India is still an agri based economy. With farm incomes growing and gvmt spending like crazy, the result of high inflation is visible. The cities are the biggest consumption centers. Although vilages hold more people, the consumption pattern is different. So for the economy to grow the gvmt needs spending from rural and urban centers. With urban consumption collapsing, manufacturing is slowing down, and side effect of all industries slowing down.
Economists know how to handle inflation and slowdown when it happens separately. No central banks have been able to handle stagflation well. Greece, Japan, Spain and some more went into deep recession, even close to collapse when they were hit by stagflation.
FIIs are not selling without a reason.