Classifications Of Foreign Direct Investment Economics Essay The study aims at providing the effect of the Foreign Direct Investment in automobile sector into India, its classifications, trends and importance of FDI in pre and post reform era. Wherein, the post economic reform shows an increase in the growth of FDI.It emphasises on the effect of FDI in automobile sector on Indian economy. Country – wise FDI inflows into the country are carefully observed in order to arrive at appropriate conclusions in order to understand the trend of FDI inflows into Indian economy. Literature review involves the analysis of various articles and research papers which were done on the similar lines of study to get an insight of the FDI and its performance in automobile sectors and also to understand the research gap of the study. The articles and the research papers reviewed talks about the importance of FDI in automobile sector. They also give a comparitive study of FDI in India with China which is helpful in making comparisons about the inflow of FDI from various countries indicating the financial stability of the country which is the main reason in attracting the foreign investors. In many articles, factors affecting the inflow of FDI in different countries for better understanding of the aspects which are preventing the growth of FDI. This essay is an example of a student’s work Disclaimer This essay has been submitted to us by a student in order to help you with your studies. This is not an example of the work written by our professional essay writers. Essay Writing Service Dissertation Writing Service Who wrote this essay Place an Order Research design gives a brief summary about the over all research carried out. It defines the problem and states the importance of FDI in India in automobile sectors referring to the country’s economic growth.A brief description of research methodology talks about the type of data collected, its sources and various statistical tools used in analysis. Limitations are some of the factors affecting the study which are also discussed. Research design is then followed by the Analysis and interpretation of the data collected. Trend analysis is used to study trends of FDI inflows from 2006 to 2012 with the data available from 2006 to 2010. Findings mainly reveal the facts which are arrived at from the study it includes the trend analysis of retail FDI from 2006 to 2012, effect of FDI inflow in automobile sector on production, sale, exports, industry growth, GDP and recent initiatives taken by Indian Government to attract FDI in automobile sector. Chapter 1: Introduction 1.1 Foreign Direct Investment (FDI) An investment made by a company or entity based in one country, into a company or entity based in another country. Foreign direct investments differ substantially from indirect investments such as portfolio flows, wherein overseas institutions invest in equities listed on a nation’s stock exchange. Entities making direct investments typically have a significant degree of influence and control over the company into which the investment is made. Open economies with skilled workforces and good growth prospects tend to attract larger amounts of foreign direct investment than closed, highly regulated economies. (Source: www.Investopedia.com) FDI does not include foreign investments in stock markets. Instead, FDI refers more specifically to the investment of foreign assets into domestic goods and services. Classifications of Foreign Direct Investment FDIs can be classified as; Inward FDI and Outward FDI, depending on the direction of flow of money. Inward FDI occurs when foreign capital is invested in local resources. The factors propelling the growth of inward FDI include tax breaks, low interest rates and grants. Outward FDI, also referred to as “direct investment abroad”, it means firms in the country expand their business to other countries in the form of green field investments, mergers or acquisition etc. The host country aspires to receive FDI inflows because of the potential benefits, that the FDI supplements the domestic savings of a nation. Other benefits include access to superior international technologies, exposure to better management and accounting practices, and improved corporate governance. On the other side, foreign investors are motivated by profits and access to natural resources available in the host country. Therefore, large and growing domestic markets are likely to receive more FDI. Countries with abundant natural resources such as mines, oil reserves and manpower attract the foreign investors to invest in that country. Advantages and Disadvantages of FDI Advantages  – causes a flow of money into the economy which stimulates economic activity  – employment will increase  – long run aggregate supply will shift outwards  – aggregate demand will also shift outwards as investment is a component of aggregate demand  – it may give domestic producers an incentive to become more efficient  – the government of the country experiencing increasing levels of FDI will have a greater voice at international summits as their country will have more stakeholders in it   Disadvantages  – inflation may increase slightly – domestic firms may suffer if they are relatively uncompetitive  – if there is a lot of FDI into one industry e.g. the automotive industry then a country can become too dependent on it and it may turn into a risk that is why countries like the Czech Republic are “seeking to attract high value-added services such as research and development (e.g.) biotechnology)” 1.2 An Overall View Of FDI In India The history of FDI in India was located with the establishment of East India Company by the British in 1612. Initially the investment came in the form of loans to government, railway companies and agro based industries like cotton and jute, public utilities engaged in plantation of tea and coffee. During this period there were no efforts to provide economic and financial infrastructure to the industries therefore the foreign investors had hardly any incentive in manufacturing in India other than creating a raw material base. After the First World War, India granted protection to the dawning industries, this profitability of these industries attracted more foreign capital. The inflow of British capital which wasUSD15 million in 1913-14, increased toUSD29 in 1921 andUSD36 million in 1922. In the middle of the two world wars, the investment flowed into a number of consumer industries like cigarettes, matches, rubber, tyres, paints, chemical industries, paper, cement, textile, sugar etc. During the Second World War government established new industries to replace imports as well as to support war efforts. It was during this period that the foreign investment had diversified into engineering industries, chemical industry and oil industry for defense purpose. By 1948 the foreign private investment in India amounted to Rs 2.5 billion. Of which 21 percent was in the manufacturing industries, 16 percent in plantation, 4percent in mining, 27 percent in trading and 14 percent in banking. India’s foreign investment policy was first initiated in 1949. The guiding principles of the policy were: This essay is an example of a student’s work Disclaimer This essay has been submitted to us by a student in order to help you with your studies. This is not an example of the work written by our professional essay writers. Essay Writing Service Dissertation Writing Service Who wrote this essay Place an Order All undertakings Indian or foreign had to conform to the general requirements of the governments industrial policy. Foreign enterprises would be treated in par with Indian enterprises. Foreign