AbstractMake in India, a flagship project of the Government of India was launched in September 2014with an aim to position India as a global manufacturing hub in order to attract greater ForeignDirect Investment (FDI) by fostering ease of doing business. Many economists and experts havesuggested that the campaign is all about empty slogans and propaganda. This paper attempts toquantify the impact of the campaign on the Indian Economy by studying major indicators likeFDI, GDP (Gross Domestic Product), Trade Openness, Exchange Rate etc. using basiceconometric tools. This paper also attempts to develop some recommendations to thegovernment basis the predictions and show the future of the campaign provided that it continueswith the present vigor. We conclude that the campaign has been a success so far mainly becauseit is backed by major legislative and bureaucratic reforms and has a great potential to succeed infuture too.Keywords: Foreign Direct Investment, Make in India, Growth, Indian Economy3IntroductionIndia is a nation which claims to have a huge amount of natural resources. The countryboasts its skilled and unskilled workforce having the requisite skill and determination. Laborhere is aplenty. With all eyes on the east for outsourcing activities, India aims at becoming apreferred manufacturing destination for its partners as well as new investors. To tap thisopportunity, Make in India was launched as a marketing campaign on September 25, 2014 withan objective to attract existing stakeholders as well as strategic investors to invest and chooseIndia as their manufacturing place. In order for a complete manufacturing transition, the countryneeded a strategy that empowers and enables in an unvarying manner, to attain globalcompetitiveness. Thus, it was imperative to welcome capital and technology across the globe tomake the foundation of the program.The program aims to increase the share of manufacturing sector in the Gross DomesticProduct (GDP) from 16% presently to 25% by 2025. With 25 target sectors (See Table 1)ranging from automobiles to IT and business processes, Make in India seeks to enhance jobcreation, move up the ease of doing business ladder, foster innovation and promote developmentof skills. In this process, the nation aims to attract Foreign Direct Investment (FDI), with apromise to the investors for making it a pleasant experience with minimum bureaucracy.To make the program a success, the country needs to be in line with the foreigntechnology as well as capital. With gradual inflows of funds and expertise from outside theborder, India will be able to make a huge chunk of its GDP out of manufacturing. The presenceof a huge jobless crowd explains the urgency to launch this program. Continuous engagement ofthe manpower in the aforesaid sectors is expected to reduce the number of the unemployed. With4opening of new sectors like Defense and Railways, the program is expected to give a long-termbenefit rather than short term results.After the initiation of the campaign, transparent and user-friendly systems have taken theplace of obsolete and slow processes to drive investment proposals. IFC (Investor FacilitationCell) was set up in 2014, to help them seeking regulatory approvals. Building upon the strongrelations with Japan, a special team, Japan plus, was formed to fast track investments proposals.Industrial corridors are being developed across 6 cities to boost the campaign.The logo, which represents the flagship program, is a story in itself. The logo is anelegant lion inspired by the Ashok Chakra, designed to represent success in all spheres thuscommunicating a holistic growth approach of the campaign.Literature ReviewThe study for success of Make in India is very important for the economy. A paperpublished by Dr TV Ramana, Andhra University Campus focuses on the classical theory ofeconomics linking the demand of the goods with the supply side. The paper also covered issuesrelating to the sectors involved, and worldwide response from various critics and economists.The paper concluded that there will be a free flow of capital thus increasing investments. Theresearcher was able to show the producers will be incentivized to produce more, but economicviability and future prospects of the program still remain unanswered.A global perspective by Dr. (Smt.) Rajeshwari Shettar, SM Sheshgiri Commerce collegefor Women showed that the program will bring about a drastic change in fields like automobiles,aviation, biotechnology, chemicals. The researchers proved that Make in India will boost themanufacturing sector with an impact on electronics. Moreover, the researcher tries to convincethat the long term program will help in generation of employment, “through continuous foreign5investments, the progress of the Indian economy can be made sustained and India shouldconsciously work towards attracting greater FDI into Research and Development”. The question,how the Foreign Investments will affect the Indian Economy still needs to be found out.A joint effort by Profs. Samriddhi Goyal, Prabhjot Kaur and Kawalpreet Singh, Punjabshowed that how Human resources and Financial services play an important role in the program.The researchers focused on economic growth and employment generation, by fosteringinnovation and minimizing brain drain. The paper also highlighted the need for financial advisorsto kickstart the program for industrialists.Inferences drawn from Literature Review1. The Program’s success can be linked with the domestic as well as international demand,thus India needs to care about continuous foreign investments.2. India will be able to boost up its manufacturing sector with special focus on 25 sectorsand generate employment through attraction of foreign funds.3. To make India a manufacturing hub, financial services and human resource must be takeninto account.Objectives of the StudyFollowing