India is still being considered as one of the world’s fastest-growing major economies. But according to Ruchir Sharma, the reality beneath the headline numbers is far less comforting. In a recent Financial Times column, Sharma warns that India is losing people, failing to attract foreign money, and risking long-term growth unless it changes strategy. India needs to import more capital and export fewer workers, this is exactly what he is asking for.
Strong GDP numbers but weak confidence
India’s official GDP growth rate has been reported at over 8 per cent, but Sharma says that this is not convincing enough for foreign investors.One clear signal is money flows. Foreign investment into India has dried up, this also tell us that outsiders believe the growth numbers “mask underlying weaknesses.”
Another worrying sign, as explained by Sharma, is corporate performance. In most countries, company revenues grow broadly in line with the economy. In India, however, revenue growth of listed companies last year was barely half the GDP growth rate.
This gap raises doubts about how strong the economy really is. Sharma cautions policymakers against relying too much on headline GDP data and also technical adjustments related to inflation may be inflating the numbers.
‘India is losing people at an alarming rate’
Migration is another concern. This decade, India has seen a net outflow of about 675,000 people every year, more than double the annual figure of the 2010s. Only Pakistan, Bangladesh and Ukraine has seen more migration. China is losing people at roughly the same pace as before.
A large part of India’s outflow is skilled workers, the very people the country needs to compete globally. Sharma says that one-third of Silicon Valley’s tech workforce is now Indian. Even elite institutions are feeling the strain. In 2024, 38 per cent of graduates from the Indian Institutes of Technology finished without a single campus job offer. With limited opportunities at home, many Indians are moving to countries still open to migrant labour, such as the UAE and Saudi Arabia.
Foreign money is drying up
Alongside the loss of talent, India is also attracting far less foreign capital than it should. Historically, India has never been a big magnet for foreign investment, partly because of the lingering effects of the “Licence Raj,” complex rules that make it difficult to buy land, hire workers, or shut down businesses.
However, countries like China and Vietnam saw foreign direct investment (FDI) rise above 4 per cent of GDP during their boom years. India’s FDI never crossed 1.5 per cent, and today it has fallen to just 0.1 per cent of GDP. Over the past decade, India slipped from 12th to 19th place among major emerging markets in terms of net FDI as a share of GDP
Sharma also has another argument that investors are being held back not just by old problems, but by new risks. India is widely seen as a tough place to do business. On top of that, foreign investors are worried about strained relations with neighbouring countries, trade tensions with the US, and doubts about India’s future in advanced technology.
Research spending is a major concern. China and South Korea invest more than 2.5 per cent of GDP in research and development. India spends just 0.65 per cent. Sharma explains, “It is no surprise then that it has no serious players in AI.”
Markets strong warning
These concerns are now showing up in financial markets. After years of low interest, emerging markets finally saw foreign inflows into equities last year. India was the exception. It recorded net outflows of $19 billion, the highest on record. Domestic investors stepped in, with households increasing their traditionally low exposure to stocks. Even so, India’s stock market underperformed many of its emerging-market peers.
Sharma stresses that India cannot grow fast on domestic savings alone. Unlike East Asian “miracle” economies, India never built a strong manufacturing base or became an export powerhouse. As a result, it almost always runs a current-account deficit. Foreign capital is crucial not just for funding growth, but also for bringing new technology, skills and management practices into the country.
What are the signs of reform?
According to Sharma, there are some positive steps. Over the past year, the government has moved to streamline labour laws, simplify bankruptcy rules, and create a new agency focused on cutting red tape. These reforms are meant to revive investment.
But Sharma says that domestic private investment has also been weak for years, hurt by the same regulatory complexity and bureaucracy that frustrates foreign investors. Boosting both domestic and foreign investment, he argues, is essential to create jobs and slow the outflow of workers.
Sharma believes that India’s true growth rate will become clear only over time, once technical distortions in the data fade. But regardless of the exact number, he says the real sign of success will be seen only when India starts to import more capital and export fewer workers.