Impact of Fiis on Indian Economy

Abstract

Since the beginning of liberalization in 1990s, FII flows to India have steadily grown in importance. From a near absence of FII inflows till 1992, today such inflows represent a dominant proportion of total flows. Positive fundamentals, gradual removal of structural barriers combined with fast growing markets have made India an attractive destination for foreign institutional investors. Funds flow from FIIs have crossed the record Rs 97,900 crore mark this year. The net purchase of Rs 97,955.50 crore ($21.42 billion ) is the higher ever investment by overseas firms in any single year in India . Today, FIIs are the key drivers of the Indian equity market and rising stakes in Indian companies. But, at the same time there is unease over the volatility in foreign institutional investment flows and its impact on the different segments of the economy. The increase in the volume of foreign institutional investment (FII) inflows in recent time has led to concerns regarding the volatility of these flows, threat of capital flight, its impact on the stock markets and influence of changes in regulatory regimes.. Globally strong consensus has emerged that the achievement of more dynamic economic growth requires a greater role of the foreign capital. There was a surge in foreign capital flows into India after 1992-93, because of drastic changes in India's policies. Since then Government of India have been relaxing capital control measures and taking large number of policy decisions towards the improvement of local financial infrastructure. Because of this, foreign capital has become an integral part of the development strategy of India. The main objective of the present study is to investigate the impact of FIIs on economic growth of Indian economy.