FOREIGN DIRECT INVESTMENT INFLOW TO RETAIL SECTOR IN INDIA: AN ANALYTICAL STUDY

FOREIGN DIRECT INVESTMENT INFLOW TO RETAIL SECTOR IN INDIA: AN ANALYTICAL STUDY

FOREIGN DIRECT INVESTMENT INFLOW TO RETAIL SECTOR IN INDIA: AN ANALYTICAL STUDY

S.DHIVYAM.Phil economics,

Ethiraj College for Women,No.70, Ethiraj Salai,Chennai -600008.August- 2014E-mail: [email protected]

FOREIGN DIRECT INVESTMENT INFLOW TO RETAIL SECTOR IN INDIA: AN ANALYTICAL STUDYDr.D.Uma assistant professor S. dhivya (author)

Abstract:FDI inflow in India plays one of the most important part of an Indian economy and it is growing at an extraordinary pace. And in general FDI in retail sector plays a major role in the inflow of other countries investing in India are based on the interest rate and the growth level of sector. The objective of the study analysed the cause and effect of FDI inflow in Indian retail sectors for the growth of economy. Using granger causality test and johansen co-integration test to analysis the cause and effect of FDI in retail sectors. Data collected for the telecommunication sector and computer software and hardware is for 12 years and for construction activities data collected for 10 years have been taken from various sources. Important findings of the study proved dominance of exogenous variable in producing the endogenous variable-i.e. the growth of the GDP. Keywords: FDI INFLOW, GDP, Telecommunication Sector (TELE), Construction Activity Sector (CONS), Computer software and hardware sector (COMP).

Introduction:The Indian retail market is one of the top five retail markets in the world. The Indian retail market is divided into two parts i.e. organized retail and unorganized retail. Organized retail refers to those trading activities which are undertaken by licensed retailers who are registered for income tax, sales tax etc. On the other hand unorganized retail refers to low cost retailing like local kirana stores, street vendors etc.

Objective of the study:i. To analyze casual relationship between FDI inflow in retail sectors (TELECOMMUNICATION, CONSTRUCTION ACTIVITIES, COMPUTER) and GDP for India.ii. To study the casual relationship between FDI inflow and GDP Dr.D.Uma, assistant professor, ethiraj college for women, (under supervision) S.dhivya, mphil economics, ethiraj college for women (author)RESEARCH METHODOLOGY:The data is collected from various sources-FDI INFLOW - RESERVE BANK OF INDIA , GDP - RESERVE BANK OF INDIA, TELECOMMUNICATION SECTOR - SIA DIPP, CONSTRUCTION ACTIVITIES - SIA DIPP, COMPUTER SOFTWARE AND HARDWARE SECTOR - SIA DIPP, Methodology which was based on this study has made an attempt to examine the direction of causality among the FDI retail sectors(telecommunication, construction activities and computer software and hardware) on Indian economy (GDP), going to deal with econometric applications - Unit root test, Co-integration to analysis for the period 2000 to 2012, and for construction activity sector 2004-12 These were done in order to check the relationship in short run or long run causation

REASULT AND DISCUSSION:

TABLE 1: DATA (AMOUNT IN CRORES) FOR FDI IN RETAIL SECTORS obsFDI_INFLOWGDPTELECONSCOMP

2000107332554004686NA1201

20011865426802804267NA2057

2002128712785013909NA3191

2003100643006254727NA1355

20041465332422096096963967

20052458435432447066674314

2006563903871489417044249124

20079864242509472155698911786

20081428294416350510387925623

2009123120478017911727134697329

20109732052368231233849794351

201116514655958567542152367552

201212190751051559012724815236

Note: tele- telecommunication sector, cons- construction activity sector, comp computer software and hardware sector.Source: reserve bank of india, SIA DIPP(compiled by researcher)

GRAPH 1: PERFORMANCE OF FDI IN RETAIL SECTORS:Graph indicates the performance of retail sector wise inflow in India. In this, three sectors are graphed. The telecommunication sector and computer software & hardware sector are graphed for the period from 2000-2012 and for the construction activities for the period 2004-12. The telecommunication and computer software and hardware sector increasing over the period of time, construction activities increased but a decline in 2011-12.TABLE 2: DESCRIPTIVE STATISTICS OF THE VARIABLES: GDPTELECOMPCONS

