Importance Of Fdi In India

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As India is a developing country, capital has been one of the scarce resources that are usually required for economic development. The flow of FDI in India from across the world will help in acquiring the funds at cheaper cost, better technology, employment generation, and upgraded technology transfer, scope for more trade, linkages and spillovers to domestic firms. The following arguments are advanced in favour of foreign capital
 Sustaining a high level of investment
 Technological gap
 Exploitation of natural resources
 Understanding the initial risk
 Development of basic economic infrastructure
 Improvement in the balance of payments position
 Increase in competition
 Impact on Employment
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British capital came to India during the colonial era of Britain in India. Before independence India derived laissez faire from the British government and major amount of FDI came from the British companies. British companies setup their units in mining sector and in those sectors that suits their own economic and business interest. After Second World War, Japanese companies entered Indian market and enhanced their trade with India, yet U.K. remained the most dominant investor in India. Capital penetration in India started with the establishment of Portuguese factory in the year 1500 at Calicut. The British East India Company was then founded in 1599, followed by Dutch East India Company in 1602 and French companies in 1614. Foreign enterprises found it convenient to export products to India. Local entrepreneurs, set-up industrial units without foreign collaborators and obtained the services of foreign consultants (Tata Iron and Steel …show more content…
Phase 1- From independence to the emergence of crisis in the late sixties (1948-1966)
After Independence issues relating to foreign capital, operations of MNCs gained attention of the policy makers.
 During the advent of independence First policy document- industrial policy resolution of 1948 recognizing the participation of foreign capital and enterprise, as regards industrial techniques and knowledge was formulated. Major interest in ownership and effective control were normally in Indian hands.
 In the mid-1950’s industrialization got underway. Foreign capital ventured into India primarily with technical collaboration.
 The foreign exchange crisis of 1958 marked a change in foreign collaboration in India. Foreign enterprise began to take equity participation in lieu of royalties and fees.
 After 1958, Indian entrepreneurs were given provisional license to secure part or all of the foreign exchange by way of foreign investment.
 1963-64 the government of India decided to give letters of intent to foreign companies to proceed with their capital projects.
 The Finance Act, 1965 made provision for certain additional tax

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