WHAT WILL IT TAKE TO TIDE OVER THE DOMESTIC ECONOMIC CRISIS? AND HOW LONG WILL IT TAKE?
PRONAB SEN IGC
The depreciation of the rupee is an important corrective in itself. However, we’ll do well to remember that while an oil price increase and the flight of FPI (foreign portfolio investors) have immediate impact, adjustments in exports and imports, in response to rupee depreciation, take time. New customers and sources have to be identified, fresh contracts drawn up, production has to be ramped up, supplies have to begin. Three to four months is the minimum. Nevertheless, there is evidence that speculators are ‘shorting’ the rupee, leading to excessive depreciation. This needs to be put down with a firm hand. The government and the RBI have instruments to do so, but the recent marginal tinkering with duties and external borrowings is unhelpful.
N.R. BHANUMURTHY NIPFP
One easy way to cope with the current situation is to target lower growth, though it may be politically unappealing. My own analysis shows GDP growth in FY19 will be less than 7 per cent; provided we don’t want to run a CAD of more than 2.5 per cent while sticking to a fiscal deficit target of 3.3 per cent. It largely depends on how we address the banking sector issues. However, the risks from the global economy are expected to continue for two more years, which could affect domestic growth.
MAITREESH GHATAK LSE
It’s only eight months till the next elections, which constrains the government’s options. So I am not sure how much course correction is possible since the problems have no quick fixes.
R. NAGARAJ IGIDR
Not very soon, in my view. The problem may persist for at least a year. With elections round the corner—starting in five states in December and culminating in the general elections next May—tough policy decisions needed to tide over the crisis may be hard to come by.
There seems to be a dire need for a mediumterm action plan. Moreover, policymakers need to clearly communicate their actions to reduce uncertainty among decision-makers. In order to do this, the government must first admit the seriousness of the problem, which, I am afraid, it has not done. I have the uneasy feeling that the government’s complacency seems to partly stem from unrealistic official estimates of GDP and employment growth rates, which are seriously questionable.
Specific actions required: one, currency stabilisation; two, curbing domestic demand in the short term and steps to boost output and employment by improving domestic fixed investment rate in the medium term. Such measures are the best signals for instilling confidence in the private sector.
D.K. JOSHI Crisil
Global pain is not going away in a hurry. It will transmit to the domestic economy and continue to challenge us in the foreseeable future. We expect NPA levels to rise somewhat from the March 2018 level of 11.6 per cent, peak during the current fiscal, then start coming down. Crisil’s analysis of the liquidity position of the large non-banks— both non-banking financial companies (NBFCs) and housing finance companies (HFCs)—it rates shows they are maintaining adequate liquidity buffers to manage mismatches, if any, in their asset-liability maturity profiles. But continued market disruption can constrain access to funding, and will be a key sensitivity factor for the prospects of non-banks.
India’s GDP growth is expected to rebound to 7.5 per cent in fiscal 2019, supported by the third straight year of normal monsoons, reductions in GST-related problems, fading of the impact of demonetisation, budgetary support to the roads and rural economy, and a lowbase effect. But improving growth outlook will not lift all boats, and sectors such as thermal power, telecom, capital goods and real estate will remain under stress.
To tide over the situation, the government will need to maintain fiscal rectitude, generate resources to recapitalise public sector banks and continue reforms. It also needs to address issues in the minerals/ coal sector where domestic hurdles have led to rising imports in an environment of rising global coal prices.