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India faces renewed pressure on its currency and capital flows as a sharp rise in oil prices and global bond yields worsens the external environment, even as domestic economic activity remains resilient, the September Monthly Economic Review said.
India, as do other developing nations, faces a stiff challenge to attract capital flows, the review said, warning that the competition for global investment has intensified as developed economies seek capital for renewed manufacturing activity amid increasing weaponisation of global supply chains. Thus, short-term pressure on Indian assets, including the currency, remains, it added. The review said global conditions had turned unfavourable again, with oil prices spiking in September and global bond yields moving sharply higher. While Indian bond yields have risen by less, the report said the lower risk premium on Indian debt was putting pressure on the rupee. At the same time, the review said there were indications that net foreign direct investment inflows could perform better in the current financial year than in the previous year. However, it noted that the near-term external environment remained challenging. Trade relations with the United States also remained unsettled, the review said, citing the passage and Presidential assent to the Graham Bill, which it said empowers the US President to impose tariffs of up to 100 per cent on countries purchasing Russian crude oil. The review also highlighted the continuing flow of capital into superintelligence-related investment globally, while developed economies compete to secure investments for manufacturing. This, it said, adds to the challenge for India and other developing economies seeking to attract capital. Despite these external risks, India's domestic economy maintained strong momentum. Real GDP grew 7.8 per cent in Q1 FY27, while real GVA rose 8.2 per cent. Manufacturing grew 9.2 per cent, construction 7.7 per cent and services 10 per cent. Private consumption grew 7.1 per cent, while gross fixed capital formation increased 11.9 per cent. Recent indicators also pointed to continued activity, though with some moderation. Industrial production grew 6.7 per cent in July, while manufacturing PMI stood at 52.8 in August. Electricity consumption rose 12.7 per cent and bank credit remained strong. The external sector also provided some cushion. Merchandise exports grew 26.1 per cent year-on-year in August, while foreign exchange reserves stood at USD 765.9 billion as of September 18. The review further said the economy entered Q2 FY27 from a position of strength, but geopolitical tensions, volatile energy prices, tighter global financial conditions and supply-chain disruptions remained key risks. It said investor interest in India was not low but cautious and warned that India could not take its growth performance for granted. (ANI)
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