After a dash for hot dollars, India dives deep for sticky money
Policy focus is reported to be shifting from attracting short-term foreign portfolio capital toward securing long-term foreign direct investment, as part of efforts to strengthen India's external accounts
A proposal under consideration would raise the threshold for FDI proposals requiring Cabinet Committee on Economic Affairs (CCEA) approval from Rs 5,000 crore to Rs 15,000 crore
The existing Rs 5,000 crore threshold has remained unchanged since November 2015
The proposal is intended to ease and speed up approvals for large foreign investors under the government approval route
FDI Approval Routes: Automatic vs Government
India's FDI policy operates on a negative-list approach: investment is permitted up to 100% under the Automatic Route in most sectors unless specifically restricted, in which case it requires prior government approval.
Key Details
- FDI is regulated primarily under the Foreign Exchange Management Act (FEMA), 1999, along with regulations issued by the Reserve Bank of India (RBI)
- The Department for Promotion of Industry and Internal Trade (DPIIT), under the Ministry of Commerce and Industry, issues and annually updates the Consolidated FDI Policy
- Under the Automatic Route, no prior government approval is needed; the investor only needs to notify the RBI
- Under the Government Route, proposals are examined by the concerned administrative ministry/department; proposals above the prescribed threshold require Cabinet Committee on Economic Affairs (CCEA) approval, while smaller proposals can be cleared at the ministry level
- The CCEA is chaired by the Prime Minister and is the apex Cabinet Committee responsible for economic policy decisions, including large investment approvals
Raising the CCEA threshold from Rs 5,000 crore to Rs 15,000 crore would mean more large FDI proposals get cleared at the administrative ministry level itself, without requiring a separate Cabinet Committee sign-off — intended to reduce approval timelines for big-ticket investors.
Balance of Payments: FDI ("Sticky Money") vs FPI ("Hot Money")
The Balance of Payments (BoP) capital account records cross-border investment flows, broadly split into Foreign Direct Investment (FDI) and Foreign Portfolio Investment (FPI), which behave very differently in financing India's external deficit.
Key Details
- FDI involves acquiring a lasting management interest (typically 10% or more equity) in an enterprise, and is generally illiquid and long-term — hence termed "sticky money"
- FPI covers investment in listed equities, bonds, and other financial instruments without management control, and can be withdrawn quickly — hence termed "hot money"
- India's current account deficit (CAD) for FY26 stood at USD 25.2 billion (0.6% of GDP); the fourth quarter (Q4 FY26) posted a current account surplus of USD 7.1 billion (0.7% of GDP)
- Net FDI inflows rose to USD 6.9 billion in FY26 (from USD 1.0 billion in FY25), while FPI recorded net outflows of USD 16.4 billion in FY26 (against inflows of USD 3.6 billion the previous year)
- Foreign exchange reserves fell by USD 23.6 billion (BoP basis) in FY26, reflecting the pressure from volatile FPI outflows
The reported shift toward attracting FDI over portfolio flows is a direct response to this divergence — FDI has proven more resilient in financing India's external accounts, while FPI outflows have added volatility, making policy easier for durable, long-term capital a stated priority.
- Proposed CCEA approval threshold for FDI: raised from Rs 5,000 crore to Rs 15,000 crore
- Existing threshold in place since: November 2015
- FDI legal basis: Foreign Exchange Management Act (FEMA), 1999; policy issued by DPIIT
- FY26 current account deficit: USD 25.2 billion (0.6% of GDP)
- Q4 FY26 current account: surplus of USD 7.1 billion (0.7% of GDP)
- FY26 net FDI inflows: USD 6.9 billion; FY26 net FPI outflows: USD 16.4 billion