enterprises would have freedom to remit the profits to home country, subject to foreign exchange considerations. If foreign company were compulsorily acquired, compensation would be paid on a fair and equitable basis; and As a rule, the major interest, ownership and effective control of an undertaking should be in hands of India. The above policy was to govern the entry of fresh foreign investments into India in future, but it was silent on regulation of existing foreign private investment in Indian industry. It was only in 1973 that legislative measures were taken to cope up with the problem posed by the existing foreign owned companies. This was done by amending the foreign exchange regulation act (FERA), in 1973 which regulated the entry and channelised the growth of existing foreign investment into the country. (Abraham, 1988) The government felt the need of FDI after independence not only to provide adequate capital but also to gain scientific, technical and industrial know how. The industrial policy of 1965 allowed MNCs to venture in India. However the country faced two main problems in the form of foreign exchange and financial resources mobilization during the second five year plan (1956-61). Thus to overcome this problem adopted the policy of frequent equity participation to foreign enterprises and to accept equity capital in technical collaborations. The government also provided many incentives such as tax concessions, simplification of licensing procedure and de reserving some industries such as drugs, aluminum, heavy electricals, fertilizers etc. in order to improve FDI inflows into the country. This called forth investments from US, Japan, Germany and other countries into India. This eventually led to significant outflow of foreign reserves in the form of dividends, profits etc, and the government had to adopt stringent foreign policy in 1970s to overcome this situation. During this period the government adopted a selective and highly restrictive foreign policy as far as foreign capital, type of FDI and ownerships of foreign companies was concerned. Government setup Foreign Investment Board and enacted Foreign Exchange Regulation Act in order to regulate flow of foreign capital and FDI flow to India. In 1980s the government had to make necessary changes in the foreign policy due to the Continuous rise in oil prices, low exports and deterioration in Balance of Payment position. The government encouraged FDI in MNCs thus resulting in partial liberalization of the Indian economy. It is during this period the government encourages FDI, allow MNCs to operate in India. Thus, results in partial liberalization of Indian economy. The government introduces reforms in the industrial sector, aimed at increasing competency, efficiency and growth in industry through a stable, pragmatic and non-discriminatory policy for FDI flow. In the early nineties, Indian economy faced severe Balance of payment crisis. Exports began to sink. There was a marked increase in petroleum prices because of the gulf war. The external debts and low foreign exchange reserves for were disabling the economic development of the country. The outflow of foreign currency which was deposited by the Indian NRI’s gave a further jolt to Indian economy. The overall Balance of Payment reached at Rs.-4471 crores. Inflation reached at its highest level of 13%. Foreign reserves of the country stood at Rs.11416 crores. The continued political uncertainty in the country during this period adds further to worsen the situation. As a result, India’s credit rating fell in the international market for both short- term and long-term borrowing. All these developments put the economy at that time on the verge of default in respect of external payments liability. In this critical face of Indian economy the then finance Minister of India Dr. Manmohan Singh with the help of World Bank and IMF introduced the macro – economic stabilization and structural adjustment program. As a result of these reforms India open its door to FDI inflows and adopted a more liberal foreign policy in order to restore the confidence of foreign investors. Under this new foreign investment policy Government of India constituted FIPB (Foreign Investment Promotion Board) whose main function was to invite and facilitate foreign investment through single window system from the Prime Minister’s Office. The foreign equity cap was raised to 51 percent for the existing companies. This essay is an example of a student’s work Disclaimer This essay has been submitted to us by a student in order to help you with your studies. This is not an example of the work written by our professional essay writers. Essay Writing Service Dissertation Writing Service Who wrote this essay Place an Order Government had allowed the use of foreign brand names for domestically produced products which was restricted earlier. India also became the member of MIGA (Multilateral Investment Guarantee Agency) for protection of foreign investments. Government lifted restrictions on the operations of MNCs by revising the FERA Act 1973. New sectors such as mining, banking, telecommunications, highway construction and management were open to foreign investors as well as to private sector.(Source: Sapna Hooda, 2011) 1.3 TRENDS IN FOREIGN DIRECT INVESTMENT INFLOW TO INDIA AFTER ECONOMIC REFORM After the initiation of liberal foreign investment policy by government of India in 1991, FDI inflow has shown an upward trend in stock sense but varied in size over the period of twenty years (1991-92 to 2010-11). FDI inflow in India increased fromUSD129 million in 1991-92 to 27024 million in 2005 in. The inflow of FDI to the country has witnessed fluctuations during the period under consideration. It increased fromUSD 129 million in 1991-92 toUSD3557 million in 1997-98, which declined toUSD2155 million in 1999-2000. It increased to a peak ofUSD6130 million in 2001-02 before declining in the subsequent years in 2002-03 and 2003-04. The inflow again increased to USD6051 million in 2004-05. There was tremendous growth till 2009-10 to USD37763 and a decline in 2010-11 to USD 27,024. The year wise FDI inflow to India along with Compounded Annual Growth Rate (CAGR) is shown in table 1. In terms of CAGR, growth rate of FDI inflow to India during the period 1991-2011, growth rate of FDI inflow to India was negative for six years (1998-99, 1999-2000, 2002-03, 2003-04, 2009-10 and 2010-11) as shown in the table. Table 1: Year wise actual FDI Inflow and Annual Growth Rate of FDI inflow to India (Source: Compiled from DIPP’s fact sheet) Sr. No Financial Year FDI Flows into India (Million USD) % Growth Over Previous Year (CAGR)   (April-March)     1 1991-92 129 – 2 1992-93 315 144% 3 1993-94 586 86% 4 1994-95 1314 124% 5 1995-96 2144 63% 6 1996-97 2821 32% 7 1997-98 3557 26% 8 1998-99 2462 -31% 9 1999-00 2155 -13% 10 2000-01 4029 87% 11 2001-02 6130 52% 12 2002-03 5035 -18% 13 2003-04 4322 -14% 14 2004-05 6051 40% 15 2005-06 8961 48% 16 2006-07 22826 146% 17 2007-08 34835 53% 18 2008-09 37838 9% 19 2009-10 37763 -0.20% 20 2010-11 27024 -28% 21 2011-12 36,504 35% 1.4 Country wise FDI Inflows to India Table: 1 Since 2000, Mauritius has been playing a major role in FDI inflows to India by accounting for 41.56 percent of the total FDI inflows. Singapore 9.84 percent and US 7.17 percent are the other two major contributors. Out of the total FDI inflow of Rs. 594,569 million during the period 2000 to 2011, the share of top ten investor countries was 81.4 percent of the total FDI in India. Share FDI Inflow of Top-Ten Investing Countries in India during 2000 to 2011 (Amount in Rs. crores) Sr. No Country Amount of Foreign Direct Investment Inflows