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At a recent Express Adda session, veteran investor Ruchir Sharma remarked that in his 30-year career, he has “never seen such indifference” from foreign investors toward India. He described the country as an “anti-AI play” in a world obsessed with the technology.
Portfolio investors have indeed pulled back sharply. FIIs recorded net outflows exceeding ₹2 lakh crore ($24 billion) in the early part of 2026 alone, with cumulative outflows in recent years running into tens of billions of dollars. Yet strategic hard FDI tells a different story: Google has committed $15 billion, Microsoft $17.5 billion (2026–2029), and Amazon over $35 billion by 2030 totaling more than $67 billion primarily into AI data centers, cloud infrastructure, and related ecosystems.
The paradox is staring us right in the eye. We might feel happy with so many investments happening. In this instantaneous happiness we are missing the big picture. The big picture is that these hyperscalers are not here because of Indian innovation; they are betting on Indian real estate, power grids, and tax holidays. They are building the factories of the AI age, while Indian industry remains stuck in a 1990s mindset.
In 1999, the tech boom was about labor arbitrage. We had millions of coders who cost 1/10th of their Silicon Valley counterparts. But AI is a capital and R&D arbitrage game. It runs on physical infrastructure: fabs, GPU clusters, and high-bandwidth memory. It is here that Sharma’s core warning holds: AI’s hardware foundation demands deep, sustained R&D that India has underinvested in for decades.
The R&D Gap: Decades of Underinvestment
This malaise is of the making of the Government of India as much it is of the making of the Indian industry. India Gross Expenditure on R&D (GERD) has remained stuck at approx. 0.64 to 0.66% of GDP (2020-21 data, consistent in recent Economic Survey) whereas countries like South Korea at 5.2%, Taiwan at 4.0%, and United States at 3.5-3.6% lead by too much margin.
Top 10 Indian non-financial firms (combined sales $277 bn, profits $43 bn) spent under $1 billion on R&D in one recent year. In software / services, top Indian players (TCS, Infosys, HCL) invest 1% of turnover in R&D vs. global top 2,500 average of 14%. Indian Auto majors spend 1-3.8% vs. global 4.8%. In pharma also the story is not too great. Indian pharma leaders spend on an average 6% on R&D vs. global average ~17%, and at much smaller scale (average turnover far below global peers).
Industry’s Short-Termism and Low L&D Spend
Indian corporates often say graduates are not job ready. Yet L&D investment remains minimal. US companies commonly spend approx. 10% of employee costs on Learning & Development; Indian firms typically allocate 1-2%. IT services firms average ₹1.97 crore per company annually on training, but this is modest relative to scale and often focused on immediate project needs.
By demanding immediately usable, narrow skills in hiring, industry has helped kill broader talent development. What the India industry has essentially done is to create a unique feedback loop with short-term recruitment focus leading to pressure on universities resulting into narrowly skilled output and then repeated complaints by the industry.
Universities as Supermarkets
Unwittingly, education institutions have fallen to this unique feedback loop created by the industry in the name of adapting to market signals. Now they have become more like supermarkets where they stock shelves with trendy specializations, certifications, and tools that recruiters look for producing graduates optimized for first-job readiness rather than deep foundational knowledge, research aptitude, or adaptability.
The cornerstone of education, the quest for knowledge, rigorous inquiry, basic sciences, and systems thinking has been sidelined in the race for placement percentages. The result is professionals proficient in today’s stack but potentially brittle when paradigms shift (as AI is forcing now) or incapable of higher-level work. This strange industry-institute relationship is not only weakening India’s innovation base precisely when we need researchers and engineers who can invent, not just implement but also rendering large swathes of new Indian generation potentially incapable to negotiating change.
Now it is up to the industry and the academia to decide whether India captures the next wave or watches it from the sidelines.
