PYQ Relevance Today: Assess the performance of India in attracting foreign direct investment (FDI) (2008)
- Foreign Portfolio Investors (FPIs) withdrew ₹11,820 crore from Indian equities in the first week of December 2025, primarily due to the sharp depreciation of the rupee.
- This withdrawal follows a net outflow of ₹3,765 crore in November 2025, adding pressure to the markets.
- In October 2025, FPIs had invested ₹14,610 crore, breaking a three-month streak of withdrawals amounting to ₹23,885 crore in September, ₹34,990 crore in August, and ₹17,700 crore in July.
- According to the National Securities Depository Limited (NSDL), the total FPI outflow for 2025 has reached ₹1.55 lakh crore.
India’s Performance in Attracting Foreign Investment
1. What happened recently?
In the first
week of December, foreign portfolio investors (FPIs) pulled out ₹11,820 crore
from Indian markets.
- FPIs = investors who buy and
sell stocks quickly.
- Their money moves in and out
depending on global conditions.
This shows short-term worry among foreign investors.
2. Why did
FPIs take money out?
- Global uncertainty (wars,
inflation, interest rates).
- Rupee becoming weaker →
reduces their returns.
- FPIs prefer “safe” countries
during uncertain times.
So, this
outflow reflects temporary nervousness, not a permanent dislike for India.
3. What about FDI? (The long-term money)
FDI =
companies investing in factories, offices, projects in India.
This money doesn’t come and go quickly.
Latest
data shows:
- FDI inflows in Q2 FY26 grew by
about 20% compared to last year.
- This means big companies still trust India’s long-term growth.
4. Why is
India still attracting FDI?
- A huge market of 1.4 billion
people.
- Young workforce.
- Government schemes like Make
in India & PLI.
- Digital reforms: online
approvals, simpler rules.
These make India a good place for long-term investment.
5. What
are the challenges?
Even
though FDI is strong, India still faces issues:
- Slow approvals for land and
environment clearances.
- Differences in rules between
states.
- Strong competition from
countries like Vietnam and Indonesia.
- Some infrastructure gaps (power, logistics, ports).
6. Conclusion
- Short-term picture: FPI money
is leaving due to global worries — this is normal and temporary.
- Long-term picture: FDI remains
strong because global companies believe India will grow fast.
India’s
challenge now:
Keep the economy stable and continue reforms so that more long-term foreign
companies choose India.
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