Since early 1990s, India has been pursuing a progressive liberalisation of foreign investment policies. These policies lay emphasis on encouragement and mobilisation of non-debt creating private capital inflows so that there is a reduction in debt inflows as the chief source of external resources.
This has resulted in an increase in inflows of both FDI and portfolio segments of foreign investment in the country.
FDI inflows are linked to the perception of the investors regarding the inherent strength of the host economy. Therefore, an increase in the inflow of FDI reflects the growing confidence of foreign investors.
skbdevelopers.com
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Inflow of FDI into India has shown a steady increase over time, though its rate of growth has been rather slow when compared with the world total and some other developing countries like China. This is primarily due to the following reasons:
1. Deep-rooted obstructions in the FDI process which are being removed only bit by bit. Observers and potential investors maintain that they have still to face too many and time-consuming procedural hurdles.
2. These hurdles increase when the investors have to deal with state and local level authorities.
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3. Our country is deficient in infrastructure needed for a vibrant and healthy industrial economy, particularly when we consider uninterrupted power supply and such enabling inputs.
4. Our labour laws come in the way of rapid decisions directed at cutting costs, and adjusting production processes and product-mix, etc., there being a political component to the problem.
5. The policy and institutional frameworks of countries competing with us for FDI inflows are more congenial. They have also better infrastructure than ours, and more flexible labour laws.