PROJECT REPORT ON ROLE OF BPO IN BANKING SECTOR BACHELOR OF COMMERCE BANKING & INSURANCE SEMESTER V SUBMITTED TO, UNIVERSITY

Y OF MUMBAI

In partial fulfillment of the requirements for the award of Degree of bachelor of commerce e banking & insurance

PREPARED BY KANCHAN RAMESH VALECHA ROLL NO. 43 UNDER GUIDANCE OF PROF. JAYA GEMNANI

SMT. CHANDIBAI HIMATHMAL MANSUKHANI

COLLEGE, ULHASNAGAR - 421003

DECLARATION

I KANCHAN VALECHA at SMT. C.H.M. COLLEGE, T.Y. B.COM. Banking & insurance (Semester-v) hereby declare that i have completed the project on ROLE OF BPO IN BANKING SECTOR academic year 2011-2012.

The information submitted is true and original to the test at my knowledge.

SIGNATURE OF THE STUDENT (KANCHAN VALECHA) ROLL NO.43.

SMT. CHANDIBAI HIMATHMAL MANSUKHANI COLLEGE, ULHASNAGAR- 421003

CERTIFICATE

This is to certify that student MISS. KANCHAN VALECHA have submitted the report for the project titled ROLE OF BPO IN BANKING SECTOR in the partial fulfillment of degree of bachelor of commerce banking & insurance semester-v in the academic year 2011-2012 under the guidance of prof. Jaya Gemnani

COURSE H.O.D PROF. KAJAL BHOJWANI.

PRINCIPAL BHAVNA MOTWANI.

PROJECT GUIDE PROF. JAYA GEMNANI. INTERNAL EXAMINER.

EXTERNAL EXAMINER.

ACKNOWLEDGMENT. It is my pleasure to be indebted to various people, who directly or indirectly contributed in the development of this project and who influenced my thinking, behavior and acts during the course of study.

I express my sincere gratitude to the UNIVERSITY OF MUMBAI and my college for giving me this opportunity for taking this project, which has enhanced my knowledge about ROLE OF BPO IN BANKING SECTOR.

It is with my deep gratitude, I would like to thank PROF. JAYA GEMNANI, under the guidance of whom I was able to complete my project successfully. I wish to thank her for all useful discussions and timely suggestions of the related topic and invaluable help during preceding the project.

I also extend my sincere appreciation to all the people who helped me to complete this project by their suggestions and valuable information.

SIGNATURE OF STUDENT KANCHAN VALECHA.

CHAPTER-1

INTRODUCTION:
Foreign direct investment (FDI) plays an extraordinary and growing role in global business. It can provide a firm with new markets and marketing channels, cheaper production facilities, access to new technology, products, skills and financing. For a host country or the foreign firm which receives the investment, it can provide a source of new technologies, capital, processes, products, organizational technologies and management skills, and as such can provide a strong impetus to economic development. As such, it may take many forms, such as a direct acquisition of a foreign firm, construction of a facility, or investment in a joint venture or strategic alliance with a local firm with attendant input of technology, licensing of intellectual property, in the past decade, FDI has come to play a major role in the internationalization of business. Reacting to changes in technology, growing liberalization of the national regulatory framework governing investment in enterprises, and changes in capital markets profound changes have occurred in the size, scope and methods of FDI.

DEFINITION:Foreign direct investment (FDI) is defined as an investment involving a long-term relationship and reflecting a lasting interest and control by a resident entity in one economy other than that of the foreign direct investor (FDI enterprise or affiliate enterprise or foreign affiliate).

NEED OF FOREIGN DIRECT INVESTMANT:

The need for larger FDI is because India is at a stage whrere it needs US investments, technology, and management policies to sustain and enhance its economic growth. In 2006, Foreign Direct Investment (FDI) in India amounted to US$37 billion, out of which only $5 billion was from the US. This was not a very encouraging figure in view of the goal of increasing the GDP by 34-36%. Therefore, there is a need for larger FDIs. India still requires an FDI component equal to 4% of the GDP. The US needs to invest more in various sectors of the Indian economy. There is a potential to attract more FDIs in areas like infrastructure, IT hardware, automobiles, leather, textiles, gems, jewelry, and the financial sector. As such, India is rated as the 2nd best economy to invest in, after China. Surprisingly, the US is rated 3rd in this domain! Focus is on the insurance and banking sector, in context with Foreign Direct Investments. Only 10% of the insurance sector has been tapped for foreign investment. Foreign companies need to persuade the parliament for increasing Foreign Direct Investment capital. The banking sector is in the process of liberalization which will continue till 2009. The insurance sector is looking forward to increase in the capital as more and more FDIs happen. So the insurance sector is also planning on liberalization, taking a cue from the banking sector. The need for larger FDI calls for major issues and areas to be taken into consideration, such as:

Market potential and accessibility Political stability Market infrastructure

Easy currency conversion

India is the ideal country to make Foreign Direct investments in because of its features like :

Developing economy Low salaried employees Low wage workers Abundant human resources Big private economy

India is looking forward to a high growth rate of almost 16% double that of the current 8%. Hence, there is a distinct need for larger FDI. Further, FDI prospects are expected to be bright if liberalization is initiated in the telecom sector as well. Already, brands like Hutchison, Vodafone, and SingTel are in the Indian market and thanks to these investors, the FDI capital in this sector has been raised to 74%. There are others necessities which a larger FDI will cater to viz., employment generation, income generation, technology transfer, and economic stability. Hence, the need for larger FDI is a pressing situation these days in India. Foreign countries are well aware of this, and many of them are taking extra initiative to invest in the Indian economy.

IMPORTANCE INVESTMENT:

OF

FOREIGN

DIRECT

Foreign direct investment (FDI) or foreign investment refers to the net inflows of investment to acquire a lasting management interest (10

percent or more of voting stock) in an enterprise operating in an

economy other than that of the investor.[1]. It is the sum of equity capital, reinvestment of earnings, other long-term capital, and short-term capital as shown in the balance of payments. It usually involves participation in management, joint-venture, transfer of

technology and expertise. There are two types of FDI: inward foreign direct investment and outward foreign direct investment, resulting in a net FDI inflow (positive or negative) and "stock of foreign direct investment", which is the cumulative number for a given period. Direct investment excludes investment through purchase of shares.

