Indian overseas Capital flows [Foreign Direct Investment (FDI) + net Foreign Portfolio Investment (FPI)] increased especially FDI by nearly $12.5 billion during the FY25, the Department of Economic Affairs of the Ministry of Finance noted in its Monthly Economic Review for April 2025.
What is FDI?
- In Indian context: FDI means investment through equity instruments by a person resident outside India in an unlisted Indian company; or in 10% or more of the post issue paid-up equity capital on a fully diluted basis of a listed Indian company.
- FDI is when a company takes controlling ownership in a business entity in another country.
- FPI on other hand represents holdings of foreign assets which do not entail active management or control.
- With FDI, foreign companies aren’t just bringing money with them, but also knowledge, skills and technology.
Reasons for increased capital outflow
- Uncertain global economic scenario: Such as US trade and tariff restrictions have made Indian companies turn “cautious” on investing within the country.
- Due to poor institutional frameworks: In both the home and host countries, India’s overseas investments concentrate on tax havens such as Singapore, Mauritius, and the Netherlands.
- Sharp rise in equity and guarantees: According to the RBI’s Foreign Exchange Department, driven by guarantees issued for overseas subsidiaries as mode of international growth.
- Other: To strengthen their position within the value chains, to capture markets such as Africa, etc.
Impacts of Capital Outflows
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