DETERMINANTS OF FDI OUTFLOWS FROM INDIA.

 FDI FLOWS:  GLOBAL SCENARIO 

Foreign Direct Investment (FDI) refers to investment made by a company or individual in another  country to meet business interest by controlling both ownership and operations. According to IMF FDI refers to an investment made to acquire long term interest in enterprises  operating outside of the economy of the investor..  Important components of FDI include equity capital,,reinvested earnings  and intra company loans. FDI investment is mainly classified into two 1.Greenfield investment FDI   which create new production capacity, employment,  transfer of technology etc as against 2.Brown field investments that allows equities mergers and acquisitions of the already existing companies.UNCTAD's World Investment Report 2025 observed that " The global economy continues to grapple with a complex set of challenges: mounting debt,persistent under performance in GDP growth geopolitical tensions and structural shift in trade and investment flows ".Global FDI contracted for the second consecutive year impacting international project finance critical to large scale infrastructure and development which declined sharply to 26%.Further the cross border mergers and acquisitions remained below long-term average .However investment in Digital economy has been robust at an annual. rate of 10-12 %..In 2024 total global FDI inflows fell by 11% wherein developed countries witnessed 22% contraction and in Europe decline was to the extent of 58%..On the otherhand developing economies showed an increased in FDI inflows from 865 billion in 2023 to  867 billion in  2024 wIthin them growth was  maximum 75% in Africa, followed  by North America 23%. and - 12% decline in Latin America and Carribbean and -3% decline in Asia.USA remained top investment destination followed by Brazil,Egypt, UAE, Mexico,  India,  Indonesia and Vietnam. In Greenfield  project investments USA occupied highest flow of $2460 followed by UAE $1359,UK $1193,India $ 1080 and Germany$ 887.According to WIR  despite  International Project Finance ( IPF) is largely concentrated in few mature and large emerging economies, greenfield project activity were  particularly strong in India and the UAE. 

FDI OUTFLOWS 

FDI outflows has  estimated to increase by 8% in 2024 reaching $1.1 Trillion. Outflows are largely dependent on corporate restructuring activities and intra firm financial flows. USA remained top on FDI outflows despite 26% decline. Outward  FDI from Europe declined nearly 40% witnessing  a 40% fall and sharp decline in FDI outflows  from France and Germany. However outward investments from companies in Japan rose by 4%. FDI outflows in 2024 were $ 266 billion in USA, $ 204 billion in Japan, $ 163 Billion in China, 109 billion $ in Luxembourg,$86 billion in Canada and $ 55 billion in Singapore. Countries like i India and Saudi Arabia recorded higher FDI flows among the countries with increasing FDI outflows. The general decline in FDI outflows occurred despite increase in the value of cross border mergers and Aquisitions (M&A).Among the major investors in developing Asia the number of Greenfield projects announced by Indian investors increased by 20%. Placing India among the top 10 investor countries. Supported by 46 % surge  in the cross border acquisitions UAE's FDI outflows  also e td gincreased by 5%.

FDI OUTFLOWS AND INDIA 

According to RBI's recent data in the external sector though India's current account deficit (CAD) had moderated from 0.7% of GDP in 2023-24 to 0.6% in 2024-25, despite large merchandise trade  deficit but robust service exports and strong remittances reciepts, and  only moderate net FDI flows. Net FDI has plummeted from US $ 10.1 billion in 2023-24 to mere 0.4 billion in 2024-25.This sharp decline in net FDI is due to increasing repatriation and disinvestment by foreign firms amounting to$ 51.5 billion in 2024-25 further Impacted by a rise in outward FDI flows by Indian companies. Outward FDI flows from India increased from $12734 million in 2020-21 to $ 17633 million in 2021-22.Net FDI outflows for 2024 is estimated to be $ 23.77 billion, as against $ 5.81 billion till March 2025 this year.

Outward FDI fom India increased from $ 677.67 million in 2000-01 to  $ 15431.51 million in 2007-08  and declined to $9234.58 million in 2010-11 and further to $ 4031.45 million in 2011-12 .Recent Data showed that about 60% of India's FDI outflows during 2024-25  had gone into tax havens.  The RBI data showed that nearly 56 % of such investments largely entered tax havens like Singapore ,Mauritius, UAE, Netherlands UK and Switzerland. Indian companies are searching for low tax jurisdictions across the globe to channel foreign investment in order to increase global presence  in tune with favourable factors like taxation,investment and exports.In rupee terms. FDI outflows were rupees 3488.5 crores in 2024-25 to India, nearly rupees 1946 crores went to low tax jurisdictions of Singapore (22.6%),Mauritius (10.9%),and UAE (9.1%).It may be noted that investment by Indian companies  invest abroad by  setting up of  subsidiaries  in Europe, USA or any other country through Special Vehicle. The July 2025 data also indicated that joint ventures accounted for nearly 60% of investment made by Indian companies abroad. Low tax jurisdictions are relatively more flexible in transferring funds and investments on a day to day basis.Moreover investments flows to third countries also move  liberally  from these countries. 

CONCLUSION 

In recent years emerging market economies(EMEs)  like India became an important source of foreign Direct investment outflows to the rest of the world .It is impacted due to  policy reforms ,investment in joint ventures, fully owned subsidiaries, mergers and  acquisitions etc. Historically Indian investment abroad were in search of raw materials including high quality coal,gradually in recent period that was followed by acquisitions in IT and IT firms, crude oil,energy  sector, automobile parts and other industrial and service sectors as well.Net FDI inflows to India dropped  by 98.2 % to around $ 40 million in May 2025 itself compared to$2.2 billion in May 2024.The reasons attributed were increased repatriation, disinvestment  and higher FDI outflows .In the  absence of a large impetus to FDI inflows, FDI outflows are bound to reduce net FDI flows to India. If Indian company is looking for strategic partners abroad they usually opt for countries with low taxes and liberal policies.  Obviously tax havens will continue to play a substantial role in FDI outflows from India. 

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