26th June 2025 (28 Topics)

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Decline in FDI Inflow

Context

According to the UNCTAD World Investment Report 2025, FDI inflows to India declined by 1.8% in 2024, signaling a reduced role of foreign investment in India’s development and capital formation.

Key Highlights:

FDI made up just 3% of India’s total capital formation in 2024, down from 8.8% in 2020, reflecting a steep decline in foreign investment’s contribution to India’s development financing.
India attracted USD 27.6 billion in FDI in 2024 — nearly half of what it received in 2020 and 8% lower than 2023 levels.
The cumulative stock of FDI in India was 14% of GDP in 2024, down from 9% in 2020.
Domestic sources have filled the gap. Capital formation from non-FDI sources has remained strong, especially in sectors like semiconductors and metals.
India received 80% of South Asia’s FDI, showing continued investor interest relative to its neighbours.
India saw capital expenditure projections increase by over 25%, reaching USD 110 billion, nearly one-third of all such projections in Asia.

Foreign Direct Investment (FDI)

Foreign Direct Investment (FDI) refers to an investment made by a person or company from one country into business interests located in another country.
It typically involves ownership or control of a significant portion (usually 10% or more) of a company’s operations in the foreign country.
Key Features of FDI:
- Unlike foreign portfolio investment (FPI), which involves buying stocks or bonds, FDI implies lasting interest and influence in the management of a business.
- FDI often gives the investor voting rights, management influence, or even full control over the foreign enterprise.
- Types of FDI:
  - Greenfield Investment: Setting up a new business/facility from scratch in the host country (e.g., a foreign car company building a plant in India).
  - Brownfield Investment (or M&A): Acquiring or merging with an existing business in the host country.
- Routes of FDI in India:
  - Automatic route: No prior government approval required.
  - Government route: Requires prior approval from the relevant ministry/department.

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GS Analyst: Daily Current Affairs

Decline in FDI Inflow

Key Highlights:

Foreign Direct Investment (FDI)