In May 2025, India witnessed a staggering 98% decline in net Foreign Direct Investment (FDI) inflows, dropping to $35 million, as per the RBI’s report. This sharp decrease was primarily driven by increased repatriation and reduced gross inflows, reflecting the volatile nature of global capital flows. Despite this concerning trend, India’s substantial foreign exchange reserves of $696.7 billion act as a buffer against immediate risks.
Overview
The RBI’s recent bulletin revealed a drastic 98% decrease in India’s net FDI inflows in May 2025, with only $35 million coming in. This decline was a result of heightened repatriation by foreign investors and a reduction in gross FDI inflows. Despite the drop, India’s foreign exchange reserves remain strong at $696.7 billion, providing stability.
Key Trends and Figures (May 2025)
- Net FDI Inflows: Dropped by 98% YoY to $35 million.
- Gross Inflows: Declined by 11% YoY to $7.2 billion.
- Repatriation of FDI: Surged by 24% YoY to $5 billion.
- Outward FDI: Increased to $2.1 billion.
Source and Destination Patterns
- Top Source Countries for Inflows: Singapore, Mauritius, UAE, and the USA contributed over 75% of FDI in May.
- Top Sectors for Inflows: Manufacturing, Financial services, and Computer services attracted the most investment.
- Top Sectors for Outward FDI: Transport, Manufacturing, Financial, insurance, and business services.
Significance of the Data
- A significant drop in net FDI can impact the balance of payments and investor confidence.
- Portfolio investments at $1.6 billion net inflow provide a positive signal.
- Increased repatriation indicates foreign investors withdrawing profits, potentially due to global uncertainties.
Implications for Policy and Economy
- Policymakers may need to enhance investor confidence through reforms and ease of doing business.
- Maintaining macroeconomic stability is crucial for sustaining FDI inflows.
- Monitoring capital account trends is essential for managing the Rupee exchange rate, inflation, and interest rates.
Key Takeaways for Competitive Exams
- India’s net FDI inflows plummeted by 98% in May 2025, signaling challenges in global capital flows.
- Robust foreign exchange reserves of $696.7 billion provide a safety net against immediate risks.
- Policymakers must focus on reforms to boost investor confidence and sustain FDI inflows.
