Himadri Buch Moneycontrol News
India's gross domestic product (GDP) could be in the range of 7-7.5 percent by FY20, while inflation may be at 5 percent, according to Ajit Ranade, President and Chief Economist, Aditya Birla Group.
Ranade expects crude oil prices to inch up to $90-95 a barrel in the near term, widening the current account deficit.
“Higher oil prices are not good for India as we have to import oil at higher prices,” Ranade said at a two-day Morning Investment Conference 2018 held in Mumbai on October 23.
Global trade war, rising oil prices, geopolitical tension and emerging market contagion are some of the risks to the global macros, he said. Other major macro risks include tight financial conditions, a shortfall in GST collections and widening current account deficit.
Ranade said India’s indirect tax collections do not look in tandem with the GDP growth rate. He expects CAD to breach 3 percent of GDP, from 2.7 percent now. Oil, coal, electronic goods, fertilizer and gold are the primary reasons for a widening CAD.
India has imported 200 million tonnes of gold in the last 4 years.
Current account deficit, the difference between a country's imports and exports, is largely offset by capital inflows. So, when dollars come into the country -- through FDI or stock market inflows -- they offset the dollar shortage in the country, he explained.
“We always have more dollars coming in than going out, which is Balance of Payments or BoP. BoP will be negative by a massive $30 or $40 billion. Negative BoP is a concern for foreign investors,” Ranade noted.
Ranade said India’s BoP will be negative for the first time in six years. A short-term debt of $222 billion is maturing by March 2019 and this means the country will need to be prepared for an outflow of $222 billion. This does not include the money put in by foreign investors into India’s bond market that totals about $70 billion.
In case the market condition deteriorates, it would make it tougher to refinance the same, putting another burden on the BoP.
Ranade believes elections are a worry for investors as a lot of unbudgeted costs that the government is going to do in the run-up to elections is going to disturb fiscal maths.
“MSP (minimum selling price) or health insurance promised are not fully provided for, from where will the government get this money,” Ranade noted.
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