Relationship between FDI and GDP of India

Group 12 Members: Somani Surabhi Suryakant (179278046)

Aayush Bansal (179278079)
Piyush Kumar (179278088)

Dataset
YEAR REAL FDI IN $
GDP(BILLION BILLION
USD)
1993 275.60 0.55
1994 291.31 0.97
1995 309.95 2.14
1996 332.58 2.43
1997 359.19 3.58
1998 374.63 2.64
1999 399.73 2.17
2000 431.71 3.58
2001 449.41 5.47
2002 473.68 5.63
2003 492.15 4.32
2004 531.52 5.77
2005 569.26 7.27
2006 623.34 20.03
2007 683.18 25.23
2008 746.72 43.41
2009 796.75 35.58
2010 865.27 27.40
2011 942.28 36.50
2012 1005.41 24.00
2013 1061.71 28.15
2014 1131.79 33.87
2015 1213.27 39.33
2016 1305.48 10.56

PYTHON CODE
GDP= [291.31, 309.95, 332.58, 359.19, 374.63, 399.73, 431.71, 449.41, 473.68, 492.15, 531.52,
569.26, 623.34, 683.18, 746.72, 796.75, 865.27, 942.28, 1005.41, 1061.71, 1131.79, 1213.27,
1305.48]
FDI= [0.55, 0.97, 2.14, 2.43, 3.58, 2.64, 2.17, 3.58, 5.47, 5.63, 4.32, 5.77, 7.27, 20.03, 25.23, 43.41,
35.58, 27.40, 36.50, 24.00, 28.15, 33.87, 39.33]
plt.scatter(GDP,FDI, label='Real GDP(lag of one period) vs FDI', color='k')
plt.plot(GDP,FDI)
plt.xlabel('GDP (Billion USD)')
plt.ylabel('FDI (Billion USD)')
plt.legend()
plt.show()

The Scatter Plot Showing The relation between FDI & GDP (lag of one Year) is shown below.

Inference
To figure out the relationship between GDP and FDI we have plotted the FDI and GDP data from 1993
to 2016. In the scatter plot the GDP is with the lag of one year as the impact of FDI in this year will be
reflected in the GDP of next year. There is a positive correlation between inflow of FDI and the
development of Indian economy (measured in term of GDP). We have seen a rise in the FDI over the
time mainly because of economic reforms and changes in policy by Indian government. The FDI
inflows has shown a drastic increase after 2005. The major sectors attracting FDI inflows in India have
been Services and Electrical & Electronics amounting to 32 % of total FDI. Service sector tops the chart
of FDI inflows in 2008 with India emerged as a top destination for FDI in services sector. The FDI
inflows declined during 2010 for all the Asian countries with a 32% decline in the FDI share of India.
The economic scenario suggests a two-way causal link between FDI and GDP. Countries with fast
Economic Growth generate more demand for FDI and offer opportunities for making profits. On the
other hand, inward FDI flows may enhance growth through positive direct and indirect effects on
variables that affect growth. Thus, the study expects a bi-directional causality between FDI and Growth.
An analysis of the recent trends in FDI flows at the global level as well as across regions/countries
suggests that India has generally attracted higher FDI flows in line with its robust domestic economic
performance and gradual liberalization of the FDI policy as part of the cautious liberalization process.