Actual Overseas Direct Investment (ODI) rose over 11 per cent in May this year as compared to corresponding month of last fiscal, the Finance Ministry has reported.

Experts listed number of reasons for this rise such as liberalised ODI regime and domestic companies’ effort to enter strategic tie-up abroad beside others. They also clarified that higher outflow will not have impact on current account deficit and Indian rupee.

According to the data, collected by the Economic Affairs Department of the Finance Ministry, actual outflow under ODI in May reached over $1.64 billion as against over $1.47 billion in May last year, depicting a growth of over 11.5 per cent. At the same time, FY 26 May number is more than 108 per cent as compared to $0.78 billion.

In April, the growth was led by financial, insurance and business services sectors, followed by manufacturing and wholesale & retail trade, restaurants and hotels. Among the recipient countries, Singapore led the race followed by Mauritius and the US.

Driven by Mix of factors

Commenting on the data, Atul Pandey, Partner at Khaitan & Co, the sharp jump in ODI in April and May which is more than three times, from the corresponding period in last year, is driven by a mix of global and domestic factors. The liberalised ODI regime introduced in August 2022 has removed key bottlenecks, such as ambiguities around round-tripping and step-down structures, allowing Indian companies to act faster on cross-border deals.

“Globally, a weakening dollar, valuation corrections across several emerging and developed markets, and higher risk appetite among Indian conglomerates are all encouraging overseas expansion,” he said.

Lalit Kumar, Partner, JSA Advocates & Solicitors, attributed to the reason in rise in enhanced overseas investment by Indian companies in equity shares of foreign ventures, or grant of loan and issue of guarantees, though issue of guarantees being a non-fund transaction would not impact outflow of funds until the guarantees are invoked.

“One other reason could be Indian companies pursuing overseas ventures in view of anticipated tariff hikes and other geopolitical factors encouraging Indian entities to look for opportunities abroad,” he said.

Yashojit Mitra, Partner, Economic Laws Practice, thinks a generally robust and stable home economy has provided Indian entities with capital; the confidence to invest abroad and grow their global footprint. Some ODI from India has also taken place to take advantage of advanced technologies and innovation ecosystems more prevalent in foreign jurisdictions. “ODI investments have also been seen by companies wanting to access natural resources and raw materials, especially investments in oil and gas, mining and energy projects in Africa and Middle East,” he said.

When asked will this higher outflow impact the rupee, experts do not think so.  

“ODI outflows presented in the data are part of the capital account and don’t directly affect the current account deficit. That said, sustained outflows can marginally weigh on the overall balance of payments. The rupee is unlikely to see major pressure from ODI alone. The currency remains more sensitive to oil prices and global portfolio flows than to strategic overseas investments by Indian companies,” Pandey said.

Kumar of JSA Advocates & Solicitors said, the real impact will only be if outflow of funds through ODI happens with a substantial dip in FDI. “Since FDI is also rising, there should not be concerns or impact on CAD or on INR,” he said.

Published on June 20, 2025