CHAPTER-2

HISTORY

OF

FOREIGN

DIRECT

INVESTMENT IN INDIA:
FDI is a measure of foreign

ownership of productive assets, such as factories, mines and land. Increasing foreign investment can be used as one measure of growing economic

globalization. The figure below shows net inflows of foreign direct investment in the United States. The largest flows of foreign investment occur between the industrialized countries (North America, Western Europe and Japan). But flows to non-industrialized countries are increasing sharply. US International Direct Investment Flows:[3] Period FDI Inflow 1960-69 $ 42.18 bn 1970-79 $ 122.72 bn 1980-89 $ 206.27 bn 1990-99 $ 950.47 bn FDI Outflow Net Inflow $ 5.13 bn $ 40.79 bn $ 329.23 bn $ 907.34 bn + $ 37.04 bn + $ 81.93 bn - $ 122.96 bn + $ 43.13 bn

2000-07 $ 1,629.05 bn $ 1,421.31 bn + $ 207.74 bn Total $ 2,950.69 bn $ 2,703.81 bn + $ 246.88 bn

The last two decades of the 20th century witnessed a dramatic worldwide increase in foreign direct investment (FDI), accompanied by a marked change in the attitude of most developing countries towards inward FDI. As against a highly suspicious attitude of these countries towards inward FDI in the past, most countries towards inward FDI in the past, most countries now regard FDI as beneficial for their development efforts and complete with each other to attract it. In India, prior to economic reforms initiated in 1991, FDI was discouraged by (a) imposing severe limits no equity holdings by foreigners and (b) restricting FDI to the production of only a few researched items. The initial policy stimulus to foreign direct investment in India came in July 1991 when the new industrial policy provided, inter alia, automatic approval for projects with foreign equity participation up to 51 per cent in high priority areas. In recent years, the Government has initiated the second generation reforms under which measures have been taken to further facilitate in India. The Policy for FDI allows freedom of location, choice of technology, repatriation of Capital and dividends. As a result of these measures, there has been a strong surge of international interest in the Indian economy. The rate at which foreign direct investment has grown during the postliberasation period is a clear indication that India is fast emerging as an attractive destination for overseas investors. Though India has one of the most transparent and liberal FDI regimes among the developing countries with strong macro-economic fundamentals, it share in FDI inflows is dismally low. The country still suffers from weaknesses and constraints, in terms of policy and regulatory framework, which restricts the inflow of FDI. This book is devoted to a descriptive and analytical study of FDI trends and policies in India during the post-Independence period.

CHAPTER-3

FOREIGN DIRECT INVESTMANT POLICY IN INDIA:

1. INDUSTRIAL POLICY:
The Government's liberalization and economic reforms programme aims at rapid and substantial economic growth, and integration with the global economy in a harmonized manner. The industrial policy reforms have reduced the industrial licensing requirements, removed restrictions on investment and expansion, and facilitated easy access to foreign technology and foreign direct investment.

INDUSTRIAL LICENSING:
All industrial undertakings are exempt from obtaining an industrial licence to

manufacture, except for (i) industries reserved for the Public Sector (Annex I), (ii) industries retained under compulsory licensing(Annex II), (iii) items of

manufacture reserved for the small scale sector and (iv) if the proposal attracts locational restriction.

INDUSTRIAL ENTREPRENEURS MEMORANDUM (IEM):

Industrial undertakings exempt from obtaining an industrial license are required to file an Industrial Entrepreneur Memoranda(IEM) in Part 'A' (as per prescribed format) with the Secretariat of Industrial

Assistance(SIA), Department of Industrial Policy and Promotion, Government of India, and obtain an acknowledgement. No further approval is required. Immediately after commencement of commercial

production, Part B of the IEM has to be filled in the prescribed format. The facility for amendment of existing IEMs has also been introduced.

LOCATIONAL POLICY:
Industrial undertakings are free to select the location of a project. In the case of cities with population of more than a million (as per the 1991 census), however, the proposed location should be at least 25 KM away from the Standard Urban Area limits of that city unless, it is to be located in an area designated as an "industrial area" before the 25th July, 1991.(List of cities with population of 1 million and above is given at Annexure-V). Electronics, Computer software and Printing (and any other industry which may be notified in future as "non polluting industry") are exempt from such location restriction. Relaxation in the aforesaid lavational restriction is possible if an industrial license is obtained as per the notified procedure. The location of industrial units is further regulated by the local zoning and land use regulations as also the environmental regulations. Hence, even if the requirement of the locational policy stated in paragraph 1.3 is fulfilled, if the local zoning and land use regulations of a State Government, or the regulations of the Ministry of Environment do not permit setting up of an industry at a location, the entrepreneur would be required to abide by that decision.

POLICY RELATING TO SMALL SCALE UNDERTAKINGS:

An industrial undertaking is defined as a small scale unit if the investment in fixed assets in plant and machinery does not exceed Rs 10 million. The Small Scale units can get registered with the Directorate of Industries/District Industries Centre in the State Government concerned.

Such units can manufacture any item including those notified as exclusively reserved for manufacture in the small scale sector. Small scale units are also free from locational restrictions cited in paragraph 1.3 above. However, a small scale unit is not permitted more than 24 per cent equity in its paid up capital from any industrial undertaking either foreign or domestic. Manufacture of items reserved for the small scale sector can also be taken up by nonsmall scale units, if they apply for and obtain an industrial license. In such cases, it is mandatory for the non-small scale unit to undertake minimum export obligation of 50 per cent. This will not apply to non-small scale EOUs that are engaged in the manufacture of items reserved for the SSI sector, as they already have a minimum export obligation of 66 per cent of their production. In addition, if the equity holding from another company (including foreign equity) exceeds 24 per cent, even if the investment in plant and machinery in the unit does not exceed Rs 10 million, the unit loses its small scale status. An IEM is required to be filed in such a case for de-licensed industries, and an industrial license is to be obtained in the case of items of manufacture covered under compulsory licensing. A small scale unit manufacturing small scale reserved item(s), on exceeding the small scale investment ceiling in plant and machinery by virtue of natural growth, needs to apply for and obtain a Carry-onBusiness (COB) License. No export obligation is fixed on the capacity for which the COB license is granted. However, if the unit expands its capacity for the small scale reserved item(s) further, it needs to apply for

and obtain a separate industrial license. (For procedure to obtain COB license. It is possible that a chemical or a by-product recoverable through pollution control measures is reserved for the small scale sector. With a view to adopting pollution control measures, Government have decided that an application needs to be made for grant of an Industrial Licence for such reserved items which would be considered for approval without necessarily imposing the mandatory export obligation.

ENVIRONMENTAL CLEARANCES:
Entrepreneurs are required to obtain Statutory clearances relating to Pollution Control and Environment for setting up an industrial project. A Notification (SO 60(E) dated 27.1.94) issued under The Environment Protection Act 1986 has listed 29 projects in respect of which environmental clearance needs to be obtained from the Ministry of Environment, Government of India. This list includes industries like petro-chemical complexes, petroleum refineries, cement, thermal power plants, bulk drugs, fertilizers, dyes, paper etc. However if investment is less than Rs. 500 million, such clearance is not necessary, unless it is for pesticides, bulk drugs and pharmaceuticals, asbestos and asbestos products, integrated paint complexes, mining projects, tourism projects of certain parameters, tarred roads in Himalayan areas, distilleries, dyes, foundries and electroplating

industries. Further, any item reserved for the small scale sector with investment of less than Rs 10 million is also exempt from obtaining

environmental clearance from the Central Government under the Notification. Powers have been delegated to the State Governments for grant of environmental clearance for certain categories of thermal power plants. Setting up industries in certain locations considered ecologically fragile (eg Aravalli Range, coastal areas, Doon valley, Dahanu, etc.) are guided by separate guidelines issued by the Ministry of Environment of the Government of India.

