India’s foreign capital inflows are coming under increasing pressure as global economic uncertainty and investor caution weigh on foreign direct investment and portfolio flows, according to a report by CareEdge Global.
The report said net foreign direct investment (FDI) inflows into India fell to historic lows in fiscal year 2025-26, diverging from earlier periods of global stress when FDI remained relatively stable.
Net FDI inflows moderated to USD 6.3 billion in the first 11 months of FY26, sharply lower than the average USD 35.1 billion recorded between FY16 and FY20, the report said. The decline was attributed to higher repatriation by foreign investors and increased outward FDI by Indian firms.
“Net foreign direct investment inflows fell to historic lows in FY26 due to higher repatriation and outward FDI,” CareEdge Global said in its latest global economy update report.
Volatile FPI Flows
The report added that foreign portfolio investment (FPI) flows had become increasingly volatile since the pandemic due to repeated global shocks, including geopolitical tensions and rising energy prices.
FPI outflows intensified in March, with total outflows reaching USD 16.6 billion in FY26, it said.
“Ongoing global uncertainties are likely to weigh on FPI flows going ahead,” the report noted.
India’s balance of payments (BoP) position has also weakened significantly, with the country recording a deficit of USD 30.8 billion during the first nine months of FY26, compared with a deficit of USD 5 billion in FY25, according to the report.
CareEdge Global said the likely widening of the current account deficit, combined with subdued capital inflows, posed a challenge to India’s external position.
The findings come at a time when the global economy is grappling with the impact of the West Asia crisis, which has disrupted trade flows and pushed up energy prices.
CareEdge Global revised down its 2026 global growth forecast to 3.1 per cent, a downward revision of 0.2 percentage points from its previous estimate.
Inflation Forecasts Across Economies
The report said higher global energy prices had led to upward revisions in inflation forecasts across major economies, prompting central banks to maintain tight monetary policy stances.
Major central banks, including the U.S. Federal Reserve, the European Central Bank and the Bank of England, have kept policy rates unchanged amid persistent inflationary pressures linked to the conflict, it said.
Within Asia-Pacific economies, inflationary pressures have begun to intensify, prompting some central banks to tighten monetary policy.
India’s inflation rose to 3.4 per cent in March 2026 from 2.7 per cent in January, although it remained within the Reserve Bank of India’s target range of 4 per cent plus or minus 2 percentage points, the report showed.
The report also highlighted that China’s export momentum had started cooling due to disruptions caused by the West Asia crisis, which raised logistics costs and weakened external demand.
At the same time, the Middle East was expected to bear the brunt of the ongoing conflict because of disruptions to exports caused by the closure of the Strait of Hormuz.
CareEdge Global said governments worldwide were increasingly relying on targeted fuel subsidies, tax cuts and demand-side measures such as fuel rationing and public transport support to manage rising energy costs.
The report added that despite downward revisions to global growth forecasts, domestic consumption, technology-related investment and lower effective tariff rates would continue supporting economic activity. CareEdge Global maintained India’s long-term foreign currency sovereign rating at BBB+ with a stable outlook. |
