Critical analysis of FDI in India and its impact on manufacturing and retail sectors

Executive Summary
The context foreign direct investment (FDI) is used in this research taking account of Indian economic impacts and its analysis on manufacturing and retail industry. The pull back of world economic down turn in past two years reflects in financial movement across the world. This effect FDI transactions and foreign interests are taken account in this research to meet the objectives. The growth of Indian economy with support of FDI is understood through the preliminary readings. I reached a conclusion to justify my analysis Literature on FDI and recent studies on the topics related to Objectives are used in this report. Literature starts with the historical movement of financial flow across the world

economy. The focus leads to previous studies on FDI in India along with specific studies on Manufacturing and retail sectors. The frame work of the research is framed through the literature knowledge and recent studies. The conceptual framework concludes the literature review which meets the requirements of objectives. Methodology of the research is framed based on gaining impacts on retail industry and manufacturing industry of India through FDI. Research philosophy, approach and strategy is established in this chapter to manage research operation under given time frame. The guidance of methodology is attained though research guiding books and journals. The unawareness of handling a research is taken into account while making this report. Data analysis of research is done with respect to conceptual frame work and objectives. Recent impacts on industrial sectors and its effect on FDI flows are analysed in this chapter. Specific analysis had done on manufacturing and retail industry to realise the impacts and growth of industry through FDI operations. The legal procedures and its updates are referred in this chapter to support findings of research. Supporting tabular and pictorial representations are provided to justify the findings of analysis. This report is concluded with the future scope of FDI flow to Indian economy and pointing the pitfalls of FDI strategies from Indian government. The feedback of existing system is added as clarifying recommendations at the end of the report.

Table of Contents Critical analysis of FDI in India and its impact on manufacturing and retail sectors .................. 1 Executive Summary............................................................................................................................. 1 List of Tables ......................................................................................................................................... 3 List of Figures ....................................................................................................................................... 4 CHAPTER 1 .......................................................................................................................................... 5 INTRODUCTION .................................................................................................................................. 5 1.1 Title: ............................................................................................................................................. 5 1.2 Background: ............................................................................................................................... 6 1.3 Research Objectives ................................................................................................................. 7 CHAPTER 2 .......................................................................................................................................... 9 LITERATURE REVIEW ....................................................................................................................... 9 2.1 Introduction ............................................................................................................................... 10 2.2 Defining FDI .............................................................................................................................. 10 2.3 Historical Evolution of FDI ...................................................................................................... 11 2.4 Theories of Foreign Direct Investment ................................................................................. 13 2.4.1 Hymers theory................................................................................................................... 13 2.4.2 Caves Theory .................................................................................................................... 13 2.4.3 Internalisation theory........................................................................................................ 13 2.5 Models in FDI ........................................................................................................................... 14 2.5.1 The Benign Model ............................................................................................................ 14 2.5.2 The Malign Model ............................................................................................................ 14 2.6 Host economy and FDI ........................................................................................................... 15 2.7 Indian Manufacturing Industry ............................................................................................... 15 2.8 Indian Retail Industry .............................................................................................................. 16 2.9 Previous Studies On Indian FDI ................................................................................................... 17 2-10 Different Motives of Foreign Investment ................................................................................. 18 2.11 Conceptual frame work of Research......................................................................................... 19 CHAPTER 3 ........................................................................................................................................ 20 RESEARCH METHODOLOGY .............................................................................................................. 20 3.1 Research Philosophy .............................................................................................................. 21

3.2 Research approach ................................................................................................................. 22 3.3 Research Strategy ................................................................................................................... 22 3.4 Time horizon ............................................................................................................................. 23 3.5 Research process.................................................................................................................... 23 3.6 choice of previous studies ...................................................................................................... 24 3.7 Data collection and credibility of findings ............................................................................. 25 3.8 limitations of Research ........................................................................................................... 26 CHAPTER 4 ........................................................................................................................................ 27 DATA ANALYSIS ............................................................................................................................... 27 4.1 FDI culture of India .............................................................................................................. 28 4.2 Contribution of FDI in Indian economy ............................................................................. 29 4.3 Impact of FDI in Indian Economy ................................................................................................ 31 4.4 Advantages of Portfolio Investment and Direct Investment .............................................. 32 4.5 Impact of FDI in Indian manufacturing sector ..................................................................... 35 4.6 Impact of FDI in Indian retail sector ...................................................................................... 37 CHAPTER 5 ........................................................................................................................................ 38 CONCLUSION AND RECCOMENDATIONS ................................................................................ 38 5.1 Future of FDI flow In Indian Economy......................................................................................... 38 5.2 Recommendations for FDI Flows in India ............................................................................ 40 REFERENCES ...................................................................................................................................... 41

List of Tables

Table 4.1: FDI comparitive inward figures in Asian Region Table 4.2: Share of top investing countries in FDI inflows Table 5.1 Forecast of FDI in India

List of Figures

Fig 2.1: Shares of Transition and developed countries in Global FDI flow Fig 2.2: Conceptual framework Fig 3.1: Research onion Fig 3.2: Dimensions of Qualitative Analysis Fig 3.1 Triangulation of Data Fig 4.1: FDI inflows to India 1990-2007 Fig 4.2: Trend of FDI inflows and FII in India

CHAPTER 1

INTRODUCTION

1.1 Title: A critical analysis of Foreign Direct Investment in India and its impact on manufacturing and retails sectors in Indian Economy.

1.2 Background: The world economic recovery from financial down turn seems fragile, especially in public investments and emerging risks including climate change. The private investment across the world is crucial and it stimulates certain economies to empower their resources and investors can attain better return to their investments. Manufacturers across the world are searching for economies of scale and make profit out from manufacturing sector to compete and sustain in market. Foreign Direct investment plays a crucial role in private investments and it stabilises regional and international stock markets. After a significant downturn in global economy FDI is recovering its strength in developing and developed economies. The recent challenges to organisations which are participants of cutting-edge technology, formidable knowledge and competition make importance to economies with cheaper resources and infrastructure. The external challenges to organisations being part of effort to reduce low-carbon emissions and reducing green house gas emissions made the tough situation in business investment (World Investment report 2010).

Restructuring in global FDI patterns helps to overcome global financial crisis in medium term. The increasing rate of relative weight of transition and developing economies added pace to FDI restructuring. The decline of FDI in manufacturing sector and increased push is service sector is restructured in recession. This impact leads to internationalization of production and its investments to attain economies of scale. Indias solid growth from past two decade shares world production output and helps to attain purchasing power parity with adjusted exchange rates. Increase in import and export figures for past few years shows the production growth and internal market development of Indian economy. The integration to global economy has benefited Indian growth in capital inflows and stock market stability. The global achievements in remittance, domestic demand growth, tourism and emergence of successful corporate like Tata, reliance and Infosys in multiple business sectors supports Indian economic growth. This growth provides a promising factor to investors around the globe with assurance of return to their investments. The growth in technological innovations supports economic growth and infrastructure. Availability of resources in human and

machinery aspects makes a supporting factor to these development and growth plans. The majority of Youth in Indian population is another advantage to raise economic output which can underpin Indias competitiveness in global market. The competition from other Asian countries like Japan, china and Korea makes the challenges to attain opportunities to Indian Development. The growth in service sector in the beginning of decade is restructured though recession. Manufacturing is currently highlighted in support to Indian economy and investors are mostly specific on Investing in Indian manufacturing industry. Another key area of Investment

