FDI in India: Policy Changes Strengthening Investment Climate
The Foreign Direct Investment (FDI) in India has been evolving over the past few years. India is one of the Favourite destinations (15th Rank) for FDI. Policy changes are strengthening investment climate to boost investments appeal to India.
The following information was provided by the Minister of State for the Ministry of Commerce & Industry, Shri Jitin Prasada, in a written reply in the Lok Sabha on 2nd December, 2025.
To attract more investment and to make India a favourable destination for investors, the Government of India continuously reviews its FDI policies. The Government focuses on improving the business environment by streamlining processes, better logistics, improving infrastructure and removing regulatory barriers.
To promote healthy competition among states and attract more investment, including FDI, various initiatives like the Business Reforms Action Plan (BRAP) and Logistics Ease Across Different States (LEADS) report have been implemented.
Transformative reforms have been undertaken by the Government of India in various sectors like Defence, Insurance, Pension, Construction, Civil Aviation, and Single Brand Retail Trading, to liberalise FDI norms. These significant reforms carried out between 2014 and 2019 increased FDI in the aforesaid sectors.
The Government took an important measure, from 2019 to 2014, by allowing 100% FDI under the automatic route in insurance intermediaries. Coal mining and contract manufacturing.
To promote more foreign investment, the FDI policy’s requirements have been gradually liberalised and streamlined across a number of industries. Recently, significant reforms have been carried out in industries such as defence, insurance, telecom, petroleum and natural gas, and space.
To make the process more effective and responsive to investor needs, the government has streamlined tax compliance and investment promotion for international investors. In 2024, the Income Tax Act of 1961 was amended to reduce income tax rates for foreign corporations and abolish the angel tax. The GST changes implemented in September 2025 aim to boost entrepreneurship and job creation in industries with high youth participation.
The streamlined GST structure with lower rates in sectors like leather, footwear, textiles, and logistics will benefit businesses, startups, and ease compliance for traders. Free Trade Agreements have been utilised to boost export diversification and attract investments, with agreements like the one with the European Free Trade Association (EFTA) securing substantial investment commitments.
The current FDI policy in India allows up to 100% FDI in most sectors through the Automatic Route, with certain conditions. FDI has played a crucial role in India’s development by bringing in financial resources, technology transfers, and creating employment opportunities.
FDI Growth in FY 2024-25 and FY 2025-26
During the first half of Financial Year 2025-26, there is an increase of 16% in total FDI inflow (provisional data) compared to the same period in previous years. The FDI has reached US$50.36 billion, the highest ever in the first half of the financial year. In the FY 2024-25, the FDI inflow reached US$80.62 billion, the highest in the last three years.
The FDI cap has been increased in a number of industries due to recent policy changes. The Automatic Route currently permits up to 74% of FDI in the defence sector, up from 49% for businesses applying for new industrial licences. While the insurance sector’s FDI quota has been increased from 49% to 74% under the same route, the telecom sector permits 100% FDI under the Automatic Route.
FDI inflows have been substantial since these sectors were liberalised. Until FY 2024–2025, FDI inflows into the Defence Industries, Insurance, and Telecommunications sectors totalled US$11.59 million, US$ 8,788.59 million, and US$1,740.81 million, respectively.
There is a significant increase in FDI during FY 2024–2025 relative to their respective liberalisation years. Several industries have demonstrated strong performance post-reform.
What does the FDI data from DPIIT say?
As per the Department for Promotion of Industry and Internal Trade (DPIIT), during the present FY 2025-26, the FDI has increased by 18% (Year-on-Year). However, this is comparatively lower than the corresponding period of the last FY 2024-25, which has witnessed a 27% increase in FDI.
The Following table shows that FDI inflow (month-wise) during the FY 2025-26.
Source: FDI Statistics, DPIIT
The Computer Software & Hardware Sector remained at the top five percentage share of Total FDI Equity inflow with 26%, followed by the Service Sector with 14% in FY 2025-26. The following are the Share Of Top Five Sectors Attracting the Highest FDI Equity Inflow:
Source: FDI Statistics, DPIIT
Maharashtra tops among states in attracting 30% of FDI, followed by Karnataka with 27% in FY 2025-26. Here is the Share of Top Five States Attracting the Highest FDI Equity Inflow:
Source: FDI Statistics, DPIIT
Conclusion/ My Perspective
Since 2016, FDI in India has faced volatility, yet resilience has defined its journey. The recent upward trend reflects renewed confidence from global investors. Ongoing policy reforms have dismantled barriers, fostering a transparent and investor‑friendly climate.
India is turning challenges into opportunities for sustainable, long‑term growth. With momentum building, the nation is poised to stand out as a major global investment hub.
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