Stronger headwinds

Weak capital inflows worrisome, foreign investors need convincing

- 

IN THE WEEK through March 6, India's foreign exchange reserves fell by $11.68 billion, the most in over a year. The reserves had depleted in both the second and third quarters of the current fiscal year—by $10.9 billion and $24.4 billion respectively on a balance-of-payments basis.

In April-December 2025, they shrank by $30.8 billion compared with a depletion of $13.8 billion in the year-ago period. A high merchandise trade deficit, driven by sharp increases in gold and silver imports and stagnant exports, has exerted some pressure on the current account lately. But even starker are the unusually weak inflows into the capital/financial account, which, during most quarters in recent decades, used to comfortably finance the current account deficit (CAD) and result in an addition to reserves.