation of the banking industry is expected to proceed apace. The banking industry in
India has witnessed many changes since the early 1990s. Initially the Government contributed
substantially to the equity of a large number of public sector banks in order to improve their
capital adequacy levels. Then the Government sought to change the structure of the Indian
banking industry by granting licences to a new generation of private sector banks. This step has
IJRMEC Volume2, Issue 12 (December- 2012) ISSN: 2250-057X
International J ournal of Research in Management, Economics and Commerce
www.indusedu.org 64
been quite successful, as these banks have introduced the latest technology to differentiate
themselves, opened ATMs and branches at a rapid pace and successfully weaned away
customers from other banks.
The Government has now taken the next step by allowing foreign banks to take over private
sector banks. The next few years will show whether foreign banks are really interested in doing
business in India. We have seen that some of them have been quite unpredictable in their
business decisions. Foreign banks must have the tenacity to overcome the rigidities of the
banking system in India. The road ahead is not clear, but one can be sure that commercial
banking in India will continue to witness changes.
FDI INFLOWS IN INDIA
Recognising the importance of FDI in the accelerated economic growth of the country,
Government of India initiated a number of economic reforms in 1991. As a result of the various
policy initiatives taken, India has been rapidly changing from a restrictive regime to a liberal
one, and FDI is encouraged in almost all the economic activities under the Automatic Route. FDI
is freely allowed in all sectors including the services sector, except a few sectors where the
existing and notified sectoral policy does not permit FDI beyond a ceiling. To make the
investment in India attractive, investment and return on them are freely repatriable, except where
the approval is specific to specific conditions such as lock-in period on original investment,
dividend cap, foreign exchange neutrality etc. as per the notified sectoral policy (Govt. of India,
2003). After the economic reforms are implemented in the post 1990s, the inflows of FDI to
India have increased tremendously since 2000 (Fig-1 and Table-1). The opening up of the Indian
economy in the international trade front and more liberal FDI policies has been one of the factors
which led to huge FDI inflows in India (Fig-2). However, India's FDI inflows have fallen sharply
this financial year as a stumbling global recovery from global crisis hit investor appetite. Again,
the macroeconomic instability in terms of fiscal deficit, current account deficit and high inflation
rate also contribute to fall in FDI inflows. As Economic Survey 2010-11 has reported, inflation is
a dominant concern and India needs policies to help reverse a fall in FDI inflows. In India,
Reserve Bank of India (RBI) publishes foreign investment data on a monthly basis in the RBI
Bulletin, which provides component-wise details of direct investment and portfolio investment.
Direct investment comprises of inflows through (i) Government (SIA/FIPB) route, (ii) RBI
IJRMEC Volume2, Issue 12 (December- 2012) ISSN: 2250-057X
International J ournal of Research in Management, Economics and Commerce
www.indusedu.org 65
automatic route, (iii) NRI and (iv) Acquisition of shares. Portfolio investment covers: (i)
GDRs/ADRs (ii) FIIs and (iii) offshore funds and others.
Foreign direct investment in India: The Indian government realized the fact that foreign direct
investment plays a very crucial role in boosting the country's economy by developing the
infrastructure, generating new jobs, transfer of technology, and increasing productivity. Thus the
government of India liberalized its economic policies in order to use foreign direct investment as
a developmental tool. India offers several positive incentives to the foreign investors such as an
abundant supply of educated workforce, low wages, and very strong economic growth in the
country which has increased the middle class's power of buying.
REVIEW OF LITERATURE
Arpmittal ( August 29, 2011) stated that the developing countries have changed their attitude
towards FDI because it is believed that FDI can contribute to the development efforts of a
country. In general, multinational firms decision to extend production to another country is
driven by lower costs and higher efficiency considerations. From the host countrys perspective
though, he benefits of FDI are not restricted to improved use of its resources, but also stem
from the introduction of new processes to the domestic market, learning-by-observing,
networks, training of the labor force, and other spillovers and externalities.. Most countries,
including both developed and emerging nations, have established investment agencies, and have
policies that include both fiscal and financial incentives to attract FDI as well as others that seek
to improve the local regulatory environment and the cost of doing business.
