Foreign Direct Investment

and the Macroeconomy in India

Pabitra Kumar Jena*, Bikash Ranjan Mishra**
and Vimarsh Padha***

The present study seeks to identify the determinants of Foreign Direct Investment
(FDI) flows into India, and also to understand the structural paths between FDI
inflows and macroeconomic variables. While regression models are estimated for
identifying the determinants, Structural Equation Modeling (SEM) has been
employed to trace the structural paths. The study, based on monthly data from August
1994 to May 2015, finds that exports, savings with commercial banks, money supply,
exchange rate and inflation rate stand out as significant determinants of FDI flows
into India after globalization. The study also identifies 19 significant paths between
FDI inflows and different macroeconomic variables. Finally, the paper discusses
some of the policy suggestions for better FDI flow into India.

Introduction
India has been viewed as one of the largest economies in terms of market size by several
developed countries as well as some developing economies. It has been ranked among the
top 10 attractive destinations for Foreign Direct Investment (FDI). A trend analysis of FDI
data shows 266% growth of FDI from 1991 ($129 mn) to 2014 ($34.4 bn). The rise in FDI
has influenced macroeconomic variables such as national income (aggregate and per capita),
its growth rate, capital formation, industrial setup, money supply, inflation rate, volume and
direction of trade, exchange rates, foreign exchange reserve, etc. Empirical findings also
suggest that FDI inflows play a major role in promoting national welfare by enhancing
competitiveness, technological advancements and increment in human capital. The benefits
of FDI include serving as a source of capital, employment generation, facilitating access to
foreign markets, and generating both technological and efficiency spillover to local firms. It
is expected that by providing access to foreign markets, transferring technology and generally
building capacity in the host-country firms, FDI will inevitably improve the integration of
the host country into the global economy and foster growth (Kathuria, 2001).

* Assistant Professor, Department of Economics, Shri Mata Vaishno Devi University, Katra 182320,
Jammu and Kashmir, India; and is the corresponding author. E-mail: pabitrakumarjena@gmail.com
** Assistant Professor, Department of Humanities and Social Sciences, National Institute of Technology,
Rourkela 769008, Odisha, India. E-mail: bikashranjan.mishra@gmail.com
*** Postgraduate Student (Integrated Economics), Shri Mata Vaishno Devi University, Katra 182320, Jammu
and Kashmir, India. E-mail: padhavimarsh@gmail.com

Foreign
© 2018 Direct Investment
IUP. All and the Macroeconomy in India
Rights Reserved. 45
 The neoclassical growth model and the endogenous growth model provide the foundation
for most of empirical works on the relationship between FDI and economic growth. However,
it has also been indicated that trade liberalization may lead to macroeconomic instability by
making terms of trade unfavorable. The models suggest that FDI inflows may help in the
process of economic growth when a country utilizes its abundant factor of production in an
efficient manner. There is a pool of empirical and theoretical literature which explains the
role of FDI in economic growth. A positive relationship between these two factors is
conventionally supported by some empirical studies, though there are still conflicting views
on heterogeneous impacts of FDI on economic growth. Another interesting aspect related to
FDI and economic growth is the causality between the two. It is important to determine the
direction of causality between them because it can provide the government with guidelines
for their future economic policymaking.
Considering the macroeconomic perspectives, the empirical studies which have looked
at the FDI-GDP growth nexus, have so far found evidences that are mixed and inconclusive.
While some researchers reported that direction of causality is from FDI inflow to economic
growth, a few others have showed the reverse. A few studies have concluded that there is
bidirectional causality between FDI inflow and economic growth, whereas some showed
no causality between the two. Considering the various theoretical positions taken and empirical
evidences available from the literature, it may be appropriate to hypothesize that in addition
to economic growth, FDI flows influence several other macroeconomic variables, and in
turn get influenced by them. Accordingly, the present study seeks to identify the prospective
determinants of FDI flows and also the structural paths between FDI and macroeconomic
variables.
The present study is necessitated in view of the fact that no consensus view has emerged
in respect of variables that could be regarded as the determinants of FDI inflows. Further,
previous studies have shown that determinants of FDI inflows are not the same across
countries, periods and industries. Hence, a detailed study is needed for Indian economy to
know the determinants of FDI inflows into India in the post-liberalization period. It becomes
important to examine whether FDI inflows are influenced by any other factors. Such an
exercise might provide some useful insights to the policy makers for formulating policies
that would strengthen the FDI inflows into India and speed up economic growth. It is also
equally important for policy purposes to understand the structural paths between FDI flows
and macroeconomic variables. Studies concerning India in this direction are only a handful
and seem to be dated in the present context. Therefore, a detailed and up-to-date analysis is
needed that will bridge the gap in empirical literature to identify the structural paths between
FDI inflows and macroeconomic variables.
The rest of the paper is organized as follows: it presents a brief review of the theoretical
and empirical literature, followed by discussion of the estimation strategy, data, variable
constructions, and econometric methodology used in the study. Subsequently, the results of
the analysis of determinants of FDI inflows into India after globalization, and structural
paths between FDI inflows and macroeconomic variables are presented. Finally, the conclusion
is presented with some policy recommendations.

