Introduction Foreign direct investment (FDI) is defined as a long-term investment by a foreign direct investor in an enterprise resident in an economy other

than that in which the foreign direct investor is based. Foreign direct investment (FDI) is aiso defined as "investment made to acquire lasting interest in enterprises operating outside of the economy of the investor. The FDI relationship consists of a parent enterprise and a foreign affiliate which together form a Multinational corporation (MNC). In order to qualify as FDI the investment must afford the parent enterprise control over its foreign affiliate. The UN defines control in this case as owning 10% or more of the ordinary shares or voting power of an incorporated firm or its equivalent for an unincorporated firm; lower ownership shares are known as portfolio investment. Foreign Direct Investment (FDI) flows have increased dramatically in last few decades. As developing countries, particularly in Asia, remove restrictions and implement policies to attract FDI inflows, trade and investment have become increasingly intertwined. As such, there have been growing calls for a multilateral framework of foreign investment rules to be negotiated under the auspices of the World Trade Organization (WTO).

This paper reviews developments in FDI flows and their impacts in developing Asia, and the importance of the policy context in which those flows occur. It discusses advantages and disadvantages of including FDI in WTO negotiations, and related policy options for developing Asian economies.

Background
In the years after the Second World War global FDI was dominated by the United States, as much of the world recovered from the destruction brought by the conflict. The US accounted for around three-quarters of new FDI (including reinvested profits) between 1945 and 1960. Since that time FDI has spread to become a truly global phenomenon. FDI has grown in importance in the global economy with FDI stocks now constituting over 20 percent of global GDP. In the US, in the late 1960s and early 1970s, foreign direct investment became increasingly politicized. Organized labour, convinced that foreign investment exported jobs, undertook a major campaign to reform the tax provisions which affected foreign direct investment. The Foreign Trade and Investment Act of 1973 (or the Burke-Hartke Bill) would have eliminated both the tax credit and tax deferral. The Nixon Administration, in-

fluential members of Congress of both parties, and well-financed lobbying organizations came to the defense of the multinational. The massive counterattack of the multinational corporations and their allies defeated this first major challenge to their interests.

1.2 Objective of the study:

This study is conducted with the objective to get an overall insight in the flow of FDI. The total objective is decomposed into several parts to get idea about the factors affecting the flow of FDI. The specific objectives of this study are: To give an insight into the theoretical issues relating to FDI To highlight the role of multinational corporation in FDI. To give an overview of FDI in Asian Countries. To focus on the administration of FDI. To evaluate the status of FDI to identify the problem of FDI.

1.3 Methodology: Secondary data Source: Secondary data are collecting from various papers supplements like The Financial Express, The Daily Star, etc. newspapers, Internet Books are studied. Exchange of views from different people also played a significant role to do the Study. 1.6 Limitations of the study: In analyzing the report presents some factors that determine the shape of the flow of FDI. But these are not surely the only factors and many important factors may be omitted from the analysis. And another thing is that the underlying factors are mostly in qualitative factors in nature and therefore

cannot be measured in numerical way. The consequences are that we failed to provide absolute guideline about restructuring policy and some other decisions. The finding of the report is based on some assumed scenario and changes on those scenarios may reshape the future flow of FDI. That is the analysis is situation and time based. The biggest problem we faced in the reporting period is the paradoxical data set. I have three sets of data in regard to the FDI, but all that provides us contradictory result. Board of Investment does not confirm what the bank published and vice versa. On the other hand the recording of FDI data is almost a new concept in our country. As a result I present the FDI data which I believe more accurate in best of my knowledge for the related periods.

FOREIGN DIRECT INVESTMENT IN INDIA Investment in Indian market India, among the European investors, is believed to be a good investment despite political uncertainty, bureaucratic hassles, shortages of power and infrastructural deficiencies. India presents a vast potential for overseas investment and is actively encouraging the entrance of foreign players into the market. No company, of any size, aspiring to be a global player can, for long ignore this country which is expected to become one of the top three emerging economies. India has in the recent years emerged as a favored destination for investment in various sectors like Power generation, Heavy Machinery, Infrastructure project, Telecom, Communication, Software etc. Various hurdles that existed in the economy earlier have been removed as a result of the winds of liberalization sweeping the country. India has now opened its doors to foreign investment in a major way. Non-Resident Indians and Multinational Companies have to follow certain rules and regulations prior to investment. Policy

