India’s FDI Is at a Record : Why Are Big Multinationals Still Cautious

 

INVESTMENT  |  MANUFACTURING  |  POLICY

India’s FDI Is at a Record : Why Are Big Multinationals Still Cautious

Why foreign capital still waits for project certainty infrastructure and responsive government

By Biz Masala | 12 October 2026

India’s market is a powerful draw; a large, long-lived plant still needs reliable delivery across land, approvals, inputs and infrastructure.

The premise needs a reset. Foreign multinationals are not collectively turning away from India: gross foreign direct investment reached a record **$94.53 billion in FY2025–26**, up 17 per cent. The uncomfortable counterpoint is that **net FDI was $7.65 billion**. The gap is a signal to investigate how capital flows through the economy, not proof that companies have stopped investing. [1]

Nor does either number tell us how many new factories were built. Gross FDI covers investment flows beyond greenfield construction; net FDI adjusts for repatriation and disinvestment by foreign investors and for Indian companies’ overseas FDI. Repatriation can include profits, dividends or the sale of existing assets. Indian firms investing abroad can reflect their own expansion. Those are different stories from a multinational cancelling a proposed Indian plant.

So the more useful question is narrower: **why can a company see India as a major market yet still stage, delay or limit its biggest manufacturing commitment?** The answers are cumulative. A factory decision depends on whether market access and productivity can outweigh the cost, time and uncertainty of getting a project operating—and of expanding it later.

The headline inflow and the factory question

Gross inward and net FDI, FY2023–24 to FY2025–26. Net FDI is adjusted for repatriation/disinvestment and Indian companies’ outward FDI. It is not a measure of greenfield factory investment. Source: RBI data as reported by The Indian Express. [1]

The FY26 improvement in net flows is also important context: it was up from $959 million in FY25. The story, then, is not a simple collapse. It is that a record gross number can coexist with a much smaller net number, while neither alone tells policymakers whether investment is creating new capacity, supplier depth, exports or durable jobs.

Why a big India project can still be staged

Land that is available may not be ready

Manufacturing needs contiguous plots, clean title, compatible land use and a clear path to roads, rail, power, water and environmental permissions. The IMF’s 2025 India review describes fragmented ownership, presumptive title and procedural delays as obstacles to industrial investment. It cites World Bank survey data in which 7.4 per cent of Indian firms named land access as their primary business obstacle; the figure was 8.6 per cent among large firms. The IMF also estimates that land acquisition issues account for 7.1 per cent of inactive investment projects. These are economy-wide indicators, not a count of foreign projects alone. [2]

For a capital-heavy facility, unresolved title or delayed site preparation can put equipment orders, construction finance and customer commitments out of sequence. A company may choose a smaller first phase until it sees the promised site and utilities delivered.

A single window has to work across government

India has the National Single Window System, which helps investors identify and apply for approvals. The Union government has also run the Business Reforms Action Plan across states and launched a district-level plan. Andhra Pradesh, for example, has digital industrial clearances, online land registration and e-environmental approvals. These are meaningful steps. [3]

But the Parliamentary Standing Committee on Commerce’s 2026 review said the National Single Window System rollout remained incomplete and recommended time-bound onboarding of the remaining states, automatic renewals for firms with clean records and compensation for delayed refunds and subsidies. It also called for ground-reality audits of state reforms instead of relying on paperwork alone. The policy test is not whether a portal exists; it is whether one accountable official can get every relevant agency to act on time. [4]

Tax certainty is part of the return calculation

NITI Aayog’s 2025 working paper identifies uncertainty around permanent establishment and profit attribution as a source of tax risk for foreign investors. It says major disputes can take six to 12 years or longer to reach finality. The paper is a government-backed diagnosis and set of recommendations, not evidence that every foreign company experiences this problem. But long disputes can raise the risk premium for an investment whose payback period is already measured in years. [5]

Tax incentives can help secure an initial project. They are less persuasive if a company cannot forecast how rules will be interpreted, when refunds will arrive or how a dispute will be settled. A predictable ordinary system can matter more than a large incentive that is difficult to claim.

Customs and logistics shape supply chain access

Export-oriented factories depend on imported components arriving on schedule and finished goods reaching customers at competitive cost. The World Bank’s 2026 South Asia Economic Update says medium-sized firms in India experience longer import and export customs delays than the median emerging-market and developing economy. The Parliamentary Committee separately noted that logistics constraints increase costs and recommended easier customs compliance and better integration of logistics operators with the Unified Logistics Interface Platform. [4,6]

For multinationals, reliability matters alongside average cost. A plant that misses a production window because a component is delayed can lose more than a small tariff saving is worth. Better ports, freight links, warehousing, customs coordination and stable trade rules are therefore part of industrial policy, not supporting details.

A site needs workers suppliers and dependable services

A plant’s business case rests on more than an announced investment incentive. It needs technicians and managers, local suppliers that meet quality standards, reliable utilities, housing and transport for workers, and services that let employees live near industrial clusters. This is a business-case inference rather than a single national statistic: companies test each location against their production model and supplier network. If those systems are thin, firms may keep high-value stages, key suppliers or the next expansion elsewhere.

