It is a research based article prepared and presented by me.

1. FOREIGN DIRECT INVESTMENT (FDI)
IN INDIA:
IT’S IMPACT ON INDIAN ECONOMY
-SUSMITA PATRA
RESEARCH SCHOLAR
PG DEPT. OF COMMERCE, UTKAL UNIVERSITY

2. ABSTRACT
• Unprecedented growth of global FDI entered India in 1991
• FDI is a vital component of development strategy in both developed as
well as in developing nations.
• FDI is a win – win situation to both the host and the home countries.
• The paper provides a broad outline on FDI in context with the different
sectors and its contribution in development of the economic condition
of the country with maximizing GDP.
• It also discusses the various problems about the FDI and suggests
some recommendations for the same.
• By investing more FDI a positive impact is found in every sector of
industrial life and Human life which in order is required to maintain a
sustainable & moderate life style.
Keywords: Foreign direct investment (FDI); Gross domestic
product; Economic development; Different sectors; Economic growth

3. INTRODUCTION
• One of the most striking developments in India during the last two
decades is the magnificent growth of FDI in the global economic
landscape.
• India has always been a most important recipient of foreign direct
investment in the greater part of its different sectors.
• It mostly depends on the capital invested by other countries other
than its own capital through this economic reform known as
Foreign Direct Investment (FDI).
• The ‘home’ countries want to take the advantage of the vast
markets opened by industrial growth where as the ‘host’ countries
want to acquire technological and managerial skills and supplement
domestic savings and foreign exchange.
• When scarcity meets all types of resources the scope of economic
development is emerged.

4. Cont..
• Further, the integration of global financial markets paves ways to
this explosive growth of FDI around the globe.
• The New Industrial Policy, 1991, accelerated the process of
liberalization which in order gave rise to the concept of Foreign
Direct Investment.
• FDI is considered as the safest type of external finance .
• It is a long term source of capital as well as a source of advanced
and developed technologies
• The investors also bring along best global practices of management
which in return creates employment and increases international
trade.
• Nowadays, FDI has become an instrument of international
economic integration and better standard of living of people.

5. REVIEW OF LITERATURE
• Kumar and Karthika (2010), found out in their study on “Sectoral
Performance through Inflows of Foreign Direct Investment (FDI)”, that FDI
has a major role to play in the economic development of the host country.
FDI ensures a huge amount of domestic capital, production level and
employment opportunities which is a major step towards the economic
growth of the developing countries.
• Devajit (2012), conducted the study on “The impact of Foreign Direct
Investments on Indian economy” and concluded that FDI as a strategic
component of investment is needed by India for its sustained economic
growth and development through creation of jobs, expansion of existing
manufacturing industries, short and long term projects in the field of
healthcare, education, research and development.
• Sharma & Khurana (2013), in their research article “Role of Foreign Direct
Investment (FDI) in Different Sectors” discussed the sector wise role of FDI
in India and concluded that FDI is related positively with real GDP and
previous period FDI inflow but inversely related with inflation.

6. STATEMENT OF PROBLEM
• The above review of literature proves beneficial in identifying the
research gaps, which are mainly the edifices on which the
objectives of the present study are based on.
• There is hardly any research been done in India taking macro-
economic variables like GDP (Gross Domestic Product) into
consideration while accessing the impact of FDI in different sectors
of India on the growth of GDP.
• The majority of the researches conducted in these areas are
covering a period prior to 2007 while FDI has received importance
only in the recent past & hence calls for research for the current
period i.e., 2007 -2017
• The study also examines the sectoral growth of the Indian economy
with the increasing inflow of FDI in the country.

7. OBJECTIVES OF THE STUDY
From the above literature review it is studied
that many researches has been done on FDI but
the objectives of my research are:
• Study the present status of Foreign Direct
Investment (FDI) in India.
• Measure the impact of Foreign Direct
Investment (FDI) in India on its GDP.

