India’s external sector remained resilient in the early part of FY26, aided by robust gross foreign direct investment (FDI) and a pick-up in external commercial borrowings. However, net FDI inflows declined marginally due to an uptick in outward investments by Indian entities, Reserve Bank of India (RBI) governor Sanjay Malhotra said on August 6.
Sharing the outcome of monetary policy committee’s bi-monthly meeting, Malhotra said gross FDI inflows rose 5 percent year-on-year to $15.9 billion in April-May, up from $15.2 billion in the year-ago period.
However, net FDI inflows, which account for repatriation and overseas investments by Indian firms, declined 2.2 percent to $3.9 billion from $4 billion a year earlier, reflecting a higher level of outward FDI.
Foreign portfolio investment (FPI) inflows into emerging market economies (EMEs) remained strong in May and June amid improved risk sentiment and stabilising interest rate expectations in advanced economies.
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India’s experience diverged slightly. During the April-July period, India recorded net FPI outflows of $0.8 billion, largely attributed to sustained selling in the debt segment, Malhotra said.
This comes at a time of heightened global bond market volatility and a strengthening US dollar, both of which have reduced the appeal of Indian debt instruments for global investors.
In contrast, external commercial borrowings (ECBs) saw higher net inflows compared to the same period last year. Similarly, non-resident Indian (NRI) deposits also continued to register positive inflows, though the pace moderated from previous levels.
As of August 1, India’s foreign exchange reserves stood at $688.9 billion, offering more than 11 months of import cover.
“India’s external sector remains resilient, and we remain confident of meeting our external financing requirements comfortably,” Malhotra said.
As expected, the Reserve Bank of India held rates steady at its bi-monthly policy review at 5.5 percent.
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