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Net FDI hits $7.35 billion in July, a five-year high

Net foreign direct investment into India rose to $7.35 billion in July, the most in any month since May 2021, even as foreign investors kept selling Indian stocks and bonds.

What happened

Net foreign direct investment (FDI) into India rose to $7.35 billion in July, RBI data released late on Friday showed. That is the highest monthly figure since May 2021's $8.80 billion. On a gross basis, FDI was $14.58 billion, the third-highest in six years. Against July 2025, net and gross FDI were up 64% and 24%. Communication, financial and computer services drew more than four-fifths of equity inflows. Mauritius, the UAE and the US supplied about 70% of them.

Context

Attracting foreign capital has not been India's problem. Gross FDI rose 17% to $97 billion in 2025-26. The trouble is what is left after two deductions: money foreign companies take back out, and money Indian firms invest abroad. Those two have grown fast enough that 2024-25 and 2025-26 together produced a net inflow of just $7.7 billion. July reversed both legs at once. Repatriation fell 16% to $3.84 billion, while outward FDI by Indian companies rose 26% to $3.39 billion.

Why it matters

Net FDI is the part of foreign capital that buys factories, offices and equipment rather than paper. It does not leave in a week. That makes it the steadiest way to fund a current account deficit, and the difference between gross and net FDI is a better read on India's pull than the gross headline. The contrast this year is sharp: net FDI in April-July was $13.43 billion, up 38%, while foreign investors sold $6.54 billion of Indian stocks and bonds over the same financial year, after $16.59 billion of sales in 2025-26. Stable money is arriving while hot money leaves.

Impact for India

  • Rupee: A larger stable inflow cushions the currency, which closed at 95.82 to the dollar on Friday, not far from its all-time low of 96.96.
  • RBI: The concessional swap window for FCNR(B) deposits has drawn money in over the last four months, giving the central bank more room on the external front.
  • Services exporters: Communication, financial and computer services took more than four-fifths of equity inflows, deepening capital in India's strongest export sector.
  • Indian multinationals: Outward FDI of $3.39 billion in July, two-thirds of it to Singapore, the UK and the UAE, shows domestic firms buying capacity abroad.
  • Domestic markets: Equity and debt still face foreign selling of $6.54 billion so far in 2026-27, so the FDI recovery does not fix portfolio outflows.

Key data

Net FDI, July 2026: $7.35 billionUp 64% from July 2025Highest since May 2021's $8.80 billion
Gross FDI, July 2026: $14.58 billionUp 24% from July 2025Third-highest in six years
Net FDI, April-July 2026-27: $13.43 billionUp 38% year-on-year
Repatriation by foreign companies, July 2026: $3.84 billionDown 16% year-on-year
Foreign selling of Indian stocks and bonds, 2026-27 so far: $6.54 billionAfter $16.59 billion of sales in 2025-26

Concepts

Net FDIGross foreign direct investment minus the money foreign investors repatriate and minus the direct investment residents make abroad.July's gross FDI of $14.58 billion fell to $7.35 billion once repatriation and Indian firms' outward investment were taken out.
RepatriationMoney a foreign investor takes back out of a host country, either by selling a stake or remitting past earnings.Repatriation of $3.84 billion in July was 16% lower than a year earlier, which is most of why net FDI jumped.
Foreign portfolio investmentPurchases of shares and bonds that give no management control and can be sold quickly.Portfolio money went the other way, with $6.54 billion of net selling so far in 2026-27.
FCNR(B) depositA foreign currency deposit a non-resident Indian holds with an Indian bank, where the bank carries the exchange-rate risk.The RBI's concessional swap window on these deposits has pulled in foreign currency over the last four months.

Theory lens

Open-economy saving-investment identity — a country that invests more than it saves must run a current account deficit, and that gap has to be financed by net capital inflows from abroad. Not all financing is alike. Net FDI is the most durable leg because it is tied to physical assets rather than tradable paper. July's $7.35 billion net inflow, set against $6.54 billion of foreign selling in stocks and bonds so far in 2026-27, shows the durable leg strengthening while the volatile leg drains.

Historical parallel

May 2021 was the last month with a higher net FDI reading, at $8.80 billion. The years after ran the other way. 2024-25 and 2025-26 together delivered a net inflow of just $7.7 billion, less than a single strong month, because repatriation and outward investment by Indian firms kept eating into a gross number that itself kept rising to $97 billion in 2025-26. July is the first clear sign of that squeeze loosening.

Stakeholders

Gains: RBIA five-year-high net FDI print eases the financing burden on reserves and the rupee.
Gains: Communication, financial and computer services firmsThey received more than four-fifths of July's equity inflows.
Gains: Indian companies investing abroadOutward FDI rose 26% to $3.39 billion, mostly into Singapore, the UK and the UAE.

Practice Question — from the story

With reference to foreign direct investment into India, consider the following statements:

  1. Net FDI is arrived at after adjusting gross FDI for investments repatriated by foreign companies and overseas investments made by Indian companies.
  2. India's gross FDI rose 17% to $97 billion in 2025-26.

Which of the statements given above is/are correct?

  1. 1 only
  2. 2 only
  3. Both 1 and 2
  4. Neither 1 nor 2
Reveal answer & explanation

Answer: Both 1 and 2

  • Statement 1: Correct because net FDI is calculated after adjusting gross FDI for investments that are repatriated by foreign companies and overseas investments made by Indian companies.
  • Statement 2: Correct because gross FDI rose 17% to $97 billion in 2025-26.

Therefore, the correct answer is Both 1 and 2.

Concept check — test your understanding

Why do economists treat net foreign direct investment as a more dependable way to finance a current account deficit than foreign portfolio investment?

  1. Net FDI is recorded in the current account, so it directly offsets the trade deficit rather than financing it.
  2. FDI is tied to physical assets and management control, so it cannot be pulled out as quickly as shares and bonds can be sold.
  3. Net FDI involves no repatriation of profits, whereas portfolio investors remit their gains out of the country every year.
  4. The central bank's swap window covers the exchange-rate risk on FDI inflows, which it does not do for portfolio flows.
Reveal answer & explanation

Answer: B

  • FDI buys factories, equipment and controlling stakes. Unwinding that takes months or years, so the financing stays in place through a bad quarter, which is exactly what a current account deficit needs.
  • Option A confuses the accounts: both FDI and portfolio investment are capital and financial account entries. Neither sits in the current account.
  • Option C overstates the case. FDI does generate repatriation, and it is large. Repatriation is one of the two deductions that turn gross FDI into net FDI.
  • Option D describes a different instrument. Swap windows cover exchange risk on foreign currency deposits, not on direct investment.