Impact of foreign direct investment in Indian economic growth

. Foreign Direct Investment (FDI) has played a significant role in driving economic growth in India. FDI refers to the investment made by foreign entities, such as companies or individuals, in the domestic economy of a country. This study looks at how FDI has affected the growth of the BSE Sensex and the Indian economy. The findings of the study indicate a favourable correlation between FDI and both GDP growth and the stock market.

sectors such as telecommunications, transportation, energy, and urban development, which can improve the overall infrastructure and support economic activities.Maatha and Mathiyazhagan (2005) noticed that inflow of foreign direct investment (FDI) have favourable effects on economic growth [9].

Review of literature
Abdulhamid Sukar (2007) noticed that FDI has a negligibly positive impact on economic growth [1].
Elena Pelinescu and Magdalena Radulescu (2009) observed that FDI has a positive impact on the economic growth of both developed and developing nations.The relationship between FDI flows and GDP per capita growth has been observed to be direct and significant [6].
Bhavya Malhotra (2014) observed that FDI has indeed had a positive impact on the Indian economy.The inflow of FDI brings various advantages that contribute to the economic growth of India.Further, inflow of FDI assist in supplementing domestic capital, technology and skills transfer, job creation and employment opportunities, knowledge and skill enhancement [4].Carlos Encinas Ferrer et al. (2015) observed that inflow of FDI significantly influences growth of GDP [5].
Khamis Hareb et al. (2015) observed that inflation does not have a significant effect on foreign direct investment (FDI) inflows.This means that changes in inflation rates, within the observed range, do not appear to influence the decision of foreign investors to invest in the host country [7].
Nlandu Mamingi and Kareem Martin (2018) identified that the relationship between infrastructure development, FDI, and domestic investment can vary across different countries, regions, and economic contexts [13].
Najeh Bouchoucha and Walid Ali (2019) determined that FDI has a favourable effect on both short-term and long-term economic growth [11].
Naveen Kumar Sharma et al. (2019) found that the two main stock market indices in India, the Sensex and Nifty, are directly impacted by FDI.They further conclude that the flow of FDI in India determines the trend of the Indian stock market [12].Susic et al. (2019) determined that foreign capital inflow is regarded as a crucial requirement for speeding economic growth and that it has a favourable effect on economic development.Monitoring and examining various forms of foreign capital intake, such as joint ventures with foreign investors and investments in free zones, have shown how diverse yet favourable effects on macroeconomic factors in the economy [16].
Xin Wang et al. (2019) noticed that the growth of the stock market is significantly influenced by FDI inflows [18].
Saswata Chaudhury et al. (2020) observed that sector wise inflow of FDI assists in overall economic development [15].
Lina Bakawdah and Tahar Tayachi (2021) observed that FDI has indeed been found to have a positive effect on the advancement of securities exchanges [8].
Xiqian Wang (2021) observed that negative correlation between FDI and the stock market index [19].
Abhay Pratap Singh et al. (2022) observed that FDI involves the direct investment of capital by foreign companies into the host country.This infusion of capital can stimulate economic growth by increasing investment in productive assets, such as factories, machinery, and infrastructure.The increased capital investment can lead to higher levels of productivity, job creation, and overall economic expansion [2].
Mohammad Zain Khan and Rana Zehra Masood (2022) observed that FDI and Foreign Institutional Investment (FII) play important roles in an economy, but FDI is often considered more crucial and referred to as the engine of growth [10].
Sai Rohit Kumar Reddy Bobba (2022) identified that FDI has been found to have a significant impact on the growth and volatility of Indian stock markets [14].

Research gap
Despite the existing literature on the impact of FDI on Indian economic growth, there may be several research gaps that warrant further investigation.The present study aims to fill the research gap by investigating the country-wise inflow of FDI in India, sector-wise inflow of FDI in India, and the impact of FDI on the growth of BSE Sensex and GDP.This study acknowledges the limited number of existing studies that have specifically focused on these aspects in the Indian context.

Statement of the problem
The impact of FDI on Indian economic growth is a subject of great significance and interest.While there is general consensus that FDI can positively contribute to economic development, the specific nature, magnitude, and channels through which FDI influences Indian economic growth remain areas of inquiry.Therefore, the problem to be addressed in this study is to examine and analyze the impact of FDI on Indian economic growth.The study has been carried to address the following question.What is the relationship between FDI and Indian economic growth?Does FDI have a positive or negative impact on economic growth in India?

