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Understanding International Investment Position (IIP) in light of RBI’s Recent Report

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The International Monetary Fund(IMF) recommends annual compilation of IIPs; however, it encourages their quarterly publication for more frequent insights. Considering this, on 25.06.2024, the Reserve Bank of India (RBI) released the latest data on India’s IIP for the quarter end March 2024. This report offers crucial insights into the country’s financial health and its economic interactions with the rest of the world.

Background of International Investment Position (IIP)

The IIP encompasses a subset of financial assets and liabilities that possess an international character. It is a financial statement that reflects the value of financial assets held by residents of an economy as claims on non-residents and the liabilities owed to non-residents. The net IIP, which is the difference between these assets and liabilities, indicates whether a country is a net creditor or debtor to the rest of the world. Consequently, the IIP is a crucial subset of a nation’s balance sheet, offering a comprehensive picture of its external financial stance.

Additionally, the IIP provides extensive information for central banks, enabling them to estimate the consequences of a persistent external surplus or deficit and to assess the impact of domestic or foreign shocks on the value of external financial assets and liabilities. This makes the IIP an essential tool for understanding and managing a country’s economic sustainability and vulnerability.

Quarterly Insights: January-March 2024: In 2023, India was ranked second after Greece in the list of net IIP (deficit) among the top 10 economies, according to data published on IMF’s website. According to the latest report published by the RBI for the period from January to March 2024, during the fourth quarter of 2023-24, the net claims of non-residents on India declined by $6.4 billion, bringing the total to $361.7 billion by the end of March 2024. This decline was driven by a more substantial rise in Indian residents’ overseas financial assets ($38.1 billion) compared to the increase in foreign-owned assets in India ($31.7 billion).

The rise in India’s foreign liabilities was primarily due to increased inward direct investments, portfolio investments, and loans, despite a slight drop in trade credits. A significant component of the increase in overseas financial assets was the rise in reserve assets, which surged by $23.9 billion. As of March 2024, reserve assets accounted for 62.9% of India’s international financial assets.

Overall, the ratio of India’s international assets to international liabilities improved to 74.0% in March 2024 from 72.9% a quarter earlier. These trends reflect a positive trajectory in India’s financial stability and a strategic enhancement of its international investment position.

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