Modi vs UPA: How India Went From Attracting FDI to Losing Out

Instead of cushioning the forex reserves, the net FDI is making them vulnerable, writes Subhash Chandra Garg.

The net FDI flows have, for long, contributed to building India’s foreign exchange reserves. These flows have turned into a major vulnerability for the reserves now.

(Photo: Kamran Akhter/The Quint)

The flow of inward foreign direct investment (FDI) has distinctly slowed down—from $56.23 billion in 2021-22 (the highest during the Modi era) to $40.72 billion in 2025-26. The lowest was in 2024-25 at $29.13 billion in 2024-25. 

The outward FDI (or ODI) has moved in the reverse direction. It rose from $10.97 billion in 2021-22 (the lowest being $4.03 billion in 2014-15) to $33.84 billion in 2025-26 (the highest during the Modi period). 

Consequently, the net FDI [FDI-ODI] flows have become quite precarious and low:

• In 2025-26, it was only $6.95 billion

• At its highest in 2020-21, the net FDI was $43.96 billion

• In 2024-25, the net FDI was minuscule—barely $0.96 billion

The net FDI flows have, for long, contributed to building India’s foreign exchange reserves. These flows have turned into a major vulnerability for the reserves now. Has India become a Less Favoured Nation for global FDI? Why are Indians, on the other hand, investing abroad instead of investing in India?

Will the net FDI, like portfolio flows, become a constant source of worry for the forex reserves?

FDI Exit at Faster Pace

The inward FDI comprises primarily three components:

1. The fresh FDI inflows

2. The retained earnings attributable to the existing FDI stock

3. Repayment or disinvestment of the existing FDI stock

A new investment by Amazon in a data centre company in India is a fresh FDI. The undistributed profits attributable to Suzuki’s existing investment in Maruti-Suzuki adds to the FDI India stock. Sale by Holcim of its investment in the ACC to Adani is repatriation of the existing FDI. 

Fresh FDI + retained earnings – repatriation/disinvestment = the inward FDI in a year.

Fresh FDI plus retained earnings are usually represented in India as gross FDI. The gross FDI minus repatriation constitute the inward FDI. In 2024-25, the gross FDI inflows amounted to $80.615 billion. As repatriation of $51.486 billion took place during the year, the inward FDI was only $29.129 billion. 

The Reserve Bank of India (RBI) data reveals the highly precarious nature of FDI inflows during Modi 1.0 and 2.0 (2013-14 to 2023-24) compared to the United Progressive Alliance (UPA) period (2003-04 to 2013-14). 

In 2003-04, India received fresh FDI of $4.32 billion, and as there was nil repatriation, the gross FDI flows amounted to $4.32 billion. Fresh FDI inflows rose to $36.05 billion in 2013-14, recording a highly impressive compounded annual growth rate (CAGR) of 23.63 percent. The inward FDI flows (net of repayments) at $30.76 billion in 2013-14 also yielded an impressive annual growth of 21.68 percent. 

In contrast, during Modi 1.0 and 2.0, the gross FDI flows could grow to $70.94 billion (in 2023-24), resulting in an CAGR of only 7 percent. The inward FDI ($26.47 billion in 2023-24), in fact, recorded a disappointing growth of (-)1.49 percent, as repatriation ($44.472 billion in 2023-24) grew at a higher rate of 23.74 percent.

It can be argued that annual FDI inflows are quite volatile and may distort the real trend of growth. To cancel out the effects of year-to-year volatility, I took a three-year moving average to check results. There is not much difference in the performance. 

The UPA period recorded gross FDI and inward FDI growth of 22.35 percent and 19.33 percent, respectively. The Modi era's gross FDI and inward FDI growth remained much subdued—at only 6.87 percent and 3.24 percent, respectively. 

ODI Flows Made It Worse

Outward FDI, or the ODI, was quite small in 2003-04 when the Manmohan Singh government took office ($1.934 billion). There was a big spurt of ODI during 2006-07 to 2010-11 (as high as $19.365 billion in 2008-09). With the ODI declining from 2011-12, the ODI of $9.20 billion in 2013-14 yielded a CAGR of 16.88 percent, a high growth still by any standard, though much less than the FDI growth of 21.68 percent.

Consequently, the net FDI growth during the UPA period became better at 24.61 percent. Even on a three-year moving average basis, a net FDI growth of 19.89 percent was something India could legitimately crow about, leading to analysts drawing international comparisons whether the Indian elephant would triumph the Chinese dragon. 

During the Modi era, the ODI did not grow menacingly until 2023-24 ($16.68 billion), recording annual growth of 6.13 percent, making the inward FDI growth of (-) 1.49 percent worse at (-)7.59 percent. On a three-year moving average basis, the inward FDI growth of 3.24 percent in Modi 1.0 and 2.0 went down to 1.87 percent.   

