Foreign Direct Investment (FDI) was once considered the stable, long-term form of foreign capital—building factories, transferring technology, and staying for the long haul. In contrast, Foreign Portfolio Investment (FPI) was seen as volatile, quick to exit during market downturns. However, India's net FDI has now dwindled to a trickle, as rising repatriation and disinvestment offset strong inflows. What has changed?
Net FDI Trends
In the first nine months of fiscal year 2025-26 (April to December 2025), India attracted only $3 billion in net FDI. For the entire fiscal year 2024-25, net FDI stood at a mere $1 billion, with gross inflows of $81 billion and outflows of $80 billion. This narrow net figure reflects a significant shift in the composition of capital flows.
Impact of Stock Market Boom
The stock market boom after 2021 led several foreign companies to list on Indian exchanges. Following their listings, a large portion of the funds raised was transferred back to home countries as repatriation and disinvestment. Similar outflows occur when Indian companies invest abroad. Notably, gross FDI inflows have not declined; in fact, they have risen since 2023-24.
Key Drivers of Outflows
The largest component of outflows is not Indian firms investing overseas, but repatriation and disinvestment—money taken back by foreign investors after profits, exits, or stake sales. Between April and December 2025, such outflows alone amounted to $44.6 billion.
Sectoral Distribution
Foreign investors are primarily betting on services, software, manufacturing, and trading in India. Meanwhile, Indian firms investing abroad are focusing more on finance, business services, manufacturing, and trade. This indicates that inbound and outbound capital are chasing different opportunities.
Routing via Singapore and Mauritius
A large share of FDI continues to flow through Singapore and Mauritius. These countries are not just source nations but global routing hubs used by firms for tax, treaty, and corporate structuring purposes.
Geographical Concentration
FDI remains highly concentrated in a few states. Maharashtra, Karnataka, Gujarat, Tamil Nadu, and Haryana attract over 80% of inflows, reflecting their stronger infrastructure, business ecosystems, and investor familiarity.
