Foreign direct investment

Indian economy: a peek into its economic liberalization

December 10, 2010 By admin Leave a Comment

July 1991 was a turning point in the history of India, when economic liberalization was introduced, thanks to Dr. Manmohan Singh, the then Finance Minister in the Narasimha Rao government. Since then, the growth of the Indian economy has been steady, albeit at a very slow pace.

During the years between the independence and the late 80s, India economic growth relied heavily on the government policies. It was a centrally governed market. There were neither enough foreign investment, nor was the Indian market a consumer-based market, which resulted in a stagnated economy. The slight economic growth during Rajiv Gandhi tenure seemed promising, but it did not really take off. The unprecedented balance payment problem, the fall of the Soviet, which was one of India principal foreign market, and the IMF demand of the bailout loan, did not help India economic cause.

When the country entered the last decade of the previous century, however, things started to improve. The 1990s economic reformation saw many restrictions lifted off from private companies. Telecom, service, industrial, and agricultural sector have seen tremendous economic growth since then. Statistics place the service industry contribution to the Indian economy to almost 55%, and the agricultural and industrial sector has seen 17% growth. The IT boom in the 90s too helped to stabilize the growth of the economy. The introduction of many new sectors solved the unemployment problem considerably.

Since the introduction of the economic liberalization, India has seen an average growth of 6-7%. The main contribution for the economic liberalization is the globalization of India. Today India is the third largest foreign investor in the US. Foreign investors are fighting to get a piece of Indian market, as the returns are greater here. PricewaterhouseCoopers have stated in its report that India could soon become the world third largest economy in purchasing power parity (PPP) by 2010, displacing Japan. And by 2020, India is expected to become the third largest economy after the US and China.

Filed Under: Economic Growth Tagged With: Economic growth, Economy of India, Foreign direct investment, India

India: An Ideal Place for Investment

November 12, 2010 By admin Leave a Comment

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From a “developing nation,” India has become a serious contender for superpower status. Like building credit after bankruptcy, India has painfully and slowly rebuilt its economic status. Believe it or not, there’s even celebrity bankruptcy in India. Strong growth in industrial sectors, increased consumer confidence and changing global sentiments have made India a favored destination for investors. According to a report submitted by The United Nations Conference on Trade and Development (UNCTAD), India ranked third in foreign direct investments in 2009. The report predicts that in the coming years, the country will be among the top five destinations for foreign investments. Japan, the U.K., U.S., Canada and many other top players consider India to be the next big ticket for investments.

There are many good reasons for investing in India. India is one of the largest economies in the world. Its strategic location gives access to a large South Asian market. Low cost skilled labor along with professional managers, no tax on profits from exports, rich mineral and agricultural resources, balanced fiscal incentives, consumer power, a stable and dependable democracy with a benevolent social outlook, and a large English speaking population make it very attractive to foreign investors.

The health care industry in India, for instance, has one of the largest numbers of Joint Commission International (JCI) approved hospitals outside the U.S. The IT sector has made India a power to reckon with, and it’s expected to grow around 15.5 percent by the end of this year. The telecom industry has been the most favored player for foreign investors, with the rural market still remaining largely untapped. According to the BMI India Retail Report, the total retail sales are expected to grow from $353 billion US in 2010 to $543.2 billion US by 2014.

Among the 200 companies that are part of the Global Growth Companies (GCC), India has the second highest representation with over 18 companies. And that says it all.

Filed Under: Business Culture Tagged With: Foreign direct investment, India, Investment

Foreign Direct Investments: Indian Economics

October 24, 2010 By admin Leave a Comment

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The notion of countries trading wares and services is not uncommon. The world has seen an increase in such processes, with borders blurring and financial markets becoming entwined. Economic success is no longer deemed an isolated thing. It is instead the product of much compromise – and nations place their trust (and dollars) in each other, taking advantage of resources and laborers.

In recent years, however, India has become a considerable recipient of such progress. With its vast miles, abundant agricultural possibilities and impressive population (second only to China and capable of supporting any potential business), it has been chosen as an industrial destination – with countless countries seeking to reap its many rewards.

