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Raghuram Rajan hasn't impressed the foreigners in India's bond market.

The chief of the Reserve Bank of India has won kudos for raising interest rates twice since coming to office in September. But foreign bond buyers remain on the sidelines.

Their concerns are warranted given data Monday that showed wholesale prices inching to a 14-month high. Consumer prices in November were up 11% from a year earlier. Investors want higher rates when the RBI meets Wednesday or they won't help with India's imbalances.

That is the message India's foreign-funds data are sending. As of Dec. 16, foreigners used only 32% of the quotas assigned them in the bond market. Though net flows into the bond market turned slightly positive for December as the rupee stabilized, that comes after five months of foreigners withdrawing a net 802 billion rupees ($12.9 billion today).

Indian interest rates are unattractive, especially as U.S. rates rise. Adjusting for consumer-price inflation, the yield on India's three-month Treasury bill is negative 2.3%. And those venturing into longer-dated bonds aren't being rewarded with high enough rates to compensate for the risk the rupee will depreciate again as it did over the summer.

India needs cash to fund its current-account deficit, which may clock 2.7% of gross domestic product for the year ending March, according to Citigroup. This is less than last year's deficit thanks partly to curbs on gold imports. Even then, the deficit amounts to $50 billion. If all of India's foreign-investor bond quotas were filled, that would be $81 billion itself.

To fight India's stubborn inflation, Mr. Rajan will likely need to raise rates further. In so doing, he might also attract back some foreign friends.