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Should India Liberalize FDI?

Submitted byRaghav Gupta 61 Sanjay Kumar - 62 Sanjay Rautela- 63 Saumya Mishra-64 Swati Sharma - 65 Vikrant Garg - 66

Global Financial Management


17-Aug-2010

TABLE OF CONTENTS
TABLE OF CONTENTS ..................................................................................................................... 2 INTRODUCTION................................................................................................................................ 3 FOREIGN DIRECT INVESTMENT (FDI) ...................................................................................... 5 FDI V/S FII .......................................................................................................................................... 6 DETERMINANTS OF FDI IN DEVELOPING COUNTRIES........................................................ 7 PRESS NOTES .................................................................................................................................... 8 FOREIGN INVESTMENT PROMOTION BOARD (FIPB) .......................................................... 9 TYPES OF INSTRUMENTS ............................................................................................................ 11 BENEFITS OF FOREIGN DIRECT INVESTMENT .................................................................... 12 ENTRY ROUTES FOR INVESTMENT ......................................................................................... 13 SECTORS PROHIBITED ................................................................................................................ 14 SECTORS IN DISCUSSION ............................................................................................................. 15
Defence ......................................................................................................................................................... 15 Retail ............................................................................................................................................................. 16

CONCLUSION ................................................................................................................................... 18 REFERENCES.................................................................................................................................... 19

Table of contents

INTRODUCTION
Indias economic policy reforms have played a critical role in the performance of the Indian economy since 1991. The Government of India in 1991 embarked on liberalisation and economic reforms with a view to bringing about rapid and substantial economic growth and move towards globalisation of the economy. As a part of the reforms process, the Government under its New Industrial Policy revamped its foreign investment policy recognising the growing importance of foreign direct investment as an instrument of technology transfer, augmentation of foreign exchange reserves and globalisation of the Indian economy. Simultaneously, the Government, for the first time, permitted portfolio investments from abroad by foreign institutional investors in the Indian capital market. Basically, foreign direct investment relates to direct investment in an Indian company either through a joint venture agreement or as a wholly owned subsidiary with management interest. Foreign direct investment is also permitted through the route of Global Depository Receipt/Euro issue/FCCB. Among other things, the reforms have involved opening the economy, making it more competitive, getting the government out of the huge morass of regulation, empowering the states to take more responsibility for economic management and thereby creating a kind of competition between the states for foreign investors. The GDP growth rate which had collapsed to 0.8% in 1991-92 rebounded to a near normal 5.3% in 1992-93, and then accelerated to 6.2% in 1993-94. Subsequently, the GDP grew at an average rate of 7.5% in the three years 1994-95 to 1996-97, before slowing down to 5.1% in 1997-98 and then again grew at around 9% in 2008. In the backdrop of the East Asian crisis, growth did slow down a little bit, but India has kept growing and has avoided the worst of the crisis. From the narrow financial point of view two things that India did were quite helpful. One, it did keep some limit on the short-term capital inflows and did not go overboard in borrowing short term from abroad. This helped India to avoid the financial reversals of some of its neighbours. Second, it kept the rupee flexible and the depreciation of the rupee definitely helped keep the Indian economy more competitive and kept economic growth going during this period. In the context of the East Asian crisis, certain kinds of money fled while other kinds did not. The hottest money was short-term loans from international banks. Indeed, the reversal of short-term bank lending constituted a very large proportion of the overall $105 billion reversal in capital flows. The banks put in $56 billion in net lending in 1996, and then withdrew an estimated $21 billion in net loans in 1997, for a swing of $77 billion (or 73 percent of the overall reversal). Portfolio equity investors (e.g. country equity funds) also reversed gear, to the extent of $24 billion. Foreign direct investors, by contrast, were very stable. It is estimated that net foreign direct
Introduction 3

