A STUDY ON FOREIGN DIRECT INVESTMENT AND ITS IMPACT

ON INDIA

By

J.MICHAEL BENNY HINN (19MBA105)

Under the guidance of

Mrs P.MOHANAMANI
ASSISTANT PROFESSOR

KCTBS

A PROJECT REPORT

Submitted

In partial fulfillment of the requirements for the award of the

Degree of

MASTER OF BUSINESS ADMINISTRATION

Kumaraguru College of Technology

(An autonomous institution affiliated to Anna University, Chennai)
Coimbatore - 641 049
August 2020
 BONAFIDE CERTIFICATE

Certified that this project report titled “A STUDY ON FOREIGN DIRECT INVESTMENT AND ITS
IMPACT ON INDIA” is for course completion of Industry Research-, P17BACP203 is the bonfide
work of J.MICHAEL BENNY HINN (19MBA105) who carried out the project under my
supervision. Certified further, that to the best of my knowledge the work reported herein does not
form part of any other project report or dissertation on the basis of which a degree or award was
conferred on an earlier occasion on this or any other candidate.

Faculty guide Head of the Department

Mrs P.Mohanamani, Dr. MARY CHERIAN
Assistant Professor KCT-BS KCT-BS

Hard and Soft copy Submitted for the Project Viva-Voce examination held on 15/09/2020.

Internal Examiner External Examiner

(Signature) (Signature)
 DECLARATION

I, hereby declare that this Major project report entitled as, “A STUDY ON FOREIGN DIRECT
INVESTMENT AND ITS IMPACT ON INDIA” has been undertaken for academic purpose for the
course submitted to Anna University in partial fulfilment of requirement for the award of degree of Master of
Business Administration. The project report is the record of the original work done by me under the guidance Mrs.
P.Mohanamani Assistant Professor of KCT-BS during the academic year 2020.

I, also declare hereby, that the information given in this report is correct to the best of my Knowledge
and behalf.
 ACKNOWLEDGEMENT

I express my sincere and heart-felt gratitude the Management of KCT Business

School, for their prime guidance.

I express my thanks to Dr. MARY CHERIAN, Head of the department, and

KCTBS for implementing this project and providing under the supervision in its execution. I
am indebted to my Institution and my faculty members without whom this project would have
been a distant reality.

I also would like to give my sincere thanks to my Project guide Mrs. P.Mohanamani,
Assistant Professor for giving me support and guidance for this project from inception to
closure.
 ABSTRACT

The research is mainly focus on the Foreign Direct Investment and its impact in the Indian economy.
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.FDI inflows in India stood at $45.15 billion in 2014-15 and
have consistently increased since then. FDI equity inflow in India stood at US$ 49.97 billion in 2019-20.
Data for 2019-20 indicates that service sector attracted the highest FDI equity inflow of US$ 7.85 billion,
followed by computer software and hardware at US$ 7.67 billion, telecommunications sector at US$ 4.44
billion, and trading at US$ 4.57 billion. 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 (provisional figure) during the last Financial Year 2018-19. So we were literally in
the path of analyzing the FDI inflows and outflows in the outside and outside India. Through keeping
the inflows and outflows data as the source to analyze the impact that were been caused by the FDI
in the Indian economy for that we use the following tools to calculate these data. 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 liberalization started in India in wake of the
1991 economic crisis and since then FDI has steadily increased in India.
 LIST OF TABLES

