DEA notes India’s resilience amid global turmoil, monetary tightening

The relatively buoyant outlook on India's economic growth this year is matched by its relatively stronger position in the external sector, according to the department of economic affairs, which said in its Monthly Economic Review for August that the development shows the economy's resilience amid global turmoil and monetary tightening.

During the first quarter this year, India was the 5th largest recipient of foreign direct investment among the defined set of developed and developing economies, as a buoyant growth outlook coupled with steady improvement in ease of doing business and supportive government policies retained India as an attractive business destination, the document said.

The momentum has sustained in Q2 2022 as well, with FDI inflows worth $16.1 billion. India's exports grew at the second highest rate in this quarter despite the ongoing global slowdown.

India's strong forex reserves, which are 3rd largest compared to other economies, are boosted by capital inflows during the two pandemic years and are adequate to cover imports equivalent to 9 months as of July 2022, which is higher than most of the other economies, it said.

Further, the Indian currency has performed well, with the depreciation of the rupee vis-a-vis dollar being modest at 7% on a year-to-date basis compared to 23% for the Japanese Yen, 18% for the UK pound, 14% for the Euro and 16% for South African Rand.

The combination of high foreign exchange reserves, sustained foreign direct investment, and rising export earnings have provided an adequate buffer against the monetary policy normalisation in advanced economies and the widening of the current account deficit arising from the geopolitical conflict, the DEA document noted.

A relatively buoyant growth and a somewhat more robust external sector are now set to converge with declining inflation to deliver for India a strengthened macroeconomic outlook for the balance period of the current year, it added.