Objectives of the study
1. To ascertain country wise inflow of FDI in India 2. To measure sector wise inflow of FDI in India 3. To measure impact of FDI on BSE Sensex growth 4. To measure impact of FDI on GDP Growth

Scope of the study
The present study measures inflow of FDI in India from select countries like Mauritius, Singapore, USA, Netherland, Japan, UK, Germany, Caymay Island, UAE and Cyprus.Further, in this present study, sector wise inflow of FDI in India have been studied.Moreover, impact of FDI on BSE Sensex and GDP growth alone have been ascertained.

Data
Secondary data required for the study have been collected from websites, journals and newspapers.

Sampling
Using purposive sampling techniques to gather data from select foreign countries and sectors based on data availability is a common approach in research studies.This approach allows researchers to focus on specific countries and sectors that are of particular interest and relevance to the research objectives.

Framework of Analysis
Collected data are analyzed using arithmetic mean, standard deviation, coefficient of variation, Analysis of Variance (ANOVA) and correlation.

Significance of the study
The study on the impact of FDI in Indian economic growth holds great significance for policymakers, investors and researchers.It provides valuable insights into the role of FDI in driving economic development, sectoral growth, and overall economic performance.The findings of this study can inform policy decisions, attract foreign investment and contribute to India's sustainable economic growth.
The study on the impact of FDI in Indian economic growth holds significant importance for several reasons.Understanding the impact of FDI on Indian economic growth allows policymakers to formulate effective strategies and policies to attract and promote foreign investment.By identifying the sectors and countries that contribute significantly to FDI inflows, policymakers can develop targeted policies to encourage investment in those areas.This study can provide insights into the policy measures required to enhance FDI inflows and their positive impact on economic growth.FDI plays a vital role in stimulating economic development in host countries.Assessing the impact of FDI on Indian economic growth helps in understanding how foreign investment contributes to various aspects of development, such as increasing capital investment, creating employment opportunities, transferring technology and knowledge, and boosting productivity.This knowledge can guide policymakers in fostering an enabling environment for FDI to maximize its developmental benefits.
The study's focus on sector-wise analysis of FDI provides valuable insights into the specific industries that attract foreign investment.Identifying the sectors with high FDI inflows and their impact on economic growth enables policymakers to prioritize investment and implement targeted policies to promote growth in those sectors.It also helps in identifying potential areas for further development and diversification of the economy.A comprehensive study on the impact of FDI in Indian economic growth enhances investor confidence.When potential investors have access to research-backed information about the positive relationship between FDI and economic growth, it can increase their willingness to invest in India.This can lead to a greater inflow of foreign capital, which can fuel economic growth and development.Comparing the impact of FDI across different countries and sectors provides valuable benchmarks and insights.By examining how India performs in attracting FDI and leveraging it for economic growth in comparison to other countries, policymakers can identify best practices and areas for improvement.Comparative analysis can also help in understanding the unique factors that contribute to India's attractiveness as a destination for FDI.The study contributes to the existing body of academic research on FDI and its impact on economic growth.It provides empirical evidence and quantitative analysis that can further enrich the understanding of the relationship between FDI and Indian economic growth.The findings of the study can serve as a valuable reference for researchers, economists, and scholars interested in studying FDI and its implications.

Limitations of the study
While conducting a study based on secondary data, there are several limitations that should be considered.The reliability and accuracy of secondary data sources may vary.It is crucial to ensure that the data collected from websites, journals, and newspapers are from reputable and authoritative sources.There may be instances of errors, inconsistencies, or biases in the data, which could impact the validity of the study's findings.The availability of data can be a limiting factor.Depending on the sources accessed, there may be limitations in the breadth and depth of the data.Certain variables or specific periods of time may have limited or incomplete data, which can restrict the analysis or generalizability of the findings.Secondary data sources may have inherent biases or subjective interpretations.The data collected from websites, journals, and newspapers may reflect the perspectives or agendas of the original sources.Researchers must exercise caution in interpreting and analyzing the data, considering potential biases that may have influenced its collection or reporting.

