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Dr.

RAM MANOHAR LOHIYA NATIONAL LAW


UNIVERSITY, LUCKNOW

ACADEMIC SESSION: 2014 2015

ECONOMICS-2

Final Draft: Investment Scenario in India

SUBMITTED TO: SUBMITTED BY:

MS. Mitali Tiwari Ayush Chaturvedi

ASST. PROFESSOR (LAW) ROLL NO. 49 SEC-A

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ACKNOWLEDGEMENT

With due respect, I would like to thank my teacher, Prof. Mitali Tiwari,
under whose guidance and support, I had been able to make the final draft of
this project.

I must also thank Dr.Madhu Limaye Library at Dr. Ram Manohar


Lohiya National Law University, Lucknow for providing me with enough
books and study materials, for the making of this project.

I must thank my parents for their valuable support and for making me
stand of what I am, and the values I had inherited from them, are the prized
possession of my life.

I had given my cent per cent work, in making this project.

- Ayush Chaturvedi
- Roll No 49
- B.A. LL.B. (Hons.)
- Semester 2ND
- Section A

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Index

Introduction 4

Factors affecting investment 4

Present investment scenario 7

Where is India lagging? 7

Future prospects 8

Conclusion 8

Bibliography 9

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Introduction

Investment is time, energy, or matter spent in the hope of future benefits actualized within a
specified date or time frame. Investment has different meanings in economics and finance. In
economics, investment is the accumulation of newly produced physical entities, such as
factories, machinery, houses, and goods inventories.

Growth results from domestic investment from savings, from productivity improvements and
from foreign investments. Countries like China that have grown rapidly in recent decades have
taken advantage of all three sources of economic growth. India, on the other hand, has tried to
achieve growth without. This mindset of India Inc. is like bringing a knife to gunfight. But in the
last few years government has realized the importance of foreign investment. It is the reason that
recent policy changes such as make in India have come forth. Besides these initiatives,
government has also made big policy changes such as raising cap for FDI in various sectors. This
project will take into account these changes and the effect of these factors in improving image of
India as an Investment Destination.

For an economy the sources of investment are two

Domestic investment from savings

Investment from foreign sector

Investment from foreign sector is further classified as

Foreign Direct Investment(FDI)

Foreign Portfolio Investment(FPI)

Factors Affecting Investment

Different factors affect investment of the abovementioned two kinds of investment

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Savings are made by households, corporate entities and government in physical and financial
assets.

The domestic investment is largely dependent on savings in economy. There are three sectors in
economy household, corporate and government sector

Households save essentially for two reasons: to cover future expenses and for retirement.

Company savings are simply that part of their profits that they do not pay out to shareholders as
dividends, but retain it to finance future investment in the business.

Government saves when its tax revenues exceed its expenditures on recurring items. If its tax
revenues exceed these current expenses, it has money left to spend on the building of new roads,
bridges, hospitals, schools, etc.

But as usual course an economy is not able to fund for its development projects and yearly
expenses in such a case foreign investment is very crucial.

Since the last decade wave of globalization has swept the world, due to which foreign investment
has become an important and powerful tool for accelerating growth. But at the same time the
main objective of investors is maximum return from their investment, they usually refrain from
investing in countries with low prospects of bright future. Combination of various factors affects
countrys potential as an investment destination. Stable government favorable and stable tax
policies, good business environment, sound economic system, transparent administration, low
level of corruption, physical infrastructure, low foreign debt obligation etc. have been reported as
important factors affecting foreign investment.

Present investment scenario

To put India's track record in attracting FDI in an international context, it's been at best a
trickle compared to FDI into countries like Mexico and China. In the last 10 years, Mexico has
attracted $247 billion of FDI net inflows and China $2 trillion, compared to India's $229 billion.

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From the standpoint of an average citizen, the comparison is worse because Mexico is far
less populous than India or China. What matters to an average citizen is per-capita investment.
On a per-capita basis, FDI net inflows for Mexico, China and India are $2,017, $1,531 and $183,
respectively. No wonder the per-capita GDP of Mexico is $10,300, China $6,800 and India
$1,500.

India has a large sized middle class, which is further expanding substantially, offering a big fat
market for foreign products and services. In fact, if India continues its recent growth trend,
average household incomes will triple over the next two decades and it will become the worlds
fifth largest consumer economy by the year 2025, according to a McKinsey report in 2010. The
consistent economic growth in India has been an important factor that has contributed towards
the decline in poverty.
Indias per capita income is estimated to be US$ 1223.45 in 2010-11, at current prices,
which is higher by 17.9 percent from the per capita income in 2009-10.
In just eleven years, from 1993-94 to 2004-2005 the percentage of people below poverty
line has declined from 36% to 28%, according to a survey conducted by National
Sample Survey Organization (NSSO).
The continuous inflow of FDI in India, which is now allowed across several industries, clearly
shows the faith that overseas investors have in the country's economy. The Indian governments
policy regime and a robust business environment have ensured that foreign capital keep flowing
into the country. The government has taken many initiatives in recent years such as relaxing FDI
norms across sectors such as defense, PSU oil refineries, telecom, power exchanges and stock
exchanges, among others.

