IMF urges India to ease import curbs, liberalise FDI norms to maintain external balance
India needs to reduce import restrictions, especially on intermediate goods, enhance the business environment to boost private investment, liberalise the foreign direct investment (FDI) regime and expand trade networks to sustain a healthy external balance, the International Monetary Fund (IMF) said in a report released Tuesday.It suggested cautious implementation of industrial policies, minimisation of trade and investment distortions and maintenance of exchange rate flexibility to absorb shocks, with intervention used only during market instability.India's external sector in FY25 was stronger than expected, driven by strong services exports and lower oil prices. However, risks remain with continued trade and capital account restrictions limiting export and import growth, according to the IMF's External Sector Report.The current account deficit (CAD) rose to 0.8 per cent of gross domestic product (GDP) in FY25 from 0.7 per cent of GDP in FY24, due to rising import demand amid strong services exports. It is projected to reach 0.9 per cent in FY26, "reflecting resilient domestic demand and a slowdown in external demand", the report said.Over the medium term, it is estimated to widen to around 2 per cent of GDP, aligning with India's development needs, it added.The report analysed 30 economies based on external sector data as of May 27, 2025 and IMF staff projections in the April 2025 World Economic Outlook.In the first half of 2024, a contained CAD and portfolio inflows strengthened the rupee, but this reversed in the second half due to equity outflows and global uncertainty.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Business Standard
an hour ago
- Business Standard
Barometers pare losses; Nifty trades above 24,850
The headline equity benchmarks pared all early losses and traded with minor gains in the morning trade. The Nifty traded above the 24,850 mark. Realty shares witnessed selling pressure for the fifth consecutive trading session. At 10:30 IST, the barometer index, the S&P BSE Sensex rose 57.70 points or 0.08% to 81,517.51. The Nifty 50 index added 31.40 points or 0.12% to 24,864.85. In the broader market, the S&P BSE Mid-Cap index rallied 0.60% and the S&P BSE Small-Cap index rose 0.24%. The market breadth was positive. On the BSE 2,028 shares rose and 1,664 shares fell. A total of 209 shares were unchanged. Economy: India's forex reserves dipped by $1.18 billion to $695.49 billion for the week ending July 18, data by the Reserve Bank of India showed on Friday. For the week ended July 18, foreign currency assets, a major component of the reserves, slipped by $1.201 billion to $587.609 billion, the data released on Friday showed. However, the gold reserves increased by $150 million to $84.499 billion during the week, the RBI said. The Special Drawing Rights (SDRs) were down by $119 million to $18.683 billion, the apex bank said. India's reserve position with the IMF declined by $13 million to $4.698 billion in the reporting week, the apex bank data showed. Result today: Adani Green Energy (up 2.12%), Apollo Micro Systems (down 2.15%), Indusind Bank (down 0.45%), Mazagon Dock Shipbuilders (down 0.75%), JK Paper (down 1.62%), KEC International (up 0.83%), Laxmi Organic Industries (up 0.12%), Mold-Tek Packaging (up 0.95%), Motherson Sumi Wiring India (down 1.01%), NTPC Green Energy (up 2.17%), Paradeep Phosphates (up 5.35%), Piramal Pharma (up 1.06%), Quess Corp (down 0.84%), RailTel Corporation of India (down 1.64%), Sanghi Industries (up 0.39%), Transport Corporation of India (down 1.37%), Thangamayil Jewellery (up 0.46%), Torrent Pharmaceuticals (down 0.09%), TTK Prestige (up 0.08%), UPL (up 0.18%) and Vijaya Diagnostic Centre (up 0.92%) will announce their quarterly results later today. Buzzing Index: The Nifty Realty index dropped 2.90% to 923.05. The index slumped 8.26% in five consecutive trading sessions. Lodha Developers (down 4.37%), DLF (down 2.8%), Prestige Estates Projects (down 2.24%), Brigade Enterprises (down 1.77%), Phoenix Mills (down 1.64%), Oberoi Realty (down 1.55%), Raymond (down 1.25%), Godrej Properties (down 1.24%) and Sobha (down 0.88%) declined. Stocks in Spotlight: ACME Solar Holdings surged 9.16% after the companys consolidated net profit stood at Rs 130.83 crore in Q1 FY26, steeply higher than Rs 1.39 crore in Q1 FY25. Revenue from operations jumped 65% YoY to Rs 510.98 crore in Q1 June 2025. Reliance Infrastructure advanced 2.32% after the company reported a consolidated net profit of Rs 59.84 crore in Q1 FY26, compared to a net loss of Rs 233.74 crore posted in Q1 FY25. Revenue from operations fell 17.86% to Rs 5,907.82 crore in the quarter ended 30 June 2025.
