Foreign Direct Investment in India: 2024-25 Overview
In the fiscal year 2024-25, India experienced significant changes in its foreign direct investment (FDI) landscape. The gross FDI stood at $81 billion, but the net FDI plummeted to a mere $353 million, a stark decline from the $10.1 billion recorded in the previous year.
Reasons for the Decline
- Increased investments by Indian firms abroad.
- Greater repatriation or disinvestment by foreign firms from India.
This decline is concerning, given the context of subdued domestic private investments and India's efforts to become an attractive destination for businesses relocating from China and integrating into global supply chains.
Key Questions and Concerns
- Are both domestic and foreign firms finding more attractive investment opportunities elsewhere?
- Do other countries offer a more favorable risk-return ratio?
The finance ministry has expressed concern over these trends, particularly the rising investments by Indian firms abroad amidst global uncertainty, which reflects a cautious domestic investment attitude.
Comparison with Previous Years
Though gross FDI inflows have remained broadly stable, they are lower than in 2021-22. Additionally, the FDI (net inflows as a percentage of GDP) has remained below recent highs per World Bank data.
RBI's Perspective
The Reserve Bank of India (RBI) views the moderation in net FDI as a sign of a mature market, where foreign investors can enter and exit smoothly, reflecting positively on the Indian economy.
Global Comparison
Compared to India, the ASEAN 6 countries have shown robust FDI dynamics, with higher FDI in Southeast Asian economies in the fourth quarter of 2024.
Policy Implications
These trends highlight the need for policy intervention to address issues impeding investments from both domestic and foreign firms. The near-term outlook for investments is uncertain due to global factors like US tariffs.
Trade Agreements
The finance ministry notes that successful trade talks with the US and EU could positively impact investments and exports. A successful US-India trade agreement could convert current challenges into opportunities, offering new market access and energizing exports. The government is urged to proceed with these trade deals.
