Bhaumik, Sumon K., P.L. Beena, Laveesh Bhandari, and Subir Gokarn. 2003. Survey of FDI in India. DRC Working Papers, No. 6: 1-22.

What I did here is widely considered plagiarism. There are no citations in the summary and I often use wording directly from the source material. This piece was meant to be simply a summary and is not, I repeat, is NOT original in any way, shape or form. I take no credit for the contents.

Japanese FDI in India

The country of India has undergone several periods of serious economic reform. In this article, the authors evaluate the reforms of the 1990s and the lasting effects that they have had upon foreign direct investment.

The reforms of the 1990s represent the Indian government’s first persistent attempt at re-creating the economy. The article puts forth that the reforms made investment in India by multi-national corporations (MNCs) much easier by allowing MNCs in many sectors to share in the ownership stake of the company. In some cases, the MNCs may own as much as 100% of the foreign sectors. MNCs may not, however, invest in the defense, railway transport, or atomic energy industries and are somewhat limited in their ability to share in ownership of companies in the media sector.

The article then begins an analysis of the types of companies which invest in India and the important aspects there in. Highlights:

· Who’s Investing?

o 29% of the MNCs come from North America

§ US companies have primarily invested in the IT and Financial Services sectors

o 18% of the MNCs come from Japan and East Asia

§ Japanese companies generally tend to invest in the "old economy" machines, equipment sector, and in the "new economy" IT sector.

· How do they do it?

o Most of the entries (46%) are through Greenfield, which is consistent with the theory that high technology companies want to keep their knowledge as confined as possible

· Why do they do it?

o 53% of the MNCs are interested in only one activity or product in the region.

o 57% of the MNCs entering did not have previous experience entering into other emerging markets.

o As in 2003, over 60% of IT services, 30% of financial and business services and between 10% - 20% of all other sector outputs were exported.

· Labour and Input Development

o Across the board the MNCs felt that there had been an improvement in the local labour force. The scores averaged a 0.40 increase on a 5-point scale.

o Local inputs also enjoyed a boost in performance recognition across the board, the highest being a 0.90 increase in IT and Telecom Services.

· Business Environment

o MNCs from North America noticed the greatest improvement in the legal-institutional environment whereas firms from Europe and East Asia had lesser experiences.

o MNCs from North America noticed the improvement in the honoring of visas and work permits whereas Japanese firms enjoyed more FDI friendly policies.

· Product Markets

o Prima facie evidence shows that FDI in India has increased the quality of the products rather than the managerial abilities of the labour force.

· How is India Used?

o Only 15% of MNC affiliates spend more than 4% of their revenue on training. Thus it can be assumed that the bulk of the large MNCs use India as a manufacturing base.

o Not surprisingly, those MNCs which did not provide training were the most unhappy with their performance

As of 2003, FDI inflow has greatly improved into India. However, it hovered around the very low USD 4 billion. It is widely believed that FDI inflow was stemmed because of bureaucratic issues and instability towards FDI friendly government policies. On average, those MNCs that invested in the Indian economy early have been satisfied with the results. Only 16% of the surveyed MNCs are unsatisfied. Still, FDI in India remains a bit mixed characterized by "cautious optimism."

Source: Blogspot