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Following India's growing openness, the arrival of new and existing models, easy availability of finance at relatively low rate of interest and price discounts offered by the dealers and manufacturers all have stirred the demand for vehicles and a strong growth of the Indian automobile industry.
The role of Foreign Direct Investment in the present world is noteworthy. It acts as the lifeblood in the growth of the developing nations. Flow of the FDI to the countries of the world truly reflects their respective potentiality in the global scenario. Flow of FDI truly reflects the country's both economic and political scenario.
The flow of FDI over the Globe is as follows:
FDI in the financial sector among market economies
Opening up of doors by many countries of the world has resulted foreign participation in the financial sectors of emerging market economies (EMEs) during the 1990s. It has continued to expand so far in this decade, on balance - although its pace fell somewhat following problems in Argentina in 2002 and the global slowdown in mergers and acquisitions. It is seen that banks accounted for the majority of financial sector foreign direct investment (FSFDI). In a number of countries in Latin America and central and eastern Europe (CEE), foreign banks now account for a major share of total banking assets. In Asia, the share of foreign banks is, overall, much lower, but still substantial
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The integration of EME financial firms into the global market has resulted a wider diversity of financial institutions operating in EMEs and given greater emphasis on risk-adjusted profitability. These include expansion into local retail banking and securities markets, where elements such as client relationships and reputation are important components of the franchise value of operations. Such factors have tended to raise the costs of exiting a country and hence increased the permanence of FSFDI.
FSFDI was fostered by financial liberalization and market-based reforms in many EMEs. The liberalization of the capital account and financial deregulation paved the way for foreign acquisitions and the integration of EME financial firms into an expanding global market for corporate control. This is the character of FSFDI as part of a broader trend towards consolidation and globalization in the financial industry. In some cases competition in traditional markets increased pressure on major international banks to find new areas for growth. Financial institutions in advanced economies increasingly searching for profit opportunities at the customer and product level, FSFDI offered a means of access to EME markets with attractive strategic opportunities to expand.
Local financial infrastructure is growing which reduces the risks of conducting business in EMEs.but events such as the Russian default in 1998 and Argentine actions in 2002 also made financial institutions more sensitive. Thus, financial institutions in industrial countries now tend to evaluate country risk separately.
An important benefit of FSFDI is its effect on financial sector efficiency that arises from local banks' exposure to global competition.
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Host countries benefit from the technology transfers and innovations in products and processes commonly associated with foreign bank entry. Foreign banks exert competitive pressures and demonstration effects on local institutions. This results better risk management, more competitive pricing and in general a more efficient allocation of credit in the financial sector as a whole. Foreign banks presence help to achieve greater financial stability in host countries. Host countries benefit immediately from foreign entry. The better capitalization and wider diversification of foreign banks, along with the access of local operations to parent funding, may reduce the sensitivity of the host country banking system to local business cycles and changing financial market conditions. Their use of risk-based credit evaluation tends to reduce concentration in lending and in times of financial distress, fosters prompter recognition of losses and more timely resolution of problems.
The growing involvement of foreign firms in the financial systems of EMEs has given rise to a situation where majorities of EME banking assets have become foreign owned.
The growing involvement of foreign firms in the financial systems of EMEs has given rise to a situation where majorities of EME banking assets have become foreign owned.
Accordingly, developing pertinent technical skills is considered be an important area of cooperation between authorities in advanced and EME countries. In some markets, foreign-owned banks have been prominent in the rapid expansion of consumer lending and foreign currency lending to both households and businesses.
Appropriate supervision is needed to assess such credit managed by banks, and authorities in charge of financial stability. Accordingly, public policy should be focused on maximizing these benefits by continuing to encourage diversity and competition in financial systems not only between foreign and domestic banks but also between banks and other financial institutions.
One essential component among host country policy is commitment for growth and stability. Another is the protection of property rights and equal treatment of banks irrespective of ownership. From this point of view a more extensive implementation of the internationally recognized set of financial standards and codes can help to reduce country risk. Strengthening of legal frameworks act as a parameter for reducing country risk. Smooth functioning of the market for corporate control would be assisted by greater international compatibility of accounting standards, takeover rules, and insolvency codes.
Regional integration among EME financial systems, often within a framework for broader economic integration in the region, is another complementary approach to this objective. There is substantial evidence of major benefits from regional compacts such as those of the European Union and NAFTA. In the case of very poor countries where there is some special support for FSFDI may be merited provided political risk insurance if properly designed, could be useful.
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