International Investment Position

Choose the Correct Answer

Correct Answer : Option a

Explanation

Statement-I is correct:The Reserve Bank of India (RBI), in its report released on March 28, 2025, stated that India's international financial assets to liabilities ratio improved to 74.7% in December 2024, compared to 73.1% a year ago.

Statement-II is correct :The improvement in the ratio resulted from a decline in inward direct and portfolio investments during the quarter. However, components such as trade credit, loans, and currency & deposits witnessed an increase.
Statement-II explains Statement-I: IIP Ratio=​ India's international financial assets/India’s financial liabilities
>If international financial assets increase, the ratio rises
>If financial liabilities increase, the ratio declines.
>If both fluctuate, the net effect determines the ratio's movement.
India’s international liabilities include:Foreign Direct Investment (FDI),Foreign Portfolio Investment (FPI),External Commercial Borrowing (ECBs),Non-Resident Deposits,Trade Credits.
Among these, FDI and FPI, which constitute a significant portion of India's liabilities, showed a declining trend, leading to a reduction in liabilities. This contributed to the improvement in the IIP ratio.
On the asset side, India's international financial assets include:Foreign Currency Assets (FCA),Direct Investment Abroad,Portfolio Investment,Trade Credits.While FCA recorded an increase, it was not sufficient to completely offset the decline in FDI and FPI.