By Qaiser Abbas, Salman Akbar,Ali Shan Nasir ,Hafiz Aman Ullah,Muhammad Akram
Naseem (Aug.2011) stated that the impact of foreign direct investment on Growth (GDP) of
SAARC countries. This relationship is tested by applying multiple regression models. The
change in GDP is taken as dependent viable while FDI and inflation are considered as
independent variables. The data used for this is ranging from year 2001 to 2010 of SAARC
Countries. The result shows that the overall model is significant. There is a positive and
significant relationship between GDP and FDI while an insignificant relationship between GDP
and inflation.
FDI refers to net inflows of investment in an economy of a country. It is the sum of equity
capital, reinvestment of earnings, long term and short term capital. It usually involves
participation in management, joint ventures, transfer of technology and experience. GDP refers
IJRMEC Volume2, Issue 12 (December- 2012) ISSN: 2250-057X
International J ournal of Research in Management, Economics and Commerce
www.indusedu.org 66
to the market value of all final goods and services produced within a country in a given period. It
is often considered an indicator of growth and standard of living for a country. Inflation when the
price of most goods and services continues to rise upward. Growth of any country depends upon
investments, increasing assets and infrastructure. Foreign Direct investment in an economy
shows that there is a good trend of investment which ultimately results in increasing the GDP
and growth of the country as we have found in our research that increasing trend of FDI also
increases the GDP of the country.
Marc Lombard, Annick Lombard (10 NOV. 2011) stated that, through a comparative analysis,
to assess the significance of foreign direct investment to the growth and development of both
China and India, from the period following the introduction of economic reform programmes, to
the last few years. It suggests that foreign direct investment (FDI) has had a significant positive
bearing on the Chinese economy and a considerably more moderate effect on that of India. This
discrepancy is attributed, in particular, to the composition and nature of FDI, and the institutional
framework within which FDI is received.
Dr. Arjun Singh Sirari, Mr. Narendra Singh Bohra (18-10-2011) stated that FDI is a tool for
economic growth through its strengthening of domestic capital, productivity and employment.
FDI also plays a vital role in the up gradation of technology, skills and managerial capabilities in
various sectors of the economy. The present paper attempts to analyze significance of the FDI
Inflows in Indian service sector since 1991 and relating the growth of service sector FDI in
generation of employment in terms of skilled and unskilled FDI to developing countries in the
1990s was the leading source of external financing and has become a key component of national
development strategies for almost all the countries in the world as a vehicle for technology flows
and an important source of non-debt inflows for attaining competitive efficiency by creating a
meaningful network of global interconnections. FDI provide opportunities to host countries to
enhance their economic development and opens new opportunities to home countries to optimize
their earnings by employing their ideal resources. India ranks fifteenth in the services output and
it provides employment to around 23% of the total workforce in the country. The various sectors
under the Services Sector in India are construction, trade, hotels, transport, restaurant,
communication and storage, social and personal services, community, insurance, financing,
business services, and real estate.

IJRMEC Volume2, Issue 12 (December- 2012) ISSN: 2250-057X
International J ournal of Research in Management, Economics and Commerce
www.indusedu.org 67
Bhagwan Jagwani (January 1-4, 2012) stated that over the last two decades, the share of cross-
border mergers and acquisitions (CB M&As) in the global FDI inflows has been over 50%. The
Indian Corporate sector too experienced a boom in this form of FDI.
The last two decades have witnessed a dramatic world-wide increase in the flow of Foreign
Direct Investment (FDI), accompanied by a marked change in the attitude of most developing
countries towards inward FDI. As against a highly suspicious attitude of these countries towards
inward FDI in the past, most of these countries now regard FDI as beneficial for their
development efforts and tend to compete with each other for getting higher proportion of it. India
is no exception to it.
