'FDI isn't down, there is a confusion': Arvind Panagariya explains what critics are missing

In the last few days, noted economists like Surjit Bhalla and Arvind Subramanian have expressed concerns about India's economy. They have pointed to the weak private investment and declining foreign flows. 

But Arvind Panagariya, a noted economist and former vice-chairman of NITI Aayog, does not think India's FDI story is as bad as critics suggest. He has dismissed claims that foreign investors are losing confidence in India, saying key foreign direct investment data remains "quite robust".

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Panagariya, who is also the Chairman of the 16th Finance Commission, believes there is some confusion in how critics are reading the data.

"As far as the FDI part is concerned, there has been a lot of confusion on this. The figure that we have traditionally tracked is called the gross foreign direct investment (gross FDI). That figure has stayed actually quite robust," he said in an exclusive interview with India Today.

According to the economist, gross FDI stood at around $81 billion in 2024-25 and rose further to nearly $94 billion in 2025-26. "What has changed is that repatriation of the past investment by the foreigners into the Indian economy has suddenly spiked," he said, adding that portfolio investment flows had also taken a hit because of external developments.
    
"The key figure that we all track - the gross FDI - has been very robust. To me, that is the indicator of the economy's productivity; how the foreigners or foreign investors are viewing the future productivity of the economy is determined more by the gross FDI rather than other figures."

"Now these other figures...repatriation portfolio etc are more sensitive to what happens outside. That is also actually resulting from what is happening outside," Panagariya said.  

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Ever since the West Asia war pushed up oil prices and put pressure on the rupee, economists have been locked in a debate over the state of the Indian economy.

Sustained foreign investor outflows have also raised concerns among investors and fund managers, many of whom argue that India needs fresh reforms and tax changes to make India more attractive for global investors.

Earlier this week, economist Surjit Bhalla warned that India was facing a deepening investment crisis and said it was "high time for the Modi government to course correct".

"We've got strange rules which no other country has in terms of FDI. The investment climate in India has really gone negative, and that is well known. The foreigners are not interested in investing in India. Indians are not interested in investing in India," Bhalla told India Today.

Bhalla also argued that India had increasingly replaced private investment with public infrastructure spending over the last decade. "What has happened over the last 10 years is that we have substituted government investment that is public infrastructure investment for private investment," he said.

Later, in an opinion piece in The Indian Express, Bhalla wrote that India risked becoming one of the world's 'Fragile Two' economies alongside Turkey despite stable inflation and manageable current account deficits.

Former Chief Economic Advisor Arvind Subramanian, too, has flagged that the rupee was the worst-performing amongst comparator emerging market countries even before the Iran war. 

In the two or three years preceding the war, no country, except for Turkey, experienced as much of a currency decline, despite as much of an effort by the central bank to defend the currency, he wrote in The Indian Express.

Between 2022 and February 2026, the rupee declined by over 20 per cent despite the RBI interventions in spot and forward markets. "The behaviour of the rupee has highlighted what the official numbers have obscured for some time - that investors are losing confidence in the Indian economy," the former CEA said. 

Panagariya, however, rejected suggestions that India was facing fresh structural imbalances.

"Yes, there are no new structural imbalances," he said, while acknowledging that long-term challenges such as low urbanisation and a large workforce dependent on agriculture persisted. "We continue to have 46% of the workforce in agriculture, and urbanisation is still quite low. So those are very long-term structural features of the economy which need to change over the next couple of decades." 

At the same time, Panagariya acknowledged concerns around regulatory hurdles and the judicial system, saying reforms in both areas remained necessary.

"The regulatory cholesterol, judicial system not functioning in the way you would like it to function in a modern economy - those issues remain," he said. "Judicial reforms in particular - nothing has happened on the judicial front. I am now beginning to kind of get to the judicial reform issue also, and we will need, in the next decade or two, really major reforms."