are the primary objectives of this study:1. To analyze the correlation between Foreign Direct Investment inflows and other majormacroeconomic variables such as GDP, Imports, Exports, Index of Industrial Productionetc. so as to understand how these variables interact with each other.2. To develop a regression model that can be used in determining the target areas forgovernment policy formulation so as to attract greater amount of Foreign DirectInvestment in the future63. To develop a basic forecast for GDP, Exports and Gross Fixed Capital Formation basedon past trends and trends post the launch of Make in India campaign4. To determine whether the campaign has been successful or not and to recommend futurecourse of action accordinglyVariables DefinedThis study has used a variety of macroeconomic indicators for analysis. All data pertains to theIndian Subcontinent). Variables chosen for this study cover both, the domestic production andhealth of the economy as well as its interaction with foreign partners.Following are the variables used for the study:1. Foreign Direct Investment: It refers to the investment made by a company or anindividual of one country in another company of a foreign country. This can be in theform of setting up a new business in a foreign country, or taking over an alreadyestablished business or buying partial control of a foreign business. This is in contrast toportfolio investment wherein investors simply buy equities in a foreign country. FDIleads to an effective control over the decisions of a business. FDI has been chosen largelybecause Make in India campaign has been focused on increasing the FDI inflows in theeconomy, making FDI as the best indicator to gauge the success of the campaign2. Gross Domestic Product: It is the sum of the market values of all the ‘final’ goods andservices used in the economy during a given period (year/quarter)3. Exports: It refers to the value of goods and services sold abroad4. Imports: It refers to the value of goods and services purchased from abroad75. Trade Openness: It is the measure of openness of an economy with respect to trade and iscalculated by dividing the sum of imports and exports with the GDP.Trade Openness = (Exports + Imports)/GDP6. Index of Industrial Production: It is used to measure the growth rates of different industrygroups of an economy within a particular period of time.7. Exchange Rate: It refers to the value of one currency for the purpose of converting it toother. We have used the conversion rate for INR to US Dollar.8. Gross Fixed Capital Formation: It is the net increase in the assets (physical assets) in theeconomy, does not include land purchases and not accounts for depreciation.9. Fiscal Deficit: It refers to the sum of Primary deficit and the interest payments due10. Political Ideology (dummy variable): this dummy variable takes two values 0 and 1. 0 hasbeen allocated to the UPA regime (whose ideology was more focused towards secularismand benefit of the poor using freebies; left wing ideology) and 1 has been allocated toNDA regime (whose ideology was more focused towards establishment of industries inthe economy; right wing ideology)Data SourceAll data has been collected from RBI’s ‘Handbook of Statistics on the Indian Economy’ which isavailable on RBI’s online Data Warehouse (see References for the website link). This datasource was found to be the most authentic among all the data sources available.Period of StudyThe data has been collected for the financial years 2004-05 to 2016-17. This period covers theUPA regime, a period of recession (2008-09) and the NDA regime (2014 onwards) hencemaking it the perfect period for study for the impact of the Make in India campaign.8Research MethodologyThis study has been divided into three parts: Correlation Analysis, Regression Modelling andForecasting.Correlation Analysis has been done using basic MS Excel formula of “=CORREL”. This methodgives the Karl Pearson’s Coefficient of Correlation for the two variables in question. It can beused for finding out multiple correlation too.Regression Analysis has been done using EViews software package taking FDI as the dependentvariable and GDP, Index of Industrial Production and Exchange Rate as the independentvariables. Data till 2015-16 Fiscal Year has been used only for regression so as to avoiddistorting the equation due to the demonetisation impact.Lastly, forecasts have been calculated with 95% confidence using MS Excel’s Forecast sheettool. Forecasts have been made till the financial year ending 31st March, 2021, which coverModi Government’s tenure and show the impact of the campaign beyond the 5 years of BJP rule.Results and InterpretationI. Correlation AnalysisFollowing table shows the Karl Pearson’s coefficient of correlation between FDI and variousmacroeconomic variables of the economy.Macroeconomic Variable Coefficient of CorrelationGDP 0.917546757Trade Openness 0.111425909Exports 0.817143813Imports 0.794713638Index Of Industrial Production 0.852139013Exchange Rate 0.836842352Gross Fixed Capital Formation 0.891193035Fiscal Deficit 0.822563742Political Ideology 0.7941039329Similar results have been obtained by Maheshwari, J (2015).1. Gross Domestic Product: There is a high degree of positive correlation between FDIand GDP. This happens because a strong GDP indicates that the economy is in a goodcondition overall and has a large market to cater to (hence the large production)which attracts foreign investors towards the economy, leading to an increase in theFDI2. Trade Openness: There is a low correlation between FDI and Trade Openness. This isprimarily due to the effect of two opposing forces. One school of thought propagatesthat companies or investors view FDI as a substitute to importing so more FDI willresult in lesser openness and so on. On the other hand, some economists also believethat Trade Openness make a market