PROJECT SYNOPSIS

On
“FOREIGN DIRECT INVESTMENT: IMPACT ON INDIAN GDP”

Submitted to

SCHOOL OF MANAGEMENT STUDIES

In partial fulfilment of the requirement

For

The award of the Degree of

“MASTER OF BUSINESS ADMINISTRATION”

Submitted by

KOTHA SAINADH

(20311E0001)

Under the esteemed guidance of

P. ARTHI

ASSISTANT PROFESSOR

SMS - SNIST

SCHOOL OF MANAGEMENT STUDIES

SREENIDHI INSTITUTE OF SCIENCE AND TECHNOLOGY
(Affiliated to Jawaharlal Nehru Technological University)

Yamnampet, Ghatkesar, Medchal District, Hyderabad - 501301.

 ACKNOWLEDGEMENT

We are deeply indebted to my guide, Mrs. AARTHI, SMS, SNIST,for his/her valuable
guidance and support throughout the course of my project Report.

We would like to express my sincere thanks to Dr. A. SANDHYA RANI, HOD, SMS, SNIST, for
her kind cooperation in the completion of this Report.

I would like to thank the Management and the staff of Sreenidhi Institute of Science and
Technology for their cooperation and support throughout the course of the completion of
this Project

Date:

K. SAINADH
(20311E0001)
 DECLARATION BY THE CANDIDATE

I am k. Sainadh bearing Hall Ticket No: 20311E0001 hereby declare that the
project report entitled, “FOREIGN DIRECT INVESTMENT: IMPACT ON INDIAN GDP”
under the guidance of Mrs. Aarthi, ASSISTANT PROFESSOR- SMS, SNIST is submitted in
partial fulfilment of therequirement for the award of the degree of MASTER OF BUSINESS
ADMINISTRATION.This is a record of bonafide work carried out by me and has not been
reproduced or copied from any source. This Project has not to be submitted to any
other University or Institute for the award of any other degree or diploma.

K. Sainadh
(2031E0001)
 CONTENTS

S. No. CHAPTER CHAPTER NAME PAGE No.

1 --- ABSTRACT
INTRODUCTION
1.1 Topic Introduction
2 1 1.2 History & Basic Concepts
1.3 Company Profile (if any)

3 2
REVIEW OF LITERATURE – 20 Articles

RESEARCH METHODOLOGY
3.1 Need for the Study
3.2 Objectives of the study
3.3 Hypothesis
4 3 3.4 Scope of the study
3.5 Research design
• Data collection
• Sample size
• Research tools
3.6 Limitations of the study

5 4
REFERENCES – 20 Article references
 1. INTRODUCTION :

1.1 Introduction to Foreign Direct Investment (FDI)

Foreign Direct Investment (FDI) broadly encompasses any long-term investments by an entity that is not a
resident of the host country. Typically, the investment is over a long duration of time and the idea is to
make an initial investment and then subsequently keep investing to leverage the host country’s advantages
which could be in the form of access to better (and lower price) resources, access to a consumer market or
access to talent specific to the host country - which results in the enhancement of efficiency. This long-
term relationship benefits both the investor as well as the host country. The investor benefits in getting
higher returns for his investment than he would have gotten for the same investment in his country and the
host country can benefit by the increased know how or technology transfer to its workers.

