A pertinent question that deserves attention is whether it is the nature of the economies of these nations, or is it the profitability of certain industries and services that draw in the capital inflows. The present report seeks to analyze the growth of FDI in India over time and to examine whether these inflows have exhibited any preferences towards specific sectors thereby reflecting the features of these particular sectors to be attractive, or whether they have flown in and spread in uniform patterns thereby reflecting the overall economic features of the emerging markets in India to be lucrative. If it is found that the direct capital inflows do exhibit some fondness for some given sectors then the implications would be strong, particularly for the emerging market economies themselves. The significance of this result would lie in the possibility of identifying the structural features which make the particular sectors worthy of investments so that similar or equivalent features and structures could be then developed for other sectors as well to improve their potential as FDI destinations.
Given the purpose, a large time series panel with cross sections would be adequate. However given the constraint of the scope, and given the objective of the present endeavour, the time period has been chosen to be from 1992-2005. The availability of data in this case was found not to be any significant problem. However due to the constraints of time and resources the analysis has been simplified to include only the top ten FDI securing sectors.
India has been chosen as a representative of an emerging market that is presently a profitable FDI destination. First, we shall undertake some basic descriptive analysis by looking at the changes in FDI inflows in India over time. India under took economic reforms in 1991. Before, it used to be under heavy regulations and trade restrictions.