Rising Outward FDI by Indian Firms
- Indian overseas direct investment (FDI) increased by nearly $12.5 billion in FY25, despite global economic uncertainty.
- This surge in outward FDI warrants attention due to its contrast with cautious domestic investment by Indian companies.
Relevance : GS 3(Indian Economy)
Domestic Investment Caution
- Indian private sector shows growing caution about investing within India.
- Data from the Centre for Monitoring Indian Economy (CMIE) reveals a rising ratio of cancelled projects to new projects announced.
- The ratio of dropped projects to new announcements rose to 36% in 2024-25, up from:
- 30.8% in 2023-24
- 21.8% in 2022-23
- This marks a reversal from a declining trend observed since 2018-19.
Economic Context
- Global economic scenario remains uncertain and volatile.
- Despite this, Indian firms are expanding their investments overseas, which is notable given the caution shown domestically.
- This divergence suggests Indian companies may be seeking better growth opportunities or stability abroad compared to the domestic market.
Implications for Policy and Economy
- Increased outward FDI could mean:
- Capital flight risk if domestic opportunities are perceived as less attractive.
- Possible loss of domestic jobs and investment.
- Shift in India’s role in the global economy as an investor country.
- The Finance Ministry flags the need to monitor this trend closely for potential impacts on domestic economic growth.
Need for Encouraging Domestic Investment
- The rising cancellation of domestic projects indicates challenges such as:
- Regulatory hurdles.
- Market uncertainties.
- Lack of investor confidence.
- Policy measures may be needed to revive domestic private investment and reduce project cancellations.
Summary
- The simultaneous rise in outward FDI and domestic investment caution is an important economic signal.
- It underscores the need for balanced growth strategies that encourage firms to invest within India while exploring global opportunities.
