Impact of Foreign Direct Investment and Trade on Economic Growth of India
Added on 2022-12-26
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Running head: FOREIGN DIRECT INVESTMENT AND TRADE
A STUDY TO UNDERSTAND THE IMPACT OF FOREIGN DIRECT INVESTMENT
AND EXPANSION OF TRADE ON ECONOMIC GROWTH OF INDIA
Name of the Student:
Name of the University:
Author’s Note:
A STUDY TO UNDERSTAND THE IMPACT OF FOREIGN DIRECT INVESTMENT
AND EXPANSION OF TRADE ON ECONOMIC GROWTH OF INDIA
Name of the Student:
Name of the University:
Author’s Note:
1FOREIGN DIRECT INVESTMENT AND TRADE
ABSTRACT
The aim of the research is to analyse the impact of the Foreign Direct Investments (FDIs) and
trade on the economic growth of the nation in the particular context of the nation of India.
The researcher for the conduct of this analysis had taken the help of the positivism research
philosophy, deductive research approach, descriptive research design, primary data collection
method and qualitative data analysis method. The researcher for the collection of the primary
data interviewed 4 Managers from Tata Consultancy Services, India and 4 Managers from
Flipkart, India. The results of the study reveal the fact that the different foreign direct
investments which India had been able to get in the recent years had positively affected the
national economy of the concerned nation. More importantly, the study also revealed the fact
that the favourable trade policies, business regulations, FDI norms and others followed by the
nation had enabled it to attract a large number of FDIs in the recent years which will enhance
the trade and commerce of the nation had also made a positive contribution towards the
economic growth of the nation. Furthermore, the researcher also found that the economic
growth facilitated by the expansion of international trade and also on the score of the FDIs
had percolated within all the sectors of India. Lastly, the researcher had proposed some
recommendations which will enable the Indian government to attract more FDIs like the
improvement of the image of the nation in the international business arena, expansion of
trade and commerce, formulation of trade policies and business regulations which would be
favourable for the international corporations willing to invest into the concerned nation and
others.
ABSTRACT
The aim of the research is to analyse the impact of the Foreign Direct Investments (FDIs) and
trade on the economic growth of the nation in the particular context of the nation of India.
The researcher for the conduct of this analysis had taken the help of the positivism research
philosophy, deductive research approach, descriptive research design, primary data collection
method and qualitative data analysis method. The researcher for the collection of the primary
data interviewed 4 Managers from Tata Consultancy Services, India and 4 Managers from
Flipkart, India. The results of the study reveal the fact that the different foreign direct
investments which India had been able to get in the recent years had positively affected the
national economy of the concerned nation. More importantly, the study also revealed the fact
that the favourable trade policies, business regulations, FDI norms and others followed by the
nation had enabled it to attract a large number of FDIs in the recent years which will enhance
the trade and commerce of the nation had also made a positive contribution towards the
economic growth of the nation. Furthermore, the researcher also found that the economic
growth facilitated by the expansion of international trade and also on the score of the FDIs
had percolated within all the sectors of India. Lastly, the researcher had proposed some
recommendations which will enable the Indian government to attract more FDIs like the
improvement of the image of the nation in the international business arena, expansion of
trade and commerce, formulation of trade policies and business regulations which would be
favourable for the international corporations willing to invest into the concerned nation and
others.
2FOREIGN DIRECT INVESTMENT AND TRADE
ACKNOWLEDGEMENT
I would firstly like to thank my Professor Mr. ............, for offering me the opportunity to
complete my dissertation on the topic “A Study to understand the impact of foreign direct
investment and expansion of trade on economic growth in India”. In addition to him, I would
also thank my Supervisor for the constant academic support which he provided and without
which I would not have been able to complete this dissertation.
Lastly, I would also thank my friends and family members for the constant support which
they have given me and without whom this study would not have seen the light of the day.
Thank You.
--------------------------------------
(Name of the Researcher)
ACKNOWLEDGEMENT
I would firstly like to thank my Professor Mr. ............, for offering me the opportunity to
complete my dissertation on the topic “A Study to understand the impact of foreign direct
investment and expansion of trade on economic growth in India”. In addition to him, I would
also thank my Supervisor for the constant academic support which he provided and without
which I would not have been able to complete this dissertation.
