Impact of Foreign Direct Investment on Indian Economy

AbstractInvestment provides the base and pre-requisite for economic growth and development. Apart from a nation's foreign exchange reserves, exports, government's revenue, financial position, available supply of domestic savings, magnitude and quality of foreign investment are necessary for the well being of a country. Developing nations, in particular, consider FDI as the safest type of international capital flows out of all the available sources of external finance available to them FDI provides a win - win situation to the host and the home countries. Both countries are directly interested in inviting FDI because they benefit a lot from such type of investment. There is a considerable change in the attitude of both the developing and developed countries towards FDI. They both consider FDI as the most suitable form of external finance.FDI is a predominant and vital factor in influencing the contemporary process of global economic development. This study is entirely based on secondary data. The present study is limited to assess the determinants of Foreign Direct Investment flows and its impact on Indian economy. It is concluded that the Government should design the FDI policy in such a way where FDI inflows can be utilized as means of enhancing domestic production, savings and exports through the equitable distribution among states so that they can attract FDI inflows at their own level. FDI can help to raise the output, production and export at the sectoral level of the Indian economy. It is advisable to open up the export oriented sectors and higher growth of economy could be achieved through the growth of these sectors.Keywords: FDI, Investment, Government, Indian economy.IntroductionOne of the most striking developments of Nations' progress and prosperity is reflected by the pace of its sustained economic growth and development. Investment provides the base and pre-requisite for economic growth and development. Apart from nation's foreign exchange reserves, exports, government's revenue, financial position, available supply of domestic savings, magnitude and quality of foreign investment are necessary for the well being of a country.Developing nations, in particular, consider FDI as the safest type of international capital flows out of all the available sources of external finance available to them. In fact, FDI provides a win - win situation to the host and the home countries. Both countries are directly interested in inviting FDI because they benefit a lot from such type of investment. The 'home' countries want to take the advantage of the vast markets opened by industrial growth.On the other hand, the 'host' countries want to acquire technological and managerial skills and supplement domestic savings and foreign exchange. Moreover, the paucity of all types of resources viz. financial, capital, entrepreneurship, technological know- how, skills and practices, access to markets- abroad- in their economic development, developing nations accepted FDI as a sole visible panacea for all their scarcities. Further, the integration of global financial markets paves ways to this explosive growth of FDI around the globe.Developing countries look at FDI as a source of filling the savings, foreign exchange reserves, revenues, trade deficit, management and technological gaps. FDI is considered as an international economic integration as it brings a package of assets including capital, technology, managerial skills and capacity and access to foreign markets. The FDI may also affect the government trade barriers and policies for the foreign investments and leads to effective contribution in economy as well as in GDP of the economy.Developed economies consider FDI as an engine of market access in developing and less developed countries vis-a-vis for their own technological progress and in maintaining their own economic growth and development. There is a considerable change in the attitude of both the developing and developed countries towards FDI. …