India’s foreign exchange reserves may be close to their record high, but the rapidly widening trade deficit and capital outflows could test the sustainability of external strength.
Though India would be tackling it from a position of strength, the Reserve Bank of India said in its state of the economy report.
According to data compiled by the National Securities Depository Limited, FPIs have pulled out a whopping Rs 255,879 crore ($33.5 billion) from equity and Rs 16,621 crore ($2.1 billion) from debt segments of Indian financial markets.
There is a total net outflow of Rs 2,71,950 crore ($35.6 billion) over the period from October 2021 to June 2022. In the first half of this calendar year, the total net outflows were to the tune of Rs.227290 crore ($29.7 billion).
“Rapidly widening trade and current account deficits co-existing with portfolio capital outflows weigh on external sustainability, although the strength of underlying fundamentals and the stock of international reserves provide buffers,” said the report prepared by RBI’s research wing.
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The report said that India faces these challenges from a position of strength built on broadened vaccine coverage, financial sector resilience, robust export and remittances and the government’s push to spur capital spending on infrastructure.
The reserves got depleted by a massive $29 billion since February 18, two days before the beginning of the Russia-Ukraine war. Forex reserves were at its peak at $642.453 billion on September 3 last year.
The near-term global outlook appears grim with strained supply chains and the quickening pace of monetary policy normalisation.
“Emerging market economies are bracing up to contend with swift shifts in risk sentiments and tightening of global financial conditions that could produce real economic consequences which may thwart incipient recoveries or even precipitate rocketing inflation and economic downturns,” the report said, adding that the Indian economy is not immune to these negative externalities.
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Sources: The Wire, Economic Times, Flipboard
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This post is tagged under: Massive Outflow of Capital, India, Capital, Vaccines, Balance In Trade, Finance, Indian News, Business Times, Recent Outflow Of Capital, Russia-Ukraine War, National Securities Depository Limited, Foreign Exchange Reserves, Money, Supply Chains, Rapid Trade, Accounts, Government Of India, News
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