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CHAPTER 1 INTRODUCTION

International capital flows have significant benefits for economies around the world. Some of the benefits are stated as under:1. ICF allows the countries to finance more investment than can be supported by domestic saving, thereby increasing the output and employment.
2. Greater access to foreign markets can provide new opportunities for foreign and domestic

investors to increase the return and reduce the risk of their portfolios. 3. Foreign direct investment can facilitate the transfer of technology and managerial expertise to developing countries, thus improving the productivity.
4. Improved international access to investment opportunities in the country receiving the capital

inflows expands the number of potential investors in any domestic project. This will reduce the cost of raising capital. Studies have proved that countries that are open to capital flows can enjoy many of these benefits. In the case of foreign direct investment, studies indicate that industries and some developing countries with more foreign direct investment grow faster than those with less foreign direct investment. In addition, extensive research has found that foreign-owned firms tend to have higher productivity and wages than do their domestic counterparts. Finally for some developing, countries, foreign direct investment can help to adopt more advanced technologies and management practices. Foreign Portfolio investment has played a key role in furthering the development of d equity markets can help domestic equity and bond markets. In the case of equity markets, one report estimates that opening up to foreign shareholders leads to an almost 40 % increase in the real dollar values of the stock market. This lowers the cost of equity capital for domestic firms, as a higher stock price means that a smaller portion of a company needs to be sold to raise a given amount of capital. In case of the debt markets, evidence indicates that foreign investment cn widen the investor base and help raise capital. A foreign banking presence can also have substantial benefits for the host economy. Foreignowned financial institutions have been shown to improve the standards and efficiency of the domestic banking sector. Risks of International Capital Flows:Many countries that reduced the barriers to capital flows in the 1990s experienced large capital inflows, increased investment and strong growth. Several of these countries, however experienced

In the majority of these crisis capital outflows were associated with the currency depreciations. The governments, firms and
economic crisis. citizens of many of these emerging markets had significant amounts of debt denominated in domestic currency but received income denominated in domestic currency, this greatly impaired
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the capacity of these borrowers to service their debts.The

resulting increase in bankruptcies and in some in some cases government defaults, weakened the banking sectors and other financial institutions in these countries. All of these factors contribute to contractions in output and high
unemployment. This situations was faced by Mexico, Thailand, Korea, Russia and Argentina from mid 1990s through 2001. These experiences have led to more guarded view of the advantages of capital flows. The present paper attempts to test whether international capital flows have positive impact on economic growth of the country (here India). Literature Review:Capital inflows have been associated with high growth rates in some developing countries. However, some countries have experienced collapse in growth rates and significant financial crisis. International capital flows are now widely perceived as a bundle of

capital, technology and skill.


The relationship between capital flows and growth is vicious. To begin with, capital flows contribute to the growth of the host economy, by augmenting the availability of domestic capital as well as with the infusion of new technology. Once the host economy achieves high

growth, it will have better investment climate, which would further attract more capital flows into the economy. Therefore, the capital growth relationship is a subject of causality with the possibility of two way relationship.
After globalization capital flows have gained prominence. As a result, capital strated flowing freely across the national border in pursuit of higher return. Both capital inflows and outflows when they are large and sudden have important inplications.

When capital inflows are large they can lead to an appreciation of real exchange rate.

CHAPTER 2
RESEACH METHODOLOGY

Objective: - To test the impact of capital flows on economic growth of India.

Research Design:-

Descriptive Design

This type of design is used when one want to study the characteristic of certain groups such as age, income, occupations, etc. Descriptive design are well structured as compared to exploratory designs. So for my topic Impact of international Capital Flow on India Economic Growth

Data collection: - Secondary data.


For secondary data www.rbi.org has been referred

Sample size: - we have considered the data of post liberalised era to have the better picture and
clarity of international capital flow on GDP i.e. period from 1991-2009 data for 2010 was not available

CHAPTER 3
ANALYSIS TOOLS

Analysis Tools:- Multi regression and simple regression


In regression analysis, we are concerned with the estimation of one variable for a given value of another variable on the basis of an average mathematical relationship between the two variables. When there are two variables X and Y and if Y influence by X then we get a simple linear regression to find impact of X on Y. Here we are doing same by finding the impact of FII, NRI and FPI (independent variable) on GDP (dependent variable)

Type of Data:- Ratio

CHAPTER 4
Benefits:1. The estimation about the change in GDP can be made with the help of regression line set showing the impact of FII, NRI and FPI on GDP 2. We can also estimate how much our economy is dependent on NRI, FPI and FII. 3. The policy related to the inflow of international capital flow can also be framed.

Limitations:1.

The data for running multi regression and finding out the impact of international capital flows in Indias economic growth has been done from 1992-93, as the data for Foreign Instutional Investor (FII) was available since 1993.

2. FDI though it is an important capital inflow is not being considered since it is not a part of GDP.
3.

We have kept factors other than FII, FPI and NRI affecting GDP such as industry growth rate, poverty, unemployment rate and such to be constant and unchanged.

