FDI Concentration in Maharashtra & Karnataka Raises Concerns as GST Filing Crackdown Intensifies

India continues to attract robust Foreign Direct Investment (FDI) in 2025, but recent data released by the Department for Promotion of Industry and Internal Trade (DPIIT) reveals a troubling pattern — a disproportionate concentration of FDI in just two states: Maharashtra and Karnataka. These states accounted for more than 55% of India’s total FDI inflows in the last financial year, triggering concerns about regional imbalance and unequal economic development.

Simultaneously, the Central Board of Indirect Taxes and Customs (CBIC) has launched an aggressive GST filing clampdown, aimed at improving tax compliance and plugging revenue leaks. These twin developments — booming FDI in specific pockets and stringent GST enforcement — are reshaping India’s investment and compliance landscape.

Maharashtra and Karnataka: Dominating India’s FDI Landscape

According to official DPIIT figures, Maharashtra received nearly 30% of total FDI inflows, with Mumbai continuing to serve as a financial magnet for global corporations. Karnataka, driven by Bengaluru’s IT and startup ecosystem, absorbed around 25% of the FDI pie. This includes significant investments in sectors like fintech, semiconductors, data centers, and green energy.

“Global firms prefer hubs with infrastructure, talent, and regulatory ease. Maharashtra and Karnataka have built strong foundations for that,” noted a senior economist from Invest India.

While this trend reflects the success of economic clustering, it has also raised alarms among states like Bihar, Jharkhand, and parts of North-East India, which continue to struggle to attract foreign capital. The growing FDI gap poses questions about the inclusivity of India's growth model.

Why Other States Are Losing Out

Experts point to a mix of factors:

• Lack of industrial infrastructure

• Inconsistent policy execution

• Bureaucratic red tape

• Limited access to skilled workforce

States like Tamil Nadu, Gujarat, and Telangana have made progress in narrowing the gap but still lag behind the sheer volume of inflows to Maharashtra and Karnataka. According to a Brookings Institution analysis, investor familiarity and established global supply chains play a huge role in repeat investments.

Centre’s View: Rebalancing Growth with Incentives

To address this disparity, the Union government has launched the PM Gati Shakti Master Plan and the Production Linked Incentive (PLI) scheme, aiming to incentivize manufacturing and investment in underdeveloped states. However, implementation remains uneven.

The Ministry of Commerce and Industry has reportedly been in discussions with states like Chhattisgarh and Odisha to streamline land allotments and reduce compliance burdens, which often deter foreign investors. But bridging this gap will require deeper reforms in state-level governance and coordination with central policies.

GST Filing Crackdown: A Compliance-First Approach

Alongside the FDI narrative, the GST regime is witnessing a tough compliance push. In a bid to widen the tax net and reduce input tax credit fraud, the CBIC has intensified scrutiny of non-filing and misreporting entities. The clampdown includes:

• Blocking of e-way bills for repeated non-filers

• Real-time matching of GSTR-1 and GSTR-3B

• Targeted audits and notices for high-risk profiles

• Use of AI-driven analytics to detect anomalies in return data

According to Economic Times, over 1.2 lakh GST registrations have already been flagged for inconsistencies or non-compliance in Q1 2025 alone.

Industry Reaction: Mixed Signals

While the move is welcomed by tax experts and formal sector businesses, small traders and MSMEs have expressed concern over procedural complexity and the threat of penalties. Industry bodies like FICCI have urged the government to balance enforcement with support, especially for first-time defaulters or those facing genuine issues like portal downtime or delayed invoice data.

“Compliance should not mean fear. There must be better handholding for small players,” said a FICCI spokesperson during a recent press conference.

The Bigger Picture: Economic Growth vs Inclusive Development

India’s ambitions to become a $5 trillion economy hinge not just on foreign investment and tax revenue, but on equitable participation from all states. The current dual narrative — investment success in a few regions vs increasing tax enforcement — suggests a need for more federal cooperation, better state-level competitiveness, and an improved ease of doing business environment across the board.

Reforms like faceless GST assessments, digitization of state investment promotion boards, and simplified dispute resolution will be key to ensuring that India’s next decade of growth is geographically and economically inclusive.

Conclusion: Reforming with Purpose

The dominance of Maharashtra and Karnataka in attracting FDI isn’t just a reflection of their strengths — it’s also a reminder of what other regions must aspire to achieve. Similarly, the GST clampdown shouldn’t be viewed as punitive, but as a necessary step toward a cleaner, more transparent tax ecosystem.

India stands at a critical juncture where balanced investment and responsible compliance could redefine its economic future. Policymakers will need to ensure that these parallel developments feed into a cohesive national strategy, one that doesn’t leave any state or sector behind.