FDI In Different Sectors of the Indian Economy, Effect on GDP and Changing Policy Environment of FDI in India (Sector Specific)

Abstract

Development economists have long grappled with the mysterious relationship between foreign direct investment (FDI) and economic growth, both pre- and post-liberalization. The enigmatic sectoral composition of inbound FDI is an additional variable that has stymied researchers in both developed and developing countries. Recent studies highlight the impact of disaggregated sectoral FDI on the growth of specific economic sectors, as it is unrealistic to anticipate uniform effects across all sectors. Newly-released data on the Indian economy reveals a striking sectoral diversity in economic contributions, linkages, and spillover potential, all which hinge on external variables. Given the unique features of each sector and the varying degree of influence that inbound FDI can have, it is imperative to investigate the sector-specific FDI-growth relationship. Rather than focusing solely on overall economic growth, this study delves into how FDI inflows can affect individual sectors and on the economic growth of the country. Through research, policymakers can identify potential pitfalls and challenges associated with FDI, such as technology transfer and the impact on domestic enterprises' competitiveness. This knowledge can guide the development of mitigation strategies. Overall, the driving force behind FDI research is the need to understand its effects on the host economy, identify factors that attract foreign capital, and craft regulations that optimize benefits while minimizing risks.