8. RESEARCH METHODOLOGY
• Scope of the study- Quantitative & Analytical
Research.
• Data- Data of sectors like Services, Construction,
Telecommunications, Computer Software and
Hardware, Automobile, Chemicals (other than
fertilizers), Power and metallurgical industries are
taken for the study.
• Time Period- April 2007 to March 2017 is
considered for the study
• Data Collection Method- secondary data

9. • Sources of data collection- The study is based on published sources of data
collected from various sources. The data was extracted from the following sources:
o Handbook of Statistics on the Indian economy, RBI.
o Economic Survey, Government of India.
o Department of Industrial Policy and Promotion (DIPP).
o Central Statistical Organization (CSO).
o Websites of Government
o Factsheets related to FDI
o Books and magazines related to FDI inflows relate with different sectors
o Annual reports of Reserve Bank of India (RBI)
• Statistical Tool- In order to analyze the collected data the following mathematical
tools is used. To work out on the relationship analysis the following formula is
used:
r =
𝑛( 𝑥𝑦)−( 𝑥)( 𝑦)
√[𝑛 𝑥2−( 𝑥)2][ 𝑦2−( 𝑦)2
• Tables have also been used wherever required to depict the statistical data of FDI
and GDP during the study period

10. ISSUES OF FDI IN INDIA
• Restrictive FDI regime
• Lack of clear cut and transparent policies regarding FDI
• High tariff rates by international standards
• Lack of decision-making authority with the state
governments
• Limited scale of export processing zones
• No liberalization in exit barriers
• Financial sector reforms
• High corporate tax rates

11. CHALLENGES OF FDI IN INDIA
• Promotion of cartels and creation of monopoly.
• Increase in the real estate prices.
• Marginalize domestic entrepreneurs.
• Ease of doing business
• The financial strength of foreign players would displace the unorganized
players.
• Absence of proper regulatory provisions and guidelines would induce unfair
trade practices like Predatory pricing despite the above challenges.
• Efficient use of underexploited and unexploited resources is a major challenge.
• Fostering social equality (tapping both urban and rural sections of the society)
and at the same time, a balanced economic growth.
• There has to be a common ground between the Parliament and the foreign
countries investing in India.
• Equal speed in implementation of policies, rules and regulations among the
states in India is important.

12. TABLE 1: STATUS OF FDI INFLOW IN
INDIA
YEARS INFLOW OF FDI (in Crores)
2007-08 98664
2008-09 142829
2009-10 123120
2010-11 97320
2011-12 165146
2012-13 121907
2013-14 147518
2014-15 189107
2015-16 262322
2016-17 291697

13. ANALYSIS AND INTERPRETATION
• Inflow of FDI has been increased since decades. But from Table 1 it is
studied that the FDI inflow is very much fluctuating and does not show a
constant pattern. In the year 2007-08 FDI was Rs. 98664 crores and
increased to Rs 142829 crores.
• In the next financial year i.e., 2009-10 the inflow of FDI decreased to Rs.
123120 crores and again decreased in the year 2010-11 to Rs. 97320
crores.
• In the year 2011-12 it has increased from Rs. 93720 crores to Rs. 165146
crores but again decreased in the year 2012-13 i.e., Rs. 121907 crores.
• Next year in 2013-14 the FDI inflow was Rs. 147518 crores and then
gradually the inflow of FDI increased from year to year till today. In the
years 2014-15 and 2015-16 the FDI received was Rs. 189107 crores and Rs.
262322 crores respectively.
• In the last financial year 2016-17 India received FDI of amount Rs.261697
crores. So in the current trend we can see a positive and gradually
increased inflow of FDI in India.

14. TABLE 2: SECTOR WISE FDI INFLOW IN
INDIA (IN CRORES)
YEARS Services Constru
ctions
Telecom
municati
ons
Computer
Software &
Hardware
Autom
obiles
Chemi
cals
Power Metallu
rgical
2007-08 26589 6989 5103 5623 1254 920 3875 4686
2008-09 28411 8742 11727 7329 5212 9427 4382 4157
2009-10 20958 13544 12338 4350 5609 1726 6908 1999
2010-11 15539 5077 7546 3571 6008 1812 5709 5023
2011-12 24656 15236 9012 3804 4347 36227 7678 8348
2012-13 26306 7248 1654 2656 8384 1596 2923 7878
2013-14 13294 7508 7987 6896 9027 4738 6519 3436
2014-15 19963 4582 17372 13564 15794 4658 3985 2897
2015-16 45415 727 8637 38351 16437 9664 5662 2982
2016-17 58214 703 37435 24605 10824 9397 7473 9647

15. ANALYSIS AND INTERPRETATION
• Services Sector: The inflow of FDI has increased gradually since last ten years i.e.,
from Rs. 26589 crores in 2007 to Rs. 58214 crores in 2017.
• Constructions Sector: Over the last two years construction activities have slowed
down considerably and even the equipment’s were lying idle in many cases. That’s
the reason that this sector is not in line with the general trend as the total FDI
received is on a rise.
• Telecommunications Sector: As like service sector this sector has also received FDI
in an averagely increasing trend.
• Computer Software & Hardware Sector: It’s a booming sector now and the FDI in
this sector has gradually increased.
• Automobiles Sector: In this sector also we can see an increasing trend of FDI
inflow.
• Chemicals Sector: If we see the FDI received in this sector since 2007 to 2017, it
has been increased. Highest FDI was received in the year 2011-12.
• Power Sector: This sector also shows an increasing trend of FDI received.
• Metallurgical Sector: Same increasing trend is found in this sector also regarding
FDI.

