MENU
Abhishek Anand argues that policy uncertainty, not headline growth or profitability, explains India's weak trade performance and falling FDI
Abhishek Anand is the Founder and Managing Director of Insignia Policy Research. Previously, he worked as an Economist at the World Bank. He is a development economist specialising in public finance, power sector reform, and trade policy. He has advised multiple Indian state governments on fiscal and power sector reforms and contributes regularly to policy debates in India.
India has been growing at a rate close to seven to seven and a half percent, a number that should make any investor salivate. Yet manufacturing growth has slowed, exports have lost ground to competitors, and net FDI has turned negative. Abhishek Anand, managing director of Insignia Policy Research, argues that the puzzle resolves once you stop looking at expected profitability and start looking at risk-adjusted profitability. A policy environment that keeps changing the rules, that applies different standards to different firms, and that creates uncertainty around implementation can turn an 8 percent return on paper into something far less attractive once risk is priced in.
In this conversation, Abhishek walks through two domains where this dynamic has played out: trade and finance. On trade, he explains why India's "big domestic market" is something of a myth for manufacturers seeking scale, why electricity pricing has become a quiet tax on industry, and how past free trade agreements, particularly with ASEAN, were undermined from within through anti-dumping duties and opaque quality control orders. He also discusses the recent, if slow and reluctant, reversal of these quality control orders under pressure from the United States. On the financial side, he connects declining FDI to the growing market and political power of a small number of dominant domestic firms, and explains why that concentration raises the perceived risk for any outside investor weighing whether they can compete fairly.
The conversation closes with a discussion of what can realistically be done. Abhishek is clear that there is no quick fix for a reputation built over years of inconsistent policy, but he points to small, concrete actions, like extending infrastructure relaxations already given to a few large or prominent firms to all investors, as steps that could begin rebuilding trust over time.
Anand, Abhishek. "Risk-Adjusted Profitability and India's FDI Slowdown." Episode 82 of Big Ideas. XKDR Forum, 5th October 2026. Video, 16:25. https://www.xkdr.org/viewpoints/risk-adjusted-profitability-and-indias-fdi-slowdown-big-ideas-ep-82
Abhishek opens by framing the central puzzle he wants to address: India is growing at roughly seven to seven and a half percent, yet both goods trade and financial inflows have underperformed. His explanation rests on distinguishing expected profitability from risk-adjusted profitability. Investors do not simply look at what they could earn on paper; they factor in the uncertainty created by inconsistent or opaque policymaking.
"It's not what the expected profitability matters, but it's the risk-adjusted profit. There could be uncertainty in policy making that leads to, even if you're on paper making 8%, risk-adjusted profitability could be low."
This framing becomes the lens for the rest of the conversation, which moves through trade policy and then financial flows to show how uncertainty, rather than a lack of growth or opportunity, has held back both manufacturing and FDI.
Abhishek challenges a common assumption that India's large population is itself an advantage for manufacturing scale. He argues that what matters is not population size but the share of that population with enough purchasing power to absorb manufactured goods. Firms that manufacture in India, in his view, are often doing so primarily to export rather than to serve the domestic market.
"Apple will not be manufacturing in India if it only has to supply in India, because there would be very few people with enough purchasing power to buy Apple products. So they are basically coming here so that they can export."
Because of this, Abhishek argues that for manufacturing firms to grow to scale in India, export competitiveness is essential. Reforms that only target the domestic investment climate, without addressing a firm's ability to compete in global markets, will not be enough.
One concrete example Abhishek gives of rising manufacturing costs is electricity. Governments, for political reasons, routinely promise free or subsidized power to households, announcing a fixed number of free units per year. Since this cost has to be recovered from somewhere, the shortfall is passed on to industrial and commercial users, who end up paying significantly more than their actual cost of consumption.
Abhishek notes that this is not a static or historical distortion but a recent and worsening trend. He points out that industrial power costs have risen considerably in the last few years, and because the increase is not fixed or predictable, it adds both direct cost and ongoing uncertainty to the cost of manufacturing, particularly for energy-intensive sectors like textiles.
Abhishek uses India's ASEAN free trade agreement as a detailed case study of how policy uncertainty can neutralize the benefits of a trade deal on paper. The agreement should have allowed India's labor-intensive, high-job-creating apparel sector to import critical inputs, which countries like Indonesia are major exporters of, at zero duty.
In practice, Abhishek describes two mechanisms that undercut the deal's intent. First, anti-dumping duties were imposed on imports from Indonesia even before the FTA took effect, effectively nullifying its tariff benefits. Second, a broader instrument called the Quality Control Order required exporting countries to pass an in-person certification process, where a labor inspector would visit the production facility.
