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Leading Sectors for Investment in India

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Leading Sectors for Investment in India

By: Dezan Shira

About the Author

This article was written for the India business news website India-briefing.com. The site is contributed to by the accounting and tax experts at Dezan Shira & Associates who maintain Chennai accountants as well as other Indian cities.

The firm also contributes to the Chinese business news website, China-Briefing.

(ArticlesBase SC #1462067)

Article Source: http://www.articlesbase.com/ – Leading Sectors for Investment in India

Mauritius is the highest contributor of FDI in India due to the special tax treatment that investments that come through Mauritius receive. This tiny nation in the Indian Ocean is considered a tax haven because it levies corporate tax of less than 3 percent, making it the most preferred route for FDI inflows, especially from other countries.

According to India’s Ministry of Commerce and Industry, Singapore is the second largest source of FDI in India and the top sectors the country invests into India include telecommunications, services, electrical equipment, fuel (power and oil refinery) and transportation.

The third largest investor into India is the United States. From April 2008 thru March 2009, the United States invested approximately US$18 billion in India. Some of the top sectors attracting FDI include fuels (power and oil refinery), telecommunications, electrical equipment, food processing industries and services sector.

Across the past decade, the services sector (financial and non-financial) has received the most foreign investment than any other industry, accounting for 23 percent of total FDI. The services sector has played an integral part in the overall growth of the Indian economy and has seen double-digit growth rates since early 2000. Following the services sector, computer software and hardware (10 percent), telecommunications (8 percent), housing and real estate (7 percent) and construction activities (6 percent) account for the most invested sectors. It is important to note, however, that agriculture is the predominant sector in terms of employment and livelihood in India with more than half the country’s workforce engaged in it as a principal occupation and contributing significantly to export earnings. It is for this reason FDI is not permitted in agriculture other than in the tea sector (including tea plantations) where 100 percent FDI is allowed but requires FIPB approval. Given that agricultural is the backbone of the India economy, farmers are protected through these FDI policies.

Since the Congress Party’s victory in May, there is a clear mandate that infrastructure development is the top priority. Recognizing that a steady supply of power along with a solid transport infrastructure will help revive the Indian economy and boost productivity, the government has set up plans to increase the gross capital in infrastructure in the next several years that translates into over US$500 billion worth of investments. A June 2009 study from First Global indicates the government plans to fund these projects through public private partnership (PPP) investments, respectively at a 70:30 ratio.

To read the complete version of this article, please visit India-briefing.com where you can read the entire article for free.

Retrieved from “http://www.articlesbase.com/business-articles/leading-sectors-for-investment-in-india-1462067.html”

(ArticlesBase SC #1462067)

Dezan Shira -
About the Author:

This article was written for the India business news website India-briefing.com. The site is contributed to by the accounting and tax experts at Dezan Shira & Associates who maintain Chennai accountants as well as other Indian cities.

The firm also contributes to the Chinese business news website, China-Briefing.

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Indian real estate is one of the safest destinations for the potential investors. Properties in India are a preferred choice for executives, NRIs, foreigners and other travelers who frequent to India often. The property market in India is now one of the hottest businesses in the country and it is promising the investors to provide them with high returns and huge profits for their investments, whetting the cravings of overseas as well as domestic investors. Keeping in view this recent trend, it is easy to say that Indian is proceeding in the correct direction and more and more investors will soon come towards the country for investment in its real estate.
India offers the perfect environment by providing maximum rewards to its investors. One of the main reasons is that the country is the largest democracy in the world and its legal system is the strongest possible. Now-a-days, no business other than real estate is more revenue generating and lucrative in the country. Investment in real estate properties includes resorts, hotels, schools, hospitals and residential as well as commercial properties. Investment in Indian real estate comprises of more returns and this is why more and more people are negotiating investment contracts at a rapid rate. In addition to that, banks are providing loans to the builders, players of private equity are making big investments and funds for real estate are being floated by the financial institutions. Easy availability of loans and higher rates of earnings are some of the main reasons behind sudden jumps in the Indian real estate sector. Some of the reasons why you should think, invest and earn from property investment in India are:

The economy of India is continuously growing, leading to improvement in the purchasing power of people and creation of more real estate demands.
As India produces millions of graduates every year, the factor creates demands for additional industrial and official space.
Foreign as well as domestic companies are initiating their operation in the country leading to increased demand of corporate space.
Property investment in India is paying large dividends to the foreign investors.
Huge industrial development of India in the fields of pharmaceuticals, apparels, auto components, jewelry and chemicals has also led to attracting more and more foreign investors towards investing in India.