Incentives cannot compensate for weak project execution

State competition for investment can attract a headline announcement, but the real test is whether the factory becomes operational, exports, develops local vendors and expands. A project can be announced with a large headline value and still be conditional on demand, approvals, infrastructure or board decisions. Governments should distinguish memoranda, committed spending, construction, commissioning and operating capacity in public reporting.

What is already changing and what remains unfinished

The Union government’s 2026–27 Budget agenda includes a planned single digital window for cargo clearances, a Customs Integrated System to be rolled out over two years, tax-certainty measures and risk-based customs treatment for trusted importers. BRAP 2026 and the District Business Reform Action Plan continue the centre-state reform programme. These are current initiatives and proposed or ongoing rollouts, not proof that all investors already experience faster clearances. [3]

The Parliamentary Committee’s recommendations reinforce that the next phase is implementation: make the single window genuinely exclusive for approvals, publish deadlines, compensate delayed refunds and subsidies, and independently check what companies experience on the ground. This is a shift from counting digitised forms to measuring the time and cost from site selection to commercial production. [4]

A practical agenda for the Centre and states

The policy objective is to turn recurring project frictions into services with an accountable owner and a measurable deadline. Biz Masala analysis.

The Union government controls or coordinates tax, customs, trade policy, national infrastructure, central approvals and much of the investment framework. States control many of the practical conditions at the site: land, local permissions, utilities, industrial-area services and worker ecosystems. Neither level can deliver the full investment experience alone.

Priority	Union government	State governments
Land and sites	Nationally interoperable land records and due-diligence standards; verified industrial land banks with title, zoning and environmental baselines.	Contiguous, titled plots with power, water, waste treatment, transport and worker access ready before marketing. Publish what is ready versus planned.
Approvals	Complete NSWS integration; common application IDs; binding service standards; public dashboard for time to decision and refund. Use risk-based checks without waiving substantive safety or environmental duties.	One empowered case owner for each major project; coordinate agencies; give written reasons for delay and a clear escalation route. Use automatic renewals for low-risk, compliant firms where legally appropriate.
Tax and rules	Clear prospective tax guidance, faster advance decisions, time-bound dispute resolution and stable transition rules. Publish customs and tariff changes with adequate notice.	Contract incentives transparently, with eligibility and payment milestones written up front; avoid mid-project rule changes.
Logistics and utilities	Interoperable customs and port systems; predictable trade policy; freight corridors, rail sidings and port capacity aligned with industrial clusters.	Guarantee utility connection dates and quality; fix last-mile road, rail and port links; coordinate freight, warehousing and local permits.
Skills and aftercare	Fund employer-linked training and portable social protection; make labour-code interpretation clear and consistent.	Train for named roles; strengthen local suppliers; provide worker housing, transport and basic city services; resolve operational bottlenecks after opening.
Investment reporting	Report fresh capex, greenfield versus acquisition, construction, production, exports and employment separately.	Publish quarterly project conversion: MoUs, land allotted, approvals cleared, construction begun, plant commissioned, realised investment and jobs.

The scorecard should follow the project

Ease of doing business is often discussed through rankings, portals and reform counts. Those tools can show whether a rule has been digitised or a state has adopted a process. Investors experience a longer sequence: site selection, title verification, approvals, construction, utility connection, trial production, commercial operation and expansion. Governments should publish median and 90th-percentile time at each step, along with delay reasons and resolution rates.

They should also report investment quality. Separate greenfield from acquisitions; distinguish announced capital from money spent; show whether a project entered production; record exports, local procurement and direct employment. Publish incentive payments and the outcomes attached to them. A transparent scorecard would help states compete on delivery rather than on the size of their announcements.

The business conclusion

India’s scale, growth prospects, talent and policy push give multinational firms compelling reasons to invest. Record gross inflows confirm that foreign capital is coming. The gap between that headline and realised manufacturing capacity is where the investigation should focus: land and approvals that arrive on time, tax rules that companies can forecast, trade logistics that meet production schedules, and clusters that can supply people and parts.

The country does not need to promise that every global company will choose India. It needs to make the risk-adjusted case stronger at each stage of a project. For a multinational deciding whether to add a second plant, deepen local sourcing or move a high-value production line, the decisive signal will be whether the first investment worked as planned.

Sources and reporting notes

FDI figures are in US dollars and refer to financial years. Gross and net FDI are different measures; net FDI is not a greenfield-capex series. The land indicators are economy-wide, and NITI Aayog’s tax discussion is a policy diagnosis rather than a survey of every MNC. Recommendations in this feature are Biz Masala’s analysis informed by the cited policy and institutional material.

·       1. RBI FY26 FDI figures, as reported by The Indian Express, 22 May 2026

·       2. IMF, India 2025 Article IV Consultation, Annex X on access to land for manufacturing

·       3. Government of India, Press Information Bureau, Ease of Doing Business and Budget 2026–27 measures; BRAP and state initiatives

·       4. Parliamentary Standing Committee on Commerce, Doing Business in India: The Way Forward, report summary

·       5. NITI Aayog, Enhancing Certainty, Transparency and Uniformity in Permanent Establishment and Profit Attribution for Foreign Investors in India, October 2025

·       6. World Bank, South Asia Economic Update, April 2026

·       National Single Window System, investor approvals platform

— Biz Masala Editorial Desk