Foreign Direct Investment (FDI) is seen as the most reliable source, bringing not just capital but also technology and best management practices
FDI: Long-term investment by multinational corporations in Indian businesses
FPI: Short-term investment driven by interest-rate differentials, often subject to quick reversal
The Reserve Bank of India (RBI) has introduced new guidelines for reclassifying FPI as FDI when an investor’s holding exceeds 10 per cent in an Indian company
It may artificially inflate FDI numbers. FPIs, despite longer-term holdings, remain financial investors rather than strategic partners
There is a risk of sudden outflows, affecting market stability
Instead of reclassification, India could consider legislative changes to Fema
This would allow FPIs to increase their holdings under specific conditions, ensuring investment stability without distorting FDI data
To attract sustainable foreign investment, India must: Improve its business environment, and address concerns around repatriation and disinvestment