FDI In Cohesion to Employment

Introduction :Until the 1980s, most developing countries viewed foreign direct investment (FDI) with great wariness. The presence of multinational corporations (MNCs) was perceived to impinge on national sovereignty and security. The foreign-based center of decision making and international mobility raised suspicions about MNCs. commitment to the host economy. The sheer size and magnitude of FDI by MNCs was viewed as a threat to host countries, raising concerns about MNCs. capacity to influence economic and political affairs. These fears were driven by the colonial experience of many developing countries and by the view that FDI was the modern form of economic colonialism and exploitation. In addition, MNCs were frequently suspected of engaging in unfair business practices, such as rigged transfer pricing and price fixing through their links with their parent companies. In recent years, however, FDI restrictions have been dramatically reduced as a result of a host of factors. Accelerating technological change, emergence of globally integrated production and marketing networks, existence of bilateral investment treaties, prescriptions from multilateral development banks, and positive evidence from developing countries that have opened their doors to FDI. In addition, the drying-up of commercial bank lending due to debt crises brought many developing countries to reform their investment policies to attract foreign capital, as FDI appeared to be an attractive alternative to bank loans as a source of capital inflows. In the process, incentives and subsidies were aggressively offered, particularly to MNCs that supported developing countries. Industrial policies. This led to a rapid expansion of FDI flows around the world during the last 20 years. From only $53.7 billion in 1980, FDI outflows reached $1.4 trillion in 2000. The upsurge in FDI has substantially changed the international economic landscape. A notable characteristic of this change is its phenomenal speed. Since 1980, the growth of world FDI outflows has overtaken the growth of world exports (Figure 1). This swift expansion in FDI outflows was more pronounced during 1985-1990, when many host countries began to relax regulations to attract FDI, and 1995-2000, when companies undertook scores of mergers and acquisitions in the wake of the Asian financial crisis and privatization programs in Latin America. Foreign Direct Investment (FDI) is a driving force of globalization and an important engine of economic growth. Developing as well as developed countries seek to attract FDI due to its many advantages for economic development. FDI can not only bring
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FDI In Cohesion to Employment capital to an economy, but also transfer knowledge, technology and skills, as well as generate employment and trade. Due to its economic significance and social impact, FDI statistics has become an essential parameter for facilitating national policy-makers to set up regulatory policies and development strategies, and for international institutions to monitor global and regional economic trends and globalization process. Nevertheless, collecting, processing and reporting FDI data remains a major challenge for developing and developed countries alike, as well as to international organizations.

Meaning of FDI : Foreign Direct Investment, or FDI, is a measure of foreign ownership of domestic productive assets such as factories, land and organizations. Foreign direct investments have become the major economic driver of globalization, accounting for over head of all cross-border investments. FDI stands for Foreign Direct Investment, a component of a country's national financial accounts. Foreign direct investment is investment of foreign assets into domestic structures, equipment, and organizations. It does not include foreign investment into the stock markets. Foreign direct investment is thought to be more useful to a country than investments in the equity of its companies because equity investments are potentially "hot money" which can leave at the first sign of trouble, whereas FDI is durable and generally useful whether things go well or badly. According to IMF :- FDI by IMF (International Monetary Fund) definition includes 12 independent and well-defined elements. These include: 1). Equity Capital. 2). Re-invested earnings of foreign companies. 3). Investment made by Foreign Venture Capital Investors. 4) Non-Cash acquisition of equity. 5). Earnings data of indirectly held FDI enterprises. 6) Bonds. 7) Grants. 8). Trade Credit. 9). Financial leasing. 10). Short-term and long-term loans. 11). Inter-company debt transactions. 12). Control premium and non-transaction fees.

P G Dept. of Management Studies, PESITM, Shivamogg.

FDI In Cohesion to Employment According to IMF, FDI is the category of international investment that reflects the objectives of obtaining a lasting interest by a resident entity in one economy, in an enterprise resident in another economy.

FDI into India:Although china has been the top investment destination for some year, investor interest in India is a more recent development. Whereas chinas FDI concentrated In capital-intensive manufacturing and logistics, FDI flow into India are mostly in IT and Communication centers, which are not accompanied by sizeable FDI flows. Despite Indias successful positioning as a business processing and IT outsourcing hub, these activities often translate into Indian services sector exports via third-party transactions-not FDI. There have recently been position signs of increased FDI into other sector. Despite the attention to services outsourcing, two of the sectors that received a large amounts of inward FDI in 2005 were automobile manufacturing and mining. FDI into India will grow but will remain very low in interest in the country. Intel, Microsoft, Cisco, Pasco and an AMD-backed chip fabrication consortium have proposed large multi-year investment. The recent increasing ceiling on foreign ownership in some telecoms services to 74% (from 49%) and in civil aviation companies to 49% (from 24%) is also helping to generate greater inflows, although manufacturing is generally open to foreign investment and there has recently been substantial liberalization of the FDI regime in some sectors, such as a telecoms, FDI opportunities in other sectors are limited. Indias ability to attract FDI is also hampered by its poor infrastructure recent survey by KPMG, that showed Indias poor infrastructure (the road network, the ports, the distribution networks and in particular, the power supply) is a cause for concern and a major barriers to investment. Most of the companies surveyed doubted that rapid changes could be made to solve the infrastructure issues. The scope for making improvements is limited by the state of public finances. The combined deficit of the federal and state governments is running at around 10% of GDP.
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FDI In Cohesion to Employment Employment Scenario:-(EMPLOYMENT AND UNEMPLOYMENT SCENARIO IN INDIA)

