The inflow of Foreign Direct Investment (FDI) into India has boosted the once ailing economy, but of late, severe political pressure is acting as a hindrance for its smooth inflow. This article discusses the related critical issues.

Foreign Direct Investment (FDI) inflows have become necessary to finance the developmental needs of the Indian economy. As per the Tenth Five-Year Plan, India's total FDI inflows requirements amounted to US$10 bn per year for the said plan period. On the other hand, India attracted FDI worth US$5.3 bn during the year 2004. Hence, India has to go a long way for enhancing the existing volume of FDI inflows to meet its financing development needs. Added to this, India has to use FDI as a vehicle or instrument in accelerating the pace of economic transformation.

According to the World Investment Report (WIR), for the year 2005, India has recorded nearly an increase of 25% in the FDI inflows during the year 2004 over 2003 i.e., from US$4.27 bn to US$5.33 bn. The country has emerged as major recipient of FDI in South Asia.

In South Asian region, the FDI inflows have registered an appreciable increase of 32% and touched a level of US$7 bn during the year 2004. This is because of the higher volume of inflows which entered India, Pakistan and Bangladesh as these economies have realized that the only option left for them was to create conducive investment climate so that there would be more FDI inflows in their countries, which is sine qua non for accelerating the pace of growth and development of South Asia in general and their respective economies in particular. In South Asia, India has come out as an important destination for FDI, especially in the Research and Development (R&D) area.

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