Foreign direct investment has long been India’s preferred barometer of global confidence. The latest Reserve Bank of India data show that confidence is ebbing: net FDI collapsed to just $353 million in FY 2024-25, a 96% plunge from the previous year’s $10 billion. The central bank is sanguine, but the numbers sketch a more nuanced story—one in which repatriations and outbound forays by Indian firms overwhelm fresh inflows.
Net FDI equals gross inflows minus two outflows: profits repatriated by foreign companies and the outward investments of Indian firms. While gross inflows actually rose to $81 billion, record-high repatriations ($51.5 billion) and a sharp jump in outward FDI ($29.2 billion) erased almost all of the gain.
Booming stock markets accelerated the exodus. Private equity houses such as Alpha Wave Global and Partners Group booked multi-billion dollar exits via IPOs in Hyundai Motor India, Swiggy and others. According to an IVCA–EY study, PE/VC exits totalled $26.7 billion last year, 7% more than in FY 2023-24, with public listings and open-market sales the routes of choice.
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Outward ambition, inward anxiety
Indian companies, flush with cash and intent on plugging into global supply chains, invested $29.2 billion abroad—75% more than a year earlier. Nearly four-fifths of that money headed to Singapore, Mauritius, the UAE, the Netherlands and the United States, largely in financial services, manufacturing and consumer-facing sectors. Outward FDI is healthy in principle, but when it coincides with tapering inward flows, the balance of payments feels the strain.
China’s development experience reveals how transformative FDI can be. One-third of China’s current GDP is attributed to foreign capital, which brought not only money but also technology, management know-how and global market access. Special Economic Zones sweetened the deal with tax breaks and streamlined approvals, while world-class infrastructure sealed it.
India’s recent labour law overhaul, production-linked incentives and digital-public-goods architecture are steps in the right direction. Yet the contrast with China is stark. High logistics costs, uneven power supply and policy flip-flops still tarnish India’s allure outside its metros. A coherent SEZ-plus-infrastructure push—especially in tier-II cities—would signal that the “ease of doing business” slogan is more than a marketing line.
FDI: Gathering headwinds
Global politics will not make the task easier. A resurgent Donald Trump has already urged Apple to “bring the factories home.” Similar nationalist drum-beats echo across Europe. India’s courting of Washington may yield headlines, but protectionist sentiment in the West is unlikely to loosen its grip soon.
Exits are inevitable, but they need not drain the system of fresh capital. New Delhi must start by making exits less painful: predictable tax treatment of capital gains and speedier remittance approvals would encourage foreign investors to recycle profits into new projects rather than wiring them out at the first opportunity. A transparent rulebook would also lower the legal costs that often accompany big-ticket exits, making India’s market appear less transactional and more strategic.
Infrastructure, markets can play magnets
Infrastructure, meanwhile, should be viewed not merely as a development priority but as an FDI magnet in its own right. Dedicated freight corridors, round-the-clock electricity and low-latency data networks directly influence where multinationals site their factories and R&D centres. Accelerating the completion of eastern and western freight corridors and extending 5G coverage to industrial clusters could shave logistics costs by several percentage points, effectively acting as a tax cut for investors.
Deepening domestic capital markets is another lever. Faster clearances for IPOs, lower transaction charges and a robust corporate-bond ecosystem would allow foreign shareholders to retain a foothold after listing. When investors can seamlessly move from private to public markets without punitive frictions, they are more inclined to stay put—and to reinvest.
Finally, the government should court patient, long-horizon capital. Sovereign wealth funds and pension funds, with their appetite for steady yields, are less skittish than venture capital. Concluding bilateral investment treaties that offer recourse to neutral arbitration, and packaging large infrastructure pipelines into investible units with currency-hedge backstops, could make India a preferred destination for this money.
India does not lack ambition, nor does it lack capital. What it must cultivate is staying power—policies that reassure foreign investors that their money can work, and domestic firms that success at home need not mean exile abroad. Only then will FDI once again reflect the promise—rather than the peril—of the world’s fastest-growing large economy.