Introduction

Foreign Direct Investment (FDI) refers to investment by a non-resident in an Indian unlisted company or acquisition of at least 10% equity in a listed Indian company, reflecting a lasting interest in the business.

Significance of FDI

• Capital Formation: Provides long-term capital without creating repayment obligations like loans.
• Technology Transfer: Brings advanced technology + managerial expertise.
• Employment: Generates jobs through industries + supply chains.
• Economic Growth: Enhances productivity + competitiveness + global integration.

Reasons for Declining Net FDI

• Rising Outward Investment: Indian companies are expanding overseas.
• Repatriation: Foreign investors are withdrawing profits + proceeds from mature investments.
• Liberalised ODI Rules: Easier overseas investment opportunities for Indian firms.
• Weak Export Demand: Reduces investor interest in export-oriented sectors.
• Note: Net FDI can decline despite strong gross inflows because outward investment and repatriation have increased.

Reforms / Way Forward

• Improve ease of doing business + policy predictability.
• Strengthen infrastructure + logistics and reduce compliance costs.
• Promote R&D, skilled workforce + domestic supply chains.
• Expand market access through trade agreements and export diversification.
• Facilitate transparent, timely approvals while safeguarding national security.

Conclusion

India should focus on stable policies, competitive production and stronger domestic capabilities to convert gross FDI inflows into sustained net investment, jobs and long-term economic growth.