With increased demand of properties, their rates are more likely to increase in near future, thus leading to the profit of real estate investors across the globe.

Foreign direct investment (FDI) is probably one of the most significant factors leading to the globalization of the international economy. FDI inflows to the developing countries increased remarkably in the 1990s and now accounts for about 40 per cent of global FDI.

Similar trends have also been observed in India. Foreign direct investment in India has expanded rapidly following the liberalization program initiated in the early 1990s. The immediate challenge before the Congress Government constituted in 1991 was to overcome the severe economic crises and direct the economy towards a sustained growth. Accelerating economic growth through liberalization and globalization necessitated not only dismantling the stringent rules and regulations but also inviting foreign capital and technology. It also meant restructuring its trade regime to prepare the economy for greater integration with the global economy.

Gradually the interaction and interdependence of economic and foreign policies intensified during the first half of 1990s. It situates the process of economic liberalization in the wider context of foreign policy to explore the interaction between economics and politics in India during the period of 1990-1995. The major policy shift from the IS strategy towards a more outward oriented economy led by export development has attracted the interest of foreign investors in India. Figure 1 shows this trend in the level of annual inflows of both actual FDI for the period 1997-2004

Figure: 1 Actual FDI (Net) 1997-2004

Source: Economic survey 2004-2005,( http:/indiabudget.nic.in)

Aggregate FDI inflows into India were somewhat lower during 2003-04 as compared to that during 2002-03. The reduction is attributable to a small decline (US$379 million) in fresh equity capital inflows in 2003-04. Reinvested earnings during 2003-04 at US$1.8 billion were more or less the same as in 2002-03. FDI flows into India, on BOP basis, after rising sharply from 1999-2000, have been showing a decline since 2001-02. FDI (net) undertaken by Indian enterprises overseas, was also lower at US$1.3 billion during 2003-04, compared to US$1.8 billion in 2002-03.

India seems a quite attractive location to many foreign multinational enterprises (MNEs) due to favorable factors such as high economic growth, fast growing population, English speaking people, lower cost for workers etc

Earlier there have been relatively few empirical studies which have examined location decisions of MNEs choosing India as an investment location. Previous studies have relied more on collection of primary data using managerial perceptions for measuring the explanatory factors. The rapid growth of FDI and its increasing importance, it is critical for both the public and private sectors to have as complete an understanding of the macroeconomic determinants of this phenomenon as possible. Building on the prior literature the focus of this paper is on the location-related determinants of FDI. This is undertaken by means of a time series analysis of major locational factors impacting upon the level of FDI inflows for the period of 1997-2004.

Locational determinants of foreign direct investment

A firm becomes multinational mainly for three reasons. They are Ownership advantages, Location-specific advantages and Internalization. In this study, we focus on the location-specific advantages of the host country as determinants of FDI in order to account for the geographical distribution of FDI inflows across transition economies. Large market size, proximity to home market, low-cost labor and favorable tax treatment in the host country are all considered as location advantages. At the same time, we also address to transition specific issues such as changes in macroeconomic and institutional environments.

Location-specific advantages are further classified by three types of motives of FDI.

First, market-seeking investment is undertaken to sustain existing markets or to exploit new markets. For example, due to tariffs and other forms of barriers, the firm has to relocate production to the host country where it had previously served by exporting.

Second, when firms invest abroad to acquire resources not available in the home country, the investment is called resource- or asset-seeking. Resources may be natural resources, raw materials, or low-cost inputs such as labor.

Third, the investment is rationalized or efficiency-seeking when the firm can gain from the common governance of geographically dispersed activities in the presence of economies of scale and scope.

This study mainly focusing on the host country based factors. The host country factors or elements can be grouped in two categories, First group comprises of natural resources, most kinds of labour, and proximity to markets. Second group comprise of a range of environmental variables that act as a function of political, economic, legal, and infra-structural factors of a host country.

