India's Foreign Direct Investment Inflows: A Policy Assessment

Foreign Direct Investment (FDI) is vital for economic development of a developing nation. This paper traces India’s approach towards FDI. Just after independence, India granted national treatment to foreign investors, however, soon government started becoming apprehensive about foreign investments especially in key sectors due to the outflow of remittances of profits, dividends etc. India enacted Foreign Exchange Regulation Act (FERA) in 1973 to regulate foreign exchange. Still, India was witnessing severe debt crisis in 1980s, which resulted in complete economic overhaul through Liberalisation Privatisation Globalisation policy of 1991. With this, FERA was replaced by comparatively less stringent Foreign Exchange Management Act, 1999 (FEMA). The latter established two FDI routes: automatic and approval. Foreign Investment Promotion Board (FIPB) was established to look into these routes. This paper discusses the impact of economic measures taken post- liberalization to promote foreign investments. It also highlights the shift brought in by FDI Policy 2015, abolition of FIPB and recent changes in FDI in different sectors. The paper concludes with recommendations to the Government to reduce tax rates, improve infrastructure, and eliminate corruption and red tapism, in order to further boost foreign investment.