Impact of FDI on the Industrial Development of Jharkhand – a study of Ranchi District
Premaankit Das
Dr. Narendra Singh
Dr. Ajay Kumar
(Department of Commerce) St. Xavier’s College, Ranchi
E-mail: premaankitdas7@gmail.com
ABSTRACT
Foreign Direct Investments (FDI) are cross-border investment which means that the investments in one country are made by some other country based on certain factors. The investors from one country develops a degree of interest based on the availability of raw materials and climate conditions of the that country in which the investor is interested to invest the capital and time. After the Industrial Revolution of 1991 which started major movements like Liberalisation, Privatisation and Globalisation, India has experienced a huge improvement in the industrial sector as more and more investments were made by other countries across the world as India has cheap labour and is known for its richness in raw materials thus making it a centre of attraction for the investing organizations. Although there are many studies available which explains the relationship between Foreign Direct Investment (FDI) and economic growth and development about the country but there are very less studies which focuses on the impact of Foreign Investments within a limited space or a specific region of the country and there are very limited research present which have examined the impact of Foreign Investments in Jharkhand. Primary data was gathered through surveys and interviews by going to the companies which have attracted foreign investments while the secondary data was collected through thegovernment publications and reports. The study shows how FDI have impacted in the industrial development and how it facilitated the overall growth and development. Findings suggest that FDI is a major factor that have made a rapid change in the economy and have played an important role in the growth and development of the economy. FDI brings out the advances technologies and experience in the economy and facilitates the use of new technologies in producing goods and services hence developing the overall conditions of all sectors in the economy. The study concludes suggestions of developing government policies and norms to attract more foreign investments in the country by liberalising the government policies and rules to bring foreign investments in the economy and conduct awareness campaigns to show the importance of FDI in an economy.
INTRODUCTION
Foreign Direct Investments (FDI) are cross-border investment which means that the investments in one country are made by some other country based on certain factors. The investors from one country develops a degree of interest based on the availability of raw materials and climate conditions of the that country in which the investor is interested to invest the capital and time.
After India’s independence, the country used to follow strict rules on trade of goods and services. India does not used to allow foreign counties to enter into trade with them thus restricting them to invest and bring their technologies and experience which resulted in making it a very self-centric and underdeveloped country.
After the Industrial Revolution of 1991 which started major movements like Liberalisation, Privatisation and Globalisation, India has experienced a huge improvement in the industrial sector as more and more investments were made by other countries across the world as India has cheap labour and is known for its richness in raw materials thus making it a centre of attraction for the investing organizations.
The movement marked the start of the growth of India’s economy, especially the growth and development of the industrial sector of the economy. All the sectors attracted Foreign Direct Investment (FDI) at a large scale but the sector which attracted most of the FDI was the Manufacturing sector and in the electrical equipment manufacturers attracted the highest investment.
The Automobiles and Transportation sector was a major area where foreign investments were made and also the Infrastructure and Construction sector such as power, oil & gas and real estate saw a rapid growth and development as they attracted large amount of FDI as the government encourages private partnership and the contribution of Construction Sector to India’s GDP constituted to 10% of the total GDP which was a huge contribution. In the later years the Banking and Insurance sector has seen a large growth as the sector got open to the foreign investors, thus they saw a large future growth in this sector thus resulted in contributing to increase the flow of FDI in the country.
During the initial stages of the economic Reform of 1991, the initial focus of Foreign Direct Investments (FDI) was heavily focused on the manufacturing industries especially the electrical industry and the chemical industry and with time the interest of the Foreign Investors shifted towards the service sector, that is specially towards the IT, Telecommunication and Finance sectors of the economy and these later emerged as the dominant sectors in the economy in contribution to the overall growth and development
The major investors in the Indian economy were USA, Netherlands, Japan and Mauritius. There are many other countries who invest in India but these are the major investors who have made around 35.4% of the total Foreign Direct Investments (FDI) from 1991 to 2004 in the country in the initial stages thus contributing to the development of the various sectors in the economy thus resulting in the overall growth and development of the nation.
Jharkhand with its highly rich minerals is one of the most important states of India. Jharkhand has a great potential for development as it has numerous minerals and correct investment can make this state a fully developed state. Jharkhand is still now an under-developed state as despite of having huge amount of minerals the state is not able to attract ample number of investments to make the full-fledged use of the resources available.
Despite being such a mineral rich state, Jharkhand had always faced backlashes due to the shortage of skilled labours in the state. The state has great potential and can reach new heights, but the unskilled workforce of the state does allow it to do so and this can be one of the major reasons why Jharkhand is still now considered a backward under-developed state.
The state has great potential and large availability of minerals which can attract the foreign investors here. The Foreign Direct Investment (FDI) in the state of Jharkhand can totally change the position of the state. Jharkhand has minerals like coking coal, bauxite, copper, mica, iron ore and many more. These minerals are used in the manufacturing purposes of various products, and these minerals have a great demand in the manufacturing industry. Various investors from other countries now bring their expertise and technologies in Jharkhand to bring these resources into proper use and utilise them in the most effective and efficient manner possible. These resources are available at cheap rates in the market and for the purpose of unskilled labourers, they are easily available in the state at a very cheap rate so the foreign industries only have to bring the technologies and expertise with them ion the market and the rest will be taken care of by the state of by the state of Jharkhand.
Jharkhand is one of the richest states of India in terms of natural resources and minerals. Jharkhand alone holds 40% of the total natural resources present in India which is very large amount and this attracts numerous manufacturing industries in the state thus resulting in an overall development. It has great potentials in serving the country in numerous ways but to bring this in force it is much needed to invest in industries in Jharkhand and it can be possible through foreign investments as it brings new technologies to use these resources effectively and efficiently.
Major industrial organizations like steel plants, mineral based industries and engineering companies operate in the state of Jharkhand. However, despite of having so many natural resources Jharkhand faces many challenges in achieving balances industrial development. Greater inflow of foreign investments can overcome these problems and can facilitate in industrial development of Jharkhand.
LITERATURE REVIEW
1. Dunning (1993) developed the Eclectic Paradigm theory or also known as the OLI (Ownership, Location, Internationalization) Paradigm, which explains that foreign investment takes place when firms possess ownership advantages, location advantages, and internalization benefits. This study is a foundational work, and this study is particularly used for examining FDI determinants.
