India's FDI Paradox: Strong Inflows But Net Flows Hit Record Low

The report stated that the improving strength in gross FDI is encouraging at the margin and is likely to remain well-supported, aided by a combination of both greenfield and brownfield investments.

However, net FDI is expected to stay subdued, impacted by higher repatriation linked to an active deal pipeline and private equity and venture capital exits, along with increasing outward FDI by Indian companies.

It stated, "The outlook for gross FDI remains constructive, even as net FDI may remain subdued in the near term".

The Gross FDI is defined as the total money entering a country from foreign investors, while Net FDI is the actual amount remaining after subtracting repatriations (profits/capital sent back home by foreign firms) and outward investments by domestic companies.

As per the report, gross FDI (equity) flows to India rose to USD 90.8 billion, accounting for 2.3 per cent of GDP on a 12-month trailing basis in January 2026, marking a 13 per cent year-on-year increase from USD 80.3 billion in January 2025. Gross FDI excluding repatriation improved to a three-year high of USD 36.3 billion, reflecting a 38.4 per cent year-on-year growth.

In contrast, net FDI remained near an all-time low at USD 0.5 billion in January 2026 on a 12-month trailing basis, constrained by elevated repatriation and rising outward investments. Repatriation has stayed above USD 50 billion for the second consecutive year, while outward FDI increased to USD 35.8 billion, rising 2.6 times over the past two years.

It noted that while gross inflows remain robust, the trend in net FDI is crucial from an external balance sheet perspective, as FDI is generally a more stable source of financing for the current account. A sustained weakening in net flows could increase reliance on more volatile portfolio capital, potentially impacting currency stability, external balance metrics and financial markets.

Sector-wise, the services sector continued to dominate FDI inflows, accounting for 46 per cent of the total share. Manufacturing, which contributes about one-fourth of inflows, has diversified into sectors such as automobiles and electronics, supported by policy measures.

On the global front, FDI flows reached USD 1.6 trillion in 2025, growing 14 per cent year-on-year, although flows to Asia declined to USD 614 billion, down 2.5 per cent. However, flows to India, excluding repatriation, rose 44 per cent year-on-year, helping the country improve its global market share to a three-year high of 2.4 per cent.

The report added that net FDI flows are likely to remain uneven and deal-driven, with their trajectory dependent on domestic and global growth conditions as well as financial market dynamics.

- ANI