External Risks and Trade Concerns
- The 90-day pause on the 26% US tariff on Indian exports ends on July 9, 2025, posing a renewed trade risk for India.
- A successful US-India trade agreement could offset current headwinds by:
- Opening new export markets
- Boosting India’s external sector
- The outcome of the US-China reciprocal tariff pause is also critical for Indian trade prospects.
Impact on Capital Flows
- Prolonged global trade uncertainties could:
- Keep foreign portfolio investment (FPI) flows volatile through FY26
- Lead to capital flight or reduced inflows amid tighter global financial conditions
- Deter private investment, as firms may adopt a cautious approach
US Fiscal Developments: Global Spillover Risk
- The passage of the US Budget Bill and bond market reactions are being closely monitored, especially in light of:
- Moody’s recent downgrade of US sovereign credit rating
- Potential impact on global financial market stability
Foreign Direct Investment Trends
- Net FDI inflows into India in FY25 stood at a subdued $0.4 billion
- Driven by profit repatriations by foreign investors
- Reflects growing outward FDI by Indian firms
- Gross FDI inflows remained stable at $81 billion
Concerns Over India Inc.’s Outward Focus
- Outward FDI by Indian firms rose by nearly $12.5 billion in FY25
- The government expressed concern over:
- India Inc.’s growing global expansion
- Their cautious approach to domestic investment
- The need to reinvigorate investment confidence at home
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