The original 1991 FDI policy emphasised technology transfer and export promotion. Critically examine how subsequent policy evolution has shifted focus from investment quality to investment volume, and assess the development consequences.

Q. The original 1991 FDI policy emphasised technology transfer and export promotion. Critically examine how subsequent policy evolution has shifted focus from investment quality to investment volume, and assess the development consequences. (15 marks, 250-350 words)

The Statement on Industrial Policy, 1991 welcomed foreign capital not as an end in itself but as a vehicle for technology transfer, managerial expertise and export promotion [1]. Three decades later, policy success is judged largely by headline inflow numbers — a shift that has delivered volume while diluting quality.

How the focus shifted to volume - Conditionality dismantled: sectoral caps were raised, the automatic route widened, and the FIPB abolished in 2017, leaving no systematic screening of technology content or export obligations [1]. - Changed metric of success: official communication foregrounds gross equity inflows — USD 81.04 billion in FY 2024-25, up 14% year-on-year [2] — while the BoP measure of capital actually retained draws far less attention [3][5]. - Composition unmonitored: mergers, acquisitions and reinvested earnings inflate gross figures without new capacity; services alone took 19% of equity inflows, with manufacturing's share far smaller [2].

Development consequences - Net FDI erosion: RBI's balance of payments data shows net FDI falling from about $44 billion in 2020-21 to under $1 billion in 2024-25, with only a partial recovery since, as repatriation, dividends and royalties offset most fresh inflows [3][5]. - External-sector pressure: rising investment-income outflows widen the current account deficit, though large reserves currently contain the risk [4]. - Shallow industrialisation: ownership transfer without technology transfer limits employment and forward linkages, blunting the "China+1" opportunity.

The other side Liberalisation itself has succeeded: India remains among the largest FDI destinations, with deeper capital markets, competition and consumer gains; and outward investment by Indian multinationals, which compresses net FDI, signals corporate maturity rather than weakness [3].

The problem, therefore, is not openness but the absence of a quality lens over it. Restoring the 1991 intent — linking PLI-type incentives to greenfield capacity, technology absorption and export performance, and publishing net alongside gross FDI — would convert inflows into durable industrial capability, advancing SDG 9 on resilient industrialisation.

(~330 words)

Sources: 1. Statement on Industrial Policy, 1991 — DPIIT, Ministry of Commerce & Industry — original objectives of technology transfer and export promotion; liberalisation of foreign investment and technology agreements 2. India Records USD 81.04 Billion FDI Inflow in FY 2024–25 — Press Information Bureau — gross inflows, 14% growth, services share of 19% 3. RBI Bulletin (Balance of Payments and State of the Economy) — Reserve Bank of India — net FDI, repatriation/disinvestment and outward FDI components of the BoP 4. India: 2025 Article IV Consultation — IMF Country Report No. 25/314 — external-sector assessment and current account position 5. Foreign Direct Investment, net inflows (BoP, current US$) — India, World Bank Data — net FDI measured on a BoP basis and its decline