Foreign Institutional Investment: Its impact on Indian Economy

Abstract

Economic reform measures include a number of structural and institutional changes in the different segments of the financial markets. It has brought a tremendous change in the functioning of the financial sector of the economy. The investment has promoted considerable attention in India since independence. On the other foreign institutional investment in the economic development of India is a recent topic of discussion among economists and development planners. The Indian government has categorized the cross-border capital inflows into various categories like foreign direct investment (FDI), foreign institutional investment (FII), non-resident Indian (NRI), and person of Indian origin (PIO) investment. India opened up to investments from abroad gradually over the past two decades, especially since the economic liberalization of 1991. Foreign Investment helped in the creation of additional economic activities and the generation of employment. Foreign investment also facilitates the flow of technology into the country and helps the industries to become more competitive. FII is equally connected to investment in a foreign country. Foreign Institutional Investor is an investment prepared by an investor in the markets of a foreign country. The implementation of FII’s could have bidirectional causation with the returns of other domestic financial markets such as money markets, stock markets, and foreign exchange markets. Hence, the understanding determinants of FII is very important for any emerging economy as FII exerts a larger impact on the domestic financial markets in the short run and it has a real impact in the long run.