opportunity in investment is retail industry of India. The retail industry to meet demands of huge population is a bigger challenge of corporate and foreign investors. The presence of established small scale and medium scale retailers will be a bigger threat for multi store sales and super market concepts in India. The legal regulation for direct entry to Indian retail industry make bottleneck for foreign investors to enter Indian retail market. Recently world acquisition of Indian companies over foreign companies like Corus, Jaguar, Axon in manufacturing and service sector shifts their production range to India. The entrance of wallmart, Tesco and spar to Indian retail market makes promising opportunities to foreign investors in manufacturing and retail sector. The decline of cross border mergers in primary services and manufacturing sector affects global FDI flows in past two years. The depressed stock prices and reduced value in transactions pull back investors in international organisations. This gives the way to invest in regional economies which are performing well in economic downturn. The stability of Indian banking system and liberation in entry modes helps India to overcome recession and get minor blisters in collapse of bigger banking firms like Lehman and brothers. FDI through private equity funds are raised on this occasion to make hold to FDI flows. India secured top five positions in FDI recipients and FDI outflow from India is very low comparing to inflows. The higher rate of individual disposable income compared to developed countries Strengthen Indian financial position and ability to face crisis. Indian retail industry accounts 10 percent of national GDP and eight percent of employment across the nation. The presence of vast middle class is the key attraction to global retail giants and the opportunity to invest in the region. The impact of global retail players in Indian economy is analysed in this report as part of achieving objectives of the research. The manufacturing industry constitutes 22 % of Indian GDP. The removal of quantitative restriction on imports and tariff withdraw improves Indian manufacturing sector to a competitive edge. The challenges and issues like focus on small scale unorganised manufacturing units, poor infrastructure and high cost of power builds obstacles for growth and investment in Indian manufacturing industry.

1.3 Research Objectives

Based on the Discussion in Background and my interest in finding the opportunities are market position in FDI flows to India, I specifically focussed my research objectives based on investments with manufacturing and retail industry in India. The objectives are:

1. 2.

To critically examine the impact of foreign direct investment in Indian economy. To study the investment approach of FDIs and compare with other trading options

attained through globalisation. 3. To critically analyze the importance of FDIs in Indian retail sector and identify its

pros and cons to the industry. 4. To evaluate the growth of manufacturing sector in India with support of FDI.

The four objectives mentioned are attained through feasible data collection methods with the support of literature and conceptual model. The current available data is attained from different sources to answer the objectives of the research. To support my research literature regarding FDI and Indian retail and manufacturing sectors are used to build up conceptual model.

CHAPTER 2

LITERATURE REVIEW

2.1 Introduction

In this chapter I discuss about various factors affecting like FDI, History of FDI theories of FDI and literature regarding Indian manufacturing and retails sectors. The literature focuses on achieving the objectives of research and makes a frame of conceptual model to collect data in data analysis chapter. Appropriate methods were used in methodology chapter to attain the data required to reach objectives. The interest of investors to attain better earnings to their investments and motives to become part of successful organisations are exploited though the frames work of FDI. The participation of investment organisations to individual investors are resembled in literature to analyse the motive of FDI and the factors affecting the flow of investment and their withdrawal. The macro-environmental factors and organisation policies are specific on investing. Here specification to any organisation is not at all used. Instead of that specification of two industries and their inflow in financial terms through FDI is concerned to attain research objectives. 2.2 Defining FDI

Hood and Young(2009) states FDI as organisational activity for adding values to control ownership and operations of organisations in various industries of interest. Different definitions are raised by multiple authors for FDI, where the investors range from individual to corporate level. The individual investors concentrate on portfolio investment through brokerage agencies and stock markets. Corporate investors try to gain control of organisation through huge investment. Stephen( 1998) states that FDI act as a tool for Corporate to gain capital managerial entrepreneurial and technological skills of a organisation or market under foreign production. Imad(2002) argues that FDI enacts as a method for individuals and organisations in one region of world to become stake holders of companies operating in different parts of world. The purpose of this method is to control distributions, production and core activities of participating firm. The classic definition of FDI is defined as a company from one country is making physical investment to another organisation in different country. The direct investments in equipments, machinery and buildings are used in addition to indirect methods like portfolio investment.

According to International monetary fund (IMF) and Organisation for economic corporation and development(OECD), FDI is a direct investment for obtaining a long lasting interest by resident entity of one country or economy in an organisation that is based on another country. Jonathan et al(2006)states that FDI equals retained earnings through direct investors plus shares of direct investors plus net increase in long term and short term loans minus overseas enterprise borrowing of money. The long lasting interest shows the existence of relationship between direct investment and investor and their degree of influence in managerial operation of latter organisation. The above definitions build a basic idea of FDI which commonly states that the investment from region of world to another region through organisations. With the aim of attaining market benefits and value to money FDI is highly used by all nations. 2.3 Historical Evolution of FDI

Financial flow and investments across different nations were started from nineteenth century as part of colonial power by British Empire. To make smooth colonial operations in transporting and developing goods British Empire invest in their colonies in a wide range. The colonial activities form other European countries also initials foreign investment to different colonies. British consumer goods and industrial sector involved in FDI The world war disrupts the flow of money to colonies and they starts investing in technology and resources to support the war. The dominancy of United States in technological and financial areas as a after math of world wars brings a new face FDI flow. Emergence of US as superpower made that regions as most FDI inflow and outflow processing nation. Teeple(2000) states that increase in international integration of economies, globalisation and FDI builds changes in global economy after second world war. The need of better transportation and infrastructure in developed countries and developing countries makes a initiation to FDI flows. On 1980 major developed countries adopt FDI policies where major participants are US and Japan the lowers saving rate and disposable income of US individual make contribution to society and economy; this makes a major attraction for investors in this region. From 1980s boom through economic growth and merger and acquisitions boom led to a rise in FDI. Aizenman (2002) argues that developing economies and organisation make more out of this concern and which lead to increased revenue for multinational corporate. From the beginning of 90s FDI is mostly a factor discussed in multinational organisations and stock exchange.

Fig 2.1: Shares of Transition and developed countries in Global FDI flow (percent) (Source:UNCTAD 2010) The participation of transition ad developing economies in global FDI flow is represented here. The growth of FDI for developing countries from 2000 to 2004 makes remarkable changes in these economies; currently it is high all time high reaching 50 % of global FDI. The dependency of investments on price of petroleum and gold affect the flow of FDI. The decline of FDI from 2004 to 2008 shows the higher price of petroleum and outflow is increased to attain economies of scale. The lack of return on investment and concise reinvestment schemes of corporate take away interest of investors from foreign investment. This affects FDI flow to developing economies, even though ultra booming countries like brazil, china, India and Mexico attain benefits through portfolio investment and bank lending. The increase in technological innovations makes significant progress in Globalisation and FDI flow . technological advance helps rapid improvement in communication and

infrastructure of developing countries. The growth in transportation and communication and ease of avoiding production interest rate makes a focus in FDI flow. The increase of Mergers and acquisitions(M&A) lead to growth of FDI form 80s to 2000. The sharp fall of mergers from 2000 affects FDI flow. The similarity in fund flow for FDI and M&A is significantly supports financial flow through different economies through organisations. Economies with larger M&A operations acquire higher FDI inflows and M&A acts as tool to advance technologically and to compete with challenging issues in market.

