Role of foreign direct investment and foreign institutional investment in Indian economy

The role of investment in promoting economic growth has received considerable attention in India since independence. But the role of foreign institutional investment or foreign direct investment in the economic development of India is a recent topic of discussion among economists and development planners. The Indian government differentiates cross-border capital inflows into various categories like foreign direct investment (FDI), foreign institutional investment (FII), non-resident Indian (NRI) and person of Indian origin (PIO) investment. Inflow of investment from other countries is encouraged since it complements domestic investments in capital-scarce economies of developing countries, India opened up to investments from abroad gradually over the past two decades, especially since the landmark economic liberalisation of 1991. Apart from helping in creating additional economic activity and generating employment, foreign investment also facilitates flow of technology into the country and helps the industry to become more competitive. FDI and FII are equally connected to investment in a foreign country. FDI or Foreign Direct Investment is an investment that a parent company builds in a foreign nation. On the different, FII or Foreign Institutional Investor is an investment prepared by an investor in the markets of a foreign country. It is with this aim an attempt has been made in this paper to test the correlation between foreign institutional investments or foreign direct investment and the real economic growth in India over a period 2000–01 to 2009–10.