Rising foreign fund inflows have helped improve India's balance of payments position and strengthened confidence in the country's growth story, even as lingering geopolitical tensions in West Asia and inflationary pressures continue to pose risks, according to the Reserve Bank of India's (RBI) monthly bulletin released on Wednesday.
The domestic economy has navigated external uncertainties well, and the recovery in foreign investments in recent months points to a revival in business confidence, the bulletin said.
This comes despite the global economy continuing to grapple with heightened uncertainties arising from fragile geopolitics and supply chain disruptions, according to an article in the bulletin.
"Amidst these uncertainties, India remains among the fastest-growing major economies and has been able to sustain momentum in economic activity through June. Both industrial and services sector indicators remained firm. What is more noteworthy is that external vulnerability indicators also remain sound, as there has been a recovery in foreign investments in recent months, which shows a revival of confidence in the economy," the RBI said.
Foreign portfolio investments (FPIs) recorded net inflows in June, driven by policy support for the debt segment and easing geopolitical tensions.
In July (up to July 20), FPIs infused $3.1 billion into equity and debt segments after pulling out nearly $30 billion in the previous fiscal year.
During April-May, net FDI rose to $6.5 billion from $2.5 billion in the corresponding period of 2025. Gross inward FDI increased to $21.4 billion from $17.1 billion. However, in May alone, net FDI slipped to negative $0.1 billion from $0.9 billion a year earlier.
FDI remained higher in both gross and net terms, supported by lower repatriation, the bulletin said, adding that Japan, Singapore and Mauritius accounted for around 74% of total inflows. Financial services attracted the highest share of inflows, followed by manufacturing, wholesale and retail trade, and computer services, together accounting for nearly 80% of total inflows.
On outward FDI, around 74% of flows were directed towards the US, the Cayman Islands and the Netherlands. Financial, insurance and business services, along with manufacturing, accounted for more than 85% of the outflows during April-May.
Significantly, the article ruled out a sharp rise in food inflation, noting that the country has comfortable foodgrain stocks despite slower sowing due to the uneven southwest monsoon.
External commercial borrowing (ECB) registrations also rose significantly during April-May. After adjusting for principal repayments, net ECB inflows were lower, although they recorded a sequential increase in May. Around 37% of ECBs were mobilised for capital expenditure.
Total ECB registrations increased to $8.5 billion during April-May from $5.7 billion in the corresponding period of the previous year.
On the inflation front, retail inflation breached the RBI's 4% target for the first time since January 2025, rising to an 18-month high of 4.4% in June 2026 from 3.9% in May, driven primarily by food, beverages and fuel prices, while core inflation remained unchanged.