2.4 Theories of Foreign Direct Investment

In 1960 FDI considered as flow of investment through economies. Later on it changes to transfer of technology, capital along with managerial and organisation skills. The transfer of resources form organisations or between participant parties become the later focus of FDI. The theoretical version of FDI until 1960 based on neoclassical theory of capital movements, elaborating that movement of capital from lower return on investment economies to higher return on investment economies. 2.4.1 Hymers theory

Hennart(1994) states that international difference in interest rates are the motivation factors of FDI. Hymer(1960) finds direct and portfolio investment are similar where direct investments are carried out by manufacturing firms and financial organisations participate in portfolio investment. Hymer added his findings on reason to invest in single nation rather than spreading the risk to multiple nation investment. He added that FDI is a tool where investors have the control over production activities of foreign organisation. Hymers theory of FDI looks up on barriers on economic entrance and it may depend on legal system, economy and government of that nation. This may act as a barrier for international production. 2.4.2 Caves Theory

Caves (1971) added certain factors to hymers theory. Caves distinguished between Vertical FDI and horizontal FDI. The entrance of same product stream in different region is horizontal FDI where entering to different stage of production or product line at another region shows vertical FDI. Intention of Horizontal FDI due to unique assets of foreign companies and it may depend on two characteristics as well. The first feature is the ownership of asset will be a public good within the firm and the second one states the profit made through the asset in host country must be depend upon production in that region. Vertical FDI is mostly focussed on range of profit attained from foreign markets. The dependency to long term prices and investments is huge which ensure that market structure is characterised by limited suppliers. 2.4.3 Internalisation theory This theory is based on the Caoses theory of the firm (1937) which examines the transaction cost in organisation formation. The cost of internalisation and cost of market

price and negotiation to enforce contracts is high. Internalisation process is develops to explain organisations internal production and FDI. Training, research, development and other major operation of organisations are liked financial market. When the market for intermediately products is imperfect then the incentives arises for the firm to internalise the provided benefits which exceeds the cost. Another intermediate product in FDI is knowledge; it may lead to internalisation and internationalisation. The delay in developing knowledge through research and development is highly affected in financial terms. The internalisation if knowledge leads to bilateral concentration of power and to uncertain outcomes. 2.5 Models in FDI The emphasis of FDI in a selected region may lead to development and growth in the recipient economy. On other side foreign investors may bring a domestic setting in the recipient country or distortion impact on the countrys economy which may lead to market imperfections. The models of FDI discuss the Concept and effect of FDI (Moran 1998)

2.5.1 The Benign Model The model describes the FDI role to breakout the vicious cycle of restricting underdevelopment. The factors lead to underdevelopment covers lower productivity, lower remuneration which cause lower savings and lower investment. These factors may cause poverty in unfavourable conditions economic and political conditions. Gillis et al.(1996) states that FDI can break this factors of underdevelopment by contributing more effective marketing, technology and management for better productivity, Increased productivity help to improves the remuneration and saving level of the population. Advantage in national income depends on capital and elasticity of demand to attain capital. FDI improves efficiency and productivity of host country, additional investment along with social and economic interaction produce completion in market with less return to capital. Completion leads to demand of skilled labour and there by equalising the income distribution, education level and healthcare for the society. This model makes advantage to the host countrys economy together with improved life circumstances in the region. 2.5.2 The Malign Model The model links operations of multinational corporations in interested regions for better return and reinvestment. The FDI may cause to social intervention, increased pollution, Thwart passage of law, Minimum wage requirements. Cardoso and Dornbusch (1989) states

FDI provides multinational companies can compete with the domestic players in imperfect completions and drive domestic producers out of the market . These may lead for importing good under the label of multinational companies. The decreased job offers may increase the demand of skills to get employed and lower remuneration. The strength of technology and management from multinational organisations make oligopoly in market and few international players in region. The reinvestment from multinational companies to related industries ruins the small scale producers and they loose the market power. On this situation purchasing power of the regional customers will fall down to selected options and they were forced to use the limited availability in market.

2.6 Host economy and FDI

Multinational enterprises are more capital intensive in economies where skilled labour and productivity is high. The benefits of FDI is not only direct investment and attraction to economy, there may be indigenous spill overs. This can act in two ways: market access spill over and productivity. The market access spill over happens when local firm in economy get exact knowledge about distribution network and host markets of Multinational Enterprise. Productivity spill over happen when Multinational enterprise increases the productivity of domestic firms. Markusen and Venables (1999) analyze the effect of foreign firms on the development of domestic firms in the industrial sector. In their model, foreign companies compete with domestic producers while creating additional demand for domestically produced intermediate goods through linkages with local suppliers. This can lead to domestic firms entering into the intermediate goods sector, which can result in lower costs that, reflected in lower final prices that increase demand, can benefit domestic firms producing final goods. The host economy can improve imports and reduce exports through the promotion of FDI. This may affect exporting regional goods to foreign markets. The FDI can help in short term to make infrastructure and development plans for the host economy.

2.7 Indian Manufacturing Industry To attract FDI oriented invest which can be translated to gains in development , India find the best effective ways through the choice of target industries which are performing best in export activities . Multinational corporate works on these industries to invest more through FDI. The globalised world gives more opportunity to people associated with business sector.

The competition in quality of export goods and achieving market share in foreign markets give impulse to manufacturing industry of India. The availability of expertise and infrastructure at cheaper cost helps Indians to make out more from foreign investments. Access to FDI benefits manufacturing industry especially to established brands and their distribution networks. FDI can support manufacturing industry by training, technology, intermediate inputs and capital goods to develop the comparative advantages of Indian economy. Manufacturing sector is the key industry for foreign investors in any economy. The foreign affiliates exploit themselves to be leaders in marketing and export oriented manufacturing. The linkage between the distribution channel and marketing is highly crucial in this context. The role of FDI in manufacturing sector may be direct or indirect. When exporting foreign affiliates make a deal or backstage link with local firms it lead to direct investment. The indirect investment rises when the local firms copy the operations of foreign firms in local economy and benefiting in manufacturing, infrastructure and business operations in demand to foreign companies. The relationship between FDI and exports are complements and substitutes. The substitutive relationship states the assumption of international trade between factor endowments and factor prices which are specifically meant for homogenous products. These differences become smaller when the globalisation context came into practise the import tax reduction reduces exports as well which encourage FDI.

.
2.8 Indian Retail Industry The key sector of focus for FDI is Indian retail industry. The availability of huge population and meeting the demands of them is at the attraction for foreign investors in this industry. The retailing provides interface between customer and the produces which is for personal consumption. The institutional buyers also use retailing industry but majority purchase from intermediates in marketing chain. A retailer stocks produces goods and sell the product for individual consumer to make a marginal profit. The retailing links the customer with the products and marketing chain. The Indian retail industry is in a booming stage of development. Reports from AT Kearney, the well-known international management consultancy states that Indian is the second most attractive retail market in world market. Indian retail industry provides the contribution of 14 % of national GDP and providing employment to 7% of national work force.

Indian retail industry is categorised as organised and unorganised business sectors. The organised sector refers to trade undertaken by licensed retailers which they submit, at tax

returns and benefits to employees. The supermarkets and hypermarkets along with large stores under private ownership will come under this sector. Unorganised retailing, on the other hand, refers to the traditional formats of low-cost retailing, for example, the local kirana shops, owner manned general stores, paan/beedi shops, convenience stores, hand cart and pavement vendors, etc.

