Fresh Data Highlights Challenges in India's Investment Climate — Trade Agreements May Offer Relief

During 2024-25 India received $81 billion in gross foreign direct investment. India net FDI direct investment (FDI) fell sharply to $353 million, down from $10.1 billion the previous year, reflecting a significant drop in domestic private investment slump and a rise in foreign disinvestment trends withdrawal. The major causes of this dramatic decline stem from Indian companies expanding their investments overseas alongside foreign companies withdrawing their investments from India.

The decline arrives during a period when domestic private investments remain low as India attempts to draw firms relocating from China+1 strategy and expand its global supply chain participation thereby generating uncertainty. Are investment opportunities outside India becoming more appealing for both local and foreign firms? Are investors finding better risk-return opportunities in other countries compared to this one? This deserves closer attention.

The finance ministry has recognized this pattern and expressed its worry about it. The latest monthly economic review from the ministry highlights that Indian firms' growing investments overseas despite global uncertainties require scrutiny because these firms show a cautious stance toward domestic investments. The report confirms that gross FDI inflows have maintained stability yet FDI collapse India 2024-25 and FDI net inflows as a share of GDP have stayed well beneath recent highs according to World Bank data. The RBI demonstrates optimism towards these patterns which seems unexpected. According to the Bank's monthly bulletin, the moderation in net FDI which shows increased net outward FDI and repatriation FDI demonstrates a mature market that allows smooth investor entry and exit thereby indicating a positive impact on the Indian economy.

Current investment predictions become obscure because businesses and families experience doubt about the effects of US President Trump tariffs impact. According to the finance ministry’s monthly review private sector capex may experience delays because companies are taking a more cautious approach during periods of global uncertainty. Ending current trade negotiations with the US and EU successfully could boost export activity as well as investments.