During the last decade there has been a remarkable change in the composition of sources of Foreign Direct Investment (FDI) inflows in India. Due to change in FDI regime, many countries have started investing heavily in India. U.S. is one of such countries.

This paper investigates the trends in U.S. FDI in India and also analyses the prospects of U.S. FDI in India. It has been found that U.S. FDI inflows have shown upward trend in India. Indian economy offers tremendous opportunity to the U.S. investors as substantial changes in the policy framework regarding FDI are being carried out. These changes have evoked positive response from the U.S. investors. It is effecting the Indian economy in many ways. And this paper's a humble attempt in this direction.

In recent times and in response to the need to provide investor-friendly environment so as not to be left behind in the new wave of global integration, the attitude of many developing countries has changed significantly. They have become more willing to offer numerous financial and non-financial incentives to multinational corporations in order to encourage them to increase direct investment flows (UNCTAD, 1998). Given the open door policies, and some external factors in the developed world such as low interest rates and the cycle of economic growth, the flow of FDI to developing countries has witnessed a rising trend in the last decade (Akinkugbe, 2003). 

India was one of the lowest recipients of FDI among developing countries until 1970s. During 1970s cumulative inflows of FDI was about US$454 million or 0.20% of gross domestic investment. India has opened up its market since the beginning of the last decade (especially from July, 1991) by lowering tariff and non-tariff barriers (NTBs), and liberalizing investment policy. However, by any standard India is far less open than many developing economies.   Furthermore, its factor market including infrastructure sector is less efficient compared with many East and South East Asian countries with whom India competes in international market. Hence, it is possible to argue that even with the policy liberalization India may have failed to attract a significant amount of export oriented FDI (Sharma, 2000). 

Conventional wisdom has it that FDI flows to India have not been commensurate with her economic potential and performance. India has only very recently emerged as a destination for FDI since the pre-reform years were marked with a sharp antipathy toward foreign capital unless under certain conditions (Athreye and Kapur, 2001). Investment and double taxation treaties with many countries have only recently been put in place (Jha, 2003). 

India opened up its economy and allowed MNEs in the core sectors as part of the reform process started in the beginning of the 1990s. Since then it has attracted a big share of FDI flows to the developing countries and has become one of the lucrative investment destination for the foreign investors. However, the pace of FDI inflows to India has definitely been slower than some of the smaller developing countries like Indonesia, Thailand, Malaysia and Vietnam (Sahoo and Mathiyazhagan, 2003). 

Due to liberal policies towards foreign investment adopted by Government of India, FDI inflows have shown a steep increase from US$144.4 Million in 1991 to US$2525.5 Million in 2003. Annual growth rate of FDI has been impressive except the years 1998, 1999 and 2003, when it turned negative. It shows the huge potential of FDI in India. FDI as a percentage of GDP has increased from 0.054% in 1991 to 0.420% in 2003. This percentage is however quite low as compared to other developing nations like China, Malaysia, and Singapore etc.
 
With the fall of former U.S.S.R., the world became unipolar. This has resulted into new emerging economic relations between India and the Unites States of America. Economic need of India is going to build up enormous pressure to improve better, most productive and friendly relation with the U.S. Whereas, the U.S. business community has been trying to seek business alliance with Indian business community to get the needed access to India's vast market which has great potential to expand further. 

Keeping in mind, the economic need of India, Indian prime minister did pay a visit to the U.S. in May,.1994 to attract U.S. leading businessmen particularly from Houston, Texas and the New York to invest in  India  in  a   big  way.  Accordingly, many leading U.S . companies such as Enron Corporation (energy) have shown greater interest in investing in India. It is correct to say that since the initiation of India's new investment policy, there has been a positive indication in regard to U.S. FDI inflows to India. Accordingly, U.S. has emerged as the largest investing country in India (Iqbal, 1998).

The number of American firms significantly expanding their operations in India includes AT&T Corp., General Electric Co., General Motors Corp., Ford Motor Co., IBM Corp., Kellogg Co., Motorola Corp., Novell Inc., Pepsi Co., Exxon, Mobil, Emerson electric, Texas Instruments and Whirlpool Corp. These U.S. Multinational corporations are part of the foreign investment boom in India. They represent three distinct types of investors attracted towards the Indian market: infrastructure companies, consumer goods makers, and oil companies. Their various moves towards India are also examples of India's changing economic environment (Maniam & Chatterjee, 1998). 

European countries had been the major sources of FDI inflows to India until 1990. However, their relative importance has steadily declined in the post liberalization period. The U.S. has emerged as the most important source of FDI with a share of nearly 19 per cent of stocks in 1992. In 1997 the share of the U.S. at 13.75 per cent is, however, deceptive as a large proportion of the U.S. FDI is believed to be routed through Mauritius making Mauritius appear as the largest source of investment in India. The emergence of Mauritius as the largest source of FDI can be explained by the Double Taxation Avoidance Agreement signed between Mauritius and India during the 1990s that enables foreign investors to minimize their tax liability given the tax haven status of Mauritius. Hence, foreign investors from other countries, principally the U.S., route their investments through Mauritius to take advantage of the tax treaty (Kumar, 2003).

U.S. FDI has increased from US$11.4 Million in 1991 to US$647.7 Million in 2004. The percentage share of U.S. FDI inflows in total FDI inflows in India has gone up from 7.89% in the year 1991 to 17.26% in the year 2004. It clearly shows the confidence of US investors in the Indian economy.

II. Database

The data for the purpose of this study has been collected from various sources such as World Development Indicators, brought out by World Bank, various issues of Economic Survey conducted by Government of India, annual reports of Reserve Bank of India, various journals of national and international repute and from various relevant websites for this purpose.

The objective of this study is to present the trends in U.S. FDI in India and also to bring into light the prospects for U.S. FDI in India. The paper is organized as follows. In Section II, Data description is provided. Section III presents the emerging trends in FDI in India.

 *Doctoral Research Scholar, Faculty of Economics and Business, Guru
Nanak Dev University, Amritsar.
** Professor, Faculty of Economics and Business, Guru Nanak Dev
University, Amritsar