Unlocking Investment – Breaking Barriers to FDI in India
(Source: The Indian Express, Editorial Page)
Also Read: The Indian Express Editorial Analysis: 21 July 2025
Also Read: The Hindu Editorial Analysis: 21 July 2025
| Topic: GS3 (Economy: Investment, FDI, Growth), GS2 (Governance: Policy-Making, Reforms), GS1 (Society: Development), GS4 (Ethics in Policy and Governance) |
| Context |
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Introduction
FDI is a key pillar for emerging economies, driving innovation, employment, and productivity. A marked slowdown in global FDI since 2010—especially in emerging and developing economies (EMDEs)—reflects shifting investor preferences and serious challenges in policy and governance frameworks.
Global FDI Trends
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FDI as % of GDP in EMDEs has steadily declined.
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2023: EMDEs received just $425 billion in FDI—lowest since 2005.
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New greenfield project proposals have dropped, tracking waning global investor appetite.
Why?
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Protectionism and cross-border investment restrictions.
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Financial crises in advanced economies, which now offer higher returns.
India’s Recent FDI Performance
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FY25: FDI inflows touched $81 billion, yet net FDI plummeted by 96% due to larger outflows and fewer reinvestments.
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New investment proposals in 2024—just 380, less than half the decade’s average.
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Economic growth, tech upgradation, and employment now directly hinge on restoring FDI momentum.
Policy and Structural Barriers
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Regulatory uncertainty and frequent policy reversals undermine investor confidence.
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Burdensome compliance, ambiguous taxation, and slow dispute resolution create hurdles.
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Overconcentration of FDI in a few sectors limits broad-based growth.
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Investors seek a predictable, rule-of-law framework for long-term planning.
Imperatives for Unlocking Investment
Regulatory and Tax Reform
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Simplify tax codes; streamline regulations to cut red tape.
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Adopt a stable, transparent investment regime that gives investors confidence in policy continuity.
Human Capital and Infrastructure
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Invest in education, skilling, and modernizing logistics—critical to attract high-quality FDI.
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Upgrade infrastructure (both digital and physical) for ease of doing business.
Institutional Strengthening
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Build and empower statutory bodies (like a Deregulation Commission) to push reforms and clearances.
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Fast-track dispute resolution and instill trust in India’s adjudication processes.
Policy Focus
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Implement coherent trade and investment policy—harmonize rules across ministries.
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Actively incentivize FDI in emerging sectors (green tech, manufacturing, digital economy).
Encouraging Long-Termism
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Offer incentives for reinvestment and discourage hasty profit repatriations.
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Shift from short-term fixes to sustainable institutional and infrastructural strengthening.
Structural Challenges vs. Solutions for India’s FDI
| Challenge | Solution/Way Forward |
|---|---|
| Policy uncertainty | Comprehensive, stable investment policy |
| Regulatory burden | Simplify compliance, reduce red tape |
| Taxation complexity | Rationalize and clarify tax structure |
| Skill & infra deficits | Invest in human capital and modern logistics |
| Dispute resolution delays | Strengthen legal/arbitration institutions |
| Sectoral overconcentration | Diversify FDI targets (manufacturing, services, tech) |
Conclusion
Unlocking India’s true FDI potential requires a systemic overhaul of regulatory, policy, and institutional environments. Only by delivering clarity, transparency, and a nurturing business ecosystem can India attract long-term, high-quality investments—key not only to economic growth and jobs, but to India’s vision of global leadership in the coming decade.
| Practice Question: (GS-2 | 15 Marks | 250 Words) Despite India’s relatively strong position, FDI inflows have slowed and project proposals have declined sharply in recent years. Discuss the structural barriers hindering FDI in India and suggest comprehensive measures the government should adopt to unlock sustained investment and ensure long-term growth. |
