Return on inward FDI in India remains robust: Care Ratings

“We feel the average FDI returns in India remain attractive, with the country ranking among the top countries on a risk-adjusted return basis. Emerging sectors like semiconductors, electric vehicles, battery storage, and data centres are becoming increasingly attractive destinations for FDI,” the rating agency said in a note.

Looking ahead, India’s ability to attract stable, diversified FDI will be strengthened by continued reforms to its financial and regulatory frameworks and by a focus on improving infrastructure and reducing logistics costs, it observed.

Recent developments like the introduction of the new and simplified labour code also represent a step in the right direction. Further, there is a need for deeper global linkages and a pragmatic approach to engaging new investment partners, while continuing to enhance the ease of doing business, Care Ratings noted.

In the first half (H1) of fiscal 2025-26 (FY26), gross FDI inflows into India increased by 16 per cent year on year (YoY) to $50 billion, while profit repatriation declined by 5 per cent YoY to $26 billion.

FDI outflows also moderated sharply, rising by 34 per cent YoY in H1 FY26 compared with an 87 per cent YoY increase in H1 FY25. As a result of the decline in profit repatriation and the moderation in outflows, net FDI inflows strengthened to $7.6 billion in H1 FY26.

“Despite a slowdown in net FDI inflows amid increased profit repatriation, our analysis indicates that the return on inward FDI in India remains robust,” Care Ratings said.

India’s average return on inward FDI remains robust at 7.3 per cent, outperforming many emerging and developed economies. While a few emerging markets, such as Bangladesh, Nigeria, and Malaysia, report higher average returns, these are accompanied by significantly greater volatility, it added.

ALCHEMPro News Desk (DS)