1 IMPACT OF FLOW OF FOREIGN DIRECT INVESTMENT (FDI) ON GROSS DOMESTIC PRODUCTION (GDP) OF INDIA B.China Venkata Lingaiah Research Scholar Osmania University Abstract: This paper investigates the impact of foreign direct investment on Gross Domestic Production (GDP) Of India. The objective of this paper is to study the impact of FDI on GDP of India. It studies a long run relationship between the foreign direct investment and gross domestic production in India.
This relationship is tested by applying Regression model. The change in GDP is taken as dependent viable and FDI taken as independent variable.This paper deals with the country’s wise impact of FDI on GDP of India. In this paper the researcher obtain ten years data to analyses the impact. In this paper the researcher mentioned top nine countries FDI in India and this FDI taken as share in GDP of India, Total FDI inflows to India and FDI taken as share in GDP of India. In this paper the researcher evaluated the impact of FDI on GDP of India through testing of regression analysis. For this regression analysis GDP taken as dependent variable and FDI taken as independent variable for this regression analysis the researcher taken twenty five years data (1991-92 to 2015-16) as financial year wise.
The result shows that the overall model is significant. There is a positive and significant impact of FDI on GDP of India. Introduction: Whenever, we talk about the growth of developing countries like India, South Africa, Brazil etc. in their cases it would be difficult to keep aside the vital role of foreign direct investment in the growth of the economy.
In the present scenario of the world, the Foreign Direct Investment has become the battlefield for emerging market. Each country tries to bring more and more foreign direct investment in their own country, which has resulted in a remarkable growth in global foreign direct investment. In the Indian context, the New Economic Policy introduced in the year 1991, along with subsequent doses of liberalization have heralded a new era in which foreign direct investment plays a crucial role in supplementing domestic resources. The automatic approvals were restricted to various sectors according to the liberalization of foreign direct investment policy announced in July 1991.
In January 20, 1997, the government had further liberalized the foreign direct investment policy. In the critical phase of Indian economy, the government of India with the help of World Bank and IMF introduced the macro-economic stabilization and structural adjustment program. As a result of these reforms, India opened its door to FDI inflows and adopted a more liberal foreign policy in order to restore the confidence of foreign investors. Further, under the new foreign investment policy, Government of India constituted FIPB (Foreign Investment Promotion Board) whose main function was to invite and facilitate foreign investment Starting from a baseline of less than USD 1 billion in 1990.A recent UNCTAD survey projected India as the second most important FDI destination (after China) for transnational corporations during 2010-2012. As per the data, the sectors which attracted higher inflows were services, telecommunication, construction activities and computer 2 software and hardware.
Mauritius, Singapore, the US and the UK were among the leading sources of FDI to the country. Post liberalization was the successful period for the growth of Indian economy. The agriculture sector has faced many revolutions since liberalization. However, 7% of GDP per annum was contributed by the industrial sector.
During 1990s, the Indian economy faced a severe crisis, like low per capita income, decline in GDP growth, increasing unemployment, and health ; hygiene issue. The outflow of NRIs fund was also huge and the country faced deficit of capital flow. Capital is the life blood of any business, even for the country too. The capital is required not only in start-up, but also required during the life span of the project.
To increase the flow of capital economist decided to liberalize the country’s policy during 1992- 93 in order to attract more foreign cash flows. The initiatives include providing tax benefit, tax holidays and increasing the investment cap in various fields. The effort taken by Government of India has yielded a continuous but steady state increase in cash flows and helped the growth of Indian economy. The FDI norms were further liberalized during 2012 in civil aviation sector, retail sector and power sector. The FDI cap for various sectors includes tea, media, natural gas and petroleum was also liberalized during that period.
India was ranked at third in attracting FDI by transnational corporations during 2013-14. The Government of India continuously works towards increasing the FDI flows through numerous initiatives. Objectives of the study: 1.To study the FDI impact on economic growth of the country. 2.To evaluate the impact of FDI on GDP of India. Hypotheses of the study: 1.FDI has a negative impact on economic growth of the country.
