Foreign Investment and Indian Clean Energy Transition: An Empirical Assessment

The transition to cleaner energy in India has gained increasing importance given the rising demand for energy, economic development, energy security, and environmental sustainability. Foreign direct investment (FDI) can be an instrument to facilitate this transition by providing capital, technology, managerial expertise, and access to international production networks. The relationship between FDI and renewable energy consumption may differ in the short run and long run. This study empirically investigates the short-run and long-run relationship between foreign direct investment and renewable energy consumption in India using annual time-series data for the period 1990–2023. The dependent variable is renewable energy consumption, and the main explanatory variable is FDI. Trade openness and log GDP per capita are control variables. The study uses the Autoregressive Distributed Lag (ARDL) framework to investigate the short-run dynamics, long-run relationship, and the adjustment toward equilibrium. The results indicate a positive and statistically significant short-run link between FDI and renewable energy consumption (β = 0.609, p = .026). While the long-run coefficient of FDI is negative, it is statistically insignificant (β = −1.489, p = .164). The ARDL bounds test has an F-statistic (7.452) that is higher than the 1% upper-bound critical value (7.061), providing strong evidence of a long-run level relationship based on the F-statistic. The associated t-statistic of -3.311, however, is not conclusive. The error-correction coefficient is negative and statistically significant (β = −0.265, p = .003), indicating convergence to the long-run equilibrium. Approximately 26.5% of the disequilibrium is corrected within a year. The findings suggest that there is a positive association between renewable energy consumption and FDI in the short run, but no statistical evidence of a separate long-run relationship between FDI and renewable energy consumption. The study calls for redirecting foreign investment toward renewable energy, clean technologies, infrastructure, and sustained green investment. The study focuses on foreign direct investment, renewable energy consumption in India, the ARDL model, the clean energy transition, error correction, and sustainable development.