Beyond the FDI ‘Collapse’: Why India Needs Better Narratives, Not Panic

They say how a person eats tells us a lot about how they process the world around them. The fast eater moves with urgency, treating the plate like a checklist. The slow eater lingers, scans, and savours the same forkful as if it were a poem worth rereading. Both consume the same meal, but psychologically, they are running entirely different scripts.

I find this metaphor very useful in understanding two modes of our primal wiring. One is outcome-focused urgency. It seeks closure by reducing discomfort and restoring a sense of control. The other is experience-focused awareness. It tolerates ambiguity longer and allows signals to accumulate before conclusions harden. In cognitive terms, one narrows attention to reach the “end”; the other expands attention to understand the “process”.

This month, India’s conversation on foreign capital chose the fast eater’s script.

When net FDI fell 96% to roughly $0.35 billion in 2024-25, media commentary defaulted to words like crash, collapse, and plunge. The data were treated as a singular catastrophe rather than as one point in a longer, path-dependent cycle. Some may call this poor economics. But a nuanced look will tell you that it reflects a familiar psychological failure mode in how the mind responds to complex systems under uncertainty.

Outcome-focused urgency seeks the comfort of a verdict. It collapses ambiguity quickly, because ambiguity is mentally expensive. Alarmist vocabulary triggers a predictable chain reaction—loss aversion, which codes profit repatriations as abandonment rather than completion; the availability heuristic, which turns “collapse” into the sticky lens for all subsequent data; and confirmation bias, which sidelines counter-signals such as Big Tech’s hyperscale capex and long-horizon commitments. The mind, and then the market, settles on a simple story of broken confidence. It feels stable, even when it is incomplete.

Institutions amplify these cues. Under reputational pressure, regulators face incentives to offer fast and visible fixes—sentiment-soothing easements and reassuring announcements—over the slower and less visible work of structural fidelity. Investors, guided by recency bias, may under-allocate precisely as domestic capacity begins to turn. This is how systems start prioritising anxiety relief over decision quality. In the process, a critical distinction between new commitments, ongoing expansion, and the natural exits of mature capital is lost. Collapsing these into a single “confidence” metric is seductive, but it mislabels path dependency as panic.

Cognitive Governance
This is not an optimist-versus-pessimist battle. It is about cognitive governance. The issue is not FDI volatility itself; it is how volatility is framed, interpreted, and acted upon. The strategic fork lies in the craft of communication. It lies in raising the question: Can India’s economic stewardship shift from the fast eater’s urgency to the slow eater’s discipline?

This shift requires psychologically informed framing.

For example, look at the RBI’s present communication approach on foreign investment. It is technically sound and procedurally rigorous. Its master circulars and periodic releases focus on regulatory guardrails, compliance pathways, and reporting formats—FC-GPR, FLA, sectoral caps, country splits, and routes of approval. They tell markets what the rules are and what the aggregate numbers look like.

What they rarely do is help the mind interpret what those numbers mean over time.

Repatriations are presented as contemporaneous facts, not as the natural tail of earlier investment vintages. The outflows in fiscal 2024-25 are not explicitly tethered to 2020–24 inflows, even though such linkage would immediately reframe exits as lifecycle events rather than confidence shocks. Aggregate gross and net figures appear cleanly in tables, but they are rarely paired with forward-looking pipeline indicators or sectoral narratives that would allow readers to situate the present moment within a longer arc.

Most critically, the RBI’s outputs default to verdict-like aggregates rather than scenarios. The data are factual, but they are not psychologically designed. There is little probabilistic framing, no explicit invitation to think in ranges, phases, or interacting drivers. Visual historical context, repatriation mapping, or bias-aware language that might slow down knee-jerk interpretation is largely absent. The information is correct, but it is cognitively unscaffolded.

This leaves a vacuum. In the absence of institutional narrative discipline, media amplification rushes in to supply meaning, often through the most emotionally legible frame: the net drop. Without counter-narratives grounded in lifecycle logic or forward pipelines, reputational pressure rises and policy bandwidth narrows. Attention shifts from long-horizon stewardship to short-term perception management.

Therefore, strengthening RBI communication along these lines would not dilute its technocratic mandate; it would deepen it. By pairing aggregates with context, scenarios, and design choices that nudge deliberative thinking, the central bank could play a more active role in governing not just capital flows, but the psychology through which those flows are read.

This is what the superficial alarmist approach misses. It misses the deeper tension between trust and control. A slow-eater narrative tolerates ambiguity and shares complexity with markets, trusting them to process cycles and phases. A fast-eater narrative seeks to control perception by simplifying a fraught moment, often triggering greater volatility in the process. The challenge for India’s policymakers is whether they can harness the diagnostic power of sharp data without being swallowed by the emotional economy it unleashes.

This is not an argument to give us a “happy ending”. No, the goal is not to mute the signals. The goal is to ensure the system hears the full frequency, recognising the bass note of cyclicality alongside the treble of commitment.

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