APPROACH PLANNING:-

TO

EMPLOYMENT

IN

ECONOMIC

Planning in India focused at realizing a high rate of growth of output in the long term. A basic assumption was that shortage of capital goods in relation to employable persons constituted a fundamental constraint on growth in the economy. Therefore the planning process made no attempt to define an independent employment strategy; the focus on economic growth was viewed as essential for improving the employment situation. Initially, labour force expansion was not seen as a problem to be contented with. Thus, in the Five Year Plans, the generation of employment was viewed as part of the process of development and not as a goal in conflict with, or to be pursued independently of economic development.

EMPLOYMENT PLANNING IN INDIA:The approaches to tackling the task of unemployment have varied from time to time. In the initial years of planning reliance was placed primarily on the expectations of a rapid industrial development and control of population. These expectations did not materialize and it was observed that the rate of growth of employment was generally much lower than the GDP rate of growth of the economy. Seasons of severe drought and failure of monsoons exposed large sections of population to extensive deprivations. Successive plans, strategies, policies and programmes were, therefore, re-designed to bring about a special focus on employment generation as a specific objective. The seventies and eighties saw the emergence of special schemes like NREP, RLEGP to provide wage employment through public works programmes and schemes to promote self-employment and entrepreneurship through provision of assets, skills and other support to the unemployed and the poor. While employment levels expanded steadily during the seventies and eighties, the rate of growth of employment continued to lag behind that of the labour force. Unemployment among the educated showed a rising trend. Another feature of the employment situation is the sizeable proportion of the employed working at low levels of the productivity and income. The eighties exposed the weakness in the then ongoing strategies of expanding public sector irrespective of competition.

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FDI In Cohesion to Employment

POVERTY

ALLEVIATION

AND

EMPLOYMENT

GENERATION PROGRAMMES:Anti-poverty strategy comprises of a wide range of poverty alleviation and employment generation programmes, many of which have been in operation for several years and have been strengthened to generate more employment, create productive assets, impart technical and entrepreneurial skills and raise the income level of the poor. Under these schemes, both wage employment and self-employment are provided to the people below the poverty line. In 1998-99, various poverty alleviation and employment generation programmes are grouped under two broad categories of Self-Employment Schemes and Wage Employment Schemes. Funding and organizational patterns are also rationalized to achieve better impact. These programmes are primarily meant for poverty alleviation and have generally not been helpful in sustainable employment generation.

GLOBAL EMPLOYMENT SCENARIO:The global employment and unemployment situation according to the World Employment Report 1998-99, was as follows: Out of an estimated 6 billion population in the year 1997 around 3 billion was in the labour force. 160 million persons have been estimated to be fully unemployed. 25 to 30 percent of the employed labour force is under employed. A large number of young people in the age group of 15 and 24 (around 60 million in 1997) are continuously in search of work i.e. unemployed A few important conclusions which emerges from the above report are: Limited demand for unskilled and less skilled labour. Increase in demand for skilled labour on account of technological development and up gradation and changes in the organization of work Problems in maintaining the continued employability of labour force Demand for multi skilling.

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FDI In Cohesion to Employment

Some of the important strategies recommended in the World Employment Report are: Timely Investment in skill development and training at enhanced level. Enhancement of education and skill level of workers. Responsive training system. Need for effective partnership of all stake holders.

EMPLOYMENT & UNEMPLOYMENT SCENARIO IN INDIA:In India, due to the agrarian sector with seasonal operations time disposition and availability for work have been the criteria for measuring employment. The accepted method of measuring employment is the usual status. Reliable estimates of employment/unemployment are generated through National Sample Surveys conducted once in five years by National Sample Survey Organisation (NSSO). The concept recognizes time utilisation only. Quality of work or income does not get reflected in the approach.

