The Dynamics of Foreign Direct Investment inflow and Outflow in India

Abstract

Foreign Direct Investment (FDI) is a critical component of a country's national financial accounts, representing the investment of foreign assets into a domestic economy's infrastructure, capital assets, and institutions. Unlike foreign investments in stock markets, FDI is more stable and typically more beneficial for a country's long-term economic health. This is because equity investments can be volatile and may exit quickly at the first sign of trouble, whereas FDI tends to be more resilient and operationally involved.

FDI refers to investments made by Multi-National Enterprises (MNEs) or foreign institutions in ventures within host countries, where the investor maintains control and aims to earn private profit. It is important to differentiate between direct and indirect foreign investments. Indirect investments include portfolio investments, acquisitions of firm reserves, and medium- to long-term debt by financial institutions and intermediaries, as well as investments in national loans, bonds, and debentures.