Super stores and hyper markets are operating in major cities only where they fail to sustain in regional markets with competition with unorganised retailers. The retailers in organiaed industry are finding difficulty to attain breakeven in financial figures. The huge expense of labour and operational expense is failed to meet through profit. This makes a negative impact on FDI in Indian industry. Meanwhile superstores are highly successful in major cities and regional towns. The cost effectiveness in still not attained by superstores competing with unorganised retailers. The new wave of mass purchasing in higher rates and selling in cheaper rates to attract customers will help super stores to gain market share. Their strategy focus on changing the market situation by grabbing market interest and share. The fear stays that when they gain market share they will buy for less and sell for more. Unorganised retailers are advantage for middle class segments in Indian economy. The new wave attracts Foreign investors and organisations like Wall-Mart and Tesco to enter Indian market

through collaborative alliances. Existing super store chains like big bazaar and Total is hardly making profits out of their business operations. On this context we evaluate the effectiveness of FDI in Indian market.

2.9 Previous Studies On Indian FDI

Several recent studies are identified in Indian FDI industry. Certain key reports are considered in reference to my report. Private Foreign investment in India (Suma and Sandeep 1990), FDI in Indias retail sector More bad than good?(Mohan et al: 2010), A critical analysis of Foreign Direct investment in India ( Kulwinder 2005) is referred in addition to Indian governments manual on foreign direct investment policy and procedures. The support of UNCAD report 2010 gives a direction to make out the research. The flow of international FDI and the importance of Indian economy is realised through that report. The guidance field and policies of Indian government On FDI makes a clear picture of restrictions and procedures to make a FDI in India. The advantage of portfolio investment rather than investing directly to a particular organisation is identifies to these reports. Previous studies are referred to gain knowledge and link with conceptual model.

2-10 Different Motives of Foreign Investment

Different types of FDI motives are used by investors to invest in a booming economy in search of economies of scale. Chryssochoidis, Millar & Clegg(1997) states that five different types of foreign direct investment (FDI) are used by foreign investors to enter a foreign market. The glossary of types of investment are investing in factors of production, search of low cost labour, mutual investment in cross-share holding, reaching foreign customers and diversion in regional integration. The first motive is to take access of factors in production technology, patents, brands and even ownership of a company on host economy. When these factors are not at all fruitful to gain return on investment the foreign investors will invest locally or search another economies for benefits. The globalisation makes a trend of technical dominancy for organisation and cost-effectiveness in production. The second motive is stated by Raymond Vernon that FDI is part of product life cycle. When company seeks cheaper modes of production in resources and labour FDI will enact in Organisation. The support from government of host country wills exploits this strategy of development. The subsidies and tax deduction to promote this strategy may focus foreign investors to invest in that organisation. The joint venture operations are feasible in this motive to attain collaborative efforts to integrate technical expertise and economic advantage. Though FDI can utilise through collaboration with local manufacturers, Major motive is to gain benefit through alliance. The third motive focus on sustaining in global competition through cross-share holdings and joint venture. The investment in R&D is focus of FDI in certain economies, especially in India. The availability of skilled employees and expertise can be used for research to

develop new technologies, which can be taken to cheaper economies for production. The mutual investment of organisations in each other shares is also part FDI where they promote production and sub-product specialisation. Through this move of FDI organisations support each other on specific products. The fourth motive of FDI is to reach foreign customers in host country. The export of good from one economy to another for the reach of customer is not feasible for major products. To reach customers through products manufacturing in host country may be essential, the changes in design specification and tactical moves can be obtained easily though regional manufacturing than exporting. This factor leads to develop manufacturing units and market chain in host country. FDI plays a vital role through this motive in most economies. The last and fifth motive of FDI is regional integration from diversionary aspect. The location advantage is key in this motive. The barriers and over expense due to taxes, tarrifs in home

country may lead to decision of shifting manufacturing to different economy. This makes multinational organisations to local companies to shift their production operations to better economies with limited tax and operational expenses. The trade barriers can be over come through this decision along with gaining a new market presence in new economy.

2.11 Conceptual frame work of Research

Based on the knowledge acquired from the literature and on the way to pursuing the objectives I derived a conceptual framework for collecting information in Data analysis chapter under this frame. The methods used to collect information are mentioned in the research methodology chapter. The models states different sources of FDI summing up investments on all segments of National industries. The choice of manufacturing and retail industry makes direct investment i manufacturing and port folio investment on retail due to restriction for direct investment in retail industry. The domestic investment and FDI contribute to national savings. Based on this frame work I analysed data with support to previous studies in foreign investment in India.

National savings

Domestic Investment

Manufacturing Industry

Retail Industry Overall Market segments

Foreign Investment Direct Investment Portfolio Investment

Fig 2.2: Conceptual framework (Source: based on authors analysis)

CHAPTER 3 RESEARCH METHODOLOGY

In this chapter I discuss about methods and practices followed in my Research to find out objectives of research mentioned in Chapter 1. Different research practices are used to find out datas relating to research topic. The constraint of time delimited my efforts to wide data collection strategies. Primary data collection is not feasible for my economic condition alond with the time constraint. The secondary data collection is used for the purpose using different secondary data collection methods. The research onion process five layers in developing research methods. These layers are mentioned in the figure given below.

Fig 3.1: Research onion (Source: Saunders: 1993)

3.1 Research Philosophy

The way of thinking about knowledge development about research is dependent with the choice of research philosophy. Researchers thinking way for finding the data based on objectives are specified through research philosophy. Different views of research philosophy are realism, interpretivist, and positivism(Saunders, Lewis and Thornhill, 2003:95-97). Epistemological philosophical Approach gives more concern about acceptable knowledge and resources for applying in research. Positivist philosophy refers to be useful to natural scientists on observing natural things and making a law or theory at the end of research. Researcher acts as a objective analyst in this sort of philosophy (Bryman and Bell, 2003:25).To avoid replication and for using statistical analysis a certain emphasis is used in this philosophy. Realism philosophy is specifically based on existing reality which is independent of beliefs and thoughts of a human. The realism philosophy relates to positivism in certain aspects. Interpretivist philosophy is similar to positivism where the researcher sympathise on positivism arguments with rich insights into complex world for reduced complexity. On other side, when the researcher posses strongest argument rather than sympathising the positivism, then it is constructionism

philosophy. Axiological philosophy deals with ethical and aesthetic considerations of research. Ontological philosophy makes use of finding realistic issues in research topic. In my research I follow Interpretivist philosophy to analyse the FDI impacts in manufacturing and retail industry of India. I used realism philosophy which supported me to accept certain realistic factors associated with research findings.

3.2 Research approach

The support of theory or literature and depth of knowledge about theory is states in research approach. Two kinds of research approaches are generally used by researchers which are inductive and deductive approaches. Deductive approach focuses on developing a hypothesis based on researchers knowledge and the research is meant for testing or proving the hypothesis to realistic context. Inductive approach focus on collecting data and knowledge to make theory or hypothesis. In inductive approach the purpose of research is to make a theory through data analysis. While linking this approach with philosophy of research inductive approach refers to interpretivist and deductive approach refers positive philosophy. In deductive approach developing a hypothesis by researchers knowledge or relating two paradigms for the purpose and testing the hypothesis through research operations. Through examinations and analysis modifications of theory is applied at the end of research. Inductive approach is less structured and allows more flexibility for alternative explanations than rigd approach of deductive method (Collis and Hussey, 2003:15). Inductive approach is used in this research to find independent variables Under FDI context. These variables are evaluated as reasons for FDI flow to certain economy. This approach helps me to use previous studies based on deductive approach.

