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Foreign Direct Investment and Foreign Portfolio Investment
4.1 FDI vs FPI — Key Distinctions
| Aspect | FDI (Foreign Direct Investment) | FPI/FII (Foreign Portfolio Investment) |
|---|---|---|
| Nature | Long-term, strategic investment | Short-term, financial investment |
| Control | ≥10% equity stake (management participation) | <10% equity; no management control |
| Instruments | Greenfield projects, acquisitions, JVs | Stocks, bonds, mutual funds, ETFs |
| Volatility | Stable; committed capital | Highly volatile — can exit overnight |
| Impact | Technology transfer, employment creation | Liquidity, price discovery in markets |
| Regulatory body | DPIIT (policy); RBI (compliance) | SEBI (FPIs; regulations) |
| "Hot money" risk | Very low | High — sudden reversals |
4.2 India's FDI — Trends and Policy
India's FDI inflows (USD billion):
- 2014–15: $44.9 billion (post-Make in India launch surge)
- 2019–20: $74.4 billion
- 2021–22: $83.6 billion (peak)
- 2022–23: $71.4 billion
- 2023–24: $70.9 billion
FDI routes:
- Automatic Route: FDI without prior government approval — most sectors (100% allowed in: manufacturing, infrastructure, IT, e-commerce B2B)
- Government Route: Prior Foreign Investment Facilitation Portal (FIFP) approval needed — sensitive sectors (defence 49–74%, satellite comm., multi-brand retail)
Top FDI source countries (2023–24):
- Mauritius: ~25% (tax treaty routing)
- Singapore: ~22%
- USA: ~10%
- Netherlands, UK, Japan follow
Top FDI recipient sectors:
- Services sector (finance, banking, insurance): 13%
- Computer software and hardware: 15%
- Telecom: 7%
- Trading: 6%
- Pharmaceuticals: 4%
DPIIT: Nodal ministry for FDI policy. FEMA 2000 governs FDI compliance; RBI maintains records.
4.3 Sovereign Wealth Funds and Institutional Investors
Major global sovereign wealth funds investing in India:
- Abu Dhabi Investment Authority (ADIA) — infrastructure, real estate
- GIC (Singapore) — private equity, real estate
- Canada Pension Plan — green energy, infrastructure
India's National Investment and Infrastructure Fund (NIIF) was established in 2015 with a Rs 40,000 crore corpus. It invests in green energy, roads, and digital infrastructure in partnership with global investors.
4.4 FPI in India
Foreign Portfolio Investors (FPIs) are registered with SEBI to invest in India's equity and debt markets.
- FPI net inflows 2023–24: +$56.4 billion (equities)
- Total FPI holdings in Indian equities: ~$700 billion (2024)
- FPIs hold ~17% of NSE-listed companies' market capitalisation
Risks of FPI volatility: In 2022 (post-Russia-Ukraine war + Fed rate hikes), FPIs pulled out $17 billion from Indian equities — causing rupee depreciation. The rupee hit 83/$ in October 2022.