How does the US Federal Reserve's Policy impact India's Economy?
The **US Federal Reserve's (Fed) monetary policy** has far-reaching effects on **India's economy** due to global financial linkages. Here’s a breakdown of its key impacts and transmission channels: --- ### **1. Interest Rate Changes & Capital Flows** - **Fed Rate Hikes**: - **FII Outflows**: Higher US interest rates make dollar-denominated assets (like US Treasury bonds) more attractive, prompting **Foreign Institutional Investors (FIIs)** to withdraw funds from emerging markets like India. This leads to: - **Stock market declines** (e.g., Nifty/Sensex volatility). - **Rupee depreciation** (increased dollar demand). - **Example**: In 2022–23, Fed hikes triggered **$28B+ FII outflows** from India, causing the rupee to hit ₹83/USD. - **Fed Rate Cuts**: - **FII Inflows**: Cheaper US borrowing costs drive global investors toward higher-yielding Indian assets, boosting...