Lastly, I would also thank my friends and family members for the constant support which
they have given me and without whom this study would not have seen the light of the day.
Thank You.
--------------------------------------
(Name of the Researcher)
3FOREIGN DIRECT INVESTMENT AND TRADE
Table of Contents
Chapter 1: INTRODUCTION....................................................................................................6
1.1 Introduction.................................................................................................................6
1.2 Background of the Study.............................................................................................6
1.3 Overview of Indian Economy..........................................................................................7
1.4 Foreign Direct Investment in India..................................................................................7
1.5 Rationale of the Study......................................................................................................8
1.6 Problem Statement...........................................................................................................8
1.7 Research Aim...................................................................................................................9
1.8 Research Objectives.........................................................................................................9
1.9 Research Questions..........................................................................................................9
1.10 Significance of the Study.............................................................................................10
1.11 Structure of the Study...................................................................................................10
1.12 Summary......................................................................................................................11
Chapter 2: LITERATURE REVIEW.......................................................................................12
2.1 Introduction....................................................................................................................12
2.2 Overview of the concept of economic growth...............................................................12
2.3 Factors affecting the economic growth of a nation........................................................13
2.3.1 Trade and Commerce..............................................................................................13
2.3.2 Foreign Direct Investment.......................................................................................14
2.3.3 Governmental Factors.............................................................................................14
2.3.4 Infrastructure of the nations....................................................................................15
2.4 Overview of the Trade sector and trade expansion........................................................15
2.5 Relationship between the trade sector and the economic growth of a nation................16
2.6 Overview of the concept of Foreign Direct Investment (FDI).......................................17
2.7 Factors affecting the process of FDI..............................................................................17
2.7.1 Trade Policies of the Host nations..........................................................................17
Table of Contents
Chapter 1: INTRODUCTION....................................................................................................6
1.1 Introduction.................................................................................................................6
1.2 Background of the Study.............................................................................................6
1.3 Overview of Indian Economy..........................................................................................7
1.4 Foreign Direct Investment in India..................................................................................7
1.5 Rationale of the Study......................................................................................................8
1.6 Problem Statement...........................................................................................................8
1.7 Research Aim...................................................................................................................9
1.8 Research Objectives.........................................................................................................9
1.9 Research Questions..........................................................................................................9
1.10 Significance of the Study.............................................................................................10
1.11 Structure of the Study...................................................................................................10
1.12 Summary......................................................................................................................11
Chapter 2: LITERATURE REVIEW.......................................................................................12
2.1 Introduction....................................................................................................................12
2.2 Overview of the concept of economic growth...............................................................12
2.3 Factors affecting the economic growth of a nation........................................................13
2.3.1 Trade and Commerce..............................................................................................13
2.3.2 Foreign Direct Investment.......................................................................................14
2.3.3 Governmental Factors.............................................................................................14
2.3.4 Infrastructure of the nations....................................................................................15
2.4 Overview of the Trade sector and trade expansion........................................................15
2.5 Relationship between the trade sector and the economic growth of a nation................16
2.6 Overview of the concept of Foreign Direct Investment (FDI).......................................17
2.7 Factors affecting the process of FDI..............................................................................17
2.7.1 Trade Policies of the Host nations..........................................................................17
4FOREIGN DIRECT INVESTMENT AND TRADE
2.7.2 Business Rules and regulations...............................................................................18
2.7.3 Potential of the host business market......................................................................18
2.7.4 Economic condition of the host nation....................................................................19
2.8 Relationship between FDI and economic growth of a nation........................................19
2.9 Challenges related to FDIs.............................................................................................20
2.10 Summary......................................................................................................................20
Chapter 3: RESEARCH METHODOLOGY...........................................................................22
3.1 Introduction....................................................................................................................22
3.2 Research Philosophy......................................................................................................22
3.2.1 Justification for the Selected Research Philosophy................................................23
3.3 Research Design.............................................................................................................23
3.3.1 Justification for the Selected Research Design.......................................................23
3.4 Research Approach........................................................................................................24
3.4.1 Justification for the Selected Research Approach...................................................24
3.5 Data Collection Method.................................................................................................25
3.5.1 Justification for the Selected Data Collection Method...........................................25
3.6 Data Analysis Method....................................................................................................26
3.6.1 Justification for the Selected Data Analysis Method..............................................26
3.7 Ethical Considerations...................................................................................................26
3.8 Limitations of the Study.................................................................................................27
