Foreign Capital Inflow, Exportability and the Indian Economy

Abstract

The article investigated the effect of foreign direct investment (FDI) on Indian exports using aggregate and disaggregate data to capture macro- and micro-channels. India registers a steady rise in FDI during 1980–2018 in absolute terms but not in terms of GDP share. At the aggregate level, FDI is found to have significantly influenced Indian exports (both manufacturing and services) during 1980–2018 by suppressing its adverse effect on currency appreciation. Even at the firm-level analysis using the World Bank Enterprise Survey database, it is evident that higher participation of foreign ownership, a proxy of FDI measure, seems to have encouraged their export decisions. However, more than 50% of the capital inflows are received from two three countries which is also on limited service-related activities. The lower FDI share on manufacturing has limited the export rise.