According to an ASSOCHAM’s “Global Investors’ Expectations from New Indian Government” study, riding on huge expectations from the incoming Modi Government, global investors are positive on the Indian economy which is expected to witness over 100 percent increase in foreign investment inflows- both FDI and FIIs- to above USD 60 billion in the current financial year than about USD 29 billion in the last fiscal.
In a way, the emerging situation will pose a new challenge to the Reserve Bank of India to deal with the problem of plenty on its impact on the Rupee rate and inflation from the increased amount of cash into the system.
The new Finance Minister and the RBI, thus, will have to be on the same page in dealing with this scenario which will see strengthening of Rupee and a further improvement on the current account balance. However, the ‘problem of plenty’ will force RBI to sterilise the inflows by injecting cash into the system.
“The first immediate remedy to deal with the issue would be to straight away remove import restrictions and customs duty on imports of gold as these measures were taken in an extra-ordinary situation that is behind us. Besides, the curbs on gold imports have hit the gems and jewellery trade and industry badly. The step could be taken in the first Budget of the Modi Government and will be seen as a people-friendly measure,” the paper said.
Net foreign investment inflows, led by aggressive foreign institutional investors (FIIs) in the Indian equity and debt markets in 2014-15 , are expected to even overtake the figure of USD 46.17 billion during fiscal 2012-13, the paper mentioned. In the FY, 2012-13, the FII inflows had led the table with USD 27.58 billion while the net foreign direct investment (FDI) had aggregated to USD 19.82 billion.
“The unfolding scenario also points to easing of prices and lowering of interest rates, the two major challenges that the Indian economy had been facing for some years now,” said Rana Kapoor, President, ASSOCHAM.
In the current fiscal as well, the FII investment would remain more than the FDI inflows. The expectations are that the FII investment in both debt and equity could exceed USD 35 billion while the FDI money could be above USD 25 billion.
Significantly, India will continue to outpace all other emerging economies in terms of FII inflows, the paper said.