Impact of Foreign Direct Investment Inflows on Capital Account of India’s Balance of Payments

Abstract

Transfer of capital from one country to another has been unrestricted in the present era of globalisation. The capital transfer may take one form or the other. One of the forms of capital transfer is Foreign Direct Investment Inflows (FDI Inflows) and it is an integral determinant of Capital for developing countries. FDI means the investment of funds by a foreign entity (particularly a Transnational or Multinational Company) by creating new equity base in host or home economy or vice versa. As FDI Inflow is a macroeconomic variable, it is represented in the balance sheet of the country known as Balance of Payments (BOP). The balance of payments of a country is a systematic record of all economic transactions between the residents of the reporting country and residents of foreign countries during a given period of time. To identify the happenings in the international payments, a record of the transactions between countries is necessary. The record of such transactions is made in the balance of payments account. The paper aims to measure the impact of FDI Inflows on Capital Account of India’s BOP. The time period for the study is 1991-1992 to 2014-15.