Whalesbook
India's Gross FDI Nears Record High
India is poised for a record gross foreign direct investment (FDI) of over $90 billion in Fiscal Year 2025-26, according to Chief Economic Advisor V. Anantha Nageswaran. This projection surpasses the typical $70-80 billion range seen in recent years and could push FDI to around 2% of India's GDP for the fiscal year. Gross FDI for April-February FY26 already reached $88.3 billion, an 18.1% jump from the previous year. This growth highlights India's ongoing appeal to investors despite global economic uncertainty. Manufacturing, computer, financial, business, and communication services are drawing over two-thirds of equity inflows. Singapore, the U.S., Mauritius, Japan, and the Netherlands remain the primary source countries. Morgan Stanley noted gross FDI equity inflows reached $90.8 billion on a 12-month trailing basis by January 2026.
The Gap Between Gross and Net FDI
However, beneath these headline gross FDI figures lies a widening gap between inflows and net FDI. Net FDI, which factors in outflows like profit repatriation and Indian firms' investments abroad, has significantly trailed gross inflows. While gross FDI for April-February FY26 rose 18.1% to $88.3 billion, net FDI for the same period only reached $6.3 billion, up from $1.5 billion a year ago. Reports indicate that net FDI has shrunk considerably, even turning negative recently, due to substantial profit outflows and increased overseas investments by Indian companies. Morgan Stanley reported net FDI had dropped to just $0.5 billion by January 2026, a sharp decline from its FY20 peak. Although net FDI saw a turnaround in February 2026, reaching a near four-year high of $4.6 billion after six months of negative figures, the broader trend of lower net capital retention continues. This gap means a significant portion of incoming capital is offset by outgoing funds, a pattern that could affect currency stability.
India's Global Ranking and Competition
Globally, FDI inflows declined 11% in 2024, with Europe and China seeing notable drops. India's FDI performance stands out in this context. India's share of global FDI rose to 2.4% in 2025, showing resilience. The nation improved its ranking to 15th globally for FDI destinations in 2024, up from 16th, according to UNCTAD. It also ranked fourth globally for greenfield project announcements in 2024. However, regional competitors highlight areas for improvement. Vietnam, Malaysia, and Thailand are noted for attracting capital more effectively through greater speed, predictability, and stronger government backing, areas where India is perceived to lag. While services lead FDI inflows, manufacturing investment is diversifying into electronics and automobiles, aided by policy incentives.
Sustainability Concerns for FDI
Despite strong gross FDI figures and India's top rankings, sustainability concerns linger. Uncertainty over economic policies is a notable deterrent for FDI, especially for long-term investments. While India projects macroeconomic strength, competitors like Vietnam and Malaysia offer greater speed and predictability in attracting capital. This suggests India's policy efforts may be less cohesive. The widening gap between gross and net FDI, driven by higher profit repatriation and Indian firms' outward investments—which surged to $35.8 billion by January 2026—poses risks to currency stability. Additionally, while India attracts greenfield projects, announcements fell 11% in April-January FY26 compared to the previous year, signaling a moderation in new project commitments. However, India offers a robust risk-adjusted return on FDI, averaging around 7.3%, suggesting a stable investment environment with lower volatility than some peers.
What Investors Are Watching
The outlook for FDI remains mixed. While the strong gross FDI figures are encouraging, concerns persist about near-term net FDI weakness due to higher repatriation and overseas investments. Analysts note that while India's FDI is growing, it lags behind competitors who are faster and more predictable in attracting capital due to stronger policy execution. Nevertheless, India's position as a leading investment destination is bolstered by its strong economic fundamentals and ongoing reforms aimed at improving the business environment. The ongoing strength of the services sector, diversification in manufacturing, and government efforts to streamline processes are expected to support FDI inflows. India's strong risk-adjusted return on FDI, outperforming many emerging economies, highlights its appeal to investors seeking stability and growth, though many will watch net capital flows closely.