India's external sector on a strong footing: RBI's Das

Indian Rupee has been the most stable among emerging markets and is likely to remain so as the RBI assured the Current Account Deficit is `eminently manageable’ next fiscal too, RBI governor Shaktikanta Das said after the monetary policy committee meet on Thursday.

India’s current account deficit (CAD) eased sharply to 1.0 per cent of GDP in the September quarter from 3.8 per cent in the same period a year ago.

“Going ahead, the net balance under services and remittances is expected to remain in large surplus, partly offsetting the trade deficit” said Das. The rupee too has remained fairly stable vis-a-vis the dollar.

India’s services exports remained resilient in October-December 2023, driven by software, business and travel services. Moreover, with around 10.2 per cent share in world telecommunications, computer and information services exports, India is a significant player in the world software business.

Remittances by the Indian diaspora also is expected to contribute in strengthening the external sector balance sheet. According to the World Bank, with an estimated $135 billion in inward remittances in 2024, India would remain the largest recipient of remittances globally. As a result, the CAD for 2023-24 and 2024-25 is expected to be eminently manageable, the governor said.

On the financing side, net foreign direct investment (FDI) stood at $13.5 billion in April-November 2023 as compared with US$ 19.8 billion a year ago. Foreign portfolio investment (FPI) witnessed a sharp turnaround during 2023-24 (up to February 6) with net FPI inflows of $ 32.4 billion as against net outflows of $ 6.7 billion a year ago.

Net accretions to non-resident deposits and net inflows under external commercial borrowings were also higher during the year. As on February 2, 2024, India’s foreign exchange reserves stood at US$622.5 billion. Vulnerability indicators suggest greater resilience of India’s external sector. “ We are confident of comfortably meeting all our external financing requirements” the governor said.

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