INTRODUCTION

A foreign direct investment (FDI) is an investment in the form of

a controlling ownership in a business in one country by an entity

based in another country. It is thus distinguished from a foreign

portfolio investment by a notion of direct control.

Foreign direct investment in India is a major monetary source

for economic development in India. Foreign companies invest

directly in fast growing private auspicious businesses to take

benefits of cheaper wages and changing business environment of

India. Economic liberalisation started in India in wake of the 1991

economic crisis and since then FDI has steadily increased in India,

which subsequently generated more than one crore (10 million)

jobs.

1
On 17 April 2020, India changed its foreign direct investment (FDI)

policy to protect Indian companies from "opportunistic

takeovers/acquisitions of Indian companies due to the

current COVID-19 pandemic", according to the Department for

Promotion of Industry and Internal Trade. While the new FDI

policy does not restrict markets, the policy ensures that all FDI will

now be under scrutiny of the Ministry of Commerce and Industry.

For the first four decades after achieving independence from

British colonial rule, the economic polices of the Indian

government were characterised by planning, control and

regulation. There were periodic attempts at market-oriented

reform, usually following balance of payments pressures, which

induced policy responses that combined exchange rate

depreciation and an easing of restrictions on foreign capital

2
inflows. However, the latter were relatively narrow in scope and

had little impact on actual inflows, which remained small.

Nevertheless, there were foreign shareholdings in many

companies, partly as a result of their pre-independence origins.

Moreover, in sectors upon which the government placed high

priority, domestic firms were allowed to enter into technology

licensing arrangements, which often involved an equity stake as

well. But, there was a general sense of discomfort with a foreign

presence in industry, particularly in “non-essential” sectors like

consumer goods. This culminated in a series of major policy

decisions in the late 1970s that forced companies to restrict their

foreign shareholdings to a maximum of 40 per cent. Many

companies did comply, but two prominent ones who did not, Coca

Cola and IBM, were asked to shut down their Indian operations.

3
During the early 1980s, following a serious balance of payments

crisis and a large loan from the International Monetary Fund, the

Indian government relaxed its foreign investment policy. This

engendered a number of joint ventures in the automotive industry,

involving both financial and technical relationships between

Indian and Japanese manufacturers. A few years later, Japanese

two-wheeler manufacturers entered the domestic market, again

through joint ventures with major Indian producers. Here again,

the ventures were followed by a series of arrangements between

component manufacturers in the two countries. Other key sectors,

like the computer industry, were also provided a more liberal trade

and investment environment.

The big opening up came in 1991, following yet another external

crisis. This time, the government went much further than before

4
in introducing a series of both domestic and external reforms that

fundamentally changed the business environment. One of the key

components of this new policy was a significant widening of the

range of activities in which foreign firms could enter as well as an

easing of the conditions under which they came in. This chapter

first outlines the reform progress and the evolving pattern of FDI

over the past decade. We go on to report the key results from our

FDI survey.

REFORMS IN THE INDIAN ECONOMY

Prior to 1991, the government exercised a high degree of control

over industrial activity by regulating and promoting much of the

economic activity. The development strategy discouraged inputs

from abroad in the form of investment or imports, while the limited

5
domestic resources were spread out by licensing of manufacturing

activity. The result was a domestic industry that was highly

protected – from abroad due to import controls and high duties,

and from domestic competition due to licensing and reservations.

Industrial policy was dominated by licensing constraints by virtue

of which strict entry barriers were maintained. Under the

Industries Development and Regulation Act (1951), it was

mandatory for all companies to get government approval to set up

a new production unit or to expand their activities. Approval was

also required if the manufacturer wanted to change the line of

production. Moreover, when permission was granted, it was very

specific to product, capacity and location. The decision to award

a license involved many stages and became a highly bureaucratic

6
process, with some elements of state capture by incumbent

domestic firms.

This and other policies led to a very high degree of

bureaucratisation of the economy. Also many sectors like textiles

were reserved for the small scale sector, thereby making it difficult

for domestic firms belonging to these sectors to enjoy economies

of scale, and making these sectors unattractive to MNCs. The

government also controlled the exit option for a company.

Manufacturers were not allowed to close operations or to reduce

their work force without government approval. The intention was

to try to avoid unemployment, but it also promoted inefficiency in

the industrial economy. Indian trade policy before the 1990s

focused on import substitution. Restrictions on imports were

imposed in different forms. In concurrence with the objective of

7
attaining self-reliance, import licensing was imposed to exercise

control over the importers. Further, imports were canalised, which

meant that certain commodities could be imported by only one

agency, which was generally a public sector company.

Import controls and high tariff rates led to high input costs, which

made Indian producers un-competitive in the world market.