46 The IUP Journal of Applied Economics, Vol. XVII, No. 3, 2018

Literature Review
A close look at the available studies indicates that FDI inflows at the macro level are influenced
by factors such as Gross Domestic Product at Factor Cost (GDPFC), Growth Rate of
Gross Domestic Product (GRGDPFC), Gross Domestic Capital Formation (GDCF), Gross
Domestic Saving (GDS), Per Capita Income (PCI), Wholesale Price Index (WPI), Real
Effective Exchange Rate (REER), Index of Industrial Production (IIP), Index of Infrastructure
Condition (IIC), Foreign Institutional Investment (FII), Money Supply (MS), Export (EX),
Import (IM), Trade Balance (TB) and Openness of the Economy (OPEN). Apart from the
above, there are also some qualitative factors (which cannot be measured in quantitative
terms) which govern FDI inflows into India. They include absorption capacity of the host
country, skill level of the labor force, tastes and preferences, level of technology, availability
of natural resources of the host country, availability of information regarding markets,
environment condition of the host country, political condition of host country, tax policy,
trade policy, legal structure and level of corruption. Going by the UNCTAD classification
(WIR, 2002), tax policy, trade policy, privatization policy, and macroeconomic policy are
policy determining variables; investment incentives are the business determining variables;
market size, market growth and market structure are market-related economic determinants;
raw materials, labor cost and technology are resources-related economic determinants;
transport and communication costs and labor productivity are efficiency-related economic
determinants (Moosa and Cardak, 2006). In this study, economic variables have been
considered for identifying the determinants of FDI inflows into India based on some select
studies from the available literature, which are listed in Table 1.

Table 1: Some Studies on Macroeconomic Variables and FDI Inflows

Variable Authors

GDP Root and Ahmed (1979), Kravis and Lipsey (1982), Tsai (1991),
Chen (1992), Wang and Swain (1995), Gopinath (1998), Asiedu
(2002), Balasubramanyam and Mahambare (2003), Faeth (2005),
Gast (2005), Moosa and Cardak (2006), Sahoo (2006), Malik and
Pentecost (2007), Ang (2008), Kolstad and Villanger (2008), and
Remco and Beugelsdijk (2009)

Per Capita Income Root and Ahmed (1979) and Wang and Swain (1995)

Labor Cost Kravis and Lipsey (1982), Tsai (1991), Chen (1992), Lucas (1993),
Asiedu (2002), Sun et al. (2002), and Sahoo (2006)

Trade Openness Asiedu (2002), Sun et al. (2002), Kobrin (2005), Sahoo (2006), and
Ang (2008)

Distance Gast (2005) and Remco and Beugelsdijk (2009)

Foreign Direct Investment and the Macroeconomy in India 47

 Table 1 (Cont.)
Variable Authors

Infrastructure Root and Ahmed (1979), Cheng and Kwan (2000), Asiedu (2002),
Sahoo (2006), and Ang (2008)

Level of Human Capital Cheng and Kwan (2000), Kobrin (2005), and Holger and
Nunnenkamp (2009)

Export Kravis and Lipsey (1982), Moosa and Cardak (2006), and Lin (2009)

Import Kravis and Lipsey (1982), and Shahmoradi and Thimmaiah (2010)

Exchange Rate Edwards (1990), Blonigen and Feenstra (1996), Tuman and Emmert
(1999), and Balasubramanyam and Mahambare (2003)

Foreign Exchange Reserve Gopinath (1998)

Inflation Schnieder and Frey (1985), Bajo-Rubio and Sosvillo-Rivero (1994),

Yang et al. (2000), and Srinivasan (2011)

Tax Rate Swenson (1994), Hines (1996), Porcano and Price (1996), Billington
(1999), Schoeman et al. (2000), and Wei (2000)

Government Incentives Tsai (1991), Chen (1992), and Ihrig (2000).

