The country has the sufficient buffer to absorb a higher current-account deficit arising out of the surge in oil prices, YeeFarn Phua, director, sovereign and international public finance ratings for Asia, said in an interview Friday.
The rating firm’s comments come at a time when the Iran-war driven oil shock and record outflows from local shares push the rupee to fresh lows. The assessment reinforces confidence in India’s macroeconomic stability after S&P upgraded the country’s credit rating to BBB, from BBB- in August, with a stable outlook.
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Concerns over the net outflows of foreign business investments are “a bit overplayed” as these mostly reflect repatriation of profits, while gross inflows remain strong, Phua said. “The important story is that fundamentally the economy is sound., with plenty of investment opportunities.”
The nation’s current account deficit has narrowed in recent years but volatile crude oil prices are threating to derail the progress. Foreign fund outflows have added to the pressure, with both stocks and the rupee trailing regional peers. India received net foreign direct investments worth $4.6 billion in February after six straight months of outflows, latest data show.
To help cushion the impact of the Iran war on the economy, India is considering emergency steps to shore up foreign-exchange reserves, including hiking fuel prices and curbing non-essential imports like gold and electronic goods.