Further, certain items were also subject to export controls with a

view to ensure easy availability, low domestic prices and for

environmental reasons. As a result, domestic industry operated in

an isolated environment with limited exposure to the international

products and markets. FDI policy put severe restrictions on foreign

investment. Few foreign companies were allowed to retain an

equity share of more than 40 per cent, and as a result many did

not use their best technologies in India. The economy was

8
deprived of foreign capital and foreign technology and

internationally efficient scales and quality of production could not

be achieved. Financial sector policy did not focus upon generating

enough capital from within and outside the country. The financial

sector was highly regulated by the state. The government had

owned all the major banks since nationalisation in 1969 and the

early 1980s. It administered low interest rates on borrowings and

loans to small industries and agriculture; price controls and credit

rationing. Indeed, the basis of planning in India was a Harrod

Domar growth paradigm which made the government focus on

mobilisation of savings for investment. The problem was that

there was financial repression because of price fixing and directed

credit. Raising equity from the market was also restricted. The

government decided both the amount of capital as well as price.

9
Apart from interest rates, initial public offerings and other equity

issues required prior government approval through its arm - the

Controller of Capital Issues (CCI). Banks could ignore market

forces when taking functional and operational decisions, and

private sector participation was discouraged. Profitability of

financial institutions remained low owing to government control

over interest rates and absence of competitive forces. In addition

to industrial and trade policies, public sector policy exclusively

reserved certain sectors for the public sector. The public sector

was also present in almost all parts of the economy - petroleum,

consumer goods, tourism infrastructure and services, etc.

Infrastructure industries such as power, telecom, air transport,

etc., were almost wholly public sector controlled. Reservation

contributed to lack of competition, which reduced the incentive to

10
be efficient. Over-manning, poor management, obsolete

technology and insufficient research and development activities

further contributed to the decay of public sector undertakings.

Most important of all, non-commercial objectives and government

muddling in day-to-day operations made these companies

extremely inefficient.

SCOPE OF THE STUDY:

From this study we can be able to understand clearly the FDI

inflow and outflows in the India. The study also gives the complete

detail of FDI impacts in the Indian economy and also we can

identify whether there is a relationships exist between the FDI and

the other following proposed variables in the below research. The

test were been conducted to determine the effects of the FDI in

11
the Indian economy. Thus these were the following scope of the

study in this research paper.

LIMITATION:

1. FDI inflow and the outflow beginning years cannot be able to

determine properly.

2. More information were not been displayed transparent in the

websites.

12
 RATIONALE OF THE STUDY

The following are the key Rationale advantages of Foreign Direct

Investment in India: -

1 Market size:

India with the second largest population in the world is one of the

biggest markets in the world as its consumer base is very huge

and diversified. The massive middle-class population of the

country makes it a great consumer base for foreign companies and

their products. Market size is the most important benefit of FDI in

India.

13
2 Rationalisation of Policies:

The Government of India has rationalised the economic policies in

such ways as to make it a very attractive destination for foreign

companies to invest.

3 Good demographics and quality companies

India is a very talented and entrepreneurial society with a young

and highly educated population. Out of the diverse market of more

than 6000 companies listed on the stock market, there are a lot of

quality businesses with excellent accounting practices in which

one can invest.

4 Manufacturing and outsourcing hubs

India is a relatively cheaper place to conduct business as

compared to other countries due to various reasons which include

14
huge labour availability and access to markets around Asia.

Therefore, it plays a major role in attracting foreign institutions to

set up their facilities in India.

5 Strong Economic Growth

India has realized strong historical growth rates over the past few

years, particularly in the sector of Information Technology and

business process outsourcing. These extend to be among the

substantial sectors of the global economy as a whole.

15
 LITERATURE REVIEW

The foregoing review of empirical literature confirms/highlights

the following facts Institutional infrastructure and development

are the main determinants of FDI inflows in the European

transition economies. It is found that bigger diversity of types of

FDI lead to more diverse type’s o spillovers and skill transfers

which proves more favourable for the host economy. It is also

found that apart from market size, exports, infrastructure facilities,

institutions, source and destination countries, the concept of

neighbourhoods and extended neighbourhoods is also gaining

importance especially in Europe, China and India. The main

determinants of FDI in developing countries are inflation,

infrastructural facilities, debts, burden, exchange rate, FDI

spillovers, stable political environment.

16
Literature has shown positive contributions of foreign direct

investment (FDI) on the host countries’ economic development.

FDI helps to transfer technological know-how and high-quality

management to host countries. As a result, benefits from inward

FDI include job creation, increased productivity, and higher gross

domestic product (GDP). Many researchers have explored the

impacts of FDI in different economic sectors such as retailing,

manufacturing, banking, and general service. As a result, this

study will summarize all of past researches on this topic with the

focus on educational sector. This paper will have strong policy

implications that can provide the government policy makers

knowledge to capture the benefits of FDI in the various sectors of

the economy.

