Impact of Foreign Investment Flows on Indian Economy in the Post Liberalisation

Thirty years have passed since the Indian economy began to experience and experiment with foreign investment. Opening the doors of the Indian economy for foreign investment led to a surge in cash inflow here and much has been heard and said - both positively and negatively- about its impact on the economy. This study is an attempt to verify what is heard and explore what is not heard about this impact in the context of the dearth of comprehensive studies, taking FDI and FPI together. Thus, this study attempts to understand how strong the grip of foreign investment is on the Indian economy through its two arms – Foreign Direct Investment (FDI) and Foreign Portfolio Investment (FPI).

The study covers a period of thirty years, from 1991-92 to 2020-21. The data required for the study has been mainly collected from secondary sources and analysed with the help of descriptive and inferential statistics like Auto Regressive Distributed Lag (ARDL) Model, Vector Error Correction Model (VECM) etc. The impact of foreign investment on the Indian economy has been assessed mainly by analysing the relation and the consequent impact of foreign investment on the various macroeconomic variables of the Indian economy under the presumption that the majority of them have a positive relation and impact with the foreign investment, with only mild or moderate negative impact, if any, on the minority of the macroeconomic variables and vice versa.