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PROJECT REPORT ON

ANALYSIS OF DERIVATIVES
IN HYDERABD STOCK EXCHANGE

A PROJECT TO KAKATIYA UNIVERSTY


IN PARTIALFULFILLMENT OF THE REQUIREMENT FOR THE
AWARD OF THE DEGREE

MASTER OF BUSINESS ADMINISTRATION


BY

SIRIMALLA RAJU
06189-C-1023
UNDER THE GUIDANCE OF
RAJ KUMAR
LECTURER IN FINANCE

DEPARTMENT OF BUSINESS MANAGEMENT


JAYAMUKHI POST GRADUATE COLLEGE
KAKATIYA UNIVERSITY
WARANGAL
2005-2007

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DECLARATION

I hereby declare that this project entitled “ANALASYS OF


DERIVATIVES” is a bonafide work done by me under the guidance
of Mr. RAJ KUMAR and Mr. SHARATH KUMAR, Lecturers in
JAYAMUKHI Post Graduate College. In the partial fulfilment of
the requirement for the Award of Masters Degree in Business
Administration (Kakatiya University)
I also declare that this project is an original work done by me
and has not been submitted before any other University for the
Award of any Degree or Diploma.

SIRIMALLA RAJU

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ACKNOWLEDGEMENT

I wish to acknowledge with deep gratitude for the valuable


guidance received from my lecturers Mr. RAJ KUMAR and Mr.
SHARATH KUMAR without whose guidance, inspiration and
personal interest it would have not been possible for me to
complete this work.
I am thankful to Mr. Anil Kumar for giving me to the
opportunity to undertake this project in the esteemed organization.
I also thank Mr. Suresh Kumar for their support and guidance.
I would like to thank Mr. P. Rangaiah principal of Jayamukhi
Post Graduate College, for his valuable support and suggestions.
I would be failing in my duty if I do not express my
appreciations to my parents and my friends for their wholehearted
support and suggestions, which helped me in the completion of the
project work.

SIRIMALLA RAJU

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UNIT – I

INTRODUCTION

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FOREIN DIRECT INVESTMENTS IN INDIAN MARKETS

The economic development of a country involves utilization


of its resources for increasing the productive capacity of the
country. But in most of the developing countries such utilization
becomes rattler difficult due to the scarcity of domestic capital and
there is a need to attract foreign capital. Given the role of foreign
capital and technology as an impetus to economic development,
the question arises as to which is the best source of importing
capital and technology from the developing countries.

Foreign investment is one of the oldest and recognized


channels for importing capital and technology from the developed
countries into the developing countries. Foreign investment
especially through multinational corporations has been a subject of
animated discussion both in the home and the host countries. It
has been observed that these firms have neither contributed to
economic growth of developing countries nor transferred modern
technology to them. They have also failed to solve the balance of
payments problems.

Foreign Investment is a nebulous concept. In wider sense it


denotes a wide spectrum of international business arrangement,
but in essence entails flow of capital, technology, skills and
enterprise, from one country to another country. Such flow,
although not a new phenomenon, have assumed significance in
the wake of the needs and desires of contemporary developing
countries to push up their growth rate.

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Foreign Direct Investment (FDI) is permitted as under the
following forms of investments.

1. Through financial collaborations.


2. Through joint ventures and technical collaborations.
3. Through capital markets via Euro issues.
4. Through private placements or preferential allotments.

Forbidden Territories: -

FDI is not permitted in the following industrial sectors:


1. Arms and ammunition.
2. Atomic Energy.
3. Railway Transport.
4. Coal and lignite.
5. Mining of Iron, manganese, chrome, gypsum, sulphur,
gold, diamonds, copper, Zinc.

Foreign Investments through GDRs (Euro issues):-

Foreign Investment through GDRs is treated as Foreign


Direct Investment Indian companies are allowed to raise quality
capital in the international market through the issue of Global
Depository Receipt (GDRs). GDRs are designated in dollars and
are not subject to any ceilings on investment. An applicant
company seeking Government’s approval in this regard should
have consistent track record for good performance (financial or
otherwise) for a minimum period of 3 years. This condition would
be relaxed for infrastructure projects such as power generation,

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telecommunication, petroleum exploration and refining, ports,
airports and roads.

Clearance from FIPB:-

There is no restriction on the number of Euro-issuer to be


floated by a company or a group of companies in the financial
year. A company engaged in the manufacture of items covered
under Annex-III of the New Industrial Policy whose direct foreign
Investment after a proposed Euro Issue is likely to exceed 510/o or
which is implementing a project not contained in Annex-Ill, would
need to obtain prior FIPB clearance before seeking final approval
from Ministry of Finance. So, investment In stock markets and real
estate will not be permitted. Companies may retain the proceeds
abroad or may remit funds into India In anticipation of the use of
funds for approved end uses. Any Investments from a foreign firm
Into India quires the prior approval of the Government of India.

There are several good reasons for investing in India.

 One of the largest economies in the world.

 Strategic location - access to the vast domestic and South


Asian market.

 A large and rapidly growing consumer market up to 300


million people constitute the market for branded consumer
goods estimated to growing at 8% per annum. Demand
for several consumer products is growing at over 12%per
annum.

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 Foreign investment is welcome the automatic in sixty
categories of industries requires approval.

 Skilled manpower and professional managers are


available at competitive cost.

 One of the largest manufacturing sectors in the world,


spanning almost all areas of manufacturing activities.

 One of the largest pools of scientists, engineers,


technicians and managers in the world.

 Rich base of mineral and agricultural resources.

 Long history of market economy infrastructure

 Sophisticated financial sector.

 Vibrant capital market with over 9,000 listed companies


and market capitalization of US$ 154 billion (March, 1996)

 Well developed R&D infrastructure and technical and


marketing services.

 Policy environment that provides freedom of entry,


investment, location, choice of technology, production,
import and export.

 Well-balanced package of fiscal incentives.

 A sophisticated legal and accounting system.

 English is widely spoken an understood.

 Rupee is convertible on Current Account at market-

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determined rate.

 Free and full repatriation of capital technical fee, royalty


and dividends.

 Foreign brand names are freely used. No income tax on


profits derived from export of goods.

 Complete exemption from Customs Duty on industrial


inputs and Corporate Tax Holiday for five years for 100
percent Export Oriented units and units In Export.
Processing Zones.

 Corporate Tax applicable to the foreign companies of a


country with which agreement for avoidance of Double
Taxation Exists, can be one which is lower between the
rates prevailing in any one of the two countries and the
treaty rate.

METHODOLOGY :

For any survey to be successful the objectives need to be


very clear. Firstly the objectives were gave a sense of direction.
Interaction with the executives of different Mutual Fund
organizations also helped in assessing information.

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Data for the study was obtained by browsing from the net,
books and from different new papers. Also the Fact Sheets provide
by the AMCs proved very helpful.

Some information as been collected from the H.S.E Directory.

UNIT – II
PROFILE OF THE
HYDERABAD STOCK
EXCHANGE

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INTRODUCTION
THE HDERABAD STOCK EXCHANGE LIMITED

ORIGIN :
Rapid growth in industries in the erstwhile Hyderabad State
saw efforts at starting the stock exchange. In November 1941,
some leading bankers and brokers formed the stock and share
broker’s association. In 1942, Mr. Gulab Mohammed, the finance
minister formed a committee for the purpose of constituting rules
and regulations of the stock exchanges. Sri Purushothamdas
Thakuurdas, president and founder member of the Hyderabad
Stock Exchange performed the opening ceremony of the exchange
on 14.11.1943 under Hyderabad companies act; Mr. Kamal Yar
Jung Bahadur was the first president of the exchange. The HSE
started functioning under Hyderabad Securities contract act of no.
21 of 1352 under H.E.H. Nizam’s government as a company
limited by guarantee. It was the 6th stock exchange recognized
under Securities contract act, after the premier stock exchanges,
Ahmedabad, Bombay, Calcutta, Madras and Bangalore stock
exchanges. All the deliveries were completed every Monday or the
next working day.
The Securities Contracts (Regulation) Act 1956 was
enacted by the parliament, passed into Law and Rules were also
framed in 1957. The act and rules were brought into force from 20th
February 1957 by the government of India.

