India witnessed a dramatic 98 percent fall in net Foreign Direct Investment (FDI) in May 2025, with inflows dropping sharply and repatriation of investments by foreign companies surging, according to data released by the Reserve Bank of India (RBI).

Net FDI in May 2025 fell to just 35 million dollars, compared to 1.73 billion dollars during the same month last year, marking one of the steepest monthly declines in recent history. The sharp fall reflects a double hit of weak gross inflows and aggressive repatriations by foreign investors.

Sharp rise in repatriations dents net flows

According to the RBI data, repatriations and disinvestment by foreign companies stood at 5 billion dollars in May 2025. This is one of the highest levels of outflows recorded in a single month, and significantly higher than the average monthly repatriation over the past year.

Repatriation refers to the return of capital or profits by foreign investors back to their home countries, and typically indicates either profit booking, strategic exits, or confidence erosion in the domestic investment climate.

This trend has outpaced fresh inflows, leading to a significant contraction in net FDI figures. For comparison, gross FDI inflows in May 2025 were around 5.04 billion dollars, which were offset almost entirely by repatriations, resulting in the net figure collapsing to 35 million dollars.

Global uncertainty, election effects weigh on inflows

Experts attribute the plunge in net FDI to multiple overlapping factors. First, global capital flows have been highly volatile, driven by continued monetary tightening in advanced economies, geopolitical tensions, and slowing global growth.

Second, foreign investors are reportedly adopting a wait-and-watch approach in India due to recent general elections, changes in government leadership in some states, and ongoing debates about policy continuity.

"With elections just concluded and a few key reforms under review, some global investors have chosen to delay commitments or book profits from their existing positions," said a Mumbai-based fund manager.

Sector-wise trends point to withdrawal from tech and energy

The sectors most affected by this repatriation include information technology, renewable energy, and consumer goods. Several large foreign private equity firms and multinational corporations have sold stakes in Indian startups and joint ventures, citing global portfolio rebalancing.

In addition, energy sector JVs saw significant capital withdrawal due to delays in power purchase agreements and slow project clearances.

Sources indicate that some Middle Eastern sovereign funds and European pension funds withdrew their capital after achieving their expected internal returns, contributing to the May 2025 repatriation spike.

Comparison with previous trends

India has typically attracted over 60 billion dollars in annual net FDI over the last few years, with monthly net flows averaging around 4–5 billion dollars. The 35 million dollar net inflow in May 2025 is among the lowest monthly FDI figures in over a decade, excluding pandemic-hit months.

FDI is a critical source of long-term capital, and unlike foreign portfolio investment (FPI), it involves actual asset creation, technology transfer, and employment generation. Hence, declines in net FDI are more concerning, especially if they sustain over several months.

Government’s response and outlook

The Ministry of Finance has not yet issued an official statement, but senior government officials have indicated that a detailed FDI revitalisation strategy is being planned, including fast-track approvals, relaxation of sectoral caps, and special incentives for strategic industries.

The Department for Promotion of Industry and Internal Trade (DPIIT) is also expected to initiate discussions with foreign chambers of commerce and investor councils to better understand the concerns behind recent disinvestments.

Despite the May 2025 setback, analysts say that India’s long-term fundamentals remain attractive, particularly in manufacturing, defence, semiconductors, and digital services. However, timely policy actions will be needed to reassure investors and reverse the current trend.

Conclusion

The steep decline in net FDI in May 2025 sends a cautionary signal for India’s capital account stability. With global uncertainty looming and foreign investors rebalancing their exposure to emerging markets, India must act swiftly to restore investor confidence, address repatriation concerns, and reignite foreign direct inflows.

If this trend continues over the next few months, it could have implications on India’s balance of payments, affect the rupee’s exchange rate stability, and potentially influence the RBI’s interest rate outlook.

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