Country wise inflow of FDI in India
FDI in India has been a significant driver of economic growth and development.Over the years, India has attracted substantial inflows of FDI across various countries.The following table discloses about an overview of FDI inflows in India between 2005 and 2021.India receives a significant amount of FDI on average from Mauritius.The United Arab Emirates (UAE) has a low mean inflow of FDI to India, suggesting that India receives a relatively smaller amount of FDI on average from the UAE.The coefficient of variation for inflows of FDI from Mauritius is low, implying that the FDI amounts from Mauritius to India have a low level of fluctuation over time.Similarly, the coefficient of variation for inflows of FDI from Cyprus is high, indicating that there is a high level of fluctuation in the FDI amounts received from Cyprus to India.Germany provided a high amount of FDI to India in 2021, indicating a substantial investment received from Germany during that year.India received a relatively small amount of investment from the Cayman Islands during 2006.The result of an analysis of variance (ANOVA) test reveals that there is a significant difference in the mean inflows of FDI from various countries to India.This suggests that the FDI amounts vary significantly across different countries in terms of their investments in India.
One of the primary reasons for the high FDI from Mauritius to India is the favorable tax treatment provided by the Double Taxation Avoidance Agreement (DTAA) between the two countries.The agreement ensures that investors from Mauritius do not face double taxation on their investments in India.Capital gains tax on investments made through Mauritius is often exempt or subject to reduced rates, making it an attractive route for investors.Further, the DTAA between India and Mauritius has been susceptible to treaty shopping, where non-Mauritian entities invest in India through Mauritius to take advantage of the favorable tax provisions.This has contributed to the significant inflow of FDI from Mauritius to India.India has implemented various economic reforms to improve its business environment and attract foreign investments.Mauritius has strong historical, cultural, and economic ties with India, owing to its significant Indian diaspora.This shared heritage and cultural connection have fostered closer economic relations between the two countries, making Mauritius a preferred investment destination for Indian businesses.
There could be several reasons why India has received relatively low foreign direct investment (FDI) from the United Arab Emirates (UAE).The nature of investments from the UAE might be focused on sectors that are not prominent in India or that do not align with India's investment priorities.The investment preferences and strategies of UAE investors may not align with the investment climate or opportunities in India.They might be prioritizing investments in other countries or regions due to factors such as market dynamics, political stability, or sector-specific considerations.India faces competition from other countries for FDI.The UAE, being a global hub for investment, may have alternative investment destinations that are perceived as more attractive or offer better incentives for UAE investors.The economic conditions or policies of India may not be conducive to attracting significant FDI from the UAE.Factors such as regulatory complexities, bureaucratic hurdles, taxation issues, or other business environment challenges can affect investor confidence and deter FDI inflows.

