FDIs Impact on Indian Economy Foreign Direct Investment (FDI) plays a fundamental role in the long-term economic development

of a nation, not only as a source of capital but also provides opportunity for technological transfer and up gradation, access to global managerial skills and practices, optimal utilization of human capabilities and natural resources, making industry internationally competitive, strengthening infrastructure, raising productivity, opening up export markets, providing backward and forward linkages and access to international quality goods and services and augmenting employment opportunities. FDI has - in many ways - enabled India to achieve a certain degree of financial stability, growth and development. This money has allowed India to focus on the areas that may have needed economic attention, and address the various problems that continue to challenge the country. India has continually sought to attract FDI from the worlds major investors and is permitted through financial collaborations, through private equity or preferential allotments, by way of capital markets through Euro issues, and in joint ventures. Constantly, India has been classified as among the most attractive investment destination by a various reputed international rating organizations. With its highly skilled & cost-effective work force, it offers immense opportunities not only for Business Process Outsourcing but also increasingly for the higher end of value chain in Knowledge Process Outsourcing & Engineering Process Outsourcing. A continuous review of the FDI policy & the associated procedures which includes, progressive simplification of procedures, dispensing with the need of multiple approvals from the regulatory authorities, extending the automatic route to more to more sectors, & allowing FDI in new sectors, is earnestly undertaken to create a more liberal, attractive & conducive investment climate. Foreign investment brought by MNCs is also playing an important role in economic development of the India. Economic liberalization that swept across the world has very significantly changed the environment for foreign investment in India. It has attracted number of MNCs in India, which accounts for a significant share of the worlds industrial investment, production, employment and trade.FDI can stimulate local entrepreneurship by providing increased competition. It lowers fixed cost of developing new products and therefore increases the rate of growth and is increasingly recognized as an important contributor for developing countrys economic performance and international competitiveness. Developing countries are liberalizing their foreign investment regimes and are seeking FDI not only as a source of funds and foreign exchange but also more importantly as a dynamic and efficient vehicle to secure the mush needed industries technology managerial experts and marketing expertise to improve on growth employment, productivity and export performance FDI Inflows in India Opening up of door policies adopted by the Government of India through its new economic policies has attracted more investments into the country. India's FDI in January this year fell by 25% margin. Foreign Investments in India totaled $2.04 billion, a marked fall from the previous year's close. The total cumulative amount of FDI inflows in India were Rs 563,656 million, about US$129,656 million over a decade from 1991 to January 2010. The country attracted FDI inflows of US$1.74 billion as at November 2009. That marked a 60 per cent increase that was achieved in November 2008, which stood at US$1.08 billion. The cumulative amount of FDI inflows tabulated from 1991 to end of December 2009 was US$127.46 billion. Indian industries have gone global and in the same direction in inflow of FDI into the country have increased at a faster rate. Equity Inflow of FDI into the country over various years is as follows:

F.

Forecast of FDI in India 2008 2009 35 2.1 2010 40 2 2011 50 2.2 2012 60 2.3

Inward direct investment (US$ billions) Inward direct investment (% of GDP) Inward direct investment (% of gross fixed investment) Outward direct investment (US$ billions) Net foreign direct investment (US$ billions) Stock of foreign direct investment (US$ billions) Stock of foreign direct investment per head (US$) Stock of foreign direct investment (% of GDP) Memorandum items Share of world inward direct investment flows (%) Share of world inward direct investment stock (%)

25 1.8

5.7

5.4

5.7

5.7

-15.0 10.0 116.2 103 8.3

-20.0 15.0 151.2 133 8.9

-25.0 15.0 191.2 166 9.7

-30.0 20.0 241.2 206 10.6

-35.0 25.0 301.2 254 11.4

2.07 0.83

2.81 1

3.09 1.16

3.69 1.36

4.24 1.57

Source: Economist Intelligence Unit (EIU)

Table F shows the level of FDI that has been forecasted by the Economist Intelligence Unit (EIU) for India. The numbers, by any stretch, show a quantum leap in terms of levels of inward FDI with big numbers such as $50 billion for 2011 and $60 billion for 2012. However, it should be noted that India would still only account for 4.2% of total world inward FDI flows. Clearly, forecasts have flaws, especially those that look beyond a year; the forecasts in Table F are based on expectations that India has a great growth story. They also are forecasts made on the expectation that the government will fix the impediments that are responsible for the current low of levels of FDI. The remainder of this section focuses on ideas as to what India can do to ensure that actual match, if not better, the medium term forecasts.