Impact of FDI on Employment in India

This article discusses the impact of foreign direct investments (FDI) on employment in India. It explores the positive and negative effects of FDI on different sectors, including the agricultural, industrial, and service sectors. The article highlights the growth of employment opportunities in the industrial and service sectors due to FDI inflow.

Running head: INTERNATIONAL MANAGEMENT
International management
Name of the student
Name of the university
Author note

1INTERNATIONAL MANAGEMENT
Impact of FDI on employment in India
India has faced and still facing the variable impact of the foreign direct investments in
terms of their employment. This is due to the fact that India is much diverse country with the
presence of different sectors with different requirements and business trends. Thus, in some of
the sectors, foreign direct investments are having positive impacts on employment while there
are negative impacts on others1. However, according to various reports, foreign direct
investments is having majorly positive impact on the employment scenario of India and is one of
the major contributor in making the country a potential economic superpower in the near future.
The following section will discuss about both the positive as well as negative impact of foreign
direct investments on the employment scenario of India2.
Impact on the primary sector
India is still primarily a agricultural economy with major portion of the gross domestic
product is coming from this sector. Thus, the primary sector of India is the agricultural sector. It
is reported that foreign direct investments is having moderate impact on the agricultural sector
mainly due to the restrictions associated with it. According to foreign direct investments policy
of the Indian government, only some of the particular areas of the agricultural sector are allowed
for 100 percent foreign direct investments, while majority of the agricultural sector of India is
restricted from the inflow of foreign direct investments3. This is being done in order to safeguard
1 Mehra, Netrja. "Impact of foreign direct investment on employment and gross domestic product in India."
International Journal of Economics and Research 4.4 (2013): 29-38.
2 Chandrachud, S., and N. Gajalakshmi. "The economic impact of FDI in India." International Journal of
Humanities and Social Science Invention 2.2 (2013): 47-52.
3 Dash, Ranjan Kumar, and Purna Chandra Parida. "FDI, services trade and economic growth in India: empirical
evidence on causal links." Empirical economics 45.1 (2013): 217-238.

2INTERNATIONAL MANAGEMENT
the interest of the local stakeholders. In this case, it should be noted that the Indian agricultural
sector is majorly unorganized in nature and thus inflow of the foreign direct investments will
make difficult for this sector to withstand the challenge. It is reported that areas such as
horticulture, floriculture, apiculture and cultivation of some cash crops such as tea and coffee
plantation are being allowed for 100 percent foreign direct investments4.
It is seen that due to the inflow of investments in these sectors, average capital got
increased, which further increased the employment opportunities. This is due to the fact that
agricultural sectors got the foreign direct investments increased in terms of the business, which
required more employment. For example, horticulture is becoming one of the most popular and
sought after sectors in the agricultural field in the recent time5. However, in the late nineties and
prior to the economic liberalization in 1991, this sector is not evident in the Indian agricultural
scenario6. Thus, it can be considered as a positive impact of the foreign direct investments on the
employment in India. However, there is number of reports also being published, which stated
about the negative consequences of the foreign direct investments in these sectors. For example,
in the current time, coffee and tea plantation is India is majorly in the hand of large business
houses and presence of individual growers is negligible. This is mainly due to the fact that
unorganized tea and coffee growers were not being able to face the challenge of huge
investments done by the foreign players7. From this perspective, inflow of the foreign direct
investments is having negative impact on the Indian agricultural sector. However, due to the fact
4 Pillai, K. R., and M. S. Rao. "Determinants of inward FDI to India: A factor analysis of panel data." Journal of
contemporary management research 7.1 (2013): 1-16.
5 Bagli, Supravat, and Manikal Adhikary. "FDI inflow and economic growth in India an empirical analysis."
Economic Affairs 59.1 (2014): 23.
6 Mrinalini, N., Pradosh Nath, and G. D. Sandhya. "Foreign direct investment in R&D in India." Current Science
(2013): 767-773.
7

3INTERNATIONAL MANAGEMENT
that major section of the agricultural sector is restricted from the foreign direct investments, the
impact of it is also limited. It should also be noted that given the data that Indian agricultural
sector is growing at the rate of 2.1 percent as of 2017, it can be concluded that the inflow of
foreign direct investments is having majorly positive impact in terms of employment also8.
Impact on the secondary sector
In the Indian context, secondary sector is the industrial sector, which is second only to the
agricultural sector. However, unlike the agricultural sector, industrial sector of India is highly
dominated by the foreign direct investments after the market liberalization of 1991. It is reported
that prior to the market liberalization in 1991, only 1.8 million people were employed in the
industrial sector, which further gone up to more than 25 million people as of 2016. This data is
denoting the huge positive impact of the foreign direct investments in the industrial sector of
India9. In terms of the business areas, transport, automobile and ports are major recipient of the
foreign direct investments. It is reported that only the transport sector received 9 percent of the
total inflow of the foreign direct investments between 1991 and 1999. Thus, it can be concluded
that this sector is having the major positive impact due to the foreign direct investments in terms
of the employment. This should also be noted that increase in the foreign direct investments
opened up number of different employment opportunities such as training institutes and centers.
This is due to the fact that with the increase in the inflow of the foreign direct investments,
industrial sector of India witnessed a huge transformation from their decade old technologies and
8 Vyas, Abhishek Vijaykumar. "An Analytical Study of FDI in India." International Journal of Scientific and
Research Publications 5.10 (2015): 1-30.
9 Kirti, Ratan, and Seema Prasad. "FDI Impact on Employment Generation and GDP Growth in India." Asian
Journal of Economics and Empirical Research 3.1 (2016): 40-48.

