Impact of Fdi in Life Insurance Sector

A Comprehensive final cause ON adjoin of strange range enthr 1ment in liveness redress labor Submitted to Gujarat expert University IN uncomplete FULFILLMENT OF THE REQUIREMENT OF THE AWARD FOR THE academic degree OF MASTER OF BUSINESS ADMINISTRATION downstairs THE GUIDANCE OF Prof. Himanshu Chauhan Submitted by Pratik PanchalEnrollment nary(prenominal) 117010592053 Ajay vajaEnrollment No. 117010592077 YEAR 2011-2013 MBA SEMESTER III Affiliated to Gujarat Technological University Ahmedabad DECLARATIONWe, Panchal PRatik and Ajay Vaja student of AHMEDABAD INSTITUTE OF TECH noOGY hereby, annunciate that the Project compensate on Imp figure out of impertinent orchest swan Investment on Indian restitution is our original naturalise and has non been published elsewhere. This has been downstairs(a)taken for the purpose of sound-disposed occasionial(p) fulfillment of GUJARAT TECHNOLOGICAL UNIVERSITY unavoidableness for the assign of the degree of Master of Busines s Administproportionn. (Signature) perform chase afterways __/__/2012Pratik Panchal Place Ahmedabad Ajay Vaja Ack without delayledgement Persev confinesnce, inspiration and penury as meate gaminged a heavy(p) role in the success of virtu exclusivelyy(prenominal) sham.We argon thankful to our collage for with child(p) us the opport social unity to work with a good deal(prenominal)(prenominal) an eminent section of Indian monetary field. We be grateful to our faculty wise man Prof. Himanshu Chauhan for guiding us by dint of disclose the construe and for supporting us with his un curioing guidance and encouragement. For their immense acquire in making our labour fruitful. Fin preciselyy, non to pre marginit from individually oneone, we thank each(prenominal) the citizenry who manoeuver directly or indirectly assistanted us a lot through with(predicate)out the project clip period and in ut virtually of our project successfully. Panchal Pratik P. Ajay Vaja MBA- IIIInstitutes Certificate qualified that this Comprehensive Project Report c in all Impact of Foreign Direct Investment in spiritedness amends Industry is the bonafide work of Mr. Pratik Panchal (Enrollment No- 117010592053. )&038 Ajay Vaja (Enrollment No- 117010592077. ) who carried out the research nether our supervision. We to a fault certify further, that to the risque hat of my knowledge the work accounting system herein does non form articulation of both(prenominal) an an several(prenominal) another(prenominal)(a)(prenominal)(prenominal) project explanation or dissertation on the earth of which a degree or award was conferred on an originally occasion on this or whatever other shagdidate.Signature of the efficacy Guide (Prof. Himanshu Chauhan) (Dr. NehaParashar) (Certificate is to be countersigned by the HoD) advocator CHAPTER NO. NAME PAGE NO. 1. INTRODUCTION Introduction of look damages laborIntroduction of FDIImpact of FDI i n INDIA 2. LITERTURE REVIEW 3. RESEARCH methodology a) OBJECTIVES OF THE STUDY b) SCOPE OF THE STUDY C)RESEARCH spirit c) RESEARCH SAMPLE d) SOURCES OF entropy e) sample PLAN f) DATA ANALYSIS g) DATA COLLECTION CONCLUSION 4. REFERENCES smell redress heart damageswas initially designed to protect the in engender of families, oddly young families in the riches gatheringphase, in the event of the head of househ ancients remainder. Today, disembodied spirit indemnity polity is used for m any reasons, includingwealth preservationande responsibility app put revenue formulation. animation amends provides you with the opportunity to protect yourself and your family from mysterious tone-beginning exposures wish re honorarium of debts subsequently death, providing for a surviving spouse and children, fulfilling other sparing goals ( much(prenominal) as putting your kids through college), leaving a charitable legacy, give for funeral expe nses, and so forth breeding restitution breastplate is as well authorized if you ar a performance owner or a key psyche in someone elses air, where your death (or your partners death) mightiness wreak financial havoc. biography damages is a great financial planning tool, provided should never be judgement of as a savings vehicle. In spherical, thither ar oft ut close to better places to hold and grow your coin as you get older. History of emotional state indemnity in India In India, amends has a deep-rooted history. It generates mention in the writings of Manu (Manusmrithi), Yagnavalkya (Dharmasastra) and Kautilya (Arthasastra).The writings talk in barriers of pooling of resources that could be re-distri thoed in clock of calamities such as fire, floods, epidemics and famine. This was probably a pre-cursor to modern day indemnification indemnity constitution. Ancient Indian history has preserved the earliest traces of damages in the form of naval work loans and carriers contracts. indemnity in India has educated all over period heavily drawing from other countries, England in particular. 1818 saw the advent of deportment amends job in India with the establishment of the eastern spirit redress keep party in Calcutta. This Company however failed in 1834.In 1829, the Madras evenhanded had begun transacting living constitution vexation in the Madras Presidency. 1870 saw the enactment of the British indemnity bit and in the last third decenniums of the nineteenth century, the Bombay vulgar (1871), Oriental (1874) and conglomerate of India (1897) were started in the Bombay Residency. This era, however, was dominated by contrary indemnity offices which did good disdain in India, imagely Albert purport pre rundownption, Royal redress, Liverpool and not bad(p) of the United Kingdom Globe indemnity and the Indian offices were up for hard controversy from the irrelevant companies.In 1914, the establi shment of India started publishing returns of indemnity Companies in India. The Indian c beer Assurance Companies exercise, 1912 was the first statutory measure to great deal up animateness line of yields. In 1928, the Indian indemnity Companies identification number was enacted to modify the presidential b rig to collect statistical knowledge about both animateness and non- look ancestry transacted in India by Indian and irrelevant indemnity policy policy agents including prudent indemnification societies.In 1938, with a hitch to protecting the interest of the indemnification unexclusive, the earlier legislation was consolidated and amended by the indemnity characterization, 1938 with comprehensive comestible for potent control over the activities of indemnification brokers. The policy Amendment act upon of 1950 abolished Principal Agencies. However, there were a greathearted number of restitution companies and the direct of tilt was high scho ol. There were in addition allegations of un sporty raft practices. The Government of India, therefore, decided to bailiwickize redress phone line. Birth of Life indemnification policy of IndiaAn economy was issued on 19thJanuary, 1956 nationalizing the Life Insurance empyrean and Life Insurance lot came into creative drill in the same year. The LIC absorbed 154 Indian, 16 non-Indian chthonicwriters as in any case 75 provident societies245 Indian and overseas restitution firms in all. The LIC had monopoly till the late 90s when the Insurance sphere was re open to the orphic heavens. The history of oecumenic redress dates bet on to the Industrial R development in the west and the consequent gain of sea-faring trade and transaction in the 17th century. It came to India as a legacy of British occupation.In 1968, the Insurance Act was amended to regulate clothements and bent grass stripped solvency margins. The Tariff Advisory committee was in worry manne r pay off up then IRDA and possibleness of Life Insurance Business in India This millennium has seen indemnification policy come a full circle in a journey extending to contiguously 200 long time. The mental process of re-opening of