India's FDI inflows offset by outflows: Blip or worry?

Mint

a day ago

At first glance, India's latest foreign direct investment (FDI) data is impressive. The overseas money invested in our economy for long-horizon returns, always preferable to 'hot money' going into liquid assets, climbed 14% to $81 billion in 2024-25. This, however, was on a gross basis; it counts all FDI inflows last year.
But after accounting for money repatriated out of India and all outward FDI, the numbers present a sobering picture. Net FDI stood at a measly $350 million, a 96% drop from 2023-24. In other words, our inflows of long-term capital were almost fully offset by outflows. Is this a blip or a sign of trouble? An answer demands patience, as any trend needs the figures of at least three years to plot. But even if 2024-25 turns out to be aberrative and net FDI rises again, policymakers would do well to keep the lost gap under watch. But first, let us look at inward investments.
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Manufacturing attracted about $19 billion last year, a large chunk of the total, rising 18%. In the context of India's policy emphasis on this sector, this growth seems moderate; FDI in services grew faster. By FDI source, Singapore was the biggest, with 30% of India's inflows coming from there, followed by Mauritius with 17% and the US with 11%. On the whole, large sums have been received over the past decade or so. Our cumulative FDI intake since the Narendra Modi government took over in 2014-15 stood at $748.8 billion, 143% more than the sum drawn in the previous 11 years.
Rules on FDI were eased in several sectors by the Modi administration, with limits raised in some sectors, such as insurance, and a few opened up to foreign players, like space. Entry norms were relaxed as well. Although a 2020 skirmish with China led to restrictions on flows from countries that share land borders with India, by and large, FDI has been welcomed, even as efforts were made to ease the doing of business.
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Yet, global appetite for re-investing in the country seems to have weakened. As much as $51.5 billion was repatriated in 2024-25. This was capital that global investors judged wiser to withdraw than plough back into the Indian economy. That globalization has been losing favour could be a broad explanation.
While this adverse trend may get hardened by an inward policy turn taken by the US under President Donald Trump, we would risk complacency if we attribute such outflows entirely to global factors. Even in a shaken-up world, after all, our ambition is to emerge as a net winner of investment. That requires us to consistently attract far more capital than the sum that leaves.
Apart from repatriation, India's outflows included outbound FDI, which scaled $29.2 billion in 2024-25. This represents Indian capital being invested abroad, a reflection of domestic players going global. For businesses to maximize value for their investors, they must grab opportunities across the globe; letting capital move in and out of India is valuable for that reason. Meanwhile, private investment at home has lagged both expectations and desired levels.
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In recent years, uneven consumption growth has been a notable cause, with several markets that cater to large numbers proving hard to expand. Without adequate demand buoyancy, capacity creation has been subdued in several fields. This may explain the appeal of investing abroad. Yet, the economy needs all the capital it can get for its expansion. While we hope last year's data was just a blip, the appeal of India's emergence mustn't lose lustre in any way.