Percentage of Total FDI Inflows 1 Mauritius 247092.3 41.56 2 Singapore 58090 9.84 3 USA 42897.82 7.17 4 United Kingdom 29451.48 5 5 Netherlands 25798.62 4.32 6 Japan 25001.12 4.15 7 Cyprus 22702.09 3.75 8 Germany 13606.92 2.3 9 France 11244.42 1.87 10 UAE 8683.2 1.44 Table: 2 (Source: Compiled from DIPP’s fact sheet) 1.5 Automotive history of INDIA: The automobile sector in India has always been largely influenced by government reforms. In 1991, the congress led government launched a comprehensive reforms program that changed the economic scenario for ever. Prior to 1991; the investment in the backbone sectors such as heavy, basic & capital goods were reserved for the government alone and were referred to as the Public Sector. Also one very interesting thing to be seen with the Indian automobile industry is that during the early days of the license raj and even some time after the 1991 reforms were introduced; cars were still an instrument of luxury for the average Indian; but after this Cars have only become more and more affordable to the average Indian and thus cars are now becoming a necessity and this goes a long way in determining what type of cars to introduce in the Indian market. Current Scenario The Indian automotive industry has emerged as a ‘sunrise sector’ in the Indian economy. India is emerging as one of the world’s fastest growing passenger car markets and second largest two wheeler manufacturer. It is also home for the largest motor cycle manufacturer and fifth largest commercial vehicle manufacturer. India is the largest base to export compact cars to Europe. Moreover, hybrid and electronic vehicles are new developments on the automobile canvas and India is one of the key markets for them. Global and Indian manufacturers are focussing their efforts to develop innovative products, technologies and supply chains. This essay is an example of a student’s work Disclaimer This essay has been submitted to us by a student in order to help you with your studies. This is not an example of the work written by our professional essay writers. Essay Writing Service Dissertation Writing Service Who wrote this essay Place an Order Key Statistics The amount of cumulative foreign direct investment (FDI) inflow into the automobile industry during April 2000 to July 2012 was worth US$ 6,992 million, amounting to 4 per cent of the total FDI inflows (in terms of US$), as per data provided by Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce. The Indian small and light commercial vehicle segment is expected to grow at 18.5 per cent compound annual growth rate (CAGR) for the next five years, according to a report titled ‘Strategic Assesment of Small and Light Commercial Vehicles Market in India’ by Frost & Sullivan. According to the recent data released by the Society of Indian Automobile Manufacturers (SIAM): The cumulative production for April-June 2012 registered a growth of 7.65 per cent over April-June 2011, manufacturing 1,700,675 vehicles in June 2012 Passenger vehicles segment grew at 9.71 per cent during April-June 2012, while overall commercial vehicle segment registered an expansion of 6.06 per cent year-on-year (y-o-y) Two-wheelers sales registered a growth of 10.51 per cent during April-June 2012 wherein mopeds, motorcycles and scooters grew by 6.60 per cent, 6.79 per cent and 29.14 per cent, respectively Major Investor Among the car companies that are investing in India are US automakers General Motors and Ford, Germany’s BMW and DaimlerChrysler AG, France’s Renault, Japan’s Suzuki, Toyota and Honda, and South Korea’s Hyundai.   There is also a boom in auto ancillary companies. India is an attractive outsourcing destination for global auto companies because of its strong engineering skills and low costs. Sourcing parts from India is 10-20% cheaper for US auto makers and about 50% cheaper for their European counterparts. The Industry’s Challenge: Even though the automotive industry is robust, car manufacturers are complaining that the government’s frequent change in policies is not encouraging the industry. Changing the policies and guidelines frequently severely hurts the companies’ plans. It also affects investment decisions in the country Government Initiatives The Government of India plans to push the supply of vehicles powered by electricity over the next eight years. It is expected that there will be a demand of 5-7 million electricity-operated vehicles by 2020. The Government of India allows 100 per cent foreign direct investment (FDI) in the automotive industry through automatic route. The Automotive Mission Plan (AMP) 2006-2016 aims at doubling the contribution of automotive sector in gross domestic product (GDP) by taking the turnover to US$ 145 billion in 2016 with special emphasis on export of small cars, multi-utility vehicles (MUVs), two & three wheelers and auto components. Gujarat has been one of the most proactive states in terms of investor-friendly policies and environment. Maruti Suzuki India Ltd (MSIL) has recently signed a state support agreement (SSA) with the state government for the purchase of land to set up its third manufacturing facility. The company plans to infuse about Rs 4,000 crore (US$ 747.66 million) in the initial phase of the project and equivalent amount would be invested by the company’s ancillary suppliers to set up a vendor park near the facility. The new unit is expected to commence operations by 2015-16. Future plans for Automobile industry: The rapid improvement in infrastructure, huge domestic market, increasing purchasing power, established financial market and stable corporate governance framework have made the country a favourable destination for investment by global majors in the auto industry, as per Automotive Mission Plan (AMP) (2006-16). Additionally, the introduction of alternative fuels like hydrogen and bio fuels needs to be promoted to ensure sustainability of the industry over the long term. The vision of AMP 2006-2016 aims India “to emerge as the destination of choice in the world for design and manufacture of automobiles and auto components with output reaching a level of US$ 145 billion accounting for more than 10 per cent of the GDP and providing additional employment to 25 million people by 2016.” References: Media Reports, Press Releases, Society of Indian Automobile Manufacturers (SIAM) publications Chapter 2: Literature Review John Andreas [1] (2004) in his work “The Effects of FDI Inflows on Host Country Economic Growth” discusses the potential of FDI inflows to affect host country economic growth. The paper argues that FDI should have a positive effect on economic growth as a result of technology spillovers and physical capital inflows. Performing both cross – section and panel data analysis on a dataset covering 90 countries during the period 1980 to 2002, the empirical part of the paper finds indications that FDI inflows enhance economic Growth in developing economies but not in developed economies. This paper has assumed that the direction of causality goes from inflow of FDI to host country economic growth. However, economic growth could itself cause an increase in FDI inflows. Economic growth increases the size of the host country market and strengthens the incentives for market seeking FDI. This could result in a situation where FDI and economic growth are mutually supporting. However, for the ease of most of the developing economies growth is unlikely to result in market – seeking FDI due to the low income levels. Therefore, causality is primarily expected to run from FDI inflows to economic growth for these economies. This essay is an example of a student’s work Disclaimer This essay has been submitted to us