As per the results of the National Sample Survey conducted in 1999-2000, total work force as on 1.1.2000, as per Usual Status approach (considering both principal and subsidiary activities) was of the order of 406 million. About 7 % of the total work force is employed in the formal or organized sector (all public sector establishments and all nonagricultural establishments in private sector with 10 or more workers) while remaining 93% work in the informal or unorganized sector. The size of the Organized Sector employment is estimated through the Employment Market Information Programmed of DGE&T, Ministry of Labour. The capacity of the organized sector to absorb additional accretion to the labour force, taking into account the current accent on modernization and automation, is limited. In other words, an overwhelming proportion of the increase in the labour force will have to be adjusted in the unorganized sector. About 369 million workers are placed today in unorganized/informal sector in India; agriculture workers account for the majority of this work force.

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FDI In Cohesion to Employment

EMPLOYMENT GENERATION IN INDIA: 7% of the total employed are in the organized sector i.e., unorganized sector dominates in the employment scenario. Additional employment generation in the organized sector is not significant i.e., scope for additional wage employment in the organized sector continued to be less. Significant employment generation took place in the tertiary sector particularly in services industries. Substantial employment growth was observed in the small and unorganised sector, i.e., in small and tiny enterprises. Self-employment and casual labour continued to play a pivotal role in rehabilitation of the unemployed.

Skill level of Labour Force in India: The overwhelming majority of the work force, not only in rural areas but also in urban areas, does not possess any identifiable marketable skill. In urban, only about 19.6% of male and 11.2% of female workers possessed marketable skills. Whereas, in rural areas only about 10% of male and 6.3% of female workers possessed marketable skills. Most of the job seekers (about 80%) in employment exchange are without any professional skill.

P G Dept. of Management Studies, PESITM, Shivamogg.

FDI In Cohesion to Employment

The Estimates of potential job opportunities in different sectors

Sectors/Programmes Total Additional job Total

opportunities created over the (in 10th Plan (in lakhs) Growth based Programmed based Agriculture Including National Watershed 4.1 90.6 94.7 lakhs)

Development Project for Rain fed Areas (NSDRPA), Farm Management programmed, Agro Clinics, Greening India Programmed, Watershed and

Wasteland Development, Medicinal Plant, Bamboo Development and Energy Plantation like Ethanol etc. Mining & Minerals -2.0 -2.1 14.2 Manufacturing (Excl. Prime Ministers Rozgar- 14.2 Yojana (PMRY) & Rural Employment Generation (large Programmed (REGP) manufacturer) 60.0 (SSI) Electricity, Gas & Water Construction Trade, Hotels & Restaurants Transpor,Storage &Communications Financial Sector Community Sector Special Programmes Prime Ministers Rozgar Yojana (PMRY) (SSI) & REGP (KVIC) Sampoorna Gramin Rozgar Yojana (SGRY) Pradhan Mantri Gram Sadak Yojana (PMGSY) & Swarna Jayanti Gram Swarozgar Yojana (SGSY) Total
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60.0

-2.1 63.0 112.3 55.1 19.3 4.9 32.0

-2.1 63.0 112.3 55.1 19.3 4.9

22.0 20.0 12.9 7.7 8.0 296.8 193.2

22.0 20.0 12.9 7.7 8.0 490.0

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FDI In Cohesion to Employment FDI Impact on Employment [Global Level & India]:Globalization has played an important role in the generation of employment in India. Since the economic liberalization policies in the 1990s, the employment scenario in the country has significantly improved. An analysis of the impact of globalization on employment in India will bring out a number of factors in this regard.

Market liberalization policies and employment The wake of globalization was felt in India in the early 1990s when the then Finance Minister Manmohan Singh initiated the open market policies. This led to a significant improvement in the gross domestic product of the country and the exports increased considerably. There was significant rise in the customer base and it slowly gave rise to the consumer market where the market changes were dependant on the demand supply chains. In fact, the growth in demand brought a favorable change and the supply too started increasing. As, supply is directly involved with employment, more supply led to more production which led to more employment over the years.

Growth of new segments in the market Due to globalization and the growth of the consumer market, a number of segments in various sectors of the industry have grown over the years. This has led to the significant rise in the rate of demand and supply. In the recent years, a number of industry segments such as information technology, agro products, personal and beauty care, health care and other sectors have come into the market. Experts say that the introduction of a wide range of sectors have led to the favorable growth of the economy in the country. With more and more industry segments coming up, there has been a high demand for quality workforce. As such, lots of young people are taking jobs in all these segments in order to start a good career. In the unorganized sector as well, there has been an increase in various sectors which has improved the rate of employment in the country. As per the recent surveys, there has been a significant increase in the number of people working in the unorganized and allied sectors. The pay package in all these unorganized sectors have also increased to a great extent.

P G Dept. of Management Studies, PESITM, Shivamogg.

