Role Of Foreign Direct Investment in Strengthening India's Global Competitiveness: Evidence, Channels, And Policy Priorities

Abstract

Foreign direct investment (FDI) is frequently treated as a measure of investor confidence, but its strategic importance lies in whether it expands productive capability, technology, skills, exports, innovation, and participation in global value chains. This article examines the role of FDI in strengthening India's global competitiveness, using a secondary-data analytical design and evidence from the Department for Promotion of Industry and Internal Trade (DPIIT), the Ministry of Commerce and Industry, UN Trade and Development (UNCTAD), the World Intellectual Property Organization (WIPO), the World Bank, and relevant empirical literature. The study covers the reform and scale-up period from FY 2014-15 to FY 2024, while using longer-run scholarship to interpret technology and productivity spillovers. Total FDI inflows increased from USD 45.15 billion in FY 2014-15 to a provisional USD 94.53 billion in FY 2024. In FY 2024, computer software and hardware accounted for about 24 percent of FDI equity inflows, services for 17 percent, and trading for 7 percent. Singapore, the United States, and Mauritius remained major sources, while Maharashtra and Karnataka together received more than half of state-attributed equity inflows. During the same broad period, India's total exports rose strongly and its Global Innovation Index rank improved from 81st in 2015 to 38th in 2024. The analysis finds that FDI can strengthen competitiveness through technology transfer, management practices, supplier upgrading, scale economies, export networks, and investment in digital and green sectors. However, these gains are conditional on domestic absorptive capacity, R&D, human capital, logistics, regulatory predictability, and the quality of linkages between foreign affiliates and Indian firms. The paper concludes that India's policy objective should move from maximizing the volume of FDI toward maximizing FDI quality, domestic value addition, knowledge diffusion, resilient supply chains, and regionally broader competitiveness gains.