Academy of Accounting and Financial Studies Journal Volume 25, Issue 3, 2021 1 1528-2635-25-3-727 WILL INWARD FOREIGN DIRECT INVESTMENT THROUGH AUTOMATIC ROUTE IN MANUFACTURING SECTOR BRING AN INSTRUMENTAL CHANGE IN INDIA'S GROWTH? Piyali Roy Chowdhury, Research Scholar, Vellore Institute of Technology, VIT Business School, Chennai A Anuradha, Associate Professor, Vellore Institute of Technology, VIT Business School, Chennai ABSTRACT Intensity to capital accumulation, size of the market and scale of the production generally serve as the key determinants of FDI in any country. It is also discovered that the imported capital goods and intermediate products work as catalysts to augment the production in the manufacturing industries. This study aims to find out the relation between Foreign Direct Investment (FDI) and manufacturing sector in India. It analyses data from 1996 to 2020. It extracts a long run cointegration between the two variables. Analysing the short run scenario, the article considers error correction model to define the short run shocks and its effectiveness on these variables. There exist thirty seven percent chances to move from short run disequilibrium to long run stable equilibrium. Also, the error correction term proves long run causality from FDI to manufacturing sector. The cumulative sum and cumulative sum square test prove the economic model to be stable. Finally, the study suggests the Indian policymakers to relax FDI inflows norms and enable an automatic route up to 74% towards all the manufacturing sectors, as done for defence manufacturing in order to augment the overall development of Indian economy. Keywords: Foreign Direct Investment (FDI), Manufacturing Sector, ARDL, Granger Causality, Automatic route, India. INTRODUCTION The industrialization of Indian economy indicated a positive environment for foreign investors since 1991. Specifically, construction and power sectors were highlighted during the expansion process. Limits of investment were increased to 51 percent and more for the prioritized manufacturing industries in India. Beginning of 2000 faced a sharp hike in the valuation of foreign investment as overseas corporate bodies could invest further here. Foreign Direct Investment (FDI) inflows and manufacturing sector outputs were mutually supporting each other throughout the period of 1990. Cross border learning through enhanced communication and capability to imitate new technology will bring forward the specific development in the manufacturing sector in India. The relaxation in FDI policies also facilitates better production environment in Indian economy as proved by sufficient literature reviews. Ease of entry, threats for imports, and encouragement towards manufacturing production will boost the productivity curve of Indian manufacturing sector. It will be followed by decrease in average cost structure for the same. Keeping these important areas in consideration, the article concentrates on finding a relationship between FDI and manufacturing sector in India. The emergence of service sector has been working as a driver for growth for the