RBI sees a positive shift in FPI's flows in the domestic market, $9.7 billion from June till Aug 6th 2024

While announcing the monetary policy, RBI Governor Shaktikanta Das noted a positive shift in foreign portfolio investment (FPI) flows, with USD 9.7 billion net inflows in domestic markets from June 2024.

Governor Das said, "On the external financing side, foreign portfolio investors turned net buyers in the domestic market from June 2024 with net inflows of USD 9.7 billion during June-August (till August 6) after witnessing outflows of USD 4.2 billion in April and May."

He added, "Foreign direct investment (FDI) flows picked up in 2024-25 as gross FDI rose by more than 20 per cent during April-May 2024, while net FDI flows doubled during this period compared to the corresponding period of the previous year. External commercial borrowings moderated during April-June 2024-25, while non-resident deposits recorded higher net inflows during April-May compared to the previous year. India's foreign exchange reserves reached a historical high of USD 675 billion as of August 2, 2024."

Das highlighted that India's Current Account Deficit (CAD) had moderated to 0.7% of GDP in 2023-24, down from 2.0% in 2022-23.

Das further said "India's current account deficit (CAD) moderated to 0.7 per cent of GDP in 2023-24 from 2.0 per cent of GDP in 2022-23 due to a lower trade deficit and robust services and remittances receipts. In Q1:2024-25, the merchandise trade deficit widened as imports grew faster than exports."

He added that CAD will be manageable in the current fiscal, "Buoyancy in services exports and strong remittance receipts are expected to keep CAD within sustainable level in Q1:2024-25. We expect CAD to remain eminently manageable during the current financial year."

Governor Das also addressed growing concerns related to home equity loans, or top-up housing loans, which have been increasing briskly by a few entities and RBI is bilaterally checking this with them but through monetary policy speech he has given a message to banks to take proactive monitoring of such loans.

Das said, "Banks and NBFCs have also been offering top-up loans on other collateralized loans like gold loans. It is noticed that the regulatory prescriptions relating to loan-to-value (LTV) ratio, risk weights, and monitoring of end use of funds are not being strictly adhered to by certain entities."

RBI Governor says, "Such practices may lead to loaned funds being deployed in unproductive segments or for speculative purposes. Banks and NBFCs would, therefore, be well-advised to review such practices and take remedial action."

Governor Shaktikanta Das reported that the Purchasing Managers' Index (PMI) for manufacturing stood at a strong 58.1 in July. Services PMI was recorded at 60.3 in July 2024. The Index of Industrial Production (IIP) showed accelerated growth in May 2024, maintaining an elevated level indicative of continued growth.

Das, "Manufacturing activity continues to gain ground on the back of improving domestic demand. The index of industrial production (IIP) growth accelerated in May 2024. Purchasing managers' index (PMI) for manufacturing at 58.1 in July remained elevated."

He added, "Services sector maintained buoyancy as evidenced by the available high-frequency indicators. PMI services stood strong at 60.3 in July 2024, and is above 60 for seven consecutive months, indicating robust expansion."