RBI Governor Reports Robust Economic Metrics and Positive Foreign Inflows

RBI Governor Shaktikanta Das announced significant foreign portfolio and direct investments, with FX reserves hitting $675 billion. The current account deficit dropped to 0.7% of GDP. Das also addressed concerns on rising home equity loans and emphasized proactive monitoring by banks.

During the announcement of the monetary policy, RBI Governor Shaktikanta Das highlighted a positive shift in foreign portfolio investment (FPI) flows, registering net inflows of USD 9.7 billion in domestic markets from June 2024. This notable change followed outflows of USD 4.2 billion in the previous months of April and May.

Das reported that foreign direct investment (FDI) flows surged in 2024-25, with gross FDI rising by over 20% from April-May 2024. Net FDI flows also doubled compared to the previous year. Simultaneously, external commercial borrowings eased, and non-resident deposits showed higher net inflows during April-May, contributing to India's foreign exchange reserves reaching a record high of USD 675 billion by August 2, 2024.

The RBI Governor affirmed that the Current Account Deficit (CAD) had moderated to 0.7% of GDP in 2023-24 from 2.0% in 2022-23, aided by a reduced trade deficit and strong services and remittances receipts. He reassured that despite a wider merchandise trade deficit in Q1:2024-25, the CAD would remain manageable throughout the year, supported by robust services exports and strong remittance receipts.

Das also raised the alarm on the brisk increase in home equity loans and loans against other collateral like gold. He urged banks and NBFCs to strictly adhere to regulatory standards on loan-to-value ratios, risk weights, and the end-use of funds to avoid funds being diverted to unproductive or speculative uses.

Addressing the manufacturing sector, Das noted an improvement with the Purchasing Managers' Index (PMI) for manufacturing standing strong at 58.1 in July. The services PMI was even more robust at 60.3. The Index of Industrial Production (IIP) also demonstrated accelerated growth in May 2024, signaling continued economic expansion driven by domestic demand.

(With inputs from agencies.)