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Impact of Foreign Direct Investmentin India
G Bharathi Kamath*
* Assistant Professor, The Icfai Business School, Mangalore, India. E-mail: [email protected]
The purpose of the paper is to estimate and analyze the impact of Foreign DirectInvestment (FDI) on Gross Domestic Product (GDP) and exports in India for thepost-liberalization period (1991-2005). The relevant data is collected for a 15-yearperiod from 1991-2005 from various published sources such as World InvestmentReport (WIR) and Secretariat for Industrial Assistance (SIA). The data is then analyzedusing simple linear regression analysis to find the impact of FDI on various variables.Growth rates are evaluated and trends are analyzed using various tools. This study
establishes the relationship between the FDI inflows and exports and GDP in theIndian economy. A greater inflow of foreign capital has lead to growth in the exportsof goods and services and also growth of the economy over the period of study. Theseresults have great policy implications giving a direction to the policymakers that furtherliberalization attempts can be made without apprehensions about its impact on theoverall economic growth and balance of trade.
Introduction
Since the end of World War II, economists have pointed to the growing interdependence
among countries in the world economy. This trend of interdependence has seen exponential
growth. Since late 1980s till date, the growth of FDI has been one of the most debated and
significant economic developments.
In Asia, FDI has increased significantly over the past two decades. However, it has been
concentrated in a few countries. In the early 1990s, seven East Asian countriesChina, Korea,
Singapore, Indonesia, Malaysia, Philippines and Thailandreceived more than 60% of the
FDI inflows compared to the other countries in Asia. The BRIC (Brazil, Russia, India, and
China) report states that India is going to be one of the most popular destinations for FDI fromacross the globe. However, the preliminary question is whether this inflow is going to lead to
any growth in the domestic economy and exports; if yes, how much? and will it be significant
enough to drive further FDI inside the economy?
Relevance of FDI
Foreign direct investment in the developing countries dates back to the 19th century. During
the colonial and neocolonial period, it was concentrated in export-oriented mineral and
agricultural production and in public utilities. However, there were economic and political
opportunities to foreign investment in the colonial countries. There was growing opposition to
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investment from abroad in Canada and Australia in the 1920s and 1930s. The same was true
in Europe in the 1950s when American inflows were at their peak and European outflows were
still negligible. Japan simply kept foreign investors out (Billerbeck and Yasugi, 1978).
In the 1950s, after the end of World War II, FDI from the industrialized countries to
developing countries began to flow again. By the end of 1960s, average annual flows to
developing countries, including reinvested earnings, were $3 bn. By 1975, the rate of investment
accelerated and reached $10 bn (Billerbeck and Yasugi, 1978). FDI inflows more than doubled
in nominal terms between 1975 and 1985, attaining a peak in 1981 and rising thereafter at an
annual average rate of 43%, to reach a record high level of about $215 bn in 1990 (Bhalla,
1994).
Increases in FDI inflows exceeded the growth in nominal value of world GDP and
international trade, which expanded by around 3.5% and 7% respectively in 2006
(WIR, 1997).
Definition of FDI
Foreign direct investment is defined as an investment involving a long-term business relationship
and reflecting a lasting interest and control of resident entity in one economy (foreign direct
investor or parent enterprise) in an enterprise resident in an economy other than that of the
foreign direct investor (FDI enterprise or affiliate enterprise or foreign affiliate). Foreign direct
investment implies that the investor exerts a significant degree of influence on the management
of the enterprise resident in the other economy. Such investment involves both the initial
transactions between the two entities and subsequent transactions between them and amongforeign affiliates, both incorporated and unincorporated. Foreign direct investments may be
undertaken by individuals as well as business entities (WIR, 1997). The component included
to account the FDI varies from country to country.
Theoretical Background
There are various theoretical foundations that discuss the FDI:
Structuralist Paradigm
Foreign investment is to be welcomed and actually encouraged through tax concessions, etc.
as a source of foreign finance and technology. However, for Raul Prebisch,
such investment should flow into the branches of production in which it is most needed
(Hunt, 1989).
Overlapping Generations Model
The Overlapping Generations (OG) model of long run growth presents a somewhat different
perspective on the effects of foreign investment. This model provides a basic lesson: foreign
investment makes the future generations of the capital-importing country better off and thefuture generations of the capital-exporting country worse off (Bhalla, 1994).
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What happens if there is foreign investment? Interest rates rise in the capital-exporting
country and fall in the capital-importing country. The key fact is the wages of the present
generation depend on the capital stock inherited from previous generations. Since each member
of the present generation earns his or her wages in the first period and retires in the second
period, he or she will be made better off by a higher interest rate on savings and worse off by
a lower interest rate on savings. The wage rate is fixed. Therefore, since investment lowersinterest rates in the capital-importing region in the OG model, the present generation is made
worse off. Interest rates rise in the capital-exporting region, therefore, the present generation in
that region is better off (Roy, 1979).
OLI Paradigm
The most recent of them all is the one given by Dunning popularly known as Eclectic or OLI
paradigm. It discusses about Ownership (O), Location (L), and Internalization (I) advantages
of a countrys firms while differentiating along the countrys course of economic development
(Dunning and Narula, 1998). According to this theory, three conditions have to be fulfilled in
order for a firm to become a multinational: the Ownership (O) advantages must be such as to
make it profitable for the firm to relocate abroad its own production (or at least part of it);
there must be some Localization (L) advantage, typically linked to the host countrys specific
characteristics; and it must be more convenient for the firm to manage its advantages Internally
(I) rather than trade them through the market. This appears to be a very useful paradigm in
explaining the different characteristics that need to be fulfilled for a firm to become a
multinational and also helps in developing further empirical studies on this topic (Soci, 2002).
Macro Perspective
National Income (GDP) is universally employed and is generally a useful measure for economic
growth. A variety of policies for promoting growth can be suggested. Let us start from a simple
equation for GDP.
GDP= C+ I + G + (X M)
where,
C = Consumption
I = Investment
G = Government Expenditure
X = Exports
M = Imports
This leads to the following alternatives (Rao, 1995).
1. Maximize Cthrough tax reduction (supply-side economics).
2. Activate Iboth domestic and foreign.
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3. Stimulate GKeynesian economics (may lead to heavy budget deficits).
4. IncreaseXOutward looking policies (aggressive East Asian economies).
5. Contain MImport substitution (some of the third world economies including
India till recently).
