Impact of Foreign Exchange Rate and Inflation Rate on the Economic Growth of India

Abstract

This paper tries to investigate the impact of foreign exchange rate and inflation rate on the economic progress of India. In this study the economic progress has been measured by annual GDP ( Gross Domestic Product ) growth in India. Correlation analysis and multiple regression model have been designed to explore the relationship among the mentioned three variables. The annual GDP growth of India has been considered as the dependent variable and the other two macroeconomic variables ( Foreign exchange rate and inflation rate ) have been considered as the independent variables. Secondary sources of data have been gathered to arrive at a logical conclusion. The results show a positive correlation between GDP growth rate and the foreign exchange rate and a negative correlation between the GDP growth rate and the inflation rate. Results from the linear regression analysis show that inflation rate has a strong influence or impact on the GDP growth rate than the foreign exchange rate. It is expected that the present study will help the policy makers and the researchers to understand the impact of foreign exchange rate and inflation rate on the GDP growth in India,