Topic: Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment
Q5. What are the macroeconomic consequences of sustained Foreign Portfolio Investors (FPIs) outflows? Suggest measures to mitigate their impact on the Rupee. (10 M)
Difficulty Level: Medium
Reference: TH
Why the question
Recent reports of sustained FPI outflows in July–Sept 2025 have raised concerns over their macroeconomic impact, especially on the rupee and external stability.Key Demand of the question
The question asks to examine the macroeconomic consequences of continued FPI withdrawals and suggest effective measures to mitigate their adverse impact on the rupee.Structure of the Answer:
Introduction
Briefly highlight how capital flows influence India’s external sector and rupee stability.
Body
- Consequences: Depreciation pressure on rupee, inflationary trends, CAD stress, external debt servicing, investor sentiment.
- Measures: Forex reserves usage, diversified inflows (FDI, bonds), hedging, policy communication, structural reforms.
Conclusion
Stress a twin-track approach combining short-term buffers with long-term reforms to stabilise the rupee and build resilience.