In simple words, Foreign Direct Investment (FDI) is a Long-term investment tool, where in Business
entities, Government, Investors etc,.. from one Country Invests in Other Country's Production. The
Country which is Funding investment is said to be Home country and The Country in which investment is
said to be Host Country.
Both Host and Home country enjoys respective benefits like Host Country admires Capital formation ,
Funds for Development, Technology exchange , Infrastructure ,employment, many more and Home
Country gets the benefits of high returns on investments.
• Increasing Foreign Direct Investment (FDI) is usually used as one indicator of Growing economy
• Foreign Direct Investment (FDI) as a positive role in the process of economic growth
• Market size, Economy, Inflation rate, Interest rates, Political factors of the Host country and Foreign
Direct Investment (FDI) policies and regulations of Home country decides the amount of Foreign Direct
Investment
• Foreign Direct Investment (FDI) partially transfers the control of ownership rights to the investing country
• FDI is one of the healthy opportunity for the developing countries to overcome the saving-investment gap
by allowing great extent of FDI inflow. FDI working can't be uniform in all sector, as each Sector has its
own limit on FDI
• FDI play multidimensional role in the overall development of the host Country. Earlier the amount of FDI
was low confirming to some selected Sectors and now the inflow of FDI has grown tremendously in
almost all sectors of the economy due to liberalization and government initiatives
• FDI of Pre and Post Reforms like Liberalisation, Privatization, and Globalization has huge difference.
Inward FDI before reforms were low compared to Inward FDI after reforms due to ill International Trade,
Market potentiality, Government functionality and many more. India lured attention of foreign countries
for FDI after reforms as it welcomed Open International trade and Foreign Business partners .
• Indian Government took many initiatives in order to boost FDI market like Reform, Introduction of '
Make in India' in 2014 and On 18 April 2020, the government of India passed an order that would protect
Indian companies from FDI during the Corona virus Pandemic, and it also made some changes in the
limits of FDI like increased FDI limit in insurance sector to 74% from 49%.
• Introduction of Make in India as positive relation with foreign direct investment, where earlier Indian
 government was working with mindset of issuing authority, but now with launch of make in India, it has
started working as a business partner.
• FDI is a critical driver of economic growth for developing economies. Overseas investment is more than
just the transfer of money from one country to another, it also: 1) diversifies investors portfolio, 2)
promotes stable long-term lending, 3) provides technology to developing nations, 4) generates
employment by creating more job opportunities, 5) brings in managerial expertise, 5) improves existing
infrastructure, 6) increases return without increasing risk.

Types of Foreign Direct Investment (FDI)

TYPES OF FDI

BY BY BY

DIRECTION TARGET MOTIVE

1. BY DIRECTION

• Outward FDI: An outward-bound FDI is backed by the government against all types of associated risks.
This form of FDI is subject to tax incentives as well as disincentives of various forms. Risk coverage
provided to the domestic industries and subsidies granted to the local firms stand in the way of outward
FDIs, which are also known as 'direct investments abroad.'
• Inward FDI: Different economic factors encourage inward FDIs. These include interest loans, tax breaks,
subsidies, and the removal of restrictions and limitations. Factors detrimental to the growth of FDIs
include necessities of differential performance and limitations related with ownership patterns.
• Horizontal FDI: Investment in the same industry abroad as a firm operates in at home. D. Vertical FDI -
Backward Vertical FDI: Where an industry abroad provides inputs for a firm's domestic production
process.
• D Forward Vertical FDI: Where an industry abroad sells the outputs of a firm's domestic production.

2. BY TARGET

• Greenfield investment: - Direct investment in new facilities or the expansion of existing facilities.
Greenfield investments are the primary target of a host nation’s promotional efforts because they create
new production capacity and jobs, transfer technology and know-how, and can lead to linkages to the
global marketplace. The Organization for International Investment cites the benefits of Greenfield
 investment for regional and national economies to include increased employment investments in research
and development; and additional capital investments. Disadvantage of Greenfield investments include the
loss of market share for competing domestic firms. Another criticism of Greenfield investment is that
profits are perceived to bypass local economies, and instead flow back entirely to the multinational's home
economy. Critics contrast this to local industries whose profits are seen to flow back entirely into the
domestic economy.
• Mergers and Acquisitions :- Transfers of existing assets from local firms to foreign firm takes place; the
primary type of FDI. Crossborder mergers occur when the assets and operation of firms from different
countries are combined to establish a new legal entity. Cross-border acquisitions occur when the control of
assets and operations is transferred from a local to a foreign company, with the local company becoming
an affiliate of the foreign company. Nevertheless, mergers and acquisitions are a significant form of FDI
and until around 1997, accounted for nearly 90% of the FDI flow into the United States. Mergers are the
most common way for multinationals to do FDI.

