Trends in the Flow of FDI into India

Abstract

Foreign Direct Investment (FDI) plays a very important role in the development of the nation. It is very much vital in the case of underdeveloped and developing countries. A typical characteristic of the developing economies is the fact that these economies do not have the needed level of savings and income in order to meet the required level of investment needed to sustain the growth of the economy. In such cases, foreign direct investment plays an important role in bridging the gap between the available resources or funds and the required resources or funds. It plays an important role in the long-term development of a country not only as a source of capital but also for enhancing the competitiveness of the domestic economy through the transfer of technology, strengthening infrastructure, raising productivity and generating new employment opportunities. In India, FDI is considered as a developmental tool, which helps in achieving self-reliance in various sectors and in the overall development of the economy. India after liberalizing and globalizing the economy to the outside world in 1991, there was a massive increase in the flow of foreign direct investment. This paper analyses FDI inflow into the country during the Post-Liberalization period, especially during the period of fifteen years from 2000-01 to 2014-15. The paper tries to examine the various sets of factors which influence the flow of FDI with special reference to the recent campaign called ‘Make in India’. In the models, the dependent variable is FDI. Independent variables are the growth rate of per capita GDP, inflation rate, infrastructural growth, the degree of openness, exchange rate and interest rate. According to the statistical analysis, the growth rate of per capita GDP, infrastructure, Export and Import have a positive sign and are statistically significant. The inflation rate, the exchange rate and the openness of the economy shows a positive sign but are statistically not significant. Interest shows a negative sign but is statistically not significant.

 

Key Words: FDI, GDP, Make in India, Degree of Openness, Infrastructural Growth, Inflation, Exchange Rate