Recent Trends in Inflows and Outflows
Declining Quality of Foreign Direct Investment in India: India’s gross FDI inflows touched $81 billion in FY 2024-25, marking a 13.7% rise from the previous year. Yet, net inflows—which account for disinvestments and repatriations—have fallen sharply. Between FY 2021-22 and FY 2024-25, retained capital plummeted to just $0.4 billion. Disinvestments grew by over 50%, showing that capital is increasingly short-term and unstable.
Static GK fact: The Department for Promotion of Industry and Internal Trade (DPIIT) tracks India’s FDI inflows sector-wise and state-wise.
Shift Towards Short-Term Investments
FDI has moved from long-term industrial projects to short-term profit-driven flows. Investors rely heavily on tax arbitrage and treaty-based routing. Manufacturing, which once attracted strong inflows, now receives only 12% of FDI. Instead, money is flowing into financial services, energy, and hospitality. These sectors have limited job creation capacity and weaker spillover effects on innovation.
Static GK tip: The first major FDI policy liberalisation in India came in 1991 as part of economic reforms.
Rising Outward Investment by Indian Firms
Indian outward investment has risen significantly, reaching $29.2 billion in FY 2024-25, more than double the 2011-12 level. Companies are moving abroad citing regulatory hurdles, infrastructure bottlenecks, and policy instability at home. This capital flight limits domestic job creation, industrialisation, and technology transfer.
Static GK fact: Singapore remains the top destination for Indian outward investment, followed by the US and the UK.
Barriers in the Investment Climate
Despite reforms, regulatory opacity and inconsistent governance discourage foreign capital. Frequent legal and policy changes heighten risks for investors. The dominance of inflows from Singapore and Mauritius reflects a focus on tax havens rather than genuine industrial investments. Traditional investors like the US, Germany, and the UK are scaling back their commitments, exposing structural weaknesses.
Economic Impact of Declining Net FDI
Weakening net FDI inflows threaten macroeconomic stability. Reduced inflows limit the Reserve Bank of India’s capacity to stabilise the rupee and balance of payments. States like Maharashtra and Karnataka continue to dominate inflows, but most funds target services and rent-seeking sectors, yielding fewer multiplier effects on manufacturing and exports.
Static GK fact: Karnataka emerged as the top FDI recipient state in FY 2021-22, surpassing Maharashtra.
Way Forward for Quality FDI
India must attract long-term, committed capital by simplifying regulations and ensuring policy stability. Investment in infrastructure and human capital will encourage high-value sectors like advanced manufacturing and clean energy. A stronger focus on quality and retention of FDI rather than headline inflows is necessary to build resilience and align with national development goals.
Static Usthadian Current Affairs Table
Declining Quality of Foreign Direct Investment in India:
| Topic | Detail |
| Gross FDI inflows FY 2024-25 | $81 billion, 13.7% rise |
| Net retained FDI FY 2024-25 | $0.4 billion |
| Manufacturing share in FDI | 12% of inflows |
| Indian outward FDI FY 2024-25 | $29.2 billion |
| Main reasons for outward FDI | Regulatory hurdles, infrastructure gaps, policy uncertainty |
| Key FDI source countries | Singapore, Mauritius, US, UK, Germany |
| Top FDI recipient states | Maharashtra, Karnataka |
| RBI concern | Impact on balance of payments and rupee stability |
| Major FDI liberalisation year | 1991 reforms |
| High-value focus sectors for future | Advanced manufacturing, clean energy |