FDI In Cohesion to Employment Improvement in the standard of living As globalization has put a favorable impact in the economy of the country, there has been an improvement in the standard of living of the people. The favorable economic growth has led to the development of infrastructure, health care facilities and services, per capita income and other factors which have really led to the high growth rate. It has been expected that the economy in India will grow by around 6-7% yearly. This growth rate is expected to improve the overall employment situation more and the per capita income will also increase significantly.

Development of other sectors Globalization has positively affected the growth of various sectors in India. These have opened up new employment opportunities for the people. The service industry has a share of around 54% of the yearly Gross Domestic Product (GDP). From this figure itself, it is understood that the service industries are doing very well in the market and as such, plenty of employment opportunities are taking place. In the other sectors such as industry and agriculture, the rate of employment has gone up. The industrial sector contributes around 29 % while the agricultural sector contributes around 17 % to the gross domestic product. Some of the well known exports of the country consist of tea, cotton, jute, wheat, sugarcane and so on. Due to the growth of customer base in all these sectors, more and more employment opportunities are opening up. In fact even young people and freshers are getting jobs in all these sectors. In the manufacturing sector, there has been a growth of around 12% while the communication and storage sector has also grown up by around 16.64%.

Government Initiatives To keep pace with the favorable effects of globalization, the government has taken a number of initiatives. A number of employment opportunities such as Prime Minister Rojgar Yojna and the CM Rojgar Yojna have been initiated to improve the employment situation in the rural areas. The Minimum Wages scheme has also been successfully implemented. In order to improve the quality of the workforce, effort is also being given to impact education to various sectors of the rural areas. Under these schemes, new schools are being opened up and attention is also being given to the welfare of the students. Likewise in the urban sector too, more and more employment opportunities are being opened up for the youth in a number of government sectors, banks and so on.
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FDI In Cohesion to Employment In order to foster communication and migration of workforce to various parts of the country to cater to the needs, the government has also developed infrastructure to a great extent. New roads and highways are being constructed to increase connectivity.

Current Scenario of FDI:Foreign Direct Investment (FDI) is now regarded as an important driver of growth. Emerging Market Economies (EMEs) look upon FDI as one the easiest means to fulfill their financial, technical, employment generation and competitive efficiency requirements. Gradually they also realized that substantial economic growth is inevitable without global integration of business process. This created opportunities for location advantages and thus facilitated strategic alliances, joint ventures and collaborations over R & D. The world economy has observed a phenomenal change in volume and pattern of FDI flow from developed nations to EMEs in 1980s and 1990s compared to earlier decades. The hostile attitude of developing nations regarding multinationals investment has become generous during this transition period. FDI was fostered by liberalization and market-based reforms in EMEs. The financial sector deregulation and reforms in the industrial policy further paved the way for global investments. There is clearly an intense global competition for FDI. India has emerged as the second most attractive destination for FDI after China and ahead of the US, Russia and Brazil. In view of these facts, the present paper takes stock of current status of FDI in India, aims to find reasons for comparatively lesser flow of FDI and suggest measures to boost flow of FDI to India. The FDI scenario in India is currently witnessing a gradual shift with liberalized reforms over last few years and an attractive investment climate making a positive impact on the inflow. With a steady increase in volume of FDI, India has attracted more than 90 countries till 2010 (29 countries in 1991) across the globe to invest in India making it upstages US in the list of top investment destinations in the world in the UNCTAD WIP Report. There are certain factors which have played a pivotal role in taking India to the world. Demographics, suitable business climate, low man power costs along with
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FDI In Cohesion to Employment availability of talented pool of resources are some of them. India also has certain advantages at the policy level. Collaboration with a local partner is not mandatory for making investment in India, repatriation of capital is easy and low cost, and licenses granted can be used to operate from any part of the country. There is also better protection of IP rights simplification of laws and introduction of a uniform Goods and Service Tax and a soon to be introduce Direct Tax Code. Investment into India could mostly follow the automatic route with no licenses or permissions required Investment in sectors that have caps such as single brand retail, private banking, insurance, stock exchange needs to be approved by Foreign Investment Promotion Board. As per the latest FDI policy steps have been taken to evaluate certain sectors having limited or no access to foreign investment. Discussion papers on FDI in multi brand retail trading was released which proposed to increase FDI in Single brand retail to 100% from current 51% and to allow FDI in Multi Brand retail, which will improve the growth rate in organized retail currently one of the lowest in the world at 4%. Consolidated FDI policy in now issued every 6 months, online filing for FIPB application, methodology for calculation of indirect foreign investments in Indian companies now clearly defined. Project Offices are now permitted to open one or more non interest bearing foreign currency accounts for projects to be executed in India, which will give greater flexibility for Project offices to operate. India is placed quite well to attract investments and key reforms have been initiated at the macro level. The need of the hour is to implement policy reforms both at the macro and micro level, prioritize sectors, focus on product-specific SEZs or multiproduct SEZs and synchronize FDI policy with export policy. In order to sustain its competitive advantage in being the top investment destination in the world India will also need to address other key issues like lack of infrastructure, restrictive labor laws, absence of Centre-state co-ordination. It is necessary to note that an Indian company must be both owned and controlled

by Indian citizens. If either condition is violated, then its investment would be treated as indirect foreign investment.