investment remained roughly unchanged between 1996 and 1997, at around $7 billion in net flows each year. It is significant to point out here that India went through a near disaster in 1991 that was, among others causes, based on short-term borrowing. Of course, at that time it was short-term borrowing from the non-resident Indians, (NRIs) but it was the same kind of phenomenon - lots of short-term capital had come in and lots had moved out and created a severe payments crisis. In terms of foreign investment, it is the direct investment that should be actively sought for and doors should be thrown wide open to foreign direct investment. FDI brings huge advantages (new capital, technology, managerial expertise, and access to foreign markets) with little or no downside. But, they are put off by the fact that they cannot get reliable power or that the road system is so dreadful that even if they are producing effectively, they will not be able to get the goods to the market or back to the port for exports. Continuing fiscal difficulties that are often linked to the chronic infrastructure difficulties remain a major challenge for India. A few of the Indian States have been more reform-oriented, such as Andhra Pradesh, Gujarat, Karnataka, Maharashtra, and Tamil Nadu, but states, such as Haryana, Kerala, Orissa, Madhya Pradesh, Punjab, Rajasthan and West Bengal have a lot to catch-up with. Of course, Bihar and Uttar Pradesh are even further behind. States that are ahead in the reform efforts right now are going to find that if they move against the populist policies and set up regular markets for services, such as power and water then they are going to be ahead of the rest in the game. There are rather significant differences in reform interest and economic performance between a large part of northern India and southern India where Karnataka, Tamil Nadu and Andhra Pradesh are quite dynamic now in trying to get the infrastructure, and the policy regime right to attract large-scale foreign investment. In the north, in Bihar, Uttar Pradesh one does not see the same kind of reform dynamism and the results are therefore poor in terms of economic growth. These differences will be noticed politically sooner rather than later, (as inequalities will become glaring) and the states that are ahead will be rewarded with better performance and the states that are behind will find that there is the demand to catch up with the states that are growing. That will spur a kind of competition among the Indian states and make the reform process go much faster. All over the world, FDI is seen as an important source of non-debt inflows, and is increasingly being sought as a vehicle for technology flows, and as a means of building inter-firm linkages in a world in which multinational corporations (MNCs) are primarily operating on the basis of a network of global interconnections. In the current global scenario, it is possible for India to achieve very dynamic growth based upon labour intensive manufacturing that combines the vast supply of Indian labour, including skilled managerial and engineering labour, with foreign capital, technology, and markets.
Introduction 4

FOREIGN DIRECT INVESTMENT (FDI)


FDI eludes definition owing to the presence of many authorities: Organization for Economic Co-operation and Development (OCED), International Monetary Fund (IMF), International Bank for Reconstruction and Development (IBRD) and United Nations Conference on Trade and Development (UNCTAD), all these bodies attempt to illustrate the nature of FDI with certain measuring methodologies. Generally speaking FDI refers to capital inflows from abroad that invest in the production capacity of the economy and are usually preferred over other forms of external finance because they are non-debt creating, non-volatile and their returns depend on the performance of the projects financed by the investors. FDI also facilitates international trade and transfer of knowledge, skills and technology. It is furthermore described as a source of economic development, modernization, and employment generation, whereby the overall benefits (dependant on the policies of the host government) triggers technology spillovers, assists human capital formation, contributes to international trade integration and particularly exports, helps create a more competitive business environment, enhances enterprise development, increases total factor productivity and, more generally, improves the efficiency of resource use. FDI in India is allowed through four routes

Financial Collaborations Technical Collaborations & Joint Ventures Capital Market (Euro issues) Private placement or Preferential allotments

Foreign Direct Investment (FDI)

FDI V/S FII


Both FDI and FII are related to investment in a foreign country. 1. FDI or Foreign Direct Investment is an investment that a parent company makes in a foreign country. On the contrary, FII or Foreign Institutional Investor is an investment made by an investor in the markets of a foreign nation. 2. In case of FII, the companies only need to get registered in the stock exchange to make investments. But FDI is quite different from it as they invest in a foreign nation. 3. The Foreign Institutional Investor is also known as hot money as the investors have the liberty to sell it and take it back. But in Foreign Direct Investment, this is not possible. In simple words, FII can enter the stock market easily and also withdraw from it easily. But FDI cannot enter and exit that easily. This difference is what makes nations to choose FDIs more than then FIIs. 4. FDI is more preferred to the FII as they are considered to be the most beneficial kind of foreign investment for the whole economy. Foreign Direct Investment only targets a specific enterprise. It aims to increase the enterprises capacity or productivity or change its management control. In an FDI, the capital inflow is translated into additional production. The FII investment flows only into the secondary market. It helps in increasing capital availability in general rather than enhancing the capital of a specific enterprise. 5. The Foreign Direct Investment is considered to be more stable than Foreign Institutional Investor. FDI not only brings in capital but also helps in good governance practices and better management skills and even technology transfer. Though the Foreign Institutional Investor helps in promoting good governance and improving accounting, it does not come out with any other benefits of the FDI. 6. While the FDI flows into the primary market, the FII flows into secondary market. While FIIs are short-term investments, the FDIs are long term.

