Implication of Economic Reform for Foreign Direct Investment in India

Abstract

The attitude of developing countries towards Foreign Direct Investment (FDI) has become favourable over the past decade. The arguments of dependency school disfavouring FDI (see Jenkins 1989 for a summary of the arguments) and of inward looking development strategy popular in the sixties and seventies no longer appeal to these countries. Due to the packaged nature of FDI, which involves not only equity capital in foreign currency but also proprietary technology, managerial and marketing expertise, organizational skill and access to international distribution network of multinational corporations, (MNCs), FDI is being recognized as an important factor that can accelerate the economic growth of the developing countries and improve their international competitiveness. Increasing number of developing countries is, therefore, improving their policy regimes to channel larger flows of FDI in their economies (refer to an issue of Asian Development Review, Vol.11 No.1, 993 on FDI in Asian and Pacific region). Belatedly, India too has joined the club of these developing countries. The main objective this paper are to briefly review the recent developments in economic policy of the Government of India, particularly with respect to FDI and then examine their impact on the trend, extent, patterns and prospects of FDI into the country.