Whalesbook
India's FDI Returns Defy Net Flow Trends
India has achieved an average annual return of 7.3% on its inward Foreign Direct Investment (FDI), a figure that significantly outpaces many global competitors. This robust performance comes despite a dramatic fall in net FDI inflows over the past five years.
Gross Inflows Steady, Net Declines Sharply
From FY20 to FY25, India's annual gross FDI inflows have consistently ranged between $70 billion and $85 billion, showing a flat Compound Annual Growth Rate (CAGR) of approximately 2%. However, net FDI flows tell a different story. They plummeted from $44 billion in FY20 to a mere $1 billion in FY25, according to data compiled by CareEdge Ratings. This sharp decline is attributed to higher profit repatriation and outward FDI by investors.
Sectoral Dynamics Shift
In FY25, the services sector absorbed the largest share of FDI equity at 19%, closely followed by computer software and hardware at 16%. Trading and non-conventional energy sectors each secured 8%. Emerging areas like semiconductors, electric vehicles, and data centers are becoming increasingly attractive to foreign investors. Conversely, FDI into drugs, pharmaceuticals, and construction sectors saw a contraction. While some emerging markets report higher returns, they often come with greater volatility. Global FDI flows continue to lag GDP growth, with India's share in global inflows dipping to 2.4% from 2.9% due to elevated repatriation.