Liberalisation and Changing Sectoral Composition of FDI:
The latest is the ICT wave that has influenced the global shift in service industries the most. Therefore, these flows are now accompanied by a change in the composition of such flows more and more in the new economy sectors including telecommunication, electronics, and information technology. The evidence is that for the developing world, a modem telecommunications i infrastructure is not only essential for domestic economic growth, but also a prerequisite for participation in increasingly competitive world markets and for attracting new investments. With this realisation developing countries have begun to acknowledge that inadequate telecommunications infrastructure will be a disincentive to new investment and therefore place existing industry at a competitive disadvantage.
The sectoral composition of FDI in India has undergone significant change in the 1990s. Some characteristics of FDI stock in India can be noted. i) The share of mining and petroleum along with plantation sector in FDI stock has fallen (from 9 per cent in 1980 to only 2 per cent in 1997). ii) The bulk of FDI inflows in the pre-liberalisation era were directed to manufacturing sector, (its share was 87 per cent in 1980 that declined to 85 per cent in 1990). However, with the liberalisation of FDI policy regime in the 1990s, FDI inflows have been received more by services and infrastructural sectors. This has brought the share of manufacturing down to 48 percent by 1997. During the 1990s, services clearly emerged as a major sector receiving FDI. Power generation (among other infrastructure sectors) has also attracted substantial FDI during the 1990s.
Among the manufacturing sub-sectors, FDI in 1997 was more evenly distributed among the following sectors food and beverages, transport equipment, metals and metal products, electricals and electronics, chemicals and allied products, and miscellaneous manufacturing. This was in contrast to a very heavy concentration in technology intensive sectors, like machinery, chemicals, electricals, and transport equipment up to 1990. The infrastructural sectors, which have commanded nearly half of total approved investments in the 1990s had not been open to FDI inflows before and hence could be attributed to the policy liberalisation.
It may be usehl to look at the distribution of inward FDI within the services sector given its increasing importance in the FDI inflows during the 1990s. A look at the sub-sector break up of cumulative approvals of FDI during the 1991-2000 periods suggests that about 61 per cent FDI has gone to the telecommunications sector. The financial and banking sector stood as the second most important sector claiming about 14 per cent of total amount approved. Other important sectors are hotel and tourism, and air and sea transport.