Sector wise inflow of FDI in India
The inflow of FDI in India varies across different sectors.It's important to note that the inflow of FDI can vary depending on economic conditions, government policies, and sector-specific opportunities.The government of India has introduced various measures to promote FDI across sectors and continues to work towards improving the ease of doing business in the country, which can further influence the sector-wise distribution of FDI.Thus, the following table illustrates about FDI in India at various sector between the period 2005 and 2021.From the above table it is ascertained that mean inflow of FDI is found high in service sector and mean inflow of FDI is found low at chemical industry.Further, it is noted that high fluctuation in inflow of FDI is noted with software and hard ware industry and low fluctuation in FDI inflow is noted with service industry.High amount of FDI inflow is noted with software and hardware industry and low amount of FDI inflow is noted with chemical industry.
The service sector has the highest mean inflow of FDI, indicating that it receives a significant amount of foreign investment.On the other hand, the chemical industry has a lower mean inflow of FDI.The software and hardware industry experiences high fluctuation in FDI inflow, indicating that the amount of foreign investment in this sector can vary significantly over time.In contrast, the service industry has low fluctuation in FDI inflow, suggesting a more stable and consistent level of foreign investment.
The software and hardware industry receives a high amount of FDI inflow during 2021, indicating that it is an attractive sector for foreign investors.On the other hand, the chemical industry receives a low amount of FDI inflow during 2005, suggesting that it may be less attractive to foreign investors compared to other sectors.
Analysis of Variance (ANOVA) test indicates a significant difference in the inflow of FDI across various sectors in India, it suggests that the mean FDI inflows in at least one sector significantly differ from the mean inflows in other sectors.In other words, there are statistically significant variations in FDI inflows among the sectors under consideration.This finding is important as it provides evidence that the inflow of FDI is not uniform across all sectors in India.The sectors that attract higher or lower FDI inflows may have distinct characteristics, market conditions, or investment opportunities that influence foreign investors' preferences.The significant difference observed in the ANOVA test indicates that factors such as sector-specific policies, market potential, government incentives, or industry-specific dynamics may contribute to the variations in FDI inflows.
The service sector in India has been a major recipient of foreign direct investment (FDI) due to several factors.India has a rapidly growing domestic market with a large and diverse consumer base.The service sector, which includes financial services, telecommunications, retail, healthcare, education, and hospitality, among others, benefits from the expanding middle class and increasing consumer spending power.Foreign companies see India as a lucrative market to provide services and tap into the growing demand.The Indian government has implemented various policies and reforms to attract FDI in the service sector.Measures such as liberalizing FDI norms, simplifying regulations, and promoting ease of doing business have contributed to creating a favorable investment climate.
The relatively low inflow of FDI in the Indian chemical industry can be attributed to several factors.The chemical industry is subject to stringent regulations and compliance requirements related to safety, environmental impact, and hazardous materials.These regulations can increase operational costs and create barriers to entry for foreign investors, leading to a comparatively lower inflow of FDI.The chemical industry often requires significant investments in infrastructure, research and development, and specialized equipment.The capital-intensive nature of the industry may deter foreign investors who are seeking sectors with lower capital requirements or faster returns on investment.The chemical industry is associated with potential environmental risks and concerns related to pollution and waste management.Foreign investors may be cautious about investing in sectors that have higher environmental impact or face public scrutiny due to environmental concerns.The global chemical industry is highly competitive, with established players from various countries.Indian chemical companies may face strong competition from international counterparts, making it challenging to attract significant FDI inflows.

