The manufacturing gap behind India's FDI recovery: decline in greenfield investment reveals weak industrial foundation

India in the Global Supply Chain Restructuring: The Reality Behind the FDI Numbers

In 2025, India's foreign direct investment (FDI) inflows reached $38.89 billion, a year-on-year increase of nearly 44%, moving up two places to 11th globally. This growth stands out against the backdrop of only a 2% increase in FDI for developing economies. However, when measured by the depth of manufacturing, the structural cracks behind the numbers are equally clear: during the same period, India's announced greenfield investment plummeted from $111.14 billion in 2024 to $74.12 billion.

UNCTAD data shows that while these two sets of indicators are not directly comparable, the divergent trends suggest a key shift: continued capital injection into existing projects, but more cautious decision-making for new project locations. The "ceiling" of India's manufacturing attractiveness is becoming apparent.

The Effectiveness Boundary of the Policy Toolkit

Over the past decade, the Indian government has launched "Make in India," the Production Linked Incentive (PLI) scheme, industrial corridors, and semiconductor subsidies, with total PLI spending reaching 1.97 trillion rupees and a dedicated semiconductor fund of 760 billion rupees. These measures have lowered short-term entry costs but cannot resolve the long-term uncertainties of operating a factory for 20 years: land acquisition delays, differing state-level approvals, tax disputes, slow contract enforcement, and tariff volatility.

A 2025 OECD assessment identifies legal and regulatory barriers as the primary constraints on private infrastructure investment in India. UNCTAD also points out that tariff uncertainty, supply chain shifts, and weak investment sentiment are dampening new manufacturing commitments.

The Halo of Mega Projects and the Absence of Manufacturing Clusters

India still attracts several mega investments: Alphabet’s announced $14.5 billion data center project was the largest greenfield investment globally in 2025, and Hynfra’s green ammonia project in Visakhapatnam involves an investment of approximately $40 billion. These projects confirm India's appeal in data infrastructure and clean energy.

But the manufacturing base cannot rely on a few large announcements each year. It requires a broader cluster of medium-sized manufacturers—willing to set up factories in industrial zones, source locally from India, and export globally. Currently, when allocating new factories, investors compare India with Vietnam, Mexico, and Indonesia. India’s market size keeps it on the shortlist, but it is not enough to seal the decision.

Shift in Global Capital Flows: Technology-Intensive Investments Bypass

The global investment structure has undergone a dramatic shift in 2025: capital is flowing into data centers, semiconductors, and AI infrastructure. UNCTAD estimates that announced global data center investments exceeded $270 billion, accounting for more than one-fifth of the value of global greenfield projects. The biggest beneficiaries are economies already embedded in the computing supply chain—the United States (AI platforms and hyperscale infrastructure), Taiwan (advanced chip manufacturing), and South Korea (memory chips).

India enters this investment cycle with its semiconductor projects and domestic computing capabilities still under construction. Its manufacturing reforms have addressed some old bottlenecks, but global capital has now turned to areas where technology, skills, and a mature supplier base are as important as market size.

A "China+1" strategy once anticipated a massive transfer of multinational production to India. Some investment has indeed flowed in (especially in electronics manufacturing), but diversification has not defaulted to India.The “China+1” strategy had anticipated a large-scale shift of multinational production to India, and some investment did flow in (especially in electronics manufacturing), but diversification did not default to India. Companies compare production costs, trade access, logistics, supplier depth, and the stability of central and state-level rules. India’s domestic market remains an advantage, yet it is often insufficient to offset execution risks.

Discerning Statistical Metrics: Net FDI Only $3.34 Billion

India’s FDI performance also depends on statistical methodology. The Ministry of Commerce and Industry reports equity inflows; UNCTAD uses a broader indicator (including equity capital, reinvested earnings, intra-company debt, and adjusting for divestments, etc.). The Reserve Bank of India’s net FDI, after deducting Indian companies’ overseas investments, stood at only $3.34 billion in 2025 (compared to $2.83 billion in 2024).

Indian companies’ outward FDI surged 47% to $35.66 billion, and overseas greenfield project announcements grew 41% to $25.29 billion. The overseas expansion of domestic firms is not a policy failure, but the data shows strong willingness among Indian enterprises to invest abroad, while net foreign capital increases remain meager.

Deep-Seated Constraints: Land, Approvals, and Institutional Implementation

India has removed several old obstacles: GST replaced the patchwork of indirect taxes, the bankruptcy code provides a unified framework, and India Stack expands digital infrastructure. Yet the next tier of constraints is harder to resolve: land management, state-level approvals, court efficiency, tax enforcement, and trade policy. Central subsidies cannot indefinitely compensate for uncertainties in these areas.

Conclusion: FDI Recovery Is Real, Manufacturing Transformation Has a Long Way to Go

The growth in India’s FDI in 2025 is genuine, but the decline in greenfield investment prevents the ranking from being given too much weight. Until more new factories come online at scale, $38.89 billion is merely progress in the FDI ledger, not proof that India has become a global manufacturing hub. In the game of supply chain restructuring, India still needs to bridge the gap between policy ambition and execution reality.