India risks losing FDI edge if tariff gap with peers widens, warn global strategists

The bigger risk for India from the US tariff standoff may not be foreign portfolio outflows, but a slowdown in long-term foreign direct investment (FDI), say global strategists.

While FPI flows have already been weak in recent months, what’s worrying investors now is whether India could lose its competitive edge in attracting FDI if tariff differences with global peers persist.

Arvind Sanger, Managing Partner at Geosphere Capital, pointed out that a long-term tariff gap could put India at a structural disadvantage.

“If we are stuck at 25%… that is going to put a disadvantage on India in terms of some of its attracting FDI for some of the global opportunities that it sees,” he said.

William Lee, Chief Economist at the Milken Institute, said the real impact of tariffs often goes beyond pricing — they create hesitation and hold back cross-border investment.

“Every successful trade deal with a low tariff has seen some kind of purchase of American energy or investment of dollars into United States,” he said, adding that without such moves, countries may find it harder to strike deals that unlock long-term capital.

Herald Van Der Linde, Head of Asia Equity Strategy at HSBC, shared a similar view. He said the uncertainty created by trade tensions affects business confidence and slows down investment decisions globally.

“I think that the tariffs have got a couple of implications that go on and beyond just putting prices up — it creates uncertainty, so it means that people find it difficult to make investment decisions,” he said.

While India’s domestic market and earnings outlook may still appeal to investors over time, strategists believe it’s the FDI story that is now at risk. And unless there is a breakthrough soon, India could lose ground to other investment destinations offering more clarity and better access.