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Kmbn408 PR v1
Kmbn408 PR v1
CERTIFICATE
th
This is certify that Mr.Vivek Singh Student of MBA - 4 semester session (2023-24), has successfully
completed the project work titled A STUDY ON FOREIGN DIRECT INVESTMENT AND ITS
IMPACT ON INDIA in Partial fulfillment of requirement for the completion of MBA Course as prescribed
by the ABSSINSTITUTE OF TECHNOLOGY Affiliated to AKTU, Lucknow.
This Research Project Report is (KMBN-408) the record of authentic work carried out by him / her during
the period from1 April 2024 to 30 April 2024. He / She has worked under my guidance.
Signature Signature
Project Guide (Internal) Principal (E&T)
LIST OF TABLES
5
5.2.1 Exploring the Dimension 1: FDI INFLOW 10
5.2.2 Exploring the Dimension 1: FDI OUTFLOW 11
5.3 FDI INFLOWS REGRESSION ANALYSIS 12
5.3.2 FDI OUTFLOWS REGRESSION ANALYSIS 13
5.4 REGRESSION ANALYSIS OF FDI IMPACT IN INDIAN 14
ECONOMY:
5.4.2 16
Sensex
5.4.3 17
Human Development Index
5.4.4 Population: 18
5.4.5 Inflation 19
5.5.1 GRANGER CASUALITY TEST BETWEEN FDI AND 20
VARIABLES
1.1 INTRODUCTION 1
1.2 NEED FOR THE STUDY 2
1.3 OBJECTIVE 2
1.4 SCOPE OF THE STUDY 2
1 1.5 LIMITATIONS 2
INDUSTRY PROFILE: 3
2.1BACKGROUND OF THE INDUSTRY 3
2
2.2 SECTORS 4
2.3 MARKET SIZE 4
3.REVIEW OF LITERATURE 5
6
3.1 ANALYSIS OF FDI INFLOWS AND OUTFLOWS IN INDIA
6
3.2 A CRITICAL ANALYSIS OF FOREIGN DIRECT
INVESTMENT INFLOWS IN INDIA.
7
3.3 DETERMINANTS OF FDI IN INDIA AND SRI LANKA
3
8
3.4 INTERSTATE DISTRIBUTION AND SECTORAL
COMPOSITION OF FDI INFLOWS IN INDIA.
3.5 IMPACT OF FDI ON INDIAN ECONOMY 9
3.6 FOREIGN DIRECT INVESTMENT AND ECONOMIC 10
GROWTH IN INDIA: A SECTOR-SPECIFIC ANALYSIS.
3.7 IMPACT OF FDI ON INDIAN ECONOMY 13
3.8 FOREIGN DIRECT INVESTMENT (FDI) AS A 14
STRATEGIC COMPONENT OF INVESTMENT
15
3.9 A Test of Granger Causality
3.10 - The Granger Causality Relationship between Foreign 18
Direct Investment (FDI) and Economic Development
3.11 Study on FDI inflow and its Impact in India using Unit 19
root test and Granger Causality Test
3.12 A Study on analysis of fdi inflows and outflows in India 19
3.13 An Analysis of the Trend During Future Projections for the Next 20
3.14 FDI, and Economic Growth in India: A Sector Level Analysis 20
3.15 Impact of FDI on GDP:A Comparative Study of China &India 20
RESEARCH METHODOLOGY 21
4.1 INTRODUCTION 21
4 4.2 RESEARCH DESIGN 21
9
CHAPTER -1
1. INTRODUCTION:
Foreign direct investment (FDI) in India is a major monetary source for economic
development in India. Foreign companies invest directly in fast growing private Indian
businesses to take benefits of cheaper wages and changing business environment of
India. Economic liberalisation started in India in wake of the 1991 economic crisis and since then
FDI has steadily increased in India, which subsequently generated more than one crore (10
million) jobs. According to the Financial Times, in 2015 India overtook China and the United
States as the top destination for the Foreign Direct Investment. In first half of the 2015, India
attracted investment of $31 billion compared to $28 billion and $27 billion of China and the US
respectively.
