Economic Roundup, October 25, 2019

Economic Environment

  • Banking reforms for restarting growth

How are the Indian and global economic environments affecting the financial markets?

The Fitch rating agency has downgraded India’s growth in Fiscal Year 2020 to 5.5% while the International Monetary Fund (IMF) sees it at 7%. A mixed signal for the financial markets. India’s problem, besides tight fiscal policy, is a crisis in the banking sector. The Modi government must:

1. Restructure the banking sector through mergers to reduce the Non-Performing Assets (NPA) as a percentage of all assets.

2. Provide liquidity to the restructured banks.

3. Reform the lending process to ensure checks and balances for the NPA problem not to recur.

Then monetary policy will be effective to jump start growth and also boost the financial markets.

What to expect from the markets next week?

Selling pressure will remain on the financial markets especially given the global economic situation. Still, despite slowing growth, on a relative basis, India continues to be the destination for foreign institutional investors as it is remains among the world’s fastest growing major economies.

Economic Roundup, October 18, 2019

Economic Environment

  • Global growth slowdown

How are the Indian and global economic environments affecting the financial markets?

The slowdown of economic growth in India is becoming a cause of concern for the financial markets though foreign exchange reserves are at an all time high. Economic policy in India is being hampered by tight fiscal policy because of the fear that budget deficit could increase above target. Such a fear is misplaced. To grow, India must borrow to build infrastructure (road and rail both between and within cities, air, electricity, and telecommunications) and sanitation (water, and waste disposal) which will increase domestic investment, hence lower unemployment and raise consumption – a consistent boost to the financial markets. Without the goal, plan and execution to build infrastructure and sanitation as in advanced countries by 2050, India will remain a developing country with the largest population in the world-a nightmare scenario.

India has the one of the largest domestic markets in the world today, second only to China, and it needs to be developed by opening the country to the leading multinationals in all sectors on the condition that they make everything in India from nuts and bolts to airplanes, hiring Indian labor for the Indian market. This will propel India to catch up with advanced countries and China in a decade because technology will flow into the country.

What to expect from the markets next week?

Selling pressure will remain on the financial markets especially given the global economic situation. Still, despite slowing growth, on a relative basis, India continues to be the destination for foreign institutional investors as it is remains among the world’s fastest growing major economies.