FDI insurge: Robust inflows into future-focused fields could help India stare down global economic uncertainty

But there’s an FDI shake-up underway, according to a new study from the McKinsey Global Institute (MGI).

As investment decisions increasingly follow geopolitical lines, India stands as the world’s top emerging-market destination for announced ‘greenfield’ FDI—that is, cross-border investment projects that create net new production capacity.

From 2022 through the first five months of 2025, India’s greenfield FDI inflow announcements have averaged $83 billion a year—24% higher than in the 2015 to 2019 period.

Of those billions pledged to India since 2022, nearly 80% were destined for advanced manufacturing, communications and software, and resource-related sectors—industries poised to shape tomorrow’s global economy.

These are neither the conventional textile nor basic product investments that played large roles in years past. While India’s large and growing domestic market continues to pull in foreign investors, it is far from the only factor in play in the post-pandemic years.

FDI as a sign of India’s promise as a hub for future-shaping industries: The MGI study analyzed about 200,000 announced greenfield FDI deals over the past decade. The analysis indicated that large corporations are increasingly making multibillion-dollar bets on future-shaping industries and linking more geopolitically aligned economies in the process.

Amid this global shake-up, signals were mixed for emerging economies, especially for those that may have grown dependent on foreign inflows to prop up economic growth.

Since 2022, advanced economies like the US have attracted larger shares of investment—mostly from one another. For emerging economies in aggregate, the absolute value of FDI announcements has gone up, while their share of the total pie has declined.

This year brought more uncertainty. In the first five months of 2025, new FDI announcements destined for emerging economies dropped by half, in annualized terms, versus the 2022-to-2024 period.

As for India, of the $83 billion per year in announced incoming FDI since 2022, almost half headed for just two of its high-potential sectors. Those two were AI infrastructure and advanced manufacturing, which includes semiconductor, electric vehicle (EV) and battery making facilities.

For example, we see US tech giants announcing large data centre projects on Indian soil. Sizeable semiconductor investments are also in the works. At the same time, we see Japanese and South Korean companies announcing significant new projects in India’s automotive sector for EV assembly and battery manufacturing.

These investments could further integrate India into advanced Asia’s value chains, increasing flows of goods such as components between Japan and Korea, and India. Such investments in knowledge-intensive areas can also facilitate the flow of specialized expertise to Indian industry and empower home-grown tech talent.

It’s no coincidence that both the AI infrastructure and advanced manufacturing industries also figure prominently among India’s 18 future arenas, identified as engines of growth and dynamism in other recent MGI research.

India’s fast-growing and dynamic AI software and services, semiconductors, EVs and batteries were among the 18 transformative industries that could yield up to $2 trillion in revenue for India by 2030—according to a comprehensive analysis of rapidly evolving large-scale sectors and India’s inherent strengths, capabilities and strategic priorities.

A fine balance?: Recognizing that geopolitical considerations are increasingly important in multinational companies’ strategies and investment decisions, where does India stand in the geopolitical landscape of FDI?

The US, advanced Asian economies and Europe were the three regional groups we tracked contributing the lion’s share of India’s announced FDI inflows—with each of the three contributing about 30% of the total. This investment mix differs from what India used to receive in the years just before the pandemic. Notably, Chinese investment in India has plunged, falling 86% between 2015–2019 and 2022–2025 (through May).

Meanwhile, the announced investments coming from advanced Asia have grown by about 75% since 2022, compared with the 2015-19 period. On the whole, the regional sources of India’s FDI pledges are diverse and seemingly well balanced.

While India holds up relatively well amid the FDI shake-up, it’s also worth noting that Indian multinationals are meaningfully expanding abroad. This is another way new trade corridors may be forged. India’s announced outbound greenfield FDI rose 64%, from $16 billion per year in 2015–2019 to $26 billion per year in 2022–2025, with resource-related deals in the Middle East and North Africa (MENA) growing most significantly.

From FDI to productive capacity and economic gains: In principle, FDI can be an important engine of growth, both directly and via spillover effects. And while FDI inflows themselves amount to just a tiny fraction of India’s domestic economy, spillover effects can have outsize impacts over time when they bring knowledge, nurture supplier and talent ecosystems, and catalyse further investment.

When FDI investments are made, we find there are three conditions that point to its subsequent spillover success. First, an economy that receives FDI gets integrated into global value chains via upstream or downstream linkages with other countries. Second, such an economy has adequate human capital, infrastructure and regulatory frameworks in place to absorb incoming technology, skills and knowledge. Finally, FDI spurs domestic investment that boosts economic competitiveness in a sustainable way.

Global investors want to see a clear path for growth and value-creation via their FDI projects. That requires a stable and consistent investment climate—something that should be created and monitored by FDI recipients like India.

With recent US tariffs on India—among the highest in the world—adding uncertainty to exports, what will happen next? While there are no definitive answers right now, we see high potential in a new wave of India-bound FDI. It could offer space to manoeuvre in favour of faster economic growth amid shifting geopolitical dynamics.

The authors are, respectively, senior managing partner, and senior partner, McKinsey in India; and partner, McKinsey Global Institute (MGI).