"That never happened, of course. We did not have the capacity to visit each and every country."
Abhishek is careful to note that capacity constraints are one possible explanation, but he suggests a more likely one: certification requirements appear to have been selectively enforced, with most countries passing but two or three countries that mattered most to domestic competitors failing to get certified. He points to the subsequent collapse in India's apparel market share as evidence that these informal, non-tariff barriers effectively undid the FTA's intended benefits. He frames this as a cautionary lesson for recently concluded or upcoming agreements with partners like the UK and the European Union, warning that without addressing these underlying tendencies, new FTAs risk producing similarly limited results.
Discussing the government's recent moves to walk back Quality Control Orders, Abhishek acknowledges this is a welcome development, but pushes back on the framing of it as a positive policy innovation. He argues that this is not new learning, since India already learned the lessons of import substitution and excessive domestic control before 1991, when the economy was opened up.
"We already have that experience that certain things did not work and we shouldn't do it. And in a way we are going back to the pre-1991 era."
He credits external pressure, specifically pressure coming from the Trump administration's trade stance, along with pushback from industry and some policymakers, as the real drivers behind the reversal rather than a proactive course correction. While he welcomes the change regardless of its origin, he is critical of the pace: the reversal is happening sector by sector, with a "transitional control order" used as an interim measure that dilutes enforcement without fully removing it, rather than a single decisive reversal across all sectors. He warns that this slow pace risks losing out on the China-plus-one opportunity, drawing a parallel to how Vietnam and Bangladesh previously gained ground that India lost due to similar policy friction.
"We always talk about the China plus one opportunity. It's not going to be there forever."
Shifting to the financial side, Abhishek highlights that net FDI into India has turned negative, a significant concern because India's persistent current account deficit depends on capital account surpluses to be financed. He illustrates the stakes with a comparison to the 2013 crisis, which followed roughly two and a half years of sustained high oil prices above 120 to 130 dollars combined with the taper tantrum shock. He notes that a recent two-month conflict in West Asia raised similar fears of crisis, but this time capital flows had already been drying up, unlike in 2013 when India could still attract flows despite the shocks.
He stresses that this is not a short-term dip but a consistent, multi-year decline over roughly the last seven to eight years, with the exception of the COVID year. He finds this puzzling on its face, since a genuinely growing economy at this rate should be highly attractive to global capital.
Abhishek's core explanation for the FDI slowdown centers on rising market concentration and its link to regulatory influence. He observes that in many key sectors, one or two dominant firms now hold most of the market share, while the remaining firms operate with very small shares. He argues that these dominant firms have grown not only in market power but also in their ability to influence policymaking, securing regulatory favors that are not available to other domestic firms, let alone foreign entrants.
"A lot of regulatory favors get done. That is not possible for other domestic firms, and certainly not for international firms who would want to invest in India."
This dynamic, he argues, factors directly into the risk calculation of prospective foreign investors, who weigh not just the size of the opportunity but whether they will be able to compete on a level playing field. He is careful to frame this as a major contributing factor rather than the sole explanation, noting that broader issues like the overall level of economic control also matter. He adds that this is not simply a global phenomenon affecting all countries equally, pointing out that India has been losing FDI market share relative to countries like Vietnam, which supports a domestic rather than purely global explanation.
Asked whether there is a quicker fix available, Abhishek is direct that there is none. He argues that perceptions are built over time through a track record of policy actions, and cannot be reversed quickly through announcements alone. Rebuilding trust requires the government to demonstrate, through consistent action, that it is not favoring particular firms or industry groups.
As a concrete example of the kind of small, doable step that could help, he points to recent relaxations allowing firms to bypass the public power utility and use captive power plants or private generation, something traditionally restricted because utility power purchases are a government revenue source. He notes that such relaxations have recently been extended to Google, a first for a foreign private entity, but argues this needs to become a general, consistent policy rather than an exception granted to one high-profile firm.
"If you are giving relaxation to one or two firms, you should be willing to give that relaxation to any other big firm that is coming here and investing in India."
Abhishek concludes that while such measures will not produce an immediate reversal in investment sentiment, they represent the kind of consistent, broadly applied action that can gradually build confidence. He estimates that meaningful results from this kind of trust-building could take around four to five years to materialize, underscoring that there is no shortcut to resolving the uncertainty he describes throughout the conversation.
The complete transcript file is available to download below.
21 Sep 2026
Sanjiv Shah
07 Sep 2026
Arvind Chari
24 Aug 2026
Viral V. Acharya
2026, XKDR | GSTIN: 27AAACX3640C1ZN
by Sane Difference
