The Indian economy is one of the largest receivers of FDI, but it wasn’t always in the same situation. After gaining its Independence in 1947, the Government took certain measures and formulated National Five Year Plans for planning its growth path. Even though the Government’s trade policies at that time promoted exports, some of the policies of import substitution and infant industry argument tried to protect the domestic industries from facing competition against foreign industries. A combination of factors like quotas, licenses and permits restricted the trade to a certain extent. Private sector played a limited role in the economy and the conditions prevailing in the economy were not favourable for foreign investment. Consequently, because of restricted policies, the inflow from FDI in India was small. By the end of financial year in March 1991, it was only US$ 73 million. Other countries like Pakistan and China were ahead of India in attracting inflow from FDI that time, net inflow of both being US$ 258 million and US$ 4.36 billion respectively.

KEYWORDS:  Indian economy, FDI, Trade Policies, Domestic Industries, Foreign Investment.