Former Modi Advisor Warns India FDI Climate Not In Great Shape as Outflows Surge in FY26

The Quick Take

• Former PM Modi economic advisor Surjit Bhalla warns India's investment climate is not in great shape as FDI outflows surge in FY26
• Bhalla urges major FDI reforms, citing strict policies and unclear regulations deterring global investors
• The warning coincides with FPI net outflows in FY26, suggesting both foreign direct and portfolio investment sentiment is under pressure

Former Prime Minister Modi's economic advisor Surjit Bhalla delivered a pointed assessment of India's foreign investment environment, warning that the investment climate is not in great shape as FDI outflows accelerate in FY26. Bhalla's call for liberalising foreign investment rules reflects concern that regulatory complexity and policy uncertainty are eroding India's competitiveness against Southeast Asian peers — particularly Vietnam and Indonesia — in attracting manufacturing FDI.

The outflow trend adds complexity to India's growth narrative. While domestic consumption and government capex have sustained GDP growth, the FDI trend is a leading indicator of whether global corporations are building supply chain infrastructure in India for the long term. Apple's India manufacturing ramp, driven by geopolitical supply chain diversification from China, has been a flagship FDI story — but broader manufacturing sector FDI requires consistent policy and regulatory clarity that Bhalla suggests is currently lacking.

Watch RBI's quarterly Balance of Payments data for the FDI inflow/outflow trajectory in Q1 FY27. The macro variable is India's ease of doing business ranking progression: any slippage relative to ASEAN peers in labour law simplification, land acquisition processes, or industrial licensing would validate Bhalla's concerns and accelerate FDI diversion to competitor manufacturing destinations.

Synthesized from 1 source.