October 03, 2018

A $75 billion question for Indian policy makers

Research Director and Senior Fellow, Niranjan Rajadhyaksha writes in Mint on the Indian economy and the challenge of managing growth without slipping into a balance of payments problem. Excerpts below:


"These are tough times for Indian policy makers. One way to explain the macroeconomic concerns that have pushed the rupee down to record lows against the US dollar in recent weeks is as follows. India is finding it difficult to pull in enough foreign savings to cover the shortfall in the domestic savings needed to sustain economic growth at existing levels. More than $75 billion of foreign savings—aka capital inflows—will be needed to fund the estimated current account deficit for the fiscal year that will end in March 2019.


There were two initial policy responses from the authorities last month. First, the Reserve Bank of India (RBI) eased rules on foreign exchange borrowing by Indian companies, issuance of masala bonds denominated in rupees and mandatory hedging of foreign exchange loans taken by infrastructure companies. 


Second, the government increased import tariffs on a range of consumer goods in a bid to reduce their imports. The imports that are sought to be curbed include refrigerators of a certain size, air conditioners, washing machines, speakers for music systems, footwear and diamonds."


Read the full article here.

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