Foreign investment may not collapse in gross terms, but net FDI pressure could remain severe if policy confidence is not restored
India’s growth story still looks attractive on paper: a large consumer market, expanding infrastructure, digital payments, manufacturing incentives and a young workforce. Yet the sharper question now is not whether India is growing, but why foreign investors are becoming cautious despite that growth.
The concern has sharpened after economist Surjit Bhalla argued that India’s investment climate has weakened and that foreign direct investment has moved into “negative territory.” According to India Today, Bhalla linked the problem to restrictive FDI-related rules and the weakening of investor confidence after changes around bilateral investment treaties. He also suggested that around 30% of the decline in FDI could be attributed to the suspension of BITs.
So, how much can foreign investment fall? The honest answer is: it depends on whether we are talking about gross FDI inflows or net FDI. Gross FDI is still showing strength. The government said India received $81.04 billion FDI inflow in FY 2024–25, up 14% from $71.28 billion in FY 2023–24. Manufacturing FDI also rose 18% to $19.04 billion. IBEF’s May 2026 update says total FDI inflow during April–December 2025 stood at $73.31 billion, and FDI equity inflow rose from $40.67 billion to $47.87 billion year-on-year.
But the worrying signal is in net FDI, where outflows, repatriation and disinvestment are rising. Reports based on RBI data said India’s net FDI crashed 96.5% in FY25, falling to only $353 million from about $10 billion a year earlier. In May 2025, net FDI reportedly fell 98% year-on-year to just $35 million as repatriation increased and gross inflows weakened.
This means the possible fall is not a simple 5% or 10% story. On a gross basis, FDI may still remain positive and may even grow in selected sectors. But on a net basis, if foreign companies continue to take profits out, delay new projects, or exit old investments, India could again see a 70% to 95% erosion in net FDI compared with healthier years. In a stress scenario, net FDI may remain close to zero or negative for several months.
The reason is not only geopolitics. Yes, global risk has increased because of oil prices, West Asia tensions, currency volatility and interest-rate uncertainty. But investors also look at legal certainty, tax stability, dispute resolution, contract enforcement and exit freedom. If a country offers growth but creates uncertainty about how disputes will be handled, investors begin to demand a higher risk premium. Some postpone investment. Some invest through safer jurisdictions. Some prefer portfolio flows over long-term factory or infrastructure commitments.
This is where India’s paradox becomes visible. The economy is expanding, but long-term foreign capital is asking tougher questions. Investors are not only looking at GDP growth; they are asking whether rules are predictable, whether courts can resolve commercial disputes quickly, whether policy changes are retrospective, and whether profits can be repatriated without friction.
India still has powerful advantages. Services, software, trading, manufacturing, digital infrastructure, data centres, insurance, renewable energy and semiconductors remain attractive. Maharashtra alone accounted for 39% of FDI equity inflows in FY 2024–25, followed by Karnataka and Delhi. Singapore, Mauritius and the United States remained major source countries. That shows investors have not abandoned India. They are becoming more selective.
The danger is that selective caution can slowly become structural hesitation. If domestic private investment also stays weak, public infrastructure spending alone cannot carry the economy indefinitely. Government capital expenditure builds roads, ports and railways, but private and foreign investment brings technology, management systems, exports, innovation and high-quality employment.
Therefore, the policy message is clear. India does not need panic, but it does need course correction. The government should improve dispute-resolution mechanisms, revisit restrictive treaty provisions, reduce approval uncertainty, ensure tax predictability and create stronger investor-protection frameworks. A faster commercial justice system would be as important as a new industrial corridor.
In conclusion, foreign investment in India may not fall sharply in headline gross numbers. But net FDI can remain under serious pressure, with a possible 70% to 95% fall from normal levels if repatriation and investor hesitation continue. India is still growing, but investors are pausing because growth alone is not enough. Capital needs confidence. Without confidence, even a fast-growing economy can look risky from the outside.