Containing war impact on growth, current account: PMO stitching up plan to boost foreign fund flow
One of them said that senior finance ministry officials are working on steps that would loosen rules on the Foreign Exchange Management Act (FEMA) as well as make bilateral investment treaties more investor-friendly, in addition to the recent amendments.
Officials from both the finance ministry and Niti Aayog are measuring the impact of the rise in global oil prices on the economy under different price bands, besides identifying the economic opportunities presented by the Iran conflict. Niti Aayog is likely to prepare a report on the issue.
The country’s goods trade deficit (excluding oil, precious stones and jewellery) is approximately $140 billion per year.
Making Better Use of Trade Agreements
There is sufficient space for capacity building of the local industry in these areas.
Senior officials at the commerce ministry are exploring ways to encourage the substitution of cheaper imports, particularly from China, with domestic production wherever possible.
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An earlier study by SK Mohanty of the Research and Information System for Developing Countries had identified 327 products, mostly electronics, pharmaceuticals and chemicals, for which India’s imports from China could be substituted with local production.
Authorities are also engaging the industry to ensure that domestic exporters benefit less from some earlier free trade agreements (FTAs) and take advantage of the weaker rupee to better benefit from the latest trade agreements. Efforts to reduce non-essential imports, including bullion, precious stones and jewellery, are in renewed focus.
“Individual departments and ministries are urgently assessing the evolving situation in their areas and putting forward their recommendations,” one of the officials said. “The PMO is actively evaluating these recommendations and providing its own inputs and instructions. Both short and medium-long term steps are being considered. The immediate focus is on outcomes.”
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The aim, officials said, is to reduce the debilitating impact of a wide goods trade deficit on the current account by increasing exports while also attracting more foreign capital. Keeping the current account deficit at a reasonable level will also prevent further decline in the rupee. India’s current account deficit estimates generally range from 1.5% to 2.4% of GDP for FY27; this rate was 0.6% in FY25 and 1% in the first three quarters of last fiscal. According to the International Monetary Fund, economic growth is expected to slow to 6.5% in FY27 from an estimated 7.6% in FY26.
As for non-essential imports, an immediate increase in import duty on bullion has been ruled out, while a new initiative is being considered to monetize household gold assets through an existing scheme, ET has learned.
Prime Minister Narendra Modi has appealed to Indians to reduce consumption of petroleum products and edible oil, the largest import component, and reduce their purchases of bullion. These three are among the biggest drivers of the country’s goods trade deficit.
Similarly, discussions are also underway to further ease FEMA regulations on equity investments in order to attract interest from abroad.