FDI upto 100% is allowed under the automatic route in all activities/sectors except the following which will require approval of the Government: Activities/items that require an Industrial License; Proposals in which the foreign collaborator has a previous/existing venture/ tie up in

India in the same or allied field, All proposals relating to acquisition of shares in an existing Indian company foreign/NRI investor. All proposals falling outside notified sectoral policy/caps or under sectors FDI is in not which permitted. by a

FDI policy is reviewed on an ongoing basis and measures for its further liberalization are taken. Change in sectoral policy/sectoral equity cap is notified from time to time through Press Notes by the Secretariat for Industrial Assistance (SIA) in the Department of Industrial Policy & Promotion. Policy announcement by SIA are subsequently

notified by RBI under FEMA. All Press Notes are available at the website of Department of Industrial Policy & Promotion.

Different Types of FDI

A. By Direction 1 Inward:
Inward foreign direct investment is a particular form of inward investment when foreign capital is invested in local resources. 2 Outward: Outward foreign direct investment, sometimes called "direct investment abroad", is when local capital is invested in foreign resources. Yet it can also be used to invest in imports and exports from a foreign commodity country.

B. By Target 1.Greenfield investment

Direct investment in new facilities or the expansion of existing facilities. Greenfield investments are the primary target of a host nations promo-

tional efforts because they create new production capacity and jobs, transfer technology and know-how, and can lead to linkages to the global marketplace 2.Mergers and Acquisitions Transfers of existing assets from local firms to foreign firms takes place; the primary type of FDI. Cross-border mergers occur when the assets and operation of firms from different countries are combined to establish a new legal entity. Cross-border acquisitions occur when the control of assets and operations is transferred from a local to a foreign company, with the local company becoming an affiliate of the foreign company. Nevertheless, mergers and acquisitions are a significant form of FDI and until around 1997, accounted for nearly 90% of the FDI flow into the United States. Mergers are the most common way for multinationals to do FDI. 3.Horizontal FDI Horizontal FDI occurs when the multinational undertakes the same production to activities in multiple countries. 4.Vertical FDI

Backward

Vertical

FDI

Where an industry abroad provides inputs for a firm's domestic productions. Forward Vertical FDI

Where an industry abroad sells the outputs of a firm's domestic production.

C.By Motive
FDI can also be categorized based on the motive behind the investment from the perspective of the investing firm: 1.Resource-Seeking Investments which seek to acquire factors of production that are more efficient than those obtainable in the home economy of the firm. In some cases, these resources may not be available in the home economy at all (e.g. cheap labor and natural resources). This typifies FDI into developing countries, for example seeking natural resources in the Middle East and Africa, or cheap labor in Southeast Asia and Eastern Europe. 2.Market-Seeking

Investments which aim at either penetrating new markets or maintaining existing ones. FDI of this kind may also be employed as defensive strategy; it is argued that businesses are more likely to be pushed towards this type of investment out of fear of losing a market rather than discovering a new one. This type of FDI can be characterized by the foreign Mergers and Acquisitions in the 1980s by Accounting, Advertising and Law firms.

Trends in FDI with special reference to India FDI Prospects Global FDI prospects are set to remain gloomy in 2009, with inflows expected to fall below $1.2 trillion. However, recovery of these flows is expected to begin slowly in 2010 to reach up to $1.4 trillion, and will gather momentum in 2011 when the level could approach an estimated $1.8 trillion almost the same as in 2008. In the short run, with the global recession extending into 2009 and slow growth projected for 2010, as well as the drastic fall of corporate profits, FDI is expected to be low. TNCs appear hesitant and bearish about expanding their international operations. This is confirmed by the results of WIPS: a majority (58%) of large TNCs reported theirintentions to reduce their FDI expenditures in 2009 from their 2008 levels, with nearly onethird of them (more than 30%) even anticipatinga large decrease. Considering the 44% fall inactual FDI inflows worldwide in the first quarterof 2009, compared to the same period last year,2009 could end with much lower flows than in2008. Recent developments