2. Borensztein et. al (1998) analysed the impact of Foreign Direct Investment (FDI) on economic growth around 69 developing countries in the world. The study primarily focuses and contributes to the concept of absorptive capacity, which means how a country’s human capital is important in determining whether the country has been benefited from the foreign investments made. This study shows that human capital can be termed as the most important factor that influence FDI in the country hence huge human capital will lead to less cost involves in manufacturing hence resulting in the attraction of more foreign companies.
3. Blomström and Kokko (2003) emphasized how Foreign Direct Investment (FDI) plays a critical role in diffusing technology, transfer of knowledge, and modernizing the industrial sector in developing countries. It showed how the technology can lead to industrial development and how it can be used effectively and efficiently to encourage maximum output from the resources available. The research shows how modernizing helps in the effective allocation of resources in the economy hence bringing forward new methods and techniques to utilise the resources in the most effective and efficient manner.
4. Alfaro (2004) studied the role of Foreign Direct Investment (FDI) in economic growth and found how foreign investments single handedly does not support the economy alone but also the financial institutions of a country contribute as well to the economy of a country and also shows the importance of why both financial institutions and foreign investments go hand in hand to facilitate the economy of a country. This study shows how financial institutions helps in facilitating financial support to the foreign companies who are interested in investing in the country.
5. Caves (2007) examined the effects of multinational enterprises on host countries and how they contribute in shaping the country’s economy as a whole. The study basically focuses on different types of foreign investments a country can attract like Horizontal Foreign Direct Investment or Vertical Foreign Direct Investment. This study also focuses on why the local firms choose Foreign Direct Investment as a mode of entrance in the foreign market rather than going for other modes of entrance.
6. Kokko (2006) highlighted how Foreign Direct Investments (FDI) effects the investing countries or the home countries. The study focuses on if the outward foreign investments hollow out the domestic industry of the country as they do not get much investments or it provides benefits to the industries through by increasing efficiency and access to foreign markets of a developed country.
7. Balasubramanyam et al. (1996) found that how a country’s trade policies influence and encourage Foreign Direct Investment (FDI) in a country. This study on the basis of information concludes that the growth enhancing effects of Foreign Direct Investment (FDI) is more in countries which pursue an Export promotion (EP) policy rather than the countries which follow Import Substitution (IS) policy. This study shows the importance of exports for a country to build a relationship with other countries and also to facilitate more foreign investments in the home country.
8. Pradhan (2007) studied about the rising of companies at a global level and how their emergence as multi nationals would affect the development of both the host countries in which they have invested and also of India itself. This study explores the pattern of how Indian firms opted for overseas acquisition and it also highlights that the process of international expansion has been shifted to aggressive expansion during this period of time.
9. Kumar (2005) observed how the Foreign Direct Investment (FDI) contributed in India’s growth and development, especially from a comparative East Asian perspective. This study highlighted the significant shift in the composition of the Foreign Direct Investment of India after liberalisation and concluded that a very less proportion was contributed to the service sector while manufacturing industry was the most important part at that time. An overall conclusion of the study is that it explored the relationship between the foreign Direct Investment and economic growth.
10. Agrawal and Khan (2011) analysed the impact of Foreign Direct Investment (FDI) on the Gross Domestic Product (GDP) of India. This study concluded that Foreign Direct Investment has a positive effect on the Gross Domestic Product of the country. The study further suggested that India must improve its infrastructure of attract foreign investments and also it must develop its human capital for the better utilisation of the technologies transferred from the foreign institutions.
11. Chakraborty and Nunnenkamp (2008) examined how Foreign Direct Investment (FDI) impacted India’s economy after the 1991 reforms. This study states that the growth effect of Foreign Direct Investment is not uniform across the entire India. This study states that Foreign Direct Investment drives growth in manufacturing sectors and a growing manufacturing sector of the country will in turn more Foreign Investments in the country.
12. Athreye and Kapur (2009) noted that Indian firms are basically driven by strategic asset seeking which involves acquiring brands, managerial skills and advances technology to compete more accurately and effectively on both at home and abroad. This concluded that the liberalisation policies of India and other economic reforms of the country acted as the critical catalyst that enabled the firms reach at international levels across the world.
13. Sahoo (2012) emphasised that labour force growth, infrastructural development and trade openness are the major factors which attracted the Foreign Direct Investment in India. This study further states that the improvement in the infrastructure stock is the major factor for which the foreign investors are attracted to the country thus creating a positive environment for foreign investors. This study also analysed that the FDI reforms of 2012 is a positive step towards easing the current account deficit hence supporting the long-term economic growth of the country.
14. Sethi and Sucharita (2013) analysed a positive relationship between Foreign Direct Investment (FDI) and Gross Domestic Product (GDP) of India. This study stated that FDI contributes directly to the exports in India especially in the context of low wages and global market incorporation. The study further states that to encourage more foreign investments India should focus more on human resources, infrastructure and it should as well create a stable macroeconomic framework.
15. Mukherjee (2015) highlighted that stable economic growth of a country is the major factor that attracts Foreign Direct Investment in a country and not the condition in which Foreign Investments are the only factor for the country’s growth and development. This study states that Foreign Direct Investment in India targets the growing domestic sector rather than using India as an export hub.
16. Kumar and Pradhan (2016) found that Foreign Direct Investment is not just capital but also a bundle of resources like advanced technologies, organizational skills, managerial skills and many more. The study states how the foreign skills facilitated the growth and development of the domestic industries thus contributing to the economic development of the host country. This study also states that how Indian companies those who perform foreign investments seek strategic assets and knowledge from other developed countries.
17. Singh & Dhamija (2018) examined how Foreign Direct Investment (FDI) impacted on the poverty reduction of India. Thia study found a short run positive relationship where the increased foreign investment inflows led to the improvement of social welfare in the country, though there was no confirmation for the long-term investments from the foreign companies.
18. Ranjan and Agrawal (2019) studied the factors which are responsible for the attraction of Foreign Direct Investment (FDI) in India by using the panel data from 1975 to 2009. This study identified that there are major critical macroeconomic determinants such as market size, labour costs, infrastructure and trade openness that has a positive impact on the Foreign Direct Investment in the country. This study explains that India has reached new levels in attracting foreign investments hence resulting in the overall development of the country.
