India has spent decades trying to attract foreign investment. Yet a closer look at where the money comes from, which industries receive it and which states benefit reveals a more complicated story.
Foreign capital continues to flow into the country, but much of it is concentrated in a relatively small part of the economy. At the same time, Indian companies are investing growing sums of money overseas.
These parallels form the focus of “India’s Inward and Outward Investment Flows: Concentration, Imbalances, and Policy Strategy”, a research paper by AM Sherry, Department of Economic Affairs (DEA) chair professor (financial markets) and Saurabh Maheshwari, consultant at the DEA-Arun Jaitley National Institute of Financial Management Research Programme, published in Economic & Political Weekly. Using official investment data, the authors examine how foreign capital enters India and how Indian investment moves abroad.
1 October 2026
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Their findings raise important questions about whether the country is making the most of its growing engagement with the global economy.
Concentrated They Come
The headline numbers suggest considerable progress. India received approximately $1.07trn in cumulative foreign direct investment (FDI) between April 2000 and March 2025. Such investment can bring money, technology, management expertise and access to international markets. However, the benefits depend partly on where the capital comes from and where it goes.
The paper finds that nearly 49% of cumulative inflows came from Mauritius and Singapore. The 10 largest source countries accounted for around 86% of the total. This concentration makes the composition of investment as important as its overall size.
The figures also require careful interpretation because investment routed through financial centres may not always reveal the ultimate origin of the capital.
Moreover, the pattern of concentration becomes equally striking when the authors examine the industries that receive the capital. The 10 largest sectors together attracted nearly 67% of investment, with services accounting for 16.3% of cumulative inflows, while software and hardware received 15.2%.
The policy question is how India can spread investment more widely without weakening the economic strengths of its leading destinations
These figures point to an uneven distribution of foreign capital. Some industries have become major destinations for overseas investors, while others have attracted much less.
For policymakers, the challenge is to understand whether this pattern supports the wider transformation of the Indian economy, particularly the expansion of manufacturing and the creation of productive employment.
Add to that the changing trend of annual flows. Before moderating, FDI equity inflows peaked at $59.63bn in 2020–21. Yet between 2021–22 and 2024–25, inflows into software and hardware fell by approximately 46%. The automobile industry, on the other hand, recorded a decline of more than 77%, while pharmaceuticals saw a fall of around 37%. Services, however, registered an increase from $7.13bn to $9.35 bn.
These contrasting movements show why aggregate figures can be misleading. A country may continue to attract substantial foreign investment even as particular industries experience sharp declines. Understanding these shifts is essential if India wants to build durable industrial capabilities rather than rely on the performance of a few favoured sectors.
Geography of Investment
Foreign investment into India is also concentrated geographically. Maharashtra, Karnataka and Gujarat together accounted for more than two thirds of cumulative FDI equity inflows. Maharashtra received approximately 31%, Karnataka 20% and Gujarat 16%.
Their advantages are understandable. Established industrial networks, skilled workers, better infrastructure and access to large markets make these states attractive to investors. Yet, the concentration also highlights the difficulties faced by regions that lack similar advantages.
The policy question is how India can spread investment more widely without weakening the economic strengths of its leading destinations. Better transport links, reliable power, efficient administration and stronger local industrial ecosystems could help other states compete for capital. Financial incentives alone may struggle to overcome deeper structural disadvantages.
Double Whammy
With this, the paper moves on to look at the other side of the investment relationship, where Indian companies are increasingly investing abroad, reflecting their ambitions to become part of international networks.
Actual outward direct investment outflows rose from $12.36bn in 2014–15 to $25.81bn in 2024–25. Cumulative actual outflows reached approximately $335.9bn between April 2000 and May 2025.
Cumulative investment commitments were considerably higher, at around $785.9bn. The distinction matters because commitments do not necessarily translate into completed financial outflows.
More importantly, although outward investment can strengthen Indian businesses by helping them access foreign markets and support their competitiveness, its implications for domestic development deserve closer examination, especially when inward investment is moderating in important sectors.
The comparison between the two flows is one of the paper’s most useful contributions. It encourages readers to look at foreign capital as a two-way street.
In the end, Sherry and Maheshwari make a compelling case for examining inward and outward investment within a common policy framework. India’s objective should be to understand how both flows contribute to competitiveness and growth.
The focus, then, should move beyond how much investment India attracts to how far the dual flow of capital contributes to the domestic economy.
