FDI and Economic Performance of Firms in India

Abstract

FDI contributed positively to sales, profit, employment and wages of firms in India from 2004 to 2018. Foreign capital is complementing domestic capital well embodying technology and innovations required for expansion of domestic firms in it. Foreign promoters have played quite significant economic roles among firms across production sectors in manufacturing industry in India. Besides sales, total expenses, managerial remunerations and corporation taxes, involvement of foreign promoters are statistically significant determinants of profits, employment and wages among firms across all seven sectors of the manufacturing industry is clear from analysis of the Prowess database for years 2004, 2008, 2012 and 2014. These effects were even stronger in each of Modi–I years between 2015-2019 that followed the Make in India initiative in 2014. Reforms including the outright 100 per cent ownership provision in the automatic route in most industrial sectors have produced good outcomes that have not only raised the volume of FDI per capita from around 16 dollars in 2000 to 285 dollars in 2018 but also raised the global ranking of India to 63 out of 190 economies in 2019 on the ease of doing business, putting India 79 places above now than in 2014. Based on theoretical and empirical analysis it can be concluded that good sentiments of FDI in India in Modi–II years started in 2019 will prevent diminishing returns on capital and contribute towards sustainable growth in coming years. JEL Codes: F21, F23, F14, J31, O53