Foreign Direct Investment: Impact on Indian Economy

With the initiation of globalization, developing countries, particularly those in Asia, have been witnessing a immense surge of FDI inflows during the past two decades. Even though India has been a latecomer to the FDI scene compared to other East Asian countries, its considerable market potential and a liberalized policy regime has sustained its attraction as a favourable destination for foreign investors. This research paper aims to examine the impact of FDI on the Indian economy, particularly after two decades of economic reforms, and analyzes the challenges to position itself favourably in the global competition for FDI. The paper provides the major policy implications from this analysis, besides drawing attention on the complexities in interpreting FDI data in India. Objectives: The research paper covers the following objectives: • To study the trends and pattern of flow of FDI. • To assess the determinants of FDI inflows. • To evaluate the impact of FDI on the Indian economy. • To know the flow of investment in India Introduction When a firm controls (or have a strong say in) another firm located abroad, e.g. by owing more than 10% of its equity, the former is said "parent enterprise" (or "investor") and the latter "foreign affiliate". For a country, attracting an inflow of FDI strengthen the connection to world trade networks and finance its development path. However, unilateral substantial FDI to a country can make it dependent on the external pressure that foreign owners might exert on it. Foreign investment plays a significant role in development of Indian economy. Many countries provide many incentives for attracting the foreign direct investment (FDI). Need of FDI depends on saving and investment rate in any country. Foreign Direct investment acts as a bridge to fulfill the gap between investment and saving. In the process of economic development foreign capital helps to cover the domestic saving constraint and provide