null-9.docx

TYBAF Impactof FDI in BankingSector
1
PROJECT REPORT ON
An Study Of Impact Of Foreign Direct Investment In Indian Banking
Sectors
SUBMITTED BY
Shashikant Pophale
TYBAF SEMESTER – VI
2021 - 22
UNDER THE GUIDANCE OF PROF.
Ajay Poojary
SUBMITTED TO
UNIVERSITYOF MUMBAI
VIDYALANKAR SCHOOL OF INFORMATION TECHNOLOGY
(AFFILIATED TO UNIVERSITY OF MUMBAI) VIDYALANKAR MARG,
WADALA (E),
MUMBAI 400 037

2
Index
CH.
NO.
TITLE/CONTENT PAGE
NO.
1 Introduction 7
1.1 Objectives of study 16
1.2 Scope of Study 16
1.3 Limitations of Study 17
1.4 Methodology 18
2 Introduction to the topic 19
3 Review of Literature 25
4 Data Analysis 46
5 Findings 69
6 Conclusion 70
7 Suggestion & Recommendation 71
8 Questioners/Annexure 72
9 Bibliography 73

3
CHAPTER 1
INTRODUCTION
The Foreign Direct Investment means “cross border investment made by a resident in
one economy in an enterprise in another economy, with the objective of establishing a
lasting interest in the investee economy. FDI is also described as “investment into the
business of a country by a company in another country”. Mostly the investment is into
production by either buying a company in the target country or by expanding operations
of an existing business in that country”.
Such investments can take place for many reasons, including taking advantage of
cheaper wages, special Investment privileges (e.g. tax exemptions) offered by the
country. Foreign Direct Investment (FDI) broadly encompasses any long-term
investments by an entity that is not a resident of the host country. Typically, the
investment is over a long duration of time and the idea is to make an initial investment
and then subsequently keep investing to leverage the host country’s advantages which
could be in the form of access to better (and cheaper) resources, etc.
This long-term relationship benefits both the investor as well as the host country. The
investor benefits in getting higher returns for his investment than he would have gotten
for the same investment in his country and the host country can benefit by the increased
know how or technology transfer to its workers, increased pressure on its domestic
industry to compete with the foreign entity thus making the industry improve as a whole
or by having a demonstration effect on other entities thinking about investing in the
host country.
Today Indian Banks are as technology savvy as their counter parts in developed
countries. The competitive and reform force have led to the emergence of internet, e-
banking, ATM, credit card and mobile banking too, in order to attract and retain the
customers by bank. As a result of Liberalization, Privatization and Globalization mode,
Indian banks going global and many global banks setting up business in India, the
Indian banking system is set to involve into a totally new level it will help the banking
system grow in strength going into the future. The banking sector plays an important
role in the economic development of a country. It supplies the lifeblood –money that
supports and fosters growth in all the industries. True, monetary resources per se,
cannot ensure business success, which requires competencies on several other fronts,
including technology, availability of skilled manpower, well-managed structure and a
well-executed competitive strategy. FDI is a tool for economic growth through its
strengthening of domestic capital, productivity and employment. FDI also plays a vital
role in the up gradation of technology, skills and managerial capabilities in various
sectors of the economy. Foreign Direct Investment as seen as an important source of
non-debt inflows and is increasing being sought as a vehicle for technology flows and
as a means of attaining competitive efficiency by creating a meaningful network of
global interconnections. FDI plays a vital role in the economy because it does not only

4
provide opportunities to host countries to enhance their economic development but also
opens new vistas to home countries to optimize their earnings by employing their ideal
resources. According to the 2019 World Investment Report released by the United
Nation’s Conference on Trade and Development (UNCTAD), of 179 major global
companies surveyed, India is considered to be the third most-preferred investment
destination after China and the United States.
A fundamental force of globalization is the rising level of attractiveness of different
countries and geographical locations (Kalle Pajunen, 2019). One of the most visible
signs of the globalization of the world economy is the increase of Foreign Direct
Investment inflows across countries (Niko et al, 2020). It is widely proclaimed that
capital account liberalization would immensely benefit developing economies because
once capital controls are lifted capital would flow from the capital abundant rich
countries to the capital scarce developing countries (Manmohan et al, 20193).
Developing countries around the world have been liberalizing their trade regimes and
moving away from import substitution investment regimes (Tshepo S. Masipa, 20194).
The perception of the role FDI plays in the development process has evolved over time
(S Chalapati Rao et al, 20185). Foreign direct investment flows between developing
economies have increased significantly, pointing to new dynamics in international
capital flows (Yannick Fiedler et al, 20206 & M. Azam etal7).
The importance of FDI to a developing country cannot be underestimated (Anathi,
20198 & Javaid et al, 20199). FDI by multinational corporations is the most relevant
form of private capital flows to developing and most emerging economies (Konstantin
et al, 201810). It plays a very important role in providing countries with the necessary
investments (Jaap Bo’s et al, 2019). It is an important source of non-debt financial
resources for country for economic development (Supriya, 202012). Over the past three
decades, one of the key features of economic policymaking in many countries,
particularly in the developing world, has been the increasingly favorable treatment
given to FDI (Chalapati Rao et al, 201913). It is large and growing sources of finance
that help developing countries close the technology gap with high-income countries and
develop their export markets (Maxwell).
The 1991 balance of payment crisis allowed India to embrace international trade by
inviting FDI into various sectors within its economy (Riken, 201915) liberalization of
FDI policy announced in July2019 (Dr. Mohd et al, 201916) because of a shortage of
foreign reserve (Zhongmin Li, 201917). It is a prominent trend in the recent economic
history of most developing nations (Said Elfakhani et al, 201918). India of investment
policies played a critical role in encouraging and facilitating corporate sector, trade
liberalization and relaxation of regulations governing inward FDI leading to a major
restructuring in the Indian industry (Murali et al, 201919). The foreign portfolio
investments (FPI) regime has also been quite liberal and well defined for foreign
investors (Partha Ray et al, 201820). It is playing a significant role in development of
any economy as like India (Abhishek, 201821) & (Krishan et al,201922).

5
The past three decades have witnessed enormous growth in global diversification by
multinational firms (Rajesh et al, 201723). It is often portrayed as a long term, stable,
cross border flow of capital that adds to productive capacity, helps meet balance-of-
payments shortfalls and management skills, and links domestic firms with wider global
markets (Yılmaz Akyuz, 201824). This has different effects on host economies (Robert
et al, 201825), relation between employment generation and FDI is very significant
(Ratan et al,l, 201826). the amount of FDI has an increasing trend, and also the Gross
Domestic Product (GDP) is increasing every year (Yuki, 201827). India has one of the
most transparent and liberal FDI regimes among the emerging and developing
economies (Ravi Singhania 201828). FDI flows are usually preferred over other forms
of external finance because they are non-debt creating, non-volatile and their returns
depend on the performance of the projects financed by the investors (Planning
Commission of India, 2019).FDI in global economy are the most important form of
international business activity (Derado, 201930) and investment is a key factor of
economic development (Igor Ivanovic201931). Make in India initiative-On overview.
The Prime Minister on 15th August 2019, launched the initiative “Make in India”, on
25th of September, 2019 in a function held at the national capital. The government
desires to achieve the growth of manufacturing sector by focusing on development of
sectors like automobiles, power, railways, textiles, media and entertainment, aviation,
leather, electronics etc. (Ritika et al, 201832). The programmed has been devised to
transform India into a global design and manufacturing hub (Neelofar Kamal 201733).
The main aim of this campaign is to generate employment and enhancement of skills
in the economy (Komalpreet Kaur et al, 201734) potential effects of FDI on the local
economy (Alfaro Laura, 201835), boost as a global manufacturing destination of the
world (Dramata Singh201836).
FDI is the vehicle by which firms achieve their strategic objectives (Georgios Zekos
2019). The campaign has been concentrated to fulfill the purpose of Job Creation,
Enforcement to Secondary and Tertiary sector, boosting national economy, converting
the India to a self-reliant country and to give the Indian economy global recognition
(Dr. Puneet Aneja 201938). It is an initiative to make a call to the top business investors
all across the world (national or international) to invest in India (Rajesh Jain 201739).
The main aim of this scheme is to create jobs and development of skill in 25 sectors of
the economy. The Make in India initiative is based on four pillars, which have been
identified to give boost to entrepreneurship in India, not only in manufacturing but also
other sectors (Sujit Gulhane et al, 201740 & Ramana 201841). thus, different suggestion
and recommendation are given to improve the present condition of FDI in India.

6
ForeignDirectInvestment
Definition
International Monetary Fund (IMF) and Organization for Economic Cooperation and
Development(OECD) define FDI similarly as a category of cross border investment
made by a resident in one economy (the direct investor) with the objective of
establishing a ‘lasting interest’ in an enterprise (the direct investment enterprise) that is
resident in an economy other than that of the direct investor. The motivation of the
direct investor is a strategic long-term relationship with the direct investment enterprise
to ensure the significant degree of influence by the direct investor in the management
of the direct investment enterprise.
Components of FDI:
There are three components of FDI, namely, equity capital, reinvested earnings and
intra company loans
1. Equity capital is the foreign direct investor’s purchase of shares of an enterprise
in a country other than his own country.
2. Reinvested earnings comprise the direct investor’s share (in proportion to direct
equity participation) if earnings not distributed as dividends by affiliated or
earnings not remitted to the direct investor. Such retained profits by affiliates
are reinvested.
3. Intra company loans or intra-company debt transactions refer to short or long
term borrowing and lending of funds between direct investors (parent
enterprises) and affiliate enterprises.
FDI in banking sector can solve various problems of the overall banking sector. Such
as:
1. Innovative Financial Products
2. Technical Developments in the Foreign Markets
3. Problem of Inefficient Management
4. Non-performing Assets
5. Financial Instability
6. Poor Capitalization
If we take into consideration the root cause of these problems, the reason is low-capital
base and all the problems are the outcome of the transactions carried over in a bank
without a substantial capital base. In a nutshell, we can say that, as the FDI is a non-
debt inflow, which will directly solve the problem of capital base.

