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Indian Economy – A Gloomy Picture

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October 02, 2017

What is the issue?

  • Recently, ‘Foreign portfolio investors – FPI’ have been pulling out.
  • Various such factors have hurt the Indian economy badly.

How does India’s macro-economic picture look?

  • India’s GDP growth is being re-rated down by many agencies.
  • The fiscal deficit has hit 96% of the full fiscal target & the current account deficit is up a lot.
  • As the monsoon has been average, food production may be lower than last year, thereby affecting rural consumption.

What are the external reasons?

  • US Federal Reserve signalled a possible raise in policy rates soon. 
  • This triggered the FPI’s to rebalance to safer hard currency assets – leading to withdrawal from emerging markets like India.
  • Global crude prices have climbed in the wake of the hurricanes, which knocked out US capacity.

What are the internal reasons?

  • GST – Many companies are struggling to ensure GST compliance due to the laborious filings procedures.
  • Working capital crunches among businesses due to the slow tax credit offsets have also become common.
  • Exporters in particular, are under stress.

NPAs - The twin balance sheet problem is also a major concern as new investments are coming in.

  • The new bankruptcy law may help banks in this regard.  
  • Monetary Policy - Inflation has shown an upward spiral.
  • Also, rupee is under pressure with a 2% fall in the last fortnight.
  • Hence, the Monetary Policy Committee (MPC) is unlikely to cut policy rates anytime soon – despite industry hoping for a cut.  

How does the future look?

  • There is no sign of revival of private investment.
  • Lowering rupee could cause serious pain for entities handling external debt in the coming months.
  • The market’s future direction could be defined by FPI attitude.
  • If the FPI selling continues, Nifty could fall lower – thereby creating bearish trends.
  • These disruptions are expected to last for a substantial period.

 

Source: The Hindu

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