6 min readMay 23, 2026 06:30 AM IST First published on: May 23, 2026 at 06:30 AM ISTSurjit Bhalla is one of India’s most independent economic voices, and his pieces in The Indian Express are not to be dismissed with the customary official reflex of pointing to infrastructure spending and sunrise sectors. He asks hard questions, and hard questions deserve hard answers. This one (‘The BJP is winning the election, but it’s losing the economy’, IE, May 20), however, contains enough analytical ambiguity to warrant careful examination before one arrives at whatever genuine policy concern remains.Begin with the most arresting claim: India risks joining Turkey as a residual “Fragile Two.” The original “Fragile Five” designation — coined by Morgan Stanley in 2013 — had a specific, operationalisable content: Large current account deficits, fiscal imbalances, and acute vulnerability to Federal Reserve tapering. India’s macroeconomic architecture today is categorically different from 2013 on each of those dimensions: Its monetary policy framework is orthodox and inflation-targeting, its fiscal consolidation trajectory is credible, and its foreign-exchange reserves are among the largest in the world. Turkey’s travails, rooted in a sustained period of deeply negative real interest rates and institutional subordination of monetary policy to political preference, belong to a different analytical category. The comparison generates a striking headline — not an illuminating analysis.AdvertisementThe piece is also silent on what is perhaps the single most consequential development in global capital markets since the Global Financial Crisis: The end of the era of quantitative easing and near-zero interest rates. The decade of extraordinary monetary accommodation that preceded 2022 produced an artificial compression of risk premia globally, flooding emerging markets with capital that was, in effect, seeking any yield whatsoever. UNCTAD documents that global FDI rebounded sharply to $1.58 trillion in 2021, a 64 per cent increase over the previous year. What followed was an equally sharp reversal. New investment project numbers — greenfield announcements, international project finance deals, and cross-border M&As — all shifted into decline after the first quarter of 2022, with project finance values falling more than 30 per cent as financing conditions deteriorated and interest rates rose sharply across the US, the eurozone, and — for the first time in a generation — Japan. UNCTAD’s World Investment Report 2025 confirms that global FDI fell for a second consecutive year. In such an environment, virtually every emerging market has faced currency and capital flow pressures. To attribute India’s investment trends primarily to domestic policy failure, while ignoring the most consequential shift in global monetary conditions in four decades, is to mistake the tide for the swimmer’s effort.On BITs, the empirical literature is far less settled than the piece implies. Bhalla treats the 2015 revision as a near-sufficient explanation for FDI trends. The academic record counsels more caution. Early papers — including Hallward-Driemeier (2003) and Tobin and Rose-Ackerman (2005) — found weak or no effects of BITs on FDI inflows. More recent work finds positive effects, but conditional on the quality of domestic institutions: BITs function as a commitment device that complements strong institutions rather than substituting for weak ones. Most pertinently, a study examining India — Singh, Shreeti, and Urdhwareshe (2022), published in the Indian Economic Review — found that individual BIT signings do not influence FDI inflows; what matters is the cumulative stock of treaties, which signals an overall regime of investor protection. This finding, which the piece does not engage, considerably complicates the monocausal story. Domestic institutional quality, regulatory predictability, and rule of law matter at least as much as treaty architecture — a conclusion that, if anything, broadens the reform agenda rather than narrowing it to a single legal instrument.The FDI data itself tells a different story from the one the piece presents. Gross FDI inflows stood at $88.29 billion through April-February of FY26, an 18 per cent jump over the previous year, and are on course to cross $90 billion for the full fiscal year — well outside the $70-80 billion range of recent years. India ranked fourth globally for greenfield project announcements in 2024, and its share of global FDI has roughly doubled over the past decade. Manufacturing FDI grew 18 per cent in FY25. These are not the indicators of investors leaving. Net FDI has been weaker, driven substantially by higher repatriation of profits and rising outward FDI as Indian companies themselves internationalise — a mark of corporate maturity, not economic distress. The piece collapses gross and net without acknowledgment, and that elision does considerable damage to the argument.AdvertisementThe growth ranking argument deserves similar care. Ranking India 16th in per capita GDP growth in US dollar terms — behind Bangladesh at 8.3 percent and Ethiopia at 7.2 percent — is doing analytical work that the chosen denominator cannot support. Dollar-denominated per capita growth is a joint function of real growth and bilateral exchange rate movements. Currency appreciation or depreciation in Bangladesh or Ethiopia tells us something about their monetary and trade conditions; it does not constitute a welfare benchmark against which India’s economic management should be evaluated. In purchasing power parity terms, which better captures actual improvements in living standards, India’s performance across the BJP period looks materially different.you may likeWhat Bhalla genuinely identifies — and what deserves acknowledgment — is that the investment climate requires continuous improvement, that the proliferation of quality control orders has at times crossed from quality assurance into protection, and that the BIT framework revision is incomplete. The government has recognised these issues. The Economic Survey and successive budgets have addressed deregulation, ease of doing business, and the need to signal regulatory predictability. The legitimate challenge is that the pace of reform must match the ambition. That is a fair demand. It is not, however, the same as the broader verdict the piece’s headline announces.None of this is to claim that the macroeconomic outlook for FY27 is without genuine difficulty. The Department of Economic Affairs’s monthly economic reviews have not shied from saying so. The trade deficit will widen significantly in FY27, as will the current account deficit. Inflation risks are tilted to the upside. A below-normal monsoon adds an agricultural dimension to a complex supply shock. The task of attracting stable, long-term capital — through credible tax policy, regulatory predictability, and reduced friction for investors — intensifies in these conditions. These challenges have been acknowledged in official documents.Elections can deliver mandates. Only policy delivers prosperity. Both propositions are true, and the government accepts both. The appropriate response to Bhalla’s genuine concerns is to accelerate reform — not to dispute the imperative, but to reject the analytical scaffolding that obscures rather than illuminates it.The writer is chief economic advisor, Government of India