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The Government of India on 29th September 1958 first
recognized the FSE as securities regulation act was made
applicable to twin cities of Hyderabad and Secunderabad from the
date. In view of substantial growth in trading activities, and for the
Yeoman services rendered by the exchange, the exchange was
bestowed with permanent recognition with effect from 29th
September 1983.

The exchange has a significant share in achievements of


erstwhile state of Andhra Pradesh to its present state in the matter
of industrial development.

OBJECTIVES :-

The exchange was established on 18th October 1843 with the


main objective to create protect and develop a healthy Capital
Market in the state of Andhra Pradesh to effectively serve the
public and investors interests.

The property, capital and income of the exchange, as per the


Memorandum and Ar6ticles of Association of the exchange, shall
have to be applied solely towards the promotion of the objects of
the exchange. Even in case of dissolution, the surplus funds shall
have to be devoted to any activity having the same objects, as
exchange or be distributed in charity, as may be determined by the
exchange or the high court of judicature. Thus, in short, it is a
charitable institution.

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The exchange has made its beginning in 1943 and today
occupies a prominent place among the regional stock exchanges
in India. The HSE promotes the mobilization of funds to the
industry and develops the industrialization in the state to Andhra
Pradesh.

GROWTH:-

The HSE ltd. was established as a non-profit making


organization, catering to needs of investing population in a small in
a rented building in Kati area. It had shifted into Aiyatnagar plaza,
Bank Street in 1987. In September 1989, the vice-president of
India, honorable Dr. Shankar Dayal Sharma had inaugurated the
own building of the exchange at Himayatnagar, Hyderabad.
Considerably, there has been a tremendous perceptible growth
that could be observed from statistics.

The number of members of the exchange was 55 in 1943,


117 in 1993 and increased to 295 in 1995. The numbers have
listed companies increased to 934 with a vast paid up capital of
Rs.1471708.21 Lac as on 31/03/2001. The exchange has got a
very smooth weekly settlement system earlier and now a daily
rolling settlement.

GOVERNING BOARD:-

At present the governing board consists of the following:

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MEMBERS OF THE EXCHANGE:-
Sri Hari Narayan Rathi
Sri Rajendra V Naniwadekari
Sri K. Shiva Kumar
Sri R. D. Lahoti
Sri Ram Swaroop Agarwal
Sri Dattatriaya

SEBI NOMINEE DIRECTORS:-


Sri N. S. Ponnunambi Registrar of Companies
[Govt. of India]

PUBLIC NOMINEE DIRECTORS:-


Dr. N. R. Siva Swamy (Chairman HSE) [Former CBDT chairman]
Justice V. Bhaskar Rao (Retd. Judge High Court)
Sri P. Mural Mohan Rao (Mogilli & Co-Charted Accountants)
Dr. B. Brahmaiah G. M. JNIDB

EXECUTIVE DIRECTOR:-
Sri S. Sarveshwar Reddy.

COMPUTERISATION:-
The stock exchange business operations are equipped with
modern communication systems. Online computerization for
simultaneously carrying out the trading transactions, monitoring
functions have been introduced at this exchange since 1998 and

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settlement and delivery system has become simple an easy to the
exchange members.

The HSE on-line Securities trading system was built around


the most sophistication state of the art computer, communication
system, the proven VECTOR software from CMC and was one of
the most powerful SBT systems in the country, operating in a WAN
environment, connected through 9,6 KBPS 2 wire leased lines
from the offices the of the members to the office of the stock
exchange at Somajiguda, where the central system CHALLENGE-
L DESK SIDE SERVER made of silicon graphics (SGI Model
No.95602-s2) was located and connected to all the members who
were provided with COMPAQ DESKPRO 2000/DESKTOP 5120
computers connected through MOTOROLA 3265 V. 34
MANAGEABLE STATND ALONE MODEMS (28.8 KBPS) for
carrying out business from computer terminals located in the
offices of the members.

HSE is the only exchange in the country that has provide


infrastructure to its members for trading through WAN and leased
lines from the day one. The HOST system enabled the exchange
not only to expand its operations later to other prime trading
centers outside the twin cities of Hyderabad and Secunderabad
but also to link itself into the inter-connected market system(ICMS)
proposed by the federation of Indian stock exchanges (FISE) to
inter-connect various regional stock exchanges in various states.

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In the age of electronic trading, on-line information on rates
from other major markets was an essential input for efficiency.
HSE provided On-line rates from BSE and NSE which not only
enhanced the ability of HOST terminals to attract the investors but
also enabled the members to avail arbitraging opportunities
between exchanges.

CLEARING HOUSE:-

The exchange has setup a clearinghouse to collect the


Securities from all the members and distribute to each members,
all the Securities due in respect of every settlements. The whole of
the operations of the clearinghouse was also computerized.

INTER-CONNECTED MARKET SYSTEMS (ICMS):-

The HSE was the convener of a committee constituted by


the federation of Indian Stock exchanges for implementing an
Inter-Connected Systems (ICMS) in which the screen based
trading systems of various stock exchanges was interconnected to
create a large national market. SEBI welcomed the creation of
ICMS.

The HOST provides the network for HSE to hook itself into
the ISE. The ISE provide the members of HSE and their investors,
access to a large national network of stock exchanges.

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The inter-connected stock exchange is a national exchange
and all HSE members could have trading terminals with access to
the national market without any free, which was a boon to the
members of an exchange to have the trading rights on a national
stock exchange(ISE), without any free or expenditure.

STOCK BROKERS INSURANCE POLICY:-

HSE had taken a comprehensive stockbrokers’ insurance


policy covering the members to the extent of Rs.10.00lacks each
and also insured the clearinghouse. HSE was one of the few to
have such comprehensive insurance policy coverage.

ON-LINE SURVEILLANCE:-

HSE pays special attention to market surveillance and


monitoring exposures of the members, particularly the mark to
market losses. By taking prompt steps to collect the margins for
mark to market losses the risk of default by the members is
avoided in any settlement.

The exchange restricted the effective trading volumes and


linked to the capital deposited with the exchange, to obviate
defaults and losses and contain speculation.

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BASE MINIMUM GROSS EXPOSURE INTRA DAY
CAPITAL LIMIT LIMITS
Rs.4.00 Lacks Rs.40.00 Lacks Rs.132.00 Lacks
ADDITIONAL CAPITAL UPTO
Rs.6.00 Lacks Rs.48.00 Lacks Rs.90.00 Lacks
FURTHER ADDITIONAL CAPITAL UPTO
Rs.8.00 Lacks Rs.48.00 Lacks Rs.96.00 Lacks

CORPORATE DATABASE:-

HSE subscribed to the CMIE corporate database for


accessing date and profiles of companies. This database could be
accessed by the members, which further enhanced the information
power of the members.

