{"id":62402,"date":"2025-09-08T11:18:00","date_gmt":"2025-09-08T05:48:00","guid":{"rendered":"https:\/\/vajiramandravi.com\/current-affairs\/?p=62402"},"modified":"2025-09-08T11:18:00","modified_gmt":"2025-09-08T05:48:00","slug":"the-declining-investor-sentiment-towards-india-growth-vs-capital-outflows","status":"publish","type":"post","link":"https:\/\/vajiramandravi.com\/current-affairs\/the-declining-investor-sentiment-towards-india-growth-vs-capital-outflows\/","title":{"rendered":"The Declining Investor Sentiment Towards India: Growth vs Capital Outflows"},"content":{"rendered":"<h2><b>Investors Sentiment Latest News<\/b><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">India has been the <\/span><b>world\u2019s fastest-growing major economy<\/b><span style=\"font-weight: 400;\">, averaging 8.2% GDP growth between 2021 and 2024 \u2014 higher than Vietnam, China, and other major economies. The momentum continued in 2025 with growth of 7.4% and 7.8% in the first two quarters.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Yet, this impressive performance has <\/span><b>not translated into steady <\/b><a href=\"https:\/\/vajiramandravi.com\/upsc-exam\/foreign-portfolio-investment-fpi\/\" target=\"_blank\"><b>foreign portfolio investment (FPI)<\/b><\/a><b> inflows<\/b><span style=\"font-weight: 400;\">.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Except for 2023-24, when FPIs invested $25.3 billion, all other recent years saw net outflows \u2014 $18.5 billion in 2021-22, $5.1 billion in 2022-23, $14.6 billion in 2024-25, and $2.9 billion in 2025-26 (till September).\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">This disconnect highlights persistent investor caution despite robust growth.<\/span><\/li>\n<\/ul>\n<h2><b>Role of Foreign capital in India&#8217;s growth<\/b><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Foreign capital, which includes Foreign Direct Investment (FDI) and Foreign Portfolio Investment (FPI), has played a significant role in India&#8217;s economic growth, especially since the economic liberalization of 1991.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">It provides financial resources that the domestic economy may lack, acting as a crucial driver of development.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Foreign capital supplements domestic savings, finances investment needs, and bridges the gap in capital-scarce sectors.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Foreign Direct Investment (FDI) has modernised industries, brought in advanced technologies, boosted infrastructure, and created employment opportunities. It has also integrated India into global supply chains and enhanced competitiveness.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">FPI has deepened capital markets and provided liquidity, though with volatility risks.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Beyond finance, foreign capital strengthens innovation, supports services like IT and e-commerce, and improves balance of payments by financing current account deficits.\u00a0<\/span><\/li>\n<\/ul>\n<h2><b>The Foreign Capital Paradox in India<\/b><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Despite India\u2019s robust GDP growth of 7.8% in early 2025, overseas capital inflows have remained weak.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Net capital flows<\/b><span style=\"font-weight: 400;\"> fell to $18.3 billion in 2024-25<\/span><span style=\"font-weight: 400;\">, the lowest since the global financial crisis of 2008-09, and <\/span><span style=\"font-weight: 400;\">inflows in April-June 2025 were over 40% lower than the same period last year<\/span><span style=\"font-weight: 400;\">.\u00a0<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Net capital flows into India includes foreign investment, commercial borrowings, external assistance and non-resident Indian deposits.<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><a href=\"https:\/\/vajiramandravi.com\/current-affairs\/indias-balance-of-payments\/\" target=\"_blank\"><b>Balance of payments<\/b><\/a><span style=\"font-weight: 400;\"> (BoP) data show net foreign investment plunging from a peak of $80.1 billion in 2020-21 to just $4.5 billion in 2024-25, with minimal FDI ($959 million) and modest FPI inflows ($3.6 billion, largely in debt).\u00a0<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">BoP records all financial transactions between a country and the rest of the world over a period.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">It tracks money inflows and outflows from trade in goods and services, investments, and loans involving individuals, companies, and governments.<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Equity markets<\/b><span style=\"font-weight: 400;\">, however, saw heavy sell-offs.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Meanwhile, <\/span><b>external commercial borrowings<\/b><span style=\"font-weight: 400;\"> rose to $15.8 billion in 2024-25, reversing the outflows of previous years.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The disconnect between high growth and low foreign capital underscores investor caution about India\u2019s economic prospects.<\/span><\/li>\n<\/ul>\n<h2><b>Why Capital Flows to India Have Declined<\/b><\/h2>\n<ul>\n<li><b>Impact of Past Investments<\/b>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Much of the FDI that entered India during the last decade, peaking in 2020-21, came from private equity (PE) and venture capital (VC) in sectors like retail, e-commerce, financial services, green energy, healthcare, and real estate.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">These investors are now exiting to monetise mature positions, leading to reduced net inflows.<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><b>Investor Exits and Monetisation<\/b>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">According to industry experts, PE\/VC exits were valued at $24 billion in 2022, $29 billion in 2023, and $33 billion in 2024.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Nearly 59% of exits in 2024 were through public markets, supported by India\u2019s strong stock valuations.<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><b>Foreign Portfolio Investor (FPI) Behaviour<\/b>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">FPIs too have been selling off, but their exits have been offset by bullish domestic investors who sustain attractive market valuations, enabling profitable exits for both FPIs and PE\/VC firms.<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<h2><b style=\"font-size: inherit;\">Balance of Payments Challenges for India<\/b><\/h2>\n<ul>\n<li><b>India\u2019s merchandise trade deficit<\/b><span style=\"font-weight: 400;\"> surged to $287.2 billion in 2024-25, more than triple the 2007-08 level.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">These deficits have so far been offset by strong surpluses in services exports and remittances, keeping current account deficits under $50 billion in most years and financed through steady capital inflows that boosted forex reserves.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">However, risks are rising. U.S. President Trump\u2019s 50% tariffs threaten Indian exports to a $86.5 billion market, while capital inflows remain uncertain, driven more by investor confidence in corporate earnings and valuations than headline GDP growth.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Recent capital outflows and tariff concerns pushed the rupee to a record low of 88.37 per dollar.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">In response, the current government has cut GST rates to stimulate consumption and earnings and announced a task force for next-generation reforms to improve ease of doing business.<\/span><\/li>\n<\/ul>\n<p><b>Source:<\/b> <a href=\"https:\/\/indianexpress.com\/article\/explained\/explained-economics\/why-foreign-investors-are-not-bullish-on-india-10236408\/\" target=\"_blank\" rel=\"nofollow noopener\"><span style=\"font-weight: 400;\">IE<\/span><\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Despite high GDP growth, India faces weak FDI and FPI inflows. Investor exits, trade deficits, and tariffs highlight challenges for sustaining foreign capital confidence.<\/p>\n","protected":false},"author":18,"featured_media":62413,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[18],"tags":[2561,60,22,59],"class_list":{"0":"post-62402","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-upsc-mains-current-affairs","8":"tag-investors-sentiment","9":"tag-mains-articles","10":"tag-upsc-current-affairs","11":"tag-upsc-mains-current-affairs","12":"no-featured-image-padding"},"acf":[],"_links":{"self":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/62402","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=62402"}],"version-history":[{"count":0,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/62402\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media\/62413"}],"wp:attachment":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media?parent=62402"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/categories?post=62402"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/tags?post=62402"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}