Orderly depreciation of rupee would increase competitiveness: World Bank official
An orderly depreciation of the rupee would increase competitiveness and relieve some pressures in the capital market, said Martin Rama, the Chief Economist for the South Asia region of the World Bank. His remarks came as the rupee hit an all-time low of 74.45 against the USD today. He also described the depreciation as a "positive development" provided it's done in the right way.
Early to say about depreciation's impact on Indian economy: Rama
Rama, however, said it's a bit early to say how depreciation will have an impact on India's economy. "But we'll expect that a combination of a strong input demand in Europe and especially in the US, together with a more competitive exchange rate will help (India) in trade," he said, adding that this will help boost exports, not only in India but also elsewhere.
Slowdown in India's economy partly due to demonetization, GST: Rama
The slowdown in India's economic growth in previous years was partly the result of demonetization and some other policy uncertainty, Rama said. "We see that (slowdown) now clearly behind. Both the Goods and Services Tax (GST) and demonetization, whichever effect they had (on the economy) are over," he said adding that the positive impact of those reforms may have started now.
Rama says fiscal consolidation is expected to resume in FY-2018/19
Rama noted that the South Asia Economy Review discusses the impact of about how economic shocks and political cycles have an impact on the growth. "Fiscal consolidation is expected to resume in FY18/19, but slippages could happen on both the revenue side (as the GST is still stabilizing) and the expenditure side (ahead of state and federal elections)," the report said.
Elevated oil prices could keep inflation outlook challenging: Rama
Elevated oil prices, a recent hike in agricultural support prices, and further exchange rate depreciation could keep the inflation outlook challenging, possibly resulting in further monetary policy actions, the report said. The World Bank report was released earlier this week.
Rama explains devaluation of currencies of South Asian countries
The World Bank, Rama said, is concerned that not just in India, the fiscal policy stance has been too expansive given the overall situation of the economy, which is exemplified by election-cycles in other countries in the region too. He added the devaluation of currencies of South Asian countries would add to their competitiveness in the case of increased trade-tension between US and China.
'In times of strong political competition, maintaining fiscal-discipline is challenging'
Talking about India's performance, Rama said, "Overall performance of India has been strong (in the last decade)," and expressed concern over the fiscal policy where he said there was indiscipline and consolidation at the Center and also at the level of the states. "In times of strong political competition, maintaining a fiscal discipline is a challenge," said the World Bank official.
South Asian economies need to address their fiscal challenges: Rama
Rama said substantial government spending is understandable, even beneficial if well-invested, given South Asia's enormous development needs. "But South Asian economies need to address their fiscal challenges to give themselves room to maneuver and sustain their journey toward greater prosperity," he said.
World Bank said India's economy would rise to 7.3% FY-2018/19
In its latest South Asia Economic Focus Report, the World Bank projected India's growth to rise to 7.3% in FY 2018/19, and to 7.5% in the following two years, with stronger private spending and export growth as key drivers. Prompted by the adoption of the GST and the recapitalization of banks, growth in India is rising and it's projected to accelerate further, it said.
