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

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in India stood at $23 billion, showing a growth rate of 43.2 per cent over 2006. In 2008, total FDI inflows into India stood at $33 billion. 1.5 FDI Performance and Potential Index UNCTAD ranks countries by their Inward FDI Performance 3 and Inward FDI Potential Indices. 4 While India is the second most attractive country in terms of the foreign investors’ confidence index, it does not rank high on either the performance or potential indices. UNCTAD (2008) provides a matrix of four groups of countries based on their FDI performance and potential: a) Front runners: countries with both high FDI potential and performance b) Above potential: countries with low FDI potential but strong performance c) Below potential: countries with high FDI potential but low performance d) Under-performers: countries with both low FDI potential and performance INTRODUCTION While countries like Chile, Hong Kong, Malaysia, Singapore and Thailand are “front runners”, and China is below potential, all the major South Asian countries, viz., Bangladesh, India, Nepal, Pakistan and Sri Lanka are “underperformers”. India’s FDI Performance Index in 2007 ranked at 106 (China was 88) out of 141 countries. However, it has a relatively high FDI Potential Index at 84 (China is 32). India’s outward FDI Performance Index in 2007 is also high at the 50th position (China was 59th). 1.6 Global Competitiveness of India’s FDI Another method of assessing the investment potential of an economy is its rank on global competitiveness. 5 The Global Competitiveness Index (GCI) is a comprehensive index developed by the World Economic Forum (WEF) to measure national competitiveness and is published in the Global Competitiveness Report (GCR). It takes into account the micro- and macro-economic foundations of national competitiveness, in which competitiveness is defined as the set of institutions, policies and factors that determine the level of productivity 6 of a country and involves static and dynamic components. The overall GCI is the weighted average of three major components: a) basic requirements (BR) 7 ;b) efficiency enhancers (EE) 8 ; and c) innovations and sophistication factors (ISF). 9 Within the information available for 131 countries, the United States is ranked the highest, with an overall index of 5.67, and Chad is ranked the lowest with an overall index of 2.78; the overall index is 107 for Bangladesh, 92 for Pakistan and 70 for Sri Lanka. The overall rank of India at 48 is still below that of China at 35. In terms of the components, India holds a relatively low rank for BR (74), but higher ranks for EE (31) and even higher for ISF (26). Compared to China, India’s BR rank is lower, but it is higher than China’s on EE and ISF. 3. The UNCTAD Inward FDI Performance Index is computed as the ratio of a country's share in global FDI inflows to its share in global GDP. For details, refer to UNCTAD (2002), World Investment Report. 4. The UNCTAD Inward FDI Potential Index is computed as the unweighted average of 12 economic and structural variables measured by their respective scores on a range of 0-1 (www.unctad.org/wir). The methodology is discussed in UNCTAD (2002), World Investment Report. 5. World Economic Forum (2008). The Global Competitiveness Report (GCR), 2007-2008. 6. Productivity is one of the central determinants of the returns to investment. 7. BR has four pillars: institutions; infrastructure; macroeconomic stability; and health & primary education. 8. EE has six pillars: higher education and training; goods market efficiency; labour market efficiency; financial market sophistication; technological readiness; and market size. 9. ISF has two pillars: business sophistication; and innovation. 5
FDI IN INDIA AND ITS GROWTH LINKAGES 1.7 Objectives of the Current Study While empirical and econometric work on testing various theoretical hypotheses is embedded in the extant literature on FDI, there has been no comprehensive attempt to examine the spatial and sectoral spread of FDI-enabled production facilities in India and their linkages with rural and suburban areas. The majority of the population, both urban and rural, is expected to gain, indirectly and differentially, from FDI. While FDI may benefit the economy at both macroeconomic and microeconomic levels through bringing in non-debt-creating foreign capital resources, technological upgrading, spill-over and allocative efficiency effects, it is equally important to probe whether people in the rural and suburban areas get affected through such benefits. FDI in relatively labour-intensive sectors including food processing, textiles and readymade garments, leather and leather products, and light machine tools, with plants set up in small cities close to rural and suburban areas, would tend to have relatively high employment-generating potential. The present study makes a modest contribution by providing a comprehensive analysis of the various aspects of the impact of FDI on the Indian economy. The objectives of the study are as follows: i) Spatial Spread To take stock of the spatial spread of FDI-enabled production facilities in India during the past five years (2001 to 2006). The production facilities to be studied include manufacturing plants as well as service-providing facilities as these evolved either as greenfield or as M&A processes, located in cities other than metros and Tier 1 cities and in rural areas, in particular. ii) Sectoral Clustering To bring out sectoral clustering