CHAPTER I
1.0 INTRODUCTION
One of the foremost vital developments throughout the last 2 century is that the outstanding growth of FDI within the international financial business. The surprising growth of FDI in 1991 created FDI a crucial side of strategy for development for the nations that are developed and developing and for the policies that are developed for increasing the inflows. If truth be told FDI provided a good state of affairs for each countries host and residential. Each the countries have an interest in investment in FDI as they suppose it’s profitable in investment in FDI. the house country need to achieve interest from the big market And on the opposite hand the host need to amass technological and social control ability set and also the foreign investment therefore the all developing think about FDI as an elixir for his or her issues and scare resources and skills and also the intervention expedited the expansion of FDI across the economy.
1.1 HISTORY OF FDI
The history of FDI development of FDI are often studied with formation of the Malay Archipelago Company of England. Nation capital enter Bharat throughout the colonial era of England. However the researchers don’t seem to be able to offer all info the knowledge the data} regarding the history of FDI as a result of the correct information. Before independence most of the quantity of FDI was given by nation corporations. They setup their business units in those sectors that are most profitable to them and their business. Then when the planet war japan countries enter the market and that they began to invest within the market however still nation corporations stay the main investors.
After independence problems were settled MNCs started gaining the eye of the policy manufacturers. When keeping in mind the interest of the state they designed FDI that was thought of the medium of getting the technology and to amass the quality of the exchange resources. The primary prime minister of Bharat think about the FDI flows as a crucial side for not solely additive the domestic capital however conjointly secure technical, economic, and industrial and capital necessities. With the time {and the|and therefore the|and conjointly the} economic changes there have been also changes within the FDI policy too. The economic policy of 1965 permits the MNCs to possess associations in India. Therefore the country featured 2 kinds of crunch one was within the exchange and also the different was monetary resource mobilization throughout the 5 year set up (1956-61). For this government enable the lot of versatile equity participation for the foreign enterprises, and to just accept equity mixtures. There have been several blessings that were provided by the govt that are tax concession, simplifying the procedures in incensing, and plenty of different relations were provided by government to spice up the inflows of FDI within the country. This perspective of state attract several investors to take a position just like the countries USA, japan and European nation etc. owing to the outflow of foreign reserves within the kind dividend, profits, royalties etc. government has got to kind a really strict policy of foreign investment in Nineteen Seventies. Throughout this era of your time they adopted selective and restrictive policy for the case of foreign reserves and capital, the kinds of FDI and facts associated with the foreign investment. Government fashioned a board for foreign investment and fashioned an act exchange regulation act to possess an effect on foreign capital and FDI flows in Bharat.
In Nineteen Eighties the reducing worth of oil and reduction of balance of payments encourage government to form changes within the policy. Throughout this era government encourage the flow of FDI and allowed the MNCs to control in Bharat to encourage foreign investment. This resulted in partial relief of the economy.
In the early of nineties there was crisis the balance of payments were severely reduced and exports featured a severe drawback. There was a major increase within the oil costs owing to the gulf war. Bharat was left with very little foreign reserves there wasn’t enough reserves they were restricted that it will serve for less than 3 weeks of imports. The outflow of the foreign currency that deposited in NRIs that gave a shake to Indian economy a lot of. The balance of payments reduced and reached to negative i.e. (-) 4471 crores. Inflation reached to the utmost level that’s thirteen. The continual political ambiguity within the country worse the condition of the economy. This end in the reduction of the image and name of Bharat within the international marketplace for the long run and short term borrowing. Of these development that was happening within the country created the country to fail to payment of the external liability. During this vital state of affairs the government minister dr. man Mohan Singh with the assistance of the planet Bank and IMF introduced totally different economic stabilization and structural policies. Because the results of these polices and reforms FDI was open and it semiconductor diode to extend in FDI inflows and adopted a lot of versatile policies to achieve the interest of the foreign investors.
Further, a lot of underneath the new policy of investment government of Bharat fashioned FIPB (foreign investment promotion board) whose main responsibility was to facilitate the foreign investment through one single platform from Prime Minister Workplace. The equity cap for foreign was raised to fifty one for the previous corporations. Government currently has allowed to use the foreign name for the domestically created product that wasn’t allowed earlier. Bharat has conjointly become the member of MIGA (multilateral investment guarantee agency) for the protection of the foreign investment. Government conjointly removed the restrictions on the MNCs operations by editing the FERA act 1973. New sectors like mining, banking, telecommunications, constructions all were receptive the foreign investors and also the personal investors likewise.