Fibre2Fashion
a day ago
- Fibre2Fashion
Ind-Ra lowers India's FY26 GDP forecast to 6.3% amid global headwinds
India Ratings and Research (Ind-Ra) has lowered its GDP growth forecast for fiscal 2026 (FY26) to 6.3 per cent year-on-year (YoY), down 30 basis points (bp) from its earlier estimate of 6.6 per cent issued in December 2024. The revision reflects the evolving macroeconomic landscape shaped by geopolitical shocks and uneven domestic momentum, with the economy navigating a mixed bag of headwinds and tailwinds. 'Major headwinds are: i) uncertain global scenario from the unilateral tariff hikes by the US for all countries and ii) weaker-than-expected investment climate. The major tailwinds are: i) monetary easing, ii) faster-than-expected inflation decline, and iii) likely above-normal rainfall in 2025,' said Dr. Devendra Kumar Pant, chief economist and head – public finance at Ind-Ra. The downgrade also mirrors a bleak global environment: the IMF has trimmed its 2025 global GDP forecast to 2.8 per cent, while the World Bank projects an even lower 2.3 per cent expansion. Global trade volume is now expected to rise only 1.8 per cent in 2025, sharply below earlier forecasts and historical trends, the domestic rating agency noted. Retail inflation is expected to average just 3 per cent in FY26, down from 4.6 per cent in FY25 and well below the Reserve Bank of India's 4 per cent target. Food inflation turned negative in June 2025, contributing to the lowest CPI reading in over six years. With 100bp of rate cuts already delivered between February and June 2025, Ind-Ra sees room for an additional 50bp cut in the current easing cycle, possibly aided by CRR reductions. Commodity prices—both energy and non-energy—are expected to remain subdued in 2025 and into 2026-2027, limiting export momentum and further clouding India's external outlook. Private final consumption expenditure (PFCE) is projected to rise 6.9 per cent in FY26, sustaining its momentum from FY25 (7.2 per cent). The pick-up is attributed to easing inflation and improving real wages, although the growth remains tempered by a drop in household savings and increased personal loan obligations. The savings rate fell to 18.1 per cent in FY24 (from 20.1 per cent in FY22), while rising loan burdens have reduced disposable incomes. 'While low inflation augurs well for consumption demand, monetary easing is likely to ease pressure on loan repayments, and better monsoon is likely to translate into brighter agriculture prospects, thus supporting rural demand. However, the combined impact of tailwinds is unlikely to fully alleviate the adverse impact of the strong headwinds,' noted Paras Jasrai, associate director at Ind-Ra. Gross fixed capital formation (GFCF) growth is forecast to slow to 6.7 per cent in FY26, down from 7.1 per cent in FY25. A better-than-expected investment uptick in FY25, global capex hesitancy, and weak manufacturing sector outlook are dampening prospects. While sectors like logistics, renewables, and commercial real estate may sustain capex growth, others like garments and chemicals could see cutbacks. Ind-Ra expects the trade deficit to widen to $325.1 billion in FY26, up from $287.2 billion in FY25. However, strong remittances and a services surplus are likely to contain the current account deficit at 0.9 per cent of GDP. The basic external balance (current account plus net FDI) is set to deteriorate to a deficit of $34.5 billion, while the INR is likely to depreciate by 2.8 per cent against the USD. India Ratings has cut India's FY26 GDP forecast to 6.3 per cent from 6.6 per cent amid global trade uncertainty and weak investment climate. While low inflation, monetary easing, and a good monsoon support consumption, these tailwinds may not offset global headwinds. Inflation is seen averaging 3 per cent, with further rate cuts possible. Current account deficit is projected at 0.9 per cent of GDP. Fibre2Fashion News Desk (HU)
Fibre2Fashion
a day ago
- Fibre2Fashion
Euro area gains ground externally, IMF cautions on imbalances
