The latest foreign direct investment (FDI) data show how India’s attractiveness as an investment destination is not yet cemented and remains fragile. Net FDI remained negative for the third consecutive month in October 2025, which means that more direct investment was taken out of India than invested in it. The timing reveals a lot. At the end of July, U.S. President Donald Trump revealed that he would be levying a 25% tariff on India. A week later, he raised this to 50%. That is when investment began to leave India. Prior to August, India’s net FDI position in 2025-26 had been quite comfortable. In the April-July 2025 period, net FDI totalled $10.7 billion, more than triple what it was in the same period of the previous year. However, in August 2025, investors pulled out $622 million more than they put in, followed by $1.7 billion in September, and $1.5 billion in October. India’s cumulative net FDI position in 2025-26 by the end of October 2025 had fallen to $6.2 billion. This is still nearly double what it was in April-October 2024, but the point is that the direction has changed. One defence of the FDI numbers has been that the net FDI figure looks poor because outflows are simply exceeding robust inflows. However, in both August and October, gross inflows themselves were lower on a year-on-year basis. This contrasts against an average growth rate of about 33% in April-July 2025. In addition, this financial year has shown that the increase in outflows has been driven by Indian companies looking to invest abroad. One way to look at this is with satisfaction — that Indian companies are increasingly becoming internationally competitive in scale and resources. However, with the Indian economy far from saturated in terms of supply, the question to be asked is why these companies are not investing here. This is not merely a shifting of profits abroad in the form of repatriation. It reveals a deeper issue.
From the 2019 corporate tax rate cuts, to Production Linked Incentives, to trying to boost demand through income-tax and Goods and Services Tax cuts, the government has done a lot to encourage the private sector to invest. These were all welcomed by Indian and foreign corporations, who touted them as “structural reforms”. Yet, it took just one episode of tariffs by one country to rock India’s image as a good investment destination. Even the Reserve Bank of India said that uncertainty over the U.S. trade deal was pushing foreign portfolio investors to exit Indian equities. This goes to show that shiny headlines of ‘fastest-growing’, ‘largest market’, and ‘third-fastest’ do not cut much ice with investors. They work in fair weather, but are flimsy in the face of the slightest headwinds. Such claims need real structural reforms to bolster them.
Published – December 26, 2025 12:20 am IST
