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04 Mar 2025
GS Paper 3
Economy
Day 80: Analyze the role of Foreign Direct Investment (FDI) in boosting India’s economic development. What policy measures have been taken to attract FDI? (150 Words)
Approach
- Define Foreign Direct Investment (FDI) and explain its role in economic development.
- Discuss the economic benefits of FDI with relevant examples and data.
- Highlight policy measures taken by the Indian government to attract FDI.
- Conclude suitably.
Introduction
Foreign Direct Investment (FDI) plays a crucial role in India's economic development by bringing in non-debt financial resources, technology transfer, and employment generation. India has emerged as a global investment hub, with total FDI inflows reaching $1 trillion since April 2000. The 26% rise in FDI to $42.1 billion in the first half of FY 2024-25 underscores India’s growing appeal to global investors.
Body
- Role of FDI in Boosting India’s Economic Development:
- Capital Inflow and Economic Growth: India attracted $709.84 billion in FDI between April 2014 and September 2024, accounting for 68.69% of total FDI inflows in the last 24 years. This has provided stable financial resources for economic expansion.
- Employment Generation: FDI-backed industries have created millions of direct and indirect jobs, particularly in manufacturing, services, and technology sectors.
- Technology Transfer and Innovation: India improved to 40th in the World Competitive Index 2024 and 39th in the Global Innovation Index 2024, reflecting enhanced technological capabilities and innovation ecosystems driven by FDI.
- Expansion of Key Sectors:
- Manufacturing: The "Make in India" initiative has attracted major global players in automobiles, electronics, and semiconductors.
- Infrastructure: As per the World Investment Report 2023, India became the second-largest recipient of international project finance deals, enabling large-scale infrastructure growth.
- Greenfield Investments: India ranked third globally in greenfield projects, with 1,008 project announcements in 2023.
- Improved Business Environment: India made a 79-rank jump from 142nd in 2014 to 63rd in 2019 in the World Bank's Doing Business Report, significantly enhancing investor confidence.
- Policy Measures to Attract FDI:
- Liberalized FDI Policy: Most sectors are open to 100% FDI under the automatic route, except for strategically sensitive sectors.
- Tax Reforms: The Income Tax Act, 1961, was amended in 2024 to abolish angel tax and reduce tax rates for foreign companies, improving investor sentiment.
- Production-Linked Incentive (PLI) Scheme: Encourages FDI in manufacturing sectors like electronics, pharmaceuticals, and renewable energy.
- Greater FDI in Emerging Sectors: The space sector has been opened up for foreign investment, aligning with global trends.
- Infrastructure and Digital Push: Policies supporting smart cities, PM Gati Shakti National Master Plan, digital payments, and logistics modernisation have attracted global investors.
Conclusion
India's $1 trillion FDI milestone reflects its economic resilience, global competitiveness, and investor-friendly policies. The surge in FDI inflows, policy liberalization, and strong sectoral growth position India as a key player in the global investment landscape. Sustained reforms, infrastructure expansion, and innovation-driven growth will further strengthen India’s economic trajectory in the coming years.