The most recent survey of investment policy developments in the 42 countries of the G-20 conducted by the UNCTAD secretariat shows that the overwhelming majority of policy measures specific and/or related to investment, taken by these countries in the period November 2008 to June 2009 were non-restrictive towards foreign inward and domestic outward investment. In fact, a substantial number of the policy changes surveyed were in the direction of facilitating investment, including outward investment. There were, however, also a few policy measures that restrict private (including foreign) investment in certain highly sensitive sectors, or introduce new criteria and tests for investments that cause national security concerns. Concerned with the sensitivity linked to the broadcasting sector, the Telecom Regulatory Authority of India (TRAI) is examining whether or not to keep out this sector from the foreign direct investment (FDI) regulations notified under Press Notes 2 and 4. The Press Notes 2 and 4 had stated that downstream foreign investment into a non-operating Indian holding company would not be considered while determining the FDI cap in each sector.

However, the Information and Broadcasting (I&B) Ministry has sought TRAI's views on implementing Press Notes 2 and 4 for the broadcasting sector. The TRAI had earlier recommended that FDI cap on broadcasting carriage services be brought up to 74 per cent. This was done to bring it at par with the FDI norms governing the telecom sector. TRAI had, however, kept the FDI cap for content services at 49 per cent. In a consultation paper issued last week, TRAI said that some stakeholders had raised concerns that in the light of Press Notes 2 and 4, much higher foreign equity is possible because even up to 49.99 per cent foreign investment in the investing company would be counted as nil as per the new method of calculating indirect foreign investment. Another view is that the broadcasting sector, being sensitive in nature, should be taken out of the ambit of Press Notes 2 and 4 of 2009, and the foreign investment limit should be calculated under the earlier methodology, TRAI said in the consultation paper.

TRAI has invited all stakeholders to respond to the issues raised in the consultation paper by January 30. In an earlier recommendation, TRAI had proposed an increased FDI cap in cable network, Direct-toHome (DTH) and Uplinking Hub/Teleport to 74 per cent from current 49 per cent. It had also recommended increased FDI cap in FM radio to 49 per cent from 20 per cent. The I&B Ministry will take a final decision on the proposed increase in FDI cap after TRAI submits its new recommendations. FDI in India seen at $30 billion in 2009-10 India expects to receive foreign direct investment (FDI) to the tune of $30 billion in fiscal year 2009-10, compared to $27.5 billion estimated for 2008-2009. Despite the global economic slump and severe credit crunch, the ministry of industries is optimistic that there won't be any decline in foreign direct investment in India and anticipate a 9 per cent increase over 2008-09. Although the projected figure does not show a significant rise, under the present global scenario it is considered as a positive development.

India received FDI worth $24.57 billion in 2007-08 . In the first eleven months of the 2008- 09, the country received FDI of $25.3 billion, 3.2 per cent higher than the corresponding period last year. "There will be some investment which will be delayed but overall outlook is positive and optimistic," joint secretary in the Department of Industrial Policy and Promotion (DIPP), Gopal Krishna said in New Delhi yesterday. "The fact of the matter is our share of world FDI inflows continues to grow," Gopal Krishna said. Despite the slowdown in economy, Indian share in the global FDI increased from 0.5 per cent to 2 per cent last year. Though the ministry is optimistic, the FDI inflows in March plunged to $2.5 billion compared to $4.4 billion a year ago, a whopping 56 per cent drop. The joint secretary said, including reinvestment by foreign entities, the FDI could reach $40 billion in 2009-10 against $37.5 billion, the likely figure for last year. The reinvestment by MNCs operating in India is seen at $10 billion, the same as for 2008-09, which means the $2.5 billion rise in FDI expected

during the current year will be primarily on account of fresh capital inflows. Analysts see it as an encouraging sign and hope that the global investors would have a positive outlook on the country's strong fundamentals and fiscal stimulus measures taken by the government to overcome the crisis. An industry survey indicated that despite the global economic meltdown, about 80 per cent of the US companies consider India to remain an attractive destination for investments over the next five years. The past few years have seen significant increase in FDI into India driven by the long term growth prospects of the country's economy. The major investing countries included Mauritius, Singapore, the US, Britain, Netherlands, Japan, Germany, Cyprus, France and the UAE. The sectors services, computer, telecommunications, real estate, construction, automobile and power attracted maximum inflows. For comparison, China's FDI for 2008 was $92.4 billion, registering a 23 per cent growth of over 2007.

