India’s net FDI has slumped in FY25, but economists say there’s no cause for alarm

India’s net foreign direct investment (FDI) inflows fell sharply in 2024–25, dropping to just $1.0 billion compared to $10.2 billion in 2023–24, according to data released by the Reserve Bank of India (RBI).

But should this steep decline raise concerns about whether India remains a favoured investment destination? Economists say the drop is not necessarily cause for alarm. Net FDI is calculated by subtracting repatriation and outward FDI from gross inflows—so even if gross inflows remain strong, higher repatriation or outward flows can reduce the net figure.

Rajani Sinha, Chief Economist at CareEdge Ratings, explained that while the net FDI number has declined, the overall investment coming into the country remains robust. "Gross FDI inflows have remained healthy. The lower net FDI inflows are mainly due to higher profit repatriation and increased outward FDI from India—both of which are not necessarily concerning," said Sinha.

The data, released in the RBI’s June edition of its monthly bulletin, shows that net FDI moderated. "It is important to note that this moderation is due to a rise in repatriation and net outward FDI, while gross FDI actually increased by 14%."

During the year, net outward FDI rose, while repatriation moderated towards the end. Key sectors attracting outward investments included electricity, gas, water, and financial, insurance and business services. The main destinations were Singapore, Mauritius and Germany, the RBI noted.

Gross FDI increased from $71.3 billion in 2023–24 to $81.0 billion in 2024–25. This rise suggests growing confidence among foreign investors in the Indian economy despite global uncertainties. The steady flow of investments indicates that India continues to be viewed as a favourable destination for long-term capital, particularly in sectors such as manufacturing, services, and infrastructure.

The RBI also acknowledged in its June Bulletin that a rise in repatriation reflects a mature market—where foreign investors are able to enter and exit smoothly—while the strong gross FDI inflows indicate that India remains an attractive investment destination.

Profit repatriation refers to foreign companies sending earnings back to their home countries. When these outflows increase, they reduce the net FDI figure, which is calculated after subtracting such transfers.

Aditi Nayar, Chief Economist and Head of Research & Outreach at ICRA Limited, also highlighted this trend. "High repatriations led to net FDI being compressed in FY2025," she said.

According to the RBI's June Bulletin, gross inward FDI stood at $8.8 billion in April 2025, up from $5.9 billion in March 2025 and $7.2 billion in April 2024. Nearly half of the April inflows came from the manufacturing and business services sectors.

Sinha believes India still holds strong potential to attract long-term investment. "In the current global landscape, as the world looks for alternatives, India has an opportunity to position itself as a favourable FDI destination. Improving ease of doing business, enhancing the regulatory environment, ensuring policy certainty, and undertaking reforms in land and labour will go a long way in making India more attractive for investors," she added.