Topic 7: FDI & FPI Trends – Impact on Indian Economy

7️⃣ FDI & FPI Trends – Impact on Indian Economy 🌍

🔹 Introduction

Foreign investments play a crucial role in India’s economic growth, infrastructure development, and job creation. Foreign Direct Investment (FDI) and Foreign Portfolio Investment (FPI) are two major types of foreign investments that impact domestic industries, stock markets, and financial stability.

• FDI involves long-term investments by foreign companies in Indian businesses, leading to ownership, management control, and technology transfer.
• FPI involves short-term investments in stocks, bonds, and financial assets, influencing stock market volatility.

India has witnessed significant growth in FDI & FPI inflows in 2025, driven by government reforms, improved ease of doing business, and global investor confidence.

🔹 Key Trends in FDI & FPI (2025)

✅ Rise in Foreign Direct Investment (FDI) 💰

• Total FDI inflows in 2025 crossed $85 billion, highest in Asia.
• Top FDI sources – USA, Singapore, UAE, Japan, and UK.
• Key sectors attracting FDI – IT, Renewable Energy, Automobile, Pharma, and Infrastructure.
• 100% FDI allowed in certain sectors (e.g., single-brand retail, green energy).
• FDI under Automatic Route vs. Approval Route – Certain sectors require prior approval.

✅ Growth of Foreign Portfolio Investment (FPI) in Stock Markets 📈

• FPI inflows exceeded ₹2.5 lakh crore in Indian stock markets.
• Increased investments in banking, IT, and green energy stocks.
• US Federal Reserve policies & global interest rates impacting FPI inflows.
• RBI’s monetary policy adjustments affecting FPI trends.

✅ FDI Policy Reforms & Government Initiatives 🏛️

• National Monetization Pipeline (NMP) – Encouraging FDI in infrastructure projects.
• Production Linked Incentive (PLI) Scheme – Attracting FDI in manufacturing & electronics.
• Startup India & Make in India programs boosting FDI in new-age sectors.
• Eased FDI norms in Insurance, Defense, and Telecom sectors.

✅ Sector-wise Impact of FDI Growth 🚀

✅ Challenges in FDI & FPI Growth ⚠️

• Regulatory concerns – SEBI tightening FPI rules to prevent stock market manipulation.
• Geopolitical risks – US-China trade war affecting global investment flows.
• Rupee depreciation & inflation risks impacting FPI withdrawals.

🔹 Prelims Focus Areas

• Difference between FDI & FPI
• Top FDI sources & key recipient sectors in India
• FDI under Automatic vs. Approval Route
• Impact of Global Monetary Policy on FPI flows
• Government initiatives to attract foreign investments

📌 MCQs on FDI & FPI Trends (2025)

1️⃣ What is the primary difference between FDI and FPI?

A) FDI involves long-term ownership, while FPI consists of short-term investments in stocks and bonds.
B) FDI is only allowed in manufacturing, while FPI is restricted to banking.
C) FDI requires government approval, while FPI does not.
D) FDI is controlled by SEBI, while FPI is controlled by RBI.

2️⃣ Which sector received the highest share of FDI inflows in India in 2025?

A) Real Estate
B) Healthcare & Pharma
C) IT & Software Services
D) Mining & Metallurgy

3️⃣ What is the purpose of the Production Linked Incentive (PLI) scheme in India?

A) To attract FDI in real estate projects
B) To boost domestic manufacturing and reduce import dependency
C) To regulate foreign investment in Indian startups
D) To promote large-scale corporate tax reductions

4️⃣ Which global economic factor has the most impact on Foreign Portfolio Investment (FPI) in India?

A) India’s agricultural exports
B) US Federal Reserve’s interest rate policies
C) China’s economic growth
D) India’s domestic food inflation

5️⃣ What is the National Monetization Pipeline (NMP) in relation to FDI?

A) A plan to privatize India’s public sector banks
B) A strategy to generate revenue by leasing government infrastructure assets to private companies
C) A scheme to provide tax exemptions for foreign investors
D) A new FDI law to regulate stock market investments

🚀 Conclusion

FDI & FPI inflows play a critical role in India’s economic growth. FDI strengthens domestic industries & job creation, while FPI impacts stock market trends & financial stability. Government initiatives like PLI, NMP, and Startup India continue to attract foreign capital. However, global economic uncertainties, interest rate fluctuations, and regulatory policies influence investment flows.