Foreign Direct Investments (FDI) in India remained almost flat in 2016, but the nation is expected to emerge as one of the top FDI destinations, according to the UN Conference on Trade and Development (UNCTAD). The World Investment Report released by the UN agency in Geneva on Wednesday said that FDI rose by a paltry one per cent in 2016 to $44.486 billion from the $44.064 billion in 2015. At the same time FDI by India elsewhere declined by about third from $7.572 billion in 2015 to $5.12 billion in 2016, the report said. The signing of a tax treaty by the Indian and Mauritian governments in 2016 may be the reason for the fall in FDI outflows from India as it “might have contributed to reduced round-tripping FDI,” it added. Looking at the future, UNCTAD said that India would be the third top prospective destinations for FDI, after the US and China. It said that in India “renewed policy efforts to attract FDI could contribute to an increase of inflows in 2017”. Twenty per cent of top executives of multinational enterprises (MNE) surveyed listed India as their top prospective host economy for 2017-19, it added. UNCTAD, however added a note of caution: “Although new liberalization efforts continue to improve the investment climate in India, tax-related concerns remain a deterrent for some foreign investors.” The report did not give a specific figure for the brighter picture projected for India, but said that globally FDI was expected to rise moderately from $1.75 trillion in 2016 to 1.8 trillion in 2017 and $1.85 million in 2018.
China reported stronger-than-anticipated exports and imports for May despite falling commodity prices, suggesting the economy is holding up better than expected despite rising lending rates and a cooling property market. Concerns over China landed squarely back on global investors’ radar after Moody’s Investors Service downgraded its credit rating last month, saying it expects the financial strength of the economy will erode in coming years as growth slows and debt continues to rise. Imports have been strong in recent months, driven largely by iron ore and other commodities used to feed a year-long construction boom, while exports have rebounded thanks to stronger global demand after several years of contraction. Still, analysts had expected trade growth to cool in May, forecasting the economy will gradually lose momentum over the rest of the year as measures to cool heated home prices dampen property investment and a crackdown on riskier types of lending pushes up financing costs. But growth in both exports and imports defied those expectations and accelerated from April. China’s May exports rose 8.7 percent from a year earlier, while imports expanded 14.8 percent, official data showed on Thursday. That left the country with a trade surplus of $40.81 billion for the month, the General Administration of Customs said. Analysts polled by Reuters had expected May shipments from the world’s largest exporter to have risen 7.0 percent. Exports rose 8.0 percent on-year in April. Imports were expected to have climbed 8.5 percent, after rising 11.9 percent in April. Analysts were expecting China’s trade surplus to have widened to $46.32 billion in May from April’s $38.05 billion.
German industrial production increased more than forecast in April, data showed on Thursday, reinvigorating hopes that this sector will help prolong an upturn in Europe’s biggest economy after orders data disappointed. Industrial output rose by 0.8 percent on the month, data from the Economy Ministry showed. That beat the consensus forecast in a Reuters poll for a gain of 0.5 percent. The upturn was driven by a surge in energy production and factories churning out more intermediate goods. The March reading was revised up to a fall of 0.1 percent from a previously reported drop of 0.4 percent. Data published on Wednesday had shown industrial orders dropped far more than expected in April as factories lacked new contracts for big-ticket items.
The Reserve Bank is expected to leave key interest rates unchanged in the current financial year despite low inflationary pressures and might go for a cumulative 50 bps rate hike next April, says a Nomura report. According to the Japanese financial services major, headline CPI inflation is expected to remain low in the near term on low food prices. Moreover, core inflation is also expected to stay low on still lingering disinflationary effects of demonetisation and the negative output gap. However, it said: “We currently expect the RBI to leave rates unchanged through March 2018, which would then be followed by a cumulative 50 bps of rate hikes starting April 2018.” In the monetary policy review yesterday, RBI left key rates unchanged with Governor Urjit Patel noting that the central bank wanted to be more sure that inflation will stay subdued. Despite inflation moderating sharply in April, the Monetary Policy Committee (MPC) decided to leave policy rate unchanged as a “premature action at this stage risks disruptive policy reversals later and the loss of credibility”. Industry analysts were expecting the MPC to go in for a status quo on the rates, but soften its commentary from the hawkish one, given clarity on various aspects and the cool- down in inflation.
Consumer price inflation rose by just 2.99 per cent in April, the weakest on record. Nomura further noted that the ongoing remonetisation and easier financial conditions are likely to result in a cyclical growth recovery in the second half of 2017, which in turn will gradually offset the current disinflationary pressure on core inflation.