4. GDR (Global Depositary Receipt) has not been considered here as the data was not available

CHAPTER 5
CONCLUSION AND FINDINGS

Trends Of Capial flows in India (1991-2009)


The 1990 saw a radical transformation in the nature of capital flows into India the FPI which was 11 crore in 1991 increased to 109741 in 2008 showing hightest FPI within the period (1991-2009) and lowest FPI in 2009 of (-63618). FII has being allowed in India since 1993 with valued 4.27 which increased to 62583.56 showing the highest FII and lowest to (-43337.75) (more outflow of money than inflow in india) in 2009. NRI was 3833 in 1991 and increased to 19694 in 2009 the highest NRI and lowest to (-4322) (more outflow of money than inflow in india)

( In Rs crores) GDP at market GDP at price factor Cost 569624 515032 654729 594168 752591 681517 865805 729150 1015764 925239 1191813 1083289 1378617 1260710 1527158 1401934 1751199 1616082 1952036 1786526 2102314 1925017 2278952 2097726 2454561 2261415 2754620 2538170 3149407 2877701 3586743 3282385 4129173 3779384 4723400 4320892 5321753 4933183

Years 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09

FPI 11 10 748 11188 12007 9192 11758 6794 -257 13112 12609 9639 4738 52279 41854 55306 31713 109741 -63618

FII 4.27 5444.60 4776.60 6720.90 7386.20 5908.45 -729.10 9765.13 9682.51 8272.67 2668.90 44000.03 41416.45 48650.04 23754.05 62583.56 -43337.75

NRI 3833 1412 6630 3780 3057 4099 12692 7344 4038 6673 10585 13011 14403 16731 -4322 16465 19567 721 19694

FII:- Foeign Institutional Investment NRI:- Non-Resident Indian FPI:- Foreign Portfolio Investment
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1. FII factor cost

ANOVA df 1 15 16 SS 1.17E+12 2.45E+13 2.57E+13 Standard Error 359674.5 13.09267 MS 1.17E+12 1.63E+12 F 0.719381 Significance F 0.409678

Regression Residual Total

Coefficients Intercept X Variable 1 2051109 11.10472

t Stat 5.702682 0.848164

Here the significance value is more than 0.05 means so there is no significance relationship and impact of FII on GDP. So the policy related to the FII resulting into increased and decreased in FII do not have a Great impact on GDP. This is good to for our economy as it is not completely depended on the foreign investment From regression line GDP at FC = 2051109 + 11.10 FII GDP at MV = 2234005+ 12.48 FII We can estimate the GDP but it will not give real picture as relationship is not significance.

6.NRI FACTOR
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ANOVA df 1 17 18 SS 6.54E+12 2.4E+13 3.06E+13 Standard Error 438710 MS 6.54E+12 1.41E+12 F 4.630586 Significance F 0.046071

Regression Residual Total

Coefficients Intercept X Variable 1 1292489

t Stat 2.946113

87.60027

40.70872

2.15188

Here the significance value is less than 0.05 means there is significance relationship and impact of NRI on GDP. So the policy related to the NRI resulting into increased and decreased in NRI has a Great impact on GDP. We should always encourage the more inflow of NRI for the growth of our economy From regression line GDP at FC = 1292489 + 87.60 NRI GDP at MV = 1426335+ 93.88 NRI We can estimate the GDP

5. Factor
Regression Statistics Multiple R R Square Adjusted R Square Standard Error Observations ANOVA df 3 13 16 SS 6.80476E+12 1.8865E+13 2.56697E+13 MS 2.26825E+12 1.45115E+12 F 1.563071376 Significance F 0.245777829 0.514867837 0.265088889 0.095494018 1204637.313 17

Regression Residual Total

Intercept FPI FII rs cr NRI rs cr

Coefficients 1148185.216 16.4824419 5.835336261 90.92921542

Standard Error 570186.2422 38.49505585 54.45591848 46.22254085

t Stat 2.01370207 0.428170359 0.107157063 1.967205042

Here the significance value is more than 0.05 so there is no significance relationship and impact of FII, NRI and FPI on GDP. So the policy related to the FII, NRI and FPI resulting into increased and decreased in FII, NRI and FPI do not have a Great impact on GDP altogether. This is good to for our economy as it is not completely depended on the foreign investment and inflow through FII, NRI and FPI. Form this we can also say that our economy is self reliance for the growth and development. The foreign claim on our asset is lower than what we claim on there asset. From regression line GDP at FC = 1148185 + 16.48 FPI + (-5.84) FII + 90.93 NRI GDP at MV = 1264027 + 18.21 FPI + (-6.43) FII + 97.71 NRI We can estimate the GDP but it will not give real picture as relationship is not significance.

BIBLIOGRAPHY

1.

http://www.rbi.org.in/scripts/AnnualPublications.aspx?head=Handbook %20of%20Statistics%20on%20Indian%20Economy-Handbook of Statistics on Indian Economy 2008-09 (date of access 10th sep 2011)

2. sfed.org/publications/erp/page/8846/download/47477/8846_ERP.pdfImpact of International Capital Flows on Indias Economic Growth. (date:- 20th sep,2011)

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