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FOREIGN DIRECT

INVESTMENT
INTRODUCTION
• Foreign direct investment (FDI) is an investment made by a firm or individual in
one country into business interests located in another country. Generally, FDI
takes place when an investor establishes foreign business operations or acquires
foreign business assets, including establishing ownership or controlling interest in
a foreign company. Foreign direct investments are distinguished from portfolio
investments in which an investor merely purchases equities of foreign-based
companies.
• Foreign direct investments are commonly made in open economies that offer a
skilled workforce and above-average growth prospects for the investor, as opposed
to tightly regulated economies. Foreign direct investment frequently involves more
than just a capital investment. It may include provisions of management or
technology as well. The key feature of foreign direct investment is that it
establishes either effective control of, or at least substantial influence over, the
decision-making of a foreign business.
OBJECTIVE
1. Sustaining a high level of investment - Since the underdeveloped countries want to
industrialized themselves within a short period of time, it becomes necessary to raise
the level of investment substantially. This requires, in turn, a high level of savings.

2. Technological gap - The under developed countries have very low level of
technology as compared to the advanced countries. However they possess strong urge
for industrialization to develop their economies and to wriggle out of the low level
equilibrium trap in which they are caught.

3. Exploitation of natural resources - A number of underdeveloped countries possess


huge mineral resources, which await exploitation. These countries themselves do not
possess the required technical skill and expertise to accomplish this task. As a
consequence, they have to depend upon foreign capital to undertake the exploitation
of their mineral wealth.
• 4. Undertaking the initial risk - Many under developed countries suffer from acute
private entrepreneurs. This creates obstacles in the programs of industrialization.
An argument advanced in favour of the foreign capital is that it undertakes the risk
of investment in host countries and thus provides the much-needed impetus to
the process of industrialization.

6. Improvement in balance of payments position - In the initial phase of the
economic development, the under developed countries need much larger imports
(in the form of machinery, capital goods, industrial raw materials, spares and
components), then they can possibly export. As a result, the balance of payments
generally turns adverse. This creates a gap between the earnings and foreign
exchange. Foreign capital presents short run solution to the problem.
SCOPE OF STUDY
Retailing is that the set of activities associated with the sale of product and services to
the last word customer, firms perform research to grasp client perspective towards
their product but the customers` real intent ar displayed solely throughout the
method of shopping for in retail stores. A company will develop insights into the
behavior of its customers as they look within the sales outlet. But most retail stores
don't seem to be closely-held by the businesses whose things ar oversubscribed in
them. Retailers have vast quantity data|of data|of knowledge} concerning client
behavior however all this information isn't passed on reliably to the businesses. A
retailer’s prime affinity and loyalty is towards the purchasers of his store, and to not
the businesses whose merchandise he sells. firms either got to have additional
leverage with the retailers or own some retail stores themselves to be able to grasp
their customers higher. A retail merchant is needed to possess each promoting and
operational skills.
The retail merchant wants sympathy to understand client necessities however the
retail merchant conjointly must be indifferent enough to not let customer anguish
concerning the product within the store to hassle. The retail merchant must bear in
mind that to sell the manufacturer’s product and it's manufacturer’s duty to create
right product for the customers. The retailer’s focus must air obtaining the operation
of store right, that is itself a stupendous task. The retail merchant must get the correct
assortment of product within the store in AN efficient approach, prepare the product
in a very approach that stimulates purchase and minimizes inconvenience for
purchasers, and manage a bunch of friendly and effective salespersons. Consumer
decision-making involves not solely decisions of product and makes however
conjointly the selection of retail outlet. Most merchandising is conducted in physical
stores varied of assorted} varieties having various product assortments, however non-
store merchandising like order, automatic marketing, and net sales account for big
quantity of sales, particularly in developed countries. In developing countries, these
formats ar slowly finding acceptance currently. merchandising provides creating
product available once and wherever customers wish to shop for them. Its
international nature is increasing and is rising as a vital service. Till a number of years
agone, the yank economy fuelled economic process in several components of the
world. However, the recent economic retardation there has forced several
retaileretardation there has forced several retailers to start out wanting at different
economies.
RESEARCH METHODOLOGY

• This research is a descriptive study in nature. The secondary data was collected
from
• various journals, magazines, and websites particularly from the Department of
Industrial
• Policy & Promotion, Ministry of Commerce and Industry, Indiastat etc. The study is
based on
• the time period from 2000-2010. Simple percentages have been used to defect the
growth rate
• of India and world GDP and to draw further comparison between the two. Graphs
and tables
• have also been used where ever required to depict statistical data of FDI during
the study period .
INDIA’S GDP

• Mainly as a result of economic reforms initiated in 1991, long term


trend rate of
• growth rate increased from 3.6% during the 1950-1970s, to 5.2% in
the 1980s, 6.1% in the
• 1990s, and to more than 9% during from 2005-2007 (Asian
Development Bank). “The
• growth rate of India declined by a modest 2-3% and is on track to
regain its 9% growth by the
• next fiscal year,” according to recent projections released by the
Finance Minister and Ernst
• & Young2 Before 1991 the GDP of India was low. Due to the
welcome of FDI’s there has
• been lot of growth in sectors such as IT, banking and financial
sector, telecommunication,and infrastructure.
• Foreign direct investment (FDI) in India has played an important role in the
• development of the Indian economy during the recession. FDI in India has – in a lot
of ways
• – enabled India to achieve a certain degree of financial stability, growth and
development.
• This money has allowed India to focus on the areas that may have needed
economic attention
• and address various problems that continue to challenge the country. The factors
that
• attracted investment in India are stable economic policies, availability of cheap and
quality
• human resources, and opportunities of new unexplored markets. Mostly FDI are
flowing in service sector and manufacturing sector recorded very low investments.
SUGGESTIONS
• This chapter presents some policy options that home and host countries, as
well as international organizations, could consider to facilitate the
internationalization of small and medium-sized enterprises (SMEs), in
particular into developing countries. As will become evident below, particular
attention should be given to the role that firms in host countries can play as
counterparts to encouraging the transnationalization process of SMEs. The
chapter is structured around three major themes: the promotion of foreign
direct investment (FDI) by SMEs by developed countries, developing countries
and international organizations; programmes and mechanisms that can be
advanced (or reinforced) to stimulate the transnationalization of SMEs; and,
criteria that should be taken into consideration when designing specific
policies in this respect.
CONCLUSION
This paper focuses on theoretical aspects of FDI in India during the last ten years,
determinants and need of FDI in Indian scenario. India has been one of the developing
countries and has managed to show a positive GDP growth even during the recession
period.
It has comparatively performed well, then the average growth rate of world GDP.
According to UNCTAD in its World Investment Report 2010 “If the situation continues
to improve, India is likely to be among the most promising investor-home countries in
2010-12 as well as the third highest economy for FDI in 2010-12”. India has all the
variables such as fine infrastructure, potential markets, abundant labour, availability of
natural resources, and at last the economic and trades policies which has been
favouring FDI. India is now rated as the second-most favoured destination for FDI in
the world after China, but it is expected that in future India would out beet china as it
has a large proportion of young population with one of the fastest growing economies.
Instead of the government should formulate the policies which can attract more
foreign investment in manufacturing sector rather than service sector.