IMPACT ON INDIAN BANKING
The RBI's decision to allow foreign direct investment in Indian banks, the lifting of sectoral caps
on foreign institutional investors and a series of other policy measures could ultimately lead to
the privatisation of public sector banks. Banks. The series of policy announcements in recent
weeks promises to unleash a shakeout in the Indian banking industry. A major policy change,
effected through an innocuous "clarification" issued by the Reserve Bank of India (RBI) a few
weeks ago, set the stage for the increased presence of foreign entities in the industry. The RBI's
move to allow foreign direct investment (FDI) in Indian banks has been followed by the
announcement in the Union Budget lifting sectoral caps on foreign institutional investors (FII).
There are also reports that the RBI's forthcoming credit policy may feature more sops for private
and foreign banks. These changes are likely to hasten the process of consolidation of the banking
industry. Although there is some doubt over whether the moves will have any immediate impact,
there is consensus that the changes are merely a prelude to the wholesale privatisation of the
public sector banks (PSBs). IDBI, the promoter of IDBI Bank, has already announced its
intention to relinquish control of the bank. Foreign banks have also mounted pressure on the
Finance Ministry, seeking the removal of legislative hurdles that set limits to private and foreign
holdings in PSBs. In the short term, the action is likely to be focussed on the Indian private
banks. Of the 100 banks in India, 27 are PSBs (including eight in the State Bank of India group).
There are 31 private sector banks, of which eight are of recent vintage (for example, ICICI Bank
and HDFC Bank); and there are 42 foreign banks with branches in India. The RBI's decision is
seen as enabling foreign banks to extend their operations, primarily by acquiring other banks.
Initially, foreign banks are likely to acquire control of private banks. The PSBs are likely to be
IJRMEC Volume2, Issue 12 (December- 2012) ISSN: 2250-057X
International J ournal of Research in Management, Economics and Commerce
www.indusedu.org 68
put on the block after their balance sheets have been cleaned up and the workforce trimmed to
meet the demands of their foreign suitors. The private banks are a mixed bag. Many of the older
private banks cater to niche markets. S.L. Shetty, Director, Economic and Political Weekly
Research Foundation, points that some of these banks have played a useful role because they
have adapted to local and regional requirements. "It is likely that a few of the international banks
are knocking at the doors of these banks," he says. However, he reckons that takeovers may not
be easy. The promoters of especially the older private banks, who have a long tradition of
banking and linkages with local communities, may resist takeover bids. Shetty contends that the
government's "negative attitude" to small savings and provident funds may pave the way for
foreign financial institutions to extend their operations to include pension funds. Prof. T.T. Ram
Mohan, who specialises in banking at the Indian Institute of Management, Ahmadabad, says that
the banking industry is likely to undergo consolidation. Some of the private banks are already
wooing foreign banks. Vysya Bank, whose promoters have sold 20 per cent stake to Bank
Brussels Lambert (BBL), part of the Dutch ING Group, is likely to offer a controlling stake to
the foreign bank. Vysya Bank already has a tie-up with ING to sell insurance products in India.
Since the International Finance Corporation, promoted by the World Bank, has a 10 per cent
stake in the bank, BBL can increase its stake by only 19 per cent because of the 49 per cent
ceiling on foreign stake in Indian banks. However, banking industry sources say that even if
BBL has a stake of 39 per cent, it can control the private bank effectively. In fact there have been
suggestions that the RBI "clarification" came mainly because BBL decided to test the regulatory
regime governing FDI in banking after acquiring 20 per cent of the stake in Vysya Bank. There
is speculation that foreign banks may be interested in picking up a stake in Centurion Bank,
Bank of Punjab, IndusInd bank and the Global Trust Bank. Since the RBI announcement, shares
of some of these banks have been volatile in anticipation of buying interest from foreign banks.