The most positive sign of this sector is its growth despite the economic vows prevailing
throughout the globe where even European giants failed to attract investment. According to a
recent report by global credit rating agency Moodys, FDI inflows have increased significantly in
India in the current fiscal. This, according to Moodys, is due to Indias current pro-growth
policies. Net FDI inflows totaled US$ 14.1 billion in the first five months of 2014-15,
representing a 33.5 per cent increase from the same period in 2013-14.

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Total FDI inflows into India in the period April 2000November 2014 touched US$ 350,963
million. Total FDI inflows into India during the period AprilNovember FY15 was US$ 18,884
million.
Mauritius is again emerging as the largest source of FDI in India, accounting for an inflow of
US$ 83,730 million in the April 2000-November 2014 period. According to official data, the
inflow of foreign investment from Singapore amounted to US$ 29,193 million, followed by the
UK at US$ 21,761 million and Japan at US$ 17,557 million during April 2000-November 2014.
Apart from these statistics in budget 2015-16 government has made pro investment decisions
like increasing the foreign investment cap in various sectors besides on the domestic investment
front in sectors like railways it has reverted to sound policy of consolidating existing
infrastructure without creation of any new major services. The government has announced that
foreign investors can put in as much as Rs 90,300 crore (US$ 14.65 billion) in Indias rail
infrastructure through the FDI route, according to a list of projects released by the Ministry of
Railways. Indias cabinet has cleared a proposal which allows 100 per cent FDI in railway
infrastructure, excluding operations.

In recent years the government has come to realize that though foreign investment is important
for accelerating growth of vibrant sectors of economy, the same cannot be always relied upon. In
last few years the term Inclusive Growth has taken spotlight. The recent initiatives like make
in India bring forth the concern of government regarding this area. Onno Ruhl, World Bank's
country director for India, said about 50 million women in 15-24 age group are neither working
nor studying. "This is a huge number which is equal to the population of some countries. A
developing country like India needs to attract domestic investment more than pulling foreign
direct investment in order to grow''

Where is India lagging?


The biggest problem that India faces today is to tap the vibrant potential of its different sector.
For example the tourism sector remains in abysmal state. North-eastern states have failed to
produce or attract hardly any investment. This signifies lagging of a pan-India effort on his
ground.

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Clearing of projects involving huge investments is one of the major hurdle that India faces. This
can be elucidated from the fact that in the World Banks Ease of Doing Business 2014-15
India has been ranked at paltry 142 out of 189 countries which is 2 places lower than the
previous fiscal year. This lists enumerates countries based on factors which facilitates doing
business by both foreign and domestic entrepreneurs.
This piece of information read together with instances of corruption like 2g spectrum scam
badly hurts investor confidence.
Future prospects
Investors have still got the image of authorities that existed during the license-quota-permit raj.
Red-tapism, multiple levels for clearance of files, deliberately delaying of the projects are some
of the bottle-necks. A new problem that has emerged is the issue of environmental clearance for
big investment projects. There is a constant tussle within the government where such issues are
concerned. Keeping this in view the impetus for single window clearance policy is a step in the
right direction. Besides step taken under make in India a joint venture of union finance
ministry and FICCI(Federation of Indian Chamber of Commerce and Industry) propose to make
doing business more easier by introducing new de-licensing and deregulation measures for
reducing complexity, and significantly increasing speed and transparency. Mandatory 24x7 e-biz
portal, mandatory checklist for compliance are some other steps taken to ensure smooth
administration.
Indias manufacturing infrastructure and capacity for innovation is poised for phenomenal
growth: new smart cities and industrial clusters, being developed in identified industrial corridors
having connectivity, new youth-focused programs and institutions dedicated to developing
specialized skills. Internationally steps are being taken to brush up image of India as an
investment destination. The present NDA government has taken a serious note of the fact that
India continues to be ranked abysmally low on various indexes like ease of doing business
report issued by the World Bank. The Centre has identified 98 parameters to ensure ease of doing
business in India, and has shared these with the States for necessary action 1. For the first time an
industrial policy for union territories has been made under these directions.

1 The Hindu Centre identifies parameters to ensure ease of doing business, 16 march
2015.

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Most importantly these steps show the change in mindset towards investors of government from
a permit-license issuing authority to a true business partner.
Conclusion
Foreign investment inflows are expected to increase by more than two times and cross the US$
60 billion mark in FY15 as foreign investors start gaining confidence in Indias new government,
as per an industry study. "Riding on huge expectations from the incoming Modi government,
global investors are gung ho on the Indian economy which is expected to witness over 100 per
cent increase in foreign investment inflows both FDI and FIIs to above US$ 60 billion in the
current financial year, as against US$ 29 billion during 2013-14," according to the study. The
year 2013 saw foreign investment pour into sectors such as automobiles, computer software and
hardware, construction development, power, services, and telecommunications, among others.
Promoting investments in India in a focused, comprehensive and structured manner while acting
as a first reference point to provide quality input and support services to the prospective
investors.

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Bibliography
www.wikipedia.com
www.finmin.nic.in
www.doingbuisness.org
www.ibef.org
www.makeinindia.org
Investment commission of India report, 2012

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