The model and the variables

Though the literature on the subject has suggested several possible explanatory variables, it is not possible to include all of them. The main criteria for reducing the number of variables are as follows:

(i) Relation and importance of the variable for India,

(ii) Availability of data;

(iii) Degrees of freedom;

The economic model is specified as:

FDI = f (MS, OE/FT, I, DMA, EE, IE) ———— (1)

Where FDI = Foreign direct Investment,

MS = Size of domestic market,

OE/FT = openness of the economy to foreign trade,

I = Infrastructure of the host country,

DMA = Domestic market Attractiveness,

EE = External economic stability,

IE = Internal economic stability.

The economic theory suggests that a positive relationship between FDI and size of domestic market, openness of the economy to foreign trade, and infrastructure of the country. While a negative relationship between FDI and External economic stability, internal economic stability. The larger the market size, the more demand for the products or services to be provided by the FDI.

Figure: 2

Figure 2 shows that the FDI inward and outward values for the year 2004 to 2006, and figure 3 shows the comparative statement of FDI inwards and outwards of India and China for the year 1990 to 2000. This information made the clear picture of the importance of the locational determinants for attracting foreign direct investments towards the host country. As is evident from these figures India has only very recently emerged as a destination for FDI since the pre-reform years were marked with a sharp antipathy toward foreign capital unless under certain conditions. Reliable data on actual FDI inflows into different sectors is not available. On the basis of “approvals” data it appears that much of the FDI is directed towards infrastructure and energy sectors. More approvals were made in the nonmanufacturing sector as compared to the manufacturing sector. Metallurgy, power and fuel sectors recorded the most growth with falls in transport, industrial machinery and food processing.

Figure: 3

The services sector (including telecommunications) increased its share during 1992-94 but this growth slackened off due to shortfall in demand. Since several key subjects (such as education, health, roads (except national highways), electricity, property rights etc.) lie within the jurisdiction of individual states, the progress of administrative reforms at the level of state governments is an important determinant of state level economic performance in several years including State domestic product growth, investment, infrastructure and attractiveness as FDI destinations.

In the past decade FDI approvals varied considerably over the geographical span of India. Four states namely Karnataka, Maharashtra, Tamilnadu and Gujarat accounted for over one-third of total FDI approvals. The shares of these individual states were, respectively, 7.6%, 13.7%, 6.7% and 5.3%. The shares of other major states were considerably lower: West Bengal (3.7%), Andhra Pradesh (4.2%), Madhya Pradesh (4.5%) and Orissa (3.8 %). The shares of Kerala, Haryana, Punjab and Rajasthan were comparatively smaller whereas the flow of FDI into populous states such as Bihar and Uttar Pradesh has been virtually negligible. The rate of approval increased considerably and that influenced on the FDI flows to India. The USA is the largest investor in India with investment of over

Rs. 570 billion (as on 2002).

It would be easier if we could see the sector wise comparison of FDI and the corresponding GDP values. Figure 4 shows the comparative information for the recent period. From that we could understand the sectoral real growth rates in GDP for the year 2000 to 2005. The lower contribution of industry to GDP growth relative to services in recent years is partly because of its lower share in GDP, and does not adequately capture the signs of industrial resurgence. First, growth of industrial sector, from a low of 2.7 per cent in 2001-02, revived to 7.1 per cent and 7.4 per cent in 2002-03 and 2003-04, respectively, and after accelerating to over 9.5 per cent in the next two years, touched 10.0 per cent in 2006-07. Second, growth of industry, as a proportion of the corresponding growth in services, which was 78.9 per cent on an average between 1991-92 and 1999-2000, improved to 88.7 per cent in the last seven years.

Figure: 4

Sectoral real growth rates in GDP at factor cost

(At 1999-2000 prices)

Industrial growth would have been even higher, had it not been for a relatively disappointing performance of the other two sub-sectors, namely, mining and quarrying; and electricity, gas and water supply. Industry has never consistently grown at over seven percent per year for more than three years in a row before 2004-05. Every year, manufacturing, according to the monthly Index of Industrial Production (IIP) available until December 2006, has been growing at double digit rates every month since March 2006.

The information from the above table can be compared with the actual FDI inflows of India in the same time. Figure 5 gives the year wise comparison of the FDI values for the year 1991 to 2006.