more familiar to foreign investors henceattracting more investment. The low degree of correlation is largely due to the neteffect of these two factors3. Exports: There is a high correlation between FDI and Exports which is due to the factthat as exports increase, a nation’s goods become better known in the market andhence act as a pull factor for the investors4. Imports: The high degree of correlation between FDI and imports arises mainly dueto the fact that high level of imports show a greater demand and scope for expansionvia domestic production in the economy, hence attracting foreign investors.5. Index of Industrial Production: High degree of correlation between FDI and Index ofIndustrial Production shows that foreign investors are attracted towards an industrialsector that is in a better shape in terms of production, hence increasing FDI.106. Exchange Rate: Prima Facie, it is observed that an increase in FDI leads to Increase inexchange rate. A higher exchange rate shows that the economy is offering goods andlabour at a cheaper price which attracts foreign investors, hence the relation.7. Gross Fixed Capital Formation: With new investments used in purchase and setup ofFixed assets and machinery, the positive correlation can be explained between GFCFand FDI. Which means, foreign investments are being put to good use.8. Fiscal Deficit: A rise in fiscal deficit is not necessarily to be linked with FDI inflows.Conditions like increasing oil imports and farm loan waiver schemes has acceleratedthe deficit for quite a time.9. Political Ideology: The right wing of Indian Politics seems to have an ideologytowards more foreign investments vis-a- vis the central and left front. Thus, hugeAmount of FDI can be seen during the NDA regimeII. Regression AnalysisAn equation has been estimated using the least squares method with the log values of FDI,GDP, IIP and Exchange Rate so as to predict prospective FDI inflows given the GDP, IIPand Exchange Rate in the economy.Variable Coefficient Std. Error t-statistic Prob.C 1.113211 2.122980 0.524363 0.6142X1_GDP -4.352618 1.799509 -2.418781 0.0419X2_IIP 11.41737 3.036233 3.760372 0.0055X3_EXCHANGERATE5.217142 2.368821 2.202421 0.058811R- Squared = 0.940443Adjusted R Squared = 0.918108Equation isY_FDI = 1.11 – 4.35 (X1_GDP) + 11.41 (X2_IIP) + 5.22 (X3_EXCHANGE RATE)The equation is most appropriate to predict FDI because:1. The P – values of the three independent variables are less than or equal to 0.05,rejecting the null hypothesis that the coefficients of these variables is zero, makingthem good predictors of FDI2. The R- squared and adjusted R- squared values are greater than 0.9 (0.949443 and0.918108) which shows that the equation explains most of the variation in the dataeven after adjusting it for 3 variables.III. ForecastsThis paper discusses forecast of three major economic variables namely GDP, Exports andGFCF (Gross Fixed Capital Formation). All of these have been calculated at 95% confidence1. GDP12GDP is likely to increase at a faster pace during the coming years assuming that the campaigngoes at the same pace. This is due to the fact that FDI will provide synergy to R&D andmanufacturing activities leading to faster growth. Ease of doing business will help domesticmanufacturers along with foreign producers2. Exports13Exports are likely to increase at a faster pace during the coming years assuming that thecampaign goes at the same pace. This is due to the fact that FDI will help in augmentingdomestic capital for exports, helping to transfer technology and new products for exports,facilitating access to new and large foreign markets, providing training for the local workforce,and upgrading technical and management skills.3. GFCFGFCF is likely to see a steady growth. This is due to the fact that FDI involves financing i.e.direct investment in a company and might result in funds floating from one company to the other14without actually contributing to the real investments. However, FDI can act as a good proxy forReal investments in long termRecommendations and ConclusionWith a high degree of correlation between FDI and GDP, it's a statistical proof thatincreasing FDI is acting as a catalyst for improving GDP figures of the country, thus the countrymust aim at procuring more and more investment proposals. Short term benefits can also be seenvia Index of Industrial Production (IIP), which is moving in line with increasing investments.Thus, planning must be done accordingly to continue this process. With increasing Investments,India must also strengthen its position among the BRICS nations in terms of ease of doingbusiness ranking to lure investors and strategic partners. Increasing Oil imports has causedtrouble to the deficit. With a huge budgetary deficit, foreign funds must be put into proper usefor revenue generation to tackle this problem. Rather than political gimmicks, nation’s interestmust be put in the first place.This paper concludes that the government has been successful to a great extent interms of positioning India as a global manufacturing hub not only on the basis of slogans andpropaganda, but on the basis of the small steps taken in every sphere of the economy. Thesesmall actions, from reducing the export formalities to setting up an Investor Facilitation Cell,have been the real catalysts behind this campaign and are at its core. It is also evident that thecampaign has great opportunities for India’s future and hence must be pursued with equal vigorin the coming years. However, the government also needs to strike a balance when it comes tospending money on infrastructure and should use the Public Private Partnership Model as analternative to the same. Many other researches on this subject have reached the similar15conclusion. There is a lot of scope for further research on this topic mainly at the time of 2019,when the Modi Government’s term ends.