PROJECT SYNOPSIS

ON

Analytical Study of Foreign Direct

Investment in India

Introduction and overview

A Foreign direct investment (FDI) is a controlling ownership in a business enterprise in one
country by an entity based in another country.
Foreign direct investment is distinguished from Portfolio Foreign Investment, a passive
investment in the securities of another country such as public stocks and bonds, by the element
of "control".[1] According to the Financial Times, "Standard definitions of control use the
internationally agreed 10 per cent threshold of voting shares, but this is a grey area as often a
smaller block of shares will give control in widely held companies. Moreover, control of
technology, management, even crucial inputs can confer de facto control."
The origin of the investment does not impact the definition as an FDI, i.e. the investment may be
made either "inorganically" by buying a company in the target country or "organically" by
expanding operations of an existing business in that country.

Meaning:
These three letters stand for foreign direct investment. The simplest explanation of FDI would be
a direct investment by a corporation in a commercial venture in another country. A key to
separating this action from involvement in other ventures in a foreign country is that the business
enterprise operates completely outside the economy of the corporations home country. The
investing corporation must control 10 percent or more of the voting power of the new venture.
According to history the United States was the leader in the FDI activity dating back as far as the
end of World War II. Businesses from other nations have taken up the flag of FDI, including
many who were not in a financial position to do so just a few years ago.
The practice has grown significantly in the last couple of decades, to the point that FDI has
generated quite a bit of opposition from groups such as labor unions. These organizations have
expressed concern that investing at such a level in another country eliminates jobs. Legislation
was introduced in the early 1970s that would have put an end to the tax incentives of FDI. But
members of the Nixon administration, Congress and business interests rallied to make sure that

this attack on their expansion plans was not successful. One key to understanding FDI is to get a
mental picture of the global scale of corporations able to make such investment. A carefully
planned FDI can provide a huge new market for the company, perhaps introducing products and
services to an area where they have never been available. Not only that, but such an investment
may also be more profitable if construction costs and labor costs are less in the host country.
The definition of FDI originally meant that the investing corporation gained a significant number
of shares (10 percent or more) of the new venture. In recent years, however, companies have
been able to make a foreign direct investment that is actually long-term management control as
opposed to direct investment in buildings and equipment.
FDI growth has been a key factor in the international nature of business that many are familiar
with in the 21st century. This growth has been facilitated by changes in regulations both in the
originating country and in the country where the new installation is to be built. Corporations
from some of the countries that lead the worlds economy have found fertile soil for FDI in
nations where commercial development was limited, if it existed at all. The dollars invested in
such developing-country projects increased 40 times over in less than 30 years. The financial
strength of the investing corporations has sometimes meant failure for smaller competitors in the
target country. One of the reasons is that foreign direct investment in buildings and equipment
still accounts for a vast majority of FDI activity. Corporations from the originating country gain a
significant financial foothold in the host country. Even with this factor, host countries may
welcome FDI because of the positive impact it has on the smaller economy.
Foreign direct investment (FDI) is a measure of foreign ownership of
productive assets, such as factories, mines and land. Increasing foreign
investment can be used as one measure of growing economic globalization.
Figure below shows net inflows of foreign direct investment as a percentage
of gross domestic product (GDP). The largest flows of foreign investment
occur

between

the

industrialized

countries

(North

America, Western

Europe and Japan).But flows to non-industrialized countries are increasing

sharply. Foreign direct investment (FDI) refers to long term participation by
country A into country B.

It usually involves participation in management, joint-venture, transfer of

technology and expertise. There are two types of FDI: inward foreign
direct investment and

outward

foreign

direct

investment,

resulting

in

a net FDI inflow (positive or negative) .Foreign direct investment reflects the
objective of obtaining a lasting interest by a resident entity in one economy
(direct investor) in an entity resident in an economy other than that of the
investor

(direct investment enterprise).The lasting interest implies the

existence of a long-term relationship between the direct investor and the

enterprise and a significant degree of influence on the management of the
enterprise. Direct investment involves both the initial transaction between
the two entities and all subsequent capital transactions between them and
among affiliated enterprises, both incorporated and unincorporated.

