Rising rupee, new Trump tariffs — track the headwinds, Pg12

Key Highlights:

• India has seen recent positive foreign capital inflows, including Foreign Portfolio Investment (FPI) and Foreign Direct Investment (FDI), and through the FCNR(B) route.
• Global crude oil prices have surged to $100 per barrel due to renewed conflict in West Asia and Houthi attacks in the Red Sea.
• The Indian rupee has depreciated, closing at 96.53 against the US dollar, influenced by a strengthening US Dollar Index.
• The US has imposed a 10% tariff on India following a Section 301 investigation, with potential for further tariffs on generic medicines.
• Concerns persist over the monsoon season and El Nino, potentially impacting agricultural output and exacerbating rising food inflation.

Detailed Insights:

• FPI inflows reached $1.5 billion in July, reversing previous capital outflows.
• Measures to boost capital flows led to $17.4 billion through the FCNR(B) route and $3.3 billion via other channels.
• Net FDI stood at $6.5 billion in April and May, indicating higher gross inflows and lower repatriation compared to the previous year.
• The conflict in West Asia and Houthi attacks threaten critical maritime routes like the Strait of Hormuz and Bab al-Mandab strait, impacting global energy supplies.
• India's crude oil basket increased to $103.33 per barrel, posing risks of higher inflation and stress on the Current Account.
• Food inflation is already rising, with the Consumer Food Price Index at 5.32% in June.
• The Monetary Policy Committee of the Reserve Bank of India is expected to assess the inflation trajectory and interest rates.
• The US is also awaiting the outcome of another United States Trade Representative (USTR) investigation into excess capacity in manufacturing, targeting 16 countries including India.

Key Concepts Involved:

• Foreign Portfolio Investment (FPI): Investments made by foreign entities in financial assets like stocks and bonds.
• Foreign Direct Investment (FDI): Investment made by a company or individual in one country into business interests located in another country.
• FCNR(B) Account: Foreign Currency Non-Resident (Bank) account, allowing Non-Resident Indians to hold deposits in foreign currency.
• Section 301 Investigation: A provision of US trade law allowing the President to take action against unfair trade practices by other countries.
• United States Trade Representative (USTR): A US government agency responsible for developing and coordinating US international trade policy.
• El Nino: A climate pattern describing unusual warming of surface waters in the eastern tropical Pacific Ocean, affecting global weather.
• Monetary Policy Committee (MPC): A body of the Reserve Bank of India responsible for fixing the benchmark interest rate to achieve the inflation target.
• Current Account Deficit (CAD): When a country's total value of imports of goods, services, and transfers is greater than its total value of exports.
• US Dollar Index (DXY): A measure of the value of the US dollar relative to a basket of six major foreign currencies.
• Strait of Hormuz: A narrow, strategically important waterway connecting the Persian Gulf to the Arabian Sea.
• Bab al-Mandab Strait: A chokepoint between Yemen and Djibouti/Eritrea, connecting the Red Sea to the Gulf of Aden.