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FDI In Cohesion to Employment For determining the foreign ownership of an Indian company it should have more than 50% foreign ownership. What happens in a situation where the Indian and the foreign partner have an equal (50 : 50) stake ? In several Indian JVs, the foreign partner desires one golden share (over 50%) to enable consolidation with his foreign company. If such a JV makes a downstream investment in any company, then the entire investment would now be treated as indirect foreign investment. For determining the foreign control, it only needs to be seen whether the foreign entity has power to appoint majority of directors. It does not address the other ways in which control can be exercised, e.g., veto rights, affirmative votes, shareholders agreement. In sectors where the FDI is subject to Government approval, the Indian company will need to disclose to the FIPB the details of inter-se shareholder agreements which have an effect on the appointment of the Board of Directors, differential voting rights and such other matters. But a similar treatment has not been extended to the indirect foreign investment. A majority of the private equity deals have a host of special investor rights, but may not necessarily have a majority of the Board seats What would happen if an Indian investing company with 49% FDI and which is owned and controlled by Indian citizens, invests 26% in an NBFC which already has 51% FDI ? Under the new norms, 26% investment would be treated as domestic investment and hence, the NBFC would not have to comply with the minimum capitalisation norms applicable to an NBFC which has more than 75% FDI. What if the Indian investing company, which has 49% FDI and which is owned and controlled by Indian citizens, invests in a sector for which FDI is prohibited, e.g., lottery business? Sectors such as retail trading, real estate, information, defence, avaiation, etc., are expected to benefit from this Press Note. We may soon have a case where several foreign retail players may try to invest in multi-brand retailing via the indirect foreign ownership method. As per Press reports, the RBI has objected to this Press Note. FII investment has been treated as foreign investment. However, to consider the same, one has to ascertain the limits as on 31st March. If one looks at the FII activity after 31st March, 2008 there are only withdrawals. Hence, even though the current position is drastically different from what it was on 31st March, 2008, yet one is required to consider the FII investment level as on 31st March, 2008. This provision would create a lot of problems. Further, clubbing ADR/GDR holding with foreign shareholding is also a vexed issue. The voting on ADR/GDR is by the custodian of the shares. How the custodian
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FDI In Cohesion to Employment would vote is generally not specified. There are a few cases where it is specified in the prospectus. But generally, it is left open. Interestingly, Cl. 40A of the Listing Agreement, while computing the public shareholding in a listed company, excludes the shares which are held by custodians and against which depository receipts are issued overseas. The logic being that the custodian would vote in unison with the promoter. If that be the case under the Listing Agreement, then the stand taken by the FIPB is diagonally opposite, i.e., the custodian would vote in unison with the foreign receipt owners. Special investor rights are the norm in the case of private equity deals and hence, if PE deals are to be done in sectors requiring FIPB approval, then the Shareholders Agreement would have to be filed with the FIPB. Thus, if any courier company (where FIPB approval is required) wants to get PE funding, it would also have to get the Shareholders Agreement approved by the FIPB. Thus, the regulator would now exercise quasi-judicial functions. Ranked 2nd most favored destination for foreign investments after China India ranks among the top 12 producers of manufacturing value added In textiles, the country is ranked 4th after China, USA and Italy. In electrical machinery and apparatus, it is ranked 5th. 6th position in the basic metals category. 7th in chemicals and chemical products. 10th in leather, leather products, refined petroleum products and nuclear fuel. 12th in machinery and equipment and motor vehicles. Growth Opportunities:India has been ranked at the second place in global foreign direct investments in 2010 and will continue to remain among the top five attractive destinations for international investors during 2010-12 period, according to United Nations Conference on Trade and Development (UNCTAD) in a report on world investment prospects titled, 'World Investment Prospects Survey 2009-2012'. The 2010 survey of the Japan Bank for International Cooperation released in December 2010, conducted among Japanese investors, continues to rank India as the second most promising country for overseas business operations.
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(MVA)

