Underlying weakness may be behind surge in outbound FDI

Sudden jump in outflows amid tepid domestic investments not similar to China's aggressive overseas forays over two decades

- VIVEAT PINTO, MUKESH JAGOTA & KG NARENDRANATH

INDIA'S OUTBOUND INVESTMENTS jumped 75% to $29.2 billion in FY25, while foreign firms repatriated a massive $51 billion from the country. Yet, gross foreign direct investment (FDI) in the last fiscal saw a satisfactory growth of 14% to $81 billion, including equity inflows exceeding $50 billion. So, there were robust flows on either direction, but the net inflow remained negligible.

On the face of it, this trend hasn't triggered alarm bells among policymakers or most analysts. They see the jump in outbound FDI as a sign of the coming of age of India Inc which has long been supported by FDI of assorted variety, including venture capital (VC) and private equity (PE).

Observers also draw parallels with China's global investment spree over the past two decades. Such deployment of capital overseas helped China to acquire technology and resources at competitive rates, access new markets, and solidify its dominance in global exports.

The narrative may not be entirely unfounded. However, China's aggressive overseas investments were part of a strategy to overcome the barriers to its ascending foreign trade, and were concurrent with robust domestic investments. In India's case, however, the rise in capital outflows comes in the backdrop of a prolonged torpor in domestic private investments, and its merchandise export growth lagging world trade expansion.

In FY25, for instance, new project announcements by India's private sector declined 7.4% to 28.9 lakh crore, according to Centre for Monitoring Indian Economy. Typically, just about half of the investment intents materialize. That means outbound FDI (roughly ₹2.5 lakh crore at current exchange rate in FY25) is a fifth of private investments in India.