Abstract:
At present in a globalized scenario, Foreign Direct Investment (FDI) is
crucial in stimulating economic growth and development of a country.
Government of India for the purpose of accelerated growth of the Indian
economy and in order to attract FDI has extended incentives in the form of
tax holiday, investment tax allowances, depreciation allowances etc. Foreign
investors are generally interested to take the benefits of differences in tax
rates across various countries. This has resulted in an increased competition
among government of different countries to attract foreign investors by
offering tax incentives. Empirical research on tax incentives shows that they
sometimes work in attracting FDI, but it remains unclear whether they are
beneficial overall. Some studies concludes that developing countries do not
need to offer tax incentives to attract Foreign Direct Investment (FDI)
because the decision to invest in a country depends on the country's overall
investment climate and some other factors. This paper attempts to analyse the
effect of using different business tax incentives on Foreign Direct Investment
Journal of Commerce & Management Thought
Vol. 5-4, 2014, pp 557-573
DOI : 10.5958/0976-478X.2014.00004.4
557
in India based on the overview of theoretical and empirical findings. Through
an in-depth analysis it might be concluded that despite insufficient findings
regarding its effectiveness, tax incentives plays a key role in the policy
initiatives which are being used to increase their appeal to foreign investors.
Investment by MNCs has made a significant contribution in the economic
development of India.