FDI flow to India will remain robust: Goldman Sachs

Last Updated: Mon, Apr 06, 2009 11:28 hrs

New Delhi: The global economic slowdown will not affect the foreign direct investment (FDI) flow to India as the domestic demand remains "resilient", investment banker Goldman sachs said Monday.

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"FDI is showing positive signals," Tushar Poddar, an economist with Goldman Sachs said, adding: "We expect FDI inflows to remain significant in 2009-10, given India's relatively resilient domestic demand momentum."

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According to the bank, the FDI flow to India during September-January - the months when the credit crisis was at its peak - amounted to $9.2 billion, higher than $7.9 billion in the corresponding period last year.

Pranjul Bhandari, another economist at Goldman, said: "India's balance of payments (BOP) may have had its worst quarter in October-December 2009, when it showed a deficit of $18 billion."

However, "in 2009-10, we expect the current account deficit to narrow to 1.3 per cent of GDP from 3.5 per cent last fiscal with the trade deficit narrowing considerably,"she added.

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Notwithstanding the weakness in trade credit and foreign portfolio inflows, the basic balance of payments (BBOP) are expected to move to positive this fiscal, the economists said.

According to them, the major risks India faces are "political uncertainty and the high fiscal deficit".

"Portfolio investment and trade credit on the other hand, have fallen sharply and we expect them to remain weak this fiscal," Poddar said.

"NRI deposits showed an uptick last fiscal, but we expect it to remain flat in 2009-10. We expect NRI deposits coming due in the next year ($32 billion) to get rolled over to a large extent, but do not expect large fresh inflows," he added.

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External commercial borrowings (ECBs) are expected to moderate in the current fiscal. Although ECBs have slowed to $9.1 billion during September-February from $11.8 billion in the previous six months.

"In 2009-10, we expect ECBs to remain positive due to higher growth and yields in India, notwithstanding the $7 billion of outstanding commercial loans coming due," Bhandari said.

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Private remittances from Indians working abroad slowed to $4.3 billion in the October-December quarter from $7.9 billion in the July-September quarter.

"We expect this to remain weak, but do not expect much further weakness from current levels," she said.

Bhandari added that the merchandise trade deficit had fallen to $5 billion in February from a peak of $14 billion in August.

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"This is likely to turn the BOP into positive from a current negative, and is also expected to make the overall BOP stronger," she said.

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