India faces stiff capital-flow challenge amid global AI, manufacturing race

India faces a stiff challenge to attract capital flows as the global investment landscape is being reshaped by the artificial intelligence boom, renewed manufacturing ambitions in developed economies and the increasing weaponisation of global supply chains, according to the India Monthly Economic Review report released by the Finance Minister.

This comes as countries increasingly seek to secure their supply chains, adding to competition for global capital. India, like other developing economies, therefore faces a stiff challenge in attracting capital flows, it said.

There are indications that foreign direct investment (FDI) inflows on a net basis should perform better in the current financial year than they did last year, according to the report.


Despite this, short-term pressure on Indian assets, including the currency, remains, it said.

The AI story continues to drive capital investment and capital flows across borders, while developed countries are also racing to secure investments to finance their renewed manufacturing aspirations, the report said.

The report said geopolitical and geoeconomic uncertainty meant India could not afford to rely on its post-Covid growth performance.

“Geopolitical and geoeconomic uncertainty mean that India cannot afford to rest on its post-Covid growth laurels. It has to be earned every quarter,” the report said.

“That is the challenge for policymakers,” it added.