IMPROVEMENT IN THE VOLUMES:-

It is heartening that after implementing HOST, HSE’s daily


turnover has fairly stabilized at a level of Rs.20.00 cr. This should
enable in improving our ranking among Indian Stock Exchanges
for 14th position to 16th position. We shall continuously strive to
improve upon this to ensure a premier position for our Exchange
and its members and to render excellent services to investors in
this region. The number of transactions, turnovers to the
exchange, number of listed companies and paid up capital listed
have grown up substantially as may be seen from the following
figures:

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TURNOV
NUMBER OF LISTED PAID UP
YEAR ER (RS IN
TRANSACTIONS COMPANIES CAPITAL
Cr.)

1991-92 515.949 587.75 236 2740.56

1992-93 421.985 676.00 274 10228.48

1993-94 603.635 984.46 372 13156.15

1994-95 860.642 1160.48 668 18588.71

1995-96 720.521 1107.30 727 20159.31

1996-97 240.64 479.98 851 22050.69

1997-98 427.83 1860.86 852 18705.10

1998-99 513.168 1269.90 856 18753.93

1999-2000 513.440 1236.51 869 19128.95

2000-01 427.205 977.83 934 14717.08

2001-02 34.474 41.26(*) 932 13616.12

2002-03 40203 4058(*) 928 13974.18

2003-04 20277 2073 856 8420.16

2004-05 40401 14.13 820 14456.95

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SETTLEMENT GURANTEE FUND:-

The exchange has introduced trade guarantee fund on


25/01/2000. This will insulate the trading members from the
counter-party risks while trading with another member. The trading
member and these investors will assure of the timely completion of
the payout of the funds and Securities of not withstanding the
default, if any, of any trading member of the exchange.

The short falls, if any, arising from the default of any member
will be met out of the settlement guarantee fund. Several pay-ins
worth of crores of rupees in all the settlements have been
successfully completed after the introduction of the settlement
guarantee fund, without utilizing any amount from the settlement
guarantee fund. This trade guarantee fund will be a major step in
re-building this confidence of the members and the investors in
HSE. HSE’s trade guarantee fund had a corpus of Rs.2.00 Crores
initially which would be raised to Rs.5.00 Crores.

The trade guarantee fund has strict rules and regulations to


be compiled with by the members to avail the guarantee facility.
The HOST system facilitated monitoring the compliance of
members in respect of such rules and regulations.

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CURRENT DIVERSIFICATIONS:-
A) DEPOSITORY PERTICIPANT

The exchange had also become a Depository Participant


with National Securities Depository Limited (NSDL) and Central
Depository Services Limited (CDSL). The requisite infrastructure
for NSDL is in place. Our own Depository Participant is fully
operational and the execution time came down substantially. The
exchange can undertake the depository functions by opening the
accounts of investors, members of the exchange etc. This
exchange itself can also settle the trades of all the exchanges
having on-line trading which get into National Depository at
Hyderabad. In short all the trades of all investors and members of
any exchange at Hyderabad in Dematerialized Securities can be
settled by the exchange itself as a participant of NSDL and CSDL.

B) FLOATING OF A SUSDIDIARY COMPANY FOR THE


MEMBERSHIP OF MAJOR STOCK EXCHANGES OF THE
COUNTRY

The exchange already floated Subsidiary Company in the


name and style of M/S HSE Securities Limited for obtaining the
membership of NSE and BSE. The process of acquiring the
membership of NSE has already been completed and SEBI was
kind enough to grant its registration to M/S HSE Securities Limited.
Some of the members have also filed applications seeking Sub-
broker ship with M/S HSE Securities Limited and the process of
registration is in process. M/S HSE Securities Limited has already

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procured the hardware/software, connectivity etc…And conducted
mock trading for a month’s time in order to give smoothly on NSE
segment.

Year
NSE cash (Rs. in Lacks)
NSE F&O (Rs. In Lacks)
BSE(Rs.in Lacks)

2001-02 338236.81 --------------- ------------


2002-03 426143.50 16657.08 ------------
2003-04 617808.46 312203.56 17558.59
2004-05 484189.11 354370.71 39519.96

C) FACILITY TO TRADE AT NSE, DERIVATIVES TRADING,


NET TRADING ETC

The Exchange incorporated a subsidiary, “HSE Securities


Limited” with a paid up capital of RS.2050 crores initially to take
NSE membership, so that the members of the exchange will have
access to the NSE’s Trading Screen as Sub-brokers, Derivatives
trading and NET trading etc, the members of this exchange had
equal opportunity of participating gin such trading like any other
NSE member. The subsidiary of the exchange started trading with
HSE members as Sub-brokers on NSE segment. The NSE
system, which has been planned and now put in place, has been
executed at very minimal cost compared to other Exchanges. This
system has been planned with a total back up system in place.

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The technological changes are sweeping through an
affecting the Securities trading all over the world. In view of the fast
moving technological changes HSE intends to have a “BROKERS’
PLAZA” which will enable the members to offer their clients trading
on Internet Platform.

SEBI’S Insider Training Regulations :-

SEBI desired that all the stock exchange should go on for


electronic trading latest by June 1996. Already BSE, DSE, VSE,
have gone for electronic trading and it is followed by Calcutta
Ahmedabad stock exchanges. The smaller exchange being
shrouded in sidelines by the enlarging network of NSE and BSE
On-line trading into various cities are hastening to strengthen them
by treading for a group of smaller exchanges or regional
groupings.
 Immobilization of the physical transfer of shares.
 The launching of depository system
 Online electronic trading for all exchanges
 Registration of all sub brokers through out the country to be
eligible for client order

The online Electronic trading in HSE was started as on


February 20-1997. Tie online functions to establish the forms and
conditions for contracts after trade executions in the Securities
markets. First the trade execution and reporting of these fro
matching of the terms of the contracts and trade comparisons will

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lead to the terms of the contracts and trade comparisons will lead
to the output of the reporting system as matched transactions this
will he the input for the clearing schedule. There is no trading of
the exchange. The trading is large volume and over telephone,
telexes etc.

The trading is done on computers with the help of PC


terminals in broker office. The benefits accrue to both issuers of
Securities and investors. This is screen based trading with wide
network transparency and cost effectiveness is ensured besides
the investments counters can be spread wide in the country under
HSE electronic network.

The HSE role in simplifying the trading procedure has been


successful, as the trading volume both in terms of number and
value has increased enormously. HSE is currently planning to
improvise its online system by extending the network connectivity
to all major cities in the state and is also planning to provide useful
information to its members to that online system.

SETTLEMENT PROCEDURE :-

All transactions entered into and the exchanges are on basis


the settlement for a month will be notified in advance and
circulated to all members.
The transactions has weekly settlement for several years.
The settlement period is from Monday to Friday all transactions are
to be completed within 14 days in case of first date of transaction.

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To assist the management of the exchange, the settlement
committee shall hear and settle the dispute arising between
members in respect of non deliveries, no payments, good and bad
deliveries pertaining to exchange’s settlements.

DE-MATERIALIZATION OF SHARES :-

Some of the ills of the stock market that hindered its smooth
functioning have being Bad deliveries, delays and voluminous
paper work. These were also the reasons for small investors to shy
away from the market.

The introduction of the electronic trading system on stock


market to enable handling of larger volumes also called for
measures to meet the emerging demands of the secondary
market. But the process was not smooth because of the usual
resistance to change. Having regarded to sheer volumes, the
danger of failures of the system has become imminent. The central
depositories Act 1996. Providing for a multi-depository system,
came into force paving the way for De- materialization of equity
shares, in this context, the SEBI also took a well intentioned and
appropriate decision to accelerate the pace of De-materialization.
After a year, the SEBI decide that from Jan. 15th 1998, eight-
chosen scripts should be traded by the institute, only in De-mat
form.