19. Das and Paul (2020) highlighted how various economic drivers impacted the amount of Foreign Direct Investments (FDI) in India. This study showcases that investors value those countries which have higher growth prospectus and high demand and potential in the economy, trade openness is the factor which positively impacts FDI and apart from this the two most major factors are infrastructure and human capital.
20. Singh and Mishra (2022) emphasized that the factors which attract Foreign Direct investment (FDI) vary significantly on the basis of the sectors in ana economy of a country. This study concludes that Foreign Direct Investments in service sector of the country mainly the IT sector or Finance sector have greater growth and development opportunities rather than the Foreign Direct Investments made in the agricultural sector of the country.
21. Bosworth and Collins (1999) provide evidence concerning the effect of capital inflows on domestic investment for fifty-eight developing countries during 1978–95. The authors distinguish among three types of inflows: FDI, portfolio investment, and other financial flows (primarily bank loans). It has been found out that an increase of a dollar in capital inflows is associated with an increase in domestic investment of about fifty cents. This result covers significant differences among different types of inflows. Foreign direct investment appears to bring about close to a one-for-one increase in domestic investment; there is virtually no discernible relationship between portfolio inflows and investment (little or no impact), and the impact of loans falls between those of the other two. These results hold both for the fifty-eight-country sample and for a subset of eighteen emerging markets.
22. Agrawal (2000)on economic impact of foreign direct investment in south Asia by undertaking time-series, cross-section analysis of panel data from five South Asian countries; India, Pakistan, Bangladesh, Sri Lanka and Nepal, that there exist complementarily and linkage effects between foreign and national investment. Further he argues that the impact of FDI inflows on GDP growth rate is negative priorto 1980, mildly positive for early eighties and strongly positive over the late eighties and early nineties. Most South Asian countries followed the import substitution policies and had high import tariffs in the 1960s and 1970s. These policies gradually changed over the 1980s, and by the early 1990s, most countries had largely abandoned the import substitution strategy in Favor of more open international trade and generally, market-oriented policies
RESEARCH GAP
Although there are many studies available which explains the relationship between Foreign Direct Investment (FDI) and economic growth and development about the country but there are very less studies which focuses on the impact of Foreign Investments within a limited space or a specific region of the country and there are very limited research present which have examined the impact of Foreign Investments in Jharkhand.
Most of the studies examine how Foreign Investment impact the country art a macro-economic level. Very few studies examine how Foreign Investments influence the industrial sector at a district level, particularly in emerging cities like Ranchi which has the potential to improve at a high scale and can contribute to the overall industrial growth and development of the country. Ranchi has now developed a lot in terms of infrastructure and connectivity with other places, and it has huge potential for the growth of the industrial sector.
Furthermore, earlier research has focused mainly on the impact of Foreign Investments on the service sector mineral rich states like Jharkhand has never come into focus. Ranchi is a mineral rich region and an emerging area which facilitates the industrial sector of the country. Therefore, there is a need for a detailed empirical study that evaluates the impact of FDI on Industrial Development of Jharkhand, especially Ranchi district.
RESEARCH QUESTION
1. What is the trend of Foreign Direct Investment in Jharkhand?
2. How does FDI influence industrial development in Ranchi district?
3. What are the major sectors receiving foreign investment in Jharkhand?
RESEARCH OBJECTIVE
• To examine the role of Foreign Direct Investment in promoting the industrial growth and development in Ranchi district.
• To evaluate the impact of Foreign Direct Investment on employment generation and income levels in Ranchi district.
• To identify the major factors influencing the inflow of Foreign Direct Investment in Jharkhand.
RESEARCH METHODOLOGY
Research Design
This study will be descriptive and analytical research, the study of the impact of FDI on industrial development.
Sources of Data:Secondary data will be used.
Secondary Data The secondary data will be obtained from:
* Government reports
* Reserve Bank of India publications
* According to the Ministry of Commerce reports
* Academic journals Resources such as books and research papers.
The study will be conducted using stratified random sampling technique which can ensure representation from different industrial sectors. Scope of the Study This study concentrates on: The industrial areas of Ranchi district are — The importance of FDI for industrial development. Economic & employment effects of foreign investment.
DATA ANALYSIS
TATA STEEL:
Case Processing Summary
N %
Cases Valid 11 91.7
Excludeda 1 8.3
Total 12 100.0
a. Listwise deletion based on all variables in the procedure.
Reliability Statistics
Cronbach’s Alpha N of Items
.848 3
Correlations
Amount (in crores) Employment Generation State Capital Outlay
Amount (in crores) Pearson Correlation 1 .712* .737**
Sig. (2-tailed) .014 .010
N 11 11 11
Employment Generation Pearson Correlation .712* 1 .783**
Sig. (2-tailed) .014 .004
N 11 11 11
State Capital Outlay Pearson Correlation .737** .783** 1
Sig. (2-tailed) .010 .004
N 11 11 11
*. Correlation is significant at the 0.05 level (2-tailed).
**. Correlation is significant at the 0.01 level (2-tailed).
Source: Made by the Research Scholar suing SPSS software
In the case of the Tata Group dataset, the null hypothesis (H₀) is rejected for all three of the relationships tested. Specifically:
There is a statistically significant correlation between FDI Amount and Employment Generation at 5 per cent level (r = 0.712, p = 0.014). H₀ is rejected. The correlation is positive and so is the null hypothesis, H₁.
The correlation between FDI Amount and State Capital Outlay is statistically significant with a coefficient of 0.737 at 1 per cent. level. H₀ is rejected. The direction that is positive favors the presence of H₁.
The correlation between Employment Generation and State Capital Outlay is statistically significant at 1 per cent level (r = 0.783 at 1 per cent level). H₀ is rejected. This is a further affirmation of the developmental integrative effect of FDI.
From the above results for the data set of Tata group, the null hypothesis can be completely rejected and the alternative hypothesis H₁ is accepted. The results indicate that FDI can play a significant role in industrial development in Ranchi district by creating jobs and also by investing in the State.
BSL:
Case Processing Summary
N %
Cases Valid 11 91.7
Excludeda 1 8.3
Total 12 100.0
a. Listwise deletion based on all variables in the procedure.