7
FDI in Indian banks
The traditional argument against foreign equity participation in domestic companies is
that these businesses often involve national and strategic interests and therefore,
operational and strategic control must be retained to prevent a take-over or a buyout
[Lam (1997)]. Until 1993, most Indian banks were 100 percent owned by the central
government and private investment was allowed only in a handful of private banks
formed around the 1940s. Further, foreign banks and financial institutions were allowed
only 20 percent ownership stakes in Indian banks. In 1993-94, nine new banks were
formed in the private sector and one cooperative bank was converted to a private bank.
Banks were permitted to issue Certificates of Deposits (CDs) and offer foreign currency
deposits to Non-resident Indians (NRIs) with exchange rate risk borne by the banks. A
major push towards liberalization occurred in 1995-96 when India committed to the
World Trade Organization (WTO) recommendations and relaxed the requirement to
continue shielding the priority sector from foreign equity participation. For the next five
years, changes in the banking sector mainly aimed at allowing banks more flexibility
in the design and marketing of products.
Role of Foreign Direct Investment
Foreign Direct Investment (FDI) is an investment made by Multi-National Enterprises
(MNEs) or by a non-resident in an enterprise of host (recipient) countries over which
they have a control and earn private return. It is important to distinguish between Direct
and Indirect Foreign Investment (Appendix 1.1). The indirect investment includes
portfolio investment, acquisition of stock of an enterprise, medium-term and long-term
loans by financial institutions and incendiaries, and investment in new issues of national
loans, bonds and debentures. The direct investment is a long-term equity investment in
a foreign company that gives the investor managerial control mere the company
(Griffiths and Hall 1984). In fact, FDI is considered as an equity capital in India though
the IMF guideline prescribes to include reinvestments and venture capital on the FDI
flows (RBI 2019 ). Accordingly, the Government of India redlined the FDI inflows in
2018 and included reinvestments and venture capital along with equity capital.
However, the present study has considered FDI as an equity capital.
It is important to note that the developing countries had significantly eased restrictions
on FDI inflows and operations of MNEs in the early 1980s. This trend became even
more widespread during the 1990s, which brought a significant FDI inflow into the
developing countries. In fact, developing countries received nearly 40 per cent global
PDI inf10ws in 1994-96 compared to 25 per cent in 1980-84 (United Nations
Concurrence on Trade and Development, UNCT AD 1994). This trend of growing
share of developing countries kept on increasing till 1999-00, but it went down to 30
per cent during 2001-02. Over the last three decades, the stock of FDI as a percentage
to the GDP has been phenomenal. It is 256 percentages for the world as a whole but the
onus is largely in favour of the developing countries as against the developed countries
since the percentage is 435 for developing countries and the percentage is 210 for

8
developed countries. However, the absolute FDI stock over the same period is Rs.
25,834,356.00 crores in the developed world whereas the same for the developing world
is Rs 9,395,046.00 crores. Within the group of developing countries, the distribution of
FDI lows vary significantly both across regional group mgs and individual countries.
China has been the largest developing country recipient of FDI since 1992 and India
has been placed in the 7'h spot in 2002. In fact. India opened up its economy and
allowed MNEs in the core sectors as a part of reform process in the beginning of 1990s.
Since then it has attracted a big share of FDI inflows among the developing countries
and has become one of the investment locations for the foreign investors. The net FDI
inflow grew from Rs. 174 Crores in 1990-91 to Rs. 10,686 Crores in 2000-0 1, resulting
in the annual average growth rate as high as 6 per cent (RBI 2018).
Emphasizing on the role of FDI in the developing countries, Moran (199X) observes
that FDI is a method of transmission of the package of 'managerial resources' from one
country to another country. The package of 'managerial resources' may include
specialized and technological knowledge in the areas of patents, know-how, sales
techniques, managerial expertise, and ability to obtam funds and credit. Since the
productivity of such transferred managerial resources is very high in the recipient
country, they make a big contribution to the development of industry to which they are
made available in the host country. Productivity is high because these resources were
earlier in short supply relative to other factors of production. Naturally, therefore, when
they are now made available, their productivity will increase. There is quite a
substantial empirical literature on FDI, which supports this argument. Chenery and
Strout (1966) state that foreign assistance was the striking force for the rapid and
sustained growth by countries like Greece, Israel, Taiwan and the Philippines during
1950s. In each case, a substantial increase in investment financed largely by foreign
loans and grants, which has led to rapid growth of GNP followed by a steady decline in
the dependence on external financing. The huge success of the Chinese economy in the
post-Mao ear is also credited to the FDI flows into China (Sahoo e/. a/. 2002).
The role and impact of FDI on the host economy is also subject to criticism. In the
earlier stages, a few studies had shown that foreign capital had a negative impact on the
growth of the developing economies (Singer 1950). Empirical evidence also supports
the argument of Singer. The empirical study by Xu (2000) has investigated the U.S.
Multi-National Enterprises (MNEs) as a channel of international technology diffusion
in 40 countries from 1966 to1994. This study has found strong evidence of technology
diffusion from U.S. MNEs affiliates in developed countries (DCs) but weak evidence
of such diffusion in the less developed countries (LDCs). Foreign firms bring the
destructive impact on the host economy because the foreign companies operate in
industries where there is substantial barrier to entry and increasing market concentration
(Grieco 1986). I that case, the foreign firms may lower the domestic savings and
investment by extracting rent. The foreign firms may drive out the local producers from
business and substitute imported inputs. In such a situation, the foreign firms may not
bridge the gap between domestic investment and foreign exchange. Also, the
repatriation of profit by the foreign firms may drain out the capital from the host
country.

9
The policy maker for the Indian economy tried to join the competition for attracting
more FDI as it was assumed that has going to be a prominent factor to achieve higher
growth of the Indian economy. It assumed that FDI could play a vital role as a source
of capital, management, and technology in India. It has been argued that FDI could
bring technological diffusion to the economy through knowledge spillover and enhance
a faster rate of growth in India. It is important to note that the gain in the national income
also depended on the size of capital inflow and elasticity of demand for capital, which
could increase the technological and managerial inputs and transfers and spillover to
local firm. Thus. it increases the production at faster rate at the national level. However,
given the imperfect market condition like in India may lower the domestic saving and
investment by extracting the capital through prepared access to local capital market. It
can be argued that the MNEs, in the name of FDI, may drive out the local film because
of their oligopolistic power, and also, the repatriation of profit may drain out the capital
of the host country. These arguments raise several questions. Does FDI flow help the
developing countries like India to achieve higher economic growth? If so, is the FD!
flowing to India sufficient, given the size and diversity of the Indian economy? What
are the necessary policy requirements to attract more FDI in this context, it is also
relevant to observe? whether macroeconomic indicators or sector-specific indicators or
combination of both determine the FDI inflow in India How can FDI be used to attain
higher economic growth, both at the macro level as well as at the sectoral level What
are the sacrifices needed to be made to use the FDI in the growth process of the
economy) In order to answer these questions, it is necessary to make a detailed study
of the impact and the detenninants of FDI inflows to India at the macro level as well as
at the sectoral level, which is has a short history of liberalization. Thus, the main
objective of this study is to analyze the impact of FDI flow and the policy concerns it
engenders.
Types of FDI’s
BY DIRECTION
Outward FDI - An outward-bound FDI is backed by the government against all
types of associated risks. This form of FDI is subject to tax incentives as well as
disincentives of various forms. Risk coverage provided to the domestic industries
and subsidies granted to the local firms stand in the way of outward FDIs, which
are also known as 'direct investments abroad.
Inward FDIs - Different economic factors encourage inward FDIs. These include
interest loans, tax breaks, subsidies, and the removal of restrictions and limitations.
Factors detrimental to the growth of FDIs include necessities of differential
performance and limitations related with ownership patterns.
Horizontal FDIs - Investment in the same industry abroad as a firm operates in at
home.

10
Vertical FDIs
 Backward Vertical FDI: Where an industry abroad provides inputs for a firm's
domestic production process.
 Forward Vertical FDI: Where an industry abroad sells the outputs of a firm's
domestic production.
BY TARGET
Greenfield Investment - Direct investment in new facilities or the expansion of
existing facilities. Greenfield investments are the primary target of a host nation’s
promotional efforts because they create new production capacity and jobs, transfer
technology and know-how, and can lead to linkages to the global marketplace. The
Organization for International Investment cites the benefits of Greenfield
investment (or in sourcing) for regional and national economies to include
increased employment (often at higher wages than domestic firms); investments in
research and development; and additional capital investments. Disadvantage of
Greenfield investments include the loss of market share for competing domestic
firms.
Mergers and Acquisitions - Transfers of existing assets from local firms to
foreign firm takes place; the primary type of FDI. Cross-border mergers occur
when the assets and operation of firms from different countries are combined to
establish a new legal entity. Cross-border acquisitions occur when the control of
assets and operations is transferred from a local to a foreign company, with the
local company becoming an affiliate of the foreign company.

11
BY MOTIVE
FDI can also be categorized based on the motive behind the investment from the
perspective of the investing firm:
 Resource-Seeking
Investments which seek to acquire factors of production those are more efficient than
those obtainable in the home economy of the firm. In some cases, these resources
may not be available in the home economy at all. For example, seeking natural
resources in the Middle East and Africa, or cheap labour in Southeast Asia and
Eastern Europe.
 Market-Seeking
Investments which aim at either penetrating new markets or maintaining existing
ones. FDI of this kind may also be employed as defensive strategy; it is argued that
businesses are more likely to be pushed towards this type of investment out of fear
of losing a market rather than discovering a new one.
 Efficiency-Seeking
Investments which firms hope will increase their efficiency by exploiting the
benefits of economies of scale and scope, and also those of common ownership.

12
1.1. Objective of the Study
1. To provide a conceptual explanation of FDI.
2. To provide a comprehensive view of FDI in various sector of India economy.
3. To show the important determinants affect the inflow of FDI ON Banking
Sector in India.
4. To study the impact of various Qualitative & Quantitative factors on FDI inflow
during study period.
5. To suggest measures to increase the inflow of FDI in Banking Sector.
1.2. Scope ofStudy
1. The purpose of this research is to study in-depth the FDI inflows in India in
Indian banking sector
2. The period is chosen from 2017 – 2019 for this study.
3. An appraisal of casual relationship among determinants of FDI in India.
4. Problems solved by FDI in Indian banking sector.
5. To know whether financial market condition of India changes after FDI has
entered in India.
6. To get information about the current status of the FDI in Indian banking sector.
7. I collected primary data as well as secondary data from various websites and
research paper.
8. To understand where FDI is important or not for India

13
1.3. Limitations of Study:
1. The conclusions drawn in the present study are subject to the variety of
the data available.
2. The published reports show the position of FDI inflows in India on a
particular day which may not prove true for whole of the year.
3. But the researcher, with time constraint, has to depend upon the reports
because it is not possible to compile the data originated at different times
during the year.
4. In brief we can say that the study based on primary data as well as
secondary data are not enough.
5. Because there are many drawbacks of collection of secondary data &
Primary data.
6. Collection of primary data is difficult because sometimes we can’t get the
accurate response.
7. The response getting from some business employees are not sufficient.
8. Not none to everyone.