FDI INFLOWS IN INDIA
(From 2005-2015)
Amount
of FDI 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15
In
crores 2,751.45 2,149.58 5,099.56 11,684.81 12,269.66 7,542.04 9,011.53 1,654.30 7,987.28 17,372.32
1.1 FDI INFLOWS IN INDIA IN POST REFORM ERA
Indian economic amends in the past 1991 has formed a great interest of the foreign investors and India was considered as an important platform for FDI flows to be generated. According A.T. Kearney India is considered as second on the list for the attractiveness of the FDI flows. A.T. Kearney 2007 global services location index ranks India as important platform for financial attractiveness, labor and skills attractiveness. All the positive inferences of the foreign investors of their strong financial inferences of the past 18 years helped India to increase its foreign investment. The FDI inflows have significantly increased about 20 times after the economy has opened to the foreign investment. India has received the maximum amount of FDI from the developing nations.
1.2 TRENDS AND PATTERENS OF FDI INFLOWS
1.2.1 INTRODUCTION
One of the necessary and outstanding feature this today’s world is that the increasing of FDI within the developing and developed nations. Within the last 2 century the flow of FDI has been increasing than the other indicators of the economy of the state. Specially the developing countries take into account the FDI as necessary supply of investment of external finance as a result of it not solely support the domestic capital, foreign reserves however additionally promoted the deluge of technology, skills, innovation and domestic competition. Currently a day’s FDI has become a tool of international collaboration.
Located within the south Asia Bharat is that the seventh largest and second largest inhabited country within the world. Bharat is understood for its completely different diversity of individuals, cultures, and completely different convergence of geographic. It’s a unique pool of ability set it’s a population of English speaking base that has brought Republic of nation up as a population having a good quantity of income has created India as an honest partner to world partners of the planet. The investment opportunities have reached a division. Thus report contains the trends and patterns of FDI for the years 2005-2015.
1.2.2 TRENDS AND PATTERNS OF FDI FLOW WITH IN THE WORLD
The liberalizations of trade, capital markets, barriers of business removed, advancement of technology, the internationalizations of the products, services, concepts of the past 2 centuries that build the world’s economies a world economies. Similarly, with giant domestic world, low labor rates and also the high rate of labor skills, higher returns to the investment created has created the developing countries to go away a good impact the economy. Trends within the worlds FDI flows show the developing countries show their presence by giving the massive quantity of FDI inflows. Developing countries share in FDI inflows has increase from twenty sixth to forty first.
1.3.3 Different sectors attracting the highest equity flows of FDI
Source: RBI Bulletin
Table two shows the trend of FDI equity inflows in numerous sector from the amount of Apr 2000- July 2013 in India. The results disclosed that most contribution (28 percent) of FDI inflows in commission sector. Once this investors’ opt to invest in industry (16 %), telecommunication (9 %), pc computer code and hardware (9%) and medicines & prescribed drugs (9%) as a result of these sectors are a lot of profitable as compared to others. Services sector includes financial, banking, insurance, non-financial, outsourcing, R&D, courier, tech. testing and analysis.
1.3.4 Share of Top Investing Countries in FDI Equity Inflows in India
(Amount Rupees in Crores)
Below Table presents the FDI equity inflows from high 10 countries like Asian country received most FDI from Mauritius, followed by Singapore, U.K, Japan and U.S.A by securing rank initial, second, third, fourth and fifth severally. The most reason for higher levels of investment from Mauritius was that the actual fact {Republic of Asian country| entered into a double taxations rejection agreement (DDTA) with Mauritius were shielded from taxations in India.