The research is mainly focus on the Foreign Direct Investment and its impact in
the Indian economy. FDI inflows in India stood at $45.15 billion in 2014-15 and have
consistently increased since then. FDI inflows increased to $55.56 billion in 2015-16, $60.22
billion in 2016-17, $60.97 billion in 2017-18 and the country registered its highest
ever FDI inflow of $62.00 billion during the last Financial Year 2018-19.
Through this research the more amount of FDI inflows and outflows will be
determined and its impact to the Indian economy will be analysed in this study. The sector wise
FDI analysis will give the more amount of knowledge about the development of the Indian
economy. Thus this study will give more amount of FDI knowledge about the India.
Foreign Investment Promotion Board (FIPB) which was the responsible agency to
oversee this route was abolished on May 24, 2017. It held its last meeting on 17 April, which was
the 245th meeting of the Board. On 24 May 2017, Foreign Investment Promotion Board was
scrapped by the Union Government. Henceforth, the work relating to processing of applications
for FDI and approval of the Government thereon under the extant FDI Policy and FEMA
10
1.2 NEED FOR THE STUDY:
The main need for the study is to find the FDI inflow and outflows in India. The development of
Indian technology wise and infrastructure is mainly with the support of the FDI inflows. There
were many impacts were been there with the FDI inflows in the India. The need is to test the
following variables with the FDI whether it has any relationship with the FDI. So these were all
the items which were the need for the study.
1.3 OBJECTIVES:
From this study we can be able to understand clearly the FDI inflow and outflows in the India.
The study also gives the complete detail of FDI impacts in the Indian economy and also we
can identify whether there is a relationships exist between the FDI and the other following
proposed variables in the below research. The test were been conducted to determine the
effects of the FDI in the Indian economy. Thus these were the following scope of the study in
this research paper.
1.5 LIMITATION:
1. FDI inflow and the outflow beginning years cannot be able to determine properly.
2. More information were not been displayed transparent in the websites.
11
CHAPTER-2
INDUSTRY PROFILE:
2.1 BACKGROUND OF THE INDUSTRY:
FDI was introduced in the year 1991 under Foreign Exchange Management Act (FEMA),
by then finance minister Dr. Manmohan Singh. It started with a baseline of $1 billion in
1990. India in 1997 allowed foreign direct investment (FDI) in cash and carry wholesale.
There are two routes by which India gets FDI
1. Automatic route: By this route FDI is allowed without prior approval by Government
or Reserve Bank of India.
2. Government route: Prior approval by government is needed via this route. The application
needs to be made through Foreign Investment Facilitation Portal, which will facilitate single
window clearance of FDI application under Approval Route. The application will be forwarded to
the respective ministries which will act on the application as per the standard operating
procedure. Foreign Investment Promotion Board (FIPB) which was the responsible agency to
overseas this route was abolished on May 24, 2017. It held its last meeting on 17 April, which was
the 245th meeting of the Board. On 24 May 2017, Foreign Investment Promotion Board was
scrapped by the Union Government. Henceforth, the work relating to processing of applications for
FDI and approval of the Government thereon under the extant FDI Policy and FEMA, shall now be
handled by the concerned Ministries/Departments in consultation with the Department for
Promotion of Industry and Internal Trade (DPIIT), Ministry of Commerce, which will also issue
the Standard Operating Procedure (SOP) for processing of applications and decision of the
Government under the extant FDI policy.
2.2 SECTORS:
During 2014 16, India received most of its FDI
from Mauritius, Singapore, Netherlands, Japan and the US. On 25 September 2014, Government of
India launched Make in India initiative in which policy statement on 25 sectors were released with
relaxed norms on each sector. Following are some of major sectors for Foreign Direct Investment.
Infrastructure:
10% of India's GDP is based on construction activity. Indian government has invested $1
trillion on infrastructure from 2012 2017. 40% of this $1 trillion had to be funded by private
sector. 100% FDI under automatic route is permitted in construction sector for cities and
townships.
12
Automotive:
FDI in automotive sector was increased by 89% Between April 2014 to February 2019. India
is 7th largest producer of vehicles in the world with 25.5 million vehicles annually. 100% FDI
is permitted in this sector via automatic route. Automobiles shares 7% of the India's GDP.
Pharmaceuticals:
Indian pharmaceutical market is 3rd largest in terms of volume and 13th largest in terms of
value. Indian pharmacy industry is expected to grow at 20% compound annual growth rate
from 2015 to 2020. 74% FDI is permitted in this sector.
