In 2024, India remained one of Asia’s most attractive countries for foreign direct investment (FDI) and for good reason. It has a fairly resilient economy and enjoyed over $44.4 billion of FDI equity inflow in 2024, predominantly in areas such as manufacturing, green energy, and tech, leading to a ±7% growth in GDP being predicted for 2025.

In this profile, we take a closer look at what makes India such an attractive destination for international investment, the main drivers of success, and significant trends across the country’s economic sectors.

India’s economic growth and FDI performance in 2024

India saw impressive growth in FDI inflows (equity, reinvested earnings, and other capital) from April to November of 2024, reaching $55.6 billion, which marked a 17.9% YoY increase compared to the same month range in the previous year. While specific forecasts for the current financial year are not available, the Department for Promotion of Industry and Internal Trade (DPIIT) anticipates sustained growth, with FDI potentially reaching US$100 billion annually in the coming years. 

The cumulative amount of FDI stock is expected to exceed $650 billion if 2025 FDI inflows reach $80-85 billion, which would amount to approximately 17% of the country's GDP.

In FY 2023, the most FDI inflows went to the computer software and hardware sector, which attracted $9.4 billion, followed by the services sector (financial, banking, insurance, and business services) at $8.7 billion. Trading received $4.8 billion, while other significant recipients included drugs and pharmaceuticals ($2 billion), the automobile industry ($1.9 billion), chemicals ($1.85 billion), and construction infrastructure activities ($1.7 billion).

India's economy achieved a robust GDP growth of 9.2% in the fiscal year 2023-24, representing the highest growth rate in 12 years (excluding the post-pandemic surge), while for the current fiscal year 2024-25, GDP is projected to grow at a more moderate but still strong rate of 6.5%, according to the Second Advance Estimates released by the National Statistics Office.

Key investment sources and geographic trends

According to official DPIIT data, Singapore ranked as the highest source of FDI for India in FY 2023–24, contributing 27% of the total inflow, followed by Mauritius (21%) and the United States (9%), with investments concentrated on the technology, defense, and green energy sectors. If Mauritius’s place on the list is a little unexpected, the signing of a Double Taxation Avoidance Convention (DTAC) with India in December 1983 resulted in a significant inflow of investments worth approximately $161 billion between 2000 and 2022.

Other sizable investments received by India came from the UK and Japan, with a combined contribution of over 20%, mainly directed at green energy, automotive, and infrastructure projects.

The Middle East (UAE & Saudi Arabia) is emerging as a significant investor, particularly in renewable energy and infrastructure, with inflows nearing 10%.

Strategic advantages and investment climate

To describe India’s population as huge would be an understatement. In fact, since 2023, it has been the country with the largest population in the world, surpassing China. It also has a growing middle class that is driving a significant amount of growth in a broad spectrum of sectors such as consumer goods, healthcare, and tech.

Since 2020, the Indian government has invested Rs. 1.97 lakh crore, or approximately $24 billion, into production-linked incentives across 14 sectors, including auto components, automobiles, aviation, chemicals, electronic systems, food processing, etc. It has also recently announced additional incentives for green hydrogen projects, amounting to $2 billion until 2030, as well as for semiconductor development and production.

India is also enjoying progress in digital infrastructure, including the Unified Payments Interface (UPI), which processes 172 billion transactions annually, making the country an attractive destination for investment.

Strategic trade agreements, such as the India-UAE CEPA and Australia-India ECTA, enable the removal of tariffs across thousands of product categories, with the UAE eliminating duties on 97% of tariff lines and Australia offering zero duty on 100% of tariff lines.

Challenges and regulatory obstacles

However, India continues to struggle with infrastructure issues. Freight costs are relatively high, and losses from power distribution are fairly common, exceeding global averages despite the government having invested in renewable energy.

Generally speaking, India has a fairly slow, often inefficient bureaucratic system with several issues being commonly reported:

  • Multiple regulatory bodies lead to the inconsistent enforcement of policies
  • Complex and frequently changing tax regimes make compliance difficult
  • Protracted dispute resolution processes delay business operations
  • Excessive documentation and procedural requirements burden investors.

 Policy developments and regulatory framework

While it is a fact that India’s often conflicting regulatory bodies can prove to be challenging for investors, nevertheless, the environment has become more investor-friendly over recent years as a result of continuing strategic policy reforms and improvements in governance structures.

The current FDI framework is indicative of India's growing commitment to investment liberalization. Since October 2021, the country has permitted 100% foreign ownership automatically across most sectors, which has allowed investors to proceed with investments in a broad spectrum of industries without requiring prior government approval.

However, strategic sectors still maintain calibrated restrictions. For example, 74% of FDI in defense is allowed to be made automatically, but additional investment is only possible after receiving government approval.

Global rankings and competitiveness metrics

India’s ranking on the Global Innovation Index has been growing over the years, jumping 42 places in nine years to its current 39th position, which is mainly due to spending on R&D and the export of a wide array of IT and telecommunication services, for which it currently holds second place globally.

India scored 52.9/100 on the Heritage Foundation’s Index of Economic Freedom, making its economy the 126th freest out of 184, but while its fiscal health remains strong, the enforcement of property rights still lags behind its peers.

Emerging opportunities and strategic initiatives

  • The renewable energy sector shows strong potential, with India having a commitment to achieve net-zero emissions by 2070
  • The electric vehicle industry is experiencing exponential growth, supported by FAME incentives and tax breaks
  • Digital services are expanding, particularly in fintech, with UPI leading the digital payment transformation
  • Healthcare technology, including telemedicine and AI-powered diagnostics, is gaining significant traction
  • Prime Minister Gati Shakti’s National Master Plan will inject US$1.2 trillion into multi-modal connectivity projects to target serious logistical bottlenecks.

The bottom line

India’s investment landscape has seen improvement over the last decade. This transformation is evident in three particular dimensions – sectoral diversification, policy evolution, and digital leadership across various sectors and industries.

While the country continues to experience a range of challenges, such as bureaucratic inefficiency and infrastructure issues, it is clear that India represents an obvious positive trajectory for investors. The combination of market scale, policy support, and technological advances creates a unique value proposition for long-term investment strategies.