Dr Arvind Subramaniam ,chief economic advisor to the govt of India, provided his assesment of the Indian economy three years after the Modi government came to power at Peterson Institute on 21st April
Key Takeaways
- Fiscal policy is tight ( central govt is tight but states continue to spend money)
- Monetary authorities wants to tighten Policy when the credit growth is already very low ( clearly govt and RBI are thinking differently)
- Falling inflation and Benign inflation outlook ( RBI thinks core inflation is becoming sticky)
- Twin balance sheet Problem
• About 40% of corporate debt with firms whose interest coverage ratio (ICR) is
less than 1
• Stressed assets as a share of loan portfolio could be as much as 20 percent ( GOOD both govt and RBi are on same page on this) - Declining public sector investments (this came as a surprise to me) and disheartening private sector capex ( govt is becoming very vocal on this of late)
- Deteriorating export competetiveness due to appreciating INR ( is this by design ?)
Honestly…….. if Fiscal Policy is tight and monetary authorities wants to tighten policy ( MPC minutes) in a falling and benign inflationary outlook, an indebted Private sector which refuses to do capex alongwith appreciating rupee…. I wonder what is the plan to bring back growth
Full presentation below
https://piie.com/system/files/documents/subramanian20170421ppt.pdf