Service:
FDI in service sector was increased to 46% in 2014 15. It is US $1.88 billion in 2017. Service
sector includes banking, insurance, outsourcing, research & development, courier and
technology testing. FDI limit in insurance sector was raised from 26% to 49% in 2014.
Railways:
100% FDI is allowed under automatic route in most of areas of railway, other than the
operations, like High speed train, railway electrification, passenger terminal, mass rapid
transport systems etc. Mumbai-Ahmedabad high speed corridor project is single largest
railway project in India, other being CSTM-Panvel suburban corridor. Foreign investment
more crore (US$13 billion) is expected in these projects so far.
Textile:
Textile is one major contributor to India's export. Nearly 11% of India's total export is textile.
This sector has attracted about $1647 million from April 2000 to May 2015. 100% FDI is
allowed under automatic route. During year 2013 14, FDI in textile sector was increased by
91%. Indian textile industry is expected reach up to $141 billion till 2021.
Airlines:
Foreigner investment in a scheduled or regional air transport service or domestic scheduled
passenger airline is permitted to 100%
FDI equity inflow in India stood at US$ 36.79 billion during April to December
2019. Singapore emerged as the largest source of FDI in India during the last fiscal with
$14.67 billion investments.
Foreign direct investment into India rose 13% to a record $49.97 billion in FY20
from $44.36 billion a year earlier.
13
CHAPTER- 3
3. REVIEW OF LITERATURE:
14
markets to unfair competition and thereby eventually leading to job losses. A balanced and
objective view needs to be taken in this regard, foreign investment in portfolio may be
withdrawn at any time. Therefore GOI should stress to attract more equity investments.
Further the regulatory policies should be made favourable and policymakers should avoid
uncertainties for boosting FDI in India and ultimately to increase GDP, Trade and Foreign
reserves.
3) Badar Alam Iqbal, Mohd Nayyer Rahman, Nadia Yusuf (2018), in their paper
studied that Foreign Direct Investment has
remained an exhaustive endeavour for the researchers and the main objectives for the study
is to find out the trend pattern of FDI between India and sri lanka and the research used in
the study is descriptive research and the hypothesis and regression analysis were been the
research methodology. The present piece of research is an attempt to gauge the determinants
of FDI for India and Sri Lanka hypotheses testing Ordinary Least Squares Regression is
used. Through this research they found that the comparing between the India and Sri Lanka
the FDI trend pattern is upward in India.
4) Febina K., Thomas Paul Kattookaran, (2018), in their paper, study on interstate
distribution and sectoral composition of FDI inflows in , studied that an overview
on the sectoral distribution of foreign investment discloses the wide disparity in the
distribution of foreign capital among various sectors. The identified objectives are finding
out the pattern of FDI inflow in India and also its impact with the economy. The descriptive
research is been used in the study. The data used is secondary data. While some sectors like
service, construction, etc. receive elevated flow of foreign capital, others are fully ignored
by the foreign investors. The rationale behind this should be explored out immediately so
that we can avoid a future distress in our economy. Foreign direct investment (FDI) refers
to obtaining the ownership in a foreign business entity. It can also be attributed that FDI
circulates capital across national boundaries. It can be defined as an investor based in one
country (home country), acquires an asset in another country (host country), with the
intention to manage it. It is this dimension of management that distinguishes FDI from
15
portfolio investment in foreign stocks and other financial instruments. For a terribly
populated country like India, a good quantum of resource is needed to fund its various
developmental needs, which the country does not have. To strengthen its infrastructure,
expertise and knowledge base.
inflows. The purpose of this study is to analyse the trend of FDI equity inflows in different
sectors and regional offices. This paper also helps to know the share of top investing
countries in FDI equity inflows in India. In order to obtain the objectives of this study, we
used secondary data for the periods of 2000-2013. The secondary data has been collected
from various journals, books, Newspapers and websites.
