FDI inflows have moderated since 2022 while outward FDI is rising. Examine the causes and the case for a new investment promotion architecture.
Subtopic: Economy · FDI
How to structure your answer
Introduction: DPIIT data: FY24 gross FDI inflows $70.95 billion vs $84.83 billion peak in FY22; outward FDI commitments crossed $46 billion in FY24 (RBI Bulletin).
Body: 1) Causes — global rate cycle, China-plus-one slow uptake, US-EU reshoring, BIT vacuum (most BITs terminated post-2016 Model BIT). 2) Sectors — services (39%), computer software, telecom, automobiles attract bulk. 3) Outflows — Indian conglomerates' overseas acquisitions, GIFT IFSC routing. 4) Policy — InvestIndia, NSWS (National Single Window System).
Way forward: Renegotiate BITs (UAE 2024, Australia ongoing); operationalise NSWS as single-window for clearances; sectoral PLI linkage; revisit Model BIT 2016 ISDS clause.
Written within the word limit
230 words · target 250 words · 14 min
Introduction:
RBI's Bulletin April 2026 shows gross FDI inflows of $71 bn in FY25 against a peak of $84.8 bn in FY22, while outward FDI (ODI) rose to $42 bn — the highest since liberalisation. The FDI moderation has prompted DPIIT to draft a new investment-promotion architecture under the Bharat Investment Policy 2026.
Causes of moderation: Global FDI flows fell 7% in 2024 (UNCTAD World Investment Report 2024) amid US Fed tightening, tariff wars and geopolitical fragmentation. India-specific factors: (i) FY22 saw exceptional Reliance-Jio and Bharti deals that have not recurred; (ii) Press Note 3 (April 2020) restricting FDI from land-bordering countries froze a $30 bn Chinese pipeline; (iii) high pre-2019 corporate tax and angel-tax disputes (resolved Budget 2024-25); (iv) inter-corporate dividend repatriation, especially in IT-BPO.
Outward FDI surge: Tata (UK steel, JLR), Adani (Australia), Reliance (Europe), ONGC Videsh (36 projects) and Indian tech firms (Zomato, Razorpay, Pine Labs) have invested abroad for markets, IP and supply-chain integration under PLI export incentives.
New promotion architecture: Invest India (DPIIT, 2009) and the Investment Facilitation Cell handle queries but lack a single-window legal mandate. The proposed Bharat Investment Authority would consolidate Invest India, IFSCA, GIFT-City SEZ Authority and Special Investment Regions. Tax certainty under BEPS 2.0 Pillar-One, Vivad-se-Vishwas 2.0, FTAs (UAE CEPA, Australia ECTA, India-EFTA TEPA 2024) and PLI 2.0 are complementary.
Way forward:
DPIIT should table the Bharat Investment Authority Bill by FY27, harmonise sub-national tax incentives through the GST Council framework, and target gross FDI of $100 bn by 2030.
What an examiner expects to see
- Gross FDI FY24 $70.95 billion (DPIIT)
- Outward FDI commitments $46 billion FY24
- Peak FDI $84.83 billion FY22
- Services 39% of FDI equity
- NSWS launched 2021 — 32 ministries onboarded
- Model BIT 2016 — strict ISDS provisions
- GIFT IFSC routing for FDI
Concrete cases, schemes and judgments
- Apple supplier investments
- Foxconn-Vedanta exit
- Tata Group overseas acquisitions
- UAE-India CEPA investment chapter