Retaining Foreign Capital Is Not Entirely In India’s Hands: FM Sitharaman

India is betting on semiconductors, renewable energy and AI adoption to attract long-term capital, even as global investors increasingly gravitate towards US-based artificial intelligence companies and hyperscalers.

The challenge is no longer just attracting foreign investment, but ensuring that capital flows into sectors that can strengthen domestic manufacturing and productivity.

Speaking at a discussion on global capital flows, Finance Minister Nirmala Sitharaman acknowledged that retaining investment was not entirely within India’s control, with investors increasingly drawn to frontier AI and the potential returns offered by US technology companies.

“To retain these [investments] is not a unilateral thing that I can do,” she said, pointing to the global movement of capital towards AI and the US.

However, Sitharaman argued that the investment opportunity extends beyond developing cutting-edge AI models. India also needs capital to help businesses adopt AI tools that improve productivity and enable them to transition towards AI-driven operations.

“Frontier AI is very attractive, very potentially highly rewarding, but there are AI activities also where, particularly in India, we are helping companies to adopt AI,” she said.

The distinction is important for India, where the opportunity lies not only in competing at the frontier of AI development but also in deploying the technology across businesses and industries. That, too, requires patient capital.

Beyond The AI Rush

India is attempting to attract investment into sectors that support the broader technology economy, including semiconductor manufacturing, data centres, renewable energy, green hydrogen and electric vehicles.

Sitharaman said India’s semiconductor mission had attracted investor interest across chip design, manufacturing, testing and packaging. The government’s strategy, she added, is not limited to competing with leading chipmakers on the most advanced nodes.

Instead, India is targeting chips that remain essential for everyday applications, including automobiles, household devices and industrial equipment.

“While we also want to perfect and get into finer and finer nano chips, we’ll also be producing less finer ones, which are still required for the majority of the economy to run,” she said.

The approach reflects a pragmatic assessment of the semiconductor opportunity. While advanced chips command attention because of their role in AI, less sophisticated chips remain critical to manufacturing and consumer electronics.

India is also seeking capital for the energy infrastructure needed to support AI’s expansion. Data centres require substantial power, making renewable energy and transmission infrastructure increasingly important to the country’s technology ambitions.

The Rupee And Capital Flight

The push to attract investment comes amid concerns over capital leaving Indian markets through profit repatriation and disinvestment.

Sitharaman attributed part of the pressure to global capital reallocations, while acknowledging that rupee depreciation could have contributed to outflows.

On the currency, she said the Reserve Bank of India (RBI) was seeking to contain volatility rather than defend a particular exchange-rate level.

“They are not trying to fix the rupee. They are trying to stop the volatility,” she said.

The distinction suggests that the central bank’s objective is to smooth sharp currency movements rather than guarantee a specific valuation. Sitharaman maintained that India’s macroeconomic fundamentals and fiscal discipline remained sound, even as external pressures weighed on the rupee.

Tax Debate Returns

The government is also facing questions about whether India’s capital gains and securities transaction taxes could discourage investors.

Asked about demands to remove capital gains tax and simplify the tax regime, Sitharaman declined to indicate whether the government would consider changes ahead of the Union Budget.

But the minister acknowledged that the treatment of different asset classes and securities transaction taxes remained subjects of debate.

“There is a lot of debate, and it is healthy to have this debate,” she said.

Meanwhile, India is attempting to make infrastructure projects more accessible to private investors. Sitharaman said the National Infrastructure Pipeline had expanded to cover projects worth more than $4.5 Tn, providing investors with a publicly accessible pool of opportunities across sectors and states.

She also cited the National Bank for Financing Infrastructure and Development (NaBFID), which was established to support long-term and higher-risk infrastructure financing.

For India, the larger task is to convert investor interest into sustained capital formation. As money chases frontier AI globally, the government is making the case for investment in the less visible infrastructure, manufacturing and enterprise adoption that will underpin the next phase of economic growth.