Thursday, 06 Nov, 2025
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Foreign direct investment into India signals confidence in its growth story, but policy gaps and uneven opportunities persist. To sustain momentum, New Delhi must deepen reforms—streamlining rules and widening the investment net across regions and sectors.
Foreign direct investment (FDI) into India reached $50 billion in the fiscal year 2025, up 13 per cent from the year before. When adding reinvested profits and other capital flows, the total rises to $81 billion—the highest in three years. At first glance, this suggests growing confidence in the country’s economy.
But a closer look tells a different story. In the last quarter of FY25, FDI inflows dropped 24.5 per cent compared to the same period last year. This marks the second consecutive quarter of decline, raising questions about investor enthusiasm despite ongoing infrastructure projects and headline growth numbers.
The issue lies in the gap between India’s rapid economic growth and investor experience. While the country is expanding quickly, regulatory hurdles and policy uncertainties are clouding the outlook. Experts say foreign investors want more than just strong GDP figures—they seek clear rules, steady policies, and reliable enforcement. Although New Delhi has made progress in areas such as digital infrastructure and logistics, challenges remain, especially around taxes, bureaucratic delays, and unpredictable regulations.
Another revealing detail: much of the FDI comes through tax-friendly hubs such as Singapore and Mauritius rather than directly from major global financial centres such as London, Tokyo, or Berlin. This suggests that some capital is motivated more by tax advantages than by confidence in India’s innovation or manufacturing capabilities.
For New Delhi to attract deeper and more sustainable investment, it needs to move beyond relying on growth momentum. That means making the business environment more predictable by simplifying approvals, enforcing contracts, and creating a fair tax system. Without reforms in critical areas like land acquisition, labour laws, and judicial processes, foreign investment growth could soon hit a ceiling.
Looking at where the FDI came from in FY25 adds to the story. Singapore led with nearly $15 billion, followed by Mauritius at $8.3 billion. The US, the Netherlands, and the UAE also contributed sizable amounts. But investments from advanced economies like Japan, the UK, Germany, and the Netherlands fell compared to the previous year. Since these countries provide the long-term capital and technology India needs, their pullback is a warning sign.
Sector-wise, the services industry saw the biggest jump, pulling in $9.3 billion—up from $6.6 billion the year before. Trading, telecommunications, auto manufacturing, construction, renewable energy, and chemicals also attracted more capital. On the flip side, investments in software, infrastructure construction, and pharmaceuticals declined, showing some areas that remain challenging. Renewable energy investments grew modestly, to $4 billion from $3.8 billion.
Regionally, foreign investment remains heavily concentrated in a few states. Maharashtra led with $19.6 billion, followed by Karnataka, Delhi, Gujarat, Tamil Nadu, Haryana, and Telangana. These uneven spread highlights big opportunities outside these hubs but also points to the need for more balanced growth across India.
In short, while the headline FDI numbers look strong, underlying trends suggest investors are cautious. For India to turn its economic potential into lasting capital and jobs, it will need to focus on fixing deep-rooted issues, not just celebrating big numbers.
The rising FDI reflects its strong growth potential, yet challenges remain in policy consistency and investment diversity. By continuing reforms to simplify regulations and broaden opportunities across regions and sectors, India can further unlock its vast potential and attract high-quality global capital to fuel its development journey.
