Anantam IASCurrent Affairs · 8 September 2025

Foreign Capital in India

Study Guides · Study Notes · GS III · Indian Economy

Why in news:

The article highlights the changing dynamics of Foreign Direct Investment (FDI) in India — while inflows are rising in numbers, outflows, disinvestments, and the nature of investments raise concerns about long-term growth, sustainability, and economic stability.

UPSC Relevance:

CSE in prelims as well as in mains examination has focused on FDI. A case in point is a following PYQ.

Mains PYQ 2013

Q1: Though India allowed foreign direct investment (FDI) in what is called multi brand retail through joint venture route in September 2012, the FDI ,even after a year, has not picket up. Discuss the reasons.(2013)

Mains PYQ 2014

Q1: Foreign direct investment in the defence sector is now set to be liberalized. What influence this is expected to have on Indian defence and economy in the short and long run?

Key Highlights:

Divergence between Inflows and Outflows:

FDI inflows touched $81 billion in FY 2024-25, a rise from the previous year.
However, outflows and repatriations surged, leading to a decline in net FDI inflows.

Sectoral Trends:

Manufacturing sector: Weak participation, falling from 25% to just 12% of total FDI.
E-commerce & IT hardware: Still attracting large FDI.

The Paradox: Why inflows dipped despite growth?

FPI (Foreign Portfolio Investment): Net equity inflows turned negative in 2022-23 and 2023-24. Inflows shifted to developed economies (US, EU) where bond yields rose and risks were lower.

FDI (Foreign Direct Investment): Net inflows fell from $44.4 billion (2022-23) to $33 billion (2023-24). Lack of sustained manufacturing investment weakens India’s industrial base.

Global factors: Tight monetary policy & higher interest rates in US/EU attract capital away from emerging markets.

Domestic factors: Policy and regulatory unpredictability. High valuations in Indian stock markets, limiting new FPI entry. FDI not aligned with India’s manufacturing push (Make in India, PLI schemes).

For more details:

Note: https://anantamias.com/current-affairs/foreign-direct-investment/