Foreign Direct Investment in India Since 1991: Trends, Challenges and Prospects

Despite this India is still a complicated place for foreign investors. A weak parliamentary government has very little purview over the provincial and local ministers who were elected entirely separate from federal elections. The fragmented nature of the country’s political system has and will continue to prevent major

Foreign direct investment FDI is an investment of a company from one country to another whereby assets are acquired, operations are set up and joint ventures with local firms are made (Financial Times , n.d.). FDI is a risky and more expensive method of venturing globally as compared to licensing and exporting, however it does not stop companies from doing so due to its many advantages. FDI is one of the key drivers in speeding up the development and economic growth in Malaysia. Sound macroeconomic management, presence of a well-functioning financial system and sustained economic growth has made Malaysia an attractive country for FDI. Moreover, FDI plays a crucial role in Malaysia economy as it generates economic growth by increasing capital formation through the expansion of production capacity.

India has emerged as a trading superpower and as an increasing magnet for FDI.  Its role in the international economy to this point has been less remarked than the rise and dominance of China but increasingly India will be appreciated for the opportunities it is creating for its citizens, employers and foreign and domestic firms.

Other supporting industries like the engineering and fabrication, foundry and castings, mineral processing, automobile, process industries and plethora of interrelated industries will be huge beneficiaries of these initiatives. All the initiatives are expected to bring in radical changes in the macroeconomic outlook of the country in next 5-10 years. The large pool of highly agile, young, technically skilled, elitist, and English perceptive engineers, scientists, managers, and artisans will play a crucial role in the economic transformation of India. The creation of the manufacturing corridors with requisite and ready to move infrastructures will definitely catalyze the growth of the manufacturing sectors. With these initiatives and confidence given by the government of the day, the prevailing perception of the overseas investors, especially from the western world is gradually changing in favour of India. According to the Reserve Bank of India (RBI, 2014), the FDI is expected to touch US $ 65-70 billion by the end of

Foreign direct investment (FDI) can be defined as a process whereby residents of one country (the source country) acquire ownership of assets for the purpose of controlling the production, distributions and other activities of a firm in another country (the host country). FDI also have another definition like ‘an investment that is made to acquire a lasting interest in an enterprise operating in an economy other than that of the investor, the investor’s purpose being to have an effective voice in the management of the enterprise’- International Monetary Fund’s Balance of Payment Manual and ‘ an investment involving a long-term relationship and reflecting a lasting interest and control of a resident entity in one economy (foreign

That is why fdi (foreign direct investment) show huge growth with the last decade. Many foreign companeis (pepsico, nokia, walmart, general electrical etc) and bank (citi bank, standard chartered, abn amro etc) are entering in India day by day however many more is to come. |

According to the International Monetary Fund (IMF), Foreign Direct Investment (FDI) is defined as “cross border investment where a resident in one economy has control or a significant degree of influence on the management of an enterprise in another country.” FDI in the past decade has grown intensively, exceeding the growth of world production and the growth of international trade (Dierk, 2008). Many nations are open and engage in FDI because it will benefit domestic firms. Brazil, a top emerging market, has experienced record number of FDI projects, establishing it as the second most popular global destination in terms of FDI value. The country has experienced steady growth over the past decade and is projected to keep increasing its number of FDIs.

Foreign direct investment (FDI) is taken as one of the key factor of rapid economic growth and development. FDI, it is believed to stimulate domestic investment, human capital, and transfers technology. It is associated qualities which causes the faster economic development in the host countries. South Korea, for instance had one of the of the poorest economies during 1960s, but yet

In today’s increasingly globally integrated business world, foreign direct investment (FDI) “provides a means for creating direct, established and long-lasting links between economies,” according to the 2008 Organization for Economic Co-Operation and Development Benchmark Definition of Foreign Direct Investment (OECD, 2008, p. 14). Foreign direct investment (FDI) is defined as “an investment made to acquire lasting interest in enterprises operating outside of the economy of the investor,” by the United Nations Conference on Trade and Development (UNCTAD).9

In today’s world of investment, every country, every region, competes for foreign direct investment; however, they do so disproportionately - one thing is for sure: The more FDI, the better. FDI flows generally follow investor’s choices, interests, and perceptions. The need to earn more creates new opportunities for investors and nations alike. But

FDI has been a growing factor that has strengthened the economy 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:

Foreign Direct Investment as a key component of economic globalization could play a prominent role in stimulating economic growth through capital formation, technology transfer and enhancing employment opportunities in the developing countries like Nepal. Nepal and India both have liberalized foreign investment policies that would help promote FDI in Nepal (Dahal et.al. 2004). Despite significant liberalization of the foreign investment regime and the introduction of attractive investment incentives, Nepal’s achievements, both in terms of the volume of FDI and its developmental impact, failed to match national expectations (Athukorala, et.al., 2006) The country has not been able to draw on the potential technological and other contributions that FDI can make to the process of development (Pant, 2010). A restrictive FDI regime, high import tariffs, exit barriers for firms, stringent labor laws, poor quality infrastructure, centralized decision-making processes, and lack of export processing zones and Export Trading House make Nepal an unattractive investment location (Regmi, 2012). Nepal’s FDI potential is heavily under-exploited, despite the fact that the country offers a huge potential not only for market seeking investors but also resource seeking ones (Adhikari, 2013a).. Moreover, Nepal is the worst performer in South Asia (and one of the worst ones in the world) in terms of attracting FDI (Adhikari, 2013b). The country’s insurgency period in the past has also hindered

Yousaf (2008) Analyses of more than 3 decades reveal that FDI has positive relation with imports in short & long-run where as relationship with exports is negative in short & positive in the long-run. FDI is an economic influencer of economy of a country specially developing countries experience accelerated GDP when successful in attracting FDI as in case of Pakistan.

The unpredictability of autonomous FDI flows, in both scale and direction, has generated a substantial research effort to identify their major determinants. The remainder of this paper is mainly concerned with examining the factors influencing the destination of the investment: Host-country determinants, rather than industry specific factors. The major determinants of FDI are as follows---

A foreign direct investment has become a striking measure of economic development in both developed and developing countries. FDI and FII thus have become instruments of international economic integration and incentive. Fast growing economies like China, Singapore etc., have registered unbelievable growth at onset of FDI. Though US captures most of the FDI inflows, developing countries still account for significant growth of FDI and rise in FII. FDI not only gives access to foreign capital but also provides domestic countries with cutting edge technology, desired skill sets, tools of innovation and other harmonious skills. The policies drafted to stimulate the flow of foreign capital in to India provided much needed an external (or) internal for India to emerge as an attractive destination for foreign investors. External factors such as global economic cues, FDI & FII, Exchange rate and Internal factors such as demand and supply, market cap, EPS generally drive and dictates the Indian stock market. The current paper makes an attempt to study the relationship and impact of FDI & FII on Indian stock market using statistical measures namely correlation coefficient and multi regression during the study period from 2005 to 2014. Sensex and Nifty were considered as the representative of stock market as they are the most popular Indian stock market indices. It concludes that Flow of FDIs and FIIs in India determines the trend of Indian stock market during the study