Daily Current Affairs - June 3rd, 2025
Why Has Net FDI Inflow Plummeted?
Key Highlights
1. Contrasting FDI Figures:
- Despite headline claims of record gross FDI inflows ($81 billion in FY25)14, net FDI has sharply dropped to just $353 million (or $1.4 billion for April–Jan 2025)5. This divergence is due to a simultaneous rise in outward FDI (Indian companies investing abroad) and repatriation/disinvestment (foreign investors pulling out their investments)5.
2. Declining FDI-to-GDP Ratio:
- The gross FDI inflow-to-GDP ratio has steadily declined from 3.1% in 2020-21 to 2.1% in 2024-25, while net FDI-to-GDP has fallen from 1.6% to nearly zero5. This indicates that while large sums are coming in, an almost equal amount is leaving, reflecting waning foreign investor interest.
3. Rising Outward FDI and Disinvestment:
- Outward FDI and repatriation/disinvestment have increased significantly. Outward FDI includes investments in tax havens like Singapore and Mauritius, which are also top sources of India’s inward FDI, raising concerns about “round-tripping” and tax arbitrage.
4. Composition of FDI Inflows:
- A growing share of FDI now comes from private equity (PE) and venture capital (VC) funds, which primarily invest in existing firms (brownfield FDI) rather than new projects (greenfield FDI). These investments are short-term and are often liquidated during stock market booms, leading to higher disinvestment.
5. Limited Impact on Capital Formation:
- The share of FDI in gross fixed capital formation (GFCF) has declined, and the majority of FDI is not contributing to new productive capacity, technology transfer, or long-term economic growth.
Important Topics Explained( from Article)
1. Gross vs. Net FDI
- Gross FDI: Total foreign investment coming into the country.
- Net FDI: Gross FDI minus outward FDI and repatriation/disinvestment by foreign investors.
- Significance: Net FDI is a better indicator of the real addition to the country’s investment and production capacity.
2. Outward FDI and Round-Tripping
- Outward FDI: Indian companies investing abroad, sometimes in tax havens.
- Round-Tripping: Money routed out of India and then brought back as FDI to take advantage of tax benefits.
- Implication: High outward FDI and round-tripping can inflate gross FDI figures without real investment in the domestic economy.
3. Brownfield vs. Greenfield FDI
- Brownfield FDI: Investment in existing companies, often by PE/VC funds, with a short-term exit strategy.
- Greenfield FDI: Investment in new projects, leading to capacity expansion and job creation.
- Trend: India is seeing a higher share of brownfield FDI, which does not significantly boost long-term capital formation.
4. Repatriation/Disinvestment
- Repatriation: Foreign investors selling their stakes and taking money out of the country.
- Disinvestment: Sale of assets or withdrawal of investments by foreign entities.
- Impact: High repatriation/disinvestment reduces net FDI and signals declining investor confidence.
5. Policy Implications
- Declining Net FDI: Indicates reduced foreign investor confidence and tepid domestic investment.
- Need for Reform: There is a call for reforms in FDI regulations to ensure that foreign capital contributes to real economic development, technology transfer, and industrial growth.
In summary:
India’s net FDI inflow has plummeted despite record gross inflows due to rising outward FDI and repatriation/disinvestment, a shift towards brownfield investments by PE/VC funds, and concerns about round-tripping and tax arbitrage. This trend highlights the need for policy reforms to ensure FDI supports long-term economic growth, technology transfer, and capital formation.
Monsoon Woes in Northeast India
- The 2025 southwest monsoon has caused severe devastation across Northeast India, with relentless rains triggering floods and landslides. Assam is the worst affected, with over 5.35 lakh people impacted and 11 deaths reported.
- Across the region, the death toll has risen to at least 36, with states like Arunachal Pradesh, Manipur, Tripura, Sikkim, and Mizoram also suffering significant loss of life and property.
- Rivers such as the Brahmaputra and Barak, along with their tributaries, are flowing above danger levels, inundating vast areas. Landslides have marooned tourists, destroyed infrastructure, and disrupted transport and daily life.
Why Northeast India is Highly Prone to Floods and Landslides
- Topography: The region’s hilly terrain and steep slopes cause rapid runoff, leading to flash floods and landslides.