The advance estimates (AE) of gross domestic product (GDP) for 2006-07, released by the Central Statistical Organization (CSO) on February 7, 2007, places the growth of GDP at factor cost at constant (1999-2000) prices in the current year at 9.2 per cent. Growth in 2005-06, initially estimated by the CSO at the AE stage at 8.1 per cent in February 2006, was revised upwards to 8.4 per cent at the revised estimate stage in May 2006 and further to 9.0 per cent in the quick estimates released by the CSO on January 31, 2007

Conclusion

As far as the economic interpretation of the model is concerned, the size of the domestic market is positively related to foreign direct investment. The greater the market, the more customers and the more opportunities to invest. Since FDI is mostly in the form of physical investment, investors would prefer the markets with better infrastructure. The attractiveness of the host market also affects the FDI positively and significantly. In many ways India’s principal problem remains that of boosting its rate of saving and investment from the current about 23% of GDP to over 30% of GDP in order to make growth prospects take a quantum jump and become comparable with the high growth phases of the Chinese and East Asian economies. FDI becomes important in its own right if it makes contributions towards technology progress; productivity spillovers and consolidating niche export markets. This paper emphasizes the view that an enlightened FDI policy is to be seen as part of a general policy of enhancing investment in this economy under conditions of sustained production efficiency.

Reference:

1) Economic Liberalization and India’s Foreign Policy/Chan-Wahn Kim. Delhi, Kalpaz

2) John H. Dunning’s “GLOBALIZATION INDUCED CHANGES AND THE ROLE OF FDI POLICIES”

3) Website: http:/indiabudget.nic.in

4) Government of India (2002) “Report of the Steering Committee on Foreign Direct

Investment” Planning Commission, August.

5) Recent Trends in FDI Flows and Prospects for India – Raghbendra Jha

6) www.unctad.org/wir or www.unctad.org/fdistatistics

Forex Trading Investment In India

Trading is a fast moving world, where you do not always have time to fully consult all your options before you make your decisions. It is an exciting world, because you will be tapping powerful resources which will generate income. It is a 24-7 job, because world trading markets do not sleep. What is more, any high-profit activity can be risky. That is why you need a reliable partner, with a reliable system, which will control the risks for you. But shop around – the best systems do not just schedule deals for you, they are informative, so that you can develop as a trader.

Forex markets are higher-yielding than equity markets, and have the added flexibility of being able to trade the U.S., European and Asian Pacific sessions. What’s more, you can trade from home or the office, quickly and effectively, with no commissions and far exceeding the typical 15:1 margin on futures or the 2:1 margin offered by equity brokers, achieving a surprising 100:1 leverage.

The commercially successful systems that are available tend to focus on pairs of currencies – they are looking for volume of trading and high interest. This helps to minimise the risks.The benefits of certain systems is that they have set trading times, obviating the pressure of 24-hour monitoring of the markets. There are certain peak times when the markets are most reliable and have the greatest volume of trade, and a typical day in any one market would have two or three trading peaks. Subscribers to a trading system typically enter a broadcast in real-time, where new trades are indicated, with a trader presenting them and discussing and analysing their merits as well as calling the trades. Generally speaking, forex trading tends to be a shorter-term investment than those carried out using other vehicles. Short-term strategies can last from as little as a few minutes to a few days, with longer-term strategies for bonds and stocks stretching over months or years. Forex Trading Investment In India

The distinguishing feature of forex trading is that interest can be earned on open positions on a daily basis, according to your leveraged trade volume. This could not be said of other types of market, which don’t yield interest on open trades. Depending on fluctuations in interest rates, this can accumulate over the years to hundreds of percentile points. There is a risk factor in the fluctuation of exchange rates between your chosen currencies, but the interest will be entirely predictable and guaranteed. Further revenue will naturally be accrued by currency appreciations or depreciations. What’s more, investing in various currencies is a great way to diversify your portfolio and spread your investment. It will not cost you as much as you would think to join the high-flyers of forex traders. Many foreign exchange trading brokers will allow you a three week trial period to test their trading platforms, to see if you can get along with it, before you sign up fully. The more established systems will typically offer a mini-account to get you started, where initial investment will set you back as little as 250$. before opening any live account always practice at least 200 trades with a demo account in order to get a feel of what trading with real money will be like. Never open a forex trading with money that you can not afford to lose. There is a 95% chance that you are going to lose your money as a beginner in the currency trading market, so if you are going to open a live account, make sure you open it with the minimum amount of funds possible. Forex Trading Investment In India