India FDI Year in Review 2026: Sector Trends, Policy Changes & Outlook

FDI Performance: Record H1 Inflows Signal Strong Momentum

India's foreign direct investment story in FY 2025-26 has been one of decisive recovery and record-setting performance. Total FDI inflows during the first half (April-September 2025) reached USD 50.36 billion — a 16% increase over USD 43.37 billion in the same period of FY 2024-25, making it the highest H1 FDI figure ever recorded.

This builds on the full-year momentum of FY 2024-25, when India attracted USD 81.04 billion in total FDI — a 14% jump from USD 71.28 billion the previous year. The cumulative FDI inflow since April 2000 has now crossed USD 1.14 trillion, cementing India's position as one of the world's most attractive investment destinations.

Quarterly Breakdown: Q1 FY 2025-26

The first quarter set the pace with USD 18.62 billion in FDI inflows, representing a 15% year-on-year increase from USD 16.17 billion in Q1 FY 2024-25. Notably, the surge was led by US investors and concentrated in technology-driven sectors, particularly computer software and hardware (USD 5.4 billion), services (USD 3.28 billion), and automobiles (USD 1.29 billion).

Major Policy Changes That Reshaped the FDI Landscape

FY 2025-26 witnessed some of the most consequential FDI policy reforms in a decade. Three stand out for their structural impact on foreign investment flows.

1. Insurance Sector Opens to 100% FDI

The Indian Parliament passed the Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Bill, 2025, raising the FDI cap in insurance from 74% to 100%. The new regime became operational on February 5, 2026. This culminates India's gradual insurance liberalisation: 26% (pre-2015), 49% (2015), 74% (2021), and now 100% (2026).

Key conditions apply: all policyholder premiums must be invested within India, and the transfer of share capital threshold requiring prior regulatory approval was raised from 1% to 5%. The net owned fund requirement for foreign reinsurance branches was reduced from INR 50 billion to INR 10 billion (approximately USD 110 million), significantly lowering the entry barrier for global reinsurers.

Impact: This reform is expected to attract USD 5-8 billion in fresh FDI over the next three years, improve technology adoption, bring global best practices, and intensify competition in India's under-penetrated insurance market where penetration remains around 4% of GDP compared to the global average of 7%.

2. US-India Historic Trade Deal

On February 2, 2026, the United States and India announced a framework for an Interim Trade Agreement — the most significant bilateral trade development since India's 1991 liberalisation. The deal includes reduction of US reciprocal tariffs on Indian goods from 50% to 18%, India's commitment to purchase USD 500 billion worth of US products over five years, elimination of the additional 25% tariff on Indian oil purchases, and a framework for the broader US-India Bilateral Trade Agreement (BTA) including supply chain resilience cooperation.

India's Commerce Secretary confirmed the agreement was likely to be signed by mid-March 2026. For foreign investors, this deal fundamentally changes the cost structure for US-India trade, making India a more attractive manufacturing and export base for companies serving the US market.

3. Land Border Country Investment Relaxation

On March 11, 2026, the Union Cabinet approved significant changes to the FDI policy for countries sharing land borders with India (China, Pakistan, Bangladesh, Nepal, Myanmar, Bhutan, Afghanistan). Since 2020, all investments from these countries required prior government approval under Press Note 3. The new policy introduces a 60-day approval timeline for government route applications and permits investments through the automatic route for investors with non-controlling beneficial ownership from land-bordering countries of up to 10%.

This is particularly significant for companies with minority Chinese shareholding — a common structure in the technology and startup ecosystem. Companies with up to 10% Chinese beneficial ownership can now invest in India without the delays and uncertainty of the government approval route.

Sector-Wise FDI Analysis

The sectoral composition of FDI inflows has shifted notably in FY 2025-26, with technology and services maintaining dominance while manufacturing shows strong recovery.

Technology and IT Services

The IT sector saw a doubling of FDI inflows in H1 FY26, driven by India's emergence as the world's premier Global Capability Center (GCC) destination. India now hosts over 1,800 GCCs, up from 1,700 in FY 2024, with projections to reach 2,100-2,400 by 2030. The GCC ecosystem is on track to become a USD 100+ billion market by 2030. In 2025 alone, GCCs accounted for 38% of office leasing across India's top seven cities, securing 31.3 million square feet.

