{"id":27156,"date":"2024-02-14T08:26:32","date_gmt":"2024-02-14T08:26:32","guid":{"rendered":"https:\/\/edukemy.com\/blog\/?p=27156"},"modified":"2024-02-14T08:26:34","modified_gmt":"2024-02-14T08:26:34","slug":"upsc-mains-what-is-the-difference-between-fdi-and-fpi-what-is-the-impact-of-foreign-portfolio-investment-fpi-outflows-on-the-indian-market-and-the-value-of-the-rupee","status":"publish","type":"post","link":"https:\/\/edukemy.com\/blog\/upsc-mains-what-is-the-difference-between-fdi-and-fpi-what-is-the-impact-of-foreign-portfolio-investment-fpi-outflows-on-the-indian-market-and-the-value-of-the-rupee\/","title":{"rendered":"UPSC Mains &#8211; What is the difference between FDI and FPI? What is the impact of Foreign Portfolio Investment (FPI) outflows on the Indian market and the value of the rupee?"},"content":{"rendered":"\n<figure class=\"wp-block-image size-full\"><a href=\"https:\/\/edukemy.com\/refer-and-earn\" target=\"_blank\" rel=\"noreferrer noopener\"><img fetchpriority=\"high\" decoding=\"async\" width=\"1280\" height=\"300\" src=\"https:\/\/edukemy.com\/blog\/wp-content\/uploads\/2024\/09\/Attempt-our-Daily-Weekly-Current-Affairs-Quiz-now-10-1.png\" alt=\"\" class=\"wp-image-46428\" srcset=\"https:\/\/edukemy.com\/blog\/wp-content\/uploads\/2024\/09\/Attempt-our-Daily-Weekly-Current-Affairs-Quiz-now-10-1.png 1280w, https:\/\/edukemy.com\/blog\/wp-content\/uploads\/2024\/09\/Attempt-our-Daily-Weekly-Current-Affairs-Quiz-now-10-1-1170x274.png 1170w, https:\/\/edukemy.com\/blog\/wp-content\/uploads\/2024\/09\/Attempt-our-Daily-Weekly-Current-Affairs-Quiz-now-10-1-585x137.png 585w\" sizes=\"(max-width: 1280px) 100vw, 1280px\" \/><\/a><figcaption><a href=\"https:\/\/edukemy.com\/refer-and-earn\" target=\"_blank\" rel=\"noopener\" title=\"\">Refer &amp; Earn NOW<\/a><\/figcaption><\/figure>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_73 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<label for=\"ez-toc-cssicon-toggle-item-6a204f0d9b5cb\" class=\"ez-toc-cssicon-toggle-label\"><p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<span class=\"ez-toc-cssicon\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-6a204f0d9b5cb\"  \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/edukemy.com\/blog\/upsc-mains-what-is-the-difference-between-fdi-and-fpi-what-is-the-impact-of-foreign-portfolio-investment-fpi-outflows-on-the-indian-market-and-the-value-of-the-rupee\/#Introduction\" title=\"Introduction:\u00a0\u00a0\u00a0\u00a0\">Introduction:\u00a0\u00a0\u00a0\u00a0<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/edukemy.com\/blog\/upsc-mains-what-is-the-difference-between-fdi-and-fpi-what-is-the-impact-of-foreign-portfolio-investment-fpi-outflows-on-the-indian-market-and-the-value-of-the-rupee\/#Body\" title=\"Body: \u00a0\u00a0\u00a0\u00a0\">Body: \u00a0\u00a0\u00a0\u00a0<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/edukemy.com\/blog\/upsc-mains-what-is-the-difference-between-fdi-and-fpi-what-is-the-impact-of-foreign-portfolio-investment-fpi-outflows-on-the-indian-market-and-the-value-of-the-rupee\/#Difference_Between_FDI_and_FPI\" title=\"Difference Between FDI and FPI:\">Difference Between FDI and FPI:<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/edukemy.com\/blog\/upsc-mains-what-is-the-difference-between-fdi-and-fpi-what-is-the-impact-of-foreign-portfolio-investment-fpi-outflows-on-the-indian-market-and-the-value-of-the-rupee\/#The_influence_of_Foreign_Portfolio_Investment_FPI_outflows_on_the_Indian_market_and_the_rupee_encompasses_various_facets\" title=\"The influence of Foreign Portfolio Investment (FPI) outflows on the Indian market and the rupee encompasses various facets:\">The influence of Foreign Portfolio Investment (FPI) outflows on the Indian market and the rupee encompasses various