6) Shib Sankar Jana, Tarak Nath Sahu, Krishna Dayal Pandey (2019), in their paper
foreign direct investment and economic growth in India: a sector- ,
studied that, the present study is first of its kind in India which makes an endeavour to device
the distinguish impact of sector-wise decomposed FDI inflows on the growth of three of its
economic sectors. The study documents remarkably different findings for different sectors
as expected. First, the study evidences a positive short- and long-run unidirectional causality
from agricultural output to FDI inflow in the sector. However, the study finds agricultural
output to be strongly exogenous. Interestingly, the impulse response function analysis even
suggests a negative impact of agricultural FDI on the output growth of the sector in the first
few years. Therefore, FDI in agricultural sector fails to exert any favourable impact on the
16
growth of this sector of Indian economy. This is mainly because the primary sector in India,
even after much government intervention and policy implications, is still suffering from
feeble infrastructure and technology base resulting in poor investment absorptive capacity
and week linkages among the intra-sectoral components. The study finally concludes that
although most of the eminent empirical studies recommend governments for service sector-
centric policy formulation to attract greater FDI, it is quite true that without sufficient
development of agriculture and manufacturing sector, the sustainability of service-led
growth is highly questionable. This is mainly because the demand at large for services
comes from the agricultural and manufacturing sectors, and the service sector itself cannot
generate its own demand in the long run.
7) Mafruza sultana, vidushi kagdiyal, vishal m goyal, sai pratyush chakkala, and rajeshri
parmar IMPACT OF FDI ON INDIAN ECONOMY International Journal (2017) there
have been many researches on FDI in India and its impact on Indian economy. The main
objectives is to examine the impact of FDI on not only Indian growth variables but also on
other factors which are human development index and population as well. We wanted to know
how much FDI is responsible in the changes of their individual variance. We used a model in
which clubbed the FDI factors (foreign exchange reserves, exchange rate, import and export)
into one and from it we saw the impact its making on Indian economic variables. In this study
we included GDP, HDI, population, inflation and Sensex index as economic variables. We used
regression model for our data analysis Findings: We get to know that there is a considerable
impact of FDI on HDI, population and Sensex index. Though there is an impact on import
export also but not to that much extent.
17
capital formation and by facilitating the technology transfers. The main purpose of the study is
to investigate the impact of FDI on economic growth in India.
18
environment which is attractive to foreign direct investment. The findings confirm the strong and
positive relationship between economic growth of Qatar and FDI inflows.
12) Kaur Sachdeva (2014) Study on analysis of fdi inflows and outflows in ,in their
paper, studied the Foreign Direct Investment inflows and outflows in India and the main
objective of the study is to find out the FDI inflows and outflows trends and patterns. The study
has descriptive research and hypothesis test approach as their research methodology. The
Secondary data is been used for the analysis in this study and through containing sample data like
has generated strong interest in foreign investors and turning India into one of the favourite
destinations for global FDI flows. The FDI inflows grow at about 20 times since the opening up
of the economy to foreign investment. Further, the explosive growth of FDI gives opportunities
to Indian industry for technological up gradation, gaining access to global managerial skills and
practices, optimizing utilization of human and natural resources and competing internationally
with higher efficiency.
19
as well as the growth history of FDI inflows. The motivation behind this article is to make an
effort to forecast the FDI Inflows in India. Traditionally, India has pursued an enormously
cautious approach. The result of future projections shows a positive trend indicating manifold
increase in FDI inflows in India in the coming years.
14) Chandana Chakraborty and Peter Nunnenkamp (2018) Reforms, FDI, and
Economic Growth in India: A Sector Level in their study Booming foreign direct
investment (FDI) in post-reform India is widely believed to promote economic growth and the
main objective is to analyse through sector wise manner. The secondary data is been used for this
study. The descriptive research and granger casualty test were the research methodology. . We
assess this proposition by subjecting industry-specific FDI and output data to Granger causality
tests within a panel cointegration framework. It turns out that the growth effects of FDI vary
widely across sectors. FDI stocks and output are mutually reinforcing in the manufacturing sector,
whereas any causal relationship is absent in the primary sector. We find only transitory effects of
FDI on output in the services sector. However, FDI in the services sector appears to have promoted
growth in the manufacturing sector through cross-sector spill overs.
20
CHAPTER- 4.
4. RESEARCH METHODOLOGY:
4.1 INTRODUCTION:
The research aims at studying the Foreign Direct Investment inflow and outflow and its
impact in India. In this Chapter, we have discussed the tools and techniques that are the statistical
method of collection, in this interpretation and analysis. The tools and techniques are mean,
standard deviation, correlation and Regression, SPSS and E-views.