Bengaluru leads with 880+ centers (34-39% of all GCC activity), followed by Hyderabad with 355+ centers (20-23% market share). The 2025 Union Budget introduced a national framework to expand GCC activity into Tier II and Tier III cities, with 100% FDI permitted through the automatic route.

Manufacturing Surge

FDI in manufacturing increased 18% year-on-year in FY 2024-25, reaching USD 19.04 billion. The Production Linked Incentive (PLI) scheme has been the primary catalyst, with an incentive outlay of INR 1.97 lakh crore (approximately USD 24 billion) across 14 sectors. Realised investments under PLI have reached INR 1.76 lakh crore with 806 approved applications, and 70% of total PLI disbursements have been absorbed by the electronics and pharma industries.

Electronics production has surged from INR 1.9 lakh crore in 2014-15 to INR 11.3 lakh crore in 2024-25 — a nearly six-fold increase. Electronics exports rose from INR 38,000 crore to over INR 3.27 lakh crore during the same period.

Semiconductor Manufacturing

India's semiconductor ambitions have attracted investment commitments of approximately INR 1.6 trillion (USD 17.31 billion) under the India Semiconductor Mission. Ten units have been approved — spanning silicon fab, silicon carbide fab, advanced packaging, and memory packaging facilities. In 2026, the government launched ISM 2.0, an upgraded framework focusing on the entire semiconductor ecosystem from design through manufacturing to supply chains.

Services Sector

Services attracted the largest share of equity inflows in FY 2024-25 at 19% of total FDI, with inflows surging 40.77% to USD 9.35 billion. This includes financial services, business consulting, and professional services — categories where foreign companies typically establish wholly-owned subsidiaries or branch offices.

Defence Manufacturing

FDI in defence is now permitted up to 74% through the automatic route (previously 49%), with 100% possible under the government approval route for cases involving access to modern technology. India's defence procurement budget of INR 1.72 lakh crore for FY 2026-27 and the government's stated goal of USD 5 billion in defence exports by 2025 have attracted global defence majors to establish manufacturing bases in India.

Top Source Countries: The Shifting Geography of Investment

The origin of FDI into India continues to evolve, reflecting both tax treaty dynamics and genuine shifts in global capital allocation.

For investors evaluating routing structures, the choice between jurisdictions involves DTAA considerations, capital gains tax implications, and the specific conditions of India's bilateral tax treaties. Our automatic route vs government approval comparison details the procedural differences for different investment pathways.

State-Wise Distribution

Karnataka led FDI inflows in Q1 FY26 with USD 5.69 billion, followed by Maharashtra (USD 5.36 billion) and Tamil Nadu (USD 2.67 billion). This reflects the concentration of IT and GCC activity in Bengaluru, financial services in Mumbai, and manufacturing in the Tamil Nadu-Chennai corridor. For foreign companies choosing a location for their Indian operations, our USA country guide and UK country guide provide location-specific guidance.

Regulatory and Compliance Developments

Beyond headline policy changes, several regulatory developments in 2025-26 affect foreign investors' day-to-day operations.

FOCE Framework

In April 2025, DPIIT clarified that companies operating in FDI-prohibited sectors may issue bonus shares to existing non-resident shareholders, while implementing stricter oversight through the Foreign-Owned Company Enterprise (FOCE) framework. This provides clarity for companies with mixed shareholder bases navigating sectoral restrictions.

New Bilateral Investment Treaty Template

Finance Minister Nirmala Sitharaman announced that India will draft a new Bilateral Investment Treaty (BIT) text balancing investor protection with state regulatory rights. This signals India's intent to address long-standing concerns about investment protection — a critical factor for large-scale infrastructure and greenfield FDI where capital recovery timelines span decades.

FC-GPR and FLA Return Compliance

The FC-GPR filing requirement (within 30 days of share allotment to non-residents) and the annual FLA Return (due by July 15) remain the two most critical FEMA compliance obligations for foreign-invested companies. The RBI has maintained its compounding framework for late filings, with penalties capped at INR 2,00,000 for specific categories of contraventions.

India-EU Trade Agreement and Its FDI Implications

Beyond the US-India deal, India has also completed trade agreements with the European Union, further expanding market access for India-based manufacturers. RBI Governor Sanjay Malhotra pointed to these trade agreements as catalysts expected to bolster exports, strengthen the current account, and attract increased foreign investment.