Socio-Political Conditions Root and Ahmed (1979), Schneider and Frey (1985), Asiedu (2002),
Balasubramanyam and Mahambare (2003), Malik and Pentecost
(2007), and Kolstad and Villanger (2008)

Objective
The study seeks to:
• Identify the determinants of FDI inflows into India after globalization, and
• Develop a comprehensive model for structural paths between FDI inflows and
macroeconomic variables.

Data and Methodology

The study employs step-wise regressions to find out a comprehensive model for determinants
of FDI inflows into India using monthly data. This method is based on forward step-wise
regression technique. The regression is carried out in two steps. In the first step, all the
prospective determinants are considered in the model. In the second step, the insignificant
variables are dropped to fit a model which will retain only the significant variables. The
study uses variance inflated factor and tolerance level for checking multicollinearity in the
given model. Further, the study employs structural equation modeling for understanding
structural paths between FDI inflows and macroeconomic variables in India.
The study uses monthly data from August 1994 to May 2015. The FDI data published by
the Reserve Bank of India (RBI) is used. The data on macroeconomic variables is collected

48 The IUP Journal of Applied Economics, Vol. XVII, No. 3, 2018

from the Handbook of Statistics on the Indian Economy (HSIE) published by RBI. The
study takes the help of India FDI Fact Sheet published by the Department of Industrial
Policy and Promotion (DIPP) under Ministry of Commerce and Industry.

Results and Discussion

Determinants of FDI Inflows
This study formulates a comprehensive model for the determinants of FDI inflows into
India, the functional form of which is specified as:
FDII = F(IIP, WPI, FER, EX, FII, SB, MS, REER) ...(1)
The relationship given in Equation (1) is re-specified to make it amenable for econometric
estimation as follows:
ln FDII = a0 + a1 ln IIP + a2 ln WPI + a3 ln FER + a4 ln EX + a5 ln FII
+ a6 ln SB + a7 ln MS + a8 ln REER + ut ...(2)
where FDII, IIP, WPI, FER, EX, FII, SB, MS and REER are the foreign direct inflows into
India, index of industrial production, wholesale price index, foreign exchange reserve, export,
foreign institutional investment, saving with commercial banks, money supply and real effective
exchange rate respectively. In Equation (2), ut is the usual error term.
The estimates of step-wise regression models (in logs) given by Equation (1) are given in
Table 2. It is observed from the table that the index of industrial production (IIP) has
a positive impact on FDI inflow, but it is not statistically significant (p-value = 0.387 and
t-value = 0.867). Wholesale price index (WPI) as expected is negatively affecting FDI and is