FDI v/s FII

DETERMINANTS OF FDI IN DEVELOPING COUNTRIES


1. Host countries with sizeable domestic markets, measured by gross domestic product (GDP) per capita and sustained growth, measured by growth rates of GDP, attract relatively large volumes of FDI. 2. Resource endowments of host countries, including natural resources and human resources are a factor of importance in the investment decision process. 3. Infrastructure facilities (including transportation and communication networks) are an important determinant of FDI. 4. Macroeconomic stability, signified by stable exchange rates and low rates of inflation, is a significant factor in the FDI decisions. 5. Political stability in the host countries is a significant factor in the investment decision process of TNCs. 6. A stable and transparent policy framework towards FDI is attractive to potential investors. 7. TNCs place a premium on a distortion free economic and business environment. An allied proposition here is that a distortion free foreign trade regime, which is neutral in terms of the incentives it provides for import substituting and export industries, attracts relatively large volumes of FDI than either an import substituting or an export-promoting regime. 8. Fiscal and monetary incentives in the form of tax concessions do play a role in attracting FDI, but these are of little significance in the absence of a stable economic environment. India fares well on the attributes relating to market size and growth. Its growth rate of around 6% per annum since the 1990s is substantial if not dramatic. India's overall record on macroeconomic stability, saves for the crisis years of the late 1980s and 2008s, is superior to that of most other developing countries. And judged by the criterion of the stability of policies it has displayed a relatively high degree of political stability. It is, however, India's trade and FDI regimes that are major impediments to increased FDI inflows. Admittedly, the 1991 reforms considerably relaxed the regime, which prevailed for more than four decades. Even so, the product and factor market distortions generated by the earlier policy regime continue to persist. And liberalization of the economy has not progressed much since the 1991 reforms. Also there seems to be a wide gap between intent and practice of policies towards FDI. But in past few years India has made a significant move towards liberalizing its FDI regime.

Determinants of FDI in developing countries

PRESS NOTES
FDI into India is regulated through "press notes" that publicly state the government's position on FDI policy. Regulations made under the Foreign Exchange Management Act (FEMA), the only statute enabling such policy always play catch up with the press notes. Often, the press notes and FEMA regulations are inconsistent. FDI policy since India opened up in 1991 can be divided into two major eras

FDI Policy Between 19911999

After 1999

Between 1991 and 1999, activities in which FDI was permitted were specifically spelt out. Unless specifically permitted, FDI was prohibited. Where permitted, one needed government's approval in most cases. Naturally, access to New Delhi mattered immensely. Annual FDI into India struggled to match monthly FDI into China. Gradually more and more activities moved into the "automatic approval" list. However, in early 1999, a fundamental shift occurred. FDI in specific areas became prohibited or regulated. Except for such areas, FDI in any activity became freely permitted. Under this regime, which coincided with FEMA being legislated, the world was put on notice that it was welcome to invest in any activity in India. If there were areas where the government found a free run of FDI undesirable, the world would be transparently told. Access to New Delhi ceased to be a key success factor. FDI inflows materially improved.

Press Notes

FOREIGN INVESTMENT PROMOTION BOARD (FIPB)


The Foreign Investment Promotion Board (FIPB) has been set up by Government to enable expeditious disposal of proposals involving foreign investment in specified sectors. As per the FIPB guidelines and extant practice, the constant endeavour is to ensure that Government decisions are communicated within a time frame of six weeks, from receipt of the proposal. In order to adhere to the specified timelines the FIPB normally meets twice a month to consider proposals that have been circulated in advance to the consulting Ministries/Departments. Main countries in terms of the number of investment proposals in 2009 were-

Mauritius USA Singapore Germany Japan Neitherlands UK France Italy

The important sectors covered, in terms of the number of proposals were as follows: i. ii. iii. iv. v. vi. Industrial appliances Telecommunication Software development (though on automatic route, such proposals came to the FIPB because of conversion, warrants, share swap, etc.) Information and Broadcasting sector (including publication and print media) Trading Power

Foreign Investment Promotion Board (FIPB)

