fdi in india and its growth linkages - Department Of Industrial Policy ...

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three categories, namely, (i) investment of a non-resident direct investor in resident direct investment enterprises, (ii) reverse investment of non-resident direct investment enterprises in resident direct investors and (iii) investment of nonresident fellow enterprises in resident fellow enterprises. These categories under the asset/liability principle can be further subdivided into sub-classes according to the residence of the ultimate controlling parent, that is, the direct investor at the top of the control chain. These classes can also be grouped by industrial activity and the residence of the FDI partners. Further, FDI accounts are presented in three blocks, viz., FDI positions, 5 FDI transactions and FDI income. Information on these blocks can be obtained from the balance sheet entries of direct investors, direct investment enterprises and fellow enterprises. However, under the directional principle the presentation of FDI statistics requires rearrangement of some of these building blocks. In case the direct investment enterprise holds less than 10 per cent of the voting power in its direct investors, any inverse investment (either equity or debt) from the direct investment enterprise to its direct investor is to be accounted for under outward or inward appropriately, as opposed to the asset/liability equivalent. Further, recording of transactions and positions between fellow enterprises under the directional principle is to be made appropriate by bringing modifications where necessary to their asset/ liability equivalents to provide the directional information. 6 The presentation of data under the directional principle is the preferred one, especially for industry and country classification of FDI data. 8.8 Industry Classification of FDI Statistics For better economic planning and decision making, investment enterprises should be grouped by type of economic or industrial activity. It should be made available both for inward and outward foreign direct investment by both the industry of direct investment enterprise and the industry of direct investor. In case the data cannot be compiled for both types, the Benchmark Definition recommends that the data should be compiled at least according to the activity of the direct investment enterprises, and this should be compiled for both inward and outward direct investment. The inward investment should reflect the industry of the resident direct investment enterprise and outward investment should show the industry of the non-resident direct investment enterprise. Even though many direct investors and direct investment enterprises are involved in a wide range of economic activities, they must be classified into a single industry. In fact, the industry classification should be based on the principal economic activity, which can be determined based on the contribution of an activity to the value-added of the enterprise. Further, the presentation of the data should be based on the reporting enterprise. That is, if the reporting entity is a direct investment enterprise and, at the same time, a direct investor, its industry classification should be based on activities it conducts and should exclude activities conducted by its own FDI enterprises. In the case of subsidiaries, associates and branches of an enterprise, the industry of the enterprise should be the principal activity of that enterprise only. For international comparison and statistical consistency, the OECD Benchmark Definition recommends the use of the International Standard Industry Classification (ISIC) for compiling FDI statistics. 7 8.9 Distribution of FDI by DIPP Classification This section presents the distribution of FDI compiled from company records received from DIPP, which we used to prepare unique companies for drawing of samples. As mentioned, the distribution of FDI includes only FDI received by different companies in a particular year and does not include stock swaps, advance inflows, NRI schemes and other miscellaneous receipts. Table 8.1 shows the FDI inflows from 2000 to 2007. In terms of US dollars, FDI inflow increased from US$2 billion in 2000 to US$11 billion in 2006. Despite the slowdown in investment during 2003, it has 5. FDI position shows the level of investment at a given point of time. It is also referred to as FDI stocks. 6. For details, see OECD (2008), Chapter 4. 7. For details, see OECD (2008), Chapter 7. FDI DATA REPORTING AND CLASSIFICATION 95
FDI IN INDIA AND ITS GROWTH LINKAGES picked up and surged from $4 billion in 2005 to $11 billion in 2006. In terms of SDR volume, a similar trend in FDI inflows can be observed. Table 8.2 shows the distribution of FDI by DIPP sectors. It may be observed from the table that during January 2000 – June 2007, the service sector accounted for the highest amount of FDI inflows (21.6 per cent), followed by electrical equipment (19.8 per cent) and miscellaneous industries (15.4 per cent). Within the service sector, financial and other services attracted about 10.3 per cent and 5.5 per cent, respectively, while banking services attracted about 2 per cent of FDI. Within the electrical equipment sector, the computer software industry attracted the highest share at 15.8 per cent, followed by electrical equipment with 2.4 per cent. Miscellaneous industries comprise major activities like construction, real estate, diamonds, ornaments and gold, agriculture (hybrid seeds and plantation), floriculture, tea/coffee and printing of books. Among these groups, construction and real estate received about 4.9 per cent and 2.9 per cent, respectively. Further, telecommunications received about 9.8 per cent of cumulative FDI. The FDI inflows by country of origin are presented in Table 8.3. FDI inflows from various investing countries, by and large, showed