Inside India newsletter: India’s investment appeal dims as firms and funds pivot to the U.S

Hello, this is Priyanka Salve, writing to you from Singapore. Welcome to the latest edition of "Inside India" — your one-stop destination for stories and developments from the world's fastest-growing large economy. As global capital races toward America on AI boom and industrial revival, India's once-compelling investment story is facing uncomfortable questions. This week, I unpack how capital outflows risk upending India's ambition to become an economic powerhouse. Read on! Any thoughts on today's newsletter? Share them with the team. The big story A booming tech and artificial intelligence sector and the "America First" policy push are bringing global investors and firms to the U.S., including Indian businesses, dimming the appeal of the world's fastest-growing economy and its consumption-led narrative. Several Indian conglomerates have announced a fresh round of investments in the U.S. this year, even as policymakers back home express concerns over weak private sector investment domestically. Earlier this month, India's chief economic advisor reportedly criticized private firms for failing to step up capital expenditure despite strong profitability. Indian corporates instead are deploying capital in the U.S. DELHI, INDIA - MAY 13: People move through a crowded wholesale market area in Old Delhi, India, on May 13, 2026. As the Iran war pressures economy, rising fuel and commodity costs continue to affect transport, retail markets, small businesses, consumer spending and international travel in India following recent remarks by Indian Prime Minister Narendra Modi urging consumer restraint and cuts in non-essential expenses and travelling. (Photo by Ritesh Shukla/Getty Images) Ritesh Shukla | Getty Images News | Getty Images The country's largest business group, Reliance, is investing in the U.S. 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 U.S. to create 15,000 jobs. On May 6, the U.S. Embassy announced that Indian companies plan to invest over $20 billion in the U.S. across industries, which is expected to create thousands of jobs while strengthening supply chains and expanding U.S. production capacity. Experts say the U.S. is increasingly attracting capital because it combines deep consumer markets, technological leadership in artificial intelligence, and incentives for local manufacturing, advantages that are harder for India to match. While India is the fastest-growing consumer market in the world, consumption spending is limited by its low per capita income of under $3,000. "The U.S. is the market Indian firms cannot ignore," said Alexandra Hermann Prasad, lead economist at Oxford Economics, adding that "U.S. footprint can also be a hedge against future tariff risk, localization requirements, and 'Buy American' procurement preferences." But this trend raises concerns for India's investment outlook at a time when foreign capital flows are already weakening, and the rupee has slid to record lows against the dollar. Foreign and domestic outflows While India attracted foreign direct investment of $90.8 billion on a 12-month trailing basis ending January 2026, up 13% year on year, they were eclipsed by higher repatriation of capital by foreign firms and a rise in overseas investment by Indian companies, taking net FDI to a "near all-time low," according to a Morgan Stanley report last month. In a double whammy for India, while repatriation was more than $50 billion for a second consecutive year, overseas investment by Indian companies rose to $35.8 billion, rising 2.6 times over two years. A rise in repatriation signals that multinational firms are extracting profits rather than expanding capacity, experts said. Instead of profit reinvesting, global firms are "harvesting returns" from India to finance investments elsewhere, said Hanna Luchnikava-Schorsch, head of Asia-Pacific Economics at S&P Global Market Intelligence. Capital is moving back toward developed markets such as the U.S., she added. For an emerging economy that promises to be the best long-term play, this 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 the capital raised by initial public offerings in India last year was to provide an exit to existing investors, and not for reinvestment in businesses. "Everybody says that a 20-year outlook on India is way better than the two-year outlook," says Krishnan, adding that this should have resulted in "capital raising" and not more offers for sales to facilitate exits for investors. Shift in global capital flows While the slowing growth of businesses in India is a key concern for foreign investors, experts said that a global shift in capital is underway, and it does not favor India. Global capital is moving to artificial intelligence, advanced manufacturi