Role of External Sector in India's Growth: An Empirical Analysis

Indian Economy has witnessed tremendous growth during last two decades and many believe that liberalisation of external sector has helped India to rise at such a faster pace. Though there are several theoretical studies concerning the role of trade and financial openness in the income growth of an economy but there is acute lack of country specific empirical studies in this field. The present study attempts to examine the role of External Sector in India's Real GDP growth over the period of 2001–02 to 2014–15. The study concludes that exports have played the most important role in the growth of India's Real GDP. Imports, Foreign Direct Investment and Foreign Exchange Reserves have also played significantly positive role in India's growth. However, Foreign Portfolio Investment and Foreign Exchange Rate have played statistically insignificant role in India's Real GDP growth.