Prime Minister Narendra Modi's administration is facing increasing scrutiny as India's economy, once seen as a robust growth story, is now experiencing a notable decline in foreign investment. Experts highlight that foreign portfolio investors have withdrawn $29.5 billion from Indian equities this year, following an $18.9 billion exit last year.
While gross foreign direct investment (FDI) has increased to over $90 billion, net FDI has reached a near all-time low due to higher capital repatriation by foreign firms and increased overseas investments by Indian companies.
This situation has contributed to a weakening Indian rupee, exacerbated by rising global oil prices, which poses inflationary pressures as India imports over 85% of its crude oil. The Reserve Bank of India has adjusted its inflation forecast to 5.1% for the financial year ending March 2027 and lowered the growth forecast to 6.6%.
In response, the Indian government has introduced measures such as exempting capital gains tax for foreign investors in the bond market, but experts argue that more substantial reforms are necessary to restore investor confidence. Criticism of the Modi government's economic management is growing, with calls for reforms to address issues like land acquisition and labor regulations.
Additionally, concerns are rising about India's position in the global artificial intelligence landscape, with warnings that the country risks lagging behind in this critical sector. Overall, the combination of these factors is leading to a challenging environment for India's economy and its appeal to global investors