Combination of first, second and fourth alternatives is suggested for a segmented economy
to augment development (Chenery and Ahulwalia, 1974). India seems to have been following
this path since mid-1980s. In the structural adjustment program, exports and foreign capital
started to play a prominent role.
Review of Earlier Works
Foreign capital inflows play an important role in supplementing and complementing resources
of developing countries in their efforts towards higher levels of development. The role offoreign capital has been emphasized in literature on economic development; for instance,
the Gap models (Hunt, 1989) and the Kindleberger-Hymer approach to FDI.
It was Abba Learner who discussed at length about the inflow of foreign capital (Lerner,
1944). The general effects of foreign investment on development received a good treatment in
the works of Mac Dougall (Dougall, 1966). The work of Kemp Murray (Murray, 1960) can also
be mentioned in this respect. However, the question of the possible adverse effects of foreign
capital on the levels of domestic savings was first raised by Trygve Haavelmo (Haavelmo,
1963). Following Haavelmo, many evinced interest in studies on the relationship between
foreign capital and economic growth in developing countries. There was a proliferation of
studies on this and the works of Lee, Rana and Iwasaki in the context of Asia is important (Lee
et al., 1986).
One of the earliest studies on the relationship between FDI and growth is that of Papanek
(Papanek, 1973). Among country-specific studies, the work of Gustav Ranis and Chi Shive on
Taiwan (Ranis and Schive, 1985)is very exhaustive. In 1970, Robert Aliber raised many
theoretical issues like whether FDI is a currency area or customs area phenomena (Aliber,1970). W B Reddaways analysis (Reddaway, 1968) of the influence of FDI on Balance of
Payments (BOP) is a landmark study in the literature on FDI. A more general theoryoriginally
propounded in a thesis at MIT by Stephen Hymeris that direct investment belongs more to
the theory of industrial organization than to the theory of international capital movements.
Hymers work emphasizes that firms engaged in direct investment have monopolistic elements
and the perfect competition model is not relevant. To the literature on FDI, the greatest
contribution was made by Charles, P Kindleberger (Kindleberger, 1958 and 1968). His influence
on subsequent works is so profound that his analysis and approach to FDI along with that ofStephen Hymer is well-known as Kindleberger-Hymer Approach.
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However, there are specific studies that help in understanding the FDI drivers at a regional
level and also have direct use in policymaking (Na and Lightfoot, 2006). Others talk about
development of successful FDI strategies at national level (Musila and Sigue Simon, 2006).
Some simplistic papers look at just the trends of FDI in various countrieswhat they expect to
measure is the general perspective without exploring in detail what are the implications of
these investments on the national growth and other parameters. There are studies pertaining tofirm-level analysis of the determinants (Pantelidis and Dimitrios, 2005) and one paper deals
with specific determinants of US FDI in India (Balasundram and Chatterjee, 1998).
Objectives of the Present Study
The main objectives of the present work are:
To examine trends in FDI in India; and
To analyze the impact of FDI on exports and GDP.
Methodology
Period of Study
The period of analysis for the present study is 1986-87 to 2005-06. Depending on the availability
of the data, the analysis is confined to this broad period. However, the focus of analysis is
mostly on post-liberalization period of 1991-2005 and 2005-06, as FDI data is consistently
available since this period.
Hypothesis
One of the benefits of FDI is that it is likely to transfer modern technology to the domestic
economy. As a result, the products produced in the domestic economy would become
internationally competitive. The inflow of FDI is likely to promote the exports. Thus, both
GDP and exports are expected to be positively influenced by FDI.
Sources of Data
The data for this work are taken from a variety of sources. The publications of SIA of Ministry
of Industry, Government of India are the main sources of information for data on FDI flows,country-wise break-up and sector-wise break-up. The RBI online database on the Indian economy
is another major source of data. Data on aggregate FDI is taken from World Investment Report
of United Nations and Reserve Bank of India (RBI) Annual Report.
Techniques of Estimation
Simple techniques like percentages and growth rates are employed to analyze data. However,
for capturing the impact of FDI on exports, imports, and GDP, the paper has used mean,
standard deviation, and simple regression analysis.
Y = a + bX
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where,
Y = Dependent variable.
a = Intercept of the line on y-axis.
b = Regression coefficient
X = Independent variable.
Thus, the following three simple linear regression equations would be analyzed to study
the impact of FDI on exports, imports and GDP.
X = a1+ b
1FDI ...(1)
M = a2+ b
2FDI ...(2)
Y = a3+ b
3FDI ...(3)
where,
X = Exports
M = Imports
Y = GDP
And a and b are the coefficients of FDI.
All the related statistics are estimated for analysis.
Analysis
In this section a detailed analysis of the impact of FDI on exports and GDP along with the
analysis of trends of FDI in India is attempted.
Analysis of Trends
Foreign investment plays an important part in economic development and is often an essential
element in economic transformation of developing countries. As can be seen from Table 1,
the flow of FDI across the world has seen a tremendous growth over the period of 20 years.
This reflects the fact that most economies are moving from relatively closed economies to
open economies. Also, it is positive to notice that the inflows are increasing in the developing
countries over the period. The share of developed countries was almost three-fourth in 1985,
and it remains at 60% of the world flows in 2005. Europe and the US dominated the scenario
for a very long time; but their share was on a decline in the recent past. On the other hand, the
share of developing economies has seen a gradual and healthy increase over the period;
it increased from a meager one-fourth to a dominating 36%. However, what needs to be noted
here is that there is no single country which attracts as big an investment as developed economiesdo. However, Asian economies are doing better than Latin American countries and Africa.
