India remains one of the world’s fastest-growing major economies, but mounting economic pressures are testing the country’s growth story during Prime Minister Narendra Modi’s third term in office.

Although Modi continues to enjoy strong domestic popularity in his 12th year as prime minister, global investor sentiment toward India has become increasingly cautious. Economists point to a combination of factors, including concerns that India may not fully benefit from the artificial intelligence boom, rising energy costs, and the prolonged conflict in the Middle East, which has added uncertainty to the country’s economic outlook.

According to market data, foreign portfolio investors have sold Indian equities worth approximately $29.5 billion so far this year, following net sales of $18.9 billion in the previous year. Analysts say the outflows reflect a shift in global investment preferences as investors become more selective amid changing economic conditions.

While India continues to attract substantial foreign direct investment, gross inflows exceeding $90 billion over the 12 months ending January 2026, increased repatriation of profits by foreign companies and growing overseas investments by Indian firms have pushed net FDI levels close to historic lows.

The weakening investment climate has also contributed to pressure on the Indian rupee against the US dollar. The currency’s decline comes at a challenging time, as India imports more than 85 percent of its crude oil requirements, making the economy particularly vulnerable to rising global energy prices.

Higher fuel costs are expected to feed into consumer prices, increasing inflationary pressures and potentially slowing economic growth. The Reserve Bank of India recently raised its inflation forecast to 5.1 percent for the financial year ending March 2027. At the same time, it lowered its growth projection to 6.6 percent from an earlier estimate of 6.9 percent.

Despite these headwinds, economists note that India’s growth outlook remains comparatively strong by global standards. However, weaker domestic consumption, cautious business investment, and volatile international markets suggest that sustaining rapid economic expansion may become increasingly challenging in the years ahead.