Other BriefingsWhat is India’s FDI Outlook for 2026? Key Policy Changes, Sectors, and Trade Deals
India remains an attractive FDI destination in 2026 due to sector-specific liberalization, expanding free trade agreements, strong services and manufacturing inflows, and improved market access frameworks for foreign investors.
India is now a leading global investment destination amid shifting supply chains and intensified policy competition across Asia. Foreign direct investment (FDI) inflows reached approximately US$50.01 billion in the financial year (FY) 2024–25, representing a 13 percent increase over FY 2023–24.
Going forward, regulatory developments will carry heightened strategic significance, as global investors rebalance portfolios in response to US tariff uncertainty and tighter global financial conditions.
In this article, we map India’s key FDI policy reforms and regulatory updates introduced in 2025 to help foreign investors assess compliance requirements, identify emerging opportunities, and position for 2026.
Key FDI policy updates introduced in 2025
Indian policymakers emphasize that the country’s FDI framework remains under continuous review to ensure global competitiveness amid intensifying regional policy competition. For example, in February 2025, the finance minister announced plans to raise the FDI cap in the insurance sector.
At the same time, regulators have focused on improving market access and compliance efficiency for foreign investors. Notably, the Securities and Exchange Board of India (SEBI) introduced the SWAGAT-FI (Single Window Automatic and Generalized Access for Trusted Foreign Investors) framework to streamline onboarding and compliance for low-risk foreign portfolio investors, signaling a broader effort to reduce friction in India’s capital markets.
Taken together, five key themes define India’s evolving FDI landscape in 2025.
Insurance sector liberalization
In the Union Budget 2025, the central government announced its intention to raise the foreign ownership limit in the insurance sector from 74 percent to 100 percent, subject to conditions such as mandatory domestic investment of premium income and enabling legislative amendments. A bill to enable this increase was subsequently introduced in Parliament in December 2025.
If enacted, the reform would permit full foreign ownership of insurance companies, facilitate joint-venture buyouts, and support capital deepening in a capital-intensive sector critical to India’s long-term financial resilience.
Investment protection and screening
Revamp of India’s Model Bilateral Investment Treaty (BIT): The 2025 Budget also announced plans to update India’s 2015 Model BIT. The proposed revision aims to strike a more balanced approach—making future treaties more investor-friendly while preserving regulatory safeguards and supporting long-term investment certainty.
Shift toward country-specific investment treaties: India has confirmed that future investment agreements will increasingly be negotiated on a country-specific basis rather than through a single standardized template. This approach allows for tailored protections aligned with strategic bilateral relationships, reflecting a more pragmatic and targeted investment diplomacy.
Foreign-Owned and Controlled Entities (FOCE) framework
India has introduced a foreign-owned and controlled entities (FOCE) framework to strengthen oversight of Indian companies that are effectively under foreign control. Proposed by the Union Finance Ministry and operationalized through regulatory clarifications issued by the Reserve Bank of India (RBI), the framework reclassifies certain Indian entities as foreign-controlled for compliance purposes, even where ownership structures are indirect.
Following updates in early 2025, the RBI expanded the definition of “control” to capture indirect foreign influence through layered ownership structures, offshore vehicles, or trusts. As a result, Indian entities designated as FOCEs are now required to comply with India’s FDI regime for specified corporate actions. This includes restructurings, intra-group transfers, and downstream investments, which may now trigger sectoral caps, pricing guidelines, and approval requirements. The framework is particularly consequential for sectors subject to heightened national security or strategic scrutiny.
Key features of the FOCE framework include:
- Expanded definition of control: Control is assessed not only through direct shareholding but also through indirect or ultimate foreign influence.
- Downstream investment implications: FOCE-classified entities must apply FDI rules when making investments into other Indian companies, aligning such investments with foreign investment norms.
- Enhanced compliance and reporting: Share transfers, restructurings, and internal reorganizations within FOCE structures are subject to stricter reporting and approval processes, limiting regulatory arbitrage.
In effect, the FOCE framework ensures that Indian companies under foreign control, whether direct or indirect, are treated on par with foreign investors for regulatory purposes, closing avenues for indirect entry into restricted or sensitive sectors.
Clarifications for FDI-prohibited sectors
On April 7, 2025, the Department for Promotion of Industry and Internal Trade (DPIIT) clarified that companies operating in FDI-prohibited sectors may issue bonus shares to existing non-resident shareholders, provided that ownership percentages remain unchanged. This clarification resolved a long-standing compliance gray area.