2.FDI has negative impact on GDP of India. Methodology: This study is based on the secondary source. The required data collected from various sources i.e. C.S.O, World Investment Reports, Asian Development Bank’s Reports, various Bulletins of Reserve Bank of India, publications from Ministry of Finance, Ministry of Commerce, Govt. of India, Economic and social Survey of Asia and the Pacific, United Nations, Asian Development Outlook, Country Reports on Economic policy and Trade Practice-Bureau of Economic and Business Affairs, U.S.
Department of State and from websites of World Bank, IMF,WTO,RBI,UNCTAD,EXIM Bank etc. It is a time series data and the relevant data collected for the period 2002-03 to 2012-13. FDI impact on GDP of India through various countries: The attraction of foreign investment is one of the most important strategies prevalent in developing countries for enhancing capital formation, generating employment and thus facilitating growth and development. India is an emerging country and in recent years has attracted a significant share of foreign investment. Enhancement in foreign investment in the last three decades has been accompanied with continuous growth of gross domestic product (GDP) in India.
3 Table-1 FDI from Mauritius in India and its share in GDP as percentage Year FDI Inflows in US Million Dollars FDI Inflows in Rupees in Crore FDI Growth Rate Total GDP in Rs Crore GDP Growth Rate FDI Share as Percentage in Total GDP in Rs 2002-03 788 3766 – 2570935 – 0.146% 2003-04 567 2609 -31% 2775749 7.96% 0.093% 2004-05 1127 5141 97% 2971464 7.05% 0.173% 2005-06 2570 11441 123% 3253073 9.47% 0.351% 2006-07 6363 28759 151% 3564364 9.56% 0.806% 2007-08 11096 44483 55% 3896636 9.32% 1.141% 2008-09 11208 50794 14% 4158676 6.72% 1.221% 2009-10 10376 49633 -2% 4516071 8.59% 1.099% 2010-11 6987 31855 -36% 4918533 8.91% 0.647% 2011-12 9942 46710 47% 5247530 6.68% 0.890% 2012-13 9497 51654 11% 5482111 4.47% 0.942% Table -1 shows FDI from Mauritius in India and its share in GDP as percentage. In this table, the lowest share of FDI in GDP recorded in the years 2002-03, 2003-04, and 2004-05 followed by 0.146%, 0.093%, 0.173%, these are very lowest FDI shares in GDP during the study period. In the above table the highest share of FDI in GDP 1.221% recoded in the year2008-09, the second highest impact as a share of FDI in GDP recorded 1.141% in the year 2007-08. There is continuous growing share of FDI in GDP during the years 2006-07 and 2007-08, 2008-09 by 0.806%, 1.141%, and 1.221%from the country Mauritius. The highest FDI coming to India from Mauritius. The simple reason is because Mauritius is a tax haven and has signed double taxation avoidance agreement with India (DTAA,1961).
Mauritius emerged as the prime investor in India during 2001-2014. FDI inflows from Mauritius comprise of about 35.09% of the total FDI inflows in India and are at the number one position on India’s FDI inflow list since 1995. Double Taxation Treaty i.e., double taxation avoidance agreement between India and Mauritius facilitates routing of investment through Mauritius into India. India and Singapore have also signed this type of taxation treaty. This can be the predominant reason for Singapore to be the second largest investing country in India. The second reason for high investment is because, the money invested from Mauritius is nothing but the black money which was embezzled out of India via hawala transaction and laundered as tax free white money.
