India's foreign direct investment (FDI) landscape has presented a mixed bag of signals in the fiscal year 2024-25. While gross FDI inflows demonstrated a robust increase, the net FDI figure witnessed a drastic decline, creating a complex narrative of investment trends in the country.
Gross FDI inflows into India reached $81 billion in FY25, marking a 13.7% year-on-year growth, according to data from the Reserve Bank of India (RBI). This rise in gross inflows underscores sustained investor interest in the Indian economy. These investments were primarily directed towards key sectors such as manufacturing, financial services, electricity and energy, and communication services, collectively accounting for over 60% of the total inflows. Singapore, Mauritius, the UAE, the Netherlands, and the United States emerged as the major contributing countries, representing more than 75% of the total FDI.
However, despite the healthy gross inflows, India's net FDI plummeted by 96.5% to a record low of $353 million in FY25, a sharp contrast from the $10 billion recorded in the previous fiscal year. This dramatic fall in net FDI can be attributed to a combination of factors, primarily large-scale repatriation of capital by foreign investors and increased outward investments by Indian companies.
Several factors contributed to the surge in repatriation. A thriving IPO market, featuring companies like Hyundai Motor and Swiggy, allowed long-term investors to realize substantial profits, prompting them to exit their investments. Data indicates that investors withdrew $49 billion from India in FY25, compared to $41 billion the year before. High-profile exits by private equity and venture capital firms, such as Alpha Wave Global and Partners Group, from major share sales further amplified this trend.
In addition to increased repatriation, outward direct investments from Indian companies also played a significant role in reducing net FDI. These investments surged to $29 billion in FY25 from $17 billion in FY24, reflecting the growing global ambitions of corporate India amid evolving global supply chains. Indian companies are increasingly looking to tap into global markets, expand their scale of operations, and diversify their supply bases, leading to higher outward investments.
The RBI acknowledged this shift in capital dynamics, stating that "Net FDI moderated, reflecting the rise in net outward FDI and repatriation FDI." The central bank also highlighted that net inflows of 'stable' FDI were significantly lower than the $2.67 billion in 'volatile' portfolio flows for the year, indicating a preference for short-term investments.
Despite the concerning decline in net FDI, some experts view these trends with optimism. A report by the Indian Venture Capital and Alternate Capital Association (IVCA) and EY suggested that increased investor exits signal a "mature market," where foreign investors can smoothly enter and exit, which "reflects positively on the Indian economy."
The Indian government has been actively pursuing measures to attract further foreign investment. The government has announced plans to expand measures to boost strategic foreign investment. In February 2025, the government proposed new regulations allowing up to 100 percent foreign direct investment into its insurance sector, further demonstrating its commitment to attracting capital inflows. The finance minister also proposed a high-powered committee to review current hurdles and challenges to ease of doing business in India, with expectations of further deregulation policies aimed at attracting foreign investment.
