Foreign Direct Investment in India 1947 to 2007: Policies, Trends and Outlook

The last two decades of the 20th century witnessed a dramatic world-wide increase in foreign direct investment (FDI), accompanied by a marked change in the attitude of most developing countries towards inward FDI. As against a highly suspicious attitude of these countries towards inward FDI in the past, most countries towards inward FDI in the past, most countries now regard FDI as beneficial for their development efforts and complete with each other to attract it. In India, prior to economic reforms initiated in 1991, FDI was discouraged by (a) imposing severe limits no equity holdings by foreigners and (b) restricting FDI to the production of only a few researched items. The initial policy stimulus to foreign direct investment in India came in July 1991 when the new industrial policy provided, inter alia, automatic approval for projects with foreign equity participation up to 51 per cent in high priority areas. In recent years, the Government has initiated the second generation reforms under which measures have been taken to further facilitate in India. The Policy for FDI allows freedom of location, choice of technology, repatriation of Capital and dividends. As a result of these measures, there has been a strong surge of international interest in the Indian economy. The rate at which foreign direct investment has grown during the post-liberasation period is a clear indication that India is fast emerging as an attractive destination for overseas investors. Though India has one of the most transparent and liberal FDI regimes among the developing countries with strong macro-economic fundamentals, it share in FDI inflows is dismally low. The country still suffers from weaknesses and constraints, in terms of policy and regulatory framework, which restricts the inflow of FDI. This book is devoted to a descriptive and analytical study of FDI trends and policies in India during the post-Independence period.