What is Foreign Portfolio Investment (FPI)? Throw light on FPI regime as a route for foreign investment in India. Examine the impact of FPI withdrawal on the Indian economy. – PuuchoIAS


Topic: Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.

4. What is Foreign Portfolio Investment (FPI)? Throw light on FPI regime as a route for foreign investment in India. Examine the impact of FPI withdrawal on the Indian economy. (250 words)

Difficulty level: Moderate

Reference: Indian Express

Why the question:

Foreign portfolio investors have pulled out Rs 42,000 crore this month amid rising inflation and monetary policy tightening in the US.

Key Demand of the question:

To write about FPI, its importance and impact of its withdrawal.

Directive word: 

Examine – When asked to ‘Examine’, we must investigate the topic (content words) in detail, inspect it, investigate it and establish the key facts and issues related to the topic in question. While doing so we should explain why these facts and issues are important and their implications.

Structure of the answer:

Introduction: 

Begin by defining FPI. Cite statistic related to the extent of FPI in India.

Body:

In the first part, write about importance of FPI as mode of investment and its importance to the Indian economy.

Next, give context regarding the withdrawal of FPI due to rising inflation and monetary policy tightening in the US. Write about the impact of the withdrawal on macroeconomic parameters.

Conclusion:

Conclude with a way forward to ensure that withdrawal of FPI does not affect the economy.

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