FDI in Services and India

Developing countries, including India, are increasing relying on foreign direct investments (FDI) for raising finance for infrastructure development and other projects. Consequently, countries are undertaking policy reforms for facilitating investment flows. In India, services sector is the largest recipient of inward and outward FDI since liberalization. Yet, India continues to face certain challenges to both inward and outward foreign investments as a result of which, it has not been able to exploit its full potential. This article studies the trends and patterns in India’s inward and outward investment flows and analyzes its international agreements to examine the degree of openness across different services sector, assess barriers and suggest reforms. The article uses the Fink and Molinuevo (2008) framework to examine the architectural design of India’s trade agreements and their level of openness in investment in services. The article found that despite progressive liberalization, India continues to impose operating restrictions and regulatory barriers on foreign investors. India is not willing to take forward-looking commitments in investment in services and bind the autonomous regime. The article suggests that FDI is a ‘market access’ issue and it should be delinked from domestic regulation. Domestic regulation should not discriminate between foreign and domestic investors.