The euro area posted a moderately stronger external position in 2024, supported by a rebound in its current account surplus and a rise in its net international investment position (NIIP), according to the IMF's External Sector Report. However, the IMF cautioned that regional imbalances, weak investment in key economies, and structural rigidities could pose challenges to long-term resilience unless addressed through targeted reforms and deeper economic integration. The current account balance increased to 2.8 per cent of GDP in 2024, up from 1.7 per cent in 2023, driven primarily by a fall in energy import prices and a surge in non-energy goods exports. Despite this improvement, the IMF projects the CA surplus will gradually decline to around 2 per cent of GDP in the medium term as domestic demand picks up. The IMF's External Balance Assessment (EBA) estimated a cyclically adjusted current account of 2.9 per cent of GDP, compared to a model-based norm of 1.4 per cent. After accounting for country-specific statistical adjustments—especially for Ireland and The Netherlands—the staff assessed the CA gap at 1 per cent of GDP, within a range of 0.2 to 1.8 per cent. Persistently large surpluses in Germany and The Netherlands were attributed to elevated household and corporate savings and subdued investment levels. The euro area's net international investment position rose significantly, reaching 10.9 per cent of GDP by end-2024—its highest level in over a decade. This was supported not only by the current account surplus but also by valuation effects in the final quarter of the year. Gross external assets and liabilities stood at 250.3 and 249.4 per cent of GDP, respectively. However, underlying asymmetries persist: Germany and other creditor nations continue to hold elevated net external assets, while countries such as Portugal and Spain remain heavily indebted externally. The IMF stated that these debtor countries could face an elevated risk of sudden stops in capital inflows under tighter global financial conditions. Despite a slight appreciation of the CPI-based real effective exchange rate (REER) in 2024—up 0.5 per cent from 2023 levels—the IMF assessed a REER gap of -3.1 per cent, suggesting the euro area currency remained somewhat undervalued based on current account dynamics. This contrasts with the EBA REER index model, which suggests a modest overvaluation. On the capital and financial account side, the euro area recorded a financial account surplus of 3.2 per cent of GDP in 2024, up from 1.9 per cent the previous year. This was largely fuelled by a recovery in net direct investment, offsetting weaker other investment flows. Portfolio investments and derivatives made smaller contributions. The IMF noted that while risks remain manageable overall—especially due to the euro's status as a global reserve currency—large sovereign and bank sector financing needs could amplify vulnerabilities in the face of sustained market volatility or monetary tightening globally. To sustain external stability and reduce internal asymmetries, the IMF recommended a recalibration of domestic demand composition and targeted reforms at both national and EU levels. Strengthening the EU single market through reduced regulatory burdens, streamlined trade processes, enhanced labour mobility, and financial market integration could raise productivity and resilience. Completing the banking and capital markets unions was identified as critical to improving risk sharing and supporting investment, especially in high-debt countries. IMF further advised countries with excessive current account surpluses to stimulate domestic demand and increase investment, while those with weaker external positions should raise public savings and undertake productivity-enhancing reforms. Cautious use of industrial policy, targeted only to correct market failures, and coordinated trade measures promoting transparency and deeper integration through free trade agreements, were also highlighted. Additionally, the IMF encouraged reforms to improve energy security, boost EU-level public investment in essential goods, and mitigate demographic pressures through long-term productivity strategies. Although the euro is free-floating and reserves held by euro area economies remain low by global standards, the IMF concluded that the euro area's aggregate external vulnerabilities are limited. Still, the persistence of historical policy gaps and divergent current account trends within the bloc remain a source of macroeconomic friction that warrants continued monitoring. The euro area's external position strengthened in 2024, driven by a higher current account surplus and NIIP. The IMF highlighted risks from weak investment and regional imbalances, urging reforms to boost domestic demand, complete banking unions, and deepen EU integration. Despite some REER undervaluation, overall vulnerabilities remain limited but uneven across member states. Fibre2Fashion News Desk (HU)
