FDI in India after Liberalisation:

Polices, Performance & Prospects

DR. CHANDRAHAS DESHPANDE

PROFESSOR-ECONOMICS
WELINGKAR INSTITUE OF
MANAGEMENT, MUMBAI.
 Role of FDI in Economic Development

• Benefits of FDI to Developing Countries CAD-

financing, Transfer of Latest Technology,
Facilitating new Avenues of Exports, Global
Managerial Practices, other compelling reasons
• Generally, FDI is considered as the most durable
form of overseas financing … preferred over FII,
Foreign Aid, OCBs / ECB … etc
Salient Features of Current Global FDI
Scenario
• MNCs Dominate – Developing Countries (DCs)-Multinationals
fast emerging across various countries and sectors
• Advanced Countries (ACs) and DCs … Almost equal recipients of
FDI 
• Total Global FDI inflow in 2020 estimated TO REGISTER HUGE
FALL from about 1.5 Trln $ to about $900 bln ! 
• This is well-below the pre-crisis peak of $2 trillion (WIR,
UNCTAD, 2018)

• Salient features – USA, UK, China major recipients, India in the

first 10 recipients of FDI 
-Dominance of Service Sector FDI
-Global Value Chains (GVCs) – A Critical Component linking
 FDI in India : Pre- Reforms
• Not much significance attached : Closed, controlled and
command economy being the guiding philosophy and
policy
• No overseas enterprise was allowed to hold more than
40 % of ownership
• Only perceived as a vehicle for the transfer of new
technology. The foreign equity component – next to
negligible
1991-92 Reforms and Sea-change in
FDI Policy Paradigm
• 51 % Foreign Equity ownership allowed for the First
Time
• Start of Automatic Approval for FDI and FTAs by RBI
• Steady Opening up of Various sectors to FDI begins
(with caps / ceilings initially)….
 Principal Highlights of Post-Reform
FDI Policy
• Several sectors opened up and caps/ceilings relaxed…
Manufacturing; Services, Infrastructure and Utilities -
across all Govts. (Today almost all sectors opened up for
FDI; many for 100% foreign equity)
• Three Tracks of NDA Govt. Policies
A. Make in India; B. Ease of Doing Business
C. FDI Liberlization of Key Sectors including Defence,
Pharma; Broadcasting, SBRT….E-COMMERCE…
State Govts. making own efforts to woo FDI
 Performance : FDI Inflows
• 1991-2000 : Very gradual / slow
• 2000- 2006 Steady Pick-up ($3to4 billion p.a.)
• 2007- 2014/15 Quantum Jump in Inflows (over $25
billion p.a.)
• Currently  (2017-20 ) Total FDI =$45 Billion –$50 Bln.
• Covid Pandemic likely to make significant dent on FDI
for 2020-2021
• (Outflow of FDI also steadily rising, though
magnitude small as of now)
 Highlights of FDI Performance
• Sectors : Services Dominate, followed by Construction,
Computer, Telecom and Automobiles
• Major Recipient States – M, D, TN, G, Ka
• Important Investors in India – Mauritius, Singapore,
USA, UK and Japan
• Infrastructure still attracting low FDI
 Global Comparison
• China annually receives more than $125-150 billion
FDI in recent years
• Among other DCs, Brazil receiving higher FDI than
India
 Prospects for Higher FDI
Critically dependent on -
• Imperative of Joining the GVCs for SMEs
• Investment Climate Reforms
a. Land
b. Labour
c. Environment
d. EoDB
Recovery in Global Economy and trade
 Issues and Concerns
* Growing protectionist trends overseas
Domestic apprehensions - whether FDI is against
a. Indian Industry and SMEs
b. National Security / Sovereignty
c. Environment
d. “Indian habits/customs/culture”
e. Fair Competition
 Concluding Remarks
• India one of the leading FDI destinations, globally
• FDI Performance/inflows vastly improved with
progressive Policy-liberalization
• Prospects depend on – Domestic reforms, Global
Economic environment
• Apprehensions still remain, despite 25 years of
liberalization….
• References – UNCTAD/WIRs, OECD, A T Kearney (for
global FDI data and analysis)
• dipp.nic.in - For FDI in India – Data on Inflows, their
Composition, Investing Countries , Recipient States etc.