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Foreign Investment and Indian Economic Development: a study in the era of Liberalisation
Get PDFFor over four decades, since independence, we have been practicing inward looking
import-substitution led industrialization in line with the ‘Swadeshi Ideology’ infused
long before during 1890. Unfortunately, till then, a low level of income, low savings investment
rate, current account deficit, the very low growth rate had become serious malaises for our country. Besides this attractive growth rate of Asian tigers, the then
IMF strategy, many other phenomena compelled our policymakers towards
liberalization and Globalization. So, there was a major policy shift, from close-cumdormant
to open-cum-adoptive policy as we all know, beginning from the early
1990s. However, India has come as a late entrant into the regime of foreign investment-led growth strategy with various positive fundamentals. Consequently,
within a few years, India has experienced phenomenal growth in the volume of
foreign investment and evident remarkable growth in GDP.On this purview, the present study is first of its kind in India which seeks to foster
evidences on the impact of inward foreign investment through macro level as well as
basic three-sector level on the development of the Indian economy measured by real
Gross Domestic Products under a time-varying parameter model with vector
autoregressive specification. The principal findings at macro level analysis conclude that unprecedented growth in the inflow of foreign capital propels the growth of
Indian economy and, consequently, the growth in the volume of GDP magnetizes
foreign investors to capitalize their fund in Indian large unexplored market, this
findings backed by the both short-run and long-run bidirectional causality between
GDP and inward foreign investment observed under VECM and Granger causality results and supported by the results of variance decomposition and impulse response
function. Although, somehow at odds foreign institutional investment do not exerts
any favourable impact on GDP in the short-run. With the sector level analysis, study documents remarkably different findings for
different sectors of the economy. Firstly, FDI in the agricultural sector fails to exert
any favorable impact on the growth of this sector of the Indian economy having
unidirectional causality running from output contribution of primary sector in GDP to
inward agricultural FDI. This is mainly due to the fact that the primary sector in India, even after much government intervention and policy implications, is still suffering
from feeble infrastructure and technology-base resulting into poor investment
absorptive capacity and weak linkages among the intra-sectoral components. Secondly, unlike the agricultural sector, the study finds significant bidirectional
causality between FDI in the manufacturing sector and its growth for both in short-run
and long-run. However, the FDI inflow into the manufacturing sector affects its
output positively for the first few years of our study period and then it generates a
negative impact. This is most likely because well-established foreign affiliates create cut-throat competition in the domestic market which compels the domestic firms to
quit or subsequently, switch over towards the service sector, resulting in reduced
sectoral output.
Thirdly, similar to the manufacturing sector, the study documents a bidirectional
causality between service sector FDI and service sector growth both for short and
long-run. This is obvious that service sector in India has been highly structured and
organized and the biggest contributor to the national income and output. The sector is
featured with high technology-base with outmost sophistication in operation,
involvement of trained and skilled labour, less dependency on natural environment,short payback period on investments, etc. Besides, the sector has high capital abortion
capacity and potential to create linkage within its sub-sectors or constituent industries
as well as the rest of the economy. Based on the findings, the study suggests policy makers to rejuvenate the primary
sector of India so that it can attract and absorb more inward FDI and ensure
sustainable economic development. Besides, the agriculture led economic growth
policy might be more reliant than service which is largely vulnerable to external
shocks. Finally, the study documents imbalance sectoral development in India
Minutes of the Ph.D. committee meeting (Bio-Medical Laboratory Science and Management) held on 22/02/2019
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Minutes of the M.Phil Committee Meeting ( Economics with Rural Development) held on 27.03.2019
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Sociology Question Paper [ Hons. ] {Under Graduate}, 2019
No full textSociology Question Paper UG (Hons.