Allow the rupee to depreciate, says CEA Subramanian
MACRO POLICY India can withstand external shocks from high oil, strong dollar, says outgoing chief economic adviser
NEW DELHI: The Indian rupee should be allowed to depreciate in sync with currencies of the rest of the world as trade wars may quickly turn into currency wars, India’s outgoing chief economic adviser Arvind Subramanian said, adding that the country can withstand external shocks from high oil prices and a strong dollar.
“If oil prices rise and other currencies depreciate, the rupee depreciating has to be part of the adjusting mechanism,” Subramanian said in an interview on Wednesday. “To say that the rupee should not depreciate when all these shocks are happening is just bad economics.”
Given that unilateral tariff hikes on steel and aluminium by the Donald Trump administration has forced many countries, including India, to retaliate, and the US is showing no signs of backing down, it could soon turn into full-blown trade wars, said Subramanian.
India should opt for a gradual non-disruptive rupee depreciation to tide over the crisis as a “strong dollar could lead to capital outflows from emerging markets”, Subramanian suggested. The rupee has depreciated by 8% this year to breach the 69-mark against the dollar, making it one of the worst-performing currencies among its peers.
“We have a stable macro pol- icy, growth is coming back and we have foreign exchange reserves to cushion this disruption. There is not a whole lot we can do to change what is happening in the world. But the two things we can do is to allow the adjustment to be gradual and non-disruptive for which we have the capability.”
On the domestic front, Subramanian said “the government is trying hard to maintain fiscal discipline and maintain macroeconomic stability”.
The government, he said, has shown courage by sticking to price deregulation of fuels and not doing anything unduly populist, as the impact on growth from rising oil prices and higher interest rates should be 0.1-0.2 percentage point. On rupee: Adjuustment should be non-disruptive, gradualg rupee depreciation nott undesirable
On growth projjections: Higher oil prices and tighter financial conditions could have 0.1-0.2 percentage pointt impact
On bank recapittalization: Need to infuse more caapital into state-run banks
On bad debt ressolution process: Constantly monitor overburdening of NCLT
On GST rate slab reduction: Should happen inn the next
2-3 years
“We have the political courage to allow these changes to pass through.”
A survey of market participants in Singapore and Mumbai by Moody’s Investors Service released on Wednesday showed that high oil prices were the top risk to India’s economy and that the government’s recapitalization package for banks is insufficient.
Subramanian said the government may need to infuse additional capital into state-run banks this fiscal year.
More so, as 19 of the 21 staterun banks reported combined losses of ₹85,370 crore, with total non-performing assets (NPAS) of about ₹9 trillion, wiping out the ₹1 trillion capitalization by the government in 2017-18. MUMBAI : Airlines are offering flash sales and discounted ticket prices during the traditionally lean monsoon season, despite rising oil prices and the falling rupee as they hope to attract more passengers and make as many advance bookings as possible to feed the capacity that has been added by them in the past couple of months.
The Ajay Singh-led no-frills carrier, Spicejet, on Wednesday said it would offer tickets on domestic routes starting at ₹999 for bookings made between July 4 and July 8 for travel between July and October.
Low-cost carrier Airasia India is offering tickets for as low as ₹1,299 on key routes connecting key cities such as New Delhi, Kolkata, Hyderabad, Bengaluru, Jaipur and Chennai.
The airline is offering international travel to Kaula Lampur from cities such as Bhubaneswar, Chennai, Hyderabad at fares as low as ₹3,999 and to international destinations such as Bangkok, Phuket, Pattaya and Krabi at ₹4,299.
“As the demand has dropped during the lean monsoon season, airlines are incentivizing people to travel during the season by offering discounts,” said Sharat Dhall, chief operating officer (B2C) of travel portal Yatra.com.
“Despite the rise in fuel prices and fall in rupee (against the dollar), ticket prices this quarter are similar to the same quarter of the previous year,” Sharat Dhall said.
This, he added, is because of the capacity additions made by airlines.
Indian airlines have added several new planes and leased aircraft to their fleet this year to take advantage of the growth the market has to offer. The moment banks sell it to asset reconstruction companies and these ARCS will in turn transfer the ownership of asset to the Alternate Investment Fund (AIF).
The AIF then becomes the effective owner because the intent is that the promoter if at all he is there becomes the minority. His control goes below 24%. The new owner which is the ARC and AIF are the ones that controls the asset and hence their stake will be 76% and above. No one, even the promoter, should have blocking rights. Once the asset moves to the ARC, it gets restructured at the ARC level. Then it goes into the AMC – AIF, then the AIF subscribes and buys it and then takes the asset over and runs the asset.
The AIF subscribes to those NCDS which were We have taken the entire stressed portfolio. We have not done a full analysis of what those 200 accounts constitute. Even in those 200 accounts with exposure of ₹500 crore and above, power will be a fairly big component. Power, textile, industrial, roads will be the principal sectors. State Bank of India (SBI) has volunteered to participate because somebody needs to put in that seed capital to get it going and I’m quite sure The resolution plan should be implemented within 180 days. Even the bank-led resolutions also suggest 180 days. If it cannot be sorted out within this deadline, then it goes to National Company Law Tribunal. (NCLT).
A large number of assets fall between ₹500-2000 crore where the AMC model can be implemented.