Credit rating agency, India Ratings and Research (Ind-Ra) in its latest report has said that India’s increased dependence on foreign portfolio investment (FPI) makes the country highly vulnerable to global shocks.
The report also highlighted that the surplus generated in the services trade combined with remittances is insufficient to cover India’s trade deficit. As a result, the country has been witnessing current account deficit (CAD). Even the net foreign direct investment (FDI) which is part of the capital account is insufficient to bridge the CAD.
As per the report, since the current account plus net FDI is negative, India is dependent on FPI, the other major component of capital account, to fund this gap. The current account plus net FDI has been positive for some of India’s peers such as China, Brazil and Russia.