A sharp slowdown in India's foreign direct investments and any moderation in exports could further strain the balance of payments, the government's chief economic adviser warned on Friday. The finance ministry's annual economic survey, released ahead of the federal budget on Monday, said policymakers must maintain a consistent anti-inflationary monetary stance, given stubbornly high inflation and strong growth.
The ministry also said farm output must be increased to combat high food prices. "Inflation is clearly the dominant concern," the report said, adding that New Delhi needs policies to help reverse a fall in foreign direct investment (FDI) inflows. India is on track in the current fiscal year that ends in March to attract $27.6 billion in FDI inflows, down from $35.6 billion in the previous year, a senior official said on Monday.
The survey, authored by the finance ministry's chief economic adviser, said policymakers should keep their options open if capital flows affect the economy adversely. A key policy prescription in the survey would allow foreign direct investment in multi-product retail in a phased manner, with the aim to reduce the price gap between the farm and the consumer, although it gave little detail.
The survey, a precursor to Monday's federal budget, said reforms were needed to streamline both land acquisition for industry and environmental clearances for infrastructure projects to sustain growth momentum. The survey forecast a deficit of 4.8 percent for the next fiscal year, a level some economists regard as optimistic.
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