Foreign Direct Investment (FDI) majorly consists of long-term investments by an organization that is not a part of the recipient country. Because it promises to bring financial resources and technology, FDI is a pathway to advancement and development. The opposing viewpoint is that FDI is a tool used by wealthy countries to exert control over resources in underdeveloped economies.
Foreign direct equity inflows are essential drivers of economic growth, and they are picked over other forms of external finance. Moreover, since FDI inflows do not create debt, they are non-volatile, and their returns are contingent on the success of the projects backed by foreign investors.
From the 1970s to the 1980s, everything in India required a license, including soap, radio, and any machine. The permit would also specify what can be produced, how much can be manufactured, how much can be imported, and how much foreign currency can be spent.
Foreign investors were either prohibited from investing in Indian firms or did not have faith in them. As a result, the current account deficit widened, and beginning in 1988, coalition governments raised fertilizer, gasoline, and food subsidies. As a result, India started in 1991 with a significant 12 percent fiscal deficit and a rapidly growing current account deficit.
India has to sell gold to receive a loan from the International Monetary Fund. But, then, political chaos — Rajiv Gandhi was assassinated before the election; Rao was appointed PM; Manmohan Singh was appointed FM; there were only enough reserves for three weeks’ worth of imports ($1.2 billion or Rs 2,500 crore).
The government implements changes in the industrial sector to boost industry competency, efficiency, and growth through a stable, pragmatic, and non-discriminatory FDI policy. In addition, in response to the critical state of the Indian economy, the Indian government, with the assistance of the World Bank and the IMF, implemented a macroeconomic stabilization and structural adjustment program.
As a result of these reforms, India has opened its doors to FDI inflows and has adopted a more liberal foreign policy to regain foreign investor confidence. Furthermore, the Government of India established the FIPB (Foreign Investment Promotion Board) under the new foreign investment policy, whose primary duty was to attract and facilitate foreign investment through a single-window system from the Prime Minister.
In November 2020, India’s Foreign Direct Investment (FDI) increased significantly. According to data supplied by the Commerce Ministry, overall FDI in November 2020 increased by 81% to USD 10.15 billion, up from USD 5.6 billion in November 2019. FDI equity has also increased by 70% to USD 8.5 billion in November 2019 from USD 2.8 billion in November 2019.