India's net Foreign Direct Investment (FDI) has significantly declined despite robust gross inflows, primarily due to the impact of disinvestment and capital repatriation. The official narrative often misattributes this decline to profit repatriation, which affects the current account, not net FDI. The article distinguishes between real FDI (RFDI), financial investors, and diaspora investments, noting that RFDI into manufacturing has decreased. It highlights that gross FDI figures often include corporate accounting changes rather than fresh capital, and outflows from disinvestment, dividends, and IPR payments significantly exceed fresh inflows, warranting a more informed debate on FDI dynamics.
- Net FDI in India has sharply declined, largely due to disinvestment and capital repatriation, not just profit repatriation.
- Real FDI (RFDI) into the manufacturing sector has seen a decline over consecutive periods.
- Gross FDI figures can be misleading as they include corporate accounting changes rather than fresh capital injections.
The RBI's Annual Report 2025-26 projects the Indian economy to remain resilient in 2026-27, despite a challenging external environment marked by elevated energy and commodity prices, rising logistics costs, and geopolitical risks. The report attributes this resilience to India's strong macroeconomic fundamentals, robust domestic demand, and a stable policy environment, with relatively lower dependence on exports for growth. Globally, geopolitical risks, particularly the West Asia conflict, have re-emerged as a dominant drag on global growth and inflation forecasts, with the IMF projecting global economic growth at 3.1% in 2026.
- The RBI forecasts the Indian economy to remain resilient in 2026-27 despite global challenges.
- Key factors supporting India's resilience include strong macroeconomic fundamentals, robust domestic demand, and a stable policy environment.
- India's growth is less dependent on exports, providing a buffer against global trade uncertainties.
The Reserve Bank of India's (RBI) annual report for 2025-26 shows a Balance of Payments (BoP) deficit of $30.8 billion, a more than six-fold increase from the previous year. This deficit, entirely covered by drawing down foreign exchange reserves, is primarily due to a sharp fall in net foreign investments and a widening current account deficit (CAD). While the merchandise trade deficit decreased, the services surplus shrank more significantly, leading to an overall wider CAD of $30.2 billion. The capital account surplus also drastically reduced, exacerbated by Indians parking funds abroad and foreign portfolio investors pulling out $4.3 billion.
- India recorded a Balance of Payments (BoP) deficit of $30.8 billion in 2025-26, a significant increase from the previous year's deficit.
- The deficit was primarily caused by a sharp decline in net foreign investments and a widening current account deficit (CAD).
- The services trade surplus shrank more than the merchandise trade deficit decreased, contributing to the wider CAD.
Gold, traditionally a safe haven, has seen a sharp decline since the West Asian conflict began on February 28, defying historical trends. This fall is attributed to several factors: expectations of higher interest rates for longer, a stronger U.S. dollar, and a liquidity crunch. Higher oil prices, triggered by the conflict, fuel inflation fears, prompting central banks to maintain high rates, making interest-bearing assets more attractive than gold. A stronger dollar also makes gold more expensive for foreign buyers. Additionally, a chain reaction of sell orders and profit booking amidst falling stock markets and liquidity needs has intensified the downward pressure. Despite the short-term volatility, analysts expect gold to appreciate in the long term.
- Gold prices have fallen sharply since the West Asian conflict, contrary to its traditional role as a safe haven during crises.
- The decline is driven by expectations of sustained high interest rates, making government bonds more attractive than non-interest-bearing gold.
- A stronger U.S. dollar, fueled by demand for imports and its role as a crisis currency, makes dollar-denominated gold more expensive for international buyers.
India is "experimenting" with conducting trade in local currencies with West Asian countries to counter the dual impact of surging oil prices and a depreciating rupee. This initiative aims to reduce reliance on the U.S. dollar for approximately 80% of India's oil imports and save on currency conversion costs. Each conversion currently costs about 1-2% of the transaction value, and a local currency mechanism could save 5-6%. India already uses a combination of local currencies and dirhams for Russian oil imports. The move, however, risks attracting potential tariffs from the U.S., which has previously threatened countries adopting alternate currencies.
- India is exploring trade in local currencies with West Asian countries to mitigate the impact of high oil prices and rupee depreciation.
- The initiative aims to reduce reliance on the U.S. dollar for a significant portion of oil imports and save on currency conversion costs.
- Currency conversion charges, currently 1-2% per transaction, could be reduced by 5-6% through local currency trade.
India's National Statistical Office (NSO) has released a revised GDP series with 2022-23 as the base year, after an 11-year gap. The new series indicates a 3-4% reduction in the absolute size of GDP compared to the 2011-12 series. It also shows changes in the production structure, with increased shares for agriculture and industry, and a decline in the services sector. The non-financial private corporate sector's share has decreased, while the household/informal sector's share has risen. This revision is seen as a welcome correction to previous overestimations, though further methodological details are awaited to fully assess its veracity.
- The NSO released a revised GDP series with 2022-23 as the new base year, replacing the 2011-12 series.
- The new series shows a 3-4% reduction in India's absolute GDP size compared to previous estimates.
- Structural changes include increased shares for agriculture and industry, and a decreased share for the services sector.