CHAPTER-4

PROCEDURE INVESTMENT:

OF

FOREIGN

DIRECT

Foreign direct investment policies play a very important role in the economic growth of developing countries. The primary aim of these policies is to create a friendly business environment where foreign investors feels comfortable with the legal and financial frame work of the company, and have potential to reap profits from economical viable business Foreign Direct Investment is investment of foreign assets into domestic structures, equipment and organizations. Foreign direct investment is thought to have more useful to a country then investments in the equity of its companies because equity investments are hot money which can leave at the first sign of trouble, whereas FDI is durable whether things go well or badly. Foreign direct investment is very important for the growth of a country, therefore Government is therefore making all efforts to attract and facilitate FDI and investment from Non Resident(NRIs) including overseas corporate bodies, that are predominantly owned by them, to complement and supplement domestic investment. The procedure by which foreign direct investment in India comes is by two ways one is automatic route and the next is through government approval. Foreign direct investment has become a key battle ground for emerging markets and some developed countries. Government level policies are needed to enable FDI inflows and maximize their returns for investors and recipient countries. If you want to have knowledge about the foreign direct investment policy and procedures 365 companies will help you in doing this.

1. Project Clearance: After the approval has been obtained, the applicant may get his unit/company registered with the Registrar of Company. Subsequently, the company needs to obtain various

clearances such as land clearance, building design clearance, pre-construction

clearance, labour clearance, etc. from different authorities before beginning its operations. These clearances differ from sector to sector and may also differ from state to state. 2. Registration and Inspection: Each industrial unit is supposed to maintain records in regard to production, sale and export, use of specified raw materials including public utilities like water and electricity, labour related details financial details and details in regard to industrial safety and environment. The unit is also subject to periodic inspection by the factories inspector, labour inspector, food inspector, fire inspector, central excise inspector, air and water inspector, mines inspector, city inspector and the like, the list of which may go up to thirty or more. 3. Foreign Exchange Management Act (FEMA), 2000: The additional provisions which apply only to entry of FDI emanate from the provisions of FEMA. According to FEMA, no person resident outside India shall without the approval/knowledge of the RBI may establish in India a branch or a liaison office or a project office or any other place of business. FDI in a particular industry may, however, be made through the automatic route under powers delegated to the RBI or with the approval accorded by the FIPB. The automatic route means that foreign investors only need to inform the RBI within 30 days of bringing in their

investment. Companies getting foreign investment approval through FIPB route do not require any further clearance from RBI for the purpose of receiving inward remittance and issue of shares to foreign investors. RBI has granted general permission under FEMA in respect to proposals approved by FIPB. Such companies are, however, required to notify the concerned regional office of the RBI of receipt of inward remittances within 30 days of such receipts and again within 30 days of issue of shares to the foreign investors.

ENTRY OPTIONS FOR FOREIGN INVESTORS:

A foreign company planning to set up business operations in India has the following options:

By incorporating a company under the Companies Act, 1956 through Joint Ventures; or Wholly Owned Subsidiaries Foreign equity in such Indian companies can be up to 100% depending on the requirements of the investor, subject to equity caps in respect of the area of activities under the Foreign Direct Investment (FDI) policy. Such offices can undertake activities permitted under the Foreign Exchange Management Regulations, 2000.

1. INCORPORATION OF COMPANY : For registration and incorporation, an application has to be filed with Registrar of Companies (ROC). Once a company has been duly registered and incorporated as an Indian company, it is subject to Indian laws and regulations as applicable to other domestic Indian companies.

2. LIAISON OFFICE/REPRESENTATIVE OFFICE : The

role of the liaison office is limited to collecting information about possible market opportunities and providing information about the company and its products to prospective Indian customers. It can promote export/import from/to India and also facilitate technical/financial collaboration between parent company and companies in India. Liaison office can not undertake any commercial activity directly or indirectly and cannot, therefore, earn any income in India. Approval for establishing a liaison office in India is granted by Reserve Bank of India (RBI).

3. PROJECT OFFICE: Foreign Companies planning to execute

specific projects in India can set up temporary project/site offices in India. RBI has now granted general permission to foreign entities to establish Project Offices subject to specified conditions. Such offices can not undertake or carry on any activity other than the activity relating and incidental to execution of the project. Project Offices may remit outside India the surplus of the project on its completion, general permission for which has been granted by the RBI.

4. BRANCH OFFICE : Foreign companies engaged in

manufacturing and trading activities abroad are allowed to set up Branch Offices in India for the following purposes: Export/Import of goods Rendering professional or consultancy services Carrying out research work, in which the parent company is engaged. Promoting technical or financial collaborations between Indian companies and parent or overseas group company. Representing the parent company in India and acting as buying/selling agents in India.

 Rendering services in Information Technology and development of software in India. Rendering technical support to the products supplied by the parent/ group companies. Foreign airline/shipping Company. A branch office is not allowed to carry out manufacturing activities on its own but is permitted to subcontract these to an Indian manufacturer. Branch Offices established with the approval of RBI may remit outside India profit of the branch, net of applicable Indian taxes and subject to RBI guidelines Permission for setting up branch offices is granted by the Reserve Bank of India (RBI).

5. BRANCH OFFICE ON STAND-ALONE BASIS IN SPECIAL ECONOMIC ZONES (SEZS): Such branch offices
would be isolated and restricted to the SEZ and no business activity/transaction will be allowed outside the SEZ in India, which include branches/subsidiaries of their

parent office in India. No approval shall be necessary from RBI for a company to establish undertake a branch/unit manufacturing in and SEZs to

service

activities, subject to specified conditions.

6. INVESTMENT IN A FIRM OR A PROPRIETARY CONCERN BY NRIS : A Non- Resident Indian (NRI) or a Person of
Indian Origin (PIO) resident outside India may invest by way of contribution to the capital of a firm or a proprietary concern in India on non-repatriation basis provided:

 The amount is invested by inward remittance or out of specified account types (NRE/FCNR/NRO accounts) maintained with an Authorized Dealer. The firm or proprietary concern is not engaged in any agriculture/plantation or real estate business, i.e. dealing in land and immovable property with a view to earning profit or earning income there from. The amount invested shall not be eligible for repatriation outside India. NRIs/PIOs may invest in sole proprietorship

concerns/partnership firms with repatriation benefits with the approval of Government/ RBI.

