Moody's Investors Service in its report has said that the India’s increasing foreign direct investment (FDI) provides stable financing of the country’s current account deficit (CAD) and is a credit positive, added that the efforts to liberalise foreign investment limits in several sectors and the 'Make in India' campaign are bearing fruit.
The rating agency further said that the rising FDI will continue to cover CAD. Net FDI inflows hit an all-time high in January 2016, at $3.0 billion, more than financing the CAD for the first time since 2004. It further said, 'We expect FDI inflows to continue to rise. It provides a stable source of financing that will help to mitigate India's external financing risks'. It hoped that smart cities, industrial corridors and investment and manufacturing zones will boost FDI inflows further.
Moody’s, however, cautioned that weakening remittances and services exports could weigh on current account deficit. Worker remittances dropped 30% in October-December 2015 from a year ago, albeit from unusually high levels. It said that against a backdrop of subdued global economic activity in particular in the Gulf, the origin of more than half of remittances to India remittance inflows could weaken further in the coming months.