Context:
Recent discussions on India’s declining Net Foreign Direct Investment inflows have highlighted the difference between gross FDI inflows and net FDI after accounting for repatriation, disinvestment and outward investment.
Explanation:
- FDI refers to investment by a foreign entity in the business interests of another country with the objective of obtaining a lasting interest and management influence.
- Under Balance of Payments (BoP) accounting, Net FDI = FDI Inflows – FDI Outflows.
- FDI is a component of the Capital Account and helps finance the Current Account Deficit (CAD).
- FDI can occur through equity capital, reinvested earnings and intra-company loans between parent firms and foreign affiliates.
- India’s FDI policy is regulated by the Department for Promotion of Industry and Internal Trade (DPIIT) and the Foreign Exchange Management Act (FEMA), 1999.
- FDI enters India through two routes: Automatic Route (no prior approval) and Government Route (prior approval required).
- India’s gross FDI inflows were about $94.6 billion in 2025-26, while net FDI stood at about $7.6 billion, reflecting significant outflows through dividends, disinvestment and overseas investments.
- Major investor categories include multinational corporations, financial investors (private equity, venture capital, sovereign wealth funds) and diaspora/non-resident investors.
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