7. INVESTMENT IN A FIRM OR A PROPRIETARY CONCERN OTHER THAN NRIS : No person resident outside
India other than NRI/PIO shall make any investment by way of contribution to the capital of a firm or a proprietorship concern or any association of persons in India. The RBI may, on an application made to it, permit a person resident outside India to make such an investment subject to such terms and conditions as may be considered.

CHAPTER-5

IMPACT OF FOREIGN DIRECT INVESTMANT:

Supporters of FDI contend that foreign investors introduce a package of highly productive resources into the host economy, including production and process technology, managerial expertise, accounting and auditing standards, and knowledge of international markets. The challenge or the host economy is to benefit t from the MNE presence, and to appropriate some of the increased income accruing from the resultant productivity growth. The large literature on FDI impacts concludes that the host economy benefits are quite uneven, both across and within countries. This suggests that host country policies are an important factor in the distribution of these benefits. Of particular relevance here, as postulated in this literature, are the commercial environment, quality, and institutional supply-side

capacities. It should be emphasized that many FDI impacts are inherently

difficult to measure. The academic literature

typically approaches the issue in one of three ways. The first is in the context of the determinants of growth In international comparisons of economic growth, FDI, or some other measure of foreign presence, is introduced as an explanatory variable, together with a range of interactive or conditional variables (e.g., trade orientation, human capital, institutional quality). The hypothesis is that, other things being equal, a larger presence is associated with faster economic growth. The other two methodologies focus on technology spillovers within countries, from foreign to domestic

firms, as measured either through firm-level case studies or an analysis of cross-section industry data. Both provide only a proximate and partial picture: the former is limited by the sample size and the flows are generally not quantified; the latter is presumptive band inferential rather than demonstrated. The relative importance of the various channels through which spillovers occur emulation, inter firm worker mobility, subcontracting networks is generally not demonstrated conclusively. A range of non-equity channels (international labor migration, international buying groups, licensing arrangements) could be just as important as FDI in some circumstances. A related set of literature attempts to draw a distinction between positive, crowding-in effects of FDI, and negative, crowding-out effects. Among the former are the positive technology and trade effects alluded to above, together with various dynamic externalities such as clustering and country reputation. The latter draws attention to a range of possible outcomes: anticompetitive impacts (e.g., displacement of domestic firms or investment), bidding scarce resources (e.g., skilled labor, credit) away from domestic firms, or squeezing out domestic supply networks as new foreign entrants bring with them integrated upstream and downstream supply chains. It is now generally accepted that the distinguishing characteristics of FDI are its stability and ease of service relative to commercial debt or portfolio investment, as well as its inclusion of non financial assets in production and sales processes. Aside from increasing output and income, potential benefits to host countries from FDI inflows include the following:

 Foreign firms bring superior technology. The extent of benefits to host countries depends on whether the technology spills over to domestic and other foreign-invested firms. Foreign investment increases competition in the host economy. The entry of a new firm in a non tradable sector increases industry output and may thereby reduce the domestic price, leading to a net improvement in welfare. Foreign investment typically results in increased domestic

investment. In an analysis of panel data for 58 developing countries, Bosworth and Collins (1999) found that about half of each dollar of capital inflow translates into an increase in domestic investment. The findings suggest a foreign resource transfer equal to 5369% of the inflow of financial capital. However, when the capital inflows take the form of FDI, there is a near one-for-one relationship between the FDI and domestic investment. Foreign investment gives advantages in terms of export market access arising eitherf rom foreign firms economies of scale in marketing or from The ability to gain market access abroad. Besides The contributions through joint ventures, foreign firms can serve as catalysts for other domestic exporters. In an empirical analysis, the probability that a domestic plant will export was found to be positively correlated with proximity to multinational firms (Aitken et al. 1997). One implication is that governments may encourage Potential exporters to locate near each other by : creating special economic zones (SEZs) or export processing zones,, Or promoting clusters, or by conferring special benefits, such as duty-free imports of inputs, subsidized infrastructure, or tax holidays, to help reduce costs for domestic firms in breaking into foreign markets.

 Foreign investment typically results in increased domestic investment. In an analysis of panel data for 58 developing countries, Bosworth and Collins (1999) found that about half of each dollar of capital inflow translates into an increase in domestic investment. The findings

suggest a foreign resource transfer equal to 5369% of the inflow of financial capital. However, when the capital inflows take the form of FDI, there is a near one-for-one relationship between the FDI and domestic investment. Foreign investment gives advantages in terms of export market access arising either from foreign firms economies of scale in marketing or from The ability to gain market access abroad. Besides The contributions through joint ventures, foreign firms can serve as catalysts for other domestic exporters. In an empirical analysis, the probability that a domestic plant will export was found to be positively correlated with proximity to multinational firms (Aitken et al. 1997). One implications that governments may encourage potential exporters to locate near each other by creating special economic zones (SEZs) or export processing zones, or promoting clusters, or by Conferring special benefits, such as duty-free imports of inputs, subsidized infrastructure, or tax holidays, to help reduce costs for domestic firms in breaking into foreign markets. Foreign investment can aid in bridging a host Countrys foreign exchange gap. Two gaps may exist in the economy: insufficient savings to support capital accumulation to achieve a Given growth target, and insufficient foreign exchange to purchase imports.

CHAPTER-6

SECTOR

WISE

FOREIGN

DIRECT

INVESTMENT:
A large portion of the FDI flows into skill intensive and high value-added services industries, particularly financial services and information technology. Service sector and computer software and hardware industry together account for about 35.49 per cent of the total FDI into India between April 2000 to December 2007. India, in fact, dominates the global service industry in terms of attracting FDI with its unbeatable mix of low costs, deep technical and language skills, mature vendors and supportive government policies. India topped the AT Kearney's 2007 Global Services Location Index, emerging as the most preferred destination in terms of financial attractiveness, people and skills availability and business environment. Global investors have also shown increasing interest in other sectors as well. Particular amongst them have been telecommunication, construction, automobiles, energy, electrical

equipment among others. For example, all the five leading global telecom companies have made significant

investment in India. Similarly, leading automobile companies have set up their manufacturing base in India. Country-wise, Mauritius has been the leading nation for FDI inflows into India, followed by USA, UK, Singapore, Netherlands and Japan during April 2000 to December 2007. It is to be noted that Mauritius pre-

eminence has been due to its stature as a tax haven and most volume of FDI inflows through Mauritius has been from the USA.

