The reality behind falling net FDI: Disinvestment and capital repatriation impact India's foreign direct investment
India's net Foreign Direct Investment (FDI) has significantly declined despite robust gross inflows, primarily due to the impact of disinvestment and capital repatriation. The official narrative often misattributes this decline to profit repatriation, which affects the current account, not net FDI. The article distinguishes between real FDI (RFDI), financial investors, and diaspora investments, noting that RFDI into manufacturing has decreased. It highlights that gross FDI figures often include corporate accounting changes rather than fresh capital, and outflows from disinvestment, dividends, and IPR payments significantly exceed fresh inflows, warranting a more informed debate on FDI dynamics.
Key Points
- Net FDI in India has sharply declined, largely due to disinvestment and capital repatriation, not just profit repatriation.
- Real FDI (RFDI) into the manufacturing sector has seen a decline over consecutive periods.
- Gross FDI figures can be misleading as they include corporate accounting changes rather than fresh capital injections.
- Outflows from disinvestment, dividends, and IPR payments are substantial, often exceeding fresh inflows.
Exam Facts
- Net FDI fell from a peak of $44.0 billion in 2020-21 to less than $1 billion in 2024-25, recovering to $7.6 billion in 2025-26.
- RFDI made up 41.9% of "effective inflows" between 2022-23 and 2025-26.
- Manufacturing RFDI accounted for only 10.6% of total effective inflows in the latest four-year period.
- India's liberal FDI policy was introduced in 1991.
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