16. TABLE: 3.1 - IMPACT OF SECTORAL FDI
ON GDP OF INDIA (IN CRORES)
YEARS Services Constructions Telecommunication
s
Computer
Software &
Hardware
GDP FDI GDP FDI GDP FDI GDP FDI
2007-08 4582086 26589 4582086 6989 4582086 5103 4582086 5623
2008-09 5303567 28411 5303567 8792 5303567 11727 5303567 7329
2009-10 6108903 20958 6108903 13469 6108903 12338 6108903 4350
2010-11 7248860 15539 7248860 7590 7248860 7546 7248860 3571
2011-12 8391691 24656 8391691 15236 8391691 9012 8391691 3804
2012-13 9202692 26306 9202692 7248 9202692 1654 9202692 2656
2013-14 10363153 13294 10363153 7508 10363153 7987 10363153 6896
2014-15 11481794 19963 11481794 4582 11481794 17372 11481794 13564
2015-16 12456842 45415 12456842 727 12456842 8637 12456842 38351
2016-17 13669914 58214 13669914 703 13669914 37435 13669914 24605
r= 0.543781 -0.66741 0.551618 0.711117

17. ANALYSIS AND INTERPRETATION
From Table no. - 3.1 it is analyzed that:
• Services Sector- Correlation between the inflow of FDI in service sector
and the GDP of the country are positively co-related and r= 0.543781.
Inflow of FDI in this sector has helped the economy grow faster.
• Constructions Sector- Inflow of FDI in Constructions sector, i.e., subsector
of the infrastructure sector is negatively related where r= -0.66741which
means that GDP of India is negatively co-related to the inflow of FDI in this
sector which must be considered further.
• Telecommunications Sector- The correlation between the GDP of India and
FDI inflow in the telecommunications sector is positively co-related and r=
0.551618. This sector also helps in economic development of the country
and we must say the FDI is efficiently used.
• Computer Software & Hardware Sector- The relationship among the
variables of GDP of India and inflow of FDI in computer software and
hardware sector is positively related to the growth and development of
the economy where r= 0.711117.

18. TABLE: 3.2 - IMPACT OF SECTORAL FDI
ON GDP OF INDIA (IN CRORES)
YEARS Automobiles Chemicals Power Metallurgical
GDP FDI GDP FDI GDP FDI GDP FDI
2007-08 4582086 1254 4582086 920 4582086 3875 4582086 4686
2008-09 5303567 5212 5303567 9427 5303567 4382 5303567 4157
2009-10 6108903 5609 6108903 1726 6108903 6908 6108903 1999
2010-11 7248860 6008 7248860 1812 7248860 5709 7248860 5023
2011-12 8391691 4347 8391691 36227 8391691 7678 8391691 8348
2012-13 9202692 8384 9202692 1596 9202692 2923 9202692 7878
2013-14 10363153 9027 10363153 4738 10363153 6519 10363153 3436
2014-15 11481794 15794 11481794 4658 11481794 3985 11481794 2897
2015-16 12456842 16437 12456842 9664 12456842 5662 12456842 2982
2016-17 13669914 10824 13669914 9397 13669914 7473 13669914 9647
r= 0.848595 0.122879 0.269795 0.262316

19. ANALYSIS AND INTERPRETATION
From the Table- 3.2 it is interpreted that:
• Automobiles Sector- Since r= 0.848595, the relationship between
the FDI inflow in automobiles sector and GDP of the country is
positively and strongly co-related.
• Chemicals Sector- The relationship between the chemicals sector
and GDP of India is positively co-related and r= 0.122879. But the
impact of this sector is weak as compared to other sectors.
• Power- Power sector also show a positive impact on the growth of
the GDP of India with increasing inflow of FDI, where r = 0.269795.
• Metallurgical Sector- Since r= 0.262316, the relationship between
the FDI inflow in metallurgical sector and GDP of the country is
positively co-related but least impacts the growth of the GDP.

