CHAPTER-II

INDUSTRY PROFILE

&

COMPANY PROFILE
For the Indian investors, the year belonged to stock markets, which have been shining
bright when it comes to generating wealth, while the glitter of gold and silver faded for
the second straight year in 2013.
Measured by BSE Sensex, stock market has generated a positive return of about 9 per
cent for investors in 2013, while gold prices fell by about three per cent and its poorer
cousin silver plummeted close to 24 per cent.
After outperforming stock market for more than a decade, gold has been on back foot
for two consecutive years now vis-a-vis equities, shows an analysis of their price
movements.
"Gold's under-performance was mainly due to prices falling in dollar terms amid
anticipated tapering over last several months combined with FII investment in Indian
stocks.
"This movement has been equally true for global markets as 2013 saw gold losing its
shine and markets coming back with a bang," said Jayant Manglik, President Retail
Distribution, Religare Securities.
"As always, gold and stock prices follow opposite trends and this year was no different
except that both changed direction," he said.
Improvement in the world economy has brought the risk appetite back amongst retail
investors and this has drenched the liquidity from safe havens such as gold leading to
its under-performance, an expert said.
In 2012, the Sensex had gained over 25 per cent, which was nearly double the gain of
about 12.95 per cent in gold. The appreciation in silver was at about 12.84 per last
year.
According to Hiren Dhakan, Associate Fund Manager, Bonanza Portfolio, "Markets
have particularly shown great strength post July-August 2013 when RBI took some
strong measures to control the steeply depreciating rupee."
"When the US Fed gave indications that it might taper its stimulus programme given
the economy shows improvement, a knee-jerk correction was seen in most risky assets,
including stocks in Indian markets. However, assurance by the Fed about planned and
staggered tapering in stimulus once again proved to be a catalyst for the markets."

"External factors affecting Indian stocks seem to be negative for the first half of 2016
due to continued strength of the US dollar and benign in the second half. By that time,
elections too would have taken place. A combination of domestic and international
factors point to a bumper closing of Indian markets in 2016 with double-digit
percentage growth," he said.
Stock market segment mid-cap and small-cap indices have fallen by about 10 per cent
and 18 per cent, respectively, in 2013.
Foreign Institutional Investors have bought shares worth over Rs 1.1 lakh crore (nearly
USD 20 billion) till December 19. In 2012, they had pumped in Rs 1.28 lakh crore
(USD 24.37 billion).

Evolution

Indian Stock Markets are one of the oldest in Asia. Its history dates back to nearly 200
years ago. The earliest records of security dealings in India are meager and obscure.
The East India Company was the dominant institution in those days and business in its
loan securities used to be transacted towards the close of the eighteenth century.

By 1830's business on corporate stocks and shares in and Cotton presses took place in
Bombay. Though the trading list was broader in 1839, there were only half a dozen
brokers recognized by s and merchants during 1840 and 1850.

The 1850's witnessed a rapid development of commercial enterprise and brokerage

business attracted many men into the field and by 1860 the number of brokers
increased into 60.

In 1860-61 the American Civil War broke out and cotton supply from United States of
Europe was stopped; thus, the 'Share Mania' in India begun. The number of brokers
increased to about 200 to 250. However, at the end of the American Civil War, in
1865, a disastrous slump began (for example, of Bombay Share which had touched Rs
2850 could only be sold at Rs. 87).

At the end of the American Civil War, the brokers who thrived out of Civil War in
1874, found a place in a street (now appropriately called as Dalal Street) where they
would conveniently assemble and transact business. In 1887, they formally established
in Bombay, the "Native Share and Stock Brokers' Association" (which is alternatively
known as " The Stock Exchange "). In 1895, the Stock Exchange acquired a premise in
the same street and it was inaugurated in 1899. Thus, the Stock Exchange at Bombay
was consolidated.

Other leading cities in stock market operations

Ahmadabad gained importance next to Bombay with respect to cotton textile industry.
After 1880, many mills originated from Ahmadabad and rapidly forged ahead. As new
mills were floated, the need for a Stock Exchange at Ahmadabad was realized and in
1894 the brokers formed "The Ahmadabad Share and Stock Brokers' Association".

What the cotton textile industry was to Bombay and Ahmadabad, the jute industry was
to Calcutta. Also tea and coal industries were the other major industrial groups in
Calcutta. After the Share Mania in 1861-65, in the 1870's there was a sharp boom in
jute shares, which was followed by a boom in tea shares in the 1880's and 1890's; and a
coal boom between 1904 and 1908. On June 1908, some leading brokers formed "The
Calcutta Stock Exchange Association".

In the beginning of the twentieth century, the industrial revolution was on the way in
India with the Swadeshi Movement; and with the inauguration of the Tata Iron and
Steel Company Limited in 1907, an important stage in industrial advancement under
Indian enterprise was reached.

Indian cotton and jute textiles, steel, sugar, paper and flour mills and all companies
generally enjoyed phenomenal prosperity, due to the First World War.

In 1920, the then demure city of Madras had the maiden thrill of a stock exchange
functioning in its midst, under the name and style of "The Madras Stock Exchange"
with 100 members. However, when boom faded, the number of members stood
reduced from 100 to 3, by 1923, and so it went out of existence.

In 1935, the stock market activity improved, especially in South India where there was
a rapid increase in the number of textile mills and many plantation companies were
floated. In 1937, a stock exchange was once again organized in Madras - Madras Stock
Exchange Association (Pvt) Limited. (In 1957 the name was changed to Madras Stock
Exchange Limited).
Lahore Stock Exchange was formed in 1934 and it had a brief life. It was merged with
the Punjab Stock Exchange Limited, which was incorporated in 1936.

Indian Stock Exchanges - An Umbrella Growth

The Second World War broke out in 1939. It gave a sharp boom which was followed
by a slump. But, in 1943, the situation changed radically, when India was fully
mobilized as a supply base.

On account of the restrictive controls on cotton, bullion, seeds and other commodities,
those dealing in them found in the stock market as the only outlet for their activities.
They were anxious to join the trade and their number was swelled by numerous others.
Many new associations were constituted for the purpose and Stock Exchanges in all
parts of the country were floated.

The Uttar Pradesh Stock Exchange Limited (1940), Nagpur Stock Exchange Limited
(1940) and Hyderabad Stock Exchange Limited (1944) were incorporated.

In Delhi two stock exchanges - Delhi Stock and Share Brokers' Association Limited
and the Delhi Stocks and Shares Exchange Limited - were floated and later in June
1947, amalgamated into the Delhi Stock Exchnage Association Limited.

Post-independence Scenario

Most of the exchanges suffered almost a total eclipse during depression. Lahore
Exchange was closed during partition of the country and later migrated to Delhi and
merged with Delhi Stock Exchange.

Bangalore Stock Exchange Limited was registered in 1957 and recognized in 1963.

Most of the other exchanges languished till 1957 when they applied to the Central
Government for recognition under the Securities Contracts (Regulation) Act, 1956.
Only Bombay, Calcutta, Madras, Ahmadabad, Delhi, Hyderabad and Indore, the well
established exchanges, were recognized under the Act. Some of the members of the
other Associations were required to be admitted by the recognized stock exchanges on
a concessional basis, but acting on the principle of unitary control, all these pseudo
stock exchanges were refused recognition by the Government of India and they
thereupon ceased to function.

Thus, during early sixties there were eight recognized stock exchanges in India
(mentioned above). The number virtually remained unchanged, for nearly two decades.
During eighties, however, many stock exchanges were established: Cochin Stock
Exchange (1980), Uttar Pradesh Stock Exchange Association Limited (at Kanpur,
1982), and Pune Stock Exchange Limited (1982), Ludhiana Stock Exchange
Association Limited (1983), Gauhati Stock Exchange Limited (1984), Kanara Stock
Exchange Limited (at Mangalore, 1985), Magadh Stock Exchange Association (at
Patna, 1986), Jaipur Stock Exchange Limited (1989), Bhubaneswar Stock Exchange
Association Limited (1989), Saurashtra Kutch Stock Exchange Limited (at Rajkot,
1989), Vadodara Stock Exchange Limited (at Baroda, 1990) and recently established
exchanges - Coimbatore and Meerut. Thus, at present, there are totally twenty one
recognized stock exchanges in India excluding the Over The Counter Exchange of
India Limited (OTCEI) and the National Stock Exchange of India Limited (NSEIL).

The Table given below portrays the overall growth pattern of Indian stock markets
since independence. It is quite evident from the Table that Indian stock markets have
not only grown just in number of exchanges, but also in number of listed companies
and in capital of listed companies. The remarkable growth after 1985 can be clearly
seen from the Table, and this was due to the favouring government policies towards
security market industry.

Trading Pattern of the Indian Stock Market

Trading in Indian stock exchanges are limited to listed securities of public limited
companies. They are broadly divided into two categories, namely, specified securities
(forward list) and non-specified securities (cash list). Equity shares of dividend paying,
growth-oriented companies with a paid-up capital of atleast Rs.50 million and a market
capitalization of atleast Rs.100 million and having more than 20,000 shareholders are,
normally, put in the specified group and the balance in non-specified group.
Two types of transactions can be carried out on the Indian stock exchanges: (a) spot
delivery transactions "for delivery and payment within the time or on the date
stipulated when entering into the contract which shall not be more than 16 days
following the date of the contract" : and (b) forward transactions "delivery and
payment can be extended by further period of 16 days each so that the overall period
does not exceed 90 days from the date of the contract". The latter is permitted only in
the case of specified shares. The brokers who carry over the outstandings pay carry
over charges (cantango or backwardation) which are usually determined by the rates of
interest prevailing.

A member broker in an Indian stock exchange can act as an agent, buy and sell
securities for his clients on a commission basis and also can act as a trader or dealer as
a principal, buy and sell securities on his own account and risk, in contrast with the
practice prevailing on New York and London Stock Exchanges, where a member can
act as a jobber or a broker only.

The nature of trading on Indian Stock Exchanges are that of age old conventional style
of face-to-face trading with bids and offers being made by open outcry. However, there
is a great amount of effort to modernize the Indian stock exchanges in the very recent
times.

Over The Counter Exchange of India (OTCEI)

The traditional trading mechanism prevailed in the Indian stock markets gave way to
many functional inefficiencies, such as, absence of liquidity, lack of transparency,
unduly long settlement periods and benami transactions, which affected the small
investors to a great extent. To provide improved services to investors, the country's
first ringless, scripless, electronic stock exchange - OTCEI - was created in 1992 by
country's premier financial institutions - Unit Trust of India, Industrial Credit and
Investment Corporation of India, Industrial Development of India, SBI Capital
Markets, Industrial Finance Corporation of India, General Insurance Corporation and
its subsidiaries and Can Financial Services.
Trading at OTCEI is done over the centres spread across the country. Securities traded
on the OTCEI are classified into:

 Listed Securities - The shares and debentures of the companies listed on the
OTC can be bought or sold at any OTC counter all over the country and they
should not be listed anywhere else

 Permitted Securities - Certain shares and debentures listed on other exchanges

and units of mutual funds are allowed to be traded

 Initiated debentures - Any equity holding atleast one lakh debentures of a

particular scrip can offer them for trading on the OTC.

OTC has a unique feature of trading compared to other traditional exchanges. That is,
certificates of listed securities and initiated debentures are not traded at OTC. The
original certificate will be safely with the custodian. But, a counter receipt is generated
out at the counter which substitutes the share certificate and is used for all transactions.

In the case of permitted securities, the system is similar to a traditional stock exchange.
The difference is that the delivery and payment procedure will be completed within 16
days.

Compared to the traditional Exchanges, OTC Exchange network has the following
advantages:

 OTCEI has widely dispersed trading mechanism across the country which
provides greater liquidity and lesser risk of intermediary charges.

 Greater transparency and accuracy of prices is obtained due to the screen-based

scripless trading.

 Since the exact price of the transaction is shown on the computer screen, the
investor gets to know the exact price at which s/he is trading.

 Faster settlement and transfer process compared to other exchanges.

  In the case of an OTC issue (new issue), the allotment procedure is completed
in a month and trading commences after a month of the issue closure, whereas
it takes a longer period for the same with respect to other exchanges.

Thus, with the superior trading mechanism coupled with information transparency
investors are gradually becoming aware of the manifold advantages of the OTCEI.

National Stock Exchange (NSE)

With the liberalization of the Indian economy, it was found inevitable to lift the Indian
stock market trading system on par with the international standards. On the basis of the
recommendations of high powered Pherwani Committee, the National Stock Exchange
was incorporated in 1992 by Industrial Development of India, Industrial Credit and
Investment Corporation of India, Industrial Finance Corporation of India, all Insurance
Corporations, selected commercial s and others.

