FDI refers to capital inflows from abroad that invest in the production capacity of the economy and are “usually preferred over other forms of external finance as they are non-debt creating, non-volatile and their returns depend on the performance of the projects financed by the investors. FDI also facilitates international trade and transfer of knowledge, skills and technology.” Changes in the India’s political climate have precipitated a marked trend towards greater acceptability of FDI. The envisioned role of FDI has evolved from that of a tool to solve the crisis under the license raj system to that of a modernising force that could transform India. The primary focus of this paper is review the changes in the FDI regime since independence and its impact on the economic progress of India. The paper gives a detailed account of the evolution of policy on FDI in India and FDI reforms post 1991.