Why in the News
Reserve Bank of India (RBI) data shows gross Foreign Direct Investment (FDI) inflows reached $30.7 billion in April-June 2026, the highest quarterly figure in fifteen years. Net FDI, which nets out repatriation and disinvestment by existing foreign investors, turned positive again in June 2026 at $1.3 billion, after a period of elevated repatriation had kept it depressed. Singapore, the Netherlands, the United States and Canada led the inflows, concentrated in manufacturing. The tension is between the strength of the gross inflow figure and the much smaller net figure, since heavy repatriation by existing foreign investors has been offsetting fresh inflows for several preceding quarters.
What does the data show?
- Fifteen-year high in gross inflows: Gross FDI of $30.7 billion in a single quarter is the highest recorded in fifteen years, reversing a period of relatively subdued inflows.
- Net FDI turns positive: Net FDI turned positive in June 2026 at $1.3 billion, after running negative or near zero in preceding months.
- Source and sector concentration: Singapore, the Netherlands, the United States and Canada were the leading source countries, with manufacturing the leading destination sector.
Why does the gap between gross and net FDI matter?
- Repatriation pressure: A large gap between gross and net FDI signals that existing foreign investors have been exiting or repatriating profits at a pace close to new inflows. This is a different signal from headline inflow growth alone.
- Policy implication: A durable improvement in net FDI, not gross inflows alone, is the more reliable indicator of investor confidence in staying invested in India over the medium term.
Gross FDI vs Net FDI
- Gross FDI: Fresh foreign investment entering India.
- Net FDI: Gross inflows after accounting for repatriation and disinvestment.
- A large gap between gross and net FDI indicates that substantial investment is also flowing out through existing investors.
- Therefore, high gross FDI does not necessarily mean high net FDI.
“[2022] Which one of the following situations best reflects “Indirect Transfers” often talked about in media recently with reference to India ?
(a) An Indian company investing in a foreign enterprise and paying taxes to the foreign country on the profits arising out of its investment
(b) A foreign company investing in India and paying taxes to the country of its base on the profits arising out of its investment
(c) An Indian company purchases tangible assets in a foreign country and sells such assets after their value increases and transfers the proceeds to India
(d) A foreign company transfers shares and such shares derive their substantial value from assets located in India