Trading at NSE can be classified under two broad categories:

(a) Wholesale debt market and

(b) Capital market.

Wholesale debt market operations are similar to money market operations - institutions
and corporate bodies enter into high value transactions in financial instruments such as
government securities, treasury bills, public sector unit bonds, commercial paper,
certificate of deposit, etc.

There are two kinds of players in NSE:

(a) trading members and

(b) participants.

Recognized members of NSE are called trading members who trade on behalf of
themselves and their clients. Participants include trading members and large players
like s who take direct settlement responsibility.
Trading at NSE takes place through a fully automated screen-based trading mechanism
which adopts the principle of an order-driven market. Trading members can stay at
their offices and execute the trading, since they are linked through a communication
network. The prices at which the buyer and seller are willing to transact will appear on
the screen. When the prices match the transaction will be completed and a confirmation
slip will be printed at the office of the trading member.

NSE has several advantages over the traditional trading exchanges. They are as
follows:

 NSE brings an integrated stock market trading network across the nation.

 Investors can trade at the same price from anywhere in the country since inter-
market operations are streamlined coupled with the countrywide access to the
securities.

 Delays in communication, late payments and the malpractice’s prevailing in the

traditional trading mechanism can be done away with greater operational
efficiency and informational transparency in the stock market operations, with
the support of total computerized network.

Unless stock markets provide professionalized service, small investors and foreign
investors will not be interested in capital market operations. And capital market being
one of the major source of long-term finance for industrial projects, India cannot afford
to damage the capital market path. In this regard NSE gains vital importance in the
Indian capital market system.

Preamble

Often, in the economic literature we find the terms ‘development’ and ‘growth’ are
used interchangeably. However, there is a difference. Economic growth refers to the
sustained increase in per capita or total income, while the term economic development
implies sustained structural change, including all the complex effects of economic
growth. In other words, growth is associated with free enterprise, where as
development requires some sort of control and regulation of the forces affecting
development. Thus, economic development is a process and growth is a phenomenon.

Economic planning is very critical for a nation, especially a developing country like
India to take the country in the path of economic development to attain economic
growth.

Why Economic Planning for India?

One of the major objective of planning in India is to increase the rate of economic
development, implying that increasing the rate of capital formation by raising the
levels of income, saving and investment. However, increasing the rate of capital
formation in India is beset with a number of difficulties. People are poverty ridden.
Their capacity to save is extremely low due to low levels of income and high
propensity to consume. Therefor, the rate of investment is low which leads to capital
deficiency and low productivity. Low productivity means low income and the vicious
circle continues. Thus, to break this vicious economic circle, planning is inevitable for
India.

The market mechanism works imperfectly in developing nations due to the ignorance
and unfamiliarity with it. Therefore, to improve and strengthen market mechanism
planning is very vital. In India, a large portion of the economy is non-monitised; the
product, factors of production, money and capital markets is not organized properly.
Thus the prevailing price mechanism fails to bring about adjustments between
aggregate demand and supply of goods and services. Thus, to improve the economy,
market imperfections has to be removed; available resources has to be mobilized and
utilized efficiently; and structural rigidities has to be overcome. These can be attained
only through planning.

In India, capital is scarce; and unemployment and disguised unemployment is

prevalent. Thus, where capital was being scarce and labour being abundant, providing
useful employment opportunities to an increasing labour force is a difficult exercise.
Only a centralized planning model can solve this macro problem of India.
Further, in a country like India where agricultural dependence is very high, one cannot
ignore this segment in the process of economic development. Therefore, an economic
development model has to consider a balanced approach to link both agriculture and
industry and lead for a paralleled growth. Not to mention, both agriculture and industry
cannot develop without adequate infrastructural facilities which only the state can
provide and this is possible only through a well carved out planning strategy. The
government’s role in providing infrastructure is unavoidable due to the fact that the
role of private sector in infrastructural development of India is very minimal since
these infrastructure projects are considered as unprofitable by the private sector.

Further, India is a clear case of income disparity. Thus, it is the duty of the state to
reduce the prevailing income inequalities. This is possible only through planning.

Planning History of India

The development of planning in India began prior to the first Five Year Plan of
independent India, long before independence even. The idea of central directions of
resources to overcome persistent poverty gradually, because one of the main policies
advocated by nationalists early in the century. The Congress Party worked out a
program for economic advancement during the 1920’s, and 1930’s and by the 1938
they formed a National Planning Committee under the chairmanship of future Prime
Minister Nehru. The Committee had little time to do anything but prepare programs
and reports before the Second World War which put an end to it. But it was already
more than an academic exercise remote from administration. Provisional government
had been elected in 1938, and the Congress Party leaders held positions of
responsibility. After the war, the Interim government of the pre-independence years
appointed an Advisory Planning Board. The Board produced a number of somewhat
disconnected Plans itself. But, more important in the long run, it recommended the
appointment of a Planning Commission.

The Planning Commission did not start work properly until 1950. During the first three
years of independent India, the state and economy scarcely had a stable structure at all,
while millions of refugees crossed the newly established borders of India and Pakistan,
and while ex-princely states (over 500 of them) were being merged into India or
Pakistan. The Planning Commission as it now exists, was not set up until the new India
had adopted its Constitution in January 1950.

Objectives of Indian Planning

The Planning Commission was set up the following Directive principles :

 To make an assessment of the material, capital and human resources of the

country, including technical personnel, and investigate the possibilities of
augmenting such of these resources as are found to be deficient in relation to
the nation’s requirement.

 To formulate a plan for the most effective and balanced use of the country’s
resources.

 Having determined the priorities, to define the stages in which the plan should
be carried out, and propose the allocation of resources for the completion of
each stage.

 To indicate the factors which are tending to retard economic development, and
determine the conditions which, in view of the current social and political
situation, should be established for the successful execution of the Plan.

 To determine the nature of the machinery this will be necessary for securing the
successful implementation of each stage of Plan in all its aspects.

 To appraise from time to time the progress achieved in the execution of each
stage of the Plan and recommend the adjustments of policy and measures that
such appraisals may show to be necessary.

 To make such interim or auxiliary recommendations as appear to it to be

appropriate either for facilitating the discharge of the duties assigned to it or on
a consideration of the prevailing economic conditions, current policies,
measures and development programs; or on an examination of such specific
problems as may be referred to it for advice by Central or State Governments.
The long-term general objectives of Indian Planning are as follows:

 Increasing National Income

 Reducing inequalities in the distribution of income and wealth

 Elimination of poverty

 Providing additional employment; and

 Alleviating bottlenecks in the areas of : agricultural production, manufacturing

capacity for producer’s goods and balance of payments.

Economic growth, as the primary objective has remained in focus in all Five Year
Plans. Approximately, economic growth has been targeted at a rate of five per cent per
annum. High priority to economic growth in Indian Plans looks very much justified in
view of long period of stagnation during the British rule
COMPANY PROFILE
Background:

Karvy Stock Broking Limited, one of the cornerstones of the Karvy edifice, flows
freely towards attaining diverse goals of the customer through varied services. Creating
a plethora of opportunities for the customer by opening up investment vistas backed by
research-based advisory services. Here, growth knows no limits and success recognizes
no boundaries. Helping the customer create waves in his portfolio and empowering the
investor completely is-the-ultimate-goal.

Stock-Broking-Services
It is an undisputed fact that the stock market is unpredictable and yet enjoys a high
success rate as a wealth management and wealth accumulation option. The difference
between unpredictability and a safety anchor in the market is provided by in-depth
knowledge of market functioning and changing trends, planning with foresight and
choosing one's options with care. This is what we provide in our Stock Broking
services.

We offer services that are beyond just a medium for buying and selling stocks and
shares. Instead we provide services which are multi dimensional and multi-focused in
their scope. There are several advantages in utilizing our Stock Broking services,
which are the reasons why it is one of the best in the country.

We offer trading on a vast platform National Stock Exchange and Bombay Stock
Exchange. More importantly, we make trading safe to the maximum possible extent,
by accounting for several risk factors and planning accordingly. We are assisted in this
task by our in-depth research, constant feedback and sound advisory facilities. Our
highly skilled research team, comprising of technical analysts as well as fundamental
specialists, secure result-oriented information on market trends, market analysis and
market predictions. This crucial information is given as a constant feedback to our
customers, through daily reports delivered thrice daily ; The Pre-session Report, where
market scenario for the day is predicted, The Mid-session Report, timed to arrive
during lunch break , where the market forecast for the rest of the day is given and The
Post-session Report, the final report for the day, where the market and the report itself
is reviewed. To add to this repository of information, we publish a monthly magazine
"Karvy The Finapolis", which analyzes the latest stock market trends and takes a close
look at the various investment options, and products available in the market, while a
weekly report, called "Karvy Bazaar Baatein", keeps you more informed on the
immediate trends in the stock market. In addition, our specific industry reports give
comprehensive information on various industries. Besides this, we also offer special
portfolio analysis packages that provide daily technical advice on scrips for successful
portfolio management and provide customized advisory services to help you make the
right financial moves that are specifically suited to your portfolio.

Our Stock Broking services are widely networked across India, with the number of our
trading terminals providing retail stock broking facilities. Our services have
increasingly offered customer oriented convenience, which we provide to a spectrum
of investors, high-networth or otherwise, with equal dedication and competence.

But true to our spirit, this success is not our final destination, but just a platform to
launch further enhanced quality services to provide you the latest in convenient,
customer-friendly stock management.

Over the years we have ensured that the trust of our customers is our biggest returns.
Factors such as our success in the Electronic custody business has helped build on our
tradition of trust even more. Consequentially our retail client base expanded very fast.

To empower the investor further we have made serious efforts to ensure that our
research calls are disseminated systematically to all our stock broking clients through
various delivery channels like email, chat, SMS, phone calls etc.

Our foray into commodities broking has been path breaking and we are in the process
of converting existing traders in commodities into the more organized mainstream of
trading in commodity futures, both as a trading and risk hedging mechanism.

In the future, our focus will be on the emerging businesses and to meet this objective,
we have enhanced our manpower and revitalized our knowledge base with enhances
focus on Futures and Options as well as the commodities business.
Depository-Participants

The onset of the technology revolution in financial services Industry saw the
emergence of Karvy as an electronic custodian registered with National Securities
Depository (NSDL) and Central Securities Depository (CSDL) in 1998. Karvy set
standards enabling further comfort to the investor by promoting paperless trading
across the country and emerged as the top 3 Depository Participants in the country in
terms of customer serviced.

Offering a wide trading platform with a dual membership at both NSDL and CDSL, we
are a powerful medium for trading and settlement of dematerialized shares. We have
established live DPMs, Internet access to accounts and an easier transaction process in
order to offer more convenience to individual and corporate investors. A team of
professional and the latest technological expertise allocated exclusively to our demat
division including technological enhancements like SPEED-e, make our response time
quick and our delivery impeccable. A wide national network makes our efficiencies
accessible to all.

Karvy Consultants Limited was started in the year 1981, with the vision and enterprise
of a small group of practicing Chartered Accountants. Initially it was started with
consulting and financial accounting automation, and carved inroads into the field of
registry and share accounting by 1985. Since then, it has utilized its experience and
superlative expertise to go from strength to strength…to better its services, to provide
new ones, to innovate, diversify and in the process, evolved as one of India’s premier
integrated financial service enterprise.
Today, Karvy has access to millions of Indian shareholders, besides companies, s,
financial institutions and regulatory agencies. Over the past one and half decades,
Karvy has evolved as a veritable link between industry, finance and people. In January
1998, Karvy became the first Depository Participant in Andhra Pradesh. An ISO 9002
company, Karvy's commitment to quality and retail reach has made it an integrated
financial services company.
An-Overview:
KARVY, is a premier integrated financial services provider, and ranked among the top
five in the country in all its business segments, services over 18 million individual
investors in various capacities, and provides investor services to over 300 corporates,
comprising the who is who of Corporate India. KARVY covers the entire spectrum of
financial services such as Stock broking, Depository Participants, Distribution of
financial products - mutual funds, bonds, fixed deposit, equities, Insurance Broking,
Commodities Broking, Personal Finance Advisory Services, Merchant ing & Corporate
Finance, placement of equity, IPOs, among others. Karvy has a professional
management team and ranks among the best in technology, operations and research of
various industrial segments.

Today, Karvy service over 6.5 lakhs customer accounts spread across over 250
cities/towns in India and serves more than 85 million shareholders across 7500
corporate clients and makes its presence felt in over 17 countries across 5 continents.
All of Karvy services are also backed by strong quality aspects, which have helped
Karvy to be certified as an ISO 9002 company by DNV.