- High Rainfall: Northeast India receives some of the highest monsoon rainfall in the country, often exceeding the land’s absorption capacity.
- Dense River Network: Major rivers like the Brahmaputra and Barak frequently overflow during the monsoon.
- Deforestation and Land Use Changes: Human activities have reduced natural vegetation, diminishing the land’s ability to absorb rainwater.
- Climate Change: Erratic and intense rainfall events are becoming more frequent due to global warming, increasing the risk and severity of floods.
- Inadequate Infrastructure: Urban centres face additional risks from poor drainage and unplanned settlements on vulnerable slopes.
Measures to Address Flood Challenges: Expert Recommendations
1. Integrated River Basin Management
- Develop and implement basin-wide flood management strategies, focusing on the Brahmaputra and Barak river systems.
- Coordinate between states and the Centre for data sharing, forecasting, and joint action plans.
2. Strengthening Early Warning and Disaster Response
- Expand and modernize real-time weather monitoring and flood forecasting systems.
- Improve last-mile connectivity for timely dissemination of alerts to vulnerable communities.
- Enhance capacity and resources for State Disaster Response Forces (SDRF) and local authorities.
3. Sustainable Land Use and Afforestation
- Enforce strict regulations on deforestation, mining, and construction, especially on slopes and riverbanks.
- Promote large-scale afforestation and restoration of wetlands to improve water absorption and reduce runoff.
4. Infrastructure Resilience
- Upgrade and climate-proof critical infrastructure such as roads, bridges, and drainage systems, especially in urban centres.
- Construct embankments, check dams, and flood shelters in high-risk zones.
5. Community-Based Disaster Management
- Train and empower local communities in flood preparedness, evacuation, and first aid.
- Encourage participatory planning and involve local stakeholders in decision-making.
6. Urban Planning and Drainage
- Implement strict zoning laws to prevent settlements in flood-prone and landslide-prone areas.
- Upgrade urban drainage systems to handle intense rainfall and prevent urban flooding.
7. Climate Adaptation and Research
- Invest in research on climate-resilient crops and livelihoods for flood-prone regions.
- Integrate climate change adaptation into all flood management and development policies.
8. Policy and Institutional Reforms
- Establish a Northeast Flood Management Authority for coordinated regional action.
- Regularly review and update flood management policies based on new data and climate projections.
Why is Rainfall in Northeast India So High?
1. Geographical Location and Monsoon Branches
Northeast India receives heavy rainfall primarily due to the Bay of Bengal branch of the southwest monsoon. This branch originates over the Andaman and Nicobar Islands and moves northwestward, hitting the northeastern states first before moving to eastern India. The region lies in the direct path of these moisture-laden winds, which bring intense and sustained rainfall during the monsoon season.
2. Orographic Effect
The northeastern states are characterized by hilly and mountainous terrain, including the Eastern Himalayas and other hill ranges. When moist monsoon winds ascend these slopes, they cool and condense, causing heavy orographic rainfall. This effect intensifies rainfall amounts, making the region one of the wettest in India.
3. Convergence of Winds and Low-Pressure Systems
During the monsoon, the interaction between the Bay of Bengal branch and local low-pressure systems or depressions enhances convection and rainfall. The region often experiences cyclonic depressions and intense rainfall events due to this convergence.
4. High Base Rainfall and Seasonal Variability
Even in years with below-normal monsoon, the northeast receives substantial rainfall because its base level of precipitation is already high. The region also experiences a smaller secondary monsoon season from October to December (the Northeast Monsoon), adding to the total annual rainfall.
5. Influence of Climate Phenomena
Large-scale climate patterns such as El Niño and La Niña affect monsoon intensity and distribution. Additionally, global warming is causing more erratic and intense rainfall events, contributing to frequent floods and landslides in the region
The recurring devastation from monsoon floods in Northeast India highlights the urgent need for a comprehensive, long-term strategy. Solutions must combine robust infrastructure, sustainable land use, advanced early warning systems, and strong community engagement, as repeatedly recommended by expert committees and disaster management authorities. Only a holistic approach, tailored to the region’s unique geography and climate, can reduce the annual toll of lives and livelihoods.