The Role of Foreign Direct Investment (FDI) in India’s Journey to a $5 Trillion GDP
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The Role of Foreign Direct Investment (FDI) in India's Journey to a $5 Trillion GDP
Mr. Rahul Agarwal
Assistant Professor, School of Business Management,
Chhatrapati Shahu Ji Maharaj University, Kanpur
Abstract
India aims to achieve a $5 trillion GDP by 2025, positioning itself as one of the fastest-growing major economies. India's progress toward this objective has been greatly aided by foreign direct investment (FDI), which has provided funding, promoted knowledge transfer, and facilitated the construction of infrastructure. Over the past three decades, FDI inflows to India have surged, especially post-liberalization in the 1990s, driven by favorable policy reforms and initiatives such as the Make in India campaign and improvements in infrastructure.
From 1991 to 2023, India witnessed a nearly 14-fold increase in FDI inflows, reaching $343.5 billion between 2011 and 2020, with sector-specific contributions concentrated in manufacturing, services, and infrastructure. The manufacturing sector, which received over 44% of total FDI, has become a major driver of industrial growth. Similarly, FDI in the IT and telecommunications sectors has bolstered India’s global competitiveness, contributing significantly to employment and export revenues. Furthermore, infrastructure-related FDI has supported major projects in energy, transport, and urban development, essential for sustaining high growth rates.
FDI and India's GDP growth are strongly positively correlated, according to regression research. This growth has also been facilitated by domestic investment, infrastructure development, and human capital upgrading, indicating that FDI is a key factor in India's quest for a $5 trillion economy.
Keywords
Foreign Direct Investment (FDI), Economic Growth, India, $5 Trillion GDP, Sectoral Contributions, Infrastructure Development, Manufacturing, Services, IT, Telecommunications.