Volume 3, Issue 4 (April, 2014)

Online ISSN-2277-1166

Published by: Abhinav Publication

Abhinav National Monthly Refereed Journal of Research in

Commerce & Management

TRENDS AND FLOW OF FOREIGN DIRECT INVESTMENT

IN INDIA
Rajdeep Kaur1
Research Scholar, CDLU, Sirsa, India
Email: rajdeep.dhot@gmail.com
Nikita2
Research Scholar, CDLU, Sirsa, India
Email: nikitaostwal1428@gmail.com
Reena3
Research Scholar, CDLU, Sirsa, India
Email: reena_dhaiya123@yahoo.com
ABSTRACT
Foreign Direct investment plays a very important role in the development of the nation. Sometimes
domestically available capital is inadequate for the purpose of overall development of the country.
Foreign capital is seen as a way of filling in gaps between domestic savings and investment. India can
attract much larger foreign investments than it has done in the past. The present study has focused on
the trends of FDI Flow in India during 2000-01 to 2013-14 (up to November, 2013). The study also
highlights country wise approvals of FDI inflows to India and the FDI inflows in different sector for
the period April 2000 to Nov 2013. The study based on Secondary data which have been collected
through reports of the Ministry of Commerce and Industry, Department of Industrial Promotion and
Policy, Government of India, Reserve Bank of India, and World Investment Report. The study
concludes that Mauritius emerged as the most dominant source of FDI contributing. It is because the
India has Double Taxation Avoidance Agreement (DTAA) with Mauritius and most of the foreign
countries like to invest in service sector.

Keywords: Foreign Direct Investment (FDI); Sectors; Country wise FDI

INTRODUCTION
Capital formation is an important determinant of economic growth. While domestic investments add to
the capital stock in an economy, foreign direct investment (FDI) plays a complementary role in overall
capital formation by filling the gap between domestic savings and investment. Foreign direct
investment (FDI) is a direct investment into production or business in a country by a company in
another country, either by buying a company in the target country or by expanding operations of an
existing business in that country.FDI provides a win win situation to the host and the home countries.
Both countries are directly interested in inviting FDI, because they benefit a lot from such type of
investment. India is perceived to be one of the most lucrative grounds for investing, in the eyes of the
wealthy European as well as American investors. The historical background of FDI in India can be
traced back with the establishment of East India. Further, after Independence issues relating to foreign
capital, operations of MNCs, gained attention of the policy makers. Prior to 1991, the FDI policy
framework in India was highly regulated. The government aimed at exercising control over foreign
exchange transactions. All dealings in foreign exchange were regulated under the Foreign Exchange
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Regulation Act (FERA), 1973, the violation of which was a criminal offence. Through this Act, the
government tried to conserve foreign exchange resources for the economic development of the nation.
Consequently the investment process was plagued with many hurdles including unethical practices that
became part of bureaucratic procedures. Under the deregulated regime, FERA was consolidated and
amended to introduce the Foreign Exchange Management Act (FEMA), 1999. The new Act was less
stringent and aimed at improving the capital account management of foreign exchange in India. The
Act sought to facilitate external trade and payments and to promote orderly development and
maintenance of the foreign exchange market in India. It resulted in improved access to foreign
exchange. In 2012, UNCTAD survey projected India as the second most important FDI destination
(after China) for transnational corporations during 20102012. With its consistent growth performance
and abundant high-skilled manpower, India provides enormous opportunities for investment also
provides a liberal, attractive, and investor friendly investment climate. FDI in sectors/activities to the
extent permitted under automatic route does not require any prior approval either by the Government
or RBI. FDI in activities not covered under the automatic route requires prior Government approval.
Such proposals are considered by the Foreign Investment Promotion Board (FIPB). An increase in
FDI may be associated with improved economic growth due to the influx of capital and increased tax
revenues for the host country. Host countries often try to channel FDI investment into new
infrastructure and other projects to boost development. Greater competition from new companies can
lead to productivity gains and greater efficiency in the host country and it has been suggested that the
application of a foreign entitys policies to a domestic subsidiary may improve corporate governance
standards. Furthermore, foreign investment can result in the transfer of soft skills through training and
job creation, the availability of more advanced technology for the domestic market.
OBJECTIVES OF THE STUDY
1. To Study the trends of FDI Flow in India during 2000-01 to 2013-14 (up to November, 2013)
2. To analyze the FDI flows as to identify country wise approvals of FDI inflows to India.
3. To analyze the Sector wise distribution of FDI inflows.
Nature and Sources of data
The present study is based on Secondary data. The relevant secondary data has been collected from
reports of the Ministry of Commerce and Industry, Department of Industrial Promotion and Policy,
Government of India, Reserve Bank of India, and World Investment Report. The time period of the
study has been take april 2000 to November 2013.
ANALYSIS OF THE STUDY
Table 1. Financial Years Wise FDI Flow From 2000-01 to 2013-14 (up to November, 2013)
S. No.
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.

Financial Years 2000-01 to 2013-14 (up to November, 2013)

Financial Year (April
Total FDI flow in
Total FDI Flows %
To March)
US$ Million
Growth Over Previous
2000-01
4,029
2001-02
6,130
(+) 52 %
2002-03
5,035
(-) 18 %
2003-04
4,322
(-) 14 %
2004-05
6,051
(+) 40 %
2005-06
8,961
(+) 48 %
2006-07
22,826
(+) 146 %
2007-08
34,843
(+) 53 %
2008-09
41,873
(+) 20 %
2009-10 (P) (+)
37,745
(-) 10 %
2010-11 (P) (+)
34,847
(-) 08 %

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Commerce & Management
Table 1. Financial Years Wise FDI Flow From 2000-01 to 2013-14 (up to November, 2013)
(Contd.)
Financial Years 2000-01 to 2013-14 (up to November, 2013)
Financial Year (April
Total FDI flow in
Total FDI Flows %
To March)
US$ Million
Growth Over Previous
12.
2011-12 (P)
46,556
(+) 34 %
13.
2012-13 (P)
36,860
(-) 21%
14
2013-14 (P)(Apr-Oct,
18,934
2013)
Cumulative total
309,012
(from april, 2000 to October,
2013)
S. No.

