FDI inflows: Global uncertainty and protectionism cut into India’s foreign direct investment. The correction is now easing. Data for 2025-26 points to a rebound, with gross inflows likely to cross $90 billion, up from $80.61 billion in 2024-25. By February 2026, inflows had reached $88.29 billion. Net FDI rose to $6.26 billion from $959 million in 2024-25, reflecting lower repatriation and better investor retention.
Policy has helped. Production-linked incentive schemes, trade agreements, and investment facilitation have improved India’s position as a manufacturing base. External conditions matter too. Companies are diversifying supply chains under the China+1 strategy. India’s large market, improving infrastructure, and digital ecosystem make it a natural candidate.
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India’s FDI equity inflows in 2024-25 were supported by Singapore, Mauritius, and the United States. Government data show Singapore accounted for 30% of FDI equity inflows in 2024-25, followed by Mauritius at 17% and the United States at 11%. Maharashtra received the largest state share at 39%, followed by Karnataka and Delhi.
FDI quality matters as much as quantity
Headline inflows, however, do not answer the more important question: what kind of capital is India attracting? FDI routed through Singapore, Mauritius, the Netherlands, Cayman Islands, and similar financial centres may include genuine multinational investment. It may also include pass-through capital structured for tax, treaty, or holding-company reasons. This does not make the investment illegitimate. It does mean that source-country data must be read carefully.
The issue is material because India’s investment story rests on technology transfer, export capability, and supply-chain integration. Those gains come mainly from strategic, long-term investors. They are weaker when inflows are financial, routed, or acquisition-led. DPIIT data show that Mauritius and Singapore remain among the largest cumulative sources of FDI equity inflows into India, while Singapore again led flows in April-December FY26 with a 37% share.
A second distinction also matters: greenfield investment versus mergers and acquisitions. Greenfield FDI builds factories, plants, logistics networks, laboratories, and jobs. M&A often changes ownership without adding equivalent new capacity. UNCTAD’s October 2025 monitor warned that global FDI remained weak in the first half of 2025, while greenfield project announcements fell in number and cross-border M&A values declined sharply.
India should therefore judge FDI by three tests: fresh capacity, technology content, and export linkage. A larger number is useful. A better composition is more important.
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Sectoral shift in FDI
Traditional sectors still dominate realised investments. Chemicals, pharmaceuticals, biotechnology, and food processing account for a large share of grounded investments, meaning projects that have moved beyond announcements. Newer sectors are gaining ground. Electronics, aerospace, defence, and electric vehicles are drawing attention. These sectors align with policy priorities: value addition, technology upgrading, and integration into global value chains.
The sectoral shift is encouraging, but it is not automatic proof of manufacturing depth. India must ensure that foreign firms create supplier networks, local capability, and export platforms. Assembly without domestic linkages will not deliver the full gains from FDI.
Geography of investment
FDI is spreading beyond traditional hubs, but concentration remains high. Maharashtra, Karnataka, Delhi, Gujarat, Tamil Nadu, and Haryana dominate the state-wise picture in official data. DPIIT’s 2024-25 factsheet shows Maharashtra led with $19.59 billion, followed by Karnataka at $6.62 billion and Delhi at $5.71 billion.
States such as Gujarat, Madhya Pradesh, and Andhra Pradesh have worked to attract projects through industrial policy, land availability, and infrastructure readiness. State competition is now part of India’s investment story. That is healthy. But the test is not the number of investment summits. It is how quickly projects are cleared, financed, built, and connected to ports, power, workers, and suppliers.
Volatility and policy credibility
The recovery sits on a fragile base. Capital flows had declined sharply in 2024-25 and turned negative during part of 2025. FDI responds to global liquidity, risk appetite, interest rates, and geopolitical tension. India cannot control these variables. It can control policy credibility.
Investors value predictability. Frequent rule changes, retrospective tax disputes, delays in approvals, and uncertain enforcement raise the cost of capital. Incentives can attract firms. Predictability keeps them.
China investment and strategic caution
India’s approach to investments from land-bordering countries remains restrictive. The April 2020 rules required prior government approval for such investments. The measure was framed as protection against opportunistic takeovers during the pandemic, but it also reduced Chinese capital flows.
There is now limited recalibration. India appears willing to consider investments with small, non-controlling beneficial ownership from land-bordering countries under the automatic route, while processing some manufacturing proposals faster. The direction is cautious liberalisation, not a full reversal. Security concerns remain.
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Trade dependence without capital access
The contradiction is visible in trade. Imports from China rose from $70 billion in 2018-19 to $113.4 billion in 2024-25. Investment remained constrained. India depends on Chinese inputs but restricts Chinese capital and technology partnerships.
This weakens domestic manufacturing depth. Selective partnerships can help Indian firms access scale, process efficiency, and supplier networks. The Economic Survey 2023-24 argued that Chinese FDI could help India expand exports, as East Asian economies did by integrating into China-centred value chains. The argument is pragmatic, not ideological. India must manage security risk without blocking industrial learning.
What will sustain FDI momentum
Three constraints will decide whether the current recovery lasts.
First, policy predictability. Investors price risk through rules, not speeches. Stable rules matter more than headline incentives.
Second, infrastructure. Logistics, ports, power reliability, industrial land, and urban capacity must keep pace with investment intent.
Third, supply-chain integration. China+1 is an opening, not a guarantee. India must build competitive firms, reliable suppliers, and export capability.
The fourth test is now unavoidable: FDI quality. India should track how much inflow creates fresh capacity, how much brings technology, how much is routed through financial centres, and how much merely changes ownership. Without that filter, the recovery may look stronger than it is.
Global fragmentation and protectionism will keep shaping capital flows. India’s response will decide whether the present rebound becomes durable investment or another cyclical rise in the FDI series.