A Study of Relationship and Impact of Foreign Direct Investment on Economic Growth Rate of India

One of the main pointers of the health of any economy is its Gross Domestic Product (GDP). It indicates the size of the economy. It also helps in determining and comparing the growth of economy over different periods and also with that of other economies. Investment is the major factor that contributes to the growth of GDP. Increase in level of investment leads to the multiplier impact on increasing the levels of employment and income. There is significant role of Foreign Investment in open economies. Such investment can be direct or indirect. The current study aims to know the relationship and impact of growth rate of foreign direct investment (FDI) in India on growth rate of GDP in India. The study used correlation analysis and regression analysis. It found that there existed insignificant relationship between the growth rate of FDI and economic growth rate. Also, the results of regression analysis indicated the no significant impact of growth rate of FDI on growth rate of GDP.


INTRODUCTION AND LITERATURE REVIEW
Gross Domestic Product (GDP) is one of the main economic indicators that gives snapshot of the economic position of a country. It is used to measure the size and growth of economy. One of the important factor which contributes to growth of GDP is the investment. According to Keynes investment plays key role in economic growth. Increase in level of investment will lead to increase in employment and income, which will lead to increase in demand in an economy. In short with increase in investment income and employment in an economy will increase multiple times depending upon propensity to consume in that economy.
Developing nations usually suffer the problem of low investment due to low income and low risk bearing capacity of the people of the country. Foreign Direct Investment (FDI) plays expected to play a significant role to boost the investment in developing economies and put them on higher growth trajectory. Theoretically, this is justified that the increase in FDI should increase the economic growth. However, there have been studies that found the existence of positive, negative and no impact of increase in FDI and increase in GDP (Türkcan et al., 2008).
After Independence growth of Indian economy can be studied in two phases' first pre liberalization i.e. 1947 to 1990 and post liberalization i.e. post 1990. Before 1990s Indian industrial structure was financially and technologically weak. In 1990s New Economic Policy not only deregulated domestic industry but also eased up its policies concerning FDI. The number of hindrances which were previously been imposed on direct and indirect foreign investment were done away with. The processes required for getting approvals for collaboration including technical and financial were completely revised. The central bank of the country was given powers to give an automatic approval for many specified industries. This increased competitiveness among industries and also boosted the growth rate of Indian economy. Rakhmatullayeva et al. (2020) studied the impact of FDI inflows on the economic growth of the host country, using the Kazakhstan economy as an example. The paper made an attempt to evaluate the effect of FDI through multiple regression model over the period 2000-2017. The results of the analysis showed no negative impact of FDI on economic growth. However, the authors pointed out that the existence of a positive relationship is not essential for assessing the growth of the national economy. Sokang (2018) examined the effect that the foreign direct investment had on the economic growth of Cambodia. The author used the time series data covering the period from 2006 to 2016. The data so collected was evaluated through correlation analysis and multiple regression analysis. The study found that the positive impact of FDI on the economic growth of the selected country. The study recommended the government to initiate the reforms over the home markets to draw more FDI in the country. Balasubramanyam et al. (1996) examined the role that foreign direct investment plays in the growth process in the context of developing countries characterized by differing trade policy regimes within a new growth theory framework. Further, Balasubramanyam et al. (1999) presented an analysis of the role of Foreign Direct Investment (FDI) in promoting economic growth and indicated that interactions between FDI and human capital employ an exclusively important impact upon growth performance. FDI is expected to improve economic growth of host nation (Zhang, 2001;Hermes and Lensink, 2003). FDI through transfer of Know-how and technology affects GDP (Hansen and Rand, 2006;Berthélemy and Démurger, 2000). Choe (2003) found that effects from growth to FDI are rather far more evident than from FDI to growth. Basu et al. (2003), Basu and Guariglia (2007) investigated the impact of liberalization on the dynamics of the FDI and GDP relationship. Bengoa and Sanchez-Robles (2003) explored the interplay between economic freedom, foreign direct investment (FDI) and economic growth using panel data analysis for a sample of 18 Latin American countries for 1970-1999 and they found that FDI is always significantly and positively correlated with economic growth. Rahaman and Chakraborty (2015) evaluated if the causal relationship existed between foreign direct investment (FDI) and gross domestic product (GDP). The study focused on Bangladesh. The researchers used the technique of cointegration test to confirm the presence of long-run equilibrium relationship. It further applied Granger causality test to assure the presence of unidirectional causality that run from FDI to GDP. The results indicated that in relation to neighbouring countries, the FDI inflow was very less. The country needed developed facilities and infrastructure, skilful labour, abundance of generation of electricity, macroeconomic framework that supports investments and also required was the political stability in the nation so as to attract foreign investment. Johnson (2006)