It is popularly called as the Mauritius route. It is triply harmful to our Indian economy. 4 Table-2 FDI from Singapore in India and its share in GDP as percentage Year FDI Inflows in US Million Dollars FDI Inflows in Rupees in Crore FDI Growth Rate Total GDP in Rs Crore GDP Growth Rate FDI Share as Percentage in Total GDP in Rs 2002-03 38 180 – 2570935 – 0.007% 2003-04 37 172 -4% 2775749 7.96% 0.006% 2004-05 184 822 378% 2971464 7.05% 0.027% 2005-06 275 1218 48% 3253073 9.47% 0.037% 2006-07 578 2662 119% 3564364 9.56% 0.074% 2007-08 3073 12319 363% 3896636 9.32% 0.316% 2008-09 3454 15727 28% 4158676 6.72% 0.378% 2009-10 2379 11295 -28% 4516071 8.59% 0.250% 2010-11 1705 7730 -32% 4918533 8.91% 0.157% 2011-12 5257 24712 220% 5247530 6.68% 0.470% 2012-13 2308 12594 -49% 5482111 4.47% 0.229% Table-2 reflects FDI from Singapore in India and its share in GDP as percentage. In this table, the lowest share of FDI in GDP recorded in the years 2002-03, 2003-04, and 2004-05 followed by 0.007%, 0.006%, 0.027%, these are very lowest FDI shares in GDP during the study period from the country Singapore. In this table, the highest share of FDI in GDP 0.470% recoded in the year2011-12, the second highest share of FDI in GDP recorded as 0.378% in the year 2008-09.
There is continuous high growing share of FDI in GDP during the years 2007-08, 2008-09 by 0.316%, 0.378% from the country Singapore. Singapore and India have historically maintained good relations. Approximately 250,000 Singaporeans are of Indian descent, amounting to 7.4 percent of its population. When India announced its “Look East” policy in 1992, Singapore was one of the first countries to establish deeper ties with the country, recognizing its potential as a regional power. It will be interesting to see how the DTAA amendments will influence these numbers in future. Mauritius and Singapore have been the main providers of FDI to India since 2000.
In the same 2000-2013 period, FDI inflows from Mauritius amounted to US$95.9 billion, nearly double the amount of Singapore’s US$50.6 billion. India and Singapore have amended their DTAA in 2005, extending tax benefits and introducing safety measures including limitation of benefit clauses. Since then, Singapore is becoming an important destination for investment-both FDI and FPI. 5 Table -3 FDI from United Kingdom in India and its share in GDP as percentage Year FDI Inflows in US Million Dollars FDI Inflows in Rupees in Crore FDI Growth Rate Total GDP in Rs Crore GDP Growth Rate FDI Share as Percentage in Total GDP in Rs 2002-03 340 1617 – 2570935 – 0.062% 2003-04 167 769 -52% 2775749 7.96% 0.027% 2004-05 101 458 -40% 2971464 7.05% 0.015% 2005-06 266 1164 154% 3253073 9.47% 0.035% 2006-07 1878 8389 621% 3564364 9.56% 0.235% 2007-08 1176 4690 -44% 3896636 9.32% 0.120% 2008-09 864 3840 -18% 4158676 6.72% 0.092% 2009-10 657 3094 -19% 4516071 8.59% 0.068% 2010-11 2711 12235 295% 4918533 8.91% 0.248% 2011-12 7844 36428 198% 5247530 6.68% 0.694% 2012-13 1080 5797 -84% 5482111 4.47% 0.105% Table-3 explains about United Kingdom’s FDI in India and its share in GDP as percentage. In this table the highest share of FDI in GDP 0.694% recoded in the year2011-12, the second highest share of FDI in GDP recorded as 0.248% in the year 2010-11. There is continuous high growing share of FDI in GDP during the years 2010-11, 2011-12 by 0.248%, 0.694% from the country United Kingdom.