TABLE CONTENTS PAGE NO

NO

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

5.5.2 UNIT ROOT TEST- of FDI and GDP 21

5.6 GRANGER CASUALITY TEST BETWEEN VARIABLES 22

 LIST OF FIGURES

FIGURE TITLE PAGE NO

NO

5.2.1 Exploring the Dimension 1: FDI INFLOW 10

5.2.2 Exploring the Dimension of FDI OUTFLOW 11

5.2.3 MICROECONOMIC FACTORS 18

 TABLE OF CONTENTS

CHAPTER CONTENTS PAGE NO

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

4.3 SECONDARY DATA 21

4.4 SAMPLING METHOD 21
4.5 TOOLS FOR DATA COLLECTION 21
4.6 VARIABLES USED 21
ANALYSIS AND INTERPRETATION 22

5.1 INTRODUCTION 23

5.2 DESCRIPTIVE STASTISTICS 24

5.3 TESTING FOR DIFFERENCES IN FDI INFLOWS AND 25

5 OUTFLOWS.
5.3.2 FDI OUTFLOWS REGRESSION ANALYSIS: 26
5.5 UNIT ROOT TEST- of FDI and GDP 28

5.6 GRANGER CASUALITY TEST 31

6 FINDINGS AND SUGGESTIONS 35
BIBLIOGRAPHY 44
*********************************

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:

1. To analyse the Foreign Direct Investment Inflow and Outflows.

2. To find the performance of the Indian economy after the FDI implementation.
3. To compare the performance of the FDI inflow and outflow.

1.4 SCOPE OF THE STUDY:

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 than ₹90,000 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%

2.3 MARKET SIZE:

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:

1) Supriya Chopra and Satvinder Kaur Sachdeva (2014) “A Study on analysis of fdi
inflows and outflows in India”, 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 FDI year wise fact sheet and
performance analysis. The various variables were been used in the study like SENSEX,
Forex, Inflation and GDP. FDI and trade are often seen as important catalysts for economic
growth in the developing countries. FDI is an important vehicle for technology transfer from
developed countries to developing countries. Since 1991 the government has focused on
liberalization of policies to welcome foreign direct investments. India’s economic reforms
way back in 1991 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.

2) R.B. Teli (2013) “a critical analysis of foreign direct investment inflows in India”
in their paper in Shivraj College, Gadhinglaj, Dist. Kolhapur. Studied the FDI inflows in
the India and the main objective of the study is to find out the FDI inflows and outflows
trends. The secondary data were been used in the study. The research methodology used in
the study is analytical research. FDI in India will bring various benefits like advancement
of knowledge, skill, technology, exports, employment and management. But MNCs may
create forex drain from India. Indian companies will face stiff competition from foreign
companies. Thus, while allowing different sectors like multi-brand retailing, GOI should
have to take a cautious steps. FDI in retail would expose the retail traders in domestic

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
“Determinants of fdi in India and sri lanka” 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, “A study on interstate
distribution and sectoral composition of FDI inflows in India”, 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.

5) Dimple Goyal and Ritu Jain (2014), in their paper, “A study on impact of FDI on
Indian economy”, studied that, the main objective of this study is to analyse the trend of
FDI equity inflows in different sectors and regional offices. It is concluded from the results
that there are high variation in the inflows of FDI equity. The results also revealed that
maximum contribution (28 percent) of FDI inflows in service sector and the Maharashtra,
Dadra & Nagarhavali, Daman & Diu got the highest inflows which are 32% of total FDI.
This study will help the government to make vigilant planning to manage and boost the
foreign direct investment. FDI play an important role in economic development of a nation.
A country’s technology level and sectoral development is depending upon the level of FDI
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-specific analysis”,
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.

8) Monika Jindal- “Impact of foreign direct investment on Indian economy” in their study
Foreign Direct Investment (FDI) as a strategic component of investment is needed by India for
achieving the economic reforms and maintains the pace of growth and development of the
economy. The paces of FDI inflows in India initially were low due to regulatory policy
framework but there is a sharp rise in investment flows from 2005 towards because of the new
policy has broadened. The study tries to find out how FDI seen as an important economic
catalyst of Indian economic growth by stimulating domestic investment, increasing human

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.

9) Mohammed salim- “Foreign Direct Investment and Economic Growth: A Test of Granger
Causality in Nigeria”, this study empirically examined the causal relationship between foreign
direct investment and economic growth in Nigeria. Time-series data obtained from the Central
Bank of Nigeria was used for the period 1961 - 2010. The results of the ADF unit root test
indicated that all the variables included were non-stationary at their levels but integrated of order
one. This study empirically examined the causal relationship between foreign direct investment
and economic growth in Nigeria. Time-Series data obtained from the Central Bank of
Nigeria was used for the period 1961–2010. The results of the ADF unit root test indicated that
all the variables included were non-stationary at their levels but integrated of order one, I (1). The
outcome of the co integration tests revealed a stable long-run equilibrium between FDI and
economic growth. 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
Nigeria. Therefore, the study recommended that a radical change in thinking has to take
place among the policy makers in Nigeria to economic growth as the surest way to properly
attract FDI inflows.

