The Missing Domestic Investment

THE TAKE 

India Inc Is Once Again Investing Everywhere But India

We were sitting in a suite at the Taj Mahal Hotel on Mumbai’s southern waterfront, looking out into an expansive bay dotted with bobbing boats and passing cargo ships.

It was a warm summer afternoon in the city, but my interviewee, Ratan N Tata, seemed thoughtful and miles away.

This was the early 2000s, and the Tata Group was embarking on what would become a sweeping global acquisition spree.

In 2000, it had acquired the iconic London-based Tetley Tea. In 2004, it bought the truck manufacturing operations of South Korean automaker Daewoo Motors.

Later—after our interview—Tata, who passed away last October, would go on to buy the Anglo-Dutch steelmaker Corus Group for $11.3 billion.

And in 2008 came the crown jewel: Jaguar Land Rover, acquired from Ford Motors.

If it wasn’t the Tatas, it was the Birlas. In 2007, Hindalco snapped up US-Canadian aluminium major Novelis for $6 billion—one of several big-ticket acquisitions from Indian conglomerates around that time.

The First Wave Of Global Ambitions

At the Taj that afternoon, Tata was thinking about acquiring technology, scale, brands, and presumably, global respect.

Kumar Mangalam Birla, too, seemed to be on a similar path, reportedly justifying the steep premium paid for Novelis, then touted as the world’s largest producer of rolled aluminium.

The one thing that most of these acquiree foreign companies had in common? They were all in some kind of trouble.

If the outbound wave that began in 2000 lasted through the end of that decade, a fresh one is well underway now.

A Bloomberg report from December noted that outbound deals in the last quarter of 2024 hit a 10-year high in volume—35 M&A transactions worth $5.3 billion, according to Grant Thornton’s Dealtracker.

So far in 2024, Indian companies have executed over 100 overseas M&A transactions, mostly targeting the US and Europe, the report said.

Indian overseas greenfield investment is also on track to hit a record this year, according to FDI Intelligence. More than 400 local companies have invested in international projects in 2024, double the number seen before the pandemic.

But the contrast with the Tata and Birla deals of the 2000s is stark.

Whether Jaguar Land Rover, Tetley, or Novelis—those were globally known brands.

By contrast, the deals of recent years are marked more by high volume and low value, with a growing tilt toward business services. The UAE, according to Bloomberg, has now emerged as the top destination for Indian investment.

And all of this is beginning to show—somewhat worryingly—in the numbers.

Money Leaves Faster Than It Comes

An insightful article by A K Bhattacharya in Business Standard on May 28 examines the sharp decline in net foreign direct investment, which fell—or more accurately, crashed—96% last financial year to just $0.35 billion, or $350 million.

This wasn’t just a record single-year drop, but also the lowest level of net FDI inflows into the country in at least the last two decades, as he points out.

Bhattacharya identifies two key drivers behind the collapse: a 16% rise in repatriation and disinvestment by foreign investors in existing companies, totalling $51.5 billion. 

And a 75% surge in outward FDI by Indian companies, which touched $29 billion.

To be fair, gross FDI inflows during 2024–25 did rise by 14% year-on-year, reaching $81 billion. 

But that number becomes less comforting once you account for the sharp increase in repatriation and outbound FDI, both of which effectively nullified the gains from gross inflows.

Repatriation was always expected, given the deluge of venture and private equity dollars that flowed in over the past decade—capital that has been waiting, like passengers on a Mumbai local, to jump off before the train comes to a complete stop.

This has created its own distortions in the capital markets. We’ve seen a flood of offers for sale (OFS), where a significant portion of the capital raised in recent years has gone straight into the hands of investors, including promoters and founders, rather than being deployed as productive capital within companies

Nothing wrong in that—but it’s not a particularly healthy sign when it happens en masse.

The Business Standard report, like Bloomberg’s analysis in December, points out a striking overlap between the sources of India’s inward FDI and the destinations of its outward FDI. 

Singapore, Mauritius, the United Arab Emirates, the Netherlands, and the United States accounted for over 60% of total inbound FDI. Coincidentally—or perhaps not—the same five countries also made up more than 50% of India’s total outward FDI in 2024–25.

Curious and interesting indeed.

While inbound FDI flowed into fairly visible sectors, more than 90% of outbound FDI went into financial services (including banking and insurance), manufacturing, wholesale and retail trade, and hospitality—covering restaurants and hotels. 

No data on the sectoral or destination-wise breakdown of repatriation was immediately available, notes Business Standard.

Again, there’s nothing inherently wrong with this. But it’s still not a particularly reassuring trend.

The bigger issue is this: Indian companies are not investing in India, certainly not at levels policymakers or the economy would like to see.

