SUMANSPEAKS

18 JUNE 2026  |  MACRO & POLICY INTELLIGENCE

SumanSpeaks

Independent Capital Markets Intelligence  |  Estd. 2006

Forex Reserves  ·  FDI  ·  Capital Account  ·  RBI Policy

Debt Can Defend a Currency.
Only Investment Can Define a Nation.

Subhash Garg diagnosed the symptom. The June 5 measures were debt-heavy and investment-blind.

SumanSpeaks asks the harder question: why has India stopped being worth the commitment?

~ Sumon Mukhopadhyay, Mumbai

On June 5, the Government of India and the Reserve Bank of India unveiled a package of measures intended to shore up the country's foreign exchange reserves and arrest the rupee's slide. Markets offered a polite nod. Economists offered qualified approval. And former Finance Secretary Subhash Chandra Garg, writing in the Deccan Herald, offered the most accurate verdict: not a single measure in the entire package was designed to attract foreign equity investment. Every single tool deployed was debt-centric — NRI deposits, external borrowings, quasi-sovereign instruments. Dollars borrowed, not dollars earned.

Garg is right. But he stops at the policy window. The real question is not why the government chose debt over equity on June 5. The real question is why, after three decades of liberalisation, India's policymakers have quietly — and dangerously — concluded that foreign equity investment is no longer something they need to actively court.

That is the disease. The June 5 package was merely a symptom.

"Gross FDI into India hit a record $94.53 billion in FY26. Net FDI? A mere $7.65 billion. The rest walked out the door — as repatriated profits, encashed positions, and Indian capital fleeing abroad. A nation cannot borrow its way to investment credibility."

— SumanSpeaks Analysis

1	The Scoreboard Illusion: Gross FDI vs. the Net Reality

The official narrative on FDI is one of relentless triumph. Gross FDI inflows into India rose to a record $94.53 billion in FY2025-26 — up 17% from the previous year. Press releases were duly issued. Rankings were duly cited. India, the world was reminded, is the second-largest destination for greenfield FDI announcements globally, behind only the United States.

Net FDI, however, tells a very different story. After accounting for profit repatriation, disinvestment exits, and outbound Indian investments abroad, net FDI for FY26 stood at a threadbare $7.65 billion. In FY25, it was $0.96 billion — virtually zero. As recently as FY21, net FDI was $43.9 billion. That collapse — from $44 billion to under $8 billion in five years — is not a rounding error. It is a structural verdict on India's investment attractiveness delivered by the very investors who are already here.

The gross number is flattering. The net number is honest. And the honest number says that existing investors are taking money off the table faster than new investors are committing fresh capital. When capital is voting with its feet, policymakers should be asking why. Instead, on June 5, they announced another round of NRI deposit incentives.

India FDI — The Gross vs. Net Divergence

YEAR	GROSS FDI	NET FDI
FY2021	~$64 Bn	$43.9 Bn
FY2024	~$71 Bn	$10.9 Bn
FY2025	$80.6 Bn	$0.96 Bn
FY2026	$94.53 Bn (record)	$7.65 Bn

Source: RBI Annual Report 2025-26. Net FDI = Gross inflows minus repatriation minus outbound Indian investment.

2	The Real Yield Trap: Why Global Capital Has Better Options

Here is something India's forex managers do not like to discuss in polite company: the real yield differential between Indian debt and US Treasuries has collapsed to levels where the currency risk of holding rupee assets is simply not compensated by the return premium. US 10-year Treasuries at 4.3% risk-free. Indian G-Secs at 6.8-7%. Net of hedging costs (which easily run to 5-6% annualised) and rupee depreciation — which has been the worst-performing major Asian currency since 2025, having breached ₹95 against the dollar in 2026 — the effective yield for a foreign investor holding Indian debt is negative.

This explains the FPI exodus that Garg references but does not fully anatomise. FPIs have withdrawn over $30 billion from Indian markets in 2026 alone — exceeding the entirety of the 2025 outflow. This is not panic selling. This is rational capital allocation. When India's central bank simultaneously signals that it will not aggressively defend the rupee (to protect exporters) and offers no credible real return over dollar assets, foreign portfolio investors are not "losing faith in the India story." They are doing arithmetic.

