1. INR Depreciation: A seasoned investor (assuming US investor) must cover this risk by shorting his INR position. This way, he only collects the alpha of the Indian stock market while remaining neutral to the fluctuations of the INR.

2. Indian Taxation: This has been the trend in almost every country. The taxes do not matter if the yield is still higher than your Western yield. It'll pay for itself.

3. Money Outflow: In my humble opinion, this is the real concern. You can pay high taxes, and still come out ahead. But if you can't get your money out, that's a real problem. And companies will leave because of that. I think the uncertainty of one's money is what's preventing a foreign investment boom in India.