India’s FDI Returns Stay Strong at 7.3%, Outpacing Other Emerging Economies: CareEdge
Higher profit repatriation drags net inflows to USD 1 billion even as India outperforms peers on FDI returns
New Delhi, Jan 17 : India’s average return on inward foreign direct investment (FDI) continues to remain resilient at 7.3 per cent, outperforming several emerging and developed economies, even as net FDI inflows have dropped sharply over the past five years, according to a report by CareEdge Ratings.
Between FY2020 and FY2025, India’s annual gross FDI inflows ranged between USD 70 billion and USD 85 billion, registering a modest compound annual growth rate (CAGR) of around 2 per cent. However, net FDI flows declined steeply from USD 44 billion in FY20 to just USD 1 billion in FY25.
CareEdge attributed the fall in net inflows to higher profit repatriation by foreign investors and rising outward FDI from India. “While gross inflows have improved, increased repatriation of profits and higher overseas investments by Indian companies have led to a sharp decline in net FDI inflows,” the agency said.
After remaining stagnant at around USD 71 billion in FY23 and FY24, gross FDI inflows rose 13 per cent to USD 81 billion in FY25. However, net inflows fell to USD 10 billion in FY24 and further to USD 1 billion in FY25 due to substantial outflows.
In FY25, the services sector emerged as the largest recipient of FDI equity inflows, accounting for 19 per cent of the total, followed by computer software and hardware at 16 per cent. Trading and non-conventional energy sectors received 8 per cent each. While sectors such as trading, renewable energy, automobiles and chemicals saw growth, inflows into pharmaceuticals and construction declined during the year.
The report noted growing investor interest in emerging sectors such as semiconductors, electric vehicles, battery storage and data centres, positioning them as future drivers of FDI.
On the global front, CareEdge highlighted that FDI flows remain subdued amid economic and geopolitical uncertainties. The ratio of global FDI flows to GDP fell to 1.3 per cent in 2024 from a post-pandemic high of 2.4 per cent in 2021, continuing a long-term decline since the 2008 global financial crisis.
Europe’s share in global outward FDI has weakened, while flows from the US have stagnated. In contrast, China’s share of global outward FDI has risen sharply to about 11 per cent in the post-pandemic period. Countries benefiting from the China+1 strategy, including Vietnam and Mexico, along with resource-rich African nations, have seen strong FDI inflows. India’s share of global FDI inflows, however, slipped to 2.4 per cent from 2.9 per cent, largely due to higher profit repatriation.
