FDI Reforms in India: Steps in the Right Direction

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FDI Reforms in India: Steps in the Right Direction

One of the remarkable features of globalisation since the 1990s has been the flow of private capital in the form of foreign direct investment (FDI), which is an important source of development finance for developing countries, and which contributes to productivity gains by providing new investment, better technology, management expertise, and export markets. Given resource constraints and lack of investment in developing countries like India, market forces and the private sector are increasingly been relied on as the engines of economic growth. Foreign direct investment promotes economic growth by increasing investment and its efficiency. Therefore, all countries, more so developing countries and least developed countries (LDCs), seek FDI. Foreign investment, especially FDI, not only supplements domestic investment but acts as a source of foreign exchange and eases pressure on the balance of payments (BoP). Considering the economic benefits of FDI, India has adopted wide-ranging reforms since the early 1990s and more so in recent months to attract FDI to ease the pressure of rising current account deficit (CAD), depreciating rupee, stagnating investment, and the slowdown of the growth rate. Although India was selectively receptive to FDI before the 1990s, successive Indian governments realised that FDI is an important determinant of investment, economic growth, and employment, and therefore acted as a ‘facilitators’ since the 1990s.
 

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