Inflows of foreign direct investment (FDI) into India have increased significantly in the current fiscal and the trend will continue in the coming quarters on account the country's pro-growth policy agenda, says a Moody's report.
According to the global credit rating agency, FDI inflows are likely to remain buoyant in the coming months of the current financial year and beyond.
"We believe that FDI will continue to perform well for the remainder of fiscal 2015 and beyond," the report said.
Firstly, the government's pro-growth policies are likely to support direct capital inflows. Moreover, India's sanguine growth outlook is likely to encourage inbound FDI.
"We expect India's economic growth to pick up materially next year. In contrast, China's economic slowdown is set to continue, while the growth outlooks for Brazil and Russia remain precarious," Moody's said.
Rising FDI inflows will therefore help to plug India's current account shortfall, and such inflows are typically less volatile than portfolio capital.
This in turn should help to reinforce the economy's resilience to external headwinds, such as monetary policy normalisation in the US and deflationary risks in the euro area.
"Greater FDI inflows will, in turn, provide more stable funding for India's current account deficit, thereby improving the economy's exposure to external headwinds," Moody's said in a research note.
Net FDI inflows into India totalled USD 14.1 billion in the first five months of 2014-15, representing a 33.5 per cent year-on-year increase from the same period in the last fiscal.
A sector wise analysis shows that of the top 10 sectors in 2014-15 to date, telecom accounted for almost one fifth of total inflows. Services and pharmaceuticals have also been major beneficiaries of FDI during the fiscal year.