Reliability Statistics
Cronbach’s Alpha N of Items
.008 3
Correlations
Amount (in crores) Employment Generation State Capital Outlay
Amount (in crores) Pearson Correlation 1 .062 -.091
Sig. (2-tailed) .856 .790
N 11 11 11
Employment Generation Pearson Correlation .062 1 .783**
Sig. (2-tailed) .856 .004
N 11 11 11
State Capital Outlay Pearson Correlation -.091 .783** 1
Sig. (2-tailed) .790 .004
N 11 11 11
**. Correlation is significant at the 0.01 level (2-tailed).
Source: Made by the Research Scholar using SPSS software
Two of the three relationships for the BSL dataset are accepted as the null hypothesis. Neither the number of jobs created nor the state capital outlay is statistically related to the amount of investment made at BSL (r = 0.062, p = 0.856) (r = -0.091, p = 0.790). The result indicate that the capital expenditure behaviour of BSL public sector organization does not give the sort of built-in developmental impact as the capital expenditure of the investment for FDI.
The only significant pairing is the Employment–State Capital Outlay pairing (r = 0.783, p = 0.004), a finding that, as mentioned above, would seem to be due to a general administrative trend, rather than a specific developmental one in the case of FDI.
The difference in the results of the hypothesis test is significant enough to be a finding alone for the Tata and BSL datasets. It strongly suggests that it isn’t just the volume of large-scale industry in Ranchi that matters for developmental outcomes; it is the form and quality of the industry, the private investment, and in particular the private investment through its market discipline, managerial efficiency and technology transfer dynamics.
HYPOTHESIS
H0(Null Hypothesis): Foreign Direct Investment has no significant impact on industrial development in Ranchi district.
H1(Alternative Hypothesis): Foreign Direct Investment has a significant positive impact on industrial development in Ranchi district.
OBJECTIVES ACHIEVED
Foreign Direct Investment has been seen to significantly contribute to the promotion of industrial growth and development in the district of Ranchi, the research revealed. The industries also expanded due to FDI investment, technology, infrastructure development and modernization of the industrial process. Investments, joint foreign ventures and expansion of industrial sectors like steel, mining, power and manufacturing sectors drove growth. The study also found that the industrial expansion with the support of FDI has led to the growth of industrial production, business activity, and ancillary industries.
The study found that Foreign Direct Investment had a positive relationship with the employment generation and income level in the Ranchi district. Expansion of industry provided direct and indirect jobs in the manufacturing, mining, transportation and service industries. Workforce productivity and employability were enhanced by skill development and training. Economic development, higher income and better standards of living in the district were also attributed to increased industrial activities.
The study revealed that there are various factors which play a significant role in the inflow of FDI in Jharkhand. The factors which were identified as attracting foreign investment were availability of mineral resources, industrial infrastructure, favourable government policies, availability of labour, transportation facilities and industrial corridors. The presence of big industries like Tata Steel and SAIL also boosted investors’ confidence and promoted industrial investment in the state. Besides, policy support, ease of doing business and expanding market opportunities were responsible for the attraction of foreign capital into the state of Jharkhand.
FINDINGS
1. The flow of FDI in India has a positive trend and is a very positive signal for the Indian Economy.
2. Some of the most favourable investment destinations in the world are the Indian Economy for most of the developed and developing countries.
3. The Inflow of FDI and FII in India has positive relationship between each other.
4. The FDI is significantly contributing to the economic development of India as it has the positive correlation coefficientwith India’s GDP.
5. During the past 11 years, 2014-2025, Indian service sector is the second fastest growing (CAGR 8.9 per cent) services sector.Hence, Indian service sector got the maximum share of total FDI In India.
CONCLUSION
The influence of international trade and foreign direct investment on economic development of a nation. has remained issues of considerable interest and controversy both in the academic literature and in policy circles. In this paper, we will explore the impact of trade and FDI could have on India’s Throughout the industrial transformation, especially since the beginning of economic reforms in the 1980s and early 1990s.The industrial transformation, especially from the beginning of economic reforms in the 1980s and early 1990s. 1990s. In a study of the evolution of the Indian manufacturing sector since mid-1970s, it has been observed that: Though it was stagnant during the 1970s, Indian manufacturing started growing steadily in all domains after that. Data dating back to the early 1980s to mid-1990s. There has been strong growth in labour productivity Since the early 1980s real value added and Employment too increased substantially, especially since the mid-1980s. Real wages have risen over this period, while wages per person employed (unit labour costs) have decreased. The growth in real wages lagged growth in productivity. Likely as a result, manufacturing exports have also increased in the same period, along with an increase in the manufacturing trade balance. However, and the relative decline of the labour-intensive textile industry will be apparent weakness in the pattern of growth, clothing and footwear industries since the mid-1970s. In terms of manufacturing exports, however the latter are mostly labour-intensive commodities, and this has seen a relatively small increase. In terms of the proportion of these commodities to overall manufacturing exports, human capital-intensive exports have been the ones to show a decline. However, in terms of the proportion of these commodities to overall manufacturing exports, human capital-intensive exports have declined. showing more dynamism.
Foreign direct investment also has seen a strong growth in the inward FDI since early 2000. Growth from a comparative low level in the 1990s. India’s net inflows and stocks of inbound FDI are still low, though. China’s when scaled by the gross investment and GDP, respectively. The flow of FDI in the recent period appears to be more of an infrastructure than manufacturing, and more of a capital-intensive sector than labour-intensive. sectors. There also appears to be geographic concentration of inward FDI flows, with a significant amount of inward FDI concentrated in a few countries. FDI flowing only to four states in India. We do not have reliable econometric evidence of the effects of FDI for various performance parameters of industry. Our initial statistical review indicates, however, that our statistical review along the lines of the above is still underway. The results of the other researchers indicate that foreign companies in India after the reform, are subject to tax benefits. Domestic companies are less productive and less export-oriented than period. However, foreign firms do not perform better than domestic firms with respect to growth, investment rates or R and D expenditure rates. D intensity. It is also uncertain if the growing number of foreign companies due to relaxation as a result of these restrictions on technology acquisition, technology knowledge has been widely diffused to the domestic market. firms in the post-reform period.
FUTURE SCOPE
• This Study can be extended by finding the various What causes the investment in FDI in India and how we can use that Investment in the region. Factors that can stimulate the foreign direct investment into the region. investment in India.
• The future studies can be carried out in other districts of Jharkhand about the effect of FDI on the Industrial development of the state.
• A comparative study of rural and urban industrial can yield more insights in the difference between regional compliance of FDI.
• Moving forward, further studies can be conducted on the long-term effects of FDI on industrial growth and profitability and employment generation resulting in overall growth and development.