The ODI outflows became much worse in the first two years of Modi 3.0, rising to $28.171 billion in 2024-25 and $33.844 billion in 2025-26. This made the net FDI virtually disappear in these two years ($0.958 billion in 2024-25 and $6.948 billion in 2025-26). 

The net FDI situation has become quite an embarrassment for Indian policy makers and analysts. Instead of cushioning the forex reserves with positive capital outflows, the net FDI is making the reserves more vulnerable. 

Less Favoured Nation

It is instructive to look at the global trend of FDI, ODI, FDI stock, and ODI stock to see how India is faring compared to the world, including the US, China, and Vietnam. Global FDI flows have been stabilising for some time now. FDI and ODI are almost equal at the global level as FDI for a country is ODI for another. The country-wise trends, however, vary. 

The US remains a significant recipient of FDI and investor of ODI. China has turned into an exporter of ODI. Vietnam continues to be the FDI outperformer. India has seen weaker growth on the FDI front, but is registering explosive growth on the ODI front. 

For making this analysis, I have used the United Nations Conference on Trade and Development (UNCTAD) database (almost identical to the Organisation for Economic Co-operation and Development and International Monetary Fund databases). 

The global FDI flows grew from $549.53 billion in 2003 to $1,514.67 billion in 2013 and $1,624.26 billion in 2025, recording an annual growth of 10.67 percent during the period coinciding with the UPA period and 0.58 percent during 12 years of the Modi government.

Indian FDI inflows grew from $4.32 billion in 2003 to $28.20 billion in 2013 and to $38.89 billion in 2025, recording CAGR of 20.63 percent and 2.72 percent, respectively, during these two periods. China recorded CAGR of 8.76 percent and (-)2.72 percent while Vietnam had 19.9 percent and 7.13 percent, respectively. On the FDI front, Vietnam is the best performer.

Indian ODI flows recorded a growth of (-)1.10 percent during the period coinciding the UPA rule, and as high as 29 percent during the Modi era. The global ODI growth during the corresponding period was 11.5 percent and 1.45 percent, respectively. The Chinese ODI growth was 43.79 percent during the UPA period—and still more than the global ODI growth (4.09 percent) during the period coinciding with Modi era. 

India did not like the FDI until economic reforms were initiated in 1991. 

The UNCTAD database has FDI data from 1990. In 1990, India received only $236.7 million of FDI (0.12 percent of the global FDI of $204.89 billion) and its aggregate FDI stock totalled barely $1.657 billion. As the global stock of the FDI was $2,254.90 billion in 1990, India’s share was a miniscule 0.08 percent. 

India’s FDI inflows and stock started growing after 1991—reaching 0.79 percent and 0.36 percent of global flows and stock, respectively, in 2003. Both parameters shot up thereafter. In 2008, India’s share of FDI ($47.10 billion) was as high as 3.23 percent of the total global FDI inflows, raising its stock of the global FDI to 0.84 percent. At the end of the UPA period in 2013, India’s share of the inward FDI was 1.86 percent and its share of FDI stock 0.86 percent. 

The FDI inflows were much higher, as a proportion of the global FDI, during Modi 1.0—commanding a share of 3.27 percent in 2018, and raising India’s share in global FDI stock to 1.16 percent. The journey thereafter has been downhill. India’s share in global FDI inflows reduced to 1.77 percent in 2024 (stock 1.08 percent). India’s share of global FDI stock fell further to 0.97 percent in 2025. 

India is clearly receiving a smaller share of the global FDI flows currently.

Weakness in New Industrial FDI Explains It

The global FDI is moving the most in new industrial economy sectors — semiconductor chips, most importantly AI GPUs, and energy transition technologies, including batteries, solar cells, and electric mobility. Unfortunately, India is not at all a leader in these sectors. In such circumstances, it is quite understandable that India is not the FDI destination these days.

US companies are leaders in semiconductor chips whereas China is an undisputed leader in energy transition and electric mobility. Again, India is not doing itself a favour by barring Chinese companies to invest FDI in these sectors in India.

Given these realities, the FDI inflows in India will most likely see a highly subdued growth in the years to come. On the contrary, Indian companies are quite keen in making ODI investments, particularly in the US, in traditional sectors—oil refinery, steel, and so on. 

As ODI keeps growing, the net FDI will come further under pressure. The RBI has difficult days ahead.

(Subhash Chandra Garg is the Chief Policy Advisor, SUBHANJALI, and Former Finance and Economic Affairs Secretary, Government of India. He's the author of books such as 'The $10 Trillion Dream Dented, 'We Also Make Policy', and 'Explanation and Commentary on Budget 2025-26'. This is an opinion piece, and the views expressed above are the author’s own. The Quint neither endorses nor is responsible for the same.)