What's happening to India's FDI numbers?

Foreign Direct Investment ("FDI"), and its upticking numbers, has always been a very glitzy and exciting headline in India’s business conversations. It dominates boardroom chatter, makes it to the front pages of economic news, and is celebrated as a marker of progress. But beneath all that shine lies a less noticed, yet important undercurrent that deserves more attention.

This is the growing trend of short-term investments and rising FDI outflows from India. The recent RBI report points towards worrying shifts, with net FDI inflows collapsing by 98% in May 2025 to just $35 million, as repatriation jumped by 24% and outward investments touched $2.1 billion. Numbers like these should not be brushed aside. They signal a deeper problem and should be read as a cause for concern. They indicate that short-term portfolio investments are growing faster than stable, long-term inflows. Indian companies are choosing to expand operations abroad instead of reinvesting back at home.

Several reasons explain this trend. Regulations are unpredictable. Infrastructure continues to have persistent gaps. Global firms are diversifying supply chains in ways that do not always benefit India. On top of that, concerns around stable policies in sectors like the digital economy, taxation, and data privacy are rising. Taken together, these factors create an environment in which foreign investors prefer quick, liquid bets over deeper, lasting commitments, while Indian players themselves look outward for growth opportunities.

However, even today, the truth remains that the overall health of our economy and macroeconomic stability of India is dependent on FDI.

While it is true that government reforms and improved global rankings have helped, there is still much more to be done. First, we need to commit seriously to building skills that actually match industry demand. Second, we must tackle red tape. Despite all the promises of single-window clearances, it continues to choke projects. Third, we must confront the sectoral imbalance. Tech, fintech, and services attract heavy inflows, while manufacturing, healthcare, and R&D remain neglected. This requires urgent and targeted policies. 
 
Another blind spot is dispute resolution and contract enforcement. For investors, it is not enough to have new policies on paper. What matters is whether agreements are respected and disputes are settled within a reasonable time. India cannot afford projects worth millions being locked in courtrooms for years. The same applies to ease of doing business. It cannot stop at central-level rankings or announcements. It has to be felt at the state level, where companies actually deal with land approvals, permits, and day-to-day clearances. Most investors face problems in this area, and this is where reforms must deliver.

Additionally, in today's day and time, FDI cannot remain tied to mere capital. The real focus should be on technology transfer, information, know-how that actually helps build our industries. This comes only with long term investments and not quick exits.

Looking closer, one also sees how much of the money comes through Singapore and Mauritius, often driven by tax advantages rather than genuine strategic bets on India. That should make us pause. Are we celebrating big FDI numbers without asking what they actually represent?

If we truly want India to have a growth story that lasts: our focus must move beyond "vanity metrics". What truly matters in the long run is a system that is transparent and genuinely welcoming. Capital should flow into areas that build the future of the country. In the end, FDI should not be treated as a scoreboard but as a nation-building capital.