FDI – A GROWTH PERSPECTIVE FROM INDIA

Foreign direct investment (FDI) policies play a major role in the economic growth of developing countries around the world. Attracting FDI inflows with conductive policies has therefore become a key battleground in the emerging markets. The prospect of new growth opportunities and outsized profits encourages large capital inflows across a range of industry and opportunity types. In the light of the above the paper highlights the trend of FDI in India after the economic reforms, State-wise, Year-wise, sector-wise and country-wise share of FDI. The net result is that while much of the FDI cannot enhance India’s ability to earn foreign exchange through exports of goods and services and thus cover the current account gap on its own strength, large inflows of portfolio capital causes currency appreciation and erodes the competitiveness of domestic players. The falling share of manufacturing and even of IT and ITES (Information Technology Enabled Services) means that there is less likelihood of FDI directly to export earnings. India seems to have been caught in a trap wherein large inflows are regularly required in order to finance the current account deficit. To keep FDI flowing in, the investment regime has to be liberalised further and M&A’s (mergers & Acquisitions) are allowed freely. India should strengthen its information base that will allow a proper assessment of the impact that FDI can make on its development aspirations. Keywords- FDI, Growth rate, Composition of FDI, Direction of FDI