Attention Economy


Thursday, May 12, 2016

India Economic Update

Two major economic reforms finally get legislative approval
Andy Mukherjee notes –
“Two major economic reforms in India that have been pending for more than a decade were done over just two days this week. First, New Delhi persuaded Mauritius to stop allowing domestic Indian money from leaving the country and coming back in the garb of tax-free foreign investment. Now, India's parliament has passed the much-awaited bankruptcy code, finally embracing a modern solution to the twin problems of corporate indebtedness and loan under-recoveries. Put the duo together, and India should have the basic elements in place for a capital market that's got less dodgy money and treats gains on capital equally, regardless of whether the investors are locals or foreigners.”

RBI governor and former University of Chicago economist Raghuram Rajan offers his insights on the Indian economy –
“In their efforts to stimulate demand by pursuing increasingly aggressive monetary policies, advanced economies have been imposing risks on emerging-market countries such as India. Indeed, one day we face surging capital inflows, as investors go into “risk-on” mode, and outflows the next as they switch risk off.
India has responded to this external volatility by trying to create a domestic platform of macroeconomic stability on which to build growth. India’s latest central budget emphasizes fiscal prudence, adheres to past commitments, and aims at structural reforms, especially in agriculture. Fiscal consolidation has also helped to keep the current-account deficit under 1% of GDP. Moreover, inflation has been brought within the official target range. And parliament has created a monetary-policy committee for the Reserve Bank of India (RBI), which should ensure that multiple views are embedded in policy and improve continuity.”