by a student in order to help you with your studies. This is not an example of the work written by our professional essay writers. Essay Writing Service Dissertation Writing Service Who wrote this essay Place an Order The research paper titled Analysis of macroeconomic factors affecting the inflow of Foreign Direct Investment in Malaysia by Jumaev and Hanaysha [2] examines the impact of macro economic factors of source countries like UK US and Japan with host country that is Malaysia based on annual data of FDI from 1984 to 2006. An empirical analysis was made to analyze the data the independent variables namely Malaysian exchange rate to the source countries [U.S (dollar), UK (pound), and Japan (yen)]; Malaysian lending rate, change in Malaysian, change in U.S, Europe, and Japan Gross Domestic Product (GDP); change in Malaysian, U.S, Europe, and Japan inflation; change in U.S, Europe, and Japan export; and change in U.S, Europe, and Japan import were regressed against FDI inflow to Malaysia as the dependent variable. The findings from this study showed that FDI inflow to Malaysia is positively and significantly correlated with Malaysian exchange rate to US dollar and change in Malaysian GDP. FDI is negatively and significantly correlated with change in Malaysian inflation rate, change in US inflation rate and change in Japan GDP. In addition, FDI inflow to Malaysia is correlated positively and insignificantly with Malaysian lending rate, change in US import, change in US export, Malaysian exchange rate to pound, change in UK export, and change in Japan inflation rate, change in UK GDP and change in Japan import. FDI is also negatively and insignificantly correlated with change in US GDP, change in UK inflation rate and change in UK import, Malaysian exchange rate to yen and change in Japan export. 3Klaus E Meyer, Saul Estrin, Sumon Bhaumik, Stephen Gelb, Heba Handoussa, Maryse Louis, Subir Gokarn, Laveesh Bhandari, Nguyen, Than Ha Nguyen, Vo Hung (2005) in their paper “Foreign Direct Investment in Emerging Markets”: A Comparative Study in Egypt, India, South Africa and Vietnam” show considerable variations of the characteristics of FDI across the four countries, all have had restrictive policy regimes, and have gone through liberalization in the early 1990. Yet the effects of this liberalization policy on characteristics of inward investment vary across countries. Hence, the causality between the institutional framework, including informal institutions, and entry strategies merits further investigation. This analysis has to find appropriate ways to control for the determinants of mode choice, when analyzing its consequences. The study concludes that the policy makers need to understand how institutional arrangements may generate favourable outcomes for both the home company and the host economy. Hence, we need to better understand how the mode choice and the subsequent dynamics affect corporate performance and how it influences externalities generated in favour of the local economy. In another research The effect of FDI on India and Chinese Economy; A Comparative analysis by Dr.S.R.Keshava [4] has tried to present a comparative analysis of two emerging economic giants of the world, India and China both situated in Asia with 37% of world population (Asian Development Outlook2005) and with more than 8% growth in their respective GDP of their economies (World Development Report 2006). Both the economies have immense natural resources, skilled and unskilled, cheap but quality labour force, huge domestic market and above all the relatively stable political environment. Both the economies hence have vast potential to attract Foreign Direct Investment (FDI) to serve the local market and to become a more important part of the global integration. The objective of the study was to analyze the impact of Foreign Direct Investment on growth in India, to analyse the Impact of FDI in India on exports, GDI, FOREX and other macro Variables, to identify the hard and smooth factors of FDI in India and China, to compare the India and Chinese FDI and to identify the lessons India can learn from Chinese experience. China’s success would rely on its ability to carry out complementary reforms, to open up domestic markets, to improve the performance of state-owned enterprise, to better protect intellectual property rights and to speed up competition and judicial enforcement that are essential to the effective functioning of China’s markets. Whereas India is still far behind China in becoming the attractive FDI destination, for the obvious reason such as power shortage, poor infrastructure, security consideration, absence of an exit policy etc. If India has to reach its target of attractive more FDI for its development, The Indian Policy makers should understand that the good intentions and mere plan layouts alone are not sufficient condition, but a bold aggressive third generation reforms is the need of the hour. Only then one can expect India to attract FDI to its potential and can become a popular investment destination as China. This essay is an example of a student’s work Disclaimer This essay has been submitted to us by a student in order to help you with your studies. This is not an example of the work written by our professional essay writers. Essay Writing Service Dissertation Writing Service Who wrote this essay Place an Order Swapna S. Sinha (2007) in her thesis,” Comparative Analysis of FDI in China and India: Can Laggards Learn from Leaders?” [5] focuses on what lessons emerging markets that are laggards in attracting FDI, such as India, can learn from leader countries in attracting FDI, such as China in global economy. The study compares FDI inflows in China and India. It is found that India has grown due to its human capital, size of market, rate of growth of the market and political stability. For china, congenial business climate factors comprising of making structural changes, creating strategic infrastructure at SEZs and taking strategic policy initiatives of providing economic freedom, opening up its economy, attracting diasporas and creating flexible labour law were identified as drivers for attracting FDI 6In this article published in The Hindu,” 100 pc FDI in auto sector under automatic route — No minimum investment norms” speaks about the Government policy which is changed to attract more and more FDI in automobile sector. This initiative by Government of India had an positive impact on Indian economy. Because of this change in policy Indian automobile sector have received huge amount of FDI inflow and created job opportunities. Before this policy 100 percent FDI was allowed in automobile sector case by case, while automatic route approval in the sector was granted anly for FDI with a maximum equity participation of 51 per cent. The new automobile policy, announced by the Minister for Department of Heavy Industries and Public Enterprises, does not prescribe any minimum investment norms. Earlier drafts of the policy were planning to impose a minimum investment criterion of $100 million for projects to make four-wheelers and $25 million for projects to make 2-3 wheelers. The new policy provides fiscal incentives for the automobile sector and change in the excise and custom duty level over a long period of time to encourage domestic production and to prevent India from becoming a dumping ground. 