UNPRECEDENTED FALL IN NET FDI FLOWS TO INDIA

NET FOREIGN DIRECT  INVESTMENT 

Theoretically  Foreign Direct Investment (FDI) is Investment made to acquire a lasting interest in or effective control of an enterprise operating outside of the economy of the investor. On the otherhand FDI net inflows are the value of inward direct Investment made by nonresident  investors in the reporting economy ,including reinvested earnings and intra  company loans,net of repatriation of capital and repayment of loans. FDI net out flows are the value of outward Direct Investment made by residents of the reporting economy to external economies, including reinvested earnings  and intra company loans,net of reciepts from repatriation of capital and repayment of loans.According to recent RBI data net Foreign Direct Investment flows to India has drastically declined by 159% in August 2025. On the contrary It may be recalled that during April- August 2025 net Foreign Direct Investment shot up by 121% compared to the same period in 2024.According to analysts  the reasons attributed to turnaround was substantial amount of repatriation and disinvestment by foreign firms in India and significant amount of investment done by Indian companies abroad that contributed to large scale FDI outflows from the country. 

GLOBAL INVESTMENT SCENARIO 

According to UNCTAD  World Investment Report 2025 Global foreign Direct Investment fell by 11% in 2024 indicating the second consecutive year of decline. Eventhough modest growth seemed possible in the beginning of 2025 but escalating tensions,geopolitical fragmentation and economic volatility have led to sharp downward revisions in substantial FDI prospects.Downward revisions were attributed to GDP growth,decline in capital formation, trade flows, financial markets stability and investor confidence itself. In this context World Investment Report advocated bold coordinated action to redirect Investment towards sustainable and inclusive development with sharp focus on bridging  divides in digital economy, infrastructure and sustainable finance. Analysis of regional trend reveals divergent trends. While FDI to developed economies in general decreased 22% ,Europe was hit severely with FDI inflows down by 58% ,FDI fell more than half in EU countries with sharp declines in Germany (_-89%) Spain (-39%)Italy (-24%) and France (-20%).On the contrary North America witnessed 23% growth in FDI due to a semiconductor megaprojects in USA where FDI rose by 20%.while developing economies in general recorded only 0.2% growth. In contrast by virtue of mega infrastructure project in Egypt FDI growth in Africa was recorded 75% in 2024.Even if the Egyptian project is excluded still there was 12% growth in African region.Despite a 3% over all decline Asia still remained another top recipient region.While there was a 29% decline FDI flows to China, South East Asian countries maintained growth with ASEAN countries achieving 10% growth record with $ 225 billion. On the contrary despite India showing good momentum in Greenfield Investment her total FDI inflows dropped slightly  In 2024. US remained both top source and destination for FDI. Significantly five Asian economies rank among the top ten sources of FDI. Analysis of  largest FDI inflows to 10 global economies indicated that US topped ($ 279 billion ),Singapore ($ 143 billion)Hong Kong ($126 billion)China($116 billion)Luxembourg ($106 billion)Canada ($ 64billion)Brazil ($59 billion) Australia ($53 billion)Egypt ($47 billion) and UAE ($ 46 billion).FDI Outflows on the otherhand recorded that US topped the list with($266 billion) followed by Japan ($204 billion),China ($163 billion)Luxembourg ($109 billion)Hong Kong ($87 billion)Canada ($86 billion)Singapore ($55 billion)Netherlands ($ 55 billion)Spain ($ 49 billion) Republic of Korea ($49 billion).During this period while green field investments number increased but value fell by 5%.Cross border mergers and acquisitions increased by 14 % to $443 billion but international project finance main source of funding for infrastructure dropped 26% where least developed countries were hit hardest.