This list was expanded gradually and at present around 400


scrip’s is compulsorily traded in De-mat form even retail investors

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have been forced to transact only in De-mat form. De-
materialization in the process of converting the physical shares
into electronic mode. The study includes objective of the
depository system, the interacting institutions and depository
process in India. It also includes the problems with implementation
of the system and remedial measures for the successful
implementation of the depository system.

HSE as a Depository Participant:-

The exchange will endeavor to Depository Participant with


National Securities depository limited (NSDL), so that the
depository function can be undertaken by the exchange b y
opening the accounts at Hyderabad of investor’s members of the
exchange and other exchanges. The trading of all the changer
having on-line trading which get into National Depository can also
be settled at Hyderabad by this exchange itself. In short all the
traders of all the investors and members of any exchange at
Hyderabad in De-materialized Securities can be settled by the
exchange itself as a participant of NSDL.

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UNIT – III
TYPES OF INVESTMENTS IN
INDIA

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The India Investment Center, a Government of India
organization, with more than three decades if rich experience in
investment promotion, is the first contact point and is the single
window agency for authentic information or any assistance that
may be required for investments, technical collaborations and joint
ventures. All its services are free of charge.

DIRECT FOREIGN INVESTMENT:-

The Indian Investment Center promotes wider knowledge


and understanding in the capital exporting countries of the world,
of conditions, laws, policies, procedures and incentives pertaining
to investment and the infrastructure facilities available and of
investment opportunities in India.

It advises and assists foreign entrepreneurs on matters


pertaining to financial and technical collaborations in India. It
functions as a single reference point for foreign investment
projects and assists Indian and foreign entrepreneurs in meeting
the procedural requirements of project approvals and in over
coming bottlenecks, if any, in the process for implementation of the
project.
It advises foreign investors on setting up industrial projects in
India by providing information regarding investment environment
and opportunities, the Government industrial and foreign
investment policies, taxation laws and facilities and incentives and
assists them in identifying collaborators in India. It assists Indian

29
companies in identifying source of capital and technology abroad
facilitating foreign collaborations.

NON-RESIDENT INDIAN INVESTMENT:-

It is the nodal agency for promoting investments in India y


Non Resident Indians (NRIs), Persons of Indian Origin and
Overseas Corporate Bodies with NRI holding and provides them
escort services.

Is functioning as a single window agency for projects with


NRI; investment and provides all necessary services for setting up
such projects.

It apprises them of Government policies and procedures and


facilities and incentives available to them.

It provides them the necessary data for the selection of


projects. It assists them in obtaining the approval of government
authorities
It is represented on the State Level Review Committees,
Which monitor the implementation of the projects, and thereby
helps them in removing difficulties, if any, in the process of
implementation.

JOINT VENTURES ABROAD/THIRD COUNTRY PROJECTS:-

It provides information and assistance to Indian


entrepreneurs for setting up joint ventures in other countries.

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It provides information and assistance to foreign
entrepreneurs in locating suitable Indian parties for collaborationist
establishment of projects abroad including third country projects.

ESCORT SERVICES:-

In order to assist foreign and Indian entrepreneurs in setting


up projects in India and abroad, the Indian Investment Center
provides the following escort services:

Multi-layer Match-making (Ventures in India ):-

 Foreign Entrepreneurs
Investment opportunities
Secretarial assistance
Location decisions
Indian Collaborator

 Indian Businessman
Global scenario
Technology sourcing
Capital sourcing
Foreign Collaborator

 Multi-layer Match-making (Indian Ventures Abroad)

 Foreign Entrepreneurs
Technology sourcing
Indian Collaborator

 Foreign Businessmen
Opportunities Abroad
Foreign Collaborator

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In India it is currently estimated that an 80 million unit
housing shortage exists, with 40 million in Urban areas and it is
evident that the infrastructure of our nation has to be addressed in
all areas and modernized to the levels of developed nations. The
numbers standard enormous and of a truly staggering proportion.
Frankly, the state of the nation’s infrastructure remains severely
out of date and built to the requirements of many decades ago and
is not capable of supporting the large increased population which
is expected to surpass that of China’s by 2050.

Why ? In 1989, the Chinese government initiated a campaign


designed to accelerate economic growth by boosting its primary
industries and reinforcing its primary infrastructure. From 1989
trough 2001, the government poured 603 trillion Yuan (@ ???761
Billion USD ) into 1553 infrastructure projects, covering sectors
including farming, forestation, animal husbandry, fisheries, energy,
raw material, transportation, postal and telecom services and other
public services. China’s leadership as recognized the vital
importance of infrastructure development in the new global market
place and the resultant economic vibrancy it creates.

Thus, its as eliminated the impediments, laws and concrete


mindsets to that important attainment. It is increasingly evident that
a strong economic foundation enhances the quality of life of a
nations people and at the core of a strong economic foundations
infrastructure, ensuring growth and bringing economic and national
security in the global market place.

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At present’s rates of modernization, China is expected to
surpass America as the world’s largest economy by 2025ensuring
a better quality of life for the people of the world’s most populous
nation. It is hence at this critical moments that India must
aggressively look to the examples of China and other nations
successful in attracting FDI to attract monies into sectors where
she cannot capitalize and to effect modernization.

Indian began its reform practices just over a decade ago in


1991. It started dismantling an all-pervasive ideology based on
central planning and bureaucracy-managed processes financed
through institutions and controlled by the state. Much of the
impetuses for change was driven largely by one assailable fact:
Financial bankruptcy of the old order based on the principle of
central planning

Crisis however is a powerful 0motivator for change and in


India, world be the predominant inducement for change. Yet, the
crisis of every successive year. However, financial constraints can
be overcome, by private sector contribution combined with
increased large-scale FDI invited is the playing field can be
aggressively reformed.

The only clear solution to this crisis is deregulation and


privatization. A clearly reformed sector which is conducive to
private sector participation and fid. This process is now underway,
but must be accelerated in order to maintain global
competitiveness and to ensure the timely progression of India’

33
infrastructure development process. Privatization and deregulation
would further accelerate the FDI into India through increased
global investor confidence created by a more investor-friendly
economic climate, not to mention bringing people out of poverty
through economic growth this in turn, empowers the consumer and
gives them the option to “select” which product or service the
would prefer to purchase these simple procedures would increase
global and national competitiveness, encourage entrepreneurship
and simultaneously increase national productivity, development
and distribution of higher quality products and services resulting in
lower consumer pricing in turn, increasing purchasing power for
the consumer and increasing state and federal tax revenues to
ensure the government fulfills its social obligation in the areas of
education and health care without having to divert funds that ‘were’
required for infrastructure improvements .

However capital and much needed FDI has its requirements


and many impediments exist that risk delaying, frustrating or
stopping these investments into the Indian nation. Some of these
obstacles include unclear policy frameworks, bureaucratic
roadblocks, political compulsions, poor governance, paucity of
resources, pervasive and generic contractual issues that hinder
the legal process, inconsistent and impartial regulatory processes,
transparency and a general lack of knowledge linking the various
sources required to complete a real estate transaction for example
in certain areas such as Land registration, Title clearance and
Land Conversion Processing is a convoluted process at best.

34
This can be made completely transparent and easily
accessible through a well-managed, organized electronic
database, which is integral to the expedition of investment capital
into the Real Estate Sector with appropriate laws enacted.

Investments Risks in India

Sovereign Risk:-

India is a vibrant parliamentary democracy and has been one


since its political independence from British rule more than 50
years ago. There is no serious revolutionary movement in India;
hence there is no conceivable possibility of the state collapsing.
Sovereign Risk in India is therefore zero for both “foreign direct
investment”. It is however advisable to avoid investing in the
extreme northeastern parts of India because of terrorist threats.
Kashmir in the northern tip is also a troubled area, but law anyway
restricts investments opportunities in Kashmir.

