FOREIGN DIRECT INVESTMENT

Objectives :
1.achieving ownership of the assets,
2. influencing decision making in the management of the enterprise in the
host country. I
HOW TO ATTRACT
changing policies and streamlining administrative procedures .
BENEFITS OF FDI
Employment reation,
offering capital goods and facilities, transferring technologies to promote
production, improving the transparency of companies through investors
participation in management, and stimulating domestic investment in the host
country.
EFFORTS TO ATTRACT FDI
1.effective governance and easy governance via three pillars of good
governance
de-licensing and de-regulation,
enabling infrastructure such as industrial corridors
opening up FDI in sectors such as defence, construction and railways.
Including manufacturing and infrastructure sectors,

in various sectors eg :, biotech, chemical, construction, mining, oil and gas,

pharmaceutical, renewable energy
REASONS FOR DISPARITY BETWEEN STATES WRT FDI
1.Policies etc. (EG:Tata struggled against societal opposition in acquiring
lands for Nano factory in Singur in West Bengal. State govt. was weak in
handling rehabilitation issues and fixing the land value of acquisition.)

FACTORS AFFECTING FDI

1.availability of skilled labour,
2.economic growth,
3. good infrastructure,
4. installed electricity generated
.5. size of market and its growth potential,
6.political and economic stability, linkage
7. proximity to the other important markets, availability of trained manpower
and wage structure, incentives and concessions . like low interest rates from
banks, sales tax and excise duty exemptions ,reduced tariff rates for electric
power etc.

states iniatives eg : ( Make in prgm, India Development Centre by Bill Gates

in Hyderabad, Vibrant Gujarat Summit in Gujarat, Madhya Pradesh
Investors Summit, in Indore)
. internationally : Annual China South Asian Expo, for China with Myanmar
and established connectivity with Myanmar via Bangladesh.

INDIAN DIAPORA ISSUES COULD have given few points

Size and Pattern of Indias Investment Aboard

1-The total stock of Indias FDI increased from mearge $124 million in the
year 1990 to $ 111,257 million in 2011 with a share of 3 % in total Overseas
Direct Investment (ODI) stock of the developing countries.

( NO NUMBERS PLSSS)

2- Indias investments are in manufacturing and services. Where as China

investment is in oil and raw materials.
3-More than 50% of Indias ODI is in the developed economies while of
Chinas ODI is in the developing economies.
4- The growth of Indias ODI is mostly through acquisitions and mergers.

REASONS FOR FIRMS GOING ABROAD/ HINDRANCES AT INDIA LAND

1.The managerial expertise of Indian firms is an ownership advantage

2.The absence of technical efficiency in the case of most manufacturing
firms,
3. rigid labour laws and a bureaucracy intent on stifling initiative
4. in roots the entrepreneurship skill.
5. presence of Indias diaspora in UK and the US.
The imperfections in the British domestic market that led to capital exports
included structural rigidities, trade union power, and unwillingness to change
occupations quickly. These sorts of imperfections and rigidities seem to be a
feature of the present day Indian economy too and may account for the
growth of ODI by Indian firms.
FDI in Retail: A Threat or a Potent Source of Growth.
Retail sector in India accounts for 14-15 % of GDP and is an attractive
investment outlet for both foreign owned and Indian firms. In 2012, India
relaxed its regulations on FDI in retailing and allowed 100 % ownership for
foreign firms in the the sector. Foreign firms though were allowed to sell only
single brands of products and were required to source 30 % of the products
and materials from within the country. Later in 2012 , foreign firms were
allowed to sell multi-brand products but with the requirement that they own
only 51% of the equity and investment minimum of $100 million with 50 % of
this amount specially in infrastructure such as warehouses and cold storage
facilities.

In 2014, the newly elected govt. that endorsed a liberal economic policy
framework has prohibited foreign direct investment in multi-brand retail.
There is fear of indigenous small retailers known as Kirana stores that FDI
may outcompete them in retail sector. Indias retail sector consists of
unorganized sector includes traditionally family run, low cost retailers as
kirana shops, corner shops or convenience stores. The another organized
sector is with modern format includes supermarkets, hypermarkets,
departmental stores and specialty chains. This sector retail accounts for 8 %
of total retail market and expected to grow to 20% by 2020. Food retail trade
in India accounts for 63% of total sales, contributes 14 % to GDP and 7% to
total employment. India households spends 48% of their income on food and
beverages., which is the highest proportion of total expenditures in the world.
The Agriculture Produce Market Committee (APMC) Act 1991 makes it
compulsory for farmers to sell their produce to licensed merchants or
middlemen at mandis set by state agriculture marketing board instead of
selling directly to retailers or consumers. These middlemen are virtually a
cartel and the prices they charge the retailers reflect their monopoly of the
retail market for food and food products. In addition, govt. taxes, interstate
transport charges and agents commission all add up to the high prices the
middlemen charge the retailers. The profit in this system accures to the
middlemen at the cost of poor farmers and final consumer.
In order to check the high prices the govt. requested all states to delist fruits
and vegetables from APMC act, but this was not enough to check the prices.
Shops set up by independent players like foreign firms in the country could
shorten the supply chain, rid farmers of middlemen and provide them with a
large share of the final selling price and multinational retailers have the
potential to improve efficiency and performance of the distribution system in
India.
The retail sector in a growing economy with a substantial middle class is
attractive to large super stores including foreign owned multi-brand firms
which is unlikely to outcompete the kirana stores mostly because of low
levels of income of a majority of the population who lack both transport
facilities to reach supermarkets in cities and refrigerators to store their
purchases for long time periods. India as the saying goes is a large country
with lots of poor people and a sizeable group of very rich people. There is

room for both foreign firms and kirana shops in the growing retail trade sector
of the country. The new Govt. has chosen not to liberalize multi-brand FDI in
retailing on the grounds that it may outcompete the small firms and deprive
many shop keepers of their livelihood. There is little support for the govt.s
fear because there is potential contribution of foreign firms to both efficiency
and equity in agricultural sector of the country. The dual sector organized
and unorganized sector are mostly unrelated and each one has a distinct
clientele of its own and do not encroach on each other. Secondly FDI in
retailing could be a potent source of both equity and efficiency for farmers as
multinational firms engagement with domestic resources could improve
farming technologies.
Kirana shops are mostly family run low operating cost businesses where the
home itself could be converted into shop . These shops cater to a specific
group of customers within the locality. Whom they offer credit facilities,
exchange and return options for their purchases. The customers at the
bottom of pyramid buy goods frequently and in small quantities because they
can neither afford nor store goods due to lack of facilities at home, making
nearby kirana shops convenient destinations for their daily needs.
Consumers have also the liberty to shop around and purchase fresh fruits,
vegetables, milk from kirana shops or the nearby vegetable market. The joint
family continues to exist in India , where elders of the family, mostly retied
from work, generally engaged in daily shopping from the nearby corner
shops where they meet other people of teir age, chat with them and derive
pleasure out of such outings.It is by providing the low level producers and
farmers with appropriate technology, seeds and fertilizers that the foreign
firms can enhance their profits and promote the welfare of poor farmers. In
the age of information technology, foreign firms can reach the farmers
through internet and demonstrate the efficacy of new variety of seeds and
fertilizers to the farmers through slide shows and documentaries. Hindustan
Lever and Pepsi Co foreign firms have collaborated with low income farmers
to the advantage of both firms and farmers.
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