3. BY MOTIVE
FDI can also be categorized based on the motive behind the investment from the perspective of the
investing firm:

• Resource-Seeking : Investments which seek to acquire factors of production those are more efficient than
those obtainable in the home economy of the firm. In some cases, these resources may not be available in
the home economy at all. For example seeking natural resources in the Middle East and Africa, or cheap
labour in Southeast Asia and Eastern Europe.
• Market-Seeking : Investments which aim at either penetrating new markets or maintaining existing ones
FDI of this kind may also be employed as defensive strategy; it is argued that businesses are more likely
to be pushed towards this type of investment out of fear of losing a market rather than discovering a new
one. This type of FDI can be characterized by the foreign Mergers and Acquisitions in the 1980’s
Accounting, Advertising and Law firms.
• Efficiency-Seeking : Investments which firms hope will increase their efficiency by exploiting the
benefits of economies of scale and scope, and also those of common ownership. It is suggested that this
type of FDI comes after either resource or market seeking investments have been realized, with the
expectation that it further increases the profitability of the firm

Methods of FDI
• Mergers and acquisitions
• Acquiring voting stock in a foreign company
• Joint ventures with foreign companies
• Starting a subsidiary of a domestic firm in a foreign company
• By incorporating a wholly owned subsidiary or company
1.2 HISTORY OF FDI IN INDIA

India intent to open its markets to foreign investment can be traced back to the economic reforms adopted
during two prime periods- pre- independence and post-independence. Pre- independence, India was the
supplier of foodstuff and raw materials to the industrialized economies of the world and was the exporter
of finished products- the economy lacked the skill and means to convert raw materials to finished
products. Post-independence with the advent of economic planning and reforms in 1951, the traditional
role-played changes and there was remarkable economic growth and development. International trade
grew with the establishment of the WTO. India is now a part of the global economy. Every sector of the
Indian economy is now linked with the world outside either through direct involvement in international
trade or through direct linkages with export and import. Development pattern during the 1950-1980
periods was characterized by strong centralized planning, government ownership of basic and key
industries, excessive regulation and control of private enterprise, trade protectionism through tariff and
non-tariff barriers and a cautious and selective approach towards foreign capital. It was a quota, permit,
license regime which was guided and controlled by a bureaucracy trained in colonial style. This inward
thinking, import substitution strategy of economic development and growth was widely questioned in the
1980’s. India’s economic policy makers started realizing the drawbacks of this strategy which inhibited
competitiveness and efficiency and produced a much lower growth rate that was expected. Consequently,
economic reforms were introduced initially on a moderate scale and controls on industries were
substantially reduced by 1985 industrial policy. This set the trend for more innovative economic reforms
and they got a boost with the announcement of the landmark economic reforms in 1991. After nearly five
decades of insulation from world markets, state controls and slow growth, India in 1991 embarked on an
accelerated process of liberalization. The 1991 reforms ensured that the way for India to progress will be
through globalization, privatization, and liberalization. In this new regime, the government is now
assuming the role of a promoter, facilitator and catalyst agent instead of the regulator and India has a
number of advantages which make it an attractive market for foreign capital namely, political stability in
democratic polity, steady and sustained economic growth and development, significantly huge domestic
market, access to skilled and technical manpower at competitive rates, fairly well-developed
infrastructure. FDI has attained the status of being of global importance because of its beneficial use as an
instrument for global economic integration.

Pre-Independence Reforms: Under the British colonial rule, the Indian economy suffered a major set-
back. An economy with rich natural resources was left plundered and exploited to the hilt under the
English regime. India is originally an agrarian economy. India’s cottage industries and trade were abused
and exploited as means to pave the way for European manufactured goods. Under the British rule the
economy stagnated and on the eve of independence India was left with a poor economy and the textile
industry as the only life support of the industrial economy.

Post-Independence Reforms: India’s struggle post-independence has been an excruciating financial

