Only partially. India has undoubtedly benefited from supply chain diversification, emerging as a key FDI destination in the region, particularly in electronics manufacturing and digital services. Gross FDI inflows have remained relatively stable, at around $21bn in 2025, broadly unchanged from the previous year.
However, this stability in gross flows masks a sharp deterioration in net FDI. Since 2022, inflows have weakened due to two offsetting dynamics. First, repatriation by foreign investors has increased sharply, roughly doubling over the past four years. With US interest rates elevated and global uncertainty high, multinational parents increasingly repatriated earnings or redeployed capital to higher-return markets, reducing reinvestment in India
Second, outward FDI by Indian firms has nearly doubled, reflecting increasing globalisation of domestic corporates. Indian firms are increasingly allocating capital overseas, rather than reinvesting domestically.
As a result, even though net FDI rebounded in FY26 to $7.65bn from a multi-year low of around $1bn in FY25. The broader trend remains one of significant compression, with net inflows still down nearly 80% over the past four years.
The implication is that while India continues to attract structurally strong gross FDI, the net support to the balance of payments has diminished materially. This limits its ability to offset portfolio outflows and act as a stabilising force for the currency in the current environment.
