Commenting on the weak net foreign direct investment (FDI) inflows into the country, the minister said they may not be driven by economic and commercial factors, and could well be driven by strategic or global political factors, before stressing there is a need to assess what is holding back capital flows.
The Finance Minister, speaking after the customary post-Budget board meeting of the Reserve Bank of India (RBI), also asserted that higher purchases by central banks are driving up gold and silver prices around the world, and India’s import bill surge on this account is being watched but has yet to reach “alarming proportions”.
On net FDI inflows, she said: “More than a concern, I think and I've been saying this… You think global capital funds move based on your macroeconomic performance, on your government’s stability, policy stability, taxation stability, predictability for businesses and a law abiding economy. You then expect the flow of the funds to move towards such economies,” she said.
“All the fundamentals are fine. The indicators are very clearly indicating that next couple of years, we will be going at that kind of a level, with a stable government, taxation policy. Everyone says that there has been absolute certainty. So you would expect the funds to flow towards such economies like India. But it doesn't come. It doesn't flow in that sense,” she noted.
“If this is the common principle through which the fund growth should happen and it doesn't happen to India, I wonder, what are the other reasons which are holding them back? Certainly, they are not economic or commercial reasons. They are not reasons based on the economy and its strength. They are something else. They are probably strategic, probably global politics. We don't know… But if it doesn't flow, all of us will have to see what is holding it back,” she noted.
Stressing that global uncertainties won’t abate just by sealing a trade deal with the United States, Sitharaman said: “Uncertainties have continued to be a worry always, and I wish, whenever the agreement gets done, it gets done. I don't see that being the only reason to abate any uncertainty. Uncertainties can come and go. So that's all right, we are on a very clear path of wanting to have trade deals.”
The Commerce Ministry, she said, is reviewing the situation with regards to the latest developments around US tariffs, which President Donald Trump has reset at 15 per cent for goods from all nations, following the US apex court verdict. “The delegation will have to take a call on when they're going to go for further negotiations. So it's a bit too early,” she averred.
On gold imports, RBI Governor Sanjay Malhotra said that the value of gold imports from April to December saw an increase of just about $1 billion despite the increase in prices as a drop in volumes of gold imports offset the price impact. However, this has changed in January.
“It’s only in January… we are still analysing those numbers… that there has been a sudden spurt in value as well as in volume. We are not unduly concerned about that, especially because our external sector continues to be very robust and strong. The current account deficit is still very, very manageable, as per our projections, it's within or about the 1% of GDP range,” the Governor noted.
Noting that India is import-dependent for gold, Sitharaman said that the yellow metal has always been a favoured investment for households, whether as an asset class or for jewellery. “So high pitched demand for domestic consumption also sees a seasonal spike during festival season, during Akshay Tritiya and so on. We are watching it, but I am not sure it has reached such alarming proportions, given the tendency of natural things, as it is in India, for investing in and buying gold. But of course, RBI will also be monitoring it,” she pointed out.
While global prices of gold and silver used to be driven by India and China’s large consumption of gold, the spike now is largely due to central banks also buying and storing them, the minister said, terming this as the reason for prices seeing “much beyond the usual increases and fluctuations” seen in these precious metal markets.
 "Nirmala Sitharaman, Nirmala")