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LIBERALIZATION OF FOREIGN INSTITUTIONAL INVESTMENTS (FIIS) IN INDIA: MAGNITUDE, IMPACT ASSESSMENT, POLICY INITIATIVES AND ISSUES

Singh Sumanjeet

University of Delhi, India.

Minakshi Paliwal

M. D. University, India.

ABSTRACT

In this age of transnational capitalism, a significant amount of capital is flowing from developed world to emerging economies. Portfolio investments brought in by FIIs have been the most dynamic source of capital to emerging markets since 1990s. Since the beginning of liberalization in 1990s, FII flows to India have steadily grown in importance. From a near absence of FII inflows till 1992, today such inflows represent a dominant proportion of total flows. Positive fundamentals, gradual removal of structural barriers combined with fast growing markets have made India an attractive destination for foreign institutional investors. Today, FIIs are the key drivers of the Indian equity market and rising stakes in Indian companies. But, at the same time there is unease over the volatility in foreign institutional investment flows and its impact on the different segments of the economy. The increase in the volume of foreign institutional investment (FII) inflows in recent time has led to concerns regarding the volatility of these flows, threat of capital flight, its impact on the stock markets and influence of changes in regulatory regimes. The determinants and destinations of these flows and how are they influencing economic development in the country have also been debated. The present paper revealed that any problem related to FIIs is basically the problem of management. India should develop new tools to manage FIIs effectively and efficiently.

Key Words: FIIs, Stock Markets, Performance, Firms, Economy

JEL Codes: G15, N 25, F41, G28