Net foreign direct investment into India turned negative for the third consecutive month. The Reserve Bank of India’s January bulletin shows net FDI at minus $446 million in November 2025, after a sharper FDI outflow of $1.67 billion in October. The headline sits uneasily with India’s positioning as one of the fastest-growing major economies.
The FDI outflows, however, do not imply that foreign capital is avoiding India. Gross inflows in November were $6.4 billion, only marginally lower than October’s $6.5 billion. For April–November FY26, gross FDI inflows rose 16% year-on-year to $64.7 billion. Net FDI for the same period increased more than seven-fold to $5.6 billion.
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The monthly negative FDI outflow reflect repatriation by earlier investors rather than a collapse in new interest. India has seen sustained FDI inflows for over two decades, particularly since the mid-2000s, across telecom, financial services, retail, e-commerce and infrastructure. Many of these investments have matured. Exits, dividend payouts, buybacks and intra-company transfers now dominate the net numbers. These are balance-sheet decisions, not verdicts on India’s prospects.
FDI outflows normal at India’s stage
India is no longer a marginal destination for global capital. Economies at this stage typically move from a pure inflow phase to a churn phase, where fresh investments coexist with exits. The presence of exits signals market depth rather than fragility. The relevant question is not whether money leaves, but whether incoming capital replaces what goes out in terms of productivity, technology and long-term commitment.
Japan, Singapore and the United States accounted for more than three-quarters of inflows in November. Singapore remains the largest source over time, though much of this capital is routed rather than originating there. Japan’s flows reflect long-term exposure to manufacturing, infrastructure and finance. US inflows are increasingly linked to technology, services and platform businesses.
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Sectoral skew remains unresolved
Nearly three-quarters of inflows went into financial services, followed by manufacturing and wholesale and retail trade. Financial services attract capital because credit penetration is low, savings are large and regulation is predictable. Manufacturing inflows remain selective despite the visibility of initiatives such as Make in India and production-linked incentives. Global firms are choosing niches rather than committing to broad-based capacity creation. Wholesale and retail trade, by contrast, are sectors where exits are quicker once scale and valuation targets are achieved.
This composition matters. Much of India’s FDI remains market-seeking rather than efficiency-seeking. Investors come to access domestic demand, financial intermediation or digital adoption, not to embed India deeply into global value chains. Such capital is valuable, but it is also mobile. When valuations peak or global financial conditions tighten, repatriation follows.
A further reason why repatriation is rising even as gross inflows hold up lies in the changing vehicle through which foreign capital enters India. A growing share of FDI now comes via private equity funds, venture capital platforms and holding-company structures, often routed through financial centres such as Singapore.
This capital is explicitly designed for time-bound exits through listings, secondary sales or buybacks. Its horizon is set by fund life and valuation cycles rather than by operating cash flows or export integration. That structural feature explains why financial services and digital platforms dominate inflows, why manufacturing commitments remain selective, and why exits cluster even in the absence of macro stress. The churn, in other words, is not merely cyclical. It is embedded in the ownership model itself.
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What China used FDI for, and India has not
FDI played a transformative role in China’s rise because it was used to integrate the economy into global manufacturing networks. From the 1980s, foreign investment brought technology, managerial practices and access to export markets. Coastal regions became export hubs, and foreign firms served as conduits for learning and scale.
India has pursued reforms aimed at improving investment attractiveness—corporate tax cuts, production-linked incentives and changes to indirect taxes. These were welcomed by investors. Yet confidence remains sensitive to external shocks. Even the Reserve Bank of India has noted that uncertainty over the US trade deal has contributed to foreign portfolio outflows. The lesson is not about sentiment, but about the fragility of investment that is not anchored in production networks.
India cannot and should not attempt to prevent exits. No economy can lock in foreign capital once investment objectives are met. What policy can do is tilt FDI towards activities with longer exit horizons and stronger reinvestment incentives. Foreign firms that build supplier ecosystems and integrate domestic firms into their value chains are more likely to retain and reinvest earnings.
Sustained domestic growth remains the strongest retention mechanism. Stable growth and rising productivity reduce the incentive for abrupt exits. The coexistence of strong gross inflows with rising repatriation suggests that India’s core appeal endures. The task now is not to stop money from leaving, but to ensure that what enters builds capabilities that outlast any single investment cycle.