Foreign companies are putting more money into India, offering a bright spot for the country's balance of payments at a time of market turmoil and pressure on the rupee.
Net foreign direct investment (FDI) inflows rose to $13.8 billion in April to August 2026, the first five months of the fiscal year, from $9.6 billion in the same period a year earlier, according to Reserve Bank of India data reported by Business Standard on Friday, October 23.
The RBI said that "sustained higher gross FDI inflows" supported net flows, along with a slowdown in outward investment by Indian companies.
The full picture
Gross inward FDI, which includes equity capital, reinvested earnings and other capital, rose to $54.9 billion from $45.6 billion a year earlier. However, a significant portion of that was offset by money leaving the country. Repatriation and disinvestment by foreign investors, which occurs when they sell stakes or take profits home, totalled $23.4 billion. Outward FDI by Indian companies investing abroad was $17.7 billion.
Net FDI, the measure that matters most for the balance of payments, is gross inflows minus repatriation and outward investment.
August was a particularly strong month. Gross inward FDI was $11.5 billion, repatriation $3.8 billion and outward FDI $3.4 billion, resulting in net inflows of $3.3 billion. That compared with a net outflow of $103 million in August 2025. Net FDI inflows were $4.1 billion in July.
Where the money comes from
Singapore, Japan, Mauritius, the UAE and the United States were the largest sources of FDI, together accounting for about 81% of total inflows.
Singapore and Mauritius have long been leading sources of investment into India, partly because many global investors route money through holding companies in these jurisdictions, which have tax treaties with India. Japan is a major strategic investor, particularly in manufacturing, infrastructure and financial services. The UAE has become an increasingly important source, reflecting deepening economic ties and Gulf sovereign wealth funds' interest in India. US companies are significant investors in technology, consumer and financial services.
Where the money goes
Financial services, communication services, computer services and manufacturing together accounted for about 73% of FDI equity inflows.
Financial services have attracted large investments, including foreign stakes in Indian banks and non-bank lenders. Communication and computer services reflect investment in telecom, data centres and technology companies. Manufacturing investment has been supported by production-linked incentive schemes and efforts by global companies to diversify supply chains, particularly in electronics.
Why net FDI matters
For years, India's net FDI figures disappointed even as gross inflows held up, because rising repatriation by private equity and venture capital investors, who were exiting investments through IPOs and stake sales, and increasing outward investment by Indian companies offset new inflows. Net FDI fell to very low levels in fiscal 2025.
The improvement in fiscal 2027 so far suggests that gross inflows are rising faster than outflows. That is significant because FDI is generally considered a more stable form of foreign capital than portfolio investment, which can flow in and out quickly.
The broader context
The improvement in FDI comes at an important time. India has faced significant pressure on its external accounts this year. Oil prices above $110 a barrel have raised the import bill, foreign portfolio investors have sold Indian equities, and the rupee has weakened to around 95 per dollar. Foreign exchange reserves have fallen by $65 billion in six weeks.
Other inflows have helped. Deposits from non-resident Indians surged to $121.94 billion in April-August after the RBI introduced a swap facility for banks. Foreign investment linked to the Jio Platforms IPO has also supported the rupee in recent weeks.
Policy drivers
The government has taken steps to attract FDI, including liberalising rules in sectors such as insurance, defence and space, and offering incentives for manufacturing. Trade agreements, including with the United Kingdom and the European Union, and negotiations with the United States aim to deepen economic ties and investment flows.
At the same time, investors continue to cite challenges, including regulatory complexity, tax disputes and delays in land acquisition and approvals. Restrictions on investment from countries sharing a land border with India, introduced in 2020 and primarily affecting China, remain in place, though there have been discussions about easing them for some sectors.
What it means for business
For businesses, rising FDI signals continued confidence among global companies in India's long-term growth prospects, despite near-term volatility. Sectors attracting the most investment, such as financial services, technology and manufacturing, are likely to see expansion in capacity and jobs.
Outward FDI also tells a story. Indian companies have been investing abroad to acquire technology, access markets and build global operations. A slowdown in outward investment may reflect caution amid global uncertainty or a focus on domestic opportunities.
The private equity factor
Repatriation by private equity and venture capital investors has been a major factor in India's FDI figures. As Indian stock markets boomed in recent years, many investors exited holdings through IPOs and block deals, taking profits home. These exits are recorded as repatriation, reducing net FDI even though they reflect successful investments.
Some analysts argue that high repatriation is a healthy sign, demonstrating that foreign investors can make money in India, which encourages further investment. Others caution that it can mask weakness in new long-term commitments. The rise in gross inflows this year suggests that new investment is also growing.
Manufacturing's share
The government's production-linked incentive schemes, covering sectors such as electronics, pharmaceuticals, automobiles, textiles and solar modules, aim to attract both domestic and foreign investment in manufacturing. Electronics has been the most successful, with companies such as Apple's suppliers expanding production in India significantly. Apple India's revenue crossed ₹1 trillion in fiscal 2026, reflecting the scale of its expansion.
What comes next
Analysts will watch whether the improvement in net FDI is sustained through the rest of the fiscal year. Global economic conditions, interest rates and geopolitical developments will influence investment decisions, as will progress on trade agreements and domestic reforms.
For India, attracting stable, long-term foreign investment remains central to financing growth and reducing vulnerability to volatile capital flows. Sustained FDI growth would also help India finance its current account deficit with more stable capital, reducing reliance on volatile portfolio flows.
