Containing war impact on growth, current account: PMO stitching up plan to boost foreign fund flow

The Prime Minister’s Office (PMO) is coordinating with various ministries and anchoring efforts to identify fresh opportunities to bolster foreign investments and exports besides reducing non-essential imports as India looks to contain the fallout of the West Asia war on its growth, inflation and current account, officials said.

Senior finance ministry officials are working on steps to relax rules pertaining to the Foreign Exchange Management Act (FEMA), on top of recent changes, and also make bilateral investment treaties more investor-friendly, one of them said.

Officials at both the finance ministry and Niti Aayog are identifying economic opportunities presented by the Iran conflict, as well as gauging the impact of the surge in global oil prices on the economy under different price bands. Niti Aayog will likely draw up a report on the matter.


At the commerce ministry, senior officials are exploring ways to encourage the substitution of cheaper imports, especially from China, with domestic manufacturing wherever feasible.

The country’s goods trade deficit — excluding petroleum and gems & jewellery — is about $140 billion a year, leaving enough space for local industry to build capacity in these areas. An earlier study by SK Mohanty of Research and Information System for Developing Countries had identified 327 crucial items--mainly electronics, pharma and chemicals--that accounted for a substantial part of India's imports from China and which could be substituted through local production.

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Officials are also engaged with industry to improve the low utilisation of some of the earlier free trade agreements (FTAs) by domestic exporters, while enabling them to better leverage the latest trade deals, taking advantage of a weak rupee.

Efforts to reduce non-essential imports, including those of bullion and gems and jewellery, are back in focus.

“Individual departments and ministries are evaluating the evolving situation relating to their areas with urgency and coming out with their suggestions,” said one of the officials. “The PMO is actively assessing these suggestions and giving its own inputs and directions. Both short and medium-to-long term steps are being considered. Immediate focus is on low-hanging fruit.”

The idea is to curb the debilitating impact of a wide merchandise trade deficit on the current account by bolstering exports, and also to draw greater foreign capital, said the officials cited. Keeping the current account deficit at a reasonable level will also prevent a further rupee slide.

Projections of India’s current account deficit generally range from 1.5% to 2.4% of GDP for FY27, compared with 0.6% in FY25 and 1% in the first three quarters of the last fiscal year. Economic growth is expected to drop to 6.5% in FY27 from an estimated 7.6% in FY26, according to the International Monetary Fund.

As for non-essential imports, a renewed push to monetise household gold holdings through an existing scheme is being considered, on top of other steps, ET has learnt.

Prime Minister Narendra Modi has appealed to Indians to try and reduce the consumption of petroleum products — the largest import component — and cooking oil, and trim bullion purchases. These three are among the biggest drivers of the country’s goods trade deficit.

Similarly, deliberations are being made to further ease FEMA regulations on equity investments to draw overseas interest.

Earlier this month, the finance ministry tweaked FEMA rules, giving effect to the cabinet decision to allow overseas entities having a Chinese shareholding of up to 10% to invest in India under the automatic route.

Having scaled a peak of almost $85 billion in FY22, total foreign direct investment (FDI) fell over two years before rising again to exceed $80 billion in FY25. Gross FDI inflows rose 18% in the first three quarters of FY26 to over $73 billion, although net inflows remained subdued.