Through the Looking Glass

The Financial Express From purely a financial perspective of current account deficit, the distinction between goods and services does not matter The exports performance of Vietnam continues to be contrasted with that of India: the most recent example being the editorial in this newspaper, “Can India learn from Vietnam to manage export-led growth?”. The article, similar to other analyses on this topic, focusses on the significant ramp-up in the exports of Vietnam, especially over the last decade or so. With Indian merchandise exports remaining range-bound over the last few years in the $300-330 billion annual range and Vietnamese exports having risen from $150 billion in FY14 to $244 billion in FY18, there is hand-wringing for India having missed a trick. It is important to acknowledge the growth of exports in Vietnam but before we jump to conclusions and recommendations for India, we need to explore this growth more deeply so that we can draw the right lessons. Exports is one p...

The Financial Express The announcement of this policy statement in the Budget follows the release of the ‘Rupee Raftaar’ report at the Global Aviation Summit in Mumbai in January earlier this year. The Finance Minister, in her maiden budget, laid the foundation of building an important component of the aviation sector: “As the world’s third largest domestic aviation market, the time is ripe for India to enter into aircraft financing and leasing activities from Indian shores. This is critical to the development of a self-reliant aviation industry, creating aspirational jobs in aviation finance, besides leveraging the business opportunities available in India’s financial Special Economic Zones (SEZs), namely, International Financial Services Centre (IFSC). Government will implement the essential elements of the regulatory roadmap for making India a hub for such activities.” The announcement of this policy statement in the Budget follows the release of the ‘Rupee Raftaar’ report at...

The Financial Express Unless it reverses sustainably, India’s net foreign assets are expected to remain negative India’s financial relationship with the world has two large components: (1) a large trade account deficit balanced by services exports and remittances which still leaves a meaningful CAD financed by (2) large net inward flows of foreign capital. India’s large and consistent current account deficit (CAD) shows up in its changing net international investment position (NIIP). Data released by the Reserve Bank of India shows that as of March 2016 foreigners own $361 billion of assets in India more than what Indians own abroad (17.4% of India’s FY16 GDP), up from $165 billion in June 2010 (11.3% of the then annual GDP). A negative NIIP is the balance sheet corollary of running a persistent CAD: the valuation impacts of NIIP in an uncertain world can in turn impact CAD. Look beyond P&L to balance sheet India’s financial relationship with the world has two l...

The Financial Express A spike in prices near the next general elections could test the building up of fiscal buffers An important point that Ruchir Sharma makes in his new book, The Rise and Fall of Nations is: don’t ask what the world would look like if the current trends hold; ask what happens if the normal pattern holds and cycles continue to turn every five years or so. It is anybody’s call whether oil at $100 per barrel was a short-term ‘current trend’ or a long-term normal. Be that as it may, it would pay to build out a scenario of oil going back to $100 per barrel to see how India’s current account could look. This will help (1) stress-test the strengths of the Indian current account in dealing with such a situation and (2) detail the policy imperatives that should act as a guide in an uncertain world. Given the importance and magnitude of energy imports into India, the country has been surprised significantly—both on the upside and the downside—due to gyrating energy pr...