Political Risk:-

India suffered political instability for a few years due to the


failure of any party to win an obsolete majority in parliament.
However, political stability as returned since the previous general
elections in 1999. However, political instability did not change
India’s economical course through it delayed certain decisions
relating to economy.

The political divide in India is not one of policy, but


essentially of personalities. Economic liberalization (which is what

35
foreign investors are interested in ) has been accepted as a
necessity by all parties including the Communist Party of India
(Marxist).

Thus political instability in India, in practical terms, posed no


risk to foreign direct investors because any successive
government has reversed no policy framed by a past government
so far. You can find a comparison in Italy which has had some 45
governments in 50 years, year overall economic policy remains
unchanged. Even if political instability is to return in the future,
chances of a reversal in economic policy are next to nil.

As for terrorism, no terrorist outfit is strong enough to disturb


the state. Except for Kashmir in the north and parts of the north-
east, terrorist activity is either no-extent or too weak to be of any
significance. It would take an extreme stretching of the imagination
to visualize a Bangladesh-type state-disrupting revolution in India
or a Kuwait-type annexation of India by a foreign power. Hence,
political risk in India is practically non-existent.

Commercial Risk:-

Commercial risk exists in business in any country. Not each


and every product or service cane be readily sold, hence it is
necessary to study the demand/supply situation for a particular
product or service before making any major investment. There is a
large number of market research firms in India(including our own)
which will study demand/supply situation for any product/service

36
and advise at the potential investor accordingly in exchange of a
professional fee.

Risk of Foreign Sanctions:-

India did not seem to be in the good books of ht. United


States government due to its nuclear weapons and missiles
development policy. However, US president Bill Clinton’s state visit
to India in 2000 was a massive hit which even saw the president
dancing with a crowd of colorfully dressed women in the north
western state of Rajastan. Subsequent to he visit, visits between
the two countries at different level took place, and the US
government has all but come to terms with the reality of a nuclear-
armed India.

Background to the Sanctions:-

The US had imposed some sanctions against India because


of its nuclear tests in may 1998. But these sanctions have been
theoretical an even such theoretical sanctions were relaxed within
months of their imposition. Given the fact that US foreign policy in
the post-cold War era is dictated by its economic interest, it
anyway seemed most unlikely that Iraq of Libya-type sanctions
would ever be imposed on India. India is highly self-sufficient in
terms of basic technology and requirements; hence the threats
sanctions could not bring India to its knees. The United States to
understand this which is perhaps why it never went a head with
really biting sanctions against India.

37
Regardless of how strong the threat of sanctions were, the Us
president’s Regardless above-mentioned state visit to India as a
great potential trading partner as well as, perhaps, a politically
strategic partner in Asia. India’s rapidly improving relations with
Israel has only lent further momentum to India-US bonding.

Given the fact that the united states has some how managed
for itself the role to the world’s police man (a role to which India is
explicitly opposed), other countries-notably Japan Australia-have
also toned down their opposition to India’s nuclear weapons
program. In other words, it is now business as usual of the world
vis-à-vis India.

It is however theoretically possible that relations with the


united states can go sour again in the future. If that happens,
India’s sheer self-sufficiency in all maters except in the not-so-
critical cutting edge technologies, will ensure that a no sanction will
hurt more that a mosquito bit on an elephant.

The threat of foreign sanctions is therefore of academic and


speculative value.

Foreign direct investments constitute the major source of


capital inflow. FDI represents investments by foreign
entrepreneurs/companies in Indian industry and business, either in
the existing ventures or in new enterprises to be promoted.
Foreign investors bring advanced technology along with such
investments. Many forms are also able to induct better

38
managements and market practices in the business ventures they
undertake.

But why should foreigners choose to invest in India in


preference to their own countries? There are a number of reasons.
The main reason is comparative advantage in cost of production.
Investment in India provides a better return that in their own
countries. India provides abundant supply of skilled and cheap
labour force. The country is English speaking and it has a stable
and independent judiciary. India has 30 million of middle-income
consumers and provides a large market. In addition to that by
producing in India, the foreign companies will be angle to export to
other countries, availing the benefit of production at lower coats. In
the Eighties Suzuki Motors of Japan established Maruti Udyog Ltd.
In India. Within a short time it has overtaken the existing domestic
players and secured a sizeable share (presently over 50%) of the
Indian passengers car market.

Because of the favorable location of India, it is advantageous


for major industries of Europe and USA to establish units in India
to supply to the huge markets of Asian countries. India is the
favored destination of or labor intensive enterprise including back
office operations of existing established industries in these
countries.

India has now established itself and major IT power. It has


abundant supply of trained and talented IT professionals. This has

39
attracted major IT companies of USA like IBM, INTEL, Microsoft to
shift part of their activities to India.

In addition to commercial considerations what are the other


factors that prompt foreign investors to seek a footing in India?
Foreigners make an objective assessment of the various risks
involved in investing their funds in India.

Investment in India by Foreign Entrepreneurs-Risk


Assessment

Sovereign Risk:-
India is a stable parliamentary democracy with a tradition
and continuity or over fifty years now, after obtaining freedom from
British rule there is no serious revolutionary movements in India.

Hence there is no conceivable threat to our democratic and


parliamentary from of Government. The India constitution
guarantees fundaments freedom and rule of law. Sovereign Risk in
India is therefore considered zero for both “foreign direct
investment” an “foreign portfolio investment.”

Political Risks:-

India has a multi-party political system. But the stability of the


government is not adversely affected. In fact after initiation of
economic reforms in 1991, India has underwent change of
Governments of three occasion, first ht Congress party, later the

40
coalition of United Democratic Parties and presently by a coalition
of National Democratic Parties. In India change of Government
implies change of personalities governing the country, but not
contours of its major policies, in particular its foreign policy and
economic policy. All the three governments have shown
themselves as ardent supporters of economic reforms. Instability
even for a few years due to the failure of any party to win an
absolute majority in Parliament has not happened. Basic policies
of the country are peace, freedom, and friendliness to all. There is
no record of the country having give to war with another country
during the last thousand years. India has accepted globalization
and tiered its economically accordingly, i.e. integrating the Indian
Economy with the Global economy and following market driven
economic policies. Foreign investors do not face any threat of
political risk.

The multiple party political set up with national level parties


and several regional parties has resulted in frequent change of
Governments in the past, and may happen in the future also.
But political instability in India, in practical terms, posed no risk to
foreign direct investors because any successive government has
reversed no policy framed by a past government so far as you can
find a comparison in Italy which has had some 45 governments in
50 years, year overall economic policy remains unchanged. Even if
political instability is to return in the further, chances of a reversal
ion economic a policy are next to nil.

41
Commercial Risk:-

Indian industry was cut-off from world competition and fully


protected before the advent of economic reforms. A foreign
investor coming to India and investing in news industries
employing advanced technology faces no commercial risk. We can
quote the example of Maruthi Udyog Ltd. Set up by Suzuki of
Japan. Suzuki came to India with a superior technology and was
able to secure a major chunk of the market for passenger cars
within a short time.

Risk of Foreign Sanctions:-

India is a major power and has friendly ties with all countries
of the world, in particular the G8 countries. The peace loving and
no-war policies of the Government is a guarantee that it will face
no economic sanctions in further. It die face such sanctions
recently after the nuclear test, but it was for a brief span of time.
The major powers of the world are convinced that India is a stable
country and poses no threat to others.

