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22 Jul 2026ECONOMY3 questions

When Net FDI Goes Negative: Why the Headline Number Hides Three Different Stories

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Article summary

Reserve Bank of India data show that net foreign direct investment turned negative in May 2026, with outflows exceeding inflows by about 74 million dollars and snapping a three-month run of positive net inflows. The movement came not from a surge in money leaving but from inflows slowing more sharply than outflows: gross inward FDI weakened while repatriation by existing investors and outward investment by Indian firms held up. Net FDI is a residual of three distinct flows — fresh inward investment, repatriation and disinvestment by earlier investors, and outward FDI by Indian companies — so a negative headline can reflect Indian firms maturing into global investors as readily as any loss of confidence. The July 2026 RBI Bulletin separately judged that the economy had navigated external uncertainties well, with firm industrial and services indicators.

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recallTests whether you read the article and retained key facts.
1Q
applicationTests whether you can apply the concept to a new scenario.
1Q
analysisTests whether you can reason across multiple related facts.
1Q

Sample questions — answers revealed after test

ECONOMYRecallEasy

Q1. In India's balance of payments, foreign direct investment and foreign portfolio investment are recorded in which account?

AThe current account, alongside trade in goods and services.
BThe financial account, which records cross-border investment flows.
CThe revenue account of the Union Budget.
DThe errors and omissions account exclusively.
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ECONOMYApplicationMedium

Q2. In a given month, gross inward FDI is steady, repatriation by earlier foreign investors is steady, but outward FDI by Indian firms rises sharply, pushing net FDI negative. What does this most likely indicate?

AA collapse of foreign investor confidence in the domestic economy.
BIndian firms increasingly investing abroad, a sign of corporate internationalisation rather than of reduced inward interest.
CA fall in the country's foreign exchange reserves caused by the current account.
DThat foreign portfolio investors have exited the equity market.
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ECONOMYAnalysisHard

Q3. Consider the following statements distinguishing foreign direct investment from foreign portfolio investment: 1. Direct investment carries a lasting interest and a degree of management influence, whereas portfolio investment is a holding of securities without such control. 2. Portfolio flows are more volatile and reversible than direct investment, which is why they are managed largely through monetary and exchange-rate levers. 3. Because both are recorded in the same account, a slowdown in direct investment can be fully offset by monetary policy in the same way as a portfolio outflow. Which of the statements given above are correct?

A1 and 2 only
B1 only
C2 and 3 only
D1, 2 and 3
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