India’s net Foreign Direct Investment (FDI)

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June 4, 2025

India’s net Foreign Direct Investment (FDI)

The Reserve Bank of India (RBI) Bulletin (May 2025) revealed a sharp decline in India’s net Foreign Direct Investment (FDI) inflow for FY 2024-25, which has raised concerns over the country’s investment climate and its implications for economic growth and industrial development. While gross FDI inflows touched a record $81 billion, net FDI plummeted to a mere $353 million, indicating significant disinvestment and outward FDI trends.

Key Facts:

  1. Net FDI Trends:

    • Net FDI-to-GDP ratio dropped from 1.6% (2020-21) to almost zero (2024-25).

    • Outward FDI and disinvestment have risen sharply, contributing to the decline in net FDI.

  2. Nature of FDI Inflows:

    • A significant portion comprises private equity (PE) and venture capital (VC) investments (brownfield FDI).

    • PE/VC funds account for over 75.9% of FDI inflows, compared to 12.2% in 2009-10.

  3. Concerns with PE/VC Investments:

    • Investments are primarily in services (e.g., fintech, retail, healthcare, real estate).

    • These funds typically divest after 3-5 years during stock market booms, contributing to rising disinvestment.

  4. Decline in Greenfield FDI:

    • Greenfield investments, which enhance production capacity and technology transfer, are on the decline.

  5. Gross FDI Inflow-to-GDP Ratio:

    • Declined from 3.1% (2020-21) to 2.1% (2024-25).

  6. Tax Arbitrage and “Hot Money”:

    • Outward FDI includes flows to tax havens like Singapore and Mauritius, raising concerns about treaty shopping and tax arbitrage.

  7. FDI in Fixed Capital Formation:

    • Gross FDI inflows peaked at 7.5% of GFCF in FY21, but have since declined.

  8. Policy Implications:

    • The decline in net FDI reflects waning foreign investor interest and is aligned with subdued domestic corporate investment.

    • Reforms are needed to:

      • Promote greenfield FDI.

      • Address concerns over tax arbitrage.

      • Align foreign capital inflows with long-term industrial and technological goals.

India’s FDI trends underscore the need for a strategic overhaul to attract sustainable investments that contribute to industrial growth, technology adoption, and overall economic resilience.


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India’s net Foreign Direct Investment (FDI) | Vaid ICS Institute