The total foreign investment had risen by close over 180 per cent in the fiscal 2014-15 to USD 73.6 billion over the previous financial year. It was led by the foreign institutional investors (FIIs) who were in a state of euphoria about the change of the government headed by a decisive leader. The FIIs poured in USD 40.9 billion in FY 15, while as much as USD 32.6 had come in by way of Foreign Direct Investment (FDI). That kind of growth is just not on the horizon, noted the ASSOCHAM paper.
It said while the FDI inflows may improve in the current year, the FII inflows may even go lower. At least in the next two quarters, there does not seem to be any major trigger to attract the FIIs back to India. The fatigue factor towards emerging markets, rise in dollar value and the possibility of interest rate hike in the US earlier than expected would all combine to keep the inflows of FIIs into India subdued.
Coupled with the projections of lower foreign investment, outlook for merchandise exports also do not look positive. As projected last week, the merchandise exports may remain more or less flat at around USD 310 billion this year as well as was the case in 2014-15.
Under these circumstances, the external sector outlook does not look rosy for the current financial year. The only saving grace is that the imports would also remain subdued easing off the pressure that could have otherwise come about on the rupee value against dollar, ASSOCHAM Secretary General, Mr D S Rawat said.
He said, Under the given circumstances, a major offensive must be launched to woo foreign players in FDI projects, especially in building infrastructure and manufacturing - both greenfield and brownfield. Some of the losses of FIIs should be sought from the FDI, though hardcore efforts will have to be made in this respect.
The foreign exchange reserves too, under the given context, may not keep the kind of pace which was witnessed last year. While last the accretion to the foreign exchange reserves was to the tune of USD 61.4 billion, four times the level in 2013-14, the feat of 2014-15 may not be repeated in the current year, the ASSOCHAM paper noted.
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So, it would be largely through lower merchandise imports, healthy rise in services exports, led by IT and IT-enabled segment and lower import bill of gold and crude oil, that the Current Account Deficit would stay healthy.
Otherwise, the external scenario on a larger canvass does not look as good this year as was in the previous fiscal, posing challenges for the government, which has to now necessarily rely on the domestic consumption. Here again, the outlook of weak Monsoon remains a challenge, said the ASSOCHAM paper.
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