Subsequently, amendments to the Foreign Exchange Management (Non-Debt Instruments) Rules granted explicit statutory backing and retrospective validation to this position. The change removes ambiguity under the earlier regulatory regime and mitigates legacy enforcement risk for companies that had issued bonus shares based on prevailing interpretations, thereby enhancing legal certainty and regulatory comfort for investors.
Market access facilitation: SWAGAT-FI
On August 1, 2025, SEBI introduced the SWAGAT-FI framework as a market access facilitation initiative aimed at simplifying entry for low-risk foreign institutional investors. The regulator issued a consultation paper proposing a streamlined registration and know-your-customer (KYC) process across the Foreign Portfolio Investor (FPI) and Foreign Venture Capital Investor (FVCI) routes, with a focus on reducing duplication, accelerating onboarding timelines, and improving regulatory efficiency.
On December 1, 2025, SEBI formally notified the SWAGAT-FI regulations. Effective from June 1, 2026, the framework will function as a unified digital gateway for eligible foreign investors, enabling single-window onboarding and compliance. The initiative is expected to reduce onboarding friction, enhance transaction certainty, and strengthen India’s positioning as a more accessible and predictable destination for global institutional capital.
Sectoral hotspots and FTAs shaping India’s FDI outlook for 2026
India’s FDI outlook heading into 2026 is being shaped by the convergence of sector-specific demand drivers and an increasingly strategic free trade agreement (FTA) agenda. As tariff liberalization, market access commitments, and supply-chain realignment accelerate, three broad investment themes stand out: services-led scale, digitally enabled consumption, and export-oriented manufacturing.
Services, technology, and global capability hubs
The services economy remains a cornerstone of India’s FDI profile and is expected to retain momentum into 2026. In FY 2024–25, the services sector accounted for around 16 percent of total equity inflows, attracting approximately US$9.34 billion, while computer software and hardware drew a further US$7.81 billion, or about 15 percent of inflows. These investments continue to be driven by multinational demand for global capability centers (GCCs), IT services delivery hubs, digital engineering, and technology consulting platforms.
Looking ahead to 2026, India’s expanding network of FTAs—particularly with developed economies—strengthens the case for locating regional and global services operations in India. Improved certainty on data flows, intellectual property protections, and professional mobility under newer trade agreements enhances India’s appeal as a base for high-value services exports, especially in IT, fintech, digital health, engineering design, and business services.
Digital consumption, e-commerce, and platform-led growth
E-commerce and consumer-facing digital platforms are emerging as a second major driver of foreign investment, underpinned by scale, deepening internet penetration, and consumption growth beyond metro markets. Fast-moving consumer goods (FMCG), beauty and personal care, and home products are among the fastest-growing categories, with orders from Tier 3 cities accounting for close to 40 percent of total volumes—highlighting the breadth of India’s consumer base.
Capital market activity reinforces this trend. Recent high-profile IPOs and late-stage funding rounds in social commerce and online marketplaces signal sustained investor confidence in India’s digital retail ecosystem. For foreign investors, this segment offers exposure not only to consumption growth but also to logistics, payments, data analytics, and last-mile delivery infrastructure—areas likely to attract continued capital inflows through 2026.
Manufacturing, export orientation, and supply-chain realignment
Manufacturing is steadily becoming an FDI growth engine. Government data show that manufacturing FDI rose by approximately 18 percent in FY 2024–25, reaching around US$19.04 billion. Electronics, automobiles, chemicals, construction materials, and electrical equipment have been major beneficiaries, supported by production-linked incentive (PLI) schemes and infrastructure upgrades.
Crucially, India’s manufacturing proposition is increasingly linked to its trade strategy. FTAs are lowering tariffs on both inputs and finished goods, improving the economics of producing in India for export markets. As a result, global manufacturers are viewing India not only as a large domestic market but also as a competitive production base serving Europe, the UK, and other FTA partner economies. This positioning is expected to gain further traction in 2026 as companies diversify supply chains amid geopolitical and tariff-related uncertainty.
How India’s FTA push is reinforcing FDI prospects in 2026
India’s renewed emphasis on FTAs in 2025 has materially strengthened the medium-term investment outlook. The India–EFTA Trade and Economic Partnership Agreement (TEPA), effective from October 1, 2025, is particularly significant. It includes a commitment of up to US$100 billion in investment and the creation of one million direct jobs over a 15-year period—making it the first Indian trade agreement to embed binding investment and employment targets.
