Independence Day: How FDI emerged as a catalyst for India's colossal growth

After gaining freedom from oppressive British colonial rule in 1947, India needed to become 'independent' in a real sense — independence from illiteracy, corruption and poverty. The country needed to expand its economy, develop technological know-how, and create job opportunities to forge forward to establish itself in the world.

The initiation of a new economic policy in 1991 provided a much-needed boost and Foreign Direct Investment (FDI) emerged as a key driver of India's economic growth. It is also a significant non-debt financial resource for the country's economic development.

FDI refers to an investment made by a corporation or individual in one country into business interests in another. FDI occurs when a foreign entity gains ownership or a controlling stake in the shares of a company in one nation or starts operations in that country, as opposed to foreign portfolio investment, which occurs when a foreign corporation just purchases equity shares in a firm. The foreign entity has a say in the day-to-day operations of the company in the case of FDI.

FDI helped India immensely, as it was not about just the inflow of money, but also the inflow of technology, knowledge, skills and expertise/know-how.

FDI emerged as a catalyst for India's tremendous growth because the investment opportunities improved since 1991 when the government opened up the economy and initiated the LPG (Liberalisation, Privatisation and Globalisation) strategies.

The progress in this area is often linked to the relaxation of FDI regulations. Since the country's economic liberalization, many sectors have become partially or entirely accessible to foreign investment.

FDI trends in recent years

India received its highest-ever FDI inflow of US$83.57 billion in the fiscal year 2021-2022, but FY 2022-2023 saw a drop in FDI inflows due to global uncertainties. Total FDI inflows in FY 2022-2023 amounted to US$70.97 billion.

The growth has been consistent as the official data revealed that from April to August 2020, a total FDI inflow of US$35.73 billion was received. India's FDI inflows reached record levels during 2020-21 and the total FDI inflows were at US$81.973 billion — a 10% increase from the previous financial year.

Indian economy

A report in May 2023 revealed that India's GDP grew by 7.2% in the year to March, boosted by services and consumption, putting it among the world's fastest-expanding major economies. The South Asian nation is the world's fifth-largest economy, and recently surpassed China to become the most populous country. Its growth has rebounded since the pandemic — the economy rocketed 9.1% in the 2021-22 financial year.

As the nation celebrates independence day this year, let's cheer the country's aspiration to grow at the same pace, or maybe even faster.

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