The First Three Decades of Foreign Direct Investment (FDI) in India

Temporal Variation, Sectoral Trends, and Time-Series Analysis

Abstract

This article presents a synoptic view of India’s FDI journey up to the financial year (FY) 2020 since the liberalization of the Indian economy in 1991. A semi-log model suggested that India’s FDI grew at about 20% per year over the last three decades. Meanwhile, sectoral investment patterns exhibited a clear shift from the automobile to the services sector. With a cumulative inward FDI of $697 billion, India’s FDI journey has been promising thus far, yet it lags well behind China and Singapore. An Auto-Regressive Integrated Moving Average (ARIMA) was applied for time-series model development (training, testing, and forecasting) using 29 years of FDI data. The non-stationary behavior of original FDI-time data was circumvented by using their logarithmic functions. Supported by a small prediction mean square error (0.0016), the predicted values for the next two financial years (2020-21 and 2021-22) at $87.9 billion and $94.8 billion, respectively, are considered to be reliable within the 95% confidence limit.