India’s policy uncertainty at 81-mnth high
Index rises for 4 months in a row
A measure of economic policy uncertainty in India rose to its highest level in 81 months.
The index closed at 173.3 in May, which was 3.6 times its January value of 48.1, marking the second month of a nationwide lockdown imposed to contain the spread of Covid-19.
The last time the index was this high was in August 2013 as the country dealt with the so-called taper tantrum. The US Federal Reserve had begun reducing the amount of money it made available for easy borrowing. This programme of easy money was called quantitative easing (or QE) and was put in place to cushion the economy from the effects of the global financial crisis.
It had led to many investors borrowing at low interest rates in the United States and investing it for higher returns in emerging markets like India. The hint of an end to this policy caused many foreign institutional investors (FIIS) to end this trade, leading to liquidity issues as capital suddenly grew scarce in India and other emerging markets.
India has sought to deal with the Covid-19 pandemic through a series of economic measures. Prime Minister Narendra Modi announced a plan in May to provide financial support to various parts of the economy. Questions have been raised about the announced ~20-trillion package and the amount actually coming from the government. Some have pegged the actual value of the package closer to one-tenth of the announced amount.
Sreejith Balasubramanian, Economist — Fund Management, IDFC Asset Management Company, said there have been underlying structural issues in the economy even before Covid-19. This wasn’t fully reflected as the index design looks to capture issues over which there might be uncertainty, rather than problems which are welldefined.
Existing issues included weakness in corporate, household and government balance sheets. The spike during recent times is on account of the pandemic which has resulted in lack of clarity globally too.
“Obviously, there is uncertainty everywhere,” he said, adding this is likely to continue, at least in the short term.
Global policy uncertainty has also seen a spike over the last two months, with readings at record high.