Mean3928293.4611.6155929.6926271.600

Median3871489.4170.0004351.0005984.000

Maximum5595856.12338.0015236.0015236.00

Minimum2554004.609.00001201.000216.0000

Std. Dev.1047684.4285.1614188.6035209.362

Skewness0.1567170.6872200.8859430.439618

Kurtosis1.6368442.0762392.9443782.094675

Jarque-Bera1.0597351.4854761.7022820.663612

Probability0.5886830.4758090.4269270.717626

Sum5106780359951.0077086.0062716.00

Observations13131310

Presents descriptive statistics (in terms of Mean, Median, Standard Deviation (S.D.), Skewness, Kurtosis and Jarque-Bera (J-B) statistics) of variables used for empirical analysis in the present study. J-B statistics shows that all variables are more than 5% level, having normal distribution as data do not support to reject the null hypothesis that variables under consideration follow normal distribution.TABLE 3: AUGMENTED DICKEY-FULLER TEST (ADF): the Augmented Dickey-fuller test (ADF) to check for the stationary at integrated difference level for the variable used in this study thus the test ADF is statistically significant and stationary at different level and which can be proceeded for further, to test for casual relationship between them.EXPLANATORY VARIABLSt-Statisticcritical values(5% level)CoefficientProbability value

FDI_INFLOW:D(DFDI_INFLOW)-4.039632-3.259808-2.9062960.0168

GDP:D(DGDP,2)-4.570929-3.403313-7.7475040.0129

TELE :D(TELE,2)-4.035887-3.259808-2.1112640.0169

COMP :D(COMP,2)-4.826502-3.212696-1.5196800.0047

CONSTRUCTION:DCONSTRUCTION-7.729602-3.320969-2.0169930.0004

H0: Null hypothesis: variable has a unit rootH1: Alternative hypothesis: variable does not have unit rootFDI_INFLOWTest statistic (-4.039632) > critical value at 5% (-3.259808), and the Test statistic (-4.039632) > Coefficient value at 5% (-2.906296), and also P-value (0.0168) less than 5%TELETest statistic (-4.035887) > critical value at 5% (-3.259808) and the Test statistic(-4.035887) > Coefficient value at 5% (-2.111264) and also P-value (0.0169) less than 5%CONSTest statistic (-7.729602) > critical value at 5% (-3.320969), and the Test statistic (-7.729602) > Coefficient value at 5% (-2.016993), and also P-value (0.0004) less than 5%COMP: Test statistic (-4.826502) > critical value at 5% (-3.212696), and the Test statistic (-4.826502) > Coefficient value at 5% (-1.519680), and also P-value (0.0047) less than 5%GDP: Test statistic (-4.570929) > critical value at 5% (-3.403313), and the Test statistic(-4.570929) > Coefficient value at 5% (-7.747504), and P-value (0.0129) less than 5%. So, reject null hypothesis, all variables does not have unit root that FDI INFLOW, GDP, TELECOMMUNICATION, CONSTRUCTION ACTIVITIES, COMPUTER SOFTWARE AND HARDWARE is stationary. So can proceed for further, to test for casual relationship between themTABLE 4: PAIRWISE GRANGER CAUSALITY TEST:The table 4 analysed the pair wise granger causality test which is done to check for the casual relationship between the variables, in previous table 4 checked the stationary level in ADF test.H0: Null hypothesis: there is no granger cause relationship between the economic variablesH1: Alternative hypothesis: there is granger cause relationship between the economic variablesThis table examines that there is casual relationship between FDI, GDP, and TELECOMMUNICATION SECTOR. The FDI and GDP has a Uni-directional casual relationship between two variables, p-value for these are 5 %( 0.05) level of significance,And TELECOMMUNICATION and GDP also has a Uni-directional casual relationship between two variables, p-value for these are 2 %( 0.002) level of significance. Thus over all FDI IN RETAIL SECTORS and ECONOMIC variable(GDP) and FDI INFLOW and GDP have a UNI-DIRECTIONAL OR ONE-WAY CASUAL RELATIONSHIP at 5% level of significance. SO, reject null hypothesis in FDI INFLOW To GDP and GDP to TELE Therefore there is granger cause relationship between the both economic variables.

Pair wise Granger Causality Tests

Null Hypothesis:ObsF-StatisticProb.