3.3 Research Strategy

While choosing a research strategy I found difficulty of choice a particular strategy for my research purpose. Consideration of time, financial and academic ability of mine, I preferred a better strategy for my Research. Research strategies are highly prone to research strategy, which are dependent with inductive and deductive approach. The different research strategies are survey, experiment, grounded theory, case study, ethnography, action research, exploratory, descriptive, explanatory studies including cross sectional and longitudinal studies(Saunders, Lewis and Thornhill, 2003:85-98).

In my research I chose case study strategy for developing the research Knowledge to make out analysis of research. Case study strategy follows strategy for doing research with a particular phenomenon with in real life context with usage of multiple evidence form different sources. In this research I used different sources to investigate the channels of FDI to Indian economy and i confirm it through validation of data by matching it with differtn sources. Case study usage as strategy helps to answer various What why and how in research context (Yin, 1994). This strategy supports data collection through documentary analysis, observing the context , conducting interviews and through questionnaires. I un scientific feel of case study strategy is avoided through knowledge on theory and interpreting previous studies on the topic.

3.4 Time horizon

Conducting my research as part of academic study delimits my research time span to short term of 75 days. These days restricts me to acquire knowledge about my research topic and framing the research to reach the objectives. The search f choosing a methodology pulls me back and get confirmed with case study strategy. The feasibility study of myself to arrange interviews under this time frame limits me to case study strategy. The time horizon specifies on snapshot or dairy model of outcome for research. Snapshot refers to cross sectional study and dairy refers to longitudinal study of research topic. Cross sectional studies always follow survey strategy (Easterby-Smith et

al.,2002;Robson,2002) and its specifies on a certain study at certain time span. Qualitative methods are used in this sort of studies. Longitudinal studies posses the capacity to study about development and change. Scvaneveldt and Adams (1991) states that research is able to exercise a measure of control over different studies through observing people. Longitudinal studies flows the saying has there been any change over a period of time?(Bouma and Atkinson, 1995:114 cited in Saunders et.al:2003). In this research I follows cross-sectional study method to find objectives of research

3.5 Research process

The processing of research dependent data is specified in this part of research methodology. Tow type of research process are generally used to obtain the research data. They are qualitative and quantitative approaches of data finding. Measurement of research data through analysis and interpretation is done in quantitative data analysis. To reach a conclusion suitable to objectives and aim of research qualitative process is used by researchers using qualitative methods of data analysis. Qualitative process refers to interpretivist and quantitative process refers to deductive approach of research. (Bryman and Bell, 2003:25).

Less structured

More Structured

Interpretivist

Procedural

Inductive

Deductive

Fig 3.2: Dimensions of Qualitative Analysis(Saunders et.al:2003) Quantitative process used to deliver statistical, standardised output which refers numerical methods to reach a conclusion. Quantitative process use no-standardised data using conceptualisation and classification. Reliability and validity of research objects are key factors of making the choice of qualitative and quantitative research process. In my research i use qualitative process of study taking account of conceptualisation and classification of data according to research objectives. This helps me to process non-standardised data regarding FDI from different sources. Cochran and Dolan (1984) related difference between qualitative and quantitative research to distinction between exploratory (qualitative) and confirmatory (quantitative) analysis.

3.6 choice of previous studies

With support of concerned literature and knowledge relating to objectives of research I choose different previous studies to support my research. Different cases are used in this research to evident my findings and data for the purpose. Private Foreign investment in India (Suma and Sandeep 1990),FDI in Indias retail sector More bad than good?(Mohan et al: 2010), A critical analysis of Foreign Direct investment in India ( Kulwinder 2005) is referred in addition to Indian governments manual on foreign direct investment policy and procedures. These previous studies on FDI in India and specific studies on retail sector investment in India supports my research process to find data and compare and validate it with their interpretations. The analysis of these previous studies provides the knowledge and gateway of finding facts and functionalities of FDI in Indian economy. To full fill my research aim as a student of Coventry University, I like to explore the resources available for me in the library and through concerned resources. The choice of different case study is upporte4d by Yin(2009) that prediction of results through findings is a literal replication process. He added that through

contrasting results with anticipatable reasons prediction can be stated through replication. Choice of multiple case studies will come under literal replication. .

3.7 Data collection and credibility of findings

Research datas are supported by primary and secondary data collection methods. Primary data collection methods includes conducting interviews, makings surveys wi with help of questionnaires. Secondary case study uses resources from different sources like textbooks, journals, articles, video and audio recordings, informal conversations and websites along with previous study reports relating to research topic. The choice of case study strategy and time span forced me to stick on secondary data collection methods. While conducting the feasibility to do interview with authorities of FDI India, my efforts didnt reach a hit to obtain it. The questionnaire process is too wide under the time span which questioners should be filled by foreign investors or stake holders of FDI in India. Due to above reasons I choose Secondary data collection methods through different resources from Lanchester library and internet sources. An informal telephonic conversation with certain official in India makes valid knowledge and information for my research. The literature about FDI and Indian retail industry is obtained thorough historical data and text, books. Methodology chapter is derived through evaluating different research patterns and by text books relating to research framing. Previous studies in research area support me to initiate data analysis and interpretation. Based on my studies I derive a conclusion and found the area of improvement needed. this states in recommendation of report.

When using multiple data sources validation of data is critical .Yin (2009) discusses usage of data triangulation while using multiple data sources. Certain problems will be considered when data triangulation is used, issues like validation of collected data due to the conflict in different methods and phenomenon of collection. Documentation

Findings & Facts

Archive methods

Information Discussions

Figure 3.3 Triangulation of Data (Source: Based on Authors analysis) The credibility of research findings are obtained through reliability, Generalisability and validity of data. Different threats affecting the data are participant error and observer error. The participant bisas and observer bias are dependent to questionnaire interpretation and response (Saunders et.al 2003). Avoidance of ambiguity with relevant maturity in findings develops morality in entire research report. Another threats affecting the research report is testing, history and instrumentation which may be too much dependent to nature of researcher.

3.8 limitations of Research

The limitation of the research is mostly pointing to time span and delimiting to secondary sources, the unawareness of handling a research process in limited time span make a fear a the initial stage. Later on by acquiring knowledge about research topic and how to do the research, I gained confidence to tackle objectives. The major limitations I feel while doing the research is the absence of real data which are currently in Indian economy. The lack of computerised informations through websites about Indian FDI force me to chose datas of previous years as reference to the context. The lack of experience and too much dependent to secondary data is another limitation of this research.

