Econometric Analysis of the Impact of Fdi on Retail Trade in India

Abstract

In this paper, a time series statistical analysis has been done for predicting the growth of organized retail sales in India along with its impact on Foreign Direct Investment in retail sales. The analysis is done to identify the factors that contribute to the increase in organized retail sales and also to verify whether there exist a positive relationship between growth in retail sales and Foreign Direct Investment. Using a panel dataset of indicators from the year 1975 to 2010, a positive relationship has been found between factors like mobile cellular subscriptions (per 100 people), internet users (per 100 people), household consumption expenditure (as a percentage of GDP), consumer price index, population age group between the ages 15-64 years and urban population growth to that of retail sales. All these factors are positive and significant. Thus this study makes a significant contribution by identifying the key determinants in the predictability of organized retail sales in India, thus making a great socio- economic effect on the development of the Indian economy as a whole. The analysis also finds a positive relationship between the inflow of foreign direct investment and retail growth. This finding suggests that with the advent of international spending in India, retail will grow, and this in turn will increase the quality of the goods produced and the services rendered in India.