India and the United Kingdom share close and friendly ties. The bilateral relationship that was upgraded to a strategic partnership in 2004 was further strengthened with the visit of British Prime Minister Cameron to India in 2010 during which the foundation for Enhanced Partnership for the Future was laid. In his first term as Prime Minister, he visited India thrice viz.in 2010, in February 2013 and again in November 2013 to reinforce UK Government’s commitment to further relations with India. 6 Table – 4 FDI from USA in India and its share in GDP as percentage Year FDI Inflows in US Million Dollars FDI Inflows in Rupees in Crore FDI Growth Rate Total GDP in Rs Crore GDP Growth Rate FDI Share as Percentage in Total GDP in Rs 2002-03 319 1504 – 2570935 – 0.058% 2003-04 360 1658 10% 2775749 7.96% 0.059% 2004-05 668 3055 84% 2971464 7.05% 0.102% 2005-06 502 2210 -28% 3253073 9.47% 0.067% 2006-07 856 3861 75% 3564364 9.56% 0.108% 2007-08 1089 4377 13% 3896636 9.32% 0.112% 2008-09 1802 8002 83% 4158676 6.72% 0.192% 2009-10 1943 9230 15% 4516071 8.59% 0.204% 2010-11 1170 5353 -42% 4918533 8.91% 0.108% 2011-12 1115 5347 0% 5247530 6.68% 0.101% 2012-13 557 3033 -43% 5482111 4.47% 0.055% Table-4 reflects FDI from USA in India and its share in GDP as percentage.
In this table the highest share of FDI in GDP 0.204% recoded in the year2009-10, the second highest share of FDI in GDP recorded as 0.192% in the year 2008-09. There is continuous high growing share of FDI in GDP during the years 2006-07, 2007-08, 2008-09, and 2009-10 by 0.108%, 0.112%, 0.192%, and 0.204% from the country USA. Table -5 FDI from Japan in India and its share in GDP as percentage Year FDI Inflows in US Million Dollars FDI Inflows in Rupees in Crore FDI Growth Rate Total GDP in Rs Crore GDP Growth Rate FDI Share as Percentage in Total GDP in Rs 2002-03 412 1971 – 2570935 – 0.076% 2003-04 78 360 -82% 2775749 7.96% 0.012% 2004-05 126 575 60% 2971464 7.05% 0.019% 2005-06 208 925 61% 3253073 9.47% 0.028% 2006-07 85 382 -59% 3564364 9.56% 0.010% 2007-08 815 3336 773% 3896636 9.32% 0.085% 2008-09 405 1889 -43% 4158676 6.72% 0.045% 2009-10 1183 5670 200% 4516071 8.59% 0.125% 2010-11 1562 7063 25% 4918533 8.91% 0.143% 2011-12 2972 14089 99% 5247530 6.68% 0.268% 2012-13 2237 12243 -13% 5482111 4.47% 0.223% 7 Table-5 explains FDI from Japan in India and its share in GDP as percentage. In this table, the highest share of FDI in GDP 0.268% recoded in the year 2011-12, the second highest share of FDI in GDP recorded as 0.223% in the year 2012-13. There is continuous high growing share of FDI in GDP during the years 2009-10, 2010-11, 2011-12, and 2012-13 by 0.125%, 0.143%, 0.268%, and 0.223% from the country Japan.
With growing economic strength, India has adapted its foreign policy to increase its global influence. Consequently, Indo-Japanese relations have undergone a paradigm shift and there is now an ongoing effort to build a strategic and global partnership between the two countries. India’s robust economic growth in recent years has not gone unnoticed in Japan. Japan is now the sixth-largest FDI investor in to India.
Cumulative FDI inflows from Japan touched $2,324 million during 2000-08. This include investments in acquisition of existing shares, RBI’s NRI schemes, stocks swapped and advance pending issue of shares etc. Table – 6 FDI from Netherlands in India and its share in GDP as percentage Year FDI Inflows in US Million Dollars FDI Inflows in Rupees in Crore FDI Growth Rate Total GDP in Rs Crore GDP Growth Rate FDI Share as Percentage in Total GDP in Rs 2002-03 176 836 – 2570935 – 0.032% 2003-04 489 2247 169% 2775749 7.96% 0.080% 2004-05 267 1217 -46% 2971464 7.05% 0.040% 2005-06 76 340 -72% 3253073 9.47% 0.010% 2006-07 644 2905 754% 3564364 9.56% 0.081% 2007-08 695 2780 -4% 3896636 9.32% 0.071% 2008-09 883 3922 41% 4158676 6.72% 0.094% 2009-10 899 4283 9% 4516071 8.59% 0.094% 2010-11 1213 5501 28% 4918533 8.91% 0.111% 2011-12 1409 6698 22% 5247530 6.68% 0.127% 2012-13 1856 10054 50% 5482111 4.47% 0.183% Table- 6 shows FDI from Netherlands in India and its share in GDP as percentage. In this table the highest share of FDI in GDP 0.183% recorded in the year2012-13, the second highest share of FDI in GDP recorded as 0.127% in the year 2011-12.
There is continuous growing share of FDI in GDP during the years 2010-11, 2011-12, 2012-13 by 0.111%, 0.127%, 0.183%, from the country Netherland. Economic and commercial ties between India and Netherland are an important facet of overall Indo-Dutch relations. India’s economic interests in the Netherland include technical cooperation as a partner in key areas such as: transport and logistics infrastructure, water management, environment, agriculture and food processing, services and science & technology, and in promoting further FDI from an already significant investment partner. There are more than 200 Dutch companies already present in India. Major Dutch companies like Shell, Unilever, Akzo Nobel, DSM, Philips, KLM and Rabobank have a 8 presence in India. Dutch SMEs with niche technologies and world-class expertise are also actively looking at the Indian market.
The effects of FDI from Netherland to India have been that, it has helped in improving the technology of the various industries in the country, create new employment opportunities, and also give boost to the country’s economy. Table -7 FDI from France in India and its share in GDP as percentage Year FDI Inflows in US Million Dollars FDI Inflows in Rupees in Crore FDI Growth Rate Total GDP in Rs Crore GDP Growth Rate FDI Share as Percentage in Total GDP in Rs 2002-03 112 534 – 2570935 – 0.020% 2003-04 38 176 -67% 2775749 7.96% 0.006% 2004-05 117 537 205% 2971464 7.05% 0.018% 2005-06 18 82 -85% 3253073 9.47% 0.002% 2006-07 117 528 544% 3564364 9.56% 0.014% 2007-08 145 583 10% 3896636 9.32% 0.014% 2008-09 467 2098 260% 4158676 6.72% 0.050% 2009-10 303 1437 -32% 4516071 8.59% 0.031% 2010-11 734 3349 133% 4918533 8.91% 0.068% 2011-12 663 3110 -7% 5247530 6.68% 0.059% 2012-13 646 3487 12% 5482111 4.47% 0.063% Table-7 explains about FDI from France in India and its share in GDP as percentage. In this table the lowest share of FDI in GDP recorded in the years 2005-06, 2003-04, and 2006-07 followed by 0.002%, 0.006%, 0.014%, these are very lowest FDI shares in GDP during the study period. In the above table the highest share of FDI in GDP 0.068% recorded in the year 2010-11, the second highest impact of FDI on GDP recorded as 0.063% in the year 2012-13. There is continuous growing impact of FDI on GDP during the years 2010-11 and 2011-12 by 0.068%, 0.059%. Indo-French bilateral trade has been growing though it has still not reached the €12 billion target set by both the Governments during the visit of the French President to India in January 2008.
In 2011, bilateral trade had increased by 6% to €7.46 billion. In the first ten months of 2012, there has been a decrease of 3.71% in the bilateral trade over the same period of 2011. Based on annual data, the Indian exports of services to France have shown a growth in the last three years reaching €1.32 bn in 2011 while the imports from France fell to €0.66 bn in the same year. 9 Table -8 FDI from Germany in India and its share in GDP as percentage Year FDI Inflows in US Million Dollars FDI Inflows in Rupees in Crore FDI Growth Rate Total GDP in Rs Crore GDP Growth Rate FDI Share as Percentage in Total GDP in Rs 2002-03 144 684 – 2570935 – 0.026% 2003-04 81 373 -45% 2775749 7.96% 0.013% 2004-05 145 663 78% 2971464 7.05% 0.022% 2005-06 303 1345 103% 3253073 9.47% 0.041% 2006-07 120 540 -60% 3564364 9.56% 0.015% 2007-08 514 2075 284% 3896636 9.32% 0.053% 2008-09 629 2750 33% 4158676 6.72% 0.066% 2009-10 626 2980 8% 4516071 8.59% 0.065% 2010-11 200 908 -70% 4918533 8.91% 0.018% 2011-12 1622 7452 721% 5247530 6.68% 0.142% 2012-13 860 4684 -37% 5482111 4.47% 0.085% Table-8 reflects FDI from Germany in India and its share in GDP as percentage. In this table, the highest share of FDI in GDP 0.142% recorded in the year2011-12, the second highest share of FDI in GDP recorded as 0.085% in the year 2012-13.Lowest FDI share in GDP recorded as 0.013% in the year 2003-04.
There is continuous growing share of FDI in GDP during the years 2007-08, 2008-09, by 0.053%, 0.066%, from the country Germany. Bilateral relations between India and Germany are founded on common democratic principles and are marked by a high degree of trust and mutual respect. India was amongst the first countries to establish diplomatic ties with the Federal Republic of Germany after the Second World War. Relations grew significantly following the end of the Cold War and the reunification of Germany. In the last decade, both economic and political interaction between India and Germany have enhanced.
Today, Germany is amongst India’s most important partners both bilaterally and in the global context. 10 Table -9 FDI from UAE in India and its share in GDP as percentage Year FDI Inflows in US Million Dollars FDI Inflows in Rupees in Crore FDI Growth Rate Total GDP in Rs Crore GDP Growth Rate FDI Share as Percentage in Total GDP in Rs 2002-03 – – – 2570935 – – 2003-04 – – – 2775749 7.96% – 2004-05 – – – 2971464 7.05% – 2005-06 49 219 – 3253073 9.47% 0.006% 2006-07 260 1174 436% 3564364 9.56% 0.032% 2007-08 258 1039 -11% 3896636 9.32% 0.026% 2008-09 257 1133 9% 4158676 6.72% 0.027% 2009-10 629 3017 166% 4516071 8.59% 0.066% 2010-11 341 1569 -48% 4918533 8.91% 0.031% 2011-12 353 1728 10% 5247530 6.68% 0.032% 2012-13 180 987 -43% 5482111 4.47% 0.018% Table- 9 states that, FDI from UAE in India and its share in GDP as percentage. In this table the highest share of FDI in GDP 0.066% recorded in the year2009-10, the second highest share of FDI in GDP recorded as 0.032% in the year 2006-07.Lowest FDI share in GDP recorded as 0.006% in the year 2005-06. There is continuous growing share of FDI in GDP during the years 2007-08, 2008-09, 2009-10 by 0.026%, 0.0027%, and 0.066% from the country UAE.
Table -10 FDI inflows to India and its share in GDP as percentage Year FDI Inflows in US Million Dollars FDI Inflows in Rupees in Crore FDI Growth Rate Total GDP in Rs Crore GDP Growth Rate FDI Share as Percentage in Total GDP in Rs 2000-01 2463 10733 – 2348481 – 0.457% 2001-02 4065 18654 73.80 2474962 5.38 0.753% 2002 -03 2705 12871 -31.00 2570935 3.87 0.500% 2003-04 2188 10064 -21.80 2775749 7.96 0.362% 2004-05 3219 14653 45.59 2971464 7.05 0.493% 2005-06 5540 24584 67.77 3253073 9.47 0.755% 2006-07 12492 56390 129.37 3564364 9.56 1.582% 2007-08 24575 98642 74.92 3896636 9.32 2.531% 2008-09 31396 142829 44.79 4158676 6.72 3.434% 2009-10 25834 123120 -13.79 4516071 8.59 2.726% 2010-11 21383 97320 -20.95 4918533 8.91 1.978% 2011-12 35121 165146 69.69 5247530 6.68 3.147% 2012-13 22423 121907 -26.18 5482111 4.47 2.223% Total 193404 896913 – 481,78,585 – 20.946% 11 Table- 10 shows the FDI inflow, GDP of India and FDI share as% percentage in total GDP from the year 2000-2001 to 2012-2013. The table states that India had showed a large amount of FDI inflow. The FDI Inflow has been increased from Rs.10733 crore in 2000-2001 to Rs.165146 crore in 20011-2012. Due to technological up gradation, access to global managerial skills and practices, optimal utilization of human and natural resources, making Indian industry internationally competitive, opening up export markets, providing backward and forward linkages and access to international quality goods and services.
The Indian Government has used many steps to attract more FDI. The highest amount of FDI was received in the year 2011-2012, amounting to Rs.165146 crore. The highest growth rate of FDI inflow is in the year 2006-07 i.e., 129.37 percent. The table also shows that FDI as a percentage of GDP was less than one until 2005-06 after then it is increasing year after year. In 2008-09 there was highest FDI share in GDP recorded as 3.434% during the study period.
The second highest FDI share in GDP recorded as 3.147% in the year 2011-12. Regression Analysis: In this research the researcher calculated the FDI impact on GDP of India through the regression analysis. To conduct regression analysis, the researcher used the data from 1991- 92 to 2015-16.Twenty five years of data taken for regression analysis. In this analysis FDI is independent variable and GDP taken as dependent variable.
Regression Equation: Y1t= ?0 + ? 1X1t+?t Yt – Dependent variable, i.e GDP X1 –FDI ?0 – constant ?1 – coefficient t – Time series data ? – Error term Coefficient of Determination (R square): R-square of the regression is the per cent variation in dependent variable that is explained by the independent variable included in the regression model. Hypothesis: Ho: FDI has negative impact on GDP of India. H1: FDI has positive impact on GDP of India. 12 Regression Table: Impact of FDI on GDP in India P-Values Variables Coefficient Sig.
Constant 12.145 (.191) .000 FDI .274 (.019) .000 R²= .902 DW statistics = 1.45 (N=25) Y1t (GDP)= ?0 + ?1 X1t+?t Y1t (GDP) = 12.145 + .274 X1t +?t The impact of FDI on GDP was investigated by using Ordinary Least Squares Methods. The estimated co-efficient, standard deviation is presented in above table. The table shows that, the value of R Square, the coefficient of determination is 0.90 which implies that 90 percent of variation of GDP is explained by FDI. It shows the goodness of fit of the equation. The coefficient of FDI is positive and significant at 1% percent of level of probability. The coefficient value of .274 implies that 1 percent increase in FDI leads to increase the GDP by .274 percent.
This is the expected result because increase in FDI results in improvement of GDP. As per this regression result in the hypothesis we reject the Null hypothesis Ho and accept the Alternative hypothesis H1.Why because as per the regression result FDI positively impacted GDP of India. Conclusion: FDI plays a crucial role in enhancing the economic growth and development of the country. Moreover, FDI as a strategic component of investment needed by India for achieving the objectives of its second generation of economic reforms and maintaining pace of growth and development of the economy. Hence FDI is a significant factor which influences the level of economic growth in India. It provides a sound base for economic growth and development by enhancing the financial position of the country.
It also contributes to the GDP and foreign exchange reserves of the country. MNCs should be allowed to set up in such a manner that they help increase the standard of living of our country instead of sole profit making. Data source: 1.FDI – Department of Industrial Policy and promotion (DIPP) and RBI Various bulletins. 2. GDP-CSO dated 31/10/2014 page 3 of 329 data book for PC GDP at Factor-cost 2004-05 constant prices.
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