India’s growing reputation as an anti-artificial intelligence trade, combined with the economic strain of the prolonged conflict<\/a> in the Middle East on the Indian economy, is leading to a record exodus of foreign investors from the country, experts said. <\/p>\n “India is no longer the obvious, one-way growth story investors assumed it was a few years ago,” said Alexandra Hermann Prasad, lead economist at Oxford Economics. While it “remains strong by global standards,” the economy is facing headwinds from weaker consumption, fragile investment sentiment, higher energy costs and more selective global capital, she added. <\/p>\n Foreign portfolio investors have sold Indian equities<\/a> worth $29.5 billion so far this year, after selling $18.9 billion last year. \u00a0<\/p>\n On the foreign direct investment front, India has attracted gross capital of over $90 billion on a 12-month trailing basis ending January 2026, up 13% year on year. But this was eclipsed by higher repatriation of capital by foreign firms and a rise in overseas investment<\/a> by Indian companies, taking net FDI to a “near all-time low.”<\/p>\n This has significantly weakened the Indian rupee<\/a> against the dollar at a time when global oil prices are rising, creating a treacherous situation<\/a> for India, which imports more 85% of its crude requirements.\u00a0 <\/p>\n As the shocks from the Middle East crisis get passed on to consumers, inflation is set to rise while growth is expected to slow, further narrowing India’s appeal among global investors. Last Friday, the Reserve Bank raised its inflation<\/a> forecast to 5.1% for the financial year ending March 2027 and warned that the economy is likely to grow at a slower rate of 6.6%, from a forecast of 6.9% earlier.<\/p>\n Reform prospects<\/p>\n To stem the flow of capital, the Indian government issued a slew of measures last Friday<\/a>, including exempting capital gains tax for foreign investors in the Indian bond market. While these reforms are timely, India needs to move ahead with big reforms to draw global investors, experts said.<\/p>\n “I think it helps the mood music, but it doesn’t change the symphony,” Stephen Davies, chief executive and founder of Javelin Wealth Management, told CNBC’s Inside India<\/a> on Tuesday. “We need to see a bit more in terms of a bit more market-friendly policies coming through,” Davis added.<\/p>\n According to the CSIS India reforms scorecard, which measures the progress of 30 big reforms across all of Modi’s terms, the government has finalized only two reforms across the last two years \u2014 the start of the third term \u2014 a much slower pace than in Modi’s first or second terms.\u00a0<\/p>\n “Land acquisition processes and legal remediation of disputes have not measurably improved,” Richard Rossow, senior adviser and chair on India and emerging Asia economics at policy think tank\u00a0CSIS, told\u00a0CNBC. He added that labor regulations improved only marginally, while access to reliable, reasonably priced electricity and water “remain core challenges to India’s industrialization goals.”<\/p>\n Rising criticism <\/p>\n The Modi government’s recent handling of the Indian economy is facing criticism. While some experts are calling for reforms, others point to India lagging in the global AI race.<\/p>\n Last month, Indian economist Surjit Bhalla, a former member of the prime minister’s Economic Advisory Council,\u00a0said Modi’s political party<\/a> should use the economic stress of the Middle East crisis to push through reforms. So far, though, no major steps have been announced in this direction.<\/p>\n Global equity research firm Bernstein, in an open letter to Modi in April, warned that AI advancements threaten the quality jobs in India’s information technology sector, which could impact domestic consumption<\/a>. It added that the country also faces a risk of being a “permanent consumer in the AI economy,” as unlike China and the U.S., it does not own any AI models.<\/p>\n Venugopal Garre, managing director and head of India research at Bernstein, told CNBC last week that the country has missed the AI boat, and the only proxy AI play it can participate in is through data centers. But that will not replace the high-quality jobs lost in the IT sector, he said.<\/p>\n![\"Has](\"https:\/\/www.newsbeep.com\/us\/wp-content\/uploads\/2026\/06\/108314981-17803737671780373763-46299441029-1080pnbcnews.jpg\")
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