Table 2: Step-Wise Regression Estimates

Unstandardized Coefficients Collinearity Statistics

Variable t-Value p-Value
B Std. Error Tolerance VIF

Constant 26.798 5.217 5.135 0.000

IIP 0.003 0.003 0.867 0.387 0.795 1.258

WPI –0.018 0.008 –2.307 0.022 0.814 1.228

FER 0.001 0.260 0.004 0.997 0.856 1.168

EX 1.347 0.357 3.772 0.000 0.720 1.388

FII –0.050 0.175 –0.285 0.776 0.916 1.092

SB 5.034 0.675 7.457 0.000 0.694 1.440

MS 4.163 0.666 6.251 0.000 0.778 1.285

REER 0.007 0.003 0.288 0.774 0.921 1.086

Foreign Direct Investment and the Macroeconomy in India 49

significant (p-value = 0.022 and t-value = –2.307). This means that when WPI rises, it will
lead to lower FDI inflows. This signifies that WPI is an important determinant of FDI inflow
into India. On the contrary, foreign exchange reserve (FER) has a positive impact on FDI
inflows, but it is not statistically significant (p-value = 0.997 and t-value = 0.004). Export
(EX) has a positive impact on FDI inflow which is statistically significant (p-value = 0.000
and t-value = 3.772). This means as export increases, it will lead to more FDI inflows into
India.
Foreign institutional investment (FII) shows a negative but statistically insignificant
coefficient (p-value = 0.776 and t-value = –0.285). On the contrary, saving with commercial
banks (SB) shows a positive and significant impact on FDI inflows (p-value = 0.000 and
t-value = 7.457). This implies that savings would cause more FDI inflows into India. It may
be due to the fact that when people save more, they will not have more money for investment.
Further, money supply (MS) shows a positive impact on FDI inflow which is significant
(p-value = 0.000 and t-value = 6.251). This shows when money supply increases, there
would be more investment in infrastructure, research and development, human capital
formation and procurement of sophisticated technologies leading to a rise FDI inflows.
Finally, real effective exchange rate (REER) has a positive impact on FDI inflow, but it is not
statistically significant (p-value = 0.774 and t-value = 0.288). This means that when exchange
rate increases, it will lead to more FDI inflow into India. It may be due to the fact that when
exchange rate increases, there will be depreciation of money value in terms of foreign currency,
which, in other words, is appreciation of foreign currency. So due to increase in exchange
rate, the foreigners have to pay less for investment.
For step-wise regression, the following four models are formulated:
Model 1

FDII  26.798  0.003 ( IIP)  0.018 (WPI )  0.001( FER)  1.347( EX )  0.050( FII )
( 5.217 ) ( 0.867) ( 2.307 ) ( 0.004) (3.772) ( 0.283)

 5.034( SB )  4.163 ( MS )  0.007 ( REER )

( 7.457 ) ( 6.251) ( 2.069 )
...(3)

Adjusted R2 = 0.804, Standard Error = 0.496, D-W Statistics = 1.886

Model 2

FDII  25.799  0.003 ( IIP )  0.018 (WPI )  1.349( EX )  0.049( FII )  5.034( SB )
( 5.789 ) ( 0.885 ) ( 2.634 ) ( 4.775 ) ( 0.286 ) ( 7.686 )

 4.167( MS )  0.007 ( REER )

( 6.627 ) ( 2.085 )
...(4)

Adjusted R2 = 0.805, Standard Error = 0.495, D-W Statistics = 1.914

50 The IUP Journal of Applied Economics, Vol. XVII, No. 3, 2018

Model 3

FDII  26.422  0.003 ( IIP)  0.018 (WPI )  1.363( EX )  5.060(SB)  4.181(MS )

( 6.618) ( 0.885) ( 2.677) ( 4.909) ( 7.818) ( 6.686)

 0.007 ( REER)
...(5)
( 2.073)

Adjusted R2 = 0.806, Standard Error = 0.494, D-W Statistics = 1.936

Model 4

FDII  27.326  0.021 (WPI )  1.453( EX )  5.174(SB)  4.328( MS )

( 7.48) ( 3.171) (5.658) (8.176) ( 7.200)

 0.008( REER )
( 2.376 )
...(6)

Adjusted R2 = 0.806, Standard Error = 0.491, D-W Statistics = 1.998

In Table 3, model summary of step-wise regression models are presented. Out of the
four models given in Equations 3 to 6, Model 4 is the best model, as in this model all the
variables are significant. If we consider multicollinearity aspect here, Variance Inflated Factors
(VIF) are minimum (close to 1) for all variables, which implies absence of multicollinearity.
For further confirmation of absence of multicollinearity, the Tolerance Levels (TOL) are
found to be close to 1.

Table 3: Model Summary of Step-Wise Regression Models

Model R R2 Adjusted Std. Error of Durbin-

R2 the Estimate Watson Stat.

1 0.901 0.811 0.804 0.496 1.886

2 0.901 0.811 0.805 0.495 1.914

3 0.901 0.811 0.806 0.494 1.936

4 0.900 0.810 0.806 0.494 1.998

These are used for determining the most important determinants of FDI inflow. Out of
the eight prospective determinants considered in this study, only six of them, namely, IIP,
FER, EX, SB, MS and REER, have positive impact on FDI inflows. Again, out of these six
variables which have positive impact, two variables, i.e., IIP and FER, have insignificant
explanatory power. Accordingly, only four variables, namely, EX, SB, MS and REER, have
significant positive impact, while WPI has negative impact on FDI inflows. Hence, it is
concluded that exports, savings with commercial banks, money supply, exchange rate and

Foreign Direct Investment and the Macroeconomy in India 51

inflation rate are important for more FDI inflows into India. Therefore, India should open its
economy further and plan for boosting exports as it would lead to better FDI inflows,
especially in cases where some FDI inflows may enhance productivity of export-oriented
industries. Further, savings with commercial bank need to grow continuously to support
investments in the economy. More savings would also generate opportunities for foreigners
to invest in India. It is also observed that increased money supply leads to more FDI inflows
into India after globalization. The importance of exchange rate on FDI inflows in India is
linked to an increased integration of world capital markets following the many reforms and
liberalization programs in the 1990s. FDI has played a larger role in India and this role has
become more significant since the mid-1990s through exchange rate which leads to more
economic growth. Finally, India should control inflation to ensure continuous and stable
returns and growth.

