Government Emphasizes 40% Increase in Foreign Direct Investment in Services in Fiscal Year 2025
India Records Historic FDI Inflows in FY25
India achieved remarkable gross Foreign Direct Investment (FDI) inflows of $81.04 billion for the fiscal year 2024–25, reflecting a significant 14% year-over-year increase, as reported by the government based on preliminary data. The services sector experienced an astounding growth of 40%, while the manufacturing sector’s FDI rose by 18%. Conversely, net FDI witnessed a dramatic decline of 96%, attributed to heightened repatriation and outbound investments.
Sectoral Performance and Quarterly Trends
In absolute figures, the computer software and hardware industry emerged as the second-largest recipient of FDI in 2024-25, although it experienced a slight decrease of 2%, amounting to $7.81 billion. Notably, the FDI inflows into the services sector surpassed $50 billion, marking a 13% increase due to the sector’s robust performance. However, a downturn was observed in the last financial year’s fourth quarter (Q4), where gross FDI fell by 24.5% to $9.34 billion. In its May Bulletin, the Reserve Bank of India (RBI) highlighted this decline, indicating the country’s net FDI inflows dramatically fell to just $353 million in 2024–25 from $10.1 billion the previous year.
Rising Repatriation and Outbound Investments
The substantial drop in net FDI was largely due to an increase in profit repatriation by foreign firms operating in India, coupled with a notable rise in investments made by Indian companies abroad. According to the RBI, the volume of repatriation and disinvestment escalated to $51.5 billion in 2024-25, representing the highest levels seen in a decade, while Indian companies’ overseas investments soared by 75% to $29.2 billion. The RBI described these trends as indicative of a mature market that facilitates streamlined entry and exit for foreign investors. Nevertheless, this situation sparked controversy within political circles, with opposition parties criticizing it as a failure to attract foreign investments and suggesting that Indian firms favored relocating their operations.
Growth in Key Investment Sectors
The Department for Promotion of Industry and Internal Trade (DPIIT) reported that gross FDI in the services sector for 2024-25 saw a robust growth of 40.7%, reaching $9.34 billion. The non-conventional energy sector experienced a 6.5% increase, attracting $4.01 billion. The services sector, for the purposes of FDI equity calculations, encompasses a diverse range of fields including finance, banking, insurance, outsourcing, research and development, courier services, and technology testing.
Trends in Manufacturing and Other Sectors
The DPIIT asserted that India is solidifying its status as a manufacturing FDI hub, with an 18% growth in this sector, totaling $19.04 billion, compared to $16.12 billion in FY 2023–24. In contrast, the telecom sector saw a remarkable year-on-year increase of 164.5%, reaching $746 million, while the trading sector experienced an 8% growth to $4.17 billion. Conversely, the infrastructure construction segment faced a 46% decline, bringing in only $2.24 billion. However, the development of townships and housing saw an influx of foreign equity flows, surging by 135% to $529 million.
Primary Sources of FDI and Regional Contributions
Singapore maintained its position as the leading source of FDI in 2024-25, with investments rising by 26.9% to $14.94 billion. It was followed by Mauritius, which accounted for $8.34 billion, the United States at $5.45 billion, and the Netherlands at $4.62 billion. Other notable contributors included the UAE at $4.34 billion and Japan at $2.47 billion. In total, Singapore’s FDI share stood at 30%, with Mauritius and the United States representing 17% and 11%, respectively.
Regional Insights and the Path Forward
In terms of regional contributions, Maharashtra led the charge, securing 39% of total FDI equity inflows in FY 2024–25, followed by Karnataka at 13% and Delhi at 12%. The DPIIT stated, “These trends reaffirm India’s position as a preferred global investment hub, supported by a proactive policy framework, an evolving business ecosystem, and increasing international confidence in India’s economic resilience.” When factoring in reinvested earnings and other capital forms, total FDI for 2024-25 reached $81.04 billion, demonstrating a robust annual growth of 14%.
