How can a steep fall in net FDI and low investor confidence affect the Indian economy in the long term?

A steep fall in net Foreign Direct Investment (FDI) and low investor confidence can have significant implications for the Indian economy over the long term. FDI is a crucial source of capital, technology, and managerial expertise, while investor confidence drives both domestic and foreign investments. The absence or reduction of these can hinder India’s economic growth and stability.

• Reduced Capital Inflow: Lower FDI means less foreign capital for infrastructure, manufacturing, and service sectors, slowing down expansion and modernization.
• Slower Economic Growth: Investments are key drivers of GDP growth. A decline in FDI and domestic investment can lead to slower job creation, lower productivity, and subdued economic growth rates.
• Pressure on Rupee: With reduced foreign inflows, the demand for the rupee may decrease, leading to currency depreciation and making imports more expensive, which can fuel inflation.
• Widening Current Account Deficit: FDI helps finance the current account deficit. A steep fall can increase reliance on volatile portfolio flows or external borrowing, making the economy vulnerable to global shocks.
• Lower Technological Upgradation: FDI often brings advanced technology and managerial practices. Reduced FDI can slow down the pace of technological adoption and innovation in Indian industries.
• Decline in Employment Opportunities: Both FDI and domestic investment create jobs. Their decline can result in higher unemployment and underemployment, affecting social stability.
• Loss of Global Competitiveness: Without adequate investment, Indian firms may struggle to compete globally due to lack of scale, technology, and efficiency.
• Reduced Government Revenue: Lower investment means less economic activity, which can reduce tax collections and constrain government spending on welfare and infrastructure.
• Negative Market Sentiment: Persistent low investor confidence can create a negative feedback loop, further discouraging investment and impacting stock markets and financial stability.