Why FDI in India is lowest in 16 yrs — no real ease of doing business? | Economy | UPSC

Summary

The video discusses the alarming 62% decline in Foreign Direct Investment (FDI) in India for the fiscal year 2023-24, marking the lowest level in 16 years at $10.5 billion. It explains the difference between total and net FDI, highlighting issues like repatriation of profits and the impact of global economic slowdowns. Key factors for this decline include the uncertainties caused by the termination of bilateral investment treaties and ongoing bureaucratic challenges in India. The speaker emphasizes the significance of FDI for India's growth, especially in manufacturing and services, while urging improvements in the ease of doing business.

Takeaways

• 📉 FDI is crucial for developing economies like India, providing capital and boosting production and services.
• 🔽 India's net FDI has declined by 62% in the last financial year, reaching its lowest level in 16 years.
• 💰 Net FDI in FY 2023-24 stood at $10.5 billion, a significant drop from the previous year's $28 billion.
• 🌍 The decline is attributed to higher repatriation of profits by foreign investors, who withdrew $44.5 billion in profits.
• 📊 The capital account of the balance of payments records FDI, while the current account tracks trade in goods and services.
• 🏭 FDI primarily flows into manufacturing, electricity, and services, with 80% coming from just a few countries like Singapore and the US.
• 📈 Despite a robust economy, India's share of global FDI has dropped, raising concerns among analysts.
• 🔍 Factors for the decline include inadequate government policies and lingering red tape affecting the ease of doing business.
• 🤝 The reduction of bilateral investment treaties since 2015 has created uncertainty for foreign investors.
• 🚧 Efforts for free trade agreements may inadvertently reduce FDI by providing easier market access to foreign competitors.

Q & A

What does FDI stand for, and why is it important for developing economies?

FDI stands for Foreign Direct Investment. It is important for developing economies because it brings capital into the country, which can lead to the establishment of factories, increased production, and the growth of services.

How is net FDI defined?

Net FDI is defined as the total amount of foreign direct investment that comes into a country minus the amount that leaves the country. It gives a clearer picture of the actual investment situation.

What significant decline in net FDI was noted in the fiscal year 2023-24?

In the fiscal year 2023-24, net FDI in India declined by 62%, dropping to 10.5 billion dollars, which is the lowest level in 16 years.

What are the primary sectors where FDI is directed in India?

The primary sectors where FDI is directed in India include manufacturing, electricity, computer services, financial services, and retail.

What has been the trend in India's share of global FDI?

India's share of global FDI has been declining. Previously, it was around 6% in 2020-21, but has now decreased to approximately 2%.

What factors contributed to the decline of FDI in India?

Factors contributing to the decline of FDI in India include higher repatriation of profits by foreign investors, problems with bilateral investment treaties, and the global economic slowdown.

What is the significance of bilateral investment treaties for FDI?

Bilateral investment treaties are significant for FDI because they provide protections for foreign investors, encouraging them to invest. If these treaties are not favorable or are canceled, it may deter investment.

What impact does the ease of doing business in India have on FDI?

While the ease of doing business in India has improved, challenges such as bureaucratic red tape and actual ground realities may still hinder foreign investments.

How does the FDI percentage of GDP relate to overall economic growth?

The FDI percentage of GDP can indicate how much foreign investment is contributing to the economy. A decreasing percentage may suggest that while GDP is growing, FDI is not keeping pace, potentially limiting growth opportunities.

What role does the global economic environment play in India's FDI trends?

The global economic environment significantly impacts India's FDI trends, as economic slowdowns in major economies can lead to reduced investment flows into India, affecting its net FDI.