FDI has become a catchphrase since 1991 in India?s economic development policy. However, FDI comes with the threat of crowding-out of the domestic investment. Owing to MNCs? financial and technical muscle, there is a strong possibility of washing out weak domestic industries. Also most MNCs adopt ?Resource-seeking' and 'Market-seeking? approach to seize domestic market and employ cheap physical as well as human resources in the host country, which do not necessarily promote internal growth of the economy. Similarly, it would be naive to make any quick remark on FDI?s implication on the host economy based on its short-term performance. This research has attempted to find out potential threats of crowding-out of domestic industries at national level in general and also at state as well as sector level. FDI's short term and long term effects, spillovers, its capacity to generate employment, growth potentials of the economy, promotion to domestic industries, trade and exports have to be studied. Hence, appropriate policy measures are discussed to ensure balanced growth of all the sectors as well as the states.