New Delhi: India has suffered a major setback on the Foreign Direct Investment (FDI) front. According to a recent Reserve Bank of India (RBI) report, the net inflow of FDI into the country plummeted by 96.5% in fiscal year 2024-25, reaching a mere $353 million. This decline is unprecedented compared to the $10 billion recorded in the previous fiscal year, 2023-24.
What are the main reasons for the decline in FDI?
According to the RBI report, several key factors contributed to the fall in FDI flow into India:
- Higher Outward Investment: In fiscal year 2024-25, India saw outward investment of $49 billion, compared to $41 billion the previous year. This means significantly more money flowed out of India than flowed in.
- Investor Withdrawals from IPOs: The report notes that Alpha Wave Global and other investors divested their stakes in Indian startups such as Swiggy and Big Basket Mega Mart through IPOs. This impacted the FDI flow.
- Stable vs. Volatile Investment: The RBI also stated that stable FDI flow was 86% lower than volatile portfolio investment. Portfolio flow during fiscal year 2024-25 stood at a mere $2.67 billion.
What do the RBI and the Opposition say?
The RBI, in its report, suggests this decline should be viewed as a sign of a maturing market. The report argues that as the Indian economy develops, changes in the nature and pattern of FDI are natural.
However, the opposition disagrees with this assessment. The Congress party has raised serious concerns about this decline. Jairam Ramesh wrote on social media, "Such a massive drop in FDI reflects significant uncertainty surrounding investment in India. Not only foreign but also Indian companies are now prioritizing investment abroad over the domestic market."
What does the decline in FDI flow mean?
This sharp decline in FDI flow could impact India's startup ecosystem and funding for large projects. The shortage of foreign investment may slow job creation, technology transfer, and the pace of new projects.
Is there hope for improvement in the future?
Experts believe that to restore investor confidence, the government must focus on policy stability, a business-friendly environment, and a long-term vision. Furthermore, transparent processes and b growth prospects need to be demonstrated to attract foreign investors.