This is known as foreign direct investments and should be understood by all; if only since its relevance is quickly rising among the global economy.

Defined simply: foreign direct investments are the efforts between two individual countries, relating to their participation with labor, expertise and profits. This is most commonly seen within the process of outsourcing. Companies will transfer certain positions overseas, finding the benefit of specialized help and lower costs. They then in turn provide a guarantee of jobs and increased benefits to employers.

It is a symbiotic relationship and assists in stimulating productivity. Indian economics is now defined to it, ranking second in the world for outside investments (only China receives more as of 2010 and this is expected to change within the following decades). Billions of dollars each year are generated through the cooperation of differing nations – and this has secured the market, allowing it to grow beyond any assumption.

Foreign direct investments contribute to one third of India’s economy. This is an impressive percentage that is predicted to increase throughout the impending years. The advantages of choosing this country are simply too well known within the world. A decrease is the most unlikely of scenarios.

Filed Under: Economic Growth Tagged With: Asia, Business, China, Economy of India, Foreign direct investment, India, Investment, United States

Role of Foreign Business Finance in Balance of Payments

October 18, 2010 By admin Leave a Comment

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Countries like India could face a balance of payments issue with incessant foreign direct investments. In business finance, an unfavorable balance of payments situation is when a country’s external debt exceeds its income. Profitability is not an option for India, since it has to repay its debt, and also post an operating profit. Going on break-even mode for long, holds no value for any overseas business finance investments.

Balance of payments problems might surface directly or indirectly. When there is a large pool of foreign equity presence in Indian companies, then the balance of payment problem is direct. Also, if revenues after exports are not great, then the country has a negative business finance condition. Sometimes, emerging countries like India will buy international export licenses. Costing a lot, these licenses have to be renewed periodically and are subject to lots of terms and conditions. In situations where the basic raw materials are not available within the country, import has to take place. When all this gets out of hand, the business finance potential tilts in the other direction. A direct balance of payments deficit is indicated in these circumstances. Indirect balance of payments happen, when exports from emerging economies are not wanted, because a substitute was found for it in the importing country.

Nowadays, multinational companies invest in other countries by setting up subsidiaries, or branches. By doing this they are ensuring that they deal with the same products and services. What they also achieve is a reduction in operating business finance expenses. Looking at an export perspective, this does not offer a great business finance impetus to the host country. If the FDI is driven by reduction of operating costs, then more exports do not necessarily mean more money for the host country. If the FDI is driven by the reduction of production costs, then more exports will automatically take place from the host country.

Empirical evidences do not however substantiate the direct involvement of FDI in creating unfavorable business finance conditions in a country. However, over a long-term, self-sufficiency to a certain degree is always advised.

Filed Under: Business Culture Tagged With: Balance of payments, Business, Corporate Finance, Emerging markets, Foreign direct investment, India, International Business and Trade, Multinational corporation

Analyzing the resilience of the Indian financial market

September 12, 2010 By admin Leave a Comment

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The Indian financial market is like a reservoir of foreign business finance investments. Liberal reforms have opened up the floodgates for incessant foreign investments that has had a black and white effect on the Indian economy.

Given the fact that India is a growing economy, there is no way the Indian government has enough internal capital to promote India’s development. To have internal business finance would mean to be an export-oriented country like some of the developed countries. So generation of internal income would have to come from exports, and exports have to pay for internal development. Since this is a tough task, foreign direct investment (FDI) remains the only option, apart from raising funds from other multilateral institutions.

Foreign direct investments are like fair-weathered friends. When the situation gets tough, they withdraw their business finance liquidity. In every economy, there exists the real economy and the pseudo economy. Situations of FDI withdrawals affect the real economy, which is the backbone of the country.

Higher business finance from FDI means the country is borrowing more. FDI will also have equity in companies in India. Sensex shoots up, the market looks good, and the rupee is made to work hard. More the FDI, more will be the demand for financial equity products. Also, the demand for the rupee will also be more.
Studies indicate that sudden withdrawal of FDI creates a jolt in the Indian financial market. Time and again, the Indian business finance scene has been doing a turnaround. Indeed, the Indian financial market is resilient to fluctuations of foreign direct investment.

