The Reserve Bank of India (RBI) has released its Annual Report for 2023-24, shedding light on India’s strong performance in attracting foreign direct investment (FDI) and maintaining the stability of the Indian Rupee (INR) amidst a volatile global economic environment.
India witnessed resilient gross FDI flows amounting to US$ 71.0 billion during 2023-24, comparable to the previous year’s US$ 71.4 billion. However, net FDI flows moderated to US$ 10.6 billion from US$ 28.0 billion, largely due to increased repatriation. Despite this moderation, India’s ability to attract substantial FDI highlights its robust economic fundamentals and favorable investment climate.
Notably, the year saw a significant turnaround in net foreign portfolio investment (FPI) flows, which reached US$ 41.6 billion, the second-highest inflow recorded since 2014-15. This surge underscores strong investor confidence, positioning India as the top recipient of net FPI inflows among emerging market economies (EMEs).
Strong FDI inflows and a stable INR amid global uncertainties underscore the robust macroeconomic fundamentals and effective policy measures that continue to attract investors and bolster economic confidence. As India maintains its growth trajectory, these developments position the country favorably on the global financial stage, reflecting its dynamic and resilient financial markets.
Stable INR Performance
The INR displayed remarkable stability in 2023-24, depreciating by only 1.4 percent compared to the previous year’s 7.8 percent depreciation. This performance ranks the Indian Rupee among the best-performing major EME currencies.
The stability of the INR is attributed to improving external sector dynamics and strong macroeconomic fundamentals, including a significant reduction in the current account deficit (CAD) and robust capital inflows. These factors helped offset persistent challenges from volatile global financial markets, a strong US dollar, and ongoing geopolitical tensions.
The INR’s stability reflects the resilience of the Indian economy, supported by a robust policy framework and proactive measures by the RBI. Improved external sector metrics and strong capital inflows have bolstered investor confidence, helping the INR navigate through global financial turbulence, the report highlighted.
Capital Inflows and Forex Reserves
India’s overall capital inflows were robust during the year, driven by buoyant economic growth and improving macroeconomic conditions. Besides FDI and FPI, other major capital flows, including external commercial borrowings (ECBs) and non-resident deposits, also increased.
The net capital inflows surpassed the CAD, resulting in an accretion of US$ 32.9 billion to the foreign exchange reserves during April-December 2023. Consequently, India’s foreign exchange reserves reached an all-time high of US$ 648.7 billion as of May 17, 2024, covering 11.4 months of imports. This substantial reserve buildup has strengthened India’s buffers against external sector risks and adverse spillovers.
