FDI in Indian economy

Why Surge in FPI in India?

Note4Students

From UPSC perspective, the following things are important :

Prelims level : FDI and FPI

Mains level : Paper 3- Investment in India

While emerging economies have been facing the crunch of foreign capital due to the pandemic, India is witnessing the surge of FPI: a sign of investors confidence in the economy. 

Surge in FDI: Sign of trust India has built

  • In the September quarter, FDI doubled year-on-year to $28.1 billion dollars.
  • While foreign portfolio investor (FPI) inflows across emerging economies witnessed a decline due to the pandemic, India recorded a surge to $13.5 billion – a testimony to investor confidence in India’s growth story.
  • This surge in foreign funds amid the pandemic has been possible because of the continuous effort of the government, businesses, and agencies to make India a sought-after destination.

Strategies used by the government

Various steps described below signalled the government’s intention to open up the economy to investments.

Such steps include the following:-

  • Allowing NRI’s to acquire up to 100% stake in Air India.
  • 26% FDI in the digital sector.
  • Permitting 100% FDI through automatic route in the coal mining sector.
  • 100% FDI for insurance intermediaries.
  • The National Infrastructure Pipeline, a 13 trillion project to open up avenues for infrastructure investment for global investors.
  • Apart from these steps, the more recent Production Linked Incentive (PLI) scheme worth an estimated 1.5 lakh crore is also a testimony to the government’s intention to encourage entrepreneurship and investment in the country.
  • Steps to skill-train 3 lakh migrant workers the country to realign the rural youth towards industry-relevant jobs is also a step in the right direction.

Reducing dependency

  • The urgency the Indian government has shown to reduce dependency on China as a hub of the global supply chain.
  • Also, providing an enabling alternative environment has struck the right chord with the world as we see global biggies contemplating a move to India.

Consider the question “India witnessed a steady flow of foreign capital while the world was battling pandemic. What are the factors responsible for this? What are the risks associated with such capital in the economy?”

Conclusion

While persisting with its efforts to attract the capital, the government also needs to focus on improving the productivity and export competitiveness of the economy.


Back2basics: Difference between FDI and FII

  • FDI is an investment that a parent company makes in a foreign country.
  • On the contrary, FII is an investment made by an investor in the markets of a foreign nation.
  • While FIIs are short-term investments, the FDI’s are long term investment.
  • FII can enter the stock market easily and also withdraw from it easily. But FDI cannot enter and exit that easily.
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