FDI In Cohesion to Employment A report released in February 2010 by Leeds University Business School, commissioned by UK Trade & Investment (UKTI), ranks India among the top three countries where British companies can do better business during 2012-14. According to Ernst and Young's 2010 European Attractiveness Survey, India is ranked as the 4th most attractive foreign direct investment (FDI) destination in 2010. However, it is ranked the 2nd most attractive destination following China in the next three years. The wave of M and As as a driving force for FDI will continue, particularly in crucial sectors such as IT, telecom, financial and pharmaceuticals. These might be aided by trade liberalization, investment in capital markets, deregulation and the fiercer competitive pressures resulting from globalization and technological changes. The Unclad study notes: Expanding firm size and managing a portfolio of location assets becomes more important for firms, enabling them to take advantage of resources and markets worldwide. The search for size is also driven by the search for financial, managerial and operational synergies, as well as economies of scale. Finally, size puts firms in a better position to keep pace with an uncertain and rapidly-evolving technological environment, a crucial requirement in an increasingly knowledge-intensive world economy, and to face soaring research costs. A contributing factor for the increased flow of foreign investment in the 1990s has been the extensive reform by host governments, removal of restrictive policies governing FDI flows and permitting free flows of capital. Approval procedures were simplified and rationalized either by removing licensing requirements or keeping it to the bare minimum. A survey, by the European Round Table of Industrialists, of the improvements of conditions for investment in 25 developing countries including India, in the wake of liberalization, noted that more companies were willing to invest in the developing world for strategic considerations and to realize the long-term economic potential of these markets. Towards that goal, regulatory efficiency, as opposed to simple deregulation, should be the policy focus. Improved conditions for investment are not automatically, or always, identical with deregulation, much less efficient regulatory framework. The demand for a competition policy and an open investment regime as demanded at the WTO has its genesis in this premise.

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FDI In Cohesion to Employment Challenges of Employment in India:The challenges facing larger FDI in India are in spite of the fact that more than 100 of Fortune 500 companies are already investing in India. These FDIs are already generating employment opportunities, income, technology transfer and economic stability India is focusing on maximizing political and social stability along with a regulatory environment. In spite of the obvious advantages of FDIs, there are quite a few challenges facing larger FDIs in India, such as: Resource challenge: India is known to have huge amounts of resources. There is manpower and significant availability of fixed and working capital. At the same time, there are some underexploited or unexploited resources. The resources are well available in the rural as well as the urban areas. The focus is to increase infrastructure 10 years down the line, for which the requirement will be an amount of about US$ 150 billion. This is the first step to overcome challenges facing larger FDI. Equity challenge: India is definitely developing in a much faster pace now than before but in spite of that it can be identified that developments have taken place unevenly. This means that while the more urban areas have been tapped, the poorer sections are inadequately exploited. To get the complete picture of growth, it is essential to make sure that the rural section has more or less the same amount of development as the urbanized ones. Thus, fostering social equality and at the same time, a balanced economic growth. Political Challenge: The support of the political structure has to be there towards the investing countries abroad. This can be worked out when foreign investors put forward their persuasion for increasing FDI capital in various sectors like banking, and insurance. So, there has to be a common ground between the Parliament and the foreign countries investing in India. This would increase the reforms in the FDI area of the country. Federal Challenge: Very important among the major challenges facing larger FDI, is the need to speed up the implementation of policies, rules, and regulations. The vital part is to keep the implementation of policies in all the states of India at par. Thus, asking for equal speed in policy implementation among the states in India is important.

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FDI In Cohesion to Employment India must also focus on areas of poverty reduction, trade liberalization, and banking and insurance liberalization. Challenges facing larger FDI are not just restricted to the ones mentioned above, because trade relations with foreign investors will always bring in new challenges in investments. However, some important issues can be identified. To what extent can foreign investment serve the overall socio-economic goals in an open regime? Income disparities, employment generation, technology flows, environmental costs of industrial development, commitment to exports are some of the key issues. There could be a crowding-out effect in the face of competition for scarce resources and markets. The pattern of investment and the routes FDI flows might take may undergo a significant change. For instance, M and As may become more common. There could b e takeovers of local firms in a few cases with implications for domestic brands. Takeovers per se are not to be frowned upon. But the ground rules for transparency and prevention of insider-trading practices must be enforced vigorously under SEBI guidelines. Today, this is a weak area in Indian corporate mergers. Improving the country's negotiating power with MNCs needs attention. Information of cost and the status of technology offered and the global strategies of firms are vital to strengthen the bargaining capability. There is likely to be an increasing role of the MNC home countries in controlling the flow of critical or dual technology on so called `security grounds' which issue must be discussed to evolve suitable international standards. With particular reference to portfolio investments and profit repatriation, Government must evolve suitable financial policies and instruments to prevent capital market volatility.