Source: DIPP, Federal ministry of commerce and industry, govt of India

Table no 1 depicts that flows of FDI received in India during April 2000 to October 2013 i.e. 309,012
US$ million. From the year 2000 to 2002 FDI inflow in India has shown a increasing trend. This may
be the result of Foreign Exchange Management Act (FEMA) which is introduced in 1999. Further it
follow negative trend up to period 2003-2004. But from the year 2004-05 to 2008-09 investment into
India once again start growing. The highest FDI inflows growth in the country in 2006-2007 year was
146%. Further, FDI inflows rose by 34 % to US$ 46,556 million during 2011-12. Last year April
2012-13 has shown negative growth rate i.e. -21% to US$ 36,860 million while the cumulative
amount of FDI equity inflows from April 2000 to October 2013 stood at US$ 309,012 billion,
according to the latest data released by the Department of Industrial Policy and Promotion (DIPP).
Table 2. Country -Wise FDI Inflows from April 2000 to November, 2013
S.No

Name of the country

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15

Mauritius
Singapore
United Kingdom
Japan
U.S.A
Netherlands
Cyprus
Germany
France
UAE
Switzerland
Spain
South Korea
Italy
Hong Kong
Total FDI Inflows

Amount of FDI inflow

(in US$ million)
77,083.47
22,515.91
20,671.41
15,269.34
11,692.93
10,472.78
7,259.63
6,113.50
3,780.73
2,637.77
2,535.36
1,748.19
1,296.34
1,240.24
1,188.99
185506.59

% age with total

FDI inflow
36.93
10.79
9.90
7.31
5.60
5.02
3.48
2.93
1.81
1.26
1.21
0.84
0.62
0.59
0.57
88.86

Source: DIPP, Federal Ministry of Commerce & Industry, Government of India

Table depicts the country wise FDI inflow in India during April 2000 -Nov 2013. The analysis
indicates that large part of FDI in India is contributed by fifteen countries which is. 185506.59 US $
million while remaining aprox. 11 per cent by rest of the world. Mauritius emerged as the most
dominant source of FDI contributing 77,083.47 US$ million of the total investment in the country. It is
because the India has Double Taxation Avoidance Agreement( DTAA) with Mauritius . This (DTAA)
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type of taxation treaty has been made out with Singapore .So Singapore is second largest Investor of
FDI inflow in India. The other major countries are U.K with a relative share 20,671.41 US$ million
followed by Japan. While some countries like South Korea, Italy, Hong Kong has fewer shares in total
FDI Inflow.
Figure 1 represent the %age of total FDI inflow in India by different countries. 88.86percent total FDI
inflow in the India by fifteen countries in which Mauritius contribute 36.96 percentage of the total
investment in country followed by Singapore, United Kingdom, Japan etc

Source: DIPP, Federal Ministry of Commerce & Industry, Government of India

Figure 1.
Table 3. Sector -Wise FDI Inflow from April, 2000 to November, 2013
S. No
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15

Sectors
Services Sector
Construction Development
Telecommunications
Computer Software & Hardwar
Drugs &Pharmaceuticals
Chemicals(OTHER THAN
FERTILIZERS)
Automobile Industry
Power
Metallurgical Industries
Hotel & Tourism
Petroleum& Natural Gas
Food Processing Industries
Trading
Information & Broadcasting
Electrical Equipments

Amount of FDI Inflows

(In US$ million)
38,713.32
22,969.45
12,888.72
12,220.28
11,570.50
9,362.40

%age with total

FDI Inflows
18.55
11.00
6.17
5.85
5.54
4.49

9,133.26
8,357.23
7,780.61
6,825.56
5,483.63
5,230.08
4,236.54
3,639.93
3,276.62

4.38
4.00
3.73
3.27
2.63
2.51
2.03
1.74
1.57

Source: DIPP, Federal Ministry of Commerce & Industry, Government of India

Table 3 clearly show the FDI inflows in different sector for the period April 2000 to Nov 2013 data
reveals that most of the Foreign countries like to invest in service sector. Services sector includes
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Financial, Banking, Insurance, Non-Financial / Business etc. Share of Service sector in total FDI is
18.55 per cent. Second largest share of FDI is in the construction development. Large amount of FDI
has also taken place in telecommunication sector. The telecom industry is now become one of the
fastest growing industries in India. Some Sector like Information & Broadcasting, Electrical
Equipment attracts less FDI in country. Figure 2 also revealed the graphically sector wise FDI inflow
in the country.

Figure 2.
CONCLUSION
India emerges as the fifth largest recipient of foreign direct investment across the world. India is
considered second largest country amongst all further developing countries and ranks fourth in the PPP
in the world. So India has high potential to attract FDI inflow. The present study found that total FDI
inflow in India from April 2000 to November 2013 is 311,398 US$ million. The study also reveals that
Mauritius emerged as the most dominant source of FDI contributing 77,083.47 US$ million of the total
investment in the country. Large part of FDI in India is contributed by fifteen countries which is
185506.59 US $ million. The services sector accounted for a steeply rising share of FDI stocks in India
followed by construction development, Telecommunications and Computer Software & Hardwar.
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Commerce & Management
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