A comparative analysis of factors motivating FDI from India and China and their implications

Abstract

Since liberalization in the 1990s, India has come a long way in its journey to become one of the most promising destinations for FDI. The graph below shows the trend of FDI growth in the past two decades. The growth can be attributed to incorporating standard practices in reporting FDI (including reinvestment earnings) and policy initiatives by the govt. to attract FDI. The high growth during the 2005-10 period can be ascribed to the revised FDI policy by the govt. to allow 100 percent FDI under the automatic route in housing, townships, and construction-development projects and lower the proportion of inflows subject to specific govt. approvals (declined from 62.5% in 2000-01 to just 10% in 2010-11), reflecting an opening up and giving greater freedom to foreign investors.