The challenges facing host country authorities:Sound host-country policies toward attracting FDI and benefiting from foreign corporate presence are largely equivalent to policies for mobilising domestic resources for productive investment. As stated in the Monterrey Declaration, domestic resources in most cases provide the foundation for self-sustaining development. An enabling domestic business environment is vital not only to mobilise domestic resources but to attract and effectively use international investment. As the experience of OECD members and other
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FDI In Cohesion to Employment countries has shown, the measures available to host-country authorities fall into three categories: improvements of the general macroeconomic and institutional frameworks; creation of a regulatory environment that is conducive to inward FDI; and upgrading of infrastructure, technology and human competences to the level where the full potential benefits of foreign corporate presence can be realized. The first of these points establishes the fact that every aspect of host countries economic and governance practices affects the investment climate. The overall goal for policy makers must, therefore, be to strive for the greatest possible macroeconomic stability and institutional predictability. More concretely (and while macroeconomic and financial enabling environments have not been the focus of the main report), the following recommendations are widely supported. Pursue sound macroeconomic policies geared to sustained high economic growth and employment, price stability and sustainable external accounts. Promote medium-term fiscal discipline, efficient and socially just tax systems, and prudent public-sector debt management. Strengthen domestic financial systems, in order to make domestic financial resources available to supplement and complement foreign investment. A priority area is the development of capital markets and financial instruments to promote savings and provide long-term credit efficiently. This will help alleviate funding constraints in general and allow local enterprise development to benefit those business opportunities arising from foreign corporate activities. This process will entail a progressive implementation of multilaterally agreed financial standards. The broader enabling environment for FDI is generally identical with best practices for creating a dynamic and competitive domestic business environment. The principles of transparency (both as regards host country regulatory action and business sector practices) and nondiscrimination are instrumental in attracting foreign enterprises and in benefiting from their presence in the domestic economy. FDI is unlikely unless investors have a reasonable understanding of the environment in which they will be operating. Moreover, a lack of transparency may lead to illicit and other unethical practices, which generally weaken the host

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FDI In Cohesion to Employment countrys business environment In this context, host-country authorities should undertake the following measures. Strengthen their efforts to consolidate the rule of law and good governance, including by stepping up efforts against corruption and enhancing policy and regulatory frameworks (e.g. as regards competition financial reporting and intellectual property protection) to foster a dynamic and well-functioning business sector. Such policies will benefit the climate for FDI through their effect on transparency. Work toward increased openness to foreign trade, so the domestic enterprise sector can participate fully in the global economy. This approach should be undertaken jointly with efforts to increase business sector competition. A combined approach would allow a greater domestic and international openness to business to go hand-in-hand with safeguards against the negative effects of a rise in concentration.. Moreover, the successful elimination of global and regional trade barriers makes participating countries more attractive for FDI, owing to the concomitant expansion of the relevant market. Enshrine the principle of non-discrimination in national legislation and implement procedures to enforce it through all levels of government and public administration. Given the importance of competition for resource allocation and sustained economic growth, it is essential that foreign entrants should be able compete without government prejudice, and that incumbent enterprises are not unduly disadvantaged vis--vis foreign-owned ones. To reap the maximum benefits from corporate presence in a national economy, domestic competences, technologies and infrastructure need to be sufficiently well developed to allow nationals to take full advantage of the spillovers that foreign-owned enterprises generate. Hostcountry authorities should therefore with due regard to the balance between costs and expected benefits, and the state of development of the domestic economy undertake measures to the following effect. Put in place, and raise the quality of, relevant physical and technological infrastructure. The presence of such infrastructure is instrumental in attracting MNEs, in allowing national enterprises to integrate the technological spinoffs from foreign-owned enterprises in their production processes, and in facilitating their diffusion through the host economy. Allowing foreign investment in
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FDI In Cohesion to Employment infrastructure sectors and leveraging such investment by means of ODA may assist in these efforts. Given the importance of basic, widespread education for development, raise the basic level of education of national workforces. The provision of specialised

skills beyond basic education should build on existing competences in the host economy, rather than target the short-term or specific needs of individual foreignowned enterprises. A healthy workforce population is also needed, which requires basic public health infrastructure (e.g. clean water). Implement internationally agreed. Efforts to reduce child labour, eliminate workplace discrimination and remove impediments to collective bargaining are important in their own right. They also serve as tools to upgrade the skills and raise the motivation of the labour force and facilitate linkages with MNEs operating on higher standards. Additionally, a comparatively sound environmental and social framework becomes increasingly important for countries seeking to attract international investments operating on high standards. Consider carefully the effects of imposing performance requirements on foreign investors. Rather than justifying performance requirements as a necessary counterweight to generous FDI incentives, countries may wish to reassess the incentive schemes themselves. Moreover, it should be recognised that such requirements may work against efforts to attract higher quality FDI.

