Distinguish between greenfield FDI, mergers and acquisitions, and reinvested earnings as modes of foreign direct investment. How does the composition of FDI inflows affect technology transfer and industrial development in a developing economy like India?

In balance-of-payments accounting, net FDI equals gross inflows minus repatriation, disinvestment and outward investment by Indian firms [1]. India's gross inflows touched USD 81.04 billion in 2024-25 [2], yet net flows shrank sharply — showing that the mode through which foreign capital enters matters as much as its headline volume.

Distinguishing the three modes

• Greenfield FDI — investment in new plant, machinery and facilities, mostly under the automatic route of the Consolidated FDI Policy [3]. It creates fresh productive capacity, and carries the highest technology and employment content.
• Mergers and acquisitions — purchase of existing Indian firms. Ownership changes hands without new capacity; it inflates gross inflows and may displace domestic promoters.
• Reinvested earnings — profits retained by foreign affiliates, recorded as an inflow in BoP statistics [1]. Impact is moderate and reversible, since the same profits can later exit as dividends.

Effect on technology transfer

• Greenfield entry brings process know-how, R&D units and supplier upgrading; M&A frequently transfers only equity, with core technology retained by the parent.
• Royalty and technical-fee payments turn into a repatriation channel, so technology is effectively rented rather than absorbed [4].
• Composition tilts away from deep technology: services (19%) and computer software (16%) led equity inflows in 2024-25, while manufacturing received USD 19.04 billion [2].

Effect on industrial development

• Greenfield-led FDI deepens MSME supply chains, exports and formal employment — the very objectives of the 1991 industrial policy.
• Rising repatriation and dividend outflows widen the current account deficit, though strong reserves keep the external position resilient [5].
• Volume-first inflows without capacity creation dilute Make in India and PLI outcomes.

Hence the developmental worth of FDI lies in its composition, not its size. India should monitor quality indicators — greenfield share, technology transfer and jobs per dollar — and align PLI incentives with a stable investment-treaty regime, restoring FDI's original role as a carrier of technology and exports rather than a mere financing flow.