After nearly 400 years under the British rule, India attained independence on August 15, 1947. But, from the very outset (Krishna), India launched upon an economic policy known as a “Socialistic Pattern of Society” with central planning and tight government regulations, permits and controls. India’s economic policy after independence was influenced by the colonial experience, which was seen by Indian leaders as exploitative, and by those leaders’ exposure to democratic socialism as well as the progress achieved by the economy of the Soviet Union. The collapse of the Soviet Union, which was India’s major trading partner, and the Gulf war, which caused a spike in oil prices, resulted in a major balance-of-payments crisis for India, which found it facing the prospect of defaulting on its loans. India asked for a $1.8 billion bailout loan from the IMF, which in return demanded reforms. In response, the then Prime Minister Narasimha Rao, along with his finance minister Dr. Manmohan Singh, initiated the economic liberalisation of 1991. Until 1991, Indian government followed protectionist policies that were influenced by socialist economics. Widespread state intervention and regulations caused the Indian economy to be largely closed to the outside world. Since 1991, India liberalised its economy and continued to move towards a free market system, emphasizing both foreign trade and investment. Consequently, India’s economic model is now being described overall as capitalist.

Table I. Trend of FDI inflows in India
US $ million

Year 1970 1975 1980 1985 1990 1995 2000 2005 2009
FDI 45.46 85.09 79.16 106 234 2151 3588 7622 34613

It can be seen from table 1 that India has travelled from a foreign investment level of $ 45.46 million in 1970 to $ 234 million in the year 1990 registering a growth rate of four fold increase in inflows. On the contrary, the share and increase of inflows since 1990s have been astounding. Of the FDI inflows in to the Asian economies India’s share stood at 46.5% in the year 2009 with an investment of $34613 million as against its share of FDI inflows in 1990 was just 1.61%. The impressive surge in FDI flows in to India during the post reform period has given a unique position in the map of MNC’s strategic investment locations. Moreover, India has also been ranked second in global foreign direct investments in 2010 and likely continues to remain among the top five attractive destinations for international investors during 2010-12. (UNCTAD)

Representative APR 391%

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