FDI Inflow Credit Positive, Make in India Bearing Fruit: Moody’s
Report says rising FDI provides stable financing of current account deficit
New Delhi: Increasing foreign direct investment provides stable financing of India’s current account deficit and is a credit positive, Moody’s Investors Service has said in a report, as per which the efforts to liberalise foreign investment limits in several sectors and the ‘Make in India’ campaign are bearing fruit.
Net FDI inflows hit an all-time high in early 2016, the ratings agency said, more than financing the current account deficit for the first time since 2004.
“The strength of inflows reflects India’s relatively strong growth prospects and government efforts to liberalise foreign investment regulation,” the New York City-based agency said in a report released on Thursday, endorsing the measures taken by the government.
Net FDI inflows into India hit an all-time high of $3 billion in Janua-
Foreign Hand This more than financed current account deficit for the first time since 2004
Moody’s expects FDI inflow to continue to rise Says development of industrial corridors, investment & mfg zones and ‘smart cities’ will bolster inflows
Adds that weakening remittances & services exports, two biggest source of forex inflow, could weigh on current account deficit
ry, on a 12-month moving average basis, and cover current account deficit, the ‘Rising Foreign Direct Investment Provides Stable Financing of Current Account Deficit, a Credit Positive’ report said.
The agency expects FDI inflow to continue to rise and provide stable source of financing of current account deficit. The development of industrial corridors, investment and manufacturing zones and ‘smart cities’ will further bolster investment inflows, it said. The report said that low commodity prices will keep India’s imports in check and that the decline in imports has been a bigger contributor to the lower trade deficit than higher exports. “We expect domestic demand to gradually pick up in the fiscal year ending March 2017 (FY2017), which could push up import volumes to some degree. However, with commodity prices – particularly oil – likely to remain depressed, we do not expect a marked renewed widening of India’s trade deficit,” the report said. The announcement in the budget for 2016-17 of an excise tax on gold is likely to dampen overall gold imports, it said.
The agency said weakening remittances and services exports, two of the biggest source of forex inflow, could weigh on the current account deficit. Worker remittances dropped 30% in October-December 2015 from a year ago, albeit from unusually high levels, the report said. “Against a backdrop of subdued global economic activity — in particular in the Gulf, the origin of more than half of remittances to India — remittance inflows could weaken further in the coming months.
NET FDI INFLOWS HIT ALL-TIME HIGH OF $3 B IN JAN 2016