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Table1:InwardFDIFlows,b
yHostRegionandEconomy
,1985-2005
1985
1990
1991
1995
1997
1998
1999
2000
20
01
2002
2003
2
004
2005
World
57959.41
201613.85
15480
1.20
340336.10
489709.18
712031.96
1099919.16
1409567.77
83224
7.63
617731.56
557869.01
7107
54.69
916276.63
Deve
loped
42687.19
164807.82
11212
8.02
219030.98
284252.11
506205.77
851182.62
1133683.25
59927
1.78
441237.87
358538.84
3961
44.95
542311.83
Economies
%of
World
73.65
81.74
7
2.43
64.36
58.05
71.0
9
77.39
80.43
72.01
71.43
64.27
55.74
59.19
Europe
16706.33
97043.84
7922
5.38
133650.56
153832.74
296663.49
522511.80
721613.84
39314
2.90
314168.02
274095.48
2176
95.91
433628.10
%of
World
28.82
48.13
5
1.18
39.27
31.41
41.6
6
47.50
51.19
47.24
50.86
49.13
30.63
47.33
Unite
d
5668.30
30461.12
1484
6.17
19969.45
33226.59
74321.33
87978.94
118764.29
5262
3.24
24029.45
16777.91
562
14.07
164529.69
Kingd
om
%of
World
9.78
15.11
9.59
5.87
6.78
10.4
4
8.00
8.43
6.32
3.89
3.01
7.91
17.96
North
21862.41
56004.28
2567
9.96
68026.77
114925.02
197243.32
308119.39
380798.00
18712
4.00
96612.50
60761.00
1239
10.40
133264.90
America
%of
World
37.72
27.78
1
6.59
19.99
23.47
27.7
0
28.01
27.02
22.48
15.64
10.89
17.43
14.54
US
20490.00
48422.00
2279
9.00
58772.00
103398.00
174434.0
0
283376.00
314007.00
15946
1.00
74457.00
53146.00
1223
77.00
99443.00
%of
World
35.35
24.02
1
4.73
17.27
21.11
24.5
0
25.76
22.28
19.16
12.05
9.53
17.22
10.85
Other
4118.44
11759.71
722
2.68
17353.65
15494.36
12298.9
6
20551.43
31271.40
1900
4.88
30457.35
23682.35
545
38.63
-24581.17
Deve
loped
Economies
%of
World
7.11
5.83
4.67
5.10
3.16
1.73
1.87
2.22
2.28
4.93
4.25
7.67
2.68
Deve
loping
15257.23
36731.12
4243
8.66
116502.03
193355.99
195174.25
238266.00
266822.92
22144
7.25
163582.61
175138.03
2750
32.42
334285.44
Economies
%of
World
26.32
18.22
2
7.41
34.23
39.48
27.4
1
21.66
18.93
26.61
26.48
31.39
38.70
36.48
Africa
2443.32
2825.62
353
9.91
5641.80
10948.26
9279.89
12454.91
9577.33
19894.32
12999.27
18512.52
171
98.74
30671.96
%of
World
4.22
1.40
2.29
1.66
2.24
1.30
1.13
0.68
2.39
2.10
3.32
2.42
3.35
Latin
7302.60
10566.92
1427
6.25
30250.82
76259.00
90311.63
114107.95
108992.60
8939
7.04
54339.62
46136.92
1005
05.86
103662.63
America
andthe
Carib
bean
%of
World
12.60
5.24
9.22
8.89
15.57
12.68
10.37
7.73
10.74
8.80
8.27
14.14
11.31
(Con
td...)
(inUS$mn)
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Table1:InwardFDIFlows,b
yHostRegionandEconomy
,1985-2005
1985
1990
1991
1995
1997
1998
1999
2000
20
01
2002
2003
2
004
2005
Asiaa
nd
5511.30
23338.58
24622.50
80609.40
106148.73
95582.7
3
111703.14
148252.99
11215
5.89
96243.72
110488.58
1573
27.82
199950.85
Oceania
%ofWorld
9.51
11.58
15.91
23.69
21.68
13.4
2
10.16
10.52
1
3.48
15.58
19.81
22.14
21.82
Asia
5421.41
22642.36
24154.07
79918.01
105772.63
95249.4
6
111285.32
147992.76
11204
4.89
96124.85
110136.74
1566
22.32
199553.64
%ofWorld
9.35
11.23
15.60
23.48
21.60
13.3
8
10.12
10.50
1
3.46
15.56
19.74
22.04
21.78
South
-East
15.00
74.91
234.51
4803.09
12101.08
10651.9
4
10470.54
9061.61
11528.61
12911.09
24192.15
395
77.32
39679.36
Europ
eand
theCommon-
wealt
hof
Indep
endent
States
(CIS)
%ofWorld
0.03
0.04
0.15
1.41
2.47
1.5
0
0.95
0.64
1.39
2.09
4.34
5.57
4.33
(...
con
td)
Source:WorldInvestm
entReport2006(percentagesestimated).
FDI is also seen to increase as a
percentage of the GDP of the economies.
On the whole, FDI forms around 22% of
the GDP of all the economies of the world.
As shown in Table 2, the developed countries
are moving closely with the world average.Whereas, the developing economies are
improving very fast and their share is steady
in the recent years. United Kingdom among
the developed economies and Hong Kong,
China in the developing economies are the
top destinations of FDI (Table 2). The
economy of Hong Kong is overwhelmingly
attracting foreign investments followed by
Singapore and Vietnam in South-East Asia.
India is slowly picking up the speed as far as
FDI is concerned; it started with a meager
0.33% and is presently at around 6%.
Among the developing economies, all the
continents are faring equally as far as this
parameter is concerned.
Asian Perspective
Foreign capital is treated as a resource
gap-filling factor in the context of capital
scarcity in the developing countries.
In developing countries, FDI is now the
principal source of foreign capital. There are
good reasons to believe that FDI is preferred
to other types of flows. One convincing
argument is that FDI consists of a package
of capital, technology and market access
which tends to go to those manufacturing
sectors which enjoy actual or potential
comparative advantage (Edward, 1992).
The inflow of FDI would give rise to
economies of scale and higher productivity
and create linkage effects in these sectors
(Edward, 1992). With the inflow of FDI,
profitability and outward remittance of profitsand dividends move in close tandem with
(inUS$mn)
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Table2:InwardFDIS
tockasaPercentageofGros
sDomesticProduct,byHost
RegionandEconomy,1985-2005
(Con
td...)