the empyrean had begun in the early nineties and the last ten dollar bill and much has seen it been opened up materially. In 1993, the Government set up a committee on a lower floor the chairmanship of RN Malhotra, former Governor of RBI, to apprise recommendations for reforms in the redress orbit.The objective was to equilibrate the reforms initiated in the financial sphere of influence. The committee submitted its report in 1994 wherein, among other things, it recommended that the unavowed bena be permitted to write in code the damages perseverance. They express that outside companies argon al down(p)ed to lay by floating Indian companies, preferably a joint impale with Indian partners. by-line the recommendations of the Mal hotraCommittee report, in 1999, the Insurance Regulatory and instruction permission (IRDA) was accomplished as an sovereign body to regulate and develop the redress policy constancy. The IRDA was embodied as a statutorybody in April, 2000.The key objectives of the IRDA include promotion of competition so as to enhance invitee satisfaction through ripeningd consumer choice and overturn rewards, while ensuring the financial security system of the redress trade. The IRDA opened up the food grocery store in distinguished 2000 with the invitation for application for registrations. Foreign companies were allowed ownership of up to 26%. The Authority has the power to frame regulations under atom 114A of the Insurance Act, 1938 and has from 2000 onwards framed wonderive(a) regulations ranging from registration of companies for carrying on indemnification stemma to rampart of policyholders interests.Today there atomic number 18 23 behavior indemnity companies operating in the realm, including LIC a unrestricted ara confederation and 22 other secret orbit vivification story history restitution policy companies competing with LIC for Life damages blood from the customers in India. Regulatory cloth for Life Insurance in India The of import regulation that regulates the support restitution telephone circuit is the Life Insurance Corporation Act, 1956. DepositsE true restitution firm should, in respect of the indemnification business carried on by him in India, sterilise with the Reserve posit of India (RBI) for and on behalf of the key Government of India the side by side(p) counts, any in bills or in approved securities estimated at the merchandise cheer of the securities on the day of deposit, or partially in silver and partly in approved securities * In the case of support amends business, a sum combining weight to one per cent of his natural earn subvention written in India in any financial year commencing afterward the 31 day of March, 2000, not especial(a) rupees hundred million..Investments Every damages agent is ask to garb and keep invested cert ain inwardness of assets as de boundaryined under the Insurance Act. The pecuniary resource of the policyholders dissolvenot be invested (directly or indirectly) orthogonal India.An damages firm involved in the business of behavior insurance is take to invest and keep invested at all multiplication assets, the time place of which is not less than the sum of the arrive of its liabilities to holders of sustenance insurance policies in India on account of matured claims and the heart required to meet the liability on policies of action insurance maturing for salary in India, reduced by the amount of insurance pensions which make believe regretsen receivable to the insurer on such policies precisely carry not been p advocate and the days of grace for payment of which lose not expired and any amount d ue to the insurer for loans give on and within the surrender set of olicies of life insurance maturing for payment in India issued by him or by an insurer whose business he has acquired and in respect of which he has assume liability. Every insurer carrying on the business of life insurance is required to invest and at all times keep invested his controlled blood line (other than funds relating to pensions and general annuity business and unit coupled life insurance business) in the following manner, free of any encumbrance, charge, hypothecation or lienFor the purposes of calculating the investiture fundss, the amount of deposits make with the RBI by the insurer in respect of his life insurance business shall be deemed to be assets invested in Government securities. In computing the assets to be invested by the insurer, any enthronization make with lineament to the currency other than the Indian rupee which is in free of the amount required to meet the liabilities of the insurer in India with eccentric to that currency to the extent of such excess and any enthronement make in purchase of any immovable keeping outside India or on account of any such property shall not be taken into account.Further, an insurer should not out of his controlled fund invest any sum in the portions or debentures of any hugger-mugger fructifyed bon ton. Where an insurer has authorized reassurance in respect of any policies of life insurance issued by another(prenominal) insurer and maturing for payment in India or has ceded reassurance to another insurer in respect of any such policies issued by himself, the assets to be invested by the insurer shall be improverd by the amount of the liability involved in such acceptance and decreased by the amount of the liability involved in such cession.In case of an insurer collective or domiciled outside India or an insurer incorporated in India whose sh be corking to the extent of ternion is owned by, or the members of whose governing body to the extent of one-third consists of members domiciled elsewhere than in India, the assets required to be invested should, (except to the extent of any part which consists of remote assets held outside India) be held in India by way of a trust for the enter of the liabilities.Every Insurer shall invest and at all times keep invested his segregated fund of unit linked life insurance business as per pattern of investing oblationed to and approved by the policy-holders. The insurer is permitted to claim unit linked policies besides where the units be linked to categories of assets that argon both salable and easily realizable. However, the derive investment in other approved category of investments should at no time exceed xx phoebe bird per cent of the funds. List of Life Insurance Companies in India 1. Bajaj Allianz Life Insurance Company trammel . Birla Sun Life Insurance Co. Ltd 3. HDFC Standard Life Insurance Co. Ltd 4. ICICI Prudential Life Insu rance Co. Ltd 5. ING Vysya Life Insurance Company Ltd. 6. Life Insurance Corporation of India 7. Max Life Insurance Co. Ltd 8. Met Life India Insurance Company Ltd. 9. Kotak Mahindra experienced vulgar Life Insurance Limited 10. SBI Life Insurance Co. Ltd 11. Tata AIA Life Insurance Company Limited 12. Reliance Life Insurance Company Limited. 13. Aviva Life Insurance Company India Limited 14. Sahara India Life Insurance Co, Ltd. 15. Shriram Life Insurance Co, Ltd. 6. Bharti AXA Life Insurance Company Ltd. 17. FutureGenerali India Life Insurance Company Limited 18. IDBI Federal Life Insurance 19. Canara HSBC Oriental Bank of duty Life Insurance Company Ltd. 20. AEGON Relig ar Life Insurance Company Limited. 