BA.

LLB (Hons)/First Trimester-July 2016

Revised Abstract
ECONOMICS-I

FOREIGN DIRECT INVESTMENT IN INDIA

Submitted By:
Rahul Kumar
BA.LLB (Hons.) 1st year
School of Law, NMIMS (Deemed to be University)

Submitted To:
Mitali Gupta
Asst. Professor (Economics)
School of Law, NMIMS (Deemed to be University)

INTRODUCTION

Foreign Direct Investment or FDI as its known is a controlling ownership in a business

enterprise in one country by an entity based in another country. Broadly, foreign direct
investment includes "mergers and acquisitions, building new facilities, reinvesting profits
earned from overseas operations and intra company loans". In a narrow sense, foreign
direct investment refers to building new facility, a lasting management interest (10
percent or more of voting stock) in an enterprise operating in an economy other than that
of the investor. FDI is major source of economic development in India. Foreign
companies invest directly in fast growing private Indian businesses to take benefits of
cheaper wages and changing business environment of India. Economic
liberalization started in India in wake of the 1991 economic crisis and since then FDI has
steadily increased in India. It were Manmohan Singh and P.V Narasimha Rao who
brought FDI in India under Foreign Exchange Management Act (FEMA ), which
subsequently generated more than one crore jobs. According to the Financial Times, in
2015 India overtook China and the US as the top destination for the Foreign Direct
Investment. In first half of the 2015, India attracted investment of $31 billion compared
to $28 billion and $27 billion of China and the US respectively.
India has changed a lot since the inception of FDI since 1991.
FACED with rising inflation and a balance of payment crisis in mid-1991, India's new
(minority) government introduced a fairly comprehensive, orthodox, policy reform
package - with currency devaluation as its centerpiece. The reforms did away with the
License Raj, reduced tariffs and interest rates and ended many public monopolies,
allowing automatic approval of foreign direct investment in many sectors.
This topic is of utmost importance as it introduced a new phase in the economic history
of India. It was adopted at the time when India was in serious economic crisis. The
government was close to default, its central bank had refused new credit and FOREX
reserves had reduced to the point that India could barely finance three weeks worth of
imports. Thus this topic is and always will be a thought-provoking subject for economists
in India.
Foreign direct investment (FDI) in India has played an important role in the development
of the Indian economy. FDI in India has in a lot of ways enabled India to achieve a
certain degree of financial stability, growth and development. This money has allowed
India to focus on the areas that needed a boost and economic attention, and address the
various problems that continue to challenge the country.

STATEMENT OF PROBLEM

India has allowed FDI in many sectors like infrastructure,

Automotive, Pharmaceuticals, service, railways, chemicals, textile,
and airlines. Thus FDI has affected every aspect of lives of
common Indians. This makes the study and analysis of FDIs
impact on Indian economy more important. Questions like Has
India been benefited by FDI,
Should 100% FDI be allowed in retail sector? FDI has many
advantages like economic growth, improvement in supply chain,
benefits for the farmers and disadvantages like losses of jobs,
monopoly of giant companies, worker exploitation and so on. Thus
we need to analyze the impact of FDI critically and come to a
definite conclusion.