<p>This study examines the dynamic relationship between foreign direct investment (FDI) and key macroeconomic indicators in India using quarterly data from 2006 to 2023. A Vector Autoregression (VAR) model was employed to forecast trends in FDI, while a Structural VAR (SVAR) model was used to identify causal effects of FDI shocks. The VAR (3) model, selected using the Akaike Information Criterion, provided 12-quarter forecasts of FDI inflows. The SVAR model, identified through a recursive short-run restriction, revealed that a positive FDI shock leads to a persistent increase in employment and inflation, but induces negative or unstable responses in GDP and the services sector. Exchange rate and trade openness respond positively in the short term but lack medium-term sustainability. These results indicate that while FDI supports labor market and trade performance, it does not automatically foster long-term economic growth without complementary domestic reforms. The key contribution of this study lies in providing empirical evidence on the heterogeneous and time-dependent effects of FDI shocks on India’s macroeconomy, particularly highlighting the disconnect between FDI inflows and long-term growth without structural reforms. Policy recommendations include directing FDI toward labor-intensive sectors, managing inflation through coordinated macroeconomic policies, and strengthening trade infrastructure. The findings can support formulating evidence-based FDI policies to enhance macroeconomic stability and long-term growth, while also offering a foundation for future research to explore sector-specific and non-linear dynamics of investment impacts.</p>