Advantage FIPB 1. The voyage of foreign direct investment through the FIPB route is quite an interesting one. It is not merely confined to giving approvals or rejecting applications. It is also about amendments, both procedural and substantive. This process entails discussion, debate, dialogue and interpretations within the constituents of the Board, the administrative ministries, the FIPB secretariat, the authorised representatives and, at times with the investor as well. 2. Needless to mention, such mass of thinking throws light on new ideas, leads to re-visiting old schools of thought and offers a broad panoramic view on many aspects of corporate governance - in an era of mergers and splits across boundaries, upcoming areas of investments, the risks and the failures alike. 3. The Board is in a unique position to influence FDI Policy. During the year 2009, it made a very strong intervention about the treatment of contraventions of the Policy. It adopted an approach that placed more faith in the investors and ignored their bonafide acts of commissions and omissions. 4. It is a matter of satisfaction and pride that no decision of Board was reversed or even modified in number of court cases in different High Courts of the country. 5. Overall the Board deserves credit for being fair, transparent, quick and objective in its decision making process - by no means a small achievement.

Foreign Investment Promotion Board (FIPB)

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TYPES OF INSTRUMENTS
1. Indian companies can issue equity shares, fully, compulsorily and mandatorily convertible debentures and fully, compulsorily and mandatorily convertible preference shares subject to pricing guidelines/valuation norms prescribed under FEMA Regulations. The pricing of the capital instruments should be decided upfront at the time of issue of the instruments. 2. Other types of Preference shares/Debentures i.e. non-convertible, optionally convertible or partially convertible for issue of which funds have been received on or after May 1, 2007 are considered as debt. Accordingly all norms applicable for ECBs relating to eligible borrowers, recognized lenders, amount and maturity, end-use stipulations, etc. shall apply. Since these instruments would be denominated in rupees, the rupee interest rate will be based on the swap equivalent of London Interbank Offered Rate (LIBOR) plus the spread as permissible for ECBs of corresponding maturity. 3. The inward remittances received by the Indian company vide issuance of DRs and FCCBs are treated as FDI and counted towards FDI. 4. Issue of shares by Indian Companies under FCCB/ADR/GDR 5. Two-way Fungibility Scheme: A limited two-way Fungibility scheme has been put in place by the Government of India for ADRs / GDRs. Under this Scheme, a stock broker in India, registered with SEBI, can purchase shares of an Indian company from the market for conversion into ADRs/GDRs based on instructions received from overseas investors. Re-issuance of ADRs / GDRs would be permitted to the extent of ADRs / GDRs which have been redeemed into underlying shares and sold in the Indian market.

Types of Instruments

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BENEFITS OF FOREIGN DIRECT INVESTMENT


Attracting foreign direct investment has become an integral part of the economic development strategies for India. FDI ensures a huge amount of domestic capital, production level, and employment opportunities in the developing countries, which is a major step towards the economic growth of the country. FDI has been a booming factor that has bolstered the economic life of India, but on the other hand it is also being blamed for ousting domestic inflows. FDI is also claimed to have lowered few regulatory standards in terms of investment patterns. The effects of FDI are by and large transformative. The incorporation of a range of well-composed and relevant policies will boost up the profit ratio from Foreign Direct Investment higher. Some of the biggest advantages of FDI enjoyed by India have been listed as under: 1. Economic growth- This is one of the major sectors, which is enormously benefited from foreign direct investment. A remarkable inflow of FDI in various industrial units in India has boosted the economic life of country. 2. Trade- Foreign Direct Investments have opened a wide spectrum of opportunities in the trading of goods and services in India both in terms of import and export production. Products of superior quality are manufactured by various industries in India due to greater amount of FDI inflows in the country. 3. Employment and skill levels- Foreign Direct Investments have also ensured a number of employment opportunities by aiding the setting up of industrial units in various corners of India. 4. Technology diffusion and knowledge transfer- FDI apparently helps in the outsourcing of knowledge from India especially in the Information Technology sector. It helps in developing the know-how process in India in terms of enhancing the technological advancement in India. 5. Linkages and spill over to domestic firms- Various foreign firms are now occupying a position in the Indian market through Joint Ventures and collaboration concerns. The maximum amount of the profits gained by the foreign firms through these joint ventures is spent on the Indian market.