FDI IN THE FINANCIAL SECTORS AMONG MARKET ECONOMIES:

Opening up of doors by many countries of the world has resulted foreign participation in the financial sectors of emerging market economies (EMEs) during the 1990s. It has continued to expand so far in this decade, on balance - although its pace fell somewhat following problems in Argentina in 2002 and the global slowdown in mergers and acquisitions. It is seen that banks accounted for the majority of financial sector foreign direct investment (FSFDI). In a number of countries in Latin America and central and eastern Europe (CEE), foreign banks now account for a major share of total banking assets. In Asia, the share of foreign banks is, overall, much lower, but still substantial. The integration of EME financial firms into the global market has resulted a wider diversity of financial institutions operating in EMEs and given greater emphasis on risk-adjusted profitability. These include expansion into local retail banking and securities markets, where elements such as client relationships and reputation are important components of the franchise value of operations. Such factors have tended to raise the costs of exiting a country and hence increased the permanence of FSFDI.

FSFDI was fostered by financial liberalization and market-based reforms in many EMEs. The liberalization of the capital account and financial deregulation paved the way for foreign acquisitions and the integration of EME financial firms into an expanding global market for corporate control. This is the character of FSFDI as part of a broader trend towards consolidation and globalization in the financial industry. In some cases

competition in traditional markets increased pressure on major international banks to find new areas for growth. Financial institutions in advanced economies increasingly searching for profit opportunities at the customer and product level, FSFDI offered a means of access to EME markets with attractive strategic opportunities to expand. Local financial infrastructure is growing which reduces the risks of conducting business in EMEs.but events such as the Russian default in 1998 and Argentine actions in 2002 also made financial institutions more sensitive. Thus, financial institutions in industrial countries now tend to evaluate country risk separately. An important benefit of FSFDI is its effect on financial sector efficiency that arises from local banks' exposure to global competition Host countries benefit from the technology transfers and innovations in products and processes commonly associated with foreign bank entry. Foreign banks exert competitive pressures and demonstration effects on local institutions. This results better risk management, more competitive pricing and in general a more efficient allocation of credit in the financial sector as a whole. Foreign banks presence helps to achieve greater financial stability in host countries. Host countries benefit immediately from foreign entry. The better capitalization and wider diversification of foreign banks, along with the access of local operations to parent funding, may reduce the sensitivity of the host country banking system to local business cycles and changing financial market conditions. Their use of risk-based credit evaluation tends to reduce concentration in lending and in times of financial distress, fosters prompter recognition of losses and more timely resolution of problems.

The growing involvement of foreign firms in the financial systems of EMEs has given rise to a situation where majorities of EME bankin assets have become foreign owned. The growing involvement of foreign firms in the financial systems of EMEs has given rise to a situation where majorities of EME banking assets have become foreign owned. Accordingly, developing pertinent technical skills is considered be an important area of cooperation between authorities in advanced and EME countries. In some markets, foreign-owned banks have been prominent in the rapid expansion of consumer lending and foreign currency lending to both households and businesses. Appropriate supervision is needed to assess such credit managed by banks, and authorities in charge of financial stability. Accordingly, public policy should be focused on maximizing these benefits by continuing to encourage diversity and competition in financial systems not only between foreign and domestic banks but also between banks and other financial institutions. One essential component among host country policy is commitment for growth and stability. Another is the protection of property rights and equal treatment of banks irrespective of ownership. From this point of view a more extensive implementation of the internationally recognized set of financial standards and codes can help to reduce country risk. Strengthening of legal frameworks act as a parameter

for reducing country risk. Smooth functioning of the market for corporate control would be assisted by greater international compatibility of accounting standards, takeover rules, and insolvency codes. Regional integration among EME financial systems, often within a framework for broader economic integration in the region, is another complementary approach to this objective. There is substantial evidence of major benefits from regional compacts such as those of the European Union and NAFTA. In the case of very poor countries where there is some special support for FSFDI may be merited provided political risk insurance if properly designed, could be useful.

CHAPTER-7

CURRENT STATUS:
LAST UPDATED: APRIL-JUNE 2008 :
The liberal investment regime, rapid growth of the economy, strong macro economic fundamentals, progressive de-licensing of sectors and the ease in doing business has attracted global corporations to invest in India And consequent to policy changes and procedural simplifications, FDI equity inflows have registered a phenomenal upswing. FDI inflows have recorded over five-fold increase in the last three years, from US$ 2.2 billion in 2003-04 to US$ 15.7 billion in 2006-07. Simultaneously, FDI share in India's GDP has increased from 0.77 per cent to 2.31 per cent. Significantly, FDI has come to play an increasing role in the economic growth of the country. The share of FDI in total investment has more than doubled from 2.55 per cent in 2003-04 to 6.42 2006-07. In fact, the US$ 5.67 FDI inflows recorded in February 2008 was the highest-ever during any month since 1991 and more than the entire annual inflows from 1991-92 to 2004-05. This surge in FDI is likely to further boost India's attraction as an investment destination. Already, India recorded a higher change in Investor outlook than China in the latest FDI Confidence Index of A T Kearney, implying bridging the gap between the two countries in terms investment attractiveness. Also, India has emerged as the preferred investment destination for European investors, ahead of even china.

FDI INFLOW AT $20.13 BILLIONSFDI:

India received $20.13 billion as Foreign Direct Investment (FDI) between April-February 2007-08, almost 70 per cent higher compared to the yearago period. "This is the highest FDI equity in the country during any year," an official release said here. FDI inflows in February 2008 stood at $5.67 billion, up 712 per cent over February 2007. "The inflows in the month of February have surpassed the inflows received in any single year since 1991, barring last year 2006-07,"

AMOUNTS

APRIL FEBRUARY

CHAPTER:8

GUIDELINES INVESTMENT:

FOR

FOREIGN

DIRECT

The following Guidelines are laid-down to enable the Foreign Investment Promotion Board (FIPB) to consider the proposals for Foreign Direct Investment (FDI) and formulate its recommendations.

All applications should be put up before the FIPB by the SIA (Secretariat of Industrial Assistance) within 15 days and it should be ensured that comments of the administrative ministries are placed before the Board either prior to/or in the meeting of the Board. Proposals should be considered by the Board keeping in view the timeframe of 6 weeks for communicating Government decision (i.e. approval of IM/CCFI or rejection as the case may be) In cases in which either the proposals is not cleared or further information is required, in order to obviate delays presentation by applicant in the meeting of the FIPB should be resorted to While considering cases and making recommendations, FIPB should keep in mind the sectoral requirements and the sectoral policies vis-a-vis the proposal(s). FIPB would consider each proposal in totality (i.e. if it includes apart from foreign investment, technical collaboration/industrial licence) for composite approval or otherwise. However, the FIPB's recommendation would relate only to the approval for foreign financial and technical

collaboration and the foreign investor will need to take other prescribed clearances separately. The Board should examine the following while considering proposals submitted to it for consideration: whether the items of activity involve industrial licence or not and if so the considerations for grant of industrial licence must be gone into; whether the proposal involves technical collaboration and if so:- (a) the source and nature of technology sought to be transferred, (b) the terms of payment (payment of royalty by 100% subsidiaries is not permitted); whether the proposal involves any mandatory requirement for exports and if so whether the applicant is prepared to undertake such obligation (this is for Small Industry units, as also for dividend balancing and for 100% EOUs/EPZ Units); whether the proposal involves any export projection and if so the items of export and the projected destinations; whether the proposal has concurrent commitment under other schemes such as EPCG Scheme, etc.; in the case of Export Oriented Units (EOUs) whether the prescribed minimum value addition norms and the minimum turn over of exports are met or not; whether the proposal involves relaxation of locational restrictions stipulated in the industrial licensing policy; and whether the proposal has any strategic or defence related considerations. While considering proposals the following may be prioritised.