battle with a slow economic growth and development which were largely due to the political climate and
impact of the economic reforms. The country began it transformation from a native agrarian to industrial
to commercial and open economy in the post-independence era. India in the post-independence era
followed what can be best called as a ‘trial and error’ path. During the post-independence era, the Indian
Economy geared up in favor of central planning and resource allocation. The government tailored policies
that focused a great deal on achieving overall economic self-reliance in each state and at the same time
exploit its natural resource. In order to augment trade and investments, the government sought to play the
role of custodian and trustee by intervening in the practice of crucial sectors such as aviation,
telecommunication, banking, energy mainly electricity, petrol and gas. The policy of central planning
adopted by the government sought to ensure that the government laid down marked goals to be achieved
by the economy thereby establishing a regime of checks and balances. The government also encouraged
self-sufficiency with the intent to encourage the domestic industries and enterprises, thereby reducing the
dependence on foreign trade. Although, initially these policies were extremely successful as the economy
did have a steady economic growth and development, they weren’t sustained. In the early, 1970’s, India
had achieved self-sufficiency in food production. During the 1970’s, the government still continued to
retain and wield a significant spectra of control over key In the Early 1980’s-Macro-Economic Policies
were conservative. Government control of industries continued. There was marginal economic growth &
development courtesy of the development projects funded by foreign loans. The financial crisis of 1991
compelled drafting and implementation of economic reforms. The government approached the World
Bank and the IMF for funding. In keeping with their policies there was expectation of devaluation of the
rupee. This lead to a lack of confidence in the investors and foreign exchange reserves declined. There
was a withdrawal of loans by Non Resident Indians. Economic reforms of 1991: India has been having a
robust economic growth since 1991 when the government of India decided to reverse its socially inspired
policy of a retaining a larger public sector with comprehensive controls on the private sector and
eventually treaded on the path of liberalization, privatization and globalization. During early 1991, the
government realized that the sole path to India enjoying any status on the global map was by only
reducing the intensity of government control and progressively retreating from any sort of intervention in
the economy – thereby promoting free market and a capitalist regime which will ensure the entry of
foreign players in the market leading to progressive encouragement of competition and efficiency in the
private sector. In this process, the government reduced its control and stake in nationalized and state-
owned industries and enterprises, while simultaneously lowered and deescalated the import tariffs. All of
the reforms addressed macroeconomic policies and affected balance of payments. There was fiscal
consolidation of the central and state governments which lead to the country viewing its finances as a
whole. There were limited tax reforms which favored industrial growth. There was a removal of controls
on industrial investments and imports, reduction in import tariffs. All of this created a favorable
environment for foreign capital investment. As a result of economic reforms of 1991, trade increased by
leaps and bounds. India has become an attractive destination for foreign direct and portfolio investment.

Government Approvals for Foreign Companies Doing Business in India

Government Approvals for Foreign Companies Doing Business in India or Investment Routes for
Investing in India, Entry Strategies for Foreign Investors India's foreign trade policy has been formulated
with a view to invite and encourage FDI in India. The Reserve Bank of India has prescribed the
administrative and compliance aspects of FDI. A foreign company planning to set up business operations
in India has the following options:

1. Automatic approval by RBI: The Reserve Bank of India accords automatic approval within a period
of two weeks (subject to compliance of norms) to all proposals and permits foreign equity up to 24%;
50%; 51%; 74% and 100% is allowed depending on the category of industries and the sectoral caps
applicable. The lists are comprehensive and cover most industries of interest to foreign companies.
Investments in high-priority industries or for trading companies primarily engaged in exporting are given
almost automatic approval by the RBI.

2. The FIPB Route – Processing of non-automatic approval cases: FIPB stands for Foreign Investment
Promotion Board which approves all other cases where the parameters of automatic approval are not met.
Normal processing time is 4 to 6 weeks. Its approach is liberal for all sectors and all types of proposals,
and rejections are few. It is not necessary for foreign investors to have a local partner, even when the
foreign investor wishes to hold less than the entire equity of the company. The portion of the equity not
proposed to be held by the foreign investor can be offered to the public.

FOREIGN DIRECT INVESTMENT POLICY IN INDIA

FDI is prohibited in sectors like (a) Retail Trading (except single brand product retailing) (b) Lottery
Business including Government /private lottery, online lotteries, etc. (c) Gambling and Betting including
casinos etc. (d) Chit funds (e) Nidhi Company (f) Trading in Transferable Development Rights (TDRs) (g)
Real Estate Business or Construction of Farm Houses (h) Manufacturing of Cigars, cheroots, cigarillos
and cigarettes, of tobacco or of tobacco substitutes Foreign technology collaboration in any form
including licensing for franchise, trademark, brand name, management contract is also prohibited for
Lottery Business and Gambling and Betting activities.
REVIEW OF LITERATURE
Reenu Kumari (2021) in their article “Determinants of foreign direct investment in developing
Countries”. A panel data study discussed about the FDI and its determinants in developing Countries,
although it is generally accepted that FDI Shares a positive relationship with economic development, yet
there is Consensus as to which are the key determinant of FDI inflow. many previous studies have given
mixed Results. Reenu kumari reveals that the market Size is the most significant determinant of FDI
FLOW. And some other factors like inflation rate, trade market openness, interest rates, human capital and
infrastructure. From this study, we get to see that expect Market size, trade openness and human capital all
other have negative relationship with FDI flow. In general we can say there are many economical and
non-economical factors which have direct influence on the FDI flow.

