By Nagesh Kumar
Considering that they bring a package of entrepreneurship, technology, and integration with the global value chains besides augmenting capital stock, foreign direct investment (FDI) inflows are welcomed by most governments which actively court MNCs to invest in their countries through promotion, facilitation, incentives, and concessions.
India has progressively liberalised its FDI policy regime since 1991. Over the past decade, the Indian government has also undertaken reforms to enhance ease of doing business, lowered corporate tax rates, production-linked incentives, and has established Invest India as an investment promotion agency to attract FDI inflows.
In that context, recent reports appearing in the media suggesting that net inflows of FDI have plummeted to negligible levels have raised concerns. In this article, we make sense of the trends in FDI inflows to India.
OFDI and repatriations
The confusion arises from “Foreign Investment Inflows” reported in Reserve Bank of India (RBI) bulletins, which present gross inflows/gross investment to India, repatriations/disinvestments, as well as FDI by India or outward foreign direct investment (OFDI). The RBI works out net FDI by subtracting from gross FDI inflows the values of repatriations and OFDI. As both repatriations and OFDI flows have grown in recent years, the net FDI after subtracting them from gross FDI inflows of $81 billion (in 2024-25) leaves a marginal figure of $353 million. This may be relevant as a balance-of-payments (BoP) entry. But from the point of view of development, FDI inflows and OFDI represent two distinct phenomena, both favourable and hence promoted, but they should be kept separate, as argued below.
OFDI is utilised by Indian enterprises abroad in search of markets, technology, and raw materials. An example is Tata Motors’ acquisition of Jaguar Land Rover, giving it access to the latter’s technology, brands, global footprints, and value chain. As the Indian companies grow in scale and ambition to become global players, they will generate more OFDI. Hence, OFDI rising from $16.7 billion in 2023-24 to $29.2 billion in 2024-25 is a positive trend. It should not be seen as an outflow of resources but as something extending the global reach of Indian industry. Hence, it is not appropriate to subtract it from the gross FDI inflows.
The increase in gross FDI inflows from $71.3 billion in 2023-24 to $81.0 billion in 2024-25 is impressive in the context of declining global flows over the past years as reported by the UN Trade And Development’s World Investment Report (WIR) 2025. The 2024-25 figure, however, did not cross the peak of $85 billion received in 2021-22 on top of $82 billion received in 2020-21. Those years, however, were aberrations representing the “gold rush” of over $20 billion in Jio Platforms by tech majors including Google, Facebook, Qualcomm, and private equity (PE) players and sovereign wealth funds like KKR, PIF, and the Abu Dhabi Investment Authority. After the 2020-22 boom, the gross FDI inflows had levelled to around $71 billion in line with the pre-Covid trend.
Why gross inflows matter more than net calculations
What is new is the rising trend of repatriations in recent years, from around $28 billion per annum during FY21-FY23 to $44 billion in 2023-24 and $51 billion in 2024-25. Arguably, repatriations are like servicing burden in the case of borrowings. Their recent rise results from a combination of factors. One is the rise of PE players like KKR and Blackstone among the FDI investors who keep an eye on the valuations of their investments and liquidate them to book profits. Secondly, as the Institute for Studies in Industrial Development’s India Industrial Development Report (IIDR) 2024-25 has reported, valuations of Indian subsidiaries of MNCs are much higher than their parents. For instance, the price-to-earnings ratio of Maruti-Suzuki India is 36 compared to under 12 for its parent. This has led some MNCs like Hyundai to offload some of their equity in their Indian subsidiaries for repatriation to support their global requirements.
Gross inflows, therefore, are better indicators of a country’s investment climate or the “pull factor” and should be paid greater attention. Yet the net FDI inflows, even after offsetting the repatriations, at $29.6 billion in 2024-25 are higher than $26.8 billion in 2023-24.
The other positive trend is India’s emergence as the most attractive destination globally for greenfield investments with 1,080 projects in 2024 (after the UAE), among developing countries, according to WIR 2025. Greenfield FDI represents fresh investments in fixed assets and hence has a more favourable development impact than acquisitions.
Leading investor surveys confirm the growing attractiveness of India as an investment destination. The 2024 JETRO Business Conditions Survey, for instance, highlighted an outstanding improvement in India’s performance, with 80% of Japanese firms expecting to expand operations in India, compared with 45% for all regions and only 22% for China.
Yet, there is no room for complacency as India remains an underperformer vis-à-vis its potential, according to the simulations reported in IIDR 2024-25. Given that industrialised countries like the US are now aggressively courting FDI to revive their manufacturing sector through incentives, high tariffs, and other protectionist policies, the landscape for FDI promotion has become more competitive. India’s FDI promotion policy needs to go beyond passive facilitation to a more proactive approach. This will require identifying key MNCs exporting to India but not having invested in the country, and approaching them to consider investing in the country and savour the immense potential of India as a manufacturing destination.
The writer is Director, Institute for Studies in Industrial Development, and a member of the Monetary Policy Committee, RBI.
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