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Impact of FDI on the Industrial Development of Jharkhand – a study of Ranchi District
Premaankit Das
Dr. Narendra Singh
Dr. Ajay Kumar
(Department of Commerce) St. Xavier’s College, Ranchi
E-mail: premaankitdas7@gmail.com
ABSTRACT
Foreign Direct Investments (FDI) are cross-border investment which means that the investments in one country are made by some other country based on certain factors. The investors from one country develops a degree of interest based on the availability of raw materials and climate conditions of the that country in which the investor is interested to invest the capital and time. After the Industrial Revolution of 1991 which started major movements like Liberalisation, Privatisation and Globalisation, India has experienced a huge improvement in the industrial sector as more and more investments were made by other countries across the world as India has cheap labour and is known for its richness in raw materials thus making it a centre of attraction for the investing organizations. Although there are many studies available which explains the relationship between Foreign Direct Investment (FDI) and economic growth and development about the country but there are very less studies which focuses on the impact of Foreign Investments within a limited space or a specific region of the country and there are very limited research present which have examined the impact of Foreign Investments in Jharkhand. Primary data was gathered through surveys and interviews by going to the companies which have attracted foreign investments while the secondary data was collected through thegovernment publications and reports. The study shows how FDI have impacted in the industrial development and how it facilitated the overall growth and development. Findings suggest that FDI is a major factor that have made a rapid change in the economy and have played an important role in the growth and development of the economy. FDI brings out the advances technologies and experience in the economy and facilitates the use of new technologies in producing goods and services hence developing the overall conditions of all sectors in the economy. The study concludes suggestions of developing government policies and norms to attract more foreign investments in the country by liberalising the government policies and rules to bring foreign investments in the economy and conduct awareness campaigns to show the importance of FDI in an economy.
INTRODUCTION
Foreign Direct Investments (FDI) are cross-border investment which means that the investments in one country are made by some other country based on certain factors. The investors from one country develops a degree of interest based on the availability of raw materials and climate conditions of the that country in which the investor is interested to invest the capital and time.
After India’s independence, the country used to follow strict rules on trade of goods and services. India does not used to allow foreign counties to enter into trade with them thus restricting them to invest and bring their technologies and experience which resulted in making it a very self-centric and underdeveloped country.
After the Industrial Revolution of 1991 which started major movements like Liberalisation, Privatisation and Globalisation, India has experienced a huge improvement in the industrial sector as more and more investments were made by other countries across the world as India has cheap labour and is known for its richness in raw materials thus making it a centre of attraction for the investing organizations.
The movement marked the start of the growth of India’s economy, especially the growth and development of the industrial sector of the economy. All the sectors attracted Foreign Direct Investment (FDI) at a large scale but the sector which attracted most of the FDI was the Manufacturing sector and in the electrical equipment manufacturers attracted the highest investment.
The Automobiles and Transportation sector was a major area where foreign investments were made and also the Infrastructure and Construction sector such as power, oil & gas and real estate saw a rapid growth and development as they attracted large amount of FDI as the government encourages private partnership and the contribution of Construction Sector to India’s GDP constituted to 10% of the total GDP which was a huge contribution. In the later years the Banking and Insurance sector has seen a large growth as the sector got open to the foreign investors, thus they saw a large future growth in this sector thus resulted in contributing to increase the flow of FDI in the country.
During the initial stages of the economic Reform of 1991, the initial focus of Foreign Direct Investments (FDI) was heavily focused on the manufacturing industries especially the electrical industry and the chemical industry and with time the interest of the Foreign Investors shifted towards the service sector, that is specially towards the IT, Telecommunication and Finance sectors of the economy and these later emerged as the dominant sectors in the economy in contribution to the overall growth and development
The major investors in the Indian economy were USA, Netherlands, Japan and Mauritius. There are many other countries who invest in India but these are the major investors who have made around 35.4% of the total Foreign Direct Investments (FDI) from 1991 to 2004 in the country in the initial stages thus contributing to the development of the various sectors in the economy thus resulting in the overall growth and development of the nation.
Jharkhand with its highly rich minerals is one of the most important states of India. Jharkhand has a great potential for development as it has numerous minerals and correct investment can make this state a fully developed state. Jharkhand is still now an under-developed state as despite of having huge amount of minerals the state is not able to attract ample number of investments to make the full-fledged use of the resources available.
Despite being such a mineral rich state, Jharkhand had always faced backlashes due to the shortage of skilled labours in the state. The state has great potential and can reach new heights, but the unskilled workforce of the state does allow it to do so and this can be one of the major reasons why Jharkhand is still now considered a backward under-developed state.
The state has great potential and large availability of minerals which can attract the foreign investors here. The Foreign Direct Investment (FDI) in the state of Jharkhand can totally change the position of the state. Jharkhand has minerals like coking coal, bauxite, copper, mica, iron ore and many more. These minerals are used in the manufacturing purposes of various products, and these minerals have a great demand in the manufacturing industry. Various investors from other countries now bring their expertise and technologies in Jharkhand to bring these resources into proper use and utilise them in the most effective and efficient manner possible. These resources are available at cheap rates in the market and for the purpose of unskilled labourers, they are easily available in the state at a very cheap rate so the foreign industries only have to bring the technologies and expertise with them ion the market and the rest will be taken care of by the state of by the state of Jharkhand.
Jharkhand is one of the richest states of India in terms of natural resources and minerals. Jharkhand alone holds 40% of the total natural resources present in India which is very large amount and this attracts numerous manufacturing industries in the state thus resulting in an overall development. It has great potentials in serving the country in numerous ways but to bring this in force it is much needed to invest in industries in Jharkhand and it can be possible through foreign investments as it brings new technologies to use these resources effectively and efficiently.
Major industrial organizations like steel plants, mineral based industries and engineering companies operate in the state of Jharkhand. However, despite of having so many natural resources Jharkhand faces many challenges in achieving balances industrial development. Greater inflow of foreign investments can overcome these problems and can facilitate in industrial development of Jharkhand.
LITERATURE REVIEW
1. Dunning (1993) developed the Eclectic Paradigm theory or also known as the OLI (Ownership, Location, Internationalization) Paradigm, which explains that foreign investment takes place when firms possess ownership advantages, location advantages, and internalization benefits. This study is a foundational work, and this study is particularly used for examining FDI determinants.
