FPIs leaving India and companies avoiding new investment are signs that the economy needs reformsIndia is still the world’s fastest-growing major economy. But there are some warning lights flashing on the dashboard.For the second time in four months, global fund managers have said India is their least favourite place to invest in the Asia-Pacific region. The same thing happened in August 2025. At the same time, Indian companies are still not investing enough in new factories, machines and businesses.So, while we celebrate India growing at 6.5%-7.5% a year, other countries could be growing faster. A 9% growth rate is like a faster bus passing us by. And if India wants to become a developed country, we need to catch that bus.Why are foreign investors, or FPIs, losing interest in India? One reason is AI. India is not a big player in the AI race. We don’t make computer chips, and we don’t have a leading AI model. It is a bit like the late 1700s, when steam power was changing the world and starting the Industrial Revolution, but India was largely left behind.Countries such as Taiwan and South Korea have gained a lot from the AI boom. Taiwan even briefly overtook India to become the world’s fifth-most valuable stock market. Foreign investors also worry about the pace of India’s economic reforms and whether Indian companies can earn enough money to make their shares attractive.We may say, “Why should we care about foreign investors? They are only here to make money and can leave whenever they want.”But we should care. When foreign investors take their money out of India, they usually take dollars with them. This can make the rupee weaker. And when the rupee falls, things we buy from other countries, from petrol to mobile phones, become more expensive.A weaker rupee can also make Indian investments less attractive to foreigners. And when the stock market gives people smaller returns, Indian investors may also spend less. That can slow down the economy further.This brings us to another warning light: Indian companies are not investing enough.Many companies have had good results for several quarters. But if they are still reluctant to build new factories, buy machines or expand their businesses, it suggests they are not sure that the economy will grow strongly in the future.Companies are also worried about wars, changing prices of raw materials and countries putting higher taxes on imported goods. This makes it harder for them to depend on foreign markets.These two problems — foreign investors losing interest and Indian companies holding back on investment — are signs that the economy needs a tune-up.The government cannot create the next big AI revolution by itself. But it can make it easier for companies to innovate, invest and grow. It can also push ahead with reforms that make India more competitive.The warning lights are flashing. We should pay attention before they turn into a bigger problem.Read more: FPI selloff: Rs 21,000 crore offloaded from Indian markets in August first half; Analysts cite US tariffs, Q1 earnings and rupee depreciation
Disclaimer: Views expressed above are the author’s own.