India's Recent Inward Foreign Direct Investment : An Assessment

An important backdrop of this study is the Discussion Paper released by the Department of Industrial Policy and Promotion in August 2017. This paper expressed the need to review India's FDI policy which, being largely aimed at attracting investment, has failed to retain investments and harness technology to the extent possible. Building on the experience of the previous research at the Institute, this study brings out, using multiple case studies and concrete examples, the various shortcomings and special features of the data on India's FDI inflows which make them unsuitable for drawing straightforward conclusions, especially when assessing the effectiveness of specific policy changes. Even the annual aggregate inflows cannot be relied upon to provide guidance regarding year-to-year changes because of omissions and commissions involving very large remittances. Nor do they truly reflect the extent of capacity creation in the economy. Perhaps, this should not come as a surprise, because compared to the developed ones developing countries are the least equipped to assess FDI's contribution to their respective economies. It is not the distortions alone which the Indian policymakers should be concerned about as the annual inflows are simultaneously being balanced to a significant extent by outflows on account of disinvestments and repatriation of capital. These have become quite large both relatively and in absolute terms. The study suggests that this problem can probably be traced to the nature of inflows and the mode of entry. It also raises the question whether all of the FDI that is coming to India has the potential to transfer technology. Only then arises the question whether those who possess technology are transferring it or not. It is thus imperative that along with a review of the FDI policy, the reporting mechanism has also to be reshaped drastically if the inflow figures were to facilitate drawing of meaningful inferences and provide guidance to policymakers and other national and international users. It is hoped that this study will convince the Indian authorities and caution the users nationally and internationally about the pitfalls in offering simplistic explanations for the reported developments and that it would help develop a template to analyse the inflows purposefully