Factors that Inhibit Rapid Inflow of Foreign Capital in


India
While the foreign investors perceives no threat or risk in
respect of investment, it is also a fact the flow of investments
coming to India is still inadequate compared to the potential and
opportunities available in the country. The reasons for this are as
under:

42
1. Our country is a late starter. Reform process started in India
only from 1992 and picked up momentum by 1995-96. In the
face of this countries like China, South Korea, Taiwan,
Malasia were actively pursuing foreign investments since the
early Eighties.
2. It is generally complained that the phase of Reforms in India
is rather slow. After initial start, progress became slower, at
times coming to grinding halt. Before the advent of Reforms
the Country did have a totally closed economy controlled
and directed by the state. The bureaucracy in India is
unwilling to shed its draconian powers. There are several
other vested interest. Organized trade unions are fighting
against labor reforms and disinvestments policies of the
Government.
3. While the country has an independent judiciary and enforces
rule of raw, the process is extremely slow. The laws are
more suited in extending safeguards to her offender, against
the law-enforcer. Legal reforms are extremely slow.
4. The country has inherited a vast array of inefficient and loss
making or low profits making public sector units. The
attempts of the Government to disinvest these units is beset
with obstacles from vested interests and the process is slow.
5. The ruling NDA Government is composed of 17 parties,
many of them with regional bias or sectarian bias. The
government has to reconcile the contradictions faced in this.

43
It is a common experience that the Government is forced to
function slowly on account of roadblocks within the Cabinet
composed of several parties representing the NDA. The
disinvestments of HPCL, IOCL, BSNL, IA, AI, NALCO were all
have to be deferred on account of opposition from the cabinet.
Some of these proposals like NALCO attracted.

1. All about International Investment Agreements

This briefing kit for the general reader provides overviews of


recent trends in the proliferating number of bilateral and regional
investment agreements. The highlights the key issue in these
agreements and considers past initiatives and prospects at the
multilateral level.

pp 64, #0102,Rs.50/US $10,ISBN:81-87222-39-5

2. Making Investment Work for Developing Countries

This publication is another one in our series of monographs


on investment and competition policy, intended to introduce related
topical to a wide audience. This monograph also serves as a
reference point for those interested in the complex and, sometime,
controversial relationship between foreign direct investment and
developing.

pp 38, #0110,Rs.50/US$10,ISBN:81-87222-49-2

44
3. Foreign Direct Investment in Developing Countries: What
Economist (Don’t to know and What Policy marker should
(Not) Do!

Among the different forms of capital flows, academics and


policy makers talk about foreign direct investment (FDI) the most.
In the past fifteen years, FDI has been the dominant from of capital
flow in the global economy, even for developing countries. We, at
CUTS have attempted to highest various aspects of the debate on
FDI through a series of monographs on investment and
competition policy. This being another one in the series, discusses
the global FDI trends and determinates, and tries to highlight some
of the arguments of the link between FDI and growth. We are
extremely grateful to Peter Nunnenkamp of Kiel Institute of world
economics, Germany for allowing us to publish this.

Pp0,#0216, Rs,50/US$10,ISBN: 81-87222-70-0

4. FDI as a Source of Finance of Development

This monograph, written by Dr. Peter Nunnenkamp of the


Kiel Institute of world economics, Germany, and published by
CUTS, is an important contribution towards answering the
question: Does turning to FDI put development finance on a more
sustainable path? It presents two broad policy challenges for
developing countries, which, if meet, could contribute to the
fulfillment of development goals: fiest, making that the domestic
environment attractive to FDI, and second, ensuring that beneficial

45
effects of FDI are reaped. The monograph gives a balanced
assessment of the role of FDI and thus makes an interesting read!

Pp 27, #0308,Rs.50/$10, ISBN: 81-87222-80-8

5. Home country Measures and FDI: Implications for Host


Country Development

Much attention has been paid so far the role of foreign direct
investment (FDI) in economic development, particular on various
dimensions of the interaction between transitional corporations
(TNCs) – the undertaker and conductor of most FDI in the world
today-and host countries, the receivers and main beneficiaries of
these private capital flows. This monograph, which highlights
various measures adopted by home countries to influence
outbound FDI and draws attention to issues and implications for
developing host countries provides some food for thought and
makes worthwhile contribution in this direction.
Pp 27,#0308,Rs. 50/??10,ISBN: 81-87222-80-8

6. Incentives-based Policy Competition for FDI

This case study seeks to address the incentive-based policy


competition for FDI among sub-national jurisdictions in three
developing countries-Brazil, China and India. In essence, the study
calls for better design, implementation, administration and
evolution of incentives,-based policy for attracting FDI. It also calls
for better co-ordination between governments to collectively
overcome the “prisoner’s dilemma” nature of the competition.
Pp64, #0331, Rs.50/Us$10,ISBN: 81-8257-006-9

46
7. Investment Policies in Select Large Emerging Markets-
Performance and Perceptions Perspective on India,
Brazil and South Africa

Does FDI raise the productivity of capital in host countries by


introducing efficient methods of production than those introduced
by local firms? Does it promote growth by introducing new firms of
productive actives and stimulating its exports? This report attempts
to compare and contrast the nations regulatory regimes and policy
issuers relevant to FDI in three large emerging economics-Brazil,
India and South Africa with a view to build capacity and awareness
in investment issues and draw out the lacunae of the present
system.
Pp44,#0335, 50/US$10,ISBN:81-8257-004-2

8. Investment policy in Select Least Developed Countries-


Performance and perceptions

The repost studies the investment regimes of select least


Developed Countries (LDCs): Bangladesh, Tanzania and Zambia.
It compares the performance of the countries in attracting FDI and
the civil Society’s views on FDI in the three countries. This report is
based on the Country papers prepared by the country researcher
in the three countries as well as secondary data obtained from the
sources sited in the references.

Pp 56, #0337,ISBN 0/US$10,ISBN: 81-8257-010-7

47
9. Synergizing Investment with Development

Part of a seven-country two-year report “Investment for


Development”, This report brings out common and country-specific
findings on sectors that are or could be important for facilitating
and maximizing benefits from FDI. This paper looks at some of the
key sectors that contribute significantly towards the Kenyan
Economy and finds out whether competition really exists.

Pp 53, #0343,Rs.50/US$10,ISBN: 81-8257-016-6

10. Strategizing Investment for Development

The paper highlights the global and regional trends and


policies in the project countries and in FDI, and the effectiveness
of national policies. The paper also contains the summarized
results of a survey on the civil society perceptions of FDI. On the
basis of the findings of the topics, the paper puts forward some
recommendations and action points for policy changers to
governments, civil society and inter-governmental organizations.

Pp60, #0342,Rs. 50/US$10, ISBN: 81-8257-915-8

11. FDI’s Role in Development

The report ‘FDI’s Role in Development in the two parts and


presents two of the publications under the project. Part-I which is
the synthesis report of the project, brings out common and country
specific finding, from case studies on each of the seven countries.
Part-II presents the CUTS advocacy policy document prepared as

48
a part of the project. It highlights the global and regional trends and
policies in the project countries and FDI, and the effectiveness of
national policies.

Pp 114, #0411, Rs.50/US$10, ISBN: 81-8257-029-8

This paper is the final process report of the project:


“Investment for Development”, the aim of which is not only to
document and share the process of implementing the project, but
also to facilitate readers to get a bird’s eye view of the nuts and
bolts in implementing such projects, particularly in developing
countries across the world.
The aim of the project was not only to study investment
policies, practices and perceptions in seven developing and
transition economies, it also aimed at creating awareness and
building the capacity of the civil society on national investment
regimes and international investment issues. The seven countries
in the project are: Bangladesh, Brazil, Hungary, India, South
Africa, Tanzania and Zambia.

