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SECTION – I
Quantum and Distribution of FDI Across States
Ever since the liberalization of rules and regulations regarding
FDI 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 during
1999-2000. However, it got a fillip, as a result actual inflows as
percentage of approvals has reached peak level of 205.1 per cent
during 2003-04. The impediments to implementation reside both with
the centre and state governments, with their obstruction its
beurocracies and corrupt political establishments. With reform in
policies, better infrastructure and a more vibrant financial sector FDI
inflow into India accelerated in 2006-07. On a gross basis, FDI inflows
into India, after rising to a level of US$ 6.2 billion during 2001-02, fell
to US$ 4.5 billion in 2003-04. After a recovery, the FDI inflow has risen
to reach US$ 23.0 billion in 2006-07. The trend continued in 2007-08
with and US$ 33.6 billion in 2008-09. FDI inflows continued to be
mainly of the equity variety, broad-based and spread across a range of
economic activities like financial services, manufacturing, banking
services, information technology services and construction. FDI grew
appreciably on both gross and net basis. While on the gross basis, the
growth in 2006-07 was 150.2 per cent, on the net basis it was 179.5 pr
cent (Government of India, Economic Survey 2007-08, 123).
4
Ranks RBI’s Regional State Covered Amount of FDI Inflows %age with
Office Rupees in US$ in FDI
Crores million inflows (in
rupees
terms)
1 Mumbai Maharashtra, 134,287.6 30,700.4 36%
Dadra & Nagar 3
Haveli, Daman & Diu
2 New Delhi Delhi, Part of UP and 55,308.98 12,716.9 15%
Haryana
3 Bangalore Karnataka 25,674.50 5.867.9 7%
4 Ahmedabad Gujarat 24,522.79 5,624.8 7%
5 Chennai Tamil Nadu, 21,078.90 4,725.0 6%
Pondicherry
6 Hyderabad Andhra Pradesh 15,098.49 3,495.4 4%
7 Kolkata West Bengal, 5,410.55 1,277.6 2%
Sikkim, Andaman &
Nicobar Islands
8 Jaipur Rajasthan 2,071.24 438.3 1%
9 Chandigarh Chandigarh, Punjab, 1,754.72 384.2 0.5%
Haryana, Himachal
Pradesh
10 Panaji Goa 1,139.32 252.9 0.3%
11 Kochi Kerala 884.11 203.1 0.2%
12 Bhopal Madhya Pradesh, 662.22 148.7 0.2%
Chattisgarh
13 Bhubaneshwa Orissa 437.92 97.4 0.1%
r
14 Guwahati Assam, Arunachal 228.85 53.2 0.1%
Pradesh, Manipur,
Meghalaya, Mizoram,
Nagaland, Tripura
15 Kanpur Uttar Pradesh, 71.66 16.4 0.0%
Uttaranchal
16 Patna Bihar, Jharkhand 1.78 0.4 0.0%
17 RBI’s Regions not Indicated 80,344.11 18,431.2 22%
Sub Total 368,977.9 84,433.6 100%
0
18 Stock Swapped (from 2002 to 2009) 14,546.64 3,301.1 -
19 Advance of Inflows (from 2000 to 9,962.22 1,962.8 -
2004)
20 RBI’s-NRI Schemes (from 2000 to 533.06 121.3 -
2002)
5
a very high share of FDI (Table 2). It is evident from the data that the
lop 10 states attracted more than 68.63 per cent of FDI (Rs 2006510
crore). In contrast, the bottom 10 states together received less than 1
per cent of total FDI. There is also a strong regional disparity in the
pattern of FDI inflows, with the southern and western states, faring
much better than the other parts of the country. Three southern states
(Tamil Nadu, Karnataka and Andhra Pradesh) received more than 29.1
per cent of total FDI, while three western states (Maharashtra, Gujarat
and Rajasthan received more than 33.74 per cent of total FDI). Five
northern states and two UTs (J & K, Punjab, Haryana, Himachal
Pradesh, Uttarkhand and Uttar Pradesh, Delhi and Chandigarh)
received about 22.08 per cent of total FDI. Central region (Madhya
Pradesh, Chhatisgarh and Orissa) could garner only 8.66 per cent of
total FDI. Eastern region (Bihar, Jharkhand and West Bengal) received
4.78 per cent of total FDI. In contrast to this, North-Eastern states
together received only 0.03 per cent total FDI during the same period.
This unequal distribution of FDI across states in India is not
unexpected, as FDI inflows tend towards state with better
infrastructure and development. Proximity to major seaports and
coastal areas is the another factor that plays a crucial role in the
location of FDI inflows. Share of Delhi is considerably higher in the FDI
approval, but it does not mean that all the approved FDI proposals,
that mentioned Delhi as their location, would actually establish their
plant in Delhi region. The concentration of FDI in a few pockets in India,
therefore, did not help to reduce regional inequality during the reform
period.
Pattern of FDI inflow in India suggests that the inflows are highly
concentrated 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, tax
incentives and personal efforts of Chief Ministers of concerning states.
The concentration of FDI in relatively small areas has created some
illusion of prosperity, but has hardly done anything to reduce overall
levels of poverty or inequality in India (Pal and Ghosh, 2007; 23). It is
to be worth mentioning here that Maharashtra, with highest share in
FDI 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.