ACHIEVEMENTS:

 Among the top 5 stock brokers in India (4% of NSE volumes)

 India's No. 1 Registrar & Securities Transfer Agents
 Among the top 3 Depository Participants
 Largest Network of Branches & Business Associates
 ISO 9001:2000 certified operations by DNV
 Among top 10 Investment ers
 Largest Distributor of Financial Products
 Adjudged as one of the top 50 IT uses in India by MIS Asia
 Full Fledged IT driven operations
 First ISO-9002 Certified Registrars in India
 Ranked as “The Most Admired Registrar” by MARG
 Largest mobilize of funds as per PRIME DATABASE
 First depository participant from Andhra Pradesh.
 Handled over 500 public issues as Registrars.
  Handling the Reliance account, which accounts for nearly 10 million account
holders?

Range of services:
Stock broking services
 Distribution of Financial Products (investments & loan products)
 Depository Participant services
 IT enabled services
 Personal finance Advisory Services
 Private Client Group
 Debt market services
 Insurance & merchant ing
 Mutual Fund Services
 Corporate Shareholder Services
 Other global services

Besides these, they also offer special portfolio analysis packages that provide daily
technical advice on scrips for successful portfolio management and provide customized
advisory services to help customers make the right financial moves that are specifically
suited to their portfolio. They are continually engaged in designing the right investment
portfolio for each customer according to individual needs and budget considerations.

Karvy Consultants limited deals in Registrar and Investment Services. Karvy is one of
the early entrants registered as Depository Participant with NSDL (National Securities
Depository Limited), the first Depository in the country and then with CDSL (Central
Depository Services Limited).
Karvy stock broking is a member of National Stock Exchange (NSE), The Bombay
Stock Exchange (BSE), and The Hyderabad Stock Exchange (HSE). The services
provided are multi dimensional and multi-focused in their scope: to analyze the latest
stock market trends and to take a close looks at the various investment options and
products available in the market. Besides this, they also offer special portfolio analysis
packages.

The paradigm shift from pure selling to knowledge based selling drives the
business today. The monthly magazine, Finapolis, provides up-dated market
information on market trends, investment options, opinions etc. Thus empowering the
investor to base every financial move on rational thought and prudent analysis and
embark on the path to wealth creation.

Karvy is recognized as a leading merchant er in the country, Karvy is registered with

SEBI as a Category I merchant er. This reputation was built by capitalizing on
opportunities in corporate consolidations, mergers and acquisitions and corporate
restructuring.

Karvy has a tie up with the world’s largest transfer agent, the leading Australian
company, Computer share Limited. It has attained a position of immense strength as a
provider of across-the-board transfer agency services to AMCs, Distributors and
Investors. Besides providing the entire back office processing, it also provides the link
between various Mutual Funds and the investor.
 Karvy global services limited covers ing, Financial and Insurance Services (BFIS),
Retail and Merchandising, Leisure and Entertainment, Energy and Utility and
Healthcare sectors.

Karvy comtrade limited trades in all goods and products of agricultural and mineral
origin that include lucrative commodities like gold and silver and popular items like
oil, pulses and cotton through a well-systematized trading platform.

Karvy Insurance Broking Pvt. . provides both life and non-life insurance products
to retail individuals, high net-worth clients and corporates. With Indian markets seeing
a sea change, both in terms of investment pattern and attitude of investors, insurance is
no more seen as only a tax saving product but also as an investment product.

Karvy Inc. is located in New York to provide various financial products and
information on Indian equities to potential foreign institutional investors (FIIs) in the
region. This entity would extensively facilitate various businesses of Karvy viz., stock
broking (Indian equities), research and investment by QIBs in Indian markets for both
secondary and primary offerings.

.Quality Policy:
To achieve and retain leadership, Karvy shall aim for complete customer satisfaction,
by combining its human and technological resources, to provide superior quality
financial services. In the process, Karvy will strive to exceed Customer's expectations.
Quality Objectives
As per the Quality Policy, Karvy will:

 Build in-house processes that will ensure transparent and harmonious

relationships with its clients and investors to provide high quality of services.
 Establish a partner relationship with its investor service agents and vendors that
will help in keeping up its commitments to the customers.
 Provide high quality of work life for all its employees and equip them with
adequate knowledge & skills so as to respond to customer's needs.
 Continue to uphold the values of honesty & integrity and strive to establish
unparalleled standards in business ethics.
 Use state-of-the art information technology in developing new and innovative
financial products and services to meet the changing needs of investors and
clients.
 Strive to be a reliable source of value-added financial products and services and
constantly guide the individuals and institutions in making a judicious choice of
same.

Strive to keep all stake-holders (shareholders, clients, investors, employees, suppliers

and regulatory authorities) proud and satisfied
 CHAPTER-III
REVIEW OF LITERATURE
Nayak D.N (2006) in his paper “Canadian Foreign Investment in India:
Some Observations”, analyse the patterns and trends of Canadian FI in India. He finds
out that India does not figure very much in the investment plans of Canadian firms.
The reasons for the same is the indifferent attitude of Canadians towards India and lack
of information of investment opportunities in India are the important contributing
factor for such an unhealthy trends in economic relation between India and Canada. He
suggested
some measures such as publishing of regular documents like newsletter that would
highlight opportunities in India and a detailed focus on India’s area of strength so that
Canadian firms could come forward and discuss their areas of expertise would got long
way in enhancing Canadian FI in India.

Balasubramanyam V.N Sapsford David (2009) in their article “Does India need a
lot more FI” compares the levels of FI inflows in India and China, and found that FI in
India is one tenth of that of china. The paper also finds that India may not require
increased FI because of the structure and composition of India’s manufacturing, service
sectors and her endowments of human capital. The requirements of managerial and
organizational skills of these industries are much lower than that of labour intensive
industries such as those in China. Also, India has a large pool of well – Trained
engineers and scientists capable of adapting and restructuring imported know – how to
suit local factor and product market condition all of these factors promote effective
spillovers of technology and know- how from foreign firms to locally own firms. The
optimum level of FI, which generates substantial spillovers, enhances learning on the
job, and contributes to the growth of productivity, is likely to be much lower in India
than in other developing countries including China. The country may need much larger
volumes of FI than it currently attracts if it were to attain growth rates in excess of 10
per cent per annum. Finally, they conclude that the country is now in a position to
unbundle the FI package effectively and rely on sources other than FI for its
requirements of capital.
Naga Raj R (2005) in his article “Foreign Investment in India in the 1990s:
Trends and Issues” discusses the trends in FI in India in the 1990s and compare them
with China. The study raises some issues on the effects of the recent investments on the
domestic economy. Based on the analytical discussion and comparative experience, the
study concludes by suggesting a realistic foreign investment policy.

Morris Sebastian (1999) in his study “Foreign Investment from India: 1964-83”
studied the features of Indian FI and the nature and mode of control exercised by
Indians and firms abroad, the causal factors that underlie Indian FI and their specific
strengths and weaknesses using data from government files. To this effect, 16 case
studies of firms in the textiles, paper, light machinery, consumer durables and oil
industry in Kenya and South East Asia are presented. This study concludes that the
indigenous private corporate sector is the major source of investments. The current
regime of tariff and narrow export policy are other reasons that have motivated market
seeking FI.

Resources seeking FI has started to constitute a substantial portion of FI from India.

Neither the “advantage concept” of Kindlebrger, nor the concept of large oligopolies
trying to retain their technological and monopoly power internationally of Hymer and
Vaitsos are relevant in understanding Indian FI, and hence are not truly general forces
that underlie FI. The only truly general force is the inexorable push of capital to seek
markets, whether through exports or when conditions at home put a brake on
accumulation and condition abroad permit its continuation.

Kulwinder Singh38 (2007) in his study “Foreign Investment in India: A Critical

analysis of FI from 1991-2007” explores the uneven beginnings of FI, in India and
examines the developments (economic and political) relating to the trends in two
sectors: industry and infrastructure. The study concludes that the impact of the reforms
in India on the policy environment for FI presents a mixed picture. The industrial
reforms have gone far, though they need to be supplemented by more infrastructure
reforms, which are a critical missing link.
Nirupam Bajpai and Jeffrey D. Sachs (2008) in their paper “Foreign Investment
in India: Issues and Problems”, attempted to identify the issues and problems
associated with India’s current FI regimes, and more importantly the other associated
factors responsible for India’s unattractiveness as an investment location. Despite India
offering a large domestic market, rule of law, low labour costs, and a well working
democracy, her performance in attracting FI flows have been far from satisfactory. The
conclusion of the study is that a restricted FI regime, high import tariffs, exit barriers
for firms, stringent labor laws, poor quality infrastructure, centralized decision making
processes, and a very limited scale of export processing zones make India an
unattractive investment location.

Chandan Chakraborty, Peter Nunnenkamp (2006) in their study “Economic

Reforms, FI and its Economic Effects in India” assess the growth implications of FI
in India by subjecting industry – specific FI and output data to Granger causality tests
within a panel co -integration framework. It turns out that the growth effects of FI vary
widely across sectors. FI stocks and output are mutually reinforcing in the
manufacturing sector. In sharp contrast, any causal relationship is absent in the primary
sector. Most strikingly, the study finds only transitory effects of FI on output in the
service sector, which attracted the bulk of FI in the post – reform era. These differences
in the FI – Growth relationship suggest that FI is unlikely to work wonders in India if
only remaining regulations were relaxed and still more industries opened up o FI.

Basu P., Nayak N.C, Vani Archana (2009) in their paper “Foreign Investment in
India: Emerging Horizon”, intends to study the qualitative shift in the FI inflows in
India in – depth in the last fourteen odd years as the bold new policy on economic front
makes the country progress in both quantity and the way country attracted FI. It reveals
that the country is not only cost – effective but also hot destination for R&D activities.
The study also finds out that R&D as a significant determining factor for FI inflows for
most of the industries in India.
The software industry is showing intensive R&D activity, which has to be channelized
in the form of export promotion for penetration in the new markets. The study also
reveals strong negative influence of corporate tax on FI inflows.
To sum up, it can be said that large domestic market, cheap labour, human capital, are
the main determinants of FI inflows to India, however, its stringent labour laws, poor
quality infrastructure, centralize decision making processes, and a vary limited
numbers of SEZs make India an unattractive investment location.

Definition

‘Investment’ is usually understood as financial contribution to the capital of an

enterprise or purchase of shares in the enterprise. ‘Foreign investment’ is investment in
an enterprise by a Non-Resident irrespective of whether this involves new capital or re-
investment of earnings.

Foreign investment is of two kinds

(i) Foreign Investment (FI) and

(ii) Foreign Portfolio Investment.

International Monetary Fund (IMF) and Organization for Economic Cooperation and
Development(OECD) define FI similarly as a category of cross border investment
made by a resident in one economy (the direct investor) with the objective of
establishing a ‘lasting interest in an enterprise (the direct investment enterprise) that is
resident in an economy other than that of the direct investor.

The motivation of the direct investor is a strategic long term relationship with the direct
investment enterprise to ensure the significant degree of influence by the direct
investor in the management of the direct investment enterprise. Direct investment
allows the direct investor to gain access to the direct investment enterprise which it
might otherwise be unable to do. The objectives of direct investment are different from
those of portfolio investment whereby investors do not generally expect to influence
the management of the enterprise.
Types of Foreign Investment

FIs require a business relationship between a parent company and its foreign
subsidiary. Foreign direct business relationships give rise to multinational corporations.
For an investment to be regarded as an FI, the parent firm needs to have at least 10% of
the ordinary shares of its foreign affiliates. The investing firm may also qualify for an
FI if it owns voting power in a business enterprise operating in a foreign country.

FIs can be broadly classified into two types: outward FIs and inward FIs. This
classification is based on the types of restrictions imposed, and the various
prerequisites required for these investments.

An outward-bound FI is backed by the government against all types of associated risks.

This form of FI is subject to tax incentives as well as disincentives of various forms.
Risk coverage provided to the domestic industries and subsidies granted to the local
firms stand in the way of outward FIs, which are also known as 'direct investments
abroad. Different economic factors encourage inward FIs. These include interest loans,
tax breaks, grants, subsidies, and the removal of restrictions and limitations. Factors
detrimental to the growth of FIs include necessities of differential performance and
limitations related with ownership patterns. Other categorizations of FI exist as well.
Vertical Foreign Investment takes place when a multinational corporation owns some
shares of a foreign enterprise, which supplies input for it or uses the output produced
by the MNC. Horizontal Foreign Investments happen when a multinational company
carries out a similar business operation in different nations.

