After the release of recent RBI data specifying net FDI of just $353 million, there has been some anxiety about whether anything has gone wrong. [1] The data shows that net foreign direct investment (FDI) into India in 2024-25 was 96% lower than previous year. “Net FDI moderated to US$0.4 billion during 2024-25 from US$10.1 billion a year ago, reflecting the rise in net outward FDI and repatriation FDI,” the RBI acknowledged in its report. [2] Meanwhile, the Gross FDI figures do not suggest anything ominous as it grew about 14 percent remarkably from $71.3 billion to $81 billion in 2024-25. It wasn’t the lackluster inflows that led to the unexpected net FDI. India continues to remain an attractive investment destination, going by the trend of gross FDI. The disruptive factor is the “increased outflows”, namely money repatriated by foreign companies doing business in India and outward FDI by Indian companies.
In the net FDI flow figures, the apprehension should not be driven by the extent of its recent crash. The worrisome part is the consistency of the downward trend over the past few years. The net FDI figure stood at $44 billion in the pandemic year of 2020-21, falling to $38.6 billion the next year, $28 billion in 2022-23, $10.1 billion in 2023-24, and recently to a mere $353 million ($0.4 billion) in 2024-25. [3] The non-skeptics may cite that Gross FDI too is rising consistently. A nuanced comprehensive picture cannot be arrived at without analyzing both the inward and outward flows. The Indian economy has grown over the past five years surpassing Japan as the fourth largest economy. In the next 2.5 years to 3 years, it is set to displace Germany as the third largest. [4] The rise of gross FDI is an expected outcome when the world at large expects India to continue being the fastest growing major economy. As per the World Economic Situation and Prospects (WESP) released by UN, Indian economy is projected to see a growth of 6.3 percent in the current fiscal year. [5] The Indian growth story is intact, making it a lucrative investment destination for capital flows. Investment in India is even more attractive considering the lackluster performance of other major economies. Projections indicate that China will grow at 4.6%, the US at 1.6%, Japan at 0.7%, and the EU at a modest 1%. Germany is even forecasted to experience negative growth of -0.1%.[6]
The curious question if India continues to stand out with exceptional growth is: why is the repatriation rate unusually higher?
The RBI rightly answers “Rise in repatriation is a sign of a mature market where foreign investors can enter and exit smoothly, while high gross FDI indicates that India continues to remain an attractive investment destination.” [7] According to the RBI’s State of Economy report, more than 60 per cent of gross FDI inflows in FY25 were in manufacturing, financial services, electricity and other energy, and communication services sectors. Singapore, Mauritius, the UAE, the Netherlands and the US comprised more than 75 per cent of the flows. Repatriation/disinvestment by those who made direct investments in India increased to $51.5 billion in FY25 from $44.5 billion in FY24 and $29.3 billion in FY23. However, it’s not just FDI. Foreign portfolio investments (FPIs) to India also dropped sharply to $1.7 billion in FY25, as foreign portfolio investors booked profits in equities. While the rationale of mature markets leading to smooth entry and exit is undeniable, it doesn’t answer the why. The question of where the investment is going is available in the report. Overseas investments made by Indian companies increased to $29.2 billion in FY25 from $16.7 billion in FY24 and $14 billion in FY23. Singapore, the US, UAE, Mauritius, and the Netherlands together accounted for more than half of the rise in outward FDI (OFDI). Sectoral data on OFDI revealed that financial, banking and insurance sectors led the way followed by manufacturing, and wholesale and retail trade, restaurants and hotels. [8]
Apart from Indian companies increasing their presence in foreign markets, another reason for a spike in outward flow is the exits by Private equity firms and venture capital firms through open market sale and IPO’s. The Economic Times reported that Hyundai sold part of its stake during the 27870 crore IPO while a top investor in Swiggy made over $2 billion in listing. [9] These success stories and the intention of FDI investors to book the profits is a positive sign for Indian economy in the long term although a temporary setback for Net FDI. When global investors perceive India as a profit-making country they can exit anytime with their profits or to simply rebalance their portfolio, it sends a positive signal. Indian companies diversifying their markets is a net-positive making them less reliant on domestic headwinds. The sentiment to watch-out for is whether FDI outflows are a result of lack of adequate growth opportunities or perception that India has peaked. When investors book profit, it’s often a sign that holding ceased to be an optimal option. The foreign investors likely thought that additional return on investment is unlikely. If the investors booked profit despite thinking that peak of market cycle hasn’t been achieved, it may indicate that better opportunities lie elsewhere. In many instances, liquidation could be due to institutional policies mandating them to exit after the pre-determined time frame. In the case of PE firm or VC firms, it’s the pre-determined time horizon for exiting the investment that drives their decision to offload equity in the IPO process or sell in the secondary market.