Meanwhile, the finance ministry has raised questions on the new FDI rules, which could give domestic companies room to rework their structure for backdoor activities. The commerce ministry, revised the FDI regulations in February with a view to make the policy more liberal and user-friendly, allowing up to 100 per cent FDI under automatic route in many sectors. Relating to this issue, Gopal Krishna said, ''the Finance Ministry has raised some generic issues... we should be able to answer those questions and address them properly.'' FDI Inflows Rebounding Along with the improvement in the global sentiment for business investments, FDI inflows to emerging markets and more specifically to India have also started to recover quickly. The trailing three-month sum of Gross FDI inflows into India has shot up to US$9.3 billion (annualized rate of US$37.3 billion) as of August 2009 from the trough of US$3.9 billion (annualized rate of US$15.8 billion) in December 2008 Gross FDI Inflows in India Source: Ministry of Commerce and Industry, CEIC.

If the current trend is maintained in the rest of the calendar year, total FDI in 2009 could reach very close to the high of US$33 billion reached in 2008. Note that these numbers exclude re-invested earnings. Reinvested earnings could be an additional US$6-7 billion. In other words, if we were to include reinvested earnings (to make the FDI data comparable to that of other countries), the total FDI inflows in 2009 could reach about US$40 billion (3.4% of GDP) compared with US$41.2 billion in 2008. According to UNCTAD data, the share of developed economies in global FDI flows has dropped to 57% as of 2008 from 81% as of 2000. On the other hand, the share of developing economies increased to 37% as of 2008 from 18% during the same period. The share of Asia in global FDI flows has increased to 23% as of 2008 from 11% as of 2000 and only 1% as of 1980. Within Asia, over the last few years India has steadily improved its position in attracting FDI investments. Indias share in FDI inflows into Asia has increased to 10.6% in 2008 from 2.4% in 2000.

Indias share in global FDI flows improved significantly to 2.4% in 2008 from 1.3% in 2007 and 0.3% in 2000. From being ranked 36th in the world on FDI inflows in 2000, India has improved its rank to 20 in 2007. As per the UNCTAD survey, India is third in global ranking after China and the US for potential FDI investments during 2009-2011. Moreover, if we measure FDI inflows as a percentage of GDP, India is already receiving more inflows than Brazil, China and US. India has a relatively open FDI regime compared with many other emerging markets. FDI inflows into India have largely focused on meeting domestic demand, unlike in China, where a significant part of FDI has been attracted in exports business. Sectors attracting FDI 1. Service Although the share of the services sector has been declining when compared with FY2007, it still has the largest share at 29.4% as of FY2009 (12-months ended March 2009). FDI in the services sector remained largely stable at US$10.3 billion in FY2009 compared with US$10.2 billion FY2008, but increased from US$7.9 billion in FY2007. Within services,
th

the financial services segment accounts for bulk of the inflows, followed by the IT/BPO segment. 2. Real estate & Construction Liberalization of laws related to FDI investments over the last few years has helped to increase foreign investments into the real estate and construction sector. In FY2009, the real estate and construction investments are estimated to be at US$4.8 billion compared with US$3.9 billion in FY2008 and US$1.5 billion in FY2007. 3. Manufacturing Investment in the manufacturing sector has improved significantly over the last two years as the investment climate has improved. Of course the rising size of the domestic market appears to be one reason explaining this trend; we believe the gradual improvement in infrastructure investments and deregulation are also helping improve the business environment. For instance, infrastructure investments have increased to 5.8% of GDP (US$68 billion) in FY2009 from 3.4% of GDP (US$15.4 billion) in FY2000. The key sub-segments that are attracting manufacturing investments include

