Disinvestment and repatriation drive sharp decline in net FDI inflows

India’s net FDI has declined sharply despite strong gross inflows, underlining the impact of disinvestment/capital repatriation; an understanding of these trends requires looking beyond aggregate inflow, outflow figures; investor classes, modes of entry, and exit strategies can have important implications for technology transfer, industrial development, and external sustainability

Source

The Hindu — Business →

Quick Revision

Prelims-testable facts

01India's net FDI has declined sharply despite strong gross inflows.
02Disinvestment and capital repatriation have a significant impact on net FDI.
03In 2022-23, repatriation and disinvestment accounted for 41% of gross FDI.
04In April-February 2023-24, gross FDI decreased by 2.7% to $65 billion.
05India's net FDI fell sharply to $1 billion in FY 2024-25 from $10.2 billion in FY 2023-24.
06The government attributes the decline in net FDI to higher overseas investments by Indian companies and increased repatriation by foreign investors.
07Gross FDI inflows fell by 16% to $71 billion in 2022-23, the first decline in nine years.

Trap alerts

Most people think that a decline in gross FDI inflows is the primary reason for the decline in net FDI, but actually, it's the increase in disinvestment and capital repatriation that has a significant impact.
Most people think that the decline in net FDI is due to a decrease in foreign investment, but actually, it's the increase in repatriation by foreign investors that's a major contributor.

Mains Practice Question

Critically examine the implications of looking beyond aggregate inflow and outflow figures in understanding FDI trends.

250 words

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Prelims Practice MCQs

Single facteasy

Which ministry is responsible for overseeing FDI policies?

A.Ministry of Finance
B.Ministry of Commerce and Industry
C.Ministry of Corporate Affairs
D.Ministry of Home Affairs

The Ministry of Commerce and Industry is responsible for overseeing FDI policies, ensuring that the country's economic growth is aligned with its foreign investment goals.

Single facthard

What has been strong according to recent data?

A.Gross FDI outflows only
B.Gross FDI inflows only
C.Net FDI only
D.Disinvestment and capital repatriation only

Gross FDI inflows have been strong, indicating a positive trend in foreign investment into the country.

Multiple statementsmedium

Consider the following statements regarding Factors Affecting Net FDI: 1. Disinvestment and capital repatriation are the primary reasons for India's declining net FDI. 2. Gross FDI inflows have been strong, but net FDI has declined sharply. 3. The Ministry of Commerce and Industry is responsible for overseeing FDI policies, and its policies have led to a decline in net FDI. How many of the above statements are correct?

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