The June 5 measures — by offering higher deposit rates to NRIs — attempted to solve this problem with a higher price tag on the same flawed product. It is the equivalent of a restaurant raising the price of a dish that customers are already not ordering. The problem is not the price. The problem is the menu.

3	The Domestic Capital Flight: The Signal Nobody Wants to Name

Garg briefly flags that Indian businesses are rushing to invest outside. This is the most damning data point in the entire forex debate, and it deserves far more than a passing mention. When homegrown capital — capital that knows the regulatory terrain, understands the market, and has already built businesses here — chooses to deploy fresh resources in Dubai, Singapore, and the United States rather than India, it is not making a financial decision. It is making a civilisational one.

The reasons are not mysterious. Contract enforcement in India takes years. Land acquisition remains an expensive legal labyrinth. Tax litigation is aggressive and prolonged — startup founders who built billion-dollar companies are fighting angel tax demands years after their exits. Industrial power tariffs for manufacturing units remain among the highest in Asia. And for every sector that has been liberalised, two others operate under licensing frameworks that belong to the 1970s.

Foreign capital watches domestic capital. Always. The moment global investors observe that Indian promoters are routing fresh investments through Mauritius, Singapore, or Abu Dhabi holding structures rather than directly into Indian entities, the signal is unambiguous: the smartest money in the room does not fully trust the room. No incentive package can overcome that signal. No deposit rate premium can substitute for structural confidence.

"Foreign capital watches domestic capital. Always. When Indian promoters route fresh investments through Singapore rather than Nariman Point, the signal to global investors is unambiguous — and no NRI deposit scheme fixes it."

— SumanSpeaks Analysis

4	What Garg's Piece Missed: The Global Reallocation Story

Subhash Garg's analysis — sharp as it is — frames India's investment problem primarily as a domestic policy failure. That is accurate but incomplete. There is a global structural reallocation happening simultaneously, and India is losing that race too.

The world's patient, long-duration capital — sovereign wealth funds, pension funds, infrastructure-focused private equity — is currently moving toward three distinct themes: artificial intelligence and semiconductor infrastructure (Taiwan, South Korea, the United States), green energy and green shipping infrastructure (Europe, Gulf, Southeast Asia), and supply chain diversification manufacturing (Vietnam, Mexico, Indonesia). India has a legitimate claim on all three categories. It is actually executing on none of them at scale.

Consider the irony. India's own shipbuilding sector — represented by companies like Swan Corp's SDHI at Pipavav — is securing its first-ever ammonia dual-fuel vessel orders, placing India at the frontier of green maritime technology. India's LNG infrastructure — Swan Corp's Jafrabad terminal, Petronet LNG, GSPC — is positioned to be a critical node in Asia's energy transition. Yet the global sovereign funds that finance these exact asset classes are not writing cheques to Indian infrastructure on the scale they are writing to comparable assets in Malaysia, UAE, or Australia.

The reason is not that Indian assets are inferior. The reason is that India's investment framework — dispute resolution, contract sanctity, regulatory predictability — does not yet inspire the long-horizon confidence that patient capital demands. A sovereign wealth fund committing $2 billion to an LNG terminal needs certainty over 25 years, not assurances that "things have improved." Vietnam offers that certainty. India offers a Single Window portal that, behind the scenes, still leads to twelve different desks.

5	The Forex Reserve Quality Question: $681 Billion — But of What Kind?

India's forex reserves stood at $681.6 billion as of the week ending June 5, 2026 — a number that still draws admiring commentary in financial media. But the composition of those reserves matters as much as the quantum. A reserve stockpile built through short-term debt instruments, NRI deposits, and sterilised intervention is fundamentally different from one built on the back of export surpluses, productive FDI, and sustained current account strength.

Debt-financed reserves carry a maturity profile. They must be serviced, rolled over, or repaid — and when global risk sentiment shifts, the rollover risk becomes the crisis. This is not a theoretical concern. Several emerging market economies across Latin America and Southeast Asia have demonstrated, repeatedly, that headline reserve adequacy built on borrowed dollars evaporates precisely when it is needed most. The quality of the reserve base — equity-backed, export-backed, investment-backed — determines whether a country can defend its currency in a crisis or is merely renting the appearance of strength.

