Interstate Distribution and Sectoral Composition of FDI Inflows in India

Abstract

Foreign direct investment (FDI) refers to obtaining the ownership in a foreign business entity. It can also be attributed that FDI circulates capital across national boundaries. It can be defined as an investor based in one country (home country), acquires an asset in another country (host country), with the intention to manage it. It is this dimension of management that distinguishes FDI from portfolio investment in foreign stocks and other financial instruments. For a terribly populated country like India, a good quantum of resource is needed to fund its various developmental needs, which the country does not have. To strengthen its infrastructure, expertise and knowledge base, FDI is inevitable. Realizing these facts, the government is now moulding a robust business environment to smoothen the flow of FDI. An interstate comparison of FDI in India makes it quite apparent that there exists huge variations in the inflow of FDI to different states. While some regions like Delhi, Bombay, etc. receive soaring flow of FDI, it is very stumpy in regions like Patna, Guwahati, etc. An overview on the sectoral distribution of foreign investment discloses the wide disparity in the distribution of foreign capital among various sectors. While some sectors like service, construction, etc. receive elevated flow of foreign capital, others lie fully ignored by the foreign investors.