India’s ability to continue attracting large volumes of foreign capital at a time when global investors are becoming increasingly cautious is being framed by policymakers as tangible proof of structural economic progress rather than cyclical luck. Chief Economic Adviser Dr. V. Anantha Nageswaran said sustained inflows into equities, bonds and direct investments validate reforms undertaken over the past decade, even as worldwide financial conditions tighten.

Speaking at the Global Securities Markets Conclave 2.0 in GIFT City India’s flagship international financial centre Nageswaran highlighted that gross investment inflows reached 18.5 percent of GDP in FY25 and remained elevated at 16.9 percent during the first half of FY26. These figures include foreign portfolio investments as well as foreign direct investment, capturing the broad spectrum of cross-border capital entering the economy.

The context is critical. Global capital flows have become more selective amid high interest rates in advanced economies, geopolitical fragmentation, supply chain realignment and rapid technological shifts led by artificial intelligence. Many emerging markets have experienced capital volatility, currency pressure or declining FDI. Against this backdrop, India’s relative stability stands out.

Nageswaran noted that UNCTAD data shows India’s FDI inflows dipped only marginally — about 2 percent in calendar 2024 — compared with sharper declines across several large emerging economies. India retained its position as South Asia’s largest FDI destination and outperformed peers such as Indonesia and Vietnam, both of which have historically competed for manufacturing-led investments.

According to the Chief Economic Adviser, this resilience is rooted in cumulative institutional strengthening rather than any single policy measure. Improvements cited include stronger macroeconomic stability, enhanced governance standards, greater transparency, declining transaction costs and the rapid expansion of digital public infrastructure. The deepening of domestic capital markets has also allowed India to absorb and complement foreign flows rather than depend on them exclusively.

He emphasized that global investors are increasingly prioritizing reliability over pure growth potential. In a fragmented geopolitical environment, capital seeks jurisdictions that combine economic stability, political alignment and technological readiness. India’s large domestic market, improving infrastructure and expanding financial ecosystem position it as a relatively safe long-term allocation.

Cross-border financial flows, he said, remain central to India’s integration with global markets, supporting investment, productivity growth and currency stability.

The broader global backdrop is undergoing structural change. Financial markets are being shaped simultaneously by geopolitical tensions, supply chain shifts and rapid technological disruption. Unlike earlier cycles driven largely by monetary policy, current capital allocation decisions increasingly incorporate strategic considerations such as resilience, regulatory predictability and digital capability.

For India, sustained inflows have several implications. On the positive side, they help finance the country’s high investment needs without excessive external vulnerability. Stable capital inflows support the rupee, deepen financial markets and lower borrowing costs for both government and corporates. They also enable continued funding of infrastructure expansion, manufacturing capacity and technology adoption.

However, policymakers remain aware that foreign capital can be volatile, particularly portfolio flows linked to global risk sentiment. The emphasis on structural reforms suggests a strategy aimed at attracting longer-duration investments rather than hot money. Continued development of domestic savings channels including insurance, pension and mutual funds provides an additional buffer against sudden outflows.

From a market perspective, sustained foreign interest typically supports equity valuations, especially in sectors aligned with long-term growth themes such as infrastructure, financial services, manufacturing and technology. Bond markets also benefit through lower yields and improved liquidity when foreign participation rises.