Foreign Direct Investment when a firm invests directly in production or other

facilities, over which it has effective control, in a foreign country.

Manufacturing FDI requires the establishment of production facilities.

Service FDI requires building service facilities or an investment foothold via capital
contributions or building office facilities.

Foreign subsidiaries overseas units or entities.

Host country the country in which a foreign subsidiary operates.

Flow of FDI the amount of FDI undertaken over a given time.

Stock of FDI total accumulated value of foreign-owned assets.

Outflows/Inflows of FDI the flow of FDI out of or into a country.

Foreign Portfolio Investment the investment by individuals, firms, or public bodies in

foreign financial instruments.

Stocks, bonds, other forms of debt.

Differs from FDI, which is the investment in physical assets.

Types
1. Horizontal FDI arises when a firm duplicates its home country-based activities at the
same value chain stage in a host country through FDI.
2. Platform FDI Foreign direct investment from a source country into a destination country
for the purpose of exporting to a third country.
3. Vertical FDI takes place when a firm through FDI moves upstream or downstream in
different value chains i.e., when firms perform value-adding activities stage by stage in a
vertical fashion in a host country.

Methods
The foreign direct investor may acquire voting power of an enterprise in an economy through
any of the following methods:

by incorporating a wholly owned subsidiary or company anywhere

by acquiring shares in an associated enterprise

through a merger or an acquisition of an unrelated enterprise

participating in an equity joint venture with another investor or enterprise

'Foreign Institutional Investor - FII'

The term is used most commonly in India to refer to outside companies investing in the financial
markets of India. International institutional investors must register with the Securities and
Exchange Board of India to participate in the market. One of the major market regulations
pertaining to FIIs involves placing limits on FII ownership in Indian companies.
In FII, the companies only need to get registered in the stock exchange to make investments. But
FDI is quite different from it as they invest in a foreign nation.
The Foreign Institutional Investor is also known as hot money as the investors have the liberty to
sell it and take it back. But in Foreign Direct Investment, this is not possible. In simple words,
FII can enter the stock market easily and also withdraw from it easily. But FDI cannot enter and
exit that easily.

FDI is more preferred to the FII as they are considered to be the most beneficial kind of foreign
investment for the whole economy.
Foreign Direct Investment only targets a specific enterprise. It aims to increase the enterprises
capacity or productivity or change its management control. In an FDI, the capital inflow is
translated into additional production. The FII investment flows only into the secondary market. It
helps in increasing capital availability in general rather than enhancing the capital of a specific
enterprise.
The Foreign Direct Investment is considered to be more stable than Foreign Institutional
Investor. FDI not only brings in capital but also helps in good governance practices and better
management skills and even technology transfer. Though the Foreign Institutional Investor helps
in promoting good governance and improving accounting, it does not come out with any other
benefits of the FDI.
While the FDI flows into the primary market, the FII flows into secondary market. While FIIs
are short-term investments, the FDIs are long term.

Objective of the Study:

To know the flow of investment in India
To know how can India Grow by Investment .
To Examine the trends and patterns in the FDI across different sectors and from different
countries in India
To know in which sector we can get more foreign currency in terms of investment in

India
To know which country s safe to invest .
To know how much to invest in a developed country or in a developing.
To study which sector is good for investment .
To know which country in investing in which country
To study the reason for investment in India
To Study the Influence of FII on movement of Indian stock exchange
To Study the FII & FDI policy in India.

Research Methodology
The procedure adopted for conducting the research always require a lot of attention as it has
direct bearing on accuracy, reliability and adequacy of results obtained. It is due to this reason
that research methodology, which we will used at the time of conducting the research, needs to
be elaborated upon. It may be understood as a science of studying how research will be done
scientifically. So, the research methodology will not only talks about the research methods but
will also consider the logic behind the method used in the context of the research study.
Research Methodology is a way to systematically study and solve the research problems. If a
researcher wants to claim his study as a good study, he must clearly state the methodology
adapted in conducting the research the research so that it way be judged by the reader whether
the methodology of work done is sound or not.