Benefits of Foreign Direct Investment

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ENTRY ROUTES FOR INVESTMENT


Investments can be made by non-residents in the shares/fully, compulsorily and mandatorily convertible debentures/ fully, compulsorily and mandatorily convertible preference shares of an Indian company, through two routes; the Automatic Route and the Government Route. Under the Automatic Route, the foreign investor or the Indian company does not require any approval from the RBI or Government of India for the investment. Under the Government Route, prior approval of the Government of India through Foreign Investment Promotion Board (FIPB) is required. Proposals for foreign investment under Government route as laid down in the FDI policy from time to time are considered by the Foreign Investment Promotion Board (FIPB) in Department of Economic Affairs (DEA), Ministry of Finance. Established under the Department of Industrial Policy and Promotion, the Foreign Investment Promotion Board is the only agency in India that deals with all matters relating to Foreign Direct Investment (FDI) and promotion of foreign investment in India. The board is chaired by the Secretary Industry, Department of Industrial Policy and Promotion, Government of India. The board, towards prompt clearance of the proposals, presented to it through decisive negotiation and discussion with budding investors. The primary functions of the Foreign Investment Promotion Board are mentioned below: 1. To ensure quick clearing of proposals for foreign investment 2. Periodically review the implementation of the cleared proposals 3. Regular review the policies pertaining to FDI with concerned agencies including government bodies and private bodies in various sectors. 4. Doing investment promotion activities consisting of establishing contacts and inviting overseas companies to do business in India 5. Identifying sectors while keeping the national internet in mind where investments from aboard can be sought 6. Taking up activities for the promotion and facilitation of foreign direct investment as and when required

Entry routes for investment

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SECTORS PROHIBITED
FDI is prohibited in the following activities/sectors: a) Retail Trading (except single brand product retailing) b) Atomic Energy c) Lottery Business including Government /private lottery, online lotteries, etc. d) Gambling and Betting including casinos etc. e) Business of chit fund f) Nidhi company g) Trading in Transferable Development Rights (TDRs) h) Real Estate Business or Construction of Farm Houses i) Activities / sectors not opened to private sector investment. Besides foreign investment in any form, foreign technology collaboration in any form including licensing for franchise, trademark, brand name, management contract is also completely prohibited for Lottery Business and Gambling and Betting activities

Sectors Prohibited

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SECTORS IN DISCUSSION
DEFENCE
Present Scenario The policy for Foreign Direct Investment (FDI) in the Defence Sector was first notified vide Press Note 4 of 2001, wherein the Defence Industry Sector was opened up to 100% for Indian private sector participation, with FDI permissible up to 26%, both subject to licensing and Government approval. Subsequently, guidelines for production of Defence equipment were notified, vide Press Note 2 of 2002. The extant FDI sectoral cap for the Defence Sector is, accordingly, 26%. Other than the FDI policy, two other policy regimes govern the defence sector. These are the Defence Procurement Policy and the Industrial License regime.

Concerns related to liberalising the FDI regime for the defence sector 1. The major reason for reluctance in encouraging the Private Sector into defence production and welcome FDI in the sector is on account of concern for the Defence PSUs and the Ordinance Factories. However, it is clear that if the import continues at the present level, the role of the Defence PSUs and the Ordinance Factories would only be further marginalised. If on the other hand, the major arms and weapon manufacturer companies set up their manufacturing units in India, there is strong possibility that they will collaborate with Defence PSUs and Ordinance Factories. 2. Another concern is that FDI could lead to ownership and control of firms operating in a critical and highly sensitive industry being passed on to foreign hands. Even if ownership or control does not pass on fully to the foreign investors, raising of the cap could lead to their enhanced influence and say in affairs of the companys management. A related concern is that this could lead to an increased dependence on foreign investment, for meeting our defence needs. 3. There can also be concern relating to availability or reliability of supplies in times of war. The availability of maintenance and repair capability, spare parts, material and other support to keep critical systems functioning in all circumstances is a vital concern 4. The other concern is related to the issue of passing on of the critical equipment, design or source code to other players-particularly, countries inimical to Indian interests. Such an apprehension will exist even in the case of imported equipment. In fact, in the case of indigenous equipment, the Government can
Sectors in Discussion 15

exercise greater and more effective control on the production mechanism of a company located in India and subject to Indian laws compared to a company located overseas. Government can reserve the right to inspect or control the production and dispatches in these facilities through deployment of necessary security agencies/ personnel. 5. There is a general concern about the internal security aspect of manufacture of defence equipment especially small arms and ammunition. This concern can be met by devising a strong surveillance system in each factory/unit. This could include posting of defence/security personnel on a whole time basis to these locations

