Distribution of Foreign Direct Investment in Indian Regions: A Trend Analysis

Abstract

Concentration of FDI in a few selected states reflects the location preference of the foreign investors to do business in India. States like Tamilnadu, Maharashtra, Karnataka and New Delhi are getting a significantly higher FDI than the rest of India. The concentration of FDI in these states is an old affair and they compete among themselves to be investors' preferred regions in future. This paper takes an attempt to find the volatility in the FDI inflow and the trend of FDI inflow to the Indian states and then to forecast the FDI inflow to these regions. The results show that the FDI inflow among the Indian regions do not have identical volatility and trend and there is a significant difference in the volatility of FDI inflow during pre-recession and post-recession period of the Indian economy. The region with high volatility in the pre-recession period can't continue to maintain as a preferred location during the post-recession period. Whereas the region with a low volatility in the pre-recession period is able to collect a higher FDI in the post-recession period and thus promoted to a higher rank. Similarly, regions like Mumbai, New Delhi are projected to lose share of FDI in the country where as Bangalore, Chennai and Ahmedabad may get a higher share of FDI inflow.