Regio
n/Economy
1985
1995
1996
19
97
1998
1999
2000
2001
2002
2003
2004
2005
World
6.95
9.40
10.26
11.76
14.01
15.95
18.35
19.80
20.92
22.50
23.30
22.67
Deve
lopedEconomies
6.44
8.92
9.67
10.36
12.47
13.54
16.23
17.57
19.36
21.09
22.05
21.40
Europ
e
9.97
13.13
13.85
15.22
19.07
20.64
26.38
28.44
31.83
33.89
34.94
33.48
UnitedKingdom
14.06
17.62
19.22
19.07
23.73
26.36
30.50
35.40
33.44
33.72
33.32
37.10
North
America
5.49
8.31
8.74
9.21
9.91
11.46
14.02
14.45
14.07
14.34
14.51
14.56
UnitedStates
4.41
7.29
7.70
8.26
8.95
10.37
12.87
13.34
12.89
12.88
13.03
13.02
OtherDevelopedCountries
2.34
2.91
3.53
3.45
3.93
4.35
3.94
4.40
6.02
7.29
8.15
7.32
Deve
lopingEconomies
8.93
12.22
13.28
17.53
20.57
25.91
26.26
28.07
26.74
27.77
27.93
27.00
Africa
10.45
16.72
16.43
17.56
19.32
26.98
25.99
26.56
29.82
30.40
29.94
28.20
Latin
AmericaandtheCaribbean
9.26
11.05
12.68
15.47
18.66
24.29
25.84
31.82
33.99
36.78
37.64
36.65
AsiaandOceania
8.31
12.15
13.14
18.67
21.95
26.56
26.51
26.37
23.30
23.88
23.88
23.15
Asia
8.26
12.12
13.11
18.66
21.95
26.57
26.51
26.37
23.29
23.88
23.89
23.15
West
Asia
11.32
8.02
7.80
8.31
8.99
8.88
8.52
9.66
9.22
11.82
11.38
11.88
EastA
sia
8.24
12.26
13.19
23.27
25.47
34.04
33.98
33.34
27.64
28.09
28.34
26.99
Chin
a
2.04
14.44
15.69
17.14
18.51
18.78
17.89
17.28
17.04
16.12
14.88
14.29
HongKong,China
75.24
50.07
51.52
143.59
136.21
252.29
275.44
257.53
210.25
243.39
275.21
299.88
Kore
a,DemocraticPeoplesRepublicof
13.36
6.57
9.80
10.31
9.98
9.83
9.45
8.58
9.17
10.09
10.70
Kore
a,Republicof
2.24
1.83
2.06
2.74
5.56
6.47
7.32
8.58
8.11
7.94
8.24
7.97
South
Asia
0.91
2.54
3.27
4.14
4.70
4.53
4.66
4.78
5.45
5.62
6.04
6.23
India
0.33
1.54
2.11
2.54
3.33
3.43
3.77
4.20
5.00
5.18
5.68
5.84
Pakistan
3.01
7.27
9.36
12.74
11.79
10.18
9.78
8.25
8.29
8.48
8.77
8.78
SriLanka
8.84
9.95
10.16
12.24
12.73
14.09
9.80
9.71
10.44
10.72
11.31
10.41
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the performance of the economy and the
balance of payments (Siow, 1993).
Coming to the scenario in Asia, a few
economies are attracting heavy inflows and
others remain low players. As can be seen
from Table 3, Asia contributes aroundone-fifth of the worlds FDI. South, East and
South-East Asia contribute almost four-fifth
of the total inflows directed at this region.
However, there is a huge skewness in favor
of some economies in East Asia, with China
dominating the scene among all the
economies. The internal policy framework
and the conducive environment for the
foreign investors have been very fruitful over
the period for China. South Asia is among
the deprived region in entire Asia, with India
contributing only around 3% to the regions
inflow in the year 2005. Singapore and
Thailand are among other economies in this
region that attract a large inflow of direct
investments.
Looking again at the world scenario, we
can see in Table 4 the trends as far as sectoralinflows of FDI across the developed and
developing economies are concerned. There
is a clear indication that most FDI flows are
in the manufacturing sector, and the service
sector has picked up in the later years. Most
economies still have a highly protected
agricultural sector and low FDI inflows also
show the same trend (Table 4).
FDI in IndiaIn this section a detailed analysis of the FDI
in India is presented on the basis of approvals,
actual flows, country and sector-wise break-
ups, state-wise break-ups and also on the
components of FDI. Considerable interest is
being shown in measures that might promote
private foreign investment and allow it to
make a greater contribution to development
(Bhalla, 1994); this fact is being proved herein the analysis.
Table2:InwardFDIS
tockasaPercentageofGros
sDomesticProduct,byHostRegionandEconomy,1985-2005
(...
con
td)
Region/Economy
1985
1995
1996
19
97
1998
1999
2000
2001
2002
2003
2004
2005
South
-EastAsia
13.46
22.63
24.62
27.47
47.22
45.98
45.42
44.63
43.65
43.84
44.16
43.20
Indo
nesia
6.71
10.17
11.77
14.57
32.68
20.95
16.50
10.63
4.11
4.96
7.05
7.65
Malaysia
23.68
32.34
35.72
42.28
62.44
61.86
58.40
38.60
39.45
39.70
37.19
36.52
Philippines
8.46
8.21
8.89
10.23
14.28
14.98
16.87
14.95
15.68
14.87
14.92
14.37
Sing
apore
60.03
78.21
81.41
78.39
105.83
124.23
121.67
139.95
153.20
157.55
156.19
158.57
Thailand
5.14
10.53
10.83
8.84
22.78
25.37
24.37
28.79
30.09
33.96
32.95
33.50
Vietnam
30.55
34.48
40.82
49.48
57.51
63.39
66.07
70.43
74.31
70.44
63.54
61.17
South-EastEuropeandtheCommon-
0.00
1.31
1.97
3.24
5.40
8.64
15.87
19.49
22.15
24.45
23.80
21.22
wealthofIndependentStates(CIS)
Source:W
orldInvestmentReport2006.
