The importance of FDI can be explained by analyzing its need and influence on Indian economy, the need for FDI is pretty simple, as right after the balance of payment crises it became pretty clear that India will not have much domestic investment unless the private sector is liberalized and supported by the government. Even if big bang reforms take place it will need some time to settle things down, so for the time being the major investment had to come from elsewhere i.e. FDI liberalization schemes must be rolled out. Foreign capital has been assigned a significant role in the Indian economy. Indian Foreign Investment policy has been formulated with a view to inviting and encouraging Foreign Direct Investment into India. Equity capital and Reinvested Earning and other capital consisting short term and long term borrowing are three main basic categories of FDI. The role of Foreign Direct Investment (FDI) in the up gradation and advancement of technology, skills and managerial capabilities is now acknowledged. There are two investment routes in India. Under the automatic route with some exception FDI up to 100 is allowed in most sectors. There are many sectors still prohibited for FDI. These are sectors which were prohibited for foreign direct investment i.e. lottery business, gambling and betting, chit funds, nidhi company, real estate business, manufacturing of cigars and tobacco. And some sectors were not open to private sector i.e., Atomic Energy and Railway operations for FDI as per FDI Policy August, 2017.

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Keywords: FDI, RBI, MNCs, Foreign Capital and Balance of Payment (BOP).