FDI vs FPI
Why Capital Account Volatility Drives BoP Swings
Capital account inflows are split mainly into Foreign Direct Investment (FDI — long-term, control-seeking investment) and Foreign Portfolio Investment (FPI — investment in listed equity/debt, more liquid and volatile). It is typically FPI reversals, rather than FDI, that drive sharp short-term swings in a country's BoP.
- FDI is permitted up to 100% in most sectors under the automatic route, subject to sectoral caps (for example, 74% in insurance and defence manufacturing, 100% in most manufacturing and telecom)
- FPI is regulated under the SEBI (Foreign Portfolio Investors) Regulations, 2019, and is more sensitive to global interest-rate cycles (such as US Federal Reserve policy), geopolitical risk and currency expectations than FDI
- The swing from a $7.4 billion capital account inflow a year earlier to a $5 billion outflow this quarter reflects a reversal in portfolio, rather than FDI, flows
● Tracked since February 10, 2026 · last seen August 14, 2026 · updates as the daily brief publishes
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