As FDI is rising along with faster rate of profit-booking and repatriation, it’s the inadequacy of reinvestment in India that is a cause of concern. Investors are either sitting on cash by repatriating or choosing to invest in other countries. India is able to attract new investors at lesser speed compared to rewarding previous investors who are turning book profit into real profits. The FDI made by Indian companies should be read along with the global trend of migration of wealthy. A recent survey by Kotak Private in association with EY showed that a significant number of the rich are leaving India. While the global trend is topped by China and UK, at least 22 percent of superrich Indians too wish to leave the country due to factors like living conditions, better standard of life abroad and also easier business environment in other countries, as per the survey of 150 ultra-high net worth individuals. [10] Reading the pattern of outward FDI flow by Indian companies and ultra-rich wishing to relocate, it is probable that it’s not necessarily diversification that is leading to investment decisions. It’s the personal decision of numerous highly wealthy individuals that is resulting in the corporate decision to invest abroad. When the super-successful businessmen migrate, they don’t want to sit idle at their new home country. They chose to set-up operations in their new home. Disturbingly, ease of doing business also features among the reasons for HNI’s (High Networth Individuals) considering migration. Ease of doing business (EODB) has been a focus area of the government where it has excelled. The outflow of superrich and the FDI suggests that it’s necessary to divert more attention so that India is not just at-par but is actually better than western nations. India that is pegged to be the No.3 economy should set ambitious target in the ease of doing business indicators regardless of rankings. As Indian economy matures further, potential Indian FDI will be competing directly against bigger economies like US & China as investment destinations.
To enable a critical analysis of FDI outflows, government or the government think-tanks should consider a quarterly survey of profit-making major investors to find out why the previous FDI outflow is invested today so that our government and policy-makers can understand the opportunity cost that is driving investor decisions. India can be a much more appealing investment destination if we try to understand the motivations of foreign investors making a profit from India along with the issues faced by the ultra-rich decision-makers of our country. A detailed scrutiny of FDI is imperative so that actionable-inputs and statistics can guide the decision-making. While making the scrutiny, it’s important to ensure that it doesn’t come across as government intervention or coercion to stop the outflow of funds. India is a big enough mature economy today that we need not be insecure about money being invested elsewhere. A mature economy like India should display an enquiring mind so that India can provide more opportunities to encourage investors to book their profits and reinvest in India again. Unless we can accurately answer the investment rationale behind the money that went outside of India, we can’t address the causes of consistent outflow.
[1] Is India’s FDI story cracking? Not exactly https://www.thehindu.com/business/markets/net-fdi-falls-96-in-2024-25-to-353-mn-gross-fdi-remains-robust/article69605398.ece
[2] Net FDI falls 96% in 2024-25 to $353 mn, gross FDI remains robust - The Hindu https://www.thehindu.com/business/markets/net-fdi-falls-96-in-2024-25-to-353-mn-gross-fdi-remains-robust/article69605398.ece
[3] Net FDI falls 96% in 2024-25 to $353 mn, gross FDI remains robust - The Hindu https://www.thehindu.com/business/markets/net-fdi-falls-96-in-2024-25-to-353-mn-gross-fdi-remains-robust/article69605398.ece
[4] India Becomes World’s 4th Largest Economy, Surpasses Japan: NITI Aayog –
https://www.newsonair.gov.in/india-becomes-worlds-4th-largest-economy-surpasses-japan-niti-aayog/
[5] India to remain the fastest growing economy, outpacing China, US, EU: UN Report - BusinessToday https://www.businesstoday.in/latest/economy/story/india-to-remain-the-fastest-growing-economy-outpacing-china-us-eu-un-report-476655-2025-05-16
[6] India to remain the fastest growing economy, outpacing China, US, EU: UN Report - BusinessToday https://www.businesstoday.in/latest/economy/story/india-to-remain-the-fastest-growing-economy-outpacing-china-us-eu-un-report-476655-2025-05-16
[7] Lower net FDI due to repatriation signals mature market, says RBI governor | Finance News - Business Standard https://www.business-standard.com/finance/news/lower-net-fdi-due-to-repatriation-sign-of-mature-market-rbi-governor-125060600922_1.html
[8] India's Net FDI Plunges 96.5% in FY25 Despite Record IPO Exits and Strong Inflows - Economy News | The Financial Express https://www.financialexpress.com/policy/economy/net-fdi-into-india-drops-sharply-in-fy25/3854798/
[9] India's Net FDI Plunges 96.5% in FY25 Despite Record IPO Exits and Strong Inflows - Economy News | The Financial Express https://www.financialexpress.com/policy/economy/net-fdi-into-india-drops-sharply-in-fy25/3854798/
[10] Why are the rich leaving India, where are they headed? - The Economic Times https://economictimes.indiatimes.com/nri/migrate/why-are-the-rich-leaving-india-where-are-they-headed/articleshow/119542930.cms?from=mdr
(The paper is the author’s individual scholastic articulation. The author certifies that the article/paper is original in content, unpublished and it has not been submitted for publication/web upload elsewhere, and that the facts and figures quoted are duly referenced, as needed, and are believed to be correct). (The paper does not necessarily represent the organisational stance... More >>
Post new comment