FDI Inflows in India:Trends and Determinants

The paper analyzed the sector and country wise trend of foreign direct investment (FDI) inflows in India from 1991-92 to 2012-13. The paper found negative trends in sectors such as electrical equipment, transportation, chemicals, food processing and positive trend in the metallurgical and service sector. The paper also investigated the determinants of FDI inflows in India since 1980-81. The study was conducted taking data from various secondary sources. The study used OLS method to estimate various parameters of the determinants of FDI inflows. The paper found that lagged FDI inflow (one period), inflation rate, share of manufacturing sector in GDP, interest rate, per capita income were significant determinants of FDI inflows in India (except occurrence of riots). The variables taken showed expected signs, including the occurrence of riots. The paper included one dummy variable since 1991 to examine the impact of liberalization policy on FDI inflows and found that the variable was significant. This means that liberalization of the economy has increased FDI inflows in India.