India’s Economic Growth and the Role of Foreign Direct Investment

Indian economy has reached in the orbit of high rate of economic growth. She is being widely acclaimed and recognized as an emerging global economic power. The rate of growth recorded during the period 1950-51 to 2004-05 clearly showed a tendency of steady upward trend. However, the decade of eighties emerged as a beginning of the high rate of economic growth or at least a dramatic departure from the past growth performance. This tendency had continued in the 1990s and further growth stimulus has occurred in the early 21st century. This paper attempts to unravel the factors behind high growth trajectory and major structural problems encountered by the Indian economy. The question that begs for an explanation is that is high growth and inflows of FDI solve structural imbalance of Indian economy and will it succeed in improving the lot of bottom section of the Indian economy, which are living in abysmally poor socio-economic conditions in the countryside. The employment elasticity in the agriculture and industrial sector has gone down in the post-reform period, therefore, the creation of employment opportunities will be a gigantic task for the policy makers. FDI has come in the most capital-intensive sectors; therefore, the desired employment opportunities could not be created especially for the manual and the semi skilled labor. High skilled labor gained substantially. That is why high growth is called urban centric and thus has created a wedge between the rural and urban economy. There is urgent need to fill this void. Policy making process has matured in the democratic Indian polity since the independence. It is thus expected that the growing problems will receive mature response and policy will be articulated in such a manner to use FDI the way China has used to enhance economic growth while taking more and more investment to industrialize the rural sector of the Indian economy.