Kapish Aggarwal (2020) in the study “Impact of Covid-19 on Foreign Direct Investment (FDI) in India”
revealed that The Covid-19 pandemic brought a turmoil on the whole world and India was no exception.
The first quarter of FY-20 saw a contraction in GDP by 22.6%. This decline had adverse effects on all
economic areas including FDI which saw a contraction of 59% in the first quarter FY-20. But due to
government’s favourable business environment and revision of FDI policies, FDI inflows saw a 16%
surge in the coming months driven mostly by tech and telecommunication investments. Also, India’s self-
reliance scheme (Atmanirbhar Bharat) has attracted investments from players such as Foxconn to setup
manufacturing plants in the country. In the coming years, India is going to be one of the most attractive
emerging markets for global investments. Annual FDI inflow in the country is expected to rise to $75 BN
over the next five years according to a report by the UBS. Also India’s goal of becoming a $5 Trillion
economy by 2025 will surely boost the investments in coming years.

Ahmad Khalid Khan (2019) in their article impact of demonetization on outwards foreign direct
investment of India special reference of Asian countries” his study regarding the impact of demonetization
on outwards Foreign Direct Investment of India revealed that India is though developing nation yet it has
tremendous investment opportunities and options available in India and abroad in terms of FDI. India's
outward direct investment (OFDI) has shown development and growth so rapidly, especially since the
global financial crisis occurred. Some sluggishness in Indian economy seemed to have occurred during
post demonetization period but as per our analysis this recession is momentary and the declining growth
observed in the analysis. In recent economic scenario in India after demonetization, OFDI has terrifically
come down due to fall in liquidity and complex tax structure (GST) , India has witnessed sharp decline in
OFDI in 2017 -18 by approximately 26 percent to USD 5665.18 million from USD 7657.55 million in the
year 2016-17. Researcher has carefully examined and observed some very substantial deviations during
post and pre demonetization period in India that except two sectors Electricity, Gas and Water and
Financial, Insurance and Business Services, all remaining sectors have displayed gloomy outcomes in the
form of expansion.
Dr. Mary (2020) made a study on impact of FDI on Indian manufacturing industry and there is a positive
impact of FDI inflow due to the technological Advancements and increased Competition, Because of the
Government initiatives like “Make in India Plan” domestic economic has developed in Production in
Heavy Industrial Machineries, Electrical and Electronic Items and Due to Digitalization policy of the
Government FDI has increased. Manufacturing industries have involved in a vital role at the present day
technological world. India is one of the biggest Agricultural based professional country in the world and
acts as a biggest source of materials to the manufacturing industry so the impact of FDI on manufacturing
sector is considerably positive in almost all industries like power, automobile, mining, electrical
equipment etc.

Piyali Roy Chowdhury, Anuradha(2021) in the article titled ' Relationship of Foreign Direct Investment
(FDI) Inflows and Exchange Rate in the Context of India: A Two Way Analysis Approach' discussed that
market size, growth, trade openness , labour cost and productivity, infrastructure and tax are playing the
major role in determining the FDI flow in an economy. There is no clear mention of exchange rate being
the contributor for the determination of FDI flow in developing economies. FDI inflow has its
pros and cons, but still it can be encouraged irrespective of currency fluctuation in a substantial
amount to generate more employment, productivity, GDP growth, and to remove poverty which is a
target taken by Indian Government by 2032. So, there are no close evidence that exchange rate have
greater impact on Inward FDI and moreover foreign investors do get attracted to invest in Indian if and
only if Indian rupee touches too low.Saileja Mohanty and Narayan Sethi (2019) in their investigation
paper entitled ' Does Inward FDI Lead to Export Performance in India? An Empirical Investigation '.
found that FDI is one of the healthy opportunity for the developing countries to overcome the saving-
investment gap by allowing great extent of FDI inflow. FDI working can't be uniform in all sector, and
policymakers should understand the difference and identify their sector-wise policies relating with FDI.
Country which is expecting higher FDI should maintain good level of law and order to attract more and
more FDI and they suggested that the government should encourage more export-oriented FDI to have a
direct effect on export growth leading to growth of the economy and in which India is excelling it in right
way.

