India's external position assessed to be moderately stronger than implied by medium-term fundamentals

International Monetary Fund or IMF stated in its latest Article IV consultation with India that on a preliminary basis, India's external position in 2024/25 is assessed to be moderately stronger than that implied by medium-term fundamentals and desirable policies. The current account deficit is projected to widen to 0.9 percent of GDP in 2024/25, from 0.7 percent of GDP in 2023/24, and gradually converge to its norm of 2.2 percent of GDP in the medium term. Subdued demand in trading partners will contain export growth, with services exports outpacing merchandise trade. The pick-up in domestic consumption and investment will support imports.

IMF noted that net FDI has declined to almost zero, with repatriation and outward investments offsetting steady gross inflows. Notwithstanding significant equity outflows since October 2024, India's inclusion into global bond indices, relaxation of capital flow management measures (CFMs)-such as recent opening of foreign investors' access to government green bonds and raising the interest rate ceiling on foreign currency non-resident deposits-and a favorable growth outlook have encouraged portfolio debt inflows.

After peaking at end-September at about $705 billion, official international reserves dropped to US$640 billion by end-December, though remaining above end-2023 levels. Reserves cover is adequate at about 8 months of prospective imports and about 105 percent of the ARA metric, providing a comfortable cushion against adverse external shocks.

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