Is India’s FDI story cracking? Not exactly

A lot has been made of the tapering of India’s net foreign direct investment (FDI) inflows — and understandably so. According to data released by the Reserve Bank of India in the last week of May, net FDI fell to just $353 million, the lowest on record, from $10 billion in the previous fiscal year.

The steep drop in net FDI in FY25, driven by a spike in repatriation and a surge in Indian firms’ overseas investments, has led to anxious headlines and hastier conclusions. But dig a little deeper into the numbers, the story that emerges is not a doomsday scenario playing out.

While gross FDI inflows rose nearly 14% to $81 billion in FY25, foreign investors pulled out $49 billion during the year, up from $41 billion in FY24, led by a spike in exits, particularly from long-term investors through mega issues such as the $3.3-billion Hyundai IPO.

India — or for that matter, any emerging market that opens its doors to global capital — cannot act as Hotel California where “you can check in any time you like, but you can never leave.” Capital, by design, is fluid. It chases opportunities, returns, and, hence, exits. Capital leaving a country’s shores are not symptomatic of failure; they are, in fact, a hallmark of a resilient and confident economy that freely allows capital to enter and leave.

In fact, cumulative FDI between FY01 and FY25 shows the country attracted $1.072 trillion— including equity capital, reinvested earnings, and other capital. Over the same time period, outward foreign direct investment stood at $333 billion, including equity, loans and guarantee invoked. This indicates that global firms aren’t just entering India, but choosing to stay, expand, and redeploy profits locally, especially given the $253 billion of reinvested earnings.

The total repatriation from joint ventures and wholly owned subsidiaries — in the form of dividends, loan repayments, royalties, and other outflows — amounts to $283.6 billion, or roughly one-fourth of the capital that has flowed in. In other words, for every dollar that went out, four came in and largely stayed put. That is not flight of capital.

Even amid rising global protectionism and tariff uncertainty, India’s gross FDI inflows tell a remarkably resilient story. In FY25, gross FDI touched $81 billion, a sharp rebound from the $71 billion range seen in the preceding two years. This isn’t a one-off spike — it caps a two-decade trend of consistent expansion. From just $4 billion in FY01, India’s annual FDI inflows have grown nearly 20-fold, with a sustained upward trajectory through financial crises, pandemics, and geopolitical disruptions. Far from falling out of favour, India’s ability to attract long-term capital at scale — especially in high-friction global conditions — underscores the trust investors continue to place in its fundamentals and future potential.

And the long-term commitment doesn’t end with FDI. Net Foreign Portfolio Investment (FPI) flows into India--often seen as more fickle--still stand at a net positive $281.6 billion over FY01-FY25. Despite all the market volatility, macro headwinds, and global risk cycles, portfolio investors have consistently returned to India — again and again.

What this data tells us is clear: India has provided strong returns and reinvestment opportunities. Investors have taken money out, yes, but they’ve also put significantly more in. Repatriation is not abandonment — it’s the inevitable outcome of an over three-decade story of growth, maturity, and return.

The notion that capital outflows signal distress overlooks what most central banks and multilateral institutions agree on: capital mobility — including exits — is part of the bargain in an open, investment-friendly economy. As the Bank for International Settlements 2021 paper titled, Capital flows, exchange rates and monetary policy frameworks in Latin American and other economies, notes, “…. the tides of global liquidity, deeper financial integration and domestic factors – growth differentials and investment opportunities – have led to larger and more volatile capital flows… That said, in several countries the accumulation of large international reserves has provided an important degree of protection.”

That insight is particularly relevant to India today. With foreign exchange reserves of $693 billion, India is better cushioned than ever — even despite a falling rupee — and continues to be seen by global investors as a reform-driven, resilient economy worth backing. The presence of capital exit routes doesn’t weaken the Indian growth story; it underlines the confidence in its institutional maturity and macro buffers.

The naysayers, of course, will be quick to point out that celebrating India’s position as the world’s fourth-largest economy rings hollow when per capita income remains below $3,000. But that’s missing the forest for the trees — India is no troubled paradise; it’s a credible, work-in-progress investment destination.