Economic Survey: US fiscal policy will impact capital flows to India

The implied change in expectations of the US fiscal and monetary policy will have an impact on India's capital flows and exchange rates, the Economic Survey said.

"In the short-run, the change in the outlook for global interest rates as a result of the US elections and the implied change in expectations of US fiscal and monetary policy will impact on India's capital flows and exchange rates," says the Economic Survey for 2016-17.

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The pre-Budget document said the markets are factoring in a regime change in advanced countries, especially the US macroeconomic policy, with high expectations of fiscal stimulus and unwavering exit from unconventional monetary policies.

Noting that developments in the US, especially the rise of the dollar, will have implications for China's currency and currency policy, the Survey said if China is able to successfully rebalance its economy, the spillover effects on India and the rest of the world will be positive.

"On the other hand, the further decline in the yuan, even if dollar-induced, could interact with underlying vulnerabilities to create disruptions in China that could have negative spillovers for India," it added.