India Should Probe the Reasons Behind Rising Outward FDI Flows

The country should study why Indian businesses are so keen to invest abroad despite a global retrenchment in such flows

- RAJRISHI SINGHAL

A general sense of despair pervades the universe of foreign direct investment (FDI), with flows from one country to another ebbing markedly in 2024. Three separate reports have independently lamented the sharp fall in FDI and concluded that this decline spells trouble particularly for developing countries, which are dependent on foreign investment for enhancing industrial capacity, upgrading infrastructure, modernizing technology and expanding their stock of renewable energy assets. All four factors are critical for economic growth, apart from reducing dependence on fossil fuels.

Waning FDI flows hold critical implications even for the Indian economy, specifically due to the rising tide of outflows and Indian industry's growing preference for overseas investment destinations.

The annual World Investment Report 2025 from the United Nations Conference on Trade and Development (UNCTAD), states that FDI flows fell 11% in 2024, a second straight year of decline, and the prognosis for 2025 is equally disheartening due to "high investor uncertainty." However, what shines through in the report was a doubling of project values in the digital sector. But this was not without its drawbacks. According to UNCTAD secretary-general Rebeca Grynspan, "Despite more than $500 billion in greenfield investment in the digital economy into developing countries over the past five years, this investment is heavily concentrated in a few countries. Many structurally weak and vulnerable economies remain marginalized, constrained by inadequate digital infrastructure, limited digital skills and policy and regulatory uncertainty."