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11/24
Table3:InwardFDIFlows,b
yHostRegionandEconomy
,1985-2005
Regio
n
1985
1990
1991
1995
1997
1998
1999
2000
20
01
2002
2003
2
004
2005
Asia5421.41
22642.36
24154.07
7991
8.01
105772.63
95249.46
111285.32
147992.76
112044.89
96124.85
110136.74
156622.32
1995
53.64
%ofW
orld
9.35
11.23
1
5.60
23.48
21.60
13.38
10.12
10.50
13.46
15.56
19.74
22.04
21.78
WestAsia
681.56
455.69
214
5.33
2495.21
4246.19
3535.75
1799.49
3518.27
7219.71
6018.77
12313.53
18580.96
34460.75
%ofA
sia
12.57
2.01
8.88
3.12
4.01
3.71
1.62
2.38
6.44
6.26
11.18
11.86
17.27
South,Eastand
4739.85
22186.67
2200
8.74
77422.80
101526.44
91713.71
109485.82
144474.49
104825.18
90106.08
97823.21
1380
41.36
165092.89
South-EastAsia
%ofA
sia
87.43
97.99
9
1.12
96.88
95.99
96.29
98.38
97.62
93.56
93.74
88.82
88.14
82.73
EastAsia
2248.30
8791.07
794
4.11
46551.57
61848.97
65548.87
77478.44
116275.40
78828.59
67350.24
72173.98
1050
74.18
118192.28
%ofA
sia
41.47
38.83
3
2.89
58.25
58.47
68.82
69.62
78.57
70.35
70.07
65.53
67.09
59.23
China
1956.00
3487.11
436
6.34
37520.53
45257.04
45462.75
40318.71
40714.81
46877.59
52742.86
53505.00
606
30.00
72406.00
%of
Asia
36.08
15.40
1
8.08
46.95
42.79
47.73
36.23
27.51
41.84
54.87
48.58
38.71
36.28
HongKong,
267.22
3275.07
102
0.86
6213.36
11368.15
14764.95
24578.09
61924.06
23776.53
9681.88
13623.58
340
31.70
35897.46
China
Korea,
217.90
759.20
113
0.30
1246.70
2641.10
5067.50
9630.70
8650.60
3866.30
3042.80
3891.90
77
26.90
7198.00
Repu
blicof
Taiwan
342.00
1330.00
127
1.00
1559.00
2248.00
222.00
2926.00
4928.00
4109.00
1445.00
453.00
18
98.00
1625.00
Provinceof
China
South
Asia
173.13
574.75
42
4.35
2717.18
5370.56
3888.99
3241.83
4658.30
6414.86
6982.13
5729.27
73
01.26
9765.05
%ofA
sia
3.19
2.54
1.76
3.40
5.08
4.08
2.91
3.15
5.73
7.26
5.20
4.66
4.89
Bangladesh
6.66
3.24
1.39
1.90
575.25
576.46
309.12
578.70
354.50
328.30
350.20
4
60.40
692.00
India
106.09
236.69
7
5.00
2151.00
3619.00
2633.00
2168.00
3585.00
5472.00
5627.00
4585.00
54
74.00
6598.00
%of
Asia
1.96
1.05
0.31
2.69
3.42
2.76
1.95
2.42
4.88
5.85
4.16
3.50
3.31
Pakistan
47.44
278.33
27
1.92
492.10
711.00
506.00
532.00
309.00
383.00
823.00
534.00
1118.00
2183.00
SriLa
nka
24.40
43.35
6
7.00
65.00
433.00
150.00
201.00
172.95
171.79
196.50
228.72
2
33.00
272.00
South-EastAsia
2318.42
12820.85
1364
0.28
28154.05
34306.91
22275.84
28765.55
23540.79
19581.72
15773.71
19919.96
256
65.93
37135.56
%ofA
sia
42.76
56.62
5
6.47
35.23
32.43
23.39
25.85
15.91
17.48
16.41
18.09
16.39
18.61
(Con
td...)
(inUS$mn)
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1989-1991
2002-2004
Sector/Industry
Developed
Developing
World
Develope
d
Developing
South
-East
World
Countries
Economies
Countries
Economies
EuropeandCIS
Primary
9103
3,340
12,443
36,398
16,328
4,909
57,635
Ag
riculture,hunting,forestry
6
608
603
131
2,341
132
2,604
andfisheries
Mining,quarryingandpertroleum
9,072
2,732
11,804
36,493
13,987
4,777
55,257
Un
specifiedprimary
37
37
226
0
226
Manufacturing
47,693
16,453
64,147
93,337
84,957
6648
184,943
Food,beveragesandtobacco
4,846
2,459
7,304
10,874
5,737
794
17,405
Textiles,clothingandleather
2,113
248
2,361
2,236
1,334
46
3,616
Woodandwoodproducts
2,006
239
2,245
425
298
396
268
Publishing,printingand
rep
roductionofrecordedmedia
870
870
2,531
140
1
2,672
Co
ke,petroleumproductsand
nuclearfuel
997
309
687
6,189
70
532
6,651
Ch
emicalsandchemicalproducts
10,097
2,214
12,311
17,275
6,716
230
24,221
Table4:Estim
atedWorldInwardFDIFlows,bySectorandIndustry,1
989-1991and2002-2004
(Con
td...)
(inmn$)
Table3:InwardFDIFlows,b
yHostRegionandEconomy
,1985-2005
Region
1985
1990
1991
1995
1997
1998
1999
2000
20
01
2002
2003
2
004
2005
Indonesia
310.00
1092.00
1482
.00
4346.00
4678.00
241.00
1865.00
4550.00
2978.43
145.09
596.92
18
96.00
5260.00
Malaysia
694.71
2611.00
4043
.00
5815.00
6323.00
2714.00
3895.26
3787.63
553.95
3203.42
2473.16
46
24.21
3967.12
Philip
pines
105.00
550.00
556
.00
1459.00
1249.00
1752.00
1247.00
2240.00
195.00
1542.00
491.00
6
88.00
1132.00
Singa
pore
1046.75
5574.75
4887
.09
11535.31
13752.67
7313.87
16577.91
16484.49
15648.87
7338.08
10376.37
148
20.11
20082.73
%ofAsia
19.31
24.62
20
.23
14.43
13.00
7.68
14.90
11.14
13.97
7.63
9.42
9.46
10.06
Thailand
159.99
2575.00
2049
.00
2070.00
3882.00
7492.00
6091.00
3350.00
3886.00
947.00
1952.00
14
14.00
3687.48
(...
con
td)
Source:WorldInvestm
entReport2006(percentagesestimated).
