Factor Analysis of the Selected Variables of Foreign Direct Investment In India

An analysis of the influential variables on foreign direct investment in India

Abstract

As a matter of fact the growth of a countrylargely depends upon FDI and in the recent times, FDI in India has contributedeffectively to the overall growth of the economy. Developing economies likeIndia see FDI as a source of economic development, modernization and employmentgeneration. India has liberalized the FDI regimes so as to attract largerinvestment and the government of India has put in place a liberal, transparentand investor friendly FDI policy. Theflow of FDI in India is governed by so many explanatory variables but for thepresent study, nine variables have been selected i.e. imports, exports, marketshare, economic stability, industrial production index, interest rate,inflation rate, currency value and gross capital formation. The present paperattempts to focus on analyzing these nine variables which determine the flow ofFDI in India from 2006-07 to 2012-13. For this purpose the technique of factoranalysis has been used. The study revealed that out of nine variables understudy, only seven variables are highly influencing the FDI in India.