The Growing Divergence Between Gross and Net Inflows of FDI
UPSC Relevance
Prelims: Indian Economy (External Sector - FDI, FPI, Balance of Payments, Capital Account); Investment Models.
Mains:
General Studies Paper 3 (Economy): Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment; Investment models; Effects of liberalization on the economy. The quality and sustainability of Foreign Direct Investment (FDI) are core topics for Mains.
Key Highlights from the News
Gross FDI inflows into India have increased recently, but Net FDI inflows are significantly decreasing, according to recent figures.
There are two main reasons for this:
Large-scale disinvestments and repatriations by foreign investors.
Increased Outward FDI by Indian companies.
This trend suggests that foreign investors are focusing more on short-term profit-seeking rather than long-term industrial development.
The decrease in the share of FDI to the manufacturing sector to 12% is a prime example of this shift.
Legal uncertainties in India and regulatory opacity and unpredictable policy frameworks are also reasons why even Indian companies are investing abroad.
The article argues for focusing on the quality of FDI and its alignment with the country's development goals, instead of just the total Gross FDI figures.
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