facets:<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/edukemy.com\/blog\/upsc-mains-what-is-the-difference-between-fdi-and-fpi-what-is-the-impact-of-foreign-portfolio-investment-fpi-outflows-on-the-indian-market-and-the-value-of-the-rupee\/#Measures_Required\" title=\"Measures Required:\">Measures Required:<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/edukemy.com\/blog\/upsc-mains-what-is-the-difference-between-fdi-and-fpi-what-is-the-impact-of-foreign-portfolio-investment-fpi-outflows-on-the-indian-market-and-the-value-of-the-rupee\/#Conclusion\" title=\"Conclusion:\">Conclusion:<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/edukemy.com\/blog\/upsc-mains-what-is-the-difference-between-fdi-and-fpi-what-is-the-impact-of-foreign-portfolio-investment-fpi-outflows-on-the-indian-market-and-the-value-of-the-rupee\/#In_case_you_still_have_your_doubts_contact_us_on_9811333901\" title=\"In case you still have your doubts, contact us on 9811333901.&nbsp;\">In case you still have your doubts, contact us on 9811333901.&nbsp;<\/a><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/edukemy.com\/blog\/upsc-mains-what-is-the-difference-between-fdi-and-fpi-what-is-the-impact-of-foreign-portfolio-investment-fpi-outflows-on-the-indian-market-and-the-value-of-the-rupee\/#Visit_our_YouTube_Channel_%E2%80%93_here\" title=\"Visit our YouTube Channel \u2013&nbsp;here\">Visit our YouTube Channel \u2013&nbsp;here<\/a><\/li><\/ul><\/li><\/ul><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Introduction\"><\/span>Introduction:\u00a0<strong>\u00a0\u00a0\u00a0<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Foreign institutional investor (FII) is a designation used by certain countries for international investors in their stock markets. The term is typically associated with fast-developing economies, like India and China, that have strict rules regarding foreign investors.<\/p>\n\n\n\n<p class=\"has-text-align-center\"><img decoding=\"async\" width=\"439\" height=\"268.7078020273578\" data-src=\"https:\/\/lh7-us.googleusercontent.com\/ApeHo5x9JUFGzsqAH8p8bohKY3vHUDoQGGQks0v-cqiiTvHhRd3XZuQPF5DahMsdVSycrlqAbT6RWV8RtmmO6rrGIcE4GIFbOVV9TacK8vJx1J-zQ622TKLfbJXRcHEgZkWizd86k247QFdXuv9mtPs\" src=\"data:image\/gif;base64,R0lGODlhAQABAAAAACH5BAEKAAEALAAAAAABAAEAAAICTAEAOw==\" class=\"lazyload\" style=\"--smush-placeholder-width: 439px; --smush-placeholder-aspect-ratio: 439\/268;\"><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Body\"><\/span>Body: <strong>\u00a0\u00a0\u00a0\u00a0<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Difference_Between_FDI_and_FPI\"><\/span>Difference Between FDI and FPI:<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<figure class=\"wp-block-table\"><div class=\"pcrstb-wrap\"><table><tbody><tr><td><strong>Parameters<\/strong><\/td><td><strong>Foreign Direct Investment (FDI)<\/strong><\/td><td><strong>Foreign Portfolio Investment (FPI)<\/strong><\/td><\/tr><tr><td><strong>Definition<\/strong><\/td><td>FDI refers to the investment by the foreign investors to obtain a substantial interest in enterprises located in different countries.<\/td><td>FPI refers to investing in financial assets of a foreign country such as stocks and bonds available on an exchange.<\/td><\/tr><tr><td><strong>Role of Investors<\/strong><\/td><td>Active Investors<\/td><td>Passive Investors<\/td><\/tr><tr><td><strong>Type<\/strong><\/td><td>Direct Investment<\/td><td>Indirect investment<\/td><\/tr><tr><td><strong>Degree of control<\/strong><\/td><td>High control<\/td><td>Very low control<\/td><\/tr><tr><td><strong>Term<\/strong><\/td><td>Long Term Investment<\/td><td>Short Term Investment<\/td><\/tr><tr><td><strong>Management of Projects<\/strong><\/td><td>Efficient<\/td><td>Comparatively less efficient<\/td><\/tr><tr><td><strong>Investment has done on<\/strong><\/td><td>Physical assets of the foreign country<\/td><td>Financial Assets of foreign Country<\/td><\/tr><tr><td><strong>Entry and Exist<\/strong><\/td><td>Difficult<\/td><td>Relatively Difficult.