Context: According to the data released by the Reserve Bank of India (RBI), India witnessed a sharp 96.5% drop in net foreign direct investment (FDI) in FY25.
Relevance of the Topic: Prelims: Key concepts- Foreign direct investment; net foreign direct investment (FDI).
Drop in net foreign direct investment (FDI)
- India witnessed a sharp 96.5% drop in net foreign direct investment (FDI) in FY25. The net FDI fell to $353 million, the lowest on record, from $10 billion in FY24.
What is net foreign direct investment (FDI)?
- Net FDI is the difference between FDI inflows by other countries into India and FDI outflow due to direct investments made by Indians abroad.
Net FDI = (Gross investment - Repatriation) - FDI Outflow
Components of Net FDI:
- FDI Inflow (Gross FDI) is gross investment minus repatriation/disinvestment.
- Gross Investment includes- Fresh equity inflows (shares allocated to foreign investors), Reinvestment of profits by foreign companies in India, other capital inflow (loans from parent company to subsidiary)
- Repatriation/ disinvestment- Foreign companies removing capital out of India.
- FDI Outflow is the investment by Indian companies abroad.
The net FDI drop is due to:
- surge in repatriation/disinvestment of existing investments through profitable initial public offerings (IPOs).
- Indian firms increased their investments overseas.
While the net FDI dropped, gross FDI remained concentrated in core sectors like manufacturing, financial services, energy, and communications, which accounted for more than 60% of total inflows.