EAC-PM Meeting – Strengthening India’s Growth Momentum Amid Global Uncertainty

EAC-PM Latest News

• The Indian PM chaired a meeting of the Economic Advisory Council to the Prime Minister (EAC-PM) to –
  • Review India’s economic outlook, 
  • Discuss reform priorities, 
  • Assess external risks such as the West Asia conflict, and 
  • Examine measures to sustain high economic growth. 
• The discussions also focused on attracting foreign capital, improving ease of doing business, and reducing vulnerabilities arising from climatic uncertainties.

Key Outcomes of the Meeting

• Focus on sustaining economic growth: The EAC-PM deliberated on policy measures to maintain and accelerate India’s growth trajectory despite a challenging global environment marked by geopolitical tensions and economic uncertainty.
• Major themes included:
  • Strengthening long-term economic transformation.
  • Deepening structural reforms.
  • Enhancing Ease of Doing Business (EoDB) and Ease of Living.
  • Preserving macroeconomic stability while promoting investment-led growth.

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Measures to Boost Foreign Capital Inflows

• Tax reforms for foreign investors: The government announced significant tax relief measures for Foreign Institutional Investors (FIIs):
  • Removal of Short-Term Capital Gains Tax (STCG) on investments in government bonds.
  • Removal of Long-Term Capital Gains Tax (LTCG) on such investments.
  • Elimination of withholding tax on interest income earned by FIIs from government securities.
• RBI measures: The Reserve Bank of India (RBI) complemented these reforms by:
  • Easing norms for banks to mobilise foreign currency deposits.
  • Reviving the Foreign Currency Non-Resident (Bank) [FCNR(B)] Deposit Scheme, under which the RBI bears exchange-rate hedging costs.
  • Providing a temporary concessional forex swap facility for Public Sector Undertakings (PSUs) raising External Commercial Borrowings (ECBs).
• Significance: These measures are expected to improve liquidity and make India more attractive to global investors.

Potential Foreign Fund Inflows

• Estimated inflows of around $70 billion:
  • According to discussions at the meeting, the combined impact of fiscal and monetary measures could attract nearly $70 billion in foreign capital.
  • A major share depends on India’s inclusion in the Bloomberg Global Aggregate Bond Index, which would:
    • Increase passive investments from global funds tracking benchmark indices.
    • Expand demand for Indian government securities.
    • Reduce government borrowing costs by lowering bond yields.
• Importance of global bond indices:
  • India has already been included in:
    • JPMorgan Emerging Market Bond Index (from June 2024).
    • Bloomberg Emerging Market Local Currency Index (from January 2025).
    • FTSE Russell Emerging Market Bond Index (from September 2025).
  • Inclusion in Bloomberg’s flagship Global Aggregate Bond Index could potentially bring $20–25 billion in additional inflows over about ten months.

Assessment of Global and Domestic Risks

• West Asia conflict:
  • No major immediate concerns were expressed regarding its impact on India.
  • However, geopolitical developments continue to be monitored due to their implications for energy prices, trade flows, and global financial markets.
• El Niño and monsoon vulnerability:
  • A major concern discussed was the possibility of sub-par rainfall due to El Niño conditions.
  • The need to reduce India’s dependence on monsoon outcomes.
  • The discussion highlighted the importance of climate-resilient agriculture, irrigation expansion, water management reforms, and diversification of growth drivers beyond agriculture.

Strong Economic Performance

• Better-than-expected GDP growth:
  • The Council took note of encouraging growth data for FY 2025–26.
  • For example,
    • GDP growth of 7.8% in the January–March 2026 quarter.
    • Full-year provisional GDP growth estimate revised to 7.7%, higher than the earlier estimate of 7.6%.
• Significance:
  • Growth remained robust despite global uncertainties and the overlap of the West Asia conflict with the final month of the quarter.
  • Strong economic performance reinforced investor confidence and supported positive market sentiment.

About the EAC-PM

• Nature and composition:
  • It is a non-constitutional, non-permanent and independent advisory body constituted directly by an executive order.
  • It has been constituted several times since the independence of India. In the latest occurrence, the council was reconstituted in 2017, and is currently chaired by S. Mahendra Dev.
  • It includes full-time and part-time members from economics, finance, academia, banking, and public policy.
• Functions:
  • Provides inputs to the PM on economic and related policy matters.
  • Advises on macroeconomic policy.
  • Evaluates economic trends and risks.
  • Suggests reforms for sustainable and inclusive growth.
  • Provides analytical inputs on development priorities.

Conclusion

• The EAC-PM meeting underscored India’s strategy of combining structural reforms, investor-friendly taxation, monetary support measures, and macroeconomic stability to sustain high growth. 
• While geopolitical tensions and climate-related risks remain concerns, strong GDP performance, prospects of higher foreign capital inflows, and continued reform momentum position India favourably for long-term economic development.

Source: TH | IE