Industrialization, Liberalization and Two Way Flows of Foreign Direct Investment: The Case of India

This paper analyses the evolution of India's FDI position during the post-independence period in comparison with government policy and levels of industrialization and development. Since independence, India has pursued a strategy of industrialization with active governmental intervention. Domestic enterprises accumulated considerable capability in the process of industrialization, which has influenced not only the pattern of inward FDI, but has also led to Indian investments abroad. Changes in government policy have also had an important bearing on India's FDI position. The Indian government's attitude towards foreign investments has evolved over the post-independence period in four distinct phases: gradual liberalization from the establishment of independence till the late 1960s; a more selective attitude from the late 1960s throughout the 1970s; a certain liberalization of policy in the 1980s; and further liberalization of the policy regime with respect to both inward and outward FDI as a part of the structural adjustment program since 1991. The analytical frameworks provided by Dunning and Ozawa that posit the pattern of a country's FDI, delineating both inward and outward changes with the structural transformation of the economy, are kept in the background of the discussion.