across the states and sub-state regions (cities, towns and rural areas of districts) in order to assess the types of production facilities that have entered relatively small towns and rural areas outside municipal limits (2006 to 2008). iii) Depth of Value-Added To enable a comprehensive understanding of the value-added features of the FDI-linked production facilities and their role in providing employment opportunities. iv) Employment-Generating Effects To analyse the impact of FDI on various rural activities, especially in the agriculture and food-processing sectors, and to assess the positive and negative impact of employment through FDI-enabled production activities. v) Labour and Capital Intensity To identify FDI-enabled sectors by their levels of skill, scale, capital and labour requirements, to compare these features with domestically invested production facilities that produce similar products and services, and to provide comprehensive documentation of FDI-enabled production facilities by their labour and capital requirements. vi) Comparative Performance To compare the efficiency and profit levels of MNC affiliates established in India with firms under their parent companies operating outside India. To make similar comparative analyses in a particular sector between FDI-enabled production facilities and domestically invested production facilities. vii) FOREX Implications To understand the implications of repatriation of profits earned in India versus profits retained and invested. 6
Page 2 and 3: FDI IN INDIA AND ITS GROWTH LINKAGE
Page 4: PROJECT TEAM Study Team Project Lea
Page 7 and 8: linkages with the economy. The sect
Page 10: Contents Executive Summary Chapter
Page 13 and 14: Chapter 5: FDI: Linkages with the E
Page 16 and 17: Executive Summary Foreign direct in
Page 18 and 19: EXECUTIVE SUMMARY petroleum product
Page 20 and 21: Chapter 1: Introduction 1.1 Backdro
Page 22 and 23: section industry data. However, the
Page 26 and 27: viii) Backward and Forward Linkages
Page 28 and 29: Chapter 2: FDI Scenario in India: T
Page 30 and 31: Secretariat for Industrial Assistan
Page 32 and 33: Table 2.2 shows that FDI outflows f
Page 34 and 35: at about 2 per cent or less of the
Page 36 and 37: Table 2.5 Sector-wise Break-up of F
Page 38 and 39: Table 2.7 FDI in India in the Servi
Page 40 and 41: Figure 2.4 Country-wise FDI Inflows
Page 42 and 43: 2.10 Foreign Technology Transfers A
Page 44 and 45: Chapter 3: Mergers & Acquisitions a
Page 46 and 47: Table 3.2 Short-term effects of FDI
Page 48 and 49: proportion of foreign investment in
Page 50 and 51: Chapter 4: Special Economic Zones (
Page 52 and 53: 4.4 Management of SEZs SEZs are und
Page 54 and 55: in the eight major SEZ’s exports
Page 56 and 57: Foreign Direct Investment in SEZs S
Page 58 and 59: In a span of a few years, there hav
Page 60 and 61: SPECIAL ECONOMIC ZONES (SEZS) AND F
Page 62 and 63: existing infrastructure, (b) exploi
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Page 70 and 71: construction (4200); fuels, includi
Page 72 and 73: FDI: LINKAGES WITH THE ECONOMY S. N
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Table 5.5 Sector-wise FDI in India
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FDI IN INDIA AND ITS GROWTH LINKAGE
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Chapter 7: Primary Survey: Analysis
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the North and South zones, whereas
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PRIMARY SURVEY: ANALYSIS AND RESULT
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Table 7.1a Distribution of Surveyed
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Table 7.2b Zone-wise Distribution o
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Table 7.3b Zone-wise Distribution o
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Table 7.6a Number of Employees in S
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Table 7.7a Mode of Transport from F
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Table 7.8a Number of FDI-enabled Fi
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Chapter 8: FDI Data Reporting and C
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sector, non-profit institutions ser
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three categories, namely, (i) inves
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Table 8.1 Trends in FDI Inflows to
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FDI DATA REPORTING AND CLASSIFICATI
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Table 8.3 Trends in FDI Inflows by
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Table 8.5 DIPP Classification of FD
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SECTOR-WISE CODE 3700 DEFENCE INDUS
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S. No. DIPP DIPP Activity NIC 2-Dig
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Chapter 10: Key Findings and Salien
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Findings � About half the total o
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7. Forex Implications: To understan
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manufacturing firms taken together.
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References Australian Bureau of Sta
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for economic growth and poverty all
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Tables for Chapter 6
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Questionnaires
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