Foreign Investment is guided by different motives. FIs that are undertaken to

strengthen the existing market structure or explore the opportunities of new markets
can be called 'market-seeking FIs.' 'Resource-seeking FIs' are aimed at factors of
production which have more operational efficiency than those available in the home
country of the investor.
Some Foreign Investments involve the transfer of strategic assets. FI activities may
also be carried out to ensure optimization of available opportunities and economies of
scale. In this case, the Foreign Investment is termed as 'efficiency-seeking.'

Benefits of FI

One of the advantages of Foreign Investment is that it helps in the economic

development of the particular country where the investment is being made. This is
especially applicable for the economically developing countries. During the decade of
the 90s Foreign Investment was one of the major external sources of financing for most
of the countries that were growing from an economic perspective. It has also been
observed that Foreign Investment has helped several countries when they have faced
economic hardships. An example of this could be seen in some countries of the East
Asian region. It was observed during the financial problems of 1997-98 that the
amount of Foreign Investment made in these countries was pretty steady. The other
forms of cash inflows in a country like debt flows and portfolio equity had suffered
major setbacks. Similar observations have been made in Latin America in the 1980s
and in Mexico in 1994-95.

Foreign Investment also permits the transfer of technologies. This is done basically in
the way of provision of capital inputs. The importance of this factor lies in the fact that
this transfer of technologies cannot be accomplished by way of trading of goods and
services as well as investment of financial resources. It also assists in the promotion of
the competition within the local input market of a country. The countries that get
Foreign Investment from another country can also develop the human capital resources
by getting their employees to receive training on the operations of a particular business.
The profits that are generated by the Foreign Investments that are made in that country
can be used for the purpose of making contributions to the revenues of corporate taxes
of the recipient country.

Foreign Investment helps in the creation of new jobs in a particular country. It also
helps in increasing the salaries of the workers. This enables them to get access to a
better lifestyle and more facilities in life. It has normally been observed that Foreign
Investment allows for the development of the manufacturing sector of the recipient
country.

Foreign Investment can also bring in advanced technology and skill set in a country.
There is also some scope for new research activities being undertaken. Foreign
Investment assists in increasing the income that is generated through revenues realized
through taxation. It also plays a crucial role in the context of rise in the productivity of
the host countries. In case of countries that make Foreign Investment in other countries
this process has positive impact as well. In case of these countries, their companies get
an opportunity to explore newer markets and thereby generate more income and
profits.

It also opens up the export window that allows these countries the opportunity to cash
in on their superior technological resources. It has also been observed that as a result of
receiving Foreign Investment from other countries, it has been possible for the
recipient countries to keep their rates of interest at a lower level.

It becomes easier for the business entities to borrow finance at lesser rates of interest.
The biggest beneficiaries of these facilities are the small and medium-sized business
enterprises.
Disadvantages of FI

The disadvantages of Foreign Investment occur mostly in case of matters related to

operation, distribution of the profits made on the investment and the personnel.

One of the most indirect disadvantages of Foreign Investment is that the economically
backward section of the host country is always inconvenienced when the stream of
Foreign Investment is negatively affected.

The situations in countries like Ireland, Singapore, Chile and China corroborate such
an opinion. It is normally the responsibility of the host country to limit the extent of
impact that may be made by the Foreign Investment. They should be making sure that
the entities that are making the Foreign Investment in their country adhere to the
environmental, governance and social regulations that have been laid down in the
country.

The various disadvantages of Foreign Investment are understood where the host
country has some sort of national secret – something that is not meant to be disclosed
to the rest of the world. It has been observed that the defense of a country has faced
risks as a result of the Foreign Investment in the country.

At times it has been observed that certain foreign policies are adopted that are not
appreciated by the workers of the recipient country. Foreign Investment, at times, is
also disadvantageous for the ones who are making the investment themselves. Foreign
Investment may entail high travel and communications expenses. The differences of
language and culture that exist between the country of the investor and the host country
could also pose problems in case of Foreign Investment.

Yet another major disadvantage of Foreign Investment is that there is a chance that a
company may lose out on its ownership to an overseas company. This has often caused
many companies to approach Foreign Investment with a certain amount of caution.

At times it has been observed that there is considerable instability in a particular

geographical region. This causes a lot of inconvenience to the investor.

The size of the market, as well as, the condition of the host country could be important
factors in the case of the Foreign Investment. In case the host country is not well
connected with their more advanced neighbors, it poses a lot of challenge for the
investors.

At times it has been observed that the governments of the host country are facing
problems with Foreign Investment. It has less control over the functioning of the
company that is functioning as the wholly owned subsidiary of an overseas company.
This leads to serious issues. The investor does not have to be completely obedient to
the economic policies of the country where they have invested the money. At times
there have been adverse effects of Foreign Investment on the balance of payments of a
country. Even in view of the various disadvantages of Foreign Investment it may be
said that Foreign Investment has played an important role in shaping the economic
fortunes of a number of countries around the world.

Determinants of FI

One of the most important determinants of Foreign Investment is the size as well as the
growth prospects of the economy of the country where the Foreign Investment is being
made. It is normally assumed that if the country has a big market, it can grow quickly
from an economic point of view and it is concluded that the investors would be able to
make the most of their investments in that country.

In case of Foreign Investments that are based on export, the dimensions of the host
country are important as there are opportunities for bigger economies of scale, as well
as spill-over effects.
The population of a country plays an important role in attracting foreign direct
investors to a country. In such cases the investors are lured by the prospects of a huge
customer base.

Now if the country has a high per capita income or if the citizens have reasonably good
spending capabilities then it would offer the foreign direct investors with the scope of
excellent performances.

The status of the human resources in a country is also instrumental in attracting direct
investment from overseas. There are certain countries like China that have taken an
active interest in increasing the quality of their workers.

They have made it compulsory for every Chinese citizen to receive at least nine years
of education. This has helped in enhancing the standards of the laborers in China.
If a particular country has plenty of natural resources it always finds investors willing
to put their money in them. A good example would be Saudi Arabia and other oil rich
countries that have had overseas companies investing in them in order to tap the
unlimited oil resources at their disposal.

Inexpensive labor force is also an important determinant of attracting Foreign

Investment. The BPO revolution, as well as the boom of the Information Technology
companies in countries like India has been a proof of the fact that inexpensive labor
force has played an important part in attracting overseas direct investment.

Infrastructural factors like the status of telecommunications and railways play an

important part in having the foreign direct investors come into a particular country.

It has been observed that if the infrastructural facilities are properly in place in a
country then that country receives a substantial amount of Foreign Investment.
If a country has extended its arms to overseas investors and is also able to get access to
the international markets then it stands a better chance of getting higher amounts of
Foreign Investment.

It has been observed in the recent years that a couple of countries have altered their
stance vis-a-vis overseas investment. They have reset their economic policies in order
to suit the interests of the overseas investors.

These companies have increased the transparency of the legal frameworks in place.
This has been done so that the overseas companies can understand the implications of
their investment in a particular country and take the appropriate decisions.

FI Policies

The Foreign Investment policies are the various rules and regulations that have been
laid down by the various countries in order to regulate the overseas investment that is
being made in a country.
The Foreign Investment policies take an important part in determining the amount of
Foreign Investment that comes in a country. These policies play an important part in
the decision making process of the foreign direct investors.

They are normally affected by the Foreign Investment policies that are in place in a
country and make their decision based on these policies. If the policies are suitable
enough for the companies they go ahead with their investment.
The Foreign Investment policies provide the various conditions under which Foreign
Investment may be made in a country. They also state the various situations where
exception would be made to the allowances that are provided to the foreign direct
investors.

The Foreign Investment policies are reviewed on a regular basis. The changes that are
made to the policies are also notified through a variety of means like the press notes for
example. There is also some mention in the policies about the various ways in which
Foreign Investment may be made in various sectors.

There are certain conditions where the investors need to seek permission from the
various authoritative figures like the national government or any other entity that is
responsible for looking after the various affairs that are related to Foreign Investment.

The Foreign Investment policies are made mainly by entities that are responsible for
looking after the matters related to Foreign Investment in a country. The policies may
also be formulated by organizations that are meant to promote the country as Foreign
Investment destination. There are certain objectives behind the Foreign Investment
policies. The makers of these policies have two broad objectives – to promote the
investment opportunities that are present in the country to the overseas investors and
strike a balance between the overseas and local investors.

These policies also have various proposals that are made in order to improve the
policies that are in place for administering the Foreign Investment policies. These
proposals are important as they help in improving the Foreign Investment policy
situations and amend them so that they can appeal to the overseas investors.
This would lead to an increase in the Foreign Investment that is coming into the
country. The Foreign Investment policies also state the various areas where a country's
government would not allow Foreign Investment to be made. Some of those areas are
real estate and housing, gambling, lottery business, betting and chit funds for example.

Certain countries have formulated a number of Foreign Investment acts. These acts lay
down the various conditions where certain companies have to seek permission from
important authorities in order to receive Foreign Investment of any form and shape.
There are certain companies that are granted such permissions but only after they
complete certain formalities.

These formalities also need to be observed even after the permission has been provided
to these companies as far as Foreign Investment is concerned. The various options in
which an overseas investor can gain entry into the market of a country for the purposes
of making Foreign Investment are also mentioned in these Foreign Investment policies.

Methods of Foreign Investments

The foreign direct investor may acquire 10% or more of the voting power of an
enterprise in an economy through any of the following methods:

 by incorporating a wholly owned subsidiary or company

 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 Investment incentives may take the following forms:

 low corporate tax and income tax rates

 tax holidays
 preferential tariffs & other types of tax concessions
 special economic zones
  investment financial subsidies
 soft loan or loan guarantees
 free land or land subsidies
 relocation & expatriation subsidies
 job training & employment subsidies
 infrastructure subsidies
 R&D support
 derogation from regulations (usually for very large projects)

The manner in which a firm chooses to enter a foreign market through FI:

– International franchising

– Branches

– Contractual alliances

– Equity joint ventures

– Wholly foreign-owned subsidiaries

• Investment approaches:

– Greenfield investment (building a new facility)

– Cross-border mergers

– Cross-border acquisitions

– Sharing existing facilities

In India, FI 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. India’s
abundant and diversified natural resources, its sound economic policy, good market
conditions and highly skilled human resources, make it a proper destination for Foreign
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
Investment (FI) for the three-year period ending 2016 (World Investment Report 2012). As
per the study, the sectors which attracted highest FI were services, telecommunications,
construction activities, and computer software and hardware. In 1991, India liberalised its
highly regulated FI regime. Along with the virtual abolition of the industrial licensing
system, controls over foreign trade and FI were considerably relaxed. The reforms did result
in increased inflows of FI during the post reform period. The volume of FI in India is
relatively low compared with that in most other developing countries.

FI plays an important role in economic growth of an economy. Literature on factors

determining FI inflows into an economy shows that many factors influences inflows such as
market size, inflation, trade openness, interest rate, wage rate, business environment, etc. FI
is related positively with real GDP and previous period FI inflow but inversely related with
inflation. It showed that the macroeconomic instability in terms of inflation has been an
important factor which influenced the inflow of FI in India in the post reform period.

A large number of factors are held responsible for FI Inflow to India. Foreign Investment
inflow made its entry in India for the first time during the year 1991-92 with the aim to
bring together the intended investment and the actual savings of the country.

Why India Needs FI

 Offsetting the capital deficiency

 Acquiring advanced technology

 Gaining Production

 Promoting Exports

FI Culture In India

Many economists in the country have now realized the advantages of FI to India. While the
achievements of the Indian government are to be lauded, a willingness to attract FI has
resulted in what could be termed an “FI Industry”. While researching the economic reforms
on FI, it was discovered that there exists a plethora of boards, committees, and agencies that
have been constituted to ease the flow of FI. A call to one agency about their mandate and
scope usually results in the quintessential response to call someone else. Reports from
FICCI and the Planning Commission place investor confidence and satisfaction at an all
time high; citizens too deserve to be clued in on the government bodies are doing.
According to the current policy FI can come into India in two ways. Firstly FI up to 100%
is allowed under the automatic route in all activities/sectors except a small list that require
approval of the Government. FI in sectors/activities under automatic route does not require
any prior approval either by the Government or RBI.

The investors are required to notify the Regional office concerned of RBI within 30 days of
receipt of inward remittances and file the required documents with that office within 30
days of issue of shares to foreign investors. All proposals for foreign investment requiring
Government approval are considered by the Foreign Investment Promotion Board (FIPB).
The FIPB also grants composite approvals involving foreign investment/foreign technical
collaboration.

Advantages of Foreign Investment Inflows in India:

 FI inflows raise the capital for investment. Foreign capital has taken over the
domestic capital in terms of purchasing issue. Domestic capital is usually used or
invested in other sectors of the Indian market.