7FDI Inflows to Automobile Industry have been at an increasing rate as India has witnessed a major economic liberalization over the years in terms of various industries. The automobile sector in India is growing by 18 percent per year. The basic advantages provided by India in the automobile sector include, advanced technology, cost-effectiveness, and efficient manpower. Besides, India has a well-developed and competent Auto Ancillary Industry along with automobile testing and R&D centers. The automobile sector in India ranks third in manufacturing three wheelers and second in manufacturing of two wheelers. The major investing countries are Mauritius (mainly routed from developed countries), USA, Japan, UK, Germany, the Netherlands and South Korea. 24. India needs to worry on the foreign direct investment (FDI) front. According to the statistics released by India’s Ministry of Commerce and Industry, the country has received only $18.35 billion in FDI in the first 11 months (April-February) of the financial year 2010-2011, compared to $63 billion that came in the 11 months of the previous financial year. Future prospect of Indian Automotive Sector is looking bright.  Indigenous automobile companies are replacing foreign multinational companies in terms of consumer satisfaction. Since 2002, automotive sector has much to deliver in the years to come. Direct Investment Inflows in India-Opportunities and Benefits, Important Aspects of FDI in Automobile Industry, Recent FDI Trends in India, The major foreign players who have a significant role in the development of Indian automobile industry, were discussed and the passenger car segment growth, Production, sales and Investment were analysed. Here the researcher using three statistical tool for analyzing the study, ARIMA, Linear & Compound Model for analysis purpose to measure future prediction using time series analysis. Hence this study necessitated the causes and impact of  FDI flows in automobiles sector and also policy regulation, FDI flows in passenger car segment and recent FDI trend in this sector were discussed. 8Park Jongsoo (2004) in his study on “Korean Perspective on FDI in India: Hyundai Motors Industrial Cluster” indicates that industrial clusters are playing an important role in economic activity. The key to promoting FDI inflows into India may lie in industries and products that are technology – intensive and have economies of scale and significant domestic content. 9As in the case of many developing countries, South African industry is facing a new competitive environment as trade barriers fall. This involves both the need to enter external markets and to cope with new entrants in the domestic market. In the case of the South African automobile assembly industry, responding to this new global environment has increasingly meant that domestic subsidiaries are being integrated into the global strategic operations of their parent companies. This is increasingly leading them to the foreign sourcing of components, in part because of perverse and unintended consequences of the Motor Industry Development Plan. Where local production of components is involved, there is decreasing space for locally-owned component suppliers and almost no space for component suppliers using local technology. South African component suppliers are thus increasingly being relegated to highly competitive niches in mature technologies in external after-markets, making them vulnerable to exchange rates. This essay is an example of a student’s work Disclaimer This essay has been submitted to us by a student in order to help you with your studies. This is not an example of the work written by our professional essay writers. Essay Writing Service Dissertation Writing Service Who wrote this essay Place an Order 10Isuzu Motors is looking forward to setup plant in India, Because of Indias Fast growing commercials vehicle and multi utility vehicle segment. It see’s a lot of potential and scope to expand their business in India. According to experts the is still scope for growing small commercial vehicle and utility vehicle market, there is place for more players, provided they get the pricing and target customer right with market getting more competitive and customer more discerning. According to Rahul Jain, director & partner at Boston Consulting Group, with the market for small commercial vehicles taking off, there is room for more players, however some caution, “A me-too offering won’t work in India, Isuzu will have to study the market carefully and find a right niche which is large enough to cater to. According to me, there are plenty of them available. Is there an opportunity for a better segmented LCV? The answer is yes. Tata Motors convinced us with Ace, Ashok Leyland convinced us with Dost and there will be more specific application opportunity arising in the future with retail sector opening up. Isuzu will have to pick their niche carefully” Currently, Indian truck makers hold an unchallenged sway in the small truck segment, growing at 20 per cent yearly. Isuzu Motors have identified this unchallenged market and targetting their niche market very carefully to grow their business. Isuzu Motors in the same way is entering different markets of the world which are unchallenged and have potential to grow and making huge investment around different continent of the world Chapter 3: Research Design Saunders et al (2000) suggests that a researcher must select the most appropriate design to meet the objectives of their study. This section depends on the beliefs and values of the researcher, the availably of the resources, the accessibility of the respondents, and whether the research is ethically sound. The purpose of research design is to direct the researcher in planning and implementing the study (Creswell, 1994), the section of which is also influence by methodological decisions of similar studies already undertaken. 3.1 STATEMENT OF THE PROBLEM It is often argued that foreign direct investment (FDI) plays a significant role in the economic development of a country by bringing non-debt-creating foreign capital resources, technological upgrading, skill enhancement and new employment. While FDI is expected to create positive outcomes, it may also generate negative effects on the host economy. Government of India has slowly opened the Automobile sector to FDI aiming to attract more FDI’s in this sector. This study mainly aims at understanding the impact of FDI and to analyse their recent trends on Automobile sector in India. 3.2 NEED AND IMPORTANCE OF THE STUDY India has become a preferred destination for foreign direct investments (FDI) because of its strengths in information technology and other important areas such as auto components, apparels, chemicals, pharmaceuticals, jewellery and so on. Indian economy is vast and encompasses different service sectors like Insurance, Retail, Telecommunication etc. which play a vital role in the development of the economy. FDI in these sectors has witnessed a significant increase in these sectors over the years because of their growing popularity. Also the reduction of government controls on the foreign investment and privatization of publicly owned industries have opened up these sectors to many private and foreign investors. One such emerging sector is the Automobile sector which forms the second largest component of the service sector in terms of its contribution to GDP. The recently opened Automobile sector to FDI calls for several arguments as it is associated with enormous positive and negative impacts. Emergence of FDI in this sector can lead to greater efficiency, improvement in living standards and also increases its access to the global economy for facilitating foreign collaborations. Hence understanding the impact of FDI in this sector is of utmost importance since it has a direct implication on the economy and entry of many foreign players can affect the balance of the current economy. The study also aims at analyzing the various determinants of FDI and government initiatives/measures for managing FDI in Automobile sector. 