CHAPTER II
FDI AND INDIAN ECONOMY
Developed economies contemplate FDI as AN engine of market access in developing and fewer developed countries vis-à-vis for his or her own technological progress and in maintaining their own economic process and development. Developing nation’s appearance at FDI as a supply of filling the savings, exchange reserves, revenue, deficit, management and technological gaps. FDI is taken into account as AN instrument of international economic integration because it brings a package of assets as well as capital, technology, social control skills and capability and access to foreign markets. The impact of FDI depends on the country’s domestic policy and policy. As a result FDI contains a wide selection of impact on the country’s policy. So as to review the impact of foreign direct investment on economic process, 2 models were framed and fitted. The foreign direct investment model shows the factors influencing the foreign direct investment in Bharat. The economic process model depicts the contribution of foreign direct investment to economic process.
2.1 Choice of Variables:
Economic indicators of AN economy area unit thought of because the major pull factors of FDI inflows to a rustic. The analysis of higher than theoretical principle and existing literature conjointly provides a base in selecting the proper combination of informative variables that explains the variations within the flows of FDI within the country. So as to possess the simplest combination of informative variables for the determinants of FDI inflows into Bharat, completely different alternatives combination of variables were known then calculable. The choice combos of variables enclosed within the study area unit in tune with the noted specifications given by global organization Conference on Trade and
Development, (UNCTAD 2007). The study applies the straightforward and multiple correlation technique to seek out the informative variables of the FDI inflows within the country. The multivariate analysis has been dole out in 2 steps. Within the opening, all variables area unit taken into thought within the estimable model. Within the second stage, the insignificant variables area unit born to avoid the matter of multi-collinearity and so the variables area unit hand-picked. However, when thorough analysis of the various combination of the informative variables, this study includes the subsequent economic indicators: total trade (TRADEGDP), analysis and development expenditure (R&DGDP), money position (FIN.Position), rate (EXR), exchange reserves (RESERVESGDP), and foreign direct investment (FDI), foreign direct investment rate of growth (FDIG) and level of economic process (GDPG). These economics indicators area unit thought of because the pull factors of FDI inflows within the country. In different words, it’s aforementioned that FDI inflows in Bharat at mixture level will be thought of because the perform of those aforementioned economics indicators.
2.1.1 GROSS DOMESTIC PRODUCT:
It is one of most important independent variable used in this report. There is a good increase in the GDP in the year 2005 that has put the country in a good position in the group of 12 countries. India has made his place and shown its place by making a good progress in the IT department, high end quality services and knowledge services. It has gained a growth rate of 9% in the repeatedly of the three years and it had opened opportunities to the foreign investors.
YEARS GDP at factor cost
2005-06 1786525
2006-07 1864301
2007-08 1972606
2008-09 2048286
2009-10 2222758
2010-11 2388768
2011-12 2616101
2012-13 2871120
2013-14 3129717
2014-15 3339375
India’s various economy attracts high FDI inflows as a result of its immense market size, low wage rate, giant human capital (which has benefited vastly from outsourcing of labor from developed countries). Within the gift decade India has witnessed unexampled levels of economic enlargement and additionally seen healthy growth of trade. Gross domestic product reflects the potential market size of Indian economy. Potential market size of Associate in Nursing economy are often measured with 2 variables i.e. gross domestic product (the gross domestic product) and value (the gross national product).GNP refers to the ultimate worth of all the products and services created and internet issue financial gain attained from abroad. The word ‘gross’ is employed to point the valuation of the national product together with depreciation. Gross domestic product is Associate in nursing unduplicated total of financial values of product generated in varied varieties of economic activities throughout a given amount, i.e. one year. It’s known as as domestic product as a result of it’s the worth of ultimate merchandise and services created domestically among the country throughout a given amount i.e. one year. Thus in purposeful type GDP= GNP-Net issue financial gain from abroad. In India gross domestic product is calculated at value and at issue price. Gross domestic product at value is that the total of market values of all the ultimate merchandise and services created within the domestic territory of a rustic during a given year. Similarly, gross domestic product at issue price is up to the gross domestic product at market costs minus indirect taxes and subsidies. It’s known as gross domestic product at issue price as a result of it’s the summation of the financial gain of the factors of production
Further, gross domestic product are often calculable with the assistance of either (a) Current costs or (b) constant costs. If domestic product is calculable on the idea of market costs, it’s called gross domestic product at current costs. On the opposite hand, if it’s calculated on the idea of base year costs prevailing at some purpose of your time, it’s called gross domestic product at constant costs.