 Foreign Investment in greenfield ventures, has introduced technological

advancement and contemporary techniques for management in India, which the
country lacked badly before FI made its entry.

 The inflow of foreign capital in India has opened up a plethora of options in the
Indian market by ensuring foreign capital shares which stabilizes the country's
economy

 India ranks 17th in terms of Foreign Investment inflows, and has 1.4 percent shares
in FI inflows among all other developing nations

 Increase in Domestic Employment/Drop in unemployment

 Investment in Needed Infrastructure.

  Positive Influence on the Balance of Payments.

 New Technology and “Know How” Transfer.

 Increased Capital Investment.

 Targeted Regional and Sectoral Development

Disadvantages of FI in India:

 Industrial Sector Dominance in the Domestic Market.

 Technological Dependence on Foreign Technology Sources.

 Disturbance of Domestic Economic Plans in Favor of FI-Directed Activities.

 “ Cultural Change” Created by “Ethnocentric Staffing” The Infusion of Foreign

Culture , and Foreign Business Practices

India is potentially active in terms of investments and provides a galore of opportunities to

the foreign players into the market. Foreign companies who aspire to become a global
player would grab the opportunities, India provides in terms of investments. The foreign
companies enjoy the rights to set up branch offices, representative offices, and also carry
out outsourcing activities in terms of software developmental programmes in India. All
these have opened up innumerable options for the foreign investors to expand their
businesses at a global level. These are some of the factors which led to FI Inflows in India.

Market Potential in India for Attracting FI Inflows:

Over the years, FI in India has become an inseparable and important aspect of the non-
resident Indians (NRI). NRI investment in India has registered a surge with the initiation of
globalization and liberalization. NRI investment in India has been increasing by leaps and
bounds with NRI venturing into different proposals of business in India. There is a
requirement for strategic investment guidance in order to ensure smooth flow of NRI
investment in India. The business in India gets impetus with better investment guidance,
one such site is that of OIFC, wherein one can ask the expert. While the official website of
the government give details of the amount of FI in India about the particular sector or
business in India. The government has also cleared 12 proposals for FI in India worth over
US$ 496.84 million. The major inflows are expected to be accounted for by KKR Mauritius
Cement Investments and Shriram City Union Finance.
NRI investment in India is focusing on the real estate, infrastructure and education business
in India, besides other segments. The business in India is witnessing new heights especially
on the back of the robust growth in the manufacturing sector and good monsoon. The FI
investment in India is also witnessing a boom in the automobile industry, with India being
stated as the seventh largest automobile producing country.

Additionally, the need to focus on the sustainable development and the concept of green
power is another important business in India receiving FI. There has been a significant
increase in the interest shown and joint ventures (JV) being formed by foreign companies to
harness the non-conventional resources of India, thus attracting FI India. Investment
guidance for doing business in India can also be subject to trend analysis of the NRI
investments. The FI investment is considered one of the indicators to track which business
is showing a robust growth.

India is claimed to be the fifth largest economy across the globe and ranks third in the
Gross Domestic Product in the entire Asia, which is one of the most significant factors
responsible for FI Inflows in India. India is also known to be the second largest country
amongst all other developing countries. Besides, India belongs to those rarest of countries,
which offer growth and earning opportunities through various industrial units. India offers
maximum opportunities for foreign investments, which have been a major cause behind the
flourishing economy of the country.

Investment Options For NRIs In India

The Indian economy has been on a continuous growth curve. This is providing the non-
resident Indians (NRIs) to explore multiple options to invest their funds in their home
country. The returns from India are considerably higher than those from the US or
European countries

Some of the investment options available to NRIs in India are:

 Investment in the Indian equities markets, including IPOs

 Investment in mutual funds

 Company fixed deposits and non-convertible debentures of companies

 Real estate investments

  Government securities

 National Savings Certificates issued by post offices in India

 Deposits in Indian banks

Both NRIs and PIOs are offered several facilities by the Government of India. NRIs are
Indian citizen who resides outside India, while PIO (Person of Indian Origin) refers to an
individual who at any time held an Indian passport, or any of whose parents or grandparents
was a citizen of India. While NRIs are allowed to invest in all sectors when Indian citizens
are allowed, PIOs are allowed to invest only in non-agricultural sectors. A ’24% Scheme’
allows Indian companies, except those engaged in agricultural activities, to issue up to 24%
of their shares and debentures to NRIs with repatriation benefits.

Investment options in India are plenty. Investing money ultimately depends on the risk
appetite of the person who is investing. There are so many options and it is difficult to
choose the best one because most of them are giving good returns. Some good investment
options are given below.

1. Bank Fixed Deposits (FD):

Fixed Deposit or FD is a good investment option today. It gives up to 8.5% annual return
and depends on the bank and period of investment. Minimum period is 17 days and
maximum 5 years and above. Senior citizens get special interest rates for Fixed Deposits.
This is considered to be a safe investment because all banks operate under the guidelines of
the Reserve Bank of India.

2. Stock Market:

Investing in share market is another investment option to get more returns. But share
market investment depends on market conditions. Higher risk will get you higher returns.
Before investing you should have a good knowledge about its operation.

3. Mutual Funds:

Mutual Fund is a type of collective investment method by which many people deposit their
money in a fund and invest in various securities like stock, bonds or cash investments to get
good returns. For individual investors it is very easy type of investment because someone
else manages their funds, takes care of accounts and invests money over many different
available securities.

4. National Saving Certificate (NSC):

NSC is a safe investment related with the Government. Lock in period is 6 years. Minimum
amount is Rs100 and there is no upper limit. You get 8% interest calculated twice a year.
NSC comes under Section 80C, so you will get an income tax deduction up to Rs 1, 00,000.

5. Gold:

Gold has been the perfect tool to beat inflation. Real estate and shares beat gold on capital
appreciation. Real estate and shares have given returns of about 11% over inflation since
1979 (the year the index called Sensex was formed). But as a short term investment option,
however, gold is a very strong investment tool, compared to shares which are highly
volatile. Gold does not carry much risk at least in India, as we hardly see deflation in the
gold price. Liquidity option in gold is always 100%, compared to all other investments. At
any period of time gold can be converted into cash.

6. Real estate:

Real Estate in India is one of most successful investments in the last few years of Indian
history. Indian real estate has huge potential demand in almost every sector like
commercial, educational, housing, hospitality hotels, retail, manufacturing, healthcare etc.
Real Estate industry in India has reached a highest point at this period. It has been opened
to foreign investors also. This is the reason why many foreign investors are investing huge
amounts of money in this sector and making sizeable profit.

7. Equity:

Those who have the appetite to take risk they always can invest in equity market. Equity
market is also a good way to beat inflation. It is very difficult to neglect the enormous
profits, which have been earned by the investors in the equity investment market of India
over past few years. There are several interesting and new areas, where venture capital and
private equity firms are looking aggressively to enjoy the advantages.
Investment Opportunities for Overseas Indians

The business in India is a new wave of trend being followed globally. Investing in India’s
economy is becoming a big attraction for the foreign investors especially due to the
booming Indian economy and the staggering economy of the developed countries. The
investment guide is another tool with respect to providing services to the Indian
community. India Connect is one of the favoured slogan for forming the connection with
non-resident Indians (NRIs). Ministry of Overseas takes out a monthly newsletter India
Connect targeting the Overseas Investors, NRIs etc to come forward to do business in India.
Through its knowledge partners, it provides part of the investment guide as it provides
information and also explains as and to set up a business in India.

The robust Indian economy has become a trend to follow on and the business investments
being attracted are becoming part of the rising economic bandwagon to prosperity. The vast
investment opportunities available and the positive investment climate in India have
become a part of every business entrepreneur’s life. The Ministry of Overseas Indian
Affairs has set up an Overseas Indian Facilitation Centre (OIFC) as a not-for-profit-trust, in
partnership with Confederation of Indian Industry (CII) to promote investment
opportunities amongst the overseas Indians. OIFC also assists the States in India to project
investment opportunities to Overseas Indians and help them make business investments.
The India Connect concept is most favoured as India has always been a great fascinating
destination for the foreign players especially with the large population base with a huge
opportunity to do business investments. The developing countries have been acclaimed as
the forerunners of the global economy and in its revival. It is important to understand that
India is ready and is an indistinctively important destination for Foreign Investments (FI) in
India and to make business investments. The recent remarks by Barack Obama, the US
President that India is not simply emerging but has already emerged is in itself self-
explanatory to the India’s potential. The investment guide to do business in India is being
provided with various forms of services – handholding services is one of them. It is such
remarks by prominent personalities, which strengthen the claims and the prestige of India.
Furthermore, France’s support for India to obtain a permanent seat at United Nations
Security Council (UNSC) portrays the importance of India. It thus, becomes important for
various organisations providing investment guidance to come forward and to help
understand business in India. The services such as handholding services help investors to do
business in India and provide investment guide from conception to completion of the
project. Such services support companies of all countries interested in business investments
to record FI in India etc. The States are being encouraged to actively promote their
investment opportunities/ projects/ business investments. Some of the most favored
destinations being Chennai, Hyderabad Bengaluru etc. The various services offered by the
States to assist the non-resident Indians (NRI’s), overseas Indians and high networth
individual’s (HNI) potray the interest of the respective governments to assist as well as
attract FI in India and indirectly help in developing the state’s infrastructure. Such services
help in creating a conducive environment for FI in India.

Increased Standard Of living Through FI In India:

The country which accepts FI will benefit by increased job opportunities, higher standards
of living and better infra structure. The investing country or company usually has a 10%
stake in the enterprise making it eligible to multiply the money invested. Investors prefer FI
as there is always a higher chance that the FI investment will return higher than any
investment made in the home country.

It is the policy of the Government of India to attract and promote productive FI in activities
which significantly contribute to industrialization and socio-economic development. FI
supplements domestic capital and technology. FI is boosting growth in the country via two
channels.

1. Adds to the capital-stock of the country, thereby allowing a more optimal production of
goods and services. Thus, the result of the relative inputs of labor and capital is maximized.

2. The other channel is FI shaping the domestic economy by encouraging clustering,

creating competition-driven productivity gains, and exposing local firms to foreign
technology and best business practices.

Moreover, India’s tariff and non-tariff barriers may protect some domestic industries in the
short term, but in the long term will limit Foreign Investment (FI) and imports that can
enhance innovation within Indian partner companies, and increase the standard of living for
India’s people.
There had been a marked rise in their per capita incomes which were enough to provide
good standards of living to India’s entire population because of FI inflows to the country.

High tariffs are not merely a barrier to trade and limit FI but are potentially distortive of
competition by restricting the entry of new players into the domestic market. The objective
of competition policy is to ease entry and exit conditions by removing some of the
government erected barriers such as trade restrictions which could be one of the main
institutional barriers to domestic competition.

The need to lower tariffs and the need for liberalising the domestic investment regime have
been discussed at various WTO Ministerial Meetings. It is often argued that such policies or
protectionist measures are in line with the industrial policy necessary to protect the
domestic industries and promote economic growth of a country. The purpose of industrial
policy is to establish a course of action to support the achievement of development goals
that depend upon the performance of the domestic manufacturing and industrial sectors.
Industrial policy is usually justified on the grounds that market failures impede the proper
functioning of free markets and thus prevent the ability of countries to attain development
targets thus calling for government intervention to overcome such market failures.
However, too much government intervention may hinder competition by creating barriers to
entry as mentioned above and also promote inefficiencies and have an adverse impact on
consumer welfare.

Main Reasons Why India Attracts FI:

India needs inflows of capital to drive investment in infrastructure, a lack of which is often
cited as restricting the country’s economic growth. Investment is also needed to expand
capacity and technology in sectors such as autos and steel, as well as to offset a big current
account deficit.

India offers an excellent case study of the effects of FI and the differential ability of policy
makers to attract it for two main reasons. First, India’s federal system allows different
regions to respond to the same shocks and problems in different ways. This provides an
excellent basis for comparative study. Second, the country as a whole was relatively closed
to Foreign Investment until the 1991 liberalizing reforms. The balance of payments crisis
and IMF conditional reforms created a terrific natural experiment in how liberalization
effects growth. Though the central government was instrumental in opening up the
economy, state governments exert considerable and often determinative influence over the
allocation of FI.

Some of the other main reasons of why India attracts FI are:

1. To achieve transfer of technology and management techniques

2. To reduce dependency on aid

Investment Strategies For Overseas Investment In India:

Bidding adieu to the global recession and a rather unaffected economy of Asian markets
especially India. The repetitive revision of India’s gross domestic product (GDP) by various
organisation’s including World Bank reflected the confidence in the Indian economy and its
prospects to sustain the country’s growth. The robust growth of the Indian economy also
becomes evident from the influx of the FI. India has been declared one of the most
preferred destinations for the FI inflows. Investment opportunities in India are plentiful. It
becomes evident with the numerous MNC’s not only trailing their products and services
into the Indian markets but also coming forward to set up their manufacturing units in India.
This form of investment strategy is mainly to curb the expenses and to harness the
potentials of the large consumer base and the boosting middle class income. It provides
greater scope for various business investments.

