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Projecting 8 per cent growth for the current fiscal, rating agency Fitch on Thursday said India is less vulnerable to risks from capital flight on account of the drop in oil prices and the government’s reform agenda.
India had previously been clubbed with Brazil, Indonesia, South Africa and Turkey for being the most at risk to capital outflows following the US Federal Reserve’s proposed unwinding of the monetary stimulus.
“India’s vulnerability has declined since 2013,” Fitch said in a report. “A changing policy environment has had a positive impact on its macroeconomic risk profile.”
Fitch said two years ago that many emerging markets experienced some credit market and currency stress after the Fed discussed tapering of asset purchases.
“Brazil, India, Indonesia, South Africa and Turkey — commonly referred to as the ‘Fragile Five’ in 2013 — stood out at the time with the risk from capital flight resulting in currency volatility and widening credit spreads,” it said.
On India, the rating agency said: “The government’s broad-based reforms agenda, introduced following the 2014 general election, could transform the country’s business environment and investment climate.”
It forecast real GDP growth at 8 per cent in 2015-16, up from 7.4 per cent in the previous year “although achieving higher real GDP growth depends on implementation”.
The new monetary policy framework agreement based on inflation seems to indicate the government’s and RBI’s resolve to structurally lower inflation and may encourage investment, it said.
India, it added, will benefit from much stronger external balances.
CAD relief “The current account deficit (CAD), at 1.2 per cent of GDP in FY15, is substantially lower than those of the other four economies,” the agency pointed out.
With India dependent on imports for about 79 per cent of its oil requirements, a 39 per cent drop in oil prices in the past year has kept a lid on inflation and helped narrow its CAD.
Foreign exchange reserves have soared more than $35 billion to $341 billion. Gross external debt, at 23 per cent of GDP at the end of 2013, is also below the median of its peers.
“A large net commodity importer, India also benefits disproportionately from the sharp fall in materials and oil prices since mid-2014,” it said.
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