(inUS$mn)
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1989-1991
2002-2004
Sector/Industry
Developed
Developing
World
Develope
d
Developing
South
-East
World
Countries
Econo
mies
Countries
Economies
EuropeandCIS
Rubb
erandplasticproducts
933
31
964
2,744
247
3
2,994
No
n-metallicmineralproducts
1,298
2
25
1,523
3,672
611
88
3
5,166
Metalsandmetalproducts
3,972
1,2
75
5,247
15,145
1,653
77
0
17,567
Machineryandequipment
4,851
2,9
29
7,779
9,970
6,153
60
7
16,730
Ele
ctricalandelectronicequipment
3,530
9
67
4,498
940
4,319
2
3
5,282
Precisioninstruments
837
837
1,233
64
2
6
1,144
Motorvehiclesandothertransportequipment
3,571
3
01
3,873
5,910
2,130
0
8,040
Ot
hermanufacturing
2,336
8
01
3,137
5,464
1,374
8
6,846
Un
specifiedsecondary
7,431
4,4
55
11,886
12,045
54,252
2,33
1
68,628
Services
83,807
11,3
02
94,909
336,513
92,418
7,24
3
436,174
Ele
ctricity,gasandwater
827
1,1
83
2,011
21,397
5,970
4
3
27,411
Co
nstruction
481
5
62
1,043
3,119
2,103
27
8
5,500
Trade
16,474
2,4
79
18,953
31,299
16,346
2,58
5
50,229
Ho
telsandrestaurants
3,596
9
19
4,515
1,249
1,715
13
1
3,095
Transport,storageandcommunications
1,681
1,1
93
2,874
30,710
11,303
82
2
42,835
Fin
ance
30,353
2,4
08
32,761
112,664
19,663
95
2
133,279
Bu
sinessactivities
17,288
1,5
04
18,792
90,462
26,143
1,63
7
118,242
Pu
blicadministrationanddefence
2,317
2,317
3,103
16
1
3,264
Education
7
4
11
3
40
3
46
He
althandsocialservices
67
23
90
296
212
2
2
62
Co
mmunity,socialandpersonalservice
activities
2,274
2,283
1,318
4,295
1
9
5,632
Otherservices
7,328
5
47
7,875
34,534
2,250
3
36,787
Un
specifiedtertiary
913
4
72
1,385
6,952
2,378
58
7
9,917
Priva
tebuyingandsellingofproperty
114
114
1,402
1
1
1,414
Unsp
ecified
8,086
3,8
39
11,925
17,618
9,189
73
8
27,545
Table4:Estim
atedWorldInwardFDIFlows,bySectorandIndustry,1
989-1991and2002-2004
(...
con
td)
Source:UNCTAD.
(inmn$)
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As in all colonial countries there was a widespread animosity towards foreign capital in
India (Chandra, 1991). Since 1980s, foreign capital was welcomed into hitherto closed areas
and its inflow multiplied manifold. Outstanding FDI as estimated by RBI, in Indias commercial
and industrial sector increased at a very slow pace from Rs. 387 cr in 1955 to Rs. 973 cr in
1975 falling marginally to Rs. 933 cr in 1980 (Chandra, 1991). The series of adjustments in
industrial policy in the 1980s and opening the doors wider for FDI undoubtedly helped somescaling up of the inflow of foreign private capital from the insignificant Rs. 10 cr per annum in
1970s to annual average of Rs. 100 cr in the first half of the1980s and about
Rs. 200 cr per annum in the second half (Mehta, 1991).
It is realized that FDI has proved to be an even more powerful channel for the transfer of
knowledge and export capability, and India should not lag behind other Asian countries in reaping
the benefits of FDI, especially for the infrastructure and exports (Economic Survey,1993-94). As a
result of open policy relating to FDI, foreign interest in Indian economy got stimulated.
Approvals vs. Actual Inflows
Table 5 depicts the detailed account of FDI actual inflow against the amount that was approved.
It can be observed that there is a large gap between the two, mainly attributed to the procedural
delays at the initial phase of liberalization. This gap seems to have faded in the later phases
Amount in Rs. cr Amount in US$ mn
Year (Jan.-Dec.) FDI Approvals FDI Inflows FDI Approvals FDI Inflows
1991 (Aug.-Dec.) 505 353 206 144
1992 3,818 691 1459 264
1993 8,862 1,862 2,891 608
1994 8,955 3,112 2,855 992
1995 30,882 6,485 9,835 2,065
1996 30,886 8,752 8,981 2,545
1997 50,389 12,990 14,048 3,621
1998 27,590 13,269 6,985 3,359
1999 25,140 10,167 5,986 2,421
2000 17,237 12,354 4,009 2,873
2001 20,940 16,778 4,653 3,728
2002 11,058 18,196 2,304 3,791
2003 5,416 11,617 1,178 2,526
2004 8,741 17,266 1,900 3,755
2005 7,900 19,299 1,775 4,360
2006 (Jan.-Oct.) 10,646 36,092 2,343 7,930
Total 2,68,965 1,89,283 71,407 44,983
Table 5: Year-Wise FDI Approvals and Inflows(Net of ADRs/GDRs) (from August 1991 to October 2006)
Note: a. FDI approvals data from the month of October 2004 are not being maintained by RBI, Mumbai.
b. FDI inflow includes FIPB/SIA route, RBIs automatic route, amount on account of acquisition of existing shares by foreign investors,
RBIs NRI Schemes, stock swapped and advance amount pending allotment of shares.
Source: SIA, DIPP, Ministry of Commerce and Industry.
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where, foreign investment
is being attracted to a large extent
by removing all the administrative
hurdles and also providing a
conducive economic environment
within the country.
Country-Wise Analysis
The analysis of FDI on the basis
of country of origin shows
interesting results. Most of the
developed economies are seen to
express their interest in investing
in India. Tax-Haven Mauritius isthe favorite route of most
investors. As seen in Table 6, this
country alone contributes to one-
third of all our inflows. The US
is the second highest contributor
having a share of around 12%.
All the other economies are
meager contributors with
Singapore and Switzerland
contributing only to the extent
of 3% and 1% respectively.
This shows that there are large
number of small investments
flowing in rather than small
number of large investments.
Figure 1 is a clear indication ofthe above statement. The policy
initiatives have to be taken up to
boost large investors into the
country.
Sector-Wise Analysis
The FDI in India is majorly
concentrated in the electrical
equipment industry, which
Table6:Statem
entonCountry-Wise/Year-W
iseFDIInflows(fromAugust1991toSeptember2006)
Source:SIANewsletter,DIPP,MinistryofCommerceandIndustry.
S.No.
Country
1991-2002
2003
2004
2005
2006
C
umulativeTotal
(Aug.-Dec.)
(Jan.-Dec.)
(Jan.-Dec.)
(Jan.-Dec.)
(Jan.-Sep.)
(inR
s.)
(inUS$)
1.
Mauritius
308,226.14
25,859.33
46,162.14
94,078.28
146,632.48
620,958.35
14,328.84
2.
USA
131,648.83
19,040.00
29,791.68
20,700.41
24,179.08
225,359.99
5,444.55
3.
Japan
69,320.44
4,343.86
5,337.44
7,449.55
4,648.43
91,099.71
2,162.78
4.
TheNetherlands
45,002.48
11,618.83
22,779.26
5,277.35
4,747.90
89,425.81
2,090.81
5.
UK
54,922.31
8,628.97
6,585.36
9,578.08
8,187.49
87,902.20
2,092.50
6.
Germany
39,842.10
3,624.98
7,274.88
3,683.13
12,529.23
66,954.33
1,619.73
7.
