FDI In­flow Credit Pos­i­tive, Make in In­dia Bear­ing Fruit: Moody’s

Re­port says ris­ing FDI pro­vides sta­ble fi­nanc­ing of cur­rent ac­count deficit

The Economic Times - - Economy - Our Bu­reau

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

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