Structural Paths Between FDI Inflows and Macroeconomic Variables in

India
Next the study tries to explore the various paths or structure of FDI inflows into Indian
economy by using Structural Equation Modeling (SEM) method. Here, SEM has been explored
using very simple diagrams, as shown in Figure 1. SEM is a statistical technique that shows
complex relationships between one or more independent variables and one or more dependent
variables. Various types of statistics are used to describe SEM. It is most commonly thought
of as a hybrid between some form of Analysis of Variance (ANOVA)/regression and some

Figure 1: Proposed Structural Equation Model for Path Determination

E1 E2 E3
1 1 1

WPI FER EX

E4 E5 E6
1

FDI SB IIP

E7 E8 E9
1 1 1

FII MS REER

52 The IUP Journal of Applied Economics, Vol. XVII, No. 3, 2018

form of factor analysis. It maps multilevel regression in the form of simultaneous equation.
Keeping this in mind, this study tries to understand simultaneous relationship between FDI
inflows and macroeconomic variables in India.
The model presented in Figure 1 proposes a complex test of many simultaneous regression
models indicated by the arrows. The independent variables are where the arrows begin and
the dependent variables are where the arrows end. The proposed model contains WPI, FER,
EX, FDI, SB, IIP, FII, MS and REER as observed variables. This model also uses E1, E2,
E3, E4, E5, E6, E7, E8 and E9 unobserved (error) variables.
Table 4 shows the regression results of the proposed structural equation model. It is
observed that out of the 28 paths shown in the proposed model, 9 are insignificant and 19
are significant. This means that there are 19 significant paths possible between FDI and
various macroeconomic variables.

Table 4: Model Estimates of the Structural Equation Model

Path Estimate SE CR p-Value Decision

FDI  WPI –1752.236 1046.636 –1.674 0 .094 Not Significant

FDI  EX 3.245 1.873 1.732 0 .083 Not Significant

FDI  SB 96152.760 58257.411 1.650 0 .099 Not Significant

MS  FDI 0.000 0.000 5.750* 0 .000 Significant

MS  SB 1.042 0.029 35.741* 0 .000 Significant

EX  FER –4162.204 638.087 –6.523* 0 .000 Significant

REER  EX 0.003 0.001 2.708* 0 .007 Significant

REER  MS –180.733 22.398 –8.069* 0 .000 Significant

WPI  MS 31.694 9.146 3.465* 0 .000 Significant

FER  MS 0.718 0.286 2.511** 0.012 Significant

FER  EX 0.000 0.000 2.529** 0.011 Significant

IIP  FDI 0.007 0.113 0 .066 0 .947 Not Significant

EX  IIP 107.671 9.205 11.697* 0. 000 Significant

Foreign Direct Investment and the Macroeconomy in India 53

 Table 4 (Cont.)
Path Estimate SE CR p-Value Decision

FII  IIP 56.703 23.569 2.406** 0.016 Significant

REER  IIP 0.521 0.113 4.628* 0.000 Significant

REER  SB 112.407 32.494 3.459* 0.000 Significant

FER  IIP –0.009 0.003 –3.194* 0.001 Significant

MS  EX 0.000 0.000 –4.291* 0.000 Significant

REER  FER 15.226 7.670 1.985** 0.047 Significant

FER  WPI 0.017 0.006 2.802* 0.005 Significant

FII  EX –0.560 0.143 –3.921* 0.000 Significant

EX  FDI 0.330 0.195 1.692 0.091 Not Significant

SB  FDI 0.002 0.005 0.377 0. 706 Not Significant

SB  EX 0.003 0.005 0.600 0.548 Not Significant

MS  IIP –0.001 0.000 –2.617** 0.009 Significant

REER  WPI –0.688 0.393 –1.749 0.080 Not Significant

FII  SB –2240.439 1055.341 –2.123** 0.034 Significant

FDI  FER –25432.881 15946.162 –1.595 0.111 Not Significant

Note: * and ** denote statistically significant at 1% and 5% levels respectively. In this table, 28 paths are
shown in the proposed model. Out of that, 9 are insignificant and 19 are significant. This means 19
simultaneous equations are possible in this model.