<\/td><\/tr><tr><td><strong>Leads to<\/strong><\/td><td>Transfer of funds, Technology and other resources to the foreign country.<\/td><td>Capital inflow to the foreign country<\/td><\/tr><tr><td><strong>Risks involved<\/strong><\/td><td>Stable<\/td><td>Volatile<\/td><\/tr><\/tbody><\/table><\/div><\/figure>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"The_influence_of_Foreign_Portfolio_Investment_FPI_outflows_on_the_Indian_market_and_the_rupee_encompasses_various_facets\"><\/span>The influence of Foreign Portfolio Investment (FPI) outflows on the Indian market and the rupee encompasses various facets:<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<ol class=\"wp-block-list\"><li><strong>Market Volatility:<\/strong> FPI outflows escalate volatility in the Indian stock market. The sale of financial assets by foreign investors triggers abrupt fluctuations in stock prices, fostering overall market instability.<\/li><li><strong>Currency Depreciation:<\/strong> FPI sell-offs and currency conversions intensify the demand for foreign exchange, resulting in the depreciation of the Indian rupee against other currencies. This, in turn, affects the country&#8217;s trade balance.<\/li><li><strong>Interest Rate Adjustments:<\/strong> Responding to FPI outflows, the Reserve Bank of India (RBI) may make interest rate adjustments. This could involve raising interest rates to attract foreign capital, stabilize the currency, and address disruptions in the market.<\/li><li><strong>Risk of Capital Flight:<\/strong> Significant FPI outflows may raise concerns about capital flight, where substantial amounts of capital exit the country rapidly. Policymakers may intervene with measures to prevent excessive fund outflows and maintain financial stability.<\/li><\/ol>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Measures_Required\"><\/span>Measures Required:<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<ol class=\"wp-block-list\"><li><strong>Monetary Measures:<\/strong> The RBI employs strategies such as forex reserve accumulation and restricting FPI investments in short-term debts to counter exchange rate volatility during FPI inflows. In FY 2020-21, the RBI net purchased $68.315 billion to counter rupee appreciation.<\/li><li><strong>Diversification of the Economy:<\/strong> Encouraging investment in less vulnerable sectors, such as manufacturing (Made in India) and agriculture, can help mitigate the impact of FPI inflows on the domestic economy.<\/li><li><strong>Fiscal and Regulatory Measures:<\/strong> Crucial government policies, including the Tobin tax, Mutual Legal Assistance Treaties (MLATs), and Double Taxation Avoidance Agreements (DTAA), play a crucial role in influencing the impact of FPI inflows.<\/li><li><strong>Developing Domestic Financial Markets:<\/strong> Initiatives like PMJDY and APY promote domestic savings, reducing reliance on foreign capital. Improving corporate governance and transparency, as observed in the Insolvency and Bankruptcy Code, helps prevent capital flight.<\/li><\/ol>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span>Conclusion:<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>In conclusion, both Foreign Portfolio Investment (FPI) and Foreign Direct Investment (FDI) are vital sources of funding for many economies. By harnessing foreign capital, countries can develop infrastructure, establish manufacturing and service facilities, and invest in productive assets. These actions contribute to economic growth and create employment opportunities.