India’s economic trajectory under Prime Minister Narendra Modi blends rigorous analysis with bold policy moves. The BJP-led government has combined openness to foreign capital — through Foreign Direct Investment (FDI) and Foreign Institutional Investment (FII) — with initiatives to boost self-reliance. Economists and policymakers alike recognise foreign investment as a pillar of economic stability, providing critical financing, technology, and market access across sectors. This balanced strategy favours pro-growth reforms while building domestic capacity.
FDI AND FII: Temporary Boost For Long-Term Self-Reliance
Surging FDI inflows have strengthened India’s growth and stability. Annual FDI hit a record $83.6 Billion in FY2021-22, almost double the $45 Billion in 2014. This reflects investors’ confidence in India’s reform agenda. Manufacturing FDI alone jumped 76 per cent in FY2021-22 after initiatives like Make in India, and even post-COVID FDI inflows were 23 per cent higher than pre-pandemic levels, underscoring sustained foreign trust during crises.
FII has been crucial in bolstering India’s financial markets and boosting its economy. India has managed to extract maximum advantage out of FII Inflows to improve market liquidity and reinforce a strong balance of payments position. Moreover, the Modi government’s economic policies have inspired considerable confidence in the Indian economy among global investors leading to ever-increasing inflows of capital that have further firmed up the Indian economy. Timely and proactive actions taken by policymakers from targeted liquidity infusions during the 2020 global crisis to automatic stabilisers have mitigated volatility and supported growth momentum.
This bolstered economic momentum,
with its cadre of dedicated professionals, startups, and thriving industries, has catapulted India to a challenging, productive, and sustainable global positioning of higher foreign investments.
Transformative Impact Across Key Sectors
Liberalised foreign investment regulations have funnelled significant capital reserves into formative industries including information technology, manufacturing infrastructure, healthcare, agribusiness, and education.
Technology corporations have been top beneficiaries, with the software and hardware sector attracting approximately 25 per cent of all foreign direct investment inflows in fiscal year 2021-2022, underscoring India’s emergence as a global technology leader. Manufacturing industries have gained momentum thanks to both foreign capital and domestic incentives designed to stimulate job creation and output. The innovative Production-Linked Incentive schemes introduced in 2020 have since incentivised `1.32 Trillion in new investments while expanding total production value by a staggering `10.9 Trillion, generating hundreds of thousands of well-compensated employment opportunities.
Strategic Reforms Boost Self-Reliance
PM Modi has aligned the overarching policy goals of self-reliance with encouraging foreign investment. Prime Minister Modi has shifted policy to turn self-reliance into both a goal and an opportunity for foreign investors. Launched in 2020 with a $20 Trillion stimulus, the Atmanirbhar Bharat mission epitomises India’s pursuit for self-reliant growth; more efficient, competitive and resilient economies that welcome foreign participation which can strengthen the domestic base.
Defence manufacturing is a case in point. The FDI cap on it was raised from 49 per cent to 74 per cent to attract joint ventures and technology transfer. On a broader scale, substantive liberalisation of FDI across all sectors (from coal mining and aviation to insurance and the internet) along with simplifying investment rules has radically improved India’s investor-friendly environment. Together with the Make in India initiative, this ensures that foreign investment enters the country in forms that are consistent with national goals and strengthen the industrial foundation.
Self-Reliant Growth
Continuing reforms and overall multi-sector growth should keep India firmly on the map as a global place for investment. Nearly constant inflows from abroad, gains in sectors besides heavy industry, and a market that has been proof of the strength of this strategy.
Consequently, strategic foreign direct investment (FDI) and foreign institutional investors (FII) will continue to play important roles in India’s pursuit of balanced development. By keeping up steady government policies and forming international partnerships, India can achieve economic self-reliance. This formula for success will ensure that India is a strong and resilient economic power.
Conclusion
The challenge of balancing foreign investment with self-reliant economic growth in India has its roots in the socialist Nehruvian policies. Historically, India has oscillated between protectionist policies and open-market reforms. Under Prime Minister Narendra Modi’s leadership, the government has pursued a dual approach: encouraging Foreign Direct Investment (FDI) and Foreign Institutional Investment (FII) while simultaneously strengthening domestic industries.The core issue being tackled is how India can leverage foreign capital for growth without becoming overly dependent on external funding. FDI brings in critical capital, technology, and expertise, which boost infrastructure, manufacturing, and technology sectors. Meanwhile, FII helps stabilise financial markets and improve liquidity. However, excessive reliance on foreign investments can lead to economic vulnerabilities, particularly during global downturns.
India has addressed this issue by implementing structural reforms such as Make in India, Atmanirbhar Bharat, and Production-Linked Incentives (PLI).
These initiatives ensure that foreign investments align with national priorities, fostering job creation, technological advancements, and industrial self-sufficiency.In essence, the problem being analysed is whether India can sustain high economic growth, attract global investments, and enhance self-reliance without compromising financial stability.
India’s economic trajectory under Prime Minister Narendra Modi reflects a strategic blend of foreign investment and self-reliance.
The record-breaking inflows of FDI and FII underscore global confidence in India’s reform agenda, strengthening financial markets, industrial growth, and employment generation. Initiatives like Make in India, Production-Linked Incentives, and Atmanirbhar Bharat have ensured that foreign investments align with national priorities, bolstering domestic capabilities while sustaining economic expansion.
The liberalisation of foreign investment regulations across key sectors such as technology, manufacturing, and defense has attracted significant capital and fostered innovation.
The Modi government’s pragmatic policies have mitigated global economic volatility, creating a resilient economic environment that can weather crises and sustain long-term growth. India’s rise as a technology and industrial powerhouse is a testament to this strategic approach.
(The author is Chairperson - National Unity and Security Council. Views expressed are personal)