Pp54, #0418, Rs.50/US$10, ISBN: 81-8257-034-4

49
UNIT – IV

ANALYSIS

50
APRIL 2000 – MARCH 2001

Total Floating Domestic Floating Overseas Floating Inc/Dec. in %


April 2000 2470.64 2035.49 435.15 17.61
May 2000 3550.10 3550.10 0.00 0.00
June 2000 6173.15 5348.29 824.86 13.36
July2000 5605.75 5271.23 334.49 5.97
Aug.2000 3449.39 3397.14 52.25 1.51
Sep.2000 5602.01 5511.31 90.70 1.62
Oct.2000 28088.45 1820.51 26267.94 93.52
Nov.2000 3241.36 3241.36 0.00 0.00
Dec.2000 3838.47 3838.47 0.00 0.00
Jan.2001 3248.92 3248.92 0.00 0.00
Feb.2001 3172.20 3172.20 0.00 0.00
Mar.2001 5135.44 4795.33 340.11 6.62
Total 73575.88 45230.35 28345.50 38.53

Interpretation:-
The above table shows the floating of the FDI

Investments.
The table consists of the income of the year 2000-01.

 Total income of domestic floating amount Rs. 45230.35.


 Overseas income of domestic floating amount
Rs.28345.50.
 Inc/dec in % of the year 2000-01 is 38.53

APRIL 2001 – MARCH 2002

Total Floating Domestic Floating Overseas Floating Inc/Dec. in %


April 2001 1377.19 756.94 620.25 45.04

51
May 2001 2736.65 1976.70 759.95 27.77
June 2001 4149.84 4149.84 0.00 0.00
July 2001 7971.45 7158.34 813.11 10.20
Aug. 2001 4185.23 4185.23 0.00 0.00
Sep. 2001 6214.50 6214.50 0.00 0.00
Oct. 2001 2160.55 2160.55 0.00 0.00
Nov. 2001 3350.92 3350.92 0.00 0.00
Dec. 2001 4100.81 4100.81 0.00 0.00
Jan.2002 3993.43 3993.43 0.00 0.00
Feb. 2002 4679.94 4679.94 0.00 0.00
Mar. 2002 3661.12 3661.12 0.00 0.00
Total 48581.63 463888.32 2193.31 4.51

Interpretation:-

The above table shows the floating of the FDI


investments.
The table consists of the income of the year 2001-02
 Total income of domestic floating amount Rs.46388.32.
 Overseas income of domestic floating amount
Rs.2193.31.
 Inc/ dec in % of the year 2001-02 is 4.51.
 The total % of decrease in this year less percentage of
34.02.

52
APRIL 2002 – MARCH 2003

Total Floating Domestic Floating Overseas Floating Inc/Dec. in %


April 2002 839.81 839.81 0.00 0.00
May 2002 3494.26 3494.26 0.00 0.00
June 2002 1934.59 1934.59 0.00 0.00
July2002 7711.08 7662.77 0.00 0.00
Aug.2002 2821.95 2821.95 48.31 1.71
Sep.2002 2032.73 1799.06 0.00 0.00
Oct.2002 2720.25 2720.25 242.67 8.92
Nov.2002 4347.30 4149.23 0.00 0.00
Dec.2002 3520.32 3520.32 198.07 5.63
Jan.2003 4035.90 3964.25 0.00 0.00
Feb.2003 2665.88 2665.88 71.65 2.69
Mar.2003 4783.76 4711.26 72.50 1.52
Total 40907.83 40283.63 633.20 1.55

Interpretation:-

The above table shows the floating of the FDI


investments.
The table consists of the income of the year 2002-03
 Total income of domestic floating amount Rs.40283.63.
 Overseas income of domestic floating amount
Rs.633.20.
 Inc/ dec in % of the year 2002-03 is 1.55.
 The total % of decrease in this year less percentage of
3.01.

APRIL 2003 – MARCH 2004

Total Floating Domestic Floating Overseas Floating Inc/Dec. in %


April 2003 605.97 605.97 0.00 0.00
May 2003 1294.53 1294.53 0.00 0.00

53
June 2003 3077.02 3002.62 75.00 2.44
July2003 4148.16 4148.16 0.00 0.00
Aug.2003 3258.14 3258.14 0.00 0.00
Sep.2003 2694.33 2964.33 0.00 0.00
Oct.2003 3273.12 1781.40 1491.72 45.57
Nov.2003 991.58 629.27 362.31 36.54
Dec.2003 2035.30 2007.99 27.31 1.34
Jan.2004 4745.94 4684.61 61.33 1.29
Feb.2004 8357.03 8357.03 0.00 0.00
Mar.2004 21089.98 19311.27 1778.71 8.43
Total 55841.10 52045.32 3796.38 6.80

Interpretation:-

The above table shows the floating of the FDI


investments.
The table consists of the income of the year 2003-04
 Total income of domestic floating amount Rs.52045.32.
 Overseas income of domestic floating amount
Rs.3796.38.
 Inc/ dec in % of the year 2001-02 is 6.80.
 The total % of increase in this year more percentage of
5.80.

APRIL 2004 – MARCH 2005

Total Floating Domestic Floating Overseas Floating Inc/Dec. in %


April 2004 7774.75 4646.11 3128.64 40.24
May 2004 2123.75 1967.47 156.28 7.36
June 2004 2324.22 2324.47 0.00 0.00
July2004 7835.22 7835.52 0.00 0.00
Aug.2004 6929.30 5068.56 1860.70 26.85
Sep.2004 4526.06 4067.98 458.08 10.12
Oct.2004 6397/90 6080.50 317.40 4.96
Nov.2004 3651.72 1924.79 1726.93 47.29
Dec.2004 24273.22 2245.59 227.63 9.20

54
Jan.2005 8798.26 5515.43 3282.84 37.31
Feb.2005 9252.96 7797.64 1455.32 15.73
Mar.2005 12132.64 10204.28 1928.37 15.89
Total 74220.30 59678.34 14542.19 19.59

Interpretation:-
The above table shows the floating of the FDI
investments.
The table consists of the income of the year 2004-05
 Total income of domestic floating amount Rs.59678.34.
 Overseas income of domestic floating amount
Rs.14542.19.
 Inc/ dec in % of the year 2004-05 is 19.59.
 The total % of decrease in this year less percentage of
12.67.

UNIT – V

SUGGESTIONS
&
55
CONCLUSIONS

56
All elements of the package were implemented in the Indian case.
However, with one notable exception, none of them marked a
directional departure from the objectives or policies of the past.
The rupee devaluation by 18 percent in July 1991 (since March
1992, the rupee has been partly freed into a managed float) was
merely continuation of a policy of down valuation dating back to
1983.

Even the impressive reduction in the fiscal deficit in


accordance with the IMF program to 6.5 percent of the gross
domestic product (GDP) in 1991-92 from 8.4 percent in the
previous year, and a targeted 5 percent in 1992-93, was not
achieved through either a widening of the tax base of any marked
effort at improving compliance. Agricultural income remains
entirely untaxed, and compliance on unsalaried income from trade
and other service sectors remains very low. Fiscal contraction has
been achieved largely through cutting the disbursements of the
Union government as an on-lender; public sector enterprises have
now been left to fend for themselves through direct approaches to
the capital market. There has been very to send for themselves
through direct approaches to the capital market. There has been
very little change in the three major claimants on recurring
expenditures-interest to a public debt, defense expenditure, and
subsidies (except for export subsidies that were substantial cut in a
move cleverly timed for palatability with the rupee devaluation).
And it as only when fundamental fiscal restarting makes it possible
to free banks from their forced statutory lending obligation to

57
government (which amounts even today after some marginal
reductions to well over one-third of all deposit liabilities of
commercial banks) that any monetary restructuring can be
contemplated.

