Kerala and declining foreign investment

THIRUVANANTHAPURAM: Kerala, which serves as a model for India as a whole in many national development indicators, has fallen behind in attracting Foreign Direct Investment (FDI) during the financial year 2025–26, according to a report by the Department for Promotion of Industry and Internal Trade (DPIIT). For a state like Kerala, FDI is an essential factor for economic growth and the creation of more employment opportunities. However, Kerala is currently lagging behind its neighboring states in attracting foreign investment.

FDI coming into Kerala accounts for less than one percent of India’s total foreign investment. Southern Indian states such as Karnataka, Tamil Nadu, and Andhra Pradesh have recorded significant growth in foreign investment. Experts point to several reasons for this. There are arguments that Kerala still lacks a sufficiently industry-friendly environment compared with neighbouring states and that the absence of large-scale IT and service-sector opportunities is a major disadvantage.

According to data from the past six years, Kerala’s share of the country’s total FDI has remained below one percent. Among the five major southern states, Kerala has also recorded the lowest growth.
In the financial year 2025–26, Kerala received foreign investment amounting to ₹3,281.21 crore, compared with ₹3,330.26 crore in the previous year. This represents a decline of 1.5 percent.

In contrast, foreign investment in Karnataka more than doubled, reaching ₹1,12,869.88 crore. Tamil Nadu recorded a 32 percent increase, reaching ₹41,197.97 crore. In Andhra Pradesh, FDI increased from ₹1,957.05 crore to ₹5,354.40 crore in 2025–26. Among the southern states, Telangana was the other state, along with Kerala, to experience a decline in foreign investment. Although Telangana’s investment fell to ₹19,930.29 crore, it remains ahead of Kerala in terms of the total amount.

Among the Indian states, Maharashtra ranks first in attracting foreign investment. However, its share declined from 39.16 percent in the previous year to 31.30 percent. Meanwhile, Karnataka, which retained second place, saw its share rise sharply from 13.23 percent to 21.99 percent.
Although Kerala has experienced a decline in foreign investment, it is encouraging that some significant developments are taking place. MSC, one of the world’s leading shipping companies, has come forward to make a substantial foreign investment to acquire a 49 percent stake in the Vizhinjam International Port.

The state government’s agreements with various companies, including through the World Economic Forum, for infrastructure development and industrial parks are also welcome developments.
While Kerala should welcome large-scale investments, factors such as the state’s unique geography, limited availability of land, environmental concerns, and high population density must also be taken into consideration. Although Kerala has many favourable conditions required by large high-tech companies, economists generally point out that the state still lacks clear and effective policy frameworks. To increase foreign investment, Kerala needs to focus more on industry-friendly policy formulation, liberalising approval procedures, and speeding up the single-window clearance system.

There is also a need to attract global investors on a large scale to Kerala for the development of sectors suited to the state, such as IT, tourism, and healthcare, as well as for the implementation of advanced technologies, green energy projects, and data centers. Similarly, special programs must be formulated and implemented to bring investments and funds from the Malayali diaspora into Kerala’s productive sectors.
The modern global economic order reminds us that proactive action plans and investor-friendly policies are indispensable for attracting foreign investment.

(The author is a former President of FOKANA and the Founder President of NAMAM (USA).)