Budget 2025 preview — Part 1: Fiscal deficit, FDI, disinvestment, energy issues
Subscribe to enjoy similar stories. Foreign direct investment (FDI) inflows into India—investments by foreign entities in domestic businesses—hold the potential to transform the economy. They act as a catalyst for enhancing competitiveness and channel much-needed capital into underinvested sectors, such as semiconductors, where domestic companies have been hesitant to venture.
In 2023, India attracted $28.1 billion in FDI inflows. However, this seemingly impressive figure reveals underlying weaknesses. Despite being the world’s fifth-largest economy, India ranked only 16th globally in FDI inflows.
The US and China dominated with 23% and 12% shares, respectively, while India managed a modest 2.1%. These numbers underscore the need for India to capture a larger share of the global FDI pie. Read this | In charts: How FDI flows into India lost momentum Not only that, India's FDI inflows in absolute terms for 2023-24 were lower than the annual average recorded during the five-year period from 2006-07 to 2010-11.
Moreover, when measured against the size of the Indian economy and its total capital formation, FDI inflows have failed to keep pace with the country's growth trajectory. If India is to emerge as a serious contender for companies looking to diversify their manufacturing base beyond China, the government needs to look at policies and procedures that make doing business in India easier. India introduced the Fiscal Responsibility and Budget Management (FRBM) Act in 2003, targeting a fiscal deficit—the gap between government spending and revenue—of 3% of GDP.
However, this goal has been achieved only once, in 2007-08. By 2018-19, India appeared on track to meet it again, but the pandemic disrupted fiscal calculations. In
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