• Foreign Direct Investment (FDI) continues to be an important driver of India’s economic growth, but recent data shows worrying trends.
• While gross inflows touched $81 billion in FY 2024-25, marking a 13.7% increase from the previous year, net FDI inflows have plunged due to rising disinvestments and profit repatriation.
• Between FY 2021-22 and FY 2024-25, net retained capital fell to just $0.4 billion, reflecting the growing tendency of foreign investors to withdraw earnings rather than reinvest them in the domestic economy.
• Disinvestments alone have increased by more than 50% in recent years.
• The nature of FDI has also changed. Earlier dominated by manufacturing, which once boosted industrialisation and job creation, FDI is now concentrated in financial services, energy, and hospitality.
• Manufacturing today accounts for only 12% of total inflows. Analysts note that much of the current FDI is short-term, motivated by tax arbitrage and treaty-based routing, rather than long-term strategic investments.
• At the same time, Indian companies are increasingly investing abroad. FDI outflows from India have surged to $29.2 billion in FY 2024-25, more than double the levels of 2011-12.
• Firms cite policy unpredictability, regulatory hurdles, and infrastructure bottlenecks as reasons to seek better opportunities overseas. This capital flight not only reduces domestic investment but also undermines job creation and technological upgrading within India.
• Structural barriers further compound the problem. Despite reforms, regulatory opacity and legal unpredictability continue to discourage investors.
• The dominance of tax-friendly hubs like Singapore and Mauritius in FDI inflows shows that much of the capital entering India is routed for fiscal advantages rather than genuine industrial activity.
• In contrast, traditional long-term investors such as the US, Germany, and the UK have reduced their participation.
• Experts warn that unless India strengthens its domestic investment climate by addressing governance challenges, infrastructure gaps, and policy consistency, the country risks losing out on high-quality, long-term FDI essential for sustainable economic growth.