For European companies, the dual benefit is significant: reduced tariffs on Indian exports to the EU market combined with India's cost advantages in manufacturing and services. European automotive, pharmaceutical, and engineering companies have been among the most active FDI investors in India historically, and the trade deal framework provides additional incentive to expand Indian operations as regional production hubs serving both the Indian domestic market and European export channels.

The trade agreements also address supply chain resilience — a key priority for governments on both sides. The economic security cooperation provisions include alignment on inbound and outbound investment reviews and export controls, providing a governance framework that institutional investors value for long-term capital deployment decisions.

Investment Outlook: What Is Ahead

The forward-looking indicators for India's FDI trajectory are overwhelmingly positive, though risks persist.

Positive Drivers

• GDP growth: The IMF projects 7.3% growth for FY 2026-27 and 6.4% for FY 2026-27, making India the fastest-growing major economy
• US-India trade deal: The tariff reduction from 50% to 18% fundamentally improves the export economics for India-based manufacturers serving the US market
• Insurance liberalisation: 100% FDI in insurance opens a market with USD 130+ billion in annual premiums and significant growth potential
• PLI scheme momentum: Realised investments of INR 1.76 lakh crore across 806 approved applications demonstrate that incentive disbursements are flowing
• Supply chain diversification: India continues to benefit from the China+1 strategy adopted by multinational manufacturers

Risk Factors

• Geopolitical volatility: Heightened tensions in the Middle East affecting oil prices and global trade routes
• Rupee depreciation: The INR has weakened past 93 per USD (March 2026), increasing the cost of capital repatriation for foreign investors
• FPI outflows: Foreign portfolio investors have pulled approximately USD 17 billion from Indian equity markets in 2026 YTD, the largest annual outflow on record
• Regulatory complexity: Despite liberalisation, India's multi-layered compliance environment remains a challenge for new entrants unfamiliar with FEMA, transfer pricing, and state-level regulations

Sectors to Watch in 2026-27

1. Insurance and financial services: The 100% FDI opening will drive a wave of new entrants and joint venture restructurings
2. Semiconductors: ISM 2.0 and USD 17+ billion in committed investments position India as an emerging chip manufacturing hub
3. Electric vehicles: The FAME scheme and automotive PLI create opportunities across EV manufacturing, battery production, and charging infrastructure
4. Global Capability Centers: The expansion into Tier II cities and the USD 100 billion market projection make GCCs the most scalable entry pathway for foreign companies
5. Defence manufacturing: 74% automatic route FDI and a growing domestic procurement pipeline

For foreign companies evaluating India entry in 2026, the combination of policy liberalisation, trade deal advantages, and strong domestic growth creates the most favourable investment environment in over a decade. Explore our FDI advisory services and foreign subsidiary registration to begin your India investment journey.

GCC Expansion: The Quiet FDI Revolution

While headline FDI numbers capture attention, the Global Capability Center phenomenon represents perhaps the most significant structural shift in how foreign companies deploy capital in India. The GCC model has evolved from basic IT outsourcing centres to full-spectrum innovation hubs handling R&D, AI/ML development, data analytics, cybersecurity operations, and strategic business functions.

Scale and Growth Trajectory

India now hosts over 1,800 GCCs — up from approximately 1,700 in FY 2024. The ecosystem is projected to reach 2,100-2,400 centres by 2030, representing a USD 100+ billion market. In 2025 alone, GCCs accounted for an unprecedented 38% of all office leasing across India's top seven cities, securing 31.3 million square feet of commercial space — the highest volume ever recorded in a single year.

City-Wise Distribution

Bengaluru remains the undisputed GCC capital with 880+ centres, capturing 34-39% of all activity and hosting the country's deepest engineering R&D and AI talent pool. Hyderabad follows with 355+ centres and is the fastest-growing GCC cluster, supported by the Telangana AI Mission (T-AIM) and a vibrant startup network of 940+ firms. Chennai, Pune, and the Delhi-NCR corridor account for the bulk of remaining centres, while the 2025 Union Budget introduced a national framework to expand GCC activity into Tier II and Tier III cities.

