In a landscape where global capital is increasingly directed towards the booming electronics and AI industries in Asia, the recent dip in India’s foreign direct investment poses little threat. The world economy demonstrates impressive resilience in the face of geopolitical challenges, reflecting how companies and governments have successfully navigated turbulent waters.
The recent slowdown in foreign direct investment in India is “not a major source of alarm”, as global capital is increasingly drawn towards the electronics and AI investment cycle across Asia, said Taimur Baig, Managing Director and Chief Economist at DBS Bank.
Edited excerpts from an interview with Deepshikha Sikarwar.
How do you view the US rejection of Iran’s offer?Despite all the logistical concerns around the Strait of Hormuz, 12‑month crude oil futures are still trading at around $100 or below. There is a palpable lack of panic in the markets. So, there is a disconnect between the broader narrative—that we are on the verge of severe shortages in fuel, fertilisers and petrochemicals—and what markets are actually pricing in.
The rational expectation is that the US will eventually have to reach some kind of understanding with Iran because of domestic political constraints. However, the complication is that this is not simply a two-player game between the US and Iran. Israel is effectively a third actor with considerable influence. That makes me somewhat nervous, despite the relatively calm market pricing. At the same time, the lack of panic suggests markets believe both sides have incentives to avoid escalation. The pain on the Iranian side is substantial. My primary concern remains the role of the third actor, Israel, which seems to have a veto over the process. Overall, from a US and Iran perspective, I still think there is a strong incentive to avoid war.
What’s your assessment of the macroeconomic impact?At the risk of sounding overly optimistic, the global economy has shown remarkable resilience over the last two and a half months. There are parallels with the early phase of the Ukraine war. At that time, energy prices surged and there were widespread fears about shortages in wheat, fertilisers and other commodities. Yet the world adapted more effectively than expected.
Over the past six years, through the pandemic, tariff wars and geopolitical shocks, companies and governments have become more resilient. As a result, my outlook for global GDP growth is far more optimistic than my outlook for inflation.
What is notable is that we are not seeing widespread panic or a dramatic destruction of demand. One major reason is the strength of the electronics cycle in Asia. With the exception of India, much of Asia is deeply integrated into global electronics supply chains. Exports across major Asian economies are rising between 20% and 60%.
PM Modi has spoken about austerity. What should India be doing in this scenario?India has historically tried to shield consumers from global energy volatility. My view is that policymakers underestimate the ability of citizens to adjust to higher prices. When people understand that price increases are driven by global events, they adapt.
Rather than freezing prices completely, India could adopt smoother pricing mechanisms.
There has been some commentary that India’s ‘Goldilocks’ phase is over. What’s your take?There are three dimensions to this issue: public markets, private capital and FDI.
In public markets, India now faces stronger competition from other Asian economies benefiting from the AI and electronics boom. Korean, Taiwanese, Japanese and increasingly Chinese firms are attracting global investor attention.
India has traditionally traded at premium valuations, while Chinese equities became deeply discounted after the post-pandemic slowdown and regulatory crackdowns. Investors who bought into China during that pessimistic period have been rewarded significantly. So, global portfolio managers now have several attractive opportunities across Asia, not just India.
On the private capital side, however, India has remained relatively resilient. Domestic SIP flows have supported markets, and private equity and venture capital investment have continued, though at a slower pace.
Regarding FDI, I do not think the recent moderation is a major source of alarm. In fact, Indian companies acquiring overseas assets and technologies can be a positive development if it strengthens future competitiveness. You will see a lot of OEMs being built in India. It is a bit unfortunate that the lull in external flows has coincided with this trade shock. As a result, we are seeing the rupee weaken, but in real effective terms I do not think it has moved into alarming territory. We have regional competitors whose currencies have also adjusted. So, I would view this without alarm.
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