Centre likely to take measures to stem net FDI outflows

Concerned with the fall in net foreign direct investments, the Centre is looking at measures to boost net inflows. “This is a puzzling phenomenon. There is not any one measure that will help boost net FDI inflows. We are looking at what can be done and are planning possible measures,” said officials familiar with the development, while ruling out any move to curb capital outflows.

The comments come soon after the Reserve Bank of India and the finance ministry took concerted efforts to boost foreign capital inflows into government securities that has helped bolster the rupee and is expected to help India enter global bond indices.

The fall in net FDI has also led to concerns about the capital account at a time when the West Asia crisis is putting pressure on the balance of payments. Of late, there has been greater scrutiny of repatriations by Indian firms.   While gross foreign direct investment flows in FY26 surged to an all-time high of $94.52 billion, net FDI —calculated by subtracting repatriations by foreign companies and overseas investments by Indian firms from gross FDI, recovered from just about $1 billion in FY25 to $7.7 billion, which is still quite low.   In FY25 and FY26, repatriations by foreign firms and overseas investments by Indian companies have risen steadily. Several foreign acquisitions by Indian companies, including the recent $11.75 billion acquisition by Sun Pharma of US based Organon & Co., have added to the outbound domestic capital flows. Data by Grant Thornton Bharat reveals that in 2025 there were 162 outbound deals by Indian companies amounting to $ 18.2 billion.   Big ticket listings like the $3.3 billion listing of Hyundai Motors India Ltd, whose proceeds the Korean parent firm took home, or the Swiggy IPO that provided an exit to private equity (PE) and venture capital (VC) players from abroad, have also weighed on the net FDI tally. There’s a large amount of such PE and VC holdings in Indian companies, especially new age firms and start-ups that could be susceptible to being pulled once some of these players list on the bourses.   Experts believe there are various reasons for the fall in net FDI and require concrete measures to address it.   Rajiv Kumar, former Vice Chairman of NITI Aayog and Chairman of Pahlé India Foundation, says it’s a matter of how to build investor confidence. “Today, the investing community –foreign investors and domestic investors, is not confident of the country’s business environment and hence, is not willing to put in money. While the government keeps talking about ease of doing business, not much has changed on the ground. It needs to be monitored more carefully, and states need to be encouraged,” he says, pointing out that a lot of the ease of doing business is at the state level and not everything can be done in New Delhi. “Actual implementation of ease of doing business initiatives will help improve both FDI and domestic investments,” he underlines. According to him, while the fall in net FDI is a concern, the bigger source of concern is the outflow of domestic private capital. This needs to be studied and corrected, he says.   Former finance secretary Subhash Chandra Garg notes that what typically happens is that FDI chases profitable opportunities. “The biggest driver of FDI is future-ready technology and investment muscle. These allow FDI firms to invest in a country, sell to the domestic market and also export if opportunities present. Likewise, companies with financial muscle to capture the domestic market invest as is being done by tech companies that are building data centres,” he says, adding that investments are in three main categories – energy transition-solar, EVs, digital technology like semiconductors, computers and chips and AI embedded machines.

“In all these sectors, India does not have the technological prowess to attract investments,” he points out.