17
Supriya Chopra and Satvinder Kaur Sachdeva (2014) “A Study on

analysis of fdi inflows and outflows in India”, in their paper, studied

the Foreign Direct Investment inflows and outflows in India and

the main objective of the study is to find out the FDI inflows and

outflows trends and patterns. The study has descriptive research

and hypothesis test approach as their research methodology. The

Secondary data is been used for the analysis in this study and

through containing sample data like FDI year wise fact sheet and

performance analysis. The various variables were been used in the

study like SENSEX, Forex, Inflation and GDP. FDI and trade are

often seen as important catalysts for economic growth in the

developing countries. FDI is an important vehicle for technology

transfer from developed countries to developing countries. Since

1991 the government has focused on liberalization of policies to

18
welcome foreign direct investments. India’s economic reforms

way back in 1991 has generated strong interest in foreign

investors and turning India into one of the favourite destinations

for global FDI flows. The FDI inflows grow at about 20 times since

the opening up of the economy to foreign investment. Further, the

explosive growth of FDI gives opportunities to Indian industry for

technological up gradation, gaining access to global managerial

skills and practices, optimizing utilization of human and natural

resources and competing internationally with higher efficiency.

R.B. Teli (2013) “a critical analysis of foreign direct investment

inflows in India” in their paper in Shivraj College, Gadhinglaj, Dist.

Kolhapur. Studied the FDI inflows in the India and the main

objective of the study is to find out the FDI inflows and outflows

trends. The secondary data were been used in the study. The

19
research methodology used in the study is analytical research. FDI

in India will bring various benefits like advancement of knowledge,

skill, technology, exports, employment and management. But

MNCs may create forex drain from India. Indian companies will

face stiff competition from foreign companies. Thus, while

allowing different sectors like multi-brand retailing, GOI should

have to take a cautious step. FDI in retail would expose the retail

traders in domestic markets to unfair competition and thereby

eventually leading to job losses. A balanced and objective view

needs to be taken in this regard, foreign investment in portfolio

may be withdrawn at any time. Therefore, GOI should stress to

attract more equity investments. Further the regulatory policies

should be made favourable and policymakers should avoid

20
uncertainties for boosting FDI in India and ultimately to increase

GDP, Trade and Foreign reserves.

Badar Alam Iqbal, Mohd Nayyer Rahman, Nadia Yusuf (2018), in

their paper “Determinants of fdi in India and sri lanka” studied that

Foreign Direct Investment has remained an exhaustive endeavour

for the researchers and the main objectives for the study is to find

out the trend pattern of FDI between India and sri lanka and the

research used in the study is descriptive research and the

hypothesis and regression analysis were been the research

methodology. The present piece of research is an attempt to gauge

the determinants of FDI for India and Sri Lanka hypotheses testing

Ordinary Least Squares Regression is used. Through this research

they found that the comparing between the India and Sri Lanka

the FDI trend pattern is upward in India.

21
Febina K., Thomas Paul Kattookaran, (2018), in their paper, “A

study on interstate distribution and sectoral composition of FDI

inflows in India”, studied that an overview on the sectoral

distribution of foreign investment discloses the wide disparity in

the distribution of foreign capital among various sectors. The

identified objectives are finding out the pattern of FDI inflow in

India and also its impact with the economy. The descriptive

research is been used in the study. The data used is secondary

data. While some sectors like service, construction, etc. receive

elevated flow of foreign capital, others are fully ignored by the

foreign investors. The rationale behind this should be explored out

immediately so that we can avoid a future distress in our economy.

Foreign direct investment (FDI) refers to obtaining the ownership

in a foreign business entity. It can also be attributed that FDI

22
circulates capital across national boundaries. It can be defined as

an investor based in one country (home country), acquires an

asset in another country (host country), with the intention to

manage it. It is this dimension of management that distinguishes

FDI from portfolio investment in foreign stocks and other financial

instruments. For a terribly populated country like India, a good

quantum of resource is needed to fund its various developmental

needs, which the country does not have. To strengthen its

infrastructure, expertise and knowledge base.

Dimple Goyal and Ritu Jain (2014), in their paper, “A study on

impact of FDI on Indian economy”, studied that, the main objective

of this study is to analyse the trend of FDI equity inflows in

different sectors and regional offices. It is concluded from the

results that there are high variation in the inflows of FDI equity.

23
The results also revealed that maximum contribution (28 percent)

of FDI inflows in service sector and the Maharashtra, Dadra &

Nagarhavali, Daman & Diu got the highest inflows which are 32%

of total FDI. This study will help the government to make vigilant

planning to manage and boost the foreign direct investment. FDI

play an important role in economic development of a nation. A

country’s technology level and sectoral development is depending

upon the level of FDI inflows. The purpose of this study is to

analyse the trend of FDI equity inflows in different sectors and

regional offices. This paper also helps to know the share of top

investing countries in FDI equity inflows in India. In order to obtain

the objectives of this study, we used secondary data for the

periods of 2000-2013. The secondary data has been collected from

various journals, books, Newspapers and websites.