metallurgical industries, the automobile industry, electrical equipment and chemicals. FDI outflow also increasing: Increasing Forex reserves and rising capital inflows have over the years encouraged the central bank to liberalize the limits for foreign investment abroad. Over the last three years, the RBI has increased the limit for foreign investments by local companies from 100% of net worth to 400% of net worth, under automatic route. Moreover, Indian companies have also emerged in size and managerial capability to be able to make acquisitions outside the country. In FY2009, total FDI outflows rose to US$17.5 billion from US$5.9 billion in FY2006. Going Forward: India is likely to further improve its position in global FDI ranking, for several reasons such as India is continuing to expand as a major destination for services sector outsourcing. Second, there should be a steady increase in FDI focused on growing domestic market opportunities, especially in consumer goods, real estate and infrastructure. Third, the positive trend of globalization of the capital markets will mean increased acquisi-

tion of shares by foreign companies ensuring higher FDI inflows. We believe that FDI in manufacturing will also improve further over the next 2-3 years as there is progress on critical issues such as infrastructure. Indeed, with India gradually catching up to China on GDP growth, it would not be surprising to see India reach very close to China on FDI inflows over the next 4-5 years.

Benefits of Foreign Direct Investment

1. it helps in the economic development of the particular country where the investment is being made. 2. It has also been observed that foreign direct investment has helped several countries when they have faced economic hardships. 3. direct investment also permits the transfer of technologies. This is done basically in the way of provision of capital inputs. 4.The countries that get foreign direct investment from another country can also develop the human capital resources by getting their employees to receive training on the operations of a particular business.. 5. Foreign direct investment helps in the creation of new jobs in a particular country. It also helps in increasing the salaries of the workers.. 6.Foreign direct investment can also bring in advanced technology and skill set in a country. There is also some scope for new research activities being undertaken.

7.Foreign direct investment assists in increasing the income that is generated through revenues realized through taxation. It also plays a crucial role in the context of rise in the productivity of the host countries 8.It also opens up the export window that allows these countries the opportunity to cash in on their superior technological resources. It has also been observed that as a result of receiving foreign direct investment from other countries, it has been possible for the recipient countries to keep their rates of interest at a lower level. 9.It becomes easier for the business entities to borrow finance at lesser rates of interest. The biggest beneficiaries of these facilities are the small and medium-sized business enterprises. Disadvantages of Foreign Direct Investment 1. One of the most indirect disadvantages of foreign direct investment is that the economically backward section of the host country is always inconvenienced when the stream of foreign direct investment is negatively affected. 3.At times it has been observed that certain foreign policies are adopted that are not appreciated by the workers of the recipient country. Foreign

direct investment, at times, is also disadvantageous for the ones who are making the investment themselves. 4.Foreign direct investment may entail high travel and communications expenses. The differences of language and culture that exist between the country of the investor and the host country could also pose problems in case of foreign direct investment. 5.Yet another major disadvantage of foreign direct investment is that there is a chance that a company may lose out on its ownership to an overseas company. 6.At times it has been observed that there is considerable instability in a particular geographical region. This causes a lot of inconvenience to the investor. 7.The size of the market, as well as, the condition of the host country could be important factors in the case of the foreign direct investment. In case the host country is not well connected with their more advanced neighbors, it poses a lot of challenge for the investors. 8.At times it has been observed that the governments of the host country are facing problems with foreign direct investment. It has less control over

the functioning of the company that is functioning as the wholly owned subsidiary of an overseas company.

Conclusion Foreign direct investment (FDI) is an investment involving a long-term relationship and reflecting a lasting interest and control by a resident entity in one economy (foreign direct investor or parent enterprise) in an enterprise resident in an economy other than that of the foreign direct investor (FDI enterprise or affiliate enterprise or foreign affiliate). FDI implies that the investor exerts a significant degree of influence on the management of the enterprise resident in the other economy. Such investment involves both the initial transaction between the two entities and all subsequent transactions between them and among foreign affiliates, both incorporated and unincorporated. FDI may be undertaken by individuals as well as business entities. Foreign direct investment (FDI) continues to gain in importance as a form of international economic transactions and as an instrument of international economic integration. The rate of growth of worldwide FDI inflows in the past two decades has substantially exceeded that of worldwide gross

domestic product (GDP), exports and domestic investment. Transnational corporations (TNCs) account for an increasing share and, in some cases, a substantial part of the assets, employment, domestic capital formation, research and development, sales and trade of many countries and have become one of the driving forces of integration in the world economy.

Bibliography

1. www.wikipedia.org 2. www.scribd.com 3. www.oecd.org 4. www.investopedia.com