14
1.4. Research& Methodology
A. Data Collection
This study is based on secondary data. The required data have been collected from
various sources i.e. World Investment Reports, Asian Development Bank's Reports,
various Bulletins of Reserve Bank of India, publications from Ministry of Commerce,
Govt. of India, Economic and Social Survey of Asia and the Pacific, United Nations,
Asian Development Outlook, Country Reports on Economic Policy and Trade Practice-
Bureau of Economic and Business Affairs, U.S. Department of State and from websites
of World Bank, IMF, WTO, RBI, LTNCTAD, EXIM Bank etc. It is a time series data
and the relevant data have been collected for the period 2017 – 2020. In order to
analyses the collected data, various statistical and mathematical tools are used.
B. Model Building
Further, to study the impact of foreign direct investment on economic growth, two
models are framed and fitted: The foreign direct investment model shows the factors
influencing the foreign direct investment in India. The economic growth model depicts
the contribution of foreign direct investment to economic growth. The two model
equations are expressed below:
1. FDI = f ITRADEGDP, R&DGDP, EXR, RESGDP, FIN. HEALTH]
2. GDPG = f[FDIG]
where,
FDI: Foreign Direct Investment
TRADEGDP: Total Trade as percentage of GDP.
R&DGDP-Research & development expenditure as percentage of GDP.
EXR: Exchange rate
RESGDP- Foreign Exchange Reserves as percentage of GDP.
FIN. HEALTH: Ratio of external debts to exports
GDPG - level of Economic Growth
FDIG - Foreign Direct Investment Growth
Regression analysis (Simple & Multiple Regression) was carried out using relevant
econometric techniques. Simple regression method was used to measure the impact of
FDI flows on economic growth (proxied by GDP growth) in India. Further, multiple
regression analysis was used to identify the major variables which have impact on
foreign direct investment. Relevant econometric tests such as coefficient of
determination R2, Durbin - Watson [D-W] statistic, Standard error of coefficients, T-
Statistics and F- ratio were carried out in order to assess the relative significance,
desirability and reliability of model estimation parameters.

15
CHAPTER 2
INTRODUCTIONTO THE TOPIC
FDI In Indian Banking Sector
In the private banking sector of India, FDI is allowed up to a maximum limit of 74
% of the paid-up capital of the bank. On the other hand, Foreign Direct Investment
and Portfolio Investment in the public or nationalized banks in India are subjected
to a limit of 20 % in totality. This ceiling is also applicable to the investments in
the State Bank of India and its associate banks. FDI limits in the banking sector of
India were increased with the aim to bring in more FDI inflows in the country
along with the incorporation of advanced.
Technology and Management practices. The objective was to make the Indian
banking sector more competitive. The Reserve Bank of India governs the
investment matters in the banking sector.
The global banking industry weathered turbulent times in 2019 and 2020. The
impact of the economic slowdown on the banking and insurance services sector in
India has so far been moderate. The Indian financial system has very little exposure
to foreign assets and their derivative products and it is this feature that is likely to
prove an antidote to the financial sector ills that have plagued many other emerging
economies.
Owing to at least a decade of reforms, the banking sector in India has seen
remarkable improvement in financial health and in providing jobs. Even in the
wake of a severe economic downturn, the banking sector continues to be a very
dominant sector of the financial system. The aggregate foreign investment in a
private bank from all sources is allowed to reach as much as 74% under Indian
regulations.
A foreign bank or its wholly owned subsidiary regulated by a financial sector
regulator in the host country can now invest up to 100% in an Indian private sector
bank. This option of 100% FDI will be only available to a regulated wholly owned
subsidiary of a foreign bank and not any investment companies. Other foreign
investors can invest up to 74% in an Indian private sector bank, through direct or
portfolio investment.

16
The Government has also permitted foreign banks to set up wholly owned
subsidiaries in India. The government, however, has not taken any decision on
raising voting rights beyond the present 10% cap to the extent of shareholding.
The new FDI norms will not apply to PSU banks, where the FDI ceiling is still
capped at 20%. Foreign investment in private banks with a joint venture or
subsidiary in the insurance sector will be monitored by RBI and the IRDA to ensure
that the 26 per cent equity cap applicable for the insurance sector is not breached.
All entities making FDI in private sector banks will be mandatorily required to
have credit rating. The increase in foreign investment limit in the banking sector
to 74% includes portfolio investment [ie, foreign institutional investors (FIIs) and
non-resident Indians (NRIs)], IPOs, private placement, ADRs or GDRs and
acquisition of shares from the existing shareholders. This will be the cap for any
increase through an investment subsidiary route as in the case of HSBC-UTI deal.
In real terms, the sectorial cap has come down from 98% to 74% as the earlier limit
of 49% did not include the 49% stake that FII investors are allowed to hold. That
was allowed through the portfolio route as the sector cap for FII investment in the
banking sector was 49%.
The decision on foreign investment in the banking sector, the most radical since
the one in 1991 to allow new private sector banks, is likely to open the doors to a
host of mergers and acquisitions. The move is expected to also augment the capital
needs of the private banks.

17
Guidelines for Investment in Banking Sector
The limits of FDI in the banking sector has been increased to 74% of the paid-up capital
of bank.
 FDI in the banking sector is allowed under the automatic route in India.
 FDI and portfolio investment in the public or nationalized banks in India are
subject to limit of 20% in totality.
 This ceiling is also applicable to the investors in SBI and its associated banks.
 FDI limits in banking sector of India were increased with the aim to bring in
more FDI inflows in the country along with the incorporation of advanced
technology and management practices.
 The objective was to make the Indian banking sector more competitive.
 The RBI of India governs the investment matters in the banking sector.

18
Indian Operations by Foreign Banks Can Be Executed by Any
One of The Following Three Channels:
 Branches in India.
 Wholly owned subsidies.
 Other subsidies.
In case of wholly owned subsidies (WOS), the guidelines for FDI in the banking
sector specified that the WOS must involve a capital of minimum 300 crores
and should ensure proper corporate governance.

19
Problem Facedby Indian Banking Sector
 Inefficiency in management.
 Instability in financial matters.
 Innovativeness in financial products or schemes.
 Technical developments happening across various foreign markets.
 Non-performing areas or properties.
 Poor marketing strategies.
 Changing financial market conditions.

20
Benefits of FDI In Banking Sectorin India
 Technology Transfer
As due to the globalization local banks are competing in the global market, where
innovative financial products of multinational banks are the key limiting factor in the
development of local bank. They are trying to keep pace with the technological
development in the banks. Nowadays banks have been prominent and prudent in the
rapid expansion of consumer lending in domestic as well as in foreign markets. It needs
appropriate tools to assess (how such credit is managed) credit management of the
banks and authorities in charge of financial stability.
 Better Risk Management
As the banks are expanding their area of operation, there is a need to change their
strategies exert competitive pressures and demonstration effect on local institutions,
often including them to reassess business practices, including local lending practices as
the whole banking sector is crying for a strategic policy for risk management. Through
FDI, the host countries will know efficient management technique. The best example
is Basel II. Most of the banks are opting Basel II for making their financial system safer.
 Financial Stability and Better Capitalization
Host countries may benefit immediately. From foreign entry, if the foreign bank re-
capitalizes a struggling local institution. In the process also provides needed balance of
payment finance. In general; more efficient allocation of credit in the financial sector,
better capitalization and wider diversification of foreign banks along with the access of
local operations to parent funding, may reduce the sensitivity of the host country
banking system and lead towards financial stability.

21
CHAPTER 3
REVIEW OF LITERATURE
The purpose of this Chapter is to discuss and survey the literature and existing evidence
on FDI as a necessary background for the analysis in the following Chapters. The
importance of FDI is acknowledged worldwide, hi subsequent paragraphs the studies
on FDI from various angles and issues have been discussed. Thereafter studies
pertaining to literature on regional and sectoral distribution of FDI in India are reviewed
in this chapter.
2.1. FDI and Multi-dimensional Role
FDI plays multi-dimensional role. It is universally acknowledged that FDI inflow offers
many benefits to an economy. UNCTAD (1999)' reported that Transnational
Corporations (TNCs) can complement local development efforts by (i) increasing
financial resources for development; (ii) boost export competitiveness; (iii) generate
employment and strengthening the skill base; (iv) protecting the environment to fulfill
commitment towards social responsibility; and (v) enhancing technological capabilities
through transfer, diffusion and generation. Thus, Foreign Direct Investment (FDI) has
become a fundamental aspect of the global economy since 1990s.
Jones Geoffrey (2019) emphasized the role of multinationals in the creation of global
capitalism over the past two centuries. While giving the historical references he pointed
out that the most beneficial way adopted by MNCs was FDI, though initially during
world war II, it halted for a while but bounced back afterwards since 1970s decade.
While describing the global FDI trends, green field FDI got more weightage during 19'
century and the author informed that the use of acquisition strategies accelerated after
World War II and by the 1990s, cross border mergers and acquisitions had become the
main driving force of world FDI.
Mohammed Zubir (2018) studied an MNC firm that produces products in various
countries and distributes them to different markets worldwide. He developed an
investment model that integrated production and distribution. While developing the
model, he has taken into account various factors such as fluctuating exchange and
interest rates, investment opportunities in different countries. The performance of his
model shows that the exchange rates and initial capacity level of firms are the factors
having major influence on the production, distribution, and investment decision and in
turn on the profit generated by the firm.