Meaning of Research:
Research is defined as a scientific and systematic search for pertinent information on a specific
topic. Research is an art of scientific investigation. Research is a systematized effort to gain
now knowledge. It is a careful investigation or inquiry especially through search for new facts in
any branch of knowledge. Research is an academic activity and this term should be used in a
technical sense. Research comprises defining and redefining problems, formulating hypothesis or
suggested solutions. Making deductions and reaching conclusions to determine whether they if
the formulating hypothesis. Research is thus, an original contribution to the existing stock of
knowledge making for its advancement. The search for knowledge through objective and
systematic method of finding solutions to a problem is research.

Research Design
A research designs is the arrangement of conditions for collection and analysis data in a manner
that aims to combine relevance to the research purpose with economy in procedure. Research

Design is the conceptual structure with in which research in conducted. It constitutes the
blueprint for the collection measurement and analysis of data. Research Design includes and
outline of what the researcher will do form writing the hypothesis and it operational implication
to the final analysis of data. A research design is a framework for the study and is used as guide
in collection and analyzing the data. It is a strategy specifying which approach will be used for
gathering and analyzing the data. It also include the time and cost budget since most studies are
done under these two cost budget since most studies are done under theses tow constraints. The
design is such studies must be rigid and not flexible and most focus attention on the following: What is the study about?
Why is the study being made?
Where will the study be carried out?
What type of data is required?
Where can be required data be found?
What period of time will the study include?
What will be sample design?
What techniques of data collection will be used?
How will the data be analyzed?
In what style will the report be prepared?

TYPES OF RESEARCH
The basic types of research are as follows:
(i) Descriptive vs. Analytical: Descriptive research includes surveys and fact-finding enquiries of
different kinds. The major purpose of descriptive research is description of the state of affairs
as it exists at present. In analytical research, on the other hand, the researcher has to use facts
or information already available, and analyze these to make a critical evaluation of the
material.
(ii) Applied vs. Fundamental:Research can either be applied (or action) research or
fundamental (to basic or pure) research. Applied researchaims at finding a solution for an
immediate problem facing a society or an industrial/business organisation, whereas

fundamental researchis mainly concerned with generalisations and with the formulation of a
theory.
(iii) Quantitative vs. Qualitative :Quantitative research is based on the measurement of
quantity or amount. It is applicable to phenomena that can be expressed in terms of
quantity.Qualitative research, on the other hand, is concerned with qualitative phenomenon,
i.e., phenomena relating to or involving quality or kind.

Research method used in this project will be Analytical in Nature.

Data Collection Method:The process of data collection begins after a research problem will be defined and research design
will be chalked out. There are two types of data
PRIMARY DATA
It is first hand data, which is collected by researcher itself. Primary data is collected by various
approaches so as to get a precise, accurate, realistic and relevant data. The main tool in
gathering primary data will be investigation and observation. It will be achieved by a direct
approach and observation from the officials of the company.
SECONDARY DATA
The secondary data are those which have already collected and stored. Secondary data easily
get those secondary data from records, journals, annual reports of the company etc. It will save
the time, money and efforts to collect the data. Secondary data also made available through
trade magazines, balance sheets, books etc. . It provides reliable, suitable, adequate and specific
knowledge.

TYPE OF DATA USED IN THE STUDY

Secondary Data:

Internet, Books, Newspapers, Journals and Books, other Annual Reports(2009 2014) and
Projects, Literatures.

Methods of data analysis:

The data collected will be edited, classified and tabulated for analysis.

Bibliography

www.rbi.org
www.fin.in.nic
www.sebi.org
http://www.indiahousing.com/fdi-foreign-direct-investment.html
http://finance.indiamart.com/investment_in_india/fdi.html
http://www.economywatch.com/foreign-direct-investment/