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India’s foreign direct investment (FDI) has been facing a noticeable decline, raising concerns about the country’s economic landscape. Despite official claims highlighting record-breaking gross FDI inflows, the net FDI data paints a different picture. This blog critically examines the paradox of rising gross FDI versus declining net FDI and delves into the implications of this trend for India’s economic growth.

The FDI Paradox: Gross vs. Net FDI

One of the primary points of confusion regarding FDI inflows in India arises from the distinction between gross FDI and net FDI. While gross FDI represents the total amount of foreign investment entering the country, net FDI factors in outflows—including repatriation of investments and outward investments by Indian businesses.

Gross FDI has indeed been rising, with the Indian government celebrating the milestone of crossing $1 trillion in cumulative FDI inflows between 2000 and 2024.

However, net FDI—the figure that accounts for money leaving the country—has seen a significant decline, hitting a 12-year low.


From FY12 to the pandemic year FY21, net FDI had shown steady growth, peaking at $34 billion. However, subsequent years witnessed a consistent drop:

FY22 – $32.8 billion

FY23 – $27.5 billion

FY24 – A sharp decline to $15.7 billion


This decline is striking when compared to FY13, where net FDI was $13.8 billion, making the current levels the lowest since that period.

Understanding the Discrepancy

The government’s claim of rising FDI is not incorrect. The gross FDI inflow in FY21 stood at $48.5 billion, reflecting a substantial increase from $17.5 billion in FY13. However, what often goes unmentioned is that outflows—which include repatriation and overseas investments by Indian businesses—have been growing steadily.

In the April-October period of FY24 alone, $34.1 billion left India.

Outward investments by Indian companies surged to $12.4 billion during the same period, up from $8 billion in the previous year.


This consistent outflow has significantly reduced the net FDI balance.

Foreign Portfolio Investments (FPI) and Capital Flight

A parallel trend is observed in foreign portfolio investments (FPI), which involve investments in securities rather than physical assets. Over the past decade, net FPI outflows have become the norm rather than the exception.

In FY22, FPIs withdrew ₹2.74 trillion.

The trend continued with ₹2 trillion in FY23 and ₹1.44 trillion in FY24.

For the period from April to December 2024, FPI outflows reached ₹2.56 trillion ($30 billion).


The resilience of India’s stock markets, despite these outflows, can be attributed to strong domestic investments and the growing popularity of Systematic Investment Plans (SIPs). However, heavy withdrawals by FPIs reflect a broader concern regarding India’s attractiveness as an investment destination.

Decline in Tourism: An Overlooked Indicator

Another underappreciated indicator of India’s declining global appeal is the drop in foreign tourist arrivals. Despite the global post-pandemic tourism boom, India has experienced a consistent decline in tourist arrivals.

From 2001 to 2019, India’s tourism sector witnessed steady growth.

However, since 2020, tourist numbers have shrunk year after year, highlighting a possible loss of interest or trust in India as a global destination.


Tourism may seem disconnected from FDI at first glance, but declining interest in travel to India mirrors the broader reluctance of global investors to engage with the Indian economy.

FDI as a Percentage of GDP: A Declining Trend

Another crucial metric reflecting India’s declining FDI appeal is FDI as a percentage of GDP.

In 2020, FDI accounted for 2.4% of GDP.

By 2021, this figure plummeted to 1.4%, further declining to 0.84% in 2023.

For comparison, during the 2008 global financial crisis, FDI was 3.6% of GDP.


The steady fall in FDI relative to the size of India’s economy underscores that while GDP is expanding, foreign investment is not keeping pace.

Foreign Exchange Reserves: A Safety Net Under Pressure

India’s foreign exchange reserves are another critical aspect of this discussion. In FY24, reserves reached an all-time high of $701 billion in September. However, by December, $60 billion had been sold by the Reserve Bank of India (RBI) to stabilize the rupee amidst depreciation pressures.

This depletion raises concerns about India’s ability to shield itself from external shocks. The RBI’s intervention, while necessary, underscores the precarious balance between managing currency volatility and maintaining reserve adequacy.

Causes and Consequences

Several factors contribute to the decline in net FDI and foreign investment:

Global Economic Shifts – Investors are increasingly attracted to emerging markets like Vietnam and Thailand.

Domestic Private Investment – Indian companies are opting to invest abroad rather than expanding domestically.

Policy Uncertainty – Regulatory challenges, tax policies, and inconsistent reforms may deter foreign investors.

Geopolitical Factors – Global geopolitical instability and economic polarization may influence capital allocation decisions.


The consequences of declining FDI are significant:

Reduced Capital Inflows – Slower infrastructure development and innovation.

Limited Job Creation – FDI often drives employment through new projects and expansions.

Weaker Economic Growth – A lack of foreign capital may constrain India’s growth potential.


Why FDI Still Matters

Some may argue that India’s domestic markets and investors can fill the void left by declining FDI. However, FDI brings more than just capital—it fosters technology transfer, innovation, and employment. The Indian government itself acknowledges this in its official statements, describing FDI as “transformative” and crucial for “non-debt financial resources and employment generation.”

In an era of economic nationalism, dismissing FDI as irrelevant could be a self-defeating argument. As India aspires to become a $5 trillion economy, attracting and retaining foreign investment will be critical to sustaining long-term growth.

Addressing the factors behind FDI decline should be a priority. This includes improving the ease of doing business, fostering political stability, and ensuring that domestic policies align with global investor expectations.