2. Borensztein et. al (1998) analysed the impact of Foreign Direct Investment (FDI) on economic growth around 69 developing countries in the world. The study primarily focuses and contributes to the concept of absorptive capacity, which means how a country’s human capital is important in determining whether the country has been benefited from the foreign investments made. This study shows that human capital can be termed as the most important factor that influence FDI in the country hence huge human capital will lead to less cost involves in manufacturing hence resulting in the attraction of more foreign companies.
3. Blomström and Kokko (2003) emphasized how Foreign Direct Investment (FDI) plays a critical role in diffusing technology, transfer of knowledge, and modernizing the industrial sector in developing countries. It showed how the technology can lead to industrial development and how it can be used effectively and efficiently to encourage maximum output from the resources available. The research shows how modernizing helps in the effective allocation of resources in the economy hence bringing forward new methods and techniques to utilise the resources in the most effective and efficient manner.
4. Alfaro (2004) studied the role of Foreign Direct Investment (FDI) in economic growth and found how foreign investments single handedly does not support the economy alone but also the financial institutions of a country contribute as well to the economy of a country and also shows the importance of why both financial institutions and foreign investments go hand in hand to facilitate the economy of a country. This study shows how financial institutions helps in facilitating financial support to the foreign companies who are interested in investing in the country.
5. Caves (2007) examined the effects of multinational enterprises on host countries and how they contribute in shaping the country’s economy as a whole. The study basically focuses on different types of foreign investments a country can attract like Horizontal Foreign Direct Investment or Vertical Foreign Direct Investment. This study also focuses on why the local firms choose Foreign Direct Investment as a mode of entrance in the foreign market rather than going for other modes of entrance.
6. Kokko (2006) highlighted how Foreign Direct Investments (FDI) effects the investing countries or the home countries. The study focuses on if the outward foreign investments hollow out the domestic industry of the country as they do not get much investments or it provides benefits to the industries through by increasing efficiency and access to foreign markets of a developed country.
7. Balasubramanyam et al. (1996) found that how a country’s trade policies influence and encourage Foreign Direct Investment (FDI) in a country. This study on the basis of information concludes that the growth enhancing effects of Foreign Direct Investment (FDI) is more in countries which pursue an Export promotion (EP) policy rather than the countries which follow Import Substitution (IS) policy. This study shows the importance of exports for a country to build a relationship with other countries and also to facilitate more foreign investments in the home country.
8. Pradhan (2007) studied about the rising of companies at a global level and how their emergence as multi nationals would affect the development of both the host countries in which they have invested and also of India itself. This study explores the pattern of how Indian firms opted for overseas acquisition and it also highlights that the process of international expansion has been shifted to aggressive expansion during this period of time.
9. Kumar (2005) observed how the Foreign Direct Investment (FDI) contributed in India’s growth and development, especially from a comparative East Asian perspective. This study highlighted the significant shift in the composition of the Foreign Direct Investment of India after liberalisation and concluded that a very less proportion was contributed to the service sector while manufacturing industry was the most important part at that time. An overall conclusion of the study is that it explored the relationship between the foreign Direct Investment and economic growth.
10. Agrawal and Khan (2011) analysed the impact of Foreign Direct Investment (FDI) on the Gross Domestic Product (GDP) of India. This study concluded that Foreign Direct Investment has a positive effect on the Gross Domestic Product of the country. The study further suggested that India must improve its infrastructure of attract foreign investments and also it must develop its human capital for the better utilisation of the technologies transferred from the foreign institutions.
11. Chakraborty and Nunnenkamp (2008) examined how Foreign Direct Investment (FDI) impacted India’s economy after the 1991 reforms. This study states that the growth effect of Foreign Direct Investment is not uniform across the entire India. This study states that Foreign Direct Investment drives growth in manufacturing sectors and a growing manufacturing sector of the country will in turn more Foreign Investments in the country.
12. Athreye and Kapur (2009) noted that Indian firms are basically driven by strategic asset seeking which involves acquiring brands, managerial skills and advances technology to compete more accurately and effectively on both at home and abroad. This concluded that the liberalisation policies of India and other economic reforms of the country acted as the critical catalyst that enabled the firms reach at international levels across the world.
13. Sahoo (2012) emphasised that labour force growth, infrastructural development and trade openness are the major factors which attracted the Foreign Direct Investment in India. This study further states that the improvement in the infrastructure stock is the major factor for which the foreign investors are attracted to the country thus creating a positive environment for foreign investors. This study also analysed that the FDI reforms of 2012 is a positive step towards easing the current account deficit hence supporting the long-term economic growth of the country.
14. Sethi and Sucharita (2013) analysed a positive relationship between Foreign Direct Investment (FDI) and Gross Domestic Product (GDP) of India. This study stated that FDI contributes directly to the exports in India especially in the context of low wages and global market incorporation. The study further states that to encourage more foreign investments India should focus more on human resources, infrastructure and it should as well create a stable macroeconomic framework.
15. Mukherjee (2015) highlighted that stable economic growth of a country is the major factor that attracts Foreign Direct Investment in a country and not the condition in which Foreign Investments are the only factor for the country’s growth and development. This study states that Foreign Direct Investment in India targets the growing domestic sector rather than using India as an export hub.
16. Kumar and Pradhan (2016) found that Foreign Direct Investment is not just capital but also a bundle of resources like advanced technologies, organizational skills, managerial skills and many more. The study states how the foreign skills facilitated the growth and development of the domestic industries thus contributing to the economic development of the host country. This study also states that how Indian companies those who perform foreign investments seek strategic assets and knowledge from other developed countries.
17. Singh & Dhamija (2018) examined how Foreign Direct Investment (FDI) impacted on the poverty reduction of India. Thia study found a short run positive relationship where the increased foreign investment inflows led to the improvement of social welfare in the country, though there was no confirmation for the long-term investments from the foreign companies.
18. Ranjan and Agrawal (2019) studied the factors which are responsible for the attraction of Foreign Direct Investment (FDI) in India by using the panel data from 1975 to 2009. This study identified that there are major critical macroeconomic determinants such as market size, labour costs, infrastructure and trade openness that has a positive impact on the Foreign Direct Investment in the country. This study explains that India has reached new levels in attracting foreign investments hence resulting in the overall development of the country.
