Relevance: GS III (Economy – External Sector & Mobilization of Resources) | Source: The Hindu / Business Standard

1. The Context: A “Negative” Hat-Trick

India’s external sector is facing a double whammy. For the third consecutive month (November 2025), Foreign Direct Investment (FDI) has witnessed a Net Outflow.

  • The Trend: While money is coming in (Gross Inflows), a lot more is going out.
  • The Fallout: This capital flight has put immense pressure on the currency, dragging the Indian Rupee to a fresh all-time low of 91.75 against the US Dollar.

2. The Concept: Why is FDI “Negative”?

It is crucial to distinguish between Gross and Net FDI.

  • The Math: $\text{Net FDI} = \text{Gross Inflows} – (\text{Repatriation} + \text{Outward FDI})$
  • What Happened: Although foreign investors brought in $6.41 billion, existing investors took out $5.34 billion (repatriating profits/capital), and Indian companies invested $1.51 billion overseas. This imbalance resulted in a negative figure.

3. Why is Capital Leaving? (The “Onshoring” Shift)

The Chief Economic Advisor (CEA) highlighted a structural shift causing this “exodus”:

  • Onshoring: Developed nations (like the US and EU) are no longer just outsourcing; they are actively trying to bring supply chains back home (“Localisation”). India is now competing with rich nations for investment, not just developing peers.
  • Global Interest Rates: High interest rates in the US make “safe assets” (like US Treasury Bonds) more attractive than risky emerging markets like India.
  • Invest to Sell: Indian companies are investing abroad not just to expand, but to bypass trade barriers and sell in foreign markets.

UPSC Value Box

Concept / Term

Relevance for Prelims

RepatriationThe process of converting foreign currency (profits/capital) back into the currency of one’s own country. High repatriation exerts downward pressure on the Rupee (selling INR to buy USD).
Onshoring vs. OffshoringOffshoring: Moving business to low-cost countries (Old Trend).

Onshoring: Bringing business back to the home country (New Trend driven by security concerns).

FPI vs. FDIFDI: Long-term, stable investment (building factories).

FPI: Short-term, volatile investment (buying stocks/bonds). Currently, both are seeing outflows.

Q. With reference to the Balance of Payments, the term “Net Foreign Direct Investment (Net FDI)” turns negative when:

  1. The Gross FDI inflows are zero.
  2. The outflow of capital due to repatriation and outward investment exceeds the gross inflows.
  3. Foreign Portfolio Investors (FPIs) sell more equities than they buy.
  4. The country’s currency depreciates by more than 5% in a quarter.

Correct Answer: (2)

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