24
 OBJECTIVE OF THE PROJECT

FDI plays a vital role in stimulating economic growth in host

countries. It brings in capital, technology, managerial expertise,

and access to international markets, which can boost productivity,

create employment opportunities, and enhance overall economic

development.

FDI inflows can strengthen a country’s financial stability by

providing a stable and long-term source of capital. It can also

contribute to improving the balance of payments position, as FDI

brings in foreign currency and reduces reliance on external

borrowing.

FDI can promote the growth of specific sectors or industries in

host countries. Strategic investments in key sectors like

25
manufacturing, services, technology, and research and

development can foster industrialization, diversification, and

specialization, leading to a more balanced and sustainable

economy.

Attracting FDI often requires countries to implement policies and

reforms that create a conducive business environment. This can

lead to improvements in governance, legal frameworks, regulatory

systems, and institutional capacity, which benefit the overall

business climate and economic governance.

26
 RESEARCH METHODOLGY

The aim of the present research is to study the Foreign Direct

Investment in Indian healthcare sector. The objectives of the study

are to provide the current status of FDI in health care and to

identify some of the challenges and opportunities for Foreign

Direct Investments in healthcare sector. This study is based

entirely on secondary data collected from various Government

publications like reports of Department of Industrial Policy and

Promotion, Indian Brand Equity Foundation (IBEF) and National

Health Profile. After depicting the current condition of healthcare

industry in India, the researcher examine the level and pattern of

flow of FDI in healthcare sector in respect to Drugs and

Pharmaceuticals, Hospitals and Diagnostic Centres, and Medical

and Surgical Appliances as given in the DIPP report. The study is

27
descriptive in nature and based on the secondary data that is

gathered from the books, various articles from journals, reports of

Department of Industrial Policy & Promotion and other valid online

sources.

ANALYSIS AND INTERPRETATION

INTRODUCTION:

This chapter deals with the analysis of FDI Inflow and Outflow and

its impact in India, Exploring the study of the constructs which has

been taken for the study using statistical tools. The analysis is

done with information collected from Secondary data. The

significance of the analysis is to access the factors that affect FDI

inflow and Outflows.

The study constructs are

28
• FDI Inflow

• FDI Outflow

• Impacts in India Based on the analysis of the result, the factors

which are highly influencing the study on the FDI were found out.

The analysis chart indicates the less influencing and highly

influencing dimensions which were taken for the study.

29
 IMPLICATION OF THE STUDY

The changes in FDI policies and regulations have yielded

significant impacts across various sectors of the Indian economy.

Let’s explore these impacts:

• Surge in FDI Inflows: The liberalization of FDI policies and

regulations has attracted higher levels of foreign investment

into India. In the fiscal year 2020-21, FDI inflows rose by 13%

to reach $57 billion. This surge in FDI has stimulated

economic growth and contributed to the country’s

development.

• Job Creation: Increased FDI inflows have led to the creation

of new job opportunities in India. Sectors such as

manufacturing, construction, and services have witnessed a

30
 boost in employment, providing livelihoods to a significant

portion of the population.

• Technological Advancements: Foreign investors bring with

them advanced technologies, expertise, and best practices,

leading to technological advancements and knowledge

transfer in India. This infusion of technology has improved

the quality of products and services, fostered innovation, and

enhanced the competitiveness of domestic industries.

• Economic Growth: FDI has played a vital role in boosting

India’s economy. It has contributed to the expansion of

businesses, increased exports, improved the country’s

balance of payments, and generated additional tax revenues

for the government. These factors have further stimulated

economic growth and development.

31
 CONCLUSION

The preeminent significance of the FDI regime and the constant

Governmental reforms brought in at regular intervals in support

thereof are essential for a developing nation like India as the

domestic sources and investment is not enough and therefore the

need of foreign investment helps in filling the gaps between

domestic savings and investment requirements of the country.

Hence, to boost the flow of FDI in India, the Government is further

liberalising by easing the restrictions, with minimal supervision

and thereby maximizing the utilization of the automatic route.

The changes in FDI policies and regulations in India have been

instrumental in attracting foreign investment and driving

economic growth. The introduction of the automatic route,

increased FDI limits, eased FDI norms, and consolidation of the

32
FDI policy have collectively created a more conducive environment

for foreign investors. The impacts of these changes are visible in

the surge of FDI inflows, job creation, technological

advancements, and overall economic development. As India

continues to refine its FDI policies, it will likely further strengthen

its position as an attractive investment destination on the global

stage.

33