19. Das and Paul (2020) highlighted how various economic drivers impacted the amount of Foreign Direct Investments (FDI) in India. This study showcases that investors value those countries which have higher growth prospectus and high demand and potential in the economy, trade openness is the factor which positively impacts FDI and apart from this the two most major factors are infrastructure and human capital.
20. Singh and Mishra (2022) emphasized that the factors which attract Foreign Direct investment (FDI) vary significantly on the basis of the sectors in ana economy of a country. This study concludes that Foreign Direct Investments in service sector of the country mainly the IT sector or Finance sector have greater growth and development opportunities rather than the Foreign Direct Investments made in the agricultural sector of the country.
21. Bosworth and Collins (1999) provide evidence concerning the effect of capital inflows on domestic investment for fifty-eight developing countries during 1978–95. The authors distinguish among three types of inflows: FDI, portfolio investment, and other financial flows (primarily bank loans). It has been found out that an increase of a dollar in capital inflows is associated with an increase in domestic investment of about fifty cents. This result covers significant differences among different types of inflows. Foreign direct investment appears to bring about close to a one-for-one increase in domestic investment; there is virtually no discernible relationship between portfolio inflows and investment (little or no impact), and the impact of loans falls between those of the other two. These results hold both for the fifty-eight-country sample and for a subset of eighteen emerging markets.
22. Agrawal (2000)on economic impact of foreign direct investment in south Asia by undertaking time-series, cross-section analysis of panel data from five South Asian countries; India, Pakistan, Bangladesh, Sri Lanka and Nepal, that there exist complementarily and linkage effects between foreign and national investment. Further he argues that the impact of FDI inflows on GDP growth rate is negative priorto 1980, mildly positive for early eighties and strongly positive over the late eighties and early nineties. Most South Asian countries followed the import substitution policies and had high import tariffs in the 1960s and 1970s. These policies gradually changed over the 1980s, and by the early 1990s, most countries had largely abandoned the import substitution strategy in Favor of more open international trade and generally, market-oriented policies
RESEARCH GAP
Although there are many studies available which explains the relationship between Foreign Direct Investment (FDI) and economic growth and development about the country but there are very less studies which focuses on the impact of Foreign Investments within a limited space or a specific region of the country and there are very limited research present which have examined the impact of Foreign Investments in Jharkhand.
Most of the studies examine how Foreign Investment impact the country art a macro-economic level. Very few studies examine how Foreign Investments influence the industrial sector at a district level, particularly in emerging cities like Ranchi which has the potential to improve at a high scale and can contribute to the overall industrial growth and development of the country. Ranchi has now developed a lot in terms of infrastructure and connectivity with other places, and it has huge potential for the growth of the industrial sector.
Furthermore, earlier research has focused mainly on the impact of Foreign Investments on the service sector mineral rich states like Jharkhand has never come into focus. Ranchi is a mineral rich region and an emerging area which facilitates the industrial sector of the country. Therefore, there is a need for a detailed empirical study that evaluates the impact of FDI on Industrial Development of Jharkhand, especially Ranchi district.
RESEARCH QUESTION
1. What is the trend of Foreign Direct Investment in Jharkhand?
2. How does FDI influence industrial development in Ranchi district?
3. What are the major sectors receiving foreign investment in Jharkhand?
RESEARCH OBJECTIVE
• To examine the role of Foreign Direct Investment in promoting the industrial growth and development in Ranchi district.
• To evaluate the impact of Foreign Direct Investment on employment generation and income levels in Ranchi district.
• To identify the major factors influencing the inflow of Foreign Direct Investment in Jharkhand.
RESEARCH METHODOLOGY
Research Design
This study will be descriptive and analytical research, the study of the impact of FDI on industrial development.
Sources of Data:Secondary data will be used.
Secondary Data The secondary data will be obtained from:
* Government reports
* Reserve Bank of India publications
* According to the Ministry of Commerce reports
* Academic journals Resources such as books and research papers.
The study will be conducted using stratified random sampling technique which can ensure representation from different industrial sectors. Scope of the Study This study concentrates on: The industrial areas of Ranchi district are — The importance of FDI for industrial development. Economic & employment effects of foreign investment.
DATA ANALYSIS
TATA STEEL:
Case Processing Summary
N %
Cases Valid 11 91.7
Excludeda 1 8.3
Total 12 100.0
a. Listwise deletion based on all variables in the procedure.
Reliability Statistics
Cronbach’s Alpha N of Items
.848 3
Correlations
Amount (in crores) Employment Generation State Capital Outlay
Amount (in crores) Pearson Correlation 1 .712* .737**
Sig. (2-tailed) .014 .010
N 11 11 11
Employment Generation Pearson Correlation .712* 1 .783**
Sig. (2-tailed) .014 .004
N 11 11 11
State Capital Outlay Pearson Correlation .737** .783** 1
Sig. (2-tailed) .010 .004
N 11 11 11
*. Correlation is significant at the 0.05 level (2-tailed).
**. Correlation is significant at the 0.01 level (2-tailed).
Source: Made by the Research Scholar suing SPSS software
In the case of the Tata Group dataset, the null hypothesis (H₀) is rejected for all three of the relationships tested. Specifically:
There is a statistically significant correlation between FDI Amount and Employment Generation at 5 per cent level (r = 0.712, p = 0.014). H₀ is rejected. The correlation is positive and so is the null hypothesis, H₁.
The correlation between FDI Amount and State Capital Outlay is statistically significant with a coefficient of 0.737 at 1 per cent. level. H₀ is rejected. The direction that is positive favors the presence of H₁.
The correlation between Employment Generation and State Capital Outlay is statistically significant at 1 per cent level (r = 0.783 at 1 per cent level). H₀ is rejected. This is a further affirmation of the developmental integrative effect of FDI.
From the above results for the data set of Tata group, the null hypothesis can be completely rejected and the alternative hypothesis H₁ is accepted. The results indicate that FDI can play a significant role in industrial development in Ranchi district by creating jobs and also by investing in the State.
BSL:
Case Processing Summary
N %
Cases Valid 11 91.7
Excludeda 1 8.3
Total 12 100.0
a. Listwise deletion based on all variables in the procedure.