10) Mohamed Fayez Alkhasawneh “The Granger Causality Relationship between Foreign
Direct Investment (FDI) and Economic Development in the State of Qatar”, in this study, we
investigate the causality relationship between the inflows of foreign direct investment and
economic development as measured by Gross Domestic Product (GDP) per capita in the State of
Qatar during the period 1970 - 2010. It also investigates the direction of the relation between the
two variables using several tests: Augmented Dickey-Fuller (ADF), Johansen co integration and
Granger Causality tests. Robust empirical findings drawn from the Johansen co integration
analysis suggest the existence of such long-run equilibrium relationship between FDI and GDP.
Furthermore, causality test indicates that there is a bidirectional causality on the FDI-GDP
relationship for one, two and three year lags that imply, strongly indicating that foreign capital
penetration Granger-causes economic growth in Qatar. The test results show that foreign direct
investment in the short-run is affected mainly by gross domestic product and government
spending which implies that the government should continue its efforts to create the economic

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.

11) Vishal m goyal (2017) “Study on FDI inflow and its Impact in India using Unit root test
and Granger Causality Test” in their paper studied the FDI inflows and its impact. The main
objectives of the study is to determine impact of FDI Indian economy. The analytical research
and unit root test, granger causality test were been considered as the research methodology. The
secondary data were been used to collect the data for analysis. The variables like GDP, Forex,
Sensex and Inflation. From using these variables the data analysis were been carried out. From
the analysis the researcher find out the there is no relationship exist among the GDP and Inflation.
The FDI inflows in India is seems to be in the upward trend in present days.

12) Kaur Sachdeva (2014) “A Study on analysis of fdi inflows and outflows in India” ,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
FDI year wise fact sheet and performance analysis. India’s economic reforms way back in 1991
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.

13) Shraddha Mishra, Jitender Bhandari (2019) “FDI Inflows in India: An Analysis of the
Trend During 2004–2018 and Future Projections for the Next Decade” in their study
Developing economies have been seeing an exhaustive rise of foreign direct investment (FDI)
inflows all through the past two decades and their main objectives is to determine the trend of the
proposed years and its future projection. The present study depends on the secondary data, and
the time of the study is from 2004 to 2018. The FDI inflows have increased from US$5,777.8
million in 2004 to US$61,963.1 million in 2018. This article aims to present the descriptive
analysis of FDI inflows in India during the selected period and also describes the long-term trend

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) “Economic Reforms, FDI, and
Economic Growth in India: A Sector Level Analysis” 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.

15) Mohd. Aamir Khan (2015) “Impact of FDI on GDP: A Comparative Study of China and
India” in their study they studied the impact of FDI on GDP and the main objectives is to compare
analysis of China and India FDI on GDP performance. The secondary data is been used for
collecting the data. The study used the analytical research and multiple regression as their research
methodology. The factors included in growth model were GDP, Humal Capital, Labour Force,
FDI and Gross Capital Formation, among which GDP was dependent variable while rest four
were independent variables. After running OLS (Ordinary Least Square) method of regression we
found that 1% increase in FDI would result in 0.07% increase in GDP of China and 0.02% increase
in GDP of India. We also found that China’s growth is more affected by FDI, than India’s growth.
The study also provides possible reasons behind China’s great show of FDI and the lessons India
should learn from China for better utilization of FDI.

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.

