Indian industry is expanding to regional and global markets through outward FDI. This has been motivated by national policy changes, domestic and international macroeconomic and institutional factors as well as change in corporate strategies. The increase in outward FDI is likely to bring opportunities and pose several challenges for macroeconomic and external sector management in India.

FDI can complement local development by boosting export competitiveness, employment generation and strengthening skills, transfer-diffusion-generation of technology and enhanced financial resources for development. The investment climate in India has become much friendlier today than previous decades.

Growing outward FDI from emerging economies such as India and China has attracted global attention not only for their expanding magnitudes but also because of their involvement in acquisitions of large global enterprises based in developed countries. Even though the government policy has taken a similar evolution in the two countries viz., turning increasingly supportive of OFDI from an earlier restrictive attitude, the motivations and characteristics of outward-oriented enterprises emanating from the two countries appear widely different.

The Indian privately managed firms may be driven by the ambition of managers to evolve into global enterprises to put their accumulated managerial expertise in the industry and their access to low cost primary production base to good use. Indian enterprise in that sense fit the description of a managerial firm a la Robin Marris (1964).

Infrastructure is being developed and FDI policy is being liberalized to improve the situation. However, a lot is to be done if we want to emerge as one of the major export oriented manufacturing hub. Investors are showing their growing confidence in the immediate and medium term prospects of Indian Economy. India needs a massive investment to achieve the goals of vision 20-20. Policy makers need to ensure transparency and consistency in policy making along with comprehensive long term development strategy.
To facilitate outward FDI India must keep its macroeconomic fundamentals stronger in order to maintain foreign exchange reserve in a comfort zone. Apart from promoting outward FDI, India needs to further improve the ease of doing business at home to increase investments.

There are several benefits of increasing foreign direct investment in India. First of all, with more FDI, consumers will be able to save 5 to 10 percent on their expenses because products will be available at much less rates. FDI is also supposed to have a positive effect on the employment scenario by generating approximately 4 million job opportunities. The farmers can also get a good price for their product. The government of India taking various steps to increase foreign direct investment in India.The Indian government, during the 2014-15 fiscal year announced that it would allow FDI worth US$ 14.65 billion into the railways infrastructure. In 2015-2016 The ruling NDA government in the centre has announced a lot of relaxations for FDI and the business done under the FDI umbrella in India.

FDI is part o f a long- term business strategy of international firms and the stock of FDI already in a country may strongly influence both first time and continuing investment decisions Pfefferman and Madarassy There is no dependable data on FDI stocks in most countries, particularly developing countries. Simply adding up annual inflows o f FDI may not be the correct way to obtain of data on stocks as asset revaluations may be ignored (Jong 1994). So most studies just use FDI inflows as the dependent variable.
The magnitude and direction of sectorwise FDI approvals are more consistent than actual FDI inflows. Sectors Dominance in the States: Fuels, electricals, transportation, telecommunication, and chemicals are most dominating sectors and attract 70 percent of FDI in the states. Coefficient of variation of dominance across the sectors in the states is high. It is top heavy distribution of FDI across sectors. The dynamics of FDI inflows in sectors have been changing during first generation reform periods i.e. 1991-2001. The change of FDI inflows in sectors indicates significance of the sectors in Indian economy. In general, transportation, fuel, mechanicals and engineering, telecom, electrical, chemical, service sectors etc. have been increasingly attracting and receiving more FDI inflows in India during first generation period.


Liberalization of trade and investment policies opened the floodgate of capital flows in and out of India from the mid 1990s. This colossal capital flows facilitated the rapid economic growth and raised the country’s profile as one of the super powers in the region. The recent surge of outward foreign direct investment (OFDI) from India has a significant balance of payments as well as enormous socio economic effect in securing the country’s position as a new economic power in the global context. The results of our study indicate that the dramatic financial and trade liberalization has instigated the gigantic outflow of investment and acquisition by India ‘s firms. Furthermore, the domestic economic environment including the growing human capital stocks, increasing international competitiveness, large influx of inflow of foreign capital and increased domestic savings are positively and significantly influencing India ‘s huge outward capital flows in recent decade. However, improvement in domestic technological capabilities, rising standard of living and increased interest rates.


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