International financial market and its effects on India's economic growth – In view of changing environment of international business

India's inner investment system went through a series of changes since economic reforms were ushered in two decades back. The expectation of the policy makers was that an “investor friendly” regime will help India establish itself as a preferred destination of foreign investors. These expectations remained largely unfulfilled despite the consistent attempts by the policy makers to increase the attractiveness of India by further changes in policies that included opening up of individual sectors, raising the hitherto existing caps on foreign holding and improving investment procedures. But after 2005–06, official statistics started reporting steep increases in FDI inflows. This paper is an attempt to explain this divergence from the earlier trend. During 1990s, increased globalization of financial markets and the environment in which the economy operate has changed dramatically. The international capital flow such as direct and portfolio flows has huge contribution to influence the economic behavior of the countries positively. Countries with well developed financial markets gain significantly from Foreign Direct Investment (FDI). The huge volume of capital flows and their influence on the domestic financial markets, understanding the behaviour of the flows becomes very important especially at time liberalizing the capital account. The study attempts to examine the impact of international financial flows on India's financial markets and economic growth. The study also examines trends and composition of capital inflows, changing pattern of financial markets in view of globalization, ascertain the impact of domestic financial policy variables on international capital flows and suggest policy implication thereof. By using tables and graph of different of kind, we found that Foreign Direct Investment (FDI) and Foreign Institutional Investment (FII) is affecting the economic growth of the country. The analysis using the data between April 2000 to January 2012 shows that FDI plays unambiguous role in contributing to economic growth.