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Despite improvements in the current account deficit, muted net foreign direct investment (FDI) and continued outflow of foreign portfolio investment (FPI) suggest that the overall balance of payments (BoP) will continue to face pressure, said a report by ICICI Bank Global Markets.
Highlighting the impact of FDI and FPI, the report said, the capital account outlook remains subdued due to lower FDI and continued FPI outflows. Net FDI inflows were just USD 1.2 billion in Apr-Dec 2024, compared to USD 7.8 billion last year, and net FPI outflows stood at USD 2.0 billion. However, the report added that the outlook for the Indian Rupee (INR) has improved, with appreciation seen in the currencies of India's trading partners against the US dollar. The report forecasts the USD/INR pair to trade in the range of 86.5 to 87.5 in the near term. According to the February trade data, the country's trade deficit narrowed to a 42-month low of USD 14 billion in February, which is positive for the country's macroeconomic outlook. However, non-oil exports, which had been growing for the past 14 months, contracted due to weak global demand and uncertainties around trade wars, the report added. The report highlighted that the key concern for the country remains the imposition of reciprocal tariffs by the United States. But on the positive side, the services trade surplus has improved, averaging USD 15.6 billion in FY25, up from USD 13.6 billion in FY24, and remittances have remained strong, contributing to a more favorable outlook for India's current account deficit (CAD), which has been revised to USD 26 billion (0.7 percent of GDP). The report added that with a retreat in the dollar index and fiscal stimulus announcements from Germany and China, the outlook for emerging market (EM) currencies, including the Indian Rupee (INR), has improved. (ANI)
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