22
Dunning (2019) in his article discusses various reasons, for changes in the strategies
and location choice of MNCs betweenl970s and 1990s. He reasons that, the growth of
intellectual capital has led to tremendous growth of services sector. Secondly, the
location of creation and use of these knowledge intensive assets have been increasingly
influenced by the presence of immobile clusters of complementary value-added
activities. He also opined that MNCs prefer locations having the best economic and
institutional infrastructure. The renaissance of market economy and the consequent
changes in the macroeconomic policies and macro-organizational strategies of
governments have also contributed significantly to the economic and political risk
assessment of FDI by MNEs.
2.2. FDI and Economic Growth
FDI is one of the major contributing factors in the economic growth of a country.
Almost all nations have witnessed this growth. The developed economies in Europe
and USA were the first to experience economic growth due to FDI. As these economies
grew, they started investing in regions like Asia and South America. This led to
economic prosperity in these regions. The economic growth witnessed by Asian
countries like India and China are the sterling examples of FDI impacting economic
growth of a country.
Chandana Chakraborty and Peter Nunnenkamp (2019) assessed the growth
implications of FDI in India by subjecting industry-specific FDI and carried out
Granger causality tests within a panel of co-integration framework. They found that
FDI stocks and output are mutually reinforcing in the manufacturing sector but absent
in the primary sector and transitory effects of FDI on output in the services sector are
positive.
Chakraborty C. and P. Basu (2018) explore the two-way link between FDI and
growth by using a structural co-integration model with vector error connection
mechanism. Using aggregate data for 1974-1996, they found that the causality runs
more from GDP to FDI. In the long run, FDI is positively related to GDP growth and
openness to trade.
Sethi Narayan (2019) examined the impact of international capital flows on economic
growth, trends, composition and suggests policy implications thereof His study also
found that FDI is positively affecting the economic growth while FII is negatively
affecting the economic growth. The empirical analysis shows that FDI plays an
unambiguous role in contributing to economic growth.

23
Schoors., Tol (2018) and Borensztein et al. (1998)' have studied the impact of FDI on
the economic growth of the host country. They argue that FDI often involves transfer
of technology and know-how from home country to host country thereby increasing
managerial skills and productivity gains. This in turn forces domestic industries in the
host country to adopt better managerial and productivity skills and improve
productivity in order to compete with foreign forms. Hence, they conclude that FDI has
positive impact on overall economic growth of the recipient country as compared to its
own domestic investment.
2.3 FDI and Trade
Goldar Bishwanath, Banga Rashmi (2019) stated the cause and effect relationship
between trade and FDI. They found that the regions having greater involvement in
international trade was able to attract greater amount of FDI. It was argued in the paper
that the liberalization has led to a substantial increase in intra-industry trade, but much
of the intra-industry being horizontal in nature; it did not have a favorable effect on
FDI. On the other hand, the trade associated with cross-border vertical integration did
have a favorable effect on FDI. So, according to them trade creates positive impact on
foreign investors and inspires them to invest more.
Banga Rashmi (2017) states that FDI has not played a significant role in export
promotion. But points out that export effects differ between home countries of foreign
investors and between traditional and non-traditional export industries.
Sharma Kishore (2019) observed that foreign investment appears to have statistically
no significant impact on export performance. He tried to evaluate contribution of FDI
to India's export performance, for 1970-1998 using simultaneous equation framework.
The result of the study suggests that demand for Indian export increases when its export
price falls in relation to world prices. The real appreciation of the rupee adversely
affects India's exports. Export supply is positively related to the domestic relative price
of export and higher domestic demand reduces export supply.
Bhatt P.R. (2019) tried to find out the role of FDI to the growth of exports in New
Zealand in comparison with its competitors such as Australia, China, India, Japan, and
Republic of Korea. He found the long run equilibrium relationship among the exports,
FDI and GDP by conducting Vector Auto Regression model (VAR). It is also found
firm the estimated error correction model that FDI is a significant variable and the result
indicated that one percent increase in FDI will lead to 0.62 percent increases in export
with one-year time gap. He conducted Granger Causality Test which showed that there
is a unilateral relationship between exports and FDI.

24
2.4. FDI and Technology
FDI plays an important role in transferring the latest technology from developed to
developing economies.
Nagesh Kumar, John Dunning, Robert E. Lipsey, Jamuna P. Agarwal and Shujiro
Urata (2019) in their research paper mentioned that FDI is viewed in developing
countries as means of acquiring the latest technology and increasing global economic
integration. They had also pointed out that FDI inflows in the world had expanded at
an annual rate of 24 per cent during the second half of 1980s and at 17 per cent during
1991-1996 period to touch a peak of$349 billion in 1996.
Athreye, S and Kapur, S. (2019) observed that weak intellectual property rights was
primarily responsible for almost half of the foreign investors not transferring latest up
to date technology to their Indian subsidiaries or joint venture partner and hence
emphasized more on transfer of technology to aid economic growth in India. A report
published by A T Kearney (2004) states that India's well-educated work force is viewed
by foreign investors as essential to handle technology. Thus, us country is perceived as
a research and development hub for a wide range of industries.
2.5. FDI and Institutional Infrastructure
To attract FDI, a country requires having proper infrastructure facilities. These facilities
vary from proper physical infrastructure to institutional infrastructure.
Dunning John (2019) studied the institutional infrastructure and development as a
determinant of FDI flows and underlined its importance on FDI inflows into the
European Transition Economies. The study finds that institutional environment and the
policies of organizations help in reducing the transaction costs of both domestic and
foreign investors.
Kostevc Crt, TjasaRedek, Andrej Susjan (2018) studied the relationship between
FDI inflows and the quality of institutional environment in transition economies by
conducting panel data analysis during the period 2017 to 2019.The study concluded
that various institutional factors have significant influence on FDI inflows into
transitional economies.

25
The paper written by Mina Wasseem Michel (2019) examined the best approach to
reforming institutions in the context of property rights protection and FDI flows to eight
MENA (Middle East and North African) countries. The first best approach comprises
of strengthening domestic institutional functions only, while the second-best approach
comprises of entering into bilateral investment treaties and the interaction between
functions and treaties. Empirically both approaches result in reducing investment
expropriation risk which encourages FDI flows. The author had used two estimation
methodologies like Random and Fixed Effects (RE/FE) dynamic panel regression
model and second is the dynamic panel Generalized Methods of Moments (GMM)
model. Vittorio Daniele and Ugo Marani (2019) also emphasized that institutional
and legal reforms are essential to improve the attractiveness of MENA countries in
terms of FDI.
2.6. FDI and Financial Market Developments
It is reasonable to assume that FDI will flow to countries with better developed financial
markets or to assume that FDI flows will contribute to the development of financial
markets, thus leading to increased economic growth. With this view in mind, Hermes
and Lensink {2000} Alfaro et al. (2019) Kholdy and Sohrabian (2019), Olu
Watosin Adeniyi, Olesequn Omisakin, Festus O. Egwaikhide and Abimbola
Oyinlola (Nigeria) (2019) observed that the development of the financial markets
contributes positively to the relationship between FDI and economic growth.
2.7. FDI and Determinants
Several studies have focused on outlining the MNEs' motives to internationalize them
production capacities. The most conclusive theoretical justification of FDI is provided
by Dunning's Ownership (O)-Location (L)-Initialization (I) framework (1977, 1981,
and 1988). He suggests that at any given point of time presence of ownership
advantages (enabling firms to compete efficiently with local counterparts), location
advantages (which encourage foreign firms to serve local markets directly, rather than
through exports), and internalization advantages (enough incentives for serving foreign
markets through 'internal' networks, rather than through market-based arm’s length
arrangements) are essential for undertaking FDI.
Bevan and Estrin (2019) also gave emphasis to location advantages which offers
multiple advantages like low labour cost, natural resources, large market size or cultural
specificities.

26
Globerman and Shapiro (2018) highlighted the importance of governance
infrastructure as a determinant of FDI. The authors stated that (a) rule of law index (b)
political instability and violence index (c) regulatory burden index (d) government
effectiveness index (e) voice and accountability index etc. are the significant variables
in the Indian context as they differ greatly among various Indian states.
Narayanamurthy Vijaykumar, P. sridharan, K.C. Sekhara Rao (2019) examines
the factors determining FDI flows of BRICS countries using panel data analysis and
finds that the selected variables like market size, governance infrastructure and
developed financial markets, effective communication network is the potential
determinants of FDI in these countries. They also studied that the economic stability
and growth prospects and the trade openness seem to be insignificant determinant of
FDI inflows in these nations. While Duran J.E. (1999) indicates that size growth,
domestic savings, country's trade openness, solvency, macro-economic stability
variables are the catalysts of FDI. In the context of Latin American countries, Nunes et
al (2006) also focused on the above-mentioned variables as the determinants of FDI.
Loreed. w.and Guisinger S.E. (2019) and Brooks Douglas., Lea (2003) gave
importance to the host country policies and infrastructure as an important determinant
of FDI for all the regions.
Garibaldi, P., Mora N., Sahay, R., and Zettlemeyer J. (2019) analyse the FDI and
portfolio investment flows to 26 transition economies in Eastern Europe including the
former Soviet Union from 1990 to 1999.The regression estimation indicates that FDI
flows are well explained by the standard economic fundamentals such as market size,
fiscal deficit, inflation and exchange rate regime, risk analysis, economic reforms, trade
openness, availability of natural resources, barriers to investments and bureaucracy.
The study of Nonnenberg and Mendonca (2018) finds that the factors such as the
market size, growth rate of the product, the availability of skilled labour, the receptivity
of foreign capital, the country risk rating and stock market behavior seem to be the
important determinant of FDI flows for developing countries comprising of 33
countries from 1975 through 2000.
Singh H. and Jun K.W. (2019) find a positive relation between taxes on international
transactions and FDI inflows to developing countries, where the export related variables
strongly explain pulling of FDI to a country.

27
Nasrin Shamima, Angathevar Baskaran and Mammo Muchie (2019) suggest the
low cost labour as the major determinant and infrastructure constraints and irregular
logistic support as the hindrances for the growth of FDI in Bangladesh.
Palit Amitendu, Nawani Shounkie (2019) put more emphasis on strong technological
foundations and well-developed communication infrastructure, as liberal policies alone
are not enough for drawing FDI, once the initial advantages like cheap labor fizzle out.
Further they suggested that for our country, strong thrust on R&D, and innovative skills
are needed for attracting FDI in technology intensive exports. To compete with other
Asian countries, superior technological advantages through phenomenal growth in IT
enabled services and export-oriented supporting infrastructure is essential.
Banga Rashmi (2018) examined the impact of fiscal incentives offered, signing of
bilateral and regional investment agreements to attract FDI flows. While lowering of
restrictions attract FDI from developed countries; fiscal incentives and lower tariffs
attract FDI from developing countries. Interestingly, Bilateral Investment Treaties
(BITs), which emphasize non-discriminatory treatment of FDI, are found to have a
significant impact on aggregate FDI. She has opined that it is BITs with developed
countries rather than developing countries that are found to have a significant impact
on FDI inflows to developing countries.
Tatonga Gardner Rusike (2017) examined trends and determinants of inward FDI to
South Africa for the period 1975-2005. The study concludes that trade openness;
exchange rate and financial development are major long-term determinants of FDI.
Market size is a short-term determinant of FDI in South African context. The study also
found that the depreciation of South African currency resulted in declining FDI in South
Africa.
2.8. FDI and Employment
FDI has a positive impact on employment generation in the recipient country. As more
investment comes into different sectors of economy, demand for labour increases.
Studies show that the availability of trained and skilled manpower is one of the
determinants in attracting FDI.
Mickiewicz Tomsoz, Slave Rasosevic, Varblane Urmas (2019) postulated positive
correlation between employment generation and sectoral distribution of FDI and
differed significantly throughout the region as the distribution of FDI across different
sectors of economy were uneven.

