Foreign investment inflows are estimated to more than double to $60 billion this fiscal riding on the high expectations from the incoming Narendra Modi-led government, the Associated Chambers of Commerce and Industry (Assocham) said Sunday.
“Riding on huge expectations from the incoming Modi government, global investors are gung-ho on the Indian economy, which is expected to witness over 100 percent increase in foreign investment inflows – both FDI and FIIs – to above $60 billion in the current financial year against $29 billion during 2013-14,” an Assocham study projected.
“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,” Assocham President Rana Kapoor said.
However, Assocham immediately pointed to the challenge posed to the Reserve Bank of India by the emerging situation, where the problem of too few US dollars has become one of too many and the rupee in its exchange has strengthened to Rs.58.50.
“The emerging situation will pose a new challenge to the Reserve Bank to deal as it will have to balance the rupee rate and inflation from the increased liquidity into the system,” Assocham said.
In fact, the RBI does not want the rupee to strengthen further so as not to hurt exports, and has decided to ease controls on gold imports its had imposed last year.
The new finance minister and the RBI, thus, will have to be on the same page in dealing with this scenario, which will see the strengthening of rupee and a further improvement on the current account balance, Assocham said.
Foreign institutional investment (FII) in the current fiscal would remain more than foreign direct investment (FDI) inflows, Assocham said. The expectations are that FII investment in both debt and equity markets could exceed $35 billion while FDI money could be above $25 billion.
India will continue to outpace all other emerging economies in terms of FII inflows, the study found.