A Study on the Determinants of Foreign Direct Investment Inflows into India

The expansion and integration of global financial capital markets has led to the changes in the composition of capital flows of the developing economies. FDI has gained wide recognition as a striking measure of economic growth and development in both developed and developing countries. This study intends to evaluate the trends and patterns of FDI inflows into India. The relationship between FDI inflows and its selected determinants are examined. The study is based on the secondary time series data collected for fifteen years ranging from FY 2000-01 to 2014-15. GDP, Index of Industrial Production, exchange rate, trade openness and inflation are the variables taken as the determinants of FDI inflows. The collected data was analysed by using Pearson’s correlation analysis, linear regression analysis and compounded annual growth rate. The results revealed that FDI inflows exhibited a mixed pattern and the established trend line shows an upward trend. A significant relationship was found between GDP, IIP, TO, REER, CPI and FDI inflows and these variables were positively correlated. Equations were formulated using the regression analysis and they were found to be of good fit to predict the FDI inflows. Favourable measures should be taken by the policy makers to improve these variables under study which will result in increased foreign capital inflow.