2.1.2 TOTAL TRADE (TRADE GDP):
It refers to the full trade as share of value. Total trade implies total of total exports and total imports. Trade, another instructive variable within the study conjointly affects the economic process of the country. The values of exports and imports area unit taken at constant costs. The connection between trade, FDI and growth is standard. FDI and trade area unit engines of growth as technological diffusion through international trade and inward FDI stimulates economic process. Data and technological spillovers (between companies, inside industries and between industries etc.) contributes to growth via increasing productivity level. Economic process, whether or not within the style of export promoting or import subbing strategy, will considerably have an effect on trade flows. Export crystal rectifier growth results in enlargement of exports that successively promote economic process by increasing the market size for developing countries.
YEARS TOTAL TRADE
2005-06 374797
2006-07 434444
2007-08 454218
2008-09 552343
2009-10 652475
2010-11 876405
2011-12 1116827
2012-13 1412285
2013-14 1668176
2014-15 2072438
Since liberalization, the worth of India’s international trade has up to Rs. 2072438 crores in 2014-15 from Rs. 91892 crores. As exports from the country have exaggerated manifolds when the initiation of economic reforms since 2005. India’s major commerce partners area unit China, us of America, United Arab Emirates, UK, Japan, and EEC. Since 2005, Asian nation’s exports are systematically rising though India remains an internet bourgeois. In 2014-15 imports were Rs. 1305503 crores and exports were Rs. 766935 crores. Asian nation accounted for one.45 per cent of worldwide merchandise trade and a pair of.8 per cent of worldwide business services export.
Economic growth and FDI area unit closely coupled with international trade. Countries that area unit additional open area unit additional seemingly to draw in FDI inflows in several ways: Foreign capitalist brings machines and instrumentation from outside the host country so as to scale back their value of production. This will increase exports of the host country. Growth and trade area unit reciprocally passionate about each other. Trade could be a complement to FDI, such countries tending to be additional hospitable trade attract higher levels of FDI.
2.1.3 FOREIGN EXCHANGE RESERVES (RESGDP):
RESGDP represents exchange Reserves as share of GDP. India’s exchange reserves comprise foreign currency assets (FCA), gold, special drawing rights (SDR) and Reserve percentage Position (RTP) within the International money. The rising economic giants, the BRIC (Brazil, state, India, and China) countries, hold the biggest exchange reserves globally and Bharat is among the highest ten nations within the world in terms of exchange reserves. Bharat is additionally the world’s tenth largest gold holding country.
YEARS RESGDP
2005-06 165913
2006-07 197204
2007-08 264036
2008-09 361470
2009-10 490129
2010-11 619116
2011-12 676387
2012-13 868222
2013-14 1237985
2014-15 128365
(Economic Survey 2009-10)17. Stock of exchange reserves shows a country’s monetary strength. India’s exchange reserves have mature considerably since 1991 (Chart-4.4). The reserves, that stood at Rs. 23850 crores at finish march 1991, enhanced bit by bit to Rs. 361470 crores by the top of March 2002, when that rose steady reaching level of Rs. 1237985 crores in March 2007. The reserves stood at Rs. 1283865 crores as on March 2008 (
Further, Associate in nursing adequate FDI influx adds foreign reserves by exchange reserves that place the economy in higher position in international market. It not solely permits the Indian government to control exchange rates, goods costs, credit risks, market risks, liquidity risks and operational risks however it additionally helps the country to defend itself from speculative attacks on the domestic currency.
2.1.4 RESERVE AND DEVELOPMENT EXPENDITURE (R&DGDP)
It refers to the analysis and development expenditure as proportion of gross domestic product. Republic of India has massive pool of human resources and human capital is thought because the first cause of economic activity.
YEARS Ex. On research and development
2005-06 12967.51
2006-07 14397.6
2007-08 15683.37
2008-09 16007.14
2009-10 16353.72
2010-11 17575.41
2011-12 19991.64
2012-13 22963.91
2013-14 24821.63
2014-15 27213
India has the third largest pedagogy system within the world and a convention of over 5000 year previous of science and technology. Republic of India will strengthen the standard and affordability of its health care, education system, agriculture, trade, business and services by finance in R&D activities.