Through this test the research can be done in more efficient manner.
21
CHAPTER 5
ANALYSIS AND INTERPRETATION
5.1 INTRODUCTION:
This chapter deals with the analysis of FDI Inflow and Outflow and its impact in India,
Exploring the study of the constructs which has been taken for the study using statistical
tools. The analysis is done with information collected from Secondary data. The
significance of the analysis is to access the factors that affect FDI inflow and Outflows.
FDI Inflow
FDI Outflow
Impacts in India
Based on the analysis of the result, the factors which are highly influencing the study
on the FDI were found out. The analysis chart indicates the less influencing and highly
influencing dimensions which were taken for the study.
22
5.2 DESCRIPTIVE STASTISTICS:
5.2.1 EXPLORING STUDY CONSTRUCTS:
The data is collected from secondary data from the various government websites. The
FDI inflows and outflows data were been collected under that there were three
constructs were been created which is analysis of country wise, sector wise and year
wise. The study and the descriptive statistics for each of them are given below
Inference:
FDI INFLOW
3 174614.6
2 3045.88
1 33478.90909
0 20000 40000 60000 80000 100000 120000 140000 160000 180000 200000
23
FDI OUTFLOWS Mean Std. Deviation
YEAR WISE OUTFLOWS
8793.555 2821.218
Inference:
FDI OUTFLOW
3 7890.337778
2 4537.593333
1 8793.555
0 1000 2000 3000 4000 5000 6000 7000 8000 9000 10000
24
The perspective on challenging factors towards constraints were accessed by FDI Inflows
and Outflows. To study whether the FDI Inflows and Outflow have same trends, a
Regression analysis was carried out. Regression was used to find the difference in the FDI
inflows and outflows.
5.3.1 FDI INFLOWS REGRESSION ANALYSIS:
Adjusted R Significance
S.NO MODEL Multiple R R Square Square F
INTREPRETATION:
1. YEAR WISE INFLOWS:
In Regression analysis, the year wise inflow has the significance value of 0.01 less than
0.5 which states that there is a change in FDI year wise inflow. Every year the FDI inflow
in India are changing up and down manner.
2. COUNTRY WISE INFLOW:
In regression analysis, the Country wise FDI inflow has the significance value of 0.003633
less than 0.5 which describes that there is a change in country wise FDI inflow in India.
Top ranking country wise is been changing rapidly.
3. SECTOR WISE INFLOW:
In regression analysis, the Sector wise FDI inflow has the significant value of 0.0012 less
than 0.5 which tells that there is a change in sector wise inflow. The FDI sector were been
changing every year.
25
Adjusted R Significance
S.NO MODEL Multiple R R Square Square F
YEAR WISE
1 OUTFLOWS 0.952072595 0.90644223 0.890849263 0.000265429
COUNTRY WISE
2 OUTFLOW 0.916162387 0.83935352 0.823415 2.82992E-05
SECTOR WISE
3 OUTFLOW 0.72042517 0.51901243 0.4503 0.028572166
INTREPRETATION:
1. YEAR WISE OUTFLOWS:
In regression analysis, the year wise FDI outflow has the significant value of 0.0002
less than 0.5 which states that there is a changes in every year wise FDI outflow.
2. COUNTRY WISE OUTLFOW:
In regression analysis, the country wise outflow has the significance value of 2.82 more
than 0.5 which says that there is no /changes in country wise FDI outflow. The country
wise FDI outflow is happening constantly in listed countries.
3. SECTOR WISE OUTFLOW:
In regression analysis, the sector wise FDI outflow has the significance value of
0.02857 less than 0.5 which says that ranks of top sector were been changing
regularly.
26
Std. Error of R F df 1 df 2 Sig. F
the Estimate Squa Chan Chan
re ge ge
Chan
ge
SENSEX .96 2356.44065 .924 18.3 8 12 .002 H1 accep
1a 62 ted
HDI .98 .00539 .973 54.0 8 12 .000 H2 accep
6a 79 ted
POPULA .98 10168360.4 .978 66.9 8 12 .000 H3 accep
TION 9 3727 08 ted
27
Ho: There is no relationship between FDI and HDI
H2: There is a relationship between FDI and HDI
INTREPRETATION:
Thus, from the regression result, it is shown that the alternate hypothesis is accepted
which is a relationship between FDI and
28
The key objective of this study is to analyse the relationship between FDI and GDP for
India. Increased FDI inflow in India in recent period can be debated to be aided by the
fairly stable GDP growth rate, where it performed as a major boost towards a justifiable
high domestic investment.
