Overview of Global FDI Trends
The global economy is experiencing a significant transformation in foreign direct investment (FDI) flows, with emerging markets and developing economies (EMDEs) facing a decline. FDI inflows to EMDEs have reduced to around 2% of GDP, with a total of $435 billion in 2023, the lowest since 2005. During the 2000s, inflows had peaked at about 5% of GDP in 2008.
Global Challenges
- Decline in trade and investment flow due to geopolitical uncertainties and policy inertia.
- Reduced number of investment treaties from 2010 to 2024, significantly lower compared to 2000 to 2009.
FDI in India
India reflects global trends with unique characteristics. Gross FDI inflows rose to $81 billion in FY25, a 14% increase, while net FDI dropped 96% to $0.35 billion due to repatriations, outward FDI, and low reinvestment of profits.
Sector and Regional Focus
- Growth in services, construction, and clean energy sectors.
- Manufacturing and financial services remain strong, with increased interest in energy and communication.
- Geographical skew in FDI: Maharashtra, Karnataka, and Tamil Nadu gaining, Gujarat and Delhi declining.
Strategies for Enhancing FDI in India
Policy Recommendations
- Sign trade deals with trade-friendly countries to enhance competitive advantage.
- Implement deregulation to cut red tape and ease investments, potentially through ideas like the Deregulation Commission.
- Address logistics and trade bottlenecks with trade-facilitation reforms to improve efficiency.
Institutional Coordination
- Align domestic reforms with international rulemaking and ensure coordination among the center, states, and agencies.
State-Level Initiatives
- Encourage states to enhance the ease of doing business and provide necessary infrastructure and support.
- Recognize the dynamic nature of investment policy and adapt to changing business environments.
Conclusion
India's strengths lie in its demographics, digital depth, and democratic stability. However, with growing global competition, India must not only invite investment but also create an environment that deserves it. The responsibility lies with India to capitalize on its advantages and attract FDI effectively.