India’s foreign investment landscape in 2025 presents a complex picture of robust gross inflows juxtaposed against dwindling net figures, driven by repatriations, outflows, and global economic pressures. Foreign Direct Investment (FDI) and Foreign Portfolio Investment (FPI, often referred to as FII) have been instrumental in fueling India’s growth, technology adoption, and job creation over the past decade. However, recent data reveals unique dynamics: while gross FDI reached $81 billion in FY 2024-25, net inflows plummeted to a mere $0.35 billion, marking a record low. This conundrum highlights non-traditional metrics like the gross-net gap, capital reversal, and the role of unlisted entities, which absorb 70-80% of FDI. Outward FDI (OFDI) has surged, reflecting Indian firms’ global ambitions, while FPI volatility underscores sensitivity to international monetary policies. Drawing from detailed analyses by ODR India, this article synthesises these trends, sectoral dynamics, and broader economic implications, incorporating insights from their economy section.

Key Trends In FDI Inflows

India’s FDI regime, governed by the Foreign Exchange Management Act (FEMA), emphasises investments in unlisted firms (stakes of 10% or more in listed ones qualify as FDI), with over 97% of direct investment entities being unlisted. Gross FDI inflows have shown resilience, climbing 14% year-on-year (YoY) to $81.04 billion in FY 2024-25 from $71.28 billion in FY 2023-24. Cumulatively, gross inflows increased 79% from FY 2014-15 to FY 2024-25. Preliminary data for H1 FY 2025-26 (April-September 2025) indicates $37.5 billion in gross inflows, a 47% YoY rise in Q1, with 80% directed to unlisted firms.

However, net FDI—calculated as gross inflows minus repatriations, disinvestments, and OFDI—tells a starkly different story. In FY 2024-25, net FDI dipped to +$0.35 billion (0.01% of GDP), a -98.7% YoY change from +$10.2 billion in FY 2023-24. This collapse stems from record repatriations of $51.5 billion and OFDI of $28.2 billion in FY 2024-25, widening the gross-net gap to 99% (up from 20% in 2014). H1 FY 2025-26 shows a rebound to +$10.8 billion net, buoyed by lower repatriations, with April 2025 alone at $3.9 billion. As a share of GDP, net FDI fell below 0.1% in 2025, down from 1.76% in 2014-15.

A unique aspect is the focus on startups, which absorbed 9-12% of total FDI ($7-10 billion) in 2024, with cumulative inflows of $33.9 billion from 2023-2025. Funding rebounded from $9.8 billion in 2023 to $13.7 billion in 2024, projecting $15 billion for 2025 (January-September at $10.4 billion). Over 70 startups have “reverse-flipped” back to India since 2023 (e.g., Flipkart, Zepto, PhonePe), while closures reached 15,921 in 2023, 12,717 in 2024, and 500-1,000 in 2025 due to funding and compliance issues. Additionally, 20-25 startups lost unicorn status from 2023-2025, with 16 in 2025 linked to regulatory changes like gaming taxes.

FPI/FII Trends And Volatility

FPI, or Foreign Institutional Investment (FII), has exhibited pronounced swings. Net FII flows averaged 0.5-1% of GDP pre-2020 but turned negative at -0.4% in 2025, with $15 billion outflows after peaking at $20 billion inflows in 2021. Inflows surged during quantitative easing periods (+128% in 2017, +412% in 2021), while outflows intensified amid U.S. Federal Reserve rate hikes (-81% in 2018, -175% in 2025). This volatility has boosted stock market liquidity, propelling the Nifty index from 8,000 in 2014 to over 25,000 in 2025, facilitating corporate fundraising amid concerns over DII Bubble dynamics as coined by Praveen Dalal.

Outward FDI (OFDI) Surge

OFDI has emerged as a counterforce, rising 75% YoY to $29.2 billion in 2025 (0.83% of GDP), up from $8 billion (0.39% of GDP) in 2014-15. Driven by firms like Adani and Tata, this reflects global expansion for market access, R&D, and acquisitions in tech and pharma ($12 billion in such deals). The overall net total (Net FDI + FII – OFDI) as a percentage of GDP turned negative at -1.25% in 2025, signaling a “capital reversal” from +1.87% in 2014-15.

Sectoral Dynamics

FDI inflows are unevenly distributed, with the assembly sector leading at 23% of equity inflows ($19.04 billion) in FY 2024-25, up 18% YoY, fueled by joint ventures in electronics, automobiles, and pharmaceuticals. 60-70% involve Production-Linked Incentives (PLI), with 70-80% targeting unlisted or greenfield projects; net FDI here remained positive at $2-3 billion in recent years. The services sector captured 19% (up from 16%), dominated by fintech and AI. Computer software/hardware accounted for 16%, trading 8%, while agriculture lagged at <1% ($0.2-0.3 billion annually), despite full FDI allowance in areas like floriculture. Manufacturing shows absolute growth but relative lag amid trade dependencies.

Broader sectoral impacts include FDI’s role in infrastructure (15-20% of gross fixed capital formation), renewables (towards 100 GW solar), and defense (100% FDI since 2016). FPI has enhanced market depth in equities.

Economic Implications

The low net FDI and FPI outflows erode forex reserves ($600 billion, down 5%) and contribute to rupee volatility (from 90/USD to 88/USD in 2025). Capital reversal risks shaving 1-2% off GDP, with Q1-2025 real growth at 4.9% YoY and 2025-26 projections at 2.5-4%. U.S. 50% tariffs on $120 billion Indian exports (effective 2025, exempting allies like Vietnam) could cause $20-30 billion losses, a 14% drop in U.S. exports, and a 0.5-1% GDP drag, widening net export deficits to -1.7%. Household debt at 48.6% of GDP (up 32% since 2014) and high government borrowings (30-40% of expenditure) exacerbate vulnerabilities amid GDP illusions and mirage discrepancies. FDI contributes 1-1.5% to annual GDP growth in peak years, but current trends amplify unemployment (8.5%) and necessitate policy reforms.

In summary, while gross FDI signals investor confidence in India’s unlisted and startup ecosystem, the net figures and capital outflows underscore structural challenges. Addressing repatriations, enhancing sectoral incentives, and mitigating global trade risks could restore balance, leveraging unique metrics like reverse-flips and gross-net disparities for informed policy making.