India’s economy is showing strong signs of growth and resilience, as highlighted by the latest data from the Reserve Bank of India (RBI). The gross foreign direct investment (FDI) inflows surged by 26.4% to $22.5 billion during the April-June quarter of the current financial year, compared to the same quarter of the previous year. This significant increase has resulted in net FDI rising to $6.9 billion in the first quarter of 2024-25, up from $4.7 billion in the same period of 2023-24.
Manufacturing, financial services, communication services, computer services, electricity, and other energy sectors accounted for approximately 80% of the gross FDI inflows. Major source countries include Singapore, Mauritius, the Netherlands, the US, and Belgium, which together contributed 75% of the total FDI, according to the RBI report.
Net FDI had previously dropped sharply to $9.8 billion in 2023-24 from $28 billion the previous year. In FY22, net FDI flows into India were $38.6 billion. The latest report, however, suggests a revival in net exports as a lever for India’s growth. Outbound shipments are undergoing an expansion in 2024-25, and most of India’s top 10 export destinations, excluding China, are experiencing growing demand.
India’s export basket is shifting towards electronics and engineering goods, even as traditional exports such as gems and jewelry, textiles, garments, leather, and marine products are losing competitiveness. Global capability centers are expected to play a key role in this export drive, particularly in the evolution of business and knowledge process outsourcing. Business services supporting operations like consulting, engineering, research, and design are rapidly emerging as India’s new export powerhouse, surpassing software and IT.
RBI Governor Shaktikanta Das reported that India’s foreign exchange reserves reached a historic high of $675 billion as of August 2, 2024. He expressed confidence in meeting the country’s external financing requirements, noting that India’s current account deficit (CAD) moderated to 0.7% of GDP in 2023-24 from 2.0% in 2022-23 due to a lower trade deficit and robust services and remittance receipts. While the merchandise trade deficit widened in Q1:2024-25 as imports grew faster than exports, the RBI chief indicated that strong services exports and remittance receipts would likely keep CAD within sustainable levels.
Meanwhile, India’s financial system has demonstrated remarkable resilience in the face of global volatility and economic uncertainty. The banking sector, in particular, has shown significant improvements in asset quality and capital adequacy, supported by strong credit demand. As of March 2024, bank credit growth surged by 19.2% year-on-year (YoY), outpacing deposit growth, which stood at 13.5% YoY.
A key achievement for the banking sector is the significant improvement in asset quality, with the Gross Non-Performing Assets (GNPA) ratio dropping to a 12-year low of 2.8% in March 2024, down from 3.2% in September 2023. This improvement was seen across various banking groups, although Public Sector Banks (PSBs) continue to have the highest GNPA ratio at 3.7%, compared to 1.8% for Private Sector Banks (PVBs) and 1.2% for Foreign Banks (FBs).
Sector-wise, the agriculture sector still faces higher GNPA levels at 6.2%, though improvements have been noted. Industry, services, and personal loans have all shown benign GNPA ratios, with persistent declines across the board. The GNPA ratio for industry stands at 3.5%, services at 2.7%, and personal loans at 1.2%, indicating a healthier credit environment.
Although the value of write-offs moderated during FY2024, the ratio of write-offs to GNPA remained stable, with fluctuations across different banking groups balancing out. Looking ahead, macro stress tests suggest that the GNPA ratio for all Scheduled Commercial Banks (SCBs) could further improve, potentially reaching 2.5% by March 2025 under a baseline scenario. Even under medium or severe stress conditions, the GNPA ratio is expected to remain relatively contained at 2.8% and 3.4%, respectively.
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