India has emerged as a worldwide R&D hub since the last 20 years. There has been a big rise within the expenditure of R& D activities as FDI flows during this sector and in services sector is increasing within the gift decade. R&;D activities (in combination with different high – finish services) typically called “Knowledge method Outsourcing” or KPO square measure gaining abundant attention with services sector leading among all sectors of Indian economy in receiving / attracting higher proportion of FDI flows. It’s clear from (Chart- four.5) that the expenditure on R&; D activities is rising considerably within the gift decade. Republic of India has been a center several for several} analysis and development activities by many TNCs. Today, firms like General electrical, Microsoft, Oracle, SAP and IBM to call many square measure all following R&D in Republic of India. R&D activities in Republic of India demands large funds therefore providing larger opportunities for foreign investors.
2.1.5 FINANCIAL POSITION (FIN. POSITION):
FIN. Position stands for monetary Position. Monetary Position is that the magnitude relation of external debts to exports. it’s a powerful indicator of the soundness of any economy. It shows that external debts are lined from the exports earning of a rustic.
YEARS EXPORTS DEBT
2005-06 159561 428550
2006-07 203571 472625
2007-08 209018 482328
2008-09 255137 498804
2009-10 293367 491078
2010-11 375340 581802
2011-12 456418 616144
2012-13 571779 746918
2013-14 655864 897955
2014-15 766935 1169575
External debt of Republic of India refers to the full quantity of external debts taken by India in an exceedingly explicit year, its repayments further because the outstanding debts amounts, if any. India’s external debts, as of march 2013 was Rest. 897955, recording a rise of Rs.1169575 crores in march 2015 in the main attributable to the rise in trade credits. Among the composition of external debt, the share of business borrowings was the best at twenty seven.3% , followed by short – term debt (21.5%), NRI deposits (18%) and trilateral debt (17%).Due to arise in brief – term trade credits, the share of short – term debt within the total debt augmented to twenty one.5%, from 20.9% in march 2008. As a result the short – term debt accounted for forty.6% of the full external debt. India was rated the fifth most indebted country per a global comparison of external debt of the twenty most indebted countries.
Large business deficit has type of adverse effects: reducing growth, lowering real incomes, increasing the risks of economic and economic crises and in some circumstances it also can results in high inflation.
Recently the minister of India had secure to chop its deficit to five.5% of the GDP in 2010 from six.9% of GDP in 2009. As a result the credit – rating outlook was raised to stable from negative by normal and poor’s supported the optimism that quicker growth in Asia’s third largest and world second quickest growing economy can facilitate the govt. cut its deficit. The govt. additionally plans to chop its debt to sixty eight of the GDP by 2015, from its current levels of eightieth. So as to cut back the magnitude relation of debt to GDP there should be either a primary surplus (i.e. revenue should exceed non interest outlays) or the economy should grow quicker than the speed of interest, or both, in order that one should outweigh the adverse result of the opposite.
2.1.6 EXCHANGE RATES (EXR):
It refers to the charge per unit variable. Exchange rate may be a key determinant of international finance because the world economies are globalized ones.
YEARS EXR. RATES
2005-06 43.3
2006-07 45.7
2007-08 47.7
2008-09 48.4
2009-10 45.9
2010-11 44.9
2011-12 44.3
2012-13 42.3
2013-14 40.2
2014-15 45.9
There are variety of issue that have an effect on the charge per unit viz. government policy, competitive benefits, market size, international trade, domestic monetary market, rate of inflation, rate of interest etc. charge per unit touched a high of Rs. 48.4.
Since 1991 Indian economy has tried and true a shift which changes are mirrored on the Indian trade too. There’s high volatility within the price of INR/USD. There’s high appreciation within the price of agency that has anxious vast chunk of profits of the businesses.
2.1.7 GROSS DOMESTIC PRODUCT GROWTH (GDPG): It refers to the expansion rate of gross domestic product. Economic process rate have a control on the domestic market, such countries with increasing domestic markets ought to attract higher levels of FDI. India is that the 2d quickest growing economy among the rising nations of the globe. It’s the third largest GDP within the continent of Asia. Since 1991 India has emerged as one of the wealthiest economies within the developing world. Throughout this era, the economy has adult perpetually and this has been amid increase in lifespan, acquirement rates, and food security. It’s additionally the globe most thickly settled democracy. The Indian socio-economic class is giant and growing; wages are low; several staff are well educated and speak English. Of these factors lure foreign investors to India. India is additionally a significant businessperson of extremely – trained staff in code and monetary services and supply a vital ‘back workplace destination’ for international outsourcing of client services and technical support. The Indian market is wide numerous. The country has seventeen official languages, six major faith and ethnic diversity. Thus, tastes and preferences disagree greatly among sections of shoppers.
