Dimensions of Foreign Direct Investment in India

Abstract

India offers exciting business opportunities in almost every sector in the country. One of the most liberal policies for foreign investment and technology transfer is followed by India. Foreign investment gives the Indian industry a chance for technological up gradation, access to global managerial skills and practices, optimum utilization of human capital and natural resources, and to compete efficiently in the international market. FDI is vital for India’s integration with the universal production chains that are engaged by various multinationals across the world. The Government of India recognizes the significant role played by foreign direct investment in accelerating the economic growth of the country and thus started a swing of economic and financial reforms in 1991. India is now initiating the second generation reforms intended for a faster integration of the Indian economy with the world economy. As a consequence of the introduction of various policies, India has been quickly changing from a restrictive regime to a liberal one. Now FDI is also encouraged in most of the economic activities under the automatic route.

Firms employ FDI in order to best utilize or manage more efficiently the existing competitive advantages. The dimensions of the FDI flows into India could be explained in terms of its growth and size, sources and sectoral compositions. The growth of FDI inflows in India was not significant until 1991 due to the regulatory policy framework. However, under the new policy regime, it is expected to assume a much larger role in catalyzing Indian economic development.

Studies about Western firms reveal that market size and expected growth are the most essential determinants of FDI into the area. Present study is an endeavor in addressing some unexplored areas of FDI in Indian scenario and its economic significance.

Keywords: Economy, Investment, Foreign Direct Investment, Multinationals