Hello, this is Priyanka Salve, writing to you from Singapore.
Welcome to the latest edition of the “Inside India“ — your destination for news and developments from the world’s fastest growing economies.
As world capital races toward America for AI development and industrial renaissance, India’s once compelling investment case is facing uncomfortable questions. This week, I reveal how capital outflows are a threat to India’s ambition to become an economic powerhouse.
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It’s a big story
A booming technology and artificial intelligence sector and the push for an “America First” policy are bringing global investors and US firms, including Indian businesses, to the world’s fastest-growing economy and its consumption-led narrative.
Several Indian investors have announced a new round of investment in the US this year, as policymakers at home have expressed concern about weak private sector investment at home.
Earlier this month, India’s chief economic adviser reportedly criticized private sector firms for failing to increase capital spending despite strong profits.
Indian companies instead spend money in the US
DELHI, INDIA – MAY 13: People walk through a crowded shopping mall in Old Delhi, India, on May 13, 2026. As the war in Iran weighs on the economy, rising fuel and commodity costs continue to affect transportation, retail markets, small businesses, consumer spending and international travel in India following recent remarks by Indian Prime Minister Narendra Modi urging consumers to curb and reduce non-essential spending and travel. (Photo by Ritesh Shukla/Getty Images)
Ritesh Shukla Getty Images News | Getty Images
The country’s largest conglomerate, Reliance, is investing in the US to build what President Donald Trump has said will be “the first refinery in 50 years.” Indian billionaire Gautam Adani is reportedly planning to invest $10 billion in the US to create 15,000 jobs.
On May 6, the US Embassy announced that Indian companies plan to invest more than $20 billion in the US across industries, which are expected to create thousands of jobs while strengthening supply chains and expanding US manufacturing capacity.
Experts say the US is increasingly attracting capital because it combines deep consumer markets, technological leadership in artificial intelligence, and incentives for local manufacturing, advantages that are difficult for India to match. Although India is the fastest growing consumer market in the world, spending is limited by per capita incomes below $3,000.
“The US is a market for Indian firms that cannot be ignored,” said Alexandra Hermann Prasad, an economist at Oxford Economics, adding that “the US measures could also be a hedge against future tax risks, local needs, and ‘buying American preferences’.”
But the trend raises concerns about India’s investment outlook at a time when foreign capital flows are already slowing, and a rupee slipped to record lows against the dollar.
International and domestic immigration
While India attracted $90.8 billion in foreign direct investment in the 12-month period ending January 2026, up 13% year-on-year, it was overshadowed by large repatriations by foreign firms and an increase in overseas investment by Indian companies, and overall FDI intake was “slowing significantly,” according to a Morgan Stanley report.
Surprisingly for India, while repatriation was over $50 billion for the second year in a row, investments abroad by Indian companies rose to $35.8 billion, a 2.6-fold increase in two years.
The rising rate of repatriation is an indication that multinational firms are extracting profits instead of increasing capacity, experts say.
Instead of reinvesting profits, global firms are “harvesting profits” from India to fund investments elsewhere, said Hanna Luchnikava-Schorsch, head of Asia-Pacific Economics at S&P Global Market Intelligence. The capital is going back to developed markets like the US, he added.
With the emerging economy promising to be the best long-term game, this change represents a disconnect.
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 by initial public offerings in India last year was to provide exits to existing investors, not reinvestment in businesses.
“Everyone is saying that a 20-year view of India is much better than a two-year view,” Krishnan said, adding that this should have resulted in “capitalization” and not more sales offers to ease the exit of investors.
Shift in global financial flows
While slow business growth in India is a major concern for foreign investors, experts say the capital shift is underway, and it is not in India’s favor.
Global capital is moving into artificial intelligence, advanced manufacturing, and high-tech ecosystems, to markets like the US, Korea, and Taiwan.
“The U.S. is doing everything right,” which is evident in the growing number of billion-dollar companies that are shaping the world’s next trends in AI and technology, Rajat Rajgarhia, chief institutional equity officer at Motilal Oswal Financial Services, told CNBC.
India, in contrast, is still in the process of building scale in these sectors.
To attract world capital, “as an economy, India needs to reinvent itself,” by building next-generation businesses around the world, Rajgarhia said on the sidelines of the Motilal Oswal Conference 2026.
Until that happens, global investor sentiment toward India is likely to remain strong, experts say, adding that the country needs to speed up the development of advanced manufacturing facilities, technology plays and strengthen incentives for reinvestment to get back on track.
You need to know
After the US SEC, the Department of Finance and Justice is giving billionaire Gautam Adani legal aid
Indian billionaire Gautam Adani’s legal troubles in the US are about to end as authorities close an investigation into bribery, fraud, and Iranian-sanctioned power-buying charges against the businessman and his company.
Iran war forces Air India to cancel 27% of international flights
Singapore Airlines-backed Air India will significantly reduce international flights during the peak travel period of June to August, as airspace restrictions led by the Iran war and high jet fuel prices weigh on the carrier’s operations.
Indian stock exchange CEO says domestic investors saved markets from ‘freefall’
Domestic investors played a key role in helping the Indian equity market avoid a “crash” after foreign investors sold billions in equities last year, the chief executive of the country’s oldest stock market told CNBC’s “Squawk Box Asia” on Tuesday.
It’s coming
May 21: India HSBC composite flash PMI for May.
May 23-26: US Secretary of State Marco Rubio will visit India.