an increasing trend. Among the countries, Mauritius emerged as the top country through which 44.9 per cent of the total FDI reached India. The bilateral agreements, including the Double Taxation Avoidance Act between India and Mauritius, favoured companies located in Mauritius that invested in India. The US and the UK accounted for about 9.7 per cent and 8.6 per cent of total FDI inflows, respectively. Japan, one of the highest contributors of official development assistance in India, accounted for about 4.6 per cent of total FDI. The country-wise FDI inflows in DIPP 4-digit sub-sectors of the aggregate 92 sectors provides more detailed sectoral information about FDI inflows (Table 8.4). Among the top investing countries, the maximum FDI from Mauritius and the United States appears in the sub-categories of computer software industry and financial services. Inflows from the UK are concentrated in the sub-category “other services”. The Netherlands has invested in the computer software industry, “other miscellaneous industries” and “other services”. Investments from Japan are concentrated in the subcategories of electrical equipment and the automobile industry, including passenger cars. Singapore has invested in financial services, “other miscellaneous industries” and “other services”. Inflows from Germany are concentrated in “other miscellaneous industries”, chemicals and insurance. 8.10 Concordance between DIPP and National Industrial Classification (NIC), 2008 As discussed elsewhere, the sectoral classification of FDI should reflect all economic activities taking place in the economic territory of India. India’s NIC 2008 is based on the International Standard Industrial Classification (ISIC) Revision 4, which is widely used by countries to compile FDI statistics. Details of the DIPP classification are provided in Table 8.5. Here, we have attempted to construct a concordance table between DIPP 92 4-digit sectors and the NIC- 2008 classification at 2 and 3 digits; NIC-2008 has 99 sectors at the 2-digit level and 238 sectors at the 3-digit level. The concordance schemes are provided in Table 8.6 and Table 8.7, respectively. We have created an additional 93rd DIPP sector (4300) that contains all the NIC sectors which could not be covered under any of the 92 DIPP 4-digit sectors. Thus, our mapping concordance is comprehensive and includes all the 2-digit and 3-digit NIC-2008 sectors. 8.11 Recommendation To conclude, DIPP follows the modified sectoral classification furnished in the Industries Development and Regulation Act, 1951 to present FDI data by sector. However, this classification is inadequate as it is based on a high level of aggregation of economic activities. The widely followed standard classification is the National Industrial Classification. Therefore, NCAER recommends that DIPP base its FDI statistics classification on NIC-2008. 96
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FDI IN INDIA AND ITS GROWTH LINKAGE
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PROJECT TEAM Study Team Project Lea
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linkages with the economy. The sect
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Contents Executive Summary Chapter
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Chapter 5: FDI: Linkages with the E
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Executive Summary Foreign direct in
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EXECUTIVE SUMMARY petroleum product
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Chapter 1: Introduction 1.1 Backdro
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section industry data. However, the
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in India stood at $23 billion, show
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viii) Backward and Forward Linkages
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Chapter 2: FDI Scenario in India: T
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Secretariat for Industrial Assistan
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Table 2.2 shows that FDI outflows f
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at about 2 per cent or less of the
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Table 2.5 Sector-wise Break-up of F
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Table 2.7 FDI in India in the Servi
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Figure 2.4 Country-wise FDI Inflows
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2.10 Foreign Technology Transfers A
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Chapter 3: Mergers & Acquisitions a
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Table 3.2 Short-term effects of FDI
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proportion of foreign investment in
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Chapter 4: Special Economic Zones (
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4.4 Management of SEZs SEZs are und
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in the eight major SEZ’s exports
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Foreign Direct Investment in SEZs S
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In a span of a few years, there hav
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SPECIAL ECONOMIC ZONES (SEZS) AND F
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existing infrastructure, (b) exploi
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Page 70 and 71: construction (4200); fuels, includi
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Page 92 and 93: Chapter 7: Primary Survey: Analysis
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Tables for Chapter 6
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Questionnaires
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QUESTIONNAIRE 257
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