HYDERABAD: The country’s net International Investment Position (IIP) continues to be in the negative terrain for the past several quarters, but economists say, the situation is not yet alarming.
As per the latest RBI data, net IIP — difference between the country’s external financial assets and liabilities — widened to $341.64 billion in March 2015 from $313.84 billion in September 2014. RBI said the net IIP data implies that our external liabilities exceed our external assets.
“Between September 2014 and March 2015, India’s negative net IIP has not widened substantially, partly benefiting from the rise in reserve assets. Moreover, the net IIP as a percentage of GDP has remained relatively stable at about -18 per cent between March, 2013 and March, 2015,” Aditi Nayar, Senior Economist, ICRA told Express.
IIP is an important barometer of a nation’s financial condition and creditworthiness and is defined as the value of overseas assets owned by residents minus the value of domestic assets owned by foreigners.
India’s net IIP as a percentage of GDP widened from -7.5 per cent in 2008 to -18 per cent in 2014. It was during the post-recession years that the difference between our external assets and liabilities widened significantly from -11.8 per cent in 2010, primarily due to high Current Account Deficit, which in turn was a result of high oil prices and gold imports. Economists say, unless we have a controlled CAD, the country is bound to have a negative IIP.
Meanwhile, analysts also feel a negative net IIP indicates that the country is getting more foreign investment. “Investments are funded partly through our external liabilities. Fewer external liabilities mean fewer foreign investment and higher external liabilities imply more foreign investment,” said Madan Sabnavis, Chief Economist, Care Ratings.
Interestingly, as per IMF, among BRIC nations, while Brazil and India have had negative net IIP, Russia and China have a positive IIP. “That’s because these countries are investing a lot outside their nations. A negative IIP is good for some countries like India, who are dependent on foreign investments,” said Sabnavis.
Other countries with a negative net IIP include the US, the UK, Australia and Turkey, while Japan, Germany, Saudi Arabia all have a positive IIP.