CHAPTER 4

DATA ANALYSIS

As a largest democratic country in world, India shows consistent growth in business and investment sectors. Attracting foreign investors to India through higher levels of confidence and ensuring better benefits to investors from region. Indian positioned itself s 4 th nation with higher purchasing power parity and in top list of industrialised nations. The flow of private foreign funds and direct investment from foreigners nourish Indian economy to add fuel to developing business sectors. The banking interest rate and average return on investments makes better decisions to investors in choosing their sectors. Advisory and monitoring agencies are promoting investors interest to the region. Competition with Chinese economy to make advantage of investments builds a firm strategy for Indian economists. Indian manufacturing and retail industry is highly attracted by foreign investors. The presence of one billion populations and the importance of these business sectors are explored in world economy. Here i state my analysis of FDI India based on my objectives. 4.1 FDI culture of India The economic condition of India is highly dependent with national economists. With the experience and knowledge of Dr. Manmohan singh , prime minister of India , nation attain a firm growth through political and economic stability across the nation. This reflects each sectors of business to attract foreign investors to India. Through identifying the economic reforms in India FDI is promoted by plethora of boards, agencies and committees at different business situations and time. The satisfaction and confidence provided by Indian economy and policy makers develop a substantial growth in FDI industry of nation. This flow nourishes the growth of independent business sectors in national level. The source of Indian FDI flow is mainly through two ways: allowance of 100% FDI through automatic route in business sectors giving exception to small organisations, where foreign investors need approval from government. With the concern of Reserve bank of India, foreign investors have to notify regional FDI office prior to 30 days of inward remittance. All proposals of foreign investors are processes by foreign investment promotion board (FIPB). FIPB also makes collaborative actions to make technical collaboration and alliances for product development or infrastructure development with the aid of foreign agencies or organisations. Different bodies managing FDI in the region include FIPB, Foreign investment promotion council (FIPC).Foreign investment Implementation authority (FIIA) and investment commission for verifying the monitory usage of foreign funds in the economy.

Fig 4.1: FDI inflows to India 1990-2007 (US $ Millions)(Source: Reserve bank of India) To make assure with the satisfaction of foreign investors for their investment in region and to ensure the return on their investment organisation are working under the mentioned boards with specific management of funds, those include Project approval board(PBB) to technical projects investment, Licensing committee(LC) to cross check the rules for providing licence to foreign investors and fast track committees are working on district and state levels. Indian Investment centre (IIC) promotes the joint ventures and technical collaborations with foreign organisation to develop new trends and innovative products through Indian industrial sector. The receiving of FDI policy is done as ongoing process base d on time and changes in world economy. The liberalization of the rules is taken for national interest investments from foreign investors. 4.2 Contribution of FDI in Indian economy

The inward flow of FDI either under Government route or the Automatic route is essential to report through advance reporting form. The details of the receipt of the amount of consideration for issue of equity instrument shares are fully and mandatorily convertible debentures and mandatorily convertible preference shares through an AD Category I Bank, together with copies of the FIRC evidencing the receipt of inward remittances along with the Know Your Customer (KYC) report on the non-resident investors from the overseas bank remitting the amount, to the Regional Office concerned of the Reserve Bank of India within 30 days from the date of receipt of inward remittances.

Foreign direct investment inflows affect growth of economy through increased investment and technological advancing. Macroeconomic identity is used to explain FDI and domestic investment. Investment total of a period is calculated with a formula: Investment=domestic savings +foreign savings Her the foreign savings represent investment from foreign investors to Indian economy, which plays major role in national investment. the coincidence with reduction in debt inflows is accompanied by fall of deomestic savings where foreign savings aer calculates as : Foreign savings=imports-exports When foreign savings play major role in FDI it affects the Indian economy to import more goods with a fall on exports, thus it makes the dark side of FDI. But for short run FDI will help to develop the infrastructure and establishments of industrial operations. Referring to table china reduces FDI inflows from previous years to promote exporting rather than importing.

Table 4.1: FDI comparitive inward figures in Asian Region( Source:EIU 2007)

FDI can gradually increase the domestic investment in India which in turn helps for possible faster growth. The increased profitability rate in domestic markets blunt export incentive for local and foreign firms. The nature of high-cost economy affects Indian export market is not a hotspot of multinational organisations. The motivation of FDI to jump barriers of investing in India is supported by aided organisations. The rent seeking nature of FDI shows the future crisis in operational funds. Especially in IT sector, advantage in Exchange rates and low cost expertise forces European countries and US make use of Export form India. The industrial concentration and foreign presence is related across industrial sectors. Industrial policy and control of production capacities are affecting FDI flow in Indian manufacturing sector. The critical factor against FDI in Indian retailing system is the existence of traditional retail sector. The elimination of job opportunities in traditional retail sector may develop path for FDI in retail industry. The fear of Indian population with strategic move of foreign superstores like

Tesco and wall mart to make their chain of networks affects FDI flow in retail sector. The contribution of FDI to Indian economy is high for last two decades. Spill overs to local firms for productivity could be either positive or negative. Both qualitative case studies and empirical studies based on richer set of data have established the direct effect of technology transfer on domestic firms productivity, however, several other case studies have put forward varied evidence on the role of foreign investment in generating technology transfer to domestic firms

4.3 Impact of FDI in Indian Economy

The flow of private capital is witnessed in economic change of each economy. In Indian economy private capital is reaching inform of foreign direct investment makes a major impact form 1990s. The emergence of FDI as the largest source of external investment source makes a new trend in Indian economy. The scenario of Indian investment is highly interested in research and investment for multinational organisations. The reform from 1991 makes exerting pull in FDI over different production sectors of India. The growth of infrastructure, raise of average literacy, increased job opportunity is obtained is foreign investment in addition to domestic savings. By 1990 foreign direct investment has become inevitably a key component of national development strategies for almost all the countries over the Globe and FDI was considered to be an essential to for jump-starting economic growth through its bolstering of domestic capital, productivity and employment (World Investment Report [UNCTAD], 2005: Transnational Corporations and the Internationalization on R&D). The share of individual nations in Indian FDI inflow is states in the table below the cumulative flow of funds are represented in table. The multiples source of FDI supports Indian economy in various sectors of business.

Table 4.2: Share of top investing countries in FDI inflows ( Source: GOI 2009) For last two decades the reforms have generated encouraging and favourable atmosphere for foreign investors to invest on Indian economy. Indian government Use these funds for making infrastructure and for enhancement of power and telecommunication industry. The exporting is also boosted with these funds by it in turn affects export opportunity. The motive behind promoting FDI in India is that once the infrastructure is established FDI attraction can be obtain through demand-driven operations. Indian government focus on manufacturing sector to utilise FDI funds from 2000. They directly encourage manufacturing Giants like Tata, Jindal, and other major companies to seek foreign investment for short term. Sectorial liberalisation, promotional incentives, Operational conditions and liberal entry makes a favourable condition for foreign investors. Approaches taken on five year plans are focuses on these attributes aiming a firm GDP growth rate and incremental capital output ratio. The rate of domestic savings is also gains in these time. The gap of domestic savings and investment requirement is filled by foreign investment.

4.4 Advantages of Portfolio Investment and Direct Investment

The gain of increase in liquidity over domestic markets through portfolio investment helps to cover market deficiency. As market become more prone to liquidity of capital markets.

Portfolio investment can manage the short in market based on demand. Promotion of

brokerage agencies like Kodak, India bulls helps to market portfolio investment in regional investors and thereby giving a opportunity to foreign investors on the attractiveness of Indian stock market. The management of portfolio through these agencies make operations simple in port folio investment. Long term investment and short term investment are supportive through portfolio investment where investors can withdraw their investment any time without any notice to organisations. The online facility of managing portfolio investment added easiness on handling the operations without importance to place of presence. Regional investors make marginal savings through speculation in stock market. By constant monitoring of individual shares in stock market helps speculation operations to gain marginal benefits from portfolio. Through this way liquid market makes attraction to investors. The discipline and knowledge about domestic capital markets will obtain forecast of shares in short term. This makes investors to add certain shares to their portfolio for cash hunt.

