THE ROLE OF FDI IN INDIA: ENGINE OF GROWTH OR WHEEL OF DEPENDENCY?

Foreign Direct Investment (FDI) has long been viewed as a critical driver of economic growth, technology transfer, and employment in developing economies. This paper examines India’s FDI policy framework and its impact on investment inflows and growth, especially in the current geopolitical context. Over the past three decades, India has progressively liberalized its FDI regulations, culminating in an “investor-friendly” regime that permits 100% foreign ownership in most sectors[1]. We analyze trends in FDI inflows (which rose from roughly $45 billion in FY2014–15 to a record $84.8 billion in FY2021–22[2][3], before sharply contracting to $28 billion in 2023[4]). Despite these reforms, India now faces an investment shortfall: leading economists argue that India’s immediate challenge is slowing growth and weak investment, not poverty[5][6]. We survey recent policy changes (including sectoral cap hikes in insurance, defense, space, etc.[7]), compile data on FDI flows and sources, and consider global trends (e.g. post-pandemic FDI shifts, geopolitical trade tensions) affecting India. Using a mixed qualitative and econometric approach, we assess how policy interventions correlate with inflow trends. Our findings suggest that while policy liberalization has underpinned India’s rise as a top 10–15 FDI recipient[8][9], continued reforms and global alignment (e.g. supply-chain diversification away from China) are needed to sustain and grow FDI. The paper concludes with policy recommendations to boost investor confidence and link FDI more effectively to growth and development goals.