Institutional Changes Favouring FDI Inflows to India: Gradual Transformation Since 1969

How did India respond to globalization in the realm of inward foreign direct investment (FDI)? This paper presents the economic institutional change favouring FDI inflows at the union level of India by tracing political and economic history from the Indira Gandhi government in the late- 1960s to the current Narendra Modi government. From a historical institutionalist perspective, it highlights the significant correlation of institutional evolution with socio-political factors such as ideas of key policy makers and various interests in society. The paper argues that the institutional changes favouring FDI inflows to India can be defined as ‘gradual transformation’. This argument is based on the ideational tipping point model that underlines the role of endogenously-driven ideas that favoured foreign capital and finally won over various interest groups that were opposed to FDI inflows. It stresses that the dynamics of ideas and interests contributed to an incremental institutional change over a period of time. By demarcating three different periods based on the policy regime change toward foreign capital and foreign investments—anti-FDI (1969-1975), selective FDI (1975-1991), and pro-FDI (after 1991), the paper presents empirical evidence which backs the gradual transformation mode of institutional change, discussed in scholarly literature on historical institutionalism.