3.9 Summary........................................................................................................................27
Chapter 4: FINDINGS.............................................................................................................28
4.1 Interview Transcripts.....................................................................................................28
4.1.1 Interview 1..............................................................................................................28
4.1.2 Interview 2..............................................................................................................30
4.1.3 Interview 3..............................................................................................................31
4.1.4 Interview 4..............................................................................................................33
2.7.2 Business Rules and regulations...............................................................................18
2.7.3 Potential of the host business market......................................................................18
2.7.4 Economic condition of the host nation....................................................................19
2.8 Relationship between FDI and economic growth of a nation........................................19
2.9 Challenges related to FDIs.............................................................................................20
2.10 Summary......................................................................................................................20
Chapter 3: RESEARCH METHODOLOGY...........................................................................22
3.1 Introduction....................................................................................................................22
3.2 Research Philosophy......................................................................................................22
3.2.1 Justification for the Selected Research Philosophy................................................23
3.3 Research Design.............................................................................................................23
3.3.1 Justification for the Selected Research Design.......................................................23
3.4 Research Approach........................................................................................................24
3.4.1 Justification for the Selected Research Approach...................................................24
3.5 Data Collection Method.................................................................................................25
3.5.1 Justification for the Selected Data Collection Method...........................................25
3.6 Data Analysis Method....................................................................................................26
3.6.1 Justification for the Selected Data Analysis Method..............................................26
3.7 Ethical Considerations...................................................................................................26
3.8 Limitations of the Study.................................................................................................27
3.9 Summary........................................................................................................................27
Chapter 4: FINDINGS.............................................................................................................28
4.1 Interview Transcripts.....................................................................................................28
4.1.1 Interview 1..............................................................................................................28
4.1.2 Interview 2..............................................................................................................30
4.1.3 Interview 3..............................................................................................................31
4.1.4 Interview 4..............................................................................................................33
5FOREIGN DIRECT INVESTMENT AND TRADE
4.1.5 Interview 5..............................................................................................................34
4.1.6 Interview 6..............................................................................................................36
4.1.7 Interview 7..............................................................................................................37
4.1.8 Interview 8..............................................................................................................38
Chapter 5: DISCUSSION........................................................................................................40
5.1 Introduction....................................................................................................................40
5.2 Discussion of the Findings.............................................................................................40
5.3 Summary........................................................................................................................45
Chapter 6: CONCLUSION AND RECOMMENDATIONS...................................................46
6.1 Conclusion......................................................................................................................46
6.2 Linking with Objectives.................................................................................................46
6.3 Recommendations..........................................................................................................48
6.4 Future Scope...................................................................................................................49
References................................................................................................................................51
APPENDIX: Interview Questions............................................................................................56
4.1.5 Interview 5..............................................................................................................34
4.1.6 Interview 6..............................................................................................................36
4.1.7 Interview 7..............................................................................................................37
4.1.8 Interview 8..............................................................................................................38
Chapter 5: DISCUSSION........................................................................................................40
5.1 Introduction....................................................................................................................40
5.2 Discussion of the Findings.............................................................................................40
5.3 Summary........................................................................................................................45
Chapter 6: CONCLUSION AND RECOMMENDATIONS...................................................46
6.1 Conclusion......................................................................................................................46
6.2 Linking with Objectives.................................................................................................46
6.3 Recommendations..........................................................................................................48
6.4 Future Scope...................................................................................................................49
References................................................................................................................................51
APPENDIX: Interview Questions............................................................................................56
6FOREIGN DIRECT INVESTMENT AND TRADE
Chapter 1: INTRODUCTION
1.1 Introduction
According to Vernon (2017), the extensive internationalisation or the unprecedented
usage of globalisation while improving international trade and commerce had made the
global economy a dynamic one. Furthermore, it is seen that the different multinational
corporations are increasing expanding the scope or the interests of their business in the
various emerging host nations of the world because of the benefits offered by the same
(Pradhan 2017). More importantly, the process of establishing business ventures in the host
emerging market by way of the usage of the process of foreign direct investments (FDIs) had
not only benefited the multinational corporations from the different nations but at the same
time had greatly facilitated the growth of trade in the host emerging nations as well(Nölke et
al. 2015). This had contributed towards the effective development of the national economies
of the majority of the emerging nations.
