India’s Economic Divergence: Growth Peaks as Capital and Talent Seek Greener Pastures

India enters 2026 as one of the world’s fastest-growing major economies. Forecasts remain firmly in the high-growth range, and inflation has eased from the extremes of the post-pandemic cycle. On the surface, the macro story appears “Goldilocks”: strong output expansion without runaway price pressure.

Yet beneath the headline numbers lies a troubling structural paradox. Even as India posts impressive GDP growth, the country continues to see elevated outward movement in both capital and high-skilled talent—a divergence that raises uncomfortable questions about whether the economy is converting growth into opportunity at the frontier end of the value chain.

The disconnect is becoming visible in India’s most prestigious engineering ecosystem. Placement outcomes across top campuses have softened in recent seasons, with reports indicating a meaningful rise in the share of graduates not securing on-campus offers. While many students ultimately find jobs through off-campus channels, the placement slowdown is increasingly viewed as a leading indicator: domestic high-value job creation is not expanding fast enough to absorb elite technical talent at scale.

That imbalance is feeding a broader migration dynamic. Emigration from India has remained elevated through the decade, particularly among highly skilled workers and students seeking advanced research opportunities. The implication is not only social—it is economic: when top talent relocates permanently, India loses future entrepreneurs, patents, and high-margin innovation capacity.

Capital markets reflect a similar unease. In 2025, Foreign Portfolio Investors (FPIs) were significant net sellers in Indian equities, driven by valuation concerns, global risk-off sentiment, and uncertainty around trade and interest-rate cycles. While foreign direct investment has shown resilience—supported by India’s large market and manufacturing ambitions—the net picture is more complex, with meaningful repatriation flows and outbound investment diluting the headline inflow narrative.

The deeper concern is that India may be growing faster than it is modernising. Research and development spending remains below 1% of GDP—well behind the levels seen in advanced innovation economies. That gap matters now more than ever. In the global race for frontier AI, advanced semiconductors, and next-generation energy systems, countries that do not build domestic R&D depth risk becoming consumers of innovation rather than creators of it.

India’s policy direction is shifting accordingly. Reforms aimed at improving ease of doing business, rationalising labour frameworks, and strengthening insolvency processes are steps toward a more competitive economic foundation. But the ultimate metric will be structural: whether India can transform 7% growth into a magnet that keeps both capital and talent anchored at home.

Summary

India’s macro outlook for FY26 remains robust, with growth projected in the high-single digits by leading forecasters. However, the economy is showing a widening divergence: strong national output growth alongside persistent outward movement of financial capital and high-skilled talent. FPI selling pressure, weakened placement outcomes at top technical institutions, and sub-1% R&D intensity suggest India’s next challenge is not speed—but depth. The country’s long-term competitiveness will hinge on accelerating innovation capacity, strengthening high-value job creation, and improving the domestic opportunity structure.

Frequently asked questions (FAQs)

Q1: Is India’s GDP really growing at 8%?

India has seen occasional quarters with higher growth prints, but full-year expectations from major forecasters generally remain in the mid-to-high 6% to low 7% range, depending on global conditions and domestic demand momentum.

Q2: Why are IIT students struggling to find jobs?

Several factors are contributing: a global tech hiring slowdown, increased automation of entry-level coding tasks, and a mismatch between high salary expectations and the available domestic role mix—especially in core engineering, manufacturing, and R&D-heavy sectors.

Q3: What’s driving foreign portfolio outflows from Indian equities?

Common drivers include stretched valuations relative to peers, global risk sentiment, interest-rate expectations, currency volatility, and broader uncertainty over trade and geopolitical conditions.

Q4: How does India’s R&D spending compare globally?

India’s R&D spending remains below 1% of GDP, significantly behind countries such as China (around 2%+) and South Korea (around 4%+). This gap limits long-term competitiveness in high-value technology creation.