Foreign portfolio investment can also bring discipline and know-how into the domestic capital markets. In a deeper, broader market, investors will have greater incentives to expend resources in researching new or emerging investment opportunities. This wider nature of portfolio investment attracts foreign and domestic investors. The completion between organisations to make financial flow to their business operations develop information flow in terms of quality and quantity. The transparency of operations and management of spillovers into various economic sectors can be determined in portfolio investment. with out prior accounting knowledge about portfolio and tactics awareness of share marketing investors can invest in portfolio investment. by monitoring the scrip values through different medias investors can gain information about their investment growth and subsidiary informations.

Foreign portfolio investment can also help to promote development of equity markets and the shareholders voice in corporate governance. As companies compete for finance the market will reward better performance, better prospects for future performance, and better corporate governance. As the markets liquidity and functionality improves, equity prices will increasingly reflect the underlying values of the firms, enhancing the more efficient allocation of capital flows. Well functioning equity markets will also facilitate takeovers, a point where portfolio and direct investment overlap. Takeovers can turn a poorly functioning firm into an efficient and more profitable firm, strengthening the firm, the financial return to its investors, and the domestic economy. Foreign portfolio investors may also help the domestic capital markets by introducing more sophisticated instruments and technology for managing portfolios. For instance, they may bring with them a facility in using futures, options, swaps and other hedging instruments to manage portfolio risk. Increased demand for these instruments would be conducive to

developing this function in domestic Markets, improving risk management opportunities for both foreign and domestic investors. In the various ways outlined above, foreign portfolio investment can help to strengthen domestic capital markets and improve their functioning. This will lead to a better allocation of capital and resources in the domestic economy, and thus a healthier economy. Open capital markets also contribute to worldwide economic development by improving the worldwide allocation of savings and resources. Open markets give foreign investors the opportunity to diversify their portfolios, improving risk management and possibly fostering a higher level of savings and investment.

Fig 4.2: Trend of FDI inflows and FII in India ( Source : GOI 2009) With its orientation to developing enterprises directly, foreign direct investment helps to strengthen economic potential. Sometimes, this is accomplished through greenfield investment, adding new and different economic activity and consequently diversifying the economy. Other times, this will be achieved through building up existing enterprises and enhancing their potential. Both of these activities will add a new and healthy element of increased competition to an economy, which is itself a powerful force for economic development. Competition is one of the ways a foreign direct investment can have a broader effect on the economy. It spurs other enterprises to increase their own efficiency and productivity. Competition plays a major role in improving the allocation of resources, boosting the economic prospects of the domestic economy and worldwide sustainable economic development. Technology transfers and the development of human capital are often seen as two of the primary benefits of foreign direct investment. Competition has a role to play in both, as it encourages domestic competitors of the foreign investment to build up

their own technological capabilities and the productivity of their labour force. They will, among other things, learn from the technology of the foreign investor and the ways in which it improves the productivity of its labour and management. The development of human capital can be one of the chief contributions of foreign direct investment. The foreign owners will bring their management skills and technology to their enterprises. In training the local workforce, they will pass on those management skills and technology. As their workers move on to other jobs in domestic firms, or start their own businesses, they will bring with them the management, working skills, and the technology that they have learned. Thus, in a very direct manner, the human capital of the host country can be developed by foreign direct investment, and the investment' technology transferred. Human capital development and technology transfer also occur through the foreign investments relationships with its suppliers and the downstream users or sellers of its products. The investment will require from its suppliers a certain standard of product, perhaps a higher standard than they are accustomed to producing. In order to meet that higher standard, they will have to improve their workers skill levels and their management system. They may also gain new technological expertise needed for the required product standard from the foreign investment. The current trend toward outsourcing and closer collaboration along the supply chain means that there will be a greater tendency to pass management, production and technology know-how to suppliers, enhancing the transfer of technology and skills. Enterprises that are downstream in the supply and sales chain will receive similar benefits, although less obviously and perhaps less frequently, both through the direct use of a higher standard product incorporating technological improvements, and through efforts by the foreign investment to maximize the value of its product.Foreign enterprises often incorporate foreign trade, either with the parent company or with customers, or both. Thus, another benefit that foreign direct investment brings is increased opportunities and avenues for trade. Trade and investment are increasingly integrated, as are their benefits. Foreign direct investment can also provide environmental and social benefits. Often, international investors will operate at higher environmental and social standards than their domestic competitors. Although they may not bring standards up to the highest level possible, they will have the effect of raising the standards above existing levels. 4.5 Impact of FDI in Indian manufacturing sector

The major problems facing in Indian manufacturing industry is the poor infrastructure and technology abundance. Apart from urban area of Indian cities infrastructure and transportation is not suit to global trends. The acute nature of labour market affects human resources for manufacturing industry. Another infrastructure issues related to manufacturing

sector is the availability or ports, airports, and storage areas for finished goods. FDI supported Indian economy and manufacturing sector for last to decades in developing new technologies and infrastructure in urban area of Indian geographical area. Quadrilateral road lines and better communication system is essential for better manufacturing plants. Apart from huge corporations involved in manufacturing, Government of India (GOI) doesnt give better support to domestic manufacturers in nourishing heir establishments and products. Regional subsidies and allowances are only shelter for these manufacturers. Small scale manufacturers make large community in manufacturing sector and they hold 62 % of Indian manufacturing industry. The power problems are another issues facing by Indian manufacturing sector. Indian cost of power is the highest in Asian economy (UNCTAD 2009). The lack of nuclear power stations is the major reason of power scarcity and higher price. With support to foreign investors Indian planned to develop 12 nuclear plants with Korean collaboration in 2012. This will boost up Indian manufacturing industry to gain cheaper cost of production. The acute infrastructure woes in Indian economy are supported with FDI for last few years to make specific products for certain organisations. These kind of activities make issues in partiality for states and regional areas. The tax relaxation in territories under India attracts foreign investors to manufacture goods from these areas. But double taxation for transporting good from these areas make a hurdle for more investment in these areas. The World Bank study on topic Doing Business in India produces a report ranking India as a rather inglorious 120 out of 178 economies. The report specifies the investigation on specifications and regulations to make manufacturing units in India. Ten factors of indicators are presented in report which FDI is supporting in Indian manufacturing sector. They: are; starting a business, dealing with licenses, employing workers, registering property, getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts and closing a business. The investment pattern in manufacturing sector is through direct and portfolio investment. Individual investors who were familiar with giant manufacturing organisation will invest on portfolio investment. They add these organisations in their favourite portfolio; the direct investment is mostly seeking by intermediate manufacturing units and small scale units. Basically for gaining technology can leadership and attaining more operational techniques from foreign organisations. Manufacturing industry in Indian is highly dependent with FDI for last two decades for another five year plan of new government of India, promotion of FDI in manufacturing will boost up more trends . the opportunity to manufacture world class machineries and automobiles Indian industries will increase the profile of manufacturing sector and financial flow.