Alongside TEPA, the India–UK Comprehensive Economic and Trade Agreement (CETA), signed on July 24, 2025, provides for substantial tariff liberalization. Once fully implemented, around 90 percent of UK goods entering India will see tariff reductions, while nearly 99 percent of Indian exports will gain duty-free access to the UK. Beyond goods, the agreement also addresses services, professional mobility, and recognition of qualifications—factors that directly support cross-border investment and project structuring.
Taken together, these agreements are reshaping India’s investment environment. For European and UK investors, FTAs offer clearer rules on market access, intellectual property, standards cooperation, and dispute resolution, improving predictability and planning horizons. For India, they reinforce its role as both a manufacturing hub and a services exporter embedded in reconfigured global value chains.
2026 outlook: Top sectors expected to attract FDI
As tariff liberalization and regulatory cooperation deepen, new investment is expected to flow into:
- Export-oriented manufacturing, particularly electronics, automotive components, specialty chemicals, and industrial machinery.
- Agri-food and processed food, benefiting from improved access to developed markets and lower duties on inputs.
- Life sciences and medical devices, supported by regulatory alignment and growing healthcare demand.
- Renewable energy and clean technologies, aligned with India’s energy transition goals and European sustainability priorities.
- Digital and knowledge-based services, including IT, fintech, design, and R&D-driven activities.
Lower import duties on capital goods and specialized inputs, combined with preferential access to major consumer markets, strengthen India’s positioning as a competitive production base and services hub through 2026.
Compliance considerations for foreign investors
Compliance should form a core pillar of any India entry or expansion strategy for foreign investors, particularly as regulatory scrutiny has intensified in parallel with liberalization.
First, national security safeguards and land-border restrictions remain firmly in place under Press Note 3 (2020). The framework requires prior government approval for any direct or indirect investment originating from countries sharing a land border with India. This obligation extends to structures involving beneficial ownership or control routed through third jurisdictions, and applies regardless of the investment route. Sectors considered sensitive—including digital infrastructure, telecommunications, defense, and strategically critical technologies—are subject to heightened scrutiny and extended review timelines.
Second, although the majority of sectors are open under the automatic route, foreign ownership caps and conditionalities continue to apply in select industries. Insurance, defense manufacturing, print and digital media, multi-brand retail, and regulated financial services remain subject to foreign-equity ceilings, government-approval thresholds, Indian control requirements, minimum capitalization norms, and fit-and-proper tests. These restrictions are governed by the DPIIT Consolidated FDI Policy and implemented through FEMA regulations.
Finally, effective FDI execution requires disciplined transaction planning and post-investment compliance. Key steps include confirming applicable sectoral caps and approval routes; assessing exposure under land-border and beneficial-ownership rules; structuring pricing, consideration, and payment mechanisms in line with RBI valuation guidelines; and completing mandatory filings—such as Form FC-GPR, Form FC-TRS, and downstream investment disclosures—on the RBI Foreign Investment Reporting and Management System (FIRMS) portal within statutory timelines. Failure to meet reporting or valuation requirements can result in penalties, compounding fees, or delays in future transactions.
ALSO READ: FEMA Compliance Guide for Foreign Investment in India
What investors should watch for in 2026
In 2026, foreign investors should closely monitor policy developments that will shape India’s investment climate.
Key among these is the rollout of the proposed 100 percent FDI liberalization in the insurance sector, including final regulatory conditions governing market entry, capital deployment, and ongoing compliance. Investors should also monitor developments in FDI screening and national security frameworks, particularly for digital, data-driven, and strategically sensitive sectors that affect technology platforms and critical infrastructure.
At the market level, SEBI’s SWAGAT-FI framework is expected to improve onboarding efficiency and compliance certainty for eligible institutional investors, supporting smoother capital flows across portfolio, co-investment, and structured investment channels.
From an opportunity perspective, banking, financial services, and insurance (BFSI), export-oriented manufacturing linked to India’s expanding FTA network, and globally integrated technology and services operations are likely to remain the most attractive sectors. Together, India’s 2025 policy reforms and accelerating trade integration reinforce its positioning as a compelling destination for international investment through 2026.
(With inputs from Archana Rao and Melissa Cyrill.)
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