What's Really Spooking Foreign Investors? CEA Defends India's Fundamentals

India's Chief Economic Advisor V Anantha Nageswaran on Thursday said the rupee's recent depreciation is not a signal of weak domestic fundamentals, but rather a reflection of foreign portfolio investors' (FPIs) cautious stance amid global geopolitical uncertainty.

"The rupee can also be a reflection of FII reluctance," Nageswaran told NDTV Profit, pushing back against concerns that currency weakness is scaring away overseas investors. "It is difficult to say that FIIs are staying away because of the rupee level alone. FII behaviour can be influenced by multiple global events."

The Indian rupee closed 17 paise lower at 91.956 against the US dollar on Thursday, after breaching the 92 mark intraday. So far this year, FPIs have sold Rs 35,890 crore worth of Indian equities, according to NSDL data.

Placing the current market turbulence in a global context, Nageswaran pointed to a decade of ultra-loose monetary policy. "Easy money since the global financial crisis has resulted in the proliferation of private credit, stock market valuation, etc.," he said. He suggested that the ongoing global financial adjustment is exerting pressure on emerging market currencies and capital flows.

Despite these headwinds, the government has projected a 7% medium-term growth rate. "We have factored in tariff uncertainty and yet gone ahead with a medium-term growth rate at 7%," Nageswaran said, citing India's domestic reforms, financial system stability, and trade strategy as key drivers.

He noted that the projection is not dependent on the India–US trade deal, but said the government is hopeful it will be finalized this year. "Our growth projection is independent of whether the deal materialises. However, if the deal does come through, it would make us more comfortable with the growth numbers," he added.

Nageswaran also highlighted ongoing deregulation in insurance and nuclear energy sectors as steps toward long-term policy clarity. "The government policy has been to deregulate sectors like insurance and nuclear. This brings policy certainty and will bring FDI," he said.

He added that both labour and capital-intensive industries have room to grow simultaneously, and emphasized that several recently signed Free Trade Agreements are expected to become operational within the year, helping to expand exports and deepen India's participation in global value chains.