The global economy is witnessing a seismic shift in foreign direct investment (FDI) flows, with emerging markets and developing economies (EMDEs) bearing the brunt of the decline. According to the World Bank (WB), FDI inflows to EMDEs have weakened steadily as a share of their GDP since the global financial crisis, plummeting to around 2 per cent of GDP in recent years. To put this in absolute terms, EMDEs received $435 billion in FDI in 2023, the lowest level since 2005. During the heydays of the 2000s, FDI inflows to EMDEs had jumped five times in nominal terms, equivalent to about 5 per cent of their GDP in the typical economy at the peak in 2008. But, with the world seemingly shutting down for business with the imposition of barriers on trade as well as investment flows and cross-border investment, trade agreements have slowed sharply. Between 2010 and 2024, just 380 new investment treaties came into force, less than half of the 870-odd treaties between 2000 and 2009. Thus, the global FDI slowdown is no longer a blip, but is now morphing into a persistent trend, dragged by structural headwinds, geopolitical uncertainty, policy inertia and regime shifts.

India, while better placed than many, finds itself caught in the crosscurrents of this global rebalancing and its FDI experience mirrors the global trend, albeit with unique twists. While gross FDI inflows rose to a robust $81 billion in FY25 — a 14 per cent increase, net FDI plunged 96 per cent year-on-year to just $0.35 billion, its lowest level in nearly two decades. This was due to rising repatriations, booming outward FDI and low reinvestment of profits.

Globally,........

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