Regional and Urban Impacts of Foreign Direct Investment in India

Foreign direct investment (FDI) has, in the post-1991 period, acquired considerable importance in India. This chapter analyses the regional distribution of FDI flows and explores the role of urbanization in determining FDI location choices. Three points emerge from the chapter. First, the regional distribution of FDI in India is grossly uneven. Most FDI flows are directed to regions which are more urbanized and have metropolitan dominance. Second, urbanization and its associated factors such as market size, population density, and infrastructure such as road density and teledensity are important determinants of FDI. Third, relative to India’s share in global population and global GDP, India’s share in global FDI is small. The chapter points out that for India to be able to reap the potential benefits of FDI, it will need to make heavy investments in urban infrastructure and services and eliminate land market distortions and other market-related inefficiencies.