Factors Responsible for FDI Inflow to India

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A large number of factors are held responsible for FDI Inflow to India. Foreign Direct Investment inflow made its entry in India for the first time during the year 1991-92 with the aim to bring together the intended investment and the actual savings of the country.

An Overview of Factors Responsible for FDI Inflow to India-

To pursue a growth of around 7 percent in the Gross Domestic Product of India, the net capital flows should increase by at least 28 to 30 percent on the whole.

The savings of the country stood at 24 percent. The gap formed between intended investment and the actual savings of the country was lifted up by portfolio investments by Foreign Institutional Investors, loans by foreign banks and other places, and foreign direct investments. Among these three forms of financial assistance, India prefers as well as possess the maximum amount of Foreign Direct Investments.

Advantages of Foreign Direct Investment Inflows in India-

  • FDI inflows raise the capital for investment. Foreign capital has taken over the domestic capital in terms of purchasing issue. Domestic capital is usually used or invested in other sectors of the Indian market.
  • Foreign Direct Investment in greenfield ventures, has introduced technological advancement and contemporary techniques for management in India, which the country lacked badly before FDI made its entry.
  • The inflow of foreign capital in India has opened up a plethora of options in the Indian market by ensuring foreign capital shares which stabilizes the country's economy
  • India ranks 17th in terms of foreign direct investment inflows, and has 1.4 percent shares in FDI inflows among all other developing nations

Why Does India Attracts the Maximum FDI Inflows?

India is potentially active in terms of investments and provides a galore of opportunities to the foreign players into the market. Foreign companies who aspire to become a global player would grab the opportunities, India provides in terms of investments. The foreign companies enjoy the rights to set up branch offices, representative offices, and also carry out outsourcing activities in terms of software developmental programmes in India. All these have opened up innumerable options for the foreign investors to expand their businesses at a global level. These are some of the factors which led to FDI Inflows in India.

Market Potential in India for Attracting FDI Inflows-

India is claimed to be the fifth largest economy across the globe and ranks third in the Gross Domestic Product in the entire Asia, which is one of the most significant factors responsible for FDI Inflows in India. India is also known to be the second largest country amongst all other developing countries. Besides, India belongs to those rarest of countries, which offer growth and earning opportunities through various industrial units. India offers maximum opportunities for foreign investments, which have been a major cause behind the flourishing economy of the country. The FDI Inflows in Indian market as accounted for the year 2006-07, stood at USD 2,171 million.

Last Updated on 05/07/2011