Noted economist and former NITI Aayog vice-chairman, Arvind Panagariya, has challenged recent concerns regarding India's foreign direct investment (FDI) landscape. Panagariya argues that while some economists point to declining foreign flows, the crucial metric of gross foreign direct investment (FDI) remains robust, indicating sustained investor confidence.
Understanding the FDI Data
Panagariya, who also chairs the 16th Finance Commission, highlighted a common misinterpretation of FDI figures. He explained that the traditional and most significant indicator, gross FDI, has shown consistent strength. According to Panagariya, gross FDI reached approximately $81 billion in 2024-25 and further increased to nearly $94 billion in 2025-26.
The confusion, he clarified, stems from a sudden spike in the repatriation of past investments by foreign entities from the Indian economy. This repatriation, along with external developments impacting portfolio investment flows, has skewed the overall net figures, leading critics to believe that fresh foreign investment is faltering.
"As far as the FDI part is concerned, there has been a lot of confusion on this. The figure that we have traditionally tracked is called the gross foreign direct investment (gross FDI). That figure has stayed actually quite robust," Panagariya stated in an interview.
Rebutting Economic Concerns
Panagariya's perspective contrasts with views from economists like Surjit Bhalla and Arvind Subramanian, who have voiced concerns about India's economic health, citing weak private investment and declining foreign flows. Bhalla, for instance, warned of a deepening investment crisis and argued that India's investment climate has turned negative, partly due to unique FDI rules and a substitution of private investment with public infrastructure spending over the last decade.
However, Panagariya dismissed suggestions of new structural imbalances within the Indian economy. He acknowledged long-standing challenges such as a significant portion of the workforce in agriculture (46%) and low urbanization, which are long-term structural features requiring change over decades. He also conceded that regulatory hurdles and the efficiency of the judicial system remain areas needing significant reform, particularly judicial reforms, which he believes have seen little progress.
Path Forward for India's Economy
Despite acknowledging these persistent challenges, Panagariya remains optimistic about the fundamental strength indicated by gross FDI. He emphasizes that this figure is a more accurate reflection of how foreign investors perceive the future productivity and potential of the Indian economy, rather than figures influenced by external factors or repatriation. The debate among economists underscores the complexity of interpreting economic data amidst global and domestic shifts.