2.1.8 FOREIGN DIRECT INVESTMENT GROWTH (FDIG): within the last 2 decade world has witnessed unexampled growth of FDI. This growth of FDI provides new avenues of economic enlargement particularly, to the developing countries. India attributable to its vast market size, diversity, low-cost labor and enormous human capital received substantial quantity of FDI inflows throughout 1991-2008. India received accumulative FDI inflows of Rest. 577108 large integer throughout 1991 to march 2010. It received FDI inflows of Rs. 492303 large integer throughout 2000 to march 2010 as compared to Rs. 84806 large integer throughout 1991 to march ninety nine. Throughout 1994-95, FDI registered a one hundred and tenth growth over the previous year and a decennary age growth in 2007-08 over 2006-07. FDI as a share of gross total investment augmented to seven.4% in two008 as against 2.6% in 2005. This augmented level of FDI contributes towards augmented foreign reserves. The steady increase in foreign reserves provides a protect against external debt. The expansion in FDI additionally provides adequate security against any possible currency crisis or financial instability. It additionally helps in boosting the exports of the country. It enhances economic process by increasing the monetary position of the country.
CHAPTER IV
RESEARCH DESIGN AND METHODOLOGY
4.0 RESEARCH METHODOLOGY
4.1 Research Objective
• To do a study of the trends and patterns of FDI inflows.
• To study of the determinants of the FDI that affect the FDI inflows.
• To study and evaluate the impact and effect of FDI on the Indian economy.
4.2 HYPOTHESIS
The study involves the analysis of the data for the period of 2005-2015 and the following hypothesis is made:-
• Flow of the FDI inflows shows a positive trend for the period of 2005-15.
• FDI has a positive impact on the economic growth of the country.
4.3 RESEARCH METHODOLOGY
4.3.1 DATA COLLECTION
The study of the report is based on the secondary data and that data is collected from various sources i.e. world investment reports, Asian development bank report, various reports of reserve of India, publications of ministry of commerce, government of India, economic survey of Asia and pacific, UN, country reports on economy policy and trade practices and different websites of world bank, IMF, WTO, RBI etc. The relevant data is collected and analyzed from the time period of 2005-15.
4.3.2 MODEL BUILDING
To study more the impact of FDI on economic growth, two models were builded and formed to study the impact. The foreign direct investment models depicts the factors that the FDI in India. The model for economic growth shows the foreign direct investment contribution towards the economic growth. The equations of the model are explained below:-
1. FDI = f (tradeGDP, RESGDP, R&DGDP, FINANCIAL POSITION, EXR.)
2. GDGP = f (FDIG)
Which represents:-
FDI = foreign direct investment
GDP = gross domestic product
TRADEGDP = total trade as of % of GDP
RESGDP = foreign exchange reserves as % of GDP
R&DGDP = research and development expense as % of GDP
EXR = exchange rates
GDGP = level of economic growth
FDIG = foreign direct investment growth.
Simple regression methods were used to know the impact of FDI inflows on the economic growth in India then multiple regression methods were used to study the factors that affect the flow of FDI. Related econometric methods were used such as coefficient of determination R2, standard error of coefficient, T-statistics and F-ratio these tests were done to test significance, reliability of the model variables to be decided.
4.3.3 IMPORTANCE OF THE STUDY
1. It can be seen from the above discussion FDI is an important and vital factor for the process of economic development growth.
2. This study attempts to identify the factors that affect the FDI flows. This study look into the trends, patterns, factors and the investment flow of FDI in India.
3. This study also studies the effect of FDI on economic growth of India for the time period 2005-2015.
4. The other reason for taking this study was the shift of the power from the Asian countries to the southern- continent countries.