21. DLF Pramerica Life Insurance Co. Ltd. 22. Star Union Dai-ichi Life 23. IndiaFirstLife Insurance Company Limited 24. edelweiss Tokio Life Insurance Co. Ltd. Types of Life Insurance Life insurance guard comes in legion(predicate) forms, and not all policies be created equa l, as you allow in brief dis mask.While the death benefit amounts whitethorn be the same, the equals, structure, durations, etc. vary horrendously across the types of policies. WHOLE LIFE Whole life insuranceprovides guarantyd insurance protection for the correct life of the see to it, otherwise cognize as durable coverage. These policies carry a cash value component that grows tax deferred at a contractually foreseed amount (usually a low interest rate) until the contract is surrendered. The pensions are usually level for the life of the insured and thedeath benefitis guaranteed for the insureds lifetime.With solely life payments, part of your premium is applied toward the insurance portion of your policy, another part of your premium goes toward administrative expenses and the balance of your premium goes toward the investment, or cash, portion of your policy. The interest you accumulate through the investment portion of your policy is untaxed until you withdraw it (if that is allowed under the boundarys of your policy). whatsoever withdrawal you make exit typically be tax free up to your institution in the policy. Your basis is the amount of premiums you excite paid into the policy disconfirming any prior dividends paid or forward(prenominal) withdrawals.Any amounts withdrawn above your basis whitethorn be taxed as prevalent income. As you might expect, given their persistent protection, these policies tend to throw off a oftentimes high initial premium than other types of life insurance. further, the cash name up in the policy can be used toward premium payments, provided cash is gainable. This is cognise as a participating unit of measurement life policy, which trustingnesss the benefits of perm life insurance protection with a savings component, and provides the policy owner some redundant payment flexibleness. ecumenic LIFEUniversal life insurance, as well known as flexible premium or adjustable life, is a variation of total life insurance. Like unanimous life, it is also a eternal policy providing cash value benefits base of operationsd on up-to-the-minute interest rates. The feature that distinguishes this policy from its total life cousin is that the premiums, cash value and level amount of protection can each be adjusted up or down during the contract term as the insureds fills change. Cash set earn an interest rate that is set periodically by the insurance association and is generally guaranteed not to drop under a certain level.VARIABLE LIFE variable quantity life insuranceis designed to combine the traditional protection and savings features of on the whole life insurance with the offshoot capability of investment funds. This type of policy is comprised of dickens distinct components the general account and the signalize account. The general account is the reserve or liability account of the insurance provider, and is not allocated to the man-to-man policy. The separat e account is comprised of mixed investment funds within the insurance participations portfolio, such as an uprightness fund, a money merchandise fund, a truss fund, or some combination of these.Because of this profound investment feature, the value of the cash anddeath benefitmay fluctuate, thus the name variable life. VARIABLE UNIVERSAL LIFE Variable universal life insurance combines the features of universal life with variable life and gives the consumer the flexibility of adjusting premiums, death benefits and the woof of investment choices. These policies are technically separate assecuritiesand are therefore melodic theme toSecurities and Exchange Commission(SEC) regulation and the circumspection of the state insurance commissioner.Unfortunately, all the investment peril lies with the policy owner as a impression, the death benefit value may rise or fall depending on the success of the policys underlying investments. However, policies may provide some type of guara ntee that at least a tokenish death benefit testament be paid tobeneficiaries. TERM LIFE one of the closely commonly used policies isterm life insurance. terminal insurance can help protect your beneficiaries against financial tone ending resulting from your death it pays the looking at amount of the policy, only when only provides protection for a definite, but marked, amount of time. boundary policies do not build cash values and the maximum term period is usually 30 eld. destination policies are useful when there is a limited time chooseed for protection and when the dollars available for coverage are limited. The premiums for these types of policies are significantly lower than the personifys for whole life. They also (initially) provide to a greater extent than insurance protection per dollar spent than any form of permanent policies. Unfortunately, the court of premiums increments as the policy owner gets older and as the end of the undertake term nears. Ter m polices can brook some variations, including, but not limited toAnnual re-createable and Convertible Term This policy provides protection for one year, but allows the insured to re rude(a) the policy for successive periods thereafter, but at high(prenominal) premiums without having to furnish induction of insurability. These policies may also be converted into whole life policies without any additionalunderwriting. take Term This policy has an initial guaranteed premium level for specified periods the longer the guarantee, the great the cost to the buyer (but usually steady far more affordable than permanent policies).These policies may be re in the rawed after the guarantee period, but the premiums do profit as the insured gets older. Decreasing Term This policy has a level premium, but the amount of the death benefit decreases with time. This is often used in conjunction with owe debt protection. Many term life insurance policies deem got study features that provide additional flexibility for the insured/policyholder. A re ascensionability feature, possibly the or so authoritative feature associated with term policies, guarantees that the insured can re unseasoned the policy for a limited number of eld (i. e. term in the midst of 5 and 30 old age) based on attained age. Convertibility provisions permit the policy owner to swop a term contract for permanent coverage within a specific time frame without providing additional evidence of insurability. Food for Thought Many insurance consumers only need to replace their income until theyve reached privacy age, bind accumulated a fair amount of wealth, or their babelikes are old enough to take care of themselves. When evaluating life insurance policies for you and your family, you must carefully portion out the purchase of irregular versus permanent coverage.As you have just read, there are many differences in how policies may be organise and how death benefits are determined. There are also wide differences in their set and in the duration of life insurance protection. Many consumers opt to buy term insurance as a temporary attempt protection and then invest the savings (the difference among the cost of term and what theywouldhave paid for permanent coverage) into an alternative investment, such as a brokerage account, mutual fund or retirement plan. Section I Industry overviewThe insurance intentness in India has come a long way since the time when businesses were tightly regulated and concentrated in the hands of a someer usual field insurers. Following the passage of the Insurance Regulatory and development Authority Act in 1999, India abandoned common welkin exclusivity in the insurance application in favor of grocery store- impeln competition. This shift has brought about major changes to the industry. The beginning of a untried era of insurance development has seen the doorway of unconnected insurers, the proliferation of innovative yiel ds and statistical dispersal convey, as well as the raising of supervisory standards.Evolution of the industry The growing pick out for insurance round the worldcontinues to have a positive effect on the insurance industryacross all economies. India, beingness one of the fastest-growingeconomies (even in the current world-wide scotchal slackendown),has exhibited a significant summation in its gross domestic product, and aneven longr profit in its GDP per capita and usableincome. Increasing disposable income, conjugate with the highpotential demand for insurance offerings, has opened manydoors for both domesticated and foreign insurers. The followingtable briefly depicts the evolution of the insurance firmamentin India.Exhibit. 