 Items falling within Annexure-III of the New Industrial Policy (i.e. those which do not qualify for automatic approval). Items falling in infrastructure sector. Items which have an export potential. Items which have large scale employment potential and especially for rural people. Items which have a direct or backward linkage with agro business/farm sector. Items which have greater social relevance such as hospitals, human resource development, life saving drugs and equipment. Proposals which result in induction of technology or infusion of capital. 8. The following should be especially considered during the scrutiny and consideration of proposals: The extent of foreign equity proposed to be held (keeping in view sectoral caps if any - e.g. 24% for SSI units, 40% for air taxi/airlines operators, 49% in basic/cellular/paging, etc. in Telecom sector). Extent of equity with composition of foreign/NRI (which may include OCB)/ resident Indians. Extent of equity from the point of view whether the proposed project would amount to a holding company/wholly owned subsidiary/a company with dominant foreign investment (i.e. 76% or more)/joint venture. Whether the proposed foreign equity is for setting up a new project (joint venture or otherwise) or whether it is for enlargement of

foreign/NRI equity or whether it is for fresh induction of foreign equity/NRI equity in an existing Indian company. In the case of fresh induction of foreign/NRI equity and/or in cases of enlargement of foreign/NRI equity in existing Indian companies whether there is a resolution of the Board of Directors supporting the said induction/enlargement of foreign/NRI equity and whether there is a shareholders agreement or not. In the case of induction of fresh equity in the existing Indian companies and/or enlargement of foreign equity in existing Indian companies, the reason why the proposal has been made and the modality for induction/enhancement (i.e. whether by increase of paid up capital/authorised capital, transfer of shares (hostile or otherwise) whether by rights issue, or by what modality). Issue/transfer/pricing of shares will be as per SEBI/RBI guidelines. Whether the activity is an industrial or a service activity or a combination of both. Whether the item of activity involves any restriction by way of reservation for the small scale sector. Whether there are any sectoral restrictions on the activity (e.g. there is ban on foreign investment in real estate while it is not so for NRI/OCB investment). Whether the item involves only trading activity and if so whether it involves export or both export and import, or also includes domestic trading and if domestic trading whether it also includes retail trading. Whether the proposal involves import of items which are either hazardous, banned or detrimental to environment (e.g. import of plastic scrap or recycled plastics).

 9. In respect of industries/activities listed in Annexure - III of the New Industrial Policy automatic approval for majority equity holding (50/51/74 per cent) is accorded by the Reserve Bank of India. FIPB may consider recommending higher levels of foreign equity in respect of these activities keeping in view the special requirements and merit of each case. 10. In respect of other industries/activities the Board may consider recommending 51 per cent foreign equity on examination of each individual proposal. For higher levels of equity up to 74 per cent the Board may consider such proposals keeping in view considerations such as the extent of capital needed for the project, the nature and quality of technology, the requirement of marketing and management skills and the commitment for exports. 11. FIPB may consider and recommend proposals for 100 per cent foreign owned holding/subsidiary companies based on the following criteria : where only "holding" operation is involved and all

subsequent/downstream investments to be carried out would require prior approval of the Government; where proprietary technology is sought to be protected or sophisticated technology is proposed to be brought in; where at least 50% of production is to be exported; proposals for consultancy ; and proposals for power, roads, ports and industrial model

towns/industrial parks or estates. 12 In special cases, where the foreign investor is unable initially to identify an Indian joint venture partner, the Board may consider and recommend proposals permitting 100 per cent foreign equity on a

temporary basis on the condition that the foreign investor would divest to the Indian parties (either individual, joint venture partners or general public or both) at least 26 per cent of its equity within a period of 3-5 years. 13. Similarly in the case of a joint venture, where the Indian partner is unable to raise resources for expansion/technological upgradation of the existing industrial activity the Board may consider and recommend increase in the proportion/percentage (up to 100 per cent) of the foreign equity in the enterprise. 14. In respect of trading companies, 100 per cent foreign equity may be permitted in the case of activities involving the following : export; bulk imports with export/expanded warehouse sales ; cash and carry wholesale trading ; other import of goods or services provided at least 75% is for procurement and sale of goods and services among the companies of the same group. 15. In respect of the companies in the infrastructure/services sector where there is a prescribed cap for foreign investment, only the direct investment should be considered for the prescribed cap and foreign investment in an investing company should not be set off against this cap provided the foreign direct investment in such investing company does not exceed 49 per cent and the management of the investing company is with the Indian owners. 16. No condition specific to the letter of approval issued to a foreign investor would be changed or additional condition imposed subsequent to

the issue of a letter of approval. This would not prohibit changes in general policies and regulations applicable to the industrial sector. 17. Where in case of a proposal (not being 100% subsidiary) foreign direct investment has been approved up to a designated percentage of foreign equity in the joint venture company, the percentage would not be reduced while permitting induction of additional capital subsequently. Also in the case of approved activities, if the foreign investor(s) concerned wishes to bring in additional capital on later dates keeping the investment to such approved activities, FIPB would recommend such cases for approval on an automatic basis.c 18. As regards proposal for private sector banks, the application would be considered only after "in principle" permission is obtained from the Reserve Bank of India (RBI) 19. The restrictions prescribed for proposals in various sectors as obtained, at present, are given in the Annexure and these should be kept in view while considering the proposals. These Guidelines are meant to assist the FIPB to consider proposals in an objective and transparent manner. These would not in any way restrict the flexibility or bind the FIPB from considering the proposals in their totality or making recommendations based on other criteria or special circumstances or features it considers relevant. Besides these are in the nature of administrative Guidelines and would not in any way be legally binding in respect any recommendation to be made by the FIPB or decisions to be taken by the Government in cases involving Foreign Direct Investment (FDI). These guidelines are issued without prejudice to the Government's right to issue fresh guidelines or change the legal provisions and policies whenever considered necessary.

