Venturing Away
(Source: Editorial Page, The Indian Express)
| Topic:GS3: Economic Development, Investment, FDI Policy |
| Context |
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Alarming FDI Trend:
The net FDI decline India experienced this year—from $101 billion to $353 million—is not just numerical but structural.
- Gross FDI: $71 billion in 2024–25 (marginal drop from last year)
- Net FDI: Fell drastically to $353 million (from $101 billion) due to:
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Increased outward investments by Indian firms.
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Disinvestment by foreign companies from India.
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Ministry’s Concerns
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The Ministry of Finance flagged the trend as a worrying sign, noting that Indian firms are increasingly investing abroad despite uncertainty in global markets.
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Indicates low confidence in domestic investment returns.
Possible Reasons
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Regulatory hurdles and tax unpredictability.
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Stalled trade agreements with key economies (e.g., UK, EU).
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Global investors choosing Southeast Asia over India due to smoother FTA networks and lower compliance costs.
Also Read: The Indian Express Editorial 29 May 2025
Sectoral Impact
The net FDI in India can trigger:
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Drop in investment in Indian start-ups and infrastructure.
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Concerns over capital outflows affecting balance of payments.
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Reduction in tech transfers and job creation that typically follow FDI.
Policy Signals
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Budget FY26 introduced some trade-friendly steps (e.g., reduced capital gains tax, simplified investment norms).
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Ongoing FTA negotiations with EU, UK, Australia, Canada still pending — delaying confidence building.
Way Forward/Recommendation
India must adopt a multi-pronged strategy to revive FDI:
- Fast-track pending Free Trade Agreements (FTAs).
- Improve regulatory clarity and lower entry barriers.
- Strengthen tax predictability and ease of doing business.
- Promote India as a hub for manufacturing and innovation, especially under the “Make in India” framework.
- Address geopolitical perception challenges through robust economic diplomacy
| Practice Question:
“Declining FDI inflows reflect deeper structural concerns in India’s investment climate.” Examine. (15 marks, 250 words) |