5. This study also studies the macroeconomic variables as no other has not since used these variables in the study.
4.3.4 LIMITATIONS OF THE STUDY
1. At across the different stages the objective of the study was faced with setback of time series with the related agencies.
2. There were also the problem of the availability of the homogenous data from the different sources.
3. Time was also the constraint of the report preparation.
CHAPTER V
ANALYSIS AND INTERPRETATION
5.1 ROLE OF FDI ON ECONOMIC GROWTH
In order study the role of FDI on economic growth two models were formed. Then the results founded from the models are further analyzed and studied by Eco metric techniques like coefficient of determination, standard error, F-ratio, t-statics etc. This study indemnified and studies the following microeconomic variables like TRADEGDP, R&DGDP, and FIN. Position, EXP, and reserves GDP as the determinants of FDI inflows in India. In order to study the role of FDI on Indian economy the trends and patterns of all the variables so far selected are to be analyzed. It was seen that FDI show a steady trend in the early times but it shows a rise after 2005. However GDP shows an increasing trend in early 2005 to 2015. Another variable that is TRADEGDP showed a steady trend and then it showed an increasing pattern. ReservesGDP first showed a low trend then showed a steady trend and then increasing trend.
MODEL 1
FDI MODEL
FDI = f [TRADEGDP, R&DGDP, EXR, RESGDP, FIN. Position]
Variable Coefficient Standard error t-statistic
TradeGDP 11.79 7.9 1.5
ReservesGDP 1.44 3.8 .41
Exchange rate 7.06 9.9 .72
Financial health 15.2 35 .45
R&DGDP -582.04 704 .83
R2 = 0.623 Adjusted R2= 0.466
F-ratio = 7.74
INTERPRETATION
In the FDI model it can be seen all the variables are significantly important. Furthermore the model showed that all the determinants that are used significant important for the FDI inflows in India. The regression results so calculated are shown that TRADEGDP, reservesGDP, financial position and the exchange rates are the major pulling factors that affect the flow of FDI in India and R&DGDP shows not that pulling factors that to the FDI flow in the country. As after seeing the results we can see that R&DGDP does not show its expected sign it showed the negative sign instead of positive sign and expected sign also showed positive sign instead of its negative expected sign. In conclusion we see that all the variables showed its expected signs than than the other two variables explained above. This change can due two to some reasons like the increase in the Indian rupee and the expenses on R&D to be low on the activates in the country.
PREDICTED SIGNS OF VARIABLES
Variables Predicted Sign Unexpected Sign
TradeGDP +
ReservesGDP +
Exchange Rate – +
Financial Position +
R&DGDP + –
It is seen from the above results that the coefficient between FDI and TRADEGDP is 11.79 it means that any one percent increase in the trade GDP will give increase of 11.79 in FDI so it can be seen that trade GDP have positive impact on FDI in India. Then it can be seen that another factor that affect the inflows of the FDI in India that is reserves GDP. Reserves GDP is showing the same sign that is to be predicted by the variable. So the coefficient between the two id 1.44. It that shows the same sign so predicted is financial position and it implies the same. One important inference can be made from the results that R&DGDP shows a negative sign against its predicted sign so it does not affect the same FDI it will lead to decrease in FDI rather than increase.
From the above results it can be seen FDI is more elastic to financial position comparison to trade and reservesGDP. FDI is more sensitive to R&DGDP than to the exchange rate. The coefficient of determination i.e. R- squared shows that the model has a good fit, as 62% of foreign direct investment is being explained by the variables included in the model. Further the value of adjusted R-square and F-ratio also confirms that the model used is a good statistical fit.
MODEL 2
ECONOMIC GROWTH MODEL
GDGP= f (FDIG)
Variable coefficient Standard error t-statistic
FDIG 0.39 0.026 1.89
F-ratio = 28.076
In the economic process Model calculable constant on foreign direct investment includes a positive relationship with Gross Domestic Product growth (GDPG). It’s unconcealed from the analysis that FDI may be an important issue influencing the amount of economic process in Bharat. The constant of determination, i.e. the worth of R2 explains ninety five.6% level of economic process by foreign direct investment in Bharat. The F-statistics worth additionally explains the many relationship between the amount of economic process and FDI inflows in India.
Thus, the findings of the economic process model show that FDI may be an important and important issue influencing the amount of growth in India.
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