Singapore
21,277.30
1,680.46
2,855.01
14,168.96
26,224.54
66,206.28
1,531.92
8.
France
24,307.05
1,642.51
5,289.30
1,288.29
2,011.09
34,538.24
817.07
9.
Korea(South)
23,699.89
1,128.62
1,227.14
2,943.09
1,728.19
30,726.94
786.67
10.
Switzerland
14,120.56
4,289.59
3,137.05
3,689.39
2,704.36
27,940.96
673.06
11.
AcquisitionofExistingShares(fr
om1996to1999)
72,780.18
0
0
0
0
72,780.18
1,848.86
12.
AdvanceofInflows(from1999to2004)
55,030.92
18,807.56
24,851.48
0
0
98,689.96
2,178.72
13.
StockSwapped
840
1,725.00
0
283.71
0
2,848.71
61.23
14.
RBIsNRISchemes
84,269.48
0
0
0
0
84,269.48
2,509.86
GrandTotal
1,050,091.58
116,171.70
172,665.21
192,990.87
283,743.30
1,815,662.66
43,284.10
(AmountinRs.mn)
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contributes to around 14% of the total inflows. This is followed by the financial and non-
financial services contributing around 10%. As seen in Table 7, most of the inflows among the
top 10 industries are towards the service sector. Food-processing industry and pharmaceutical
industry would be the industries where FDI would largely be flowing in future.
Figure 2 gives a summary of the FDI inflows for 2006 reflecting the trend in the country
towards more and more service sectors opening up for foreign investment and also proving to
be one of the favorite destinations of investors.
Figure 1: Share of Top Five Countries in FDI Inflows
(Cumulative from April 2006 to September 2006)
17%
2%3%
9%
11% 58%
Mauritius
Singapore
USA
UK
The Netherlands
Others
Source: Reserve Bank of India.
Figure 2: Sector-Wise Distribution of Top Five FDI Inflows
(Cumulative from April 2006 to September 2006)
30%
3%6%
9% 18%
Services Sector
Electrical Equipments
(incl. S/W and Elec.)
Telecommunications
Transportation Industry
Fuels (Power and OilRefinery)
Others
34%
Source: Reserve Bank of India.
State-Wise Analysis
Maharashtra has been a major FDI destination among all the states in India. Table 8 depictsthe top five states in India, which are attracting most of the investment. Naturally, these states
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Source:
SIANewsle
tter,D
IPP
,Ministryo
fCommercean
dIndustry.
Table7:StatementonSector-Wise/Year-W
iseFDIInflows(fromAugust1991toSeptember2006)
S.No.
Sector
1991-2002
2003
2004
2005
2006
CumulativeTotal
(Aug.-Dec.)
(Jan.-Dec.)
(Jan.-Dec.)
(Jan
.-Dec.)
(Jan.-Sep.)
(inR
s.)
(inUS$)
1.
ElectricalEquipments(including
110,908.65
13,550.09
39,666.61
45
,938.44
63,042.10
273,105.89
6,271.88
ComputerSoftwareandElectronics)
2.
ServicesSector(Financialand
65,938.62
13,903.59
11,455.83
31
,445.14
74,849.74
197,592.92
4,599.77
Non-Financial)
3.
Telecommunications
98,994.43
7,272.59
6,087.84
9
,639.13
39,722.26
161,716.24
3,776.12
4.
TransportationIndustry
98,763.48
15,133.84
8,063.68
9
,659.22
13,403.52
145,023.74
3,436.37
5.
Fuels(PowerandOilRefinery)
89,762.37
7,418.51
7,159.79
2
,765.05
8,972.42
116,078.14
2,719.70
6.
Chemicals(otherthanFertilizers)
53,993.62
2,849.05
8,677.14
9
,044.68
15,627.48
90,191.97
2,237.58
7.
FoodProcessingIndustries
38,228.38
3,076.28
3,690.18
1
,782.91
1,745.95
48,523.72
1,211.19
8.
DrugsandPharmaceuticals
16,893.94
2,793.28
15,711.08
5
,107.25
4,802.86
45,308.40
1,054.97
9.
MetallurgicalIndustries
10,590.68
1,454.52
8,583.79
6
,321.99
6,324.84
33,275.81
765.8
10.
CementandGypsumProducts
12,166.66
440.4
7.3
19
,698.17
960.04
33,272.56
767.47
11.
MiscellaneousIndustries
130,010.60
14,568.58
13,400.28
17
,567.60
34,961.65
210,508.70
4,933.60
12.
AcquisitionofExistingShares
72,780.18
0
0
0
0
72,780.18
1,848.86
(from1996to1999)
13.
AdvanceofInflows(from1999
to2004)
55,030.92
18,807.56
24,851.48
0
0
98,689.96
2,178.72
14.
StockSwapped
840
1,725.00
0
283.71
0
2,848.71
61.23
15.
RBIsNRISchemes
84,269.48
0
0
0
0
84,269.48
2,509.86
GrandTotal
1,050,091.75
116,172.60
172,665.19
192
,990.87
283,743.30
1,815,663.70
43,284.12
(AmountinRs.mn)
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Table 9: Components of FDI in India
Year Direct Foreign Investment Equity Reinvested Earnings Other Capital
1990-91 97 NA NA NA
1991-92 129 NA NA NA
1992-93 315 NA NA NA
1993-94 586 NA NA NA
1994-95 1,314 NA NA NA
1995-96 2,144 NA NA NA
1996-97 2,821 NA NA NA
1997-98 3,557 NA NA NA1998-99 2,462 NA NA NA
1999-00 2,155 NA NA NA
2000-01 4,029 2,399 1,352 280
2001-02 6,130 4,096 1,644 390
2002-03 5,035 2,825 1,832 438
2003-04 4,322 2,229 1,460 633
2004-05 5,652 3,779 1,904 369
2005-06 7,751 5,820 1,676 256
(in US$ mn)
Table 8: Share of Top Five States Attracting FDI Approvals(January 1991 to March 2004)
RankName
No. of FDI Approvals Amount of FDIPercentage with Total
of the State Total Tech. FinancialRs. US$
FDI Approvedin cr in bn
1 Maharashtra 4,816 1,308 3,508 51,114.68 13.18 17.48
2 Delhi 2,638 304 2,334 35,250.74 9.78 12.06
3 Tamil Nadu 2,607 613 1,994 25,071.77 6.52 8.58
4 Karnataka 2,467 494 1,973 24,138.44 6.15 8.26
5 Gujarat 1,204 556 648 18,837.30 4.81 6.44
Source: Economic Survey 2003-04.
also happen to be among the most industrialized states in our country. So industrialization
leads to further industrialization. Maharashtra attracts most of the manufacturing FDI, whereas
Delhi and Karnataka attracts the FDI in service sector.
