Foreign investment impacts the Indian economy by providing essential capital for growth, infrastructure, and technology transfer. This influx of capital helps spur economic development, create jobs, and enhance productivity through advanced technologies and management practices. It also strengthens India’s balance of payments by increasing foreign exchange reserves and reducing dependence on domestic savings.

Moreover, foreign investment boosts investor confidence, supports economic stability, and enhances India’s global economic position. However, it also presents challenges. There is a risk of market dominance by foreign firms, which can affect local businesses and reduce competitive dynamics. Additionally, sudden withdrawal of foreign investments can create financial instability and economic vulnerabilities.

To maximize benefits and minimize risks, India needs to implement strategic policies that attract and manage foreign investment effectively. Balancing the positive effects of foreign capital with measures to protect and support domestic industries is crucial for sustainable economic growth.