• Foreign investment i.e. investment of capital by foreign countries and companies in India became an important component of the process of globalization in India.
• India needed massive foreign exchange for investment, imports of essential goods and services, technology imports, etc. Under a relatively closed and controlled economy of India, it met these needs by borrowing the fund from international organizations and foreign governments.
• Initially India had put several controls on foreign investments in India. Hence, we had to buy more goods and technology from abroad. To satisfy India’s buying it needed huge foreign exchange.
• However, after 1991, India allowed foreign companies to directly invest in certain sectors of India that too in increased proportion.
• When these foreign companies started producing in India, our need to import started getting satisfied with this local production.
• Thus, India’s dependency on foreign borrowings reduced. Moreover, investment done by these companies in India created employment, produced a variety of goods, raised tax incomes and brought new technologies.

Types of foreign investment:

Foreign investment in India came through

1. Foreign Institutional Investment (or Investor) i.e. FII and
2. Foreign Direct Investment (FDI).