Government lays out action plan to boost FDI, make compliance easier

ODI refers to investments made by Indian entities and residents overseas.

The Centre's key ministries are preparing a coordinated action plan to revive investor sentiment and boost capital inflows following a 98.4 percent drop in net foreign direct investments (FDI) in May from the year-ago period.

The finance ministry and the department for promotion of industry and internal trade (DPIIT) will jointly lead the initiative in tandem with some sectoral ministries, government officials said.

“The finance ministry will work with DPIIT... there’s a need for concerted action,” one of the officials said, adding investor confidence cannot be left to a single ministry.

The plan includes regular engagements with global investors to address their concerns, further simplifying processes as well as easing compliances to boost FDI inflows, the officials said.

India needs to actively reaffirm its status as a reliable, competitive, and long-term investment destination, especially when capital is limited and global choices are plenty, they said. Ministries are working on a joint strategy to not just retain attention but reassert India's position in the investor priority list globally.

Multiple ministries are aligning to engage investors, particularly in light of rising global risk aversion.

The proposed strategy includes conducting regular meetings with investors and clearer messaging on India’s policy stability and long-term economic vision.

“What is happening is people are pulling out, ODI is increasing. Granularly one has to see why ODI is rising. Are they taking out money to invest outside, which is a choice or are they only repatriating profits,” the official said. The official was referring to outward direct investment which is made by Indian entities and residents overseas.

Net FDI inflows fell to $0.04 billion in May against $ 2.2 billion in May 2024. Outward FDI rose more than 16 percent to $2.1 billion in the period.

Big exits through IPOs

The sharp drop reflects significant exits through blockbuster IPOs, where foreign investors monetised holdings in India’s roaring equity markets.

Long-term investors cashed out through major listings such as Hyundai Motor India's $3.3 billion IPO, structured entirely as an offer-for-sale by its South Korean parent. The proceeds flowed overseas, not into the Indian unit.

Analysts and RBI commentary have underscored that these large exits -- alongside the rise in outward direct investment -- have substantially increased repatriation, dragging net FDI to record lows in FY25, down approximately 96.5 percent year-on-year.

“Singapore, Mauritius, the UAE and the US together accounted for more than three-fourths of total FDI inflows in May 2025, with manufacturing, financial and computer services being the top recipient sectors. On the other hand, both repatriation of FDI and outward FDI increased on a y-o-y basis. Top sectors for outward FDI included transport, storage and communication services, manufacturing, and financial, insurance and business services, and the major destinations included Mauritius, the US and the UAE,” the RBI said in its monthly bulletin for July.

The government’s investor engagement plan is seen as a critical step to counter rising global risk aversion and reinforce India’s attractiveness as a long-term investment destination.

The finance ministry is particularly worried about rising ODI that has led to the fall in net FDI.

"Investors need to be constantly reminded. The big ones, either they come to you or you have to keep engaging. There’s a need for concerted action – to keep touching base with investors and continue the dialogue,” the first official said.