Part of the credit should go to the Reserve Bank of India (RBI). Initiating policies to cushion the effects of sudden FDI alienation, the RBI has ensured the stability of the financial economy. To replace lost investment, the RBI cuts down on income tax rates. Banks are directed to offer loans at reduced rates of interest. By doing this, business finance is re-circulated within the economy, and then a replacement mechanism happens. Where FDI has been withdrawn, internal revenues act as interim fillers.

Filed Under: Economic Growth Tagged With: Asia, Business, Business and Economy, Economy of India, Finance, Foreign direct investment, India, Reserve Bank of India

Foreign Direct Investment in Emerging Economies

September 2, 2010 By admin Leave a Comment

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Multilateral institutions like the World Bank, International Monetary Fund, and the Asian Development Bank indicate an enormous increase of business finance investment by way of foreign direct investment (FDI). Foreign direct investment has been growing at more than twenty percent every year. 2004 was the year of revival of business finance influxes from foreign shores into emerging economies. In 2000, the FDI in US stood at nearly over a trillion dollars. After 2000, there was a steady decline in FDI. Now the situation looks stable again for a revival of business finance through FDI.

Emerging markets have given a lease of life to FDI. Countries like India are one of the emerging markets. India has absorbed FDI investment with glee. By the year 2004, almost 40 percent of business finance through FDI was targeted at emerging markets. It is predicted that FDI investment in emerging economies will grow at over four hundred billion US dollars every year. Research agencies like Standard and Poor have predicted robust business finance investments through FDI. Retaining its position as a foreign investment behemoth, the US is predicted to attract more than one-fourth of the global FDI.

Emerging markets have a lot of sectors that are fast growing and need more business finance to fuel their needs. Also, the size of the market is huge, when compared to developed countries. Expectations of high profits are feasible in these markets. Statistics indicates that the countries with the largest inflow of foreign business finance are also among the top ten exporters in the emerging markets category.

Contributing factors of FDI in recent times are the slow industrial growth of developed economies. Not knowing avenues to invest their business finance, foreign investors are solely looking at emerging economies. For emerging economies, foreign investments are nothing but additional business finance. As capital expands, more and more growth happens. Although debts increase, emerging economies have no other go but to grow on debt, and after sometime grow over their debt. If more venture capital comes in, emerging economies like India need not resort to other dangerous external finance methods.

Filed Under: Economic Growth Tagged With: Asian Development Bank, Business, Emerging markets, Foreign direct investment, International Monetary Fund, Investment, Venture capital, World Bank

Investment Options in India

September 2, 2010 By admin Leave a Comment

If you live in the United States and you are not directly connected with the investments world, you may not give much thought to the fact that there are investment options available in countries, such as India. You also may not know that there are ways of taking advantages of these investment options.

Make sure you always remember that things will probably work slightly differently in different countries. For example, consolidated credit news may focus on different aspects of credit consolidation in India than in the United States, so you want to be sure that you are getting information that pertains both to India and the United States.

And always keep in mind that when you are dealing across international lines and borders, and this in itself will bring on additional steps. In India, most investments are handled and governed through the Foreign Direct Investment (FDI). This policy outlines the different ways of investing and how to go about it. A few are listed below, but neither the list nor the explanations should be considered all-inclusive.

Who can make investments. Residents and non-residents. Non-residents can invest in Indian companies through shares or other means through either the automatic route or the government route.

Prohibited investments. These include such things as agricultural or plantation activities, certain companies, and real estate. Also included as such things as retail trading, atomic energy, and betting businesses.

The policy further outlines which countries either have no India investment options at all or only do so after receiving permission certain government or financial entities.

If you are interested in investment options regarding India, don’t let the above-mentioned things deter you. Just make sure you are knowledgeable of how to go about foreign investing (you may want to seek assistance from someone who is trained in this) and make sure everything is being handled in the legal, proper manner.

Filed Under: Economic Growth Tagged With: Foreign direct investment, India, United States