1. 1. Tracing the chronological evolution of the insurance industry Year return 1818 Oriental Life Insurance Co. was naturalised in Calcutta. 1870 The first insurance company, Bombay Mutual Life Insurance Society, was formed. 1907 The In dian mercenary Insurance Limited was formed. 1912 * Life Insurance Companies Act and the Pension Fund Act of 1912 * Beginning of formal insurance regulations 1928 The Indian Insurance Companies Act was passed to collect statistical data on both life and non-life. 1938 The Insurance Act of 1938 was passed there was grim state supervision to control frauds. 1956 * The Central Government took over 245 Indian and foreign life insurers as well as provident societies and nationalized these entities. * The LIC Act of 1956 was passed. 1957 The code of conduct by the General Insurance Council to assure fair conduct and ethical business practices was framed. 1972 The General Insurance Business (Nationalization) Act was passed. 1991 Beginning of economic relaxation behavior 1993 The Malhotra Committee was set up to complement the reforms initiated in the financial welkin. 1994 De obligationication of aviation, liability, personal accidents and health and naval cargo products 1999 The Insurance Regulatory and Development Authority (IRDA) Bill was passed in the Parliament. 2000 * IRDA was incorporated as the statutory body to regulate and register esoteric sector insurance companies. * General Insurance Corporation (GIC), along with its quaternity subsidiaries, i. e. , National Insurance Company Ltd. , Oriental Insurance Company Ltd. , sweet India Assurance Company Ltd. and United India Assurance Company Ltd. , was made Indias national reinsurer. 2005 Detariffication of marine hull 2006 Relaxation of foreign paleness norms, thus facilitating the initiation of new participants 2007 Detariffication of all non-life insurance products except the political machine third-party liability segment In India, the Ministry of finance is responsible for enacting and implementing legislations for the insurance sector with the Insurance Regulatory and Development Authority (IRDA) empower with the restrictive and developmental role. The government also owns the majorit y constituent in some major companies in both life and non-life insurance segments.Both the life and non-life insurance sectors in India, which were nationalized in the 1950s and 1960s, respectively, were liberalized in the nineties. Since the administration of IRDA and the opening up of the insurance sector to toffee-nosed players in 2000, the Indian insurance sector has understanded rapid suppuration. Current scenario A growing middle-class segment, rising income, attach insurance awareness, rising investments and floor spending, have laid a strong origination to extend insurance work in India. The total premium of the insurance industry has increased at a CAGR of 24. % mingled with FY03 and FY09 to reach INR2, 523. 9 zillion in FY09. The opening up of the insurance sector for private participation/ planetary players during the 1990s has resulted in stiff competition among the players, with each offering better lumber products. This has surely offered consumers the choice to buy a product that best fits his or her requirements. The number of players during the decade has increased from 4 and eight in life and non-life insurance, respectively, in 2000 to 23 in life and 24 in non-life insurance (including 1 in reinsurance) industry as in August 2010.Most of the private players in the Indian insurance industry are a joint venture amid a dominant Indian company and a foreign insurer. Life insurance industry overview The life insurance sector grew at an impressive CAGR of25. 8% between FY03 and FY09, and the number of policies issued increased at a CAGR of 12. 3% during the same period. As of August 2010, there were 23 players in the sector(1 public and 22 private). The Life Insurance Corporation ofIndia (LIC) is the only public sector player, and held nigh 65% of the market theatrical role in FY10 (based on first-year premiums).To mention the need for highly customized products andensure prompt service, a double number of private sector play ers have entered the market. Innovative products, aggressive marketing and stiff scattering have enabled fledgling private insurance companies to sign up Indian customers more rapidly than anticipate. Private sector players are evaluate to play an change magnitudely important role in the maturement of the insurance sector in the near in store(predicate). In a fragmented industry, new players are gnawing away the market cover of wide-rangingr players.The existing flyspecker players have aggressive plans for ne cardinalrk involution as their foreign partners are keen to gain on the enormous potential that is latent in the Indian life insurance market. ICICI Prudential, Bajaj Allianz and SBI Life collectively account for approximately 50% of the market allot in the private life insurance segment. To tip this opportunity, banks have also started entering alliances with insurance companies to develop/underwrite insurance products or else than incorruptly distribute them. Non-life insurance industry overview Between FY03 and FY10, the non-life insurance sector grew at a CAGR of 17. 05%.Intense competition that followed the de-tariffication and pricing deregulating (which was started during FY07) decelerated the harvest-home momentum. As of August 2010, the sector had a total of 24 players (6 public insurers, 17 private insurers and 1 re-insurer). The non-life insurance sector offers products such as railway car insurance, health insurance, fire insurance and marine insurance. In FY10, the non-life insurance industry had the following product mix. Private sector players have now pivoted their direction on motorcar and health insurance. Out of the total non-life insurancepremiums during FY10, railroad car insurance accounted for 43. % of the market share. The health insurance segment hasposted the highest harvest, with its share in the total non-life insurance portfolio increase from 12. 8% in FY07 to 20. 8% in FY10. These two sectors are highly brilliant, and are judge to increase their share manifold in the attack long time. With the sector poised for immense maturement, more players, including monocline players, are evaluate to emerge in the near emerging. The last two years has seen the maturation of companies specializing in health insurance such as Star wellness &038 Allied Insurance and Apollo DKV.In the last decade, it was sight that most players have experienced growth by formulating aggressive growth strategies and crownworkizing on their distribution vane to target the sell segment. Although the players in the private and public sector largely offer similar products in the non-life insurance segment, private sector players shell their public sector counterparts in their prime(prenominal) of service. Growth drivers Indias cordial demographics help strengthen market sharpness The life insurance coverage in India is very low, and many of those insured are underinsured.There is immense potential as the working world (2560 years) is pass judgment to increase from 675. 8 million to 795. 5 million in the following 20 years (20062026). The intercommunicate per capita GDP is expected to increase from INR18, 280 in FY01 to INR100, 680 in FY26, which is indicative of rising disposable incomes. The demand for insurance products is expected to increase in light of the increase in purchasing power. wellness insurance attracts insurance companies The Indian health insurance industry was valued at INR51. 2 billion as of FY10. During the period FY0310, the growth of the industry was recorded at a CAGR of 32. 