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India Advised To Look At FDI To Finance Its CAD By The IMF

The Indian economy hasn’t done as well as Prime Minister Narendra Modi had claimed it would do under the rule of his BJP government. The Current Account Deficit (CAD) has continue to grow worse during the last few quarters as different economic factors have played a role into a sharp CAD increase.

The CAD percentage stood at 1.2 percent during 2016-2017 and went up to 1.9 percent for 2017-2018. The International Monetary Fund (IMF) released a report on July 24 which expects the CAD rate to go up to 2.5 percent of the GDP during the first quarter of 2018-2019. This will also negatively impact India’s international net investment position to GDP ratio.

India’s finance ministry led by Arun Jaitley will have its work cut out as it looks to bring down the CAD percentage and find funds that will look to plug the deficit. The Finance Ministry has placed an emphasis on global markets but the IMF has suggested that a better method would be to stop relying on global markets and start focusing on foreign direct investment (FDI).

India has also witnessed a drop in FDI which went from 2.3 percent in 2016-2017 to 1.9 percent in 2017-2018 even though larger portfolio inflows were recorded. The IMF has advised India to focus on more stable sources of financing that will help reduce the vulnerabilities in its economy.

The Times of India

Business Climate Should Be Improved

When PM Narendra Modi took office one of his key slogans was ‘Make in India’, which was an initiative launched in September 2014 to get foreign companies to enter the Indian market, invest heavily and transform the Indian economy. The Prime Minister has travelled extensively overseas during the last four years in an attempt to woo governments and major companies into the “‘Make in India’ campaign.

That hasn’t really worked out well for the Modi government as FDI inflow is not what one expected it to be and the IMF believes that the main reason for this is due to a poor business climate in India. The Central government have come out with a number of initiatives during the last four years that have imposed stringent regulations, complicated tax laws and extensive legal processes that have made things very complicated for both domestic and international business ventures.

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