Ho: There is no relationship between FDI and GDP.
H5: There is a relationship between FDI and GDP.
INTREPRETATION:
Thus, from the regression result, it is shown that the Null hypothesis is accepted which
is is no relationship between FDI and
1) Sensex Index:
Coefficient
MODEL Unstandardized Standardized t Sig
Coefficient Coefficients
B Std. Error Beta
(Constant) - 8109.703 - 2.729 .034
22133.124
FER -.892 .450 -.675 - 1.982 .095
Exchange 1116.268 263.482 1.560 4.237 .005
Rates
Export .004 .013 .330 .317 .762
Import -.003 .008 -.349 -.405 .699
INTREPRETATION:
From the above table we see that the impact of FER is -0.675, Exchange rate is 1.560,
Export rate is 0.330, and Import rate is -0.349 on Sensex index. Looking at the
significant values of these indicators we see that the major impact is made by only FER
and Exchange rate. Thus, we get an insight from the above information as to why the R
square value of Sensex index is 0.924 or 92.4%. FER has a negative impact and
exchange rate has a positive impact.
29
2) Human Development Index:
Coefficient
MODEL Unstandardized Standardized t Sig
Coefficient Coefficients
B Std. Error Beta
(Constant) .509 .019 27.429 .000
FER 2.833E006 .000 .560 2.752 .033
Exchange .000 .001 .144 .654 .537
Rates
Export 4.601E008 .000 .944 1.518 180
Import - .000 -.664 -1.290 .244
2.296E008
INTREPRETATION:
In the above table independent variables are FER, Exchange rate, Export, Import.
Looking at the significant values we see that FER has value less than 0.05 thus we say
FER has an impact on HDI. This gives a little information as to why the R square value
of HDI is 0.973.
3) Population:
Coefficient
MODEL Unstandardized Coefficient Standardized t Sig
Coefficients
B Std. Error Beta
(Constant) 1081356377 34994468. 30.9 01 .00 0
.094 520
FER 5756.248 1941.470 .544 2.96 5 .02 5
Exchange 636057.177 1136958.9 .111 559 .59 6
Rates 54
Export 7.395 57.175 .072 .129 .90 1
Import 22.066 33.557 .305 .658 .53 5
30
INTRPRETATION:
In the above table the dependent variable is population and the independent variables
are FER, exchange rates, export, import rates with significant value of 0.025, 0.596,
0.901, 0.535 respectively by which we can infer that FER has an impact on Population
as it has the lowest significant level.
4) Inflation:
Coefficient
MODEL Unstandardized Standardized t Sig
Coefficient Coefficients
B Std. Error Beta
(Constant) 18.374 9.379 1.959 .098
FER .000 .001 .329 .453 .667
Exchange -.302 .305 -.779 -.991 .360
Rates
Export - .000 -3.044 - 1.370 .220
2.099E005
Import 1.472E005 .000 3.011 1.636 .153
INTREPRETATION:
In the above table the dependent variable is GDP and the independent variables are
FER, exchange rate, export, import with significant values of 0.667, 0.360, 0.220, 0.153
respectively and we can clearly see that none of the variables has a significant value of
less than 0.05 or 5%, hence, there is no impact of inflation from these variables.
31
5) Gross Domestic Product:
Coefficient
MODEL Unstandardized Standardized t Sig
Coefficient Coefficients
B Std. Error Beta
(Constant) .637 7.46 3 .085 .93 5
FER -.001 .000 -1.943 - 2.23 8 .06 7
Exchange .403 .242 1.562 1.66 4 .14 7
Rates
Export 2.368 E- .000 .515 .194 .85 2
006
Import 1.600 E- .000 -.491 - .224 .83 1
006
INTREPRETATION:
In the above table the dependent variable is GDP and the independent variables are
FER, exchange rate, export, import with significant values of 0.67, 0.147, 0.852, 0.831
respectively and we can clearly see that none of the variables has a significant value of
less than 0.05 or 5% so there is no impact of GDP from these variables.
