FDI Inflows Declining
- According to UNCTAD’s World Investment Report 2025:
- FDI inflows into India in 2024 fell by 1.8% compared to 2023.
- India attracted $27.6 billion in 2024 — less than half of 2020 levels.
Relevance : GS 3(Indian Economy)
Shrinking Role of FDI in Capital Formation
- FDI’s share in total capital formation:
- Dropped from 8.8% in 2020 to 2.3% in 2024.
- Indicates increased reliance on domestic investments or alternate funding sources.
FDI Stock Relative to GDP
- Total FDI stock in India (i.e., cumulative foreign investment over time):
- Fell from 17.9% of GDP in 2020 to 14% of GDP in 2024.
- Suggests India’s economy grew faster than its ability to attract or retain foreign capital.
Domestic Capital Formation Still Strong
- Despite falling FDI, overall capital formation remained robust.
- Indicates strong domestic investment trends (public and private), potentially mitigating foreign capital slowdown.
Implications for Policy and Economy
- Reflects reduced foreign investor confidence, possibly due to:
- Global economic uncertainties,
- Domestic regulatory or geopolitical concerns,
- Competition from other emerging markets.
- India may need to:
- Improve ease of doing business,
- Ensure regulatory stability, and
- Strengthen infrastructure and investor protection.
Contextual Significance
- FDI is crucial for:
- Technology transfer,
- Export competitiveness, and
- Employment generation.
- Its decline, if sustained, may slow long-term growth and strategic sector development.
