The prevailing narrative surrounding the US-India relationship is one of triumph. As the world’s oldest and largest democracies, we often celebrate our converging strategic interests, robust trade, and deep cultural ties. Yet behind the handshakes and headlines, the cold, hard statistics on foreign direct investment (FDI) reveal a structural vulnerability — a dangerous asymmetry that threatens to undermine the long-term health of our partnership.
The United States currently stands as the third-largest source of FDI into India, a testament to American confidence in India’s growth potential and economic trajectory. The flow in the opposite direction, however, tells a starkly different story. India does not even rank among the top 20 sources of FDI into the United States. This imbalance creates more than just a missed economic opportunity; it creates a significant political liability for New Delhi — particularly in this America First-driven political climate and trade reality.
This quiet risk was thrust into the spotlight earlier this month. Following the conclusion of trade negotiations and the announcement of a long-awaited trade “deal” between the United States and India, the American President announced a framework in which India would purchase $500 billion worth of American goods over five years — including energy, aircraft, precious metals, technology products, and coal — a sum so large that it almost exceeds India’s annual federal budget.
While the purchase target is technically about trade, and not investment, the underlying dynamic highlights a real vulnerability for India. India’s total FDI stock in the US was a modest $16.4 billion in fiscal year 2024, and the trade deal itself does nothing to close this gap. In an era of escalating geopolitical competition and unpredictable politics, a one-sided investment relationship can be wielded as a political cudgel, leaving the more exposed partner with little leverage.
The solution for New Delhi, however, is not for India’s private sector to capitulate to political pressure. Investment decisions cannot be acts of tribute; they must be grounded in a sound business strategy that delivers real value. The challenge for India’s industrial giants — firms like Tata, Reliance, and Adani — is to identify genuine win-win opportunities in a market as vast, complex, and fiercely competitive as the United States. Navigating this landscape requires a trusted partner, a guide that understands both the American market and the strategic imperatives of Indian industry.
This is precisely where California can, and must, step in.
As the world’s fourth-largest economy, with a GDP exceeding $4.1 trillion, California possesses the scale to become a transformative partner for Indian enterprise. But our unique capacity goes far beyond size. We are the global epicentre of innovation, the very place where the future is being built in fields critical to both our nations: Artificial intelligence, clean energy, biotechnology, and advanced logistics. These are the sectors where Indian firms are poised for global leadership and where American collaboration can provide a decisive edge.
More importantly, California provides a human bridge that no other state can offer. Our vibrant and deeply integrated Indian-American diaspora — a community of entrepreneurs, engineers, doctors, and civic leaders — provides an unparalleled network of trust and cultural fluency. This is not just a demographic fact; it is a strategic asset that de-risks market entry and accelerates collaboration.
While federal policy can often feel distant and monolithic, California operates with the autonomy and agility of a subnational diplomatic power. We are not waiting for Washington, DC to dictate the terms of engagement, but actively forging partnerships, facilitating connections, and creating policy environments that foster mutual growth.
We are prepared to act as a dedicated sherpa for Indian companies looking to establish a meaningful footprint in America — helping them to identify projects that serve their bottom line while simultaneously strengthening the fundamental economic bedrock of the U.S.-India relationship.
The current investment deficit is not sustainable. It exposes India to undue political pressure and deprives the United States of the full innovative and economic potential of Indian industry. Rectifying this imbalance is an urgent strategic imperative for both our countries. The path to a more resilient, reciprocal, and prosperous partnership runs directly through Sacramento.
California’s invitation to India’s private sector is an open one — to work together to close this gap and build an economic partnership as strong and dynamic as that of our shared democratic values and aspirations for the future.
Kounalakis is a visiting fellow at Stanford University’s Hoover Institution, foreign affairs columnist and author. He is married to Eleni Kounalakis, the Lt Governor of the State of California, making him California’s “Second Gentleman”. Baron is a research fellow at the Yokosuka Council on Asia-Pacific Studies (YCAPS) and a member of the inaugural cohort of the Motwani Jadeja Fellowship at OP Jindal Global University. He previously covered international trade and foreign direct investment policy for the Los Angeles Mayor’s Office