4.2 RESEARCH DESIGN:

The research design used in study Analytical research. Analytical research attempts
to establish why it is that way or how it came to be. In analytical research, on the other
hand, the researcher has to use facts or information already available, and analyse these to
make a critical evaluation of the material. An analytical approach is the use of an
appropriate process to break a problem down into the elements necessary to solve it.
4.3 SECONDARY DATA:
Secondary data is the data that have been already collected from other sources. Secondary
data is collected from government publications, Trading economics, DEA government
websites, World Bank and RBI websites for research on FDI inflow, outflow and its
Impact.
4.4 TOOLS AND SOFTWARES:
The software used for the analysis are SPSS, Microsoft excel and E-views.
Descriptive statistics, regression, correlation, hypothesis test and granger causality
test were the types of test used to determine FDI flows.
4.5 VARIABLES USED:
The variables used in the research are GDP, inflow and outflows, Forex, Sensex index,
exchange rates, EXIM, HDI and Population.

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.

The study constructs are

 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

Table 5.2.1 Exploring the Dimension 1: FDI INFLOW

FDI INFLOWS Mean Std. Deviation

YEAR WISE INFLOWS
33478.909 9106.545

COUNTRY WISE INFLOWS 3045.88 3417.154

SECTOR WISE INFLOWS

174614 117628.1

Inference:

From the mean values for the variables in FDI Inflows, it is found that “YEAR
WISE INFLOWS” has the greatest mean value of 33478.909 and is considered
to be highly detrimental to the FDI Inflow in India.

FDI INFLOW

3 174614.6

2 3045.88

1 33478.90909

0 20000 40000 60000 80000 100000 120000 140000 160000 180000 200000

Table 5.2.2 Exploring the Dimension 1: FDI OUTFLOW

23
 FDI OUTFLOWS Mean Std. Deviation
YEAR WISE OUTFLOWS
8793.555 2821.218

COUNTRY WISE OUTFLOWS 4537.5933 3945.600

SECTOR WISE OUTFLOWS

7890.33 7961.696

Inference:

From the mean values for the variables in FDI Outflows, it is found that “YEAR
WISE OUTFLOWS” has the greatest mean value of 8793.555 and is considered
to be highly detrimental to the FDI Outflow from India.

Figure 5.2.2: FDI OUTFLOW

FDI OUTFLOW

3 7890.337778

2 4537.593333

1 8793.555

0 1000 2000 3000 4000 5000 6000 7000 8000 9000 10000

5.3 TESTING FOR DIFFERENCES IN FDI INFLOWS AND OUTFLOWS.

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

1 YEAR WISE INFLOWS 0.563218231 0.317214776 0.241349751 0.01

2 COUNTRY WISE INFLOW 0.820523811 0.673259324 0.63241674 0.003633

3 SECTOR WISE INFLOW 0.837953716 0.70216643 0.664937234 0.0012

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.

5.3.2 FDI OUTFLOWS REGRESSION ANALYSIS:

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.

5.4 REGRESSION ANALYSIS OF FDI IMPACT IN INDIAN

ECONOMY:
The present study examines how FDI impacts the Indian economy by describing various
factors of FDI inflows and growth factors. There are various variables included in the
previous studies which were explored by various researchers such as Foreign Exchange
rates, Trade balances of India Import and Export. The data has been collected to find
the relation between the variables of FDI inflow and economic parameters for the period
of twenty years from 2000 to 2020. The data were analysed through regression
techniques by using SPSS tool.

Model R Change Statistics Remarks

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

INFLATI .80 2.72537 .655 2.850 8 12 .122 H4 reject

ON 9a ed

GDP .71 2.16851 .509 1.55 8 12 .299 H5 reject

4a 6 ed

1) Relationship between FDI and Sensex:

In past research studies we have seen that FDI impacts approximately 3 percent of
Sensex variance whereas BSE influences 2 percent of FDI variance. The co-integration
regressions symbolize the existence of a long run relationship between stock prices and
Foreign Direct Investment. Therefore, on the basis of regression analysis we can find
that FDI has positive and favourable influence on Sensex prices.
Ho: There no is a relationship between Sensex and FDI
H1: There is a relationship between Sensex and FDI
INTREPRETATION:
Thus, from the regression result, it is shown that the alternate hypothesis is accepted
which is “there is a relationship between Sensex and FDI”
2) Relationship between FDI and HDI:
There have been numerous studies in the last years have showed the impact of FDI on
economic growth and progress of both developing and developed countries. But,
research on the stimulus of FDI on an increased conception of socio-economic
development such as human development is missed. Present study proposes the effect
of FDI on human development (by considering human development index) for India for
the period of 2000-2020.