Impact of FDI on BSE Sensex
The inflow of foreign direct investment (FDI) can have an impact on the Indian stock market, as reflected by the BSE Sensex.To measure nature of relation that exist between inflow of FDI and BSE sensex, correlation test is employed.The following table discloses the result of the study.Result of correlation test discloses that there exist positive correlation between inflow of FDI and BSE Sensex.Increase in inflow of FDI raises BSE Sensex and stock market trading too.A positive correlation between the inflow of foreign direct investment (FDI) and the BSE Sensex indicates that there is a tendency for these two variables to move together in a positive direction.When there is an increase in FDI inflows, it may lead to a rise in the BSE Sensex and positively impact the stock market trading.
Higher FDI inflows are often perceived as a sign of confidence in the Indian economy by foreign investors.This increased confidence can attract domestic and international investors to the stock market, leading to higher demand for stocks and an upward movement in the BSE Sensex.FDI inflows are generally associated with expectations of economic growth.When FDI enters the country, it signifies the presence of long-term investments and potential growth opportunities.This positive sentiment can boost investor confidence and drive stock market performance, including the BSE Sensex.FDI inflows bring additional liquidity to the financial markets.The availability of more capital can increase trading activity in the stock market, leading to higher volumes and potentially influencing the movement of the BSE Sensex.
FDI inflows are often directed towards specific sectors or industries.This sectorspecific investment can result in increased investor interest and demand for stocks within those sectors.The positive sentiment surrounding FDI inflows can contribute to the rise in sectoral indices and have a cascading effect on the overall BSE Sensex.FDI inflows are typically accompanied by participation from foreign institutional investors (FIIs) in the Indian stock market.FIIs play a significant role in influencing market movements.When FDI inflows increase, it can attract more FIIs, leading to higher investment activity and potentially impacting the BSE Sensex.
IMPACT OF FDI ON GDP The inflow of FDI in India can have a significant impact on the country's economic growth, including its gross domestic product (GDP).FDI inflows bring in foreign capital, which contributes to increased investment and capital formation in the Indian economy.This investment can lead to the establishment of new businesses, expansion of existing industries, and the development of infrastructure, all of which can contribute to higher GDP growth.FDI often involves the transfer of advanced technology, technical know-how, and best practices from foreign companies to their Indian counterparts.This technology transfer can enhance productivity, efficiency, and innovation in various sectors, leading to higher economic output and GDP growth.
FDI inflows can create employment opportunities in India.Foreign companies setting up operations or expanding their existing presence in the country can generate jobs for the local workforce, reducing unemployment rates and increasing consumer spending power.This, in turn, boosts economic activity and contributes to GDP growth.FDI can help in promoting exports from India.Foreign companies may establish production facilities in India to take advantage of the country's lower labor and production costs.This can lead to increased export-oriented production and a rise in foreign exchange earnings, positively impacting GDP growth.FDI inflows can contribute to the development of infrastructure in India.Foreign companies may invest in building or upgrading infrastructure such as ports, roads, power plants, and telecommunication networks.Improved infrastructure facilitates economic activities, enhances productivity, and supports overall GDP growth.FDI can stimulate competition and market efficiency in India.The presence of foreign companies and their investments can encourage domestic industries to become more competitive, adopt modern practices, and improve product quality.This fosters greater integration with global markets and increases the potential for export-led growth, positively influencing GDP.
To measure impact of inflow of FDI on Indian GDP growth, correlation test is employed.The following table discuss about the result of the study.Result of correlation discloses that there exist positive correlation between inflow of foreign direct investment and GDP.More inflow of FDI will assist in GDP growth.When there is a higher inflow of FDI into a country, it tends to contribute positively to the country's GDP growth.FDI brings in foreign capital, which contributes to increased investment and capital formation in the recipient country.This investment can stimulate economic activity, create new businesses, expand existing industries, and boost infrastructure development, all of which contribute to GDP growth.Foreign companies frequently transfer cutting-edge technology, technical know-how, and managerial techniques to local businesses as part of FDI.The domestic economy may become more productive, efficient, and innovative as a result of this technology transfer, increasing GDP growth and overall output.FDI inflows can lead to job creation and employment opportunities in the recipient country.Foreign companies setting up operations or expanding their existing presence create jobs for the local workforce, reducing unemployment rates, increasing consumer spending power, and contributing to overall GDP growth.FDI inflows can drive productivity improvements in domestic industries.
Foreign companies often bring with them efficient production techniques, managerial expertise, and access to global markets.These factors can enhance the competitiveness of local industries, boost productivity levels, and result in higher GDP growth.FDI can contribute to increased exports from the recipient country.Foreign companies may establish production facilities to serve local and global markets, thereby expanding exportoriented production.This can lead to higher foreign exchange earnings, reduced trade deficits, and a positive impact on GDP growth.FDI inflows can bring stability to the recipient country's financial and economic system.The presence of foreign investors can enhance investor confidence, attract additional investment, and contribute to overall economic stability.This stability can support sustained GDP growth.

Suggestions
To attract more inflow of foreign direct investment (FDI) in India, several strategies and measures can be implemented.
• Streamline and simplify bureaucratic processes, reduce regulatory burden, and enhance transparency and efficiency in business operations.Creating a business-friendly environment by implementing reforms that make it easier for foreign investors to establish and operate their businesses in India can significantly attract FDI inflows.• Invest in infrastructure development, including transportation, logistics, energy, and digital connectivity.High-quality infrastructure is crucial for attracting foreign investors as it provides a conducive environment for business operations and enables efficient supply chains.• Implement transparent and stable tax policies to provide certainty to foreign investors.
Rationalize tax rates and reduce complexities in tax compliance.Additionally, ensure consistency and predictability in investment policies to instill confidence in foreign investors.efficient dispute resolution mechanisms.Ensure a transparent and predictable legal system to instill confidence in foreign investors.These suggestions aim to create an enabling environment that promotes investment, reduces barriers, and instills confidence in foreign investors.Implementing these measures requires coordination among various government departments, regulatory bodies, and stakeholders to create a conducive investment climate and position India as an attractive FDI destination.