DIMENSIONS OF NET FDI FLOWS TO INDIA 

According to RBI data eventhough net Foreign Direct Investment to India reached a 38 month high in July 2025 due to inreased gross FDI and a moderation in repatriation and out ward FDI flows. However net Foreign Portfolio Investment (FPI) outflows reached US$ 3.9 billion during April 1st to 29 2025 due to outflows of equity &debt segments. Persistent geopolitical tensions and increasing global trade barriers and elevated US bond yields dampened foreign investors sentiment in emerging markets.Consequently foreign portfolio investment in India recorded a net outflows of US $ 3.o billion during 2025-26 (upto September 26) Similarly external commercial borrowings (ECB) inflows decreased to US$ 3.7 billion during April-August 2025 compared to $ 4.9 billion a year ago same period. Infact gross investment into India stood at$ 6049 million in August 2025 ,30.6% lower their level in August 2024.The amount repatriated and disinvested by foreign companies operating in India accounted for $4928 million in August 2025 down 5.4%the recorded in 2024 but specifically higher than the amount in July 2025 Foreign investment by Indiancompanies.contracted 29.7% in August 2025 to $1736  million  the lowest in the current financial year. Investment experts suggested several policy prescriptions which ranges from Reforming international financial system,,strengthen multcooperatio and mobilise capita scale,Scale sustainable finance for  boosting FDI and achieving growth.expand digital infrastructure and solve digital economy investment and close the problem of digital divide.  Interestingly among the global South 10 countries captured 80% of digital economy greenfield investment between 2020-2024. They are India 22%($114billion).Malaysia 14%($74 billion),Singapore 7%($39 billion)Indonesia 7%($39billion)Vietnam 6%($32 billion)Mexico 5% ($29 billion)China 4% ($24 billion)Saudi Arabia 4% ($ 24billion) Brazil 4%($23 billion ) and Thailand 3%($16 billion).Similarly international project finance is increasingly concentrated in a few developing economies as indicated during the period 2018-2024  with Brazil $ 107 billion followed by India $96,Chile $55,Vietnam $32, Mexico ,Indonesia and China $30 each,Philippines and Egypt $25 each and South Africa $ 23 billion. In short as per available data FDI remained a critical part of external financial resources to developing countries. FDI share constituted 45% in developing economies as against only 22% in least developed Countries. On the otherhand official development assistance provided major share of 38% in least developed Countries contrary to only 11% in developing countries. Remittances accounted for 40% in least developed countries and 34% in developing economies. Foreign Portfolio investment constituted 10% of external financial resources to developing countries which was absent in least developed countries. 

CONCLUSION 

Role of FDI in development is multi dimensional facilitating integration of global value chains across countries and continents. Top recipient sectors in India are service sector, followed by computer software and hardware and manufacturing, trading etc.while major sources of FDI inflows were countries like Singapore, Mauritius and US in that order the main beneficiary states from  FDI were Maharashtra,  Karnataka and Delhi.FDI outflows from India were in sectors like Education,travel, power ,gas finance and insurance .Investment outflows also occurred   to  countries like Indonesia, Mauritius and Germany. Indian companies making their investments abroad include  Tata Group -Jaguar Land Rover,Tata Steel, Teltey tea,Titan etc in UK,Reliance Industries in Germany, US, UK, Aditya Birla Group in US, Zambia, Guinea, Infosys in Germany, Europe and US, Larsen and Toubro and Essar Group in Saudi Arabia, Bharati Airtel in Africa etc.Indian firms acquire foreign companies to acquire access to new technologies, brands and established market channels like Tata motors acquisition of Jaguar Land Rover. On the otherhand hand IT companies like Infosys and Wipro not only established global presence but also  delivered  services efficiently to International clients. Eventhough Indian companies abroad have  been generating more  jobs in the IT,Pharmaceuticals, automotive and manufacturing uncertainty remains about the impact of utilisation of AI technology and robotics on  employment. With regard to the future of FDI inflows and outflows it depends both on the prevailing geopolitical and economic conditions and also the efficiency and competitiveness of domestic  economy. Some experts argue that the chase for acquiring highly competitive technologies may not succeed always because of more powerful rivals but there is great scope for investments in middle level technologies Despite existing geopolitical uncertainties India can emerge as leading hub of FDI due to sustained high GDP growth,reforms in taxation, improved ease of doing business and production linked investment schemes etc Moreover India's demographic dividend can also boost FDI flows.