India’s net foreign direct investment (FDI) plunged by more than 96 per cent in FY25, dropping to a mere $0.4 billion from $10.1 billion in the previous year, according to the Reserve Bank of India’s (RBI) latest State of the Economy report.
The steep decline, also down from $28 billion in FY23, has been primarily attributed to heightened repatriation by foreign investors and a significant rise in outward investments by Indian companies.
Repatriation and disinvestment by overseas investors jumped to $51.5 billion in FY25, a sharp increase from $44.5 billion in FY24 and $29.3 billion in FY23. At the same time, Indian firms expanded their global footprint, with outward climbing to $29.2 billion from $16.7 billion a year ago.
Sectors such as financial services, manufacturing, wholesale and retail trade, and hospitality accounted for more than 90 per cent of these overseas investments.
Despite the collapse in net FDI, gross FDI inflows into India remained strong, growing by 13.7 per cent year-on-year to $81 billion in FY25 — up from $71.3 billion in FY24. Key sectors driving these inflows included manufacturing, financial services, energy, and communication.
The top source countries for these investments were Singapore, Mauritius, the UAE, the Netherlands, and the United States, which collectively contributed over 75 per cent of the total inflows.
The RBI noted that the sharp drop in net FDI should not be interpreted solely as a negative signal. Instead, it pointed to the ease of capital mobility, stating that the ability of foreign investors to enter and exit the Indian market smoothly reflects the maturity and resilience of the country’s financial system.
However, analysts remain cautious about the long-term implications. “While gross FDI remains healthy, the erosion in net FDI raises questions about the sustainability of foreign capital in contributing to job creation, infrastructure development, and long-term growth,” said a Mumbai-based economist.
Adding a cushion to India’s external account was a 9.9 per cent rise in non-resident Indian (NRI) deposits, which reached $16.2 billion in FY25. The uptick is being driven by attractive interest rates and a weaker rupee, making India a more lucrative destination for short-term overseas remittances.
Still, the sustainability of NRI deposits is under debate. While they provide short-term liquidity support, they are often considered more volatile and less growth-oriented than FDI, which tends to anchor long-term projects and build domestic capabilities.