Changing Investment Climate:-

The notable departure from previous policies in the


stabilization package was the welcome that was extended to FDI
in a country that has traditionally been a hostile host to external
investors. Before the reform, every potential entrant had to apply
for clearance under the Foreign Exchange Regulation Act (FERA)
of 1973. There was a limit to foreign equity of 40 percent for
treatment as an Indian company. In the rare cases where this limit
was crossed, such “foreign” companies required official approval
for balance sheet transactions of any significance. There was also
product limitation (which, however, was the same as that
applicable for Indian companies above a certain asset-size
threshold). Since the reform of July 1991, no clearance is required
for external investors up to an equity limit of 51 percent, provided
the external equity covers capital goods imports and repatriated
dividends are covered by export earnings over a period of seven
years. Product limitation remains, but an enhanced list
accompanied the changed uses of entry. In some fields such as oil
exploration and power generation, applicators for 100 percent
foreign equity are to be entertained.

58
The response of external investors to the change in
stance, however, was not effusive. Against a target of $2 billion for
1991-92, the achievement was on the order of $300 million.
Further reforms are needed before India will be seen as an
attractive host country. FERA is still on the books, and the full
legislative reform promised is yet to be, potential investors in the
powered sector, where the need is very great, face a battery of
administered price controls that constrain profits. Finally, and most
important from the viewpoint of investors looking of flexibility global
sourcing, legislation blocking closure of industrial units is still
untouched. The liquidation of even loss-making units is a
prolonged and prohibitively costly process, and take over of such
units by government agencies in bid to protect jobs has been a
heavy drain on the public exchequer over the years. A change
over to a system where closure is permitted but with full protection
of severance compensation for workers is politically contentious
and has been attempted so far, even, as has often been
suggested, with effect from some future date without retrospective
effect. Thus the change in attitude towards foreign investment has
been dramatic by Indian standards, but it has not gone far enough.

Encouraging Reforms:-

The basic objective of the structural adjustment component


of the reform package is to free controls on resource movements
into the most recent avenues so that the productive capacity of the
economy’s enhanced and the containment of the external deficit

59
begun in stabilization phase is rendered sustainable over a longer
term. Two major reforms of this type have been introduced, each
as significant a policy departure from the past as the open door
was to FDI. Introduced with a big bang in July 1991, one reform
was the removal of procedural obstacles to new industrial
ventures. The number of industries requiring a license for entry
was reduced substantially, and the asset criterion for monopoly
classification was abolished along with product limitation applying
to enterprises so classified. Reserved entry for the public sector
was reduced to a small number of industries of a strategic nature
such as minerals, railways, arms, and atomic power. The
subsequent abolition of the office of the Controller of Capital
Issues(CCI) in 1992 means that the pricing of new issues on the
capital market will not be bureaucratically dictated. Thus, at last,
there is now freedom of entry, if not freedom of exit, in Indian
industry. The removal of the licensing regime in one fell swoop
prevented the link of lobbying by vested interest that might have
rendered it less complete. The second major reform has been the
wide-ranging reduction import licensing with the 1992-97 export-
import policy introduced in April 1992, after external reserves had
risen to the point where the additional and savage import curbs
introduced starting in 1990 could be lifted. Although quantitative
restrictions remain in place on most consumer goods, they have
been lifted on capital goods and most raw materials and
components. Yet another bureaucratic juggernaut, the office of the
Chief Controller of Imports and Exports(CCIE), has been rendered
idle. The new five-year regime promises stability, transparency,

60
and a minimum of discretionary licensing. In all these respects, the
policy departs sharply from the protectionism of the previous
decades. Tariffs are another matter, however. While the maximum
tariff has now been brought down to 110 percent, further tariff
reduction has to wait fiscal restructuring; a taxation regime where
import tariffs yield a third of gross Union tax collections cannot
afford to lower rats until alternative revenue sources can be found.

The Indian economy grew in 1991-92 at a rate of 1.2


percent, down from 5.6 percent the previous year. This was not
just because of the crunch of stabilization; agriculture, a major
sector with an exogenous dependence on rainfall, declined by 1
percent that year. The expectations is that growth in 1992-93 will
be 3.5 percent at least. The medium-term outlook for the Indian
economy is good. This is because the procedural feeing of factor
movements, albeit still incomplete, has incomplete, has imparted a
new buoyancy and vigor to the economy. Even in FDI does not
pick up substantially, the discretionary permission now given to
portfolio investment in the country by foreign institutional investors
and to Indian companies to seek equity capital inflow that did not
exist before. A noteworthy minor reform that should bring forth
domestic inevitable funds has been the 1992 change in the base
for levy of wealth tax to “unproductive” assets alone, such as real
estate and precious jewelry; “productive assets in shares and
securities will not henceforth constitute taxable wealth.

The longer-term outlook is more worrisome. There are two


principal areas of concern. The first is the urgent need for

61
improving the physical infrastructures. The required expenditures
for meeting future needs for power, transportation, and water can
be financed only through external capital inflows and by paying
attention to the father reforms needed to attract hose informs. The
second is the need for investment in human capital. Expenditure
on importing the health of education of the population has to be
incurred by governments at the state and federal level and, at a
time of fiscal constraint, can be achieved only through a radical
restructuring of expenditures. Primary education for all, and in
particular for girls, is necessary if there is to be any dent is the rate
of population growth, which looms over and threatens to engulf all
attempts at a sustainable improvement in the economic condition
of the average Indian. Until this goal is reached, none of the recent
reforms will have achieved that ultimate objective towards which
they were directed.

Indira Rajaraman, visiting professor in the Department of


Economics at the University of Illinois at Urbana-Champaign
during 1992-93, is a professor at the Indian Institute of
Management at Bangalore, India. She received her doctorate from
Cornell University and is the author of many papers in professional
journals on development economics and international economics,
with a focus on the Indian economy. This article is based on a
paper presented at the ACDIS symposium on India 2000: Goals
and Challenges in November 1992 and does not reflect policy
changes after that date.

62
DIVESTMENT BY FOREIGN INVESTORS:-
 Sale of shares by non-resident on a stock exchange and
remittance of the proceeds thereof through an authorized
dealer does not require FBI approval.

 Sale of shares by private arrangement requires RBI’s prior


approval.

Conclusion:-

Addressing India’s housing and Infrastructure requirements


is an immense task that will require everyone’s cooperation and at
all levels. It is now very clear that we need to continue to create
this alternative framework or system in the Urban Infrastructure &
Housing sector through aggressive reforms rapidly. The
corporatising of the sector to internal levels and making it attractive
to FDI can and will bring great benefits to us through large FDI
flows in this sector. If we can harness and attract if the results will
be of an enormous importance to us in building a new India and
building a better tomorrow for her children. The solution is clear
and obvious like day following night! We need only to think
differently to solve the riddle.
So the time has come to jump the ravine in one giant
leap. A series of feeble jumps can only lead to inertial and further
lack of productivity. So the question in front of us is whether we
have the industry resolve to enact the necessary measures
required at the policy making level. If we can, the results will be

63
immediate and relief will be clear as we tap into the enormous
power of the international money markets. Their favor to our nation
will in effect provide an invaluable equity component when
channeled into our infrastructure projects and their financing
provision will affect massive infrastructure and housing
developments greatly benefiting the nation of India and her
children as well as all parties involved.

64
BIBLIOGRAPHY

1. B.S.C. India

2. NSC

3. INDIAN FINANCIAL MANAGEMENT


By. Khan & Jain

4. Investment by William & Sharpe

5. Foreign Direct Investment Financial India

6. Foreign Direct Investments General of Financial


Management

7. Centre for monitering Indian Economic Pvt. Ltd.

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