Strong gross FDI inflows have not translated into commensurate net FDI for India. Examine the role of repatriation and outward FDI, and suggest measures to improve capital retention.

Net FDI is gross inflows minus two outflows: repatriation or disinvestment by foreign investors, and outward FDI by Indian firms. In FY25, gross inflows of about $81 bn left net FDI near $1 bn [6]. In August 2026, $11.1 bn of gross inflows yielded only $3.3 bn net [1]. India's problem is keeping capital, not attracting it.

Role of repatriation

• Main source of leakage: the Economic Survey 2024-25 notes that a surge in repatriation held back net FDI [4].
• Persistent pressure: August 2026 outflows of $7.7 bn came mainly from foreign firms repatriating, not from outward FDI [1].
• Market maturity: exits through PE/VC sales, IPO offer-for-sale and stake sales show that investors can leave freely, and easy exit encourages entry.
• BoP cost: only capital that stays helps finance the CAD. Every repatriated dollar puts pressure on the rupee, whatever the reason for the exit.

Role of outward FDI

• Indian firms going global through overseas acquisitions and subsidiaries reduce the net figure even when foreign interest is stable.
• It moves with the cycle: outward FDI moderated in August 2026, which lifted net FDI without any extra foreign money arriving [1].
• Not necessarily negative: it shows corporate competitiveness. Low net FDI caused by outward investment needs a different policy reading from low net FDI caused by exits.

Measures to improve capital retention

• Reward reinvestment: link PLI/Make in India incentives to reinvesting earnings. Manufacturing is already among the top three FDI sectors [1].
• Policy certainty: keep up the liberal regime of 100% automatic route in most sectors [3], with stable tax rules and quick dispute resolution.
• Better data: the RBI could break repatriation into PE exits, stake sales and capital returns, applying the 10% FDI threshold under FEMA 20(R) consistently [2]. This would separate healthy profit-taking from loss of confidence.
• Clean up tax treaties: the US, Singapore and Mauritius supply about 72% of inflows [1]. Building on the 2016 India–Mauritius DTAA Protocol [5] would curb round-tripping, which inflates both inflows and exits.
• Patient capital: attract long-term investors such as sovereign and pension funds that hold stakes for longer periods.

Repatriation and outward FDI are signs of a maturing economy, but together they erode net capital. Rewarding reinvestment, keeping policy predictable and improving data can turn India's attractiveness into lasting capital formation, supporting SDG 8 (decent work and economic growth) and Viksit Bharat goals.