Reliability Statistics
Cronbach’s Alpha N of Items
.008 3
Correlations
Amount (in crores) Employment Generation State Capital Outlay
Amount (in crores) Pearson Correlation 1 .062 -.091
Sig. (2-tailed) .856 .790
N 11 11 11
Employment Generation Pearson Correlation .062 1 .783**
Sig. (2-tailed) .856 .004
N 11 11 11
State Capital Outlay Pearson Correlation -.091 .783** 1
Sig. (2-tailed) .790 .004
N 11 11 11
**. Correlation is significant at the 0.01 level (2-tailed).
Source: Made by the Research Scholar using SPSS software
Two of the three relationships for the BSL dataset are accepted as the null hypothesis. Neither the number of jobs created nor the state capital outlay is statistically related to the amount of investment made at BSL (r = 0.062, p = 0.856) (r = -0.091, p = 0.790). The result indicate that the capital expenditure behaviour of BSL public sector organization does not give the sort of built-in developmental impact as the capital expenditure of the investment for FDI.
The only significant pairing is the Employment–State Capital Outlay pairing (r = 0.783, p = 0.004), a finding that, as mentioned above, would seem to be due to a general administrative trend, rather than a specific developmental one in the case of FDI.
The difference in the results of the hypothesis test is significant enough to be a finding alone for the Tata and BSL datasets. It strongly suggests that it isn’t just the volume of large-scale industry in Ranchi that matters for developmental outcomes; it is the form and quality of the industry, the private investment, and in particular the private investment through its market discipline, managerial efficiency and technology transfer dynamics.
HYPOTHESIS
H0(Null Hypothesis): Foreign Direct Investment has no significant impact on industrial development in Ranchi district.
H1(Alternative Hypothesis): Foreign Direct Investment has a significant positive impact on industrial development in Ranchi district.
OBJECTIVES ACHIEVED
Foreign Direct Investment has been seen to significantly contribute to the promotion of industrial growth and development in the district of Ranchi, the research revealed. The industries also expanded due to FDI investment, technology, infrastructure development and modernization of the industrial process. Investments, joint foreign ventures and expansion of industrial sectors like steel, mining, power and manufacturing sectors drove growth. The study also found that the industrial expansion with the support of FDI has led to the growth of industrial production, business activity, and ancillary industries.
The study found that Foreign Direct Investment had a positive relationship with the employment generation and income level in the Ranchi district. Expansion of industry provided direct and indirect jobs in the manufacturing, mining, transportation and service industries. Workforce productivity and employability were enhanced by skill development and training. Economic development, higher income and better standards of living in the district were also attributed to increased industrial activities.
The study revealed that there are various factors which play a significant role in the inflow of FDI in Jharkhand. The factors which were identified as attracting foreign investment were availability of mineral resources, industrial infrastructure, favourable government policies, availability of labour, transportation facilities and industrial corridors. The presence of big industries like Tata Steel and SAIL also boosted investors’ confidence and promoted industrial investment in the state. Besides, policy support, ease of doing business and expanding market opportunities were responsible for the attraction of foreign capital into the state of Jharkhand.
FINDINGS
1. The flow of FDI in India has a positive trend and is a very positive signal for the Indian Economy.
2. Some of the most favourable investment destinations in the world are the Indian Economy for most of the developed and developing countries.
3. The Inflow of FDI and FII in India has positive relationship between each other.
4. The FDI is significantly contributing to the economic development of India as it has the positive correlation coefficientwith India’s GDP.
5. During the past 11 years, 2014-2025, Indian service sector is the second fastest growing (CAGR 8.9 per cent) services sector.Hence, Indian service sector got the maximum share of total FDI In India.
CONCLUSION
The influence of international trade and foreign direct investment on economic development of a nation. has remained issues of considerable interest and controversy both in the academic literature and in policy circles. In this paper, we will explore the impact of trade and FDI could have on India’s Throughout the industrial transformation, especially since the beginning of economic reforms in the 1980s and early 1990s.The industrial transformation, especially from the beginning of economic reforms in the 1980s and early 1990s. 1990s. In a study of the evolution of the Indian manufacturing sector since mid-1970s, it has been observed that: Though it was stagnant during the 1970s, Indian manufacturing started growing steadily in all domains after that. Data dating back to the early 1980s to mid-1990s. There has been strong growth in labour productivity Since the early 1980s real value added and Employment too increased substantially, especially since the mid-1980s. Real wages have risen over this period, while wages per person employed (unit labour costs) have decreased. The growth in real wages lagged growth in productivity. Likely as a result, manufacturing exports have also increased in the same period, along with an increase in the manufacturing trade balance. However, and the relative decline of the labour-intensive textile industry will be apparent weakness in the pattern of growth, clothing and footwear industries since the mid-1970s. In terms of manufacturing exports, however the latter are mostly labour-intensive commodities, and this has seen a relatively small increase. In terms of the proportion of these commodities to overall manufacturing exports, human capital-intensive exports have been the ones to show a decline. However, in terms of the proportion of these commodities to overall manufacturing exports, human capital-intensive exports have declined. showing more dynamism.
Foreign direct investment also has seen a strong growth in the inward FDI since early 2000. Growth from a comparative low level in the 1990s. India’s net inflows and stocks of inbound FDI are still low, though. China’s when scaled by the gross investment and GDP, respectively. The flow of FDI in the recent period appears to be more of an infrastructure than manufacturing, and more of a capital-intensive sector than labour-intensive. sectors. There also appears to be geographic concentration of inward FDI flows, with a significant amount of inward FDI concentrated in a few countries. FDI flowing only to four states in India. We do not have reliable econometric evidence of the effects of FDI for various performance parameters of industry. Our initial statistical review indicates, however, that our statistical review along the lines of the above is still underway. The results of the other researchers indicate that foreign companies in India after the reform, are subject to tax benefits. Domestic companies are less productive and less export-oriented than period. However, foreign firms do not perform better than domestic firms with respect to growth, investment rates or R and D expenditure rates. D intensity. It is also uncertain if the growing number of foreign companies due to relaxation as a result of these restrictions on technology acquisition, technology knowledge has been widely diffused to the domestic market. firms in the post-reform period.
FUTURE SCOPE
• This Study can be extended by finding the various What causes the investment in FDI in India and how we can use that Investment in the region. Factors that can stimulate the foreign direct investment into the region. investment in India.
• The future studies can be carried out in other districts of Jharkhand about the effect of FDI on the Industrial development of the state.
• A comparative study of rural and urban industrial can yield more insights in the difference between regional compliance of FDI.
• Moving forward, further studies can be conducted on the long-term effects of FDI on industrial growth and profitability and employment generation resulting in overall growth and development.
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