India Macro Weekly: FDI norms relaxed further, Brexit a reality

For the week ended June 25, 2016:

In a historic move, the UK voted out of the European Union (EU) during the past week. Prime Minister David Cameron stepped down from office after the vote out. Various reasons, including high net contribution by the UK to the EU as well as a chance to regain economic sovereignty rather than being under the EU umbrella, are responsible for this decision by the UK. 

The decision could have important trade and investment implications for India, since it is a major economic partner. The UK is the 5^th largest destination for India’s merchandise exports and the 3^rd largest investor into India over the 2000-16 period. 

The centre relaxed FDI norms in a number of sectors  including defence, civil aviation, information and broadcasting, pharmaceuticals, security and trading. Relaxation in FDI levels, required route and related clauses have been changed.

While FDI investments into India have been strengthening, however, India’s borrowing trends remain quite dismal. Latest numbers on foreign borrowings reveal a continued weak performance.

Further, domestic credit offtake has slowed down to single digits in the past two months, falling to back to a recent low of 8.7% as per the latest data.