Page 1 of 6
Journal for Studies in Management and Planning
Available at http://edupediapublications.org/journals/index.php/JSMaP/
ISSN: 2395-0463
Volume 03 Issue 12
November 2017
Available online: http://edupediapublications.org/journals/index.php/JSMaP/ P a g e | 635
Foreign Direct Investment in India: A
Boom
Thadoor phani Priyanka
MBA*
Abstract:
Foreign Direct investment plays a very
important role in the development of the
nation. Sometimes domestically available
capital is inadequate for the purpose of
overall development of the country. Foreign
capital is seen as a way of filling in gaps
between domestic savings and investment.
India can attract much larger foreign
investments than it has done in the past. The
present study has focused on the trends of
FDI Flow in India during 2000-01 to 2014-
15. The study also highlights country wise
approvals of FDI inflows to India and the
FDI inflows in different sector for the period
April 2000 to June 2015. The study based on
Secondary data which have been collected
through reports of the Ministry of
Commerce and Industry, Department of
Industrial Promotion and Policy,
Government of India, Reserve Bank of India,
and World Investment Report. The study
concludes that Mauritius emerged as the
most domi nant source of FDI contributing.
It is because the India has Double Taxation
Avoidance Agreement (DTAA) with
Mauritius and most of the foreign countries
like to invest in service sector.
Index Terms: Foreign direct investment;
economic growth, FDI Inflow and Outflow.
I.Introduction:
Foreign Direct Investment (FDI) is a type of
investment in to an enterprises in a country
by another enterprises located in another
country by buying a company in the target
country or by expanding operations of an
existing business in that country. In the era
of globalization FDI takes vital part in the
development of both developing and
developed countries. FDI has been
associated with improved economic growth
and development in the host countries which
has led to the emergence of global
competition to attract FDI. FDI offers
number of benefits like overture of new
technology, innovative products, and
extension of new markets, opportunities of
employment and introduction of new skills
etc., which reflect in the growth of income
of any nation. Foreign direct investment is
one of the measures of growing economic
globalization. Investment has always been
an issue for the developing economies such
as India. The world has been globalizing and
all the countries are liberalizing their
Page 2 of 6
Journal for Studies in Management and Planning
Available at http://edupediapublications.org/journals/index.php/JSMaP/
ISSN: 2395-0463
Volume 03 Issue 12
November 2017
Available online: http://edupediapublications.org/journals/index.php/JSMaP/ P a g e | 636
policies for welcoming investment from
countries which are abundant in capital
resources. The countries which are
developed are focusing on new markets
where there is availability of abundant
labors, scope for products, and high profits
are achieved. Therefore Foreign Direct
Investment (FDI) has become a battle
ground in the emerging markets.
Foreign investment plays a significant role
in development of any economy as like
India. 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
access to the superior technology that
promote efficiency and productivity of the
existing production capacity and generate
new production opportunity. India’s
recorded GDP growth throughout the last
decade has lifted millions out of poverty &
made the country a favoured destination for
foreign direct investment. A recent
UNCTAD survey projected India as the
second most important FDI destination after
China for transnational corporations during
2010-2015. Services, telecommunication,
construction activities, computer software &
hardware and automobile are major sectors
which attracted higher inflows of FDI in
India. Countries like Mauritius, Singapore,
US & UK were among the leading sources
of FDI in India.
II.FDI inflow routes:
An Indian company may receive Foreign
Direct Investment under the two routes as
given under:
1. Automatic Route: FDI in sectors
/activities to the extent permitted under the
automatic route does not require any prior
approval either of the Government or the
Reserve Bank of India.
2. Government Route: FDI in activities not
covered under the automatic route requires
prior approval of the Government which are
considered by the Foreign Investment
Promotion Board (FIPB), Department of
Economic Affairs, and Ministry of Finance.
III.FDI is not permitted in the following
industrial sectors:
1. Arms and ammunition.
2. Atomic Energy,
3. Railway Transport.
4. Coal and lignite.
5. Mining of iron, manganese, chrome,
gypsum, sulphur,
6. gold, diamonds, copper, zinc.
Lottery Business
7. Gambling and Betting
8. Business of Chit Fund
9. Agricultural (excluding Floriculture,
Horticulture,
10. Development of seeds, Animal
Husbandry, Pisciculture and
cultivation of vegetables,
Page 3 of 6
Journal for Studies in Management and Planning
Available at http://edupediapublications.org/journals/index.php/JSMaP/
ISSN: 2395-0463
Volume 03 Issue 12
November 2017
Available online: http://edupediapublications.org/journals/index.php/JSMaP/ P a g e | 637
mushrooms, etc. under controlled
conditions and services related to
agro and allied sectors) and
Plantations activities (other than Tea
Plantations) .
11. Housing and Real Estate business.
12. Trading in Transferable
Development Rights (TDRs).
13. Manufacture of cigars, cheroots,
cigarillos and
14. cigarettes, of tobacco or of tobacco
substitutes.
IV.FDI policy framework in india:
Policy regime is one of the key factors
driving investment flows to a country. Apart
from underlying overall fundamentals,
ability of a nation to attract foreign
investment essentially depends upon its
policy regime - whether it promotes or
restrains the foreign investment flows. This
section undertakes a review of India’s FDI
policy framework. There has been a sea
change in India’s approach to foreign
investment from the early 1990s when it
began structural economic reforms about
almost all the sectors of the economy.
(a)Pre-Liberalisation Period:
Historically, India had followed an
extremely careful and selective approach
while formulating FDI policy in view of the
governance of „import-substitution strategy‟
of industrialisation. The regulatory
framework was consolidated through the
enactment of Foreign Exchange Regulation
Act (FERA), 1973 wherein foreign equity
holding in a joint venture was allowed only
up to 40 per cent. Subsequently, various
exemptions were extended to foreign
companies engaged in export oriented
businesses and high technology and high
priority areas including allowing equity
holdings of over 40 per cent. Moreover,
drawing from successes of other country
experiences in Asia, Government not only
established special economic zones (SEZs)
but also designed liberal policy and provided
incentives for promoting FDI in these zones
with a view to promote exports. The
announcements of Industrial Policy (1980
and 1982) and Technology Policy (1983)
provided for a liberal attitude towards
foreign investments in terms of changes in
policy directions. The policy was
characterised by de-licensing of some of the
industrial rules and promotion of Indian
manufacturing exports as well as
emphasising on modernisation of industries
through liberalised imports of capital goods
and technology. This was supported by trade
liberalisation measures in the form of tariff
reduction and shifting of large number of
items from import licensing to Open General
Licensing (OGL).
b) Post-Liberalisation Period:
A major shift occurred when India embarked
upon economic liberalisation and reforms
program in 1991 aiming to raise its growth
potential and integrating with the world
economy. Industrial policy reforms slowly
but surely removed restrictions on
investment projects and business expansion
on the one hand and allowed increased
access to foreign technology and funding on