3.3 OBJECTIVES OF THE STUDY To study the impact of FDI on Indian economy with special reference to FDI in Automobile sector To study the various determinants of FDI in Automobile sector in India. To analyze the recent initiatives taken up by the government towards FDI in Automobile sector This essay is an example of a student’s work Disclaimer This essay has been submitted to us by a student in order to help you with your studies. This is not an example of the work written by our professional essay writers. Essay Writing Service Dissertation Writing Service Who wrote this essay Place an Order To analyze the recent trend in FDI in Automobile sector.. To analyze the impact of inflow of FDI in automobile sector on the economy To study the various determinants of FDI in Automobile Sector in India. Various determinants of FDI in Automobile Sector in India have been studied in this objective. The data is been collected from various research papers and Economics Books. The various determinants help us to understand the factors affecting the inflow of FDI into a country, analysis is been made how these determinants affect Indian economy and its FDI inflows particularly. To study the recent initiatives taken up by the government towards attracting FDI in Automobile Sector in India. This objective mainly focuses on the how Ministry of Commerce and Government of India are taking initiatives to attract foreign direct investment in automobile sector. The study enables to understand various benefits and problems arising out of these investments. The data for the analysis is been collected from various newspapers like The Times of India, The Hindu and The Economic Times. To analyse the recent trend in FDI in Automobile Sector in India. This objective mainly focuses on the FDI inflows into India. The data is collected from the Department of Industrial Policies and Promotion, Ministry of Commerce and Reserve Bank of India for a period of five years from 2007-08 to 2011-12. Trend analysis is being used to forecast the FDI inflows for the next five years that is from 2012 to 2017 with the data a study on the foreign direct investment in India with reference to Automobile Sector available. 3.4 HYPOTHESIS: The study has been taken up for the period 2007-08 with the following hypotheses: Hypothesis 1: H0: Flow of FDI shows a positive trend over the period 2007-08 to 2011-12 H1: Flow of FDI shows a negative trend over the period 2007-8 to 2011-12 Hypothesis 2: H0: FDI has a positive impact on economic growth of the country. H1: FDI has a negative impact on economic growth of the country. 3.5 SCOPE OF THE STUDY This study is mainly concerned with the inflow of FDI in automobile sector and its determinants and to understand the recent trends in Automobile sector. FDI, its pros and cons. Precisely about the emergence of FDI in the booming Automobile sector in India. Although FDI has a positive impact on various sectors, this study makes an attempt to analyse its impact on the Automobile sector and government initiative in this regard. For this purpose, The FDI inflows are studied for five years from 2007 to 2012 has been taken along with the Automobile FDI inflows in to the country to get a clear picture about the FDI inflows into India from various countries. 3.6 CONCEPTUAL AND OPERATIONAL DEFINITIONS OF VARIABLES Foreign direct investment: Foreign direct investment (FDI) is a direct investment into production or business in a country by a company in another country, either by buying a company in the target country or by expanding operations of an existing business in that country. Foreign direct investment is in contrast to portfolio investment which is a passive investment in the securities of another country such as stocks and bonds. Automotive industry: The automotive industry is a term that covers a wide range of companies and organisations involved in the design, development, manufacture, marketing, and selling of motor vehicles, towed vehicles, motorcycles and mopeds. It is one of the world’s most important economic sectors by revenue. The term automotive industry usually does not include industries dedicated to the maintenance of automobiles following delivery to the end-user, such as repair shops and motor fuel filling stations. Economic growth: Economic growth is the increase in the amount of the goods and services produced by an economy over time. It is conventionally measured as the percent rate of increase in real gross domestic product, or real GDP. Growth is usually calculated in real terms, i.e. inflation-adjusted terms, in order to obviate the distorting effect of inflationon the price of the goods produced. Gross domestic product: Gross domestic product (GDP) is the market value of all officially recognized final goods and services produced within a country in a given period of time. 3.7 RESEARCH METHODOLOGY: TYPE OF RESEARCH This study is a causal and an analytical research study. This is a causal study since the researcher is interested in depicting the important variables that are associated with the problem instead of depicting the cause of one or more problem which is a cause and effect relationship. This research aims at establish an analytical research design to study the various factors influencing the FDI inflow in automobile sector in India wherein statistical techniques like hypotheses testing, correlation and trend analysis have been used to show the factors influencing the inflow of FDI in Automobile sector. This essay is an example of a student’s work Disclaimer This essay has been submitted to us by a student in order to help you with your studies. This is not an example of the work written by our professional essay writers. Essay Writing Service Dissertation Writing Service Who wrote this essay Place an Order TYPE OF DATA The data used to conduct the study is purely secondary data. The data is collected from the fact sheets of Department of Industrial Policies and Promotion, Ministry of Commerce and Reserve Bank of India. The period of data collection is from 2007-08 to 2011-12 and it includes data of Total FDI inflows to India, Sectoral distribution and the major countries from where India gets its major FDI inflows. To understand the recent trends of FDI in Automobile sector, data is been collected from various newspaper articles and journals. SOURCES OF DATA The data for the study are been accumilated from websites of Department of Industrial Policies and Promotion, Ministry of commerce and Reserve Bank of India for a period of 5 years from 2007-08 to 2011-12. Newspaper articles of The Times of India, The Hindu and The Economic Times are used to get to get data about the recent trends of FDI in Automobile sector. DATA PROCESSING AND PLAN OF ANALYSIS Data Processing: Data will be collected from various secondary sources such as research articles, newspaper articles and websites. Data will be feeded in Microsoft Excel 2010 and will be segregated according to the need of research. Data Analysis: The data that have been collected from the various secondary sources will be evaluated using Microsoft Excel 2010. The decoded data will be used to determine the trend of FDI in automobile sector in India by using trend analysis function and also the correlation between the variables and economy of India. This data analysis will help to determine whether FDI in automobile sector will help Indian economy positively or not. 3.8 LIMITATIONS OF THE STUDY The main constraint of the study was the time factor the study is conducted for a short term of five years Non-disclosure of accurate data over the internet