India's Foreign Direct Investment Rebounds, But Net Inflows Remain a Concern The services sector remained the top recipient, accounting for 19.1 per cent of total equity inflows in the first half of FY25.
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India witnessed a strong rebound in Foreign Direct Investment (FDI) inflows during the financial year 2024-25 (FY25), with gross FDI reaching $55.6 billion between April and November. This marks a 17.9 per cent year-on-year (Y-o-Y) increase from the $47.2 billion recorded during the same period in FY24, according to the Economic Survey released on Friday.
The surge in FDI inflows underscores India's continued attractiveness to global investors. Cumulative FDI inflows from April 2000 to September 2024 have now exceeded $1 trillion, solidifying India's position as a premier investment hub. The services sector remained the top recipient, accounting for 19.1 per cent of total equity inflows in the first half of FY25. These trends highlight India's growing appeal as a center for technology-driven investments and infrastructure expansion, further cementing its role in the global economy.
Challenges amidst global uncertainty
Despite the overall increase in gross inflows, India faces hurdles in sustaining net FDI growth. Geopolitical tensions, rising interest rates, and inflationary pressures have created short-term volatility in investment patterns. A major concern is the sharp rise in FDI repatriations—funds withdrawn by foreign investors as returns on their investments.
Net FDI plummeted to just $0.48 billion in the first eight months of FY25, a stark decline from $8.5 billion in FY24. This follows large-scale repatriations of $29.3 billion in FY23 and $44.5 billion in FY24, indicating strong investor confidence in India's financial markets but also highlighting the need for policy measures that encourage profit reinvestment.
The survey report emphasizes the importance of tax stability and regulatory transparency in sustaining investor interest. Key areas for improvement include advance pricing agreements (APA), which help multinational firms resolve transfer pricing disputes.
In response, the government has further liberalized FDI policies, allowing foreign investments in various sectors through the automatic route, eliminating the need for prior government approval. This is expected to streamline investment processes and boost investor confidence.
