MUMBAI: The recovery in foreign investment, spanning both portfolio and direct investment, in recent months signals a revival of confidence in the Indian economy, which remains among the fastest-growing major economies globally and has sustained momentum in economic activity through June, according to the latest State of the Economy report under the Reserve Bank of India’s (RBI’s) July bulletin.
The report — authored by RBI staffers under the guidance of Deputy Governor Poonam Gupta — noted that indicators across both the industrial and services sectors remained resilient. While the farm sector has experienced an uneven southwest monsoon, the report said the impact on food inflation could be “mitigated by comfortable foodgrain stocks”.
The RBI clarified that the views expressed in the report are those of the authors and do not represent its position.
“The momentum of external trade sustained as reflected in high growth in exports and imports in Q1:2026-27. This is likely to be strengthened by the recent operationalisation of the India-UK Comprehensive Economic and Trade Agreement and progress in other bilateral trade agreements,” the report said.
Data showed that net foreign direct investment (FDI) during April-May FY27 rose sharply to $6.5 billion from $2.47 billion in the corresponding period a year earlier, supported by robust inflows in April. Net FDI climbed to $6.58 billion in April 2026, driven by strong equity inflows and lower repatriation by foreign investors, before slipping to a marginal net outflow of $74 million in May.
Net FDI turned marginally negative in May after remaining positive for the previous four months, as gross FDI inflows more than halved to $6 billion from over $15 billion in April, while repatriation by foreign investors remained broadly unchanged.
The report also highlighted that foreign portfolio investors (FPIs) recorded net inflows in June 2026, supported by policy measures for the debt market and easing geopolitical tensions. Until July 20, FPIs had invested $3.1 billion across the equity and debt segments.
“During April-May 2026, FDI remained higher in both gross and net terms, supported by lower repatriation. Japan, Singapore and Mauritius accounted for around 74 per cent of total equity inflows. Financial services attracted the highest share of equity inflows, followed by manufacturing, wholesale and retail trade, and computer services. Together, these sectors accounted for around 80 per cent of total inflows,” the report said.
It added that around 74 per cent of India’s outward FDI during the period was directed towards the US, the Cayman Islands and the Netherlands, while financial, insurance and business services, together with manufacturing, accounted for more than 85 per cent of outward investment.
The report also noted that the RBI’s concessional swap measures announced in June had triggered a surge in foreign currency non-resident (bank), or FCNR(B), deposits — $17.4 billion between June 8 and July 17, 2026.
India’s external sector remains stable with an improving outlook, supported by continued foreign investment inflows, the report said. It added that the country’s key external vulnerability indicators remained well anchored as of end-March 2026, while foreign exchange reserves continued to stay at comfortable levels.
On the domestic economy, the report said India had navigated external uncertainties well, underpinned by healthy demand conditions and the resilience of the industrial and services sectors.
On inflation, the report said headline consumer price index (CPI) inflation edged higher in June, driven by food and fuel prices. “Core (CPI excluding food and fuel) inflation, however, remained unchanged. Wholesale price index (WPI) inflation inched up in June,” it said.
Source: Business Standard / The New Indian Express
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