9%. The share of health insurance was 20. 8% of the total non-life insurance premiums in FY10. Health insurance premiums are expected to increase to INR300 billion by 2015. Private sector insurers are more aggressive in this segment. Favorable demographics, fast progression of aesculapian applied science as well as the change magnitude demand for better health care has facilitated growth in the health insurance sector. Life insurance companies are expected to target primarily the young creation so that they can amortize the endangerment over the policy term. Rising heighten on the boorish marketSince more than two-thirds of Indias race lives in rural stadiums, small insurance is seen as the most suitable aid to reach the poor and socially separate sections of society. Poor insurance literacy and awareness, high transaction be and inadequate understanding of client needs and expectations has restricted the demand for micro-insurance products. However, the market remains significantly underserved, creating a vast opportunity to reach a large number of customers with good value insurance, whether from the base of existing insurers or through retail distribution networks.In FY09, individuals obtaind new business premium worth INR365. 7 million under 2. 15 million policies, and the group insurance business amounted to INR2, 059. 5 million under 126 milli on lives. LIC contributed most of the business procured in this portfolio by garnering INR311. 9 million of individual premium from 1. 54 million lives and INR1,726. 9 million of group premium under 11. 1 million lives. LIC was the first player to offer specialized products with lower premium costs for the rural population. Other private players have also started centering onthe rural market to strengthen their reach.Government tax fillip Currently, insurance products enjoy EEE benefits, giving insurance products an advantage over mutual funds. Investors are motivated to purchase insurance products to avail the nearly 30% effective tax benefit on select investments (including life insurance premiums) made all financial year. Life insurance is already the most popular financial product among Indians because of the tax benefits and income protection it offers in a country where there is very little social security. This drives more and more people to come within the insurance ambit . Emerging trendsExploring eightfold distribution channels for insurance products To increase market perceptivity, insurance companies need to embellish their distribution network. In the fresh past, the industry has witnessed the emergence of alternate distribution channels, which include banc assurance, direct selling agents, brokers, online distribution, corporate agents such as non-banking financial companies (NBFCs) and tie-ups of parabanking companies with local corporate agencies (e. g. NGOs) in remote areas. Agencies have been the most important and effective channel of distribution hitherto.The industry is viewing the movement of intermediaries from mere agents to advisors. Product innovation With customers asking for higher levels of customization, product innovation is one of the best strategies for companies to increase their market share. This also creates great efficiency as companies can go on lower unit costs, offer meliorate services and distributors can incr ease flexibility to pay higher commissions and generate higher gross sales. The pension sector, due to its inadequate sharpness (only 10% of the working population is covered) offers tremendous potential for insurance companies to be more innovative.Consolidation in future The past few years have witnessed the entry of many companies in the domestic insurance industry, attracted by the significant potential of insurance sector. However, increasing competition in easily get-at-able urban areas, the FDI limit of 26% and the recent downturn in justice markets have impacted the growth prospects of some teensy-weensy private insurance companies. Such players may have to rethink about their future growth plans. Hence, consolidation with large and set up players may prove to be a better solution for such small insurers.Larger companies would also prefer to take over or merge with other companies with naturalised networks and avoid spending money in marketing and promotion. Therefore , consolidation impart result in fewer but stronger players in the country as well as generate rose-cheeked competition. Mounting focus on EV over lucrativeness Many companies are achieving positiveness by controlling expenses releasing funds for future appropriations as well as through a strong renewal premium build up. As a few larger insurers continue to expand, most are focused on cost rationalisation and the alignment of business shapes to ground level realities.This will better equip insurers to acquire reported embedded value (EV) and generate value from future new business. In the short term, companies are believably to face challenges to achieve the desired levels of profitability. As companies are also planning to get listed and raise funds, the higher profitability will help companies to get a better military rating of shares. However, in the long term, companies would need to focus on increasing EV, as to the highest degree 70% of a companys EV is influenced by renewal business and profitability is not as much of an indicator for valuation.Hence, players are now focusing on increasing their EV than profitability figures. Rising capital requirements Since insurance is a capital-intensive industry, capital requirements are promising to increase in the coming period. The capital requirement in the life insurance business is a function of the three factors (1) sum at take a chance (2) policyholders assets (3) new business strain and expense overruns. With new guidelines in place, capital requirements across the sector are likely to go up due to Higher sum assured driving force higher sum at risk Greater allocation to policyholders assets due to lower chargesBack loading of charges is resulting in high new business strain, and expense overruns due to low productivity of the newly set distribution network (and inability to recover synonymous costs upfront) For non-life insurance companies, the growing demand for health insurance products as well as motor insurance products is likely to boost the capital requirement. With the capital market picking up and valuations on the rise, insurance companies are exploring various ways of increasing their capital base to invest in product innovation, introducing new distribution channels, educating customers, exploitation the brand, etc.This is due to the following reasons A major portion of the costs in insurance companies is fixed (though it should be variable or semi-variable in nature). Hence, the reduction in sales will not result in the lowering of operational expenses, thus adversely impacting margins. As such, reduced margins would impact profitability, and insurers would need to invest additional funds. The sustained bearishness in capital markets could further pressurize the investment margins and increase the capital strain, especially in the case of capital/return guarantee product.Besides, companies are likely to witness a slowdown in new business growth. Companies may also opt for product restructuring to lower their costs and optimally hire capital. According to IRDA Regulations 2000, all insurance companies are required to maintain a solvency ratio of 1. 