The relationship between Foreign Direct Investment (FDI) and other macroeconomic variables
has been an attractive area of study for researchers and academicians. FDI plays a vital role
in boosting the economy since it brings in capital to certain sectors and then multiplies the
amount, which is further invested for industry mobilization. FDI is investment made by
foreign countries in other countries. FDI can be horizontal, vertical or platform. Singh et al.
(2012) suggested three forms of FDI in India, namely, joint ventures, acquisition of assets
and green field ventures.
India has already marked its presence as one of the attractive destinations for the foreign
investments and one of the top three destinations for FDI. India’s growing GDP, geographical
location and diversified business are some of the factors which attract foreign investment to
the country. FDI plays an important role in promoting the growth of the country. Productivity
enables the host countries to increase their export by way of FDI through increasing capital,
expertise and managerial skills (Sultan, 2013). FDI also helps in promoting export by way of
entering into new and novel markets. In India, various sectors have been opened for FDI
such as telecom sector (100%), single brand retail (100%), credit transformation (up to
74%), asset reconstruction companies (100%), and defence sector (49%). Some of the
sectors however are restricted for FDI; for example, gambling and betting (including casinos,
etc.), chit funds, trading in Transferable Development Rights (TDRs), etc.
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