Several facts have proven that foreign direct investment has significant impact on economic growth, in particular, foreign direct investment (FDI) impacts five variables— domestic investment, technology, employment generation and labor skills, the environment, and export competitiveness. This paper is divided into two sections. The first examines the rationale for increasing FDI and briefly examines national trends in FDI. The second looks at FDI trends in Tamil Nadu. There are two competing theories regarding the effect of FDI on domestic investment. One is that FDI encourages domestic investment by providing new markets, demand for inputs and new technology that spills over into the economy. Labor is mobile and often moves from multinational firms to domestic firms; more skilled labor may leave a multinational firm to form a start-up. Researchers also believe that FDI can serve to increase competition thereby making markets (including financial markets) more efficient. Finally, investment in new sectors can stimulate the growth of new industry and new products. The present study is based on secondary data and period of the study is from 2009 to 2020. Total FDI inflows have been raised from US $ 27841 Millions in the year 2008-09 and the share of direct foreign investment through approvals in equity etc. stood at 65.79% and that of portfolio investment was 34.21%. Projections show that total FDI inflows will be US $ 46,098 Millions in 2019-20. Singapore and Mauritius tops in FDI inflows and the FDI inflows in Manufacturing and Computer service sectors were in highest position. They have positive impact on the related economic indicators on Indian Economy