'FTAs with Europe, UK good moves... should ensure industry doesn't put pressure to take rigid positions', Pg17

Key Highlights:

• India faces balance of payments challenges due to the ongoing war and high oil prices which are currently below $100 per barrel, a third higher than the previous year.
• A sharp fall in net Foreign Direct Investment (FDI) and negative flow of foreign portfolio investment have exacerbated the situation.
• The expert suggests containing the current account deficit to 2.2% of GDP for 2025-26 and reviving capital inflows.
• Joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) is recommended to signal India's commitment to global economic integration.
• Full implementation of the Rajiv Gauba Committee's recommendation to withdraw nearly 700 Quality Control Orders (QCOs) is advised to improve the ease of doing business.

Detailed Insights:

• India's current account deficit, previously offset by a capital account surplus, is now strained due to declining FDI and negative foreign portfolio investment.
• Allowing the rupee to depreciate and passing on increased oil prices to the economy are sensible responses, but continuous depreciation should be avoided to prevent self-perpetuating expectations.
• Despite the China Plus One opportunity, India's export performance has been poor due to excessive shielding of domestic industry from international competition and increased import duties on MSME inputs since 2016.
• Free Trade Agreements (FTAs) with Europe and the UK are positive steps, but it's crucial to ensure domestic industries don't hinder negotiations with protectionist demands.
• Integrating more with the rapidly growing Asia region is essential, and joining the CPTPP, where China isn't a member, would demonstrate India's commitment to global integration.
• Reviving capital flows requires re-evaluating policies to improve the ease of doing business, including fully implementing the Rajiv Gauba Committee's recommendation to remove QCOs.

Key Concepts Involved:

• Balance of Payments: A record of all economic transactions between a country and the rest of the world over a period of time.
• Current Account Deficit: When a country's total value of imported goods and services exceeds the total value of exported goods and services.
• Foreign Direct Investment (FDI): An investment made by a firm or individual in one country into business interests located in another country.
• Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP): A trade agreement between Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam.