International Journal of Trade & Commerce-IIARTC

July-December 2019, Volume 8, No. 2 pp. 237-248

© SGSR. (www.sgsrjournals.co.in) All rights reserved
Double Blind Peer Reviewed/Referred International Indexed Journal
ISRA JIF: 6.318; COSMOS (Germany) JIF: 5.135; ISI JIF: 3.721; NAAS Rating 3.55

A Study of Foreign Direct Investment & Its Impact on Indian

Economy

Mukesh Kumar Jain*

Faulty of Commerce & Business Administration, M.M.H. College, Ghaziabad 201001 (U.P.) India
Email Id: mkj.1962@gmail.com

Abstract
FDI plays a vital role for economic development of any developing
country. The importance of FDI in India has increased significantly over PAPER/ARTICLE INFO
the last two decades. FDI serves as a link between investment and saving. RECEIVED ON: 02/09/2019
Many developing countries like India, are facing the deficit of savings. ACCEPTED ON: 05/10/2019
This problem can be solved with the help of Foreign Direct Investment.
Foreign investment helps in reducing the defect of BOP and provides the Reference to this paper
base and pre requisite for rapid GDP growth. This study is entirely based should be made as follows:
on the secondary data. It is based on published annual reports for the
period 2004-05 to 2018-19 of NSE, BSE, SEBI, and RBI. We have used Mukesh Kumar Jain (2019),
Statistical formulas mainly correlation and linear regression analysis has “A Study of Foreign Direct
been used to get the result. We conclude that there is significant effect of Investment & Its Impact on
FDI on India’s GDP. Indian Economy”, Int. J. of
Key Words: FDI, Economic Development, GDP. Trade and Commerce-IIARTC,
Vol. 8, No. 2, pp. 237-248

*Corresponding Author
A Study of Foreign Direct Investment & Its Impact on Indian Economy
Mukesh Kumar Jain

1. INTRODUCTION
FDI plays an important role in Indian economic development. FDI is an important and vital
component of development strategy in both developed and developing nations and policies are
designed in order to stimulate inward flows. In fact, FDI provides a win – win situation to the
host and the home countries. Both countries are directly interested in inviting FDI, because they
benefit a lot from such type of investment. The „home‟ countries want to take the advantage of the
vast markets opened by industrial growth. On the other hand, the „host‟ countries want to acquire
technological and managerial skills and supplement domestic savings and foreign exchange.
Moreover, the paucity of all types of resources viz. financial, capital, entrepreneurship,
technological know- how, skills and practices, access to markets- abroad- in their economic
development, developing nations accepted FDI as a sole visible panacea for all their scarcities. A
high level of FDI is viewed as an affirmation country. This is very true in case of various
developing countries like India. India is suffering from the scarcity of financial resources and low
level of capital formation because it has to majorly depend upon the external sources of Finance.
Also the domestic resources are entirely inadequate to carry out development programmes.
2. LITERATURE REVIEW
Ahmad & Ahmad (2014), investigated the role of Foreign Institutional Investors (FIIs) which has
become a dynamic force in the development of Indian stock market and is increasingly seen as an
important cause of stock market volatility. In order to ascertain the link between the two, present
study made a modest attempt to develop an understanding of the FIIs investment and its impact
on stock market volatility. The study was conducted using monthly time series on NIFTY,
SENSEX and FIIs activity for a period of fifteen years spanning from January, 1999 to December,
2013. To check the non-stationary of the time series the Augmented Dickey-Fuller (ADF) unit root
test is applied. In present study, GARCH model was used to study the impact of FIIs capital flows
on stock market volatility. From the results of GARCH test analysis, it was inferred that volatility
of Indian stock market is influenced by the previous periods volatility and FIIs investment are
also contributing significantly to the volatility of NIFTY and SENSEX, which are major indices
representing Indian stock market. So results suggest that volatility of Indian stock market and FIIs
has increased over the period of study but the volatility was maximum during financial down
turn and then normalized to moderated levels.
Bhansali, Vaibhav. (2016), investigated that the liberalization process initiated in India in the
early 1990s brought radical changes in the functioning of the Indian stock market. Rising
globalization, deregulation, and foreign investments made the Indian stock exchanges
competitive and efficient in their functioning being a developing country, India attracts a large
sum of FII every year. One of the most dominant investor groups that have emerged to play a
critical role in the overall performance of the stock market is Foreign Institutional Investors (FIIs).
In this regard, the role of investors is, thus, the key to success of the market-guided economic
system and since it is FIIs who pump their savings into the markets, their investments need to be
channelized to the most rewarding sectors of the economy. Indian stock market, which is one of
the indicators of the economic status, is also affected by the foreign investments made. This
portfolio flows by FIIs bring with them a great advantage as they are engines of growth while

-238-
 A Study of Foreign Direct Investment & Its Impact on Indian Economy
Mukesh Kumar Jain

lowering the cost of capital in the emerging market. This paper indicates whether Foreign
Institutional investors really have an impact on the stock market of India.
Das, L., and Mahapatra, R. P., (2017), studied the growing participation of Foreign Institutional
Investors (FIIs) in Indian stock market has raised eyebrows of many Indians. Their influence on
stock markets had been widely debated and remained a hot topic in the media. The FIIs had
emerged as noteworthy players and provider of financial services in the Indian stock market
whose contribution have added in the growth and development of the stock markets. Author
examined whether market movement can be explained by these investors and their impact on the
stock markets. FIIs, because of its short-term nature can have bi-directional causation with the
returns of other domestic financial markets. Thus, understanding the determinants of FII is very
important for any emerging economy as it exerts a larger impact on the domestic financial
markets. This paper was an attempt to find out the determinants of FIIs and their existing impact
on the Indian Stock Markets and the Indian Economy as a whole.
Jain, V., Nair, K. and Jain, D. (2014), has explained that the progress and prosperity of a nation is
reflected by its sustained economic growth and development which is provided by investment.
The authors explained that the Foreign Institutional Investors (FIIs) have emerged as important
players in the Indian equity market in the recent past and are gradually becoming one of the
major players that contribute towards the growth of the financial markets, more so in developing
economies like India. The main objective was to study the effect of FII flow on capital markets,
extent of Granger Causality between FII flows and capital market growth and lead-lag
relationship between FII flows and NSE Nifty. The database used for the study is composed of the
monthly data of FII flow and NSE Nifty. The data used was collected from SEBI and major stock
exchanges‟ websites. Findings of stationarity, causality and co integration have been computed
with the help of Gretl and other relevant software available for statistical analysis. The results of
the study did imply that FII investment and NIFTY were influenced by various other macro-
economic fundamentals on the basis of which growth were studied and in any way did not have
any causal relationship with each other.
Kedia, N., (2016) studied the changing global scenario in which foreign institutional investors has
affected Indian stock market. FIIs have emerged as very significant players in the Indian stock
market and their growing contribution and participation had added as an important aspect for
the development of stock markets in India. Indian Stock Markets have reached new heights and
became more volatile making the researches work in this dimension of establishing the link
between FIIs and Stock Market. The study was conducted using data from BSE Sensex and FII
activity over a period spanning from Jan.2003 to Dec 2012. It provided the evidence of significant
positive correlation between FII activity and effects on Indian Stock Market. Study revealed that
FIIs have an impact on Indian Stock Market where the value of R was 0.609 which signified that
the FIIs had almost 60% positive impact in stock market. It implied that, inflow of FII‟s lead to a
bullish trend in the market or vice-versa. Furthermore, the impact of foreign institutional
investors was more on Sensex as study was specific to the Bombay stock exchange.
Mukherjee (2002) examined the various probable determinants of FII and concluded that (1)
Foreign investment flows to the Indian markets tend to be caused by return in the domestic
equity market; (2) Indian equity market return has an impact on FII flows; (3) performance of the

-239-
A Study of Foreign Direct Investment & Its Impact on Indian Economy
Mukesh Kumar Jain

Indian equity market are influenced by the FIIs sale and FIIs purchase, (4) FII investors do not
consider Indian equity market for the purpose of diversification of their investment; (5) returns
from the exchange rate variation and the fundamentals of the economy may have an impact on
FII decisions, but such influence do not prove to be strong enough.
Prusty, T., & Vishwakarma, R., (2014), explained the Foreign Institutional Investors (FIIs) have
emerged as important players in the Indian Stock Market in the recent past. This study made an
attempt to develop an understanding of the factors influencing FIIs while making investment in
Indian stock market along with the relationship between FII investments and stock market.
Author found that there is positive association between FII investments and BSE Sensex and
showing direct relationship between each other. FIIs have tremendous power to determine &
decide the direction of Indian stock market. Regulation and Trading Efficiencies, New Issuance
Attractive Markets, Infrastructure, Outsourcing, Capital expenditure Cycle, Dollar Weakness,
Rising Commodity Prices and Consolidation are some factors which were significantly
contributed to causes of FII investments in India. There was a positive correlation between stock
indices and FIIs.
Shrivastav (2013) found that investments by FIIs and the movements of Sensex are quite closely
correlated in India and FIIs wield significant influence on the movement of Sensex. He concluded
that FII had high significant impact on the Indian capital market (BSE Sensex and Nifty). They
found that BSE CG, BSE CD, and BSE IT showed positive correlation but BSE FMCG showed
negative correlation with FII. The degree of relation was low in all the case. It showed low degree
of linear relation between FII and other stock index. This implied that their impact on the stock
prices varied from sector to sector which was further influenced by the industry to which it
belonged to and the different sectors‟ performance.
Swapna, G. (2018) examined the impact of FIIs on Indian Stock Market with special reference to
BSE and NSE index. The data has been taken from various sources such as BSE, NSE, SEBI reports
etc. The twelve-year data of BSE and NSE index average is considered for the period i.e., 2005 – 06
to 2016 – 17. The investigation has been made by relating FIIs buys, sales and net investment. The
relationship coefficient amongst FII and Sensex for the two investigations is emphatically
connected. The impact of these variables on BSE and NSE index are studied in this paper. The
Average SENSEX and average of NIFTY 50 index for the period of 12 years are taken in the
present study. It is evident that real falls in securities exchange were eventual outcomes of
withdrawal of cash by FIIs.
3. OBJECTIVES OF THE STUDY
1. To analyse the trends of FDI in the 21st Century in India.
2. To analyse the impact of FDI in Indian Economic Development with reference to GDP.
4. HYPOTHESIS OF THE STUDY
H0: There is no significant relationship between FDI inflow and growth of GDP in India.
Ha: There is significant relationship between FDI inflow and growth of GDP in India.
5. RESEARCH METHODOLOGY
The primarily aim of this study is to know the impact of Foreign Direct Investment in Indian
Economic Development with reference to GDP. Secondary data has been used in this study.

-240-
 A Study of Foreign Direct Investment & Its Impact on Indian Economy
Mukesh Kumar Jain

6. SAMPLE DESIGN
The study has been carried out by selecting mainly two factors: FDI Inflow & Size of GDP.
7. DATA COLLECTION METHOD
It is based on published annual reports for the period 2004-05 to 2018-19 of NSE, BSE, SEBI, and
RBI. The data have been collected from Bulletins of Reserve Bank of India, Fact sheets of DIPP,
Govt. of India also.
8. STUDY PERIOD
This study covered a period of 15 years starting from 2004-05 to 2018-19 taking into consideration
the availability of data for the choosing study period.
9. TOOLS AND TECHNIQUES OF DATA ANALYSIS
Various statistical formulas are used for data analysis. The statistical techniques applied in this
study are basically calculation of Growth Rate, Mean, Standard Deviation, Coefficient of Variance
and ANOVA Test. Karl Pearson‟s correlation and linear regression analysis has also been used to
get the result.
10. DATA ANALYSIS
Evaluation of FDI and GDP in India during (2004-05 to 2018-19)
The following table depicts the picture of FDI inflow and its impact on GDP:
Table No. 1: Growth in FDI Inflow and Size of GDP
FDI Inflow Growth rate GDP Growth
FDI as a
Years (in rupees of FDI inflow (in rupees rate of
% of GDP
crore) (%) crore) GDP (%)
2004-05 14653 45.60 31,86,332 7.47 0.46
2005-06 24584 67.77 36,32,125 13.99 0.68
2006-07 56390 129.38 42,54,629 17.14 1.33
2007-08 98642 74.93 48,98,662 15.14 2.01
2008-09 142829 44.80 55,14,152 12.56 2.59
2009-10 123120 -13.80 63,66,407 15.46 1.93
2010-11 97320 -20.96 76,34,472 19.92 1.27
2011-12 165146 69.69 87,36,330 14.43 1.89
2012-13 121907 -26.18 99,44,013 13.82 1.23
2013-14 147518 21.01 1,12,33,522 12.97 1.31
2014-15 189107 28.19 1,24,67,959 10.99 1.52
2015-16 262322 38.72 1,37,71,874 10.46 1.90
2016-17 291696 11.20 1,53,62,386 11.55 1.90
2017-18 288889 -0.96 1,70,95,005 11.28 1.69
2018-19 309867 7.26 1,90,10,164 11.20 1.63
Source: compiled & computed from the various issues of RBI Bulletin, Ministry of Commerce &
http://statisticstimes.com/economy/gdp-of-india.php
The Table No. 1 shows the FDI inflow in India from the year 2004-05 to 2018-19. The table states
that India had showed a large amount of FDI inflow. It showed that FDI inflow has been

-241-
A Study of Foreign Direct Investment & Its Impact on Indian Economy
Mukesh Kumar Jain

increased by more than 21 times during the study period because the FDI Inflow has been
increased from Rs. 14653 crore in 2004-05 to Rs. 309867 crore in 2018-19.
The gross domestic product (GDP) measures of national income and output for a given country's
economy. The gross domestic product (GDP) is equal to the total expenditures for all final goods
and services produced within the country in a stipulated period of time.
The above table also describes the GDP of India from the year 2004-05 to 2018-19. The table states
that India had showed a huge growth in term of GDP. It showed that size of Indian Economy
based on GDP has been increased by more than 6 times during the study period because the GDP
has been increased from Rs. 31,86,332 crore in 2004-05 to Rs. 1,90,10,164 crore in 2018-19.
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 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 2018-19, amounting to Rs.309867 crore. The
highest growth rate of FDI inflow is in the year 2006-07 i.e., 129.36 percent. Hence, the foreign
investments have been increasing in India. On the other hand, the highest value of GDP in term of
Rupees was in the year 2018-19, amounting Rs. 1,90,10,164 crore. The highest growth rate of GDP
was in the year 2008-09 i.e., 2.59 percent. In Brief, FDI has been playing a key role in the growth of
Indian Economy in term of GDP.
11. FUTURE OUTLOOK
India is estimated to become a US$ 5 trillion economy by the end of 2024-25, Indian economy will
require a huge amount to fund infrastructure (roads, airports and ports), defense, space and
Communication sector. Therefore, government is in the process of liberalizing FDI norms in these
sector especially construction activities and railways, which could bring in investments to meet
the target. The government is also relaxing FDI norms in other sectors for foreign investors to
invest. FDI in multi-brand retail has been allowed up to 51 per cent. The minimum requirement
for the FDI is US$ 200 million, of which at least 50 per cent must be invested in 'backend
infrastructure' within three years following the initiation of the FDI. FDI limit in single-brand
retail has been increased to 100 per cent; 49 per cent will be under the automatic route and the rest
through the FIPB route.
12. SOURCES OF FDI IN INDIA
India has broadened the sources of FDI in the period of reforms. There were 165 countries
investing in India in 2018-19 as compared to 132 countries in 2011-12. Thus, the number of
countries investing in India increased in 21st Century. After liberalization of economy Mauritius,
Singapore, Japan, UAE, Cayman Islands and many more countries predominantly appears on the
list of major investors apart from U.S., U.K., Germany, Italy, and France which are not only the
major investor now but in 20th century also.

-242-
 A Study of Foreign Direct Investment & Its Impact on Indian Economy
Mukesh Kumar Jain

Table No. 2: Share of Top Ten Investing Countries FDI Equity Inflows IN India
(Financial years 2011-12 to 2018-19)
Amount Rupees in crores (US$ in million)
Countries Total
Ranks 1 2 3 4 5 6 7 8 9 10 FDI
Inflo
ws
Sing Neth Ger
Maur Japa U.S. Cyp U.A Fra From
Years apor erlan U.K. man
itius n A. rus .E. nce All
e ds y
Coun
tries *
46,710 24,712 14,089 6,698 36,428 5,347 7,452 7,722 1,728 3,110 165,146
2011-12
(9,942) (5,257) (2,972) (1,409) (7,874) (1,115) (1,622) (1,587) (353) (663) (35,121)
51,654 12,594 12,243 10,054 5,797 3,033 4,684 2,658 987 3,487 121,907
2012-13
(9,497) (2,308) (2,237) (1,856) (1,080) (557) (860) (490) (180) (646) (22,423)
29,360 35,625 10,550 13,920 20,426 4,807 6,093 3,401 1,562 1,842 147,518
2013-14
(4,859) (5,985) (1,718) (2,270) (3,215) (806) (1,038) (557) (255) (305) (24,299)
55,172 41,350 12,752 20,960 8,769 11,150 6,904 3,634 2,251 3,881 189,107
2014-15
(9030) (6,742) (2,084) (3,436) (1,447) (1,824) (1,125) (598) (367) (635) (30,931)
54,706 89,510 17,275 17,275 5,938 27,695 6,361 3,317 6,528 3,937 262,322
2015-16
(8,355) (13,692) (2,614) (2,643) (898) (4,192) (986) (508) (985) (598) (40,001)
105,587 58,376 31,588 22,633 9,953 15,957 7,175 4,050 4,539 4,112 291,696
2016-17
(15,728) (8,711) (4,709) (3,367) (1,483) (2,379) (1,069) (604) (675) (614) (43,478)
102,492 78,542 10,371 18,048 5,473 13,505 7,391 2,680 6,767 3,297 288,889
2017-18
(15,941) (12,180) (1,610) (2,800) (847) (2,095) (1,146) (417) (1,050) (511) (44,857)
57,139 112,362 20,556 27,036 9,352 22,335 6,187 2,134 6,356 2,890 309,867
2018-19
(8,084) (16,228) (2,965) (3,870) (1,351) (3,139) (886) (296) (898) (406) (44,366)
Cumulativ
e Inflows
738,156 505,946 173,332 162,251 140,370 146,372 65,477 51,544 39310 36,825 2,378,886
(Since
(134,469) (82,998) (30,274) (27,352) (26,789) (25,556) (11,708) (9,869) (6,652) (6,643) (420,142)
April ’
2000)
Total
Inflows
(in % in 32% 20% 7% 7% 6% 6% 3% 2% 2% 2% 100%
terms of
US $)
Source: Compiled & Computed from the various issues of Economic Survey, RBI Bulletin, Ministry of
Commerce
Table No. 2 presents the major investing countries in India during 2011-12 to 2018-19. Mauritius is
the largest route of investing in India during this period. FDI inflows from Mauritius constitute
about 32% of the total FDI in India and enjoying the top position on India‟s FDI map. The
Singapore is the second largest investing country in India with a share of 20%. The other major
countries investing in India are Japan, Netherland, UK, USA, Germany, UAE, Cyprus and France
with 7%, 7%, 6%, 6%, 3%, 2%, 2%, & 2% share of total investment through FDI route in India.

-243-
A Study of Foreign Direct Investment & Its Impact on Indian Economy
Mukesh Kumar Jain

Thus, an analysis of last eight years of FDI inflows shows that only six countries accounted for
more than three fourth (78%) share of the total FDI inflows in India.
India needs enormous amount of financial resources to carry forward the agenda of
transformation (i.e. from a planned economy to an open market), to tackle imbalance in BOP, to
accelerate the rate of economic growth and have a sustained economic growth.
Table No. 3: Sectors Attracting Highest Equity Inflows:
Amount in Rs. crores (US$ in million)
Ranks 1 2 3 4 5 6 7 8 9 10

Than

&
&

Pharmaceuticals
Telecommunica

(Infrastructure)
Services Sector

Development

Construction
Construction

Automobile

Fertilizers)
Chemicals
Computer

Hardware

Activities
Software

Industry
Amount

Trading

(Other

Power
Sector

Drugs
tions

2011-12 24656 3804 9012 15236 2824 4347 18422 14605 ** 7678
2012-13 26303 2656 1654 7248 3566 8384 1596 6011 ** 2923
2013-14 13294 6896 7987 7508 8191 9027 4738 7191 2930 6519
2014-15
Rs. in 27369 14162 17372 4652 16755 16760 4658 9052 5312 4296
Crore
2015-16 45415 38351 8637 727 25244 16437 9664 4975 29842 5662
2016-17 58214 24605 37435 703 15721 10824 9397 5723 12478 7473
2017-18 43249 39670 39748 3472 28078 13461 8425 6502 17571 10473
63909 45297 18337 1503 30963 18309 13685 1842 15927 7330
2018-19 (US$ in 9158 6415 2668 213 4462 2623 1981 266 2258 1106
Million)
Cumulative Rs. in 416301 221756 18824 119614 143599 123989 91062 84165 93873 77889
Inflows Crore 9
(April, 00 - (US$ in 74149 37238 32826 25046 23021 21387 16562 15983 14805 14316
March, 19) Million)
% age to total Inflows (In 18% 9% 8% 6% 5% 5% 4% 4% 4% 3%
terms of US$)
Note: (i)** Services sector includes Financial, Banking, Insurance, Non-Financial / Business,
Outsourcing, R&D, Courier, Tech. Testing and Analysis;
(ii) Construction (Infrastructure) Activities (9) included in Construction Development (4)
till 2012-13, hence there is no data in that column in 2011-12 and 2012-13; and
(ii) FDI Sectoral data has been revalidated / reconciled in line with the RBI, which reflects
minor changes in the FDI figures (increase/decrease) as compared to the earlier
published sectoral data.
FDI inflows are welcomed in 63 sectors which are reorganised in 2013-14, in which Construction
(Infrastructure) Activities has been separated from Construction Development (Townships,
housing, built-up infrastructure and construction-development projects). The above Table No. 3
shows the Service Sector has the highest FDI inflow attracting 18% share, followed by Computer
Software & Hardware 9% share and Telecommunications 8%, Construction Development
attracting 6% share.

-244-
 A Study of Foreign Direct Investment & Its Impact on Indian Economy
Mukesh Kumar Jain

13. HYPOTHESIS TESTING

The first model is the simple regression analysis to explain the dependency of GDP on FDI.
H0: There is no significant relationship between FDI inflow and growth of GDP in India.
Ha: There is significant relationship between FDI inflow and growth of GDP in India.
Where:
GDP=β0+ β1 (FDI)
In order to fulfil the objectives of the study, Hypothesis has been formulated and further
validated through the use of statistical tools like Simple Regression and Correlation analysis. The
correlation is applied to study the linear relationship between variables such as FDI & GDP while,
the linear regression analysis is used to evaluate the effects of independent variable (FDI inflows)
on a single dependent variable (GDP). Based on the stated sample, the relationship between
variables can be explained by simple regression model equation of the form Y=a+bx , Where X
will be the independent variable FDI (inflows in India) and Y will be the dependent variable
GDP(in crore).
Table No. 4: Descriptive Statistics
Mean Std. Deviation N
FDI 155599.3333 95850.72010 15
GDP 9540535.4667 5109378.92563 15
Table No. 4 shows that average FDI inflow in India is Rs. 155599 Crore and average size of GDP is
Rs. 9540535 Crore during the period of study. Whereas Standard Deviation of FDI is Rs. 95850.72
Cr and S.D. of GDP is Rs, 5109378.93 Cr during the same period.
Table No. 5: Pearson Correlations
FDI GDP
FDI 1.000
GDP .948 1.000
Pearson correlation coefficient, is 0.948 which shows the high degree of positive correlation
between FDI and GDP (IN Rupees crore), in India is very direct and strong as the coefficient is
between 0 and 1.
Table No. 6: Regression Coefficientsa
Unstandardized Standardized
Model Coefficients Coefficients t Sig.
B SE Beta
1 (Constant) -14049.355 17809.146 -.789 .444
FDI .018 .002 .948 10.725 .000
a. Dependent Variable: GDP

GDP=.018FDI-14049.355
● Regression result shows the positive value of β1 (.018). It indicates that the unit change in
the dependent variable due to the change in the value of pridictor.
● Column “standard error” gives the standard errors (i.e. the estimated standard deviation of
least squares estimates. In regression model s(β1 ) is 0.002 and β 1 /2 is (.018/2=.009).

-245-
A Study of Foreign Direct Investment & Its Impact on Indian Economy
Mukesh Kumar Jain

Hence, s (β1 < β1 /2), so we reject the null hypothesis and conclude that estimate is
statistically significant.
Table No. 7: ANOVAa
Model Sum of Squares d Mean Square F Sig.
f
1 Regression 115563256693.817 1 115563256693.817 115.034 .000b
Residual 1
13059790917.517 1004599301.347
3
Total 1
128623047611.333
4
a. Dependent Variable: FDI
b. Predictors: (Constant), GDP
Model Summary
Model R r2 Adjuste SE Change Statistics
d r2 r2 F df1 df2 Sig. F
Change Change Change
31695.4
1 .948a .898 .891 .898 115.034 1 13 .000
1452
a. Pedictor: (Constant), GDP
● The correlation co-efficient among the variables is 0.948 which indicates the high degree of
positive correlation.
● The co-efficient of determination, R2 is 0.898. This shows that the variation of the dependent
variable (GDP) is explained nearly 90% by the explanatory variable (FDI).
● Adjusted R2 measure the proportion of the variance in the dependent variable that was
explained by the variation in the independent variable. “Adjusted R2 shows 89% of variance
was explained.
Hence we reject the null hypothesis at 5% level of significance. So the estimated results of the
model demonstrate that there is significant relationship between FDI and GDP in India.
14. CONCLUSION
On the basis of study it is concluded that there is a significant relationship between FDI Inflow
and GDP Size of India. There is an increasing trend in the flows of FDI in study period except
2009-10, 2010-11, 2012-13 and 2017-18. Government should provide better environment for
attracting the foreign direct investment. Government should welcome inflow of foreign
investment in such a way that it should be convenient and favourable for our economy and
enable us to achieve our goal like speedy economic development, removal of poverty, regional
imbalance in the development and making our Balance of Payment favourable. So we require an
ever increasing and high growth rate of GDP. But study shows that GDP is increasing but growth
rate is fluctuating in term of percentage. FDI inflows from Mauritius constitute about 32% of the
total FDI in India and enjoying the top position on India‟s FDI map. The Singapore is the second
largest investing country in India with a share of 20%. The other major countries investing in
India are Japan, Netherland, UK, USA, Germany, UAE, Cyprus and France with 7%, 7%, 6%, 6%,
3%, 2%, 2%, & 2% share of total investment through FDI route in India. Thus, an analysis of last
-246-
 A Study of Foreign Direct Investment & Its Impact on Indian Economy
Mukesh Kumar Jain

eight years of FDI inflows shows that only six countries accounted for more than three fourth
(78%) share of the total FDI inflows in India. FDI inflows are welcomed in 63 sectors which are
reorganised in 2013-14, in which Construction (Infrastructure) Activities has been separated
from Construction Development (Townships, housing, built-up infrastructure and construction-
development projects). Service Sector has the highest FDI inflow attracting 18% share, followed
by Computer Software & Hardware 9% share and Telecommunications 8%, Construction
Development attracting 6% share. In nut shell, the foreign investment has been increasing in
India and helping India to develop it on fast track.
REFERENCES
Articles
[1]. Ahmad & Ahmad, (2014), „Impact of FIIs Investment on Volatility of Indian Stock Market:
An Empirical Investigation‟, Journal of Business & Economic Policy, ISSN 2375-0766, Vol. 1,
No. 2; December, pp. 106-114
[2]. Bhansali, Vaibhav. (2016), „Impact of FIIs on Indian Stock Market‟,
10.13140/RG.2.2.35690.36806, https://www.researchgate.net/publication/330832645
[3]. Das, L., and Mahapatra, R. P., (2017), „Foreign Institutional Investors and India‟s Stock
Market Behaviour‟, International Journal of Advanced Research (IJAR) Vol. 5, Issue 10, pp.
1203-1217
[4]. Jain, V., Nair, K. and Jain, D., (2014), Impact of FII Flows on Indian Capital Markets
(January 9, 2014). Perspectives on Financial Markets and Systems: Market Efficiency,
Behavioural Finance and Financial Inclusion, January. Available at
SSRN: https://ssrn.com/abstract=2707461
[5]. Kedia, N., (2016), „Impact of FII‟s on Indian Stock Market (specific to SENSEX)‟,
International Research Journal of Management Sociology & Humanity (IRJMSH), Vol. 7,
Issue 3, ISSN 2348–9359 (P), pp. 92-109
[6]. Mukherjee (2005), „Taking Stock of Foreign Institutional Investors.‟ Economic and Political
Weekly. June 11, www.sebi.gov.in.
[7]. Prusty, T., & Vishwakarma, R., (2014), „Strategic Insurgence of FIIs in Indian Stock Market‟,
International Journal of Financial Management (IJFM), ISSN(P): 2319-491X; Vol. 3, Issue 1,
Mar, pp. 29-38
[8]. Shrivastav, A., (2013), „A Study of Influence of FII Flows on Indian Stock Market‟,
GYANPRATHA– ACCMAN Journal of Management, Volume 5; Issue 1.
[9]. Swapna, G., (2018), „Impact of FIIs on Indian Stock Market with special reference to BSE
and NSE Index‟, International Journal of Accounting and Financial Management Research
(IJAFMR), ISSN (P): 2249-6882, Vol. 8, Issue 5, Dec., pp. 15-24

-247-
A Study of Foreign Direct Investment & Its Impact on Indian Economy
Mukesh Kumar Jain

Books
[1]. Pandey, I.M. “Financial Management”, Vikas Publishing House Pvt. Ltd, pp108-157,808-
939
[2]. Kothari and Garg, (2016), Research Methodology: Method and Techniques, New Age
International Publishers, New Delhi, 3rd Ed.
[3]. Prasanna Chandra (IIM B), “Financial Management Theory and Practice”, Second Edition,
Tata Mc-Graw Hill Publications, New Delhi, pp- 245-265
Websites
[1]. http://www.nseindia.com
[2]. http://www.bseindia.com
[3]. http://www.sebi.co.in
[4]. http://www.rbi.co.in
[5]. https://dipp.gov.in/sites/default/files/FDI_Factsheet

-248-