FDI and Economic Growth in India: A Study of Domestic Investment and Export Linkages

Abstract

Foreign Direct Investment (FDI) has emerged as a key driver of economic development in developing economies, including India, particularly in the post-liberalization period. This study examines the impact of FDI on domestic investment and export performance in India over the period 1991–2023, capturing the structural transformation following economic reforms. The primary objective is to analyse how FDI influences domestic investment patterns and contributes to export growth, while identifying the channels through which FDI interacts with broader economic development. The study employs a quantitative approach using secondary data, with empirical analysis conducted through statistical techniques. It evaluates sectoral trends, particularly in manufacturing, information technology, pharmaceuticals and the automobile industry, to assess the role of FDI in enhancing productivity, technological advancement and global competitiveness. The findings indicate that FDI has a positive and significant impact on both domestic investment and export performance. FDI inflows have facilitated capital formation, improved product quality and strengthened integration into global supply chains. India’s export performance shows substantial growth, rising from USD 17.8 billion in 1991–92 to USD 435 billion in 2022–23, reflecting the supportive role of foreign investment. The study concludes that FDI serves as an important catalyst for economic growth and trade expansion in India. It recommends policies that promote stable investment environments, sectoral diversification and innovation-driven growth to sustain long-term development.