Score:
5.5/10
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Topper’s Copy
GS3
Economy
10 marks
Why are Indians increasingly investing in foreign markets? Discuss the implications of rising overseas investments for the Indian economy.
Student’s Answer
Evaluation by SuperKalam
Demand of the Question
- Why Indians are increasingly investing money in foreign markets
- What rising overseas investments mean for the Indian economy
What you wrote:
India's Capital is increasingly flowing outward.
Remittance under Liberalised remittance scheme touched nearly ~$29 bn in in FY 26 with rising share for equity and debt. While Corporate outward direct investment jumped to $23.6 bn in FY 25. (Economic survey 2025-26)
India's Capital is increasingly flowing outward.
Remittance under Liberalised remittance scheme touched nearly ~$29 bn in in FY 26 with rising share for equity and debt. While Corporate outward direct investment jumped to $23.6 bn in FY 25. (Economic survey 2025-26)
Suggestions to improve:
- Could use the FY25 remittance figure when citing the Economic Survey 2025-26, rather than attributing full-year FY26 figures to it.
- Can briefly distinguish spending abroad from investment abroad. If retaining the investment-share point, clarify that equity and debt investment rose from US$1.7 billion in FY25 to US$2.7 billion in FY26 without attributing the latter to that Survey.
- Keep the opening compact so that more space remains for explaining causes and economic effects.
What you wrote:
Reasons:-
I) Household Diversification - reduced home bias, access to global tech/AI firms unlisted in India
II) Currency hedge - rupee pas ₹90/$ makes dollar assets attractive for foreign education and retainment goal
III) Corporate globalization - market, technologies, resource seeking (Critical minerals, energy), China+1 supply chain
IV) Enablers - LRS limit of $250k, OI Rules 2022, GIFT city outbound funds, fintech platforms
Reasons:-
I) Household Diversification - reduced home bias, access to global tech/AI firms unlisted in India
II) Currency hedge - rupee pas ₹90/$ makes dollar assets attractive for foreign education and retainment goal
III) Corporate globalization - market, technologies, resource seeking (Critical minerals, energy), China+1 supply chain
IV) Enablers - LRS limit of $250k, OI Rules 2022, GIFT city outbound funds, fintech platforms
Suggestions to improve:
- Remove the ₹90 claim and explain currency hedging through matching foreign-currency assets with future overseas education or retirement expenses.
- Could add a short causal phrase to corporate globalisation: investing abroad helps firms access customers, technology and critical resources.
- Explain the enabling role rather than only listing names. For example, fintech platforms reduce access barriers and transaction effort.
What you wrote:
Implications
[FLOWCHART: "Implications"
-> "Positive"
-> "Negative"]
Positive
✓ Global Indian MNCs, soft power
✓ Technology, resource security
✓ Future dividends & profit income
✓ Household wealth resilience
✓ financial deepening via GIFT city
Negative
✓ Dollar Demand -> Rupee depreciation, reserve drawdown
✓ Net FDI thinned to $0.4 bn (FY 25) -> BoP fragility
✓ Domestic savings diverted from Eco capex
✓ Round tripping, tax base erosion
✓ Trilemma effects - Capital flight risk
Implications
[FLOWCHART: "Implications"
-> "Positive"
-> "Negative"]
Positive
✓ Global Indian MNCs, soft power
✓ Technology, resource security
✓ Future dividends & profit income
✓ Household wealth resilience
✓ financial deepening via GIFT city
Negative
✓ Dollar Demand -> Rupee depreciation, reserve drawdown
✓ Net FDI thinned to $0.4 bn (FY 25) -> BoP fragility
✓ Domestic savings diverted from Eco capex
✓ Round tripping, tax base erosion
✓ Trilemma effects - Capital flight risk
Suggestions to improve:
- Qualify the external-sector chain: sustained net outflows can pressure the rupee and may require reserve use when other foreign-exchange inflows are insufficient.
- Can explain the low net foreign direct investment figure through both repatriation/disinvestment and outward investment, rather than presenting it as evidence of overseas investment alone.
- Replace an unexplained phrase with a tax mechanism: Tax Collected at Source under the Liberalised Remittance Scheme raises the upfront cash-flow cost of covered remittances and supports tax tracking. Clarify that collection at source is not necessarily the investor’s final tax liability.
What you wrote:
Way forward
-> Calibrated capital account liberalisation (Tarapore roadmap)
-> Improve domestic ease of doing business & Tax certainty so outflows are "pull not push"
-> Route flows through GIFT city
-> Strengthen data monitoring and round-tripping rules
-> Internationalise the Rupee.
Way forward
-> Calibrated capital account liberalisation (Tarapore roadmap)
-> Improve domestic ease of doing business & Tax certainty so outflows are "pull not push"
-> Route flows through GIFT city
-> Strengthen data monitoring and round-tripping rules
-> Internationalise the Rupee.
Suggestions to improve:
- Link domestic reforms to investor choice: predictable taxes and easier business conditions can retain productive investment without blocking legitimate diversification.
- If retaining Gujarat International Finance Tec-City, explain its proposed role in regulated investment services and better transaction visibility, rather than treating routing as sufficient.
- Could shorten the list and prioritise two linked actions: improve domestic investment opportunities and monitor risky or disguised outflows.
What you wrote:
Rising outward flow of Investment signals a maturing, globally integrated economy. The task is not to restrict it but to ensure it complements, rather than substitutes, investment at home.
Rising outward flow of Investment signals a maturing, globally integrated economy. The task is not to restrict it but to ensure it complements, rather than substitutes, investment at home.
Suggestions to improve:
- Could qualify the maturity claim by distinguishing productive global expansion from outflows driven by domestic constraints.
- Close with one condition already developed in the answer, such as competitive domestic investment conditions supported by effective monitoring.
What works: You address both demands, distinguish household and corporate motives, and balance economic benefits with risks in a clear structure. Revision priorities: Correct the remittance attribution and rupee claim, distinguish remittances from investment, and explain the mechanisms behind external-sector pressure and policy recommendations.
Demand of the Question
- Why Indians are increasingly investing money in foreign markets
- What rising overseas investments mean for the Indian economy
What you wrote:
India's Capital is increasingly flowing outward.
Remittance under Liberalised remittance scheme touched nearly ~$29 bn in in FY 26 with rising share for equity and debt. While Corporate outward direct investment jumped to $23.6 bn in FY 25. (Economic survey 2025-26)
India's Capital is increasingly flowing outward.
Remittance under Liberalised remittance scheme touched nearly ~$29 bn in in FY 26 with rising share for equity and debt. While Corporate outward direct investment jumped to $23.6 bn in FY 25. (Economic survey 2025-26)
Suggestions to improve:
- Could use the FY25 remittance figure when citing the Economic Survey 2025-26, rather than attributing full-year FY26 figures to it.
- Can briefly distinguish spending abroad from investment abroad. If retaining the investment-share point, clarify that equity and debt investment rose from US$1.7 billion in FY25 to US$2.7 billion in FY26 without attributing the latter to that Survey.
- Keep the opening compact so that more space remains for explaining causes and economic effects.
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