Hello, this is Priyanka Salve writing from Singapore.
Welcome to the latest edition of Inside India. A one-stop destination for stories and developments in the world’s fastest growing large economy.
As global capital rushes towards the US on an AI boom and industrial renaissance, India’s once attractive investment story faces uncomfortable questions. This week we unpack how capital flight risks upending India’s ambitions to become an economic powerhouse.
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Rapid growth in the high-tech and artificial intelligence sectors and the push for “America First” policies are drawing global investors and companies, including Indian companies, to the United States, undermining the appeal of the world’s fastest-growing economy and consumption-driven narrative.
Several Indian conglomerates have announced new investments in the United States this year, even as policymakers back home have expressed concerns about weak domestic private sector investment.
Earlier this month, India’s chief economic adviser reportedly criticized private companies for failing to ramp up capital investment despite high profitability.
Indian companies are deploying capital to the US instead
DELHI, INDIA – MAY 13: People move through a crowded wholesale market area on May 13, 2026 in Old Delhi, India. Rising fuel and commodity prices in India continue to impact transportation, retail markets, small businesses, consumer spending and international travel, following recent comments by Indian Prime Minister Narendra Modi urging consumer restraint and cutting back on non-essential spending and travel as the Iran war weighs on the economy. (Photo by Ritesh Shukla/Getty Images)
Ritesh Shukla | Getty Images News | Getty Images
Reliance, the country’s largest corporate group, is investing in the United States to build what President Donald Trump has described as the “first refinery in 50 years.” Indian billionaire Gautam Adani reportedly plans to invest $10 billion in the United States to create 15,000 jobs.
On May 6, the U.S. Embassy announced that Indian companies plan to invest more than $20 billion in the United States across all industries, which is expected to strengthen supply chains and expand U.S. manufacturing capacity while creating thousands of jobs.
Experts say the US is increasingly attracting capital because of its combination of deep consumer markets, technological leadership in artificial intelligence and incentives for local manufacturing, making it difficult for India to match. India is the world’s fastest growing consumer market, but its low per capita income of less than $3,000 limits consumer spending.
“The US is a market that cannot be ignored by Indian companies,” said Alexandra Herman Prasad, chief economist at Oxford Economics, adding: “The US footprint can also be a hedge against future tariff risks, localization requirements and ‘Buy American’ sourcing preferences.”
But the trend raises concerns about India’s investment prospects, with foreign capital flows already weakening. Rupees It fell to an all-time low against the dollar.
Foreign and domestic spills
A Morgan Stanley report last month said India attracted $90.8 billion in foreign direct investment in the 12 months to January 2026 on a trailing basis, up 13% year-on-year, but that was outweighed by increased capital repatriation by foreign companies and increased overseas investment by Indian companies, bringing net FDI to a “near all-time low”.
In a double whammy for India, repatriation exceeded $50 billion for the second year in a row, while overseas investment by Indian companies amounted to $35.8 billion, a 2.6-fold increase in two years.
Experts said the rise in repatriation shows multinational companies are squeezing profits rather than expanding production capacity.
Instead of reinvesting profits, global companies are “harvesting profits” from India to fund investments in other countries, said Hanna Ruchnikava-Shorsch, head of Asia-Pacific economics at S&P Global Market Intelligence. Capital is returning to developed markets such as the US, he added.
This shift signals a disconnect for emerging economies, which promise the best long-term strategies.
P. Krishnan, chief investment officer and fund manager at portfolio management firm Spark Asia Impact Managers, points out that more than half of the money raised in initial public offerings in India last year was to provide an exit to existing investors, not to reinvest in the business.
“Everyone is saying India’s 20-year outlook is much better than the two-year outlook,” Krishnan said, adding that this should have resulted in a “capital raise” and not a further sale offer to encourage investors to exit.
Changes in global capital flows
While the slowing growth of Indian companies is a major concern for foreign investors, experts said there is ongoing global capital movement, which is not in India’s favor.
Global capital is shifting to artificial intelligence, advanced manufacturing, high-end technology ecosystems, and markets such as the United States, South Korea, and Taiwan.
“The United States is doing all the right things for itself,” Rajat Rajgarhia, chief executive officer of institutional equities at Motilal Oswal Financial Services, told CNBC.
In contrast, India is still in the process of scaling up in these areas.
Rajgarhia said on the sidelines of the 2026 Motilal Oswal Conference that to attract global capital, “India needs to reinvent itself as an economy” by building next-generation businesses on a global scale.
Until that happens, global investor sentiment towards India is likely to remain bearish, experts said, adding that the country needs to develop an advanced manufacturing ecosystem, accelerate the development of a technology strategy and strengthen reinvestment incentives to return to competition.
need to know
Treasury and Department of Justice offer legal remedies to billionaire Gautam Adani after US SEC
Indian billionaire Gautam Adani’s legal woes in the United States are nearing an end as authorities move to close an investigation into the businessman and his company on charges of bribery, fraud and Iranian-sanctioned energy purchases.
Air India forced to cancel 27% of international flights in aftermath of Iran war
Air India, backed by Singapore Airlines, will sharply cut its international flights from June to August, the peak travel season, as airspace restrictions caused by the Iran war and record high jet fuel prices strain its ability to fly.
Indian Stock Exchange CEO says domestic investors saved market from ‘freefall’
Domestic investors played a key role in helping India’s stock market avoid a “free fall” after foreign investors sold billions worth of shares last year, the CEO of India’s oldest stock market told CNBC’s “Squawk Box Asia” on Tuesday.
very soon
May 21st: India HSBC’s May Comprehensive PMI.
May 23-26: US Secretary of State Marco Rubio visits India.