Goodness of Fit Statistics

The proposed model is a good model because it confirms all goodness of fit assessment test
criteria of SEM, namely, CMIN/DF, GFI, AGFI, NFI, RFI, IFI, TLI, CFI and RMSEA.
Table 5 shows that the value of CMIN/DF in default model is 2.206 which reveals that
the proposed SEM is a good model because the threshold value of CMIN/DF is 0.3.
Further Table 6 shows that the value of GFI in default model is 0.979 which again shows
that the proposed SEM is a good model because the threshold value of GFI is 0.90. Similarly,
AGFI is also touching 0.9 which confirms one of the assessment criteria of good model.

54 The IUP Journal of Applied Economics, Vol. XVII, No. 3, 2018

 Table 5: Model Fit Statistics – CMIN/DF

Model NPAR CMIN DF P CMIN/DF

Default Model 55 24.267 11 0.012 2.206

Saturated Model 66 0.000 0

Independence Model 11 5148.606 55 0.000 93.611

Table 6: Model Fit Statistics – AGFI and GFI

Model RMR GFI AGFI PGFI

Default Model 38580.037 0.979 0.876 0.163

Saturated Model 0.000 1.000

Independence Model 7730521.170 0.162 –0.006 0.135

Table 7 shows the values of NFI, RFI, IFI, TLI and CFI in default model are 0.99, 0.97,
0.99, 0.98 and 0.99 respectively which implies that the proposed SEM is a good model
because the threshold value of NFI, RFI, IFI, TLI and CFI is 0.90.

Table 7: Model Fit Statistics – NFI, RFI, IFI, TLI and CFI

Model NFI RFI IFI TLI CFI

Delta1 rho1 Delta2 rho2

Default Model 0.995 0.976 0.997 0.987 0.997

Saturated Model 1.000 1.000 1.000

Independence Model 0.000 0.000 0.000 0.000 0.000

Table 8 shows the value of RMSEA in default model is 0.077 which implies that the
proposed SEM is a good model because the threshold value of RMSEA is 0.08. Thus from
the analysis, it is clear that our proposed model in general is a good model for explaining the

Table 8: Model Fit Statistics – RMSEA

Model RMSEA LO 90 HI 90 PCLOSE

Default Model 0.077 0.035 0.119 0.125

Independence Model 0.679 0.663 0.694 0.000

Foreign Direct Investment and the Macroeconomy in India 55

simultaneous relationship of FDI with WPI, FER, EX, IM, FII, REER, GDS, IIP, SB and
MS.

Conclusion
The study employed step-wise regression models and SEM to find out the determinants of
FDI inflows into India and the structural paths between FDI inflows and macroeconomic
variables respectively. The study finds that exports, savings with commercial banks, money
supply, exchange rate and inflation rate are important determinants of FDI inflows into India
after globalization. This study also finds evidence of 19 significant structural paths among
different macroeconomic variables significantly contributing to more FDI inflows into India.
These findings call for suitable monetary and fiscal policy for better FDI inflows. The
foreign policy should also be beneficial for foreign companies to invest in India. India’s
place in FDI potential index is in first quartile, whereas in FDI attraction index, its place is in
second quartile. It shows that India needs to be more attractive as a destination for FDI
inflows at the global level.
Suggestions: On the basis of the above results, it may suggested that India should plan for
boosting exports as it would lead to better FDI inflows. Because there are FDIs which are
export-oriented, India should increase its industrial exports to other countries as in this way
it can attract more export-oriented FDI inflows. Likewise, savings with commercial banks
in India should grow continuously. More savings would also generate opportunities for
foreigners to invest in India. This is a new evidence that has emerged from the present study
which shows that more savings with commercial banks in India would attract more FDI
flows into India. Further, money supply should increase in India. More money supply leads
to more investment in infrastructure, research and development, human capital formation
and procurement of sophisticated technologies, which causes more FDI flow into India.
There should be balance in exchange rate among countries for more FDI inflows. Since
WPI has negative and significant impact on FDI inflows, India should control WPI as it
discourages foreign investors from investing in India. As it is an important determinant for
deciding FDI inflows, India should have a tight policy to control this variable. 

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