PLI scheme expansion will help lower trade deficit

Trade deficit to lower

The external conditions are likely to remain steady for India with trade deficit declining further as the government expands the production linked incentive scheme and "creates a globally competitive manufacturing base in several product categories", the Economic Survey 2023-24 said.

India’s current account deficit reduced to 0.7 percent of the GDP in FY24, as the country posted a surplus in the last quarter of the fiscal.

"India needs to focus on improving its competitiveness in many product areas. For example, India has tremendous potential in becoming a large global exporter in agricultural commodities.

The reduction in trade deficit from 2 percent in the previous fiscal follows from a reduction in trade deficit as commodity prices normalised in FY24, as services and remittances trade boomed for the country," noted.

In the fourth quarter, current account returned to surplus after a hiatus of 11 quarters.

Discounted crude oil from Russia has kept crude import bill contained for India. Meanwhile, service exports have boomed.

On the inflows front, while foreign direct investment has slumped, portfolio inflows have more than compensated for the decline.

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India’s FII are expected to stay high, point experts, as FDI recovers.

“FII inflows which are $3.5 bn so far this fiscal are expected to be around $25 bn getting the support through the debt inflows on account of bond inclusion ($2.3 bn so far plus another $18 bn expected),” said SBI researchers in a latest note.