Shrinking inflows, surging outflows

Foreign direct investment (FDI) has long been considered a vital lifeline for India’s growth story.

- Shivaji Sarkar

It represents not just capital inflows but also a measure of global investor confidence in India’s long-term prospects. That is why the news that India’s net FDI inflows crashed 98% in May 2025 to a mere $35 million—compared to $2.1 billion in the same month last year—has set off alarm bells in economic and policy circles.

The drop was not a one-off statistical quirk. It was driven by a combination of declining gross inflows and surging repatriation of earlier investments. Gross FDI inflows in May fell 11% year-on-year to $7.2 billion. At the same time, outflows in the form of repatriation and disinvestment soared 24% to $5 billion. The arithmetic of shrinking inflows and expanding outflows meant that the net figure—the capital India can actually put to productive use—collapsed.

And yet, paradoxically, India’s foreign exchange reserves remain healthy at $702.57 billion, giving the impression that the overall external account is stable. The reality is more nuanced: reserves are strong, but the flow of fresh investment capital—the kind that builds industries, creates jobs, and upgrades technology—is weakening.