The beginning of FY26 has brought some great news for the Indian economy. In the Monthly Economic Review for May 2025, it has been announced by the Finance Minister, Nirmala Sitharaman, that Foreign Direct Investment (FDI) in India has surged massively in April 2025 by a whopping 23% Year-on-Year (YoY). This comes as a cherry on top of the exponential current account surplus recorded during Q4FY25. Let’s dig deeper to understand why these are so important.
Foreign Direct Investments
An increasing FDI in India suggests that opportunities are growing in the economy, which is attracting foreign investors to invest in Indian businesses directly. In April 2025, FDI investment surged 23% to a record high of $8.8 billion. This is way above the gross inflows of FDI recorded in March 2025, when it stood at $5.9 billion. These growing investments by foreign direct investors indicate the consistent faith and confidence of theirs in the Indian economy and its businesses.
While the above figures talk about the gross FDI, let’s now see the net FDI as well. Net FDI doesn’t include repatriations or outward investments. The Net FDI for April 2025 surged more than 2x compared to March 2025. However, here is a catch. The repatriated FDI tanked massively by 59% YoY to $1.7 billion, but net outward FDI stood at $3.2 billion, surged massively by 169% YoY, but dipped from March 2025’s outward FDI.
Sectoral Foreign Direct Investments
If you look from the sectoral angle, then manufacturing and business services pulled almost half of the gross FDI inflows. Talking about FDI outflow, then sectors like electricity, water supply, financial services, and gas witnessed the most of it.
Between 2020 and 2024, Indian attracted around $114 billion in greenfield investments into its digital economy sectors. This is the highest in the southern countries, as per the RBI. Overall, the Indian economy ranked 16th as per global FDI inflows.
Current Account Surplus
Coming to the current account surplus, even when during the Q4FY25, foreign investors were withdrawing their investments heavily, the current account surplus was recorded, and that too surpassed all the anticipations. During the quarter, the current account surplus recorded was $13.5 billion, which was 1.3% of the gross domestic product (GDP) of the fourth quarter. Just in the December quarter, the current account was in a deficit, which not only turned to a surplus during the March 2025 quarter, but also exceeded all expectations.
On a YoY basis as well, it went up. During Q4FY24, the current account surplus was $4.6 billion (0.5% of the GDP), which is now $13.5 billion in Q4FY25.
For the entire FY25, however, the current account deficit (CAD) has been recorded. CAD for the entire fiscal year stood at $23.3 billion, which was equivalent to 0.6% of FY25’s GDP. However, it improved from FY24’s CAD of $26 billion or 0.7% of the GDP.
Merchandise Trade Deficit
While the current account was in green during Q4FY25, the merchandise trade deficit increased to $59.5 billion from $52 billion YoY. However, it dropped from a whopping $79.3 billion recorded during Q3FY25. Again, the services sector helped as it witnessed a surge in receipts to $53.3 billion against $42.7 billion of Q4FY24. However, the capital inflows fell drastically to $1 billion during the entire FY25 compared to a whopping $10.2 billion recorded in FY24. Net depletion has been seen in foreign exchange reserves in terms of the balance of payments (BOP). It was depleted by $5 billion in FY25.
Source: cnbctv18
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