Why This Matters for FDI

GCCs offer a lower-risk entry pathway for foreign companies considering India. Unlike a full manufacturing subsidiary that requires substantial upfront capital, a GCC can start with 50-100 employees focused on technology or business process functions, scale to thousands as capabilities mature, and eventually expand into revenue-generating operations — product development, customer-facing services, or regional headquarters functions. The 100% FDI permission through the automatic route, combined with SEZ tax benefits and state-level incentive packages, makes the GCC model economically compelling for companies from banking, automotive, healthcare, retail, and professional services sectors.

Macroeconomic Context: GDP, Inflation, and Currency

The FDI performance in 2025-26 has been supported by a favourable macroeconomic backdrop, though not without challenges.

GDP Growth

The IMF projects India's GDP growth at 7.3% for FY 2026-27 — making India the fastest-growing major economy globally. This growth is driven primarily by domestic consumption (approximately 60% of GDP), government capital expenditure, and manufacturing expansion under the PLI scheme. For FDI investors, domestic demand-driven growth is structurally more attractive than export-dependent growth because it reduces exposure to global trade cycle volatility.

Inflation Environment

CPI inflation has settled at 3.21% (February 2026), well within the RBI's 2-6% target band. The RBI cumulatively reduced the repo rate by 100 basis points between April and December 2025, bringing it to 5.25%. This easing cycle has reduced borrowing costs for Indian subsidiaries, improved project finance economics for manufacturing FDI, and narrowed the interest rate differential with developed markets.

Currency Considerations

The Indian rupee weakened past INR 93 per USD in March 2026, presenting a dual reality for foreign investors. On one hand, rupee depreciation erodes the dollar value of Indian earnings when repatriated. On the other, it makes Indian operations cheaper to fund in dollar terms and improves the export competitiveness of India-based manufacturing. Foreign exchange reserves at USD 716.8 billion and active RBI intervention suggest managed depreciation rather than a disorderly decline.

What Foreign Companies Should Do Now

For companies considering India entry or expansion in 2026, the action agenda is clear.

For New Entrants

1. Assess the FDI route: Determine whether your sector permits automatic route investment or requires government approval. The March 2026 land border country relaxation changes the calculation for companies with minority Chinese or other LBC shareholding
2. Evaluate entity structure: Choose between a wholly-owned subsidiary, branch office, or liaison office based on your intended activities, tax implications, and profit repatriation needs. Our branch office vs subsidiary comparison details the trade-offs
3. Select your location: Karnataka, Maharashtra, and Tamil Nadu led FDI inflows in Q1 FY26 for good reasons — talent availability, infrastructure, and state-level incentives. But Tier II cities like Coimbatore, Ahmedabad, and Jaipur are emerging as cost-effective alternatives
4. Engage compliance infrastructure early: FC-GPR filing, GST registration, digital signature certificates, and bank account opening should be planned in parallel with incorporation — not sequentially

For Existing Investors

1. Review structure in light of policy changes: The insurance liberalisation, land border country relaxation, and US-India trade deal may warrant restructuring existing joint ventures, increasing ownership stakes, or establishing new entities in newly opened sectors
2. Assess PLI eligibility: Companies with existing manufacturing operations should evaluate whether their products and production volumes qualify for PLI incentives — the scheme has disbursed INR 1.76 lakh crore and continues expanding
3. Plan for BRSR compliance: Listed entities and their value chain partners face expanding ESG reporting obligations. Companies that build BRSR compliance capability now will be better positioned when value chain disclosures become mandatory in FY 2026-27

Key Takeaways

• H1 FY26 FDI hit a record USD 50.36 billion, 16% above the previous year, with full-year FY 2024-25 reaching USD 81.04 billion
• Insurance sector now permits 100% FDI as of February 2026, completing a decade-long liberalisation from 26% to full foreign ownership
• US-India trade deal reduces tariffs from 50% to 18%, with India committing to USD 500 billion in US purchases over five years
• Land border country rules eased — companies with up to 10% Chinese beneficial ownership can now invest through the automatic route
• PLI scheme has catalysed INR 1.76 lakh crore in realised manufacturing investments across 806 approved applications, with electronics and pharma capturing 70% of disbursements
• Singapore (30%) and Mauritius (17%) remain top source countries, while US investment is growing fastest, particularly in technology and GCCs