A Panel Data Analysis of Foreign Direct Investment Inflows into India Since 1991 to 2015

Abstract

At the outset, this study dwells on the ambiguities surrounding the definition of foreign direct investment (FDI) and the non-adherence to international norms in measuring the FDI inflows by India. The study finds that portfolio investors and round-tripping investments have been important contributors to India’s reported FDI inflows, thus, blurring the distinction between direct and portfolio investors on the one hand and foreign and domestic investors on the other. These investors were also the ones who have exploited the tax haven route the most. These observations acquire added significance in the context of the substantial fall in the inflows seen during 1991–1992 to April 2015–December 2015. FDI as a strategic component of investment is needed by India for achieving the economic reforms and maintaining the pace of growth and development of the economy. The government should design the FDI policy in such a way where FDI inflow can be utilised as a means of enhancing domestic production, savings and exports through the equitable distribution among states by providing much freedom to states, so that they can attract FDI inflows at their own level. The impact of FDI inflows into India in recent years is highly significant. JEL: C40, C82, E44, F210, G15