<\/p>\n\n\n\n<figure class=\"wp-block-image size-full\"><a href=\"https:\/\/edukemy.com\/free-resources-for-upsc?utm_source=Blog&amp;utm_medium=Banner&amp;utm_campaign=Resources\" target=\"_blank\" rel=\"noreferrer noopener\"><img decoding=\"async\" width=\"1280\" height=\"300\" data-src=\"https:\/\/edukemy.com\/blog\/wp-content\/uploads\/2024\/06\/18.png\" alt=\"\" class=\"wp-image-42398 lazyload\" data-srcset=\"https:\/\/edukemy.com\/blog\/wp-content\/uploads\/2024\/06\/18.png 1280w, https:\/\/edukemy.com\/blog\/wp-content\/uploads\/2024\/06\/18-1170x274.png 1170w, https:\/\/edukemy.com\/blog\/wp-content\/uploads\/2024\/06\/18-585x137.png 585w\" data-sizes=\"(max-width: 1280px) 100vw, 1280px\" src=\"data:image\/gif;base64,R0lGODlhAQABAAAAACH5BAEKAAEALAAAAAABAAEAAAICTAEAOw==\" style=\"--smush-placeholder-width: 1280px; --smush-placeholder-aspect-ratio: 1280\/300;\" \/><\/a><\/figure>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"In_case_you_still_have_your_doubts_contact_us_on_9811333901\"><\/span><strong>In case you still have your doubts, contact us on 9811333901.<\/strong>&nbsp;<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>For UPSC Prelims Resources,&nbsp;<a href=\"https:\/\/edukemy.com\/upsc-cse-prelims-resource-centre\" target=\"_blank\" rel=\"noreferrer noopener\">Click here<\/a><\/p>\n\n\n\n<p>For Daily Updates and Study Material:<\/p>\n\n\n\n<p>Join our Telegram Channel \u2013&nbsp;<a href=\"https:\/\/t.me\/WithEdukemy4IAS\" target=\"_blank\" rel=\"noreferrer noopener\">Edukemy for IAS<\/a><\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>1. Learn through Videos \u2013&nbsp;<a href=\"https:\/\/bit.ly\/3vOD8sU\" target=\"_blank\" rel=\"noreferrer noopener\">here<\/a><\/li><li>2. Be Exam Ready by Practicing Daily MCQs \u2013&nbsp;<a href=\"https:\/\/bit.ly\/3Q9z2nF\" target=\"_blank\" rel=\"noreferrer noopener\">here<\/a><\/li><li>3. Daily Newsletter \u2013 Get all your Current Affairs Covered \u2013&nbsp;<a href=\"https:\/\/bit.ly\/3bE2y5J\" target=\"_blank\" rel=\"noreferrer noopener\">here<\/a><\/li><li>4. Mains Answer Writing Practice \u2013&nbsp;<a href=\"https:\/\/bit.ly\/3mZuVxl\" target=\"_blank\" rel=\"noreferrer noopener\">here<\/a><\/li><\/ul>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Visit_our_YouTube_Channel_%E2%80%93_here\"><\/span>Visit our YouTube Channel \u2013&nbsp;<a href=\"https:\/\/www.youtube.com\/@ShabbirsEduKemyforIAS\" target=\"_blank\" rel=\"noreferrer noopener\">here<\/a><span class=\"ez-toc-section-end\"><\/span><\/h4>\n","protected":false},"excerpt":{"rendered":"<p>Foreign institutional investor (FII) is a designation used by certain countries for international investors in their stock markets. <\/p>\n","protected":false},"author":17,"featured_media":26525,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_eb_attr":"","om_disable_all_campaigns":false,"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"_uf_show_specific_survey":0,"_uf_disable_surveys":false,"_lmt_disableupdate":"","_lmt_disable":"","footnotes":""},"categories":[1644],"tags":[232,515,230],"class_list":["post-27156","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-upsc-prelims","tag-upsc","tag-upsc-cse","tag-upsc-mains"],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/edukemy.com\/blog\/wp-json\/wp\/v2\/posts\/27156","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/edukemy.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/edukemy.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/edukemy.com\/blog\/wp-json\/wp\/v2\/users\/17"}],"replies":[{"embeddable":true,"href":"https:\/\/edukemy.com\/blog\/wp-json\/wp\/v2\/comments?post=27156"}],"version-history":[{"count":1,"href":"https:\/\/edukemy.com\/blog\/wp-json\/wp\/v2\/posts\/27156\/revisions"}],"predecessor-version":[{"id":27157,"href":"https:\/\/edukemy.com\/blog\/wp-json\/wp\/v2\/posts\/27156\/revisions\/27157"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/edukemy.com\/blog\/wp-json\/wp\/v2\/media\/26525"}],"wp:attachment":[{"href":"https:\/\/edukemy.com\/blog\/wp-json\/wp\/v2\/media?parent=27156"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/edukemy.com\/blog\/wp-json\/wp\/v2\/categories?post=27156"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/edukemy.com\/blog\/wp-json\/wp\/v2\/tags?post=27156"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}