Impact of FDI Inflows on Economic Growth and Startup Development in India: An Empirical Analysis

Abstract

Aim: This study explores the linkage between FDI inflows and economic growth in India, particularly emphasizing the impact of sectoral FDI inflows in merchandise and services on the establishment and growth of startups in the country. Study Design: The study includes both descriptive and analytical approaches to examine how sectoral FDI inflows contribute to economic growth and foster the growth of startups in India. The study in the analytical section tries to identify significant relationships and the causal links between sectoral FDI inflows and economic growth. Place and Duration of Study: The study is based on the quarterly data from March 2016 to December 2023, following the launch of the "Startup India" initiative, which is sourced from the RBI database. Methodology: The study employs OLS regression to identify short-run significant relationships and Granger causality tests to explore the causal links between sectoral Foreign Direct Investment inflows and economic growth. Results: The study reveals that the Sectoral FDI Inflows in India positively and significantly (i.e., 21.48%) influence the country's economic growth. Further, the inflow of FDI is a unidirectional causality from FDI inflow to economic growth. The outputs are highly applicable to policymakers in the formulation of policies on FDI inflow. Conclusion: The study concluded that sectoral FDI inflows have significantly impacted economic growth and helped develop start-ups in India.