The ‘election month’ saw curious economic developments in India with outflow of foreign investments by FIIs and publication of a UN Trade Body report reasoning India’s ‘improved prospects’ as one of the reasons for upward growth forecasts of the world economy. It also came to the forefront that foreign investment inflows have also reduced significantly in May, a trend seen from the start of the year for majority of the 5 month period. Trade negotiations with one of India’s major trade partners continued.
Foreign Institutional Investors – In May, Indian equity markets experienced the highest outflows in Asia, with foreign institutional investors (FIIs) withdrawing a substantial $2.89 billion. This marks the largest monthly FII outflow since January 2024. Provisional data from the National Stock Exchange (NSE) shows that foreign investors have pulled out approximately Rs 24,000 crore from Indian markets this month, marking the most severe selloff among Asian markets. On May 30, FIIs dramatically increased their net shorts from 5,000 contracts to 2.97 lakh contracts in a single session. Concurrently, FIIs reduced their long positions by 80%, dropping from 257,000 contracts to 51,000. This significant reduction caused the FII long-short ratio to plummet from 50% to just 13% in one day, reflecting heightened caution ahead of the highly anticipated election results. Again on May 30, FIIs net sold a total of Rs 19,417 crore in Indian equities, including Rs 3,050 crore in cash, Rs 7,925 crore in index futures, and Rs 8,442 crore in stock futures. Further, FIIs have pulled out nearly Rs 46,000 crore from financial stocks in the first four months of 2024. After offloading financials worth over Rs 30,000 crore in January, nearly Rs 10,000 crore in February, FIIs were net buyers in the sector in March before pressing the sell button once again in April. Last month’s selling was worth around Rs 9,300 crore.
United Nations Report – The World Economic Situation and Prospects as of mid-2024 updates the World Economic Situation and Prospects 2024 released on 4 January 2024. The report is prepared by the Global Economic Monitoring Branch in the Economic Analysis and Policy Division of the United Nations Department of Economic and Social Affairs. As per the report, the world economy is now forecast to grow by 2.7 per cent in 2024 (an increase of 0.3 percentage points from the forecast in January) and 2.8 per cent in 2025 (an increase of 0.1 percentage points). The upward revisions mainly reflect improved prospects in the United States of America and several large developing economies, notably India and Brazil. The report mentions that India’s economy is forecast to expand by 6.9 per cent in 2024 (an increase of 0.7 per cent from the January 2024 report) and 6.6 per cent in 2025 (no change from the January 2024 report), mainly driven by strong public investment and resilient private consumption. Although subdued external demand will continue to weigh on merchandise export growth, pharmaceuticals and chemicals exports are expected to expand strongly. Consumer price inflation in India is projected to decelerate from 5.6 per cent in 2023 to 4.5 per cent in 2024, staying within the central bank’s 2 to 6 per cent medium-term target range.
Dipping FDI Inflows – Foreign direct investment (FDI) equity inflows in India declined 3.49 per cent to USD 44.42 billion in 2023-24 due to lower infusion in sectors such as services, computer hardware and software, telecom, auto and pharma, according to the government data. FDI inflows stood at USD 46.03 billion during 2022-23. Inflows during January-March FY24 , however, rose by 33.4 per cent to USD 12.38 billion as against USD 9.28 billion in the year-ago period. The total FDI – which includes equity inflows, reinvested earnings and other capital – declined marginally by one per cent to USD 70.95 billion during 2023-24 from USD 71.35 billion in 2022-23, data from Department for Promotion of Industry and Internal Trade (DPIIT) showed. During the last fiscal, FDI equity inflows decreased from major countries, including Mauritius, Singapore, the US, the UK, UAE, Cayman Islands, Germany, and Cyprus. However, inflows increased from the Netherlands and Japan. Sectorally, inflows contracted in services, computer software and hardware, trading, telecommunication, automobile, pharma and chemicals. In contrast, construction (infrastructure) activities, development and power sectors registered healthy growth in inflows during the period under review. FDI equity inflows into India declined 22 per cent in 2022-23, as reported by Asia Law Portal here.
ASEAN-India Trade in Goods Agreement – The 4th Joint Committee meeting for the review of AITIGA (ASEAN-India Trade in Goods Agreement) was held in Putrajaya, Malaysia from 7-9 May 2024. The delegates from India and all 10 ASEAN countries participated in the discussions. The discussions for review of AITIGA, to make it more trade-facilitative and beneficial for businesses across the region, started in May 2023. The Joint Committee undertaking the review work has met four times so far. The Joint Committee finalised its Terms of Reference and the Negotiating Structure for the review negotiations in its first two meetings (reported by Asia Law Portal here) and initiated the negotiations for review of AITIGA from its third meeting held from 18-19 February 2024 in New Delhi (reported by Asia Law Portal here).
A total of 8 Sub-Committees have been constituted for dealing with different policy areas of the Agreement in the review and out of these, 5 Sub-Committees have started their discussions. All the 5 Sub-Committee reported the outcomes of their discussions to the 4th AITIGA Joint Committee. Four of these Sub-Committees dealing with ‘National Treatment and Market Access’, ‘Rules of Origin’, ‘Standards, Technical Regulations and Conformity Assessment Procedures’ and ‘Legal and Institutional Issues’ also met physically in Putrajaya, Malaysia alongside the 4th AITIGA Joint Committee. The Sub-Committee on Sanitary and Phytosanitary had met earlier on 3rd May 2024. The Joint Committee provided necessary guidance to the Sub-Committees.
ASEAN is one of the major trade partners of India with a share of 11% in India’s global trade. The bilateral trade stood at USD 122.67 Bn during 2023-24. The upgradation of AITIGA will further boost bilateral trade.
