Finance Minister said, rupee fluctuations are a problem – Gudstory

Speaking virtually at the India Global Forum held in the UAE, Sitharaman said higher interest rates, especially in advanced countries, “will impact investment in India.”

“The domestic market and our macroeconomic fundamentals remain largely strong. India is in a comfortable position because of our stable policy and predictable tax zones, but external factors are not under our control,” Sitharaman said.

He said that declining consumption in advanced economies is impacting Indian exports.

The International Monetary Fund has raised its FY2024 growth forecast for India to 6.3% from its July estimate of 6.1%, citing stronger-than-expected consumption during the first quarter.

However, India’s merchandise trade deficit hit a record high in October due to a sharp increase in gold imports during the festive season and a higher oil bill.

According to the Commerce Ministry, India’s trade deficit increased to $31.46 billion in October, of which imports stood at $65.03 billion and exports at $33.57 billion.

While Indian exports remain a concern, high interest rates, especially in advanced economies, have hit investment as the cost of borrowing and repaying interest has increased.

Earlier in November, the US Federal Reserve kept the key interest rate in the target range between 5.25%-5.5%, where it has been since July.

Similarly, in late October, the European Central Bank ended a streak of interest rate hikes when it left interest rates unchanged at 4% after ten consecutive hikes starting in July 2022.

Taking a cue from its counterparts, the Reserve Bank of India (RBI) kept the repo rate unchanged at 6.5% in its latest rate-setting meeting in October.

Sitharaman stressed that global investors need not be worried about the current state and upcoming national elections.

“It’s normal to be uncertain, to be nervous (before the election), and I can understand that,” she said.

He said, however, experts keeping an eye on the Indian economy, its political environment and ground realities are of the opinion that Prime Minister Modi is coming back with a good majority.

Investors keep a close eye on the elections as the results can significantly impact market dynamics. For example, a change in government may alter existing policies, which affects investors.

Sitharaman said that the ongoing conflict in the Middle East (Israel-Hamas conflict) will not derail the proposed India-Middle-East-Europe Connectivity Corridor (IMEC).

“IMEEC is a long-term project. It will not be dependent on an incident related to the Middle East,” he said. “The project will face challenges, but it has its own strengths. However, the countries involved recognize the benefits of IMEEC for global trade.”

India, the US, the UAE, Saudi Arabia and the EU have proposed building shipping and railway links from Europe to the Middle East and India. The plan is to create an economic corridor that connects Europe, Middle-Eastern countries and India through rail links and shipping lanes. One of its aims is to counter China’s massive Belt and Road Initiative.

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Updated: Nov 27, 2023, 09:58 PM IST