The lifting of the cap on FIIs is likely to increase further the volatility in bank stocks. THE
banking sector norms, a key feature of the financial sector reforms since the 1990s, threaten to
prise open Indian banks, particularly the PSBs. For instance, the norms for capital adequacy ratio
(CAR) require that capital be infused in these institutions. If banks do not have the prescribed
capital base, the only course open to them is to make an offer in the market. However, this will
lower the promoters' stake in these banks. This mechanism has already lowered the government
stake in several public sector banks. For instance, Bank of India's recent decision to "return"
IJRMEC Volume2, Issue 12 (December- 2012) ISSN: 2250-057X
International J ournal of Research in Management, Economics and Commerce
www.indusedu.org 69
equity capital to the tune of Rs.150 crores to the government will lower the government stake
from 75 per cent to 67 per cent. The RBI has directed 11 old private sector banks having equity
base of between Rs.6 crores and Rs.49 crores to increase their capital base. These banks are now
under threat. Prof. Ram Mohan believes that the foreign banks, which generally have an asset
base of between Rs.3,000 crores and Rs.12,000 crores, "may prefer faster growth by acquisition
rather than through organic expansion". He calculates that such acquisitions will overnight imply
a growth rate of 50 per cent for some of the prominent foreign banks. Besides, it provides them
an established client base and access to low-cost funds, particularly in a regime in which deposit
rates are glued to low levels, barely above the rate of inflation. Some of the old private banks
have the advantage of working over a long period in geographical niches in rural and semi-urban
areas. And foreign banks, in their pursuit of growth, would prefer taking over such banks to the
more risky option of establishing themselves in new areas. Incidentally, this has also been the
route pursued by some of the new generation private banks like ICICI Bank and HDFC Bank.
While ICICI Bank took over Bank of Madura, HDFC Bank bought Times Bank. The current
market capitalisation (market value of a company's stock) of the 11 private banks whose shares
are listed is about Rs.1,600 crores. The under-capitalised old private banks are clearly
vulnerable. A 49 per cent stake in each of these banks can be bought by foreign banks at a total
cost of less than Rs.800 crores. A 49 per cent stake in Dhanalakshmi Bank would cost Rs.13
crores; in Nedungadi Bank Rs. 21 crores; in Lakshmi Vilas Bank Rs.28 crores; in United
Western Bank Rs.32 crores; in City Union Bank Rs.27 crores; and in Federal Bank Rs.73 crores.
Although the CARs of many of these banks are higher than the RBI-stipulated norm, Prof. Ram
Mohan argues that this alone does not offer them protection.
CONCLUSION
The anomalous situation needs to be rectified. It is capable of being resolved by modifying this
policy document presently at a draft stage. A clarificatory amendment to the draft policy
document in favour of the domestic investment is called for. For FDI, the draft policy document
is unambiguous. But under Clause 2 (f) of the Press Note 32 of 2004, Guidelines for setting up a
wholly-owned subsidiary of a foreign bank is to issue separately by RBI. This introduces an
element of uncertainty in this respect also. It makes little sense to invite comments and
suggestions to the FDI related part of the draft policy when it is not even a full draft. Over the
last decade, the fast pace of economic growth and progressive policy liberalisation has made
IJRMEC Volume2, Issue 12 (December- 2012) ISSN: 2250-057X
International J ournal of Research in Management, Economics and Commerce
www.indusedu.org 70
India an attractive destination for worlds investments. United States have been at the forefront
of investments in India strengthening the partnership between the two largest democracies in the
world.
REFERENCES:
1. Agmon T (1979), Direct Investment and Intra-Industry Trade: Substitutes or
Complements? in Giersch H (Ed.), On the Economics of Intra-Industry Trade, pp. 49-
62, J CB Mohn, Tubingen.
2. Alfaro L, Chanda A, Kelemli-Ozcan S and Sayek S (2004), FDI and Economic Growth:
The Role of Local Financial Markets, J ournal of International Economics, Vol. 64, No
1, pp.89-112.
3. Bajpai Nirupam and J effery D. Sachs (1997), Indias economic reforms: Some lessons
from East Asia, J ournal of International Trade and Economic Development, 6/2 J uly.
4. Banga, R. (2003), The Export-Diversifying Impact of J apanese and US Foreign Direct
Investments in Indian Manufacturing Sector, Indian Council for Research on
International Economic Relations (ICRIER) Working Paper No. 110, New Delhi.
5. Benhabib J and Spiegel M (1994), The Role of Human Capital in Economic
Development: Evidence from Aggregate Cross-Country Data, Journal of Monetary
Economics, Vol. 34, No. 2, pp. 143-174.