FDI during 1991-2004. While the southern region, having 19.35 per
cent 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 18.23
per cent share in geographical area and 11.48 per cent share of total
population of the country. Eastern region which has 7.99 per cent
geographical area and 18.41 per cent share in total population of the
country, could get only 4.76 per cent of total FDI. The most neglected
part of the country – NE region’s share in FDI approval is only 0.03 per
cent 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 to
2004
The above table shows that state wise distribution of FDI is more
unequal geographically than state wise population.
of FDI per capita for each state to FDI per capita for All India gives a
states relative attractiveness (Table 6). Likewise, economic density in
terms 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 into
the level of concentration of FDI in certain pockets of the country.
Table-5 reveals that FDI per capita was 12 times higher than the
average for India as a whole in case of UT Delhi and 6.75 times higher
in 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 FDI
per sq. km. for India as a whole was 32.06. This is because of two
seasons (i) These UTs are typically cities without a less developed rural
hinterland, and (ii) Urban agglomeration in smaller area with better
infrastructural facilities and business environment. Also, five states
(Maharashtra, Karnataka, Tamilnadu, Gujrat and Goa) attracted
significantly more FDI per capita as well as FDI per sq. km. area than
India as a whole. Note that Haryana and West Bengal attracted more
FDI per sq. km than FDI per sq. km. for India as a whole. In Haryana, it
is because of its proximity to NCR Delhi, while in West Bengal port city
Kolcutta is the main attraction. In sharp contrast, 20 states appear to
be 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.
contrary, western and southern regions were the choices of the foreign
investors 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 by
booming FDI in the post reform era.
SECTION – II
Concentration of FDI within the State
Although, the states like Maharashtra, Gujrat, Tamilnadu,
Karnataka and UTs Delhi, Pondicherry and to some extent Dadra Nagar
Haveli and Daman & Diu have attracted more than 80 per cent FDI
during August 1991 – March 2004, but the ultimate destination of FDI
projects in these states was guided more by geographical factors than
economic factors. Once a foreign investor, individual or MNC decides to
invest in India and chose a state finally, locational factors motivated
him to choose the site Peter Nunnekamp and Rudi Stracke (2006) dealt
this question too. In their analysis based on the number of FDI projects
found that in four out of the eleven states, the most important district
accounted for more than 60 per cent of all FDI projects, the respective
state attracted in 1993-2005. Most notably almost 90 per cent of FDI
projects in Karnataka went to Bangalore – followed by Kalkata in west
Bengal, Chenai in Tamilnadu and Mumbai in Maharashtra (Table 7).
SECTION – 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 considered
the 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)
16
(iv) Sea port density (per cent share of respective major parts in
terms of traffic handled
(v) Electricity consumption (per capita)
(vi) Share of urban population
(vii) Availability of raw material
SECTION – IV
Conclusion
The economic reforms in India have been instrumental in
breaking the Hindu rate of growth of 3.5 per cent and moving towards
faster economic growth. Increase in FDI inflow has been one of the
major achievements in the post reforms period. FDI inflow has been
very unevenly distributed across states and regions. This has
prevented its economic benefits from spreading across the entire
economy. Theoretically foreign investment might encourages
economic growth, exports and technology transfer but in practice, FDI
inflows into India neither resulted into decline in income inequalities,
nor it could foster inclusive growth. During the post-reform period,
India’s 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 attracted
more FDI. Despite the benefits of increasing foreign investment and
the economic reform processes in general have not been distributed
evenly among states and regions is evident in the analysis presented
in the study. States in the western and southern regions attracted
18
REFERENCES
Ranks RBI’s Regional State Covered Amount of FDI Inflows %age with
Office Rupees in US$ in FDI
Crores million inflows (in
rupees
terms)
1 Mumbai Maharashtra, 134,287.6 30,700.4 36%
Dadra & Nagar 3
Haveli, Daman & Diu
2 New Delhi Delhi, Part of UP and 55,308.98 12,716.9 15%
Haryana
3 Bangalore Karnataka 25,674.50 5.867.9 7%
4 Ahmedabad Gujarat 24,522.79 5,624.8 7%
5 Chennai Tamil Nadu, 21,078.90 4,725.0 6%
Pondicherry
6 Hyderabad Andhra Pradesh 15,098.49 3,495.4 4%
7 Kolkata West Bengal, 5,410.55 1,277.6 2%
Sikkim, Andaman &
Nicobar Islands
8 Jaipur Rajasthan 2,071.24 438.3 1%
9 Chandigarh Chandigarh, Punjab, 1,754.72 384.2 0.5%
Haryana, Himachal
Pradesh
10 Panaji Goa 1,139.32 252.9 0.3%
11 Kochi Kerala 884.11 203.1 0.2%
12 Bhopal Madhya Pradesh, 662.22 148.7 0.2%
Chattisgarh
13 Bhubaneshwa Orissa 437.92 97.4 0.1%
r
14 Guwahati Assam, Arunachal 228.85 53.2 0.1%
Pradesh, Manipur,
Meghalaya, Mizoram,
Nagaland, Tripura
15 Kanpur Uttar Pradesh, 71.66 16.4 0.0%
Uttaranchal
16 Patna Bihar, Jharkhand 1.78 0.4 0.0%
17 RBI’s Regions not Indicated 80,344.11 18,431.2 22%
Sub Total 368,977.9 84,433.6 100%
0
18 Stock Swapped (from 2002 to 2009) 14,546.64 3,301.1 -
19 Advance of Inflows (from 2000 to 9,962.22 1,962.8 -
2004)
20 RBI’s-NRI Schemes (from 2000 to 533.06 121.3 -
2002)
Grand Total 393,019.8 89,818.8 -
22