Contrasting Narratives from RBI Bulletin
- Gross FDI inflows: Reported at $81 billion – hailed by government/media as a record high.
- Net FDI: Just $353 million, a steep fall, indicating increased disinvestment and outward FDI.
- Highlights discrepancy between headline numbers and underlying trends.
FDI-to-GDP and GFCF Ratios (Declining Trend)
- Gross FDI-to-GDP ratio: Dropped from 3.1% (FY21) to 2.1% (FY25).
- Net FDI-to-GDP: Declined from 1.6% to 0% over the same period.
Rise in Outward FDI (OFDI) & Disinvestment
- Outward FDI includes investment by Indian firms abroad for:
- Technology acquisition
- Market expansion
- Tax arbitrage via havens like Mauritius and Singapore
- Disinvestment refers to exit of foreign capital, especially during stock market booms.
PE/VC Dominance in FDI Composition
- Private Equity (PE) and Venture Capital (VC) now constitute over 75.9% of FDI (2020-21).
- Mostly brownfield FDI, focused on:
- Fintech
- Real estate
- Healthcare
- Retail
- Insurance
- Investments are short-term, exit-oriented, and loosely regulated.
- Examples:
- Blackstone in Care Hospitals
- ChrysCapital in Lenskart
Concerns from Global Research Findings
- Blanchard & Acalin (2016): India ranks 6th among 25 EMEs in correlated inward-outward FDI.
- Suggests India is a conduit for hot money and treaty shopping.
- FDI flows may reflect tax optimisation, not real investment in productive assets.
Structural & Policy Implications
- Decline in greenfield FDI → Less contribution to new capacity, tech absorption.
- Rising disinvestment and OFDI → Indicates limited domestic investment appeal.
- FDI’s role in gross capital formation is modest and shrinking.
- Need to reform foreign capital regulations to:
- Prioritise tech-intensive, long-term investments
- Minimise tax-arbitrage-led flows
- Align FDI with domestic industrial policy goals
TH