6. Bhagwati J , Srinivasan T N and Wan H Y (1978), Value Subtracted, Negative Shadow
Prices of Factors in Project Evaluation and Immiserising Growth: Three Paradoxes in the
Presence of Trade Distortions, Economic Journal, Vol. 88, No. 349, pp. 121-125.
7. Borensztein E, Gregorio J D and Lee J W (1998), "How Does Foreign Direct Investment
Affect Economic Growth", journal of International Economics, Vol. 45, No. 1 pp. 115-
135.
8. Caves R E (1974), Causes of Direct Investment: Foreign Firms Share in Canadian and
Evidence from Pane! Data", Asian Economic Review, Vol. 45, No. 2, pp. 197-217.
9. Caves, R. E. (1971), International corporations: the industrial economics of foreign
investment, Economica, 38, pp. 127.
10. De Mello L R (1997), "Foreign Direct Investment in Developing Countries and Growth:
A Selective Survey", Jouvnal of Development Studies, Vol. 34 No. l pp. 1-34.
IJRMEC Volume2, Issue 12 (December- 2012) ISSN: 2250-057X
International J ournal of Research in Management, Economics and Commerce
www.indusedu.org 71
11. Demurger S (2000), "Economic Opening and Growth in China", Development Centre of
the Organization for Economic Cooperation and Development, Paris.
12. Dias R T (2003), "Foreign Direct Investment Models: Empirical Evidence from Italy",
Journal of financial Management and Analysis, Vol. 16, No. 1, pp. 36-52.
13. Dua P and Rashid A I (1998), "Foreign Direct Investment and Economic Activity in
India", Indian Economic Review', Vol. 33, No. 2, pp. 153-168.
14. Ethier W J (1996), Theories about Trade Liberalization and Migration: Substitutes or
Complements, in Lloyad P J and Williams L (Eds.), International Trade and Migration
in the APEC Region, Oxford University Press, Oxford.
15. J enkins C and Thomas L (2002), Foreign Direct Investment in Southern Africa:
16. Determinants, Characteristics and Implications for Economic Growth and Poverty
Alleviation University of Oxford pp. 1-60.
17. Grossman G and Helpman E (1992), "Trade, Knowledge Spillovers and Growth,
European Economic Review Vol. 35, pp. 517-526.
18. Hymer S H (1976), The International Operations of National Firms: A Study of Direct
Foreign Investment, Doctoral Dissertation, MIT Press, Cambridge.
19. Kindleberger, C. P. (1969) American Business Abroad: Six Lectures on Direct
Investment. Yale University Press, London.
20. Kumar, N. (2002). Towards an Asian Economic Community: The Relevance of India:
Research and Information System for Developing Countries (RIS) Discussion Paper 34,
New Delhi.
21. Kyriacou G A (1991), Level and Growth Effects of Human Capital, CV Starr for
Applied Economics, Centre Economic Research Reports, pp. 91-26, New York
University, New York.
22. Lau L J , J amison D T and Louat F F (1991), Education and Productivity in Developing
Countries: An Aggregate Production Function Approach, Working Paper No. 612,
World Bank, Washington.
23. Lee Eddy and Vivarelli (2006), The Social Impact of Globalization in the Developing
Countries, International Labour Review, Vol. 145 (2006), No.3, PP 167-184.
24. Lensink R and Hermes N (2003), "Foreign Direct Investment: Financial Development
and Economic Growth" Journal of Development Studies, Vol. 40. No. 1, pp. 142-163.
IJRMEC Volume2, Issue 12 (December- 2012) ISSN: 2250-057X
International J ournal of Research in Management, Economics and Commerce
www.indusedu.org 72
25. Li Y (2002), Effect of FDI in Home Countrys Trade Advantage Beifang Jingmao, Vol.
8, No. 1, pp. 39-40.
26. Lucas R E B (1993), On the Determinants of Direct Foreign Investment; Evidence from
East and Southeast Asia World Development VoL21 No. 3 pp. 120-138.