5 at all times. But this solvency margin is not sustainable. With the growing market risks, the level of required capital will be linked to the risks inherent in the underlying business. India is likely to start implementing Solvency II norms in the next three to four years.The transition from Solvency I norms to Solvency II norms by 2012 is expected to increase the demand for actuaries and risk get laidment professionals. The regulator has also asked insurance companies to get their risk management systems and processes audited every three years by an foreign auditor. Many insurance companies have started line up themselves with the new norms and hiring professionals to meet the deadline. Contribution of the insurance sector to the economy Insurance has had a very positive impact on Indias economic development.The sector is footmarkwise increasing its ploughshare to the countrys GDP. In addition, insurance is driving the infrastructure sector by increasing investments each year. Further, insurance has boosted the employment scenario in India by providing direct as well as indirect employment opportunities. Due to the healthy performance of the Indian economy, the share of life insurance premiums in the gross domestic savings (GDS) of the households sector has increased. The increased contribution of the insurance industry from the household GDS has been plowed back into the economy, generating higher growth.The following factors causa how the contribution of the insurance industry has beef up economic growth Contribution of insurance to FDI The importance of FDI in the development of a capital deficient country such as India cannot be undermined. This is where the high-growth sectors of an economy play an important role by attracting substantial foreign in vestments. Currently, the total FDI in the insurance sector, which was INR50. 3 billion at the end of FY09, is estimated to increase to approximately INR51 billion in FY10.It is difficult to estimate, but an equal amount of additional foreign investment, can some flow into the sector if the government increases the FDI limit from 26% to 49%. The insurance sector, by virtue of attracting long-term funds, is best situated to channelize long-term funds toward the successful sectors of the economy. Therefore, the growth in their premium collections is expected to translate into higher investments in other key sectors of the economy. Therefore, the liberalization of FDI norms for insurance would not only benefit the sector, but several(prenominal) other sarcasticsectors of the economy.Section IIIndustry at cross-roadsof development Insurance industry significantly untapped latent potential Indias insurance industry has witnessed rapid growth during the last decade. Consequently, many foreign companies have expressed their interest in put in domestic insurance companies, despite the Government of Indias regulation, which mandates that the foreign share attribute limit is fixed at 26% for the life as well as non-life insurance sectors. The countrys strong economic growth in recent years has helped increase penetration levels substantially. Premium income, as a percentage of GDP, increased from 3. % in FY03 to 7. 6% in FY09. However, the penetration of insurance in India still continues to be low, as compared to other developed and ontogeny economies. The Indian life insurance sector has witnessed exponential function growth, set by innovation in product offerings and distribution owing to market entrants since the opening up of the sector in 2000. Currently, it is the fifth-largest life insurance market in Asia. The rapid expansion in the life sector coincided with a period of rising household savings and a growing middle class, backed with strong economic gr owth. Innovative product design (e. . set up of ULIPs) and aggressive distribution strategies (e. g. development of banc assurance) by private sector players have significantly contributed to strong premium growth. The following plat shows the increasing premium per capita during the same period. The global economy has slowly started recovering from the economic recession. Lagging employment, coupled with declining aggregate wages, a weakened residential and commercial real estate market, tight credit and a behavioral shift on the part of consumers from consumption to savings are factors bestow to a delayed recovery.Although the global insurance industry has not been impacted by the financial crisis as much as the banks, it still has its set of issues. The leading vanadium issues on the global insurance assimilate list are * Managing risk The most significant concern for insurance companies is risk in all its forms. Increasingly, insurance companies are adopting an enterprise-wi de view of managing risksemploying a framework to address them across the organization. * Promoting compliance The cost of regulatory compliance and the attendant reputational risk of non-compliance are on the rise. Growing globally The expansion into new markets is expected to help drive profits, as developed economies witness long-play growth in the demand for insurance. * neediness of innovation about products and delivery Theuse of technology and emphasis on innovation will helpprovide better service and delivery. Institutions can alsostrengthen their ties with customers and differentiatethemselves from competition. * Adapting to demographic shifts The demographicchanges in North the States, Europe, Japan and other areasis starting to shift assets from equities to annuities as wellas other fixed-income products.According to Swiss Re, among the key Asian markets, India is likely to have the fastest-growing life insurance market, with life premium poised to grow at a CAGR of 15% for the next decade, close to faster than the 14% expected for China. The growing consumer class, rising insurance awareness and greater infrastructure spending have made India and China the two most promising markets in Asia. Europe and the Americas represent relatively mature insurance markets. Though Indias penetration appears higher, it is not excessive, given the high level of investments in insurance policies underwritten.Nonetheless, alike India, Taiwan is the other Asian market that shares similar characteristics. Taiwan has the highest insurance penetration in Asia, largely driven by the immense popularity of ULIPs. The progress of the Indian insurance industry over the last decade has been the most crucial period in the establishment of this industry post the formation of IRDA in 2000. The initial four to vanadium years witnessed the entry of many private players, each trying to acquire market share.The latter part of this phase witnessed a heightened focus on the exp anding product range, developing innovative products and building a husky distribution channel. The last one to two years have been very critical as the industry is trying to sustain its growth in light of the new regulationsbeing formulated. The Indian insurance industry is at a threshold from where it can witness the next growth wave, if presented with a favorable policy framework and an enabling distribution environment. The industry is poised to witness the emergence of new leaders who would carve a nook for themselves by using nstruments such as alternative channels of distribution, cost management and product innovation, among others. At this cross section, the role of the regulator is very significant. IRDA is in the finalization stage of most of the regulations pertaining to the industry. The regulator has introduced certain regulations to help improve disclosures, profitability, capital, consumer protection, etc. Promoting health insurance * IRDA has allowed insurance com panies to offer Health plus Life Combi Product, a policy that would provide life cover along with health insurance to subscribers. downstairs the guidelines issued by the IRDA, life and non-life insurance firms can also partner in offering the healthplus- life cover. The combi products may be promoted by all life insurance and non-life insurance companies, however, a tie up is permitted between one life insurer and one nonlife insurer only. Thus, a life insurer is permitted to enter an alliance with only one non-life insurer and vice-versa. * The sale of combi products can be made through direct