Foreign Direct Investment in India (Economy)
Foreign Direct Investment in India (Economy)
Why In News:
Gross foreign direct investment inflows into India reached about USD 30.7 billion in April to June 2026, the highest first-quarter figure in fifteen years.
Concepts: FDI, FPI and Net FDI
Foreign Direct Investment implies a lasting interest and a degree of managerial control. The conventional threshold is acquisition of 10 per cent or more of the equity of a company.
Foreign Portfolio Investment is investment in financial assets without control, and is far more volatile, which is why it is called ‘hot money’.
Gross FDI is the total foreign capital that enters a country, while Net FDI is the actual amount left after subtracting capital outflows like repatriation, disinvestment, and outward investments.
FDI is recorded in the capital account of the Balance of Payments, and is a non-debt-creating source of external financing, which makes it more desirable than external commercial borrowing for funding the current account deficit.
Recent Trends and Data
Net FDI has shrunk sharply in recent years from a peak of $44 billion in 2020-21 to less than $1 billion in 2024-25.
This is because of large profit repatriation by mature foreign investors and a surge in Overseas Direct Investment by Indian companies.
A shrinking net FDI figure matters for rupee stability and current account financing, even when gross numbers look impressive.
Cumulative top source countries: Singapore (about a quarter of inflows), the United States, Mauritius, Netherlands and Japan.
Cumulative top sectors: services, computer software and hardware with significant contrinution from trading, automobiles and telecommunications.
Cumulative top recipient states: Maharashtra, Karnataka, and Tamil Nadu.
FDI Routes in India
Automatic Route: Foreign investors can invest in permitted Indian companies without prior government approval; they are generally required to report the investment to the RBI after making it.
Examples include agriculture and animal husbandry, air transport services, automobiles, auto-components and greenfield biotechnology.
Government Approval Route: Foreign investment requires prior approval from the concerned Ministry or Department before the investment is made.
Examples include certain activities in banking and public sector enterprises, broadcasting content services, food-product retail trading, and digital media carrying news and current affairs.
FDI Framework
FDI is governed primarily by the FDI Policy 2020 and the FEMA (Non-Debt Instruments) Rules, 2019, under the Foreign Exchange Management Act (FEMA), 1999.
The DPIIT, under the Ministry of Commerce and Industry, formulates the FDI policy, while the RBI oversees foreign-exchange and reporting requirements under FEMA.
FDI is prohibited in sectors such as atomic energy, gambling and betting, lotteries, chit funds, certain real-estate activities, and tobacco products.