28
Anderson P.S. and Hainaut P (2019) found that high labour costs encourage FDI
outflows and discourage FDI inflows. Distribution of FDI in services sector indicates
that the purpose of FDI is to expand sales and improve distribution and open new
markets for exports from home countries.
Kaji lyamoto (2019) suggests that developing countries can give incentives to MNCs
and investment agencies to invest in formal and vocational training of workers of
domestic firms there by attracting new FDI. The countries can target high value MNCs
that can bring in newer skills and knowledge which in turn will help domestic
enterprises.
2.9. FDI and Development
There has been hardly any country in the world which has not been dependent upon
foreign capital in the form of FDI during the course of its economic development.
Mani Vatsala (2017) made a unique attempt to study the impact of foreign capital in
the economic development of India during the pre and post independent period. The
study elaborates the factors determining the trends in capital movements such as ocean
transport cost, free mobility of labour, protectionist policy (tariff), unfavorable colonial
policy as well as exchange rate fluctuations, political factors, unfamiliarity with the
socio-economic climate etc. She had pointed out that distribution of foreign investment
in pre-independence period was in resource-oriented export industries e.g. out of total
British capital of 150 million pound invested in India during 1854-1869, about 75
million pounds went into railways, 20 million pounds was added to Indian debt in the
British hands and the rest ventured in tea plantation, jute mills, banks, shipping and
mercantile establishments.
Theodore H. Moran (2017) realized that FDI has special accelerating effects on
transitional economies. He focused on the host country's policies for encouraging FDI.
Author also criticized both the advantages and disadvantages related to the benefits and
opportunities that foreign firms have to offer and dangers related to them in a realistic
manner but encourage the developing countries by offering a path breaking agenda for
the host country governments.

29
Kjetil Bjorvatn, Hans Jarle Kind, Hildegunn Kyvik Nordas (2019) viewed that
while FDI is not necessary to achieve economic development, but it plays an important
role in adding technology and competition to the host economies. However, pointed out
that the entry of foreign firms may take away the profits from the local firms through
competition. This problem is likely to be more important if foreign entry takes place in
markets shielded from the competitive pressures of international trade.
2.10. Quality of FDI
Nagesh Kumar (2019) has viewed the importance of the quality of FDI in his book.
He stressed that as a part of globalization of economic activity, new sources of FDI and
technology have emerged and need was felt to look into the quality of FDI inflows. The
quality of FDI inflows can vary a great deal from the host country's perspective
depending upon the types of FDI received. The quality of FDI has been a matter of
concern not only for the developing host governments. The government of
industrialized countries are equally concerned about the impact of inward FDI flows
and have adopted selected polices to maximize returns from it and also imposed
performance requirements on foreign affiliates and provided incentives for high quality
investments. The views expressed by other scholars in the same book are also
incorporated here for further information.
Porter identified four stages in the competitive development of nations; viz. factor
driven, investment driven, innovation driven, wealth driven. Each of these stages is
featured by a different pattern of investments and sources of competitive advantages.
Ozwa (2019) expects that a country at the beginning of the factor-driven stage will
attract resource-seeking or labour-seeking inward FDI. The transition from the labour
driven to the investment driven stage attracts inward investments in the capital and
intermediate goods industries.
Pradhan, Jaya Prakash (2018) explored different notion of FDI quality and stated
that, knowledge spillovers play a significant role in productivity growth of a local firm
in a host country. The authors conceptualized the quality of FDI in terms of five
dimensions such as sectoral perspective, localization of production perspective,
technological perspective, market orientation perspective, mode of entry perspective on
the quality of FDI. They identified suitable indicators such as percentile criterion to
classify high or low quality of FDI.

30
2.11. Outward FDI
Subramanian Ravi, Sachdeva Charu, Morris Sebastian (2019) discusses the trends
in India's outward FDI and finds out the determinants for the same. They found that
Indian companies preferred 'acquisition mode' for investing abroad and also found that
high distribution expenses and need for resources had a very positive influence on
foreign investment. It also ascertains the growth of Indian businesses, as they are
looking forward to invest in other countries to expand their businesses.
2.12. Global Crisis and Responses of FDI
Arabi U (2018) expressed that FDI is greatly influenced by global economic and
financial situations and stated that the global financial and economic crisis of 2007-08
had raised major concerns about global investment environment. The author is of the
opinion that due to appropriate fiscal reforms and strong political mandate, India had
displayed resilience and attracted good investments. The author states that the challenge
before developing economies is to retain present FDI and attract new FDI and the
governments should pay more attention to interaction and coherence between global
financial system and international investment agreements.
2.13. Crowding-in and Crowding-out Impacts of FDI
Agosin and Mayor (2018)", Sun, X. (2018)", Kumar N. and Pradhan J. (2019)
studied the crowding in and crowding out effect of FDI. The authors stated that if FDI
takes place in sectors where there is a strong presence of domestic firms, then the
available investment place is taken up by foreign firms. In such cases the domestic firms
refrain from investing in the sector. Thus, foreign firms take away investment
opportunities available to domestic firms. Such FDI inflow has less contribution
towards capital formation in the host country. But Borensztein, et al. (1995) has
different opinion. He reveals that FDI has a net crowding in effect on domestic private
and public investment thus advancing overall economic growth. By and large, studies
have found a positive link between FDI and growth. However, FDI has comparatively
lesser positive links in least developed economies, thereby suggesting the existence of
threshold level of development.

31
2.14. FDI and Spillover Effects
Kokko Ari (2017) stated that a spillover occurs because MNC affiliates import and
demonstrate technologies that are not well known in the host country and them
operation may increase the level of competition and force local firms to search for more
efficient methods of production. Spillover differs fi-om country to country. Technology
spillovers have taken place mainly where local firms were initially relatively strong.
Weak local firms have either been forced out of business or confined to limited
segments of the market that are neglected by the foreign MNCs. In a countrywide
spillover effects, most of them have a positive effect.
Cantwell. J (2017), Haddad M., A. Harrison (1991) and Aitken. B., A. Harrison (1991)
provide a different opinion stating that general subsidies to foreign investment and
attempts to benefit fi-om MNCs in the development of new industries are not likely to
pay off Instead, governments particularly in small countries should concentrate their
efforts on domestic policies and indigenous firms operating in those countries.
Kathuria V. (2018) emphasized the need for R&D activity and argues that only those
domestic firms which invested in R&D, in order to make use of foreign technologies,
benefitted from the spillover.
Saaidharan Subasli and Ramnathan A. (2018) tried to examine the spillover effects
from the entry of foreign firms using a firm level data of the Indian manufacturing
industries, for the period of 1994 -2020 and considered both horizontal and vertical
spillover effects of FDI. Their study finds out that negative vertical spillover effects but
no evidence of horizontal spillover effect.
Crespo Nuno and Fontoura Paula Maria (2017) analyze the factors determining the
existence, dimensions and sign of FDI spillovers. They identify that FDI spillover
depends upon many factors like infrastructure facilities, export capacity, absorptive
capacities of domestic firms and regions, technological gaps etc.
Pradlian, Jaya prakash (2018) while evaluating the quality of FDI discuss the
knowledge spillover effect of the FDI. The author establishes a positive correlation
between knowledge spillover fi-om FDI and productivity growth in the host country.
The author holds the opinion that knowledge spillovers can play a significant role
introduction growth of local firms in host country. As foreign firms bring in new
technologies, skills, marketing expertise and latest managerial practices, these
knowledge resources spillovers to local firms.

32
2.15. FDI Studies from Other Countries
Alhijazi, Tahya Z.D. (2017) in his work "Developing country and FDI" analyzed the
various factors of FDI affecting developing countries and other interested parties. The
thesis scrutinizes the regulation of FDI as means to balance the interests of the
concerned parties, giving an assessment of balance of interests in some existing and
potential FDI regulations. The study concludes by formulating FDI guidelines for the
developing countries.
Yunyun Duan (2018) compares the overall trends and industrial patterns of inward
foreign direct investment in the BRICs and explains their determinants. The overall
trend of the inward FDI in the BRICs is increasing. Nevertheless, the industrial patterns
of inward FDI are different from each other. In Brazil, Russia and India, the tertiary
sector receives the most inward FDI on average over the past decade, while the primary
sector receives the least and the secondary sector is in the middle. It is observed that
China has a special industrial pattern of inward FDI, that is, the secondary sector
dominates the majority of the inward FDI and the primary and tertiary sectors receive
only a bit.
Maryse Louis, Gokarn Subir, Bhandari Laveesh, Nguyen, Then Ha Nguyen, Vo
Hung (2019) showed the variations of the features of FDI across the four countries,
Egypt, India, South Africa and Vietnams. All have had restrictive policy regimes, and
have gone through liberalization in the early 1990. Yet the effects of this liberalization
policy on FDI inflows vary across countries. Hence, the authors state that the causality
between the institutional framework, including informal institutions, and entry
strategies merits further investigation. So, the authors emphasized on better
understanding of how the mode choice and the subsequent dynamics affect corporate
performance and how it influences externalities generated in favour of the local
economy.
Okuda Satoru (2019) reviewed the FDI policies to examine how these policies
affected the productivity of Taiwan's manufacturing sector. The study found that the
FDI policies of the Taiwan government have generally been relevant for the growth of
the manufacturing sector of Taiwan.