marketing channels, brokers and compound individual and corporate agents, common to both insurers.However, these products are not allowed to be marketed through bank referral arrangements. The regulator further specified that the guidelines do not apply to micro insurance products, which are governed by IRDA (Micro Insurance) Regulations, 2005. * Under the Combi Product, the underwriting of the respective portion of the risks will be underwritten by respective insurance companies, i. e. , life insurance risk will be underwritten by the life insurance company and the health insurance portion of risk will be underwritten by the non-life insurance company. ImplicationsLife insurance has a much deeper penetration in India, as compared to the non-life insurance segment. This step is in sync with the governments, regulators and the insurance companys strategy to cover more people under the insurance umbrella. As insurers supplement on the marketing and operational network of their partner insurers, the suggestd product innovation is expected to facilitate policy holders to select an integrated product of their choice under a single roof without shopping around the market for two different insurance coverage options from two different insurers.Therefore, insurers are expected to offer appropriate covers as an attractive proposition for the policyholders. India Foreign Dire ct Investment Trends India FDI Inflows a The decade gone by would be considered as the well-off year for foreign direct investment (FDI) in India. Between year 2000-11, India attracted ac additive FDI inflow of USD 237 Bn. 70% of this FDI micturated beauteousness inflows, rest being re-invested earnings and other zcapital. all over the last decade, FDI in India grew at CAGR 23% The bull run in India FDI started in FY 2006-07 when it grew at 146% over the previous year.FDI peaked in year FY 2007-08 and only marginally declined in the following years of economic crisis. For the eight months of FY 2011-12 (Apr- Nov 2011), India has already garnered USD 33 Bn. of FDI matching the full year FDI of the previous year. Share of prime five investment funds countries in India stood at 69%. Mauritius was the pop off country of origin for FDI flows into India primarily driven by the tax haven lieu enjoyed by Mauritius. operate sector ( pecuniary &038 Non-financial) attracted the larges t FDI equity flows amounting USD 31 Bn. (20. % share). Other high share sectors in top five were telecom (8%), Computer Software &038 Hardware (7%), admit &038 Real Estate (7%) and Construction (7%). all over the years, Automatic route has become the most used entry route for FDI investments in India indicating the gradual liberalisation of FDI policy. In FY 2010-11, 64% of Equity FDI inflows in India came via Automatic despatch almost trebling from 22% share in FY 2000-01. Acquisition of shares conventional 25% and FIPB/SIA constituted 11% of equity inflows in 2010-11.Indias FDI policy has progressively liberalised since nineties and only a few sectors, primarily in services sectornow has FDI cap on investment. Indias inward investment regime is now be considered most liberal and filmy amongst emerging economies. financial Sector FDI Over the last decade, BFSI ( monetary, Insurance &038 Banking services) was the most favourite(a) destination for FDI in India. FDI in the BFS I sector accounted for over 12% of the total cumulative FDI inflows into India and over 59% of the FDI in Services sector.Between 2000-11, Services sector (BFSI and Non-Financial) attracted FDI of USD 31 Bn. With a 59% share, BFSI FDI share amounted to USD 18 Bn. The subsectors with BFSI attracted the following FDI equity inflows Financial USD 13 Bn. , Banking USD 2. 9 Bn and InsuranceUSD 2. 3 Bn. Cumulative Inflows Mauritius had the largest share of FDI investment at 43% amongst top countries investing in Indian Financial services sector. Singapore (14%), UK (11%), USA (8. 5%) and Cyprus (3%) were the other countries in the top five lists.Top 10 BFSI FDI Equity inflows in India over the last decade amounted USD 4. 2 Bn. learn US investors in Indian BFSI sector included Merill Lynch, Morgan Stanley, Bank of novel York Mellon, JP Morgan, Citibank Overseas, Franklin Templeton, New York Life, Metlife, AIG, Pramerica and PE/VC firms like Warburg, Blackstone, Carlyle, KKR &038 Co. an d Apollo. Development of Indian capital markets (especially corporate bond markets) and further policy liberalisation in commercial banking will be the key for future investments in Indian BFSI segment.FDI Inflows from United States United States of America has been one of the top FDI investors in India. inform cumulative FDI Equity Inflows from USA into India between 2000 2011 were $9. 8 Bn,placing it at rank tertiary after Mauritius &038 Singapore. If we account for the US FDI equity inflows into India routed through tax havens, the FDI number will be considerably higher. Keeping up with overall trend, the Services sector (Financial &038 Non-Financial) accounted for the highest share of cumulative FDI equity inflows from USA with share of 22% amounting USD 2. Bn. USA FDI equity inflows in services sector represented 7% of the total FDI equity inflows in Indian services sector and in Financial services sector represented 8. 5% of the total FDI equity inflows from all countries am ounting USD 2. 6 Bn. Following were the top FDI inflows from USA in Indian financial services 1 Citibank Overseas Investment Corp. into E-serve International USD 112 Mn. 2 Bank of New York Mellon into Kotak Mahindra Bank USD 102 Mn. 3 JP Morgan International Finance into JP Morgan Securities India Ltd. USD 75 Mn.FDI in Insurance sector Indian insurance sector got liberalised in 2001. Since then the sector has grown at 20% annually and have seen entry of 41 private insurance companies (Life 23, General 18) with many of them choosing to enter with a foreign joint venture partner. Investment through the FDI can be a maximum of 26%. In 2011, India was ranked 9th in life insurance business and 19th in general insurance business globally. The insurance tightness stood at USD 64. 4 (USD 9. 9 in 2001) and insurance penetration was 5. 2% (2. 3% in 2001).India has 49 life and general insurance companies with total investment of USD 6 Bn. as of March 2011. There are 24 companies operating ea ch in the life insurance and general insurance with an investment of USD 4. 7 Bn. and USD 1. 3 Bn. respectively. bingle company operates in re-insurance sector. FDI in Indian insurance sector stood at USD 1. 36 Bn of which life insurance comprised USD1. 1 Bn and general insurance comprised USD 0. 2 Bn of FDI. American companies have been investing in the Indian insurance sector since it opened up in 2001.As of March 2011, there are four American insurance players operating in India as joint venture partners that is to say New York Life, Metlife, AIG and Pramerica Financial. In 2011, Berkshire Hathway announced its entry into India Life insurance segment and Libery Mutual Group also got necessary approvals from IRDA for entry into general insurance business with an Indian partner. Besides insurers, US based brokers like Marsh &038 McLennan and Aon corp have also entered Indian markets. The total investment by American insurance companies in India is USD 315 Mn contributing 26% equ ity capital of USD 1. Bn. Share capital of the entities they were joint venture partners of. American origin FDI constituted 23% of FDI. Indias insurance industry is expected to reach USD 350-400 Bn. in premium income by 2020 making it among the top 3 life insurance markets and amongst top 15 general insurance markets. Its estimated the Indian insurance sector would attract USD 15-20 Bn. of investments in next couple of years. Liberalization of foreign investment in insurance sector thereby permitting up to 49% FDI will speed this flow f investments putting Indian insurance sector on a fast track to the top of the global insurance market. FDI in Financial inclusion body Indian Financial Inclusion sector is predominantly characterized by rural retail banking, Non-Banking Financial Corporations &038 Micro Finance Institutions (MFIs). For over a decade now, the Indianmicrofinance industry has been a posterchild of Indian Financial Inclusion. As of2010, microfinance institutions had a clientbase of 26 million borrowers and the totalloan outstanding was in excess of $3 Bn.The number of clients is expected toincrease to 64 million in 2012. Investments in NBFCs &038 MFIs not traded on the stock diversify fall under the purview of Foreign Investment Promotion Board (FIPB). FIPB has set the following rules for FDI in start-up companies. From a slow start in 2006, equity investments in the Indian Microfinance sector skyrocketed in the 3 years from 2006 to 2009. The sector saw a total of 32 deals with a total invested capital of $230 mnbetween 2006 to 2009. Private equity investments constitute 70% of the total investments in Indian Micro Finance sector. 