FDI Inflow in India through Manufacturing Sector - Essay Example

Although India is an under developed country and the government has taken all possible measures to boost up the FDI in all the sectors specially the manufacturing sector. The best econometric model which suits the inflow of FDI's in manufacturing sector is "Time Series Econometric Model". The variables of time series econometric model are stated below: After developing the variables, firstly, we need to assess their properties. Its existence both in long and short term is outlined through the time series analysis.

Secondly, one needs to find out those variables which are dependent to each other so as to categorize them either in short term or medium term basis. Moreover, corrective and appropriate measures need to be taken in selecting the variables because only some of these variables produce good results in the long run while the rest do not. The most important thing regarding the application of this model in the manufacturing sector is the data provided. Because in third world or under developed countries like India the manipulation in the data might occur which may create problems in analyzing the real model.

The Indian market is very attractive for the foreign investors due to its massive growth in population, economy and various other demographic factors. The Indian government has taken every possible measure to attract the foreign investors and due to this fact stock market of India has attained a new height and its trading volume has grown up exponentially over the last few years, right before the world economy went into a recession (Mehul).In the last 10 years, 27 billion dollars have been injected in the Indian economy, most of which was invested in the manufacturing sector, as availability of cheap labor is one of the key factors that attracts foreign investors.

On an average India's overall manufacturing base has attracted investments worth 3.4 billion dollars from 2000 to 2008 in the form of FDI (The Financial Express). There is a huge potential in the manufacturing industry of India and economists estimate more than 12 billion dollars to be injected or invested in India's manufacturing sector in the next 5 years (The Financial Express). Statistics reveal that India is the fourth largest country in terms of FDI but they are still way behind in comparison with China, to refer to the proportions of FDI in India's manufacturing industry is around 37 in comparison to 67 per cent of China (Bhanu 3).

Although there is a huge potential and flexibility in both the markets but due to the government policies, tax free zones, availability of cheap labor and resources, China finds its way comfortably at the top (Swapna ). Similarly, another important statistic, is comparison between the manufacturing and the service sector. Service sector in India has only been able to attract $2.34 billion of FDI in the past years. To Examine Motives of FDI Inflow in IndiaIndian economy has made huge impact on the global economy being a huge market