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 “there is a relationship between FDI and HDI”

3) Relationship between FDI and Population:

India having the second largest population in the world is a potential large market and
a dominant and large host for FDI inflow. Attainment of investment from abroad has
always been a major driving force for growth and development for the country. The
study indicates that raising standard of living is contributed by employment of people
in the nation which is determined by increasing FDI inflows. Hence the study indicates
positive relationship between FDI and population.
Ho: There is no relationship between FDI and population
H3: There is a relationship between FDI and population
INTREPRETATION:
Thus, from the regression result, it is shown that the alternate hypothesis is accepted
which is “there is a relationship between FDI and POPULATION”

4) Relationship between FDI and Inflation:

The rate of inflation is a critical factor in influencing the inflow of foreign investment
in the country. A stable inflation always an attractive opportunity for foreign investors,
so we can say that high inflow of FDI would mean that the country would be having
lower production cost, labour cost, which will lead to higher profits.
Ho: There is no relationship between FDI and inflation.
H4: There is a relationship between FDI and inflation.
INTREPRETATION:
Thus, from the regression result, it is shown that the Null hypothesis is accepted
which is “there is no a relationship between FDI and INFLATION”

5) Relationship between FDI and GDP:

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 “there is no relationship between FDI and GDP”

5.4.1 REGRESSION ANALYSIS COEFFICIENT OF FDI VARIABLES:

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)

Level 1st difference

ADF PP ADF PP
FDI 0.0098b*** 0.0098b*** 0.0002a 0.0000a

GDP 0.5669a 0.4663a 0.0004c*** 0.0004c***

INFLATION 0.2254a 0.2254a 0.0000b*** 0.0000b***

EXPORTS 0.0133a 0.5136a 0.0040c*** 0.0000

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

NULL HYPOTHESIS OBs F- PROB

(Ruled Decision) STATISTICS

FDI does not Granger Cause GDP 20 0.40966 0.8334

- (Do not reject)

GDP does not Granger Cause FDI 20 4.96142** 0.0363

- (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

HYPOTHESIS OBs F- PROB

(Ruled Decision) STATISTICS

FDI Granger Cause Exports 20 5.0966 0.02334

(Accepted alternate hypothesis)

Exports does not Granger Cause FDI 20 0.6777 0.9363

- (Accept null hypothesis)

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

NULL HYPOTHESIS OBs F- PROB

(Ruled Decision) STATISTICS

FDI does not Granger Cause INFLATION 20 0.40966 0.8834

- (Do not reject)

INFLATION does not Granger Cause FDI 20 4.96142** 0.0263

- (Rejected at 5%)

Significant at 5% level

INTERPRETATION:

35
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.

36
 CHAPTER – 6
FINDINGS & CONCLUSION

6.1 RESULTS & FINDINGS

6.1.1 EXPLORING STUDY CONSTRUCTS OF FDI INFLOWS:
The variables used are Year wise inflow, Country Wise inflow and Sector wise inflow.
From the mean values for the variables in FDI Inflows, it is found that “YEAR WISE
INFLOWS” has the greatest mean value of 33478.909 and is considered to be highly
detrimental to the FDI Inflow in India. Which says that Every year the FDI inflows is in
the upward trend comparing to the other patterns.

6.1.2 EXPLORING STUDY CONSTRUCTS OF FDI OUTFLOW:

The variables used are Year wise inflow, Country Wise inflow and Sector wise inflow.
From the mean values for the variables in FDI Outflows, it is found that “YEAR WISE
OUTFLOWS” has the greatest mean value of 8793.555 and is considered to be highly
detrimental to the FDI Outflow from India.

6.1.3 FDI INFLOWS REGRESSION ANALYSIS:

1. YEAR WISE INFLOWS: (20 years)

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.