RESEARCH OBJECTIVES AND RESEARCH METHODOLOGY
The objective of the study is to measure the relationship and the impact of foreign direct investment on growth rate of GDP of India. The study involves the analysis of the data pertaining to foreign direct investment and economic growth rate of India for the period 2001-2019. The study included the data for the variables under the studyobtained from the website of World Bank (http:// api.worldbank.org/v2/en/country/IND?downloadformat=excel).
The study involved the computation of the growth rate of FDI based on the data related to FDI (net inflows) provided by World Bank. The statistical tools used for the purpose of the study are correlation and regression.

RESEARCH HYPOTHESIS
The hypothesis devised to appraise the significance of association between growth rate of FDI net inflows and growth rate of GDP of India and significance of impact of growth rate FDI (net inflow) on growth rate of GDP of India have been stated as: H 1 : There is significant relationship between growth rate FDI (net inflows) and growth rate of GDP of India H 2 : There is significant impact of growth rate FDI (net inflows) on growth rate of GDP of India

Relationship between Growth Rate FDI (Net Inflows) and Growth Rate of GDP of India
In order to determine the relationship between growth rate FDI (net inflows) and growth rate of GDP of India, the study used the correlation analysis. Table 2 shows the results revealed negative correlation between growth rate FDI (net inflows) and growth rate of GDP of India, r = -0.043, P > 0.05. The value of correlation was not found to be significant. Therefore, the results suggested that there exist no significant relationship between growth rate FDI net inflow and growth rate of GDP of India. Hence, hypothesis H 1 : There is significant relationship between growth rate FDI (net inflows) and growth rate of GDP of India is rejected. The studies including Alfaro et al. (2004), Carkovic and Levine (2002) and Durham (2004) also found no evidence supporting existence of direct relationship between FDI and economic growth.

Rate of GDP of India
The study employed the technique of regression analysis in order to determine the impact of growth rate FDI net inflow and growth rate of GDP of India. Table 3 displays the Model Summary. It shows that the value of R 2 value is 0.002 implying that the independent variables of the model (Growth rate of FDI) explain 0.2% of variation in the dependent variable (Growth rate of GDP). Table 4 presents the results of ANOVA that indicates whether the overall regression model is a good fit for the data. The results show that the growth rate of FDI (net inflows) does not predict statistically significant growth rate of GDP. Table 5 shows the regression coefficients.
The results showed that there is no significant impact of growth rate of FDI (net inflows) on growth rate of GDP in India. Hence, the hypothesis, H 2 : There is significant impact of growth rate FDI (net inflows) on growth rate of GDP of India, is rejected.
Conceptually the foreign direct investment may have a positive effect on growth. It is because generally foreign direct investment travels from nations having abundant capital to the countries having paucity of capital. It also provides an impetus to boost production, advancement of new technology. However, foreign direct investment may have a negative impact on growth as it may lead to disruption of competition. It may also lead to benefitting the transferring country and hampering the growth of receiving country.

CONCLUSION
Gross Domestic Product is a main indicator of the size of the economy. The growth rate of GDP helps in determining and comparing the growth of economy over different periods and also with other economies. Investment is a boon for any economy. It is the major contributor of the growth of any country. Increase in level of investment leads to multiplier impact in increasing the levels of employment and income. One of the important source of investment especially for developing economies is investment from other countries. Foreign investment can be made directly or indirectly. Present study attempted to find out the relationship and impact of growth rate of foreign direct investment in India on growth rate of GDP in India. It found that there existed insignificant relationship between the growth rate of FDI and economic growth rate. Also, the results of regression analysis indicated the insignificant impact of growth rate of FDI on growth rate of GDP.