Components of FDI
As can be observed from Table 9, most of the investment flows are fresh equity investments.
India does not have full convertibility on capital account as of now; this brings most of the
earnings reinvested in the economy. The other capital which includes the remittance towards
recouping the losses of branches/subsidiaries, etc. forms a minor part of the total inflow.
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Source:
Est
ima
ted
.
Table10:DescriptiveStatistics
Sum
Mean
M
inimum
Maximum
Std.
Dev.
Variance
Skewness
Expo
rts
(US$mn
)
574
534
.00
38302
.27
18266
.00
85206
.00
18781
.39
352740651
.00
1.2
5
Impo
rts
(US$mn
)
760
234
.00
50682
.27
21064
.00
118908
.00
25006
.84
625342117
.00
1.4
4
GDP
(Rs.cr)
15614
111
.00
1040940
.73
692871
.00
1529408
.00
269817
.23
72801337406
.36
0.3
2
FDI(US$mn
)
40
748
.00
2716
.53
97
.00
6130
.00
2021
.32
4085729
.70
0.2
3
Analysis of Relation Between FDI, Exports, Imports
and GDP in India (1985-2005)
Undoubtedly, the role of FDI in the Indian economy has
considerably increased. The most important factors for this
change are liberalization of regulatory framework and privatization
programs since 1991. In other words, India adopted open door
policy with regard to FDI since late 1980s. The theoretical support
for FDI is that it will contribute to increasing exports and higher
growth of GDP. Flow of investment in the short run may also
increase imports; however, if this situation continues in the long
run it may have a detrimental impact on the growth and national
income if increase in exports does not match with the increase
in imports.
It would be interesting to analyze the impact of FDI on exportsand GDP. With this intention, simple regression technique has
been used to capture the impact of FDI on exports, imports and
GDP. FDI has been used as an independent variable whereas
exports, imports and GDP are used as dependent variables.
As depicted in Table 10, the imports have a higher mean,
standard deviation and also a higher skewness and the exports
are lower than the imports showing the steady trade deficit that
was existing in Indias foreign trade.The growth of FDI in India was very low in the initial years
of liberalization. However, in the later years with the relaxation
of processes for entry and fast track clearances and widespread
opening of FDI both in terms of cap and sectors showed a marked
improvement in the inflows. The average does not seem
impressive due to the above fact.
To analyze the regression results it is important to see the
impact of the most sought after FDI in the economy. As can beseen in Table 11, the coefficient of determination (R2) between
the FDI and exports is very high and also significant. The
interpretation can be that on an average, US$1 mn inflow of
FDI in the economy results in around US$7.8 mn exports in the
economy. The variation in exports due to changes in FDI can be
explained to the extent of 72%. All the estimated coefficients
are statistically significant and have an acceptable standard error.
The coefficient explaining variation in exports is significant and
positive indicating that the FDI has in fact promoted exportsduring the period of study.
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In case of imports, as expected, the coefficient has a positive value and is statistically
significant showing that there is an increase in imports along with an increase in the exports
with every flow of FDI in the economy. The results of regression show that with every million
US$ increase in the FDI, there is an increase of imports to the extent of US$10 mn. This
indicates two things: (i) imports are increasing with FDI and (ii) increase in imports are higher
than increase in exports with every dollar flow of FDI in the country. However, the coefficient
of determination is only 67% indicating that there are other factors besides the FDI whichexplain the changes in imports in the Indian economy over the period of study.
The main aim of all the economies to attract FDI is to see that the economic growth takes
place and the people in the economy are better off than before. The closest indicator of
economic growth is the GDP of the economy. So by analyzing the impact of FDI on GDP, we
explain whether the objective has been achieved or not. As can be seen in the table, the
regression results show a positive and statistically significant relationship between GDP and
FDI in the Indian economy during the period of study. There is an increase in the GDP variable
due to FDI inflows. The coefficient of determination is also very high (84%) indicating thatmost of the changes in GDP can be explained by FDI in the economy. Thus, it can be said that
the purpose for which the FDI is attracted in the economy is being served to a very large extent.
However, to get a true picture, a comparative study across economies indicating the contribution
of FDI in the economic growth of these economies would be more justified. But, this is
beyond the scope of this paper.
Conclusion
FDI has contributed in the process of growth in the world economy in general and the developing
world in particular. From the study it is clear that FDI has positive impact on exports, imports
and has greatly contributed to GDP. Foreign investment flows are growing more rapidly than
world GDP and trade, implying increasing integration of world economy through capital and
technology.
New sectors such as retail, banking, insurance, drugs and pharmaceutical industry which
are either thrown open or planned to be open for private and foreign investment, are the hopes
for the Indian economy. To quote the recent trends, FDI equity inflows during April 2006 to
November 2006 were $7.2 bn, which is the highest ever for equity capital since economic
liberalization. The higher inflows as well as the new credit rating reflected growing investorconfidence in India. According to A T Kearneys FDI confidence index, Indias rank as a FDI
Source: Estimated.
Table 11: Regression Analysis
Constant B Coefficient Std. Error t sig. R R2
Exports 16848.889 7.897 1.358 5.816 0.000 0.850 0.722
Imports 23059.220 10.168 1.954 5.203 0.000 0.822 0.676
GDP 707486.899 122.75 14.547 8.438 0.000 0.920 0.846
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investment destination has improved from No. 15 in 2003 to No. 2 in 2006. According to the
leading financial firm J P Morgan, the return on equity on investments made in India is the
highest in Asia at 18%. Services sector has become the top sector in attracting FDI during
April-November 2006. The importance of FDI in the countrys economy is in terms of not only
generating economic activities and jobs, but equally in facilitating transfer of technology and
managerial capabilities, which helps enhance Indias global competitiveness (Times NewsNetwork, 2007).
Unlike China, India has not been able to attract substantial FDI; Indian manufacturing
should be able to take advantage of foreign investment as a transmission belt for advanced
technology. Unless India makes serious efforts in the direction of improving labor relations,
financial sector and infrastructural facilities accompanied by long-term policy certainty, it is
difficult to attract FDI continuously like other leading Asian nations. Therefore, Indias attitude
and political intent towards foreign investment and technology has to be made clear in order
to obtain huge foreign investment flows.
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