From the above analysis, the study shows that the FDI had partially impacted the
economic parameters of India. The input variable of FDI includes the foreign exchange
reserve, exchange rates export and import. Foreign exchange reserves are important to
stabilise the Indian rupee.
The present research depicts that FER is positively significant to HDI and population
while insignificance to inflation and negatively significance to Sensex index but
insignificant to GDP which reveals that exchange reserves are used in stabilising the
INR.
It means a negative impact of foreign exchange reserves on Sensex shows positive sign
towards economy by reserving money for future consequences. For export import it has
no impact on the output variables with respect to FDI.
32
5.5 UNIT ROOT TEST- of FDI and GDP:
1) Non-stationary and Stationary Test:
The ADF tests suggest the existence of unit root or non-stationary in level or I (1) for
three variables during the period 2000-2020 in India. The findings that all variables
have a different order of integration allowed, if p value less than 0.5 means reject null
hypothesis that there is a unit root.
Ho: There is a unit root for the series (stationary feature)
Ha: There is no unit root for the series (Non-stationary feature)
ADF PP ADF PP
FDI 0.0098b*** 0.0098b*** 0.0002a 0.0000a
INTREPRETATION:
The results Unit root test in table showed that only FDI and Exports demonstrates
stationary feature at level, which states that accepting that the FDI and Export has a unit
root test. While GDP and Inflation are experiences non-stationary with p value than 1%
significant at Level. However, they still keep stationary at the first differences (all
values less than 1% significant level). This GDP and inflation have accepted the null
hypothesis.
33
5.6 GRANGER CASUALITY TEST:
5.6.1 GRANGER CASUALITY TEST BETWEEN FDI AND GDP:
Sample: 1/04/2000. 1/3/2020
Lags: 2
- (Rejected at 5%)
Significant at 5% level
INTERPRETATION:
From table above, the result of the pairwise Granger Causality Test showed that the null
hypothesis of FDI does not Granger-Cause GDP could not be rejected at five percent.
On the other hand, the null hypothesis of GDP does not Granger-Cause FDI has been
rejected at five percent level. This led us to the conclusion that there was only a one-way
causality, running from economic growth (measured by GDP at current basic price) to FDI
in India.
This study examined the relationship between FDI and Economic growth in India using
the Granger Causality Test for the period 2000 202 0.
The result of the Pairwise Granger Causality tests indicated that there was only a one-way
causality, running from economic growth (measured by GDP at current basic price)
to FDI in India.
34
4.6.2 GRANGER CASUALITY TEST BETWEEN FDI AND EXPORTS:
Sample: 1/04/2000. 1/3/2020
Lags: 2
Significant at 5% level
INTERPRETATION:
From table above, the result of the pairwise Granger Causality Test showed that the
alternate hypothesis FDI Granger Cause the Exports in India significance of 0.02334
and the other hand the null hypothesis Exports does not granger cause the FDI which is
the significance of 0.9363.
5.6. GRANGER CASUALITY TEST BETWEEN FDI AND INFLATION:
Sample: 1/04/2000. 1/3/2020
Lags: 2
- (Rejected at 5%)
Significant at 5% level
INTERPRETATION:
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From table above, the result of the pairwise Granger Causality Test showed that the null
hypothesis of FDI does not Granger-Cause Inflation could not be rejected at five
percent. On the other hand, the null hypothesis of Inflation does not Granger-Cause FDI
has been rejected at five percent level. This led us to the conclusion that there was only a
one-way causality, running from economic growth.
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CHAPTER 6
FINDINGS & CONCLUSION
In Regression analysis, the year wise inflow has the significance value of 0.01 less than
0.5 which states that there is a change in FDI year wise inflow. Every year the FDI inflow
in India are changing up and down manner.
The Top Countries are Mauritius, Singapore, Japan, Netherland, United states of America,
United Kingdom, Germany, Cyprus, France and UAE.
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In regression analysis, the Sector wise FDI inflow has the significant value of 0.0012 less
than 0.5 which tells that there is a change in sector wise inflow. The FDI sector were been
changing every year.
The top sectors taken for regression analysis are Service sector, Computer Hardware and
Software, Telecommunication, Trading, Construction Development and township,
Automobile Industry, Chemicals, Drugs and pharmaceuticals, construction and Power.
