From $10.1B to $353M: The Great Net FDI Collapse

India's Net foreign investment (FDI) crashed by more than 96%. From $10.1 billion in 2023-24 to just $353 million ($0.4 billion) in 2024-25. Despite this highest decline in at least a decade, there are not enough concerns about the country's economic landscape; rather, there is a shifting of focus from "Net FDI" to "Gross FDI." This article unpacks the country's condition of Gross FDI and Net FDI, and sheds light on the impacts of MSMEs from the plummet of Net FDI.

Paradox of Net & Gross FDI

To clarify the core distinction, we must first differentiate between Net and Gross FDI. Gross FDI refers to the total amount of foreign investment flowing into a country, while net FDI subtracts repatriation (sending money or profits back to one's home country) and outward investments. 

It is true, the gross FDI has remained strong, rising to $81 billion in 2024-25 from the previous $71.4 billion in 2022-23. But the net FDI was dragged down due to the foreign companies operating in this market increasing repatriation and Indian companies' investment in foreign countries.

As per the RBI's released monthly bulletin, the net FDI stood at $44 billion in the pandemic year of 2020-21, it fell to $38.6 billion the next year. In 2022-23, it dropped to $28 billion, in 2023-2024 it crashed to $10.1 billion, and finally to just $353 million ($0.4 billion) in 2024-25.

Current FDI Scenario and RBI

RBI acknowledged in its report that "Net FDI US$0.4 moderated during 2024-25 from US$10.1 billion a year ago, which reflects the rise in net outward FDI and repatriation FDI."

Foreign companies' disinvestment and repatriation in India grew to $51.5 billion, 2024-25, the foremost in at least a decade, up from $44.5 billion in the previous year.

Indian companies invested $29.2 billion in other countries, 75% higher than the previous year.

The report added, "This is a sign of a mature market where foreign investors can enter and exit smoothly, which reflects positively in the Indian economy."

On gross FDI, the RBI report stated, "Gross FDI inflows remain intense in financial services, manufacturing, electricity and other energy, and communication services sectors, with a share of more than 60%." The report continues, "Singapore, Mauritius, the UAE, the Netherlands, and the US accounted for more than 75% of the flows during this period."

Impact on MSMEs

The 96% decline of FDI in India is poised to have multifaceted implications for the country's Micro, Small, and Medium Enterprises (MSMEs).

MSMEs frequently depend on a strong financial ecosystem, bolstered by foreign direct investment (FDI), to secure affordable credit. The steady drop in net FDI–crashing to $353 million, signals a decline in available foreign capital, potentially restricting liquidity in the financial system. This can lead to higher borrowing costs and reduced credit availability for MSMEs, obstructing their operational and expansion capabilities.

Disruption in Supply Chains: Most of the MSMEs function as ancillary units (small enterprises that provide goods or services to larger industries) to larger corporations that benefit directly from FDI.  A decline in FDI can create obstacles for larger firms in operations, and hence, they can scale back, which can lead to a decrease in demand for MSME products and services. And these ripple effects can disrupt supply chains and adversely affect the revenue streams of MSMEs dependent.

The negative growth of FDI can slow the pace of technological advancement among MSMEs, which can affect their competitiveness in both domestic and international markets.

FDI is more than just capital, it fosters innovation, technological advancement, and provides employment. That is the reason the government itself acknowledges describing FDI as "transformative" and crucial for "non-debt financial resources and employment generation."

And the MSME sector is the backbone of the Indian economy, it is a significant employment generator. A decline in FDI can lead to a reduction in business activities, potentially resulting in joblessness.