Effects of FDI on Indian Economy: A Critical Appraisal

Abstract

Foreign investment are always welcomed by developing countries for meeting the requirements of large scale programmes of  industrialization, filling up of technological gap to make high level investments, to overcome foreign gab to  exploit the natural resources and to compete with the rest of the world. The competition has evolved as a great challenge for all the third world countries. The foreign capital is always favored in order to meet the above-mentioned requirements¹.

FDI plays a very vital role in economy of country. The pace of its sustained economic growth and development reflects Nations’ progress and prosperity. Investment provides the base and pre-requisite for growth and development. A part from a Nation’s foreign exchange reserves, exports, government’s revenue, and financial position, available supply of domestic savings, magnitude and quality of foreign investment is 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. It is during 1990s that FDI inflows rose faster than almost all other indicators of economic activity worldwide. Thus, a nation can improve its economic fortunes by adopting liberal vis-à-vis by creating conditions conducive to investment as these things positively influence and determinants of the investment process². This research paper highlights the role of FDI in economic growth of the country.

In India, the rate of saving is very low compared to other developed countries. Because of this, our economic development does not achieved as per China's growth. Most of our finances have diverted to non-development expenditure, which led less capital in our country. To answer this problem, Foreign Direct Investment (FDI) inflow into India is the best solution.