The Top Countries are Mauritius, Singapore, Japan, Netherland, United states of America,
United Kingdom, Germany, Cyprus, France and UAE.

3. SECTOR WISE INFLOW:

37
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.

6.1.4 FDI OUTFLOWS REGRESSION ANALYSIS:

1. YEAR WISE OUTFLOWS: (20 years)

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.

The Top Countries are Mauritius, Singapore, Japan, Netherland, United states of
America, United Kingdom, Germany, Cyprus, France and UAE.

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.

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.

38
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
alternate hypothesis is accepted which is “there is a relationship between Sensex and
FDI”.

2) Relationship between FDI and HDI:

INTREPRETATION:
Thus, from the regression result, the significance value is 0.000 it is shown that the
alternate hypothesis is accepted which is “there is a relationship between FDI and HDI”

3) Relationship between FDI and Population:

INTREPRETATION:

Thus, from the regression result, the significance value is 0.001 it is shown that the
alternate hypothesis is accepted which is “there is a relationship between FDI and
POPULATION”

4) Relationship between FDI and Inflation:

INTREPRETATION:
Thus, from the regression result, the significance value is 0.122 it is shown that the Null
hypothesis is accepted which is “there is no a relationship between FDI and
INFLATION

5) Relationship between FDI and GDP:

INTREPRETATION:
Thus, from the regression result, the significance value is 0.299 it is shown that the Null
hypothesis is accepted which is “there is no relationship between FDI and GDP”

6.1.6 REGRESSION ANALYSIS COEFFICIENT OF FDI VARIABLES:

1) Sensex Index:

39
 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.

2) Human Development Index:

In the above table independent variables are FER(0.033), Exchange rate(0.537),
Export(180), Import(0.244). Looking at the significant values we see that FER has value
less than 0.05 thus we say Foreign Exchange Reserves has an impact on HDI. This gives
a little information as to why the R square value of HDI is 0.973.

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.

5) Gross Domestic Product:

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.

6.1.7 UNIT ROOT TEST- of FDI and GDP:

40
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).

This GDP and inflation have accepted the null hypothesis.

6.1.8 GRANGER CASUALITY TEST BETWEEN FDI AND GDP:

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.

6.1.9 GRANGER CASUALITY TEST BETWEEN FDI AND EXPORTS:

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.

6.1.10 GRANGER CASUALITY TEST BETWEEN FDI AND INFLATION:

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.

41
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.

In this research the Mauritius country appears as the major Foreign

Direct Investment inflows in India. This is because of its status as a Tax haven which is
no tax liability for that country. The company have setting up a shell or holding
companies in Mauritius where no economic activity exist so that money made elsewhere
can be channelled or routed into their Mauritius entity for tax avoidance.

Through this Foreign Direct Investment the peoples lifestyle and

technology were been improved. The Exports of the India were also been developed.
From the various test conducted we can clearly say that the Foreign Direct Investment
leads to the development of the export business in India. Apart from the export the other
variables have not any relationship with the Foreign Direct Investment. Thus we can
conclude clearly that the Foreign Direct Investment paved the way for the development
of the India.

Therefore we can conclude that the Overseas Investment is lead to the

development of the India. Through Foreign Direct Investment many Backward areas
were been developed. The FDI leads to adequate capital inflow, improved inflow of
capital is particularly beneficial for countries with limited domestic resources, as well as
for nations with restricted opportunities to raise funds in global capital markets. Thus
these were the benefits of the Foreign Direct Investment in India.

42
 6.3 BIBLIOGRAPHY

1. . (Jayachandran & Seilan, 2010)Jayachandran, G., & Seilan, A. (2010). A causal

relationship between trade, foreign direct investment and economic growth for India.
International Research Journal of Finance and Economics, 42(2), 74–88.
2. Tamizharasan, M. (2018). Impact of Foreign Direct Investment on the Indian Economy.
Journal of Commerce & Trade, 13(1), 44. https://doi.org/10.26703/jct.v13i1-6.
3. P., Majagaiya. Kundan, G. Q. (2010). A Time Series Analysis of Foreign Direct
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