33
lyare Sunday O, Bhoumik Pradip K, Banik Arindam (2018) explains FDI inflows
to India, China, and the Caribbean through extending the neighborhood approach.
Though FDI flows are influenced by economic indicators like market size, export
intensity, institutions etc., irrespective of the source and destination countries, the
neighborhood approach is equally influential and are widely applicable in different
contexts for these countries. The significant common factors in explaining FDI inflows
may be explained by selected economic variables, country-specific factors and found
that distinctive component account for more of the investment inflows in China and
India.
Gaston Gohou and Issouf Soumare' (October 2019) in their paper examine the
relationship between FDI flows and poverty reduction in Africa. Using Granger
Causality Wald Test, the researchers have tried to establish a relation between the per
capita FDI net inflows and the Human Development Index (HDI). The results of them
study show that there is a significant difference between the different regions of Africa
as far as effect of FDI on poverty reduction is concerned. The results show that in
Central and Eastern Africa, FDI has a positive effect on poverty reduction. In Northam
and Southern Africa this effect is insignificant and in Western Africa it is ambiguous.
2.16 FDI and Asian Countries
FDI in Asian countries has witnessed tremendous growth potential from the last three
to four decades. There are various political, economic, institutional factors influencing
the FDI flows. The major recipient countries are Thailand, Malaysia, Hong Kong,
Singapore, and China. Recently India has grabbed the position in becoming an
attractive destination for FDI flows.
Loren Brandt, Thomas G. Rawski (2019) in their book provides analysis of China's
phenomenal economic boom. The authors argue that due to liberalization of FDI, China
could excel in all sectors of economy including manufacturing and trading. China
became the third largest trading economy in 2017 with more than US $ 1.1 trillion in
foreign trade (National Bureau of Statistics, 2017, p. 161; WTO, 2018, p. 16). The book
covers all aspects of economy including environmental, technological, modernization
in science and technology, political and financial system aspects. The same views on
growth process of China due to FDI are expressed by Tang S., Selvanathan, E.A. and
Selvanathan S. (2018)
Rajan Ramkishen S., Gopalan Sasidaran, Hattari Rabin (2019) and Kwan C.H.,
Vandenbrink Donna, Yue Chia Slow (2017) studied the impact of foreign funds
inflow into Asian countries. In their study, the authors have studied Asian markets and
have discussed policy initiatives undertaken by various governments to attract FDI
inflows. As far as China and India are concerned, the authors are of the view that capital

34
account liberalization & deregulation, macroeconomic stability, stable exchange rate
regime; domestic micro-economic policies etc. have helped these countries to increase
their capital inflows and even to weather the global financial crisis of 2007-2008 in a
better way than the rest of the world. On the other hand, recession in developed
economies associated with lower interest rates and decline in official assistance fi-om
developed to developing economies offered private investors opportunities to invest in
developing Asian countries on the hopes of higher returns.
2.17 Regional integration and FDI
Dirk William te Velde and Dirk Bezemer (2017) in their article argue that regional
economic integration has a positive impact as far as FDI is concerned. A country with
a sufficient level of trade and investment provisions and which is a member of regional
trade agreements is more successful in attracting FDI.
2.18 Regional FDI World Wide
A review of literature of studies conducted worldwide show that distribution of FDI
among different regions of a country is not uniform. The FDI inflows are concentrated
to only a few regions of a nation owing to their distinct advantages. The regions with
high growth potential, with good infrastructure, large market size and easily available
skilled manpower are preferred by foreign investors over backward regions. There are
several other studies carried out worldwide that analyze inter-country differences which
have emphasis on location advantages. These are done by Wei 2017; Habib and
Zurawicki 2018, Globerman 2019, and Globerman and Shapiro 2019
Kailei Wei, Shujie Yao and Aying Liu (2018) pointed out that one of the downsides
effects of rapid economic growth in China has been the ever-rising inter-regional
inequality. Using the largest panel dataset for the Chinese regions from 2017-2019
and employing an augmented Cobb-Douglas production function, their paper proves
that FDI has been an important factor of economic growth in China. It also suggests
that it is the uneven distribution of FDI instead of FDI itself that has caused regional
growth differences.
Agnieszka Chidlow and Stephen Young (2019) studied FDI inflows into Poland and
location determinants of inflows. They conducted an online survey and incorporated
that data into a multinomial logit model addressing the investor's specific
characteristics. Results of the study show that the quality and allocation of FDI into
different regions of Poland is uneven. The areas in west, north, south and center is
prosperous and are most successful in attracting FDI. Areas in the east on the other
hand has lower investments, lower per capita income and higher unemployment. The

35
authors have stated various reasons for such uneven distribution. Some of the reasons
are market size, central location, geographical factors and agglomeration factors.
Fisher and Peters (2019) compared various incentives offered by different states in
the United States of America and its impact on investment flows to the US. They also
studied this aspect in reference to European Union member countries. The study
concludes that incentives offered (such as loans, grants, infrastructure subsidies etc.)
have positive effects but taxation and FDI investments had a negative relation. Santis,
Mercuri and Vicarelli (2017) found that while choosing the region Multi National
Enterprises (MNEs) give more importance to overall tax burden than any single tax
consideration like corporate tax.
According to OECD research study (2017), the FDI pattern in China shows a great
disparity among regions: For the period from 2017- 2020 FDI in the eastern region took
up 87.8 per cent while the central region attracted 8.9 per cent and the western region
recorded only 3.3 per cent. This inequality stems from the FDI policies taken by the
Chinese authority. The open door has started with the creation of Special Economic
Zones (SEZs) and preferential regimes for fourteen coastal cities. This has resulted in
an overwhelming concentration of FDI in the east.
Elizabeth Asiedu (2018) in her research paper, pointed out the breakdown of FDI flows
in Sub Saharan African Countries (SSA). It is 36 per cent to South Africa, 16 per cent
to Nigeria, 13 per cent to Angola and 19 per cent to the remaining 45 countries in the
region. She has examined the determinants such as minerals and oil, effect of
corruption, political risk and investment policies pertaining to SSA countries etc.
According to her, the major constraints on FDI to South Africa are corruption, FDI
regulations, financing constraints, weak infrastructure, exchange rate stability, inflation
rate and political instability etc. She has suggested improving investment framework,
institutional infrastructure for attracting FDI in these countries. The analysis utilizes
panel data for 22 countries in SSA over the period 2017-2020. The results also suggest
having regional economic cooperation to enhance FDI to the regions.
Marialena Petrakou (2017) investigates the determinants of FDI in the Greek regions.
By using a pooled cross-section dataset of FDI stock she has studied the effect of
localization economies and of other basic determinants, on the attraction of FDI.
According to her, the most significant influences are market size, human capital,
geographic position and the presence of localization economies.

36
Daumal Marie (2019) tried to find out whether regional disparities are linked to a
country's trade openness. Results from time series regression showed that Brazil's trade
openness results in reduction of regional inequalities. The author also observed that
regional inequality in Brazil is mainly due to the concentration of FDI in production in
one region, the state of Sao Paulo.
Siddharthan N. S. and Rajan Y (2019) have identified various location advantages
such as market size, membership of a regional union; labour and skill content of the
population; infrastructure facilities, good governance etc. are the determining factors
for allocation of FDI in various regions in India. More recent studies have focused on
such factors as technological status, brand name, openness of the economy, macro trade
policies of the government and intellectual property protection.
2.19 FDI in India
Kurian Mathew K (2017) had described the Indian policy towards private foreign
capital since independence till the decade of 1960s. Foreign capital flowed into many
industrial ventures in India, mainly into tea, coffee, rubber plantations, jute, Indigo and
mining industries. Banking and railways occupied unique positions; but resulted in the
destruction of indigenous enterprises owing to the highly competitive power of foreign
firms. According to him, the overall impact of foreign investments was to turn India
into a producer of primary products and raw material and resulted into transfer of profits
and dividends abroad; there was a net cost to the Indian economy on account of the
investment of foreign capital in India.
Thakur Shrinivas (2017) predicted the importance of foreign aid and foreign
borrowings to bridge the gap between the domestic savings and high investment
required for accelerating the rate of capital formation. He had suggested that instead
after an elusive goal of self-reliance, it would be more rational to open doors selectively
to foreign aid and private foreign capital.
Bhalla V.K. (2017) describes the policies adopted before and after liberalization period
to promote trade, industrial, financial policies. He described that the overall strategy
was to rely less on commercial borrowings and more on foreign investment for
financing the current account deficit. At the same time, he has discussed various
shortfalls in our economy which may prove as a hindrance in accelerating FDI. Acharya
Shanta (1998) reviewed the progress of the Indian economy after accepting the New
Economic Policy of 2017. Her book analyzed reforms in macroeconomic and trade
policies to various developmental aspects. It also examines success of India, in
providing a pragmatic set of policies to support the private sector. From her point of
view, with growing population and ever-increasing demand for capital investments as
compared to their ability to save, capital inflows in terms of FDI proved beneficial.

37
Tendulkar Suresh D., T.A. Bhavani (2017) Sury M.M. (2019) covered various
policy measures implemented after initiating economic reforms and the advantages and
disadvantages associated with these reforms as well as thoughtful analysis of these
reforms.
Kulwinder Singh (2019) explores the uneven beginnings of FDI, in India and examines
the developments (economic and political) relating to the trends in these two sectors:
industry and infrastructure. His concluding remarks point out that industrial reforms are
well introduced but they need to be supplemented by more infrastructure reforms.
Kundra Ashok (2018)' offers an in-depth comparative analysis of FDI policies
formulated by India and China since the beginning. He has analyzed the key differences
in their policy framework, approaches, and the implementation strategies. He has also
critically examined the impact of FDI on trade, transfer of technology, employment
generation. While studying FDI flow into China, he articulates the role played by
pragmatic policy, developed infrastructure and conducive operating environment
existing in China. At the same time, he advocates reorientation of Indian policies
relating to development of infrastructure for export oriented labor-intensive
manufacture, labor laws regime, and vesting of authority for investment approval in
favour of state governments to accelerate the pace of FDI inflows.
2.20 Regional FDI in India
Aggarwal (2017) and Audretsch and Lehmann (2019) and Ronde and Hussler (2019)
in their respective studies elaborated that the quality of available labour force has a
positive effect on the concentration of FDI in that region. Their study shows that FDI
gets attracted towards regions with good and renowned educational institutes and
research and development labs. It is also found that rigid labour markets in Indian states
discourage FDI.
Nunnenkamp and Stracke (2019) found a significant positive correlation of FDI with
per capita income, population density, per capita bank deposits, telephone density, level
of education and per capita net value added in manufacturing in India. FDI, on the other
hand, was negatively correlated with state population, and had an insignificant relation
in respect of availability of electricity and unemployment rate.

