FOREIGN DIRECT INVESTMENT INFLOW TO RETAIL

SECTOR IN INDIA: AN ANALYTICAL STUDY

S.DHIVYA
M.Phil economics,
Ethiraj College for Women,
No.70, Ethiraj Salai,
Chennai -600008.
August- 2014
E-mail: dhivya.meet@gmail.com

FOREIGN DIRECT INVESTMENT INFLOW TO RETAIL SECTOR IN INDIA:

AN ANALYTICAL STUDY
Dr.D.Uma assistant professor
S. dhivya (author)

(1)

( 2)

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

ii.

GDP for India.

To study the casual relationship between FDI inflow and GDP

(1)

Dr.D.Uma, assistant professor, ethiraj college for women, (under supervision)

(2)

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, Cointegration to analysis for the period 2000 to 2012, and for construction activity sector 200412 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
obs
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012

FDI_INFLOW
10733
18654
12871
10064
14653
24584
56390
98642
142829
123120
97320
165146
121907

GDP
2554004
2680280
2785013
3006254
3242209
3543244
3871489
4250947
4416350
4780179
5236823
5595856
5105155

TELE
686
4267
909
727
609
706
4170
2155
5103
11727
12338
7542
9012

CONS
NA
NA
NA
NA
696
667
4424
6989
8792
13469
4979
15236
7248

COMP
1201
2057
3191
1355
3967
4314
9124
11786
5623
7329
4351
7552
15236

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:

16, 000
14, 000
12, 000
10, 000
8,000
6,000
4,000
2,000
0
00

01

02

03

04

05

COMP

06

07

TE LE

08

09

10

11

12

CONS

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:

Mean
Median
Maximum
Minimum
Std. Dev.
Skewness
Kurtosis
Jarque-Bera
Probability
Sum
Observations

GDP
3928293.
3871489.
5595856.
2554004.
1047684.
0.156717
1.636844
1.059735
0.588683
51067803
13

TELE
4611.615
4170.000
12338.00
609.0000
4285.161
0.687220
2.076239
1.485476
0.475809
59951.00
13

COMP
5929.692
4351.000
15236.00
1201.000
4188.603
0.885943
2.944378
1.702282
0.426927
77086.00
13

CONS
6271.600
5984.000
15236.00
216.0000
5209.362
0.439618
2.094675
0.663612
0.717626
62716.00
10

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 VARIABLS

t-Statistic

critical

Coefficient

Probability

-2.906296
-7.747504
-2.111264
-1.519680
-2.016993

value
0.0168
0.0129
0.0169
0.0047
0.0004

values(5% level)

FDI_INFLOW:D(DFDI_INFLOW)
GDP:D(DGDP,2)
TELE :D(TELE,2)
COMP :D(COMP,2)
CONSTRUCTION:DCONSTRUCTIO

-4.039632
-4.570929
-4.035887
-4.826502
-7.729602

-3.259808
-3.403313
-3.259808
-3.212696
-3.320969

H0: Null hypothesis: variable has a unit rootH1: Alternative hypothesis: variable does not
have unit root
FDI_INFLOW
Test statistic (-4.039632)
(-4.039632)

> critical value at 5% (-3.259808), and the Test statistic

> Coefficient value at 5% (-2.906296), and also P-value (0.0168) less than 5%

TELE
Test statistic (-4.035887)
(-4.035887)

> critical value at 5% (-3.259808) and the Test statistic

> Coefficient value at 5% (-2.111264) and also P-value (0.0169) less than 5%

CONS
Test 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)
(-4.826502)

> Coefficient value at 5% (-1.519680), and also P-value (0.0047) less than 5%

GDP: Test statistic (-4.570929)

(-4.570929)

> critical value at 5% (-3.212696), and the Test statistic

> critical value at 5% (-3.403313), and the Test statistic

> 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 them
TABLE 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

variables
H1: Alternative hypothesis: there is granger cause relationship between the economic
variables
This 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:
COMP does not Granger Cause GDP
GDP does not Granger Cause COMP
GDP does not Granger Cause FDI_INFLOW
FDI_INFLOW does not Granger Cause GDP
TELE does not Granger Cause GDP
GDP does not Granger Cause TELE
CONSTRUCTION does not Granger Cause GDP
GDP does not Granger Cause CONSTRUCTION

Obs
11
11
11
8

F-Statistic
1.88722
1.84559
1.7488
5.19286
2.97552
9.93830
6.24927
0.72111

Prob.
0.2313
0.2373
0.2226
0.0522
0.1265
0.0125
0.0852
0.5550

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:
Hypothesized
No. of CE(s)
None *
At most 1

Eigen value
0.816863
0.222676

Trace
Statistic
21.44360
2.770879

0.05
Critical Value
15.49471
3.841466

Prob.**
0.0056
0.0960

Hypothesized
Max-Eigen
0.05
No. of CE(s)
Eigen value
Statistic
Critical Value
Prob.**
None *
0.816863
18.67272
14.26460
0.0094
At most 1
0.222676
2.770879
3.841466
0.0960
COINTEGRATION TEST FOR GDP AND COMPTER SOFTWARE AND
HARDWARE SECTOR:
Hypothesized
Trace
0.05
No. of CE(s)
Eigen value
Statistic
Critical Value
None
0.502431
10.43285
15.49471
At most 1
0.221526
2.754613
3.841466
Hypothesized
Max-Eigen
0.05
No. of CE(s)
Eigen value
Statistic
Critical Value
None
0.502431
7.678237
14.26460
At most 1
0.221526
2.754613
3.841466
COINTEGRATION TEST FOR GDP AND CONSTRUCTION:
Hypothesized
Trace
0.05
No. of CE(s)
Eigen value
Statistic
Critical Value
None
0.833282
15.00664
15.49471
At most 1
0.080915
0.675010
3.841466
Hypothesized
Max-Eigen
0.05
No. of CE(s)
Eigen value
Statistic
Critical Value
None *
0.833282
14.33163
14.26460
At most 1
0.080915
0.675010
3.841466

Prob.**
0.2490
0.0970
Prob.**
0.4124
0.0970
Prob.**
0.0591
0.4113
Prob.**
0.0488
0.4113

COINTEGRATION TEST FOR GDP AND TELECOMMUNICATION SECTOR.

H0: Null hypothesis: No co-integration between gdp and telecommunication sector
H1: 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 at 9.60% (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 CONSTRUCTION ACTIVITY.
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 construction activity 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 them

Therefore, 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.