Editorial : Capital high: foreign investment in India

To retain the confidence of foreign investors, macroeconomic management is key

Foreign investors(निवेशकों) appear(उपस्थित होना/रूप लेना) to have rediscovered(फिर से खोजा) India. The inflow (आमद) of foreign capital into India’s stock market in the month of March hit a high of $4.89 billion, the biggest foreign inflow into Indian stocks since February 2012. As a result, the stock market rose a solid 8% in March. Foreign investment in Indian equities(समानताएँ) stood at $2.42 billion in February, as against(खिलाफ) a net outflow of $4.4 billion during the same month a year earlier, and is expected to be strong in April as well. Both cyclical(चक्रीय) and structural(संरचनात्मक ) factors are behind this sudden(अचानक ) uptick(इजाफा) in foreign investment that has helped the rupee make an impressive(प्रभावशाली )comeback. The rupee has appreciated(सराहना/मूल्यांकन करना) by about 7% since early October, when it was reeling at around(आस-पास) 74 against the dollar. Last year, India received more foreign direct investment than China for the first time in two decades. While the Chinese economy(चीनी अर्थव्यवस्था) has been slowing down considerably(बड़े पैमाने पर) in the last one year, India has emerged(उभरा) as the fastest-growing major(प्रमुख ) economy. Doubts over the robustness(मजबूती) of the GDP calculation method notwithstanding, it is clear that investors expect(उम्मीद/अपेक्षा) India to be a major source of global growth in the coming years. Other short-term reasons may also be behind some of the recent inflow of capital into the country. For one, there is a sense among a section of investors that their fears of political instability(अस्थिरता) are misplaced. More important, there are clear signs that western central banks have turned dovish. Both the Federal Reserve and the European Central Bank, for instance(उदाहरण/घटना) , have promised to keep interest rates low for longer. This has caused(कारण)investors to turn towards high-yielding(उच्च उपज) emerging market debt. Indian mid-cap stocks, which suffered(सामना करना)a deep rout last year, are now too attractive(आकर्षक) to ignore for many foreign investors.

The return of foreign capital is obviously(शायद/स्पष्टतः) a good sign for the Indian economy. But policymakers need to be careful not to take foreign investors for granted(स्वीकृत). Other emerging Asian economies will be competing(प्रतिस्पर्धा ) hard to attract(आकर्षित ) foreign capital, which is extremely(बेहद/अत्यंत ) nimble(फुर्तीला/चालाक). Any mistake by policymakers will affect India’s image as an investment destination. To retain(बनाए रखें) investor confidence, whichever government comes to power after the general election this summer will need to increase(वृद्धि) the pace of structural reforms and alsoensure(सुनिश्चित) proper macroeconomic management with the help of the Reserve Bank of India. Long-pending reforms to the labour and land markets are the most pressing(दबाव) structural changes that will affect India’s long-term growth trajectory. The high fiscal deficit(घाटा/अभाव) of both the Centre and the State governments and the disruptive(हानिकारक/विध्वंसकारक)outflow of foreign capital are the other macroeconomic challenges. These are some issues that need to be solved sooner rather than later.

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