Inward FDI and Innovation in the Indian Service Sector

In terms of amounts, German FDI activities are concentrated in the services sector (71%), mainly in the financial intermediation sector (37%). Both trade and the transportation and communication sector likewise played a key role. Manufacturing led by the chemicals industry and the car sector, accounts for around 25%.

India has emerged as a trading superpower and as an increasing magnet for FDI.  Its role in the international economy to this point has been less remarked than the rise and dominance of China but increasingly India will be appreciated for the opportunities it is creating for its citizens, employers and foreign and domestic firms.

Much research on FDI and IPR has been done during recent years and although many economists have recognized the role of IPR in acknowledging the issues of technology diffusion and the generation of new technology, studies have also criticized the role of the owners of IPRs over the market. On the other hand, the main focus on FDI is directly linked to technology transfer, from L.A countries’ perspective FDI has been seen as the main provider of technologies and skills, that are crucial and necessary for L.A countries to attain sustainable economic development.

Ajami and BarNiv (1984) attempted to explain the variability of FDI across countries. They emphasized in following determinants of FDI in US: relative size of the US market, change in exports to the US, growth of GNP in the home and host countries, decline in value of the US dollar during the late 1970s, inflation rates in the home and host countries, attractiveness of the US capital markets and research and development and manufacturing as a percent of GNP.

So having a stable government creates a conducive environment for doing business. Various policies regarding FDI in airline sector has been approved. 100 per cent FDI under automatic route for Greenfield projects. 100 per cent FDI for existing airports is also possible with an approval from FIPB. Approval of 49 per cent FDI in aviation for foreign carriers. Also regarding taxes and duties levied on sector it is promising one. 100 per cent tax exemption for airport projects for a period of 10 years. Indian aircraft manufacture, repair and overhaul (MRO) service providers are exempted completely from customs and countervailing

That is why fdi (foreign direct investment) show huge growth with the last decade. Many foreign companeis (pepsico, nokia, walmart, general electrical etc) and bank (citi bank, standard chartered, abn amro etc) are entering in India day by day however many more is to come. |

India 's growth has been fueled more by services such as software and business outsourcing (The Wall Street Journal, 2014). According to experts, India is an ambitious nation, with high economic expectations, as after the economic depression on 2008 where many global economies seemed to hit bottom, India showed that they could make the best out of the worse by accomplishing economic growth thanks to other bigger economies searching for options to save money by outsourcing. It seems like outsourcing is one of the main means of growth of India’s economy, as well as information technology.

R&D represents the cost of research and development as a percentage of partner country’s GDP, and used as proxy for the level of technological development of the U.S. trading partner. An increase in technological development would be expected to enhance a country’s capability to produce more differentiated products which would lead to more IIT. The results indicate the R&D parameter estimate is positive and statistically significant at the one percent level. This confirms, Hypothesis 7, which states that an increase in R&D investment is associated with an increase in the IIT intensity relative to INT.

In 2009, China attracted $95 billion FDI inflows, accounting for 1.9 percent of its GDP compared with India’s $36.6 billion inflows, equivalent to 2.7 percent of its gross domestic product. China attracted 2.5 % more FDI’s than India in the year 2009.India’s FDI inflow dropped by 14 percent in 2009 and that of China by 12 percent. India should improve its infrastructure as well credibility of the government to attract FDI’s. India is a vast country with many natural resources including metals, minerals and oil deposits. English speaking ability gives edge over China to improve its service sector. India should sustainably increase it’s invest on infrastructure to attract more FDI’s. Foreign investors, who could invest their money anywhere, find more opportunities and less obstacles in China. (Zhou Siyu, 2010)

I had an opportunity to witness Infosys Technologies’ (India’s second largest IT sector) International conference on the topic “Innovation and Outsourcing in Emerging Markets”. Some of the speakers were very experienced in the R&D department. The conference was headed by a panel of three members. They were Dr. Ajay, Dr. Srinivas and Dr. Rajiv. Dr. Ajay and Dr. Rajiv were Senior Research Analysts in R&D Planning and Operations department of Infosys. The objective of this conference was to demonstrate and discuss the latest ideas in Service Innovations that are driving the government and industries in delivering the services in Emerging Markets.

India remains the third most attractive destination for FDI, after China and the United States of America, for 2013-2015, according to a survey of global companies conducted by UNCTAD. Foreign Direct Investment in India has increased from $ 1,04,411 in year 2000-2001 to $ 6,96,011 in 2011- 2012. The distribution of FDI inflow is concentrated to some sectors. Services , Construction, Communication, Drugs and Pharmaceuticals, Chemicals, Automobile Industry etc. are among the leading sectors which bag major share of FDI inflows. (Figure 2.1)

The innovation division in India has a noteworthy effect on the Indian economy. The business has developed from US$4 billion in 1998 to more than US$80 billion in 2011, utilizing specifically and by implication more than 10 million individuals. Riding on the administrations outsourcing wave, local and global organizations have utilized India 's worth suggestion to improve their intensity in the worldwide business sector.

So due to the aforesaid benefits economy has consistent flow of FDI over the past few years. In addition to that, the govt. has also taken step to enhance the FDI (eg. Telecom, civil aviation) FDI up to 100% through the Reserve Bank's

A foreign direct investment has become a striking measure of economic development in both developed and developing countries. FDI and FII thus have become instruments of international economic integration and incentive. Fast growing economies like China, Singapore etc., have registered unbelievable growth at onset of FDI. Though US captures most of the FDI inflows, developing countries still account for significant growth of FDI and rise in FII. FDI not only gives access to foreign capital but also provides domestic countries with cutting edge technology, desired skill sets, tools of innovation and other harmonious skills. The policies drafted to stimulate the flow of foreign capital in to India provided much needed an external (or) internal for India to emerge as an attractive destination for foreign investors. External factors such as global economic cues, FDI & FII, Exchange rate and Internal factors such as demand and supply, market cap, EPS generally drive and dictates the Indian stock market. The current paper makes an attempt to study the relationship and impact of FDI & FII on Indian stock market using statistical measures namely correlation coefficient and multi regression during the study period from 2005 to 2014. Sensex and Nifty were considered as the representative of stock market as they are the most popular Indian stock market indices. It concludes that Flow of FDIs and FIIs in India determines the trend of Indian stock market during the study

Foreign Direct Investment is the major tool of attracting International Economic Integration in any nation. It serves as a relationship between investment and saving. Many developing countries like India are facing the scarcity of savings. This crisis can be solved with the help of Foreign Direct Investment. In this paper an endeavor has been taken to analyze the trend of FDI in last 11 years and to analyze the relationship between foreign direct investment and macroeconomic factors like GDP, Exports and Foreign Exchange Reserves (FER) in India using data for a period from 2001 to 2012. This study has investigated the twin objectives viz trend of FDI and relation of FDI with macroeconomic factors viz GDP, Exports, Foreign Exchange Reserves (FER).The trend and relation between these variables has been analyzed by percentage analysis, Compound Annual Growth Rate (CAGR), and Correlation Analysis. Findings of the study indicate that FDI can be used as vehicle for growth of macroeconomic indicators of the economy.