Zhang jijian (2018) in the article “ Empirical study on the impact of international trade and foreign direct
investment on carbon emission for belt and road countries” revealed that international trade increases the
consumption of resources by expanding economic activities, thereby destroying eco-logical environment.
When a country focuses on the production of pollution intensive products in the international division of
labor, it increases export trade, which causes domestic pollution emissions, hence, an increase in territorial
carbon emissions. However, with the adjustment in territorial CO2 emissions, the consumption-based
carbon emissions deduct export and add import embedded emission, here by study is based on the belt and
road countries like China, Indonesia etc.,

Pooja Sengupta and Roma Puri (2018) in the article named ' Exploration of Relationship between FDI
and GDP: A Comparison between India and Its Neighbouring Countries' revealed that Foreign direct
investment (FDI) inflows have been a trigger for accelerating economic growth in a number of countries.
The pattern of FDI flows into India and its neighbourhood has been varied and so has been its impact on
the economic growth in each of the countries. FDI consistently had a positive impact on the GDP and
India attracted most of the FDI since liberalisation . FDI is instrumental in enhancing the economic
growth of the countries except for Pakistan and all 4 other countries India, Nepal, Srilanka and
Bangladesh do share a positive relation. In case of India, the results of FDI have been very encouraging.
India has been repeatedly ranked among the top few global investment destinations for foreign investors.
FDI touched a record high of 84 billion $ in Bangladesh and Bangladesh was ranked the third in the list of
top recipients of FDI in the South Asian region.

Dr Ampu Harikrishnan (2018) in the article entitled ' Evaluation of FDI in India as a Growth Engine of
GDP in the Country ' found that there is greater positive impact of FDI on Indian GDP and the amount
raised through FDI are mostly vested in Infrastructure, Computer, Software & Hardware and Drugs &
Pharmaceuticals. FDI are directed towards the improvement in export facilities, creation of jobs, and
expansion of existing manufacturing industries. As a matter of fact There should be means and ways to
improve the utilization of the funds gained by the way of FDI, this might be done by investing the same in
the international projects, realization of the FDI amounts as early as possible and that too in terms of real
time realization. More thrust should be give on the development of the bureaucracy i.e. it should become
more responsive. Steps might be taken to curb corruption from the lowest level of the economy.
Researcher suggested to direct funds from FDI to increase internationalisation rather than domesticality.

Dr. Priyanka Banerji (2017) made a Study on government initiative by name "Make in India" and its
impact on FDI. Make in India initiative was launched by Prime Minister of India on 25th September, 2014
to project India as a preferred investment target and a global manufacturing focal point. The major
objective behind the initiative is to refurbish focus on removing unemployment by job creation, skill
advancement, nurturing innovation and sky-scraping eminence standards in the industrialized sector.
Make in India launch focuses on four key areas to promote industrialization and entrepreneurship and
Indian government was working with a mindset of an working issuing authority, but now with the launch
of make in India, it has Started working as Business partner. Indian Government made necessary Reforms
to FDI Policy that provide and accelerate the ease of doing business and accelerate pace of foreign
investment in the country

Irene and Rozita (2015) discussed the Evaluation of the impact of FDI on the level of globalization and
they empathised that it differs according to the different features of the economy I.e., the size of the
Country, is it investing or host Country, what is the level of the openness and the level of Economic
development. Growing FDI flows are a significant factor of the globalization process, being one of the
driving forces of Globalization, and its main consequence at the same time. The analysis of Lithuanian
FDI indicators confirms the proposition that the level of globalization of Lithuania as A small open
country is more affected on inward investment in comparison with outward investment. The economy Of
Lithuania is dependent on foreign capital at a high level.

Gulshan (2015) in the Article "Inflows of FDI in India: pre and post reform period stated that FDI play
multidimensional role in the overall development of the host Country. Earlier the amount of FDI was low
confirming to some selected Sectors and now the inflow of FDI has grown tremendously in almost all
sectors of the economy due to liberalization and government initiatives. These policy changes intended for
making India an investors, „friendly destination‟ for FDI has undergone More than a decade’s experience.
On the other hand, some FDI restrictions have been imposed by the Government of India in order to
protect the interest of the country. Sectors such as atomic energy, lottery Business and gambling and
betting are prohibited. However, during pre Liberalization period FDI increased at CAGR of 19.05%
while during post liberalization period it has grown 24.28%. This indicates that liberalization has had a
positive impact on FDI inflows in India. Since 1991 FDI Inflows in India has increased approximately by
more than 165 times.