is another limitation No primary data used as its availability is less 3.9 CHAPTER SCHEME: The chapter scheme of this report is as follows Chapter 1 – introduction This chapter consists of introduction to the FDI, an overall view of FDI in India, Advantages and Disadvantages, History of FDI in Automobile sector in India, recent trends and Government initiatives Chapter 2– Literature Review This chapter consists of the review of literature on various effect of FDI on economy, industry etc. Chapter 3 – Research Design This chapter consists of the objectives of the study, statement of the problem, limitations, Research Methodology, Sources of data, type of data etc. Chapter 4- Result, analysis and Discussion This chapter consists of data analysis and interpretation relating the objectives of the study. Chapter 5- Findings, conclusion and suggestion This chapter consists of the findings of the study. Conclusion made from the study. Chapter 3: Analysis and Interpretations Table: 3 Sr. No Financial Year FDI Flows into India % Growth Over Previous Year (Million USD) (CAGR) 1 1991-92 129   2 1992-93 315 – 3 1993-94 586 144% 4 1994-95 1314 86% 5 1995-96 2144 124% 6 1996-97 2821 63% 7 1997-98 3557 32% 8 1998-99 2462 26% 9 1999-00 2155 -31% 10 2000-01 4029 -13% 11 2001-02 6130 87% 12 2002-03 5035 52% 13 2003-04 4322 -18% 14 2004-05 6051 -14% 15 2005-06 8961 40% 16 2006-07 22826 48% 17 2007-08 34835 146% 18 2008-09 37838 53% 19 2009-10 37763 9% 20 2010-11 27024 -0.20% 21 2011-12 36,504 -28% 35% Chart: 1 Observation: The data on FDI inflows into the country shows that foreign investors have shown a keen interest in the Indian economy ever since it has been liberalized. An increasing trend of flows can be observed since 1991 with the peak of FDI flows being reached in 2008-09. (Chart 1) Therefore the trend gives support to the fact that as and when the government has taken initiatives to open up and liberalize the economy further, the investors have welcomed the initiative and reciprocated by infusing investments into India. There are various reasons which work in favour of India and increase the level of interest shown in by foreign organization’s some of them being its demographics’ with a young population there is a huge consumer base that is to be tapped, the growing middle class, increased urbanization and awareness, rising disposable incomes. FDI in Automobile sector in India: Table: 4 Amount inRs. crores (US$ in million) RS. US$ 2007-08 2687 675 2008-09 3401 782 2009-10 5,893 1,236 2010-11 5,864 1,299 2011-12 4,347 923 Chart: 2 Chart: 2.1 Observation: The above table and chart represent the total FDI inflow in automobile sector in India. There is a constant increase in FDI in this sector. In year 2012 the FDI has fallen down to US$ 923 million because of Indian economy slowdown. Chart 2.1 represents the share of FDI in automobile sector in total FDI inflow in India. This essay is an example of a student’s work Disclaimer This essay has been submitted to us by a student in order to help you with your studies. This is not an example of the work written by our professional essay writers. Essay Writing Service Dissertation Writing Service Who wrote this essay Place an Order Production Trends – Base Year 2006-07 (100) Indexing Table: 5 Category Number of Vehicles 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 Passenger Vehicles 15,45,223 1777583 1838593 2357411 2982772 3123528 100 115.037312 103.432 128.218 126.5274 104.719 Commercial Vehicles 5,19,982 549006 416870 567556 760735 911574 100 105.581732 75.9318 136.147 134.037 119.8281 Three Wheelers 5,56,126 500660 497020 619194 799553 877711 100 90.0263609 99.273 124.581 129.128 109.7752 Two Wheelers 84,66,666 8026681 8419792 10512903 13349349 15453619 100 94.8033264 104.898 124.859 126.9806 115.7631 Grand Total 1,10,87,997 10853930 11172275 14057064 1,78,92,409 2,03,66,432 100 97.8890056 102.933 125.821 127.2841 113.8272 Source: Data from Society of Indian Automobile Manufacturers (SIAM) and self-constructed Chart: 3 Observation: There is a fall in Production in the year 2008-09 due to recession in USA and Europe. As compared to 2006-07, in the FY 2007-08 there is fall in production in two wheelers by 5.2% which lead to overall grand total less by 5%. The cumulative production data for April-March 2012 shows production growth of 13.83 percent over same period last year. In 2011-12, the industry produced 20,366,432 vehicles of which 76 percent share is of two wheelers, 15.6 percent is passenger vehicles, three wheelers 4.3 percent and commercial vehicles were 4.5 percent. As per the figure above calculated from the production figures of table 5, there is a maximum decrease in Commercial Vehicle production by 24% in the year 2008-09. As indicated in the table 4 the FDI investments in Automobile sector in FY 2008-09 and 2009-10 has increased substantially and that led to increase in production in the FY 2009-10 and 2010-11 in all the categories – Passenger Vehicle, Two Wheelers, Commercial Vehicle, Three Wheelers. Domestic Sales Trend- base year 2006-07 (100) Indexing Table: 6 Category Number of Vehicles 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 Passenger Vehicles 1379979 1549882 1552703 1951333 2501542 2618072 100 112.311999 100.182 125.67329 128.19657 104.65833 Commercial Vehicles 467765 490494 384194 532721 684905 809532 100 104.859064 78.32797 138.65938 128.5673 118.19625 Three Wheelers 403910 364781 349727 440392 526024 513251 100 90.3124458 95.87314 125.92451 119.44449 97.571784 Two Wheelers 7872334 7249278 7437619 9370951 11768910 13435769 100 92.0854984 102.5981 125.99396 125.58928 114.16324 Grand Total 10123988 9654435 9724243 1,22,95,397 1,54,81,381 1,73,76,624 100 95.3619759 100.7231 126.44066 125.91201 112.24208 Source: Data from Society of Indian Automobile Manufacturers (SIAM) and self-constructed Sales Growth: Chart: 4 Automobile Domestic Sales: Table: 7 Categories 2011-12 Passenger Vehicle 2618072 Commercial Vehicles 809532 Three Wheelers 513251 Two Wheelers 13435769 Chart :5 Observation: The growth rate recorded for Domestic Sales for 2010-11 was 25.9 percent amounting to 15,481,381 vehicles. The growth rate for overall domestic sales for 2011 was 12.24 percent amounting to 17,376,624 vehicles. Passenger Vehicles segment grew at 4.66 percent during April- March 2012 over same period last year. The overall Commercial Vehicles segment registered growth of 18.20 percent during April-March 2012 as compared to the same period last year. Total Two Wheelers sales registered a growth of 14.16 percent during April-March 2012 – Two wheelers grew by 11.39 percent, 12.01 percent and 24.55 percent respectively. There is a steady increase in the sales of Passenger Vehicles as shown in the table 6. The maximum increase is in the FY 2010-11 as compared with FY 2008-09, which is by 62% approximately. Availability of Skilled human resource: Table: 8   Germany India US Brazil Mexico China Availability of skilled labour 7.5 7.4 7.2 6.4 6.3 4.8 Availability of qualified engineers 8.5 7.5 7.4 6.6 6.6 4.2 Chart: 6 Observation: The above table and chart represents availability of qualified and skilled engineers and labours. India stands on second position, whereas Germany on first. China which is manufacturing hub have lowest number of skilled and qualified human resource availability as compared to all other countries in the list. GDP contribution: Table: 9 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 Real GDP 35,64,364 38,96,636 41,58,676 45,07,637 48,85,954 52,22,027 Growth 9.57 9.32 6.72 8.39 8.39 6.88 Automobile contribution (%) 5.5 5.2 5 7.2 6 7 automobile contribution towards gdp 196040 202625.1 207933.8 324549.9 293157.2 365541.9 