20. FINDINGS
• The present study has found a very little but positive impact of FDI on the GDP growth
of India. In recent years Services sector puts the economy on a proper gliding path by
contributing maximum to the GDP.
• Automobiles sector strongly helps in the economic development of India by efficient
use of the funds received from the foreign countries. Earlier Automobile Industry was
the part of transportation sector but it became an independent sector in 2000.
• It is also found that the FDI inflow in the constructions sector is not used efficiently and
as a result it doesn’t positively impact in the growth of the GDP of the country.
• Since liberalization the inflow of FDI has increased in India and also in the different
sectors of the economy and has impacted positively in the growth of the country.
• This analysis also helped to identify the main determinants of FDI at sectorial level.
• There is much inequitable distribution of inflow of FDI in the above mentioned sectors.
• It is apparent from the above discussion that FDI is a predominant and vital factor in
influencing the contemporary process of global economic development.
• Hence it can be said that the sectors that strongly impact on the growth and
development of India and its GDP are services, telecommunications, and computer
software & hardware and automobiles sector. The sector that doesn’t help in the
growth of the GDP is the constructions sector.

21. SUGGESTIONS
• The government should try to attract FDI from diversified sources by
improving its regulatory system through better and effective monetary
and fiscal reforms.
• The policy makers should frame the policies where foreign investment can
be utilized as means of enhancing domestic production, savings, and
exports as a result of easier access to the external market.
• To reduce the gap in FDI inflows between India and other developed
countries, India needs to liberalize its foreign investment policy framework
in a broader way. There should be a favorable economic environment in
terms of increasing efforts like provision of subsidized raw material,
power, land and tax concession.
• The government should also focus on the construction sector so that it can
also help in increasing the economic growth of the country and its own
improvement. Also there must be stability in the price and exchange rates
to attract FDI in Indian economy.

22. • Government must ensure that there is equitable distribution of FDI in
different sectors of India so that each sector can contribute in the
development of the economy.
• It is suggested that the government should make an attempt on the type
and volume of FDI that will significantly boost domestic competitiveness,
enhance skills, technological learning and invariably leading to both social
and economic gains.
• The study also reveals that measure must be taken by the government to
promote sustainable development through FDI for further strengthening
the political, R&D, education and health system in the country.
• FDI should be guided so as to establish deeper linkages with the economy,
which would stabilize the economy and create a reliable macroeconomic
environment.
• Finally it is suggested that government must ensure the inflow of quality
FDI rather than its magnitude. Government of India must ensure its
optimum utilization and timely implementation of the projects because
sometimes actual utilization is quite low as compared to the actual inflow.
Last but not the least it is required to change India’s development strategy
in order to reap the full benefits of FDI inflows.

23. CONCLUSION
• In the post liberalization age, the role of India has changed in this regard as it has taken
in a huge amount of FDI in a variety of sectors.
• Foreign direct investment occurs when a business invests in a foreign country by either
acquiring a foreign business that it controls or starting a business in the foreign country.
• The 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.
• the FDI inflow in India in-depth in the last few years makes the country progress in both
quantitative and qualitative way.
• Study also reveals that FDI promotes economic growth of a country through its positive
influence on GDP, exports, reserves and employment.
• FDI should be made an integral part of development strategy of a country to achieve
high growth rate. Similarly the laws should be such that it protects domestic investors
and also promote trade in country through FDI.
• Finally it is an important stimulus and provides a sound base for economic growth and
development by enhancing the financial position and helps the country to put an
impression on the world wide level through liberalization and globalization of the
country.

24. REFERENCES
• Kumar, Karthika, (2010) “Sectoral Performance through Inflows of Foreign Direct Investment”.
• Hussaini N, (2011), “Economic factors and Foreign Direct Investment in India: A correlation
study”, Asian Journal of Management Research.
• Sharma R, Khurana N, (2013), “Role of Foreign Direct Investment (FDI) in Different Sectors”,
International Journal of Advances in Management and Economics
• Aggarwal S, Singla A, Aggarwal R, (2012), “Foreign Direct Investment in India”, International
Journal of Computational Engineering & Management.
• Vyas A.V., (2015), “An Analytical Study of FDI in India”, International Journal of Scientific and
Research Publications
• Rajeswari G.R., Akilandeswari K, “Sector-Wise Foreign Direct Investment Inflows into India”,
Journal of Business Management & Social Sciences Research (JBM&SSR)
• Handbook of Statistics on Indian Economy, RBI
• Journal of Indian economy, August 2014
• www.rbi.org.in
• www.dipp.nic.in
• statisticstimes.com