Indian policy towards foreign collaborations and foreign direct investment, which remained very restrictive during the 1970s, was considerably liberalized during the 1980s. Interestingly, this change was brought about without amending the Foreign Exchange Regulation Act (FERA). The liberalization has led to a phenomenal increase in the number of foreign collaborations approvals, foreign investment involved in the foreign collaboration agreements and net inflow of FDI in India. The provisions of FDI policy have guided the bulk of FDI inflows to technologically advanced industries. As in the 1970s, the USA followed by the FRG, the UK and Japan remained most dominant foreign investor in India during the 1980s. Yet, the source of foreign investment in India got more diversified during the latter 1980s. Although the initial attempt towards the liberalization of FDI policy in the 1980s was aimed at improving the export performance and overall competitiveness of the economy, the recent efforts of the National Front government for further liberalisation is primarily guided by its apprehension that the additional borrowings in international financial market for financing current account deficits will lead India towards "debt-trap". The tempo of the liberal policy, the author feels, should be continued with a view to allowing the FDI due to its attendant advantages while controlling its adverse effects.