Bhavya Malhotra (2014) in the paper entitled " Foreign direct investment: Impact on Indian Economy"
discussed the impact of FDI on economy after two decades of economic Reforms like liberalization,
globalization, even though India has been a latecomer to the FDI Scene compared to other East Asian
countries, its considerable market Potential and acts as attractive as favourable destination for foreign
investors. India is definitely a lucrative place for FDI, but there are certainly some challenges And areas
for improvement still present. Until, these areas are honed to perfection, India will not become the number
one place for FDI. The latest and current challenges which are now being faced by India in the global
Market are focused in this paper like Resource challenges, equity challenges, political challenges and
federal challenges. Now India’s Foreign Direct Investment (FDI) policy has been gradually liberalized to
make The market more investor friendly.

S Joseph (2014) in the article entitled "Foreign direct investment in India" discussed that India is the
Fourth largest country by purchasing power parity due to factors like availability of cheap labour,
uninterrupted availability of raw material, less production cost compared with other developed countries,
quick and easy market penetration and he said that, it is so controversial to identify whether FDI leads to
economic growth or Economic growth of a country leads to FDI inflow. However, both are interlinked or
interconnected to each other. Without FDI a country cannot achieve Economic growth and without
Economic growth a country cannot attract high level of FDI inflow. The Investment of FDI in various
states and sectors leads to rapid growth of Indian economy. On this background, the paper analyses the
sector wise and state wise inflows of FDI and tries to the draw the relationship between FDI and
GDP.“Foreign Capital is a Good Servant, But a Bad Master” is what a researcher referred Here about FDI.

Pradeep (2013) made an attempt to study of foreign direct investment in India. He emphasized that
Investment, or creation of capital, is an important determinant of economic growth. In general, investment
may lead to creation of physical capital, financial capital and human capital. In combination with other
factors of production and technology, investment determines the levels and growth through changes in
production and consumption of goods and services. Other things being the same, less investment leads to
lower economic growth with attendant consequences on reduction in income, consumption and
employment. Foreign investment can reduce domestic savings gap. Hence, notwithstanding the domestic
savings gap, economic growth can be increased in an open economy with inflow of foreign investment.
The foreign investment in India would stimulate the domestic investments. The foreign investments are
complementary to economic growth and development in developing countries like India.Investment in
economy raises output and improves standard of living of the people. Keeping this end in view both
developed and developing countries are trying their best to undertake investment programmes. Since the
availability of capital is scarce in many countries due to low rate of domestic savings, hence the
importance of foreign investment is ever rising. Foreign capital consists of private foreign capital and
public foreign capital. Public foreign capital is otherwise financial foreign aid where as private foreign
capital consists of either foreign direct investment or indirect foreign investment. In case of foreign direct
investment (FDI), the private foreign investor either sets up a branch or a subsidiary in the recipient
country. In the liberalized environment as economics become increasingly open, and trade between
countries expand, financial transactions become global through financing trade of goods and services.
Capital is the engine of economic development and this statement is gaining importance in the recent
times.

Dr. Jasbir Singh (2012) from the article “Role of Foreign Direct Investment in India: An Analytical
Study” concluded that the saving rate is less than investment rate in the study period. The foreign
investment increased in both term i.e. FDI and FIIs. The highest amount of FDI has gone to financing,
Insurance, Real Estate and Business services which are 33.05 percent and minimum went to research &
scientific services which is 0.07 percent of total cumulative inflow of FDI study period in India. On the
base of above discussion it is clear that most of the FDI has gone to non-priority sector. Because FDI
depends on profitability, industrial policy, customs, rates, FERA, regulations etc. But in case of India
inflow of FDI is not satisfactory for the point of view of objectives of development of industries.

