Abstract. Indian is one of the fastest growing economies of the world and recent growth rate of the Indian economy has been decelerated. To better understand the growth process, an empirical model using time series approach has been used. The study has used quarterly observations of Real Gross Domestic Product (GDP) at factor cost, Foreign Direct Investment (FDI) inflows to India, Gross Fixed Capital Formation (GFCF), GDP Deflator, Trade Openness and Real Effective Exchange Rate (REER) from 1996-97 to 2017-18 to analyse direction of relationship among these variable. It is observed that the Trade Openness affects GDP positively but Trade Openness is negatively impacted by GDP where as FDI inflow to India has a positive impact on Trade Openness. Further, the REER has negative impact on FDI inflows whereas it is found that GFCF has positive impact on REER. GDP is the major variable that influences the other variables under study. FDI inflow is the outcome of GDP growth. To make the FDI beneficial, the government must improve the absorptive capacity of the country and change the policy related to FDI.

Keywords: FDI, GDP, exchange rate, trade openness.