CHAPTER-9

ADVANTAGES AND DIS-ADVANTAGES OF FDI: ADVANTAGES OF FDI:

1.STIMULATION OF NATIONAL ECONOMY:FDI is thought to bring certain benefits to national economies. It can contribute to gross domestic product (GDP). Gross fixed formation (total investment in a host economy) and balance of payment. There have been empirical studies indicating a positive link between higher GDP and FDI inflows (OECD).however the link does not hold for all region e.g. over the last ten year FDI has increased in central Europe whilst GDP has dropped. FDI can also contribute toward debt servicing repayment, Simulate export markets and produce foreign exchange revenue.

2. STABILITY OF FDI:FDI inflows can be less affected by affected by change in national exchange rate as compared to other private sources. This is partly because currency devaluation means a drop in the relative cost of production and assets. For foreign companies and there by increases the relative attraction of a host country. FDI can stimulate product diversification though investments into new businesses, so reducing market reliance on a limited number of sectors/products. However, if international flows of trade and investment fall globally and for lengthy periods Then stability is less certain. New inflows of FDI are especially affected by these global trends. Because it is harder for a foreign company to de-invest or reverse from foreign affiliates as compared to portfolio investment. Companies are therefore more likely to be careful to ensure they will accrue benefits before making any new investments.E.g.

Korea and Thailand, during the 1996/97 crisis, it fell in others e.g. Indonesia. During Latin Americas financial crisis in the 80,s many Latin American countries experienced a sharp fall in FDI suggesting that investment sensitivity varies according to a countrys particular circumstances.

3. SOCIAL DEVELOPMENT:
FDI. Where it generates and expands businesses. Can help stimulate

employment. Raise wages and replace declining market sectors. However, the benefits may only be felt by small portion of the population, `E.g. where employment and training is given to more educated. Typically wealthy cities or there is an urban emphasis, wage differentials between income groups will be exacerbated. Cultural and social impacts may occur with investment directed at non-traditional goods. For example, if financial resources are diverted away from food and subsistence production towards more sophisticated products and encouraging a culture of consumerism can also have negative environmental impacts. Within local economies small scale and rural business of FDI host countries there is less capacity to attract foreign investment and business or to use more informal sources of finance.

4.

INFRASTUCTURE

DEVELOPMENT

AND

TECHNOLOGY TRANSFER:Parent companies can support their foreign subsidiaries by ensuring adequate human resources and infrastructure are in place. In particular Greenfield investments into new business sectors can stimulate new Infrastructure development and technologies to host economies. These developments can also result in social and environmental benefits, but only where they spill over into host communities and businesses. Investment in research & development (R&D) from parent companies can stimulate innovation In-house investment will result in may

improvements.Foreign

technology/organizational

techniques

actually be inappropriate to local needs, capital intensive and have a negative affect on local competitors, especially smaller businesses who are less able to make equivalent adoptions.

5. CROWDING IN OR COROWDING OUT:Crowding in occurs where FDI companies can stimulate growth in up/down stream domestic businesses within the national economies. Whilst crowding out is a scenario where parent companies dominate local competition and entrepreneurship. One reason for crowding out is policy chilling or regulatory arbitrage where government regulations Such as labour and environmental standards are kept artificially low to attract foreign investors. This is because lower standards can reduce the short term operative costs for businesses in a country For example:- In industries where demand or supply for a product or service is highly price elastic (market sensitive) and capital intensive.Hence regulation brings additional costs of compliance and is therefore much more likely to influence a companys decision to in vest in that country

DIS-ADVANTAGES OF FDI:
1. RESTRICTIVE FDI REGIME:
The FDI regime in India is still quite restrictive. As a consequence, with regard to Cross border ventures, India ranks 57 th in the GCR 1999.foreign ownership of between 51 and 100 percent of equity still requires a long procedure of governmental approval. In our view, there does not seem to be any justification for continuing with this rule. This rule should be scrapped in flavor of automatic approval for 100% foreign ownership except on a small list of sectors that may continue to require government authorization. The banking sector, for example, would be an area where India would like to negotiate reciprocal investment rights. Besides, the government also needs to ease the restrictions on FDI outflows by non-financial Indian enterprises so as allow these enterprises to enter into joint ventures and FDI arrangements in other countries. Further deregulation of FDI in industry and simplification of FDI procedures in infrastructure is called for.

2. LACK OF CLEAR CUT $ TRANSPARENT SECTORAL FOR FDI:

Expeditious translation of approved FDI into actual investment would require more transparent sectoral policies, and a drastic reduction in timeconsuming redtapism.

3.HIGH

TARIFF

RATES

BY

INTERNATIONAL

STANDARDS:
Indias tariff rates are still among the highest in the world, and continue to block Indias attractiveness as an export platform for labor-intensive manufacturing production. On tariffs and quotas, India is ranked 52nd in the 1999GCR, and on average tariff rate, India is ranked 59 th out of 59 countries being ranked. Much greater openness is required which among other things would include further reductions of tariff rates to average in East Asia (between zero and 20 percent). Most importantly, tariffs rates on imported capital goods used for export, and on import inputs into export production, should be duty free, as has been true for decades in the successful exporting countries of East Asia.

4. LACKS OF DECISION-MAKING AUTHORITY WITH THE STATE GOVERNMENTS:The reform process so far has mainly concentrated at the central level. India has yet to free up its state government sufficiently so that they can add much greater dynamism to the reform. In most key infrastructure area, the central government remains in control or at least with veto over state actions. Greater freedom to the state will help foster greater competition among themselves. The state in India needs to be viewed as potential agents of rapid and salutary change.

5.

LIMITED

SCALE

OF

EXPORT

PROCESSING

ZONES:The very modest contributions of Indias export processing zones to attracting FDI overall export

development call for are vision of policy. Indias export processing zones have lacked dynamism because of several reasons, such as their relatively limited scale; the governments general ambivalence about attracting FDI; the unclear and changing incentive packages attached to the zones; and the power of the central government in the regulation of the zones, in comparison with the major responsibility of local and provincial governments in china. Ironically, while India established her first EPZ in 19654 compared with chinas initial efforts in 1980, the Indian EPZ never seemed to take offeither in attracting investment or in promoting exports.

6. NO LIBERALIZATION IN EXIT BARRIERS:While the reforms implemented so far have helped remove the entry barriers, the liberalization of exit barriers has yet to take place. In our view, this is a majors deterrent to large volume of FDI flowing to India. An exit policy needs to be formulated such that firms can enter and exit freely from the market. While it would be incorrect to ignore the need and potential merit of certain safeguards, it is also important to recognize that Safeguards if wrongly designed and/ore poorly enforced would turn into barriers that may adversely affect the heath of the form. The regulatory

framework, which is in place, does not allow the firms to undertake restructuring.

7. STRENGENT LABOUR LAWS:Large firms in India are not allowed to retrench or layoff any workers, or close drown the unit without the permission of the state governments. While the law was enacted with a view to monitor unfair retrenchment and layoffs, in effects it has turned out to be a provision for job security provided to public sector employees most importunately, with 100 or more employees paralyzes firms in hiring new workers. With regard to labours regulations and hiring and firing practices, India is ranked 55 th and 56th respectively in the GCR 1999.so India remains an unattractive base for such production in part because of the continuing obstacles to flexible managements of the labour force.

