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FDI Revival Reflects Growing Confidence in Indian Economy: RBI
A revival in foreign investment inflows reflects growing global confidence in the Indian economy, according to an article published in the Reserve Bank of India's (RBI) July Bulletin.
The article, titled "State of the Economy," noted that rising foreign direct investment (FDI), the return of foreign portfolio investment (FPI) inflows, and improving external sector indicators highlight India's resilience despite continuing global uncertainties.
The RBI clarified that the views expressed in the article are those of the authors and do not necessarily represent the official stance of the central bank.
FDI Inflows See Strong Growth
According to the bulletin, both gross and net FDI inflows during April-May 2026 surpassed the levels recorded during the same period last year.
Net FDI increased to USD 6.5 billion in the two-month period, compared to USD 2.5 billion during the corresponding period a year earlier.
Foreign Portfolio Investors Return
The report also highlighted a turnaround in foreign portfolio investment.
After witnessing sustained outflows earlier in the financial year, foreign portfolio investors turned net buyers in June and continued investing in July, supported by favourable policy measures and easing geopolitical tensions.
Equity Markets Reflect Improved Sentiment
The RBI bulletin noted that Indian equity markets rallied during June and early July, driven by the US-Iran ceasefire agreement, softer crude oil prices, and renewed buying by foreign investors.
However, markets later corrected after geopolitical tensions resurfaced in West Asia and oil prices climbed again, before settling into a range-bound movement.
Despite the recent recovery, overseas investors remain net sellers of Indian equities in the current financial year, with cumulative outflows of USD 13.28 billion. In contrast, they have invested USD 7.8 billion in India's debt market.
Policy Measures Boost Investor Confidence
The article said several policy initiatives by the RBI and the government have helped improve foreign investor sentiment.
These include expanding overseas investors' access to government securities, easing investment norms for foreign portfolio investors, and providing tax support for investments in sovereign bonds.
Strong Response to RBI's Foreign Currency Measures
The RBI also highlighted robust inflows under its recently introduced foreign currency mobilisation initiatives.
According to the bulletin:
- Non-Resident Indians (NRIs) invested USD 17.41 billion through Foreign Currency Non-Resident (Bank) [FCNR(B)] deposits under the special incentive scheme.
- The central bank received USD 1.97 billion through overseas foreign currency borrowings.
- Another USD 1.34 billion came through external commercial borrowings.
The article said the concessional swap facility introduced for fresh FCNR(B) deposits has played a key role in strengthening foreign currency inflows and improving India's external position.
Global Challenges Continue
On global financial markets, the bulletin noted that the US 10-year Treasury yield remained elevated and volatile during June, rising further in early July before easing after lower-than-expected US inflation data.
The US Dollar Index strengthened during June but gave up some of its gains in July as inflation concerns moderated.
The report also observed that foreign investors reduced exposure to emerging market equities during June, although debt inflows partially offset those outflows.
India Remains Resilient
The authors said the global economy continues to face challenges from geopolitical tensions, supply chain disruptions, and an uncertain trade environment.
Despite these headwinds, India's economy has remained resilient, supported by healthy domestic demand and steady growth across the industrial and services sectors.
On inflation, the bulletin said headline retail inflation edged higher in June due to food and fuel prices, while underlying core inflation—excluding precious metals—remained subdued. It also noted that improved liquidity conditions continue to support robust credit growth.
The article concluded that India's external sector remains stable and its outlook is improving with stronger foreign investment inflows, reiterating that the country continues to be among the world's fastest-growing major economies despite an increasingly uncertain global environment.
