Why Foreign Direct Investors Can’t Ignore India Anymore?

On paper, India's narrative should attract global capital: a vast domestic market, a young workforce, rapid digital adoption, and ongoing government initiatives to enhance manufacturing and infrastructure. However, the reality of FDI flows presents a complex picture. India recorded FDI inflows of US$81.04 billion in fiscal 2024–25, marking a substantial 14% increase year-on-year. However, the country still attracts less FDI relative to its economic size than its peers and competitors. 

In contrast, Vietnam's significantly smaller economy excels in attracting investment. The latest official data from Vietnam indicates a record FDI disbursement of approximately US$25.35 billion in 2024, reflecting a considerable annual increase and sustained investor interest. 

What accounts for this disparity? The answer lies in a combination of structural advantages and challenges India still needs to address. Bridging this gap is achievable but necessitates quicker and more comprehensive solutions.

India's FDI narrative reveals stark contrasts 

While gross FDI inflows increased by 14% to US$81 billion in FY 2024–25, net FDI plummeted to just US$0.35 billion, a 96% decrease from the previous year. This situation is not due to a lack of attraction but rather a retention crisis. The Reserve Bank of India (RBI) attributes this to a rise in repatriations, US$51.4 billion and disinvestments, and US$29.2 billion in outward FDI by Indian firms, indicating a market where capital flows are becoming more financialised than industrialised. A considerable portion of inflows is channelled through Singapore and Mauritius, often for tax optimisation, raising concerns about the sustainability of such investments.    This trend suggests that while India is viewed as a growth market, it is not yet seen as a stable, long-term industrial base, underscoring a significant gap between perception and structural readiness. 

Areas for Improvement in India 

Despite notable progress in attracting foreign investment, ongoing structural and regulatory challenges hinder India's ability to leverage its growth potential fully. These obstacles not only delay project execution but also impact investor confidence, influencing decisions on long-term capital commitments. 

• Regulatory Complexity: Despite liberalisation in various sectors, the need for multiple approvals from central, state, and local authorities often delays project execution. Environmental, municipal, and utility clearances can take months or even years. 

• Infrastructure and Land Acquisition Challenges: Land acquisition remains a lengthy process, while logistics, port efficiency, and electricity reliability continue to affect operating costs. 

• Labour Market and Skill Gaps: Although labour codes have been simplified, scaling operations and hiring skilled talent for advanced manufacturing and services still present challenges. 

• Policy Predictability: Investors value long-term certainty. Occasional retroactive tax claims or regulatory changes lead to more cautious multi-year commitments. 

• Cost of Doing Business: High financing costs, energy prices, and operating expenses impact India's competitiveness in cost-sensitive manufacturing sectors. 

Addressing these challenges will enable India to transform its latent potential into substantial FDI inflows. 

Reforms and Initiatives Driving Progress 

India has taken significant steps to address these bottlenecks, and early indicators are encouraging. 

• Production Linked Incentive (PLI) Scheme: Launched in 2020, the PLI programme has attracted over US$17 billion in investment across 14 sectors, from electronics to pharmaceuticals, creating nearly 1 million jobs and unlocking production worth US$131.6 billion. This programme illustrates that targeted incentives can effectively mobilise global capital. 

• Infrastructure Development: Initiatives like dedicated freight corridors, expressways, and enhanced port connectivity alleviate logistics bottlenecks. Urban infrastructure projects, such as the Hyderabad Metro, demonstrate that complex public-private partnerships can succeed in India. 

• Digital Transformation and Governance: Platforms like Aadhaar, UPI, and GST are streamlining administrative processes, boosting transparency, and enhancing investor confidence. 

• State-Level Reforms: States such as Gujarat, Maharashtra, and Tamil Nadu are fostering pro-investment ecosystems by offering simplified approvals and competing to attract high-quality FDI. 

• Policy Stabilisation: Tax reforms, consistent regulatory signals, and investor-friendly dispute resolution mechanisms are improving India's credibility on the global stage. 

These initiatives illustrate that India is actively working to eliminate bottlenecks and establish a solid foundation for significant future investment. 

Case Studies Demonstrating India's FDI Potential 

Real-world examples highlight the tangible impacts of these reforms: 

• Hyderabad Metro Rail (HMR): The Hyderabad Metro Rail project is frequently cited as one of India's most significant public-private partnership (PPP) infrastructure successes. Despite substantial challenges such as land acquisition, public protests, legal hurdles, and financing constraints, the project was completed and now serves as a model of how urban infrastructure can be delivered via PPP. Harvard University published a case study on it, recognising its "concept to execution" story. 

  
  

  It shows that even in complex sectors like urban transit, India can pull off large projects when governance, private participation, regulatory clarity, and stakeholder involvement align. 

• Blackstone's Multi-Year Investment Plan: Blackstone, a major global private equity firm, has announced it will invest at least US$2 billion a year in India for five years, focusing on sectors such as healthcare, financial services, and the energy transition. The firm has already made substantial equity investments, about US$30 billion in Indian companies, and sees India as one of its top markets. 

  
  

  This multi-billion-dollar commitment from a global investor shows external confidence in India’s growth trajectory, regulatory reforms, capital markets, and potential returns. 

• PLI-Driven Electronics Manufacturing: Since its launch in 2020, India's PLI scheme has attracted over US$17 billion in investment across 14 sectors, including electronics, pharmaceuticals, textiles, etc. The scheme has helped generate nearly one million jobs and unlock production valued at about US$131.6 billion over four years. For example, Apple's iPhone exports exceeded US$12 billion in fiscal 2023-24. 

  
  

  This large-scale policy instrument shows how targeted incentives, when designed well, can lead to real investment, jobs, and export capacity. It also demonstrates India's ability to reduce import dependency in key sectors. 

These examples affirm that India can convert its immense potential into substantial foreign investment with the right mix of policy, infrastructure, and incentives. 

Unlocking India's Full FDI Potential 

Looking ahead, India has clear strategies to transform potential into increased inflows: 

• Implement single-window clearances with strict timelines. 

  
  

• Expand plug-and-play industrial clusters for high-value manufacturing. 

  
  

• Improve policy predictability and transparency in taxation, labour, and investment regulations. 

  
  

• Reduce operating and financing costs in strategic sectors. 

  
  

• Invest in workforce skills aligned with advanced manufacturing and innovation. 

If executed effectively, these measures could elevate annual FDI inflows from US$80–90 billion to US$120–150 billion in the coming years. 

India at the Cusp of an Investment Breakthrough 

India has the fundamentals, the intent, and the momentum. With reforms deepening and investor confidence rising, the country is on track to transform from a promising market into a global investment magnet.   India's FDI narrative is impressive, with cumulative inflows exceeding US$1 trillion since 2000. GDP has doubled in nominal terms, sectoral incentives yield results, and significant global investors are committing long-term capital. 

While gaps persist between potential and actual FDI, the ongoing measures indicate that India is actively addressing these issues. The country is rising and positioned to become one of the most attractive destinations for global investment. 

For global investors, the message is clear: India's moment is now.