Economic Survey 2025: Uncertainty in global markets, profit-taking by FPIs led to capital outflows

The Economic Survey 2024-25 has stated that India’s external sector continued to display resilience amidst global headwinds of economic and trade policy uncertainties. The total exports (merchandise and services) registered a steady growth in the first 9 months of fiscal year (FY25), growing 6% to reach $602.6 billion. Growth in services and goods’ exports, excluding petroleum and gems and jewellery, was 10.4%. Total imports during the same period reached $682.2 billion, registering a growth of 6.9% on the back of steady domestic demand.

The Survey indicated that evolving global trade dynamics, marked by gradual shifts towards greater protectionism, require assessing the situation and developing a forward-looking strategic trade roadmap. To strengthen India’s competitiveness and further integration into global supply chains, the survey suggests that the country can focus on reducing trade-related costs and enhancing export facilitation to create a more vibrant export sector. It calls for a proactive approach to help India continue to thrive in an ever-changing global market.

On the capital front, foreign portfolio investments (FPIs) have shown a mixed trend in FY25 so far. The survey stated that uncertainty in the global markets and profit-taking by foreign portfolio investors led to capital outflows, adding that strong macroeconomic fundamentals, a favourable business environment, and high economic growth have kept FPI flows positive overall. The survey pointed out that Gross foreign direct investment (FDI) inflows have shown signs of revival in the first eight months of FY25, though net FDI inflows declined relative to April-November 2023 due to a rise in repatriation/disinvestment.

India’s foreign exchange reserves stood at $640.3 billion as of the end of December 2024, sufficient to cover approximately 90% of the country’s external debt of $711.8 billion as of September 2024, reflecting a strong buffer against external vulnerabilities.

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