Foreign Direct Investment in India: A Time Series Analysis and Forecasting Using ARIMA Model

Abstract

Foreign Direct Investment (FDI) plays a vital role in the economic development of emerging economies like India. It has driven growth through inflow of capital, new and advanced technology, and management expertise to various sectors. This study is an attempt to investigate the volume, composition, and trends of Foreign Direct Investment inflows to India from 2000–01 to 2023–24. The study addresses the existing gap in predictive analysis by forecasting FDI inflows into the country, thereby providing insights for policy formulation given the economic and global conditions. By using comprehensive historical data obtained from the website of Reserve Bank of India study aims to model, interpret, and forecast FDI trends in the country. The Auto Regressive Integrated Moving Average (ARIMA) model is applied for forecasting FDI inflows. Consistent dominance of Government Automatic Acquisition Route in India’s FDI composition, followed by reinvested earnings is evident from the descriptive analysis. The results of Augmented Dickey-Fuller (ADF) tests confirm non-stationarity at level and stationarity after first differencing for all components. The ARIMA model-based forecasting demonstrates a stable and gradually increasing trend in total FDI inflows, reaching approximately USD 71.75 billion by 2028–29, primarily driven by steady contributions from the Government Automatic Acquisition Route and increasing reinvested earnings. The findings of the study provide valuable insights for policy formulation aimed at promoting investment and macroeconomic stability. The sustained dominance of the Government Automatic Route in FDI inflows highlights the effectiveness of liberalized investment policies. Policymakers should continue to simplify procedures, expand sectoral coverage under the automatic route, and ensure regulatory transparency to maintain investor confidence and attract long-term capital.