Global AI rush drawing capital to US, India needs more investment, says Sitharaman

India is looking to attract more capital into artificial intelligence, semiconductors and clean energy as global investors increasingly direct funds towards the US and frontier AI, Finance Minister Nirmala Sitharaman said at the Bloomberg Economic Forum in India.

Sitharaman said foreign investors were repatriating profits and withdrawing capital from India, adding that retaining these funds was not something the government could achieve through unilateral measures. She pointed to the growing concentration of global investment in artificial intelligence, particularly in the US, as a factor influencing capital flows.

“I need to have capital being here, but if the attraction is towards AI, and the attraction is only towards the United States, I think we are missing out on one thing,” Sitharaman said during the panel discussion.

She said India wanted to attract investment in AI to improve adoption and productivity, even as global capital increasingly moved towards frontier AI and hyperscalers.

The comments come amid questions about India’s ability to retain foreign investment even as the country seeks to position itself as a manufacturing and technology destination.

India pitches reforms, domestic market to investors

Sitharaman attributed India’s investment appeal to improvements in infrastructure, regulatory processes and the country’s expanding digital economy.

India’s large domestic market and growing purchasing power also offer companies an opportunity to manufacture for domestic consumption and exports, she said.

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However, attracting investment is only part of the challenge. India must also create conditions that encourage capital to remain in the country and flow into productive sectors.

Sitharaman said investors were increasingly looking towards the US and artificial intelligence opportunities, making it important for India to attract funds into its own emerging technology ecosystem.

Semiconductor ambitions focus on practical applications

Defending India’s semiconductor ambitions, Sitharaman rejected suggestions that the country’s plans were unrealistic, saying the government had consciously decided to pursue opportunities beyond the most advanced chips.

She said India was also focusing on semiconductors used in everyday applications, including refrigerators, cars and connected household devices.

The strategy reflects an effort to build capabilities across different parts of the semiconductor value chain rather than compete exclusively in the most technologically advanced segments.

Sitharaman also identified semiconductor manufacturing and design, chip testing and packaging, renewable energy, green hydrogen, green ammonia and electric vehicles as areas that could attract investment.

She said artificial intelligence infrastructure would require substantial electricity, making access to sustainable power an important consideration as India expands its data centre capacity.

The government has already attracted investment into data centres, but more capital is needed, she said, adding that energy infrastructure and transmission capacity would also be important to support the expansion.

Rupee weakness and capital outflows

Addressing concerns about the rupee’s depreciation and its implications for investment, Sitharaman said the Reserve Bank of India was seeking to contain volatility rather than defend a particular exchange rate.

“They are not trying to fix the rupee. They are trying to stop the volatility,” she said, referring to the RBI’s efforts to stabilise the currency.

Sitharaman said the central bank’s measures would continue, while expressing the view that the rupee should find its own level.

She also acknowledged that currency depreciation and capital outflows could influence investor decisions, even when other factors supporting investment in India remained favourable.

Sitharaman attributed much of the pressure on the rupee to external challenges and said the government remained committed to maintaining sound macroeconomic fundamentals.

She highlighted fiscal discipline as a priority, saying the government had sought to maintain it without compromising welfare, education and healthcare spending.

The comments come as policymakers seek to balance the need to attract foreign investment with concerns about currency volatility and overseas capital flows.

Sitharaman signals caution on tax changes ahead of Budget

On demands from investors for changes to capital gains taxation and the streamlining of taxes, Sitharaman declined to indicate whether the government would consider specific proposals ahead of the next Union Budget.

She said preparations for the Budget had begun and that it would not be appropriate to comment on potential decisions at this stage.

However, she acknowledged that long-term capital gains tax and securities transaction tax remained subjects of discussion among investors in India and abroad.

Sitharaman also referred to the debate around securities transaction tax and the treatment of different asset classes, saying the government had previously sought to bring rates across asset classes into alignment.

She said these issues had been widely discussed and were among the matters being considered as part of the broader investment environment.

Infrastructure pipeline crosses $4.5 trillion

Sitharaman also highlighted India’s efforts to make infrastructure projects more accessible to private and institutional investors.

She said the National Infrastructure Pipeline, launched in 2019, had grown from projects worth about $2 trillion at the time of its launch to more than $4.5 trillion.

The publicly accessible platform brings together infrastructure projects from different states and sectors, allowing investors to identify opportunities based on their areas of interest, she said.

She also cited the National Bank for Financing Infrastructure and Development and the National Investment and Infrastructure Fund as institutions helping mobilise long-term capital for infrastructure projects.

Sitharaman said India had made significant progress in building roads, airports and digital connectivity over the past decade, adding that the government wanted to sustain the momentum.

She noted that infrastructure projects often require patient capital, while private investors tend to be more cautious about committing funds to long-gestation projects.

Private investment gathers pace across sectors

Sitharaman said India’s private sector was increasingly investing after a period in which corporate debt and stressed bank assets had constrained fresh capital expenditure.

She referred to the reforms undertaken to address bad loans and improve corporate balance sheets, saying several companies now had cash reserves that could be deployed to expand capacity.

The government had introduced a concessional corporate tax regime in 2019, she said, as part of efforts to encourage investment.

Sitharaman identified renewable energy, semiconductor manufacturing and design, biosimilars, pharmaceuticals and aircraft maintenance, repair and overhaul facilities as sectors attracting investment.

She also pointed to the expansion of civil aviation as an opportunity for new investment, citing aircraft orders placed by Indian airlines.