{"id":107610,"date":"2026-06-11T11:01:38","date_gmt":"2026-06-11T05:31:38","guid":{"rendered":"https:\/\/vajiramandravi.com\/current-affairs\/?p=107610"},"modified":"2026-06-11T11:01:38","modified_gmt":"2026-06-11T05:31:38","slug":"understanding-the-reality-behind-falling-net-fdi-in-india","status":"publish","type":"post","link":"https:\/\/vajiramandravi.com\/current-affairs\/understanding-the-reality-behind-falling-net-fdi-in-india\/","title":{"rendered":"Net FDI in India: Understanding the Reality Behind Falling Net FDI"},"content":{"rendered":"<h2><b>Net FDI Latest News<\/b><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">India&#8217;s net FDI has declined sharply in recent years \u2014 from a peak of $44 billion in 2020-21 to less than $1 billion in 2024-25 \u2014 even as gross inflows remain strong.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">This has triggered a debate between critics who see it as a sign of weakness and the Chief Economic Adviser who points to large gross inflows as evidence of strength. This article argues that both sides are missing the bigger picture.<\/span><\/li>\n<\/ul>\n<h2><b>Understanding the FDI Gap: Gross vs Net<\/b><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Gross FDI<\/b><span style=\"font-weight: 400;\"> refers to total capital coming into India. <\/span><b>Net FDI<\/b><span style=\"font-weight: 400;\"> is what remains after subtracting outflows \u2014 disinvestment, repatriation of capital, and profits sent abroad.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">India&#8217;s net FDI recovered partially to $7.6 billion in 2025-26 against gross inflows of $94.6 billion \u2014 a massive gap that demands explanation.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The official narrative blames profit repatriation for weak net FDI. However, analysts point out this is misleading.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Under Balance of Payments (BoP) conventions, dividend remittances are recorded in the current account, not the financial account.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">They widen the Current Account Deficit (CAD) but do not reduce net FDI figures.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The <\/span><span style=\"font-weight: 400;\">actual culprit is disinvestment and capital repatriation<\/span><span style=\"font-weight: 400;\">, which appear in the financial account.<\/span><\/li>\n<\/ul>\n<h2><b>Three Types of FDI: Not All Investment is Equal<\/b><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">FDI is commonly seen as a uniform, long-term commitment. In reality, it comprises three very different investor categories:<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><b>Real FDI (RFDI)<\/b><span style=\"font-weight: 400;\"> consists of traditional multinational enterprises bringing technology, brands, and productive capabilities. These represent genuine long-term commitments to host country development.\u00a0<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"3\"><span style=\"font-weight: 400;\">Between 2022-23 and 2025-26, RFDI accounted for <\/span><b>41.9%<\/b><span style=\"font-weight: 400;\"> of effective inflows.<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><b>Financial Investors<\/b><span style=\"font-weight: 400;\"> \u2014 private equity funds, venture capital firms, sovereign wealth funds, and asset managers \u2014 contribute <\/span><b>40.5%<\/b><span style=\"font-weight: 400;\"> of effective inflows. Their primary goal is capital growth and <\/span><b>planned exits<\/b><span style=\"font-weight: 400;\">, not long-term industrial development.\u00a0<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"3\"><span style=\"font-weight: 400;\">A stark example: Singapore&#8217;s Temasek exited Schneider Electric India in 2025, earning <\/span><b>$6.4 billion on a $637 million investment<\/b><span style=\"font-weight: 400;\"> made just five years earlier.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"3\"><span style=\"font-weight: 400;\">In CY 2025 alone, 45 major PE\/VC exits accounted for <\/span><b>$29 billion in outflows<\/b><span style=\"font-weight: 400;\"> out of a total divestment of $52 billion.<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><b>Diaspora investments and Special Purpose Vehicles (SPVs)<\/b><span style=\"font-weight: 400;\"> make up the remaining <\/span><b>17.6%<\/b><span style=\"font-weight: 400;\">. These involve capital raised abroad and channelled through offshore financial centres, and may sometimes include <\/span><b>round-tripping<\/b><span style=\"font-weight: 400;\"> of Indian funds.<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<h2><b>The Problem with Gross FDI Numbers<\/b><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">A significant blind spot in gross FDI figures is that <\/span><span style=\"font-weight: 400;\">they mix fresh capital with mere accounting changes<\/span><span style=\"font-weight: 400;\"> \u2014 intra-group ownership reorganisations, mergers, share swaps, and conversion of <strong><a href=\"https:\/\/vajiramandravi.com\/current-affairs\/what-are-external-commercial-borrowings-ecbs\/\" target=\"_blank\">External Commercial Borrowings (ECBs)<\/a><\/strong> into equity.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">No new money actually enters the country in such transactions.