The Retention Gap
Katrela Ventures Daily Update · Investment, M&A and Business Innovation Digest · 22 September 2026
Key takeaways
India's gross FDI inflow reached $30.7 billion in April–June 2026, the highest quarterly figure in 15 years.
Outflows totalled $22.8 billion, leaving a net FDI surplus of $7.8 billion; the top five states took over 70% of inflows.
PhonePe received in-principle approval from the Central Bank of the UAE.
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📩 #Read the full update below.
01. TOP STORIES
PhonePe Secures In-Principle Approval in the UAE: Digital payments platform PhonePe has received In-Principle Approval (IPA) from the Central Bank of the UAE (CBUAE) for two key licenses: Retail Payment Services and Card Schemes (RPSCS) and Stored Value Facilities (SVF). Upon securing final approval, PhonePe plans to collaborate with regional banks and local vendors, support UAE domestic payment rails like 'Aani' and 'Jaywan', and leverage its scalable technology stack which currently serves over 700 million registered users and 50 million merchants in India to advance the UAE's cashless economy vision.Lavni Ventures Closes Fund II at Rs 200 Crore: Early-stage deep-tech impact VC firm Lavni Ventures has successfully closed its Fund II at its targeted Rs. 200 crs. (~$21 million) in committed capital retaining a green-shoe option of Rs. 100 crs. a year after its first close in August 2025. The SEBI-registered Category II AIF will deploy Rs. 2–6 crs. at the Seed stage and Rs. 8–15 crs. for follow-ons and Series A rounds in health and climate tech. The fund has already completed its first three investments: Padcare Labs, Monitra Healthcare, and Vidcare.
02. QUICK TAKES
India's Gross FDI Hits a 15-Year High of $30.7B - But $22.8B Flowed Right Back Out
Ecosystem Scale: Gross FDI (Q1 FY26-27): $30.7B (15-year high) | Total Outflows: $22.8B | Net FDI Surplus: $7.8B | Top 5 States' Share: 70%+
India attracted a record gross FDI inflow of $30.7 billion in April-June 2026, the highest quarterly figure in 15 years, driven by macroeconomic stability, PLI-scheme incentives, and continued China+1 supply-chain rebalancing. But the same quarter saw total outflows of $22.8 billion - comprising $5.8 billion in repatriation/disinvestment by foreign investors and $2.1 billion in outward FDI by Indian companies - leaving a net FDI surplus of just $7.8 billion, roughly a quarter of the headline gross number. The gap between gross and net isn't noise; it's the entire story of how durable this capital actually is.
The composition problem is structural, not cyclical: over 60% of cumulative FDI inflows have flowed into IT services, financial services, and telecom rather than job-intensive core manufacturing - meaning the capital India is winning isn't necessarily the capital India needs to build a manufacturing base. Regional concentration compounds this: the top five states (Maharashtra, Karnataka, Gujarat, Tamil Nadu, Delhi) corner over 70% of total FDI equity inflows.
Government levers explain why the gross number is real, even if net capital retention lags: 100% FDI via automatic route now covers defence, civil aviation, telecom, renewable energy, and single-brand retail. The National Single Window System has digitally unified 250+ central and state clearances into one portal PM Gati Shakti's multi-modal logistics planning is cutting logistics costs from 13% toward under 9% of GDP and corporate tax was rationalized to 22% for existing companies and 15% for new manufacturing units under Section 115BAB. These are the mechanics behind India's $6.8-7.2% GDP growth pitch to global capital, layered on top of Digital Public Infrastructure (UPI, Aadhaar, FASTag/ULIP) that lowers multinational transaction costs directly.
The structural friction points are still unresolved: India's Model BIT (2016) mandates exhausting local judicial remedies for 5 years before international arbitration, actively slowing new treaty negotiations with the EU and US - a legal architecture problem, not a sentiment problem. The proposed fixes - modernizing BIT arbitration clauses, mandating local value-addition thresholds to stop "screwdriver assembly" operations, and offering targeted fiscal incentives for greenfield FDI in Eastern and Central India - are all still roadmap items, not implemented policy.
Katrela's Take
➢ Despite hitting a 15-year high of $30.7 billion in gross FDI, only about a quarter remained as net surplus after repatriation, with over 60% flowing into services and 70% concentrated across just five states. Consequently, India currently excels more at attracting capital than at converting it into a distributed, job-intensive manufacturing base. Moving forward, the true metric of durable industrial capacity will depend on improving net FDI retention and expanding capital capture into Tier-2 and Tier-3 regions.
03. FUNDING BRIEF
Pune-based fintech and brokerage startup Definedge has raised Rs. 22 crs. in a Pre Series -Afunding round from existing backers Nitin Agarwal and D. Prasad, alongside new investors Anant Jain and Sachin Kasera, taking its total fundraising to Rs. 30 crs. Co-founded in 2021 by Prashant Shah and Rajesh Badiye, the full-stack wealth-tech ecosystem operates over 14 platforms including Opstra, Zone, Algostra, Momentify, and Gurukul - serving a user base that has grown 125% in 14 months and 10X in 36 months, with Momentify targeting Rs. 5,000 crs. in AUM over the next 24 months.Bengaluru-based AI-powered product co-creation startupDemoverse has raised $600K(Rs. 5 crs. approx.) in a Pre-seed funding round led by gaming and interactive media-focused venture capital firm Lumikai. Founded earlier in 2026 by Akshay Mehta, the B2B2C startup enables brands to involve communities directly in product design using AI-powered tools and human preferences to reduce uncertainty in inventory and product decisions. Operating initially in fashion with plans to expand into beauty, interiors, and other physical categories.
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Frequently asked questions
How much FDI did India attract in Q1 FY27?
Gross FDI inflows reached $30.7 billion in April–June 2026, the highest quarterly figure in 15 years.
Why is net FDI much lower than gross FDI?
About $22.8 billion flowed back out through repatriation and disinvestment, leaving a net surplus of roughly $7.8 billion.
Where is FDI concentrated?
The top five states account for more than 70% of inflows, and over 60% of cumulative FDI has gone into IT services, financial services and telecom.
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