With the advent of globalization, developing countries, particularly those in Asia, have been witnessing a massive surge of FDI inflows during the past two decades. Even though India has been a latecomer to the FDI scene compared to other East Asian countries, its significant market potential and a liberalized policy regime has sustained its attraction as a favourable destination for foreign investors. This article aims to examine the impact of inward FDI on the Indian economy, particularly after a decade of economic reforms, and analyzes the challenges to position itself favourably in the global competition for FDI. In this context, the article further investigates the likely impact on FDI inflows to India as a result of increasing competition from another major emerging market economy, i.e., China, in the wake of its accession to the WTO. The article provides the major policy implications from this analysis, besides drawing attention on the complexities in interpreting FDI data in India.
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