INTRODUCTION: Foreign direct investment (FDI) has been one of the defining characteristics of the world economy during the last two decades. The purpose of this paper is to provide an overview of foreign direct investment in India and explore the sector wise distribution of FDI inflows in order to point out the dominating sector which has attracted the major share. Since 1991, the flow of foreign direct investment (FDI) rapidly expanded across India; this growth was caused by an increase in mergers and acquisitions activities. As this trend gained force, Indian Government started to ask a question: "What implications would these FDIs have on our country's long-term economic growth?" Whereas the traditional theory had it that "FDI could become the engine of growth for India through the transfer and diffusion of knowledge", there is now an increasing need to assess this claim by finding out the growth trend of FDI in India from two decades FOREIGN DIRECT INVESTMENT: Foreign direct investment (FDI) is direct investment into production in a country by a company located in another country, either by buying a company in the target country or by expanding operations of an existing business in that country. Foreign direct investment is done for many reasons including to take advantage of cheaper wages in the country, special investment privileges such as tax exemptions offered by the country as an incentive to gain tariff-free access to the markets of the country or the region. Foreign direct investment is in contrast to portfolio investment which is a passive investment in the securities of another country such as stocks and bonds. OBJECTIVE OF THE STUDY: 1. To study the trends and patterns of flows of FDI to India. 2. To explore the sector wise distribution of FDI inflows in order to point out the dominating sector which has attracted the major share? 3. To assess the determinants of FDI inflows. 4. To evaluate the impact of FDI on service sectors like Insurance, Retail and Civil Aviation. REVIEW OF LITERATURE: This study takes a fresh look at key development issues related to foreign direct investment (FDI) in developing and emerging economy of India in the light of country experience and policy-oriented work available in this area. This Research Paper makes a modest attempt of developing an insight as to what are the trends in the Indian Retail Industry and to the benefits and drawbacks of FDI in this sector. It has also focused on effect of FDI on Civil Aviation and Insurance Sectors. EVOLUTION: As part of the capital account liberalisation, FDI was gradually allowed in almost all sectors, except a few on grounds of strategic importance, subject to compliance of sector specific rules and regulations. The large and stable FDI flows also increasingly financed the current account deficit over the period. During the recent global crisis, when there was a significant deceleration in global FDI flows during 2009-10, the decline in FDI flows to India was relatively moderate reflecting robust equity flows on the back of strong rebound in domestic growth ahead. An analysis of trends in FDI flows reveal that India registered decreasing trend of nearly 49% in the financial year 2009-10 i.e., from US$ 35.6 billion in 2008-09 to US$ 24.1 billion since the eruption of global financial crisis in 2008-09. Above graph witnessed that strong rebound during 2010-11 flowed US$ 34.84 billion and 2011-12 it is US$ 46.8 billion on the back of improved corporate profitability and some improvement in M&A activities at India. Equity FDI Inflows to India - Sector Wise Equity FDI Inflows to India (Per cent) Sectors 2006-07 2007-08 2008-09 2009-10 2010-11 Sectoral shares (Per cent) Manufactures 17.6 19.2 21.0 22.9 32.1 Services 56.9 41.2 45.1 32.8 30.1 Construction, Real estate and mining 15.5 22.4 18.6 26.6 17.6 Others 9.9 17.2 15.2 17.7 20.1 Total 100.0 100.0 100.0 100.0 100.0 Equity Inflows (US$ billion) Manufactures 1.6 3.7 4.8 5.1 4.8 Services 5.3 8.0 10.2 7.4 4.5 Construction, Real estate and mining 1.4 4.3 4.2 6.0 2.6 Others 0.9 3.3 3.4 4.0 3.0 Total Equity FDI 9.3 19.4 22.7 22.5 14.9 From a sectoral perspective, FDI in India mainly flowed into services sector (with an average share of 41 per cent from the 2006-07 to 2010-11) followed by manufacturing (around 23 per cent). However, the share of services declined over the years from almost 57 per cent in 2006-07 to about 30 per cent in 2010-11, while the shares of manufacturing and others largely comprising electricity and other power generation increased over the same period. Sectoral information on the recent trends in FDI flows to India show that the moderation in gross equity FDI flows during 2010-11 has been mainly driven by sectors such as "construction, real estate and mining" and services such as "business and financial services". Manufacturing, which has been the largest recipient of FDI in India, has also witnessed some moderation PROHIBITION ON FDI IN INDIA: FDI is prohibited in the following activities/sectors: * Retail Trading (except single brand product retailing) * Lottery Business including Government /private lottery, online lotteries etc, * Gambling and Betting including casinos etc. * Business of chit fund * Nidhi company * Trading in Transferable Development Rights (TDRs) * Real Estate Business or Construction of Farm Houses * Manufacturing of Cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes * Activities / sectors not opened to private sector investment including Atomic Energy and Railway Transport (other than Mass Rapid Transport Systems) DETERMINANTS OF FDI: The determinant varies from one country to another due to their unique characteristics and opportunities for the potential investors. In specific the determinants of FDI in India are: * STABLE POLICIES: India stable economic and socio policies have attracted investors across border. Investors prefer countries which stable economic policies. If the government makes changes in policies which will have effect on the business. The business requires a lot of funds to be deployed and any change in policy against the investor will have a negative effect. * ECONOMIC FACTORS: Different economic factors encourage inward FDI. These include interest loans, tax breaks, grants, subsidies and the removal of restrictions and limitation. The government of India has given many tax exemption and subsidies to the foreign investors who would help in developing the economy. * CHEAP AND SKILLED LABOUR: There is abundant labour available in India in terms of skilled and unskilled human resources. Foreign investors will take advantage of the difference in the cost of labour as we have cheap and skilled labourers. Example: Foreign firms have invested in BPO's in India which require skilled labour and we have been providing the same.