RETAIL
Present Scenario 1. FDI in Multi-Brand retailing is prohibited in India. FDI in Single- Brand Retailing was, however, permitted in 2006, to the extent of 51%. Since then, a total of 94 proposals have been received till May, 2010. Of this, 57 proposals were approved. An FDI inflow of US $ 194.69 million (Rs. 901.64 crore) was received between April, 2006 and March, 2010, comprising 0.21% of the total FDI inflows during the period, under the category of single brand retailing. The proposals received and approved related to retail trading of sportswear, luxury goods, apparel, fashion clothing, jewellery, hand bags, lifestyle products etc., covering high-end items. Single brand retail outlets with FDI generally pertain to high-end products and cater to the needs of a brand conscious segment of the population, mainly attracting a brand loyal clientele, which often has a pre-set positive disposition towards the specific brand. This segment of customers is distinctly different from one that is catered by the small retailers/ kirana shops. 2. FDI in cash and carry wholesale trading was first permitted, to the extent of 100%, under the Government approval route, in 1997. It was brought under the automatic route in 2006. Between April, 2000 to March, 2010, FDI inflows of US $ 1.779 billion (Rs. 7799 crore) were received in the sector. This comprised 1.54 % of the total FDI inflows received during the period. 3. Trade is an important segment in India's Gross Domestic Product (GDP). As per the National Accounts, released by the Central Statistical Organisation (CSO), GDP from trade (inclusive of wholesale and retail in organised and unorganised sector), at current prices, increased from Rs 4,33,963 crore in 2004-05 to Rs 7,91,470 crore, at an average annual rate of 16.2 per cent. The share of trade in GDP, however, remained fairly stable at little over 15 per cent in last four years",
Sectors in Discussion 16

The share of the private organised sector in total GDP from trade was 23.2 per cent in 2008-09 and it grew at 15.0% during the year. The share of the retail trade in GDP remained stable at 8.1 per cent during this period.

Limitations of the present setup 1. There has been a lack of investment in the logistics of the retail chain, leading to an inefficient market mechanism. Though India is the second largest producer of fruits and vegetables (about 180 million MT), it has a very limited integrated cold-chain infrastructure, with only 5386 stand-alone cold storages, having a total capacity of 23.6 million MT. ,80% of this is used only for potatoes. The chain is highly fragmented and hence, perishable horticultural commodities find it difficult to link to distant markets, including overseas markets, round the year. 2. Intermediaries dominate the value chain. They often flout mandi norms and their pricing lacks transparency. 3. There is a big question mark on the efficacy of the public procurement and PDS set-up and the bill on food subsidies is rising. 4. The MSME sector has also suffered due to lack of branding and lack of avenues to reach out to the vast world markets.

Need for Investments in Agriculture Infrastructure and linked Retail Sectors It is estimated that India will need substantial investment to develop infrastructure for supporting retail development. A significant portion of this will need to be earmarked for up gradation of the supply chain for fruits & vegetables. A major portion of his investment is expected to come from the private sector, for which an appropriate regulatory and policy environment is necessary. An 11th Plan working group has estimated a total investment of Rs. 64,312 crore in agricultural infrastructure. A storage capacity gap of 35 million tonnes has been assessed, requiring an estimated investment of Rs. 7,687 crore during the 11th Plan.

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CONCLUSION
Given the engulfing resource and technological constraints that India is facing today, India should liberalize it FDI policy but in calibrated and inclusive way so that small and medium enterprises in India should also be able to grow. The Indian middle class is large and growing; wages are low; many workers are well educated and speak English; investors are optimistic and local stocks are up; despite political turmoil, the country presses on with economic reforms. The rapid economic growth of the last few years has put heavy stress on India's infrastructural facilities. The projections of further expansion in key areas could snap the already strained lines of transportation unless massive programs of expansion and modernization are put in place. Problems include power demand shortfall, port traffic capacity mismatch, poor road conditions (only half of the country's roads are surfaced), low telephone penetration (1.4% of population). Although the Indian government is well aware of the need for reform and is pushing ahead in this area, business still has to deal with an inefficient and sometimes still slow-moving bureaucracy. The Indian market is widely diverse. The country has 17 official languages, 6 major religions, and ethnic diversity as wide as all of Europe. Thus, tastes and preferences differ greatly among sections of consumers. The general economic direction in India is toward liberalization and globalization.

Conclusion

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REFERENCES
http://www.business-standard.com http://www.fipbindia.com http://finmin.nic.in/ http://business.mapsofindia.com http://www.rediff.com

References

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