COMP does not Granger Cause GDP111.887220.2313

GDP does not Granger Cause COMP1.845590.2373

GDP does not Granger Cause FDI_INFLOW111.74880.2226

FDI_INFLOW does not Granger Cause GDP5.192860.0522

TELE does not Granger Cause GDP112.975520.1265

GDP does not Granger Cause TELE9.938300.0125

CONSTRUCTION does not Granger Cause GDP86.249270.0852

GDP does not Granger Cause CONSTRUCTION0.721110.5550

TABLE 5: COINTEGRATION TEST:Co-integration test are used to test the variables have long run relationship or not, this study done to co-integrate FDI sectors with GDP COINTEGRATION TEST FOR GDP AND TELECOMMUNICATION SECTORS:

HypothesizedTrace0.05

No. of CE(s)Eigen valueStatisticCritical ValueProb.**

None *0.81686321.4436015.494710.0056

At most 10.2226762.7708793.8414660.0960

HypothesizedMax-Eigen0.05


None *0.81686318.6727214.264600.0094

At most 10.2226762.7708793.8414660.0960

COINTEGRATION TEST FOR GDP AND COMPTER SOFTWARE AND HARDWARE SECTOR:



None0.50243110.4328515.494710.2490

At most 10.2215262.7546133.8414660.0970



None0.5024317.67823714.264600.4124

At most 10.2215262.7546133.8414660.0970

COINTEGRATION TEST FOR GDP AND CONSTRUCTION:



None0.83328215.0066415.494710.0591

At most 10.0809150.6750103.8414660.4113



None *0.83328214.3316314.264600.0488

At most 10.0809150.6750103.8414660.4113

COINTEGRATION TEST FOR GDP AND TELECOMMUNICATION SECTOR.H0: Null hypothesis: No co-integration between gdp and telecommunication sectorH1: Alternative hypothesis: there is co-integration between gdp and telecommunication sector.Trace test indicates 1 co integrating eqn(s) at the 0.05 level, Max-eigenvalue test indicates 1 co integrating eqn(s) at the 0.05 level, Both trace and max-Eigen statistics indicates 1 co integration eqn(s) at 5% level, So that reject null hypothesis and accept alternative hypothesis, this mean there is co-integration between gdp and telecommunication sector. That gdp and telecommunication have long run relationship at9.60% (0.0960).

COINTEGRATION TEST FOR GDP AND COMPTER SOFTWARE AND HARDWARE SECTOR.Trace test indicates no co integrating eqn(s) at the 0.05 level, Max-eigenvalue test indicates no co integrating eqn(s) at the 0.05 level, Both trace and max-Eigen statistics indicates no co integration eqn(s) at 5% level, So that accept null hypothesis and reject alternative hypothesis, this mean there is no co-integration between gdp and computer that gdp and computer software and hardware sector have no long run relationship.COINTEGRATION TEST FOR GDP AND CONSTRUCTIONACTIVITY.

Trace test indicates no co integrating eqn(s) at the 0.05 level, Max-eigenvalue test indicates 1 co integrating eqn(s) at the 0.05 level, Trace test has no no co integration and max-Eigen statistics indicates 1 co integration eqn(s) at 5% level, that gdp and constructionactivity have no long run relationship.

SUMMARY OF THE STUDY:The study on FDI retail sectors and Indian economy (GDP as taken to measure) to analyse economic growth, The growth change by cause and effect of FDI retail sector in India, the organised retail sectors like (telecommunication, computer software and hardware, construction activities was explained in this study, and also stated the problem and objectives mentioned above.

FINDINGS OF THE STUDY: The result in general specifies that FDI INFLOW in retail sector cause the growth of Indian economy. In the growth of Indian economy, the domination of exogenous variable in producing the endogenous variable i.e. the growth of economy The result also specified that the FDI inflow cause the GDP in Uni-directional relationship among the two variables. The co-integration test revealed, that GDP and telecommunication sector have long run relationship among themTherefore, FDI in retail sector will bring modern technology to the country; investments in cold storage chain infrastructure would reduce loss of agricultural produce and provide more options to farmers. Can complement local development by boosting export competitiveness, employment generation, on the other hand FDI alone is not a solution for unemployment and other economic problems. Hence Increased accountability and transparency in policy making along with long term development plan.

REFERENCES:

GULSHAN AKTHAR (2013)-Inflow of FDI in pre and post reform period, international journal of humanities and social science invention, vol.2pp01-11. HENDRIK.F.VANDEN BERG (2006)-FDI and economic growth: a time series approach, Vol.6pp 1-19.

FOREIGN DIRECT INVESTMENT INFLOW TO RETAIL SECTOR IN INDIA: AN ANALYTICAL STUDY

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