The efforts to liberalise foreign investment limits in several sectors and the ‘Make in India’ campaign are bearing fruit, said Moody’s Investors Service in a report. Low commodity prices and better Foreign Direct Investment have reduced India’s vulnerability to external shocks which is “credit positive” for India. “We do not expect a significant renewed widening of India’s current account deficit (CAD). Our assumption that commodity prices will remain low in 2016 and 2017 supports this view, while FDI inflows are likely to climb in response to government measures,” Moody’s report said.
The development of industrial corridors, investment and manufacturing zones and ‘smart cities’ will further bolster investment inflows, the report added. However, it also said that weakening remittances and services exports could weigh on current account deficit and moderating services exports could add to these pressures. “Against the 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,” it said.
The New York City-based agency expects FDI inflows to continue to rise. It provides a stable source of financing that will help to mitigate India’s external financing risks. “Consistent with our assumption that commodity prices will remain low for several years, India’s energy import bill is unlikely to increase significantly. Moderate gold and energy imports will help to offset any pick-up in imports related to strengthening domestic demand,” it said. Net FDI inflows into India hit an all-time high of $3 billion in January, on a 12-month moving average basis. It added that low commodity prices will keep imports in check and gradual pick-up in domestic demand could push up import volumes.
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