Foreign Direct Investment and Foreign Debt: Experience of India and China

Attracting foreign investments into an economy is not an easy task. It requires high credit worthiness, low debt burden, good market potential, limited governmental controls, political stability et al. India and China had embarked upon such an ambitious project of liberalising their economies so as to make them viable globally and had shifted from import-substitution to export led growth strategy to attract foreign investments into their respective economies and bring in growth and development. China due to its low debt burden and political stability attracted more foreign investments than India. India on the other hand, is wooing all potential investors -institutional, governmental and also individual - with many concessions. But, the relative political instability, high debt burden and repayments are causing the investors not to bring in new technology or capital into it. One reason for China’s success may be because of large number of consumers (ie- one billion) who are eagerly awaiting to accept anything which is western. In case of India, the limited consumers and inflow of technological and capital goods have been delaying for a long time the benefits of liberalisation, ie- to attract more foreign capital and technology into it. In such a backdrop, the analysis on the impact of foreign debt on foreign direct investments- a major form of foreign investment is timely and relevant.