38
Gaur Achal Kumar (2019) studied the impact of FDI on macroeconomic indicators
such as GNP at factor cost, Gross Domestic Savings, Gross Domestic Capital
Formation, and Employment in Public Sector, Employment in Private Sector, Total
Employment, Overall External Assistance, Foreign Exchange Reserve, Exports, and
Imports etc. The empirical results expressed in this paper shows that FDI has only raised
the level of employment in the private sector while it has exerted no impact on other
vital ingredients of macro-economic parameters as mentioned above. According to him,
excepting telecommunication sector where FDI has made significant impact on output
performance, FDI has not shown any impact on output performance of the remaining
major industries.
Raj an et al. (2019) opined that economic activity is an important determinant of FDI
inflows in India and not vice-versa. India appears to be well placed in terms of reaping
benefits because it has a relatively well-developed financial sector, strong industrial
base and critical mass of well-educated workers.
Satyanarayan G., P.N. Samangi Ramaiah and G. Raju (2019) have pointed out that,
efforts to regulate foreign investment to advance policy objectives e.g. protection of the
environment, alleviation of poverty has intensified. The state has to focus on foreign
investment policies as well as other policies, including those relating to broader
economic, social and environmental issues.
Killawala Alpana (2019) criticized in the study conducted by RBI on FDI flows to
India that, policy uncertainty, is causing the slowdown in FDI inflows to India despite
robustness of macroeconomic variables.
Ramachandran and Goebel (2019) pointed out that Tamil Nadu had emerged as one
of the most favored investment destinations in India on account of a number of
advantages viz., stable government with pro-active investment policies, sound and
diversified industrial infrastructure, absence of labour unrest, high quality of work
culture and peaceful life, best incentives package in the country, highly cosmopolitan
composition and high proportion of English-speaking population.
In the Indian context, Goldar (2017) and Morris (2019) revealed that city-size was an
important factor influencing location decisions of industrial plants. The regions with
the metropolitan cities had the advantage in 'headquartering' the country operations of
MNEs and therefore, attracted bulk of the FDI flows.

39
Rao Chalapati K.S. and Murthy M.R. (2019) focus on regional distribution of FDI
in India. There is state wise variation in FDI allocation due to development of physical
and human infrastructure, industrial policies adopted by individual states in our
country. Authors have given worldwide examples of uneven distribution of FDI e.g. in
China 86 per cent of FDI got concentrated in the eastern region while in Brazil, the
southeastern region accounted for 87.5 per cent of FDI, in Russia 10 out of 89 regions
attracted 83 per cent of the total FDI. One of the factors responsible for this
phenomenon is the fact that FDI tends to take advantage of agglomeration economies
and is influenced, probably more than domestic investments, by the demonstration
effect. As far as our country is concerned, in the post liberalized period, southwestern,
western, coastal states such as Maharashtra, Tamil Nadu, Gujarat, Kamataka etc. were
able to attract FDI including Delhi. Similar views have been expressed by Sidharthan
(2020) in Indian context.
Overall, the theory and the empirical literature suggest that the most important
determinants of the regional distribution of FDI flows within a country include the size
and growth of the local market, the level of industrial activity, the growth of the services
sector, the availability and quality of physical infrastructure, labour market conditions
and quality of labour, policy environment and tax incentives, business climate and the
presence of agglomeration economies.
2.21 Reporting System of FDI in India
Srivastava Sadhana (2017) and Ramamoorthy K. and S Ramesh Kumar (2019)
critically evaluated the performance of FDI in India. According to her, India is widely
regarded as 'underperformer' in attracting FDI, particularly in comparison with china
and the rest of East Asian Countries due to underestimation of FDI figures. She has
viewed that generally, the IMF guidelines are followed by industrial countries but not
completely by many developing countries due to difficulties in compilation of FDI data.
According to IMF, FDI flows are the sum of three basic components, viz. equity capital,
reinvested earnings, and other capital associated with various intercompany debt
transactions, but in India reinvested earnings are excluded while estimating actual FDI
inflows. Due to this, our FDI figures look much lesser than the actual receipts. The
failure of India to adopt international guidelines on measuring FDI data underestimated
its actual flow of FDI to great extent till 1999-2000.

40
2.22 Sectoral FDI
Now let us have a look at the sector wise distribution of FDI. It is observed that among
the three sectors of the economy, i.e., primary, secondary, and tertiary; all are not
getting equal share of FDI. In the following section, the researcher attempts to find the
reasons for unequal distribution of FDI among different sectors of economy in various
regions. Inequality in FDI, whether regional or sectoral, is correlated to each other.
Generally developed regions are highly concentrated in manufacturing activities, which
further enhances the service sector. It is important to find whether agriculture sector
gets adequate share in FDI distribution.
In sectoral distribution of FDI in India, it is observed that agglomeration plays a major
role. The following scholars have emphasized on agglomeration effect in sectoral
allocation of FDI. FDI is getting attracted towards the sectors which are already
developed in particular region.
Okada A. and Sidharthan N.S. (2017) pointed out that three distinct automobiles
industrial clusters have emerged in India due to agglomeration effects and invited FDI
into the sector. Automobile industries are concentrated in Pune-Mumbai belt in
Maharashtra, Bangalore in Kamataka and Chennai in Tamil Nadu.
Lall and Mengistae (2017) found that the local business environment and
agglomeration effect from clustering of industries in the same sector plays an important
role in deciding the location. They opined that easily available finance, availability and
easy access to land and presence of adequate infrastructure attracted firms to Indian
cities.
According to the analysis done by Mukherjee Arti (2018) revealed that market size,
infrastructure, agglomeration effects and size of manufacturing and services base in a
state have a significant positive impact on FDI flows. She suggested that with the
presence of a strong agglomeration effect, it is essential to have a conscious and
coordinated effort at the national and the state government level to make the laggard
states more attractive to FDI flows.
Paluzie E. (2019) in this study discusses regional inequality and argues that with the
rise in manufacturing sector, regional inequality increases. The study shows that firms
try to take advantages of agglomeration. This process is manifested by widening the
gap in distribution of FDI among various sectors of the economy. The researchers also
argue that shifts from exports in agriculture to exports in manufacturing could lead to
widening sectoral gap.

41
Milanovic B (2019) in his study found that inequality in different regions due to
economic development depends on various drivers of growth. The results of the study
show that if economic growth is driven by agriculture, it reduces regional inequality
and aids convergence. On the other hand, if growth is propelled by industrial growth, it
can create regional and sectoral disparities. Thus, the authors make a compelling case
for promotion of agricultural growth.
Jayanth (2019) reported that Indian firms from Reliance Industries to Tatas, Mittals
and Mahindra that located in the past in the northern parts of the country are moving
towards the southern part of the country due to concentration of various industries in
those regions to take benefits of agglomeration of industries in those regions.

42
CHAPTER 4
DATA ANALYSIS
Opposition is not considering the need of present situation. FDI in banking sector can
solve various problems of the overall banking sector. Such as –
 Innovative Financial Products
 Technical Developments in the Foreign Markets
 Problem of Inefficient Management
 Non-performing Assets
 Financial Instability
 Poor Capitalization
 Changing Financial Market Conditions
Impact of FDI On Indian Banks
The RBI's decision to allow foreign direct investment in Indian banks, the lifting of
sectorial caps on foreign institutional investors and a series of other policy measures
could ultimately lead to the privatizations of public sector banks. The series of policy
announcements in recent weeks promises to unleash a shakeout in the Indian banking
industry. A major policy change, effected through an innocuous "clarification" issued
by the Reserve Bank of India (RBI) a few weeks ago, set the stage for the increased
presence of foreign entities in the industry. The RBI's move to allow foreign direct
investment (FDI) in Indian banks has been followed by the announcement in the Union
Budget lifting sectorial caps on foreign institutional investors (FII).

43
AGE
above 18 20- 30 31 - 40 41 & above
4%
9%
38%
49%
2. What is your age?
Interpretation-
The above pie chart is created as per response of Questioners. The chart shows the
number of persons responded.
Response from Questioners are as follows:
Above 18: 38%
20-30: 49%
30-40: 9%
41 & above: 4%

44
Other Female Male
0%
23%
77%
3. What is Gender?
Interpretation-
The above pie chart is created as per response of the Questioners. The chart shows
the number of male female of other have responded. Most of them are male 72%
people and 23% people are female.
Male: 55
Female: 16
Others: 0

45
YES NO
31%
69%
4. Are you familiar with the term FDI?
Interpretation-
The people who know the foreign direct investment and people who don’t know the
foreign direct investment had responded this question. Most of the people are familiar
with the term FDI is shown in the pie chart.
Yes: 49
No:22

46
Netherland Singapore Mauritius
6%
17%
77%
5. Which country has the biggest Investors in India in 2019?
Interpretation-
The pie chart shows that which country is the biggest investors in Indian in 2019.
Accordingly, to the survey the Singapore is the biggest investor in India. 77% of the
people among the 100% voted for the Singapore and for Netherlands 6% and for the
Mauritius 17%.
Netherland: 4
Singapore: 55
Mauritius: 12

47
26% - 33 18% -29 9%
19% 18%
63%
6. What is the FDI rate in India in 2019?
Interpretation-
The survey decides which is the current foreign direct investment rate in India in 2019
most of people has responded the 26% rate of the FDI. Among that 18% people voted
for 26% rates and for 63 % and for 9% rate 18% people voted.
26%: 33
18%: 29
9%: 9

48
StronglyDisagree Disagree Neutral Agree StronglyAgree
0%
3%
20%
28%
49%
7. Does favourable government policies support FDI for easy in to the banking?
Interpretation-
The pie chart decides does any favourable government policies support FDI in Indian
banking sector any people responded the most of the people voted for the agree answer
that is 49% and rest 51 % for the strongly agree, disagree, strongly disagree, neutral.
Strongly disagree: 0
Disagree: 2
Neutral: 20
Agree: 35
Strongly agree: 14

49
yes no maybe
34%
41%
25%
8. Any rigid rules have been followed for FDI in Indian banking Sector?
Interpretation-
Accordingly, to the survey there is some rules which are followed by FDI in Indian
banking sector. Some are rules that has been followed by banking sectors that are public
and private bank.
Yes: 29
No: 18
May be: 24

50
37% 95% 74%
13%
55%
32%
9. What is the FDI rate in public banking sector of Indian?
Interpretation-
Accordingly, to the data collected from the survey we recognize that the rate of FDI in
Banking sectors is 74%. Among that 55% people voted for 74% ani rest of the 45% for
the 35% and 95%.
37%: 17
95%: 20
74%: 34

51
49% 32% 68%
22% 20%
58%
10. What is the FDI rate in private banking sector of India?
Interpretation-
The above pie chart is created as per the response of the Questioners. The chart shows
the current rate of FDI of private Indian banking Sector. The 58% are given to the 33%
rate in private banking sector of India ani rest of the percent is for the remaining rates.
49%: 38
32%: 24
68%: 9

