Globalization of economy and the impact of foreign direct investment on sustainable growth: an Indian perspective

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International Journal of Development Research

Globalization of economy and the impact of foreign direct investment on sustainable growth: an Indian perspective

Abstract: 

Investment in India provides the base and pre-requisite for economic growth and development. Apart from a nation’s foreign exchange reserves, exports, government’s revenue, financial position, available supply of domestic savings, magnitude and quality of foreign investment are necessary for the well being of a country. Developing nations, in particular, consider FDI as the safest type of international capital flows out of all the available sources of external finance available to them. FDI provides a win – win situation to the host and the home countries. Both countries are directly interested in inviting FDI because they benefit a lot from such type of investment. There is a considerable change in the attitude of both the developing and developed countries towards FDI. They both consider FDI as the most suitable form of external finance. FDI is a predominant and vital factor in influencing the contemporary process of global economic development. The present study is limited to assess the determinants of Foreign Direct Investment flows and its impact on Indian economy. It is concluded that the Government should design the FDI policy in such a way where FDI inflows can be utilized as means of enhancing domestic production, savings and exports through the equitable distribution among states so that they can attract FDI inflows at their own level. FDI can help to raise the output, production and export at the sectoral level of the Indian economy. It is advisable to open up the export oriented sectors and higher growth of economy could be achieved through the growth of these sectors. With the initiation of globalization, developing countries, particularly those in Asia, have been witnessing an immense surge of FDI inflows during the past two decades. Even though India has been a latecomer to the FDI scene compared to other East Asian countries, its considerable market potential and a liberalized policy regime has sustained its attraction as a favorable destination for foreign investors. This research paper aims to examine the impact of FDI on the Indian economy, particularly after two decades of economic reforms, and analyzes the challenges to position itself favorably in the global competition for FDI.

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