Foreign Direct Investment in India: What Has Changed in the Last Five Years?
Foreign Direct Investment (FDI) has become an increasingly important part of India’s economic growth story, bringing not only foreign capital but also technology, global supply-chain integration, manufacturing capacity and employment opportunities. Over the last five financial years, India’s FDI landscape has gone through an interesting transformation. The country moved from the post-pandemic investment surge to a period of moderation and has now returned to strong growth. DPIIT data shows that India received total FDI inflows of approximately USD 84.84 billion in FY 2021–22, USD 71.36 billion in FY 2022–23, USD 71.28 billion in FY 2023–24, USD 80.62 billion in FY 2024–25 and a provisional USD 94.53 billion in FY 2025–26. This means India attracted more than USD 402 billion in total FDI over these five financial years alone. FY 2025–26 represents a particularly significant recovery, with total FDI increasing by around 17% over the previous year and reaching its highest level in this five-year period.
One of the biggest changes during this period has been the continued liberalisation of sectors that were traditionally more restricted for foreign investors. In 2021, India increased the permissible foreign investment limit in insurance companies from 49% to 74%, while also allowing greater foreign ownership subject to regulatory safeguards. Telecom was opened to 100% FDI under the automatic route, reducing the requirement for prior government approval in many cases. In 2022, foreign investment of up to 20% in LIC was permitted through the automatic route. The space sector was significantly liberalised in 2024, allowing 100% FDI with different automatic-route thresholds depending on the activity: up to 74% automatically for satellite manufacturing, operations and related segments, up to 49% automatically for launch vehicles and spaceports, and up to 100% automatically for manufacturing certain components and subsystems. The insurance sector was liberalised further through changes announced in 2025 and subsequently legislated, raising the foreign investment limit to 100%. These changes indicate a broader shift in India's FDI strategy—from protecting large parts of strategic industries to selectively inviting global capital while maintaining regulatory oversight in sensitive areas.
Another important change is the nature of the investment India is trying to attract. Five years ago, India's attractiveness was heavily associated with its enormous consumer market, IT services sector and availability of relatively lower-cost skilled talent. Those advantages still remain, but the investment proposition has expanded considerably. India is increasingly positioning itself as a global manufacturing and supply-chain destination. Production-linked incentive programmes, growth in electronics manufacturing, semiconductor initiatives, renewable energy investments, data centres, electric vehicles, digital infrastructure and the broader "China+1" supply-chain strategy have increased international interest in establishing manufacturing and operational capacity in India. At the same time, services continue to remain a major FDI magnet. In FY 2024–25, the services sector accounted for around 19% of FDI equity inflows, followed by computer software and hardware at approximately 16%, while trading accounted for around 8%. Services-sector FDI itself rose more than 40% during that financial year, demonstrating that India's technology and services capabilities continue to complement its manufacturing ambitions rather than being replaced by them.
The investment environment has also become structurally easier in several areas. India now operates largely through a negative-list approach to FDI, meaning foreign investment is generally allowed unless a sector is specifically restricted or subject to conditions. More than 90% of FDI inflows have been entering through the automatic route, according to the government, reducing the need for individual approvals for most investments. Government approval processes have increasingly moved to digital platforms such as the National Single Window System, while regulatory reforms, infrastructure development, logistics improvements and tax changes have been aimed at making India more competitive for international businesses. The abolition of the angel tax in 2024 and changes affecting taxation of foreign companies also strengthened the investment environment, particularly for startups, technology businesses and international investors evaluating India as a long-term base. However, restrictions continue in strategically or politically sensitive areas, and investments originating from countries sharing a land border with India remain subject to additional government scrutiny.
The most important development, therefore, is not simply that India is receiving more foreign investment; it is that the purpose and structure of FDI are gradually changing. India is moving from being viewed primarily as a large consumption market and outsourcing destination toward becoming a combination of consumer market, technology hub, manufacturing base and strategic alternative in global supply chains. The numbers have not moved upward every single year—FDI declined in FY 2022–23 and remained broadly subdued in FY 2023–24—but the rebound to USD 80.62 billion in FY 2024–25 and the provisional USD 94.53 billion recorded in FY 2025–26 suggests that investor momentum has strengthened considerably. India now faces a different challenge: converting headline investment commitments into factories, technology transfer, exports, employment and sustainable economic activity. If policy stability, infrastructure expansion, regulatory simplification and manufacturing competitiveness continue improving, the next phase of India's FDI story may be less about whether global businesses want exposure to India and more about how much of their global operations they are willing to build from India.