Source: TH
Context:
- India recorded negative net Foreign Direct Investment (FDI) for the second consecutive month in September 2025.
- According to RBI data, net FDI stood at –$2.4 billion, indicating that more capital left India than flowed in.
- This trend signals a reversal in long-term capital flows and potential caution among foreign investors.
About Foreign Direct Investment (FDI)
- FDI refers to cross-border investments made by a resident in one country into a business in another country, with the goal of establishing a lasting interest (typically ≥10% equity stake).
Forms of FDI
- Greenfield Investment: Establishing new operations or facilities.
- Mergers & Acquisitions (M&A): Buying stakes in existing companies.
- Reinvested Earnings: Profits earned by foreign investors that are reinvested locally.
- Intra-Company Loans: Loans from parent companies to subsidiaries.
Importance of FDI
- Provides long-term capital inflow and supports economic growth.
- Facilitates technology transfer and managerial expertise.
- Creates employment opportunities and boosts exports.
- Strengthens domestic industries through enhanced competition and innovation.
Causes of Negative FDI in September 2025
- Global Risk Aversion: Investors pulling back due to geopolitical tensions or global market volatility.
- Rising US Dollar & Interest Rates: Stronger dollar and attractive returns abroad prompted capital outflows.
- Domestic Policy or Regulatory Concerns: Certain sectors may have seen divestment due to regulatory uncertainties.
- Profit Repatriation: Multinational companies transferring profits back to their home countries.
Implications of Negative FDI
- Capital Outflow Pressure: May affect foreign exchange reserves and the rupee.
- Investment Confidence: Signals caution among foreign investors regarding long-term growth prospects.
- Economic Growth: Reduced inflows could impact infrastructure projects and sectoral expansion.
- Policy Response: Government may consider incentives or reforms to attract and retain FDI.
FDI vs. FPI: Clarification
The figures relate to:
- Foreign Direct Investment (FDI): Long-term investment into assets, operations, factories, or significant stakes
Not: - Foreign Portfolio Investment (FPI): Trading in equity or debt securities
FDI is considered more stable, so negative net FDI is a cause for concern.