Overall, private sector capital expenditure is expected to fall sharply, by nearly a fourth, in FY26, to Rs 4.9 lakh crore from Rs 6.6 lakh crore projected for FY25, according to a Moneycontrol report analysing government data.

Domestic consumption isn’t growing the way it did just a few years ago. Most manufacturing capacity remains well below peak utilisation, offering little incentive for companies to expand or create new capacity.

And then there’s the added chill from the tariff uncertainty of the last two months—a trend that will quite likely persist, putting further freeze on investment intentions.

So, there are two sets of issues: first, the outward investments, mostly small, mostly in financial services. Second, the sharp slowdown in domestic investment.

Big Bets Are Getting Rarer

One major difference between the 2000s and now is that back then, the Tatas and Birlas weren’t entirely convinced about the Indian market. 

Today, they likely are—but remain constrained for various reasons from investing for expansion, at least at scale.

Keep in mind, the capex figures we refer to include major projects from groups like Reliance and Adani, particularly in areas such as renewable energy and ports. And of course the Tatas themselves in greenfield projects like semiconductors.

Incidentally, the one big iconic global acquisition last year was Sunil Bharti Mittal’s $4 billion purchase of a 24.5% stake in BT, or British Telecom.

The rest, as the Business Standard article also noted, have been small and scattered.

It also strikes me as I look back at my interview with Ratan Tata on the theme of Indian companies going global, maybe we have fewer gutsy business leaders like him nowadays.

Leaders with the confidence and guts to place big, audacious bets.

Remember his farewell big bet was Air India, a proposition no one in their right minds would have touched.

Maybe we don’t need those bets today, as India has opened up further and markets have matured.

Or maybe we do and just don’t know where or what they are.

CORE NUMBER

28%

That’s how much insolvency admissions fell in FY2025, with only 724 companies entering the Insolvency and Bankruptcy Code (IBC) process, according to ratings firm ICRA. Resolution plans dipped slightly to 259, but Q4FY25 saw record recoveries—up to 77% in large cases. Still, average recoveries remain low at 33%, with lenders facing 67% haircuts. A majority (78%) of cases overshot the 270-day limit, and resolution time worsened to 713 days. While the resolution-to-liquidation ratio rose to 0.9, ICRA flagged the need for faster timelines, better handling of small cases, and effective implementation of recent Insolvency and Bankruptcy Board of India (IBBI) reforms.

Adani Taps Bond Market. Adani Ports, India’s largest private port operator, is making a comeback to the domestic bond market after 17 months with plans to raise up to Rs 5,000 crore via 15-year bonds—its largest and longest-ever rupee issue. The move comes amid ongoing scrutiny, as Hindenburg’s 2023 report accused the Adani Group of using offshore tax havens. Since then, SEBI has been probing the conglomerate. In November 2024, the US Department of Justice indicted chairman Gautam Adani for alleged bribery and investor deception, claims the group denies. The AAA-rated notes could carry a 7.75% coupon, with bids invited on May 23.

Industrial Output Slows. India’s industrial output slowed to 2.7% in April 2025 from 3.9% in March, according to latest data released by the Ministry of Statistics and Programme Implementation. While manufacturing grew 3.4% and beat expectations, mining activity slipped into contraction at –0.2%, and electricity generation dropped sharply to 1.1% in April from 6.3% in March. Consumer durables like vehicles and appliances rose by 6.4%, but consumer non-durables—such as food and toiletries—fell 1.7%, indicating stress in essential goods demand.

Ad violations soar. Offshore betting and real estate were the top two sectors violating advertising rules, accounting for 43% and 24.9% of flagged ads in FY25, as per Advertising Standards Council of India’s annual report. Of 7,199 ads reviewed, 98% needed changes. Public complaints surged 83%, with personal care, health, and food sectors also drawing scrutiny. Influencer violations made up 14% of processed cases. ASCI flagged 121 non-disclosure breaches on LinkedIn and issued advisories. Nearly 3,350 ads violated outright bans, including for gambling, drugs, alcohol, and illegal forex apps. ASCI also cut complaint resolution time by 46%, now averaging 16 days.

Kerala Tackles Runoff From Sunken Ship. A Liberian cargo ship, MSC ELSA 3, sank off Kerala's coast on May 25, spilling oil and hazardous materials like calcium carbide, into the ocean. But, containers have washed ashore along coastal areas like Kollam and Alappuzha. Most recently, people reported seeing plastic pellets. To address this, Kerala has launched a major cleanup operation. The state placed trained volunteers at every 100 meters along the coats to collect plastic pellets. Kerala has also prohibited fishing within a 20 nautical mile radius of the site.

👥 THE TEAM

✍️ Zinal Dedhia, Salman SH, Kudrat Wadhwa | ✂️ Rohini Chatterji | 🎧 Joshua Thomas