4INTERNATIONAL MANAGEMENT
business approach to the global era. This increased the demand for the skilled employees, which
helped in creation of number of complementary industries.
In addition, increase in the foreign direct investments helped India in becoming a global
hub for manufacturing items such as automobiles and heavy machinery. Thus, more
complementary industries opened their operations in India, which also contributed in increasing
the employment opportunities in the country. However, on the other hand, it is also identified
that positive impact of the foreign direct investments is mainly limited to the large scale
industries only and not to the small and local industries. For example, indigenous Indian
automobile brands such as Hindustan Motors closed their operations by not being able to
compete with the growing capability of the foreign players. These types of closures caused
reduction in the employment opportunities and it is reported that negative impact of the foreign
direct investments on the employment is more evident in the small and medium size industries.
However, still in terms of overall scenario of the Indian industrial sector, inflow of the foreign
direct investments is majorly having positive impact on the employment and rate of increasing
employment opportunities is more compared to the rate of loss of employment opportunities.
Impact on tertiary sector
In the recent time, tertiary sector is becoming one of the most important sectors. This is
due to the reason that service sector is included in this and rapid development of the service
sector is leading it in being the second largest contributor in the gross domestic product. In
addition, it is also being reported that tertiary sector of India is the largest recipient of the foreign
direct investments compared to other sectors. Telecommunication and information technology
are the two sectors witnessed huge inflow of the foreign direct investments and in these sectors

5INTERNATIONAL MANAGEMENT
100 percent foreign direct investments is being allowed10. Unlike the previous two sectors, his
sector has not witnessed any negative impact of the foreign direct investments in terms of
employment. The major reason behind this is the organized structure in this sector. Traditionally
this sector was dominated by the large business houses and thus inflow of the foreign direct
investments only increased the competitive scenario along with increasing the employment
opportunities.
India is one of the largest recipients of the foreign direct investments in the software and
information technology sector especially for the Business Process Outsourcing. Being a populous
country, India was always witnessed surplus of skilled employees. However, with the inflow of
the foreign direct investments, different foreign companies set up their operation in the country,
which helped in attracting the skilled employees and the average rate of the employment in this
sector got increased11. According to the reports, prior to the market liberalization in 1991, 22
percent of the total employment was under the service sector, which got increased to 33 percent
as of 2017. This shows the growth of this sector in terms of employing people. Thus, service
sector is the least affected sector in terms of employment from the foreign direct investments.
Furthermore, this should be noted that well availability of skilled employees in the country and
the capability of the Indian firms in competing with the foreign players helped in preventing the
adverse impact of the inflow of the foreign direct investments on employment12.
10 Saleena, N. J. "Impact of FDI on Services Export: Evidence from India." Journal of Business Management &
Social Sciences Research 2.11 (2013): 34-38.
11 Kar, Sujata. "Exploring the causal link between FDI and human capital development in India." Decision 40.1-2
(2013): 3-13.
12 Mitra, Arup, and Amit Kumar Jha. "Innovation and employment: A firm level study of Indian industries."
Technology. Springer, Singapore, 2016. 113-140.

6INTERNATIONAL MANAGEMENT
Thus, it can be concluded that the impact of the foreign direct investments on
employment is different in different sectors in India. It is identified that there are number of
external factors, which influence the extent to which the foreign direct investments will have
positive impact or vice versa. In addition, it can also be concluded that service sector of India is
the most benefited sector from the inflow of the foreign direct investments in terms of
employment while the agricultural sector is least benefited. Even though there are number of
adverse impact of the foreign direct investments is being discussed, but the overall scenario of
employment of India is denoting that the inflow of foreign direct investments is having positive
impact.

7INTERNATIONAL MANAGEMENT
Reference
Bagli, Supravat, and Manikal Adhikary. "FDI inflow and economic growth in India an empirical
analysis." Economic Affairs 59.1 (2014): 23.
Chandrachud, S., and N. Gajalakshmi. "The economic impact of FDI in India." International
Journal of Humanities and Social Science Invention 2.2 (2013): 47-52.
Dash, Ranjan Kumar, and Purna Chandra Parida. "FDI, services trade and economic growth in
India: empirical evidence on causal links." Empirical economics 45.1 (2013): 217-238.
Kar, Sujata. "Exploring the causal link between FDI and human capital development in India."
Decision 40.1-2 (2013): 3-13.
Kirti, Ratan, and Seema Prasad. "FDI Impact on Employment Generation and GDP Growth in
India." Asian Journal of Economics and Empirical Research 3.1 (2016): 40-48.
Mehra, Netrja. "Impact of foreign direct investment on employment and gross domestic product
in India." International Journal of Economics and Research 4.4 (2013): 29-38.
Mitra, Arup, and Amit Kumar Jha. "Innovation and employment: A firm level study of Indian
industries." Technology. Springer, Singapore, 2016. 113-140.
Mrinalini, N., Pradosh Nath, and G. D. Sandhya. "Foreign direct investment in R&D in India."
Current Science (2013): 767-773.
Pillai, K. R., and M. S. Rao. "Determinants of inward FDI to India: A factor analysis of panel
data." Journal of contemporary management research 7.1 (2013): 1-16.

8INTERNATIONAL MANAGEMENT
Saleena, N. J. "Impact of FDI on Services Export: Evidence from India." Journal of Business
Management & Social Sciences Research 2.11 (2013): 34-38.
Vyas, Abhishek Vijaykumar. "An Analytical Study of FDI in India." International Journal of
Scientific and Research Publications 5.10 (2015): 1-30.