Easier FDI rules: India’s foreign investment numbers flatter to deceive. Gross FDI rose 17 per cent to a record $94.5 billion in 2025-26. Net FDI, after profit repatriation and overseas investment by Indian companies, was $7.7 billion. That was an improvement on the paltry $1 billion recorded in 2024-25, but well below the $28 billion of 2022-23.
Foreign companies are still bringing money into India. They are also taking out more of their earnings, while Indian companies are investing larger sums abroad. The poor net figure therefore points to a problem that cannot be explained by a shortage of inflows alone.
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The Reserve Bank of India has responded with the first extensive rewrite of the foreign investment rulebook since 2019. Its draft Foreign Exchange Management (Foreign Investment) Rules, 2026 would replace many detailed prescriptions with broader principles. Definitions are to be aligned, procedures shortened and reporting made less cumbersome. Comments are open until August 31.
RBI FDI rules cut compliance costs
India’s foreign investment regime has accumulated overlapping definitions, amendments and reporting requirements. Companies often spend too much time deciding how a transaction should be classified and reported.
The draft separates procedural provisions under the Foreign Exchange Management Act from the government’s sectoral FDI policy. It harmonises definitions, simplifies pricing rules and reorganises the provisions governing downstream investment and indirect foreign ownership. It also seeks to clarify overseas listings by Indian companies.
Non-resident Indians and Overseas Citizens of India will get more flexibility over investments and repatriation. The draft also covers their participation in the National Pension System.
These are useful changes. A foreign investor should not need several legal opinions to establish whether a transaction complies with FEMA. Fewer ambiguities should reduce both delays and the scope for inconsistent interpretation.
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They may also help the RBI and the Finance Ministry. A rulebook built through repeated amendments is difficult to administer. Simplification should make enforcement more consistent.
But compliance costs arise after a company has begun considering India. Easier forms will not determine where a semiconductor plant, battery factory or biotechnology laboratory is built.
India FDI depends on industrial capability
Foreign companies compare countries according to the business they expect to build over several years. They examine suppliers, transport links, skills, access to export markets, intellectual property protection and the stability of taxes and regulations.
Vietnam, Malaysia, Singapore and South Korea have built positions within particular supply chains. Their advantages differ, but each offers capabilities that companies can assess before committing capital.
India has spread its effort across production-linked incentives, semiconductor subsidies, clean energy, electronics and digital infrastructure. It has secured investment in several of these areas, but the depth of domestic supply chains remains uneven. Imported components still account for much of the value in several products assembled in India.
Market size has therefore not produced a matching share of global manufacturing investment. India has benefited from the China-plus-one strategy, but many companies continue to use it as an additional production base rather than their main Asian manufacturing location.
The RBI draft may make entry easier once a company has chosen India. It cannot make that choice for the company.
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Legal delays still weigh on India FDI
Foreign investors also price the risk of a tax dispute, a change in regulation or a contract that cannot be enforced in reasonable time. These costs are difficult to offset through an incentive scheme.
The World Bank’s final Doing Business report ranked India 163rd out of 190 economies for enforcing contracts. It estimated that a commercial dispute took 1,445 days to pass through a first-instance court. The indicator has since been discontinued, but the court delays it recorded have not ceased to influence investment decisions. World Bank
India retains powerful advantages. It is a large and growing consumer market, has a young workforce and offers companies an alternative to excessive dependence on China. Gross FDI in 2025-26 shows that foreign investors have not abandoned the country.
Global capital, however, has more choices. High interest rates in advanced economies have raised returns on safer assets. Emerging markets must compete harder for long-term money. Within Asia, India faces countries that have spent decades building specialised manufacturing networks.
The RBI’s draft rules remove some needless friction. The larger FDI problem lies in the small proportion of foreign capital that stays, expands production and draws more suppliers into India. That will depend on industrial capability, reliable regulation and faster contract enforcement. FEMA reform can help at the margin. It cannot carry that burden.