US tech giant Apple being asked by US President Donald Trump to desist from ramping up iPhone production in India for American consumers brings the spotlight back to the prospects for foreign direct investments (FDI) in the country. The government has an aspirational objective of attracting $100 billion annually in FDI to boost the growth story. Apple’s entry into India was a showpiece of its ability to attract investors who wanted to de-risk their exposure to the mainland due to Sino-US tensions. All of this has now changed with trade talks between Washington and Beijing with prospects of sharply lower reciprocal tariffs. Trump’s comments come when we hoped to secure a bigger bite of Apple in supplying the US with India-made iPhones that entailed doubling the US tech giant’s output in the country. The US President prefers this company to instead increase its manufacturing footprint in America. Not so long ago, he had also indicated that Elon Musk’s plans to build Teslas in India would be “very unfair” to the US.

India’s prospects for garnering FDI are bound to suffer in a milieu when America First sort of policies influence global investment and trade flows. In fact, they are already beginning to fragment along geopolitical lines, broadly into US-centric and Sino-centric blocs, especially since the onset of Ukraine’s war with Russia three years ago, according to an International Monetary Fund study. The Trump factor is only likely to further accelerate this trend. India’s objectives of attracting $100 billion of FDI inflows must be seen in the context of gross inflows declining since FY22. In FY25 (up to December) they amounted to $62.5 billion. However, as repatriations and disinvestments accelerated to $44 billion, these inflows shrank to $18.5 billion. If reinvested or retained earnings are taken out of the picture, net cash inward FDI flows are estimated to have dipped to a trickle of $1.6 billion during the first nine months of the last fiscal. As repatriations and disinvestments continued in Q4 FY25, net cash inflows will probably be near-zero or even negative during the fiscal as a whole.

These dismal numbers obviously suggest a different narrative from optimistic official statements that India still remains a leading destination for FDI. Repatriations and disinvestments are not good news as they indicate waning foreign investor interest; that they are reducing their exposure and even exiting the market. The Trump disruption only makes the situation worse. With the prospect of Sino-US trade tensions easing, the likelihood of attracting China+1 investment inflows may further recede. Even Apple is unlikely to pivot away from the mainland where it has the manufacturing ecosystem to assemble 80% of all iPhones. In India, the US tech giant is most likely to review its plans to upscale production. How India leverages the opportunities thrown up by global fragmentation has a major bearing on its higher levels of ambition on FDI. The need is for improvements in its FDI regime and ease of doing business, especially in the various states. While the National Democratic Alliance regime liberalised FDI in its first term, progress has slowed. A non-adversarial and transparent regime that doesn’t resort to retrospective taxation will also send the right signals to prospective investors. Above all, there is a need for big-ticket land and labour reforms that will attract more investments to boost India’s overall growth.