In regression analysis, the country wise outflow has the significance value of 2.82 more
than 0.5 which says that there is no /changes in country wise FDI outflow. The country
wise FDI outflow is happening constantly in listed countries.
The Top Countries are Mauritius, Singapore, Japan, Netherland, United states of
America, United Kingdom, Germany, Cyprus, France and UAE.
The top sectors taken for regression analysis are Service sector, Computer Hardware
and Software, Telecommunication, Trading, Construction Development and township,
Automobile Industry, Chemicals, Drugs and pharmaceuticals, construction and Power.
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6.1.5 REGRESSION ANALYSIS OF FDI IMPACT IN INDIAN ECONOMY:
1) Relationship between FDI and Sensex:
INTREPRETATION:
Thus, from the regression result, the significance value is 0.002 it is shown that the
Thus, from the regression result, the significance value is 0.001 it is shown that the
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From the above table we see that the impact of FER is -0.675, Exchange rate is 1.560,
Export rate is 0.330, and Import rate is -0.349 on Sensex index. Looking at the
significant values of these indicators we see that the major impact is made by only
FER(0.095) and Exchange rate(0.005) less than significance value.
3) Population:
In the above table the dependent variable is population and the independent variables
are FER, exchange rates, export, import rates with significant value of 0.025, 0.596,
0.901, 0.535 respectively by which we can infer that FER has an impact on Population
as it has the lowest significant level.
4) Inflation:
In the above table the dependent variable is GDP and the independent variables are
FER, exchange rate, export, import with significant values of 0.667, 0.360, 0.220, 0.153
respectively and we can clearly see that none of the variables has a significant value of
less than 0.05 or 5%, hence, there is no impact of inflation from these variables.
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The results Unit root test in table showed that only FDI and Exports demonstrates
stationary feature at level, which states that accepting that the GDP and Export has a unit
root test.
While GDP and Inflation are experiences non-stationary with p value than 1% significant
at Level. However, they still keep stationary at the first differences (all values less than
1% significant level).
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6.2 CONCLUSION:
It is concluded that the FDI inflows have developed the Indian
economy. Comparing between inflows and outflows, the FDI inflows is high when
compared to the outflows. Through the FDI inflows many number of development were
been incurred in India like Advancement in Infrastructure, Information Technology
platform and increase in employment. Moreover the many test were been conducted to
find the relationship with the variables in the study. From that we found out that the FDI
did not have any relations with the macro economic factors.
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6.3 BIBLIOGRAPHY
43
11. MAFRUZA SULTANA1, VIDUSHI KAGDIYAL2, VISHAL M GOYAL3, SAI
PRATYUSH CHAKKALA4, RAJESHRI PARMAR IMPACT OF FDI ON INDIAN
ECONOMY International Journal (2017)/ Vol 6, Issue 6, 2019 page no.207-216 ISSN:
ISSN- 2394-5125 impact factor (2019) 7.890.
12. Supriya Chopra and Satvinder Kaur Sachdeva (2014) A Study on analysis of fdi
inflows and outflows in India SAGE Journal (2015)/ Vol 4, Issue 6, 2015 page no.202-
216 ISSN: ISSN- 23745-5555 impact factor (2014) .
14. Mr. Badar Alam Iqbal, Mohd Nayyer Rahman, Nadia Yusuf (2018), --
DETERMINANTS OF FDI IN INDIA AND BRICKS, Emerald Publication
(2018)/vol 5, ISSN 1569-6589.
16. Mr. Dimple Goyal and Ritu Jain (2014) - A study on impact of fdi on Indian economy,
International Journal (2017) vol-7 in Maharashtra, Dadra & Nagarhavali. ISSN: 2458-
9874.
17. Ms. Shib Sankar Jana, Tarak Nath Sahu, Krishna Dayal Pandey (2019) - . Foreign Direct
Investment and Economic Growth in India: A Sector-specific Analysis.
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18. Mr. Mohammed Salim - Foreign Direct Investment and Economic Growth: A Test of
Granger Causality in Nigeria November 2017 African research of journal vol 5, No 2,
2017 ISSN: 2856-2011.
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20. Mr. Mohamed Fayez Alkhasawneh - The Granger Causality Relationship between
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international journal vol 6 ISSN: 20123-2014.
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