The Indian economic growth narrative faces growing scepticism as international financial experts and former policymakers warn of deep underlying vulnerabilities during Prime Minister Narendra Modi’s third term.
Despite holding the title of the world’s fastest-growing major economy, India is experiencing a historic exodus of foreign portfolio investors (FPIs). Driven by rich market valuations, a weakening currency, and a global capital rotation toward artificial intelligence opportunities overseas, FPIs dumped a staggering 62,853 crore rupees in equities during the first fortnight of June alone. This massive sell-off pushed total 2026 equity withdrawals to 2.87 lakh crore rupees, vastly eclipsing the 1.66 lakh crore rupees divested in the entirety of 2025.
This rapid capital flight, compounded by escalating West Asia geopolitical tensions and volatile crude prices, has severely weakened the local currency. The rupee has depreciated nearly six per cent in 2026, forcing the Reserve Bank of India to cut its annual gross domestic product growth forecast from 6.9 per cent to 6.6 per cent.
Independent economists, including former central bank governor Raghuram Rajan, argue that headline numbers obscure a disconnect on the ground. Rajan points to stagnant private corporate investment and weak domestic consumption as a major structural puzzle.
Compounding this, net foreign direct investment remains restricted as multinational firms opt for capital repatriation rather than local expansion.
Furthermore, administrative friction stalls industrial momentum. Over the past two years, the government has finalized just two out of thirty major legislative reforms tracked by the Centre for Strategic and International Studies, leaving critical bottlenecks in land acquisition and legal dispute resolution unresolved.
Analysts warn that India risks missing out on model ownership in the ongoing technological transition, threatening high-quality IT sector employment and leaving the nation vulnerable to permanent consumerism rather than industrial leadership.