With the West business and industry giants, foraying into India with customised products
for the Indian consumer in order to tap the investment opportunities in India. The
Government of India is trying to accommodate and utilize the conducive investment climate
of the country by relaxing and even introducing new policies. The change in the Indian
Government is to strategize and attract foreign investments into the country especially from
the perspective of the non resident Indians (NRI). Various banks are working on providing
investment strategies and investment guidance to the prospective overseas Indians/
investors to make the most fruitful deals. With the global market trend on a rise, on back of
developing countries robust economic growth, investing in India has emerged as a
trendsetter phenomenon. Business in India is booming with the high demand – supply curve
on a rise. The investment advisors globally are projecting the potentials of investing in
India.

Investing/Entry Strategies For Foreign Companies Investing In India:

A foreign company planning to enter India, is required to meet all requirements of doing
business in India as required by domestic Indian businesses. In addition foreign companies
are required to seek governmental approval before investing in India. Some approvals are
automatic, - RBI Approvals - though application is required for those approvals.

Special Permission - FIPB Approvals - could be obtained to invest over and above the
regular percentage allowed.

1. As an Indian Company

Foreign company can commence operations in India by incorporating a company under the
Companies Act, 1956 through

I. Joint Ventures; or

II. Wholly Owned Subsidiaries

Foreign equity in such Indian companies can be up to 100% depending on the requirements
of the investor, subject to equity caps in respect of the area of activities under the Foreign
Investment (FI) policy. Details of the FI policy, sectoral equity caps & procedures can be
obtained from Department of Industrial Policy & Promotion, Government of India.

A. Joint Venture With An Indian Partner

Foreign Companies can set up their operations in India by forging strategic alliances
with Indian partners. Joint Venture may entail the following advantages for a foreign
investor:

 Established distribution/ marketing set up of the Indian partner

 Available financial resource of the Indian partners

 Established contacts of the Indian partners which help smoothen the process of
setting up of operations

B. Wholly Owned Subsidiary Company

Foreign companies can also to set up wholly owned subsidiary in sectors where 100%
Foreign Investment is permitted under the FI policy.

C. Incorporation of Company
 For registration and incorporation, an application has to be filed with Registrar of
Companies (ROC). Once a company has been duly registered and incorporated as an
Indian company, it is subject to Indian laws and regulations as applicable to other
domestic Indian companies.

2. As a Foreign Company

Foreign Companies can set up their operations in India through:

A. Liaison office/ Representative office

Liaison office acts as a channel of communication between the principal place of

business or head office and entities in India. Liaison office cannot undertake any
commercial activity directly or indirectly and cannot, therefore, earn any income in
India. Its role is limited to collecting information about possible market opportunities
and providing information about the company and its products to prospective Indian
customers. It can promote export/import from/to India and also facilitate
technical/financial collaboration between parent company and companies in India.

The approval for establishing a liaison office in India is granted by the Reserve Bank
of India (RBI).

B. Project Office

Foreign Companies planning to execute specific projects in India can set up temporary
project/site offices in India. RBI has now granted general permission to foreign entities
to establish Project Offices subject to specified conditions. Such offices cannot
undertake or carry on any activity other than the activity relating and incidental to
execution of the project. Project Offices may remit outside India the surplus of the
project on its completion, general permission for which has been granted by the RBI.

C. Branch Office

Foreign companies engaged in manufacturing and trading activities abroad are allowed to
set up Branch Offices in India for the following purposes:

 Export/Import of goods

 Rendering professional or consultancy services

 Carrying out research work, in which the parent company is engaged.

  Promoting technical or financial collaborations between Indian companies and
parent or overseas group company.

 Representing the parent company in India and acting as buying/selling agents in

India.

 Rendering services in Information Technology and development of software in

India.

 Rendering technical support to the products supplied by the parent/ group

companies.

 Foreign Airline/shipping Company.

A branch office is not allowed to carry out manufacturing activities on its own but is
permitted to subcontract these to an Indian manufacturer. Branch Offices established with
the approval of RBI, may remit outside India profit of the branch, net of applicable Indian
taxes and subject to RBI guidelines Permission for setting up branch offices is granted by
the Reserve Bank of India (RBI).

India FI Policies:

The Indian Government issued it’s a new consolidated Foreign Investment (FI) Policy on
March 31, 2013 (the 2013 FI Policy), which came into effect from April 1, 2013. In this
article we describe some of the major changes introduced in the 2013 FI Policy.

1. Valuation of Convertible Instruments:

Under the earlier FI policy, convertible instruments could be issued only when their
conversion price was decided upfront at the time of issuance. Such upfront determination of
conversion rate eliminated any scope of commercial benefit of investing through
convertible instruments. The 2013 FI Policy provides that companies can now opt to
prescribe a conversion formula to determine the rate of conversion, subject to FEMA/SEBI
pricing guidelines. This is a welcome change that enables investors to benefit from
unexpected business growth.
2. Issue of Shares Against Investment in Kind and Incorporation Experiences:

The FI policy so far allowed Indian companies to issue shares only against cash remittances
received through normal banking channels, except when converting External Commercial
Borrowings (ECB), or against lump sum technical know-how fees and royalty fees into
equity. Under the 2013 FI Policy shares can now be issued against the:

(a) import of capital goods/machinery/equipment (including second-hand machinery);

and

(b) pre-operative/ pre-incorporation expenses (including payments of rent, etc.)

It is important to note that if parties wish to issue shares against these items they need to
obtain prior approval from the Foreign Investment Promotion Board, even if the investment
is otherwise subject to the automatic route, which requires not prior permission. The FI
Policy, 2013, specifies that all payments should be made directly to the company by the
foreign investor. Payments to third parities in the absence of bank accounts or otherwise
are not permitted.

3. Removal of No objection Certificate from previous ventures:

Until now a if a foreign investor, with an existing joint venture or technical collaboration
(entered before January 12, 2007), could not make any new investment in a similar venture
unless the existing Indian partner issued a no objection letter and the new investment was
also subject to specific prior Government approval. The 2013 FI Policy eliminates this
earlier, protectionist measure. This further opens up access to the Indian market but is
expected to subject Indian entities to more competition from abroad.

4. Downstream Investment:

To determine levels of foreign investment in companies the earlier FI policy identified

foreign owned and controlled companies under further categories as 'investing companies',
'operating companies' and 'investing-cum-operating companies.' The 2013 FI Policy
simplifies the categories confining them to:

a. Companies owned or controlled by foreign investors, and

b. Companies owned and controlled by Indian residents.

5. Sector Specific Changes:

 FI for the production of seeds and planting material permitted without restrictions,
which was earlier subject to such production under controlled condition.

 FI in multi-brand retail continues to be prohibited.

 FI in LLPs still not permitted.

Culture Of India - Changing Through FI

India is building up the reforms, but admits that inter-governmental politics have been
impacting government policy. India's diverse economy encompasses traditional village
farming, modern agriculture, handicrafts, a wide range of modern industries, and a
multitude of services. Services are the major source of economic growth, accounting for
more than half of India's output with less than one third of its labor force. India is expected
to be the world’s largest economy by 2050, surpassing China and the US, in view of its
continuing robust growth in the recent past.

INDIA – THE MOST PREFERRED DESTINATION FOR FI - REVIEW

India is established as one of the top tier world destinations for FI. In the Asia-Pacific
region, the country consolidated its second top position, besides China, after a lull in 2011
because of financial crisis. To augment, India’s inward investment rule went through a
series of changes since economic reforms were escorted in two decades back. The
expectation of the policy-makers was that an “investor friendly” command will help India
establish itself as a preferred destination of foreign investors. These expectations remained
largely unfulfilled despite the consistent attempts by the policy makers to increase the
attractiveness of India by further changes in policies that included opening up of individual
sectors, raising the hitherto existing caps on foreign holding and improving investment
procedures. But after 2007 - 2008, official statistics started reporting steep increases in FI
inflows. Portfolio investors and round-tripping investments are the important contributors to
India’s reported FI inflows.
Inward FIs in the county have been constantly rising since the sharp drop witnessed in
2011, following the global financial crisis. Foreign investors see huge long-term growth
potential in the country. As much as 75% of global businesses already present in the
country are looking to considerably expand their operations going forward according to the
Indian attractive survey by Ernst & Young. This also confirms that India is undergoing a
changeover, both in terms of investor perception of its market potential, and in reality.

The cumulative amount of FI inflows into India were US$2,80,412 million for the period
April 2000 – December 2016, including data of‘re-invested earnings’ & ‘other capital’ of
equity inflows. These are the estimates on an average basis, based upon data for the
previous two years, published by RBI in Monthly Bulletin. The cumulative amount of
Indian FI inflows, excluding, amount remitted through RBI’s-NRI Schemes, were
US$1,87,804 million for the period April 2000 – April 2013.

The resource requirement in a developing economy for investment usually exceeds the
availability of resources that could be domestically generated. In India, the Gross Domestic
Investment has historically been short of the Gross Domestic Savings by around 1.2 to 1.3
per cent of GDP on an annual basis. Countries, therefore, encourage the inflow of capital
from abroad to supplement the domestic savings for a higher investment and a larger
increase in production capacities. Foreign Investment is considered as the most preferred
route of supplementing the domestic savings as it brings along with the investment new
management practices and technologies. Besides enlarging the productive capacity they
also contribute to enhancement of export potential/earning of the country.

The economic liberalization, which was initiated in 1991, therefore, attempted to

significantly liberalize the FI policy regime. Over the years, India has emerged as a
preferred destination for foreign investment. Besides the sustained GDP growth of
economy, which has expanded market in India, the enabling environment and a transparent
open policy regime has significantly contributed to the emergence of India as a preferred
location. India FI policy regime operates in a dynamic setting and has been undergoing a
process of continuous review in line with requirement and investors’ perception. As a part
of this process, the FI policy is being liberalized progressively on an ongoing basis in order
to allow FI in more industries under the automatic route. In the year 2000, the Government
allowed FI up to 100 per cent under automatic route for most of the activities and a small
negative list was notified where either the automatic route was not available or there were
limits on FI. Since then, the policy has been gradually simplified and rationalized and more
sectors have been opened up for foreign investment.

India has been declared one of the most preferred destinations for the FI inflows.
Investment opportunities in India are plentiful. It becomes evident with the numerous
MNC’s not only trailing their products and services into the Indian markets but also coming
forward to set up their manufacturing units in India. This form of investment strategy is
mainly to curb the expenses and to harness the potentials of the large consumer base and the
boosting middle class income. It provides greater scope for various business investments.

With the West business and industry giants, foraying into India with customized products
for the Indian consumer in order to tap the investment opportunities in India. The
Government of India is trying to accommodate and utilize the conducive investment climate
of the country by relaxing and even introducing new policies. The changes in the Indian
Government are to strategies and attract foreign investments into the country especially
from the perspective of the overseas Indians or the non resident Indians (NRI). Various
banks are working on providing investment strategies and investment guidance to the
prospective overseas Indians/ investors to make the most fruitful deals.

With the global market trend on a rise, on back of developing countries robust economic
growth, investing in India has emerged as a trendsetter phenomenon. Business in India is
booming with the high demand – supply curve on a rise. The investment advisors globally
are projecting the potentials of investing in India.

It is important for investors to have some trend analysis of investment scope before they
plan to start or set up a business in India, thus the role of investment advisors to prepare
extensive investment guides to help and direct the trade investments and the scope of
foraying into a particular business in India becomes crucial.

India is today rated as one of the most attractive investment destinations across the globe.
The UNCTAD World Investment Report (WIR) 2012, in its analysis of the global trends
and sustained growth of Foreign Investment (FI) inflows, has reported India to be the
second most attractive location for FI for 2012-2016. According to the WIR 2012 report,
the top five most attractive locations for FI for 2011-11 are China, India, Brazil, United
States and the Russian Federation. For India, to maintain its momentum of GDP growth, it
is vital to ensure that the robustness of its FI inflow is also maintained.

To add, according to the '9th Annual European Attractiveness Survey conducted by Ernst &
Young, India will rank fifth among the most attractive destinations for European firms
within the next three years, mainly on account of India's perceived specialization as a hub
for low cost outsourcing business. The report said, "Foreign investors are not deterred by
current regulatory issues to invest in India. India's perceived specialization as a low-cost
business process outsourcing hub continues to appeal the investors across the globe."