Conclusion
The impact of foreign direct investment (FDI) on Indian economic growth can be significant.FDI plays a crucial role in driving economic development, enhancing productivity, and promoting technological advancement.FDI inflows bring in additional investment capital to the Indian economy.This investment contributes to increased capital formation, which is essential for economic growth.FDI supports the expansion of existing industries, the establishment of new businesses, and the development of infrastructure, all of which stimulate economic activity and contribute to GDP growth.FDI brings with it advanced technology, managerial expertise, and best practices from foreign companies.This technology transfer and knowledge spillover can enhance productivity, improve the quality of products and services, and increase the competitiveness of domestic industries.Improved productivity and competitiveness can lead to higher economic output and sustainable economic growth.
FDI inflows can result in job creation and employment opportunities in the recipient country.Foreign companies establishing or expanding their operations in India create direct and indirect employment, reducing unemployment rates and improving the standard of living.Increased employment levels contribute to higher consumer spending and overall economic growth.FDI can have a positive impact on exports and trade.Foreign companies often establish export-oriented production facilities in India, leveraging the country's skilled workforce and cost advantages.This can lead to increased exports, higher foreign exchange earnings, and reduced trade deficits.FDI can also contribute to import substitution, as domestic production substitutes imports, further improving the balance of trade.FDI inflows can support infrastructure development, particularly in sectors such as transportation, energy, and telecommunications.Improved infrastructure not only facilitates business operations but also attracts additional investment, promotes regional development, and strengthens overall economic growth.It is important to note that the extent and magnitude of the impact of FDI on Indian economic growth can vary depending on various factors, including the quality of investment, policy environment, institutional framework, and absorptive capacity of the economy.Implementing supportive policies, creating an enabling business environment, and attracting high-quality FDI are key to maximizing the positive impact of FDI on Indian economic growth.

Scope for further research
The impact of foreign direct investment (FDI) on Indian economic growth is a complex and dynamic topic that offers significant scope for further research.Here are some areas where additional research can contribute to a deeper understanding of this relationship.Conducting sector-specific studies to examine the impact of FDI on different sectors of the Indian economy.Analyzing how FDI inflows affect sectors such as manufacturing, services, agriculture, and infrastructure can provide insights into the sectoral dynamics and their contribution to overall economic growth.Investigating the regional distribution of FDI and its impact on regional economic growth in India.Examining the variations in FDI inflows across different states and regions can help identify regional disparities and understand the factors that influence FDI attraction and its subsequent impact on economic development.Exploring the spillover effects of FDI on the domestic economy, such as technology transfer, knowledge diffusion, and skill upgrading.Understanding how FDI contributes to innovation, productivity gains, and human capital development in the host country can provide insights into the mechanisms through which FDI influences economic growth.Analyzing the role of investment climate and policy frameworks in attracting FDI and its impact on economic growth.Assessing the effectiveness of policy measures, regulatory reforms, and institutional factors in creating an investor-friendly environment can shed light on the conditions necessary for maximizing the positive effects of FDI on economic growth.
Investigating the macroeconomic consequences of FDI inflows, such as their impact on exchange rates, balance of payments, inflation, and fiscal dynamics.Understanding the broader macroeconomic implications of FDI can help policymakers design appropriate

Table 3 .
Sector Wise Inflow of FDI in India, USD Million.

Table 4 .
Sector Wise Inflow of FDI in India -ANOVA

Table 5 .
Impact of Inflow of FDI on BSE Sensex

Table 6 .
Impact of Inflow of FDI on Indian GDP Growth **. Correlation is significant at the 0.01 level (2-tailed).
• Strengthen the education system to develop a skilled workforce that meets the demands of foreign investors.Encourage research and development (R&D) activities and collaboration between industries and research institutions to promote innovation and technology-driven growth.• Identify key sectors with high growth potential and develop tailored policies and incentives to attract FDI in those sectors.Provide sector-specific incentives, such as tax benefits, grants, and subsidies, to encourage investments in areas like manufacturing, infrastructure, technology, renewable energy, and healthcare.• Ensure robust IPR protection to safeguard the interests of foreign investors and encourage innovation and technology transfer.Strengthen enforcement mechanisms and streamline the process for obtaining and protecting intellectual property rights.• Encourage collaboration between the government and private sector through PPPs to leverage expertise and resources for infrastructure development projects.PPPs can help create attractive investment opportunities and provide a stable framework for foreign investors.• Strengthen bilateral and multilateral trade and investment agreements to provide favorable market access and protect investments.Engage in negotiations to establish free trade agreements (FTAs) and bilateral investment treaties (BITs) with key trading partners to facilitate cross-border investment flows.• Actively market India as an attractive investment destination through promotional campaigns and investment summits.Highlight the country's strengths, such as a large consumer base, skilled workforce, diverse market opportunities, and a favorable demographic profile.• Strengthen legal and institutional frameworks for investor protection and provide