The RBI spent $33 billion of forex reserves defending the rupee between February and May 2026, with the rupee nonetheless breaching ₹95 against the dollar and touching an all-time low of ₹96.84 on May 20. That $33 billion was not replenished by fresh FDI. It was borrowed back through the very NRI deposit incentives that Garg correctly identifies as debt-centric. India is running on a forex treadmill — spending equity-equivalent reserves to defend a currency, then borrowing debt to refill them. This is not reserve management. It is reserve recycling.

6	What Actually Needs to Happen — The SumanSpeaks Prescription

The prescription is not complicated. It is merely politically uncomfortable, which is why it keeps getting deferred in favour of deposit rate tweaks and portfolio flow incentives.

First, rationalise tariffs on manufacturing inputs. The Make in India vision cannot coexist with import duties that make it uneconomical to manufacture for export. Global value chains require seamless intermediate goods flows. India's tariff walls — built to protect domestic incumbents — are primarily keeping out the foreign investment that would build the manufacturing base in the first place. The government cannot simultaneously want Samsung to build phones in India and tax the components Samsung needs to do so.

Second, restore regulatory predictability. The sudden laptop import restriction of 2023, the abrupt changes to e-commerce FDI norms, the retroactive application of angel tax — each individual episode may have had a justification. Collectively, they have communicated to global investors that India's regulatory environment is subject to discretionary intervention at any point. That perception is worth more than any incentive package in deterring long-term capital commitment.

Third — and this is the one nobody in North Block wants to say loudly — rationalise capital gains taxation. India's capital gains tax structure, particularly on listed equities and real assets, has become a significant deterrent to foreign long-term investors who compare net-of-tax returns across competing destinations. When Singapore offers zero capital gains tax and Dubai offers near-zero, India's 10-20% regime with surcharges requires a commensurately superior return to attract the same capital. It is not getting it.

Fourth, build long-duration infrastructure equity partnerships with sovereign wealth and pension funds. India's physical infrastructure pipeline — LNG terminals, green shipyards, renewable energy, data centres, logistics hubs — is the most compelling patient-capital story in Asia over the next two decades. But sovereign funds do not invest in project pipelines. They invest in frameworks. Australia's infrastructure investment boom was not driven by individual project attractiveness — it was driven by a legal and regulatory framework that gave global pension funds the certainty to commit across decades. India needs that framework, not another incentive committee.

"India's physical infrastructure pipeline is the most compelling patient-capital story in Asia over the next two decades. But sovereign funds do not invest in project pipelines. They invest in frameworks. India is still selling projects when it should be selling certainty."

— SumanSpeaks Analysis

SumanSpeaks View: Stop Renting Stability. Start Building It.

Subhash Garg's Deccan Herald piece is an important and honest intervention. He has named the June 5 package for what it is — a debt-centric defensive manoeuvre masquerading as a capital account strategy. That diagnosis is correct. But the cure requires going further than Garg's analysis takes us.

India is not suffering from a lack of foreign interest. India is suffering from a lack of foreign conviction. The interest is there — $94 billion in gross FDI proves it. What is missing is the conviction to stay, to reinvest, to build for the long term rather than exit at the first liquidity window. That conviction is not bought with deposit rate premiums. It is earned through years of consistent, predictable, investor-respecting policy behaviour.

The rupee will stabilise when India stops needing to defend it. India will stop needing to defend it when the capital inflows are equity-driven, productive, and long-duration — not when NRI deposits have been sweetened by another 50 basis points.

Debt can buy time. Only investment can buy stability. India has been buying time for long enough.

Disclaimer

This article is published by SumanSpeaks (sumanspeaks.blogspot.com) for general informational and educational purposes only. The author is a financial and equity analyst and financial advisor with over 25 years of capital markets experience. This is an independent editorial opinion and does not constitute investment advice. All data cited is sourced from publicly available RBI publications, government filings, and credible financial media. Readers are advised to conduct their own due diligence before making any financial or investment decisions.

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