FDI flows could be impacted due to rising risk aversion, says CEA

Chief Economic Advisor V Anantha Nageswaran

Foreign direct investment (FDI) flows to India could be impacted due to rising risk aversion, chief economic adviser (CEA) V Anantha Nageswaran has said, stressing the need for sustaining India’s economic growth amid global uncertainties.

The CEA also batted for a modern regulatory framework and financial inclusion efforts to support long-term economic expansion.

“Sustaining growth rates in the coming years is important. Looking at the current state of the world economy, it will come under pressure,” the CEA said at a post-budget webinar on “Regulatory, Investment, and Ease of Doing Business (EODB) Reforms” organised by the department of financial services.

Global concerns

The government expects the economy to grow at 6.5 percent in FY25. The Economic Survey, put together by a team led by the CEA, has forecasted growth in the range of 6.3-6.8 percent for FY26, indicating cautious optimism.

Concerns, however, remain over global economic headwinds. The CEA pointed out that “a modern, responsive regulatory framework is a prerequisite for a favourable, growth-conducive climate,” especially as global financial conditions tighten.

Regulatory focus

India’s FDI inflows have been fluctuating, with net foreign direct investment declining 43.79 percent in 2023 to $28.07 billion, reflecting a broader trend of capital outflows from emerging markets.

Over the past decade (April 2014 to September 2024), India attracted $709.84 billion in FDI, indicating strong investor interest despite short-term volatility.

The Budget 2025 raised the FDI limit for the insurance sector in India from 74 percent to 100 percent.

The government has been focusing on ease of doing business and deregulation to offer greater flexibility and attract long-term foreign investment.

Reiterating India’s status as a low-middle-income country, Nageswaran said financial inclusion efforts must continue. “We need active collaboration on last-mile financial connectivity,” he said.