Foreign Direct Investment: Policy, Sectors, and Trends

TOPIC CLASSIFICATION

Subject: Economy - External Sector and Capital Flows
Sub-topic: FDI - Definition, Types, Routes (Automatic vs Government), FDI Policy Evolution, Sectors (Insurance, Defence, e-commerce, Telecom, Pharma), Trends, FDI vs FPI, Impact on Balance of Payments, Global FDI Flows
Mains GS Paper-III: Indian Economy - foreign investment, capital flows, FDI policy, economic reforms.

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EXAMINER REASONING

FDI is a key driver of economic growth - it brings capital, technology, and managerial expertise. Prelims tests: FDI routes (automatic vs government), sectoral caps, FDI vs FPI distinction, FDI in e-commerce (marketplace vs inventory model), Make in India, FDI trends. Mains demands: (a) the evolution of FDI policy - from restrictive (pre-1991) to liberalised (post-1991 reforms through current era), (b) sectoral caps and reforms - defence (from 26% to 74%), insurance (from 26% to 49% to 74%), e-commerce (marketplace model), (c) FDI from a balance of payments perspective - financing CAD, forex reserves, (d) FDI vs FPI - stable vs hot money, (e) FDI trends - source countries (Singapore, Mauritius, USA, Netherlands), top sectors (services, computer, trading, auto), (f) global FDI landscape - China+1 strategy, global minimum tax (OECD BEPS 2.0). The examiner's favourite framing is: "**Has India's FDI policy...