The challenges facing home-country authorities:While host-country authorities should bear the brunt of the policy adjustments needed to reap the benefits of FDI for development, the home countries of MNEs and the developed world more generally should review the ways in which their national policies affect developing countries. Thus, the benefits of FDI that flow from increased international trade integration and diffusion of technology, as mentioned in this report, are influenced significantly by the policies of developed countries Further trade liberalization would contribute substantially to worldwide economic development, benefiting both developed and developing countries. In the FDI context, the trade policies of developed (home) countries gain a further dimension, insofar as an important share of FDI is contingent upon subsequent trade between related enterprises. Trade barriers and subsidies aimed at limiting imports into developed countries currently impose costs
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FDI In Cohesion to Employment on developing countries. The authorities in developed countries could enhance developing countries ability to attract foreign investment by working to reduce and eventually eliminate these barriers and subsidies. Home-country governments need to assess the effects that their technology policies may have on the transfer of technologies to the host economy. Authorities can contribute to a positive outcome by encouraging MNEs to consider the technological needs of host countries. The OECD Guidelines for Multinational Enterprises, which adhering countries are committed to promote, stipulate that enterprises should adopt practices that permit the transfer and rapid diffusion of technologies and know-how, with due regard to the protection of intellectual property rights.* The need for homecountry governments to play a role with respect to least developed countries is highlighted by Article 66(2) of the TRIPS Agreement, which states that. Developed country members shall provide incentives to enterprises and institutions in the territories for the purpose of promoting and encouraging technology transfer to least-developed country members in order to enable them to create a sound and viable technological base. While recognising that developed and developing countries generally do not compete for the same investment projects, developed countries should remain attentive to the potential impacts of their measures of subsidising inward direct investment on developing countries ability to attract FDI. Another area of action relates to improving the synergies between FDI flows and ODA. While ODA has been, in certain least-developed countries, the only substitute for inadequate FDI, there is evidence that carefully targeted development assistance may assist in leveraging FDI flows and creating a virtuous circle of increasing savings and investment. ODA can be used to buttress or develop institutions and policies in developing countries. This helps create a favourable environment for domestic savings, and for domestic and foreign investment and growth. Some donor and recipient countries are already working along these lines. ODA funds can be used to support those areas considered important to investors in determining investment decisions, notably by helping host countries achieve some of the measures outlined in the previous section. Efforts to improve physical infrastructure, human capital and health in developing countries are all cases in point. Moreover, through its effect on social cohesion, ODA may help make developing countries more attractive locations for FDI.

P G Dept. of Management Studies, PESITM, Shivamogg.

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FDI In Cohesion to Employment

Conclusion: Instrumental in growth and development of economy. As every economic techniques it has its cost and benefits. Many sectors and regions are yet to be benefited. Hit over worldwide because of its non volatile nature. The analysis present high FDI influence on the performance of the Polish economy measuredby GDP, export, import as well as job creation. When analyzing employment, the overall conclusion is that FDI were highly influential in increasing employment and job preservation. Foreign capital can be beneficial for the technological, labor and industrial development of one country, and it was such case when investigating the Polish economy. One explicit evaluation is that reducing unemployment and favoring employment couldnt be accomplished without consistence FDI influence and presence. In all years observed there was visible cohesion between those two variables leading to proportional growth or fall through years. However when comparing with other CE countries, Poland still remains as country with high unemployment rate with estimated unemployment rate of 10,3% in 2007. This outcome leaves doubts about how much Poland succeed to utilize the FDI presence in contriving better economic growth. While analyzing the high unemployment rate through years, one conclusion is that FDI influence was deficiently used in terms of employment. When we made an overview of the Polish labor market, we came up with conclusion that the percentage of high skilled labor force is incomparable low and the percentage of low skilled labor force is above the average of other countries in Central Europe. When we observed the investment tendency of foreign companies, we assume that they look towards educated and skilled labor force that can fulfill their expectation on work. They are willing to pay more than domestic companies, but they seek for well skilled workers as well. Alongside with their request Polish labor market will not be terrified as most desirable. Yet another conclusion is that foreign investment enterprise couldnt accomplish their investment projects, because the Polish labor market is inefficient to satisfy their
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FDI In Cohesion to Employment needs for human capital. There is more to be done to improve the Polish labor market in order to satisfy the needs of foreign companies for skilled and well educated labor force. One propound is that Polish Government should lend oneself on upgrading the labor market condition by investment in education, training programs, courses for under skilled workers and this could be of some value for the Polish labor market since this research as well as many others signals for its poor competence. The overall perception is that FDI are only one factor that contribute in job creation but cannot be considered as ultimate solution in decreasing unemployment. In order to decrease the unemployment among workable population more measures should be undertaken. However, the overall conclusion is that this research represent basis for further analyses to be conducted in the same research area. This area is widely unexplored and I hope that this thesis work will initiate many researchers to partake with their efforts in proving something new in the same area of interest.

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FDI In Cohesion to Employment

Bibliography: Indian Journal of Finance [P.Srinivasan & Anchal Singh] Indian Journal of Finance [Dr.Ravi Aluvala] Indian Business Environment [Suresh Bedi-Excel Books] From Web Pages [Wikipedia] [Google] [Google Books]

P G Dept. of Management Studies, PESITM, Shivamogg.

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