Resilient fundamentals meet volatile flows

India's external narrative remains anchored in steady fundamentals that have helped offset volatility in global capital flows

- UPASANA CHACHRA Chief India Economist, Morgan Stanley

INDIA'S EXTERNAL SECTOR is under scrutiny amid a widening divergence between volatile capital flows and steadily strengthening balance-sheet fundamentals. Heightened global uncertainty has softened capital inflows and intermittently pressured the currency. In our view, however, external accounts continue to display resilience. While cyclical noise has intensified, there are no signals of deeper macro vulnerability.

India has historically run a current account deficit (CAD), consistent with a growth model that prioritises investment beyond domestic savings. Over the past decade, however, both the size and composition of the deficit have improved materially. During FY16-25, the CAD averaged about 1% of GDP, less than half the average of the preceding decade.