Foreign players are looking forward to expand their footprints in India’s secure business
environment, especially in manufacturing and R&D. In fact, the American company 3M is
aiming to come up with an R&D centre with about 200 scientists in Bengaluru. French tyre
baron, Michelin is setting up a manufacturing facility in Tamil Nadu. The project is
estimated to be worth US$2.26 billion and the Foreign Investment Promotion Board (FIPB)
has already given approval for it.

The highly attractive sectors for the private equity (PE) investors are the infrastructure
development, education and sustainable development sectors among others. It is evident
from the huge number of projects being taken in the infrastructure sector through the public
private partnership (PPP) mode. It would not be an exaggeration to conclude that the
successful implementation of the numerous infrastructure related projects form a backbone
for the various parts of the country to develop. Thus, substantiating the importance and
relevance of detailed yet crisp investment strategies and guide for the Overseas Indians.
Private Equity (PE) and venture capital (VC) investors are keen on cashing by investing in
various sectors in India. Some of the most preferred sectors for PE/VCs are:

1. Healthcare:

A survey of over 60 PE and VC firms carried by research firm Venture Intelligence has
announced that companies have invested more than US$2 billion in the Indian healthcare
and life sciences sector in the last five years. Diagnostic services, monster beat headphones,
medical devices/equipment, Vibram Five Fingers Classic blue new, hospital chains and
wellness products and services are some of the key areas the investors seem to be quite
interested in.
2. Education:

The investors consider two fundamental things before investing: considerable government
support and increasing privatization of the education sector, according to Private Equity
Group, an advisory firm for PE investment in India. As per a Chennai based deal tracer,
Venture Intelligence, LeBron James 7 Basketball Shoes Think Pink Limited Edition, nearly
30 such investments worth around US$ 300 million was invested in education-related
companies since 2007.

3. Beverages:

Ahmet C Bozer, President (Eurasia and Africa), who’s spearheading the Coca-Cola
operations in over 90 countries, seems pretty optimist about India’s growth potential and
considers India as one of the fastest growing markets for Coca-Cola. According Bozer,
India’s Beverage industry will outgrow the world average. In the years to come, the
opportunities will be huge and growth will be in double digits. Coca Cola India is also
working in the same direction by partnering different bottling partners; few of them are
local Indian companies. Investments are also happening, in the areas of Technology,
Infrastructure, consumer marketing and manufacturing capacity. The company is working
in coordination with its bottling partners to harness the growth potential of this country.

Thus the country's higher economic growth rate and acute market potential are seen as
major factors of its perpetual progress and development, and investors are ready to infuse
capital in such economy where higher return is always ensured.

Recent Changes In FI Policy

Significant changes have been made in the FI policy regime in the recent time to ensure that
India remains increasingly attractive and investor-friendly. In an attempt to simplify the
rules and regulations pertaining to the Foreign Investment policy, the Department of
Industrial Policy and Promotion (DIPP) had issued a consolidated FI policy on March 31,
2012. The Circular which became effective from April 1, 2012 consolidated all prior press
notes / press releases / clarifications issued and reflected in a coherent manner the current
policy framework on FI. To the surprise of many, it was not to be a onetime affair the
Government this time had bigger plans to update the FI policy bi-annually, by issuing a new
circular which would supersede all prior press notes and circulars. Keeping intact the
promise, in this chain the government of India has recently released the third edition of the
Consolidated FI Policy Circular on 31 March 2013 which has become effective from April
1, 2013. It is further crucial to note that it is necessary to comply with any changes notified
by the Reserve Bank of India after the issuance of this Circular. The Indian government has
made scores of changes to the FI policy to attract more Foreign Investment amidst 25%
decline in FI FY2012-2013.

Main Features Of The New Consolidate FI Policy Circular

1. Removal of the condition of prior approval in case of existing joint ventures/ technical
collaborations in the “same field”:

This has been done through deletion of Clause 4.2.2 of the earlier Circular, which
provided that FI would be subject to the “Existing Venture/ tie-up conditions” as
stated in sub-clauses of Clause 4.2.2 (basically stating that where a non-resident
investor has an existing joint venture/ technology transfer/ trademark agreement, as
on January 12, 2007, new proposals in the same field for investment/technology
transfer/technology collaboration/trademark agreement would have to be under the
Government approval route through FIPB/ Project Approval Board). A discussion
paper had been released by DIPP last year on the need for review of this condition.
Based on stakeholder comments received by the DIPP on its discussion paper, the
Government while releasing the FI Circular 1 of 2013 has in its press release stated
that it has decided to abolish this condition. The press release further states that “It
is expected that this measure will promote the competitiveness of India as an
investment destination and be instrumental in attracting higher levels of FI and
technology inflows into the country”.

2. Pricing of convertible instrument – greater flexibility introduced:

This has been done through amendment made in Clause 3.2.1 of the Circular
which earlier provided that “The pricing of the capital instruments should be
decided/determined upfront at the time of issue of the instruments” Now it has been
added that “price / conversion formula” be determined upfront so in effect instead
of having to specify the price of convertible instruments upfront, companies will
now also have the option of prescribing a conversion formula, subject to the
condition that price at the time of conversion should not in any case be lower than
 the fair value worked out, at the time of issuance of such instruments, in
accordance with the prevailing valuation norms. This would help the recipient
companies in obtaining a better valuation based upon their performance.

3. Liberalization of policy for non-cash capital contributions:

This amendment has been brought about through additions in Clause 3.4.6 of the
Circular. The existing policy FI provided for conversion of only ECB/lump-sum
fee/Royalty into equity. The Government has now decided to permit issue of
equity, with prior approval from FIPB, in the following cases, subject to stipulated
conditions:

(a) Import of capital goods/ machinery/ equipment (including second-hand

machinery)

(b) Pre-operative/ pre-incorporation expenses (including payments of rent etc.)

This measure, which liberalizes conditions for conversion of non-cash items into
equity, is expected to significantly ease the conduct of business.

4. Foreign Institutional Investor Investment:

Clause 3.1.4 (i) of the earlier Circular 2 of 2012 provided as under: “An FII may
invest in the capital of an Indian company either under the FI Scheme/Policy or the
Portfolio Investment Scheme. 10% individual limit and 24% aggregate limit for FII
investment would still be applicable even when FIIs invest under the FI
scheme/policy.” It has now been clarified in Clause 3.1.4 (i) that aggregate FII limit
of 24% can be increased to sectoral cap/ statutory ceiling by Board of Directors
resolution followed by special resolution in shareholders meeting. While this has
always been clear under the FEMA provisions, the earlier FI Circulars did not
specifically mention this and now with this amendment the provisions relating to
FII investments are aligned with the FEMA provisions.

5. Hundred% FI in some area of Farm Sector:

The new FI Policy allow 100 per cent FI in development and production of seeds
and planting material, floriculture, horticulture, and cultivation of vegetables and
mushrooms under controlled conditions. Besides, animal husbandry (including of
 breeding of dogs), pisci-culture, aquaculture under controlled conditions and
services related to agro and allied sectors have been brought under the 100 per cent
FI norm. Similarly, the tea sector has also been brought under the 100 per cent FI
norm.

The DIPP has imposed certain conditions for companies dealing with development
of transgenic seeds and vegetables wanting to take the 100 per cent FI route. Under
the 100 per cent FI in tea sector, it demands compulsory divestment of 26 per cent
equity of the company in favor of an Indian partner/Indian public within a period of
five years prior to approval of the State Government concerned in case of any
future land use change.

The new policy will lead to increasing dependency on foreign companies and shut down of
small domestic firms not in a position to sustain competition from established foreign
players. The revised FI policy does carry the process of liberalization further and would
assist in augmenting FI into the Country. However, the revised FI policy has kept at bay
significantly expected changes such as permitting FI in Limited Liability Partnership,
Multi-Brand Retail Trading and several other subjects on which draft discussion papers
were released earlier for public comments. It is important that these areas are also taken up
the Government for liberalisation towards making India one of the most favourable FI
destinations in the world.

IMPACT OF FI ON INDIAN ECONOMY

The contemporary world has been witnessing an incessant form of economic growth
characterized by the flow of private capital from developed world to the developing
countries in the form of Foreign Investment (FI). More than ever, in 1990’s, Foreign
Investment (FI) became the single largest source of external finance for developing nations
and Indian economy too has shown a similar trend in receiving such investment. The
investment scenario of India is one of the exhilarating points for discussion for scholars
interested to capture the events that signify the outcomes of reforms of 1991 in India. India
has had some amount of success in exerting a pull on FI since the beginning of the post
1991 reform. By 1990 Foreign Investment has become inevitably a key component of
national development strategies for almost all the countries over the Globe and FI was
considered to be an essential too for jump-starting economic growth through its bolstering
of domestic capital, productivity and employment.

After more than a decade, the first and second-generation reforms have created favourable
and encouraging environment for foreign investment in India. Half of FI inflows to the
developing world, propelled largely by an increase in registered Greenfield projects, are
accounted by India and China. With the liberalization of the Indian economy, the large
Indian market is being opened to foreign investors and several companies are setting up or
have already set up operations in India and the country’s market oriented policies are
boosting this economic activity for its all round development. Though the economists and
market analysts continued to remain apprehensive about government’s snail pace progress
towards opening up sectors for FI up to 100%, some of the success stories already achieved
and the overseas investors seeing the potential for attractive returns from investments in
India, turns as a caveat that drives the government to extend certain liberal policy
frameworks for FI and foreign technology transfer. Foreign Investment (FI) plays an
extraordinary and growing role in global business. It can provide a firm with new markets
and marketing channels, cheaper production facilities, access to new technology, products,
skills and financing. For a host country or the foreign firm which receives the investment, it
can provide a source of new guarantees or the willingness of governments to bailout the
banking system.

More than half of the FI companies believe that the business climate has improved to a
large extent in India. Almost similar is the perception about the improvement in labour
laws, economic reforms and attitude the view that India’s image in the eyes of foreign
companies has shown sign of improvement to a large extent. However, some of the people
don’t consider that India’s image has improved in the world. Interestingly despite alliance
of many political parties, the political stability has improved to a large extent.

FI Impact In India

International capital flows have significant potential benefits for economies around the
world. Countries with sound macroeconomic policies and well-functioning institutions are
in the best position to reap the benefits of capital flows and minimize the risks. Countries
that permit free capital flows must choose between the stability provided by fixed exchange
rates and the flexibility afforded by an independent monetary policy. Much of the increase
in capital flows is due to trade in equity and debt markets, with the result that the
international pattern of asset ownership. The integration of debt and equity markets should
have been accompanied by a short period of large capital flows as investors re-allocated
their portfolios towards foreign debt and equity. After this adjustment period is over, there
seems little reason to suspect that international portfolio flows will be either large or
volatile. The prolonged increase in the size and volatility of capital flows observed that the
adjustment to greater financial integration is taking a very long time, or that integration has
little to do with the recent behavior of capital flows. The nature, volatility and impact of
international capital flows are still a debatable issue. The present paper tries to make a
preliminary attempt to test whether international capital flows has the positive impact on
financial market and economic growth with the help of macro economic variables in the
economy? Hence, the financial sector reforms to revive the capital markets help to attract
the capital flows due to comparative returns. The international capital flow has positive
contribution for the economic growth of developing countries explicitly.
Some of the major impacts on Indian economy include:

1. FI leads to Generation of Employment Opportunities:

The effect of FI on Employment generation is an indirect phenomenon. Owing to large

amount of FI inflow leads to high capital formation at cheaper rates. This in turn leads to
establishment of new business units or expansion of existing ones. Technological
transformations and human resource mobility leads to emergence of many business
undertakings. This leads to employment opportunities. In India the employment generation
is growing at positive trend.

2. FI growth in India leads to increasing the trends of gross capital formation:

The capital is the life and blood of every business or every production activity. Whether it
is production of goods or service capital is must. The gross capital formation comprises of
generation of capital by different production sectors. It comprises capital generated by both
public and private sectors. In the private sector the lot of capital generated in the form of
fixed asset would consists of Foreign Investments. Therefore the growth of inflow of FI
would lead to positive growth of Gross capital formation. The Gross Capital formation in
India is having increasing trend in India owing to increasing trends in FI growth.

Effect of FI on India’s GDP:

The gross domestic product is the major indicator of economic growth. It is developing at
an increasing rate in India. The gross domestic product (GDP) is one the primary indicators
used to gauge the health of a country’s economy. It represents the total money value of all
goods and services produced over a specific time period. The fact that the service sector
now accounts for more than half the GDP is a milestone in India’s economic history and
takes it closer to the fundamentals of a developed economy. At the time of independence
agriculture occupied the major share of GDP while the contribution of services was
relatively very less. Since liberalization policy in India the GDP is growing at an increasing
rate. The growth of Indian GDP is largely influenced by FI.

The Impact of FI on Various Macro Economic Variables:

In this section an attempt has been to assess the impact of FI separately on various macro
economic variables. As we all by now known, FI involves the transfer managerial resources
to the host country. There have been disagreements about the costs borne and the benefits
enjoy by host and recipient country between pro-liberalization and anti-liberalization/anti-
market views. One country losses need not necessarily be another country gains.
Kindelberger argues that the relationship arising from the FI process is not a zero sum
game. Ex-ante, both countries must believe that the expected benefits to them must be
greater than the costs to be borne by them, because an agreement would not otherwise be
reached and the under lying project would not be initiated. However, believing in
something ex-ante is not guarantee that it materializes ex-post. The impact of FI on host
country can be classified into economic, political, and social effects. The main intention at
heart of every MNC is profitability and hence they invest where the returns are high, buy
raw materials including cheap labour where it is relatively cheap. MNCs succeed because of
market imperfections and cast doubts on it as claim on welfare of host country. The
conventional wisdom that FI is always improving is no longer a conventional wisdom. The
economic effect of FI can be classified into micro and macro effects.
Micro Effects: The micro effects of FI reflect on structural changes in the economic and
industrial organization. An important issue is whether FI is conducive to the creations of
competitive environment in the host country. Markusen and Venables put forward two
simple analysis channels to find the micro effect of FI. They are
1. Product Market Competition.
2. Linkage Effect

Product Market Competition (PMC)

Through PMC the MNCs will be substituting the products of domestic firms in host
country.
Linkage Effect
MNCs may work as complimentary firms to domestic firms in host country where it is
possible for FI to act as a catalyst leading to the development of local industry.DI may have
benefits, but it will not come without costs. The decade of liberalization and the impact of
the FI on macro economic factors in India have to be found in this study. To assess the
impact of FI on various relevant macro-economic variables namely exports, private final
consumption expenditure, Forex, Gross Domestic Investment, gross domestic savings, trade
balance, balance of payments.
 CHAPTER-IV

DATA ANALYSIS & INTERPRETATION

 Year Wise FI Inflows In India Through FIPB Route/ RBI’s Automatic Route/
Acquisition Route

FI Inflows In India From 2013-2018

Financial Year Capital Inflow (US$ %age Growth Over

(April – March) Million) Previous Year
2004-2005 4,029 -
2005-2006 6,140 +52%
2006-2007 5,045 -18%
2007-2008 4,322 -15%
2008-2009 6,051 +40%
2009-2010 8,961 +48%
2010-2011 22,826 +156%
2012-2013 34,843 +53%
2013-2014 41,873 +20%
2014-2015 37,745 -11%
2015-2016 34,847 -8%
2016-2017 46,553 +34%
2017-2018 27,197 -

Total
Source: Nic.in
 50,000
45,000
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
2001 –2005-06
2004-05 2002 –2006-07
2003 2007-08
– 20042008-09
– 20052009-10
– 2006 – 2007
2010-11 – 2008
2011-12 – 2009
2012-13 – 2014-15
2013-14 2010 – 2015-16
2011 –2016-17
2012 –2017-18
2013 –
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

For the financial year (FY) 2017-2016(April 2017 - March 2016), India's FI inflow
amounted to US$46.55 billion, up by 34% from US$34.8 billion of the FY 2016-2017.
The inflow for the first nine months of FY2017-2016is US$27.19 billion. Over the last
decade, Mauritius is the largest contributor to this mainly because most of the investors
want to take advantage of the double taxation avoidance agreement between Mauritius
and India, and Mauritius-based investors do not have to pay capital gains tax in India.
Singapore is the second largest contributor of FI, after Mauritius, while UK comes
third. During the period, the services sector attracted the highest FI inflow, followed by
construction sector and telecom sectors.
 Share Of Top Investing Countries - FI Equity Inflows In India

FI Investments By Country In India (US$ Million) – 2002-2016

Financial Year
Rank Country 2018- 2018-13 2018-13 Cumulative %age to total
13(April- (April- (for April Inflows Inflows (in
March) March) 2018– Dec (April ’00 – terms of US
‘2018) Dec ‘16) $)
1 Mauritius 31,855 46,711 40,586 330,057 38%
2 Singapore 7,3390 24,713 8,967 86,555 11%
3 U.K. 13,235 36,428 3,310 77,970 9%
4 Japan 7,073 15,099 8,945 66,796 7%
5 U.S.A 5,353 5,347 2,226 50,126 6%
6 The Netherlands 5,501 6,698 7,253 39,577 5%
7 Cyprus 4,181 7,722 2,181 31,842 4%
8 Germany 909 7,452 2,744 23,572 3%
9 France 3,349 3,120 2,541 16,919 2%
11 U.A.E. 1,569 1,728 655 11,976 1%

* Total FI Inflows
Source: Nic.in

* Includes inflows under NRI Schemes of RBI.

For the FY2017-2016(April 2017 - March 2016), India's FI inflow was primarily from
Mauritius with US$46.71 billion compared to US$31.85 billion in FY2016-2017. For
the first 9 months of 2016 – 2017, the FD inflows from Mauritius are US$40.586
billion. Mauritius has been the single largest source of FI into the country in the first 13
years of the new millennium. As much as $330 billion worth of money has been
 invested in India after being routed through Mauritius. This is 38% of the total FI in the
country in the past decade.

FI Investments (Cumulative) By Country In India (US$ Million) – 2013-2018

Cumulative FDI Inflows by Country

400,000 330,057
US$ Million

300,000
200,000
86,555 77,970 66,796
100,000 50,115 39,577 31,842 23,572
15,919 10,976
0
e . n ds s y .
us or .K pa .A ru an ce .E
iti p U .S n p n
r
ga J a rla y m
Fr
a .A
au i n
U
h e C er U
M S et G
N
e
Th
Countries

Source: Nic.in

During the same period, 2001-2016, Singapore stood second with US$86.55 billion,
denoting 11%; followed by Japan with US$77.97 billion, representing 9%. Investments
from U.S.A. witnessed a declining trend, as the county is facing the credit crunch from
the past few years.
 Sectors Attracting Highest FI Equity Inflows - India

FI Investments By Sector In India (US$ Million) – 2013-2018

Financial Year
Rank Sector 2018-13 2018-13 2018-13 Cumulative %age to total
(April- (April- (for April Inflows Inflows (in
March) March) 2018 – Dec (April ’00 - terms of US
‘2018) Dec ‘13) $)
1 Services 3,296 5,217 4,056 36,449 19 %
Construction 1,655 3,151 1,097 21,834 13 %
2
Activities
3 Telecommunications 1,665 1,997 71 13,623 7%
Computer Software 780 796 414 12,618 6%
4
& Hardware
5 Drugs & Pharma 210 3,232 589 9,783 5%
6. Chemicals 2,354 4,051 180 8,759 5%
7. Power 1,272 1,652 525 7,824 4%
8. Automobile 1,299 923 804 7,561 4%
9. Metallurgical 1,109 1,786 1,301 7,342 4%
11 Hotel & Tourism 309 993 3,165 6,527 3%
Source: Nic.in

The services sector in India, which includes financial and non-financial services,
attracted the majority of the FIs from investors during the financial period April 2001 -
December 2016. The sector attracted US$36.44 billion representing 19% of total
inflows into the country. As India imposes substantial FI caps in the financial services
sector particularly in the insurance sector, the sector attracted fewer investments in the
FY2016-2017. The country can add about 1.5% to the country's economic growth, if
 the FI policy in the services sector is liberalized, which in turn leads to an increase in
FIs in services sector. In second place, Construction sector attracted US$13.623 billion,
followed by Telecom sector with US$13.623 billion during the period April 2001 –
December 2016.

FI Investments (Cumulative) By Sector In India US$ Million – 2013-2018

FDI By Sector
FDI in US$ Millions

36,449
40,000
30,000 21,834
20,000 12,623 11,618 9,783 8,759 7,824 7,561 7,342 6,527
10,000
0
Services

Tourism
Software &

Power
Telecommunic

Automobile
Construction

Metallurgical
Drugs &

Chemicals
Pharma

Hotel &
Computer

Hardware
Activities

ations

Sectors

Source: Nic.in

India's economic policies are designed in such a way that it attracts significant capital
inflows into the country on a sustained basis, thereby encouraging technology
collaboration between Indian and foreign firms. Almost all sectors are opened to
foreign investment with varying percentage of foreign ownership allowed, except for
atomic energy, lottery business, gambling and betting, and some forms of retail trading.
 CHAPTER-V

FINDINGS, SUGGESTIONS & CONCLUSION

 FINDINGS

India is established as one of the top tier world destinations for FI. In the Asia-Pacific
region, the country consolidated its second top position, besides China, after a lull in
2014 because of financial crisis. To augment, India’s inward investment rule went
through a series of changes since economic reforms were escorted in two decades back.
The cumulative amount of FI inflows into India were US$2,80,413 million for the
period April 2000 – December 2017, including data of‘re-invested earnings’ & ‘other
capital’ of equity inflows. These are the estimates on an average basis, based upon data
for the previous two years, published by RBI in Monthly Bulletin. Mauritius,
Singapore and UK are the top three contributors of FI into India while Services,
Construction and Telecom sectors attracted the major capital.

As per the recent survey done by the United National Conference on Trade and
Development, India will emerge as the third largest recipient of FI for the three-year
period ending 2017. As per the study, the sectors which attract highest FI were
services, telecommunications, construction activities, and computer software and
hardware.

There has been a continuing and sustained effort to make the FI policy more liberal and
investor-friendly. Significant rationalisation and simplification of the policy has,
therefore, been carried out in the recent past. DIPP, in its consultation paper titled ‘FI
Policy—rational and relevance of caps’ has, as a landmark initiative, accepted that up
to 49% foreign investment is indirectly possible in all sectors. This effectively means
that an Indian owned and controlled company can make downstream investments even
in prohibited sectors such as multibrand retail trading etc. It is important here to note
that foreign investment for this purpose includes not only strategic foreign investment
but also FII under portfolio investment schemes, NRI, GDR, ADR etc.
SUGGESTIONS

 It is important to consider whether the FI that is attracted is beneficial to the

economy. There is already a substantial body of research into the effects of FI
generally and the factors that can make FI more or less beneficial.

 FI can make a positive contribution to economic growth, by providing

additional capital and facilitating technology transfers.

 A further potential advantage of FI is the possibility of technology spillovers,

which can potentially enable the recipient country to benefit from advanced
technologies developed overseas.

 To pursue a growth of around 7 percent in the Gross Domestic Product of India,

the net capital flows should increase by at least 28 to 30 percent on the whole.

 The savings of the country stood at 24 percent. The gap formed between
intended investment and the actual savings of the country was lifted up by portfolio
investments by Foreign Institutional Investors, loans by foreign banks and other places,
and foreign direct investments. Among these three forms of financial assistance, India
prefers as well as possesses the maximum amount of Foreign Direct Investments.

 As largely debated FI has both positive and negative factors. These factors
should be properly studied before allowing any FI into a particular sector or the
country.
CONCLUSION

Amidst today’s time of fierce competition and a quest to achieve and enhance a
substantial level of economic and social development; each and every nation is trying
to liberalize its economic policies in order to attract investments from not only,
domestic players, but also from magnates all across the globe. Consequently, people
with generous reserves of funds, all around the globe, are expanding their wings and
seeking opportunities for investing in different spheres of this lucrative market. India
too is not oblivious to the rapid developments taking place in the global market and has
emerged as one of the prime destinations for the investment of funds from an
impressive number of foreign investors.

FI is a superb conduit for the transfer of technology and know-how to developing

countries. This message has not been lost on India's policy makers. They have though
until the decade of the nineties attempted to regulate and control its spheres of activity
and the contractual forms of foreign enterprise participation in the economy. The
framework of policies they put in place was guided by the desire to limit foreign
control of economic activity but at the same time take advantage of the technology and
know how provided by foreign capital. This attempt at riding two horses in tandem, a
complex feat, inevitably resulted in a complex and cumbersome bureaucratically
guided FI regime and earned India the reputation for hostility towards FI.

The GDP growth in India is anticipated to hover around 7% yearly and the number of
people in the Indian middle class is set to triple over the next 16 years, the domestic
demand is expected to grow exponentially. India’s young demographic profile also
helps it in providing an increasingly well-educated and cost-competitive labor force.
These factors put India in a good position to attract an increasing proportion of global
FI going forward.
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