Net FDI inflow fell by 159% in August: RBI’s data reveals

For preliminary Examination:  Current events of national and international Significance like Foreign Direct Investment

For Mains Examination: GS III - Economy

Context:

Net Foreign Direct Investment (FDI) into India fell 159% in August, with more money leaving the country than entering it, according to official data. This is the second time this financial year that outflows have exceeded inflows

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Foreign Direct Investment (FDI)

Key takeaways:

• Foreign Direct Investment (FDI) refers to an investment made by an individual, company, or government from one country into business interests located in another country.
• Unlike portfolio investment, which involves buying financial assets such as stocks or bonds, FDI involves a lasting interest and significant control in a foreign enterprise.
• This usually means acquiring at least 10% ownership in a company abroad, or establishing new business operations such as factories, offices, or infrastructure projects.
• FDI is considered a key driver of globalization because it allows the movement of capital, technology, and management expertise across borders.
• For instance, when a multinational corporation like Toyota sets up a car manufacturing plant in India, it brings not only investment funds but also advanced technology, production methods, and employment opportunities. This helps boost industrial development in the host country.
• There are generally two main forms of FDI. The first is Greenfield investment, where a company builds new facilities from scratch in the host country. This type often generates new jobs and infrastructure.
• The second is Brownfield investment or mergers and acquisitions (M&A), where an existing company in the host country is purchased or merged with the foreign investor’s enterprise. This allows quicker market entry and access to existing customer bases.
• FDI can take place in different sectors—manufacturing, services, infrastructure, and technology are among the most common. Governments of developing countries, including India, actively encourage FDI by offering incentives such as tax breaks, relaxed regulations, and the creation of special economic zones (SEZs), as FDI contributes to economic growth, employment, and technological advancement.
• However, FDI also comes with challenges. Excessive dependence on foreign capital can make an economy vulnerable to external shocks. Some critics argue that foreign investors may repatriate profits rather than reinvest them locally, and that large multinational corporations could influence domestic policies to favor their interests.
• In India, FDI is regulated under the Foreign Exchange Management Act (FEMA), 1999, and is overseen by the Department for Promotion of Industry and Internal Trade (DPIIT).
• The country follows two routes: the automatic route, where investment does not require prior government approval, and the government route, where approval is necessary in sensitive sectors such as defense or media.
• Over the years, liberalization policies have made India one of the most attractive destinations for FDI, with inflows directed toward sectors like information technology, telecommunications, and renewable energy

Additional Information

• According to official data, India witnessed a sharp 159% decline in net Foreign Direct Investment (FDI) in August 2025, as capital outflows surpassed inflows. This marked the second instance in the current financial year when more money exited the country than entered it.
• Nonetheless, the broader trend over the first five months of the financial year presents a contrasting picture. Between April and August 2025, net FDI was over 121% higher than in the correspond