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Will India face economic woes like neighbours?

Analysts said Sri Lanka and Pakistan are facing deep financial troubles due to very low forex reserves and mounting external debts.

India has sufficient foreign exchange reserves to ensure that it will not experience economic problems like its two neighbouring countries, former Reserve Bank of India Governor Raghuram Rajan said.

“We have sufficient foreign exchange reserves. Low foreign debt and high foreign exchange reserves make the Indian economy resilient. The RBI has done a good job in increasing the reserves. We are not having problems like Sri Lanka and Pakistan. Our foreign debts are also less,” Rajan was quoted as saying by news agencies.

The inflation in Sri Lanka, which has seen months of mass unrest over the worst economic crisis, surged to 60.8 per cent in July, up from 54.6 per cent in June.

The year-on-year inflation based on the Colombo Consumer Price Index was 60.8 per cent in July, the country’s Department of Census and Statistics said in a statement on Saturday.

Pakistan too is on the brink of economic collapse with the depleting foreign currency reserves and rising inflation. Pakistan, according to the UNDP, is facing a debt in excess of $250 billion.

Analysts said Sri Lanka and Pakistan are facing deep financial troubles due to very low forex reserves and mounting external debts. Usable forex reserves of Sri Lanka recently plunged below $50 million forcing the country to suspend payments on foreign loans. The situation in Pakistan is equally bad. Pakistan's forex reserves dipped by $754 million to $8.57 billion for the week ended July 22 2022, as per Pakistan Central Bank's latest data.

According to the latest RBI data, India's foreign exchange (forex) reserves stood at $571.56 billion for the week ended July 22 after peaking to $642.45 billion on September 3, 2021.

In end-March 2022, India's external debt stood at $620.7 billion. India's external debt to GDP ratio declined to 19.9 per cent in end-March 2022 from 21.2 per cent in end-March 2021.

Recently RBI stepped up its intervention to protect the rupee from tumbling past 80 a dollar as India’s forex reserves fell to their lowest in over 20 months.

Analysts pointed out the depreciation of the Indian rupee is not a sign of weakness of the economy but was triggered by the increased outflow of foreign portfolio capital. The rupee has declined only against the greenback and its fall was lower than other major global currencies such as the Swiss Franc, the Euro, the British pound and the Japanese yen, they pointed out.

With India’s economy witnessing a push due to the government’s prompt policy support measures, the country according to reports has witnessed the highest ever Foreign Direct Investment (FDI) in the financial year (FY) 2021-22. To attract FDI, the government liberalized investment norms, relaxed regulatory hurdles, and nurtured international relations to make India a preferred investment destination.

India’s Ministry of Commerce and Industry data showed India attracted the highest ever FDI inflows to the tune of $84.84 billion in FY 2021-22, an increase of 3.5 per cent $2.87 billion from $81.97 billion reported in the previous year. Total FDI inflow into the country was reported at $74.39 billion in the financial year 2019-20.

Singapore emerged as the largest contributor with its share of 27.01 percent in India’s FDI inflows, followed by the US (17.94 per cent), Mauritius (15.98 per cent), the Netherlands (7.86 per cent), and Switzerland (7.31 per cent). Thus, the top five countries cumulatively contributed to 76 per cent of the total FDI inflow into India in the FY2021-22.

India's federal fiscal deficit for the three months through June rose lower-than expected to Ra3.5 trillion ($44.17 billion), helped by a lower spending on subsidies and higher tax collections, government data showed on Friday.

— issacjohn@khaleejtimes.com