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Promotional writing, blog writing, branding copywriting and more. High standards and SEO qualified. Foreign investment is considered to be an integral part of an economy as it helps in accelerating the economic development. As a source of investment, it helps in the modernization of infrastructure, technology and income growth.
By creating a conducive environment for the foreign investors, the host country benefits by achieving its development goals faster. Various sectors have boosted its financial standing.
It means that a unit of currency buys fewer goods and services when the price of commodities rise or vice versa. The main objective of this article is to find out the relationship between foreign direct investment and inflation rate in India.
Inflation as a determinant of foreign direct investment Rate of inflation is a crucial factor in influencing the inflow of foreign investment. A high rate of inflation signifies economic instability associated with inappropriate government policies, especially the monetary fiscal policy mix Macpherson, A low and stable inflation rate acts as a sign of internal economic stability.
This is because it reduces uncertainty and boosts the confidence of people and businesses for making investment decisions. On the other hand high inflation rate signifies the inability of the central bank to set appropriate monetary policies.
It affects profitability as higher prices can lead to increased costs and lower profits. Trends in inflation rate over the years Inflation in an economy is a measure of the degree of stability.
Until recently in India Wholesale Price Index was used to measure the inflation rate for all policy purposes. However after the Urjit R. Consumer price index accounts for the cost of day to day living. Average inflation rate in India Source: Planning Commission Average inflation rate in India has been high, at 9.
India has seen both high and low inflation. Ininflation was at 9. The official consumer price index in the month of August was recorded at 5. This medium level inflation rate has made India a favorable destination for foreign investment in the recent years.
Relationship between foreign direct investment and inflation in India An economic instability of a host country can be major factor determining the inflow of foreign investment.
A study by Hussaini tests the degree of correlation between different economic factors and foreign direct investment in India.
Results from the Johanson co-integration test also show that there is long term relationship between inflation rate and foreign direct investment for the period The author found a negative coefficient of correlation of This implies that inflation rate and foreign direct investment are adversely related.
Co-integration between inflation rate and foreign direct investment However it has been found in another study that the correlation between foreign investment and inflation is moderately positive.
In inflation rate was 4. This indicates that other factors of an economy also play a major role in determining the inflow of foreign investment Finance India May Another finding of a paper by Anitha, revealed an unexpected positive relationship between foreign direct investment and Inflation.
This finding was against the expected negative relationship for the period The elasticity coefficient between the variables was 0. It showed that one percent increase in the level of inflation led to an increase of 0. On the basis of this findings it can be said that inflow of foreign capital depends on a number of factors other than the inflation rate.
Possible reasons behind the negative relationship between inflation and foreign investment The negative relationship between inflation and foreign direct investment is due to the fact that high level of prices in the country results in rising production costs.
This is due to the increase in input prices, cost of raw material, wages of labor, land prices and cost of capital. Such high prices of product also adversely affects domestic as well as foreign demand for commodities.
All these factors ultimately lead to the reduction in business profits thus discouraging foreign investment in the countries having a high inflation rate. Similarly high amount of foreign investment indicates a high level of foreign exchange reserves. This reflects the strength of external payments position of a country and helps to improve the confidence of prospective investors.
International Journal of Technical Research, 2 359—ANALYSIS ON FOREIGN DIRECT INVESTMENT INFLOWS In statistics, the time series analysis, an autoregressive integrated moving average (ARIMA) model is a generalization of an autoregressive moving The Following table , shows Inflow and Outflow of Foreign Direct.
An analysis of the total holdings of offshore funds (including real estate funds) as of December 31, placed the va1ue of total disclosed assets at $ billion The Study's analysis shows the value of reported offshort fund holdings of U.S. securities with U.S. custodians in .
One of the major reforms in the agriculture sector in recent years is the inflow of foreign direct investment. Even though most of the areas in agriculture sector is still closed for the foreign investment. (Kumar ). Similarly % foreign direct investment was allowed through the automatic route in various sectors.
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Foreign direct investment of up to % is allowed under the automatic route except in a few cases – typically that invoke non-compete clauses.
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