FDI AND ECONOMIC GROWTH IN INDIA: AN EMPIRICAL STUDY

Abstract

Foreign Direct Investment (FDI) has emerged as one of the most significant sources of external capital for developing economies, providing not only financial resources but also technology, managerial expertise, and access to global markets. Since the initiation of economic liberalisation in 1991, India has progressively relaxed its FDI policy regime, and inflows have grown substantially over the past decade, aided by initiatives such as Make in India, the Production-Linked Incentive (PLI) scheme, and easing of sectoral caps. This paper examines the relationship between FDI inflows and economic growth in India using secondary time-series data for the period 2014-15 to 2023-24, drawing on statistics published by the Department for Promotion of Industry and Internal Trade (DPIIT), the Reserve Bank of India (RBI), and the Ministry of Statistics and Programme Implementation (MoSPI). Descriptive statistics, Pearson correlation, and simple linear regression are used to examine the strength and direction of association between annual FDI inflows and the real GDP growth rate. The results indicate that while FDI inflows have risen fairly consistently in absolute terms, the simple contemporaneous statistical association between annual FDI inflows and GDP growth over this period is weak and statistically insignificant, a finding that is consistent with a section of the existing literature which argues that the growth effects of FDI in India operate with a lag and are mediated by sectoral composition, absorptive capacity, and complementary domestic investment rather than through a simple linear year-on-year relationship. The study concludes with policy suggestions to strengthen the developmental impact of FDI in India.