India at AI Crossroads: Capital Outflows Signal Urgent Need for Innovation

• Indian companies were notably absent from a recent prominent investor conference, indicating a lack of a compelling AI story for global investors.
• Foreign portfolio investors withdrew significant capital from Indian equities and debt in recent months, with December 2025 seeing over ₹22,600 crores outflow from equities and ₹15,000 crore from debt, totaling ₹1,66,000 crore in equity outflows for the year.
• India's traditional software services model, reliant on abundant manpower and competitive pricing, is under strain as AI compresses complexity and reduces the value of routine labor.
• AI is disrupting value chains globally, with LLMs generating code, summarizing documents, and automating tasks, challenging intermediation layers dependent on lower-skilled talent.
• India needs to invest in sovereign compute capacity, world-class AI research, re-skill its workforce, and create regulatory frameworks that foster innovation to become a global AI leader.

Why It Matters: India must urgently embrace AI innovation and investment to avoid economic stagnation and become a global AI architect.