India’s investment appeal dims as firms and funds pivot to the U.S.
Hello, I am Priyanka Salve, writing to you from Singapore.
Welcome to the latest edition “in india“ — your one-stop source for stories and developments from the world’s fastest-growing major economy.
As global capital accelerates towards America, fueled by the AI boom and industrial revival, India’s once intriguing investment story is facing troubling questions. This week, I explain how capital outflows risk upending India’s ambitions to become an economic powerhouse.
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The rapidly developing technology and artificial intelligence sector and the “America First” policy push are bringing global investors and firms, including Indian businesses, to the US, diminishing the appeal of the world’s fastest-growing economy and its consumption-focused narrative.
While many Indian conglomerates have announced a new investment round in the US this year, policymakers have expressed concerns about weak private sector investments domestically.
Earlier this month, India’s chief economic advisor reportedly criticized private firms failure to increase capital expenditures despite strong profitability.
Indian companies are deploying capital to the US instead
DELHI, INDIA – MAY 13: People pass through a crowded wholesale market on May 13, 2026 in Old Delhi, India. While the Iran war weighs on the economy, rising fuel and commodity costs in India continue to impact transportation, retail markets, small businesses, consumer spending and international travel following recent statements by Indian Prime Minister Narendra Modi calling for consumer restraint and cuts to non-essential spending and travel. (Photo: Ritesh Shukla/Getty Images)
Ritesh Shukla | Getty Images News | Getty Images
The country’s largest business group, Reliance, is investing in the United States to build what President Donald Trump said would be the “first refinery in 50 years.” Indian billionaire Gautam Adani reportedly plans 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 in more than 2,000 20 billion dollars in the USA It is expected to create thousands of jobs while strengthening supply chains and expanding U.S. manufacturing capacity.
Experts say the United States is increasingly attracting capital because it combines deep consumer markets, technological leadership in artificial intelligence and incentives for domestic manufacturing — advantages that India cannot match. if india fastest growing consumer Consumption expenditures are limited in the world market low per capita income Under $3,000.
“The US is a market that Indian firms cannot ignore,” said Alexandra Hermann Prasad, chief economist at Oxford Economics, adding: “The US footprint can also hedge against future tariff risks, localization requirements and ‘Buy American’ purchasing preferences.”
However, this trend raises concerns about India’s investment outlook at a time when foreign capital flows are already weakening. rupee It fell to record lows against the dollar.
Domestic and international departures
While India attracted $90.8 billion in foreign direct investment in the last 12 months ending January 2026, up 13% year-on-year, it was dwarfed by repatriation of capital by foreign firms and a surge in overseas investment by Indian companies, pushing net foreign direct investment to “nearly an all-time low,” according to a Morgan Stanley report published last month.
In a double whammy for India, repatriation was more than $50 billion for the second year in a row, while overseas investments by Indian companies increased 2.6 times in two years to $35.8 billion.
Experts said the increase in repatriations indicates that multinational companies are making profits rather than increasing capacity.
Rather than reinvesting profits, global firms are “extracting returns” from India to fund investments elsewhere, said Hanna Luchnikava-Schorsch, head of Asia-Pacific Economics at S&P Global Market Intelligence. He added that capital is moving back towards developed markets such as the US.
For an emerging economy that promises to be a long-term best play, the shift signals 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 capital raised through initial public offerings in India last year was not for reinvestment in businesses but to provide an exit to existing investors.
“Everyone says the 20-year outlook for India is much better than the two-year outlook,” said Krishnan, adding that this should result in “capital raising” and not more sales offers to facilitate investors’ exit.
Change in global capital flows
Global capital is shifting towards artificial intelligence, advanced manufacturing and high-tech ecosystems, and markets such as the USA, Korea and Taiwan.
“The US is doing everything right for itself,” Rajat Rajgarhia, managing director of institutional equities at Motilal Oswal Financial Services, told CNBC, and this is reflected in the increase in the number of companies with trillion-dollar market caps that are building the next global trends in artificial intelligence and technology.
India, on the contrary, is still in the process of building scale in these sectors.
To attract global capital, “India needs to reinvent itself as an economy” by building next-generation businesses on a global scale, Rajgarhia said on the sidelines of the Motilal Oswal Conference 2026.
Until this happens, global investor sentiment towards India is likely to trend downward, experts said, adding that the country needs to accelerate the development of advanced manufacturing ecosystems, strengthen technology plays and reinvestment incentives to get back into the race.
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