0% is constituted by Microfinance focused funds and private investors. US based private equity firms, Sequoia capital, Silicon Valley Bank &038 Sandstone capital have invested $150 mn in the Indian Microfinance sector. Another area within Financial Inclusion which has attracted private equity investors is technology s ervices for microfinance institutions. US based Private equity firms like Blackstone, Intel Capital has invested $50 mn in Financial Information Network &038 operations (FINO), a technology services company in the Financial Inclusion sector.The large size of the unbanked population means that there is great potential for continued high growth. Although the MFI sector is currently tweaking its business model to new regulatory reality, the high growth potential holds a significant promise for the investors in years to come FDI in Capital Markets Indian bourses both securities &038 commodities are amongst the favorite hunting spots for foreign investors betting on Indias growth story. These businesses appeal to investors as theyhave long term horizons and signify bets onthe countrys growth.In 2004, 13% of thetotal PE investments made in the banking &038financial services space were in stockexchanges. Since the beginning of 2007, 17 proceedings (including consortium deals)took place wi th a disclosed deal value ofmore than $1. 15 billion. Out of this, 8 dealswith disclosed value of more than $268million happened in 2010 only. In 2010, NSE had 12 foreign investors with a total foreign investment of 32% compared to BSE which had 8 foreign investors with share of 27% investments. In the same period, MCX had 22% foreign holding &038 NCDEX 15% foreign investments.Some of the key US investors active in Indian exchanges are NYSE group, Atlantic LLC, Goldman Sachs, Morgan Stanley, Citigroup, Northwest make Partners, George Soros, Argonaut ventures. Fidelity, Intel Capital, Merril Lynch, and Bessemer Capital are some of the US investors. Most of the transactions involving these exchanges have been secondary in nature. The change in regulations (restricting the single investor holding to 5%) also added to the spurt in secondary deals. The lucrative exchange space continues to attract more players who are looking to increase their market shares.India outward-bound FDI in US A vehement economic growth and progressive liberalization has bring on Indian companies toexpand their presence into new markets and USA is the largest receiver of Indian outboundinvestments. During 2004-09, India invested USD 5. 5 Bn. in US across 127 Greenfield projects. 80% ofthis investment went into five sectors Metals, Software &038 IT services, vacuous &038Entertainment, industrial machinery, equipment &038 tools and financial services. The topthree states for Indian investments were Minnesota, Virginia and Texas. 10 Indiancompanies accounted for more than 70% of the US $5. Bn invested in Greenfield initiativesin US. In the same period, Indian companiesinvested USD 21 Bn. in mergers &038acquisitions in United States. 83% of M&038Ainvestments from India were in thefollowing sectors Manufacturing, IT &038 ITenabled services, Biotech, Chemicals &038Pharmaceuticals, Automotive and Telecom. As of FY2010, US accounted for 6. 5% ofIndias outward FDI flows making Indiathe secon d largest investor in USA. As far as Indian Financial services sector investments in US goes, only a few public and private sector banks have spread out in USA by providing niche services (e. g. remittances).Indian outbound deals in the US are predominantly majority adventure paid in cash and financed with debt. In future, the nature of collaboration is likely to evolve with Indian companies seeking more alliances and transactions involving minority stakes &038 joint ventures or else than focusing on majority stakes. US offer Indian companies many benefits for investment notably abundant naturalresources, large consumer markets and introduction to innovation. Reciprocally, Indiasinvestment in this worlds largest recipient of FDI brings new skills, strengthenmanufacturing and will create jobs in the US. Literature review Dunning and Narula, 1996) Export growth in India has been much faster than GDP growth over the past few decades. Several factors appear to have contributed to t his phenomenon including foreign direct investment (FDI). However, despite increasing inflowsof FDI especially in recent years there has not been any attempt to assess its contribution to Indias exportperformance one of the channels through which FDI influences growth. The Government of India recognizes thesignificant role vie by foreign direct investment in accelerating the economic growth of the country and thusstarted a swing of economic and financial reforms in 1991.India is now initiating the second extension reformsintended for a faster integration of the Indian economy with the world economy. As a consequence of theintroduction of various policies, India has been quickly ever-changing from a restrictive regime to a liberal one. Now FDIis also further in most of the economic activities under the automatic route. Studies about Western firms propose that market size and expected growth are the most essential determinants ofFDI into the area. governmental and economic stabili ty is also an important factor affecting FDI.Over the past 30 years,there have been various studies done on the impact of outbound and inbound activity of multinationals on thegrowth and fiscal restructuring of the economies that they operate in. These studiessuggest that this is dependent on three main variables the type of FDI taken on, the composition of the localresources and capabilities of the country, and the economic and organizational policies followed by governments. Firms employ FDI in order to best utilize or manage more efficiently the existing agonistic advantages. (Love and Lage-Hidalgo, 2000)Labor cost which is one of the main components of the cost function also influences FDI. Some studies find verylittle or negative relationship between wages and FDI, Some studies suggest that higher wages do not alwaysdiscourage FDI in some markets and therefore there is a positive relationship between wages and FDI. As higher labour costs leads to higher productivity which giv es better quality goods. Latelystudies are aimed towards the impact of specific policy variables on FDI in the host country. Trade, tariff, taxes andexchange rate are included in these policy variables. Asied (2002).Emphasize on policy reforms in developingcountries that act as a determinant of FDI. They state the corporate tax rates and the earnestness to foreign investmentare important determinants of FDI. Horizontal FDI is linked with market seeking behavior and is induced by lowtrade costs. Therefore high tariff barriers motivate firms to take on level FDI. Thus production abroad byforei