52
11. In which sector FDI is not allowed in India?
Interpretation-
The above pie chart is created as per response of the Questioners. The chart shows that
in which Sectors FDI is not allowed in India. In India the FDI is not allowed in
Gambling and betting sectors of India as we known from the survey 66% people voted
for the Gambling and betting.
Gambling & betting: 47
Atomic Energy: 24
Automic Economy Gambling
34%
66%

53
Yes No Sometimes
31%
52%
17%
12. Does the strength of Indian banking sector rises?
Interpretation-
Accordingly, to the survey the strength of Indian banking sector is rises or fall.52%
people voted for yes and 17% people voted for no and the remaining 32% people voted
for some time.
Yes: 37
No: 12
Sometimes: 22

54
stronglydisagree disagree neutral agree stronglyagree
2%
1%
24%
25%
48%
13. Does FDI has greater impact over Indian banking sector?
Interpretation-
The above pie chart is created as per response of the Questioners. The pie chart shows
the whether FDI has greater impact over Indian banking sector. Most of the people
voted for agree because FDI has a greater impact on the Indian banking sector. 48%
people voted for agree.
Strongly disagree: 1
Disagree: 2
Neutral: 18
Agree: 34
Strongly agree: 17

55
below 5 years 5 - 10 years above 10 years
10%
32%
58%
14. Years of experience in FDI of Indian banking sector?
Interpretation-
that how much years are experience is there in FDI Indian banking sector. Most of the
person having experience in Foreign Direct Investment of below 5 years. 58% people
voted for less than 5years of experience in FDI of India ani rest for 5-10 years and.
Above 10 years.
Below 5 years: 41
5 – 10 years: 23
Above 5 years: 7

56
15. Do you think FDI can improve present infrastructure level of Indian banking
sector in India?
Interpretation-
Accordingly, to the survey do you think FDI can improve the infrastructure level of Indian
banking sector. FDI can improve the Indian banking sector by solving various problems ani
giving certain opportunity. 63% of the people voted for maybe and rest for yes, no, never.
Never:1
Maybe:26
No:13
Yes:31

57
banking sector large scale industry health care
14%
27%
59%
16. In which of the following sector FDI should be promoted in India?
Interpretation-
in which of the following sector FDI should promoted and from that we come to known
that FDI should be promoted in the banking sector the most. The pie chart such as:
Banking sector: 42
Large Scale Industry: 19
Health care: 10

58
private banks public banks
44%
56%
17. to you whom will the FDI benefit the most?
Interpretation-
that to whom the FDI benefit the most and from the survey we have come to known
that to public sector bank FDI benefit the most
Private banking sector: 31
Public Banking sector 40

59
yes no maybe
16%
50%
34%
18. Does any problem is faced by Indian banking sector before FDI?
Interpretation-
Foreign direct investment is the most important factor in banking sector before FDI
Indian banking sector is just a primary sector after FDI the banking sector has become
high. There is problem which is faced by Indian banking sector before FDI
Yes: 27
No: 18
Maybe: 26

60
cant say no yes
29%
60%
11%
19. Does the financial market condition of India change due to FDI?
Interpretation-
Before FDI entering in to the India financial markets were just a low Market deals with
local countries. And after FDI entering into the financial market they started dealing
with the foreign markets they become very high. From the response we come to know
that after FDI entering in to the financial market has developed.
Can’t say: 20
No: 8
Yes: 43

61
increase economic growth increase new technology increase employment
13%
22%
65%
20. Impact of FDI in banking sector?
Interpretation-
There is lost of impact of FDI on banking sector such as increase economy growth and
employment opportunities, new technology, and of thinking capacity. before FDI enter
into the India the Indian banking sector was very small and after FDI Nis were expanded
and started dealing with foreign banking sector is this were there review on the impact
of FDI in Indian banking sector.
Increase new technology: 46
Increase economic growth: 16
Increase employment: 9

62
21. Which problem is solved by FDI in banking sector?
Interpretation-
Foreign Direct investment in Indian banking sector before FDI entered in to the banking
sector of India they had faced lots of problems like poor capitalization non-performing
assets and financial products this were the problem which has been faced. And when
FDI has entered in to India this problem was solved.
Poor capitalization: 10
Financial products: 36
Non-performing assets: 11
None of above: 14
none of above non performingassets poor capitalization financial products
3%
28%
39%
30%

63
yes no maybe
24%
47%
29%
22. Do you think growth of organize banking sector through FDI will increase
millions of good quality new jobs?
Interpretation-
The above pie chart is created as per response of the Questioners. This pie chart shows
that after FDI has entered in to the Indian banking sector the employment opportunities
haws been Increased not. The growth of organize Indian banking sector through FDI
will increase millions of good quality new Job.
Yes: 45
No: 10
Maybe: 16

64
can't say maybe no yes
11%
21%
57%
11%
23. Is FDI good for India?
Interpretation-
in which of the following sector FDI should promoted and from that we came to known
that FDI should be promoted and from that we came to known that FDI should be
promoted in the banking sector the most. The pie chart such as:
Banking sector: 42
Large scale industry: 19
Health care: 10

65
CHAPTER 5
FINDING
 India is considered to be the Third most preferred investment destination in the
world after China and United States.
 Service Sector is one of the most dominating sectors of Indian economy in
attracting highest FDI Equity inflows which account for 19 per cent of total FDI
Equity inflows.
 Among the sub sectors of Service Sector, Financial Services stood at top place
in attracting more FDI Equity inflows (7.28%), followed by Non-Financial/
Business Services (5.62%), Banking Services (1.74%) and Insurance Services
(1.68%).
 Top countries that are investing in the form of FDI in Service Sector are-
Mauritius (39.12%), Singapore (14.78%) and United Kingdom (8.24%).
 FDI in Banking Sector can solve various problems such as Inefficient
Management, Non-Performing Assets, Financial Instability and Poor
Capitalization.
 FDI Equity inflows in Banking Sector have been increasing year by year in an
increasing trend.

66
CHAPTER 6
CONCLUSION
At the outset, foreign direct investment is playing an important role in case banking
industry by providing investment, modern technology, best practices, innovative ideas,
creative atmosphere and so on. FDI also extended its interest towards banking
employees to feel free, work without stress, good ambiance, and job satisfaction. FDI
also facilitate banking management to take right decision at the right time through best
guidelines. Eventually, FDI must take care of social responsibility of the society.
Finally, the study observes that FDI is a significant factor influencing the level of
economic growth in India. It provides a sound base for economic growth and
development by enhancing the financial position of any country. No doubt, India can
improve its economic performance and can achieve its target of double-digit growth
rate by creating conditions conducive to investment. For this, the policy makers should
ensure optimum utilization of funds and timely implementation of projects. The study
also urges the policy makers to focus much more on attracting diverse types of FDI.

67
CHAPTER 7
SUGGESTION & RECOMMENDATION
It is important for countries to take measures to maximize their growth through more
and more FDI inflows. Benefits from FDI could be maximized if efforts are
concentrated on attracting long term productive FDI. To attract quality FDI, a
developing country must ensure a sound macroeconomic environment which requires
adequate infrastructural facilities, stability of exchange rate, political stability, strong
administrative will, market perfection and control over inflation. Some suggestions
regarding FDI inflows are summarized as under:
The analysis of this study reveals that India’s performance regarding attraction of FDI
inflows is very poor as compared to China. India should improve its regulatory system
through better and effective monetary and fiscal reforms. There is need to strengthen
infrastructure network, reforms in marketing structure and strong political will to
improve international trade relations.
FDI has found to be influenced by trade openness of country which implies that a more
liberalized foreign investment policy framework is required in India to decrease the gap
in FDI inflows of India and China. Reserves are also playing important role in
influencing FDI inflows in India. There should be favorable economic environment in
terms of increasing efforts like provision of subsidized raw material, power, land and
tax concession for the development of export-oriented manufacturing units, which in
turns helps to escalate foreign exchange reserves position in India.
Exchange rate and price stability must be foremost priority for the Indian economy to
attract the FDI as these are estimated to be important factors influencing FDI inflows
in the country. India can build a state of confidence among the foreign investors through
taking effective measures for controlling fluctuation in exchange rate and price level in
a country. Serious attention should be paid toward their stabilization as a necessary
condition for foreign investment attraction strategy in India.

68
CHAPTER 8
Questioners/Annexure
1. Your Name?
2. What is your age?
3. What is Gender?
4. Are you familiar with the term FDI?
5. Which country has the biggest Investors in India in 2019?
6. What is the FDI rate in India in 2019?
7. Does favourable government policies support FDI for easy in to the banking?
8. Any rigid rules have been followed for FDI in Indian banking Sector?
9. What is the FDI rate in public banking sector of Indian?
10. What is the FDI rate in private banking sector of India?
11. In which sector FDI is not allowed in India?
12. Does the strength of Indian banking sector rises?
13. Does FDI has greater impact over Indian banking sector?
14. Years of experience in FDI of Indian banking sector?
15. Do you think FDI can improve present infrastructure level of Indian banking
sector in India?
16. In which of the following sector FDI should be promoted in India?
17. to you whom will the FDI benefit the most?
18. Does any problem is faced by Indian banking sector before FDI?
19. Does the financial market condition of India change due to FDI?
20. Impact of FDI in banking sector?
21. Which problem is solved by FDI in banking sector?
22. Do you think growth of organize banking sector through FDI will increase
millions of good quality new jobs?
23. Is FDI good for India?

69
CHAPTER 9
BIBLIOGRAPHY
www.rbi.org.in
www.banknetindia.com
Currentaffairs-businessnews.com
www.hindustantimes.com
Foreign Direct Investment in India By Bhasin, Niti.
FDI in Retail Sector, India by Arpita Mukherjee, Nitisha Patel.
http://www.bloombergquint.com/amp/markets/what-would-an-fdi-limit-hike-mean-
for-indian-bankingh-sector
https://www.academia.edu/8296960/FDI_in_Indian_banking_sector
https://m.economictimes.com/news/economy/indicators/fdi-inflows-up-28-percent-in-
q1-to-16-3-bn/amp_articleshow/70986011.cms
https://gradesfixer.com/free-essay-examples/impact-of-fdi-on-indian-banking-sector/
An study of impact of fdi in Indian banking sector by Dr. Bhupendar kumar dular.
http://www.makeinindia.com/policy/foreign-direct-investment
https://shodhganga.inflibnet.ac.in/bitstream/10603/170915/1/thesis.pdf
An study of foreign direct investment in indian banking sector by make in india .

null-9.docx

More Related Content

Similar to null-9.docx (20)

Recently uploaded (20)

null-9.docx