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Of the $560 billion in equity inflows between 2014-15 and 2025-26, approximately $40 billion fall into this non-fresh-capital category.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Large individual transactions \u2014 such as those involving Bosch and Meesho Technologies \u2014 can significantly distort annual inflow and sectoral data.<\/span><\/li>\n<\/ul>\n<h2><b>Manufacturing FDI: A Worrying Decline<\/b><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Real FDI into India&#8217;s manufacturing sector has declined across three consecutive four-year periods.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">In the most recent period (2022-23 to 2025-26), RFDI into manufacturing accounted for just 10.6% of total effective inflows.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">This is particularly concerning because <\/span><b>manufacturing FDI<\/b><span style=\"font-weight: 400;\"> \u2014 not financial investor FDI \u2014 is <\/span><span style=\"font-weight: 400;\">what drives technology transfer, job creation, and industrial development<\/span><span style=\"font-weight: 400;\">.<\/span><\/li>\n<\/ul>\n<h2><b>Outward FDI: Maturity or Capital Recycling<\/b><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">India&#8217;s Outward FDI (OFDI) has also risen sharply.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Between 2023-24 and 2025-26, India invested $65 billion outward \u2014 but 45% of this went into &#8220;Financial, Insurance, and Business Services&#8221; (FIB) sectors, primarily through holding companies and SPVs in Singapore (27%) and the UAE (11%).<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">This pattern raises questions. Much of this OFDI flows to holding entities rather than operational businesses, and may represent capital recycling across jurisdictions rather than genuine corporate expansion.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The example of TML Commercial Vehicles (a Tata Motors subsidiary) routing a $405 million investment through a Singaporean entity to acquire an Italian company illustrates the complexity.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>GIFT City <\/b><span style=\"font-weight: 400;\">further adds to this complexity \u2014 OFDI through it rose from $246 million in 2023-24 to $1.18 billion in 2025-26, creating significant two-way capital flows that are difficult to track cleanly.<\/span><\/li>\n<\/ul>\n<h2><b>The True Cost: For Every Dollar In, $1.50 Goes Out<\/b><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">When outflows from disinvestment, dividend remittances ($118.9 billion), and IPR\/royalty payments ($46.6 billion) are added up \u2014 excluding OFDI and technical service payments \u2014 total outflows between 2022-23 and 2025-26 reached $344.4 billion.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Against fresh inflows (excluding reinvested earnings) of $230.6 billion, this means for every $1 of fresh inflow, approximately $1.50 flowed out.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">This ratio has steadily worsened: outflows per dollar stood at 56 cents (2014-18), rose to 70 cents (2018-22), and have now crossed $1.50 \u2014 signalling a serious external sustainability concern.<\/span><\/li>\n<\/ul>\n<h2><b>Conclusion<\/b><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Strong gross FDI numbers can mask a fragile reality. When capital exits faster than it enters, and financial investors crowd out industrial investors, the promise of FDI \u2014 technology, jobs, and growth \u2014 remains only partially fulfilled.<\/span><\/li>\n<\/ul>\n<p><b>Source:<\/b> <strong><a href=\"https:\/\/epaper.thehindu.com\/reader\" target=\"_blank\" rel=\"nofollow noopener\">TH<\/a> | <a href=\"https:\/\/www.thehindu.com\/data\/net-fdi-inflow-plummeted-india\/article69677796.ece\" target=\"_blank\" rel=\"nofollow noopener\">TH<\/a><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Net FDI in India has fallen sharply despite strong gross inflows. Learn why Net FDI matters, the role of disinvestment and concerns over manufacturing investment.<\/p>\n","protected":false},"author":18,"featured_media":107623,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[18],"tags":[60,8066,22,1888],"class_list":{"0":"post-107610","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-upsc-mains-current-affairs","8":"tag-mains-articles","9":"tag-net-fdi","10":"tag-upsc-current-affairs","11":"tag-upsc-mains-current-affair","12":"no-featured-image-padding"},"acf":[],"_links":{"self":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/107610","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/users\/18"}],"replies":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/comments?post=107610"}],"version-history":[{"count":4,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/107610\/revisions"}],"predecessor-version":[{"id":107628,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/107610\/revisions\/107628"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media\/107623"}],"wp:attachment":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media?parent=107610"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/categories?post=107610"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/tags?post=107610"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}