Healthy FDI inflows into India to continue in 2025

New Delhi: India, averaging over $4.5 billion in monthly foreign direct investment (FDI) inflows since January this year despite global uncertainties and challenges, is tipped to sustain the trend in 2025 on the back of measures by the Prime Minister Narendra Modi-government to enhance the country's investor-friendly appeal.

Investor-friendly policies, strong return on investments, skilled manpower, reduced compliance burdens, decriminalising minor industry-related offences, national single window system for streamlined approvals and clearances, and production linked incentive (PLI) schemes are key measures for keeping foreign investors focused on India.

Further to ensure that India remains an attractive and investor-friendly destination, the government reviews FDI policy on an ongoing basis and makes changes from time to time after having intensive consultations with stakeholders including apex industry chambers, associations, and representatives of industries.

In the January-September period this year, FDI into the country rose by about 42 per cent to $42.13 billion. The inflow was at $29.73 billion in the year-ago period.

The inflows during April-Sept 2024-25 grew by 45 per cent to $29.79 billion against $20.48 billion in the same period previous fiscal. Total FDI in 2023-24 was a healthy $71.28 billion.

"Going by the trend, the country will continue to attract healthy FDI in 2025 as well," DPIIT (Department for Promotion of Industry and Internal Trade) Secretary Amardeep Singh Bhatia told PTI.

He said that India continues to open up its economy to global investors by raising foreign investment limits, removing regulatory barriers, developing infrastructure and improving the business environment.

A total FDI inflow of $991 billion was recorded, with 67 per cent ($667 billion) received during the last ten financial years (2014-2024).

FDI equity inflow in the manufacturing sector increased by 69 per cent, rising from $98 billion in 2004-2014 to $165 billion in 2014-2024.

Sharing similar views, experts opined that despite the global challenges, India is still the preferred investment destination for global firms.

However, they suggested the government take more steps such as further improving ease of doing business, liberalising sectoral caps like in pharmaceuticals, private security agencies, broadcasting and plantations, and easing the norms under the press note 3 (2020).

Under this press note, FDI applications from countries sharing land border with India like China have to mandatorily seek government approval for all sectors.

"Government should bring in a transparent system to process Press Note 3 applications. There should be a time-bound process with deeming provision as it would increase the FDI by boosting confidence of foreign investors. An exception should also be carved for private equity investment funds having partners from land bordering countries where the private equity fund is not controlling the Indian company and acting as a mere financial investor," Rudra Kumar Pandey, Partner, Shardul Amarchand Mangaldas &Co, said.

Pandey also asked for establishing fast-track courts, arbitration centres to facilitate dispute resolution between corporates, training the judicial ecosystem to help corporates resolve their disputes.

These suggestions assume significance as India has seen limited success so far in capturing the 'China Plus One strategy', while Vietnam, Thailand, Cambodia, and Malaysia have become bigger beneficiaries.

According to a report of government think tank Niti Aayog, India is seen as an attractive destination for companies looking to shift their manufacturing bases out of China and this shift offers the country a chance to enhance its domestic manufacturing capabilities, particularly in high-tech industries.

Rumki Majumdar, Economist, Deloitte India, added that streamlining regulatory processes and minimizing bureaucratic hurdles will further boost investor confidence and simplify the investment landscape.

"A continued emphasis on infrastructure development, particularly in logistics and digital connectivity, is also crucial for supporting FDI growth," Majumdar said.

Foreign direct investment inflows into India have crossed the $1 trillion milestone in the April 2000-September 2024 period, firmly establishing the country's reputation as a safe and key investment destination globally.

According to the DPIIT data, the cumulative amount of FDI, including equity, reinvested earnings and other capital, stood at $1,033.40 billion during the said period.

About 25 per cent of the FDI came through the Mauritius route. It was followed by Singapore (24 per cent), the US (10 per cent), the Netherlands (7 per cent), Japan (6 per cent), the UK (5 per cent), UAE (3 per cent) and Cayman Islands. Germany and Cyprus accounted for 2 per cent of FDI each.

India received $177.18 billion from Mauritius, $167.47 billion from Singapore and $67.8 billion from the US during the period under review, as per the data.

The key sectors attracting the maximum of these inflows include the services segment, computer software and hardware, telecommunications, trading, construction development, automobile, chemicals, and pharmaceuticals.

FDI is allowed through the automatic route in most of the sectors while in areas such as telecom, media, pharmaceuticals and insurance, government approval is required for foreign investors.

FDI is important as India would require huge investments in the coming years for its infrastructure sector to boost growth. Healthy foreign inflows also help in maintaining the balance of payments and the value of the rupee.

DPIIT is responsible for the formulation of FDI Policy, enforced through rules notified under the Foreign Exchange Management Act, 1999 (FEMA), which is administered by the Department of Economic Affairs and regulated by the RBI.

The Foreign Investment Facilitation Portal (FIFP) manages proposals received under the government route and forwards them to concerned ministries.