1.2 Background of the Study
The researcher opted for the analysis of the impact of FDIs and expansion of trade on the
national economy of India considering the importance that these two hold within the
economic framework of the developing or emerging nations. Presently, it had been seen that
the multinational corporations in a bid to explore the business markets of the emerging
nations are resorting to the usage of the process of FDI (Roy, Shah and Sharma 2017).
However, an interesting fact to note is that the process of FDIs not only helps the
multinational corporations to explore the business markets of the emerging nations or to
increase their profitability but at the same time offers various benefits to the host nations as
well (Paul and Mas 2016). The process of FDIs by way of facilitating the establishment of
different business ventures enhances the domestic as well as the international trade of the
nations and this in turn helps the concerned nations to attain the desired level of economic
growth (Pradhan and Singh 2017).
In the particular context of the nation of India, it is seen that the process of FDIs started in
1991-1992 as an initiative on the part of the national government of India to stabilise the
economy of the concerned nation. As per the report of Ibef.Org (2019), an important impact
of the FDIs on the Indian economy can be attributed to the fact that since the year 1991 the
concerned nation had been able to GDP of 5% and by the end of the year 2019 the nation is
Chapter 1: INTRODUCTION
1.1 Introduction
According to Vernon (2017), the extensive internationalisation or the unprecedented
usage of globalisation while improving international trade and commerce had made the
global economy a dynamic one. Furthermore, it is seen that the different multinational
corporations are increasing expanding the scope or the interests of their business in the
various emerging host nations of the world because of the benefits offered by the same
(Pradhan 2017). More importantly, the process of establishing business ventures in the host
emerging market by way of the usage of the process of foreign direct investments (FDIs) had
not only benefited the multinational corporations from the different nations but at the same
time had greatly facilitated the growth of trade in the host emerging nations as well(Nölke et
al. 2015). This had contributed towards the effective development of the national economies
of the majority of the emerging nations.
1.2 Background of the Study
The researcher opted for the analysis of the impact of FDIs and expansion of trade on the
national economy of India considering the importance that these two hold within the
economic framework of the developing or emerging nations. Presently, it had been seen that
the multinational corporations in a bid to explore the business markets of the emerging
nations are resorting to the usage of the process of FDI (Roy, Shah and Sharma 2017).
However, an interesting fact to note is that the process of FDIs not only helps the
multinational corporations to explore the business markets of the emerging nations or to
increase their profitability but at the same time offers various benefits to the host nations as
well (Paul and Mas 2016). The process of FDIs by way of facilitating the establishment of
different business ventures enhances the domestic as well as the international trade of the
nations and this in turn helps the concerned nations to attain the desired level of economic
growth (Pradhan and Singh 2017).
In the particular context of the nation of India, it is seen that the process of FDIs started in
1991-1992 as an initiative on the part of the national government of India to stabilise the
economy of the concerned nation. As per the report of Ibef.Org (2019), an important impact
of the FDIs on the Indian economy can be attributed to the fact that since the year 1991 the
concerned nation had been able to GDP of 5% and by the end of the year 2019 the nation is
7FOREIGN DIRECT INVESTMENT AND TRADE
trying to enhance it to around 7% so as to accelerate the economic growth of the concerned
nation. More importantly, for the attainment of this particular end, the nation had relaxed its
FDIs norms and by the end of the year 2019 it is trying to get more than “US$ 100 billion
worth of FDI inflows”. However, recent research clearly point out that the process of FDIs
not only increases the business competition or the rivalry in the business markets of majority
of the host nations but in the longer run also adversely affects the growth prospects of the
native business enterprises as well (Davis, Fuchs and Johnson 2019). Thus, the nations need
to be cautious regarding the extent to which they are using the process of FDIs and also the
kind of multinational corporations that they are allowing to conduct business in their markets.