Syed azhar (2012) in the descriptive paper “An Overview of Foreign Direct Investment in India.”
Explained the need and determinants of FDI in India during 2002-2012, India has been one of the
developing countries and has managed to show a positive GDP growth even during the recession period. It
has comparatively performed well, then the average growth rate of world GDP. India has all the variables
such as fine infrastructure, potential markets, abundant labour, availability of natural resources, and at last
the economic and trades policies which has been favouring FDI. Foreign direct investments helps in
developing the economy by generating employment to the unemployed, Generating revenues in the form
of tax and incomes, Financial stability to the government, development of infrastructure, backward and
forward linkages to the domestic firms for the requirements of raw materials, tools, business
infrastructure, and act as support for financial system. Forward and back ward linkages are developed to
support the foreign firm with supply of raw and other requirements. It helps in generation of employment
and also helps poverty eradication. There are many businesses or individuals who would earn their lively
hood through the foreign investments

Dr. Babar (2010) in the article "Foreign Direct Investment in India and China: A Comparative Study"
Stated that India and China upcoming nations where in short comparatively the global FDI In China is
highest than the India in 2010.Service Sector has attracted highest Indian FDI inflow where as China's
FDI inflows are highest in leasing and Business Service in 2010. The service sector has attracted highest
(21 per cent) FDI inflows; then Computer software, and hardware (9 percent),telecommunication sector (8
per cent)and Housing and Real estate (7 per cent) during 2008 to August 2010. Mauritius (42 per cent to
total inflows of FDI) has been largest investor in India, followed by Singapore (9 per cent) during 2008 to
August 2010 among top ten countries. China’s highest FDI inflows in leasing and Business service
30280.70 million USD in 2010. Second sector is Banking (8627.39) followed by Wholesale and Retail
Trade, Mining, Transport, Storage and post etc. during the same period.

Juan Pineiro (2008) in the Paper namely “Does Growth and Quality of Capital markets Drive Foreign
capital? The case of Cross-border Mergers & Acquisitions from leading Emerging Economies" -
examined the association between the quantum of FDI in a firm and the quality of capital market growth
of that firm. The period of study was from 1987 to 2006.After a comparative study of “both the stock
market variables and the financial and regulatory reforms variables, they observed that the coefficients
were higher than other variables. They concluded that higher reforms in capital markets may result into
higher increase in firm level Foreign Direct Investment”. Moreover, the results are found to be
enormously forceful when they “replaced stock market variables with squared values of the same,
reconfirming the fact that bigger is the escalation, better is the inflow of firm level Foreign Direct
Investment”.

Vani Archana (2007) in the article entitled “Foreign Direct Investment in India: Emerging Horizon” said
that R&D as a significant determining factor for FDI inflows for most of the industries in India. The
software industry is showing intensive R&D activity, which has to be channelized in the form of export
promotion for penetration in the new markets. Bangalore, Hyderabad and Delhi have already emerged as
more favoured software destinations in India for FDI, and in addition reveals the strong negative influence
of corporate tax on FDI inflows. Most of FDI arriving in India is heading towards power and telecom
sectors, electrical and electronic equipment, transportation, chemicals and industrial machinery. It shows a
strong negative influence of corporate tax on FDI inflows.
RESEARCH METHODOLOGY

3.1 Need For The Study :

The theme of this project is to draw the relationship between FDI and GDP which are one of the
key drivers of Indian Economic development and There are many factors that influence the
economic condition. One of them is FDI. Hence there is a need to study the impact of FDI on the
change in the economy.

3.2 Objectives of the study:

• To Evaluate the impact of Foreign Direct Investment on the Indian GDP

• To understand the need of Foreign Direct Investment in India
• To examine the trends and patterns of flow of Foreign Direct Investment in India
To examine Pros and Cons of Foreign Direct Investment in India

3.3 Hypothesis:

H1 – There has been a significant impact of FDI flow on the Indian economy in terms of GDP.

3.4 Scope of the Study :

1) The study is aimed to understand the flow of FDI in the Indian economy.
2) Finding out the reason for the difference in FDI inflows
3) How FDI is affecting the various sector of economy.

3.5 Research Design:

AIM: To establish the relationship between FDI and GDP in the Indian economy.
The present study is of analytical nature and makes use of secondary data. The
relevant secondary data has been collected from reports of the Ministry of
Commerce and Industry, Government of India, Centre for
Monitoring Indian Economy, Reserve Bank of India, World Investment Report and
the relevant data has been collected for the last five years
3.6 Limitations of the study:
• FDI data keeps on changing
• The present study is conducted from 2007 to 2021
• Its not only the FDI that effects the GDP of any economy, there are many
other factors such as Government policies, monetary policies, FII etc.