4.6 Impact of FDI in Indian retail sector

The major issue of Indian retail sector is the wide presence of unorganised retailing. 95 % of overall retail industry is in hands of these unorganised retailers, Where 5% is only handling by organised retailers in India. The estimate on the true size of retail industry shows that 4, 00,000 crores will cover the revenue of retail industry. The corporate owned organised business constitutes only 15,000 crores in effective. Government of India finds the

opportunity in retail sector for upcoming 5 years an the sales fore cast shows 44% of the total GDP and food sales account for 63% of the total retail sales, increasing to Rs.100 billion from just Rs. 38.1 billion in 1996. Retailing opportunity in food retail trade is very large when comparing to total economic activity of India. Efficiency enhancements in food retail industry is attained though FDI in retail sector. The improvement in corporate sector and unorganised sector through implementing wholes ale distributors with the aid of FDI helps Indian authorities to get control of retail industry. The need of technology and expertise in retail sector is currently acquiring through agencies and organisation from foreign countries. Through FDI and foreign investment of superstore in foreign countries, real time technologies and operational experience can be learned to Indian retail industry. Employment activities and economic operation in rural area of India is promoted though small scale retail operations and development of opportunity in rural areas. Finding new opportunity in retail sectors and maintaining hygienic operations in retail sector is essential. The recent studies in the retail sector of India states that the magnitude of expansion in retail rates is facing economic expansion along with jobless growth. The fear of job loss in automation of busieness opearions affects the acceptance of organised stores and business units in Indian economy. The defensive approach from trade unions and interest group to protect jobs in these sectors will not promote entry of new corporate giants in retail industry. The demographic condition of Indian population is too much dependent with unorganised retailers . the public image of organised retailing is considered as a belonging part of upper class society. Indian holds a wide population living in middle class and upper middle class. Through targeting this population segment to organised retailing, authorities can make more business venture sand opportunities in Indian retail industry. For the purpose foreign

investments can be obtained with assurance of expected return to their investments in retail industry.

CHAPTER 5

CONCLUSION AND RECCOMENDATIONS

5.1 Future of FDI flow In Indian Economy

The expectancy of decline in FDI for future is the major talk for foreign investors. The rising of new highly booming economies will act as a threat for Indian economy to sustain its FDI flow. The regulatory frame work of Indias FDI plans should make transparent, somehow it may cause bureaucrats to learn it easily. Through relaxing the manufacturing sector and retail sector India can gain more FDI flows in future. The sign of growth is inevitable to Indian economy. The industry experts are identifying the sensitivity of local markets through understanding needs of populations and scope in future industry. Specific scope in manufacturing and retail sector are identifying by market analysis organisation and this should come in practice for attracting more FDI. The unique advantages of the region in retail industry are developed along with home delivery and online shopping system. FDI influence on total size of retail industry in coming years where global giants in retail industry is about to enter Indian retail market. Nourishing existing players in retail industry and promoting new investors can bring more FDI funds to India. The forecast of increase in trade on retail industry of India will make way to big malls and infrastructures in retail sector. This parallel progress of economy with support of FDI organised retailing. This in turn helps authorities to take account of retail sector from unorganised retailers. The integration of Indian manufacturing and retail sector to global supply chains and production system will improve quality standards and economic opportunities for Indian organisations. Through exploiting industry trends in terms of cost and quality FDI can be used to invest in diversified products related to manufacturing and retail industry. This can help to make new market chain and job opportunities for the population.

Support from World Bank and other supporting organisations can be exploited to gain more FDI funds in future. Promoting internal organisations who are operating on manufacturing and retail sectors like Tata and reliance can attract foreign investors. The market analysis conducting by Wal-mart and Tesco to enter Indian market is promoted to show up the opportunity in Indian retail industry. By promoting small private ownership business and supporting them to make alliances and collaborations with foreign organisation will rise Indian industry sectors to global standards. The availability of quality real estate is another attraction for foreign investors. These properties can be utilised by other industrial segments in future. Consolidation buzz word in retail sector is expected in coming years to make big impacts, the increased floor space and landscape allowance for retail and manufacturing sector will bring foreign organisations to make entire products or their parts through Indian manufacturing industry. The production standards and maintenance of pollution in region is restricted through appropriate policies. The future policies as part of Copenhagen summit to reduce carbon emission will affect manufacturing industry in a wide manner. But the initial slump facing though new policies will uplift the standards of pollution handling and carbon emissions. Small retail players like Vishaal , Reheja and Shriram groups are approaching foreign super store s like Costco, Morrisons to attain technology advantage and skills from foreign countries. This in turn make interest on these organisation to enter Indian retail industry.

Table 5.1 Forecast Of FDI in India( Source Economic intelligence unit)

Market analysts forecast the future of FDI dependency with annual budgeting and climate variations. The fair monsoon in Indian climate system alerts manufacturing sector for better infrastructure. The retail industry also needs same demand for the purpose. This may lead to huge rental opportunity in Indian economy. Through investing in developing infrastructure for supporting these industries, construction and estate industry can make advantage through FDI. India makes advantage on recession by proving the stability of banking and other industrial sectors. The sudden down fall of global economic system is not at all affected in Indian economy. As a result the establishment of strong business fundamentals of industrial sectors is proved to global economy from Indian example. Increase in profitability and validity on investing to Indian economy will give amore assurance to foreign investors on their investment. The growth of organisations in manufacturing and retail industry will make more investors to become stake holders of those organisations.

5.2 Recommendations for FDI Flows in India

Here I specify the pitfalls in Indian FDI strategies and expected future issues

as

recommendations for investment in India for foreign investors. The contribution of Mauritius is too high in form of FDI where it holds 44 % of FDI inflow. This higher level of FDI inflow from a single country affects the FDI pattern of Indian economy. Especially the avoidance of double taxation for Mauritius Organisations makes dummy companies registered in Mauritius to overcome the taxation problems. This may affect the regional economy and financial status of India.

The lack of opportunity in Greenfield projects through acquisition should be resolved. FDI can act as a tool to elaborate the manufacturing in these markets segments at rural areas. Protection of national interest should be considered as prime factor than regional or state interests in FDI. The population of India can be used to gain the FDI flow to explore the talent pool of India. The shortage of FDI in education and training affects the development of talent pool in future. Even though domestic savings can manage it well, FDI can make significant role in these area. The scope of food processing in retail industry can be

exploited with the great agricultural background of India. This can develop more FDI flows in Retail sector of India. The strength of equity market in India can be exploited to develop debt market. This affects debt funds of organisation working in India and abroad on exchange interest risk. This should be taken into consideration under next annual policy making. To develop technological competitiveness in Indian FDI should be promoted in R&D section of all industries. This move can make India as a technical dominate nation through foreign investment. the issues on intellectual property rights should be revised based on specific industry sector. The importance of manufacturing and retail sector in India is considered din policy making to encourage foreign investors to invest in region along with agriculture and resource management. The strength of Indian banking system is reflected in global crisis period, even though banks in India is supporting manufacturing and retail industry, international banks should be invited to fund manufacturing and retail operation in Indian economy. These recommendations in FDI can build up better exporting of goods and

establishment of organisations to meet customer demands in Indian economy.

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Blomstrm, M. and A. Kokko. 1998. Multinational corporations and spillovers, Journal of Economic Surveys, Vol. 12, pp. 247-277. Globerman, Steven. 1979. Foreign Direct Investment and Spillover Efficiency Benefits in Canadian Manufacturing Industries. Canadian Journal of Economics, February, 12(1), pp. 4256.
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