1.3 Overview of Indian Economy
Indian economy, a developing mixed economy, is the 7th largest one of the world on
the basis of nominal GDP while being the 3rd largest one of the world on the score of
purchasing power parity (PPP) (Ft.com 2019). The national economy of the concerned
nations “ranks 139th in per capita GDP (nominal) with $2,134 and 122nd in per capita GDP
(PPP) with $7,783 as of 2018” (Ibef.org 2019). In addition to these, for the year 2018, the
national economy of India registered a growth rate of more than 6.9% and is expected to
grow even further in the subsequent years(Davis, Fuchs and Johnson 2019). Furthermore, the
presence of different business enterprises like Flipkart, Amazon, Reliance, Tata and others
had rendered the much needed stability to the national economy of the nation under
discussion here (Ft.com 2019). For example, by offering employment opportunities to the
citizens of India and also the tax money that they pay to the national government they have
contributed significantly towards the improvement of the Indian economy.In this regard, it
needs to be said that the constructs of FDIs and international trade are the two major entities
which had helped in the growth of the national economy of India.
1.4 Foreign Direct Investment in India
As discussed by Shahbaz et al. (2016), India in the recent times had become one of
the most favoured locations for FDIs on the score of the favourable trade or business policies
followed by its national government and also suitable business conditions. Furthermore, the
large amount of individual wealth help by the citizens of the nation and also its large
population had contributed significantly towards the same. As per the Department for
Promotion of Industry and Internal Trade (DPIIT), the FDIs investment that the nation of
India received for the year 2018-2019 was US$ 44.37 billion with US$ 9.16 billion being
invested in the service sector alone(Ibef.org 2019). In addition to this, the hardware and
trying to enhance it to around 7% so as to accelerate the economic growth of the concerned
nation. More importantly, for the attainment of this particular end, the nation had relaxed its
FDIs norms and by the end of the year 2019 it is trying to get more than “US$ 100 billion
worth of FDI inflows”. However, recent research clearly point out that the process of FDIs
not only increases the business competition or the rivalry in the business markets of majority
of the host nations but in the longer run also adversely affects the growth prospects of the
native business enterprises as well (Davis, Fuchs and Johnson 2019). Thus, the nations need
to be cautious regarding the extent to which they are using the process of FDIs and also the
kind of multinational corporations that they are allowing to conduct business in their markets.
1.3 Overview of Indian Economy
Indian economy, a developing mixed economy, is the 7th largest one of the world on
the basis of nominal GDP while being the 3rd largest one of the world on the score of
purchasing power parity (PPP) (Ft.com 2019). The national economy of the concerned
nations “ranks 139th in per capita GDP (nominal) with $2,134 and 122nd in per capita GDP
(PPP) with $7,783 as of 2018” (Ibef.org 2019). In addition to these, for the year 2018, the
national economy of India registered a growth rate of more than 6.9% and is expected to
grow even further in the subsequent years(Davis, Fuchs and Johnson 2019). Furthermore, the
presence of different business enterprises like Flipkart, Amazon, Reliance, Tata and others
had rendered the much needed stability to the national economy of the nation under
discussion here (Ft.com 2019). For example, by offering employment opportunities to the
citizens of India and also the tax money that they pay to the national government they have
contributed significantly towards the improvement of the Indian economy.In this regard, it
needs to be said that the constructs of FDIs and international trade are the two major entities
which had helped in the growth of the national economy of India.
1.4 Foreign Direct Investment in India
As discussed by Shahbaz et al. (2016), India in the recent times had become one of
the most favoured locations for FDIs on the score of the favourable trade or business policies
followed by its national government and also suitable business conditions. Furthermore, the
large amount of individual wealth help by the citizens of the nation and also its large
population had contributed significantly towards the same. As per the Department for
Promotion of Industry and Internal Trade (DPIIT), the FDIs investment that the nation of
India received for the year 2018-2019 was US$ 44.37 billion with US$ 9.16 billion being
invested in the service sector alone(Ibef.org 2019). In addition to this, the hardware and
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