Impact of Economic Reforms, FDI and Imports on GDP: Trends and Regression Analysis

Abstract

The objective of the present study was to examine the impact of new economic reforms of 1991 on Indian economy in general and GDP growth rate in particular. From the trend analysis of GDP and its major determinants, it was found that all variables performed really well in the post reform period in contrast to the pre reform period. The regression analysis confirmed that the GDP growth of India is significantly affected by imports and surprisingly FDI inflows were found to be insignificant. A dummy variable which was incorporated as a proxy variable for economic reforms of 1991 was found to be positive and significant which asserted that the economic reforms had made a positive impact on GDP growth of India. To enhance the GDP growth, the imports should be further enhanced; the composition of imports should be directed towards capital goods rather than consumer goods imports. Distribution of FDI should be organized in a systematic and coherent manner and should not be just directed towards white goods industries which cater the needs of rich sections of society. Some portion of FDI inflows should be directed towards smaller projects, (unregistered manufacturing) which in country like India augments employment levels thereby increasing the production and productivity. Finally, in order to boost the GDP growth in India it is argued that the important constituents of GDP should be further promoted through liberal policies in a systematic manner.