CHAPTER:9

CONCLUSION:
A number of studies have been undertaken to determine whether FDI impacts positively one economic growth. Two types of studies macro and microhave generally been conducted to study the relationship between FDI and growth. Micro studies usually find no positive evidence that FDI makes a positive contribution to growth. Macro studies, on the other hand, often find FDI to positively affect economic growth under certain conditions. The findings indicate that FDI is a positive and a significant contributor to growth for EP countries, while having no influence on growth for IS countries. In addition, as far as EP countries are concerned, it is FDI and not domestic investment that acts as a driving force in the growth process. FDI can promote growth in the presence of a liberal trade regime; a threshold level of human endowment is necessary for the promotion of growth through FDI; effective utilization of human capital in conjunction with FDI requires an adequate domestic market for the goods produced; and technology and skill spillovers from FDI do not materialize became statistically significant with the inclusion of the domestic market The findings, meanwhile, show strong evidence of considerable heterogeneity across countries. This indicates that incorrectly imposing the homogeneity assumption on the data can lead to biased estimates and faulty policy implications. To circumvent the problem, the authors use mixed, fixed, and random (MFR) panel data estimation to test for causality between FDI and economic growth in developing countries.

CHAPTER-10

FUTURE STRATEGIES OF FDI:

FDI flows will likely remain disappointing through 2011, according to the 2010 A.T. Kearney Foreign Direct Investment Confidence Index, a regular assessment of senior executive sentiment at the worlds largest companies. The Index also found executives are wary of making investments in the current economic climate and revealed that they expect the economic turnaround to happen no earlier than 2011. Half of the companies surveyed also report that they are postponing investments as a result of market uncertainty and difficulties in obtaining credit. Conducted regularly since 1998 by global management consulting firm A.T. Kearney, the Index provides a unique look at the present and future prospects for international investment flows. Companies participating in the survey account for more than $2 trillion in annual global revenue. China remains the top-ranked destination by foreign investors, a title it has held since 2002. The United States retakes second place from India, which had surpassed it in 2005. India, Brazil and Germany complete the top five favored investment destinations. Overall, developed economies rose in the Index as investors looked for safety. The most striking exception is the United Kingdom, whose reliance on financial services left it exposed in the current crisis. At the same time, the placement of China, India and Brazil in the top five shows a strong vote of confidence for the strength of these economies. Investors also expressed the most optimism about the future outlook for China, India and Brazil. The results indicate a return to market fundamentals and a flight to quality for corporate executives, said Paul A. Laodicea, managing officer and chairman of A.T. Kearney. Companies are looking for the antidote to uncertainty and increasingly looking to invest in the near abroad.

CHAPTER-11

CASE STUDY: (CASE-1)

TATAS To BENEFIT FROM REMOVAL OF BAN ON BANGLADESH FDI

The $3-billion investment proposal of the Tata group in the power, steel and fertilizer sectors in Bangladesh is closer to reality because of Indias decision to lift the ban on Bangladeshi investment into India. That Bangladesh was not allowed to invest in India while India wanted to invest in that country had been a sore point in the bilateral relationship between the two nations, according to the Union Minister of State for Commerce and Industry, Mr. Jairam Ramesh. Mr. Ramesh told Business Line that it was hypocritical on the part of India to push for Tata investment while not allowing Bangladesh to invest in India. He said that there were rich possibilities of Bangladesh investing in India, especially in the North East, in areas such as food processing, textiles and bamboo-related industries. He said that Indias proposal to develop the Sitwe project did not imply that the country thought it could develop the North East ignoring Bangladesh. Logistics-wise the Sit we project is very good, but we cannot operate on the assumption that we can develop the North East ignoring Bangladesh, he said, adding that Bangladesh, Indias North East, Myanmar and Thailand formed a growth quadrilateral. Noting that along the 1,600-km border with Myanmar, the only border trade post was Morah in Manipur, Mr. Ramesh said that India was in talks with Myanmar to open border trade with Myanmar at two more points Pangsau in Arunachal Pradesh, Zokhawthar in Mizoram. Right now, our notion of border trade is that the trade is restricted to a list of goods. For example, at Nathu La, there are only 37 items that

can be traded. In Morah, there are only 22 items that can be traded. We must get out of this restrictive approach of border trade and move to a more liberal trade at border. Of course, our security establishment is not very comfortable with this concept because it feels it could be used by China to dump its goods. The goodwill generated by India developing the Sitwe port would put India in a favourable position to win oil and gas

exploration/production blocks. Asked if US or China might oppose India developing the Sitwe project, Mr Ramesh said, Undoubtedly we cannot minimize the possibility that there will be sometimes overt, sometimes covert opposition to our enhanced relations with Myanmar. Im sure will be attacked by human rights groups. It is a fine line that we have to treat.

(CASE 2)
RETAIL WILL CREATE PURCHASING POWER, JOBS MUKESH AMBANI:On being quizzed about FDI in multi-brand retail, during India Economic Summit, Reliance chairman Mukesh Ambani, said that, considering that the sector offered immense potential, it should be allowed. FDI in the sector was welcome as the retail potential was real

and no single large company or an MNC would be able to capture it, he added. The retail segment had the potential to aid not only in Indias economic growth but also to provide employment opportunities, said Ambani. 10 to 15 million jobs would be generated over the next three to five years due to the explosion in the retail sector, he added. One of the biggest opportunities offered by the retail, according to Ambani, was to create purchasing power, even at the bottom of the pyramid

CHAPTER-11

Annexures:
Article: india- an attractive destination to fdi. Article from: The Economic Times, New Delhi. Article date: april.22,2000. Auther: ashoksheel.

NEW DELHI: Despite regulatory hurdles, India continues to be among the preferred destinations for FDI due to the country's high economic growth, with both Mumbai and Delhi being touted as among the cities likely to produce the next Microsoft or Google, a survey said. According to the '9th Annual European Attractiveness Survey' by Ernst & Young, India will rank fifth among the most attractive destinations for European firms within the next three years, mainly on account of India's perceived specialization as a hub for low cost outsourcing business. "Foreign investors are not deterred by current regulatory issues to invest in India... India's perceived specialization as a low-cost business process outsourcing (BPO) hub continues to appeal the investors across the globe," the report said.

BIBLIOGRAPHY:
Books: Foreign Investment in India: 1947-48 to 2007-08, Dr. Kamlesh Gakhar Foreign Direct Investment in India: 1947 to 2007, Dr. Nitin Bhasin

Websites:

 http://business.mapsofindia.com http://www.economywatch.com http://siadipp.nic.in