Chart: 7 Observation: Automobile sector is contributing positively towards the GDP of India. The highest contribution shown by this sector was in year 2009-10 of 7.2 percent. This proves that FDI in automobile sector is contributing positively towards Indian economy. Government has also taken various initiatives to attract more FDI in this sunrise sector and expecting to increase the contribution towards GDP to be more than 10 percent by 2016, in their automotive plan 2006-2016. Table: 10Automobile Export Growth and Trends: Automobile Exports Trends (Number of Vehicles)  Category 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 Passenger Vehicles 1,98,452 2,18,401 3,35,729 4,46,145 4,44,326 5,07,318 This essay is an example of a student’s work Disclaimer This essay has been submitted to us by a student in order to help you with your studies. This is not an example of the work written by our professional essay writers. Essay Writing Service Dissertation Writing Service Who wrote this essay Place an Order Commercial Vehicles 49,537 58,994 42,625 45,009 74,043 92,663 Three Wheelers 1,43,896 1,41,225 1,48,066 1,73,214 2,69,968 3,62,876 Two Wheelers 6,19,644 8,19,713 10,04,174 11,40,058 15,31,619 19,47,198 Grand Total 10,11,529 12,38,333 15,30,594 18,04,426 23,19,956 29,10,055 Chart: 8 During April-March 2011, overall automobile exports registered a growth rate of 28.6 percent. Passenger Vehicles registered marginal growth at 1.64 percent in this period. Commercial Vehicles, Three Wheelers and Two Wheelers segments recorded growth of 69.51 percent, 55.86 percent and 35.04 percent respectively during April-March 2011. During April-March 2012, the industry exported 2,910,055 automobiles registering a growth of 25.44 percent. Passenger Vehicles registered growth at 14.18 percent in this period. Commercial Vehicles, Three Wheelers and Two Wheelers segments recorded growth of 25.15 percent, 34.41 percent and 27.13 percent respectively during April-March 2012. For the first time in history car exports crossed half a million in a financial year. The dominating part of exports is in Three Wheelers followed by Two Wheelers and Passenger Cars – this is in actual number terms. There is an overall growth in exports from 2001/02 to 2011/12 but the percentage growth over FY on FY is not the same. Comparing FY 2011-12 with FY 2007-08, there is a significant growth in volume terms in all the categories – Passenger Vehicles by 132%, Commercial Vehicles by 57%, Three Wheelers by 157%, Two Wheelers by 138% (maximum increase) and Grand Total by 135%. Gross Turnover of the Automobile Industry: Table: 11 GROSS TURNOVER OF THE AUTOMOBILE MANUFACTURERS IN INDIA (IN USD MILLION)   2006-07 2007-08 2008-09 2009-10 2010-11 GROSS TURNOVER 30476 36612 33250 43296 58583 (USD Conversion Rate) 45 40 46 47 46 Chart: 9 Observation: In the above given table and chart we can observe that gross turnover of the automobile industry had gone down because of the economy slowdown. The overall gross turnover is showing the positive trend of the automobile industry and contribution towards production, sales, export and GDP of Indian economy. GDP and Production: Table: 12 Regression Statistics Correlation 1 Multiple R 0.893778 R Square 0.798839 Adjusted R Square -1.5 Standard Error 36402.84 Observations 1 Observation: The above table (12) represent the degree of correlation and regression between GDP and Production factor. It can be observed that production is perfectly correlated to GDP and have degree of 0.89 with GDP. GDP and FDI: Table: 13 Regression Statistics Correlation 1 Multiple R 0.61830498 R Square 0.382301049 Adjusted R Square -1.666666667 Standard Error 1307.286591 Observations 1 Observation: FDI and GDP are perfectly correlated as FDI inflow increases in automobile sector GDP of India goes up. The Degree of regression is 0.61which is positive and runs in the same direction. SUMMARY OF FINDINGS The study is conducted to understand the impact of FDI in the economy and on the booming automobile sector. The analysis was done through statistical tools based on secondary data available on the internet and various articles It was found that there was a positive trend of total FDI from 2006 to 2010 and it fell in the year 2010-11, many reasons were found for the fall in total FDI like Poor infrastructure in the country which fails to attract more FDI into the country, Major policies of the government also influenced fall in FDI, Red tapism, i.e. excessive paperwork and tedious procedures before official action can be considered or completed, Corruption in the country has become a great hindrance to the development of India. Earlier, work used to get done and projects used to get implemented faster. But now, corruption has gone up while implementation has never been as bad and Environmental factors also affect FDI in the country. The trend analysis of FDI in automobile sector had a positive increase from 2006 to 2010 and it fell in 2011-12 the reasons were similar to the fall of total FDI in te country. Automobile sector is showing positive trend in contribution towards GDP. Currently this sector is contributing percent towards GDP and it is likely to grow up to 10 percent in 2016 as per Automotive mission plan 2006-16. Production and sales trend had shown downward slope in 2008-09 as compared to 2006-07 because of America and Europe recession. But cumulative production is showing positive trend. The cumulative production data for April-March 2012 shows production growth of 13.83 percent over same period last year. Export trends had shown positive growth over the years. India stands on number two postion in availability of skilled labours and qualified engineers Automobile sector is generating direct and indirect employment to 1.31 crore people in the country. Gross turnover of automobile industry is affected and fallen down in year 2008-09 because of America and Europe recession. But overall gross turnover is showing positive growth and contribution toward GDP. CONCLUSION The study gives an insight about the various determinants of FDI in automobile sector in India. Market size, Production trend, Sales trend, Export Trend, Availability of Human resources etc of a country serves as a base for the foreign investors to invest in the country. By analyzing these determinants the investors try to understand the profitability of their investments in the country. If there is a negative influence of these determinants on the economy then the investors tend to be reluctant in investing in these economies. The forecast made for future years 2006 to 2016 for FDI in to the country by Government in Automotive plan 2006 to 2016 is showing a constant increase indicating a positive impact on the Indian economy and opening the future growth prospects for the country through FDI. The increasing FDI to the country reflects the stability of the economy and their attractiveness to the foreign investors. The study gives a clear insight of the FDI in India various factors influencing the total FDI in India and precisely on the effects of FDI in automobile sector in the country. Various economic factors like infrastructure, government policy etc influences the FDI in the host country. In India, the main hindrance of FDI is infrastructure. Therefore the government has to take appropriate measures to improve the infrastructural facilities in the country. The study shows that FDI in automobile sector is contributing positively towards Indian economy and have a positive impact on GDP of India. Automobile sector is generating huge employment opportunity directly and indirectly which in turn is helping to improve per capita income, standard of living, buying power etc.